fcc10k01

10-K 1 fcc10k01.htm ANNUAL REPORT fcc10k01

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

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

For the fiscal year ended December 31, 2001        Commission File Number 0-5392

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

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

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

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

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

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

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

                               Title of each class
                               -------------------
                      Common Stock, par value $1 per share

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

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K (229.405 of this chapter) is not contained  herein,  and will
not be contained,  to the best of registrant's knowledge, in definitive proxy or
information  statements  incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [X].

At March 1, 2002, the Registrant had outstanding  54,385 shares of Common Stock,
par value $1 per share.

DOCUMENTS INCORPORATED BY REFERENCE:  None





                         FIRST COMMONWEALTH CORPORATION
                                    FORM 10-K
                          YEAR ENDED DECEMBER 31, 2001


                                TABLE OF CONTENTS



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


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


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


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


      ITEM 4.  SUBMISSION OF MATTERS OF A VOTE OF SECURITY HOLDERS............18


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


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


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


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


      ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA....................31


      ITEM 9.  DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
               AND FINANCIAL DISCLOSURE.......................................62


PART III......................................................................62


      ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT............62


      ITEM 11.  EXECUTIVE COMPENSATION........................................65


      ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
                OWNERS AND MANAGEMENT.........................................68


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


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


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






                                     PART I

ITEM 1.  BUSINESS


FORWARD-LOOKING INFORMATION

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


OVERVIEW

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

At December 31, 2001, the parent and significant majority-owned  subsidiaries of
the Registrant were as depicted on the following organizational chart:

Organizational Chart

This document at times will refer to the Company's largest shareholder, Mr.
Jesse T. Correll and certain companies controlled by Mr. Correll. Mr. Correll
holds a majority ownership of First Southern Funding LLC, a Kentucky
corporation, ("FSF") and First Southern Bancorp, Inc. ("FSBI"), a bank holding
company that operates out of 14 locations in central Kentucky. Mr. Correll is
Chairman of the Board of Directors of UTG and is currently UTG's largest
shareholder through his ownership control of FSF, FSBI and affiliates. At
December 31, 2001 Mr. Correll owns or controls directly and indirectly
approximately 60% of UTG.

On September 4, 2001, FSF and FSBI (and their principals) restructured the
manner in which they hold shares of UTG by forming a new limited liability
company under Kentucky law, First Southern Holdings, LLC ("FSH"). FSBI
contributed to FSH shares of UTG common stock held by it and cash in exchange
for a 99% membership interest in FSH. FSF contributed to FSH shares of UTG
common stock held by it, subject to notes payable which were assumed by FSF in
exchange for a 1% membership interest in FSH.

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

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

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

North Plaza is a wholly owned subsidiary of UTG, which owns for investment
purposes, a shopping center in Somerset, Kentucky, approximately 12,000 acres of
timberland in Kentucky, and a 50% partnership interest in an additional 11,000
acres of Kentucky timberland. Operating activity of North Plaza accounts for
less than $100,000 of earnings annually.

HISTORY

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

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

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

On November 20, 1998, FSF and affiliates acquired 929,904 shares of common stock
of UTG from UTG and certain UTG shareholders. As consideration for the shares,
FSF paid UTG $10,999,995 and certain shareholders of UTG $999,990 in cash.

Following the above transactions, and together with shares of UTG acquired in
the market, FSF and affiliates became the largest shareholder of UTG.

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

The first merger transaction, and an anterior corresponding proposal to increase
the number of authorized shares of UTG common stock from 3,500,000 to 7,000,000,
received necessary shareholder approvals at a special meeting and vote held on
July 26, 1999. The Board of Directors of the respective companies concluded that
the merger would benefit the business operations of UTG and UII and their
respective stockholders by creating a larger more viable life insurance holding
group with lower administrative costs, a simplified corporate structure, and
more readily marketable securities. The second merger was completed as a part of
management's efforts to reduce costs and simplify the corporate structure.

On December 31, 1999, UTG and Jesse T. Correll entered a transaction whereby Mr.
Correll, in combination with other individuals, made an equity investment in
UTG. Under the terms of the Stock Acquisition Agreement, Mr. Correll and certain
of his affiliates contributed their 100% ownership of North Plaza of Somerset,
Inc. to UTG in exchange for 681,818 authorized but unissued shares of UTG common
stock. The Board of Directors of UTG approved the transaction at their regular
quarterly board meeting held on December 7, 1999. North Plaza of Somerset, Inc.
owns for investment purposes, a shopping center in Somerset, Kentucky,
approximately 12,000 acres of timberland in Kentucky, and a 50% partnership
interest in an additional 11,000 acres of Kentucky timberland. North Plaza has
no debt. The net assets have been valued at $7,500,000, which equates to $11.00
per share for the new shares of UTG that were issued in the transaction.

On October 26, 2001, APPL effected a reverse stock split, as a result of which
(i) it became a wholly-owned subsidiary of UG, and an indirect wholly-owned
subsidiary of FCC and UTG, and (ii) its minority shareholders received an
aggregate of $1,055,294.50 in respect of their shares. Prior to the reverse
stock split, UG owned 88% of the outstanding shares of APPL.

PRODUCTS

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

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

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

APPL markets traditional non-participating products that include the 10-pay life
traditional product and preferred whole life plans. The 10-pay life traditional
product is a limited pay product whereby the owner pays premiums over a 10 year
period. At the end of the 10th year, no further premiums are paid and the
insurance remains in-force. The preferred whole life plan is a traditional whole
life product similar to 10-pay life plan other than premiums are payable over
the entire life of the contract.

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

The Company markets other products, none of which is significant to operations.
The Company has a variety of policies in force different from those, which are
currently being marketed. Interest sensitive products including universal life
and excess interest whole life ("fixed premium UL") account for 57% of the
insurance in force. Approximately 22% of the insurance in force is participating
business, which represents policies under which the policyowner shares in the
insurance companies statutory divisible surplus. The Company's average
persistency rate for its policies in force for 2001 and 2000 has been 91.6% and
89.8%, respectively. The Company does not anticipate any material fluctuations
in rates in the future that may result from competition.

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

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

MARKETING

New business production has been declining the past several years. In 2001, the
Companies issued 118 universal life insurance contracts and 323 traditional life
insurance contracts. In 1999 management significantly scaled back on home office
support of marketing efforts in response to the declining new business
production adjusting expense levels relating to new business consistent with
current production. Management currently places little emphasis on new business
production, believing the Companies could better utilize their resources in
other ways. In 2001, the Company increased its emphasis on policy retention in
an attempt to improve current persistency levels. In this regard, several of the
home office staff have become licensed insurance agents enabling them broader
abilities when dealing with the customer in regards to their existing policies
and possible alternatives. This program is relatively new, but early indications
are generally positive. Management will continue to monitor the results of this
program and make adjustments as deemed necessary.

Excluding licensed home office personnel, UG has a total of 25 general agents.
UG primarily markets its products in the Midwest region with most sales in the
states of Illinois and Ohio. APPL has a total of 3 active agents who market
primarily to rural customers in the state of West Virginia. ABE has no active
agents. No individual sales agent accounted for over 10% of the Company's
premium volume in 2001. The Company's sales agents do not have the power to bind
the Company.

ABE is licensed to sell life insurance in Alabama, Arizona, Illinois, Indiana,
Louisiana and Missouri. During 2001, Illinois and Indiana accounted for 36% and
38%, respectively of ABE's direct premiums collected.

APPL is licensed to sell life insurance in Alabama, Arizona, Arkansas, Colorado,
Georgia, Illinois, Indiana, Kansas, Kentucky, Louisiana, Missouri, Montana,
Nebraska, Ohio, Oklahoma, Pennsylvania, Tennessee, Utah, Virginia, West Virginia
and Wyoming. During 2001, West Virginia accounted for 87% of APPL's direct
premiums collected.

UG is licensed to sell life insurance in Alabama, Arizona, Arkansas, Colorado,
Delaware, Florida, Georgia, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky,
Louisiana, Massachusetts, Minnesota, Mississippi, Missouri, Montana, Nebraska,
Nevada, New Mexico, North Carolina, North Dakota, Ohio, Oklahoma, Oregon,
Pennsylvania, Rhode Island, South Carolina, South Dakota, Tennessee, Texas,
Utah, Virginia, Washington, West Virginia and Wisconsin. During 2001, Illinois
accounted for 20%, and Ohio accounted for 32% of direct premiums collected. No
other state accounted for more than 6% of direct premiums collected in 2001.

In 2001, $22,864,330 of total direct premium was collected by the insurance
subsidiaries. Ohio accounted for 28%, Illinois accounted for 18%, and West
Virginia accounted for 12% of total direct premiums collected.

UNDERWRITING

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

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

RESERVES

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

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

Benefit reserves for universal life insurance and interest sensitive life
insurance products are computed under a retrospective deposit method and
represent policy account balances before applicable surrender charges. Policy
benefits and claims that are charged to expense include benefit claims in excess
of related policy account balances. Interest crediting rates for universal life
and interest sensitive products range from 4.0% to 5.5% for the year ended
December 31, 2001 and 4.5% to 5.5% for the years ended December 31, 2000 and
1999.

REINSURANCE

As is customary in the insurance industry, the insurance subsidiaries of the
Company cede insurance to, and assume insurance from, other insurance companies
under reinsurance agreements. Reinsurance agreements are intended to limit a
life insurer's maximum loss on a large or unusually hazardous risk or to obtain
a greater diversification of risk. The ceding insurance company remains
primarily liable with respect to ceded insurance should any reinsurer be unable
to meet the obligations assumed by it. However, it is the practice of insurers
to reduce their exposure to loss to the extent that they have been reinsured
with other insurance companies. The Company sets a limit on the amount of
insurance retained on the life of any one person. The Company will not retain
more than $125,000, including accidental death benefits, on any one life. At
December 31, 2001, the Company had gross insurance in force of $2.630 billion of
which approximately $654 million was ceded to reinsurers.

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

Currently, the Company is utilizing reinsurance agreements with Business Mens'
Assurance Company, ("BMA") and Life Reassurance Corporation of America, ("LIFE
RE"). Recently, Swiss Re Life and Health America Incorporated merged into LIFE
RE and the merged entity was renamed Swiss Re Life and Health America
Incorporated ("SWISS RE"). BMA and SWISS RE currenty hold an "A" (Excellent),
and "A++" (Superior) rating, respectively, from A.M. Best, an industry rating
company. The reinsurance agreements were effective December 1, 1993, and cover
all new business of the Company. The agreements are a yearly renewable term
("YRT") treaty where the Company cedes amounts above its retention limit of
$100,000 with a minimum cession of $25,000.

UG entered a coinsurance agreement with Park Avenue Life Insurance Company
("PALIC") as of September 30, 1996. Under the terms of the agreement, UG ceded
to PALIC substantially all of its paid-up life insurance policies. Paid-up life
insurance generally refers to non-premium paying life insurance policies. PALIC
and its ultimate parent The Guardian Life Insurance Company of America
("Guardian"), currently hold an "A" (Excellent), and "A+" (Superior) rating,
respectively, from A.M. Best, an industry rating company. The agreement with
PALIC accounts for approximately 66% of the reinsurance receivables, as of
December 31, 2001.

On September 30, 1998, UG entered into a coinsurance agreement with The
Independent Order of Vikings, an Illinois fraternal organization ("IOV"). Under
the terms of the agreement, UG agreed to assume on a coinsurance basis, 25% of
the reserves and liabilities arising from all inforce insurance contracts issued
by the IOV to its members. At December 31, 2001, the IOV insurance inforce was
approximately $1,696,000, with reserves being held on that amount of
approximately $403,500.

On June 1, 2000, UG assumed an already existing coinsurance agreement, dated
January 1, 1992, between Lancaster Life Reinsurance Company, an Arizona
corporation ("LLRC") and Investors Heritage Life Insurance Company, a
corporation organized under the laws of the Commonwealth of Kentucky ("IHL").
Under the terms of the agreement, LLRC agreed to assume from IHL a 90% quota
share of new issues of credit life and accident and health policies that have
been written on or after January 1, 1992 through various branches of the First
Southern National Bank. The maximum amount of credit life insurance that can be
assumed on any one individual's life is $15,000. UG assumed all the rights and
obligations formerly held by LLRC as the reinsurer in the agreement. LLRC
liquidated its charter immediately following the transfer. At December 31, 2001,
IHL has insurance inforce of approximately $4,148,000.

The Company does not have any short-duration reinsurance contracts. The effect
of the Company's long-duration reinsurance contracts on premiums earned in 2001,
2000 and 1999 was as follows:

Shown in thousands
-----------------------------------------------
2001 2000 1999
Premiums Premiums Premiums
Earned Earned Earned
-------------- ------------- -------------
Direct $ 20,333 $ 22,970 $ 25,539
Assumed 111 76 20
Ceded (3,172) (3,556) (3,978)
-------------- ------------- -------------
Net premiums $ 17,272 $ 19,490 $ 21,581
============== ============= =============

INVESTMENTS

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

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

December 31,
----------------------------------------------------------
2001 2000 1999
--------------- ---------------- ----------------
Fixed maturities and fixed maturities
Held for sale $ 10,831,162 $ 11,775,706 $ 11,886,968
Equity securities 131,263 116,327 91,429
Mortgage loans 2,715,834 1,777,374 1,078,028
Real estate 198,314 311,027 389,181
Policy loans 970,142 997,381 991,812
Other long-term investments 0 655,418 63,528
Short-term investments 114,538 156,815 147,726
Cash 562,905 847,400 811,103
--------------- ---------------- ----------------
Total consolidated investment income 15,524,158 16,637,448 16,637,448
Investment expenses (581,256) (767,851) (961,275)
--------------- ---------------- ----------------
Consolidated net investment income $ 14,942,902 $ 15,869,597 $ 14,498,500
=============== ================ ================

At December 31, 2001, the Company had a total of $200,000 in investment real
estate which did not produce income during 2001.

The following table summarizes the Company's fixed maturities distribution at
December 31, 2001 and 2000 by ratings category as issued by Standard and Poor's,
a leading ratings analyst.

Fixed Maturities
----------------
Rating % of Portfolio
------ ----------------------
2001 2000
---------- ----------
Investment Grade
AAA 61% 48%
AA 6% 16%
A 24% 27%
BBB 8% 9%
Below investment grade 1% 0%
---------- ----------
100% 100%
========== ==========

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

Carrying Value
--------------------------------------------------
2001 2000
-------------------- --------------------
U.S. government and government agencies $ 43,087,596 $ 66,795,111
States, municipalities and political subdivisions 11,990,823 15,524,611
Collateralized mortgage obligations 54,132,094 9,140,804
Public utilities 22,219,127 27,287,454
Corporate 42,204,195 46,303,263
-------------------- --------------------
$ 173,633,835 $ 165,051,243
==================== ====================

The following table shows the composition and average maturity of the Company's
investment portfolio at December 31, 2001.

Average
Carrying Average Average
Investments Value Maturity Yield
----------------------------------- ---------------- ------------------ ------------

Fixed maturities and fixed
maturities held for sale $ 169,342,539 5 years 6.40%
Equity securities 4,489,494 Not applicable 2.92%
Mortgage Loans 28,141,783 5 years 9.65%
Investment real estate 6,404,828 Not applicable 3.10%
Policy loans 13,849,678 Not applicable 7.00%
Short-term investments 1,102,284 190 days 8.25%
Cash and cash equivalents 14,832,615 On demand 3.80%
----------------
Total Investments and Cash $ 238,163,221 6.52%
================

At December 31, 2001, fixed maturities and fixed maturities held for sale have a
combined market value of $176,353,850. Fixed maturities are carried at amortized
cost. Management has the ability and intent to hold these securities until
maturity. Fixed maturities held for sale are carried at market.

The Company holds $550,001 in short-term investments. Management monitors its
investment maturities which in their opinion is sufficient to meet the Company's
cash requirements. Fixed maturities of $17,266,473 mature in one year and
$84,495,730 mature in two to five years.

