PRESIDENTIAL LIFE CORP, S-3, 1998-09-21

PRESIDENTIAL LIFE CORP
S-3, 1998-09-21
LIFE INSURANCE

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<PAGE>

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 21, 1998

REGISTRATION NO. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
PRESIDENTIAL LIFE CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
----------------
DELAWARE 13-2652144
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION)
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69 LYDECKER STREET
NYACK, NEW YORK 10960
(914) 358-2300
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
HERBERT KURZ
PRESIDENT
PRESIDENTIAL LIFE CORPORATION
69 LYDECKER STREET
NYACK, NEW YORK 10960
(914) 358-2300
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
----------------
WITH COPIES TO:
MICHAEL G. MARKS, ESQ. LESLIE N. SILVERMAN, ESQ.
WILLKIE FARR & GALLAGHER CLEARY, GOTTLIEB, STEEN & HAMILTON
787 SEVENTH AVENUE ONE LIBERTY PLAZA
NEW YORK, NEW YORK 10019-6099 NEW YORK, NEW YORK 10006-1470
(212) 728-8000 (212) 225-2000
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. [_]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, please check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
----------------
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED PROPOSED
MAXIMUM MAXIMUM
OFFERING AGGREGATE
TITLE OF EACH CLASS OF SECURITIES AMOUNT TO BE PRICE PER OFFERING AMOUNT OF
TO BE REGISTERED REGISTERED UNIT(1) PRICE(1) REGISTRATION FEE
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<S> <C> <C> <C> <C>
% Senior Notes due
2008.................... $100,000,000 100% $100,000,000 $29,500
</TABLE>
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(1) Estimated pursuant to Rule 457 solely for purposes of calculating the
amount of the registration fee.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION
8(a), MAY DETERMINE.

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>

++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION
, 1998

$100,000,000

PRESIDENTIAL LIFE CORPORATION

% SENIOR NOTES DUE , 2008

-----------

Presidential Life Corporation ("Presidential," and, together with its wholly
owned subsidiaries, the "Company") may offer from time to time up to
$100,000,000 aggregate principal amount of its % Senior Notes due , 2008
(the "Notes"). The Notes will be unsecured and will rank equally with all other
senior unsecured indebtedness of Presidential.

The prospectus supplement ("Prospectus Supplement") accompanying this
Prospectus will set forth, with respect to an issue of Notes for which this
Prospectus and the Prospectus Supplement are being delivered, additional terms
of the Notes offered, including principal amount to be offered and the initial
price to the public. The Notes will mature on , 2008, and will be limited
to $100,000,000 aggregate principal amount, which may be issued in one or more
offerings up to such aggregate principal amount. Any Notes issued subsequent to
the initial offering of Notes will have identical terms and conditions as the
Notes then outstanding and will vote on all matters together with such
outstanding Notes. Notwithstanding the above, the issue price for any
additional Notes may differ from the issue price of the outstanding Notes and
the first interest period for any additional Notes will run from the date of
issuance of such additional Notes to, but excluding, the next Interest Payment
Date for the Notes. See "Description of the Notes."

-----------

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON
THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.

-----------

The Notes may be sold directly to purchasers or to or through underwriters,
dealers or agents. If any underwriters, dealers or agents are involved in the
offering of any Notes, their names and any applicable fee, commission or
discount arrangements will be set forth in the Prospectus Supplement. See "Plan
of Distribution." This prospectus may not be used to consummate sales of Notes
unless accompanied by a Prospectus Supplement. Any statement contained in this
Prospectus will be deemed to be modified or superseded by any inconsistent
statement contained in any accompanying Prospectus Supplement.

-----------

The date of this Prospectus is , 1998.
<PAGE>

AVAILABLE INFORMATION

The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). The reports, proxy
statements and other information filed by the Company with the Commission can
be inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and
should be available at the Commission's regional offices at Seven World Trade
Center, 13th Floor, New York, New York 10048 and 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. Copies of such material also can be
obtained at prescribed rates from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. The Commission
also maintains a Web site (http://www.sec.gov) at which reports, proxy
materials and other information regarding the Company may be accessed. The
common stock, par value $0.01 per share, of the Company (the "Common Stock")
is listed on the National Association of Securities Dealers, Inc. Automated
Quotation System--National Market System ("NASDAQ-NMS"). Accordingly, certain
of the Company's reports, proxy materials and other information may be
available for inspection at the offices of the National Association of
Securities Dealers, Inc. (the "NASD") at 1735 K Street, N.W., Washington, D.C.
20006.

The Company has filed with the Commission a Registration Statement on Form
S-3 (together with all amendments thereto, the "Registration Statement") under
the Securities Act of 1933, as amended (the "Securities Act"), with respect to
the Notes. This Prospectus, which constitutes a part of the Registration
Statement, does not contain all the information set forth in the Registration
Statement and the exhibits and schedules thereto. For further information with
respect to the Company and the Notes, reference is made to the Registration
Statement and to the exhibits and schedules thereto. Statements made in this
Prospectus as to the contents of any contract, agreement or other document
filed as an exhibit to the Registration Statement or incorporated by reference
herein or therein, while complete in all material respects, do not necessarily
describe all terms or provisions of such contract, agreement or other
document. For a complete description of the matter involved, reference is made
to each such contract, agreement or other document which has been included as
an exhibit to the Registration Statement or has been incorporated by reference
therein. The Registration Statement, including the exhibits and schedules
therein, may be inspected without charge and copied at the public reference
facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and should be available at the Commission's regional
offices at Seven World Trade Center, 13th Floor, New York, New York 10048 and
500 West Madison Street, Suite 1400, Chicago, Illinois 60661.

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The following documents filed with the Commission by the Company (File No.
0-5486) pursuant to the Exchange Act are incorporated herein by reference:

1. The Company's Annual Report on Form 10-K for the year ended December
31, 1997;

2. The Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1998;

3. The Company's Quarterly Report on Form 10-Q for the quarter ended June
30, 1998; and

4. The Company's Proxy Statement on Schedule 14A for the Annual Meeting
of Shareholders filed with the Commission on April 24, 1998.

All documents and reports filed by the Company pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act after the date of this Prospectus and
prior to the termination of the offering of the Notes shall be deemed to be
incorporated by reference in this Prospectus and to be a part hereof from the
respective dates of filing of such documents or reports. Any statement
contained in a document, all or a portion of which is incorporated or deemed
to be incorporated by reference herein, shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any other subsequently filed

2
<PAGE>

document or report which also is or is deemed to be incorporated by reference
herein modifies or supersedes such statement. Any statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.

The Company will provide without charge to any person to whom this
Prospectus is delivered, upon written or oral request of such person, a copy
of any or all of the documents that have been incorporated by reference in
this Prospectus, other than exhibits to such documents, unless such exhibits
are specifically incorporated by reference into the documents so incorporated.
Requests for such copies should be directed to Michael V. Oporto, Chief
Financial Officer, Presidential Life Corporation, 69 Lydecker Street, Nyack,
New York 10960, telephone (914) 358-2300.

3
<PAGE>

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information and financial statements, including the related notes thereto,
appearing elsewhere in this Prospectus. All financial information set forth
herein is presented in accordance with generally accepted accounting principles
("GAAP"), unless otherwise noted. See "Glossary of Selected Insurance Terms"
for the definitions of certain insurance terms used herein. Unless the context
otherwise requires, all references to the Company shall be deemed to include
Presidential and its wholly owned subsidiaries, including Presidential Life
Insurance Company (the "Insurance Company").

THE COMPANY

The Company is an insurance holding company that, through the Insurance
Company, a stock life insurance company, emphasizes the sale of a variety of
single premium and flexible premium annuity products as well as annual and
single premium life insurance products. The Insurance Company began operations
in 1966. During the last two years, over 90% of the Company's statutory net
premium income was derived from its individual annuity business.

The Company's products are designed to meet the needs of increasingly
sophisticated consumers for such things as supplemental retirement income,
estate planning and financial protection in the event of unexpected death. The
Company markets its products primarily to individuals in the 45 to 64 year old
age group.

The Company's strategy is to offer products that compare favorably to
competitive alternatives, to emphasize a high level of service to agents and
customers, to maintain a low cost structure and to invest predominantly in
investment grade debt securities. The Company's statutory gross premiums and
annuity considerations for the six months ended June 30, 1998 have increased by
approximately 18.5% over statutory gross premiums and annuity considerations
for the comparable period of the prior year. In that regard, the Company's
statutory gross premiums and annuity deposits were approximately $72.0 million
for the six months ended June 30, 1998, as compared to approximately $60.8
million for the six months ended June 30, 1997 and approximately $145.1 million
for the entirety of 1997. The Insurance Company is rated "A- (Excellent)" by
A.M. Best Company ("A.M. Best"). See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Results of Operations."

The Company's product distribution system consists of approximately 570
independent general agents who market the Company's products through
approximately 6,690 licensed insurance agents and brokers. Management believes
that the Company offers competitive commission rates and seeks to provide
innovative products and quality service to its independent general agents.
Management believes that the Company's use of this independent agent
distribution system provides a cost advantage, since the Company incurs no
fixed costs associated with recruiting, training and maintaining employee
agents.

As of June 30, 1998, the Company's shareholders' equity was approximately
$523.2 million and its total assets were approximately $2.6 billion. As of June
30, 1998, the Insurance Company had statutory admitted assets of approximately
$2.4 billion, statutory capital, surplus and Asset Valuation Reserve ("AVR") of
approximately $388.3 million and a statutory Interest Maintenance Reserve
("IMR") of approximately $18.1 million.

The Company manages its investment portfolio to meet the diversification,
yield and liquidity requirements of its annuity contract and insurance policy
obligations as well as other corporate obligations. The Company's investment
philosophy generally focuses on purchasing investment grade securities
generally with the intention of holding such securities until maturity.
However, as market opportunities or liquidity or regulatory considerations may
dictate, securities may be sold prior to maturity. The fair value of the
investment portfolio as

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<PAGE>

of June 30, 1998 included approximately $1.5 billion of investment grade fixed
maturity instruments, approximately $160.2 million of below investment grade
debt securities, approximately $265.6 million of limited partnership interests,
approximately $213.5 million of preferred stock and approximately $63.0 million
of common stock. As of June 30, 1998, the Company's fixed maturity investment
portfolio had a duration of approximately six years. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business--Investments and Investment Policy."

The Company manages its annuity and life insurance business with a goal of
maintaining a balance of relatively long- and short-term liabilities. As of
June 30, 1998, single premium immediate annuity products (generally considered
to be longer-term liabilities) represented approximately 36.1% of policy and
deposit liabilities, while life insurance cash values and deferred annuity
products (generally considered to be shorter-term liabilities) represented
approximately 63.9% of policy and deposit liabilities. Single premium immediate
annuity products provide long-term guaranteed benefit payment streams utilizing
fixed interest rate assumptions and typically cannot be surrendered or borrowed
against. In contrast, deferred annuity products and life insurance cash values
provide relatively short-term interest guarantees on funds that typically can
be surrendered. Although this mix in the Company's products may change from
time to time, management believes that the current mix of long-term and short-
term liabilities will reduce the impact on the Company's results of operations
that are caused by fluctuations in prevailing interest rates.

The Insurance Company is licensed to market its products in 48 states and in
the District of Columbia. However, for the six months ended June 30, 1998,
approximately 58.5% of the gross statutory annuity considerations and life
insurance premiums received by the Company were sold to annuitants and
policyholders residing in the State of New York.

The Company's principal offices are located at 69 Lydecker Street, Nyack, New
York 10960 and its telephone number is (914) 358-2300.

RISK FACTORS

Prospective purchasers of the Notes should carefully consider the factors
described under "Risk Factors," as well as other information set forth in this
Prospectus, prior to making an investment in the Notes.

5
<PAGE>

SUMMARY CONSOLIDATED FINANCIAL DATA

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------------------------- -----------------
1993 1994 1995 1996 1997 1997 1998
-------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT RATIOS AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME
DATA:
Revenues:
Premiums............... $ 4,743 $ 4,249 $ 4,408 $ 4,244 $ 3,976 $ 1,098 $ 1,153
Annuity
considerations........ 3,029 1,569 3,780 8,461 19,655 7,978 15,644
Universal life and
investment type policy
fee income............ 2,665 1,912 1,934 2,090 1,988 956 1,140
Net investment income.. 157,718 145,107 170,780 186,180 191,818 98,022" 110,076
Realized investment
gains................. 36,277 19,083 17,216 20,020 26,039 11,013 9,069
Other income........... 1,927 1,834 1,746 2,679 4,228 2,995 2,357
-------- -------- -------- -------- -------- -------- --------
Total revenues......... 206,359 173,754 199,864 223,674 247,704 122,062 139,439
-------- -------- -------- -------- -------- -------- --------
Benefits and expenses:
Interest credited and
benefits to
policyholders......... 126,740 119,731 123,923 124,260 136,998 66,703 75,125
Interest expense on
notes payable......... 6,522 4,946 5,045 5,049 5,850 2,780 3,833
Selling, general and
administrative
expenses.............. 15,890 11,858 14,506 18,008 14,298 10,490 11,663
-------- -------- -------- -------- -------- -------- --------
Total benefits and
expenses.............. 149,152 136,535 143,474 147,317 157,146 79,973 90,621
-------- -------- -------- -------- -------- -------- --------
Income before income
taxes.................. 57,207 37,219 56,390 76,357 90,558 42,089 48,818
Provision (benefit) for
income taxes(1)........ 10,382 (2,693) 7,332 21,836 29,266 13,169 16,649
-------- -------- -------- -------- -------- -------- --------
Net income.............. $ 46,825 $ 39,912 $ 49,058 $ 54,521 $ 61,292 $ 28,920 $ 32,169
======== ======== ======== ======== ======== ======== ========
Earnings per common
share(1)............... $ 1.53 $ 1.18 $ 1.46 $ 1.64 $ 1.87 $ .88 $ 1.00
Ratio of earnings to
fixed charges(2)....... 10.21x 8.07x 12.18x 16.12x 16.48x 16.14x 13.74x
Ratio of earnings to
fixed charges and
interest credited to
policyholder
accounts(2)............ 1.68x 1.45x 1.67x 1.95x 2.10x 2.05x 2.16x
STATUTORY DATA(3):
Net statutory
premiums(4)............ $ 52,177 $ 53,065 $105,177 $109,937 $140,791 $ 59,084 $ 70,212
Net gain from
operations............. 23,938 13,959 34,667 41,230 43,500 24,195 31,308
Statutory capital and
surplus(5)............. 250,434 257,570 296,712 341,059 370,742 346,542 388,314
</TABLE>

<TABLE>
<CAPTION>
AS OF AS OF
DECEMBER 31, 1997 JUNE 30, 1998
----------------- -------------
<S> <C> <C>
BALANCE SHEET DATA:
Total assets.................................... $2,558,341 $2,612,387
Total investments............................... 2,464,359 2,541,685
Total policy liabilities........................ 1,714,981 1,734,860
Long-term notes payable......................... 50,000 50,000
Shareholders' equity............................ 502,654 523,186
</TABLE>
- --------
(1) The results for 1993 included the cumulative effect of a change in
accounting principle (Financial Accounting Standard No. 109) of $2.8
million or $0.09 per share.
(2) In calculating this ratio, earnings consist of income (loss) before income
taxes and cumulative effect of a change in accounting principle, plus fixed
charges adjusted to exclude interest capitalized. Fixed charges consist of
interest, whether expensed or capitalized, capitalized lease interest
expense and amortization of deferred financing fees, whether expensed or
capitalized, plus the portion of rental expense under operating leases
which has been deemed by the Company to be representative of the interest
factor.
(3) Statutory data reflect the data derived from the annual and quarterly
statements of the Insurance Company as filed with insurance regulatory
authorities and prepared in accordance with statutory accounting practices.
(4) Premiums and annuity considerations, net of reinsurance, as presented for
statutory reporting purposes differ from those reported under GAAP. For
GAAP reporting, premiums for universal life, single premium deferred
annuities and single premium immediate annuities with a stated period are
reported as deposit liabilities, not as premium revenues. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
(5) Statutory capital and surplus includes the asset valuation reserve.

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<PAGE>

RISK FACTORS

Prospective investors in the Notes offered hereby should carefully consider
the risk factors set forth below as well as the other information contained in
this Prospectus.

RANKING; HOLDING COMPANY STRUCTURE; RESTRICTIONS ON DIVIDENDS

The Notes will be general unsecured obligations of Presidential and will
rank pari passu with all other senior indebtedness of Presidential and senior
to all subordinated indebtedness of Presidential. The Indenture (defined
below) will not prohibit Presidential from incurring additional senior
indebtedness, including secured senior indebtedness, but requires that the
Notes are secured on a pari passu basis with any additional secured senior
indebtedness. See "Description of the Notes."

Presidential is a legal entity separate and distinct from its subsidiaries.
As a holding company with no other business operations, its primary sources of
cash needed to meet its obligations, including principal and interest payments
on its outstanding indebtedness and to pay dividends on its Common Stock, are
dividends from the Insurance Company, sales of and interest on its investments
and rent from its real estate. Because the operations of the Company are
conducted through the Insurance Company, Presidential's cash flow and
consequently its ability to service debt, including amounts under the Notes,
is substantially dependent upon dividends from the Insurance Company. The
Insurance Company will have no direct obligation, contingent or otherwise, to
pay any amount due under the Notes or to make any funds available therefor,
whether in the form of loans, dividends or otherwise. Because of this holding
company structure, claims of creditors of Presidential's subsidiaries,
including policyholders, will have priority with respect to the assets and
earnings of such subsidiaries over the claims of creditors of Presidential,
including holders of the Notes. Accordingly (except to the extent that
Presidential may itself be a creditor of such subsidiary), the Notes will be
effectively subordinated to liabilities, including policyholder liabilities,
trade payables and accrued expenses, of Presidential's subsidiaries. The
Indenture will not prohibit Presidential's subsidiaries, including the
Insurance Company, from incurring indebtedness.

In the event of a default on Presidential's debt or an insolvency,
liquidation or other reorganization of Presidential, the creditors and
stockholders of Presidential will have no right to proceed against the assets
of the Insurance Company or to cause it to be liquidated, rehabilitated or
placed in receivership or conservatorship. If the Insurance Company were to be
liquidated, such liquidation would be conducted under the supervision of the
Superintendent of Insurance of the State of New York (the "Superintendent") as
the receiver with respect to the Insurance Company's property and business.
See "Business--Insurance Regulation."

The Insurance Company is subject to various regulatory restrictions,
including restrictions on the maximum amount of payments, including loans or
cash advances, that it may make to Presidential without obtaining prior
regulatory approval. As a New York domiciled insurance company, the Insurance
Company is subject to restrictions on the payment of dividends under New York
law. New York law states that no domestic stock life insurance company may
distribute any dividend to its shareholders unless a notice of its intention
to declare such dividend and the amount thereof shall have been filed with the
Superintendent not less than 30 days in advance of such proposed declaration.
The Superintendent may disapprove such distribution by giving written notice
to such company within 30 days after such filing that he or she finds that the
financial condition of the insurance company does not warrant such
distribution. The New York State Department of Insurance (the "NYSDI") has
established informal guidelines for the Superintendent's determinations. These
guidelines focus upon, among other things, the overall financial condition and
profitability of the insurer under statutory accounting practices. During the
first six months of 1998, the Insurance Company paid dividends of $29.4
million to Presidential. During 1997, 1996 and 1995, the Insurance Company
paid dividends of $24.8 million, $15.0 million and $5.0 million, respectively,
to Presidential.

The inability of the Insurance Company to pay dividends to Presidential in
an amount sufficient to permit Presidential to make principal and interest
payments on its outstanding indebtedness (including the Notes), meet its
operating expenses and pay dividends would have a material adverse effect on
Presidential's financial

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condition and results of operations. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Liquidity and Capital
Resources."

IMPORTANCE OF A.M. BEST RATINGS

Insurers compete with other insurance companies, financial intermediaries
and other institutions on the basis of a number of factors, including the
ratings assigned by A.M. Best. The Insurance Company is rated "A- (Excellent)"
by A.M. Best. Publications of A.M. Best indicate that the "A-" rating is
assigned to those companies that, in A.M. Best's opinion, have achieved, on
balance, excellent overall performance when compared to the norms of the
insurance industry and that generally have demonstrated a strong ability to
meet their respective policyholder and other contractual obligations over a
long period of time. A.M. Best reviews its ratings of insurance companies from
time to time. If the Insurance Company's A.M. Best rating were downgraded, the
Company's sales of annuity products and life insurance policies could be
significantly impacted and the Company's financial condition and results of
operations could be materially adversely affected. See "Business--Claims
Paying and Other Ratings."

GEOGRAPHIC CONCENTRATION

For the six months ended June 30, 1998, and for the years ended December 31,
1997, 1996 and 1995, approximately 58.5%, 67.3%, 78.3% and 83.5%,
respectively, of the gross statutory annuity considerations and life insurance
premiums received by the Company were sold to annuitants and policyholders
residing in the State of New York. In that regard, any event that would
prevent or materially impair the Company's ability to market its annuity and
life insurance products in the State of New York would have a material adverse
effect on the Company's financial condition and results of operations.

SURRENDERABLE ANNUITIES

As of June 30, 1998, approximately 61.8% of the Insurance Company's annuity
contracts in force (measured by reserves) were surrenderable. Approximately
36.4% of such contracts or approximately $593.4 million of the Insurance
Company's annuity contracts in force (measured by reserves) are surrenderable
without charge. Changes in prevailing interest rates, ratings or other factors
which result in or lead to significant levels of surrenders of existing
annuity contracts could have a material adverse effect upon the financial
condition and results of operations of the Company. Surrenders result in a
reduction of invested assets upon which the Company may earn investment income
and a reduction of policyholder account balances upon which the Company
credits interest. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--General" and "--Effects of Inflation and
Interest Rate Changes."

INSURANCE REGULATION

The Insurance Company is subject to substantial governmental regulation in
each of the jurisdictions in which it conducts business. Such regulation is
vested in governmental agencies having broad administrative power with respect
to all aspects of the Insurance Company's business, including, without
limitation, premium rates, policy forms, dividend payments, capital adequacy
and the amount and type of investments that the Insurance Company may make.
Such regulations primarily are intended to protect policyholders rather than
stockholders. The Company also is regulated in the State of New York as part
of an insurance holding company system. Generally, under the New York
insurance holding company statute, the Superintendent must approve in advance
the direct or indirect acquisition of 10.0% or more of the voting securities
of a New York domiciled insurance company.

Recently, state insurance regulators have been re-examining existing laws
and regulations, specifically focusing on insurance company investment and
solvency issues, risk-adjusted capital guidelines, the implementation of non-
statutory guidelines, the definition of extraordinary dividends and the
circumstances under which normal dividends may be paid and, in connection
therewith, have enacted new insurance laws and

8
<PAGE>

regulations. In addition, the National Association of Insurance Commissioners
(the "NAIC") has adopted various model laws including a law establishing
minimum risk-based capital standards, which have been recommended to states
for adoption. Congress and certain federal agencies also are investigating the
current condition of the insurance industry in the United States in order to
determine whether federal regulation would be appropriate. There can be no
assurance that existing insurance-related laws and regulations will not become
more restrictive in the future and, therefore, it is not possible to predict
the potential effects that any proposed or future legislation may have on the
financial condition or operations of the Company. See "Business--Insurance
Regulation."

UNITED STATES FEDERAL INCOME TAX TREATMENT OF ANNUITY PRODUCTS

Under current United States federal income tax law, earnings on amounts held
by a life insurance company with respect to annuity contracts and life
insurance policies generally are accumulated on a tax-deferred basis.
Accumulated tax-deferred earnings will be subject to taxation when actually
paid (or in certain circumstances when deemed paid) to the person entitled to
receive payment under the contract or policy, as the case may be, unless such
earnings are paid as part of the death benefit under a life insurance policy.
From time to time, proposals to change the current tax treatment of earnings
on annuity contracts and life insurance policies have been made. Most
recently, the Clinton Administration's 1999 budget proposal included
provisions concerning the taxation of certain exchanges between annuities,
including the reallocation of assets within a variable annuity. Although no
such proposals currently are pending before Congress, no assurance can be
given that a change in the tax treatment of earnings on annuity contracts and
life insurance policies will not be enacted into law in the future. In the
event that the United States federal income tax law regarding tax deferral of
earnings on annuity contracts or life insurance policies is substantially
revised, consumer demand for the types of contracts or policies affected by
such changes could decline substantially or be eliminated. The operations and
business prospects of the Company would be materially adversely affected by
any substantial decrease in the demand for such products.

FACTORS AFFECTING THE BUSINESS; COMPETITION

The Company's operating results are affected by many factors, including,
without limitation, competition, lapse rates, interest rates, maintenance of
insurance ratings, governmental regulation and general business conditions,
many of which are outside of the Company's control.

The Company operates in a highly competitive environment. There are numerous
insurance companies, banks, securities brokerage firms and other financial
intermediaries marketing insurance products, annuities, and other investments
that compete with the Company, many of which have substantially greater
resources, higher ratings, greater market share and larger, more widespread
agency and brokerage relationships than the Company.

Management believes that the Company's ability to compete is dependent upon,
among other things, its ability to retain and attract independent general
agents to market its products and its ability to develop competitive products
that also are profitable. Although management believes that the Company has
good relationships with its independent general agents, competition for such
agents among insurance companies is intense. The Company's independent general
agents typically represent other insurance companies and may sell products
that compete with those offered by the Company. See "Business--Competition."

DEPENDENCE ON KEY PERSONNEL

The Company's success depends upon the continued contributions of its key
officers and employees. The Company does not have employment agreements with
any members of senior management, including Herbert Kurz, the founder and
principal stockholder of the Company. Should one or more of these individuals
leave or otherwise become unavailable to the Company for any reason, the
Company's business and results of operations could be materially adversely
affected. See "Management--Directors and Executive Officers."

9
<PAGE>

CONTROL BY PRINCIPAL STOCKHOLDER

As of August 31, 1998 Mr. Kurz beneficially owned 24.8% of the outstanding
Common Stock. Accordingly, Mr. Kurz may be able to influence the outcome of
corporate actions requiring stockholder approval, including the election of
the Board of Directors, and to influence the policies and direction of the
Company.

INVESTMENT PERFORMANCE

The Company's results of operations depend, in large part, on the investment
performance of its assets and the spread between its return on its invested
assets and the Credited Rates on its annuity and life insurance products. The
Company's investment portfolio consists primarily of fixed income securities
and investments in limited partnerships. As of June 30, 1998, approximately
10.5% of the Company's investment portfolio, and 50.8% of its stockholders'
equity, consisted of interests in over forty limited partnerships which are
engaged in a variety of investment strategies, principally including merchant
banking, real estate, international opportunities and debt restructuring
activities. Investments made by such limited partnerships generally are
speculative and involve significant risks, including, without limitation, the
total loss of such investment and illiquidity. Pursuant to the terms of
certain limited partnership agreements to which the Company is a party, the
Company is currently committed to contribute, if called upon during certain
periods specified in such agreements, an aggregate of approximately $53.9
million of additional capital to certain of these limited partnerships.
However, management does not expect this entire amount to be called because
certain of these limited partnerships are nearing the end of the period during
which investors are required to make contributions.

The limited partnerships that are involved in international investments
generally purchase sovereign debt, corporate debt and/or equity in governments
or foreign companies that are developing a greater world wide presence. Such
investments involve risks related to the particular country, including
political instability, currency fluctuations, and repatriation restrictions.

The limited partnerships that are involved in real estate activities
generally invest in real estate assets, real estate joint ventures and real
estate operating companies. These partnerships seek to achieve significant
rates of return by targeting investments which provide a strategic or
competitive advantage and are priced at levels which the general partner
believes to be attractive. Real estate investments involve risks, including
adverse changes in general or local economic conditions, real estate values
generally and in the locales of specific properties, interest rates, supply
and demand for the types of properties involved and governmental rules and
policies (including environmental restrictions).

The limited partnerships that are involved in debt restructuring activities
take positions in debt and equity securities, loans originated by banks and
other liabilities of financially troubled companies. Investments in companies
undergoing debt restructurings, which by their nature have a high degree of
financial uncertainty, may be senior, unsecured or subordinated indebtedness
and carry a high degree of risk of loss upon default by the borrower. The high
level of indebtedness characteristic of merchant banking and debt
restructuring transactions makes such underlying investments particularly
sensitive to interest rate increases, which could affect the ability of the
borrower to generate sufficient cash flow to meet its fixed charges.

The limited partnerships that are involved in merchant banking activities
generally seek to achieve significant rates of return (including capital
gains) through a wide variety of investment strategies, including leveraged
acquisitions, bridge financing and other private equity investments in
existing businesses.

While the Company's investments in limited partnerships have generally been
profitable, there can be no assurance that the Company will continue to
achieve the same level of returns on its investments in limited partnerships
that it has achieved during the six months ended June 30, 1998, and during
1997, 1996 or 1995 or that it will achieve any returns on such investments at
all. In addition, there can be no assurance that the Company will receive a
return of all or any portion of its current or future capital investments in
limited partnerships. The failure of the Company to receive the return of a
material portion of its capital investments in limited partnerships, or to
achieve historic levels of returns on such investments, could have a material
adverse effect on the Company's financial condition and results of operations.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations--Effects of Inflation and Interest Rate Changes" and "Business--
Investments and Investment Policy."

10
<PAGE>

CAPITAL ADEQUACY

Effective in 1993, the NAIC adopted a risk-based capital ("RBC") formula,
which prescribes a system for assessing the adequacy of statutory capital and
surplus for all life and health insurers. The basis of the system is a risk-
based formula that applies prescribed factors to the various risk elements in
a life and health insurer's business to report a minimum capital requirement
proportional to the amount of risk assumed by the insurer. The life and health
RBC formula is designed to measure annually (i) the risk of loss from asset
defaults and asset value fluctuation, (ii) the risk of loss from adverse
mortality and morbidity experience, (iii) the risk of loss from mismatching of
asset and liability cash flow due to changing interest rates and (iv) business
risks. The formula is to be used as an early warning tool to identify
companies that are potentially inadequately capitalized. The formula is
intended to be used as a regulatory tool only and is not intended as a means
to rank insurers generally. Maintaining appropriate levels of statutory
surplus, as measured by state insurance regulators, is considered important by
state insurance regulatory authorities and the private agencies that rate
insurers' claims-paying abilities and financial strength. At December 31,
1997, the Insurance Company's total adjusted capital was $370.7 million and
the authorized control level RBC was $61.8 million. Failure to maintain
certain levels of statutory surplus could result in increased regulatory
scrutiny, action by state regulatory authorities or a downgrade by the private
rating agencies.

POTENTIAL YEAR 2000 ISSUES

Many computer software programs and electronic components that incorporate
computer programs use only two-digit year references for dates and date-
dependent functions and thus could require upgrading or replacement prior to
the year 2000 to function properly beginning in the year 2000.

In 1994, the Company initiated the process of migrating to a local area
network and preparing its computer applications for the year 2000. This
process involves modifying or replacing certain hardware and software
maintained by the Company as well as communicating with external service
providers to ensure that they are taking the appropriate action to remedy
their year 2000 issues. Management expects that the modification process of
all significant applications will be completed by December 31, 1998 and that
all of the remaining non-critical system and application changes will be
completed during the second half of 1999.

Based on management's best estimates, the total cost to the Company of both
migrating to a local area network, replacing software and year 2000 compliance
activities is not expected to exceed $3.2 million. Since 1994, the Company has
incurred approximately $2.7 million in connection with migrating to a local
area network, replacing software and year 2000 compliance.

There can be no assurance, however, that (i) the Company will be able to
detect and remedy all potential year 2000 problems in its computer systems and
processes or (ii) programs and components utilized by the Company, but which
are supplied by third parties, will not be susceptible to year 2000 problems.
Accordingly, year 2000 problems could have an adverse effect on the Company's
business, financial condition, results of operations and prospects. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Year 2000 Matters."

11
<PAGE>

USE OF PROCEEDS

The net proceeds from the sale of the Notes will be added to the Company's
general funds and are expected to be used to retire existing indebtedness and
for general corporate purposes, except as may be stated in a Prospectus
Supplement.

CONSOLIDATED RATIO OF EARNINGS TO FIXED CHARGES

The following table sets forth the consolidated ratio of earnings to fixed
charges and ratio of earnings to fixed charges and interest credited to
policyholder accounts of the Company for each year in the five-year period
ended December 31, 1997 and for the six month periods ended June 30, 1997 and
1998. In calculating this ratio, earnings consist of income (loss) before
income taxes and cumulative effect of a change in an accounting principle,
plus fixed charges adjusted to exclude interest capitalized. Fixed charges
consist of interest, whether expensed or capitalized, capitalized lease
interest expense and amortization of deferred financing fees, whether expensed
or capitalized, plus the portion of rental expense under operating leases
which has been deemed by the Company to be representative of the interest
factor.

<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE
YEAR ENDED DECEMBER 31, 30,
-------------------------------- ------------
1993 1994 1995 1996 1997 1997 1998
----- ---- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed
charges....................... 10.21x 8.07x 12.18x 16.12x 16.48x 16.14x 13.74x
Ratio of earnings to fixed
charges and interest credited
to policyholder accounts...... 1.68x 1.45x 1.67x 1.95x 2.10x 2.05x 2.16x
</TABLE>

12
<PAGE>

SELECTED CONSOLIDATED FINANCIAL DATA

The following selected consolidated financial data are qualified by
reference to, and should be read in conjunction with, the Consolidated
Financial Statements, including the related notes thereto, and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
appearing elsewhere in this Prospectus. The selected consolidated financial
data as of and for each of the five years in the period ended December 31,
1997 are taken or derived from the Company's audited Consolidated Financial
Statements for the five years ended December 31, 1997, which have been audited
by Deloitte & Touche LLP ("Deloitte & Touche"), independent auditors. The
selected consolidated financial data as of and for the six-month periods ended
June 30, 1997 and 1998 are taken or derived from the Company's unaudited
interim Consolidated Financial Statements included elsewhere in this
Prospectus and, in the opinion of management, have been prepared on the same
basis as the audited Consolidated Financial Statements included herein and
include all adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation of such data. The results of operations for
an interim period are not necessarily indicative of the results for the full
year or any other interim period.