The Company holds $23,386,895 in mortgage loans, which represents 8% of the
total assets. All mortgage loans are first position loans. Before a new loan is
issued, the applicant is subject to certain criteria set forth by Company
management to ensure quality control. These criteria include, but are not
limited to, a credit report, personal financial information such as outstanding
debt, sources of income, and personal equity. Loans issued are limited to no
more than 80% of the appraised value of the property and must be first position
against the collateral.

The Company has one loan of $28,536, which is in default and in the process of
foreclosure. The Company has no loans which are under a repayment plan or
restructuring. Letters are sent to each mortgagee when the loan becomes 30 days
or more delinquent. Loans 90 days or more delinquent are placed on a
non-performing status and classified as delinquent loans. Reserves for loan
losses are established based on management's analysis of the loan balances
compared to the expected realizable value should foreclosure take place. Loans
are placed on a non-accrual status based on a quarterly analysis of the
likelihood of repayment. All delinquent and troubled loans held by the Company
are loans, which were held in portfolios by acquired companies at the time of
acquisition. Management believes the current internal controls surrounding the
mortgage loan selection process provide a quality portfolio with minimal risk of
foreclosure and/or negative financial impact.

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

In 1999, the Company began investing more of its funds in mortgage loans. This
is the result of increased mortgage opportunities available through FSNB, an
affiliate of Jesse Correll. Mr. Correll is the Chairman and CEO of, as well as a
director of, UTG, FCC and their three insurance company subsidiaries. FSNB has
been able to provide the Company with additional expertise and experience in
underwriting commercial and residential mortgage loans, which provide more
attractive yields than the traditional bond market. During 2001, the Company
issued approximately $4,535,000 in new mortgage loans. These new loans were
originated through FSNB and funded by the Company through participation
agreements with FSNB. FSNB services the loans covered by these participation
agreements. The Company pays FSNB a .25% servicing fee on these loans and a
one-time fee at loan origination of .50% of the original loan amount to cover
costs incurred by FSNB relating to the processing and establishment of the loan.

A mortgage loan reserve is established and adjusted based on management's
quarterly analysis of the portfolio and any deterioration in value of the
underlying property which would reduce the net realizable value of the property
below its current carrying value. During 2001, the Company sold mortgage loans
with a prior allowance of $140,000 and recorded a net loss of $20,000 decreasing
the allowance to $120,000 maintained for potential mortgage loan losses. The
current allowance represents approximately 50% of the total outstanding loan
balances on certain loans identified by management. Although most of these loans
are currently in good standing, due to economic depression in the region these
loans are located, a significant potential for future losses exists.

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

The following table shows a distribution of the Company's mortgage loans by type.

Mortgage Loans Amount % of Total
------------------------------------------------------ ---------------- -------------
Commercial - insured or guaranteed $ 1,923,365 8%
Commercial - all other 18,343,133 78%
Farm 2,903,259 12%
Residential - insured or guaranteed 111,655 1%
Residential - all other 105,483 1%

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

Mortgage Real
Loans Estate
------------ ----------
Alabama 15% 0%
Illinois 0% 25%
Indiana 3% 0%
Kentucky 69% 0%
Louisiana 0% 2%
North Carolina 11% 0%
New Hampshire 0% 73%
Other 2% 0%
------------ ----------
Total 100% 100%
============ ==========

The following table summarizes delinquent mortgage loan holdings of the Company.

Delinquent
90 days or More 2001 2000 1999
----------------------------------- ------------- ------------- -------------
Non-accrual status $ 164,941 $ 0 $ 0
Other 0 83,972 58,074
Reserve on delinquent
Loans (110,000) 0 (10,000)
------------- ------------- -------------
Total delinquent $ 54,941 $ 83,972 $ 48,074
============= ============= =============
Interest income past due
(delinquent loans) $ 0 $ 6,975 $ 1,296
============= ============= =============

In process of restructuring $ 0 $ 0 $ 0
Restructuring on other
Than market terms 0 0 0
Other potential problem
Loans 9,299 215,481 124,883
------------- ------------- -------------
Total problem loans $ 9,299 $ 215,481 $ 124,883
============= ============= =============
Interest income foregone
(restructured loans) $ 0 $ 0 $ 0
============= ============= =============
In process of foreclosure $ 28,536 $ 0 $ 0
------------- ------------- -------------
Total foreclosed loans $ 28,536 $ 0 $ 0
============= ============= =============
Interest income foregone
(restructured loans) $ 2,497 $ 0 $ 0
============= ============= =============

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

COMPETITION

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

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

In 1999, Congress passed legislation reducing or eliminating certain barriers,
which existed between insurance companies, banks and brokerages. This
legislation opens markets for financial institutions to compete against one
another and to acquire one another across previously established barriers. This
creates both additional challenges and opportunities for the Company. The full
impact of these changes on the financial industries is still evolving, and the
Company continues to monitor these changes and how they impact the Company.

GOVERNMENT REGULATION

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

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

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

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

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

At year-end 2001, UG had one ratio outside the normal range. The ratio is
related to the decrease in premium income. The decrease was attributable to the
continued business decline in new business writings combined with a decrease in
renewal premiums from normal terminations of existing business. As a result, UG
fell slightly outside the normal range for this ratio.

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

Ratio of Total Adjusted Capital to
Authorized Control Level RBC
Regulatory Event (Less Than or Equal to)
---------------- -------------------------------
Company action level 2*
Regulatory action level 1.5
Authorized control level 1
Mandatory control level 0.7

* Or, 2.5 with negative trend.

At December 31, 2001, each of the insurance subsidiaries has a Ratio that is in
excess of 4, which is 400% of the authorized control level; accordingly, the
insurance subsidiaries meet the RBC requirements.

The State of Florida began an investigation of industrial life insurance
policies in the fall of 1999 regarding policies with race-based premiums. This
investigation has quickly spread to other states and to other types of small
face amount policies and was expanded to consider the fairness of premiums for
all small policies including policies which did not have race-based premiums.
The NAIC historically has defined a "small face amount policy" as one with a
face amount of $15,000 or less. Under current reviews, some states have
increased this amount to policies of $25,000 or less. These states are
attempting to force insurers to refund "excess premiums" to insureds or
beneficiaries of insureds based on the recent American General settlement. The
Company's insurance subsidiaries have no race-based premium products, but do
have policies with face amounts under the above-scrutinized limitations. The
outcome of this issue could be dramatic on the insurance industry as a whole as
well as the Company itself. The Company will continue to monitor developments
regarding this matter to determine to what extent, if any, the Company may be
exposed.

During 1999, Congress passed the Gramm-Leach-Bliley Financial Services
Modernization Act, which requires financial institutions, including all
insurers, to take certain steps to enhance privacy protections of nonpublic
personal information for consumers. It requires financial companies to tell
consumers how their financial information is protected, and what a company's
financial information sharing practices are, both within a corporate family and
with unrelated third parties. Companies must inform their customers of their
privacy policies and practices at the start of their business relationship, and
then at least once a year for the duration of the relationship. Companies also
must disclose the types of information that are shared. The privacy protections
under the act became effective November 13, 2000. Financial institutions had
until July 1, 2001, to establish and implement privacy policies. The Company has
implemented new procedures in response to this legislation and believes it has
complied with the requirements of this legislation.

A task force of the NAIC undertook a project to codify a comprehensive set of
statutory insurance accounting rules and regulations. Project results were
approved by the NAIC with an implementation date of January 1, 2001. Many states
in which the Company does business implemented these new rules with the same
effective date as proposed by the NAIC. The Company implemented these new
regulations effective January 1, 2001 as required. Implementation of these new
rules to date has not had a material financial impact on the insurance
subsidiaries financial position or results of operations. The NAIC continues to
modify and amend issue papers regarding codification. The Company will continue
to monitor this issue as changes and new proposals are made.

EMPLOYEES

There are approximately 58 persons who are employed by the Company and its
subsidiaries.

ITEM 2. PROPERTIES

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

Property owned Amount % of Total
Home Office $ 1,992,317 18%

Investment real estate
Commercial $ 6,491,734 60%
Residential development $ 2,384,564 22%
$ 8,876,298 82%

Grand total $ 10,868,615 100%
============ ====

Total investment real estate holdings represent approximately 3% of the total
assets of the Company net of accumulated depreciation of $58,225 and $251,766 at
year-end 2001 and 2000 respectively. The Company owns an office complex in
Springfield, Illinois, which houses the primary insurance operations. The office
buildings contain 57,000 square feet of office and warehouse space. The
properties are carried at $1,992,317. Currently, the facilities occupied by the
Company are adequate relative to the Company's present operations.

During the fourth quarter of 2001, UG purchased real estate from an outside
third party through the formation of an LLC in which UG is a two-thirds owner.
The other one-third partner is Millard V. Oakley, who is a Director of both UTG
and FCC. Hampshire Plaza, LLC consists of a twenty story, 254,000 square foot
office tower, an attached 72,000 square foot retail plaza, and an attached
parking garage with approximately 350 parking spaces located in Manchester, New
Hampshire for $6,333,336. The Company plans to invest an additional $2,000,000
over the next few years in order to renovate and improve existing office space
within the building. The intent of these improvements would be made in order to
lease the office space in the near future. A significant portion of the existing
office leases expires in early to mid 2002. At December 31, 2001, the property
was carried at $6,491,734.

Residential development property is primarily located in Springfield, Illinois,
and entails several developments, each targeted for a different segment of the
population. These targets include a development primarily for the first time
home buyer, an upscale development for existing homeowners looking for a larger
home, and duplex condominiums for those who desire maintenance free exteriors
and surroundings. The Company's primary focus in the past has been on the
development and sale of lots, with an occasional home construction to help
stimulate interest. During 2000, management determined it would be in the long
term best interests of the Company to discontinue development and attempt to
liquidate the remaining properties.

ITEM 3. LEGAL PROCEEDINGS

David A. Morlan, individually and on behalf of all others similarly situated v.
Universal Guaranty Life Ins., United Trust Assurance Co., United Security
Assurance Co., United Trust Group, Inc. and First Commonwealth Corporation,
(U.S. Court of Appeals for the Seventh Circuit, Appeal No. 01-3795)

On April 26, 1999, the above lawsuit was filed by David Morlan and Louis Black
in the Southern District of Illinois against Universal Guaranty Life Insurance
Company ("UG") and United Trust Assurance Company ("UTAC") (merged into UG in
1992). After the lawsuit was filed, the plaintiffs, who were former insurance
salesmen, amended their complaint, dropped Louis Black as a plaintiff, and added
United Security Assurance Company ("USAC"), UTG and FCC as defendants. The
plaintiffs are alleging that they were employees of UG, UTAC or USAC rather than
independent contractors. The plaintiffs are seeking class action status and have
asked to recover various employee benefits, costs and attorneys' fees, as well
as monetary damages based on the defendants' alleged failure to withhold certain
taxes.

On September 18, 2001, the case was dismissed without prejudice because Morlan
lacked standing to pursue the claims against defendants. The plaintiffs have
appealed the dismissal of the case to the United States Court of Appeals for the
Seventh Circuit.

In addition to the appeal, a second action was filed entitled; Julie Barrette
Ahrens, David Dzuiban, William Milam, David Schneiderman, individually and on
behalf of all others similarly situated vs Universal Guaranty Life, United Trust
Assurance Company, United Security Assurance Company. United States District
Court for the Southern District of Illinois. Case No: 01-4314-JPG.

The Company continues to believe that it has meritorious grounds to defend both
the original and related lawsuit, and it intends to defend the cases vigorously.
The Company believes that the defense and ultimate resolution of the lawsuit
should not have a material adverse effect upon the business, results of
operations or financial condition of the Company. Nevertheless, if the lawsuit
were to be successful, it is likely that such resolution would have a material
adverse effect on the Company's business, results of operations and financial
condition. At December 31, 2001, the Company maintains a liability of $300,000
to cover estimated legal costs associated with the defense of this matter.

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

PART II

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

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

BID
PERIOD LOW HIGH

2001
First quarter 86 86
Second quarter 86 86
Third quarter 86 86
Fourth quarter 86 160

BID
PERIOD LOW HIGH

2000
First quarter 110 110
Second quarter 85 110
Third quarter 80 86
Fourth quarter 86 86

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

Number of Common Shareholders as of March 1, 2002 is 3,438.

ITEM 6. SELECTED FINANCIAL DATA

FINANCIAL HIGHLIGHTS
(000's omitted, except per share data)
2001 2000 1999 1998 1997
---------------- --------------- --------------- --------------- --------------
Premium income
net of reinsurance $ 17,272 $ 19,490 $ 21,581 $ 26,396 $ 28,639
Total revenues $ 33,602 $ 35,232 $ 35,759 $ 40,632 $ 43,354
Net gain/(loss) $ 2,185 $ (1,847) $ (378) $ (1,950) $ (1,845)
Net loss per share $ 40.19 $ (33.90) $ (6.93) $ (35.74) $ (32.65)
Total assets $ 309,900 $ 314,242 $ 320,875 $ 328,737 $ 332,572
Total long term debt $ 11,537 $ 12,839 $ 14,864 $ 17,370 $ 18,242
Dividends paid per share NONE NONE NONE NONE NONE

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

The purpose of this section is to discuss and analyze the Company's consolidated
results of operations, financial condition and liquidity and capital resources.
This analysis should be read in conjunction with the consolidated financial
statements and related notes, which appear elsewhere in this report. The Company
reports financial results on a consolidated basis. The consolidated financial
statements include the accounts of FCC and its subsidiaries at December 31,
2001.

CAUTIONARY STATEMENT REGARDING-FORWARD-LOOKING STATEMENTS

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

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

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

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

4. Other factors affecting the performance of the Company, including, but not
limited to, market conduct claims, regulatory initiatives or changes,
insurance industry insolvencies, stock market performance, and investment
performance.

RESULTS OF OPERATIONS

(a) Revenues

Premiums and policy fee revenues, net of reinsurance premiums and policy fees,
decreased 11% when comparing 2001 to 2000 and 10% from 2000 to 1999. The Company
currently writes little new traditional business, consequently, traditional
premiums will decrease as the amount of traditional business in-force decreases.
Collected premiums on universal life and interest sensitive products is not
reflected in premiums and policy revenues because accounting principles
generally accepted in the United States of America require that premiums
collected on these types of products be treated as deposit liabilities rather
than revenue. Unless the Company acquires a block of in-force business or
marketing significantly increases on traditional business, premium revenue will
continue to decline at a rate consistent with prior experience. The Companies'
average persistency rate for all policies in force for 2001 and 2000 has been
approximately 91.6% and 89.8%, respectively. Persistency is a measure of
insurance in force retained in relation to the previous year.

During 2001, the Company implemented a conservation effort in an attempt to
improve the persistency rate of Company policies. Several of the customer
service representatives of the Company have become licensed insurance agents,
allowing them to offer other products within the Company's portfolio to existing
customers. Additionally, stronger efforts have been made in policy retention
through more personal contact with the customer including telephone calls to
discuss alternatives and reasons for a customer's request to surrender their
policy. Previously, the Company's agency force was primarily responsible for
conservation efforts. With the decline in the number of agents, their ability to
reach these customers diminished, making conservation efforts difficult. The
conservation efforts described above are relatively new, but early results are
generally positive. Management will continue to monitor these efforts and make
adjustments as seen appropriate to enhance the future success of the program.
The Company is currently exploring the introduction of a new product to be
specifically used by the licensed customer service representatives as an
alternative to the customer in the conservation efforts. The new product is in
the very preliminary design stage. Introduction of the new product will depend
on the product competitiveness and profitability.

New business production decreased steadily and significantly over the last
several years. New business production in 2001 was only 8.5% of the production
levels in 1996. The Company has not placed a strong emphasis on new business
production in recent years. Costs associated with supporting new business can be
significant. In recent years, the insurance industry as a whole has experienced
a decline in the total number of agents who sell insurance products, therefore
competition has intensified for top producing sales agents. The relatively small
size of the Companies, and the resulting limitations, has made it challenging to
compete in this area. In early 1999, management determined it could no longer
continue to support the costs of new business in light of the declining trend
and no indication it would reverse itself. As such, at that time, existing
agents were allowed to continue marketing Company products, but the Company
significantly reduced home office support and discontinued sales leads to agents
using existing inforce policies.