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------------------ ------------------
1993 1994 1995 1996 1997 1997 1998
-------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT RATIOS AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME
DATA:
Revenues:
Premiums............... $ 4,743 $ 4,249 $ 4,408 $ 4,244 $ 3,976 $ 1,098 $ 1,153
Annuity
considerations........ 3,029 1,569 3,780 8,461 19,655 7,978 15,644
Universal life and
investment type policy
fee income............ 2,665 1,912 1,934 2,090 1,988 956 1,140
Net investment income.. 157,718 145,107 170,780 186,180 191,818 98,022 110,076
Realized investment
gains................. 36,277 19,083 17,216 20,020 26,039 11,013 9,069
Other income........... 1,927 1,834 1,746 2,679 4,228 2,995 2,357
-------- -------- -------- -------- -------- -------- --------
Total revenues......... 206,359 173,754 199,864 223,674 247,704 122,062 139,439
-------- -------- -------- -------- -------- -------- --------
Benefits and expenses:
Interest credited and
benefits to
policyholders......... 126,740 119,731 123,923 124,260 136,998 66,703 75,125
Interest expense on
notes payable......... 6,522 4,946 5,045 5,049 5,850 2,780 3,833
Selling, general and
administrative
expenses.............. 15,890 11,858 14,506 18,008 14,298 10,490 11,663
-------- -------- -------- -------- -------- -------- --------
Total benefits and
expenses.............. 149,152 136,535 143,474 147,317 157,146 79,973 90,621
-------- -------- -------- -------- -------- -------- --------
Income before income
taxes.................. 57,207 37,219 56,390 76,357 90,558 42,089 48,818
Provision (benefit) for
income taxes(1)........ 10,382 (2,693) 7,332 21,836 29,266 13,169 16,649
-------- -------- -------- -------- -------- -------- --------
Net income.............. $ 46,825 $ 39,912 $ 49,058 $ 54,521 $ 61,292 $ 28,920 $ 32,169
======== ======== ======== ======== ======== ======== ========
Earnings per common
share(1)............... $ 1.53 $ 1.18 $ 1.46 $ 1.64 $ 1.87 $ .88 $ 1.00
Ratio of earnings to
fixed charges(2)....... 10.21x 8.07x 12.18x 16.12x 16.48x 16.14x 13.74x
Ratio of earnings to
fixed charges and
interest credited to
policyholder
accounts(2)............ 1.68x 1.45x 1.67x 1.95x 2.10x 2.05x 2.16x
STATUTORY DATA(3):
Net statutory
premiums(4)............ $ 52,177 $ 53,065 $105,177 $109,937 $140,791 $ 59,084 $ 70,212
Net gain from
operations............. 23,938 13,959 34,667 41,230 43,500 24,195 31,308
Statutory capital and
surplus(5)............. 250,434 257,570 296,712 341,059 370,742 346,542 388,314
</TABLE>

<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF JUNE 30,
------------------------------------------------------ ---------------------
1993 1994 1995 1996 1997 1997 1998
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets............ $2,265,218 $2,026,044 $2,356,760 $2,406,925 $2,558,341 $2,443,480 $2,612,387
Total investments....... 2,139,352 1,859,669 2,274,408 2,318,665 2,464,359 2,365,053 2,541,685
Total policy
liabilities............ 1,711,196 1,666,795 1,683,550 1,678,415 1,714,981 1,682,286 1,734,860
Long-term notes
payable................ 50,000 50,000 50,000 50,000 50,000 50,000 50,000
Shareholders' Equity.... 264,447 255,953 401,060 423,063 502,654 445,870 523,186
</TABLE>

(see footnotes on following page)

13
<PAGE>

- --------
(1) The results for 1993 included the cumulative effect of a change in
accounting principle (Financial Accounting Standard No. 109) of $2.8
million or $0.09 per share.
(2) In calculating this ratio, earnings consist of income (loss) before income
taxes and cumulative effect of a change in accounting principle, plus
fixed charges adjusted to exclude interest capitalized. Fixed charges
consist of interest, whether expensed or capitalized, capitalized lease
interest expense and amortization of deferred financing fees, whether
expensed or capitalized, plus the portion of rental expense under
operating leases which has been deemed by the Company to be representative
of the interest factor.
(3) Statutory data reflect the data derived from the annual and quarterly
statements of the Insurance Company as filed with insurance regulatory
authorities and prepared in accordance with statutory accounting
practices.
(4) Premiums and annuity considerations, net of reinsurance, as presented for
statutory reporting purposes differ from those reported under GAAP. For
GAAP reporting, premiums for universal life, single premium deferred
annuities and single premium immediate annuities with a stated period are
reported as deposit liabilities, not as premium revenues. See
"Management's Discussion and Analysis of Financial Condition and Results
of Operations."
(5) Statutory capital and surplus includes the asset valuation reserve.

14
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

GENERAL

The Company operates in a single business segment with two primary lines of
business--individual annuities and individual life insurance. The Company
currently emphasizes the sale of a variety of single premium and flexible
premium annuity products (including those written in connection with funding
agreements for certain state lotteries, group annuities and other structured
settlements), as well as annual and single premium life insurance products.
Each of these products is designed to meet the needs of increasingly
sophisticated consumers for supplemental retirement income, estate planning
and financial protection in the event of unexpected death. Premiums shown on
the Company's Consolidated Financial Statements in accordance with GAAP
consist of premiums received for whole or term life insurance products, as
well as that portion of the Company's single premium immediate annuities which
have life contingencies. With respect to that portion of single premium
annuity contracts without life contingencies, as well as single premium
deferred annuities and universal life insurance products, premiums collected
by the Company are not reported as premium revenues, but rather are reported
as additions to policyholders' account balances. With respect to products that
are accounted for as policyholders' account balances, revenues are recognized
over time in the form of policy fee income, surrender charges, mortality
charges and other charges deducted from the policyholders' account balances.
The Company's operating earnings are derived primarily from these revenues,
plus the Company's investment results, including realized gains (losses), less
interest credited, benefits to policyholders and expenses.

Certain costs related to the sale of new business are deferred as "deferred
policy acquisition costs" ("DAC") and amortized into expenses in proportion to
the recognition of earned revenues. Costs deferred include principally
commissions, certain expenses of the policy issue and underwriting departments
and certain variable sales expenses. Under certain circumstances, DAC will be
expensed earlier than originally estimated, including those circumstances
where the policy terminations are higher than originally estimated with
respect to certain annuity products. Most of the Company's annuity products
have surrender charges which are designed to discourage and mitigate the
effect of early terminations.

The Insurance Company is rated "A-(Excellent)" by A.M. Best.

RESULTS OF OPERATIONS

1997 COMPARED TO 1996 AND 1996 COMPARED TO 1995

REVENUES

Annuity Considerations and Life Insurance Premiums

Total annuity considerations and life insurance premiums increased to
approximately $23.6 million in 1997 from approximately $12.7 million in 1996,
an increase of approximately 86.0%. Of this amount, annuity considerations
increased to approximately $19.7 million in 1997 from approximately $8.5
million in 1996, an increase of approximately $11.2 million. In accordance
with GAAP, sales of single premium deferred annuities are not reported as
insurance revenues, but rather as additions to policyholder account balances.
Sales of single premium deferred annuities were approximately $125.5 million
and $94.4 million in 1997 and 1996, respectively. Management believes that the
increase in annuity considerations is due to the successful expansion of the
Company's Marketing Department. Beginning in 1996, the Company added regional
sales directors in various states. These regional directors have added new
general agents which have generated increased sales.

Total annuity considerations and life insurance premiums increased to
approximately $12.7 million in 1996 from approximately $8.2 million in 1995,
an increase of approximately 55.2%. Of this amount, annuity considerations
increased to approximately $8.5 million in 1996 from approximately $3.8
million in 1995, an increase of approximately $4.7 million.

15
<PAGE>

Policy Fee Income

Universal life and policy fee income was approximately $2.0 million in 1997,
as compared to approximately $2.1 million in 1996 and approximately $1.9
million in 1995. This represents approximately a 4.9% decrease comparing 1997
to 1996 and approximately an 8.1% increase comparing 1996 to 1995. The
decrease in 1997 was primarily attributable to the lower level of surrender
charges incurred by annuitants in connection with surrenders of their annuity
contracts during 1997. Surrenders of annuity products represented
approximately $117.4 million, $124.5 million, and $99.8 million during 1997,
1996 and 1995, respectively.

Net Investment Income

Net investment income totaled approximately $191.8 million in 1997, as
compared to approximately $186.2 million in 1996 and approximately $170.8
million in 1995. This represents approximately a 3.0% increase comparing 1997
to 1996 and approximately a 9.0% increase comparing 1996 to 1995. The increase
in net investment income in 1997 over 1996 and in 1996 over 1995 was mainly
due to an increase in investment income from "other invested assets" which
totaled approximately $39.8 million in 1997, $35.3 million in 1996 and $25.3
million in 1995. In 1997 and 1996, the Insurance Company participated in
"dollar roll" transactions (i.e., the sale of a mortgage-backed security to a
holding institution and a simultaneous agreement to purchase a similar
security at a later date at a lower price) to enhance investment income. The
proceeds from the sale are invested in short-term securities at a positive
spread until the settlement date of the similar security. During this period,
the holding institution receives all income and prepayments for the security.
The Company's ratio of net investment income to average cash and invested
assets less net investment income for the years ended December 31, 1997, 1996
and 1995 was approximately 8.69%, 8.83% and 9.01%, respectively. For
additional information, see Note 2 of the Notes to the Consolidated Financial
Statements.

Realized Investment Gains and Losses

Realized investment gains amounted to approximately $26.0 million in 1997,
as compared to approximately $20.0 million of gains in 1996 and gains of
approximately $17.2 million in 1995. Realized investment gains for the years
ended December 31, 1997, 1996 and 1995 were partially offset by realized
investment losses of approximately $4.9 million, $1.9 million and $6.0
million, respectively, attributable to writedowns of certain securities
contained in the Company's investment portfolio. Realized investment gains
result from sales of certain equities and convertible securities, and calls
and sales of securities in the Company's investment portfolio, which vary from
year to year. As a result, there can be no assurance that the Company's
investment portfolio will yield comparable investment gains in future periods.

Other Income

The increase in other income in 1997 is the result of the settlement in the
second quarter of 1997 of litigation concerning Fidelity Mutual Life Insurance
Company ("Fidelity"). As part of a proposed rehabilitation plan for Fidelity,
on January 11, 1995 the Insurance Company signed a definitive purchase
agreement with the Pennsylvania Insurance Commissioner (the "Insurance
Commissioner") and Fidelity to invest up to $45 million for a minority (49.9%)
stake in a Fidelity subsidiary insurance holding company. In addition, the
Company had agreed to purchase $25 million of senior notes of such company.

The Company was informed by the Insurance Commissioner that in response to
the significant improvement in the invested assets of Fidelity, she reopened
the process to select an equity investor for the recapitalization and
rehabilitation of Fidelity.

The Company disagreed with the Insurance Commissioner's actions and
commenced litigation which was settled in the second quarter of 1997. As part
of the settlement, the Company received $1.7 million.

TOTAL BENEFITS AND EXPENSES

Total benefits and expenses for 1997 aggregated approximately $157.1
million, as compared to approximately $147.3 million for 1996 and
approximately $143.5 million for 1995. This represents an increase

16
<PAGE>

of approximately 6.7% comparing 1997 to 1996 and an increase of approximately
2.7% comparing 1996 to 1995. The reasons for these changes will be discussed
under the respective components below.

Interest Credited and Benefits to Policyholders

Interest credited and benefits to policyholders amounted to approximately
$137.0 million in 1997 as compared to approximately $124.3 million in 1996 and
approximately $123.9 million in 1995. This represents an increase of
approximately 10.3% comparing 1997 to 1996 and approximately a 0.3% increase
comparing 1996 to 1995. The increase in 1997 principally is attributable to a
higher level of policyholder account balances as a result of the increase in
annuity sales.

The Insurance Company's average credited rates for reserves and account
balances for the year ended December 31, 1997, 1996 and 1995 were less than
the Company's ratio of net investment income to mean assets for the same
periods as noted above under "--Net Investment Income." Although management
does not currently expect material declines in the spread between the
Company's average credited rate for reserves and account balances and the
Company's ratio of net investment income to mean assets (the "Spread"), there
can be no assurance that the Spread will not decline in future periods or that
such decline will not have a material adverse effect on the Company's
financial condition and results of operations. Depending, in part, upon
competitive factors affecting the industry in general, and the Company, in
particular, the Company may, from time to time, adjust the average credited
rates on certain of its products. There can be no assurance that the Company
will reduce such rates or that any such reductions will broaden the Spread.

Interest Expense on Notes Payable

The interest expense on the Company's notes payable amounted to
approximately $5.9 million in 1997, approximately $5.0 million in 1996 and
approximately $5.0 million in 1995. The increase in interest expense in 1997
is attributable to an increase in the Company's short-term note payable under
the Company's line of credit (the "Short-Term Note").

General Expenses, Taxes and Commissions

General expenses, taxes and commissions to agents totaled approximately
$17.2 million in 1997 as compared to approximately $17.2 million in 1996 and
approximately $15.0 million in 1995. This represents approximately no increase
comparing 1997 to 1996 and approximately a 14.7% increase comparing 1996 to
1995. The increase in 1996 compared to 1995 is primarily attributable to
higher professional fees related to the then proposed acquisition of Fidelity.
In 1997 commissions and related expenses increased compared to 1996 as a
result of an increase in sales of single premium deferred annuities which was
partially offset by lower professional fees.

Deferred Policy Acquisition Costs

The change in the net DAC for 1997 resulted in a credit of approximately
$2.9 million, as compared to a charge of approximately $0.9 million in 1996
and credit of approximately $0.5 million in 1995. Such changes are due to the
effect of revisions to estimated gross profits on unamortized deferred
acquisition costs which are reflected in the year such estimated gross profits
are revised.

INCOME BEFORE INCOME TAXES

For the reasons discussed above, income before income taxes amounted to
approximately $90.6 million in 1997, as compared to approximately $76.4
million in 1996 and approximately $56.4 million in 1995.

PROVISION FOR INCOME TAXES

Income tax expense was approximately $29.3 million for 1997, as compared to
approximately $21.8 million in 1996 and approximately $7.3 million in 1995.
The increase in income taxes in 1997 is primarily attributable to higher
income from operations and realized capital gains during 1997. In addition, as
a result of the finalization

17
<PAGE>

of the Company's 1994 federal income tax return, the federal income tax
recoverable from operations and capital loss carryback recorded at December
31, 1994 was increased in 1995 by $3.1 million which reduced income tax
expense by a similar amount.

NET INCOME

For the reasons discussed above, the Company had net income of approximately
$61.3 million in 1997, net income of approximately $54.5 million in 1996 and
net income of approximately $49.1 million in 1995.

SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO SIX MONTHS ENDED JUNE 30, 1997

REVENUES

Annuity Considerations and Life Insurance Premiums

Total annuity considerations and life insurance premiums increased to
approximately $16.8 million for the six months ended June 30, 1998 from
approximately $9.1 million for the six months ended June 30, 1997. Of this
amount, annuity considerations increased to approximately $15.6 million for
the six months ended June 30, 1998 from approximately $8.0 million for the six
months ended June 30, 1997. Sales of single premium deferred annuities were
approximately $61.0 million for the six months ended June 30, 1998 compared to
$50.0 million for the six months ended June 30, 1997. Management believes the
increase in annuity considerations is due to the continued successful
expansion of the Company's Marketing Department. Beginning in 1996, the
Company has added regional sales directors in various states. These regional
directors have added new general agents which resulted in increased sales.

Policy Fee Income

Universal life and investment type policy fee income was approximately $1.1
million for the six months ended June 30, 1998, as compared to approximately
$1.0 million for the six months ended June 30, 1997. Policy fee income
consists principally of amounts assessed during the period against
policyholders' account balances for mortality charges and surrender charges.

Net Investment Income

Net investment income totaled approximately $110.1 million for the six
months ended June 30, 1998, as compared to approximately $98.0 million for the
six months ended June 30, 1997. This represents an increase of approximately
12.3%. The increase in net investment income in the first six months of 1998
over the same period in 1997 was mainly due to an increase in investment
income from "other invested assets" which totaled approximately $30.1 million
during the first six months of 1998, as compared to $22.7 million during the
first six months of 1997. The Company's ratio of net investment income to
average cash and invested assets less net investment income for the six months
ended June 30, 1998 and June 30, 1997 were 9.3% and 8.8%, respectively.

Realized Investment Gains and Losses

Realized investment gains amounted to approximately $9.1 million during the
six months ended June 30, 1998, as compared to approximately $11.0 million
during the six months ended June 30, 1997. Realized investment gains were
partially offset by realized investment losses of approximately $1.7 million
and $2.1 million for the six months ended June 30, 1998 and 1997,
respectively, attributable to other than temporary impairments in the value of
certain securities contained in the Company's investment portfolio. Realized
investment gains result from sales of certain equities and convertible
securities, and calls and sales of securities in the Company's investment
portfolio. There can be no assurance that the Company's investment portfolio
will yield comparable investment gains in future periods.

Other Income

The decrease in other income in the second quarter of 1998 is the result of
the settlement in the second quarter of 1997 of the litigation concerning
Fidelity.

18
<PAGE>

TOTAL BENEFITS AND EXPENSES

Total benefits and expenses for the six months ended June 30, 1998
aggregated approximately $90.6 million, as compared to approximately $80.0
million for the six months ended June 30, 1997, an increase of approximately
13.3%. The reasons for this increase are discussed under the respective
components below.

Interest Credited and Benefits to Policyholders

Interest credited and benefits to policyholders aggregated approximately
$75.1 million for the six months ended June 30, 1998, as compared to
approximately $66.7 million for the six months ended June 30, 1997. The
increase is primarily attributable to the increase in the liability for future
policy benefits during the six months ended June 30, 1998 as a result of the
increase in annuity considerations received during the period.

The Insurance Company's average credited rate for reserves and account
balances for the six months ended June 30, 1998 and 1997 were less than the
Company's ratio of net investment income to mean invested assets for the same
periods as noted above under "Net Investment Income." Although management does
not currently expect material declines in the Spread, there can be no
assurance that the Spread will not decline in future periods or that such
decline will not have a material adverse effect on the Company's financial
condition and results of operations. Depending, in part, upon competitive
factors affecting the industry in general, and the Company, in particular, the
Company may, from time to time, change the average credited rates on certain
of its products. There can be no assurance that the Company will reduce such
rates or that any such reductions will broaden the Spread.

Interest Expense on Notes Payable

The interest expense on the Company's notes payable was approximately $3.8
million for the six months ended June 30, 1998, as compared to approximately
$2.8 million for the six months ended June 30, 1997. The increase is
attributable to the increase in the amounts borrowed under the Short-Term
Note.

General Expenses, Taxes and Commissions

General expenses, taxes and commissions to agents aggregated approximately
$10.6 million for the six months ended June 30, 1998, as compared to
approximately $9.6 million for the six months ended June 30, 1997, an increase
of approximately 9.5%. The increase principally is attributable to higher
commissions and selling expenses incurred in the first six months of 1998
associated with the higher level of sales in the first six months of 1998.

Deferred Policy Acquisition Costs

DAC for the six months ended June 30, 1998 increased approximately $0.3
million resulting in a charge of $1.1 million, as compared to a charge of
approximately $0.8 million for the six months ended June 30, 1997. This change
is primarily attributable to an increase in the costs associated with new
product sales which will be deferred and amortized in proportion to the
recognition of earned revenue.

INCOME BEFORE INCOME TAXES

For the reasons discussed above, income before income taxes amounted to
approximately $48.8 million for the six months ended June 30, 1998, as
compared to approximately $42.1 million for the six months ended June 30,
1997.

PROVISION FOR INCOME TAXES

Income tax expense was $16.6 million for the six months ended June 30, 1998
as compared to approximately $13.2 million for the six months ended June 30,
1997. The increase is primarily attributable to higher income from operations
and realized capital gains for the six months ended June 30, 1998.

19
<PAGE>

NET INCOME

For the reasons discussed above, the Company had net income of approximately
$32.2 million during the six months ended June 30, 1998, as compared to net
income of approximately $28.9 million during the six months ended June 30,
1997.

LIQUIDITY AND CAPITAL RESOURCES

The Company is an insurance holding company and its primary uses of cash are
debt service obligations, operating expenses and dividend payments. The
Company's principal sources of cash are dividends from the Insurance Company,
sales of and interest on the Company's investments and rent from its real
estate. During the second quarter of 1998, the Company's Board of Directors
declared a quarterly dividend of $.075 per share payable on July 1, 1998.
During the second quarter of 1998, and during 1997 and 1996, the Company
purchased and retired 640,000, 372,300 and 724,000 shares of Common Stock,
respectively. The Company is authorized by the Board of Directors to purchase
an additional 592,000 shares of Common Stock.

The Insurance Company is subject to various regulatory restrictions on the
maximum amount of payments, including loans or cash advances, that it may make
to the Company without obtaining prior regulatory approval. As a New York
domiciled insurance company, the Insurance Company is subject to restrictions
on the payment of dividends under New York law. New York law states that no
domestic stock life insurance company shall distribute any dividend to its
shareholders unless a notice of its intention to declare such dividend and the
amount thereof shall have been filed with the Superintendent not less than 30
days in advance of such proposed declaration. The Superintendent may
disapprove such distribution by giving written notice to such company within
30 days after such filing that he or she finds that the financial condition of
the company does not warrant such distribution. The NYSDI has established
informal guidelines for the Superintendent's findings which focus upon, among
other things, the overall financial condition and profitability of the insurer
under statutory accounting practices. During the first six months of 1998, the
Insurance Company paid dividends to the Company of $29.4 million. During 1997,
1996, and 1995, the Insurance Company paid dividends of $24.8 million,
$15.0 million and $5.0 million, respectively, to the Company.

Principal sources of funds at the Insurance Company are premiums and other
considerations paid, contract charges earned, net investment income received
and proceeds from investments called, redeemed or sold. The principal uses of
these funds are the payment of benefits on annuity contracts and life
insurance policies, (including withdrawals and surrender payments), operating
expenses and the purchase of investments.

Net cash provided by the Company's operating activities (reflecting
principally: (i) premiums and contract charges collected less (ii) benefits
paid on life insurance and annuity products plus (iii) income collected on
invested assets less (iv) commissions and other general expenses paid) was
approximately $40.0 million in the six months ended June 30, 1998, and $47.3
million, $43.9 million and $30.2 million in fiscal 1997, 1996 and 1995,
respectively. Net cash provided by (used in) the Company's investing
activities (principally reflecting investments purchased less investments
called, redeemed or sold) was approximately $(55.9) million in the six months
ended June 30, 1998, and $(62.5) million, $(63.7) million and $(162.7) million
in fiscal 1997, 1996 and 1995, respectively.

For purposes of the Company's consolidated statements of cash flows,
financing activities relate primarily to "dollar roll" repurchase
transactions, and to sales and surrenders of the Company's annuity and
universal life insurance products. The payment of dividends by the Company to
its stockholders also is considered to be a financing activity. Net cash
provided by (used in) the Company's financing activities amounted to
approximately $2.4 million in the six months ended June 30, 1998 and $27.9
million, $22.4 million and $131.4 million in fiscal 1997, 1996 and 1995,
respectively. These fluctuations primarily are attributable to the net change
in "dollar roll" repurchase transactions, higher policyholder account
balances, repurchase of Common Stock and an increase in amounts borrowed under
the Short-Term Note during 1997.

20
<PAGE>

The Company currently has one bank line of credit for $25 million of which
$23 million was drawn at June 30, 1998.

Given the Insurance Company's historic cash flow and current financial
results, management believes that, for the next twelve months and for the
reasonably foreseeable future, the Insurance Company's cash flow from
operating activities will provide sufficient liquidity for the operations of
the Insurance Company, as well as provide sufficient funds to the Company, so
that the Company will be able to make dividend payments, satisfy its debt
service obligations and pay its other operating expenses.

Capital expenditures during 1997 were approximately $0.4 million. As of June
30, 1998, the Company had no outstanding commitments for significant capital
expenditures.

To meet its anticipated liquidity requirements, the Company purchases
investments taking into account the anticipated future cash flow requirements
of its underlying liabilities. In managing the relationship between assets and
liabilities, the Company analyzes the cash flows necessary to correspond with
the expected cash needs on the underlying liabilities under various interest
rate scenarios. In addition, the Company invests a portion of its total assets
in short-term investments (approximately 11.0%, 10.3%, 10.0% and 8.2% as of
June 30, 1998 and December 31, 1997, 1996 and 1995, respectively). The
McCaulay's duration of the Company's debt portfolio was approximately six
years as of June 30, 1998. The Company's fixed maturity investments are all
classified as available for sale and include those securities available to be
sold in response to, among other things, changes in market interest rates,
changes in the security's prepayment risk, the Company's need for liquidity
and other similar factors. These investments are carried at estimated market
value, and unrealized gains (losses), net of federal income taxes and deferred
policy acquisition costs, if any, are charged directly to shareholders'
equity, unless a decline in market value is considered to be other than
temporary, in which event the Company recognizes a loss. Equity securities
include common stocks and non-redeemable preferred stocks and are carried at
market, with the related unrealized gains and losses, net of federal income
taxes, if any, charged or credited directly to shareholders' equity, unless a
decline in market value is considered to be other than temporary, in which
event the Company recognizes a loss. See Note 1 of the Notes to the
Consolidated Financial Statements.

The Company maintains a portfolio which includes below investment grade
securities which were purchased to achieve a more favorable investment yield,
all of which are classified as available for sale and reported at estimated
market value. As of June 30, 1998 and December 31, 1997, the carrying value of
these securities was approximately $160.2 million and $164.6 million,
respectively (representing approximately 6.1% and 6.4%, respectively, of the
Company's total assets and 30.6% and 32.8%, respectively of shareholders'
equity).

Investments in below investment grade debt securities have different risks
than investments in corporate debt securities rated investment grade. Risk of
loss upon default by the borrower is significantly greater with respect to
below investment grade debt securities than with respect to other corporate
debt securities because below investment grade debt securities generally are
unsecured and often are subordinated to other creditors of the issuer. Also,
issuers of below investment grade debt securities usually have high levels of
indebtedness and often are more sensitive to adverse economic conditions, such
as recession or increasing interest rates, than are investment grade issuers.
Typically, there is only a thinly traded market for such securities and recent
market quotations may not be available for some of these securities. Market
quotes generally are available only from a limited number of dealers and may
not represent firm bids of such dealers or prices for actual sales. The
Company attempts to reduce the overall risk in its below investment grade
portfolio, as in all of its investments, through careful credit analysis,
investment policy limitations, and diversification by company and by industry.
Below investment grade debt investments, as well as other investments, are
monitored on an ongoing basis.

21
<PAGE>

In certain situations, the terms of some fixed maturity assets are
restructured or modified. There were no restructured fixed maturities at
December 31, 1997.

As of June 30, 1998, approximately 10.5% of the Company's total invested
assets were invested in limited partnerships and 2.5% were invested in equity
securities. Pursuant to NYSDI regulations, the Company's investments in equity
securities, including limited partnership interests, may not exceed 20% of the
Insurance Company's invested assets. Investments in limited partnerships are
included in the Company's consolidated balance sheet under the heading "Other
invested assets." See "Note 2 to the Notes to Consolidated Financial
Statements". The Company is committed, if called upon during a specified
period, to contribute an aggregate of approximately $53.9 million of
additional capital to certain of these limited partnerships. However,
management does not expect this entire amount to be called because certain of
these limited partnerships are nearing the end of the period during which
investors are required to make contributions. The Company may make selective
investments in additional limited partnerships as opportunities arise. In
general, risks associated with such limited partnerships include those related
to their underlying investments (i.e., equity securities, debt securities and
real estate), plus a level of illiquidity, which is mitigated by the ability
of the Company to take annual distributions of partnership earnings. There can
be no assurance that the Company will continue to achieve the same level of
returns on its investments in limited partnerships as it has historically or
that the Company will achieve any returns on such investments at all. Further,
there can be no assurance that the Company will receive a return of all or any
portion of its current or future capital investments in limited partnerships.
The failure of the Company to receive the return of a material portion of its
capital investments in limited partnerships, or to achieve historic levels of
return on such investments, could have a material adverse effect on the
Company's financial condition and results of operations. See "Risk Factors--
Investment Performance."

As previously discussed, during 1998 and 1997 the Company participated in
"dollar roll" repurchase agreement transactions. Amounts outstanding to
repurchase securities under such agreements were approximately $215.6 million
and $205.2 million at June 30, 1998 and December 31, 1997, respectively. The
Company may engage in selected "dollar roll" transactions as market
opportunities arise.

All 50 states of the United States, the District of Columbia and Puerto Rico
have insurance guaranty fund laws requiring all life insurance companies doing
business within the jurisdictions to participate in guaranty associations,
which are organized to pay contractual obligations under insurance policies
(and certificates issued under group insurance policies) issued by impaired or
insolvent life insurance companies. These associations levy assessments (up to
prescribed limits) on all member insurers in a particular state on the basis
of the proportionate share of the premiums written by member insurers in the
lines of business in which the impaired or insolvent insurer is engaged. Some
states permit member insurers to recover assessments paid through full or
partial premium tax offsets. These assessments may be deferred or forgiven
under most guaranty laws if they would threaten an insurer's solvency. The
amount of these assessments in prior years has not been material, however, the
amount and timing of any future assessment on the Insurance Company under
these laws cannot be reasonably estimated and are beyond the control of the
Company and the Insurance Company. Recent failures of substantially larger
insurance companies could result in future assessments in material amounts.

See "Business--Insurance Regulation" for a description of certain NAIC
initiatives that also may impact the Company's financial condition and results
of operations.

YEAR 2000 MATTERS

22
<PAGE>

Purchased hardware will be capitalized in accordance with normal policy.
Personnel and all other costs related to the project are being expensed as
incurred. Based on management's best estimates, the total cost to the Company
of both migrating to a local area network, replacing software and year 2000
compliance activities is not expected to exceed $3.2 million. Since 1994, the
Company has incurred approximately $2.7 million in connection with migrating
to a local area network, replacing software and year 2000 compliance. The
total cost to the Company of these year 2000 compliance activities has not
been and is not anticipated to be material to its financial position or
results of operations in any given year.

EFFECTS OF INFLATION AND INTEREST RATE CHANGES

Management does not believe that inflation has had a material adverse effect
on the Company's consolidated results of operations. The Company seeks to
manage its investment portfolio in part to reduce its exposure to interest
rate fluctuations. In general, the market value of the Company's fixed
maturity portfolio increases or decreases in an inverse relationship with
fluctuations in interest rates, and the Company's net investment income
increases or decreases in direct relationship with interest rate changes. For
example, if interest rates decline, the Company's fixed maturity investments
generally will increase in market value, while net investment income will
decrease as fixed income investments mature or are sold and proceeds are
reinvested at the declining rates, and vice versa. Management is aware that
prevailing market interest rates frequently shift and, accordingly, the
Company has adopted strategies which are designed to address either an
increase or decrease in prevailing rates. In a rising interest rate
environment, the Company's average cost of funds would be expected to increase
over time as it prices its new and renewing annuities to maintain a generally
competitive market rate. Concurrently, the Company would attempt to place new
funds in investments which were matched in duration to, and higher yielding
than, the liabilities associated with such annuities. Management believes that
liquidity necessary in such an interest rate environment to fund withdrawals,
including surrenders, would be available through income, cash flow, the
Company's cash reserves or from the sale of short-term investments. In a
declining interest rate environment, the Company's cost of funds would be
expected to decrease over time, reflecting lower interest crediting rates on
its fixed annuities. Should increased liquidity be required for withdrawals in
such an interest rate environment, management believes that the portion of the
Company's investments which are designated as available for sale in the
Company's consolidated balance sheet could be sold without materially adverse
consequences in light of the general strengthening in market prices which
would be expected in the fixed maturity security market.

Interest rate changes also may have temporary effects on the sale and
profitability of the annuity and universal life products offered by the
Company. For example, if interest rates rise, competing investments (such as
annuity or life insurance products offered by the Company's competitors,
certificates of deposit, mutual funds and similar instruments) may become more
attractive to potential purchasers of the Company's products until the Company
increases the rates credited to holders of its annuity and universal life
products. In contrast, as interest rates fall, the Company attempts to lower
its credited rates to compensate for the corresponding decline in its net
investment income. As a result, changes in interest rates could materially
adversely affect the financial condition and results of operations of the
Company depending on the attractiveness of alternative investments available
to the Company's customers. In that regard, in the current interest rate
environment, the Company has attempted to maintain its credited rates at
competitive levels which are designed to discourage surrenders and which may
be considered attractive to purchasers of new annuity products. In addition,
because the level of prevailing interest rates impacts the Company as well as
its competitors, management does not believe that the low interest rate
environment has materially affected the Company's competitive position vis a
vis other life insurance companies that emphasize the sale of annuity
products. Notwithstanding the foregoing, if interest rates continue at current
levels or decline further, there can be no assurance that this segment of the
life insurance industry, including the Company, would not experience increased
levels of surrenders and reduced sales and thereby be materially adversely
affected.

FORWARD LOOKING INFORMATION

The Company cautions readers regarding certain forward-looking statements
contained in this Prospectus and in any other statements made by, or on behalf
of, the Company, whether or not in future filings with the

23
<PAGE>

Commission. Forward-looking statements are statements not based on historical
information and which relate to future operations, strategies, financial
results, or other developments. Statements using verbs such as "expect,"
"anticipate," "believe" or words of similar import generally involve forward-
looking statements. Without limiting the foregoing, forward-looking statements
include statements which represent the Company's beliefs concerning future
levels of sales and redemptions of the Company's products, investment spreads
and yields, or the earnings and profitability of the Company's activities.

Forward-looking statements are necessarily based on estimates and
assumptions that are inherently subject to significant business, economic and
competitive uncertainties and contingencies, many of which are beyond the
Company's control and many of which are subject to change. These uncertainties
and contingencies could cause actual results to differ materially from those
expressed in any forward-looking statements made by, or on behalf of, the
Company. Whether or not actual results differ materially from forward-looking
statements may depend on numerous foreseeable and unforeseeable developments.
Some may be national in scope, such as general economic conditions, changes in
tax law and changes in interest rates. Some may be related to the insurance
industry generally, such as pricing competition, regulatory developments and
industry consolidation. Others may relate to the Company specifically, such as
credit, volatility and other risks associated with the Company's investment
portfolio. The Company disclaims any obligation to update forward-looking
information.

RECENT ACCOUNTING PRONOUNCEMENTS

In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" (SFAS No. 130), which establishes standards for displaying
comprehensive income and its components in a full set of general-purpose
financial statements. Effective January 1998, the Company adopted SFAS No.
130. Total comprehensive income (loss) for the periods ended June 30, 1998 and
1997 was $37.41 million and $30.38 million, respectively. The difference
between net income and comprehensive income (loss) was the change in
unrealized investment gains (losses) which arose during the period.

Also in June 1997, the FASB issued Statement of Financial Accounting
Standards No. 131, "Disclosures about Segments of an Enterprise and Related
Information" (SFAS No. 131). SFAS No. 131 establishes standards for reporting
information about operating segments in annual financial statements and
requires reporting selected information about operating segments in interim
financial reports issued to shareholders. SFAS No. 131 is effective for years
beginning after December 15, 1997. The Company's current definition of its
operating segments did not change.

In February 1998, the FASB issued Statement of Financial Accounting
Standards No. 132, "Employers' Disclosure about Pensions and Other
Postretirement Benefits" (SFAS 132), which revises employers' disclosures
about pension and other postretirement benefit plans to require standardized
disclosures for pensions and other postretirement benefits, additional
disclosure of information on changes in the benefit obligations and fair
values of plan assets, and elimination of certain disclosures that were deemed
no longer useful. It does not change the measurement or recognition of those
plans. SFAS 132 is effective for years beginning after December 15, 1997.

In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS
133). SFAS 133 establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. It 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. It also establishes
specific conditions that must be met in order for a derivative to be
recognized as a hedge of certain exposures. The Company has not yet completed
its analysis to determine the impact of this statement on the Company's
financial statements. SFAS 133 is effective for years beginning after June 15,
1999.

24
<PAGE>

BUSINESS

GENERAL

The Company is an insurance holding company that, through the Insurance
Company, operates principally in a single business segment with two primary
lines of business--individual annuities and individual life insurance. During
the last two years, over 90% of the Company's net premium income was derived
from its individual annuity business. The Insurance Company is licensed to
market its products in 48 states and the District of Columbia. However, for
the six months ended June 30, 1998, approximately 58.5% of the gross annuity
considerations and life insurance premiums received by the Company were sold
to annuitants and policyholders residing in the State of New York.