The Company has considered the feasibility of a marketing opportunity with First
Southern National Bank, an affiliate of UTG's largest shareholder. Management
has considered various products including annuity type products, mortgage
protection products and existing insurance products, as a possibility to market
to all banking customers. This potential is believed to be a viable niche, but
is not expected to produce significant premium writings.

Net investment income decreased 6% when comparing 2001 to 2000 and increased 9%
when comparing 2000 to 1999. During 2000, the Company received $632,000 in
investment earnings from a joint venture real estate development project that
was in its latter stages. The earnings from this activity represent
approximately 4% of the 2000 investment income.

The national prime rate has declined from 9.5% at December 31, 2000 to 4.75% at
December 31, 2001. This has resulted in lower earnings on short-term funds as
well as on longer-term investments acquired.

The overall investment yields for 2001, 2000 and 1999, are 6.52%, 7.03% and
6.46%, respectively.

The Company's investments are generally managed to match related insurance and
policyholder liabilities. The comparison of investment return with insurance or
investment product crediting rates establishes an interest spread. The Company
monitors investment yields, and when necessary adjusts credited interest rates
on its insurance products to preserve targeted interest spreads, ranging from 1%
to 2%. It is expected that monitoring of the interest spreads by management will
provide the necessary margin to adequately provide for associated costs on the
insurance policies the Company currently has in force and will write in the
future. At the March 2001 Board of Directors meeting, the Boards of the
insurance subsidiaries lowered crediting rates one half percent on all products
that could be lowered. With this latest reduction, the vast majority of the
Company's rate-adjustable products are now at their guaranteed minimum rates,
and as such, cannot be lowered any further. These adjustments were in response
to continued declines in interest rates in the marketplace. The decrease is
expected to result in approximately $500,000 in interest crediting savings
annually, when fully implemented. Policy interest crediting rate changes become
effective on an individual policy basis on the next policy anniversary.
Therefore, it will take a full year from the time the change is determined for
the full impact of such change to be realized. The guaranteed minimum crediting
rates on these products range from 3% to 5.5%.

Realized investment gains, net of realized losses, were $436,280, $(260,078) and
$(530,894) in 2001, 2000 and 1999, respectively.

During 2001, the Company sold the West Virginia properties including the former
home office building of APPL, realizing a gain of $217,574. The Company also
sold certain common stocks it had acquired in 2000 and 2001 realizing gains of
$132,760.

During early 1999, the Company re-evaluated its real estate holdings, especially
those properties acquired through acquisitions of other companies and mortgage
loan foreclosures, and determined it would be in the long term interest of the
Company to dispose of certain of these parcels. Parcels targeted for sale were
generally non-income or low income producing and located in parts of the country
where management has little other reason to travel.

During 2000, real estate continued to account for almost all of the realized
gain and loss activity. By third quarter of 2000, the Company had sold the
remaining real estate properties identified for disposal in prior years. The
Company recorded net realized gains of $728,000 from these sales. By fourth
quarter 2000, remaining real estate consisted of development real estate located
in Springfield, IL. In December 2000, management studied its development
properties, analyzing such issues as remaining time to fully develop without
over saturation, historic sales trends, management time and resources to
continue development and other alternatives such as modifying current plans or
discontinuing entirely. Management determined it would be in the long term best
interests of the Company to discontinue development and attempt to liquidate the
remaining properties. As such, a realized loss of $913,000 was recorded in
December 2000 to reduce the book value of these properties to the amount
management determined it would accept net of selling costs to facilitate
liquidation. During the fourth quarter of 2000, the Company recorded a $170,000
increase to the allowance maintained for potential mortgage loan losses.

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

On June 1, 2001, the Company began performing administrative work as a third
party administrator ("TPA") for an unaffiliated life insurance company. The
business being administered is a closed block with approximately 260,000
policies, a majority of which are paid up. The Company receives monthly fees
based on policy in force counts and certain other activity indicators such as
number of premium collections performed. During 2001, the Company received
$299,905 for this work. These TPA revenue fees are included in the line item
"other income" on the Company's consolidated statements of operations. The
Company intends to pursue other TPA arrangements. Management believes it is a
good source of generating additional revenues while utilizing the Company's
strength, excess capacity and efficient administrative services.

(b) Expenses

Benefits, claims and settlement expenses net of reinsurance benefits and claims,
decreased 13% in 2001 as compared to 2000 and increased 2% in 2000 as compared
to 1999. The decrease in premium revenues from normal policy terminations
resulted in lower benefit reserve increases in each of the periods presented
compared to the previous period. Fluctuations in death claim experience from
year to year typically has a significant impact on variances in this line item.
Death claims were $1,636,000 less in 2001 than in 2000 and $2,574,000 greater in
2000 than in 1999. There is no single event that caused the mortality variances.
Policy claims vary from year to year and therefore, fluctuations in mortality
are to be expected and are not considered unusual by management. At the March
1999 Board of Directors meeting, the Boards of the insurance subsidiaries
lowered crediting rates one half percent on all products that could be lowered.
The change resulted in interest crediting reductions of approximately $600,000
per year. In March 2001, the Boards of the insurance subsidiaries lowered
crediting rates one-half percent on all rate-adjustable products that could be
lowered. With this latest reduction the vast majority of the Company's
rate-adjustable products have been lowered to their guaranteed minimum rates,
and as such, cannot be lowered any further. The decrease is expected to result
in approximately $500,000 in interest crediting savings annually, when fully
implemented. These adjustments were in response to continued declines in
interest rates in the marketplace. Policy interest crediting rate changes become
effective on an individual policy basis on the next policy anniversary.
Therefore, it will take a full year from the time the change is determined for
the full impact to be realized.

Commissions and amortization of deferred policy acquisition costs decreased 32%
in 2001 compared to 2000 and decreased 25% in 2000 compared to 1999. The Company
performs actuarial analysis of the recoverability of the asset based on current
trends and known events compared to assumptions used in the establishment of the
original asset. No impairments were recorded in 2001 or 2000.

Amortization of cost of insurance acquired decreased 3% in 2001 compared to 2000
and increased 10% in 2000 compared to 1999. Cost of insurance acquired is
established when an insurance company is acquired. The Company assigns a portion
of its cost to the right to receive future cash flows from insurance contracts
existing at the date of the acquisition. The cost of policies purchased
represents the actuarially determined present value of the projected future cash
flows from the acquired policies. Cost of insurance acquired is comprised of
individual life insurance products including whole life, interest sensitive
whole life and universal life insurance products. Cost of insurance acquired is
amortized with interest in relation to expected future profits, including direct
charge-offs for any excess of the unamortized asset over the projected future
profits. The interest rates utilized in the amortization calculation are 9% on
approximately 25% of the balance and 15% on the remaining balance. The interest
rates vary due to risk analysis performed at the time of acquisition on the
business acquired. The amortization is adjusted retrospectively when estimates
of current or future gross profits to be realized from a group of products are
revised. The Company did not have any charge-offs during the periods covered by
this report. Amortization of cost of insurance acquired is particularly
sensitive to changes in persistency of certain blocks of insurance in-force.
Persistency is a measure of insurance in force retained in relation to the
previous year. The Company's average persistency rate for all policies in force
for 2001, 2000 and 1999 has been approximately 91.6%, 89.8% and 89.4%,
respectively.

Operating expenses decreased 24% in 2001 compared to 2000 and increased 30% in
2000 compared to 1999. During the fourth quarter of 2000, Mr. Jesse T. Correll
as Board Chairman requested the resignation of James E. Melville as President of
UTG and its subsidiaries. A special joint meeting of the Boards of Directors of
United Trust Group, Inc. and its subsidiaries was held January 8, 2001, at which
the termination of the employment agreement between First Commonwealth
Corporation and James E. Melville, and the termination of James E. Melville as
an officer or agent of United Trust Group, Inc. and all of its subsidiaries were
approved by the Boards of Directors of each of the companies. An accrual of
$562,000 was established through a charge to general expenses at year-end 2000
for the remaining payments required pursuant to the terms of Mr. Melville's
employment contract and other settlement costs. A $500,000 accrual was also
established at year-end 2000 for estimated legal costs associated with the
defense of a legal matter. See Item 3 legal proceedings for a more complete
analysis of this matter. During the third quarter 2000, the Company settled a
legal matter for $550,000 and incurred an additional $150,000 in legal fees. At
the March 27, 2000 Board of Directors meeting, United Trust Group, Inc. and each
of its affiliates accepted the resignation of Larry E. Ryherd as Chairman of the
Board of Directors and Chief Executive Officer. Mr. Ryherd had 28 months
remaining on an employment contract with the Company at the end of March 2000.
As such, a charge of $933,000 was incurred in first quarter 2000 for the
remainder of this contract. Exclusive of the above accruals, operating expenses
declined 2% in 2001 compared to 2000 and declined 12% in 2000 compared to 1999,
primarily as the result of lower salary and related employee costs.

During the fourth quarter of 1999, the Company transferred the policy
administration functions of its insurance subsidiary APPL from Huntington, WV to
its Springfield, IL location. The transfer was completed to reduce operating
costs. APPL policy administration was then converted to the same computer system
used to administer the other insurance subsidiaries. Following the transfer and
system conversion, all insurance administration is located at the Springfield,
IL office and administered on the same computer system. This action resulted in
cost savings of approximately $250,000 per year in administrative costs. During
2001, the Company transferred all remaining functions from Huntington, WV to the
Springfield, IL location and sold the West Virginia property. The closing of the
Huntington office resulted in approximately $250,000 per year in operating
expense savings.

Interest expense declined 21% comparing 2001 to 2000 and declined 8% comparing
2000 to 1999. At December 31, 2001, FCC had $11,536,698 in notes payable, and no
debt is owed to outside parties. During 2001 and 2000, FCC repaid $1,302,495 and
$2,025,000 of its debt through dividends received from its insurance subsidiary,
UG.

Deferred taxes are established to recognize future tax effects attributable to
temporary differences between the financial statements and the tax return. As
these differences are realized in the financial statement or tax return, the
deferred income tax established on the difference is recognized in the financial
statements as an income tax expense or credit.

The Company had a net income (loss) of $2,185,607, $(1,846,840) and $(377,957)
in 2001, 2000 and 1999 respectively. Significant one time charges and accruals
to operating expenses combined with an increase in death claims during 2000 were
the primary differences in the 2001 to 2000 results. The Company continues to
monitor and adjust those items within its control.

FINANCIAL CONDITION

(a) Assets

Investments are the largest asset group of the Company. The Company's insurance
subsidiaries are regulated by insurance statutes and regulations as to the type
of investments that they are permitted to make and the amount of funds that may
be used for any one type of investment. In light of these statutes and
regulations, and the Company's business and investment strategy, the Company
generally seeks to invest in United States government and government agency
securities and other high quality low risk investments.

The Company does not own any derivative investments or "junk bonds". As of
December 31, 2001, the carrying value of fixed maturity securities in default as
to principal or interest was immaterial in the context of consolidated assets or
shareholders' equity. The Company has identified securities it may sell and
classified them as "investments held for sale". Investments held for sale are
carried at market, with changes in market value charged directly to
shareholders' equity. To provide additional flexibility and liquidity, the
Company has categorized almost all fixed maturity investments acquired in 2000
and 2001 as available for sale. It was determined it would be in the Company's
best financial interest to classify these new purchases as available for sale to
provide additional liquidity and flexibility.

The following table summarizes the Company's fixed maturities distribution at
December 31, 2001 and 2000 by ratings category as issued by Standard and Poor's,
a leading ratings analyst.

Fixed Maturities
----------------
Rating % of Portfolio
------- ----------------------
2001 2000
---------- ----------
Investment Grade
AAA 61% 48%
AA 6% 16%
A 24% 27%
BBB 8% 9%
Below investment grade 1% 0%
---------- ----------
100% 100%
========== ==========

In 1999, the Company began investing more of its funds in mortgage loans. This
is the result of its affiliation with FSNB. FSNB has been able to provide the
Company with additional expertise and experience in underwriting commercial and
residential mortgage loans, which provide more attractive yields than the
traditional bond market. During 2001 and 2000, the Company issued approximately
$4,535,000 and $21,863,000 respectively, in new mortgage loans. These new loans
were generated through FSNB and its personnel and funded by the Company through
participation agreements with FSNB. FSNB services the loans covered by these
participation agreements. The Company pays FSNB a .25% servicing fee on these
loans and a one-time fee at loan origination of .50% of the original loan amount
to cover costs incurred by FSNB relating to the processing and establishment of
the loan. All mortgage loans held by the Company are first position loans. The
Company has one loan totaling $28,536 that is in default and in the process of
foreclosure at December 31, 2001.

Investment real estate holdings represent approximately 2.9% of the total assets
of the Company. Total investment real estate is separated into two categories:
Commercial 73% and Residential Development 27%. During 2001, UG acquired a
two-thirds interest in a parcel of commercial real estate located in New
Hampshire. The property is a 20 story office building including a parking garage
and a connected enclosed retail mall all totaling 326,610 square feet. The
property was acquired for investment purposes and had a carrying value at
December 31, 2001 of $6,491,734.

Policy loans remained consistent for the periods presented. Industry experience
for policy loans indicates few policy loans are ever repaid by the policyholder
other than through termination of the policy. Policy loans are systematically
reviewed to ensure that no individual policy loan exceeds the underlying cash
value of the policy.

Deferred policy acquisition costs decreased 19% in 2001 compared to 2000.
Deferred policy acquisition costs, which vary with, and are primarily related to
producing new business, are referred to as ("DAC"). DAC consists primarily of
commissions and certain costs of policy issuance and underwriting, net of fees
charged to the policy in excess of ultimate fees charged. To the extent these
costs are recoverable from future profits, the Company defers these costs and
amortizes them with interest in relation to the present value of expected gross
profits from the contracts, discounted using the interest rate credited by the
policy. The Company had $141,000 in policy acquisition costs deferred, $247,000
in interest accretion and $1,887,577 in amortization in 2001.

Cost of insurance acquired decreased 7% in 2001 compared to 2000. At December
31, 2001, cost of insurance acquired was $14,219,005 and net amortization
totaled $1,151,284 for the year. When an insurance company is acquired, the
Company assigns a portion of its cost to the right to receive future cash flows
from insurance contracts existing at the date of the acquisition. The cost of
policies purchased represents the actuarially determined present value of the
projected future cash flows from the acquired policies. Cost of insurance
acquired is amortized with interest in relation to expected future profits,
including direct charge-offs for any excess of the unamortized asset over the
projected future profits.

(b) Liabilities

Total liabilities decreased 2% in 2001 compared to 2000. Policy liabilities and
accruals, which represents approximately 94% of total liabilities decreased
slightly from the prior year. The total decline is attributable to a shrinking
policy base and declining new business production.

Notes payable decreased 10% in 2001 compared to 2000. During 2001, the Company
repaid $1,302,495 of principal on its affiliated subordinated debt. At December
31, 2001, FCC had $11,536,698 in notes payable.

Total shareholders' equity increased 10% in 2001 compared to 2000. This increase
was mainly attributable to the Company's net income of $2,185,607 and unrealized
gains on investments held for sale of $701,393 also influenced total
shareholders' equity.

LIQUIDITY AND CAPITAL RESOURCES

The Company has three principal needs for cash - the insurance companies'
contractual obligations to policyholders, the payment of operating expenses and
the servicing of its long-term debt. Cash and cash equivalents as a percentage
of total assets were 5% and 4% as of December 31, 2001 and 2000, respectively.
Fixed maturities as a percentage of total invested assets were 78% and 74% as of
December 31, 2001 and 2000, respectively.