PRODUCTS

The Company currently emphasizes the sale of a variety of single premium and
flexible premium annuity products (including those written in connection with
funding agreements for certain state lotteries, group annuities and other
structured settlements), as well as annual and single premium life insurance
products. Each of these products is designed to meet the needs of increasingly
sophisticated consumers for supplemental retirement income, estate planning
and financial protection in the event of unexpected death.

ANNUITY BUSINESS

Annuities currently enjoy an advantage over certain other savings mechanisms
because the annuitant receives a tax deferred accrual of interest on his or
her investment.

SINGLE PREMIUM ANNUITY products require a one-time lump sum premium payment.
During the accumulation period, the accrual of interest is on a tax deferred
basis to the annuitant.

SINGLE PREMIUM DEFERRED ANNUITIES ("SPDAs") provide for a single premium
payment at the time of issue, an accumulation period and an annuity payout
period at some future date. During the accumulation period, the Company
credits the account value of the annuitant with interest earnings at a current
interest rate that is guaranteed for periods ranging from one to five years,
at the annuitant's option, and that, thereafter, is subject to change based on
market and other conditions. Each contract also has a minimum guaranteed rate.
This accrual of interest during the accumulation period is on a tax deferred
basis to the annuitant. After the number of years specified in the annuity
contract, the annuitant may elect to take the proceeds of the annuity as a
single payment, a specified income for life or a specified income for a fixed
number of years. The annuitant is permitted at any time during the
accumulation period to withdraw all or part of the single premium paid plus
the amount credited to his or her account. Any such withdrawal, however,
typically is subject to a surrender charge during the early years of the
annuity contract.

SINGLE PREMIUM IMMEDIATE ANNUITY PRODUCTS ("SPIAs") guarantee a stream of
payments which begin immediately and continue for the life of the annuitant.
The payment may be guaranteed for a period of time (typically five to 20
years) (the "Guarantee Period"). If the annuitant dies during the Guarantee
Period, payments will continue to be made to the annuitant's beneficiary for
the balance of the Guarantee Period. SPIAs differ from deferred annuities in
that generally they provide for payments to begin immediately and are not
subject to surrender or loan. The implicit interest rate on SPIAs is based on
market conditions which existed at the time that the annuity was issued and is
guaranteed for the term of the annuity.

SINGLE PREMIUM IMMEDIATE INCOME PRODUCTS ("SPIIs") are similar to SPIAs in
that they guarantee a stream of payments. Unlike SPIAs, SPII payments always
are guaranteed for a specified period of time, not for the life of the
annuitant. Payments are made to the payee or beneficiary even if the annuitant
dies during the payout period.

25
<PAGE>

SINGLE PREMIUM IMMEDIATE STRUCTURED SETTLEMENT ANNUITIES provide an
alternative to a lump-sum payment or settlement in the case of a lottery or a
personal injury case, as the case may be, and generally are purchased by state
lottery agencies for the benefit of a lottery winner or by property and
casualty insurance companies for the benefit of an injured claimant, as the
case may be, with benefits scheduled over a fixed period or, over a fixed
period and for the life of the annuitant thereafter. Structured settlements
offer tax advantaged long-range financial security to the annuitant and
facilitate the operations of state lottery agencies and the ability of
casualty insurance carriers to effect claim settlements. Structured settlement
annuities are long-term in nature, guarantee a fixed benefit stream and cannot
be surrendered or borrowed against.

FLEXIBLE PREMIUM ANNUITY products provide similar benefits to those provided
by the Company's single premium annuity products, but instead permit periodic
premium payments in such amounts as the holder deems appropriate. As a result,
the benefits attributable to such products will fluctuate according to the
level of such payments.

GROUP TERMINAL FUNDING ANNUITY products provide benefits similar to single
premium immediate annuities. Benefits are provided to employees when a
company's pension plan is terminated or when the employer wants to transfer
liability for making payments. Group terminal funding annuities cannot be
surrendered or borrowed against.

All of the Company's annuity products provide minimum interest rate
guarantees. The minimum guaranteed rates on the Company's annuity products
currently range from 4% to 5 1/2% annually, and the contracts (except for
SPIAs) are designed to permit the Company to change the crediting rates
annually subject to the minimum guaranteed rate. The Company takes into
account the profitability of its annuity business and its relative competitive
position in determining the frequency and extent of changes to the interest
crediting rates.

The Company's deferred annuity products are designed to encourage
persistency by incorporating surrender charges that exceed the cost of issuing
the annuity. An annuitant may not terminate or withdraw substantial funds for
periods generally ranging from one to seven years without incurring
significant penalties in the form of surrender charges. "See Risk Factors--
Surrenderable Annuities." Notwithstanding the foregoing, approximately 59.1%
of the Company's deferred annuity contracts in force (measured by reserves) as
of June 30, 1998 are surrenderable without charge.

The following table presents annuity products in force measured by reserves,
as well as certain statistical data for each of the six month periods ended
June 30, 1997 and 1998 and for each of the years in the five year period ended
December 31, 1997, in each case, as determined in accordance with GAAP.

ANNUITIES IN FORCE

<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF JUNE 30,
---------------------------------------------------------- ----------------------
1993 1994 1995 1996 1997 1997 1998
---------- ---------- ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT RATIO, NUMBER AND AVERAGE SIZE OF CONTRACT
INFORMATION)
<S> <C> <C> <C> <C> <C> <C> <C>
Single premium immediate
structured settlement
annuities.............. $ 156,339 $ 159,508 $ 163,384 $ 164,214 $ 167,269 $ 166,015 $ 167,755
Single premium immediate
annuities.............. 303,503 277,463 262,449 263,974 281,665 270,696 298,897
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total immediate
annuities............. 459,842 436,971 425,833 428,188 448,934 436,711 466,652
Single premium deferred
annuities.............. 807,562 787,290 808,292 810,636 835,900 809,531 841,114
Flexible premium
annuities.............. 198,162 195,144 196,406 182,505 168,023 174,987 163,265
Group terminal funding
annuities.............. 103,338 103,232 104,046 103,941 103,965 104,136 103,558
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total annuities........ $1,568,904 $1,522,637 $1,534,577 $1,525,270 $1,556,822 $1,525,365 $1,574,589
========== ========== ========== ========== ========== ========== ==========
Ratio of annualized
voluntary terminations
(surrenders and lapses)
to mean insurance in
force.................. 20.6% 19.7% 16.5% 15.3% 15.2% 15.9% 18.2%
Number of annuity
contracts in force..... 57,628 53,378 50,694 45,717 45,554 46,455 44,540
Average size of annuity
contract in force...... $ 27,225 $ 28,526 $ 30,271 $ 33,363 $ 34,175 $ 32,835 $ 35,352
</TABLE>

26
<PAGE>

ANNUITY CONSIDERATIONS AND PREMIUMS--The following table sets forth certain
information with respect to the Insurance Company's annuity considerations and
premium revenues for each of the six month periods ended June 30, 1997 and
1998 and for each of the five years ended December 31, 1997, as determined in
accordance with statutory accounting principles. Premiums shown on the
Company's Consolidated Financial Statements in accordance with GAAP consist of
premiums received for whole or term life insurance products, as well as that
portion of the Company's single premium immediate annuities which have life
contingencies. With respect to that portion of single premium annuity
contracts without life contingencies, as well as deferred annuities and
universal life insurance products, premiums collected by the Company are not
reported as premium revenues, but rather are reported as additions to
policyholder account balances on the Company's consolidated balance sheet.

DISTRIBUTION OF PRODUCTS--BY GROSS PREMIUMS AND OTHER CONSIDERATIONS

<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF JUNE 30,
------------------------------------------ ---------------
1993 1994 1995 1996 1997 1997 1998
------- ------- -------- -------- -------- ------- -------
(IN THOUSANDS, EXCEPT NUMBER AND AVERAGE SIZE OF POLICY
INFORMATION)
<S> <C> <C> <C> <C> <C> <C> <C>
Annuity Considerations.. $44,172 $44,574 $ 97,313 $102,343 $132,601 $55,042 $66,076
Whole life and term
life................... 9,260 8,363 8,200 8,254 8,364 3,996 3,796
Universal life.......... 3,449 4,320 3,581 3,152 3,811 1,878 2,163
------- ------- -------- -------- -------- ------- -------
Total Premiums and
Considerations....... $56,881 $57,257 $109,094 $113,749 $144,776 $60,916 $72,035
======= ======= ======== ======== ======== ======= =======
Number of life insurance
policies in force...... 21,627 20,359 19,650 19,069 18,708 18,825 18,531
Average size of life
insurance policy in
force.................. $52,038 $49,347 $ 47,518 $ 45,352 $ 44,006 $44,355 $42,944
</TABLE>

LIFE INSURANCE BUSINESS

UNIVERSAL LIFE policies are interest-sensitive products which typically
provide the insured with "nonparticipating" (i.e. non-dividend paying) life
insurance with a guaranteed cash value. Current interest is credited to the
policy's cash value based upon interest rates that periodically are revised by
the Company to reflect current economic conditions (primarily interest rates).
In no event, however, will the interest rate credited on the policy's cash
value be less than the guaranteed rate specified in the policy. The Company
offers both flexible premium and single premium universal life insurance
products. The Company's flexible premium and single premium universal life
insurance products differ based on policy provisions affecting the amount and
timing of premium payments.

WHOLE LIFE policies are products which provide the insured with life
insurance with a cash value. Current interest is credited to the policy's cash
value based upon interest rates which existed at the time that the policy was
issued. Typically, a fixed premium, which costs more than comparable term
coverage when the policyholder is younger, but less than comparable term
coverage as the policyholder grows older, is paid over a period of years.
Whole life insurance products combine insurance protection with a savings plan
that gradually increases in amount over time. With respect to the Company's
whole life insurance products, the policyholder may borrow against the
policy's accumulated cash value. However, the death benefit is decreased by
the amount of the outstanding loan. In addition, the policyholder may choose
to surrender the policy and receive the accumulated cash value rather than
continuing the insurance protection.

TERM LIFE policies are products which provide insurance protection if the
insured dies during the time period specified in the policy. No cash value is
built up. These products provide the maximum benefit for the lowest initial
premium outlay. The Company's term life insurance products include annually
renewable, convertible and decreasing term insurance.

27
<PAGE>

GRADED BENEFIT LIFE policies are products designed for the upper age (i.e.,
ages 40 to 80), sub-standard applicant. Depending upon age, these products
provide for a limited death benefit of either the return of premium plus 5%
interest for three years, or the return of premium plus 5% interest for two
years. Thereafter, the death benefit is limited to the face amount of the
policy. This product typically is offered with a maximum face value of
$25,000.

INCREASING PREMIUM WHOLE LIFE policies are products which have
characteristics of both whole life and term life products. Initial premiums
are comparatively low and generally increase each year until the twentieth
policy year when the premium becomes fixed. No cash values are built up in the
early years of the policy, but cash values do begin to accumulate in the later
(typically around the fifteenth policy year) years of the policy.

INSURANCE POLICIES IN FORCE The following table provides a reconciliation of
beginning and ending universal, whole and term life insurance policies, in
force, as well as certain statistical data for each of the six-month periods
ended June 30, 1998 and 1997 and for each of the years in the five year period
ended December 31, 1997.

LIFE INSURANCE IN FORCE

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
-------------------------------------------------- -----------------
1993 1994 1995 1996 1997 1997 1998
---------- ---------- ---------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
IN FORCE BEGINNING OF
PERIOD:
Universal............. $ 417,198 $ 398,720 $ 392,774 $393,002 $384,008 $384,008 $383,233
Whole(1).............. 652,437 525,517 425,950 351,479 304,740 304,740 263,554
Term.................. 221,208 201,194 185,934 189,254 176,061 176,061 176,470
---------- ---------- ---------- -------- -------- -------- --------
Total............... 1,290,843 1,125,431 1,004,658 933,735 864,809 864,809 823,257
SALES AND ADDITIONS:
Universal............. 16,627 23,447 20,490 16,526 25,747 10,171 10,557
Whole(1).............. 63,356 62,414 54,089 44,785 42,596 18,758 17,509
Term.................. 16,073 17,753 29,404 19,295 28,985 12,680 17,058
---------- ---------- ---------- -------- -------- -------- --------
Total............... 96,056 103,614 103,983 80,606 97,328 41,609 45,124
TERMINATIONS:
Death................. 6,322 5,639 10,329 7,047 6,549 3,123 3,008
Surrenders and
conversions.......... 25,272 16,554 13,009 16,768 19,387 9,150 8,364
Lapses................ 223,935 195,309 147,134 121,761 108,846 56,106 61,716
Other................. 5,939 6,885 4,334 3,956 4,099 1,859 2,072
---------- ---------- ---------- -------- -------- -------- --------
Total............... 261,468 224,387 174,906 149,532 138,881 70,238 75,161
IN FORCE AT END OF
PERIOD:
Universal............. 398,720 392,774 393,002 384,008 383,233 381,489 379,961
Whole(1).............. 525,517 425,950 351,479 304,740 263,554 281,050 238,625
Term.................. 201,194 185,934 189,254 176,061 176,470 173,641 174,635
---------- ---------- ---------- -------- -------- -------- --------
Total............... $1,125,431 $1,004,658 $ 933,735 $864,809 $823,257 $836,180 $793,221
Total reinsurance
ceded.................. $ 716,527 $ 626,152 $ 573,324 $517,484 $476,248 $501,510 $449,933
---------- ---------- ---------- -------- -------- -------- --------
Total amounts in force
at end of year after
reinsurance ceded...... $ 408,904 $ 378,506 $ 360,411 $347,325 $347,009 $334,670 $343,288
========== ========== ========== ======== ======== ======== ========
</TABLE>
- --------
(1) Includes graded benefit life insurance products.

28
<PAGE>

MARKETING AND DISTRIBUTION

The Company, through the Insurance Company, is licensed to market its
products in 48 states and in the District of Columbia. The Company sells its
individual annuity and life insurance products through approximately 570
independent general agents (approximately 225 of which are located in the
State of New York), who are independent contractors. These independent general
agents market the Company's products through approximately 6,690 licensed
insurance agents or brokers, most of whom also write products similar to those
sold by the Company for other companies. Management believes that the Company
offers competitive commission rates and seeks to provide innovative products
and quality service to its independent general agents. Compensation of agents
is strictly regulated by the NYSDI.

The independent general agency system has been the Insurance Company's
primary distribution system since the Insurance Company was founded.
Management believes that the Company's consistent focus on the independent
general agent distribution system provides a cost advantage, since the Company
incurs no fixed costs associated with recruiting, training and maintaining
employee agents. Accordingly, a substantial portion of the costs associated
with generating new business for the Company are not fixed costs but vary
directly with the level of business produced.

Since the Company utilizes independent general agents to market its
products, it is not dependent on any one agency for any substantial amount of
its business. On the other hand, the independent agents are not captive to the
Company, and most write products similar to those sold by the Company for
other companies. This can result in significant sales declines if for any
reason the Company is relatively less competitive or if there is cause for
general concern.

Among other things, crediting rates, commissions, the perceived quality of
the issuer, product features and services generally are significant factors
that management believes influence an agent's willingness and ability to sell
particular annuity products. The Company generally issues annuity contracts,
together with the agent's commission check, within two business days of
receiving the application and premium. The Company also seeks to provide
ongoing service to the agent. Towards that end, the Company provides agents
with access to the Company's senior executives. In addition, agents and
contract owners can access information about their contracts via a toll-free
telephone number.

The Company's top ten general agents accounted for approximately 35.2% of
the Company's combined annuity contracts and individual life insurance
policies sold, (measured by the combined considerations and premiums), during
1997 and approximately 26.0%, in the six months ended June 30, 1998. Of the
Company's combined annuity contracts and individual life insurance policies
sold no single agent accounted for more than 1.0% during 1997 or 1.0% in the
six months ended June 30, 1998 and no single general agency accounted for more
than 8.6% during 1997 or 9.8% in the six months ended June 30, 1998. The loss
of any single sales source would not have a material adverse effect on the
Company, but the loss of several could cause a decline in sales until they are
replaced by the appointment of other general agents. The Company's agency
department actively recruits new general agents on a continuous basis.

PRICING

Management believes that the Company is able to offer its products at
competitive prices to its targeted markets as a result of: (i) maintaining
relatively low issuance costs by selling through the independent general
agency system; (ii) minimizing home office administrative costs; and (iii)
utilizing appropriate underwriting guidelines.

The long-term profitability of sales of life insurance and most annuity
products depends on the degree of margin of the actuarial assumptions that
underlie the pricing of such products. Actuarial calculations for such
products, and the ultimate profitability of sales of such products, are based
on four major factors: (i) persistency; (ii) rate of return on cash invested
during the life of the policy or contract; (iii) expenses of acquiring and
administering the policy or contract; and (iv) mortality.

29
<PAGE>

Persistency is the rate which insurance policies or annuity contracts remain
in force, expressed as a percentage of the number of policies remaining in
force over the previous year. Policyholders sometimes do not pay premiums,
thus, causing their policies to lapse.

The assumed rate of return on invested cash and desired spreads during the
period that annuity contracts or insurance policies are in force also affects
pricing of products and currently includes an assumption by the Company of a
specified rate of return and/or spread on its investments for each year that
such annuity or insurance product is in force.

Another major factor affecting profitability is the level of expenses.
Management believes that one of the Company's strengths is its concentration
on minimizing expenses through periodic review and adjustment of general and
administrative costs.

Mortality is the rate of death experienced by life insurance policyholders
and certain annuitants taken as a group. For calculating premiums, the Company
uses actuarial assumptions with margins added to allow for adverse statistical
variations. Actual mortality experience in a particular period may be
different than actuarially expected mortality experience and, consequently,
may adversely affect the Company's operating results for such period.

UNDERWRITING PROCEDURES

Premiums charged on insurance products are based, in part, on assumptions
about the expected mortality experience. In that regard, the Company has
adopted and follows detailed, uniform underwriting procedures designed to
assess and quantify insurance risks before issuing life insurance policies to
individuals. To implement these procedures, the Company employs an experienced
professional underwriting staff. The underwriting practice of the Company is
to require attending physicians' statements and medical examinations for each
applicant over age 55 or for policies in excess of certain prescribed policy
amounts, ranging from $25,000 and up. These requirements are graduated
according to the applicant's age and the face amount of the policy. The
Company also carefully reviews medical records and each applicant's written
application for insurance, which generally is prepared under the supervision
of one of the Company's independent general agents. The factors considered in
evaluating an application for individual life insurance coverage include the
applicant's age, occupation, avocations, driving record, finances, aviation
activities, smoking habits, alcohol usage and general health and medical
history. These factors are discovered through the application, attending
physicians' statements, consumer investigation reports from investigative
agencies, direct contact, motor vehicle reports and the Medical Information
Bureau, an insurance industry information service. In accordance with industry
practice, material misrepresentations on a policy application can result in
the cancellation by the Company of the policy under the two year
incontestability clause in the general provisions of the policy.

To the extent that an applicant does not meet the Company's underwriting
standards for issuance of a policy at the standard risk classifications, the
Company may offer to issue a classified, sub-standard or impaired risk policy
for a risk adjusted premium amount rather than declining the application. The
amount of the Company's impaired risk insurance in force in proportion to the
total amount of the Company's individual life insurance in force was
approximately 4.4% at December 31, 1997 and approximately 4.5% at June 30,
1998.

Acquired Immune Deficiency Syndrome ("AIDS"), which has received wide
publicity because of its serious public health implications, presents special
concerns to the life insurance industry. Mortality risks are accepted by
insurers based on methods of classification designed to appropriately relate
premiums charged to such risks and, in this connection, steps have been taken
toward strengthening the Company's underwriting and selection process. The
Company considers AIDS information in underwriting and pricing decisions in
accordance with applicable laws. A prospective policyholder must submit to a
blood and urine test, which includes AIDS antibody screening, if the amount of
coverage applied for equals or exceeds $100,000. The Company's own mortality
experience reflects no significant adverse impact as a result of any
acceleration of AIDS-related claims. The Company is continuing to monitor
developments in this area but is necessarily unable to predict the long term
impact of this problem on the life insurance industry, in general, or on the
Company, in particular.

30
<PAGE>

ANNUITY AND LIFE INSURANCE RESERVES

In accordance with applicable insurance regulations, the Company has
established and carries as liabilities in its statutory financial statements
actuarially determined reserves that are calculated to satisfy its contract
and policy obligations. Reserves, together with premiums to be received on
outstanding contracts and policies and interest thereon at certain assumed
rates, are calculated to be sufficient to satisfy policy and contract
obligations. The actuarial factors used in determining such reserves are based
on statutorily prescribed mortality and morbidity tables and interest rates.
Reserves maintained also include unearned premiums, premium deposits, reserves
for claims that have been reported but are not yet paid, reserves for claims
that have been incurred but have not yet been reported and claims in the
process of settlement. Generally, the Company maintains reserves on assumed
reinsurance, but does not continue accumulating reserves with respect to that
portion of policies or contracts that are reinsured with, or ceded to, other
insurance companies. Reserves for assumed reinsurance are computed on bases
essentially comparable to direct insurance reserves.

The reserves reflected in the Company's Consolidated Financial Statements
included herein are calculated based on GAAP and differ from those specified
by the laws of the various states in which the Company does business and those
reflected in the Company's statutory financial statements. These differences
arise from the use of different mortality and morbidity tables and interest
rate assumptions, the introduction of lapse assumptions into the reserve
calculation and the use of the net level premium reserve method on all
insurance business. See Notes 1G, 1H and 8 of the Notes to the Consolidated
Financial Statements.

The reserves reflected in the Company's Consolidated Financial Statements
are based upon the Company's best estimates of mortality, persistency,
expenses and investment income, with appropriate provisions for adverse
statistical deviation and the use of the net level premium method for all non-
interest-sensitive products. For all interest-sensitive products the policy
account value is equal to the accumulation of gross premiums plus interest
credited less mortality and expense charges and withdrawals. In determining
reserves for its annuity and insurance products, the Company performs periodic
studies to compare current experience for mortality, interest and lapse rates
with expected experience in the reserve assumptions. Differences are reflected
currently in earnings for each period. The Company historically has not
experienced significant adverse deviations from its assumptions.

CLAIMS PAYING AND OTHER RATINGS

The Insurance Company is rated "A- (Excellent)" by A.M. Best. Publications
of A.M. Best indicate that the "A-" rating is assigned to those companies
that, in A.M. Best's opinion, have achieved excellent overall performance when
compared to the norms of the insurance industry and which generally have
demonstrated a strong ability to meet their respective policyholder and other
contractual obligations over a long period of time.

In evaluating a company's statutory financial and operating performance,
A.M. Best reviews the company's profitability, leverage and liquidity, as well
as the company's book of business, the adequacy and soundness of its
reinsurance, the quality and estimated market value of its assets, the
adequacy of its reserves and the experience and competency of its management.

A.M. Best's rating is based on factors which primarily are relevant to
policyholders, agents and intermediaries and is not directed towards the
protection of investors, nor is it intended to allow investors to rely on such
a rating in evaluating the financial condition of the Insurance Company.
Moody's Investor Services ("Moody's") rates the Insurance Company's insurance
financial strength as Baa2. Standard & Poor's Corporation rates the Insurance
Company's insurance financial strength as Api.

POLICY CLAIMS

Claims are received and reviewed by claims examiners at the Company's home
office. The initial review of claims includes verification that coverage is in
force and that the claim is not subject to an exclusion under the policy.
Birth and death certificates are basic requirements. Medical records and
investigative reports are ordered for contestable claims.

31
<PAGE>

REINSURANCE

The Company follows the usual industry practice of reinsuring ("ceding")
portions of its life insurance risks with other companies, a practice which
permits the Company to write policies in amounts larger than the risk it is
willing to retain on any one life, and also to continue writing a larger
volume of new business. The Company also reinsures a portion of its life
insurance business in order to obtain commissions on the insurance ceded and
thereby reducing its net commission expense. The maximum amount of individual
life insurance normally retained by the Company on any one life is $50,000 per
policy and $100,000 per life. The maximum retention with respect to impaired
risk policies typically is the same. The Company cedes insurance primarily on
an "automatic" basis, under which risks are ceded to a reinsurer on specific
blocks of business where the underlying risks meet certain predetermined
criteria, and on a "facultative" basis, under which the reinsurer's prior
approval is required on each risk reinsured. Reinsurance assumed consists
entirely of the Company's participation in Servicemen's Group Life Insurance.

Use of reinsurance does not discharge an insurer from liability on the
insurance ceded. An insurer is required to pay the full amount of its
insurance obligations regardless of whether it is entitled or able to receive
payments from its reinsurer. No reinsurer of business ceded by the Company has
failed to pay any policy claims with respect to such ceded business. As of
June 30, 1998, of the approximately $800 million of the Company's life
insurance in force, the Company had ceded to reinsurers approximately $450
million of such insurance in force. The principal reinsuring companies of
individual life policies with whom the Company does business as of June 30,
1998 (and their corresponding A.M. Best ratings) were Life Reassurance
Corporation of America ("A+ (Superior)") and Swiss Re Life Company America ("A
(Excellent)").

COMPETITION

The Company believes that the principal competitive factors in the sale of
annuity and life insurance products are product features, commission
structure, perceived stability of the insurer, claims paying ratings, name
recognition, crediting rates, and service. Many other insurance and other
companies are capable of competing for sales in the Company's target markets.

Management believes that the Company's ability to compete is dependent upon,
among other things, its ability to retain and attract independent general
agents to market its products, its ability to develop competitive products
that also are profitable to the Company and its ability to provide quality
service. Management believes that the Company has good relationships with its
agents, has an adequate variety of products approved for issuance and
generally is competitive within the industry.

INVESTMENTS AND INVESTMENT POLICY

The Company derives a substantial portion of its total revenues from
investment income. The Company manages most of its investments internally. All
investments made on behalf of the Company are governed by the general
requirements and guidelines established and approved by the Company's
investment committee (the "Investment Committee") and by qualitative and
quantitative limits prescribed by applicable insurance laws and regulations.
The Investment Committee meets regularly to set and review investment policy
and to approve current investment plans. The actions of the Investment
Committee are subject to review and approval by the board of directors of the
Insurance Company. The Company's investment policy must comply with NYSDI
regulations and the regulations of other applicable regulatory bodies.

The Company's investment philosophy generally focuses on purchasing
investment grade securities with the intention of holding such securities to
maturity. The Company's investment philosophy is focused on the

32
<PAGE>

intermediate to longer-term horizon and is not oriented towards trading.
However, as market opportunities, liquidity or regulatory considerations may
dictate, securities may be sold prior to maturity. As of June 30, 1998, the
Company has categorized all fixed maturity securities as available for sale.
The Company carries such investments at market value.

The Company manages its investment portfolio to meet the diversification,
yield and liquidity requirements of its annuity contract and insurance policy
obligations. The Company's liquidity requirements are monitored regularly so
that cash flow needs are sufficiently satisfied. Adjustments periodically are
made to the Company's investment policies to reflect changes in the Company's
short-and long-term cash needs, as well as changing business and economic
conditions.

As of June 30, 1998, approximately 22.5% of the Company's investment
portfolio was invested in mortgage-backed related securities, most of which
are U.S. government and agency mortgage-backed securities, and other mortgage-
backed obligations, most of which are collateralized mortgage obligations
("CMOs") backed by residential mortgages. Most of the Company's CMOs represent
beneficial ownership interests in mortgage-backed securities of the Federal
Home Loan Mortgage Corporation ("FHLMC"), the Federal National Mortgage
Association ("FNMA"), the Government National Mortgage Association ("GNMA"),
the Resolution Trust Corporation ("RTC") or other asset-backed securities.
Mortgage-backed securities are subject to significant prepayment risk due to
the fact that, in periods of declining interest rates, mortgages may be repaid
more rapidly than scheduled as borrowers refinance higher rate mortgages to
take advantage of the lower current rates. As a result, holders of mortgage-
backed securities may receive prepayments on their investments which cannot be
reinvested at an interest rate comparable to the rate on the prepaid
mortgages. Notwithstanding the foregoing, because the Company historically has
purchased CMOs in the secondary market at prices which typically are below
their par or maturity value, the Company's portfolio has not been materially
impacted as a result of such prepayments. The Company does not invest in
interest only or principal only CMOs.

As of June 30, 1998, approximately 5.3% of the Company's investment
portfolio consisted of bonds acquired in private placements. While these bonds
are not usually registered with the Commission, management believes that these
bonds are marketable to other institutional investors. Approximately 84.9% of
the investments acquired by the Company in private placements have been
assigned a NAIC designation corresponding to one of the two highest quality
rating categories. For NAIC designations corresponding to the entire
Investment Portfolio, see "--Bond Portfolio Ratings. "

As of June 30, 1998, approximately 10.5% of the Company's investment
portfolio, and 50.8% of its stockholders' equity, consisted of interests in
over forty limited partnerships which are engaged in a variety of investment
strategies, principally including merchant banking, real estate and
international opportunities. In general, risks associated with such limited
partnerships include those related to their underlying investments (i.e.,
equity securities, debt securities and real estate), plus some degree of
illiquidity, which is mitigated by the ability of the Company to take annual
distributions of partnership earnings.

The limited partnerships that are involved in international investments
generally purchase sovereign debt, corporate debt and/or equity in governments
or foreign companies that are developing a greater world wide presence. Such
limited partnerships are operated by a general partner who has a demonstrated
expertise in this area and country. Such investments involve risks related to
the particular country including political instability, currency fluctuations,
and repatriation restrictions.

33
<PAGE>

The Company has been investing in limited partnerships for over nine years.
During this time, the Company has had an opportunity to consider and evaluate
a substantial number of limited partnerships and their managers. The Company
makes limited partnership investments based on a number of considerations,
including the reputation, investment philosophy (particularly with respect to
risk), performance history and investment strategy of the manager of the
limited partnership. Managers of the limited partnerships in which the Company
is invested include, among others, Blackstone Investment Management, Omega
Institutional Partners, Goldman Sachs Partners, Trust Company of the West
Asset Management, Clayton Dubilier & Rice Partners, Apollo Real Estate and DLJ
Real Estate Capital.

Limited partnership investments are selected through a careful, two-stage
review process. Shirley P. Jordan, Executive Vice President and Chief
Investment Officer of the Insurance Company, and her staff review the offering
documents and performance history of each investment manager. Ms. Jordan has
more than 20 years of experience in analyzing investments. Separately, the
Investment Committee (which is comprised of investment professionals who,
collectively have more than 80 years experience in analyzing investments)
interviews the manager to determine whether the investment philosophy
(particularly with respect to risk) and strategies of the limited partnership
are in the best interests of the Company. Only after a positive recommendation
is made by both the Chief Investment Officer and the Investment Committee does
the Company invest in a limited partnership. In addition, the actions of the
Investment Committee are subject to review and approval by the board of
directors of the Insurance Company. To evaluate both the carrying value and
the continuing appropriateness of the Company's investment in any limited
partnership, management maintains ongoing discussions with the investment
manager and considers the limited partnership's operations, its current and
near term projected financial condition, earnings capacity and distributions
received by the Company during the year.

Pursuant to the terms of certain limited partnership agreements to which the
Company is a party, the Company is committed to contribute, if called upon, an
aggregate of approximately $53.9 million of additional capital to certain of
these limited partnerships. However, management does not expect the entire
amount to be drawn down as certain of these limited partnerships are nearing
the end of the period during which investors are required to make
contributions.

The book value of the Company's investments in limited partnerships as of
June 30, 1998 and as of December 31, 1997, 1996 and 1995 was approximately
$265.6 million, $208.2 million, $176.1 million and $150.3 million,
respectively. Net investment income derived from the Company's interests in
limited partnership investments aggregated approximately $30.1 million in the
six months ended June 30, 1998 and $39.8 million, $35.3 million and $25.3
million in fiscal 1997, 1996 and 1995, respectively.

Management anticipates that in the future it will continue to make selective
investments in limited partnerships as opportunities arise, subject to the
approval of the Chief Investment Officer and the Investment Committee and the
review and approval by the board of directors of the applicable company. There
can be no assurance that the Company will continue to achieve the same level
of returns on its investments in limited partnerships that it has achieved
during the six months ended June 30, 1998 or fiscal 1997, 1996 or 1995 or that
it will achieve any returns on such investments at all. In addition, there can
be no assurance that the Company will receive a return of all or any portion
of its current or future capital investments in limited partnerships. The
failure of the Company to receive the return of a material portion of its
capital investments in limited partnerships, or to achieve historic levels of
returns on such investments, could have a material adverse effect on the
Company's financial condition and results of operations.

As of June 30, 1998, the Company's investment portfolio also consisted of
approximately 0.5% invested in convertible debt securities, approximately 8.4%
invested in preferred stock, approximately 0.7% invested in mortgage loans,
and approximately 2.5% invested in common stock. The Company's mortgage loans
were collateralized by commercial office and retail properties located in New
York and Pennsylvania. The Company's only real estate investments are two
buildings which are used as the current home office of the Insurance Company
and two acres of undeveloped land in Nyack, New York.

34
<PAGE>

In order to enhance investment income, the Company participates in "dollar
roll" repurchase agreement transactions. Such transactions involve the sale of
a mortgage-backed security to a holding institution and a simultaneous
agreement to purchase a substantially similar security (with the same coupon
rate as the security sold) for forward settlement (typically, around 30 days)
at a lower dollar price. The proceeds are invested in short-term investment
grade commercial paper or loan participations at a positive spread until the
settlement date of the similar security. In connection with its "dollar roll"
transactions, the Company does not engage in yield maintenance transactions.
The purchase and maturity dates of all short-term investments are matched
exactly to the sale and purchase dates of the underlying collateral, with a
90-day maximum for any one transaction. During this period, the holding
institution receives all income and prepayments for the security. To reduce
the risk that a party will default on its obligations under the repurchase
agreement, the Company only enters into "dollar roll" transactions with major
securities dealers such as Morgan Stanley & Co. Incorporated, Goldman, Sachs &
Co., Merrill Lynch & Co., Salomon Smith Barney Inc., Bear, Stearns & Co. Inc.,
CS First Boston and Sandler, O'Neill L.P. Additionally, if the counterparty to
the "dollar roll" agreement defaults under the terms of such agreement, the
Company is not obligated to repurchase the underlying securities to the
transaction. Under GAAP, during the period between the sale by the Company of
a mortgage-backed security to the holding institution and the Company's
repurchase of a substantially similar mortgage-backed security from the
holding institution, the Company's consolidated balance sheet will reflect
both the mortgage-backed security sold to the holding institution and the cash
received for such security as assets, and the Company's repurchase obligation
as a liability. In 1997 and 1996, dollar roll transactions generated
approximately $1.4 million and $1.0 million, respectively, of net investment
income for the Company. Amounts outstanding to repurchase securities under
dollar roll repurchase agreements were approximately $215.7 million, $205.2
million and $200.9 million as of June 30, 1998, December 31, 1997 and December
31, 1996, respectively.

The following table summarizes the Company's investment portfolio as of June
30, 1998.