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

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

Cash provided by (used in) operating activities was $1,603,246, $(2,645,902) and
$(1,381,527) in 2001, 2000 and 1999, respectively. Reporting regulations require
cash inflows and outflows from universal life insurance products to be shown as
financing activities when reporting on cash flows. The net cash provided by
operating activities plus policyholder contract deposits less policyholder
contract withdrawals equaled $3,622,756 in 2001, $(883,982) in 2000 and
$1,571,847 in 1999. Management utilizes this measurement of cash flows as an
indicator of the performance of the Company's insurance operations.

Cash provided by (used in) investing activities was $181,337, $(3,814,275) and
$(4,974,503), for 2001, 2000 and 1999, respectively. The most significant aspect
of cash provided by (used in) investing activities are the fixed maturity
transactions. Fixed maturities account for 81%, 43% and 68% of the total cost of
investments acquired in 2001, 2000 and 1999, respectively. The Company has not
directed its investable funds to so-called "junk bonds" or derivative
investments.

Net cash provided by (used in) financing activities was $92,684, $(347,279) and
$370,651 for 2001, 2000 and 1999, respectively. The Company continues to pay
down on its outstanding debt. Such payments are included within this category.

Policyholder contract deposits decreased 11% in 2001 compared to 2000, and
decreased 10% in 2000 when compared to 1999. The decrease in policyholder
contract deposits relates to the decline in new business production experienced
in the last few years by the Company. Policyholder contract withdrawals have
decreased 15% in 2001 compared to 2000, and decreased 2% in 2000 compared to
1999. The change in policyholder contract withdrawals is not attributable to any
one significant event. Factors that influence policyholder contract withdrawals
are fluctuation of interest rates, competition and other economic factors.

At December 31, 2001, FCC had $11,536,698 in notes payable. During 2001, the
Company repaid $1,302,495 on its affiliated subordinated debt. Contractual
obligations on the Company's long-term debt require total payments of $9,408,099
due in 4-5 years and $2,128,599 due after 5 years.

Since FCC is a holding company, funds required to meet its debt service
requirements and other expenses are primarily provided by its subsidiaries. On a
parent only basis, FCC's cash flow is dependent on revenues from management and
cost sharing arrangements with its subsidiaries and its earnings received on
invested assets and cash balances. At December 31, 2001, substantially all of
the consolidated shareholders equity represents net assets of its subsidiaries.
Cash requirements of FCC primarily relate to servicing its long-term debt. The
Company's insurance subsidiaries have maintained adequate statutory capital and
surplus and have not used surplus relief or financial reinsurance, which have
come under scrutiny by many state insurance departments. The payment of cash
dividends to shareholders is not legally restricted. However, insurance company
dividend payments are regulated by the state insurance department where the
company is domiciled. UG's dividend limitations are described below.

Ohio domiciled insurance companies require five days prior notification to the
insurance commissioner for the payment of an ordinary dividend. Ordinary
dividends are defined as the greater of: a) prior year statutory earnings or b)
10% of statutory capital and surplus. For the year ended December 31, 2001, UG
had a statutory gain from operations of $2,212,215. At December 31, 2001, UG's
statutory capital and surplus amounted to $16,105,265. Extraordinary dividends
(amounts in excess of ordinary dividend limitations) require prior approval of
the insurance commissioner and are not restricted to a specific calculation. UG
paid ordinary dividends of $1,400,000 to FCC during 2001.

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

Ratio of Total Adjusted Capital to
Authorized Control Level RBC
Regulatory Event (Less Than or Equal to)
---------------- --------------------------------------
Company action level 2*
Regulatory action level 1.5
Authorized control level 1
Mandatory control level 0.7
* Or, 2.5 with negative trend.

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

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

REGULATORY ENVIRONMENT

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

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

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

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

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

* Or, 2.5 with negative trend.

During 2000, Congress passed the Gramm-Leach-Bliley Financial Services
Modernization Act, which requires financial institutions, including all
insurers, to take certain steps to enhance privacy protections of nonpublic
personal information for consumers. The law is one of the most sweeping systems
of privacy protection and regulation ever imposed in our nation's history. It
requires financial companies to tell consumers how their financial information
is protected, and what a company's financial information sharing practices are,
both within a corporate family and with unrelated third parties. Companies must
inform their customers of their privacy policies and practices at the start of
their business relationship, and then at least once a year for the duration of
the relationship. Companies also must disclose the types of information that are
shared. The privacy protections under the act became effective November 13,
2000. Financial institutions had until July 1, 2001, to establish and implement
privacy policies. The Company has implemented new procedures and complied with
the requirements of this legislation.

A task force of the NAIC undertook a project to codify a comprehensive set of
statutory insurance accounting rules and regulations. Project results were
approved by the NAIC with an implementation date of January 1, 2001. Many states
in which the Company does business implemented these new rules with the same
effective date as proposed by the NAIC. The Company implemented these new
regulations effective January 1, 2001 as required. Implementation of these new
rules did not have a material financial impact on the insurance subsidiaries
financial position or results of operations. The NAIC continues to modify and
amend issue papers regarding codification. The Company will continue to monitor
this issue as changes and new proposals are made.

ACCOUNTING AND LEGAL DEVELOPMENTS

The Financial Accounting Standards Board ("FASB") has issued Statement No. 141,
Business Combinations, Statement No. 142, Goodwill and Other Intangible Assets,
Statement No. 143, Accounting for Asset Retirement Obligations, and Statement
No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets.

Statement 141 improves the transparency of accounting and reporting for business
combinations by requiring that all business combinations be accounted for under
a single method - the purchase method. Use of the pooling-of-interests method is
no longer permitted. Statement 141 requires that the purchase method be used for
business combinations initiated after June 30, 2001. The adoption of Statement
141 did not affect the Company's financial position or results of operations,
since the Company has had no such business combinations during the reporting
period.

Statement 142 requires that goodwill no longer be amortized to earnings, but
instead be reviewed for impairment. This change provides investors with greater
transparency regarding the economic value of goodwill and its impact on
earnings. The amortization of goodwill ceased for the Company upon the adoption
of the statement at January 1, 2002. The adoption of Statement 142 will result
in an expense reduction of approximately $403,664 per year, subject to any
impairment write-down that might arise from a management review.

Statement 143 requires entities to record the fair value of a liability for an
asset retirement obligation in the period in which it is incurred. When the
liability is initially recorded, the entity capitalizes a cost by increasing the
carrying amount of the related long-lived asset. Over time, the liability is
accreted to its present value each period, and the capitalized cost is
depreciated over the useful life of the related asset. Upon settlement of the
liability, an entity either settles the obligation for its recorded amount or
incurs a gain or loss upon settlement. The standard is effective for fiscal
years beginning after June 15, 2002. The adoption of Statement 143 will not
affect the Company's financial position or results of operations, since the
Company has no such asset retirement obligations.

Statement 144 requires that one accounting model be used for long-lived assets
to be disposed of by sale, whether previously held and used or newly acquired,
and broadens the presentation of discontinued operations to include more
disposal transactions. In addition, this statement requires entities to
recognize an impairment loss if the carrying amount of a long-lived asset is not
recoverable from its undiscounted cash flows, and to measure an impairment loss
as the difference between the carrying amount and fair value of the asset. This
statement removes any previous requirements to allocate goodwill to long-lived
assets to be tested for impairment, and it further prescribes a
probability-weighted cash flow estimation approach to deal with situations in
which alternative courses of action to recover the carrying amount of a
long-lived asset are under consideration. The provisions of this Statement are
effective for financial statements issued for fiscal years beginning after
December 15, 2001. The adoption of Statement 144 will not affect the Company's
financial position or results of operations, since the Company has no such
disposals or impairments to long-lived assets.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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

Page No.
FIRST COMMONWEALTH CORPORATION AND CONSOLIDATED SUBSIDIARIES

Independent Auditors' Report for the
Years ended December 31, 2001, 2000, 1999..........................32

Consolidated Balance Sheets...........................................33

Consolidated Statements of Operations.................................34

Consolidated Statements of Shareholders' Equity.......................35

Consolidated Statements of Cash Flows.................................36

Notes to Consolidated Financial Statements.........................37-61

Independent Auditors' Report

Board of Directors and Shareholders
First Commonwealth Corporation

We have audited the accompanying consolidated balance sheets of First
Commonwealth Corporation (a Virginia corporation) and subsidiaries as of
December 31, 2001 and 2000, and the related consolidated statements of
operations, shareholders' equity, and cash flows for each of the three years in
the period ended December 31, 2001. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of First
Commonwealth Corporation and subsidiaries as of December 31, 2001 and 2000, and
the consolidated results of their operations and their consolidated cash flows
for each of the three years in the period ended December 31, 2001, in conformity
with accounting principles generally accepted in the United States of America.

We have also audited Schedule I as of December 31, 2001, and Schedules II,
IV and V as of December 31, 2001 and 2000, of First Commonwealth Corporation and
subsidiaries and Schedules II, IV and V for each of the three years in the
period then ended. In our opinion, these schedules present fairly, in all
material respects, the information required to be set forth therein.

KERBER, ECK & BRAECKEL LLP

Springfield, Illinois
March 13, 2002

CONSOLIDATED BALANCE SHEET
FIRST COMMONWEALTH CORPORATION
CONSOLIDATED BALANCE SHEETS
As of December 31, 2001 and 2000

ASSETS
2001 2000
-------------- ---------------
Investments:
Fixed maturities held to maturity, at amortized cost
(market $77,725,410 and $122,623,563) $ 75,005,395 $ 121,922,963
Investments held for sale:
Fixed maturities, at market (cost $97,584,094 and $42,914,186) 98,628,440 43,128,280
Equity securities, at market (cost $3,934,512 and $5,505,832) 3,852,716 5,126,271
Mortgage loans on real estate at amortized cost 23,386,895 32,896,671
Investment real estate, at cost, net of accumulated depreciation 8,876,298 3,933,357
Policy loans 13,608,456 14,090,900
Short-term investments 550,001 1,654,567
-------------- ---------------
223,908,201 222,753,009

Cash and cash equivalents 14,837,274 12,960,007
Investment in parent 350,000 350,000
Receivable from affiliate 37 291,934
Accrued investment income 2,938,529 3,461,199
Reinsurance receivables:
Future policy benefits 33,776,688 35,083,244
Policy claims and other benefits 4,042,779 3,911,258
Cost of insurance acquired 14,219,005 15,370,289
Deferred policy acquisition costs 6,353,919 7,853,496
Cost in excess of net assets purchased,
net of accumulated amortization 6,895,110 7,647,847
Income taxes receivable:
Current 174,893 195,068
Deferred 0 1,148,545
Property and equipment, net of accumulated depreciation 2,284,117 2,567,619
Other assets 118,963 648,002
-------------- ---------------
Total assets $ 309,899,515 $ 314,241,517
============== ===============

LIABILITIES AND SHAREHOLDERS' EQUITY
Policy liabilities and accruals:
Future policy benefits $ 244,526,762 $ 248,089,964
Policy claims and benefits payable 2,781,920 2,639,248
Other policyholder funds 1,255,990 1,445,857
Dividend and endowment accumulations 12,972,024 13,416,427
Notes payable 11,536,698 12,839,193
Income taxes payable, deferred 272,444 0
Other liabilities 4,541,184 5,357,543
-------------- ---------------
Total liabilities 277,887,022 283,788,232
-------------- ---------------
Minority interests in consolidated subsidiaries 0 1,326,992
-------------- ---------------

Shareholders' equity:
Common stock - $1 par value per share.
Authorized 62,500 shares - 54,385 and 54,393 shares issued
and outstanding after deducting treasury shares of 1,100 and 1,092 54,385 54,393
Additional paid-in capital 51,860,574 51,861,366
Accumulated deficit (20,515,821) (22,701,428)
Accumulated other comprehensive income (deficit) 613,355 (88,038)
-------------- ---------------
Total shareholders' equity 32,012,493 29,126,293
-------------- ---------------
Total liabilities and shareholders' equity $ 309,899,515 $ 314,241,517
============== ===============

See accompanying notes.

FIRST COMMONWEALTH CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Years Ended December 31, 2001

2001 2000 1999
-------------- --------------- --------------

Revenues:

Premiums and policy fees $ 20,444,514 $ 23,045,858 $ 25,559,708
Reinsurance premiums and policy fees (3,172,098) (3,556,172) (3,978,565)
Net investment income 14,942,902 15,869,597 14,498,500
Realized investment gains(losses), net 436,280 (260,078) (530,894)
Other income 950,858 132,843 210,422
-------------- --------------- --------------
33,602,456 35,232,048 35,759,171

Benefits and other expenses:

Benefits, claims and settlement expenses:
Life 19,857,018 23,798,002 23,301,541
Reinsurance benefits and claims (2,349,102) (3,376,091) (3,610,459)
Annuity 1,244,663 1,210,783 1,390,592
Dividends to policyholders 1,015,055 1,003,954 1,170,710
Commissions and amortization of deferred
policy acquisition costs 1,921,974 2,834,313 3,759,898
Amortization of cost of insurance acquired 1,151,284 1,185,307 1,072,773
Operating expenses 6,483,157 9,304,655 7,499,188
Interest expense 987,886 1,243,819 1,344,888
-------------- --------------- --------------
30,311,935 37,204,742 35,929,131
-------------- --------------- --------------

Income (loss) before income taxes
and minority interest 3,290,521 (1,972,694) (169,960)
Income tax credit (expense) (1,055,732) 90,811 (170,957)
Minority interest in (income) loss
of consolidated subsidiaries (49,182) 35,043 (37,040)
-------------- --------------- --------------
Net income (loss) $ 2,185,607 $ (1,846,840) $ (377,957)
============== =============== ==============

Basic income (loss) per share from continuing
operations and net income (loss) $ 40.19 $ (33.90) $ (6.93)
============== =============== ==============

Basic weighted average shares outstanding 54,385 54,485 54,539
============== =============== ==============

See accompanying notes.

FIRST COMMONWEALTH CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Three Years Ended December 31, 2001

2001 2000 1999
------------------------------ ------------------------------ ------------------------------

Common stock
Balance, beginning of year $ 54,393 $ 54,538 $ 54,539
Issued during year 0 0 0
Treasury shares acquired (8) (145) (1)
-------------- -------------- --------------
Balance, end of year $ 54,385 $ 54,393 $ 54,538
============== ============== ==============

Additional paid-in capital
Balance, beginning of year $ 51,861,366 $ 51,875,721 $ 51,875,820
Issued during year 0 0 0
Treasury shares acquired (792) (14,355) (99)
-------------- -------------- --------------
Balance, end of year $ 51,860,574 $ 51,861,366 $ 51,875,721
============== ============== ==============

Accumulated deficit
Balance, beginning of year $ (22,701,428) $ (20,854,588) $ (20,476,631)
Net income(loss) 2,185,607 $ 2,185,607 (1,846,840)$ (1,846,840) (377,957) $ (377,957)
-------------- -------------- --------------
Balance, end of year $ (20,515,821) $ (22,701,428) $ (20,854,588)
============== ============== ==============

Accumulated other comprehensive deficit
Balance, beginning of year $ (88,038) $ (1,915,335) $ (631,344)
Other comprehensive income (deficit)
Unrealized holding gain (loss) on
securities net of minority interest
and reclassification adjustment 701,393 701,393 1,827,297 1,827,297 (1,283,991) (1,283,991)
-------------- ------------- -------------- -------------- -------------- -------------
Comprehensive income (deficit) $ 2,887,000 $ (19,543) $ (1,661,948)
============= ============== =============
Balance, end of year $ 613,355 $ (88,038) $ (1,915,335)
============== ============== ==============

Total shareholders' equity, end of year $ 32,012,493 $ 29,126,293 $ 29,160,336
============== ============== ==============

See accompanying notes.