INVESTMENT PORTFOLIO

<TABLE>
<CAPTION>
AS OF JUNE 30, 1998
-------------------
TOTAL CARRYING
VALUE(1)
-------------------
(IN THOUSANDS)
<S> <C>
Fixed Maturities
Bonds and Notes:
U.S. Government, government agencies and authorities(2).... $ 515,585
Investment grade corporate(3).............................. 725,682
Public utilities........................................... 168,315
Below investment grade corporate........................... 111,344
Mortgage backed............................................ 155,852
Preferred stocks........................................... 213,523
----------
Total Fixed Maturities(4).................................. 1,890,301
Equity Securities Common Stock............................. 62,957
Other Investments:
Policy loans............................................... 17,738
Mortgage loans............................................. 17,460
Other long-term investments(5)............................. 265,643
Cash and short-term investments(6)......................... 287,170
----------
Total cash and investments................................. $2,541,269
==========
</TABLE>
- --------
(1) All securities are classified as available for sale; accordingly total
carrying value equals estimated market value. Independent pricing services
provide market prices for most publicly-traded securities. Where prices
are unavailable from pricing services, prices are obtained from securities
dealers. Estimated market value either approximates estimated carrying
value or was not readily ascertainable. See Note 1(c) of the Notes to the
Consolidated Financial Statements for an explanation of the methodology
used to value "Other long-term investments."
(2) Approximately $393.4 million of such securities represent beneficial
ownership interests in mortgage- backed securities of FDIC, FHLMC, FNMA,
GNMA or the RTC.
(3) Ratings are based primarily upon those assigned by the NAIC and converted
to the generally comparable Moody's rating.
(4) Includes approximately $29.1 million of convertible debt securities and
convertible preferred stock.
(5) Consist principally of investments in limited partnerships which are
carried at cost and adjusted for income and losses, as well as
contributions and distributions.
(6) Includes approximately $215.67 million attributable to "dollar roll"
repurchase agreements.

35
<PAGE>

The following table summarizes the Company's investment results for the
periods indicated, as determined in accordance with GAAP.

INVESTMENT RESULTS

<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
YEAR ENDED DECEMBER 31, 30,
---------------------------------------------------------- ----------------------
1993 1994 1995 1996 1997 1997 1998
---------- ---------- ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT YIELD DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Cash and total invested
assets(1).............. $2,060,270 $2,008,727 $2,065,285 $2,295,582 $2,398,240 $2,371,103 $2,526,368
Net investment
income(2).............. 185,190 157,251 170,780 186,180 191,818 98,022 110,076
Effective yield(3)...... 9.88% 8.49% 9.01% 8.83% 8.69% 8.81% 9.32%
Net realized investment
gains(4)............... $ 8,805 $ 7,259 $ 17,216 $ 20,020 $ 26,039 $ 11,013 $ 9,069
</TABLE>
- --------
(1) Average of cash and aggregate invested amounts at the beginning and end of
period.
(2) Net investment income is net of investment expenses and excludes capital
gains and losses and provision for income taxes.
(3) Net investment income divided by average cash and total invested assets
minus net investment income.
(4) Net realized investment gains (losses) include provisions for impairment
in value that are considered other than temporary and exclude provisions
for income taxes.

The following table sets forth the composition of the Company's bond
portfolio by rating as of June 30, 1998.

BOND PORTFOLIO RATINGS

<TABLE>
<CAPTION>
AS OF JUNE 30, 1998
------------------------------
ESTIMATED
MARKET PERCENT OF
VALUE(2) TOTAL ESTIMATED
RATING(1) (IN THOUSANDS) MARKET VALUE(2)
- --------- -------------- ---------------
<S> <C> <C>
Aaa.............................................. $ 560,970 33.5%
Aa............................................... 32,852 2.0
A................................................ 311,902 18.6
Baa.............................................. 610,836 36.4
---------- -----
Total investment grade(3)...................... 1,516,560 90.5
---------- -----
Ba............................................... 124,694 7.4
B................................................ 26,064 1.5
C................................................ 9,458 0.6
---------- -----
Total non-investment grade..................... 160,216 9.5
---------- -----
Total........................................ $1,676,776 100.0%
========== =====
</TABLE>
- --------
(1) Ratings are those assigned primarily by Moody's when available, with
remaining ratings as assigned by Standard & Poor's and converted to a
generally comparable Moody's rating. Bonds not rated by any such
organization are included based on the rating prescribed by the Securities
Valuation Office of the NAIC. NAIC class 1 is considered equivalent to an
A or higher rating; class 2, Baa; class 3, Ba; and classes 4-6, B and
below. All securities are classified as available for sale; accordingly
total carrying value equals estimated market value.
(2) Independent pricing services provide market prices for most publicly-
traded securities. Where prices are unavailable from pricing services,
prices are obtained from securities dealers.
(3) Approximately 33.0% of which consist of U.S. government and agency bonds.

According to Moody's, bonds that are rated "A" possess many favorable
investment attributes and are to be considered as upper medium grade
obligations. Moody's applies numerical modifiers "1," "2" and "3" in each
generic rating classification from Aa to B. Modifier "1" indicates a bond in
the higher end of a generic rating classification.

The NAIC assigns securities quality ratings and uniform prices called "NAIC
Designations," which are used by insurers when preparing their statutory
annual statements. The NAIC assigns designations to publicly traded as well as
privately placed securities. The designations assigned by the NAIC range from
class 1 to class 6, with a designation in class 1 being of the highest
quality. NAIC ratings are assigned annually as of December 31, and rerated
periodically. Of the bonds and notes in the Company's investment portfolio,
approximately 93.4%

36
<PAGE>

were in one of the highest two NAIC Designations at June 30, 1998. The
following table sets forth the carrying value and estimated market value of
these securities according to NAIC Designations as of June 30, 1998.

<TABLE>
<CAPTION>
AS OF JUNE 30, 1998
------------------------------
ESTIMATED
NAIC DESIGNATIONS MARKET PERCENT OF
(GENERALLY COMPARABLE TO MOODY'S VALUE(2) TOTAL ESTIMATED
RATINGS)(1) (IN THOUSANDS) MARKET VALUE(2)
-------------------------------- -------------- ---------------
<C> <S> <C> <C>
1 (Aaa, Aa, A)............................. $ 919,509 54.8%
2 (Baa).................................... 645,924 38.5
3 (Ba)..................................... 75,823 4.5
4 (B)...................................... 19,201 1.2
5 (Caa, Ca)................................ 16,320 1.0
6 (C)...................................... 0.0 0.0
---------- -----
$1,676,776 100.0%
========== =====
</TABLE>
- --------
(1) Comparison between NAIC Designations and Moody's rating is as published by
the NAIC. NAIC class 1 is considered equivalent to an A or higher rating
by Moody's class 2, Baa; class 3, Ba; class 4, B; class 5, Caa and Ca; and
class 6, C. All securities are classified as available for sale;
accordingly total carrying value equals estimated market value.
(2) Independent pricing services provide market prices for most publicly-
traded securities. Where prices are unavailable from pricing services,
prices are obtained from securities dealers.

The Insurance Company is subject to Regulation 130 adopted and promulgated
by the NYSDI. Under this Regulation, the Insurance Company's ownership of
below investment grade debt securities is limited to 20% of total admitted
assets, as calculated under statutory accounting. As of June 30, 1998,
approximately 4.5% of the Insurance Company's total admitted assets were
invested in below investment grade debt securities. For a detailed discussion
concerning below investment grade debt securities, including the risks
inherent in such investments, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources." Also see Note 2 of the Notes to the Consolidated Financial
Statements for certain other information concerning the Company's investment
portfolio.

The following table sets forth the scheduled maturities for the Company's
investments in bonds and notes as of June 30, 1998.

SCHEDULED MATURITIES

<TABLE>
<CAPTION>
AS OF JUNE 30, 1998
------------------------------
ESTIMATED
MARKET PERCENT OF
VALUE(2) TOTAL ESTIMATED
MATURITY(1) (IN THOUSANDS) MARKET VALUE(2)
- ----------- -------------- ---------------
<S> <C> <C>
Due in one year or less.......................... $ 27,430 1.7%
Due after one year through five years............ 120,817 7.2
Due after five years through 10 years............ 92,878 5.5
Due after 10 years through 20 years.............. 1,279,799 76.3
---------- -----
Total.......................................... 1,520,924 90.7
Mortgage-backed bonds............................ 155,852 9.3
---------- -----
Total bonds and notes.......................... $1,676,776 100.0%
========== =====
</TABLE>
- --------
(1) This table is based upon stated maturity dates and does not reflect the
effect of prepayments, which would shorten the average life of these
securities. All securities are classified as available for sale;
accordingly total carrying value equals estimated market value.
(2) Independent pricing services provide market prices for most publicly-
traded securities. Where prices are unavailable from pricing services,
prices are obtained from securities dealers.

37
<PAGE>

INSURANCE REGULATION

GENERAL REGULATION

As an insurance holding company, the Company is subject to regulation by the
State of New York, where the Insurance Company is domiciled, as well as all
states in which the Insurance Company transacts business. Most states have
enacted legislation that requires each insurance company in a holding company
system to register with the insurance regulatory authority of the insurance
company state of domicile and furnish to that state financial and other
information concerning the operations of companies within the holding company
system that may materially affect the operations, management or financial
condition of the insurers within the system. The Company has registered as a
holding company system in New York.

The laws and regulations of New York applicable to insurance holding
companies require, among other things, that all transactions within a holding
company system be fair and equitable and that charges for services be
reasonable. In addition, most transactions require either prior notification
to or approval of the Superintendent. Prior written approval of the
Superintendent is required for the direct or indirect acquisition of 10% or
more of the insurance companies' voting securities. Applicable state insurance
laws, rather than federal bankruptcy laws, also apply to the liquidation or
reorganization of insurance companies.

The Insurance Company is subject to regulation and supervision by the
insurance regulatory agencies of the states in which it is authorized to
transact business. State insurance laws establish supervisory agencies with
broad administrative and supervisory powers. Principal among these powers are
granting and revoking licenses to transact business, regulating marketing and
other trade practices, operating guaranty associations, licensing agents,
approving policy forms, regulating certain premium rates, regulating insurance
holding company systems, establishing reserve requirements, prescribing the
form and content of required financial statements and reports, performing
financial, market conduct and other examinations, determining the
reasonableness and adequacy of statutory capital and surplus, defining
acceptable accounting principles, regulating the type, valuation and amount of
investments permitted, and limiting the amount of dividends that can be paid
and the size of transactions that can be consummated without first obtaining
regulatory approval.

During the last decade, the insurance regulatory framework has been placed
under increased scrutiny by various states, the federal government and the
NAIC. Various states have considered or enacted legislation that changes, and
in many cases increases, the states' authority to regulate insurance
companies. Legislation has been introduced from time to time in Congress that
could result in the federal government assuming some role in the regulation of
insurance companies or allowing combinations between insurance companies,
banks and other entities. In recent years, the NAIC has approved and
recommended to the states for adoption and implementation several regulatory
initiatives designed to reduce the risk of insurance company insolvencies and
market conduct violations. These initiatives include investment reserve
requirements, risk-based capital standards, codification of insurance
accounting principles, new investment standards and restrictions on an
insurance company's ability to pay dividends to its stockholders. The NAIC is
also currently developing model laws relating to product design and
illustrations for annuity products. Current proposals are still being debated
and the Company is monitoring developments in this area and the effects any
changes would have on the Company.

The Insurance Company is required to file detailed periodic reports and
financial statements with the state insurance regulators in each of the states
in which it does business. In addition, insurance regulators periodically
examine the Insurance Company's financial condition, adherence to statutory
accounting practices and compliance with insurance department rules and
regulations. As part of their routine regulatory oversight process, the NYSDI
generally conducts detailed examinations every three years of the books,
records and accounts of the Insurance Company. The Insurance Company's last
examination occurred during 1997 for the three-year period ended December 31,
1996. The final report did not raise any issues or require or recommend
adjustments.

REGULATION OF DIVIDENDS AND OTHER PAYMENTS FROM THE INSURANCE COMPANY

38
<PAGE>

The Insurance Company is subject to various regulatory restrictions on the
maximum amount of payments, including loans or cash advances, that it may make
to the Company without obtaining prior regulatory approval. As a New York
domiciled insurance company, the Insurance Company is subject to restrictions
on the payment of dividends under New York law. New York law states that no
domestic stock life insurance company shall distribute any dividend to its
shareholders unless a notice of its intention to declare such dividend and the
amount thereof shall have been filed with the Superintendent not less than 30
days in advance of such proposed declaration. The Superintendent may
disapprove such distribution by giving written notice to such company within
30 days after such filing that he or she finds that the financial condition of
the company does not warrant such distribution. The NYSDI has established
informal guidelines for the Superintendent's determinations which focus upon,
among other things, the overall financial condition and profitability of the
insurer under statutory accounting practices. During 1997, 1996 and 1995, and
the first six months ended June 30, 1998 the Insurance Company paid dividends
of $24.8 million, $15.0 million, $5.0 million and $29.4 million, respectively,
to the Company.

In the past, the NAIC proposed the NAIC Model Act which limits dividends
that may be paid in any calendar year without regulatory approval to the
lesser of (1) 10% of the insurer's statutory surplus at the prior year-end or
(2) 100% of the statutory net gain from operations of the insurer (not
including realized capital gains) for the prior calendar year. The NAIC has
determined that it will not grant accreditation to any state insurance
regulatory authority in a state that has not enacted statutes "substantially
similar" to the NAIC Model Act regulating the payment of dividends by
insurers. The New York statutes applicable to the Insurance Company do not
conform to the NAIC Model Act and the legislature of New York may consider
legislation to bring New York laws into substantial compliance with the NAIC
Model Act.

INVESTMENT RESERVE

ASSET VALUATION RESERVE. Statutory accounting practices require a life
insurance company to maintain an Asset Valuation Reserve ("AVR") to absorb
realized and unrealized capital gains and losses on a portion of an insurer's
fixed income securities and equity securities.

The AVR is required to stabilize statutory surplus from fluctuations in the
market value of bonds, stocks, mortgage loans, real estate and other invested
assets. The maximum AVR is calculated based on the application of various
factors that are applied to the assets in an insurer's portfolio. The AVR
generally captures credit-related realized and unrealized capital gains or
losses on such assets. Each year the amount of an insurer's AVR will fluctuate
as the investment portfolio changes and capital gains or losses are absorbed
by the reserve. To adjust for such changes over time, contributions must be
made to the AVR in an aggregate annual amount equal to 20% of the difference
between the maximum AVR as calculated and the actual AVR. These contributions
may result in a slower rate of growth in or a reduction of the Insurance
Company's Unassigned Surplus. The extent of the impact of the AVR on the
Insurance Company's surplus depends in part on the future composition of the
Insurance Company's investment portfolio.

INTEREST MAINTENANCE RESERVE. The Interest Maintenance Reserve (the "IMR")
captures capital gains and losses (net of taxes) on fixed income investments
(primarily bonds and mortgage loans) resulting from interest rate changes,
which are amortized into net income over the estimated remaining periods to
maturity of the investments sold. The extent of the impact of the IMR depends
on the amount of future capital gains and losses on fixed maturity investments
resulting from interest rate changes.

NAIC-IRIS RATIOS

The NAIC's Insurance Regulatory Information System ("IRIS") was developed by
a committee of state insurance regulators and primarily is intended to assist
state insurance departments in executing their statutory mandates to oversee
the financial condition of insurance companies operating in their respective
states. IRIS identifies 12 industry ratios and specifies "normal ranges" for
each ratio. The IRIS ratios were designed to advise state insurance regulators
of significant changes in the operations of an insurance company, such as
changes in its product mix, large reinsurance transactions, increases or
decreases in premiums received and

39
<PAGE>

certain other changes in operations. These changes need not result from any
problems with an insurance company but merely indicate changes in certain
ratios outside ranges defined as normal by the NAIC. When an insurance company
has four or more ratios falling outside "normal ranges," such state regulators
may, but are not obligated to, inquire of the company regarding the nature of
the company's business to determine the reasons for the ratios being outside
the "normal range." No regulatory significance results from being out of the
normal range on fewer than four of the ratios. The Company anticipates that it
may from time to time fall outside the "normal range" on some of these ratios.
For the year ended December 31, 1997, the Company was within the normal range
for all of the ratios. If four or more of the Company's ratios fall outside
the "normal range," the Company is likely to experience regulatory inquiry and
a higher level of scrutiny.

RISK-BASED CAPITAL

Under the NAIC's risk-based capital formula, insurance companies must
calculate and report information under a risk-based capital formula. The
standards require the computation of a risk-based capital amount which then is
compared to a company's actual total adjusted capital. The computation
involves applying factors to various financial data to address four primary
risks: asset default, adverse insurance experience, disintermediation and
external events. This information is intended to permit insurance regulators
to identify and require remedial action for inadequately capitalized insurance
companies, but is not designed to rank adequately capitalized companies. The
NAIC formula provides for four levels of potential involvement by state
regulators for inadequately capitalized insurance companies, ranging from
regulatory control of the insurance company to a requirement for the insurance
company to submit a plan to improve its capital. At December 31, 1997, the
Insurance Company's total adjusted capital was $370.7 million and the
authorized control level risk based capital was $61.8 million.

ASSESSMENTS AGAINST INSURERS

Most applicable jurisdictions require insurance companies to participate in
guaranty funds, which are designed to indemnify policyholders of insolvent
insurance companies. Insurers authorized to transact business in these
jurisdictions generally are subject to assessments based on annual direct
premiums written in that jurisdiction. These assessments may be deferred or
forgiven under most guaranty laws if they would threaten an insurer's solvency
and, in certain instances, may be offset against future state premium taxes.
The amount of these assessments in prior years has not been material, however,
the amount and timing of any future assessment on the Insurance Company under
these laws cannot be reasonably estimated and are beyond the control of the
Company and the Insurance Company. Recent failures of substantially larger
insurance companies could result in future assessments in material amounts.

REGULATION AT FEDERAL LEVEL

Although the federal government generally does not directly regulate the
insurance business, federal initiatives often have an impact on the business
in a variety of ways. Current and proposed federal measures that may
significantly affect the insurance business include limitations on antitrust
immunity, minimum solvency requirements and the removal of barriers
restricting banks from engaging in the insurance and mutual fund business. It
is not possible to predict the outcome of any such congressional activity nor
the potential effects thereof on the Company.

AFFILIATES

In addition to the Insurance Company, the Company has three subsidiaries,
Presidential Securities Corporation, P.L. Assigned Services Corporation and
Presidential Asset Management Company, Inc. In the aggregate, these three
subsidiaries are not material to the Company's consolidated financial
condition or results of operations.

40
<PAGE>

PROPERTIES

The Company owns, and the Insurance Company is the sole occupant of, two
adjacent office buildings located at 69 Lydecker Street and 10 North Broadway
in Nyack, New York. These buildings contain an aggregate of approximately
45,000 square feet of useable floor space. The Insurance Company also owns two
acres of unimproved land in Nyack, New York. Management believes that the
Company's present facilities are adequate for its anticipated needs.

EMPLOYEES

As of June 30, 1998, the Company employed 105 persons. These employees
perform executive and administrative functions and engage in marketing and
sales activities. None of the employees of the Company are covered by a
collective bargaining agreement. The Company considers its relationships with
its employees to be good.

LEGAL PROCEEDINGS

From time to time, the Company is involved in litigation relating to claims
arising out of its operations in the normal course of business. The Company is
not a party to any legal proceedings, the adverse outcome of which, in
management's opinion, individually or in the aggregate, would have a material
adverse effect on the Company's financial condition or results of operations.

41
<PAGE>

MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The following table sets forth certain information regarding the Company's
directors and executive officers.

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<C> <C> <S>
Herbert Kurz......... 78 Director and President of the Company and Chairman
of the Board of Directors and President of the
Insurance Company
Shirley P. Jordan.... 63 Executive Vice President and Chief Investment
Officer of the Insurance Company
Michael V. Oporto.... 38 Chief Financial Officer and Treasurer of the
Insurance Company
Peter A. Cohen....... 51 Director
Jules Kroll.......... 57 Director
Lawrence Rivkin...... 76 Director
Morton B. Silberman.. 75 Director
</TABLE>

HERBERT KURZ has been a director of the Company since February 24, 1969. Mr.
Kurz also has served as President of the Company and Chairman of the board of
directors of the Insurance Company, the wholly-owned subsidiary of the Company
through which the Company conducts its annuity and insurance business, for
more than the past five years. Since February 22, 1995, Mr. Kurz has served as
President of the Insurance Company.

SHIRLEY P. JORDAN has served as Executive Vice President of the Insurance
Company since 1994 and as Chief Investment Officer for the Insurance Company
since June, 1988. For the six years prior to 1994 Ms. Jordan served as Senior
Vice President of the Insurance Company. Ms. Jordan currently serves as a
director of the Insurance Company.

MICHAEL V. OPORTO has served as Chief Financial Officer of the Insurance
Company since May 4, 1993 and as Treasurer of the Insurance Company since
1994. Prior to that, Mr. Oporto served as a senior audit manager for Deloitte
& Touche LLP for more than five years. Mr. Oporto currently serves as a
director of the Insurance Company.

PETER A. COHEN has been a director of the Company since May 27, 1992. Mr.
Cohen currently is the owner of Ramius Capital Group, a private investment
firm. From November, 1992 until May, 1994, Mr. Cohen was Vice Chairman and a
director of Republic New York Corporation ("Republic"), as well as a member of
its management executive committee. Mr. Cohen was also the Chairman of
Republic's wholly-owned subsidiary, Republic New York Securities Corporation.
Commencing in February, 1990 and prior to his joining Republic in November,
1992, Mr. Cohen was a private investor and an advisor to several industrial
and financial companies. From March, 1984 until February, 1990, Mr. Cohen was
Chairman of the board of directors and Chief Executive Officer of Shearson
Lehman Hutton Inc., a subsidiary of American Express Company. In addition to
serving on the Board of Directors of the Company, Mr. Cohen serves as a
director of Olivetti SpA, Andover Togs Inc., GRC International and is a
trustee of Mt. Sinai Hospital, the Ohio State University Foundation and New
York Holocaust Commission.

JULES KROLL has been a director of the Company since November 30, 1988. Mr.
Kroll is Chairman and Chief Executive Officer of Kroll-O'Gara, a risk
mitigation company. Mr. Kroll was Chairman of Kroll Associates, Inc., a
private investigative services company. He held that position since December
1, 1991. Since 1972 he was President and Chief Executive Officer of Kroll
Associates, Inc. He is also a member of the Board of Directors of United Auto
Group, Inc., a company engaged in acquiring, consolidating and operating
franchised automobile and light truck dealerships.

LAWRENCE RIVKIN has been a director of the Company since May 25, 1988. Mr.
Rivkin has been a partner in the law firm of Goldfarb & Fleece for more than
the past five years.

MORTON B. SILBERMAN has been a director of the Company since May 27, 1987.
Mr. Silberman has served as counsel to the law firm of Clark, Gagliardi and
Miller for more than the past five years.

42
<PAGE>

DESCRIPTION OF NOTES

The Notes will be issued under an indenture, to be dated as of , 1998
(the "Indenture"), between the Company and , as Trustee (the
"Trustee"), a copy of which is filed as an exhibit to the Registration
Statement. The following summaries of certain provisions of the Indenture do
not purport to be complete and are subject to, and are qualified in their
entirety by reference to, all of the provisions of the Indenture, including
the definitions therein of certain terms, and to the Trust Indenture Act of
1939, as amended. The definitions of certain capitalized terms used in the
following summary are set forth below under "--Certain Definitions."
References to the "Company" in the following summary are references solely to
Presidential Life Corporation.

GENERAL

The Notes will mature on , 2008, and will be limited to $100 million
aggregate principal amount, which may be issued in one or more offerings up to
such aggregate principal amount. Any Notes issued subsequent to the initial
offering of Notes will have identical terms and conditions as the Notes then
outstanding and will vote on all matters together with such outstanding Notes.
Notwithstanding the above, the issue price for any additional Notes may differ
from the issue price of the outstanding Notes and the first interest period
for any additional Notes will run from the date of issuance of such additional
Notes to, but excluding, the next Interest Payment Date for the Notes.

The Notes will bear interest at % per annum from the later of , 1998
or the most recent Interest Payment Date through which interest has been paid,
payable semiannually in arrears on and of each year, commencing
, 1998, to the persons in whose names the Notes are registered at the close
of business on the and , as the case may be, immediately preceding
such Interest Payment Dates. Interest on the Notes will be computed on the
basis of a 360-day year of twelve 30-day months.

The Notes will be sold in minimum denominations of $1,000 and integral
multiples thereof.

The Notes will not be subject to any sinking fund.

RANKING

The Notes will be general senior unsecured obligations of the Company, will
be senior in right of payment to all Indebtedness of the Company expressly
subordinated in right of payment to the Notes and will rank pari passu
(equally and ratably) with all other senior Indebtedness of the Company (other
than obligations preferred by statute or operation of law).

The Indenture will not prohibit the Company from incurring additional senior
indebtedness, including secured senior Indebtedness, but requires that the
Notes are secured on a pari passu basis with such additional secured senior
Indebtedness. In addition, the Company is a holding company and is dependent
upon dividends and other payments from its Subsidiaries to provide funds to
permit the payment of the Company's obligations under the Notes. The payment
of dividends by the Company's Principal Insurance Subsidiary also is subject
to regulatory restrictions. See "Business--Insurance Regulation." The rights
of the Company and its creditors, including the holders of the Notes offered
hereby, to participate in the assets of any Subsidiary upon such Subsidiary's
liquidation or reorganization or otherwise will be subject to the prior claims
of each of such Subsidiary's creditors and, in the case of an insurance
Subsidiary, policyholders, except to the extent that the Company may itself be
a creditor with recognized claims against such Subsidiary. See "Risk Factors--
Ranking; Holding Company Structure; Restrictions on Dividends."

FORM, DENOMINATION AND TITLE

Global Notes

The Notes will be issued in the form of one or more fully registered Global
Notes (the "Global Notes") that will be deposited with, or on behalf of, the
Depositary and registered in the name of the Depositary's

43
<PAGE>

nominee. Unless and until it is exchanged in whole or in part for Notes in
definitive registered form, a Global Note may not be registered for transfer
or exchange except as a whole by the Depositary to a nominee of such
Depositary.

The Depositary has advised the Company as follows: the Depositary is a
limited purpose trust company organized under the laws of the State of New
York, a member of the Federal Reserve System, a "clearing corporation" within
the meaning of the Uniform Commercial Code, as amended, and a "clearing
agency" registered pursuant to the provisions of Section 17A of the Exchange
Act. The Depositary was created to hold securities for its participating
organizations (collectively, "participants") and facilitate the clearance and
settlement of securities transactions between participants through electronic
book-entry changes in accounts of its participants, thereby eliminating the
need for physical transfer and delivery of certificates. Participants include
securities brokers and dealers, banks, trust companies and clearing
corporations and may include certain other organizations. Indirect access to
the Depositary system is available to other entities such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a participant, either directly or indirectly ("indirect
participants").

So long as the Depositary or its nominee is the registered owner of a Global
Note, such Depositary or such nominee will be considered the sole owner or
holder of the Notes represented by such Global Note for all purposes under the
Indenture and the Notes. Except as provided below, owners of beneficial
interests in a Global Note will not be entitled to have Notes represented by a
Global Note registered in their names, will not receive or be entitled to
receive physical delivery of Notes in definitive form, and will not be
considered the owners or holders thereof under the Indenture or the Notes. In
addition, no beneficial owner of an interest in a Global Note will be able to
transfer that beneficial interest except in accordance with the Depositary's
or its participants' applicable procedures.

The Company expects that the Depositary, upon the issuance of a Global Note,
will credit, on its internal system, the respective principal amount of the
individual beneficial interests represented by such Global Note to the
accounts of participants or persons who hold interests through participants.
Ownership of beneficial interests in the Global Notes will be shown on, and
the transfer of that ownership will be effected only through, records
maintained by the Depositary or its nominee (with respect to interests of
participants) or by the participants and the indirect participants (with
respect to other owners of beneficial interests in Global Notes).

The laws of some states require that certain purchasers of securities take
physical delivery of such securities in definitive form. Such laws, as well as
the limits on participation in the Depositary's book-entry system, may impair
the ability to transfer beneficial interests in a Global Note.

Payments due on Notes represented by a Global Note registered in the name of
the Depositary or its nominee will be made to the Depositary or its nominee,
as the case may be, as the registered owner of the Global Note representing
such Notes. The Company expects that the Depositary or its nominee, upon
receipt of any payment, will credit immediately participants' accounts with
payments in same-day funds in amounts proportionate to such participants'
respective beneficial interests in such payments, as shown on the records of
the Depositary or its nominee. The Company also expects that payments by
participants and indirect participants to owners of beneficial interests in
such Global Note held through such persons will be governed by standing
instructions and customary practices, as is now the case with securities
registered in the name of nominees for such customers, and will be the
responsibility of such participants and indirect participants. Transfers
between participants will be effected in accordance with the Depositary's
rules and procedures and will be settled in same-day funds. Neither the
Company nor the Trustee will have any responsibility or liability for any
aspect of the records relating to, or payments made on account of, beneficial
ownership interests in the Global Note representing such Notes or for
maintaining, supervising or reviewing any records relating to such beneficial
ownership interests.

The Depositary has advised the Company that it will take any action
permitted to be taken by a holder of Notes only at the direction of one or
more of the Depositary's participants to whose account with the Depositary

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interests in the Global Notes are credited and only in respect of such portion
of the aggregate principal amount of the Notes as to which such participant or
participants has or have given such direction. However, in the circumstances
described herein, the Depositary will exchange Global Notes for certificated
Notes in definitive form, which it will distribute to its participants.

Certificated Notes

If the Depositary at any time notifies the Company that it is unwilling or
unable to continue as Depositary or ceases to be a clearing agency registered
under the Exchange Act and any other applicable statute or regulation, the
Company has agreed to appoint a successor depositary. If such a successor is
not appointed by the Company within 90 days, or if there shall have occurred
and be continuing an Event of Default with respect to the Notes, the Company
will issue Notes in definitive form in exchange for the Global Note
representing such Notes. In addition, the Company may at any time and in its
sole discretion determine not to have the Notes represented by a Global Note,
and, in such event, the Company will issue Notes in definitive form in
exchange for the Global Note representing such Notes. Further, if the Company
so specifies with respect to the Notes, an owner of a beneficial interest in a
Global Note representing Notes may, on terms acceptable to the Company, the
Trustee and the Depositary for such Global Note, receive Notes in definitive
form. In any such instance, an owner of a beneficial interest in a Global Note
will be entitled to physical delivery in definitive form of Notes represented
by such Global Note equal in principal amount to such beneficial interest and
to have such Notes registered in its name. Notes so issued in definitive form
will be issued in denominations of $1,000 and integral multiples thereof.

The holder of a definitive Note may transfer such Note by surrendering it at
the office or agency maintained by the Company for such purpose in the Borough
of Manhattan, The City of New York, which initially will be the office of the
Trustee or at the office of any Paying Agent. Neither the Trustee nor any
Registrar (which initially will be the Trustee) shall be required to register
the transfer of, or exchange, Notes for a period from the record date to the
due date for any payment of principal of, or interest on, the Notes or to
register the transfer of, or exchange, any Notes for 15 days prior to the
furnishing of a notice of redemption with respect to such Notes through the
date of redemption.

Prior to the presentment of a Note (including a Global Note) for
registration of transfer, the Company, the Trustee and any agent of the
Company or the Trustee may treat the person in whose name such Note is
registered as the owner or holder of such Note for the purpose of receiving
payment of principal of, and interest on, such Note and for all other purposes
whatsoever, and none of the Company, the Trustee or any agent of the Company
or the Trustee shall be affected by notice to the contrary.

REPLACEMENT OF NOTES

In the event that any Note shall become mutilated, defaced, destroyed, lost
or stolen, the Company will execute and, upon the Company's request, the
Trustee will authenticate and deliver a new Note, of like tenor (including the
same date of issuance) and equal principal amount, registered in the same
manner, dated the date of its authentication and bearing interest from the
date to which interest has been paid on such Note, in exchange and
substitution for such Note (upon surrender and cancellation thereof) or in
lieu of and substitution for such Note. In the event that such Note is
destroyed, lost or stolen, the applicant for a substitute Note shall furnish
to the Company and the Trustee such security or indemnity as may be required
by them to hold each of them harmless, and, in every case of destruction, loss
or theft of such Note, the applicant shall also furnish to the Company and the
Trustee satisfactory evidence of the destruction, loss or theft of such Note
and of the ownership thereof. Upon the issuance of any substituted Note, the
Company may require the payment by the registered holder thereof of a sum
sufficient to cover any tax or other governmental charge that may be imposed
in relation thereto and any other fees and expenses connected therewith.

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PAYMENT

Payments of principal and interest in respect of the Notes will be made at
the trust office of the Trustee in New York City. Payments in respect of
principal on Notes will be made only against surrender of such Notes at such
office. Payment in respect of interest on each Interest Payment Date with
respect to any such Note will be made to the person in whose name such Note is
registered at the close of business on the or immediately preceding
such Interest Payment Date by U.S. dollar check drawn on a bank in The City of
New York or, for holders of at least $1,000,000 of Notes, by wire transfer to
a dollar account maintained by the payee with a bank in the United States;
provided that a written request from such holder to such effect designating
such account is received by the Trustee or the Paying Agent no later that 30
calendar days immediately preceding such Interest Payment Date. Unless such
designation is revoked, any such designation made by such holder with respect
to such Note payable to such holder will remain in effect with respect to any
future payments with respect to such Note payable to such holder. The Company
will pay any administrative costs imposed by banks in connection with making
payments by wire transfer.

If any payment in respect of a Note is due on a day that is not a Business
Day, then such payment may be made on the next succeeding day that is a
Business Day with the same force and effect as if made on the original
scheduled date for such payment.

The Indenture will provide that any money or securities paid or delivered by
the Company to the Trustee for any payment with respect to the Notes which
remains unclaimed for two years after the date such payment was due or such
securities were deliverable will be repaid or delivered to the Company and
thereafter the holder will look only to the Company for payments thereof as an
unsecured creditor, and the Company shall not be liable to pay any taxes or
other duties in connection with such payments; provided, however, that unless
otherwise provided by applicable law, the right to receive payment of
principal of any Note, to the extent of any cash redemption, will become void
at the end of 10 years from the relevant date thereof or such shorter period
as may be prescribed by applicable law.

Subject to certain limitations set forth in the Indenture, the Company
reserves the right at any time to vary or terminate the appointment of the
Trustee or any Paying Agent in certain circumstances and to appoint another
Trustee or additional or other Paying Agents and to approve any change in the
specified offices through which any Paying Agent acts.

OPTIONAL REDEMPTION

Redemption at the Option of the Company

The Notes will be redeemable, in whole or in part, at the option of the
Company, upon not less than 30 nor more than 60 days' notice, at a redemption
price equal to the sum of (i) 100% of the principal amount of the Notes being
redeemed plus accrued and unpaid interest thereon to, but excluding, the date
of redemption and (ii) the Make-Whole Amount.

Redemption at the Option of Holders Upon Sale of a Significant Subsidiary

If there shall have occurred a Sale of a Significant Subsidiary, the Notes
shall be subject to redemption at the option of each holder thereof, in whole
or in part (in minimum denominations of $1,000 or integral multiples thereof),
at a redemption price in cash equal to 100% of the principal amount of such
Notes plus accrued and unpaid interest thereon to, but excluding, the date of
redemption.

Within 30 days following any Sale of a Significant Subsidiary, the Company
will notify the Trustee and furnish notice of such sale to each holder of the
Notes, stating, among other things: the redemption price; the date of
redemption, which shall be a Business Day that is not earlier than 30 days nor
later than 60 days from the date such notice is furnished, or such later date
as is necessary to comply with requirements under the Exchange Act; that any
Notes not tendered for redemption pursuant to such notice will continue to
accrue interest; that, unless the Company defaults in the payment of the
redemption price, any Notes accepted for

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redemption pursuant to such notice shall cease to accrue interest after the
date of redemption; and certain other procedures that a holder must follow to
exercise the option of redemption or to withdraw such election.

The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
redemption of the Notes in connection with a Sale of a Significant Subsidiary
and may modify its notice to effect such compliance. There can be no assurance
that the Company would be able to repurchase the Notes other than through a
refinancing or that the Company would be able to refinance such Indebtedness.
The inability to repurchase the Notes could have a material adverse effect on
the Company's financial condition and results of operations.

Notice of any redemption will be mailed at least 30 days but not more than
60 days before the date of redemption to each holder of the Notes to be
redeemed.

Unless the Company defaults in payment of the redemption price, on and after
the date of redemption, interest will cease to accrue on the Notes or portions
thereof called for redemption.

"Make-Whole Amount" means, in connection with an optional redemption of any
Note, the excess, if any, of (i) the sum, as determined by the Quotation
Agent, of the present values of the principal amount of such Notes, together
with scheduled payments of interest thereon from the date of redemption to the
Stated Maturity of the Notes, in each case discounted to the date of
redemption on a semiannual basis (assuming a 360-day year consisting of twelve
30-day months) at the Adjusted Treasury Rate over (ii) 100% of the principal
amount of the Notes to be redeemed.

"Adjusted Treasury Rate" means, with respect to any date of redemption, the
rate per annum equal to the semiannual equivalent yield to maturity of the
Comparable Treasury Issue, calculated using a price for the Comparable
Treasury Issue (expressed as a percentage of its principal amount) equal to
the Comparable Treasury Price for such date of redemption, calculated on the
third Business Day preceding the date of redemption, plus in each case % (
basis points).

"Comparable Treasury Issue" means the United States Treasury security
selected by the Quotation Agent as having a maturity comparable to the
remaining term of the Notes to be redeemed that would be utilized, at the time
of selection and in accordance with customary financial practice, in pricing
new issues of corporate debt securities of comparable maturity to the
remaining term of such Notes.

"Comparable Treasury Price" means, with respect to any date of redemption,
(i) the average of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) on the third
Business Day preceding such date of redemption, as set forth in the daily
statistical release (or any successor release) published by the Federal
Reserve Bank of New York and designated "Composite 3:30 p.m. Quotations for
U.S. Government Securities," or (ii) if such release (or any successor
release) is not published or does not contain such prices on such Business
Day, the average of the Reference Treasury Dealer Quotations for such date,
after excluding the highest and lowest of such Reference Treasury Dealer
Quotations, or (iii) if the Trustee obtains fewer than three such Reference
Treasury Dealer Quotations, the average of all such Reference Treasury Dealer
Quotations.

"Quotation Agent" means one of the Reference Treasury Dealers appointed by
the Company as the Quotation Agent.

"Reference Treasury Dealer" means (i) any of BT Alex. Brown Incorporated and
Salomon Smith Barney and their respective successors; provided, however, that
if either of the foregoing shall cease to be a primary U.S. Government
securities dealer in New York City (a "Primary Treasury Dealer"), the Company
shall substitute another Primary Treasury Dealer; and (ii) any other Primary
Treasury Dealer selected by the Company.

"Reference Treasury Dealer Quotations" means, with respect to each Reference
Treasury Dealer and any date of redemption, the average, as determined by the
Company, of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) quoted in
writing to the Trustee

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and the Quotation Agent by such Reference Treasury Dealer at 5:00 p.m., New
York City time, on the third Business Day preceding such date of redemption.

CERTAIN COVENANTS

Limitation on Liens. The Company will not, and will not permit any of its
Significant Subsidiaries, at any time, directly or indirectly, to, create,
assume, incur or permit to exist any Indebtedness secured by a Lien of any
kind on any of the Company's property or assets (which, for the avoidance of
doubt, shall not include any of the property or assets of the Company's
Subsidiaries) or any share of Capital Stock of any Significant Subsidiary
owned by the Company or a Significant Subsidiary without making effective
provision whereby the Notes then outstanding shall be equally and ratably
secured with such secured Indebtedness so long as such other Indebtedness
shall be secured; provided that the Lien securing any Subordinated
Indebtedness shall be subordinate and junior to the Lien securing the Notes
with the same relative priority as such Subordinated Indebtedness shall have
with respect to the Notes; and provided, further, that this covenant shall not
apply to any Liens securing any such Indebtedness which became Indebtedness of
the Company or any of its Subsidiaries pursuant to a transaction subject to
the provisions of the Indenture described below under "--Consolidation, Merger
and Sale of Assets" or Liens securing Acquired Indebtedness and, in each case,
which Liens were in existence at the time of such transaction or the
incurrence of such Acquired Indebtedness (unless such Indebtedness was
incurred or such Lien created in connection with, or in contemplation of, such
transaction or incurrence of such Acquired Indebtedness), so long as such
Liens do not extend to or cover any property or assets of the Company or any
of its Significant Subsidiaries other than property or assets acquired in such
transaction or securing such Acquired Indebtedness prior to its incurrence;
and provided, further, however, that this covenant shall not apply to (i) any
Liens created in connection with the incurrence of any Indebtedness of the
Company or any of its Significant Subsidiaries consisting of capital lease
obligations or of purchase money indebtedness, (ii) amounts, if any, deposited
in trust or in escrow for the defeasance or redemption of the Company's 9 1/2%
Senior Notes due 2000 or (iii) liens securing Indebtedness of a Subsidiary
that becomes a Significant Subsidiary, which liens are in existence as of the
end of the fiscal quarter immediately preceding the fiscal quarter during
which such Subsidiary becomes a Significant Subsidiary.

If the Company shall hereafter be required to secure the Notes equally and
ratably with any other Indebtedness pursuant to this covenant, (i) the Company
will promptly deliver to the Trustee an Officers' Certificate stating that the
foregoing covenant has been complied with, and an Opinion of Counsel stating
that in the opinion of such counsel the foregoing covenant has been complied
with and that any instruments executed by the Company or any Subsidiary, as
the case may be, in the performance of the foregoing covenant comply with the
requirements of the foregoing covenant and (ii) the Trustee is hereby
authorized to enter into an indenture or agreement supplemental thereto and to
take such action, if any, as it may deem advisable to enable it to enforce the
rights of the holders of the Notes so secured.

Limitation on Sale or Issuance of Stock of Subsidiaries. Except for a
transaction subject to the provisions of the Indenture described below under
"--Consolidation, Merger and Sale of Assets," the Company will not, and will
not permit any of its Subsidiaries, directly or indirectly, to sell, transfer,
convey or otherwise dispose of (other than to the Company or a wholly-owned
Subsidiary of the Company) any Capital Stock of a Subsidiary of the Company or
any securities convertible into or warrants, rights or options to subscribe
for Capital Stock of any Subsidiary of the Company, and the Company shall not
permit any of its Subsidiaries to issue or sell (other than to the Company or
a wholly-owned Subsidiary of the Company) any of its Capital Stock or
securities convertible into or rights, warrants or options to subscribe for
its Capital Stock; provided, however, that this covenant shall not prohibit
(a) the sale, transfer, conveyance or other disposition of (i) all, but not
less than all, of the issued and outstanding Capital Stock of any Significant
Subsidiary owned by the Company or any of its Subsidiaries, or (ii) all or any
portion of the issued and outstanding Capital Stock of any Subsidiary of the
Company that is not a Significant Subsidiary, if in either such case (x) the
sale, transfer, conveyance or other disposition is for Fair Market Value, (y)
the Company delivers to the Trustee a written opinion of a nationally
recognized investment banking firm attesting to such value (provided that this
clause (y) shall not apply to any transaction described in clause (a)(ii)
above for total consideration less than $10 million), and (z) at least 75% of
the consideration is for any combination of cash or cash equivalents, at the
time such stock is sold, transferred,

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conveyed or disposed of, and such issuance and sale is otherwise in compliance
with the other provisions of the 1998 Indenture, or (b) the ownership by
directors of director's qualifying shares to the extent mandated by applicable
law.

Limitation on Dividends and Other Payment Restrictions Affecting Significant
Subsidiaries. The Company will not, and will not permit any Significant
Subsidiary to, create or otherwise cause or suffer to exist or become
effective any consensual encumbrance or consensual restriction of any kind on
the ability of any Significant Subsidiary to (a) pay dividends or make any
other distribution on its Capital Stock, (b) pay any Indebtedness owed to the
Company or any other Subsidiary, (c) make loans or advances to the Company or
any other Subsidiary, or (d) transfer any of its property or assets to the
Company or any other Subsidiary, except (i) any such encumbrance or
restriction pursuant to an agreement in effect on the date of the Indenture;
(ii) any such encumbrance or restriction, with respect to a Subsidiary that is
not a Subsidiary of the Company on the date of the Indenture, in existence at
the time such Person becomes a Subsidiary of the Company (except to the extent
such encumbrance or restriction was incurred or created in connection with or
in contemplation of such Person becoming a Subsidiary of the Company), which
encumbrance or restriction is not applicable to any Person, or the properties
or assets of any Person, other than the Person or the property or assets of
the Person that becomes a Subsidiary of the Company; (iii) any such
encumbrance or restriction pursuant to any law, any governmental regulation or
order, or agreement with a governmental regulator, provided that the Company
has used reasonable best efforts to have any such order or agreement
diminished or removed by any regulator authorized to do so and to obtain any
exemptive orders from the relevant regulator with respect to such encumbrance
or restriction to the extent such exemptive orders are reasonably suitable
under applicable laws and regulations; (iv) any such encumbrance or
restriction in existence as of the end of the fiscal quarter immediately
preceding the fiscal quarter during which such Subsidiary becomes a
Significant Subsidiary; and (v) any such encumbrance or restriction pursuant
to any agreement that extends, refinances, renews or replaces any agreement
containing any of the restrictions described in the foregoing clauses (i) and
(ii), provided that the terms and conditions of any such encumbrances or
restrictions are not materially less favorable to the holders of the Notes
than those under or pursuant to the agreement extended, refinanced, renewed or
replaced.

CERTAIN DEFINITIONS

"Acquired Indebtedness" means Indebtedness of any Person (i) existing at the
time such Person becomes a Subsidiary or (ii) assumed in connection with the
acquisition of assets from a Person.

"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under the direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any specified person means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of Voting Stock, by contract or otherwise; and
the terms "controlling" and "controlled" have the meanings correlative to the
foregoing.

"Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday,
which is not a day on which banking institutions in New York City are
authorized or obligated by law or executive order to close.

"Capital Stock," as applied to the stock of any corporation, means the
capital stock of every class whether now or hereafter authorized, regardless
of whether such capital stock shall be limited to a fixed sum or percentage
with respect to the rights of the holders thereof to participate in dividends
and in the distribution of assets upon the voluntary or involuntary
liquidation, dissolution or winding up of such corporation.

"Commission" means the Securities and Exchange Commission, as from time to
time constituted, created under the Exchange Act, or, if at any time after the
execution of this instrument such Commission is not existing and performing
the duties now assigned to it under the Trust Indenture Act, then the body
performing such duties at such time.

"Default" means any event which is, or after notice or passage of time would
be, an Event of Default.

"Exchange Act" means the Securities Exchange Act of 1934, as amended.

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"Fair Market Value" means, with respect to any asset or property, the sale
value that would be obtained in an arm's length transaction between an
informed and willing seller under no compulsion to sell to an informed and
willing buyer.

"Indebtedness" means, with respect to any Person, (i) every obligation of
such Person for money borrowed or under any reimbursement obligation relating
to a letter of credit (other than letters of credit obtained in the ordinary
course of business), if, and to the extent, any of the foregoing would appear
as a liability upon a balance sheet of such Person prepared in accordance with
generally accepted accounting principles, (ii) every obligation of such Person
evidenced by a bond, note, debenture or similar instrument, if, and to the
extent that, any of the foregoing would appear as a liability upon a balance
sheet of such Person prepared in accordance with generally accepted accounting
principles, (iii) every obligation of such Person in respect of lease rentals
which, under generally accepted accounting principles, would be shown on the
balance sheet of such Person as a liability (other than a current liability or
a deferred item), (iv) all obligations under interest rate contracts of such
Person, and (v) every guarantee, direct or indirect, of any obligation
described in clauses (i) through (iv) above.

"Interest Payment Date," when used with respect to any Note, means the
Stated Maturity of an installment of interest on such Note.

"Lien" means any mortgage, charge, pledge, lien, security interest or
encumbrance of any kind in respect of any property or asset, whether or not
filed, recorded or otherwise perfected under applicable law (including any
conditional sale or other title retention agreement and any lease in the
nature thereof).

"Maturity," when used with respect to any Note, means the date on which the
principal of such Note becomes due and payable as therein or herein provided,
whether at the Stated Maturity or by declaration of acceleration, call for
redemption, Sale of Principal Insurance Subsidiary or otherwise.

"Officers' Certificate" means a certificate signed on behalf of the Company
by the Chairman of the Board, a Vice Chairman of the Board, the President or a
Vice President, and by the Chief Financial Officer, the Treasurer, an
Assistant Treasurer, the Secretary or an Assistant Secretary, of the Company,
and delivered to the Trustee.

"Opinion of Counsel" means a written opinion of counsel, who may be counsel
for the Company, and who shall be reasonably acceptable to the Trustee.

"Paying Agent" means any Person authorized by the Company to pay the
principal of, and interest on, any Notes on behalf of the Company.

"Person" means any individual, corporation, limited partnership, joint
venture, association, joint stock company, trust, unincorporated organization
or government or any agency or political subdivision thereof.

"Sale of a Significant Subsidiary" means the sale, transfer, assignment or
other disposition of a Significant Subsidiary to any Person who is not a
wholly owned Subsidiary of the Company.

"Significant Subsidiary" means, (i) as long as it is a Subsidiary of the
Company, Presidential Life Insurance Company, and (ii) any Subsidiary that
would be a "Significant Subsidiary" within the meaning of Rule 1-02(w)(2)
under Regulation S-X promulgated by the Commission; provided, however, that
for purposes of the definition of Sale of a Significant Subsidiary, the term
"10 percent" in such rule shall be substituted by the term "40 percent."

"Stated Maturity," when used with respect to any Indebtedness or any
installment of interest thereon, means the date specified in such Indebtedness
as the fixed date on which the principal of such Indebtedness or such
installment of interest is due and payable.

"Subordinated Indebtedness" means Indebtedness the payment of which is
subordinated in right of payment to the Notes.

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"Subsidiary" means a corporation of which more than 50% of the outstanding
Voting Stock entitled (without regard to the occurrence of any contingency) to
vote generally in the election of directors thereof is owned, directly or
indirectly, by the Company or by one or more other Subsidiaries, or by the
Company and one or more other Subsidiaries.

"U.S. Government Obligations" means securities that are (i) direct
obligations of the United States of America for the timely payment of which
its full faith and credit is pledged, or (ii) obligations of a Person
controlled or supervised by and acting as an agency or instrumentality of the
United States of America, the timely payment of which is unconditionally
guaranteed as a full faith and credit obligation by the United States of
America, which, in either case, are not callable or redeemable at the option
of the issuer thereof.

"Voting Stock" means the stock of the class or classes pursuant to which the
holders thereof have the general voting power under ordinary circumstances to
elect at least a majority of the board of directors, managers or trustees of a
corporation (irrespective of whether or not at the time stock of any other
class or classes shall have or might have voting power by reason of the
happening of any contingency).

CONSOLIDATION, MERGER AND SALE OF ASSETS

The Company will not consolidate with or merge with or into any other Person
or, directly or indirectly, sell, assign, convey, transfer, lease or otherwise
dispose of all or substantially all of its properties and assets to any Person
or group of affiliated Persons unless at the time and after giving effect
thereto (i) either (a) the Company shall be the continuing corporation, or (b)
the Person (if other than the Company) formed by such consolidation or into
which the Company is merged or the Person which acquires by sale, assignment,
conveyance, transfer, lease or disposition the properties and assets of the
Company, substantially as an entirety (the "Surviving Entity") shall be a
corporation duly organized and validly existing under the laws of the United
States of America, any state thereof or the District of Columbia and shall, in
either case, expressly assume, by an indenture supplemental to the Indenture,
executed and delivered to the Trustee, in form satisfactory to the Trustee,
all the covenants and obligations of the Company under the Notes and the
Indenture, and the Indenture, shall remain in full force and effect; (ii)
immediately after giving effect to such transaction on a pro forma basis, no
Default or Event of Default shall have occurred and be continuing; and (iii)
if any of the property or assets of the Company would thereupon become subject
to any Lien, the outstanding Notes shall be secured equally and ratably with
(or prior to) the obligation or liability secured by such Lien, unless the
Company could create such Lien under the Indenture without equally and ratably
securing the Notes.

In connection with any consolidation, merger, transfer or lease, the
Indenture requires the Company to deliver, or cause to be delivered, to the
Trustee, in form and substance reasonably satisfactory to the Trustee, an
Officers' Certificate and an Opinion of Counsel, each stating that such
consolidation, merger, transfer or lease and the supplemental indenture in
respect thereto comply with the provisions described in the Indenture and that
all conditions precedent therein provided for relating to such transaction
have been complied with.

In the event of any transaction described in, and complying with, the
conditions listed in the immediately preceding paragraphs in which the Company
is not the continuing corporation, the successor Person formed or remaining
shall succeed to, and be substituted for, and may exercise every right and
power of, the Company under the Indenture, and thereafter the Company, except
in the case of a lease of property or assets, will be discharged from all
obligations and covenants under the Indenture and the Notes.

With respect to the sale of properties or assets, the phrase "all or
substantially all" as used in the Indenture varies according to the facts and
circumstances of the subject transaction, has no clearly established meaning
under New York law (which governs the Indenture) and is subject to judicial
interpretation. Accordingly, in certain circumstances there may be a degree of
uncertainty in ascertaining whether a particular transaction would involve a
disposition of "all or substantially all" of the properties or assets of a
person and therefore it may be unclear as to whether a transaction of the
nature discussed above has occurred.

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EVENTS OF DEFAULT

An Event of Default will occur under the Indenture if any one of the
following events occurs:

(1) default in the payment of any interest on any Note when it becomes
due and payable, and continuance of such default for a period of 30 days;
or

(2) default in the payment of the principal of any Note at its Maturity;
or

(3) default in the performance, or breach, of any covenant or agreement
of the Company under the Indenture (other than a default in the
performance, or breach, of a covenant or agreement that is specifically
dealt with elsewhere therein), and continuance of such default or breach
for a period of 60 days after there has been given, by registered or
certified mail, to the Company by the Trustee or to the Company and the
Trustee by the holders of at least 25% in principal amount of the
outstanding Notes a written notice specifying such default or breach and
requiring it to be remedied and stating that such notice is a "Notice of
Default" under the Indenture; or

(4) (i) an event of default shall have occurred under any mortgage, bond,
indenture, loan agreement or other document evidencing any issue of
Indebtedness of the Company or any Significant Subsidiary for money
borrowed, which issue has an aggregate outstanding principal amount of not
less than $10,000,000, and such default shall result in such Indebtedness
becoming, whether by declaration or otherwise, due and payable prior to the
date on which it would otherwise become due and payable or (ii) a default
in any payment when due at final maturity of any such Indebtedness
outstanding in an aggregate principal amount of not less than $10,000,000,
and, in each case, ten Business Days shall have elapsed after such event,
during which period such event shall not have been cured or rescinded or
such Indebtedness shall not have been satisfied; or

(5) final judgments or orders are rendered against the Company or any
Significant Subsidiary by a court or regulatory agency of competent
jurisdiction which require the payment in money, either individually or in
an aggregate amount, that is more than $10,000,000 and such judgment or
order shall not be discharged and either (i) any creditor shall have
commenced an enforcement proceeding upon such judgment or order, which
enforcement proceeding shall have remained unstayed for a period of ten
days or (ii) there shall have been a period of 60 days after the date on
which any period for appeal has expired during which a stay of enforcement
shall not be in effect; or

(6) a decree or order is entered by a court having jurisdiction (i) for
relief in respect of the Company or any Significant Subsidiary in an
involuntary case or proceeding under the Federal Bankruptcy Code or any
other federal or state bankruptcy, insolvency, reorganization or similar
law, including, without limitation, any such case or proceeding under
applicable state insurance laws, or (ii) adjudging the Company or any
Significant Subsidiary a bankrupt or insolvent, or seeking reorganization,
arrangement, adjustment or composition of, or in respect of the Company or
any Significant Subsidiary under the Federal Bankruptcy Code or any other
applicable federal or state law, including, without limitation, any such
case or proceeding under applicable state insurance laws, or appointing a
custodian, receiver, liquidator, assignee, trustee, sequestrator (or other
similar official) of the Company or any Significant Subsidiary or of any
substantial part of any of their assets, or ordering the winding up or
liquidation of any of their affairs, any such decree or order remains
unstayed and in effect for a period of 60 consecutive days; or

(7) the Company or any Significant Subsidiary institutes a voluntary case
or proceeding under the Federal Bankruptcy Code or any other applicable
federal or state law, including, without limitation, any such case or
proceeding under applicable state insurance laws, or any other case or
proceedings to be adjudicated a bankrupt or insolvent, or the Company or
any Significant Subsidiary consents to the entry of a decree or order for
relief in respect of the Company or any Significant Subsidiary in any
involuntary case or proceeding under the Federal Bankruptcy Code or any
other applicable federal or state law, including, without limitation, any
such case or proceeding under applicable state insurance laws, or to the
institution of bankruptcy or insolvency proceedings against the Company or
any Significant Subsidiary, or the Company or any Significant Subsidiary
files a petition or answer or consent seeking reorganization or relief
under the Federal Bankruptcy Code or any other applicable federal or state
law, or consents to the filing of

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any such petition or to the appointment of, or taking possession by, a
custodian, receiver, liquidator, assignee, trustee, sequestrator (or other
similar official) of any of the Company or any Significant Subsidiary or of
any substantial part of its property, or makes an assignment for the
benefit of creditors, or admits in writing its inability to pay its debts
generally as they become due or takes corporate action in furtherance of
any such action.

If an Event of Default (other than as specified in clauses (6) and (7) with
respect to the Company or any Significant Subsidiary) occurs and is
continuing, the Trustee or the holders of not less than 25% in amount of the
Notes then outstanding may declare all unpaid principal of, and accrued and
unpaid interest on, all the Notes to be due and payable immediately, by a
notice in writing to the Company (and to the Trustee if given by holders), and
upon any such declaration such principal shall become due and payable
immediately. If an Event of Default specified in clause (6) or (7) above with
respect to the Company or any Significant Subsidiary occurs and is continuing,
then the principal of all Notes shall by such fact itself become and be
immediately due and payable without any declaration or other act on the part
of the Trustee or any holder.

After a declaration of acceleration, but before a judgment or decree for
payment of the money due has been obtained by the Trustee, the holders of at
least a majority in aggregate principal amount of the Notes outstanding, by
written notice to the Company and the Trustee, may annul such declaration if
(a) the Company has paid or deposited with the Trustee a sum sufficient to pay
(i) all sums paid or advanced by the Trustee under the Indenture and the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel, (ii) all overdue interest on all Notes, (iii) the
principal of any Notes which have become due otherwise than by such
declaration of acceleration and interest thereon at the rate borne by the
Notes, and (iv) to the extent payment of such interest is lawful, interest
upon overdue interest at the rate borne by the Notes; and (b) all Events of
Default, other than the non-payment of principal of the Notes which has become
due solely by the declaration of acceleration, have been waived as provided in
the Indenture or cured. No such rescission shall affect any subsequent default
or impair any right consequent thereon.

The Company is also required to notify the Trustee within five Business Days
of the occurrence of any Default.

LEGAL DEFEASANCE OR COVENANT DEFEASANCE

The Company may, at its option and at any time, elect to have the
obligations of the Company discharged with respect to the outstanding Notes
("legal defeasance"). Such defeasance means that the Company shall be deemed
to have paid and discharged the entire indebtedness represented by the
outstanding Notes, except for (i) the rights of holders of outstanding Notes
to receive payments in respect of the principal of, and interest on, such
Notes to Maturity, (ii) the Company's obligations with respect to the Notes
concerning issuing temporary Notes, registration of Notes, mutilated,
destroyed, lost or stolen Notes and the maintenance of an office or agency for
payment and money for security payments held in trust, (iii) the rights,
powers, trusts, duties and immunities of the Trustee, and (iv) the defeasance
provisions of the Indenture. In addition, the Company may, at its option and
at any time, elect to have the obligations of the Company released with
respect to certain covenants that are described in the Indenture ("covenant
defeasance") and thereafter any omission to comply with such obligations shall
not constitute a Default or an Event of Default with respect to the Notes. In
the event covenant defeasance occurs, certain events (not including non-
payment, bankruptcy and insolvency events) described under "Events of Default"
will no longer constitute an Event of Default with respect to the Notes.

In order to effect a legal defeasance or covenant defeasance, (i) the
Company must irrevocably deposit with the Trustee, in trust, for the benefit
of the holders of the Notes, cash in U.S. dollars, U.S. Government
Obligations, or a combination thereof, in such amounts as will be sufficient,
in the opinion of a nationally recognized firm of independent public
accountants, to pay the principal or redemption price of, and interest on, the
outstanding Notes to Maturity; (ii) in the case of legal defeasance, the
Company shall have delivered to the Trustee an Opinion of Counsel stating that
(A) the Company has received from, or there has been published by, the
Internal Revenue Service a ruling or (B) since the date of the Indenture,
there has been a change in the applicable United States federal income tax
law, in either case to the effect that, and based thereon, such Opinion of
Counsel shall confirm that, the holders of the outstanding Notes will not
recognize income, gain or loss for

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United States federal income tax purposes as a result of such legal defeasance
and will be subject to United States federal income tax on the same amounts,
in the same manner and at the same times as would have been the case if such
legal defeasance had not occurred; (iii) in the case of covenant defeasance,
the Company shall have delivered to the Trustee an Opinion of Counsel in the
United States to the effect that the holders of the outstanding Notes will not
recognize income, gain or loss for United States federal income tax purposes
as a result of such covenant defeasance and will be subject to United States
federal income tax on the same amounts, in the same manner and at the same
times as would have been the case if such covenant defeasance had not
occurred; (iv) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit or, in the case of a legal defeasance,
insofar as clauses (6) and (7) under the first paragraph under "--Events of
Default" are concerned, at any time in the period ending the 91st day after
the date of deposit; (v) such legal defeasance or covenant defeasance shall
not result in a breach or violation of, or constitute a default under, the
Indenture or any other material agreement or instrument to which the Company
or any of its Principal Insurance Subsidiaries is a party or by which the
Company or any of its Principal Insurance Subsidiaries is bound; (vi) the
Company shall have delivered to the Trustee an Officers' Certificate stating
that the deposit was not made by the Company with the intent of preferring the
holders of Notes over the other creditors of the Company with the intent of
defeating, hindering, delaying or defrauding creditors of the Company or
others; and (vii) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent provided for relating to either the legal defeasance or the covenant
defeasance, as the case may be, have been complied with.

If the Trustee is unable to apply any U.S. dollars or U.S. Government
Obligations in accordance with the above, by reason of any order or judgment
of any court of governmental authority enjoining, restraining or otherwise
prohibiting such application, then the Company's obligations under the
Indenture and the Notes will be revived and reinstated as though no deposit
had occurred, until such time as the Trustee is permitted to apply all such
money in accordance with the terms of the Indenture, provided that if the
Company makes any payment of principal or redemption price of (or premium, if
any) or interest on any Note following the reinstatement of its obligations,
the Company will be subrogated to the rights of the Holders of such Notes to
receive such payment from the money held by the Trustee.

MODIFICATION AND WAIVER

Modifications and amendments of the 1998 Indenture may be made by the
Company or the Trustee with the consent of the holders of not less than a
majority in principal amount of the outstanding Notes; provided, however, that
no such modification or amendment may, without the consent of the holder of
each Note affected thereby, (i) change the Stated Maturity of the principal
of, or interest on, any Note; (ii) reduce the principal amount of, or the
premium or Make-Whole Amount on, any redemption of any Note; (iii) change any
Place of Payment where, or the currency in which, any Note or any interest
thereon is payable; (iv) impair the right to institute suit for the
enforcement of any payment on any Note on or after the Stated Maturity
thereof; (v) reduce the percentage in principal amount of outstanding Notes,
the consent of whose holders is required for modification or amendment of the
Indenture or for waiver of compliance with certain provisions of the Indenture
or for waiver of certain defaults; or (vi) modify any of the provisions
described in this paragraph or set forth in certain other sections of the
Indenture, except to increase any such percentage or to limit the ability of
holders to modify or waive certain other provisions of the Indenture.

The holders of at least a majority in principal amount of the outstanding
Notes may, on behalf of all holders, waive compliance by the Company with
certain restrictive provisions of the Indenture. The holders of not less than
a majority in principal amount of the outstanding Notes may, on behalf of all
holders, waive any past default under the Indenture, except a default in the
payment of principal or redemption price of, or interest on, any Note and in
respect of a covenant or provision of the Indenture that cannot be modified or
amended without the consent of the holder of each Note affected thereby.

GOVERNING LAW

The Indenture and the Notes will be governed by and construed in accordance
with the law of the State of New York.

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CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS

The following is a summary of the principal United States federal income tax
consequences resulting from the beneficial ownership of Notes by certain
persons. This summary does not purport to consider all the possible United
States federal income tax consequences of the purchase, ownership or
disposition of Notes and is not intended to reflect the individual tax
position of any beneficial owner. It deals only with Notes held as capital
assets. Moreover, this summary does not address beneficial owners that may be
subject to special tax rules, such as banks, insurance companies, dealers in
securities or currencies, purchasers that hold Notes as a hedge against
currency risks or as part of a straddle with other investments or as part of a
"synthetic security" or other integrated investment (including a "conversion
transaction") comprised of a Note and one or more other investments, or
purchasers that have a "functional currency" other than the U.S. dollar.
Except to the extent discussed below under "Non-United States Holders," this
summary is not applicable to holders of Notes other than U.S. Holders (as
defined below). This summary is based upon the United States federal income
tax laws and regulations as now in effect and as currently interpreted and
does not take into account possible changes in such tax laws or such
interpretations, any of which may be applied retroactively. It does not
include any description of the tax laws of any state, local or foreign
governments that may be applicable to Notes or holders thereof. Persons
considering the purchase of Notes should consult their own tax advisors
concerning the application of the United States federal income tax laws to
their particular situations as well as any consequences to them under the laws
of any other taxing jurisdiction.

For purposes of this discussion, a "U.S. Holder" is (i) a citizen or
resident of the United States, (ii) a corporation created or organized under
the laws of the United States or any state thereof (including the District of
Columbia) or (iii) a person otherwise subject to United States federal income
taxation on its worldwide income.

UNITED STATES HOLDERS

PAYMENTS OF INTEREST

In general, payment of "qualified stated interest" on a Note (as defined
below under "Original Issue Discount"), will be taxable to a U.S. Holder as
ordinary interest income at the time it is received or accrued, depending on
the holder's method of accounting for tax purposes.

ORIGINAL ISSUE DISCOUNT

The following discussion summarizes the United States federal income tax
consequences to U.S. Holders of Notes issued with original issue discount for
United States federal income tax purposes ("OID"). U.S. Holders of a Note
issued with OID generally will be subject to special tax accounting rules
provided in the Internal Revenue Code of 1986, as amended (the "Code") and
certain Treasury regulations promulgated thereunder (the "OID Regulations").
U.S. Holders of Discount Notes should be aware that, as described in greater
detail below, the Code and the OID Regulations provide rules that require them
to include OID in gross income before the receipt of cash attributable to such
income, without regard to their method of accounting for tax purposes.

GENERAL

A Note will be treated as issued with OID (a "Discount Note") if the excess
of the Note's "stated redemption price at maturity" over its issue price is
greater than or equal to a de minimis amount (set forth in the Code and the
OID Regulations). Generally, the issue price of a Note (or any Note that is
part of an issue of Notes) will be the first price at which a substantial
amount of Notes that are part of such issue of Notes are sold to the public
(other than to underwriters, placement agents or wholesalers). Under the OID
Regulations, the "stated redemption price at maturity" of a Note is the sum of
all payments made with respect to the Note that are not payments of "qualified
stated interest." A "qualified stated interest" payment includes any stated
interest payment on a Note that is unconditionally payable at least annually
at a single fixed rate that appropriately takes into account the length of the
interval between stated interest payments. If a particular issue of Notes will
constitute an issue of Discount Notes, the applicable Prospectus Supplement
will so state.

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In general, if the excess of a Note's stated redemption price at maturity
over its issue price is de minimis, then such excess constitutes "de minimis
OID." Under the OID Regulations, unless the election described below under
"Election to Treat All Interest as Original Issue Discount" is made, such a
Note will not be treated as issued with OID (in which case the following
paragraphs under "Original Issue Discount" will not apply) and a U.S. Holder
of such a Note will recognize capital gain with respect to such de minimis OID
as stated principal payments on the Note are made. The amount of such gain
with respect to each such payment will equal the product of the total amount
of the Note's de minimis OID and a fraction, the numerator of which is the
amount of the principal payment made and the denominator of which is the
stated principal amount of the Note.

In general, the amount of OID includible in gross income by a U.S. Holder of
a Discount Note is the sum of the "daily portions" of OID with respect to the
Discount Note for each day during the taxable year or portion of the taxable
year in which the U.S. Holder holds such Discount Note ("accrued OID"). The
daily portion is determined by allocating to each day in any "accrual period"
a pro rata portion of the OID allocable to that accrual period. Under the OID
Regulations, accrual periods with respect to a Note may be any set of periods
(which may be of varying lengths) selected by the U.S. Holder as long as (i)
no accrual period is longer than one year and (ii) each scheduled payment of
interest or principal on the Note occurs on the first day or final day of an
accrual period.

The amount of OID allocable to an accrual period equals the excess of (a)
the product of the Discount Note's adjusted issue price at the beginning of
the accrual period and the Discount Note's yield to maturity (determined on
the basis of compounding at the close of each accrual period and properly
adjusted for the length of the accrual period) over (b) the sum of any
payments of qualified stated interest on the Discount Note allocable to the
accrual period. The yield to maturity of a Discount Note is the discount rate
that causes the present value of all payments on the Discount Note as of its
original issue date to equal the issue price of such Discount Note. The
"adjusted issue price" of a Discount Note at the beginning of the first
accrual period is the issue price and at the beginning of any accrual period
thereafter is (x) the sum of the issue price of such Discount Note, the
accrued OID for each prior accrual period (determined without regard to the
amortization of any acquisition premium or bond premium, which are discussed
below), and the amount of any qualified stated interest on the Note that has
accrued prior to the beginning of the accrual period but is not payable until
a later date, less (y) any prior payments on the Discount Note that were not
qualified stated interest payments. If a payment (other than a payment of
qualified stated interest) is made on the first day of an accrual period, then
the adjusted issue price at the beginning of such accrual period is reduced by
the amount of the payment.

As a result of this "constant yield" method of including OID in income,
U.S. Holders of Discount Notes generally will have to include in income
increasingly greater amounts of OID over the life of the Notes.

ACQUISITION PREMIUM

A U.S. Holder that purchases a Discount Note for an amount in excess of its
adjusted issue price as of the purchase date but less than its stated
redemption price at maturity (any such excess being "acquisition premium"),
and that does not make the election described below under "Election To Treat
All Interest as Original Issue Discount," is permitted to reduce the amount of
OID which must be included in gross income for any taxable year (but not below
zero) by the portion of the acquisition premium properly allocable to such
year.