FIRST COMMONWEALTH CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Years Ended December 31, 2001

2001 2000 1999
--------------- -------------- -------------
Increase (decrease) in cash and cash equivalents
Cash flows from operating activities:
Net income (loss) $ 2,185,607 $ (1,846,840) $ (377,957)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities net of changes in assets and
liabilities resulting from the sales and purchases of subsidiaries:
Amortization/accretion of fixed maturities 150,579 152,917 489,491
Realized investment (gains) losses, net (436,280) 260,078 530,894
Policy acquisition costs deferred (141,000) (273,000) (720,000)
Amortization of deferred policy acquisition costs 1,640,577 2,197,040 2,783,012
Amortization of cost of insurance acquired 1,151,284 1,185,307 1,072,773
Amortization of costs in excess of net assets purchased 403,664 403,664 432,550
Depreciation 360,688 424,591 480,505
Minority interest 49,182 (35,043) 37,040
Charges for mortality and administration of
universal life and annuity products (9,344,711) (10,151,024) (10,696,014)
Interest credited to account balances 5,749,098 6,109,491 6,300,667
Change in accrued investment income 522,670 (42,900) 102,782
Change in reinsurance receivables 1,175,305 928,890 606,509
Change in policy liabilities and accruals (2,478,697) (3,289,810) (1,255,020)
Change in income taxes 1,055,732 109,189 (351,803)
Change in indebtedness (to) from affiliates, net 291,897 (137,316) (198,112)
Change in other assets and liabilities, net (732,349) 1,358,864 (618,844)
--------------- -------------- -------------
Net cash provided by (used in) operating activities 1,603,246 (2,645,902) (1,381,527)
--------------- -------------- -------------

Cash flows from investing activities:
Proceeds from investments sold and matured:
Fixed maturities held for sale matured 27,205,225 5,607,700 1,430,000
Fixed maturities matured 50,952,814 27,103,149 31,032,290
Equity securities 6,312,727 189,270 0
Mortgage loans 14,738,313 4,279,622 4,715,678
Real estate 1,894,082 4,470,385 2,705,093
Policy loans 2,912,296 2,918,627 3,169,753
Other long-term investments 0 906,278 0
Short-term 2,229,528 1,042,826 1,336,251
--------------- -------------- -------------
Total proceeds from investments sold and matured 106,244,985 46,517,857 44,389,065
Cost of investments acquired:
Fixed maturities held for sale (84,801,095) (19,996,972) (31,366,755)
Fixed maturities (1,124,925) (1,486,255) (2,020,803)
Equity securities (4,608,649) (2,669,899) (161,255)
Mortgage loans (5,325,569) (21,862,521) (9,257,836)
Real estate (6,711,273) (852,331) (635,303)
Policy loans (2,429,852) (2,858,415) (3,186,825)
Short-term (1,124,961) (497,393) (2,500,000)
--------------- -------------- -------------
Total cost of investments acquired (106,126,324) (50,223,786) (49,128,777)
Purchase of property and equipment (138,388) 0 0
Sale of property and equipment 201,064 (108,346) (234,791)
--------------- -------------- -------------
Net cash provided by (used in) investing activities 181,337 (3,814,275) (4,974,503)
--------------- -------------- -------------

Cash flows from financing activities:
Policyholder contract deposits 11,361,882 12,724,345 14,176,188
Policyholder contract withdrawals (9,342,372) (10,962,425) (11,222,814)
Payments of principal on notes payable (1,302,495) (2,025,000) (2,505,800)
Purchase of stock of affiliates (623,531) (69,699) (76,823)
Purchase of treasury shares (800) (14,500) (100)
--------------- -------------- -------------
Net cash provided by (used in) financing activities 92,684 (347,279) 370,651
--------------- -------------- -------------

Net increase (decrease) in cash and cash equivalents 1,877,267 (6,807,456) (5,985,379)
Cash and cash equivalents at beginning of year 12,960,007 19,767,463 25,752,842
--------------- -------------- -------------
Cash and cash equivalents at end of year $ 14,837,274 $ 12,960,007 $ 19,767,463
=============== ============== =============

See accompanying notes.

FIRST COMMONWEALTH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A. ORGANIZATION - At December 31, 2001, the parent and significant
majority-owned subsidiaries of First Commonwealth Corporation were as
depicted on the following organizational chart.

Organizational Chart

















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

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

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

     D.   BASIS  OF  PRESENTATION  - The  financial  statements  of FCC  and its
          subsidiaries   have  been  prepared  in  accordance   with  accounting
          principles  generally  accepted in the United  States of America which
          differ from  statutory  accounting  practices  permitted  by insurance
          regulatory authorities.

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

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

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

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

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

          Real  estate -  Investment  real  estate  at cost less  allowance  for
          depreciation  and, as  appropriate,  provisions  for possible  losses.
          Foreclosed   real  estate  is  adjusted  for  any  impairment  at  the
          foreclosure date.  Accumulated  depreciation on investment real estate
          was  $58,225  and   $251,766  as  of  December   31,  2001  and  2000,
          respectively.

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

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

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

          Unrealized gains and losses on investments carried at market value are
          recognized   in   other   comprehensive   income   on   the   specific
          identification basis.

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


     H.   REINSURANCE - In the normal  course of business,  the Company seeks to
          limit its  exposure  to loss on any  single  insured  and to recover a
          portion of  benefits  paid by ceding  reinsurance  to other  insurance
          enterprises  or  reinsurers  under  excess  coverage  and  coinsurance
          contracts.  The Company  retains a maximum of $125,000 of coverage per
          individual  life.

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

     I.   FUTURE POLICY  BENEFITS AND EXPENSES - The liabilities for traditional
          life insurance and accident and health  insurance  policy benefits are
          computed  using  a  net  level  method.   These  liabilities   include
          assumptions as to investment yields, mortality, withdrawals, and other
          assumptions  based  on the  life  insurance  subsidiaries'  experience
          adjusted to reflect  anticipated  trends and to include provisions for
          possible unfavorable  deviations.  The Company makes these assumptions
          at the  time the  contract  is  issued  or,  in the case of  contracts
          acquired by purchase, at the purchase date. Future policy benefits for
          individual  life  insurance  and annuity  policies are computed  using
          interest  rates  ranging from 2% to 6% for life  insurance and 2.5% to
          9.25% for annuities.  Benefit  reserves for traditional life insurance
          policies include certain deferred profits on limited-payment  policies
          that are being  recognized  in income  over the  policy  term.  Policy
          benefit  claims are  charged to expense in the period  that the claims
          are incurred.  Current mortality rate assumptions are based on 1975-80
          select and ultimate tables. Withdrawal rate assumptions are based upon
          Linton B or Linton C, which are industry standard actuarial tables for
          forecasting assumed policy lapse rates.

          Benefit  reserves for universal life insurance and interest  sensitive
          life  insurance  products are computed under a  retrospective  deposit
          method  and  represent  policy  account  balances  before   applicable
          surrender  charges.  Policy  benefits  and claims  that are charged to
          expense  include  benefit  claims in excess of related  policy account
          balances.  Interest  crediting  rates for universal  life and interest
          sensitive  products  range  from  4.5% to 5.5%  for  the  years  ended
          December 31, 2001, 2000 and 1999, respectively.

     J.   POLICY  AND  CONTRACT  CLAIMS - Policy  and  contract  claims  include
          provisions  for reported  claims in process of  settlement,  valued in
          accordance  with the terms of the policies and  contracts,  as well as
          provisions  for  claims   incurred  and  unreported   based  on  prior
          experience  of the  Company.  Incurred  but not  reported  claims were
          $900,894 and $900,114 as of December 31, 2001 and 2000, respectively.

     K.   COST OF INSURANCE  ACQUIRED - When an  insurance  company is acquired,
          the  Company  assigns  a portion  of its cost to the right to  receive
          future cash flows from insurance contracts existing at the date of the
          acquisition. The cost of policies purchased represents the actuarially
          determined  present value of the projected  future cash flows from the
          acquired   policies.   The  Company   utilized  9%  discount  rate  on
          approximately   75%  of  the  business   and  15%  discount   rate  on
          approximately  25% of the  business.  Cost of  insurance  acquired  is
          amortized  with  interest  in relation  to  expected  future  profits,
          including direct  charge-offs for any excess of the unamortized  asset
          over the projected future profits.  The interest rates utilized in the
          amortization  calculation are 9% on  approximately  75% of the balance
          and 15% on the  remaining  balance.  The  interest  rates  vary due to
          differences in the blocks of business.  The  amortization  is adjusted
          retrospectively  when  estimates of current or future gross profits to
          be realized from a group of products are revised.


                                                   2001                 2000                1999
                                              ----------------    -----------------    ----------------
Cost of insurance acquired,
Beginning of year                           $     15,370,289    $     16,555,596      $   17,628,369
   Interest accretion                              1,333,668           1,423,266           1,495,074
   Amortization                                   (2,484,952)         (2,608,573)         (2,567,847)
                                              ----------------    -----------------    ----------------
   Net amortization                               (1,151,284)         (1,185,307)         (1,072,773)
                                              ----------------    -----------------    ----------------

Cost of insurance acquired,
  End of year                               $     14,219,005    $     15,370,289     $    16,555,596
                                              ================    =================    ================

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

                                                                   Interest                             Net
                                                                  Accretion      Amortization      Amortization
                                                                  ---------      ------------      ------------
           2002                                                 $ 1,243,000       $ 2,202,000      $  959,000
           2003                                                   1,176,000         2,001,000         825,000
           2004                                                   1,092,000         1,774,000         682,000
           2005                                                   1,033,000         1,630,000         597,000
           2006                                                     980,000         1,505,000         525,000


          L. DEFERRED  POLICY  ACQUISITION  COSTS - Commissions  and other costs
          (salaries of certain employees involved in the underwriting and policy
          issue  functions,  and medical and inspection  fees) of acquiring life
          insurance  products  that vary with and are  primarily  related to the
          production  of new  business  have  been  deferred.  Traditional  life
          insurance   acquisition   costs   are   being   amortized   over   the
          premium-paying  period  of  the  related  policies  using  assumptions
          consistent with those used in computing policy benefit reserves.

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


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

                                                  2001                 2000                  1999
                                            -----------------    -----------------     -----------------
          Deferred, beginning of year       $      7,853,496     $      9,777,536      $     11,840,548

          Acquisition costs deferred:
            Commissions                              108,000              184,000               566,000
            Other expenses                            33,000               89,000               154,000
                                            -----------------    -----------------     -----------------
            Total                                    141,000              273,000               720,000

          Interest accretion                         247,000              328,000               436,000
          Amortization charged to income          (1,887,577)          (2,525,040)           (3,219,012)
                                            -----------------    -----------------     -----------------
            Net amortization                      (1,640,577)          (2,197,040)           (2,783,012)
                                            -----------------    -----------------     -----------------
            Change for the year                   (1,499,577)          (1,924,040)           (2,063,012)
                                            -----------------    -----------------     -----------------

          Deferred, end of year             $      6,353,919     $      7,853,496      $      9,777,536
                                            =================    =================     =================


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

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

                                                        2001              2000              1999
                                                     ----------        ----------        ----------
           Net amortization of deferred
             policy acquisition costs               $ 1,640,577       $ 2,197,040       $ 2,783,012
           Commissions                                  281,397           637,273           976,886
                                                     ----------        ----------        ----------
             Total                                  $ 1,921,974       $ 2,831,313       $ 3,759,898
                                                     ==========        ==========        ==========


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

                            Interest                             Net
                           Accretion      Amortization      Amortization
                          ----------      ------------      ------------
           2002          $  217,000      $  1,372,000      $  1,155,000
           2003             193,000         1,053,000           860,000
           2004             172,000         1,025,000           853,000
           2005             154,000           878,000           724,000
           2006             137,000           744,000           607,000



     M.   COST IN EXCESS OF NET ASSETS  PURCHASED - Cost in excess of net assets
          purchased  is the excess of the amount paid to acquire a company  over
          the  fair  value of its net  assets.  Costs in  excess  of net  assets
          purchased  are  amortized  on the  straight-line  basis over a 40-year
          period.  Management continually reviews the value of goodwill based on
          estimates  of  future  earnings.  As part of this  review,  management
          determines  whether  goodwill  is  fully  recoverable  from  projected
          undiscounted net cash flows from earnings of the subsidiaries over the
          remaining  amortization  period.  If management were to determine that
          changes  in  such  projected  cash  flows  no  longer   supported  the
          recoverability of goodwill over the remaining amortization period, the
          carrying  value of  goodwill  would be  reduced  with a  corresponding
          charge  to  expense  (no  such  changes  have  occurred).  Accumulated
          amortization of cost in excess of net assets  purchased was $7,655,520
          and $7,251,856 as of December 31, 2001 and 2000, respectively.

     N.   PROPERTY AND EQUIPMENT -  Company-occupied  property,  data processing
          equipment and  furniture and office  equipment are stated at cost less
          accumulated  depreciation of $5,480,294 and $5,871,464 at December 31,
          2001  and  2000,   respectively.   Depreciation   is   computed  on  a
          straight-line  basis for financial  reporting purposes using estimated
          useful lives of three to 30 years.  Depreciation expense was $296,900,
          $355,328 and $352,449 for the years ended December 31, 2001,  2000 and
          1999 respectively.

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

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

     Q.   TREASURY  SHARES - The Company  holds 1,100 and 1,092 shares of common
          stock  as  treasury  shares  with  a  cost  basis  of  $3,479,400  and
          $3,478,600 at December 31, 2001 and 2000, respectively.

     R.   PARTICIPATING  INSURANCE - Participating  business  represents 22% and
          23% of the ordinary  life  insurance in force at December 31, 2001 and
          2000,   respectively.   Premium  income  from  participating  business
          represents  26%,  27%,  and 29% of total  premiums for the years ended
          December  31,  2001,  2000  and  1999,  respectively.  The  amount  of
          dividends  to  be  paid  is  determined  annually  by  the  respective
          insurance  subsidiary's  Board of  Directors.  Earnings  allocable  to
          participating  policyholders are based on legal requirements that vary
          by state.

     S.   RECOGNITION   OF  REVENUES   AND  RELATED   EXPENSES  -  Premiums  for
          traditional life insurance products, which include those products with
          fixed and  guaranteed  premiums and benefits,  consist  principally of
          whole  life  insurance  policies,  and  certain  annuities  with  life
          contingencies  are  recognized as revenues when due.  Limited  payment
          life insurance policies defer gross premiums received in excess of net
          premiums,   which  is  then   recognized   in  income  in  a  constant
          relationship  with insurance in force.  Accident and health  insurance
          premiums  are  recognized  as  revenue  pro rata over the terms of the
          policies.  Benefits and related expenses  associated with the premiums
          earned are  charged to expense  proportionately  over the lives of the
          policies through a provision for future policy benefit liabilities and
          through  deferral  and  amortization  of deferred  policy  acquisition
          costs. For universal life and investment products,  generally there is
          no requirement  for payment of premium other than to maintain  account
          values at a level  sufficient to pay  mortality  and expense  charges.
          Consequently,  premiums for  universal  life  policies and  investment
          products  are not  reported as revenue,  but as  deposits.  Policy fee
          revenue for universal life policies and investment  products  consists
          of charges for the cost of insurance  and policy  administration  fees
          assessed  during the period.  Expenses  include  interest  credited to
          policy  account  balances  and  benefit  claims  incurred in excess of
          policy account balances.


     T.   RECLASSIFICATIONS  - Certain prior year amounts have been reclassified
          to conform to the 2001  presentation.  Such  reclassifications  had no
          effect on previously reported net loss, total assets, or shareholders'
          equity.

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


2.  SHAREHOLDER DIVIDEND RESTRICTION

At December 31, 2001,  substantially  all of consolidated  shareholders'  equity
represents  net assets of FCC's  subsidiaries.  The payment of cash dividends to
shareholders  by FCC is not legally  restricted.  However,  the state  insurance
department  regulates  insurance  company dividend payments where the company is
domiciled. UG's dividend limitations are described below.