OPTIONAL REDEMPTION

For purposes of determining whether a Note is a Discount Note and
calculating the amount of OID on such Note, an option to redeem a Note held by
the Company will be presumed to be exercised if, by utilizing any date on
which such Note may be redeemed or repaid as the maturity date and the amount
payable on such date in accordance with the terms of such Note (the
"redemption price") as the stated redemption price at maturity, the yield on
the Note would be lower than its yield to Stated Maturity. If such option is
not in fact exercised when presumed to be exercised, the Note would be treated
solely for OID purposes as if it were redeemed or repurchased, and a new Note
were issued, on the presumed exercise date for an amount equal to the Discount
Note's adjusted issue price on that date. U.S. Holders are urged to consult
their own tax advisors with respect to the Company's option to redeem the
Notes. See "Description of Notes--Optional Redemption."

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NOTES PURCHASED AT A PREMIUM

Under the Code, a U.S. Holder that purchases a Note for an amount in excess
of its stated redemption price at maturity will not be subject to the OID
rules and may elect to treat such excess as "amortizable bond premium," in
which case the amount of qualified stated interest required to be included in
the U.S. Holder's income each year with respect to interest on the Note will
be reduced by the amount of amortizable bond premium allocable (using a
constant yield method based on the Note's yield to maturity) to such year. Any
election to amortize bond premium is applicable to all bonds (other than bonds
the interest on which is excludible from gross income) held by the U.S. Holder
at the beginning of the first taxable year to which the election applies or
thereafter acquired by the U.S. Holder, and may not be revoked without the
consent of the Internal Revenue Service ("IRS"). A U.S. Holder that elects to
amortize such premium must reduce its tax basis in a Note by the amount of the
premium amortized during its holding period. See also "Election to Treat All
Interest as Original Issue Discount."

NOTES PURCHASED AT A MARKET DISCOUNT

A Note will be treated as purchased at a market discount (a "Market Discount
Note") if the amount for which a U.S. Holder purchased the Note is less than
the Note's issue price, subject to a de minimis rule similar to the rule
relating to de minimis OID described under "Original Issue Discount--General."

In general, any gain recognized on the maturity or disposition of a Market
Discount Note will be treated as ordinary income to the extent that such gain
does not exceed the accrued market discount on the Note. Alternatively, a U.S.
Holder of a Market Discount Note may elect to include market discount in
income currently over the life of the Market Discount Note. Such an election
applies to all debt instruments with market discount acquired by the electing
U.S. Holder on or after the first day of the first taxable year to which the
election applies and may not be revoked without the consent of the IRS.

Market discount accrues on a straight-line basis unless the U.S. Holder
elects to accrue such discount on a constant yield to maturity basis. Such an
election is applicable only to the Market Discount Note with respect to which
it is made and is irrevocable. A U.S. Holder of a Market Discount Note that
does not elect to include market discount in income currently generally will
be required to defer deductions for interest on borrowings allocable to the
Note in an amount not exceeding the accrued market discount on the Note until
the maturity or disposition of the Note.

ELECTION TO TREAT ALL INTEREST AS ORIGINAL ISSUE DISCOUNT

Any U.S. Holder may elect to include in gross income its entire return on a
Note (i.e., the excess of all remaining payments to be received on the Note,
including payments of qualified stated interest, over the amount paid by such
U.S. Holder for such Note) using the constant yield method described above
under the heading "Original Issue Discount--General." For Notes purchased at a
premium or Market Discount Notes, the U.S. Holder making such election will
also be deemed to have an election to amortize any such premium or to accrue
any such market discount in income on a constant yield basis.

PURCHASE, SALE AND RETIREMENT OF THE NOTES

A U.S. Holder's adjusted tax basis in a Note generally will equal its cost,
increased by the amount of any OID or market discount included in the U.S.
Holder's income with respect to the Note and the amount, if any, of income
attributable to de minimis OID included in the U.S. Holder's income with
respect to the Note, and reduced by the sum of (i) the amount of any payments
that are not qualified stated interest payments, and (ii) the amount of any
amortizable bond premium applied to reduce interest on the Note. A U.S. Holder
generally will recognize gain or loss on the sale or retirement of a Note
equal to the difference between the amount realized on the sale or retirement
(except for amounts attributable to accrued or unpaid interest which will be
taxable as such) and the U.S. Holder's adjusted tax basis in the Note. Except
to the extent described above under "Notes Purchased at a Market Discount,"
gain or loss recognized on the sale or retirement of a Note generally will be
capital gain or loss and will be long-term capital gain or loss if the Note
was held for more than one year.

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NON-UNITED STATES HOLDERS

Subject to the discussion of backup withholding below, payments of principal
(and premium, if any) and interest (including OID) by the Company or any agent
of the Company (acting in its capacity as such) to any holder of a Note that
is not a U.S. Holder (a "Non-U.S. Holder") will not be subject to United
States federal withholding tax, provided, in the case of interest (including
OID), that (i) the Non-U.S. Holder does not actually or constructively own 10%
or more of the total combined voting power of all classes of stock of the
Company entitled to vote, (ii) the Non-U.S. Holder is not a controlled foreign
corporation for United States tax purposes that is related to the Company
(directly or indirectly) through stock ownership or a bank receiving interest
described in Section 881(c)(3)(A) of the Code, (iii) such payments are not
effectively connected with the conduct of a United States trade or business by
such Non-U.S. Holder and (iv) the beneficial owner provides a statement signed
under penalties of perjury that includes its name and address and certifies
that it is a Non-U.S. Holder in compliance with applicable requirements (or,
with respect to payments made after December 31, 1999, satisfies certain
documentary evidence requirements for establishing that it is a Non-U.S.
Holder).

Any capital gain, market discount or exchange gain realized on the sale,
exchange, retirement or other disposition of a Note by a Non-U.S. Holder will
not be subject to United States federal income or withholding taxes unless (i)
such gain is effectively connected with the conduct of a United States trade
or business of the Non-U.S. Holder or (ii) in the case of an individual, such
Non-U.S. Holder is present in the United States for 183 days or more in the
taxable year of the sale, exchange, retirement or other disposition and
certain other conditions are met.

INFORMATION REPORTING AND BACKUP WITHHOLDING

For each calendar year in which Notes are outstanding, the Company is
required to provide the IRS with certain information, including each holder's
name, address and taxpayer identification number (either the holder's Social
Security number or its employer identification number, as the case may be),
the aggregate amount of principal and interest paid (including OID, if any) to
that holder during the calendar year and the amount of tax withheld, if any.
This obligation, however, does not apply with respect to certain U.S. Holders,
including corporations, tax-exempt organizations, qualified pension and profit
sharing trusts and individual retirement accounts.

Payments on a Note beneficially owned by a Non-U.S. Holder will not be
subject to United States backup withholding tax and information reporting
requirements if such holder has provided the statement described in
clause (iv) in the first paragraph under "Non-U.S. Holders" above, or has
otherwise established an exemption (provided that neither the Company nor its
agent has actual knowledge that the holder is a United States person or that
the conditions of any exemption are not in fact satisfied). In the event that
a U.S. Holder subject to the reporting requirements described above fails to
supply its correct taxpayer identification number in the manner required by
applicable law or underreports its tax liability, the Company, its agents or
paying agents or a broker may be required to "backup" withhold a tax equal to
31% of each payment of interest (including OID) and principal (and premium if
any) on the Notes. This backup withholding is not an additional tax and may be
credited against the U.S. Holder's United States federal income tax liability,
provided that the required information is furnished to the IRS.

Payment of the proceeds from the sale of a Note to or through a foreign
"broker" (as defined in the applicable Treasury regulations) will not be
subject to information reporting requirements or backup withholding tax,
except that if the broker is a United States person, a controlled foreign
corporation for United States tax purposes or a foreign person 50 percent or
more of whose gross income from all sources for the three-year period ending
with the close of its taxable year preceding the payment was effectively
connected with a United States trade or business, information reporting may
apply to such payments. Payment of the proceeds from a sale of a Note to or
through the United States office of a broker is subject to information
reporting and backup withholding unless the holder or beneficial owner
certifies as to its taxpayer identification number or otherwise establishes an
exemption from information reporting and backup withholding.

58
<PAGE>

On October 6, 1997, the United States Treasury Department issued final
Treasury regulations governing information reporting requirements and
certification procedures regarding withholding and backup withholding on
certain amounts paid to a Non-U.S. Holder after December 31, 1999. The new
Treasury regulations may change the certification procedures relating to the
receipt by intermediaries of payments on behalf of a beneficial owner of a
Note. Prospective investors should consult their tax advisors concerning the
effect, if any, of such new Treasury regulations on an investment in the
Notes.

59
<PAGE>

ERISA MATTERS

The Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
imposes certain restrictions on employee benefit plans ("Plans") that are
subject to ERISA and/or Section 4975 of the Code and on persons who are
fiduciaries with respect to such Plans. In accordance with ERISA's general
fiduciary requirements, a fiduciary with respect to any such Plan who is
considering the purchase of Notes on behalf of such Plan should determine
whether such purchase is permitted under the governing Plan documents and is
prudent and appropriate for the Plan in view of its overall investment policy
and the composition and diversification of its portfolio. Other provisions of
ERISA and Section 4975 of the Code prohibit certain transactions involving the
assets of a Plan and persons who have certain specified relationships to the
Plan ("parties in interest" within the meaning of ERISA or "disqualified
persons" within the meaning of Section 4975 of the Code). Thus, a Plan
fiduciary considering the purchase of the Notes should consider whether such a
purchase might constitute or result in a prohibited transaction under ERISA or
Section 4975 of the Code.

The Company, directly or through it affiliates, may be considered a "party
in interest" or a "disqualified person" with respect to many Plans that are
subject to ERISA. The purchase of Notes by a Plan that is subject to the
fiduciary responsibility provisions of ERISA or the prohibited transaction
provisions of Section 4975 of the Code (including individual retirement
accounts and other plans described in Section 4975(e)(1) of the Code) and with
respect to which the Company is a party in interest or a disqualified person
may constitute or result in a prohibited transaction under ERISA or Section
4975 of the Code, unless such Notes are acquired pursuant to and in accordance
with an applicable exemption, such as Prohibited Transaction Class Exemption
("PTCE") 84-14 (an exemption for certain transactions entered into at the
direction of an independent qualified professional asset manager), PTCE 91-38
(an exemption for certain transactions involving bank collective investment
funds), PTCE 90-1 (an exemption for certain transactions involving insurance
company pooled separate accounts), PTCE 95-60 (an exemption for certain
transactions involving insurance company general accounts) or PTCE 96-23 (an
exemption for certain transactions entered into at the discretion of certain
in-house asset managers). Any persons acquiring and holding Notes for or on
behalf of any Plan, or for or on behalf of any entity which is deemed to hold
the assets of any Plan for purposes of ERISA and Section 4975 of the Code (a
"Plan Asset Entity"), shall be deemed to have represented to Presidential that
at least one of the foregoing exemptions is available with respect to such
acquisition and holding and that all applicable conditions of such exemption
have been satisfied (and will continue to be satisfied so long as the Notes
are held), or that such person has otherwise determined after due inquiry that
such acquisition and holding will not involve a prohibited transaction under
Section 406 of ERISA or Section 4975 of the Code. Any persons proposing to
acquire Notes for or on behalf of any Plan or Plan Asset Entity should consult
with its counsel as to the propriety of such acquisition under ERISA and
Section 4975 of the Code.

60
<PAGE>

PLAN OF DISTRIBUTION

With respect to the offering of Notes, the following summary of the plan of
distribution will be supplemented by a description of such offering, including
the particular terms and conditions thereof, set forth in the applicable
Prospectus Supplement relating to such Notes.

The Company may sell the Notes in any of three ways: (i) through
underwriters or dealers; (ii) directly to one or a limited number of
institutional purchasers; or (iii) through agents. Each Prospectus Supplement
with respect to an issue of Notes will set forth the terms of the offering of
such Notes, including the name or names of any underwriters or agents, the
price of such Notes and the net proceeds to the Company from such sale, any
underwriting discounts, commissions or other items constituting underwriters'
or agents' compensation, any discount or concessions allowed or reallowed or
paid to dealers and any securities exchanges on which such Notes may be
listed.

If underwriters are used in the sale, the Notes will be acquired by the
underwriters for their own account and may be resold from time to time in one
or more transactions, including negotiated transactions, at a fixed public
offering price or at varying prices determined at the time of sale. The Notes
may be offered to the public either through underwriting syndicates of
investment banking firms represented by managing underwriters, or directly by
one or more such investment banking firms or others, as designated. Unless
otherwise set forth in the applicable Prospectus Supplement, the obligations
of the underwriters to purchase the Notes will be subject to certain
conditions precedent and the underwriters will be obligated to purchase all of
the Notes offered thereby if any are purchased. Any initial public offering
price and any discounts or concessions allowed or reallowed or paid to dealers
may be changed from time to time.

Notes may be sold directly by the Company to one or more institutional
purchasers, or through agents designated by the Company from time to time. Any
agent involved in the offer or sale of the Notes will be named, and any
commissions payable by the Company to such agent will be set forth, in the
applicable Prospectus Supplement. Unless otherwise indicated in such
Prospectus Supplement, any such agent will be acting on a best efforts basis
for the period of its appointment.

Until the distribution of the Notes is completed, rules of the Commission
may limit the ability of underwriters to bid for and purchase the Notes. As an
exception to these rules, underwriters are permitted to engage in certain
transactions that stabilize the price of the Notes. Such transactions consist
of bids or purchases for the purpose of pegging, fixing or maintaining the
price of the Notes. If underwriters create a short position in the Notes in
connection with the offering, i.e., if they sell more Notes than are set forth
on the cover page of the applicable Prospectus Supplement, underwriters may
reduce that short position by purchasing Notes in the open market. In general,
purchase of a security for the purpose of stabilization or to reduce a short
position could cause the price of the security to be higher than it might be
in the absence of such purchases. Such activities, if commenced, may be
discontinued at any time.

If so indicated in the applicable Prospectus Supplement, the Company will
authorize agents, underwriters or dealers to solicit offers by certain
specified institutions to purchase the Notes from the Company at the public
offering price set forth in such Prospectus Supplement plus accrued interest,
if any, pursuant to delayed delivery contracts providing for payment and
delivery on one or more specified dates in the future. Institutions with which
such contracts my be made include commercial and saving banks, insurance
companies, pension funds, investment companies, educational and charitable
institutions and others, but in all such cases such institutions must be
approved by the Company. Such contracts will be subject only to those
conditions set forth in such Prospectus Supplement and such Prospectus
Supplement will set forth the commission payable for solicitation of such
contracts.

Agents and underwriters may be entitled under agreements entered into with
the Company to indemnification by the Company against certain civil
liabilities, including liabilities under the Securities Act, or to
contribution with respect to payments which the agents or underwriters may be
required to make in respect thereof.

Agents and underwriters may engage in transactions with or perform services
for the Company in the ordinary course of business.

61
<PAGE>

LEGAL MATTERS

The validity of the issuance of the Notes will be passed upon for the
Company by Willkie Farr & Gallagher, New York, New York. Certain legal matters
relating to the offering of the Notes will be passed upon for the Underwriters
by Cleary, Gottlieb, Steen & Hamilton, New York, New York.

EXPERTS

The Consolidated Financial Statements and financial statement schedules of
the Company as of December 31, 1997 and 1996 and for each of the three years
in the period ended December 31, 1997 included and incorporated by reference
in this Prospectus, have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their reports appearing and incorporated by reference
herein, and have been so included and incorporated by reference in reliance
upon such reports given upon their authority as experts in accounting and
auditing.

With respect to the unaudited interim financial information for the three-
month and six-month periods ended June 30, 1998 and 1997 which is included and
incorporated herein by reference, Deloitte & Touche LLP have applied limited
procedures in accordance with professional standards for a review of such
information. However, as stated in their report for the quarter ended June 30,
1998 and included elsewhere herein, they did not audit and they do not express
an opinion on that interim financial information. Accordingly, the degree of
reliance on their report on such information should be restricted in light of
the limited nature of the review procedures applied. Deloitte & Touche LLP are
not subject to the liability provisions of Section 11 of the Securities Act of
1933 for their report on the unaudited interim financial information because
this report is not a "report" or a "part" of the registration statement
prepared or certified by an accountant within the meaning of Sections 7 and 11
of the Act.

62
<PAGE>

GLOSSARY OF SELECTED INSURANCE TERMS

A.M. Best.................... A.M. Best Company, the publisher of Best's
Insurance Report.

Annuity...................... A contract that provides for a fixed or
variable periodic payment made from a stated
or contingent date and continued for a
specified period, such as for a number of
years (certain period) or for life (life
contingent), either immediately or after a
stated accumulation period.

Asset Valuation Reserve; AVR establishes statutory reserves for all
AVR......................... investments. AVR generally captures all
realized and unrealized gains and losses on
such assets, other than those resulting from
changes in interest rates. AVR has no effect
on financial statements prepared in conformity
with GAAP.

Cash Surrender Value......... The amount of cash that may be realized by the
owner of an annuity contract or life insurance
policy with a life insurance company upon
lapse or surrender of the policy or contract
prior to its maturity.

Cede, Ceding Company......... When a company reinsures all or a portion of
its risk with another, it "cedes" business and
is referred to as the "ceding company."

Credited Rates............... Interest rates applied to annuity contracts and
life insurance policies whether contractually
guaranteed or currently declared for a
specified period.

Deferred Annuity (single
premium deferred
annuity/flexible premium
deferred annuity)...........
An annuity that: (i) can be paid either with a
single premium or an initial premium and
additional optional premiums; and (ii)
includes a schedule of periodic income
benefits to commence after an accumulation
period.

Deferred Policy Acquisition
Costs ("DAC")...............
Agents' and brokers' commissions, premiums,
taxes, marketing, underwriting and other
direct expenses which vary with and are
directly related to the production of
business. These acquisition costs are deferred
and amortized to achieve a matching of
revenues and expenses when reported in
financial statements prepared in conformity
with GAAP.

Deposits..................... All payments and other consideration received
on certain contracts, principally universal
and investment type contracts. These amounts
are not included in revenues under GAAP but
are included directly in policyholder account
balances.

Flexible Premium Annuities...
Annuities that permit annual premium payments
in such amounts as the holder deems
appropriate.

63
<PAGE>

Generally Accepted
Accounting Principles;
GAAP........................ United States generally accepted accounting
principles as defined by the American
Institute of Certified Public Accountants and
the Financial Accounting Standards Board.

Guaranty Funds............... Funds created in all states, the District of
Columbia and Puerto Rico by law, to cover
funding shortfalls in paying claims of
insolvent insurance companies. These funds are
maintained by assessments of insurance
companies operating in a particular state in
proportion to their business written in that
state.

In Force..................... The total face amount of insurance coverage
under contracts that have not expired.

Interest Maintenance IMR captures the net gains and losses from
Reserve; IMR................ changes in the overall level of interest rates
that are realized upon the sale of investments
prior to maturity and amortizes these net
realized gains into income over the remaining
life of each investment sold. IMR has no
effect on financial statements prepared in
conformity with GAAP.

IRIS......................... The NAIC's Insurance Regulatory Information
System.

Lapse........................ Termination of a policy because of surrender,
failure to pay a premium or lack of sufficient
cash value to maintain in force status.

National Association of
Insurance Commissioners
(the "NAIC")................ An association made up of the officials of each
state responsible for the administration of
that state's insurance laws.

Net Investment Income........ Earnings on the investment portfolio of assets,
net of related investment expenses.

NYSDI........................ The New York State Department of Insurance.

Persistency.................. The rate which insurance policies or annuity
contracts remain in force, expressed as a
percentage of the number of policies remaining
in force over the previous year.

Premiums..................... Payments and considerations received during the
year on annuity contracts and insurance
policies, other than universal life and
investment-type contracts, issued or reinsured
(assumed less ceded) by an insurance company
and accounted for as revenues under GAAP.

Reinsurance.................. The practice whereby one party, called the
reinsurer or assuming company, in
consideration of a premium paid to such party,
agrees to indemnify another party, called the
ceding company. Reinsurance provides a primary
insurer with three major benefits: it reduces
net liability on individual risks; it helps to
protect against catastrophic losses; and it
helps to maintain acceptable surplus and
reserve ratios. Reinsurance provides a primary
insurer with additional underwriting capacity
in that the primary insurer

64
<PAGE>

can accept larger risks and can expand the
volume of business it writes without increasing
its capital base. Reinsurance may be on an
assumption basis, which effectively transfers
to the reinsurer all rights and obligations on
the business reinsured. Reinsurance may be on a
coinsurance basis, which means that the
reinsure accepts a stated proportion of all
policy risks. Reinsurance may be on an excess
or stop l loss basis, which means that the
reinsurer is responsible for any benefits in
excess of a stated amount.

Reserves.................... Liabilities established by an insurer to reflect
the estimated discounted present value of cost
of claims, payments or contract liabilities and
the related expenses that the insurer
ultimately will be required to pay in respect
of insurance or annuities it has written.

Retention................... In a reinsurance context, the amount or portion
of risk which a ceding insurer retains for its
own account. Losses paid by a ceding insurer in
excess of the retention level are then owed to
the insurer by the reinsurer.

Risk-Based Capital Regulatory and rating agency targeted surplus
Requirements............... based on the relationship of statutory capital
and surplus, with certain adjustments, to the
sum of stated percentages of each element of a
specified list of company risk exposures.

Single Premium Deferred Annuities that require a one-time lump sum
Annuities.................. payment of consideration upon the issuance of
the contract with benefit payments commencing
at some future date following an accumulation
period.

Single Premium Immediate Annuities that require a one-time lump sum
Annuities.................. payment of consideration upon the issuance of
the contract and which begin benefit payments
immediately after issuance.

Statutory Accounting
Practices ("Statutory")....
Accounting practices prescribed or permitted by
state insurance regulatory authorities.
Statutory emphasizes solvency rather than
operating results which match revenues and
expenses during an accounting period.

Statutory Reserves.......... Monetary amounts established by state insurance
law that an insurer must have available to
provide for future obligations with respect to
all policies. Statutory reserves are
liabilities on the balance sheet of financial
statements prepared in conformity with
statutory accounting practices.

Statutory Surplus........... The excess of statutory admitted assets over
statutory liabilities as shown on an insurer's
statutory financial statements.

Superintendent..............
The Superintendent of Insurance of the State of
New York.

65
<PAGE>

Surrender Charge............. The fee charged to a policyholder when an
annuity or life insurance policy is
surrendered for its cash value. Such charge is
intended to recover policy acquisition costs
and act as a deterrent to early surrender.
Surrender charges typically grade down over a
set period of time as a percentage of the
account values in relation to the anticipated
amortization of the deferred policy
acquisition costs until there are no more
surrender charges.

Surrenders and Withdrawals... Surrenders of annuity contracts and life
insurance policies for their entire net cash
surrender values and withdrawals of a portion
of such values.

Term Life Insurance.......... Life insurance protection during a certain
number of years but expiring without policy
cash value if the insured survives the stated
period. Most term policies provide for
guaranteed continuation of coverage for life
at increased premium rates.

Total Admitted Assets........ Assets which have been recognized and approved
by regulatory authorities in evaluating the
financial condition of an insurance company.

Underwriting................. The process of examining, accepting or
rejecting insurance risks, and classifying
those accepted, in order to charge the proper
premium for each.

Universal Life Insurance..... Life insurance under which: (i) premiums and
credited interest rates generally are
flexible; (ii) the level of death benefits may
be adjusted; and (iii) expenses and other
charges are specifically disclosed to the
purchaser. This type of policy is sometimes
referred to as unbundled life insurance
because its three basis elements (investment
earnings, cost of insurance and expenses
charges) are separately identified both in the
policy and in an annual report to the
policyholder.

Whole Life Insurance......... Insurance that may be kept in force for a
person's entire life by paying one ore more
premiums. It is paid for in one of three
different ways; (i) ordinary life insurance
(premiums are payable as long as the insured
lives); (ii) limited payment life insurance
(premiums are payable over a specified number
of years); and (ii) single premium life
insurance (a lump sum amount paid at the
inception of the policy). The insurance policy
pays a benefit (contractual amount adjusted
for items such as policy loans and dividends,
if any) at the death of the insured. Whole
life insurance contracts also build up
nonforfeiture benefits.

66
<PAGE>

PRESIDENTIAL LIFE CORPORATION

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<S> <C>
AUDITED CONSOLIDATED FINANCIAL STATEMENTS PAGE
----
Independent Auditors' Report............................................. F-2
Consolidated Balance Sheets at December 31, 1996 and 1997................ F-3
Consolidated Statements of Income for the years ended December 31, 1995,
1996 and 1997........................................................... F-4
Consolidated Statements of Shareholders' Equity for the years ended
December 31, 1995, 1996
and 1997................................................................ F-5
Consolidated Statements of Cash Flows for the years ended December 31,
1995, 1996 and 1997..................................................... F-6
Notes to the Consolidated Financial Statements........................... F-7
UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
Independent Accountants' Report.......................................... F-22
Consolidated Balance Sheets at December 31, 1997 and June 30, 1998....... F-23
Consolidated Statements of Income for the six months ended June 30, 1997
and 1998................................................................ F-24
Consolidated Statements of Income for the three months ended June 30,
1997 and 1998........................................................... F-25
Consolidated Statements of Shareholders' Equity for the six months ended
June 30, 1997 and 1998.................................................. F-26
Consolidated Statements of Cash Flows for the six months ended June 30,
1997 and 1998........................................................... F-27
Condensed Notes to Consolidated Financial Statements..................... F-28
</TABLE>

F-1
<PAGE>

INDEPENDENT AUDITORS' REPORT

The Board of Directors and Shareholders
Presidential Life Corporation
Nyack, New York 10960

We have audited the accompanying consolidated balance sheets of Presidential
Life Corporation and subsidiaries ("the Company") as of December 31, 1997 and
1996 and the related consolidated statements of income, shareholders' equity
and cash flows for each of the three years in the period ended December 31,
1997. 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 have 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, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company as of December
31, 1997 and 1996 and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 1997 in conformity
with generally accepted accounting principles.

/s/ Deloitte & Touche LLP

DELOITTE & TOUCHE LLP

New York, New York
February 12, 1998

F-2
<PAGE>

PRESIDENTIAL LIFE CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------
1996 1997
---------------- ----------------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C>
ASSETS:
Investments:
Fixed maturities:
Available for sale......................... $ 1,823,349 $ 1,909,924
Common stocks.............................. 42,059 45,773
Mortgage Loans............................. 18,622 17,865
Real Estate................................ 426 417
Policy Loans............................... 18,068 18,120
Short-term investments..................... 240,038 264,098
Other invested assets...................... 176,103 208,162
---------------- ----------------
Total investments........................ 2,318,665 2,464,359
Cash and cash equivalents.................... 819 13,480
Accrued investment income.................... 32,474 28,167
Deferred policy acquisition costs............ 39,783 37,685
Furniture and equipment, net................. 329 567
Amounts due from reinsurers.................. 7,775 8,249
Other assets................................. 1,532 1,222
Assets held in separate account.............. 5,548 4,612
---------------- ----------------
TOTAL ASSETS............................. $ 2,406,925 $ 2,558,341
================ ================
LIABILITIES AND SHAREHOLDERS' EQUITY:
Liabilities:
Policy Liabilities:
Policyholders' account balances............. $ 1,260,545 $ 1,280,900
Future policy benefits:
Annuity.................................... 365,321 380,109
Life and accident and health............... 49,859 50,848
Other policy liabilities.................... 2,690 3,124
---------------- ----------------
Total policy liabilities................. 1,678,415 1,714,981
Dollar repurchase agreements................. 200,883 205,202
Notes payable................................ 50,000 50,000
Short term note payable...................... 5,000 20,000
Deposits on policies to be issued............ 1,270 2,436
Deferred federal income taxes................ 31,649 46,575
General expenses and taxes accrued........... 7,294 7,074
Other liabilities............................ 3,803 4,807
Liabilities related to separate account...... 5,548 4,612
---------------- ----------------
Total liabilities........................ 1,983,862 2,055,687
---------------- ----------------
Shareholders' Equity:
Capital stock ($.01 par value, authorized
100,000,000 shares, issued and outstanding
32,621,549 shares in 1997 and 32,992,835
shares in 1996)............................. 330 326
Additional paid-in capital................... 24,023 18,274
Net unrealized investment gains.............. 40,294 71,540
Retained earnings............................ 358,416 412,514
---------------- ----------------
Total Shareholders' Equity............... 423,063 502,654
---------------- ----------------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY.................................. $ 2,406,925 $ 2,558,341
================ ================
</TABLE>

The accompanying notes are an integral part of these Consolidated Financial
Statements.

F-3
<PAGE>

PRESIDENTIAL LIFE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------
1995 1996 1997
----------- ----------- -----------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
REVENUES:
Insurance revenues:
Premiums............................. $ 4,408 $ 4,244 $ 3,976
Annuity considerations............... 3,780 8,461 19,655
Universal life and investment type
policy fee income................... 1,934 2,090 1,988
Net investment income................. 170,780 186,180 191,818
Realized investment gains............. 17,216 20,020 26,039
Other income.......................... 1,746 2,679 4,228
----------- ----------- -----------
TOTAL REVENUES..................... 199,864 223,674 247,704
----------- ----------- -----------
BENEFITS AND EXPENSES:
Death and other life insurance bene-
fits................................. 7,366 6,887 7,236
Annuity benefits...................... 36,016 36,510 37,867
Interest credited to policyholders'
account balances..................... 78,802 75,252 76,202
Interest expense on notes payable..... 5,045 5,049 5,850
Other interest and other charges...... 427 330 445
Increase (decrease) in liability for
future policy benefits............... 1,312 5,281 15,248
Commissions to agents, net............ 3,025 3,215 4,357
General expenses and taxes............ 11,940 13,944 12,813
Decrease (increase) in deferred policy
acquisition costs.................... (459) 849 (2,872)
----------- ----------- -----------
TOTAL BENEFITS AND EXPENSES........ 143,474 147,317 157,146
----------- ----------- -----------
Income before income taxes............. 56,390 76,357 90,558
----------- ----------- -----------
Provision (benefit) for income taxes:
Current.............................. 9,495 23,199 31,165
Deferred............................. (2,163) (1,363) (1,899)
----------- ----------- -----------
7,332 21,836 29,266
----------- ----------- -----------
NET INCOME............................. $ 49,058 $ 54,521 $ 61,292
=========== =========== ===========
Weighted average number of shares
outstanding during the year........... 33,631,719 33,184,294 32,734,733
=========== =========== ===========
Earnings per common share.............. $ 1.46 $ 1.64 $ 1.87
=========== =========== ===========
</TABLE>

The accompanying notes are an integral part of these Consolidated Financial
Statements.

F-4
<PAGE>

PRESIDENTIAL LIFE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997

<TABLE>
<CAPTION>
NET
UNREALIZED
ADDITIONAL INVESTMENT
CAPITAL PAID-IN GAINS RETAINED
STOCK CAPITAL (LOSSES) EARNINGS TOTAL
------- ---------- ---------- -------- --------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C>
Balance at January 1,
1995...................... $337 $31,751 $ (39,463) $263,328 $255,953
Net income................. 49,058 49,058
Increase in Unrealized
Investment Gains, Net..... 101,195 101,195
Purchase and Retirement of
Stock..................... (2) (1,704) (1,706)
Issuance of Shares under
Stock Option Plan......... 83 83
Dividends Paid to
Shareholders ($.105 per
share).................... (3,523) (3,523)
---- ------- --------- -------- --------
Balance at December 31,
1995...................... 335 30,130 61,732 308,863 401,060
Net income................. 54,521 54,521
Change in Unrealized
Investment Gains, Net..... (21,438) (21,438)
Purchase and Retirement of
Stock..................... (7) (7,031) (7,038)
Issuance of Shares under
Stock Option Plan......... 2 924 926
Dividends Paid to
Shareholders ($.15 per
share).................... (4,968) (4,968)
---- ------- --------- -------- --------
Balance at December 31,
1996...................... 330 24,023 40,294 358,416 423,063
Net income................. 61,292 61,292
Change in Unrealized
Investment Gains, Net..... 31,246 31,246
Purchase and Retirement of
Stock..................... (4) (5,758) (5,762)
Issuance of Shares under
Stock Option Plan......... 9 9
Dividends Paid to
Shareholders ($.22 per
share).................... (7,194) (7,194)
---- ------- --------- -------- --------
Balance at December 31,
1997...................... $326 $18,274 $ 71,540 $412,514 $502,654
==== ======= ========= ======== ========
</TABLE>

The accompanying notes are an integral part of these Consolidated Financial
Statements.

F-5
<PAGE>

PRESIDENTIAL LIFE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------
1995 1996 1997
----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income............................. $ 49,058 $ 54,521 $ 61,292
Adjustments to reconcile net income to
net cash provided by operating
activities:
Benefit for deferred income taxes..... (2,163) (1,363) (1,899)
Depreciation and amortization......... 499 439 474
Net accrual of discount on fixed matu-
rities............................... (1,108) (1,184) (4,181)
Realized investment gains............. (17,216) (20,020) (26,039)
Changes in:
Accrued investment income............. (11,531) 1,854 4,307
Deferred policy acquisition costs..... (459) 849 (2,872)
Federal income tax recoverable........ 8,657 477 0
Liability for future policy benefits.. 1,588 5,689 15,777
Other items........................... 2,911 2,612 436
----------- ----------- -----------
Net Cash Provided by Operating
Activities......................... 30,241 43,928 47,295
----------- ----------- -----------
INVESTING ACTIVITIES:
Fixed Maturities:
Available for Sale:
Acquisitions......................... (326,630) (302,778) (338,058)
Sales................................ 44,453 13,713 29,325
Maturities, calls and repayments..... 90,147 259,108 252,383
Common Stocks:
Acquisitions......................... (25,087) (15,663) (18,722)
Sales................................ 73,449 54,369 68,377
Decrease (increase) in short term
investments and policy loans.......... (62,357) (46,884) (24,112)
Other Invested Assets:
Additions to other invested assets... (31,655) (62,045) (110,760)
Distributions from other invested
assets.............................. 23,812 36,274 78,701
Purchase of property and equipment..... (41) (154) (409)
Mortgage loan on real estate........... (1,392) 393 757
Amounts due from security
transactions.......................... 52,588 0 0
----------- ----------- -----------
Net Cash Used in Investing Activities... (162,713) (63,667) (62,518)
----------- ----------- -----------
FINANCING ACTIVITIES:
Proceeds from Dollar Repurchase
Agreements............................ 1,670,600 2,308,967 2,429,540
Repayment of Dollar Repurchase
Agreements............................ (1,549,547) (2,268,500) (2,425,221)
Proceeds from line of credit........... 0 5,000 15,000
Increase (decrease) in policyholders'
account balances...................... 14,207 (9,353) 20,355
Repurchase of common stock............. (1,706) (7,038) (5,762)
Deposits on policies to be issued...... 1,342 (1,677) 1,166
Dividends paid to shareholders......... (3,526) (4,967) (7,194)
----------- ----------- -----------
Net Cash Provided by Financing Activi-
ties................................... 131,370 22,432 27,884
----------- ----------- -----------
Increase (Decrease) in Cash and Cash
Equivalents............................ (1,102) 2,693 12,661
Cash and Cash Equivalents at Beginning
of Year................................ (772) (1,874) 819
----------- ----------- -----------
Cash and Cash Equivalents at End of
Year................................... $ (1,874) $ 819 $ 13,480
=========== =========== ===========
Supplemental Cash Flow Disclosure:
Income Taxes Paid...................... $ 6,887 $ 27,303 $ 27,700
=========== =========== ===========
Interest Paid.......................... $ 4,750 $ 4,750 $ 5,508
=========== =========== ===========
</TABLE>

The accompanying notes are an integral part of these Consolidated Financial
Statements.

F-6
<PAGE>

PRESIDENTIAL LIFE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A. Business

Presidential Life Corporation ("the Company"), through its wholly-owned
subsidiary Presidential Life Insurance Company ("the Insurance Company"), is
engaged in the sale of life insurance and annuities.