Ohio domiciled  insurance  companies require five days prior notification to the
insurance  commissioner  for  the  payment  of an  ordinary  dividend.  Ordinary
dividends are defined as the greater of: a) prior year statutory  earnings or b)
10% of statutory  capital and surplus.  For the year ended December 31, 2001, UG
had a statutory gain from  operations of $2,212,215.  At December 31, 2001, UG's
statutory capital and surplus amounted to $16,105,265.  Extraordinary  dividends
(amounts in excess of ordinary dividend  limitations)  require prior approval of
the insurance commissioner and are not restricted to a specific calculation.

3.  INCOME TAXES

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

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


                            Shareholders'          Untaxed
       Company                 Surplus             Balance
----------------------     -----------------    --------------
         ABE           $          5,457,880  $      1,149,693
        APPL                      7,098,824         1,525,367
         UG                      28,897,113         4,363,821


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


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

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

                                              2001                 2000                1999
                                         ----------------    -----------------    ----------------
Current tax expense                  $            20,175  $           27,748  $               941
Deferred tax expense (credit)                  1,035,557            (118,559)             170,016
                                         ----------------    -----------------    ----------------
                                     $         1,055,732  $          (90,811)  $          170,957
                                         ================    =================    ================

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

                              UG                FCC
                         -------------     ---------------
       2019          $      1,165,779  $                0
       2020                         0             525,451
                         -------------     ---------------
       TOTAL         $      1,165,779  $          525,451
                         =============     ===============


The Company has  established  a deferred tax asset of $591,931 for its operating
loss carryforwards and has established an allowance of $183,908. UG must average
approximately  $65,000  of  taxable  income  per year to fully  realize  the net
operating loss  carryforward  for which no allowance is established.  Management
believes  future  earnings of UG will be  sufficient  to fully  utilize this net
operating loss carryforward.  FCC must average  approximately $28,000 of taxable
income to fully realize its net operating loss  carryforwards.  FCC's  operating
loss  carryforward  does  not  expire  until  the  year  2020.   Management  has
established  an allowance of $183,908  for FCC's loss  carryforwards.  The total
allowances established on deferred tax assets decreased $195,518 in 2001.

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

                                                             2001               2000               1999
                                                        ----------------   ----------------   ----------------
Tax computed at statutory rate                       $     1,151,682    $      (690,443)    $      (59,486)
Changes in taxes due to:
  Cost in excess of net assets purchased                     141,282            141,282            151,393
  Current year loss for which no benefit realized                  0            546,231                  0
  Benefit of prior losses                                   (159,456)          (139,061)            (6,309)
  Other                                                      (77,776)            51,180             85,359
                                                        ----------------   ----------------   ----------------
Income tax expense (credit)                          $     1,055,732     $      (90,811)    $      170,957
                                                        ================   ================   ================



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

                                                 2001                  2000
                                            ----------------      ---------------
Investments                             $          23,896     $        (403,535)
Deferred policy acquisition costs               2,223,872             2,748,724
Cost of insurance acquired                      4,976,652             5,379,601
Agent balances                                          0                (6,239)
Property and equipment                            (61,250)              (68,250)
Due premiums                                     (741,968)             (864,195)
Future policy benefits                         (3,587,365)           (4,369,310)
Net operating loss carryforward                  (408,023)             (716,175)
Other liabilities                                (646,605)           (1,185,691)
Federal tax DAC                                (1,506,765)           (1,663,475)
                                            ----------------      ---------------
Deferred tax liability (asset)          $         272,444     $      (1,148,545)
                                            ================      ===============




4.  ANALYSIS OF INVESTMENTS, INVESTMENT INCOME AND INVESTMENT GAIN

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

                                                                             December 31,
                                                       ----------------------------------------------------------
                                                               2001               2000               1999
                                                          ---------------    ----------------   ----------------
Fixed maturities held to maturity and fixed
  Maturities held for sale                              $     10,831,162   $     11,775,706   $     11,886,968
Equity securities                                                131,263            116,327             91,429
Mortgage loans                                                 2,715,834          1,777,374          1,078,028
Real estate                                                      198,314            311,027            389,181
Policy loans                                                     970,142            997,381            991,812
Other long-term investments                                            0            655,418             63,528
Short-term investments                                           114,538            156,815            147,726
Cash                                                             562,905            847,400            811,103
                                                          ---------------    ----------------   ----------------
Total consolidated investment income                          15,524,158         16,637,448         15,459,775
Investment expenses                                             (581,256)          (767,851)          (961,275)
Consolidated net investment income                      $     14,942,902   $     15,869,597   $     14,498,500
                                                          ===============    ================   ================


At December 31,  2001,  the Company had a total of $200,000 in  investment  real
estate which did not produce income during 2001.


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

                                                                                   Carrying Value
                                                                      -----------------------------------------
                                                                               2001                 2000
                                                                          ---------------      ---------------
 Investments held for sale:
     Fixed maturities
         U.S. Government, government agencies and authorities           $      6,904,757     $     35,444,312
         State, municipalities and political subdivisions                     11,788,567              206,006
         Collateralized mortgage obligations                                     128,471            5,962,594
         Public utilities                                                     22,219,127                    0
         All other corporate bonds                                            33,964,473            1,515,368
                                                                          ---------------      ---------------
                                                                        $     75,005,395     $     43,128,280
                                                                          ===============      ===============

     Equity securities
         Banks, trust and insurance companies                           $      1,100,000     $      3,139,020
         Industrial and miscellaneous                                          2,752,716            1,987,251
                                                                          ---------------      ---------------
                                                                        $      3,852,716     $      5,126,271
                                                                          ===============      ===============

 Fixed maturities held to maturity:
     U.S. Government, government agencies and authorities               $     36,182,839     $     31,350,799
     State, municipalities and political subdivisions                            202,256           15,318,605
     Collateralized mortgage obligations                                      54,003,623            3,178,210
     Public utilities                                                                  0           27,287,454
     All other corporate bonds                                                 8,239,722           44,787,895
                                                                          ---------------      ---------------
                                                                        $     98,628,440     $    121,922,963
                                                                          ===============      ===============


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

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



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

       Below Investment
      Grade Investments                2001             2000           1999
 -----------------------------     --------------    ------------   ------------
Public Utilities                 $     2,091,138   $           0  $     251,878
CMO                                       43,189         239,165              0
Corporate                                271,420          23,000        276,649
                                   --------------    ------------   ------------
Total                            $     2,405,747   $     262,165  $     528,527
                                   ==============    ============   ============

B.   INVESTMENT SECURITIES

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

                                              Cost or            Gross             Gross           Estimated
                                             Amortized        Unrealized        Unrealized           Market
2001                                           Cost              Gains            Losses             Value
-------------------------------------      --------------    --------------    --------------    ---------------
Investments held for sale:
  U.S. Government and govt.
    Agencies and authorities             $    35,240,384   $       942,455   $             0   $     36,182,839
  States, municipalities and
    Political subdivisions                       192,059            10,197                 0            202,256
  Collateralized mortgage
    Obligations                               53,777,577           447,019          (220,973)        54,003,623
  All other corporate bonds                    8,374,074               321          (134,673)         8,239,722
                                           --------------    --------------    --------------    ---------------
                                              97,584,094         1,399,992          (355,646)        98,628,440
  Equity securities                            2,903,268           953,448            (4,000)         3,852,716
                                           --------------    --------------    --------------    ---------------
  Total                                  $   100,487,362   $     2,353,440   $      (359,646)  $    102,481,156
                                           ==============    ==============    ==============    ===============

Fixed maturities held to maturity:
  U.S. Government and govt.
    Agencies and authorities             $     6,904,757   $       280,101   $          (893)  $      7,183,965
  States, municipalities and
    Political subdivisions                    11,788,567           360,714          (119,497)        12,029,784
  Collateralized mortgage
    Obligations                                  128,471             4,820                 0            133,291
  Public utilities                            22,219,127           859,864           (70,947)        23,008,044
  All other corporate bonds                   33,964,473         1,410,244            (4,391)        35,370,326
                                           --------------    --------------    --------------    ---------------
  Total                                  $    75,005,395   $     2,915,743   $      (195,728)  $     77,725,410
                                           ==============    ==============    ==============    ===============



                                              Cost or            Gross             Gross           Estimated
                                             Amortized        Unrealized        Unrealized           Market
2000                                           Cost              Gains            Losses             Value
-------------------------------------      --------------    --------------    --------------    ---------------
Investments held for sale:
  U.S. Government and govt.
    Agencies and authorities             $    35,281,562   $       245,119   $       (82,369)  $     35,444,312
  States, municipalities and
    Political subdivisions                       190,593            15,413                 0            206,006
  Collateralized mortgage
    Obligations                                5,919,553            58,179           (15,138)         5,962,594
  Public utilities                                     0                 0                 0                  0
  All other corporate bonds                    1,522,478                 0            (7,110)         1,515,368
                                           --------------    --------------    --------------    ---------------
                                              42,914,186           318,711          (104,617)        43,128,280
  Equity securities                            5,410,207           637,191          (921,127)         5,126,271
                                           --------------    --------------    --------------    ---------------
  Total                                  $    48,324,393   $       955,902   $    (1,025,744)  $     48,254,551
                                           ==============    ==============    ==============    ===============

Fixed maturities held to maturity:
  U.S. Government and govt.
    Agencies and authorities             $    31,350,799   $       148,229   $      (282,088)  $     31,216,940
  States, municipalities and
    Political subdivisions                    15,318,605           299,028           (45,335)        15,572,298
  Collateralized mortgage
    Obligations                                3,178,210            35,628            (3,323)         3,210,515
  Public utilities                            27,287,454           460,241          (220,316)        27,527,379
  All other corporate bonds                   44,787,895           505,860          (197,324)        45,096,431
                                           --------------    --------------    --------------    ---------------
  Total                                  $   121,922,963   $     1,448,986   $      (748,386)  $    122,623,563
                                           ==============    ==============    ==============    ===============

     The  amortized  cost  and  estimated  market  value of debt  securities  at
     December 31,  2001,  by  contractual  maturity,  is shown  below.  Expected
     maturities will differ from contractual  maturities  because  borrowers may
     have the  right  to call or  prepay  obligations  with or  without  call or
     prepayment penalties.

       Fixed Maturities Held for Sale                                    Estimated
                                                     Amortized            Market
             December 31, 2001                         Cost                Value
---------------------------------------------      --------------      --------------
Due in one year or less                          $     2,050,564     $     2,070,454
Due after one year through five years                 30,977,228          31,727,237
Due after five years through ten years                10,621,666          10,659,999
Due after ten years                                      157,059             167,127
Collateralized mortgage obligations                   53,777,577          54,003,623
                                                   --------------      --------------
Total                                            $    97,584,094     $    98,628,440
                                                   ==============      ==============



                                                                         Estimated
     Fixed Maturities Held to Maturity               Amortized            Market
             December 31, 2001                         Cost                Value
---------------------------------------------      --------------      --------------
Due in one year or less                          $    15,196,020     $    15,398,291
Due after one year through five years                 52,768,493          55,169,490
Due after five years through ten years                 3,315,143           3,509,525
Due after ten years                                    3,597,268           3,514,813
Collateralized mortgage obligations                      128,471             133,291
                                                   --------------      --------------
Total                                            $    75,005,395     $    77,725,410
                                                   ==============      ==============

     An analysis of sales,  maturities and principal repayments of the Company's
     fixed maturities  portfolio for the years ended December 31, 2001, 2000 and
     1999, is as follows:



                                            Cost or            Gross             Gross             Proceeds
                                           Amortized          Realized          Realized             From
Year ended December 31, 2001                  Cost             Gains             Losses              Sale
-------------------------------------    ---------------    -------------    ---------------    ---------------
Scheduled principal repayments,
   calls and tenders:
     Held for sale                     $     20,479,560   $       10,440   $             0    $     20,490,000
     Held to maturity                        51,025,358           34,690          (107,234)         50,952,814
Sales:
      Held for sale                           6,518,181          197,044                 0           6,715,225
      Held to maturity                                0                0                 0                   0
                                         ---------------    -------------    ---------------    ---------------
  Total                                $     78,023,099   $      242,174   $      (107,234)   $     78,158,039
                                         ===============    =============    ===============    ===============



                                            Cost or            Gross             Gross             Proceeds
                                           Amortized          Realized          Realized             From
Year ended December 31, 2000                  Cost             Gains             Losses              Sale
-------------------------------------    ---------------    -------------    ---------------    ---------------
Scheduled principal repayments,
   calls and tenders:
     Held for sale                     $      5,611,476   $           71   $        (3,847)   $      5,607,700
     Held to maturity                        27,047,819           59,463            (4,133)         27,103,149
Sales:
      Held for sale                                   0                0                 0                   0
      Held to maturity                                0                0                 0                   0
                                         ---------------    -------------    ---------------    ---------------
  Total                                $     32,659,295   $       59,534   $        (7,980)   $     32,710,849
                                         ===============    =============    ===============    ===============



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


C.   INVESTMENTS  ON DEPOSIT - At  December  31,  2001,  investments  carried at
     approximately  $12,657,000  were on deposit  with various  state  insurance
     departments.


5.   DISCLOSURES ABOUT FAIR VALUES OF FINANCIAL INSTRUMENTS

The financial  statements  include various  estimated fair value  information at
December 31, 2001 and 2000,  as required by  Statement  of Financial  Accounting
Standards  107,  Disclosure  about Fair Value of  Financial  Instruments  ("SFAS
107"). Such information,  which pertains to the Company's financial instruments,
is based on the requirements set forth in that Statement and does not purport to
represent the aggregate net fair value of the Company.

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

(a)  Cash and Cash equivalents

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

(b)  Fixed maturities and investments held for sale

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

(c)  Mortgage loans on real estate

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

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

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

(e)  Policy loans

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

(f)  Short-term investments

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

(g)  Notes payable

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

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

                                                  2001                               2000
                                   ----------------------------------------------------------------------
                                                         Estimated                          Estimated
                                        Carrying            Fair           Carrying           Fair
Assets                                   Amount            Value            Amount            Value
                                      --------------   ---------------  ---------------   --------------
Fixed maturities                    $    75,005,395  $     77,725,410 $    121,922,963  $   122,623,563
Fixed maturities held for sale           98,628,440        98,628,440       43,128,280       43,128,280
Equity securities                         3,852,716         3,852,716        5,126,271        5,126,271
Mortgage loans on real estate            23,386,895        23,360,333       32,896,671       32,841,254
Investment in real estate                 8,876,298         8,876,298        3,933,357        3,933,357
Policy loans                             13,608,456        13,608,456       14,090,900       14,090,900
Short-term investments                      550,001           550,001        1,654,567        1,654,567

Liabilities
Notes payable                            11,536,698        13,376,349       12,839,193       12,102,720


6.  STATUTORY EQUITY AND INCOME FROM OPERATIONS


The Company's  insurance  subsidiaries are domiciled in Ohio,  Illinois and West
Virginia and prepare their  statutory-based  financial  statements in accordance
with accounting  practices  prescribed or permitted by the respective  insurance
department.  These principles differ  significantly  from accounting  principles
generally  accepted  in the United  States of  America.  "Prescribed"  statutory
accounting practices include state laws, regulations, and general administrative
rules,  as well as a variety of  publications  of the  National  Association  of
Insurance  Commissioners  ("NAIC").  "Permitted"  statutory accounting practices
encompass all accounting  practices that are not prescribed;  such practices may
differ  from state to state,  from  company to company  within a state,  and may
change  in the  future.  The  NAIC  currently  is in the  process  of  codifying
statutory  accounting  practices,  the result of which is expected to constitute
the only source of "prescribed"  statutory accounting  practices.  The new rules
promulgated by the codifying of statutory  accounting practices become effective
January  1, 2001.  Accordingly,  these  uniform  rules  will  change  prescribed
statutory  accounting  practices  and will  result in changes to the  accounting
practices that insurance  enterprises use to prepare their  statutory  financial
statements.  Implementation  of the codification  rules will not have a material
financial  impact on the  financial  condition of the Company's  life  insurance
subsidiaries.  UG's total  statutory  shareholders'  equity was  $16,105,265 and
$14,288,015  at December 31, 2001 and 2000,  respectively.  The  Company's  life
insurance subsidiaries reported combined statutory operating income before taxes
(exclusive of intercompany  dividends) of $2,913,000,  $2,901,000 and $3,843,000
for 2001, 2000 and 1999, respectively.


7.  REINSURANCE

As is  customary  in the  insurance  industry,  the  insurance  affiliates  cede
insurance  to,  and assume  insurance  from,  other  insurance  companies  under
reinsurance  agreements.  Reinsurance  agreements  are  intended to limit a life
insurer's  maximum  loss on a large or unusually  hazardous  risk or to obtain a
greater  diversification of risk. The ceding insurance company remains primarily
liable with respect to ceded  insurance  should any  reinsurer be unable to meet
the obligations assumed by it. However, it is the practice of insurers to reduce
their  exposure to loss to the extent that they have been  reinsured  with other
insurance  companies.  The  Company  sets a limit  on the  amount  of  insurance
retained  on the life of any one person.  The Company  will not retain more than
$125,000,  including accidental death benefits, on any one life. At December 31,
2001,  the  Company  had gross  insurance  in force of $2.630  billion  of which
approximately $654 million was ceded to reinsurers.

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

Currently,  the Company is utilizing reinsurance  agreements with Business Mens'
Assurance Company,  ("BMA") and Life Reassurance  Corporation of America, ("LIFE
RE").  Recently,  Swiss Re Life and Health America Incorporated merged into LIFE
RE and  the  merged  entity  was  renamed  Swiss  Re  Life  and  Health  America
Incorporated  ("SWISS RE").  BMA and SWISS RE currenty hold an "A"  (Excellent),
and "A++" (Superior)  rating,  respectively,  from A.M. Best, an industry rating
company.  The reinsurance  agreements were effective December 1, 1993, and cover
all new business of the Company.  The  agreements  are a yearly  renewable  term
("YRT")  treaty where the Company cedes  amounts  above its  retention  limit of
$100,000 with a minimum cession of $25,000.

UG entered a  coinsurance  agreement  with Park  Avenue Life  Insurance  Company
("PALIC") as of September 30, 1996.  Under the terms of the agreement,  UG ceded
to PALIC substantially all of its paid-up life insurance policies.  Paid-up life
insurance generally refers to non-premium paying life insurance policies.  PALIC
and  its  ultimate  parent  The  Guardian  Life  Insurance  Company  of  America
("Guardian"),  currently hold an "A"  (Excellent),  and "A+" (Superior)  rating,
respectively,  from A.M. Best, an industry  rating  company.  The agreement with
PALIC  accounts for  approximately  66% of the  reinsurance  receivables,  as of
December 31, 2001.


On  September  30,  1998,  UG  entered  into a  coinsurance  agreement  with The
Independent Order of Vikings, an Illinois fraternal  organization ("IOV"). Under
the terms of the agreement,  UG agreed to assume on a coinsurance  basis, 25% of
the reserves and liabilities arising from all inforce insurance contracts issued
by the IOV to its members.  At December 31, 2001, the IOV insurance  inforce was
approximately   $1,696,000,   with  reserves   being  held  on  that  amount  of
approximately $403,500.

On June 1, 2000, UG assumed an already  existing  coinsurance  agreement,  dated
January  1,  1992,  between  Lancaster  Life  Reinsurance  Company,  an  Arizona
corporation   ("LLRC")  and  Investors   Heritage  Life  Insurance   Company,  a
corporation  organized under the laws of the  Commonwealth of Kentucky  ("IHL").
Under the terms of the  agreement,  LLRC  agreed to assume  from IHL a 90% quota
share of new issues of credit life and  accident and health  policies  that have
been written on or after January 1, 1992 through  various  branches of the First
Southern National Bank. The maximum amount of credit life insurance that can be
assumed on any one individual's  life is $15,000.  UG assumed all the rights and
obligations  formerly  held by  LLRC as the  reinsurer  in the  agreement.  LLRC
liquidated its charter immediately following the transfer. At December 31, 2001,
IHL has insurance inforce of approximately $4,148,000.

The Company does not have any short-duration  reinsurance contracts.  The effect
of the Company's long-duration reinsurance contracts on premiums earned in 2001,
2000 and 1999 was as follows:

                                   Shown in thousands
                     -----------------------------------------------
                         2001             2000             1999
                       Premiums         Premiums         Premiums
                        Earned           Earned           Earned
                     --------------   -------------    -------------
Direct            $        20,333  $        22,970 $         25,539
Assumed                       111               76               20
Ceded                      (3,172)          (3,556)          (3,978)
                     --------------   -------------    -------------
Net premiums      $        17,272  $        19,490 $         21,581
                     ==============   =============    =============

8.  COMMITMENTS AND CONTINGENCIES

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

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

The  State of  Florida  began an  investigation  of  industrial  life  insurance
policies in the fall of 1999 regarding policies with race-based  premiums.  This
investigation  has  quickly  spread to other  states and to other types of small
face amount  policies  and was expanded to consider the fairness of premiums for
all small policies  including  policies which did not have race-based  premiums.
The NAIC  historically  has defined a "small  face amount  policy" as one with a
face  amount of  $15,000  or less.  Under  current  reviews,  some  states  have
increased  this  amount  to  policies  of  $25,000  or less.  These  states  are
attempting  to force  insurers  to  refund  "excess  premiums"  to  insureds  or
beneficiaries of insureds based on the recent American General  settlement.  The
Company's  insurance  subsidiaries have no race-based  premium products,  but do
have  policies with face amounts under the  above-scrutinized  limitations.  The
outcome of this issue could be dramatic on the insurance  industry as a whole as
well as the Company  itself.  The Company will continue to monitor  developments
regarding  this matter to determine  to what extent,  if any, the Company may be
exposed.

On November 20, 1998, FSF and affiliates acquired 929,904 shares of common stock
of UTG from UTG and certain UTG  shareholders.  As consideration for the shares,
FSF paid UTG  $10,999,995  and  certain  shareholders  of UTG  $999,990 in cash.
Included in the stock acquisition  agreement is an earnings covenant whereby UTG
warrants UTG and its subsidiaries and affiliates will have future earnings of at
least  $30,000,000  for a  five-year  period  beginning  January 1,  1998.  Such
earnings  are  computed  based  on  statutory  results  excluding  inter-company
activities such as  inter-company  dividends plus realized and unrealized  gains
and losses on real estate, mortgage loans and unaffiliated common stocks. At the
end of the covenant period,  an adjustment is to be made equal to the difference
between the then market value and statutory  carrying value of real estate still
owned that existed at the beginning of the covenant period.  Should UTG not meet
the covenant  requirements,  any  shortfall  will first be reduced by the actual
average  tax  rate for UTG for the  period,  then  will be  further  reduced  by
one-half of the percentage,  if any,  representing UTG's ownership percentage of
the  insurance  company  subsidiaries.  This  result  will  then be  reduced  by
$250,000.  The  remaining  amount  will be paid by UTG in the form of UTG common
stock valued at $15.00 per share with a maximum number of shares to be issued of
500,000. However, there shall be no limit to the number of shares transferred to
the extent  that there are legal  fees,  settlements,  damage  payments or other
losses as a result of certain legal action taken. The price and number of shares
shall be adjusted for any  applicable  stock  splits,  stock  dividends or other
recapitalizations.  At December  31,  2001,  the  Company had total  earnings of
$14,505,204  applicable  to  this  covenant.  With  one  year  remaining  on the
covenant,  it appears highly  unlikely UTG will meet the earnings  requirements,
resulting  in UTG  being  required  to  issue  additional  shares  to FSF or its
assigns.  Combining current results with  management's  expectation for 2002, it
appears at this time UTG will be  required to issue  500,000  shares at December
31, 2002 to satisfy this covenant.

David A. Morlan,  individually and on behalf of all others similarly situated v.
Universal  Guaranty  Life Ins.,  United Trust  Assurance  Co.,  United  Security
Assurance  Co.,  United Trust Group,  Inc. and First  Commonwealth  Corporation,
(U.S. Court of Appeals for the Seventh Circuit, Appeal No. 01-3795)

On April 26, 1999,  the above  lawsuit was filed by David Morlan and Louis Black
in the Southern District of Illinois against  Universal  Guaranty Life Insurance
Company ("UG") and United Trust Assurance  Company  ("UTAC")  (merged into UG in
1992).  After the lawsuit was filed,  the plaintiffs,  who were former insurance
salesmen, amended their complaint, dropped Louis Black as a plaintiff, and added
United  Security  Assurance  Company  ("USAC"),  UTG and FCC as defendants.  The
plaintiffs are alleging that they were employees of UG, UTAC or USAC rather than
independent contractors. The plaintiffs are seeking class action status and have
asked to recover various employee  benefits,  costs and attorneys' fees, as well
as monetary damages based on the defendants' alleged failure to withhold certain
taxes.

On September 18, 2001, the case was dismissed  without  prejudice because Morlan
lacked  standing to pursue the claims against  defendants.  The plaintiffs  have
appealed the dismissal of the case to the United States Court of Appeals for the
Seventh Circuit.

In addition to the appeal,  a second action was filed  entitled;  Julie Barrette
Ahrens,  David Dzuiban,  William Milam, David Schneiderman,  individually and on
behalf of all others similarly situated vs Universal Guaranty Life, United Trust
Assurance Company,  United Security  Assurance  Company.  United States District
Court for the Southern District of Illinois. Case No: 01-4314-JPG.

The Company continues to believe that it has meritorious  grounds to defend both
the original and related lawsuit, and it intends to defend the cases vigorously.
The Company  believes  that the defense and ultimate  resolution  of the lawsuit
should  not have a  material  adverse  effect  upon  the  business,  results  of
operations or financial condition of the Company.  Nevertheless,  if the lawsuit
were to be successful,  it is likely that such resolution  would have a material
adverse  effect on the Company's  business,  results of operations and financial
condition.  At December 31, 2001, the Company  maintains a liability of $300,000
to cover estimated legal costs associated with the defense of this matter.

9.  RELATED PARTY TRANSACTIONS

At a December  17, 2001 joint  meeting of the board of directors of UTG, FCC and
their  insurance  subsidiaries,   the  boards  of  directors  of  the  insurance
subsidiaries discussed and decided to further explore and pursue a possible sale
of the insurance  charters of each of APPL and ABE. In the alternative to a sale
of the APPL charter,  the boards also discussed and decided to further explore a
possible  merger of APPL into UG.  Regardless  of whether a merger is ultimately
pursued or the charters of each  subsidiary are sold, UG would likely assume and
reinsure  the  existing  insurance  policies of those  subsidiaries  in any such
transaction.

During the fourth  quarter of 2001,  UG  purchased  real  estate from an outside
third party through the  formation of an LLC in which UG is a two-thirds  owner.
The other one-third partner is Millard V. Oakley,  who is a Director of both UTG
and FCC.  Hampshire Plaza,  LLC consists of a twenty story,  254,000 square foot
office  tower,  an attached  72,000  square foot retail  plaza,  and an attached
parking garage with approximately 350 parking spaces located in Manchester,  New
Hampshire  for  $6,333,336.  At December 31,  2001,  the property was carried at
$6,491,734.

On October 26, 2001,  APPL effected a reverse stock split,  as a result of which
(i) it became a  wholly-owned  subsidiary  of UG, and an  indirect  wholly-owned
subsidiary  of FCC and UTG,  and  (ii) its  minority  shareholders  received  an
aggregate  of  $1,055,294.50  in respect of their  shares.  Prior to the reverse
stock split, UG owned 88% of the outstanding shares of APPL.

On December 31, 1999, UTG and Jesse T. Correll entered a transaction whereby Mr.
Correll,  in combination with other  individuals,  made an equity  investment in
UTG.  Under the terms of the Stock  Acquisition  Agreement,  the  Correll  group
contributed  their 100%  ownership  of North Plaza of  Somerset,  Inc. to UTG in
exchange for 681,818  authorized  but unissued  shares of UTG common stock.  The
Board of Directors of UTG approved the  transaction  at their regular  quarterly
board meeting held on December 7, 1999.  North Plaza of Somerset,  Inc. owns for
investment  purposes,  a shopping  center in Somerset,  Kentucky,  approximately
12,000 acres of timberland  in Kentucky,  and a 50%  partnership  interest in an
additional 11,000 acres of Kentucky timberland. North Plaza has no debt. The net
assets were valued at $7,500,000,  which equates to $11.00 per share for the new
shares of UTG that were issued in the transaction.

Mr.  Correll is Chairman of the Board of  Directors of UTG and  currently  UTG's
largest  shareholder  through his ownership control of FSF, FSBI and affiliates.
Mr. Correll is the majority  shareholder of FSF and FSBI, a bank holding company
that operates out of 14 locations in central Kentucky. At December 31, 2001, Mr.
Correll owns or controls directly and indirectly approximately 60% of UTG.

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

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

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

United  Income,  Inc.  ("UII")  had a service  agreement  with  United  Security
Assurance  Company  ("USA").  The agreement was originally  established upon the
formation  of USA which  was a 100%  owned  subsidiary  of UII.  Changes  in the
affiliate  structure have resulted in USA no longer being a direct subsidiary of
UII, though still a member of the same affiliated  group.  The original  service
agreement  remained in place  without  modification.  USA paid UII monthly  fees
equal to 22% of the amount of collected first year premiums,  20% in second year
and 6% of the renewal  premiums in years three and after.  UII had a subcontract
agreement with UTG to perform services and provide personnel and facilities. The
services  included  in  the  agreement  were  claim  processing,   underwriting,
processing and servicing of policies, accounting services, agency services, data
processing and all other  expenses  necessary to carry on the business of a life
insurance company.  UII's subcontract agreement with UTG states that UII pay UTG
monthly  fees equal to 60% of collected  service fees from USA as stated  above.
The service fees received from UII were recorded in UTG's  financial  statements
as other income.  With the merger of UII into UTG in July 1999, the sub-contract
agreement ended and UTG assumed the direct contract with USA. This agreement was
terminated upon the merger of USA into UG in December 1999.

USA paid $677,807  under their  agreement  with UII for 1999.  UII paid $223,753
under their agreement with UTG for 1999.  Additionally,  UII paid FCC $30,000 in
1999 for  reimbursement  of costs  attributed to UII. These  reimbursements  are
reflected as a credit to general expenses.

UTG  paid  FCC  $550,000,   $750,000  and  $600,000  in  2001,  2000  and  1999,
respectively for reimbursement of costs attributed to UTG.

On January 1, 1993,  FCC  entered an  agreement  with UG  pursuant  to which FCC
provides management services necessary for UG to carry on its business.  UG paid
$6,156,903,   $6,061,515  and  $6,251,340  to  FCC  in  2001,   2000  and  1999,
respectively.

ABE pays fees to FCC pursuant to a cost sharing and  management  fee  agreement.
FCC provides management services for ABE to carry on its business. The agreement
requires ABE to pay a percentage of the actual expenses incurred by FCC based on
certain activity indicators of ABE business to the business of all the insurance
company  subsidiaries  plus a management fee based on a percentage of the actual
expenses  allocated to ABE. ABE paid fees of $332,673,  $371,211 and $392,005 in
2001, 2000 and 1999, respectively under this agreement.

APPL has a  management  fee  agreement  with FCC  whereby FCC  provides  certain
administrative  duties,  primarily data processing and investment  advice.  APPL
paid  fees  of  $444,000,   $444,000  and  $300,000  in  2001,  2000  and  1999,
respectively under this agreement.

Respective domiciliary insurance departments have approved the agreements of the
insurance companies and it is Management's opinion that where applicable,  costs
have been  allocated  fairly  and such  allocations  are based  upon  accounting
principles generally accepted in the United States of America.