B. Basis of Presentation and Principles of Consolidation

The accompanying consolidated financial statements have been prepared in
conformity with generally accepted accounting principles ("GAAP").
Intercompany transactions and balances have been eliminated in consolidation.
Certain amounts have been reclassified to conform to the current year's
presentation. The preparation of financial statements in conformity with
generally accepted accounting principles requires that management make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.

C. Investments

Fixed maturity investments available for sale represent investments which
may be sold in response to changes in various economic conditions. These
investments are carried at estimated market value and net unrealized gains
(losses), net of the effects of amortization of deferred policy acquisition
costs and deferred Federal income taxes are credited or charged directly to
shareholders' equity, unless a decline in market value is considered to be
other than temporary in which case the investment is reduced to its net
realizable value. Equity securities include common stocks and non-redeemable
preferred stocks and are carried at estimated market, with the related
unrealized gains and losses, net of deferred income tax effect, if any,
charged or credited directly to shareholders' equity, unless a decline in
market value is deemed to be other than temporary in which case the investment
is reduced to its net realizable value.

"Other invested assets" are recorded at the lower of cost or market, or
equity as appropriate, and primarily include interests in limited
partnerships, which principally are engaged in real estate, international
opportunities, acquisitions of private growth companies, debt restructuring
and merchant banking. In general, risks associated with such limited
partnerships include those related to their underlying investments (i.e.,
equity securities, debt securities and real estate), plus a level of
illiquidity, which is mitigated by the ability of the Company to take annual
distributions of partnership earnings. To evaluate the appropriateness of the
carrying value of a limited partnership interest, management maintains ongoing
discussions with the investment manager and considers the limited
partnership's operation, its current and near term projected financial
condition, earnings capacity, and distributions received by the Company during
the year. Because it is not practicable to obtain an independent valuation for
each limited partnership interest, for purposes of disclosure the market value
of a limited partnership interest is estimated at book value. Management
believes that the net realizable value of such limited partnership interests,
in the aggregate, exceeds their related carrying value as of December 31, 1997
and 1996. As of December 31, 1997, the Company was committed to contribute, if
called upon, an aggregate of approximately $73.7 million of additional capital
to certain of these limited partnerships.

In evaluating whether an investment security or other investment has
suffered an impairment in value which is deemed to be "other than temporary",
management considers all available evidence. When a decline in the value of an
investment security or other investment is considered to be other than
temporary, the investment is reduced to its net realizable value, (which
contemplates the price that can be obtained from the sale of such asset in the
ordinary course of business) which becomes the new cost basis. The amount of
reduction is recorded as a realized loss. A recovery from the adjusted cost
basis is recognized as a realized gain only at sale.

F-7
<PAGE>

PRESIDENTIAL LIFE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

The Company participates in "dollar roll" repurchase agreement transactions
to enhance investment income. Dollar roll transactions involve the sale of
certain mortgage backed securities to a holding institution and a simultaneous
agreement to purchase substantially similar securities for forward settlement
at a lower dollar price. The proceeds are invested in short-term securities at
a positive spread until the settlement date of the similar securities. During
this period, the holding institution receives all income and prepayments for
the security. Dollar roll repurchase agreement transactions are treated as
financing transactions for financial reporting purposes.

Realized gains and losses on disposal of investments are determined for
fixed maturities and equity securities by the specific-identification method.

Investments in short-term securities, which consist primarily of United
States Treasury Notes and corporate debt issues maturing in less than one
year, are recorded at amortized cost which approximates market. Mortgage loans
are stated at their amortized indebtedness. Policy loans are stated at their
unpaid principal balance.

The Company's investments in real estate include two buildings in Nyack, New
York, which are occupied entirely by the Company. The investments are carried
at cost less accumulated depreciation. Depreciation has been provided on a
straight line basis at the rate of 4% per annum for one building and 5% per
annum for the other. Accumulated depreciation amounted to $204,400 and
$201,200 at December 31, 1997 and 1996, respectively, and related depreciation
expense for the years ended December 31, 1997, 1996 and 1995 was $3,200,
$3,200 and $3,200, respectively.

D. Furniture and Equipment

Furniture and equipment is carried at cost and depreciated on a straight
line basis over a period of five to ten years except for automobiles which are
depreciated over a period of three years. Accumulated depreciation amounted to
$219,300 and $4,100,000 at December 31, 1997 and 1996, respectively, and
related depreciation expense for each of the three years in the period ended
December 31, 1997 was $163,700, $187,200 and $192,000, respectively.

E. Recognition of Insurance Income and Related Expenses

Premiums from traditional life and annuity policies with life contingencies
are recognized generally as income over the premium paying period. Benefits
and expenses are matched with such income so as to result in the recognition
of profits over the life of the contracts. This matching is accomplished by
means of the provision for liabilities for future policy benefits and the
deferral and subsequent amortization of policy acquisition costs.

For contracts with a single premium or a limited number of premium payments
due over a significantly shorter period than the total period over which
benefits are provided ("limited payment contracts"), premiums are recorded as
income when due with any excess profit deferred and recognized in income in a
constant relationship to insurance in force or, for annuities, the amount of
expected future benefit payments.

Premiums from universal life and investment-type contracts are reported as
deposits to policyholders' account balances. Revenues from these contracts
consist of amounts assessed during the period against policyholders' account
balances for mortality charges and surrender charges. Policy benefits and
claims that are charged to expense include benefit claims incurred in the
period in excess of related policyholders' account balances and interest
credited to policyholders' account balances.

For the fiscal years ended December 31, 1997, 1996, and 1995, approximately
67.3%, 78.3% and 83.5%, respectively, of premiums from traditional life,
annuity, universal life and investment-type contracts received by

F-8
<PAGE>

PRESIDENTIAL LIFE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

the Company were attributable to sales to annuitants and policyholders
residing in the State of New York. In addition, approximately 0%, 0% and 12.5%
of the Company's total insurance revenues from those respective years were
attributable to sales through an agency principally owned by a director of the
Company until his death in December 1995. Management believes that the
Company's transactions with such agency were made on terms at least as fair to
the Company as could be obtained from unaffiliated third parties. Compensation
of agents is strictly regulated by the New York State Department of Insurance.

F. Deferred Policy Acquisition Costs

The costs of acquiring new business (principally commissions, certain
underwriting, agency and policy issue expenses), all of which vary with and
are primarily related to the production of new business, have generally been
deferred. When a policy is surrendered, the remaining unamortized cost is
written off. Deferred policy acquisition costs are subject to recoverability
testing at time of policy issue and loss recognition testing at the end of
each fiscal year.

For immediate annuities with life contingencies, deferred policy acquisition
costs are amortized over the life of the contract, in proportion to expected
future benefit payments.

For traditional life policies, deferred policy acquisition costs are
amortized over the premium paying periods of the related policies using
assumptions that are consistent with those used in computing the liability for
future policy benefits. Assumptions as to anticipated premiums are estimated
at the date of policy issue and are consistently applied during the life of
the contracts. For these contracts the amortization periods generally are for
the scheduled life of the policy, not to exceed 30 years.

Deferred policy acquisition costs are amortized over periods ranging from 15
to 25 years for universal life products and investment-type products as a
constant percentage of estimated gross profits arising principally from
surrender charges and interest and mortality margins based on historical and
anticipated future experience, updated regularly. The effects of revisions to
reflect actual experience on previous amortization of deferred policy
acquisition costs, subject to the limitation that the accrued interest on the
deferred acquisition costs balance may not exceed the amount of amortization
for the year, are reflected in earnings in the period estimated gross profits
are revised.

Unamortized deferred policy acquisition costs for the years ended December
31, 1997 and 1996 are summarized as follows:

<TABLE>
<CAPTION>
1996 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
Balance at the beginning of year.......................... $33,330 $39,783
Current year's costs deferred............................. 6,307 9,783
------- -------
Total................................................... 39,637 49,566
Less, amortization for the year........................... 7,150 6,581
------- -------
Total................................................... 32,487 42,985
Change in amortization (benefit) related to unrealized
gain (loss) in investments............................... (7,296) 5,300
------- -------
Balance at the end of the year............................ $39,783 $37,685
======= =======
</TABLE>

G. Future Policy Benefits

Future policy benefits for traditional life insurance policies are computed
using a net level premium method on the basis of actuarial assumptions as to
mortality, persistency and interest established at policy issue.

F-9
<PAGE>

PRESIDENTIAL LIFE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Assumptions established at policy issue as to mortality and persistency are
based on anticipated experience which, together with interest and expense
assumptions, provide a margin for adverse deviation. Benefit liabilities for
deferred annuities during the accumulation period are equal to accumulated
contract-holders' fund balances and after annuitization are equal to the
present value of expected future payments. During the three years in the
period ended December 31, 1997, interest rates used in establishing such
liabilities range from 4.5% to 11% for life insurance liabilities and from
5.5% to 13.60% for annuity liabilities.

H. Policyholders' Account Balances

Policyholders' account balances for universal life and investment-type
contracts are equal to the policy account values. The policy account values
represent an accumulation of gross premium payments plus credited interest
less mortality and expense charges and withdrawals.

These account balances are summarized as follows:

<TABLE>
<CAPTION>
1995 1996 1997
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Account balances at beginning of year..... $1,255,691 $1,269,898 $1,260,545
Additions to account balances............. 199,510 190,559 209,568
---------- ---------- ----------
Total................................... 1,455,201 1,460,457 1,470,113
Deductions from account balances.......... 185,303 199,912 189,213
---------- ---------- ----------
Account balances at end of year........... $1,269,898 $1,260,545 $1,280,900
========== ========== ==========
</TABLE>

Interest rates credited to account balances ranged from 4% to 12.5% in 1997,
1996 and 1995.

I. Federal Income Taxes

The Company and its subsidiaries file a consolidated Federal income tax
return. The asset and liability method in recording income taxes on all
transactions that have been recognized in the financial statements is used.
Deferred taxes are adjusted to reflect tax rates at which future tax
liabilities or assets are expected to be settled or realized.

J. Separate Accounts

Separate Accounts are established in conformity with New York State
Insurance Law and represent funds for which investment income and investment
gains and losses accrue to the policyholders. Assets and liabilities (stated
at market value) of the Separate Account, representing net deposits and
accumulated net investment earnings less fees, held primarily for the benefit
of contract-holders, are shown as separate captions in the consolidated
balance sheets.

Deposits to the Separate Account are reported as increases in Separate
Account liabilities and are not reported in revenues. Mortality, policy
administration and surrender charges to the Separate Account are included in
revenues.

K. Earnings Per Common Share

The Financial Accounting Standards Board ("FASB") issued Statement No. 128,
"Earnings Per Share" (SFAS No. 128) which specifies the computation,
presentation and disclosure requirements of earnings per share for entities
with publicly held common stock and potential common stock. Earnings per share
(EPS) presented on the face on the consolidated income statement has been
calculated to reflect the adoption of SFAS No. 128

F-10
<PAGE>

PRESIDENTIAL LIFE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

by the Company. Basic EPS is computed based upon the weighted average number
of common shares outstanding during the year. Diluted EPS is computed based
upon the weighted average number of common shares including contingently
issuable shares and other dilutive items. The weighted average number of
common shares used to compute diluted EPS for the year ending December 31,
1997 was 32,736,202. The dilution from the potential exercise of stock options
outstanding did not change basic EPS.

L. Cash and Cash Equivalents

Cash and cash equivalents includes cash on hand and amounts due from banks
with an original maturity of three months or less.

M. New Accounting Pronouncements

In December 1996, the FASB issued SFAS No. 127, "Deferral of the Effective
Date of Certain Provisions of FASB Statement No. 125." SFAS No. 127 amends
SFAS No. 125 by deferring for one year the effective date of paragraph 15 of
SFAS No. 125, addressing secured borrowings and collateral, and for repurchase
agreement, dollar roll, security lending and similar transactions, of
paragraphs 9 through 12 and 237(b) of SFAS No. 125. SFAS No. 127 is effective
for certain transactions occurring after December 31, 1997, and must be
applied prospectively. Management is evaluating the impact of SFAS 125 and 127
on the Company.

In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income" (SFAS 130), which establishes
standards for displaying comprehensive income and its components in a full set
of general-purpose financial statements. SFAS 130 is effective for fiscal
years beginning after December 15, 1997.

Also in June 1997, the FASB issued Statement of Financial Accounting
Standards No. 131, "Disclosures about Segments of an Enterprise and Related
Information" (SFAS 131). SFAS 131 establishes standards for reporting
information about operating segments in annual financial statements and
requires reporting selected information about operating segments in interim
financial reports issued to shareholders. SFAS 131 is effective for fiscal
years beginning after December 15, 1997. The Company's current definition of
its operating segments will not change.

2. INVESTMENTS

The following information summarizes the components of net investment income
and realized investment gains (losses).

NET INVESTMENT INCOME:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------
1995 1996 1997
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Fixed maturities................................. $128,310 $132,467 $134,740
Common stocks.................................... 733 1,315 1,341
Short-term investments........................... 14,010 14,226 14,368
Other investment income.......................... 32,497 44,141 48,797
-------- -------- --------
175,550 192,149 199,246
Less investment expenses......................... 4,770 5,969 7,428
-------- -------- --------
Net investment income............................ $170,780 $186,180 $191,818
======== ======== ========
</TABLE>

The carrying value of fixed maturities which were non-income producing for
more than twelve months at December 31, 1997, 1996 and 1995 was $0 million, $0
million and $1.5 million, respectively.

F-11
<PAGE>

PRESIDENTIAL LIFE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

REALIZED INVESTMENT GAINS (LOSSES):

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------
1995 1996 1997
------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Fixed maturities................................... $ 5,458 $ 6,735 $ 12,080
Common stocks...................................... 11,758 13,285 13,959
------- ------- --------
Total realized gains on investments................ $17,216 $20,020 $26,039
======= ======= ========
</TABLE>

UNREALIZED INVESTMENT GAINS (LOSSES):

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------
1995 1996 1997
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Fixed maturities.............................. $107,521 $ 61,931 $109,995
Common stocks................................. 3,668 8,438 13,752
-------- -------- --------
Unrealized investment gains................... $111,189 $ 70,369 $123,747
Amortization of deferred acquisition costs.... (16,012) (8,378) (13,686)
Deferred federal income taxes................. (33,445) (21,697) (38,521)
-------- -------- --------
Net unrealized investment gain................ 61,732 40,294 71,540
======== ======== ========
Change in net unrealized investment gains..... $101,195 $(21,438) $ 31,246
======== ======== ========
</TABLE>

The change in unrealized investment gains (losses) shown above resulted
primarily from changes in general economic conditions which directly influenced
investment security markets. These changes were also impacted by writedowns of
investment securities for declines in market values deemed to be other than
temporary.

The following tables provide additional information relating to investments
held by the Company:

DECEMBER 31, 1997:

AVAILABLE FOR SALE:

<TABLE>
<CAPTION>
AMORTIZED GROSS UNREALIZED MARKET
TYPE OF INVESTMENT COST GAINS LOSSES VALUE
- ------------------ ---------- -------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Fixed Maturities:
Bonds and Notes:
United States government and
government agencies and
authorities....................... $ 518,997 $ 21,815 $ (256) $ 540,556
States, municipalities and
political subdivisions............ 26,709 3,574 0 30,283
Foreign governments................ 12,160 2,190 0 14,350
Public utilities................... 189,555 14,142 (425) 203,272
All other corporate bonds.......... 855,347 74,441 (5,908) 923,880
Preferred stocks, primarily
corporate........................... 197,161 8,047 (7,625) 197,583
---------- -------- -------- ----------
Total Fixed Maturities............... $1,799,929 $124,209 $(14,214) $1,909,924
========== ======== ======== ==========
Common Stocks........................ $ 32,021 $ 14,202 $ (450) $ 45,773
========== ======== ======== ==========
</TABLE>

F-12
<PAGE>

PRESIDENTIAL LIFE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

DECEMBER 31, 1996:

AVAILABLE FOR SALE:

<TABLE>
<CAPTION>
AMORTIZED GROSS UNREALIZED MARKET
TYPE OF INVESTMENT COST GAINS LOSSES VALUE
- ------------------ ---------- ------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Fixed Maturities:
Bonds and Notes:
United States government and
government agencies and
authorities......................... $ 29,643 $ 2,287 $ (74) $ 31,856
States, municipalities and political
subdivisions........................ 567,423 10,062 (2,354) 575,130
Foreign governments.................. 12,014 686 0 12,700
Public utilities..................... 221,755 4,165 (4,966) 220,954
All other corporate bonds............ 774,094 52,386 (9,444) 817,036
Preferred stocks, primarily corpo-
rate................................. 156,488 13,624 (4,439) 165,673
---------- ------- -------- ----------
Total Fixed Maturities................ $1,761,417 $83,210 $(21,277) $1,823,349
========== ======= ======== ==========
Common Stocks......................... $ 33,621 $ 8,993 $ (555) $ 42,059
========== ======= ======== ==========
</TABLE>

The estimated fair value of fixed maturities available for sale at December
31, 1997, by contractual maturity, are as follows. Expected maturities will
differ from contractual maturities because borrowers may have the right to
call or prepay obligations with or without penalties.

<TABLE>
<CAPTION>
ESTIMATED FAIR VALUE
--------------------
(IN THOUSANDS)
<S> <C>
Due in one year or less................................. $ 11,410
Due after one year through five years................... 143,204
Due after five years through ten years.................. 112,127
Due after ten years..................................... 1,445,600
----------
Total debt securities................................... 1,712,341
Preferred stock......................................... 197,583
----------
Total................................................... $1,909,924
==========
</TABLE>

Proceeds from sales of fixed maturities during 1997, 1996 and 1995 were
$718.4 million, $757.7 million and $506.7 million, respectively. During 1997,
1996 and 1995, respectively, gross gains of $16.4 million, $7.3 million and
$4.8 million and gross losses of $4.5 million, $7.2 million and $14.7 million
were realized on those sales.

During 1996, the Company restructured or modified the terms of certain fixed
maturity investments. Certain of these restructures included debt for equity
exchanges. The fixed maturity portfolio, based on carrying value, includes
$8.6 million at December 31, 1996 of such restructured securities. These
restructures and modifications had no significant impact on gross interest
income on these fixed maturities (which is included in net investment income).
During 1997, the Company did not restructure or modify the terms of any fixed
maturity investments.

As of December 31, 1997, the Company's mortgage loans were collateralized by
commercial office buildings in New York and Pennsylvania.

F-13
<PAGE>

PRESIDENTIAL LIFE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Investments in U.S. Government and Government Agencies with an aggregate
carrying value of $518,997,000 represents investments owned in any one issuer
that aggregate 10% or more of shareholders' equity as of December 31, 1997.

As of December 31, 1997 securities with a carrying value of approximately
$5.5 million were on deposit with various state insurance departments to
comply with applicable insurance laws.

The Company was informed by the Pennsylvania Insurance Commissioner that in
response to the significant improvement in the invested assets of Fidelity,
she has reopened the process to select an equity investor for the
recapitalization and rehabilitation of Fidelity. The Company disagreed with
the Insurance Commissioner's actions and commenced litigation which was
settled in the second quarter of 1997. As part of the settlement, the Company
received $1.7 million.

3. NOTES PAYABLE

Notes payable at December 31, 1997 and 1996 consist of $50 million, 9 1/2%
senior notes due December 15, 2000. Interest is payable June 15 and December
15. Debt issue costs are being amortized on the interest method over the term
of the notes. As of December 31, 1997, such unamortized costs were $874
thousand. There are no principal payments required for the senior notes over
the next three years and the total principal is due on December 15, 2000. The
senior notes are callable after December 14, 1998.

The indenture governing the senior notes contains covenants relating to
limitations on additional indebtedness, restricted payments, liens and sale or
issuance of capital stock of the Insurance Company. In the event the Company
violates such covenants as defined in the indenture, the Company is obligated
to offer to repurchase 25% of the outstanding principal amount of such notes.
The Company believes that it is in compliance with all of the covenants.

The short-term note payable is a bank line of credit in the amount of
$25,000,000 and provides for interest on borrowings based on market indices.
At December 31, 1997 and 1996 the Company had $20,000,000 and $5,000,000
outstanding, respectively. The short-term note payable outstanding at December
31, 1997 and 1996 had a weighted average interest rate of 6.625% and 6.281%,
respectively.

4. SHAREHOLDERS' EQUITY

The Company is authorized to issue 100,000,000 shares of its $.01 par value
Common Stock. At December 31, 1997 32,621,549 shares were outstanding and at
December 31, 1996 32,992,835 shares were outstanding.

During the third quarter of 1997, the Company's Board of Directors increased
the quarterly dividend rate to $.06 per share. During 1997 and 1996, the
Company purchased and retired 372,300 and 724,000 shares of common stock,
respectively. The Company is authorized pursuant to a resolution of the Board
of Directors to purchase an additional 232,000 shares of common stock.

Payment of dividends to the Company by the Insurance Company are effectively
restricted by the provisions of the New York Insurance Law ("Insurance Law").
All dividend payments are subject to the review and

F-14
<PAGE>

PRESIDENTIAL LIFE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

disapproval by the New York Insurance Department. Under the New York State
Insurance Law, the New York Superintendent has broad discretion to determine
whether the financial condition of a stock life insurance company would
support the payment of dividends to its shareholders.

The New York Insurance Department has established informal guidelines for
the Superintendent's determinations which focus upon, among other things, the
overall financial condition and profitability of the insurer under statutory
accounting practices. During 1997, 1996 and 1995, the Insurance Company paid
dividends of $24.8 million, $15 million and $5 million, respectively, to the
Company.

5. EMPLOYEE BENEFIT AND DEFERRED COMPENSATION PLANS

(a) Employee Retirement Plan

The Company has a noncontributory defined benefit pension plan covering all
eligible employees. The Company is both sponsor and administrator of this
plan. The plan provides for pension benefits based on average pay and years of
service. It is the Company's general policy to fund accrued pension costs as
required under ERISA. In 1997, 1996 and 1995 the Company contributed $50,000,
$450,000, and $120,500, respectively to the plan.

Net pension cost included the following components:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1995 1996 1997
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost...................................... $ 379 $ 405 $ 436
Interest cost..................................... 293 330 370
Actual return on plan assets...................... (293) (298) (343)
Other............................................. 0 11 16
------- ------- -------
Net pension cost.................................. $ 379 $ 448 $ 479
======= ======= =======
</TABLE>

The funded status of the plan at December 31, 1997 and 1996 was as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1996 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
Projected benefits obligation............................. $(5,269) $(5,923)
Plan assets at fair value................................. 4,444 4,558
------- -------
Assets less then projected benefit........................ (825) (1,365)
Unrecognized prior service cost........................... 195 167
Unrecognized net gain..................................... (757) (619)
------- -------
Accrued pension costs..................................... $(1,387) $(1,817)
======= =======
Accumulated benefit obligation:
Vested.................................................. $ 4,259 $ 4,868
Nonvested............................................... 33 8
------- -------
$ 4,292 $ 4,876
======= =======
</TABLE>

F-15
<PAGE>

PRESIDENTIAL LIFE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

The following rates were used in computing the pension cost for the years
ended December 31:

<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Weighted-average discount rate................................ 7.0% 7.0% 7.0%
Assumed rate of compensation increases........................ 3.0% 3.0% 3.0%
Expected long-term rates of return............................ 7.5% 7.5% 7.5%
</TABLE>

(b) Employee Savings Plan

The Company adopted an Internal Revenue Code (IRC) Section 401(k) plan for
its employees effective January 1, 1992. Under the plan, participants may
contribute up to a maximum of 15% of their pre-tax earnings or the dollar
limit as prescribed by IRC Section 415(d). A portion of participants' pre-tax
earnings may be matched by the Company. For the years ended December 31, 1997,
1996 and 1995, the Company's contribution was approximately $43,700, $40,500
and $14,000, respectively.

The Company has adopted an incentive stock option plan recommended by the
Board of Directors and approved by the shareholders. This plan grants options
to purchase up to 1,000,000 shares of common stock of the Company to officers
and key employees. Option prices are 100% of the fair market value at date of
grant. The following schedule shows all options granted, exercised, expired
and exchanged under the Company's Incentive Stock Option Plan as of December
31, 1997.

Information relating to the options is as follows:

<TABLE>
<CAPTION>
OPTION PRICE
-------------------------------
NUMBER TOTAL
OF SHARES PER SHARE PRICE
--------- --------- ----------
<S> <C> <C> <C>
Outstanding, January 1, 1995................ 194,740 $ 4.93 $ 961,105
Granted................................... 45,200 7.53 340,200
Exercised................................. (17,128) 4.88 (83,499)
Canceled.................................. (1,191) 4.88 (5,806)
-------- ----------
Outstanding, December 31, 1995.............. 221,621 $ 5.47 $1,212,000
Granted................................... 44,400 9.69 430,125
Exercised................................. (170,433) 4.88 (830,861)
Canceled.................................. (46,188) 7.20 (332,516)
-------- ----------
Outstanding, December 31, 1996.............. 49,400 $ 9.08 $ 448,748
Granted................................... 66,150 17.49 1,180,706
Exercised................................. (1,014) 9.69 (9,826)
Canceled.................................. (2,525) 12.43 (31,398)
-------- ----------
Outstanding, December 31, 1997.............. 112,011 $14.20 $1,588,230
======== ==========
</TABLE>

At December 31, 1997, 14,761 options for shares of common stock were
exercisable.

The Company applies Accounting Principles Board Opinion No. 25 and related
Interpretations in accounting for its stock option plan. Accordingly, no
compensation cost has been recognized for its fixed stock option plan. Had
compensation cost for the Company's stock option plan been determined based on
the fair value at the grant dates for awards under the plan consistent with
the method of FASB Statement 123, the Company's net income

F-16
<PAGE>

PRESIDENTIAL LIFE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

and earnings per common share for the year ended December 31, 1997 would have
been reduced to the pro forma amounts indicated below:

<TABLE>
<S> <C>
Net income (in thousands)
As reported....................................................... $61,292
Pro forma......................................................... 61,188
Earnings per common share
As reported....................................................... $1.87
Pro forma......................................................... 1.87
</TABLE>

The fair value of options granted under the Company's fixed stock option
plan during 1997 was estimated on the date of grant using the Black-Scholes
option-pricing model with the following weighted-average assumptions used:
dividend yield of 1.19%, expected volatility of 29.81%, risk free interest
rate of 7.0%, and expected lives of 4 years.

6. INCOME TAXES

The following is a reconciliation of income taxes computed using the Federal
statutory rate with the provision for income taxes for the years ended
December 31,:

<TABLE>
<CAPTION>
1995 1996 1997
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Provision for income taxes computed at Federal
statutory rate................................. $19,737 $26,725 $31,695
Increase (decrease) in income taxes resulting
from:
Utilization of prior unrecognized deferred tax
asset relating to investment losses............ (7,858) (5,767) (868)
Losses producing no current benefit............. 1,262 1,590 81
Other........................................... (5,809) (712) (1,642)
------- ------- -------
Provision for Federal income taxes.............. $ 7,332 $21,836 $29,266
======= ======= =======
</TABLE>

The Company provides for deferred income taxes resulting from temporary
differences which arise from recording certain transactions in different years
for income tax reporting purposes than for financial reporting purposes. The
sources of these differences and the tax effect of each were as follows:

<TABLE>
<CAPTION>
1995 1996 1997
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Deferred policy acquisition costs................ $ 333 $ (742) $ 341
Policyholders' account balances.................. (189) (216) 5
Investment adjustments........................... (1,510) 135 (481)
Other............................................ (797) (540) (1,764)
------- ------- -------
Deferred Federal income tax benefit.............. $(2,163) $(1,363) $(1,899)
======= ======= =======
</TABLE>

Deferred federal income taxes reflect the net tax effects of (a) temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes,

F-17
<PAGE>

PRESIDENTIAL LIFE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

and (b) operating loss carryforwards. Significant components of the Company's
net deferred tax (asset) liability as of December 31, 1997 and 1996 are as
follows (in thousands):
<TABLE>
<CAPTION>
1996 1997
-------- --------
<S> <C> <C>
Deferred income tax asset:
Investments............................................ $ (5,522) $ (6,003)
Insurance reserves..................................... (5,584) (6,508)
Operating loss carryforwards........................... (1,903) (1,669)
Other.................................................. (292) (249)
-------- --------
(13,301) (14,429)
Valuation allowance.................................... 6,072 5,322
-------- --------
Net deferred income tax asset.......................... $ (7,229) $ (9,107)
-------- --------
Deferred income tax liability:
Deferred policy acquisition costs...................... $ 15,964 $ 16,305
Net unrealized investment gains........................ 21,697 38,521
Policyholder account balances.......................... 85 90
Other.................................................. 1,132 766
-------- --------
Deferred income tax liability........................... 38,878 55,682
-------- --------
Net deferred income tax liability....................... $ 31,649 $ 46,575
======== ========
</TABLE>

The valuation allowance relates principally to investment writedowns
recorded for financial reporting purposes, which have not been recognized for
income tax purposes, due to the uncertainty associated with their
realizability for income tax purposes. Changes in the valuation allowance for
the years ended December 31, 1997 and 1996 primarily reflect the reduction in
the deferred tax asset as a result of the utilization of previously
unrecognized investment losses.

Prior to 1984, Federal income tax law allowed life insurance companies to
exclude from taxable income and set aside certain amounts in a tax memorandum
account known as the Policyholder Surplus Account ("PSA"). Under the tax law,
the PSA has been frozen at its December 31, 1983 balance of $2,900,000 which
may under certain circumstances become taxable in the future. The Insurance
Company does not believe that any significant portion of the amount in this
account will be taxed in the foreseeable future. Accordingly, no provision for
income taxes has been made thereon. If the amount in the PSA were to become
taxable, the resulting liability using current rates would be approximately
$1,015,000.

Under current tax law, there are certain limitations on the utilization of
non-life insurance company losses ("non-life losses") against life insurance
company income ("life income") in a consolidated federal income tax return.
The utilization of non-life losses against life income in any year is limited
to the lesser of 35 percent of life income or 35 percent of non-life losses.
Any unutilized balance of non-life losses is carried over to subsequent tax
years.

The Company has net operating loss carryforwards of approximately $7,337,000
at December 31, 1997 of which $2,949,000 expire in 2009; $2,487,000 in 2010;
$1,671,000 in 2011; and $230,000 in 2012.

7. REINSURANCE

Reinsurance allows life insurance companies to share risks on a case by case
or aggregate basis with other insurance and reinsurance companies. The
Insurance Company cedes insurance to the reinsurer and compensates the
reinsurer for its assumption of risk. The maximum amount of individual life
insurance normally retained by the Company on any one life is $50,000 per
policy and $100,000 per life. The maximum retention with respect to impaired
risk policies typically is the same. The Insurance Company cedes insurance
primarily on an

F-18
<PAGE>

PRESIDENTIAL LIFE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

"automatic" basis, under which risks are ceded to a reinsurer on specific
blocks of business where the underlying risks meet certain predetermined
criteria, and on a "facultative" basis, under which the reinsurer's prior
approval is required on each risk reinsured.

The reinsurance of a risk does not discharge the primary liability of the
insurance company ceding that risk, but the reinsured portion of the claim is
recoverable from the reinsurer. The major reinsurance treaties into which the
Insurance Company has entered can be characterized as follows:

Reinsurance ceded from the Insurance Company to Life Reassurance Corporation
of America and Swiss Re Life & Health America Inc. at December 31, 1997 and
1996 consists of coinsurance agreements aggregating face amounts of $230.6
million and $257.0 million, respectively, representing the amount of
individual life insurance contracts that were ceded to the reinsurers. The
term "coinsurance" refers to an arrangement under which the Insurance Company
pays the reinsurers the gross premiums on the portion of the policy to be
reinsured and the reinsurers grant a ceding commission to the Insurance
Company to cover its acquisition costs plus a margin for profit.

Reinsurance premiums ceded for 1997, 1996 and 1995 amounted to approximately
$4.5 million, $4.6 million, and $4.5 million, respectively.

8. STATUTORY FINANCIAL STATEMENTS

Accounting practices used to prepare statutory financial statements for
regulatory filings of stock life insurance companies differ from GAAP.
Material differences resulting from these accounting practices include:
deferred policy acquisition costs, deferred Federal income taxes and statutory
non-admitted assets are recognized under GAAP accounting while statutory
investment valuation reserves are not; premiums for universal life and
investment-type products are recognized as revenues for statutory purposes and
as deposits to policyholders' accounts under GAAP; different assumptions are
used in calculating future policyholders' benefits; and different methods are
used for calculating valuation allowances for statutory and GAAP purposes;
fixed maturities are recorded principally at market value or amortized cost as
appropriate under GAAP while under statutory accounting practices they are
recorded principally at amortized cost.

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
1995 1996 1997
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Statutory surplus........................... $205,135 $250,869 $296,725
========== ========== ==========
Statutory net income........................ $ 38,834 $ 41,972 $ 57,081
========== ========== ==========
</TABLE>

9. LITIGATION

10. FAIR VALUE INFORMATION

The following estimated fair value disclosures of financial instruments have
been determined using available market information, current pricing
information and appropriate valuation methodologies. If quoted market prices
were not readily available for a financial instrument, management determined
an estimated fair value. Accordingly, the estimates may not be indicative of
the amounts the Company could have realized in a market transaction.

F-19
<PAGE>

PRESIDENTIAL LIFE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value.

For fixed maturities and common stocks, estimated fair values were based
primarily upon independent pricing services. For a limited number of privately
placed securities, where prices are not available from independent pricing
services, the Company estimates market values using a matrix pricing model,
based on the issuer's credit standing and the security's interest rate spread
over U.S. Treasury bonds. Because it is not practicable to obtain an
independent valuation for each limited partnership interest for purposes of
disclosure, the market value of a limited partnership interest is estimated to
approximate the carrying value. As of December 31, 1997, the Company was
committed to contribute, if called upon, an aggregate of approximately $73.7
million of additional capital to certain of these limited partnerships. The
market value of short-term investments, mortgage loans and policy loans is
estimated to approximate the carrying value.

Estimated fair values of policyholders' account balances for investment type
products (i.e., deferred annuities, immediate annuities without life
contingencies and universal life contracts) are calculated by projecting the
contract cash flows and then discounting them back to the valuation date at
the appropriate discount rate. For immediate annuities without life
contingencies, the cash flows are defined contractually. For all other
products, projected cash flows are based on an assumed lapse rate and
crediting rate (based on the current treasury curve), adjusted for any
anticipated surrender charges. The discount rate is based on the current
durationmatched treasury curve, plus an adjustment to reflect the anticipated
spread above treasuries on investment grade fixed maturity securities, less an
expense and profit spread.

<TABLE>
<CAPTION>
DECEMBER 31, 1997 CARRYING VALUE ESTIMATED FAIR VALUE
----------------- -------------- --------------------
(IN THOUSANDS)
<S> <C> <C>
Assets
Fixed Maturities:
Available for Sale..................... 1,909,924 1,909,924
Common Stock............................. 45,773 45,773
Mortgage Loans........................... 17,865 17,865
Policy Loans............................. 18,120 18,120
Cash and Short-Term Investments.......... 277,578 277,578
Other Invested Assets.................... 208,162 208,162
Liabilities
Policyholders' Account Balances.......... 1,280,900 1,288,551
Note Payable............................. 50,000 52,500
Short-Term Note Payable.................. 20,000 20,000
<CAPTION>
DECEMBER 31, 1996 CARRYING VALUE ESTIMATED FAIR VALUE
----------------- -------------- --------------------
(IN THOUSANDS)
<S> <C> <C>
Assets
Fixed Maturities:
Available for Sale..................... 1,823,349 1,823,349
Common Stock............................. 42,059 42,059
Mortgage Loans........................... 18,622 18,622
Policy Loans............................. 18,068 18,068
Cash and Short-Term Investments.......... 240,857 240,857
Other Invested Assets.................... 176,103 176,103
Liabilities
Policyholders' Account Balances.......... 1,260,545 1,225,654
Other Notes Payable...................... 50,000 50,000
Short-Term Note Payable.................. 5,000 5,000
</TABLE>

F-20
<PAGE>

PRESIDENTIAL LIFE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

11. QUARTERLY FINANCIAL DATA (UNAUDITED)

Summarized quarterly financial data is presented below. Certain amounts have
been reclassified to conform to the current year's presentation.

<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------
1997 MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
---- -------- ------- ------------ -----------
(IN THOUSANDS, EXCEPT PER SHARE)
<S> <C> <C> <C> <C>
Premiums and other insurance
revenues....................... $ 6,390 $ 6,637 $ 9,024 $ 7,796
Net invested income............. 48,623 49,399 44,444 49,352
Realized investment gains....... 2,510 8,503 9,518 5,508
------- ------- ------- -------
Total revenues.................. 57,523 64,539 62,986 62,656
======= ======= ======= =======
Benefits and expenses........... 38,951 41,022 40,128 37,045
======= ======= ======= =======
Net income...................... 12,548 16,372 16,018 16,354
======= ======= ======= =======
Net income per share............ $ .38 $ .50 $ .49 $ .50
======= ======= ======= =======
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------
1996 MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
---- -------- ------- ------------ -----------
(IN THOUSANDS, EXCEPT PER SHARE)
<S> <C> <C> <C> <C>
Premiums and other insurance
revenues....................... $ 2,691 $ 3,447 $ 5,533 $ 5,803
Net investment income........... 49,753 44,188 42,958 49,281
Realized investment gains....... 1,479 8,249 7,484 2,808
------- ------- ------- -------
Total revenues.................. 53,923 55,884 55,975 57,892
======= ======= ======= =======
Benefits and expenses........... 36,865 35,418 36,049 38,985
======= ======= ======= =======
Net income...................... 10,358 14,316 14,084 15,763
======= ======= ======= =======
Net income per share............ $ .31 $ .43 $ .42 $ .44
======= ======= ======= =======
</TABLE>

F-21
<PAGE>

INDEPENDENT ACCOUNTANTS' REPORT

The Board of Directors and Shareholders
Presidential Life Corporation
Nyack, New York 10960

We have reviewed the accompanying consolidated balance sheet of Presidential
Life Corporation and subsidiaries ("the Company") as of June 30, 1998, and the
related consolidated statements of income, shareholders' equity, and cash
flows for the three-month and six month periods ended June 30, 1998 and 1997.
These financial statements are the responsibility of the Company's management.

We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
to financial data and of making inquiries of persons responsible for financial
and accounting matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing standards, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.

Based upon our review, we are not aware of any material modifications that
should be made to such consolidated financial statements for them to be in
conformity with generally accepted accounting principles.

We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Presidential Life Corporation and
subsidiaries as of December 31, 1997, and the related consolidated statements
of income, shareholders' equity, and cash flows for the year then ended; and
in our report dated February 12, 1998, we expressed an unqualified opinion on
those consolidated financial statements. In our opinion, the information set
forth in the accompanying consolidated balance sheet as of December 31, 1997
is fairly stated, in all material respects, in relation to the consolidated
balance sheet from which it has been derived.

/s/ Deloitte & Touche LLP
August 7, 1998

F-22
<PAGE>

PRESIDENTIAL LIFE CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1997 1998
------------ ----------
<S> <C> <C>
ASSETS:
Investments:
Fixed maturities:
Available for sale at market (Cost of $1,784,222 and
$1,799,929, respectively)........................... $1,909,924 $1,890,301
Common stocks (Cost of $37,975 and $32,021,
respectively)....................................... 45,773 62,957
Mortgage Loans....................................... 17,865 17,460
Real Estate.......................................... 417 416
Policy Loans......................................... 18,120 17,738
Short-term investments............................... 264,098 287,170
Other invested assets................................ 208,162 265,643
---------- ----------
Total investments.................................. 2,464,359 2,541,685
Cash and cash equivalents.............................. 13,480 0
Accrued investment income.............................. 28,167 19,787
Deferred policy acquisition costs...................... 37,685 37,323
Furniture and equipment, net........................... 567 545
Amounts due from reinsurers............................ 8,249 8,095
Other assets........................................... 1,222 292
Assets held in separate account........................ 4,612 4,660
---------- ----------
TOTAL ASSETS....................................... $2,558,341 $2,612,387
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Liabilities:
Policy Liabilities:
Policyholders' account balances...................... $1,280,900 $1,287,940
Future policy benefits:
Annuity............................................. 380,109 391,751
Life and accident and health........................ 50,848 52,092
Other policy liabilities............................. 3,124 3,077
---------- ----------
Total policy liabilities........................... 1,714,981 1,734,860
Dollar Repurchase Agreements........................... 205,202 215,665
Note payable........................................... 50,000 50,000
Short-term note payable................................ 20,000 23,000
Deposits on policies to be issued...................... 2,436 1,243
Federal income taxes payable........................... 1,371 1,748
Deferred federal income taxes.......................... 46,575 46,571
General expenses and taxes accrued..................... 7,074 7,489
Other liabilities...................................... 3,436 3,965
Liabilities related to separate account................ 4,612 4,660
---------- ----------
Total liabilities.................................. 2,055,687 2,089,201
========== ==========
Shareholders' Equity:
Capital stock ($.01 par value, authorized 100,000,000
shares, issued and outstanding 31,987,550 shares in
1998 and 32,621,549 shares in 1997)................. 326 320
Additional paid-in capital........................... 18,274 5,747
Net unrealized investment gains........................ 71,540 76,782
Retained earnings...................................... 412,514 440,337
---------- ----------
Total Shareholders' Equity......................... 502,654 523,186
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY......... $2,558,341 $2,612,387
========== ==========
</TABLE>

The accompanying notes are an integral part of these Unaudited Consolidated
Financial Statements.

F-23
<PAGE>

PRESIDENTIAL LIFE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
30
----------------------
1997 1998
---------- ----------
(UNAUDITED)
<S> <C> <C>
REVENUES:
Insurance Revenues:
Premiums............................................ $ 1,098 $ 1,153
Annuity considerations.............................. 7,978 15,644
Universal life and investment type policy fee
income............................................. 956 1,140
Net investment income................................ 98,022 110,076
Realized investment gains............................ 11,013 9,069
Other income......................................... 2,995 2,357
---------- ----------
TOTAL REVENUES.................................... 122,062 139,439
---------- ----------
BENEFITS AND EXPENSES:
Death and other life insurance benefits.............. 3,100 3,566
Annuity benefits..................................... 18,824 20,735
Interest credited to policyholders' account
balances............................................ 37,435 38,110
Interest expense on notes payable.................... 2,780 3,833
Other interest and other charges..................... 228 142
Increase in liability for future policy benefits..... 7,116 12,572
Commissions to agents, net........................... 1,896 2,337
General expenses and taxes........................... 7,752 8,229
Decrease in deferred policy acquisition costs........ 842 1,097
---------- ----------
TOTAL BENEFITS AND EXPENSES....................... 79,973 90,621
---------- ----------
Income before income taxes............................ 42,089 48,818
---------- ----------
Provision (benefit) for income taxes
Current.............................................. 15,308 19,475
Deferred............................................. (2,139) (2,826)
---------- ----------
13,169 16,649
---------- ----------
NET INCOME............................................ $ 28,920 $ 32,169
========== ==========
Income per share...................................... $ .88 $ 1.00
========== ==========
Weighted average number of shares outstanding during
the period........................................... 32,816,821 32,297,875
========== ==========
</TABLE>

The accompanying notes are an integral part of these Unaudited Consolidated
Financial Statements.

F-24
<PAGE>

PRESIDENTIAL LIFE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30
----------------------------
1997 1998
------------- -------------
(UNAUDITED)
<S> <C> <C>
REVENUES:
Insurance Revenues:
Premiums...................................... $ 862 $ 983
Annuity considerations........................ 3,078 7,977
Universal life and investment type policy fee
income....................................... 521 419
Net investment income.......................... 49,399 57,654
Realized investment gains...................... 8,503 7,063
Other income................................... 2,176 550
------------- -------------
TOTAL REVENUES.............................. 64,539 74,646
------------- -------------
BENEFITS AND EXPENSES:
Death and other life insurance benefits........ 1,607 1,658
Annuity benefits............................... 9,604 10,420
Interest credited to policyholders' account
balances...................................... 18,915 19,210
Interest expense on notes payable.............. 1,436 2,229
Other interest and other charges............... 110 68
Increase (decrease) in liability for future
policy benefits............................... 3,312 6,353
Commissions to agents, net..................... 856 1,081
General expenses and taxes..................... 4,015 3,889
Decrease in deferred policy acquisition costs.. 1,167 1,357
------------- -------------
TOTAL BENEFITS AND EXPENSES................. 41,022 46,265
------------- -------------
Income before income taxes...................... 23,517 28,381
------------- -------------
Provision (benefit) for income taxes
Current........................................ 8,138 12,073
Deferred....................................... (993) (2,189)
------------- -------------
7,145 9,884
------------- -------------
NET INCOME...................................... $ 16,372 $ 18,497
============= =============
Income per share................................ $ .50 $ .58
============= =============
Weighted average number of shares outstanding
during the period.............................. 32,712,132 32,106,715
============= =============
</TABLE>

The accompanying notes are an integral part of these Unaudited Consolidated
Financial Statements.

F-25
<PAGE>

PRESIDENTIAL LIFE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)

<TABLE>
<CAPTION>
ADDITIONAL NET UNREALIZED
PAID-IN INVESTMENT RETAINED
CAPITAL STOCK CAPITAL GAINS (LOSSES) EARNINGS TOTAL
------------- ---------- -------------- -------- --------
<S> <C> <C> <C> <C> <C>
Balance at December 31,
1996................... $330 $24,023 $40,294 $358,416 $423,063
Net Income.............. 28,920 28,920
Issuance of Shares Under
Stock Option Plan...... 2 2
Purchase and Retirement
of Stock............... (3) (4,298) (4,301)
Change in Unrealized
Investment Gains, Net.. 1,462 1,462
Dividends paid to
Shareholders
($0.10 per share)...... (3,276) (3,276)
---- ------- ------- -------- --------
Balance at June 30,
1997................... $327 $19,727 $41,756 $384,060 $445,870
==== ======= ======= ======== ========
Balance at December 31,
1997................... $326 $18,274 $71,540 $412,514 $502,654
Net Income.............. 32,169 32,169
Purchase and Retirement
of Stock............... (6) (12,527) (12,533)
Change in Unrealized
Investment Gains, Net.. 5,242 5,242
Dividends paid to
Shareholders ($0.135
per share)............. (4,346) (4,346)
---- ------- ------- -------- --------
Balance at June 30,
1998................... $320 $ 5,747 $76,782 $440,337 $523,186
==== ======= ======= ======== ========
</TABLE>

The accompanying notes are an integral part of these Unaudited Consolidated
Financial Statements.

F-26
<PAGE>

PRESIDENTIAL LIFE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30
------------------------
1997 1998
----------- -----------
(UNAUDITED)
<S> <C> <C>
OPERATING ACTIVITIES:
Net income.......................................... $ 28,920 $ 32,169
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision (benefit) for deferred income taxes...... (2,139) (2,826)
Depreciation and amortization...................... 258 944
Net accrual of discount on fixed maturities........ (376) (5,045)
Realized investment gains.......................... (11,013) (9,069)
Changes in:
Accrued investment income.......................... 7,494 8,380
Deferred policy acquisition cost................... 842 1,097
Federal income tax recoverable..................... (1,130) 0
Liability for future policy benefits............... 6,695 12,886
Other items........................................ (46) 1,491
----------- -----------
Net Cash Provided by Operating Activities........ 29,505 40,027
----------- -----------
INVESTING ACTIVITIES:
Fixed Maturities:
Available for Sale:
Acquisitions..................................... (122,852) (123,589)
Sales............................................ 4,369 2,602
Maturities, calls and repayments................. 87,959 134,618
Common Stocks:
Acquisitions....................................... (12,778) (7,787)
Sales.............................................. 26,702 18,030
Decrease (increase) in short-term investments and
policy loans....................................... 10,620 (22,690)
Other Invested Assets:
Additions to other invested assets................. (67,870) (68,701)
Distributions from other invested assets........... 40,337 11,221
Purchase of property and equipment.................. (189) (47)
Mortgage loans on real estate....................... 371 405
----------- -----------
Net Cash Used in Investing Activities............ (33,331) (55,938)
----------- -----------
FINANCING ACTIVITIES:
Proceeds from Dollar Repurchase Agreements.......... 1,192,909 1,228,447
Repayment of Dollar Repurchase Agreements........... (1,187,830) (1,217,984)
Increase (decrease) in policyholders' account
balances........................................... (3,179) 7,040
Repurchase of common stock.......................... (4,301) (12,533)
Proceeds from line of credit........................ 7,500 3,000
Deposits on policies to be issued................... 1,398 (1,193)
Dividends paid to shareholders...................... (3,276) (4,346)
----------- -----------
Net Cash Provided by Financing Activities........ 3,221 2,431
----------- -----------
Decrease in Cash and Cash Equivalents............... (605) (13,480)
Cash and Cash Equivalents at Beginning of Period..... 819 13,480
----------- -----------
Cash and Cash Equivalents at End of Period........... $ 214 $ 0
=========== ===========
Supplemental Cash Flow Disclosure:
Income Taxes Paid................................... $ 16,939 $ 19,099
=========== ===========
Interest Paid....................................... $ 2,534 $ 2,900
=========== ===========
</TABLE>

The accompanying notes are an integral part of these Unaudited Consolidated
Financial Statements.

F-27
<PAGE>

PRESIDENTIAL LIFE CORPORATION AND SUBSIDIARIES

CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A. Business

Presidential Life Corporation (the "Company"), through its wholly-owned
subsidiary Presidential Life Insurance Company (the "Insurance Company"), is
engaged in the sale of life insurance and annuities.

B. Basis of Presentation and Principles of Consolidation

The accompanying unaudited consolidated financial statements have been
prepared in conformity with generally accepted accounting principles ("GAAP")
applicable to stock life insurance companies for interim financial statements
and with the requirements of Form 10-Q. Accordingly, they do not include all
of the information and footnotes required by generally accepted accounting
principles applicable to stock life insurance companies for complete annual
financial statements. In the opinion of management, all adjustments,
consisting of normal recurring accruals, considered necessary for a fair
presentation have been included. Interim results for the six months ended June
30, 1998 are not necessarily indicative of the results that may be expected
for the year ending December 31, 1998. Management believes that, although the
disclosures are adequate to make the information presented not misleading, the
consolidated financial statements should be read in conjunction with the
footnotes contained in the Company's audited consolidated financial statements
for the year ended December 31, 1997.

C. Investments

Fixed maturity investments available for sale represent investments which
may be sold in response to changes in various economic conditions. These
investments are carried at market value and unrealized gains and losses, net
of the effects of amortization of deferred policy acquisition costs of
approximately $12.9 million and $13.4 million, and deferred Federal income
taxes of approximately $32.3 million and $38.5 million at June 30, 1998 and
December 31, 1997, respectively, are credited or charged directly to
shareholders' equity, unless a decline in market value is considered to be
other than temporary in which case the investment is reduced to its net
realizable value. Equity securities include common stocks and non-redeemable
preferred stocks and are carried at market, with the related unrealized gains
and losses, net of deferred income taxes, if any, charged directly to
shareholders' equity, unless a decline in market value is deemed to be other
than temporary in which case the investment is reduced to its net realizable
value.

"Other invested assets" are recorded at the lower of cost or market, or
equity as appropriate, and primarily include interests in limited
partnerships, which principally are engaged in real estate, international
opportunities, acquisitions of private growth companies, debt restructuring
and merchant banking. Limited partnership interests usually are not registered
and typically are illiquid. In general, risks associated with such limited
partnerships include those related to their underlying investments (i.e.,
equity securities, debt securities and real estate), plus a level of
illiquidity, which is mitigated by the ability of the Company to take annual
distributions of partnership earnings. To evaluate the appropriateness of the
carrying value of a limited partnership interest, management maintains ongoing
discussions with the investment manager and considers the limited
partnership's operation, its current and near term projected financial
condition, earnings capacity and distributions received by the Company during
the year. Because it is not practicable to obtain an independent valuation for
each limited partnership interest, for purposes of disclosure, the market
value of a limited partnership interest is estimated at book value. Management
believes that the net realizable value of such limited partnership interests,
in the aggregate, exceeds their related carrying value as of June 30, 1998 and
December 31, 1997. As of June 30, 1998, the Company was committed to
contribute, if called upon, an aggregate of approximately $53.9 million of
additional capital to certain of these limited partnerships.

F-28
<PAGE>

PRESIDENTIAL LIFE CORPORATION AND SUBSIDIARIES

CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

In evaluating whether an investment security or other investment has
suffered an impairment in value which is deemed to be "other than temporary",
management considers all available evidence. When a decline in the value of an
investment security or other investment is considered to be other than
temporary, the investment is reduced to its net realizable value, which
becomes the new cost basis. The amount of reduction is recorded as a realized
loss. A recovery from the adjusted cost basis is recognized as a realized gain
only at sale.

The Company participates in "dollar roll" repurchase agreement transactions
to enhance investment income. Dollar roll transactions involve the sale of
certain mortgage backed securities to a holding institution and a simultaneous
agreement to purchase substantially similar securities for forward settlement
at a lower dollar price. The proceeds are invested in shortterm securities at
a positive spread until the settlement date of the similar securities. During
this period, the holding institution receives all income and prepayments for
the security. Dollar roll repurchase agreement transactions are treated as
financing transactions for financial reporting purposes.

As part of a proposed rehabilitation plan for Fidelity Mutual Life Insurance
Company ("Fidelity"), on January 11, 1995 the Insurance Company signed a
definitive purchase agreement with the Pennsylvania Insurance Commissioner and
Fidelity to invest up to $45 million for a minority (49.9%) interest in a
Fidelity subsidiary insurance holding company. In addition, the Company had
agreed to purchase $25 million of Senior Notes of such company. The Company
was informed by the Pennsylvania Insurance Commissioner, that in response to
the significant improvement in the invested assets of Fidelity, she has
reopened the process to select an equity investor for the recapitalization and
rehabilitation of Fidelity. The Company disagreed with the Commissioner's
actions and commenced litigation which was settled in the second quarter of
1997. As part of the settlement, the Company received $1.7 million.

D. Federal Income Taxes

The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes" ("SFAS 109") which requires an asset and
liability method in recording income taxes on all transactions that have been
recognized in the financial statements. SFAS 109 provides that deferred taxes
be adjusted to reflect tax rates at which future tax liabilities or assets are
expected to be settled or realized.

E. New Accounting Pronouncements

In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" (SFAS 130), which establishes standards for displaying comprehensive
income and its components in a full set of general-purpose financial
statements. Effective January 1998, the Company adopted SFAS 130. Total
comprehensive income (loss) for the periods ended June 30, 1998 and 1997 was
$37.41 million and $30.38 million, respectively. The difference between net
income and comprehensive income (loss) was the change in unrealized investment
gains (losses) which arose during the period.

F-29
<PAGE>

PRESIDENTIAL LIFE CORPORATION AND SUBSIDIARIES

CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

postretirement benefits, additional disclosure of information on changes in
the benefit obligations and fair values of plan assets, and elimination of
certain disclosures that were deemed no longer useful. It does not change the
measurement or recognition of those plans. SFAS 132 is effective for fiscal
years beginning after December 15, 1997.

2. INVESTMENTS

Investments in U.S. Government & Government Agencies with an aggregate
carrying value of $479,476,000 represent investments owned in any one issuer
that aggregate 10% or more of Shareholders' Equity as of June 30, 1998.

Securities with a carrying value of approximately $5.6 million were on
deposit with various state insurance departments to comply with applicable
insurance laws.

3. NOTES PAYABLE

Notes payable at June 30, 1998 and December 31, 1997 consist of $50 million,
9 1/2% Senior Notes ("Senior Notes") due December 15, 2000. Interest is
payable June 15 and December 15. Debt issue costs are being amortized on the
interest method over the term of the notes. The total principal is due on
December 15, 2000. The senior notes are callable after December 14, 1998. The
Company intends to call and refinance the senior notes during the fourth
quarter of 1998.

The Company has one bank line of credit in the amount of $25,000,000 and
provides for interest on borrowings based on market indices. At June 30, 1998
the Company had $23,000,000 outstanding under the line of credit.

4. INCOME TAXES

Deferred income taxes reflect the net tax effects of (a) temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes, (b)
operating loss carryforwards and (c) a valuation allowance.

The valuation allowance relates principally to investment writedowns
recorded for financial reporting purposes, which have not been recognized for
income tax purposes, due to the uncertainty associated with their
realizability for income tax purposes. Changes in the valuation allowance for
the six months ended June 30, 1998 reflect the reduction in the deferred tax
asset as of June 30, 1998. The Company's effective tax rates for the six
months ended June 30, 1998 and 1997 were 34.1% and 31.3%, respectively.

F-30
<PAGE>

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

Set forth below is an estimate of the approximate amount of fees and
expenses (other than underwriting discounts and commissions) payable by the
Company in connection with the issuance and distribution of the Notes pursuant
to the Prospectus contained in this Registration Statement.

<TABLE>
<S> <C>
Securities and Exchange Commission registration fees............... $ 29,500
Legal fees and expenses............................................ 225,000
Accounting fees and expenses....................................... 30,000
Blue Sky fees and expenses......................................... 5,000
Printing expenses.................................................. 19,000
Miscellaneous...................................................... 41,500
--------
Total............................................................ $350,000
========
</TABLE>

All of the above items except the registration fee are estimated.

ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

The Certificate of Incorporation of the registrant provides that the
registrant shall, to the fullest extent permitted by the Delaware General
Corporation Law (the "DGCL"), as now or hereafter in effect, indemnify all
persons whom it may indemnify thereunder.

Section 145 of the DGCL applies to the registrant and the relevant portion
provides as follows:

(S) 145 Indemnification of officers, directors, employees and agents;
insurance.

(a) A corporation shall have power to indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative
or investigative (other than an action by or in the right of the corporation)
by reason of the fact that the person is or was a director, officer, employee
or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by the person in connection with such action,
suit or proceeding if the person acted in good faith and in a manner the
person reasonably believed to be in or not opposed to the best interests of
the corporation, and, with respect to any criminal action or proceeding, had
no reasonable cause to believe the person's conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in
a manner which the person reasonably believed to be in or not opposed to the
best interests of the corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that the person's conduct was
unlawful.

(b) A corporation shall have power to indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that the person is or was a
director, officer, employee or agent of the corporation, or is or was serving
at the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise
against expenses (including attorneys' fees) actually and reasonably incurred
by the person in connection with the defense or settlement of such action or
suit if the person acted in good faith and in a manner the person reasonably
believed to be in or not opposed to the best interests of the corporation and
except that no indemnification shall be made in respect of any claim, issue or
matter as to which such person shall have been adjudged to be liable to the
corporation

II-1
<PAGE>

unless and only to the extent that the Court of Chancery or the court in which
such action or suit was brought shall determine upon application that, despite
the adjudication of liability but in view of all the circumstances of the
case, such person is fairly and reasonably entitled to indemnity for such
expenses which the Court of Chancery or such other court shall deem proper.

(c) To the extent that a present or former director or officer of a
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in subsections (a) and (b) of this
section, or in defense of any claim, issue or matter therein, such person
shall be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by such person in connection therewith.

(d) Any indemnification under subsections (a) and (b) of this section
(unless ordered by a court) shall be made by the corporation only as
authorized in the specific case upon a determination that indemnification of
the present or former director, officer, employee or agent is proper in the
circumstances because the person has met the applicable standard of conduct
set forth in subsections (a) and (b) of this section. Such determination shall
be made, with respect to a person who is a director or officer at the time of
such determination, (1) by a majority vote of the directors who are not
parties to such action, suit or proceeding, even though less than a quorum, or
(2) by a committee of such directors designated by majority vote of such
directors, even though less than a quorum, or (3) if there are no such
directors, or if such directors so direct, by independent legal counsel in a
written opinion, or (4) by the stockholders.

(e) Expenses (including attorneys' fees) incurred by an officer or director
in defending any civil, criminal, administrative or investigative action, suit
or proceeding may be paid by the corporation in advance of the final
disposition of such action, suit or proceeding upon receipt of an undertaking
by or on behalf of such director or officer to repay such amount if it shall
ultimately be determined that such person is not entitled to be indemnified by
the corporation as authorized in this section. Such expenses (including
attorneys' fees) incurred by former directors and officers or other employees
and agents may be so paid upon such terms and conditions, if any, as the
corporation deems appropriate.

(f) The indemnification and advancement of expenses provided by, or granted
pursuant to, the other subsections of this section shall not be deemed
exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any bylaw, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in
such person's official capacity and as to action in another capacity while
holding such office.

(g) A corporation shall have power to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against any liability asserted
against such person and incurred by such person in any such capacity, or
arising out of such person's status as such, whether or not the corporation
would have the power to indemnify such person against such liability under
this section.

(h) For purposes of this section, references to "the corporation" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power
and authority to indemnify its directors, officers, and employees or agents,
so that any person who is or was a director, officer, employee or agent of
such constituent corporation, or is or was serving at the request of such
constituent corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, shall
stand in the same position under this section with respect to the resulting or
surviving corporation as such person would have with respect to such
constituent corporation if its separate existence had continued.

(i) For purposes of this section, references to "other enterprises" shall
include employee benefit plans; references to "fines" shall include any excise
taxes assessed on a person with respect to any employee benefit plan; and
references to "serving at the request of the corporation" shall include any
service as a director, officer,

II-2
<PAGE>

employee or agent of the corporation which imposes duties on, or involves
services by, such director, officer, employee or agent with respect to an
employee benefit plan, its participants or beneficiaries; and a person who
acted in good faith and in a manner such person reasonably believed to be in
the interest of the participants and beneficiaries of an employee benefit plan
shall be deemed to have acted in a manner "not opposed to the best interests
of the corporation" as referred to in this section.

(j) The indemnification and advancement of expenses provided by, or granted
pursuant to, this section shall, unless otherwise provided when authorized or
ratified, continue as to a person who has ceased to be a director, officer,
employee or agent and shall inure to the benefit of the heirs, executors and
administrators of such a person.

(k) The Court of Chancery is hereby vested with exclusive jurisdiction to
hear and determine all actions for advancement of expenses or indemnification
brought under this section or under any bylaw, agreement, vote of stockholders
or disinterested directors, or otherwise. The Court of Chancery may summarily
determine a corporation's obligation to advance expenses (including attorneys'
fees).

ITEM 16. EXHIBITS.

<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement.*
4.1 Form of Indenture among the Company and the Trustee.*
5.1 Opinion of Willkie Farr & Gallagher, counsel to the Company, as to the
legality of the Senior Notes.*
8.1 Opinion of Willkie Farr & Gallagher as to United States federal tax
matters relative to the Notes (included in the Prospectus under "Certain
United States Federal Income Tax Considerations").
12.1 Statement re: computation of ratios of earnings to fixed charges.
15.1 Letter re: unaudited interim financial information.
23.1 Consent of Deloitte & Touche LLP.
23.2 Consent of Willkie Farr & Gallagher (included in Exhibits 5.1 and 8.1
above).
24.1 A power of attorney is set forth on the signature page of the
Registration Statement.
25.1 Form T-1 Statement of Eligibility and Qualification under the Trust
Indenture Act of 1939 of Trustee under the Indenture.*
</TABLE>
- --------
*To be filed by amendment.

ITEM 17. UNDERTAKINGS.

The undersigned Registrant hereby undertakes:

(a) (1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement:

(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1993;

(ii) to reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement;

II-3
<PAGE>

(iii) to include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or
any material change to such information in the Registration Statement;

provided, however, that paragraph (a)(1)(i) and (a)(1)(ii) do not apply if
the information required to be included in a post-effective amendment by
those paragraphs is contained in periodic reports filed by the Registrant
pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of
1934 that are incorporated by reference in the Registration Statement.

(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.

(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.

(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing
of the Registrant's annual report pursuant to Section 13(a) or Section
15(d) of the Securities Exchange Act of 1934 (and, where applicable,
each filing of an employee benefit plan's annual report pursuant to
Section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in the registration statement shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.

(h) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission, such indemnification is against
public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred or paid
by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the opinion
of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.

II-4
<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized in the City of Nyack, State of New York, on September 18, 1998.

Presidential Life Corporation

/s/ Herbert Kurz
By___________________________________
Name: Herbert Kurz
Title: President

II-5
<PAGE>

POWER OF ATTORNEY

We, the undersigned directors and officers of Presidential Life Corporation,
do hereby severally constitute and appoint Herbert Kurz and Michael Oporto our
true and lawful attorneys and agents, to do any and all things and acts in our
names in the capacities indicated below and to execute any and all instruments
for us and in our names in the capacities indicated below which said persons
may deem necessary or advisable to enable Presidential Life Corporation to
comply with the Securities Act of 1933, as amended, and any rules, regulations
and requirements of the Securities and Exchange Commission, in connection with
the offering contemplated by this Registration Statement on Form S-3,
including specifically, but not limited to, power and authority to sign for us
or any of us in our names in the capacities indicated below and any and all
amendments, including post-effective amendments to this Registration Statement
and any Rule 462(b) registration statement or amendments thereto; and we
hereby ratify and confirm all that said persons shall do or cause to be done
by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.

SIGNATURE TITLE DATE

/s/ Herbert Kurz President and September 18,
- ------------------------------------- Director 1998
HERBERT KURZ

/s/ Michael V. Oporto Chief Financial September 18,
- ------------------------------------- Officer 1998
MICHAEL V. OPORTO

/s/ Peter A. Cohen Director September 18,
- ------------------------------------- 1998
PETER A. COHEN

/s/ Jules Kroll Director September 18,
- ------------------------------------- 1998
JULES KROLL

/s/ Lawrence Rivkin Director September 18,
- ------------------------------------- 1998
LAWRENCE RIVKIN

/s/ Morton B. Silberman Director September 18,
- ------------------------------------- 1998
MORTON B. SILBERMAN

II-6
<PAGE>

INDEX TO EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
1.1 Form of Underwriting Agreement.*
4.1 Form of Indenture among the Company and the Trustee.*
5.1 Opinion of Willkie Farr & Gallagher, counsel to the Company, as to the
legality of the Senior Notes.*
8.1 Opinion of Willkie Farr & Gallagher as to United States federal tax
matters relative to the Notes (included in the Prospectus under
"Certain United States Federal Income Tax Considerations").
12.1 Statement re: computation of ratios of earnings to fixed charges.
15.1 Letter re: unaudited interim financial information.
23.1 Consent of Deloitte & Touche LLP.
23.2 Consent of Willkie Farr & Gallagher (included in Exhibits 5.1 and 8.1
above).
24.1 A power of attorney is set forth on the signature page of the
Registration Statement.
25.1 Form T-1 Statement of Eligibility and Qualification under the Trust
Indenture Act of 1939 of Trustee under the Indenture.*
</TABLE>
- --------
*To be filed by amendment.

<PAGE>

EXHIBIT 8.1

[WILLKIE FARR & GALLAGHER LETTERHEAD]

Presidential Life Corporation
69 Lydecker Street
Nyack, New York 10960

Ladies and Gentleman:

We have acted as special counsel to Presidential Life Corporation
("Presidential") in connection with the preparation of the Registration
Statement on Form S-3 (the "Registration Statement") relating to the issuance of
its Notes. In that connection, we have prepared the section entitled "Certain
United States Federal Income Tax Considerations" contained in the Prospectus
forming a part of the Registration Statement (the "Prospectus"). Capitalized
terms used herein without definition have the meaning ascribed to those terms in
the Registration Statement.

Our opinion is based on the provisions of the Internal Revenue Code of 1986, as
amended (the "Code"), Treasury Regulations promulgated thereunder, judicial
authority and current administrative rulings and practice, all as of the date of
this letter, and all of which may change at any time. We have also examined
copies of the Registration Statement, and other records and documents that we
have deemed necessary for the purpose of this opinion.

Based upon the foregoing, it is our opinion that the above-referenced section of
the Prospectus, based upon the assumptions contained therein, provides an
accurate discussion of the principal Federal income tax consequences to holders
of the Notes.

We hereby consent to the use of this opinion as an exhibit to the Registration
Statement, to the incorporation by reference of this opinion in any abbreviated
registration statement in connection with the Notes pursuant to Rule 462(b)
under the Securities Act of 1933 and to the reference to us in the Prospectus
included as part of the Registration Statement.

Very truly yours,

/s/ Willkie Farr & Gallagher

<PAGE>

EXHIBIT 12.1

Presidential Life Corporation
Computation of Ratio of Earnings to Fixed Charges
(Dollars in Thousands)

30-Jun-98 30-Jun-97 1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges

Earnings:
Income before income taxes 48,818 42,089 90,558 76,357 56,390 37,219 57,207
Add:
Cumulative effect of a change in
accounting principle 2,846
Fixed charges 3,833 2,780 5,850 5,049 5,045 5,266 6,522
Earnings as adjusted $52,651 $44,869 $96,408 $81,406 $61,435 $42,485 $66,575
======= ======= ======= ======= ======= ======= =======

Fixed Charges:
Interest expense 3,833 2,780 5,850 5,049 5,045 5,266 6,522
Total fixed charges $ 3,833 $ 2,780 $ 5,850 $ 5,049 $ 5,045 $ 5,266 $ 6,522
======= ======= ======= ======= ======= ======= =======

Ratio of earnings to fixed charges 13.74 16.14 16.48 16.12 12.18 8.07 10.21
</TABLE>

<PAGE>

EXHIBIT 15.1

September 18, 1998

Presidential Life Corporation
69 Lydecker Street
Nyack, New York 10960

We have made a review, in accordance with standards established by the American
Institute of Certified Public Accountants, of unaudited interim financial
information of Presidential Life Corporation and subsidiaries for the periods
ended June 30, 1998 and 1997, as indicated in our report dated August 7, 1998;
because we did not perform an audit, we expressed no opinion on that
information.

We are aware that our report referred to above is being used in this
Registration Statement on Form S-3.

We are also aware that the aforementioned report, pursuant to Rule 436 [c] under
the Securities Act of 1933, is not considered a part of the Registration
Statement prepared or certified by an accountant or a report prepared or
certified by an accountant within the meaning of Sections 7 and 11 of that Act.

/s/ Deloitte & Touche LLP

DELOITTE & TOUCHE LLP

New York, New York

<PAGE>

EXHIBIT 23.1

INDEPENDENT AUDITORS' CONSENT

We consent to the use and incorporation by reference in this Registration
Statement of Presidential Life Corporation and subsidiaries on Form S-3 of our
reports dated February 12, 1998, appearing in the Prospectus, which is a part
of this Registration Statement, and appearing in the Annual Report on Form 10-
K of Presidential Life Corporation and subsidiaries for the year ended
December 31, 1997, which is incorporated by reference in the Registration
Statement, and to the reference to us under the headings "Selected
Consolidated Financial Data" and "Experts" in the Prospectus.

DELOITTE & TOUCHE LLP

New York, New York
September 18, 1998