Since the Company's affiliation with FSF, UG has acquired mortgage loans through
participation  agreements  with FSNB.  FSNB  services the loans covered by these
participation  agreements.  UG pays a .25%  servicing  fee on these  loans and a
one-time fee at loan  origination  of .50% of the original  loan amount to cover
costs incurred by FSNB relating to the processing and establishment of the loan.
UG paid $79,730,  $34,721 and $11,578 in servicing fees and $22,626, $91,392 and
$0 in origination fees to FSNB during 2001, 2000 and 1999, respectively.


The  Company  reimbursed  expenses  incurred by Mr.  Correll  and Mr.  Attkisson
relating  to travel and other  costs  incurred  on behalf of or  relating to the
Company.  The Company  paid  $145,407,  $96,599  and  $39,336 in 2001,  2000 and
1999,respectively  to First  Southern  Bancorp,  Inc. in  reimbursement  of such
costs.  In addition,  beginning in 2001,  the Company began  reimbursing  FSBI a
portion of salaries for Mr. Correll and Mr.  Attkisson.  The  reimbursement  was
approved  by the UTG board of  directors  and  totaled  $128,411  in 2001  which
included salaries and other benefits.


10.  NOTES PAYABLE

At December 31, 2001 and 2000, the Company has  $11,536,698  and  $12,839,193 in
long term debt outstanding, respectively. The debt is comprised of the following
components:

                                                   2001            2000
                                               -------------   -------------
Affiliated subordinated 20 yr. Notes         $    2,128,599 $     3,431,094
Other affiliated notes payable                    9,408,099       9,408,099
                                               -------------   -------------
                                             $   11,536,698 $    12,839,193
                                               =============   =============
A.  Affiliated subordinated debt

The affiliated  subordinated  debt is owed to UTG and was incurred June 16, 1992
as a part  of the  acquisition  of the  now  dissolved  Commonwealth  Industries
Corporation, (CIC). On October 22, 2001, FCC made a $1,302,495 principal payment
on this debt which bears an  interest  rate of 8 1/2% per annum,  with  interest
payable  semiannually.  A lump sum principal payment on the balance of the notes
remains due June 16, 2012.

B.  Other affiliated notes payable

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

In November 1997, FCC borrowed  $1,000,000 to facilitate the prepayment of a May
1998 principal  payment due on existing  senior debt. The note bears interest at
the rate of 1% over the prime rate of interest as  published  in the Wall Street
Journal, with interest payments due quarterly and principal due upon maturity of
the note on  November 8, 2006.  During  fiscal  year 2000,  the Company  retired
$500,000 of principal on this note. No principal payments were made on this note
during fiscal year 2001.

In November  1998,  FCC borrowed  $2,608,099  to  facilitate  the  prepayment of
principal on its subordinated  10-year debt. The note bears interest at the rate
of 7.50%,  with interest  payments due quarterly and principal due upon maturity
of the note on December  31,  2005.  In addition,  FCC  borrowed  $6,300,000  to
facilitate  the prepayment of principal on the existing  senior debt.  This note
bears interest at the rate of 9/16% over the prime rate of interest as published
in the Wall Street Journal,  with interest  payments due quarterly and principal
due upon maturity of the note on December 31, 2006.  During fiscal year 2001, no
principal payments were made on these two notes.

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

                                               Year                        Amount
                                      -----------------------       ---------------------
                                      2002                       $                     0
                                      2003                                             0
                                      2004                                             0
                                      2005                                     2,608,099
                                      2006                                     6,800,000


11.  OTHER CASH FLOW DISCLOSURE

On a cash  basis,  the Company  paid  $944,392,  $1,264,784  and  $1,353,653  in
interest  expense for the years 2001, 2000 and 1999,  respectively.  The Company
paid $1,370,  $(200,000)  and $516,200 in federal income tax for the years 2001,
2000 and 1999, respectively.


12.  CONCENTRATION OF CREDIT RISK

The Company maintains cash balances in financial  institutions that at times may
exceed federally  insured limits.  The Company  maintains its primary  operating
cash accounts  with First  Southern  National  Bank, an affiliate of the largest
shareholder  of UTG. In  aggregate  at December  31,  2001 these  accounts  hold
approximately  $4,550,000  for which there are no pledges or guarantees  outside
FDIC  insurance  limits.  The  Company  has not  experienced  any losses in such
accounts and believes it is not exposed to any  significant  credit risk on cash
and cash equivalents.

13.  NEW ACCOUNTING STANDARDS

The Financial  Accounting Standards Board ("FASB") has issued Statement No. 141,
Business Combinations,  Statement No. 142, Goodwill and Other Intangible Assets,
Statement No. 143,  Accounting for Asset Retirement  Obligations,  and Statement
No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets.

Statement 141 improves the transparency of accounting and reporting for business
combinations by requiring that all business  combinations be accounted for under
a single method - the purchase method. Use of the pooling-of-interests method is
no longer permitted. Statement 141 requires that the purchase method be used for
business  combinations  initiated after June 30, 2001. The adoption of Statement
141 did not affect the Company's  financial  position or results of  operations,
since the Company has had no such  business  combinations  during the  reporting
period.

Statement  142 requires  that  goodwill no longer be amortized to earnings,  but
instead be reviewed for impairment.  This change provides investors with greater
transparency  regarding  the  economic  value  of  goodwill  and its  impact  on
earnings.  The amortization of goodwill ceased for the Company upon the adoption
of the  statement at January 1, 2002.  The adoption of Statement 142 will result
in an expense  reduction  of  approximately  $403,664  per year,  subject to any
impairment write-down that might arise from a management review.

Statement  143 requires  entities to record the fair value of a liability for an
asset  retirement  obligation  in the period in which it is  incurred.  When the
liability is initially recorded, the entity capitalizes a cost by increasing the
carrying  amount of the related  long-lived  asset.  Over time, the liability is
accreted  to its  present  value  each  period,  and  the  capitalized  cost  is
depreciated  over the useful life of the related asset.  Upon  settlement of the
liability,  an entity either settles the  obligation for its recorded  amount or
incurs a gain or loss upon  settlement.  The  standard is  effective  for fiscal
years  beginning  after June 15, 2002.  The  adoption of Statement  143 will not
affect the  Company's  financial  position or results of  operations,  since the
Company has no such asset retirement obligations.

Statement 144 requires that one accounting  model be used for long-lived  assets
to be disposed of by sale,  whether  previously held and used or newly acquired,
and  broadens  the  presentation  of  discontinued  operations  to include  more
disposal  transactions.   In  addition,  this  statement  requires  entities  to
recognize an impairment loss if the carrying amount of a long-lived asset is not
recoverable from its undiscounted  cash flows, and to measure an impairment loss
as the difference  between the carrying amount and fair value of the asset. This
statement  removes any previous  requirements to allocate goodwill to long-lived
assets   to  be  tested   for   impairment,   and  it   further   prescribes   a
probability-weighted  cash flow  estimation  approach to deal with situations in
which  alternative  courses  of  action  to  recover  the  carrying  amount of a
long-lived asset are under  consideration.  The provisions of this Statement are
effective  for  financial  statements  issued for fiscal years  beginning  after
December 15, 2001.  The adoption of Statement  144 will not affect the Company's
financial  position  or results of  operations,  since the  Company  has no such
disposals or impairments to long-lived assets.

14. PROPOSED MERGER

On June 5,  2001,  UTG and FCC  jointly  announced  their  respective  Boards of
Directors  approved  a  definitive  agreement  whereby  UTG  would  acquire  the
remaining common shares (approximately 18%) of FCC, which UTG does not currently
own.  Under the terms of the  agreement,  FCC will be merged  with and into UTG,
with UTG continuing as the surviving entity in the merger.

Pursuant  to the merger  agreement,  UTG will pay $250 in cash for each share of
FCC common stock not held by United Trust Group.  The  transaction is subject to
various  conditions  precedent set forth in the merger agreement,  including the
approval of the transaction by the  shareholders of FCC. FCC plans to submit the
transaction to the vote of the FCC  shareholders to be held at a special meeting
to be called for that purpose.  Shareholders  of FCC are urged to read the Proxy
Statement when it becomes available.

15.  REVERSE STOCK SPLIT OF APPALACHIAN LIFE INSURANCE COMPANY

On June 5, 2001, the board of directors of APPL, a West Virginia corporation and
then 88% owned indirect subsidiary of FCC, approved,  subject to shareholder and
any required regulatory approvals,  a reverse split of the common stock of APPL.
Under the terms of the reverse  stock split,  any  shareholder  of APPL who owns
less than 118,700  shares prior to the effective time of the reverse split would
receive a cash payment based upon $6.50 per share  (pre-reverse  stock split) of
APPL,  and APPL would  become a wholly  owned  subsidiary  of UG, a wholly owned
subsidiary of FCC.

The reverse  stock split was  effected on October 26, 2001.  At that time,  APPL
became a wholly owned subsidiary of UG, a wholly owned subsidiary of FCC.


16.       COMPREHENSIVE INCOME

                                                                                          Tax
                                                                  Before-Tax           (Expense)          Net of Tax
              2001                                                  Amount            or Benefit            Amount
              ----------------------------------------------   -----------------   ------------------   ----------------

              Unrealized holding gains during
                  Period                                    $        1,419,407  $          (496,792) $          922,615
              Less: reclassification adjustment
                  For gains realized in net income                    (340,341)                                (221,222)
                                                                                            119,119
                                                               -----------------   ------------------   ----------------
              Net unrealized gains                                   1,079,066             (377,673)            701,393
                                                               -----------------   ------------------   ----------------
              Other comprehensive income                    $        1,079,066 $           (377,673) $          701,393
                                                               =================   ==================   ================


                                                                                          Tax
                                                                  Before-Tax           (Expense)          Net of Tax
              2000                                                  Amount            or Benefit            Amount
              ----------------------------------------------   -----------------   ------------------   ----------------

              Unrealized holding gains during
                  Period                                    $        1,866,783  $                 0 $         1,866,783
              Less: reclassification adjustment
                  for gains realized in net income                     (39,486)                   0             (39,486)
                                                               -----------------   ------------------   ----------------
              Net unrealized gains                                   1,827,297                    0           1,827,297
                                                               -----------------   ------------------   ----------------
              Other comprehensive income                    $        1,827,297  $                 0  $        1,827,297
                                                               =================   ==================   ================



                                                                                          Tax
                                                                  Before-Tax           (Expense)          Net of Tax
              1999                                                  Amount            or Benefit            Amount
              ----------------------------------------------   -----------------   ------------------   ----------------

              Unrealized holding losses during
                  Period                                    $       (1,283,991) $                 0  $       (1,283,991)

              Less: reclassification adjustment
                  for losses realized in net income                          0                    0                   0
                                                               -----------------   ------------------   ----------------
              Net unrealized losses                                 (1,283,991)                   0          (1,283,991)
                                                               -----------------   ------------------   ----------------
              Other comprehensive deficit                   $       (1,283,991) $                 0  $       (1,283,991)
                                                               =================   ==================   ================


In 1999 and 2000 the  Company's  deferred  tax asset was  carried at zero net of
allowances.  In 2001,  the  Company  established  a deferred  tax  liability  of
$385,432 for the unrealized gain based on the applicable United States statutory
rate of 35%.


16.  SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
                                                                                  2001
                                        --------------------- ---------------------- --------------------- ----------------------
                                                1st                    2nd                   3rd                    4th
                                            -----------------      -----------------      ----------------       ----------------
Premium and policy fees, net             $       4,554,451              4,768,808              4,137,361              3,811,796
Net investment income                            3,966,217              3,886,349              3,557,158              3,533,178
Total revenues                                   8,318,267              8,914,604              7,920,861              8,448,724
Policy benefits including dividends              4,979,508              5,265,348              4,651,241              4,871,537
Commissions and
  amortization of DAC and COI                      958,938                726,159                580,251                807,910
Operating expenses                               1,342,077              1,587,138              1,499,503              2,054,439
Operating  income (loss)                           759,150              1,078,061                641,733                811,577
Net income (loss)                                  283,406                934,585                280,695                686,921
Basic earnings (loss) per share                       5.21                  17.18                   5.16                  12.63
                                                                                  2000
                                        --------------------- ---------------------- --------------------- ----------------------
                                                1st                    2nd                   3rd                    4th
                                            -----------------      -----------------      ----------------       ----------------
Premium and policy fees, net             $       5,337,148              5,201,585              4,470,307              4,480,646
Net investment income                            4,224,386              3,939,681              3,867,571              3,837,959
Total revenues                                   9,818,600              9,186,532              8,349,765              7,877,151
Policy benefits including dividends              6,201,943              5,580,580              5,206,574              5,647,551
Commissions and
  amortization of DAC and COI                    1,239,870                876,936                649,180              1,253,634
Operating expenses                               2,685,721              1,614,768              2,026,587              2,977,579
Operating  income (loss)                          (638,936)               797,831                167,537             (2,299,126)
Net income (loss)                                 (371,009)               561,121                (16,814)            (2,020,138)
Basic earnings (loss) per share                      (6.80)                 10.29                  (0.31)                (37.08)

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

ITEM 9.  DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

              None

                                    PART III


ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

THE BOARD OF DIRECTORS

In accordance with the laws of Virginia and the Certificate of Incorporation and
Bylaws of FCC, as amended,  FCC is managed by its executive  officers  under the
direction  of the Board of  Directors.  The  Board  elects  executive  officers,
evaluates their  performance,  works with  management in  establishing  business
objectives  and  considers  other  fundamental  corporate  matters,  such as the
issuance of stock or other  securities,  the  purchase or sale of a business and
other  significant  corporate  business  transactions.  In the fiscal year ended
December 31, 2001, the Board met five times. All directors attended at least 75%
of all meetings of the board, except Millard Oakley.

The Board of  Directors  has an Audit  Committee  consisting  of Messrs.  Albin,
Collins,  O'Keefe,  and  Teater.  The Audit  Committee  performs  such duties as
outlined in the Company's Audit Committee  Charter.  The Audit Committee reviews
and acts or reports to the Board with respect to various auditing and accounting
matters, the scope of the audit procedures and the results thereof, the internal
accounting and control systems of FCC, the nature of services  performed for FCC
and the fees to be paid to the  independent  auditors,  the performance of FCC's
independent and internal auditors and the accounting practices of FCC. The Audit
Committee  also  recommends  to the full Board of  Directors  the auditors to be
appointed by the Board. The Audit Committee met twice in 2001.

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

Under  FCC's  Certificate  of  Incorporation,  the  Board  of  Directors  may be
comprised of between five and  twenty-one  directors.  At December 31, 2001, The
Board consisted of eleven directors. Shareholders elect Directors to serve for a
period of one year at FCC's Annual Shareholders' meeting.

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

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

AUDIT COMMITTEE REPORT TO SHAREHOLDERS

In  connection  with the  December  31,  2001  financial  statements,  the audit
committee:  (1) reviewed and discussed  the audited  financial  statements  with
management; (2) discussed with the auditors the matters required by Statement on
Auditing  Standards No. 61; and (3) received and discussed with the auditors the
matters  required by Independence  Standards  Board  Statement No.1.  Based upon
these reviews and discussions,  the audit committee  recommended to the Board of
Directors that the audited financial statements be included in the Annual Report
on Form 10-K filed with the SEC.

                  John S. Albin  -  Committee Chairman
                  John W. Collins
                  Robert V. O'Keefe
                  Robert W. Teater



DIRECTORS

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

John S. Albin  73          Director of FCC since 1992 and UTG since 1984; farmer in Douglas and Edgar counties,  Illinois,  since 1951; Chairman
                           of the Board of Longview  State Bank since 1978;  President  of the  Longview  Capitol  Corporation,  a bank
                           holding company,  since 1978;  Chairman of First National Bank of Ogden,  Illinois,  since 1987; Chairman of
                           the State Bank of Chrisman since 1988;  Director and Secretary of Illini Community  Development  Corporation
                           since 1990; Commissioner of Illinois Student Assistance Commission since 1996.

Randall L. Attkisson 56    Director of FCC and UTG since 1999;  President and Chief Operating  Officer of FCC and UTG since 2001; Chief
                           Financial Officer,  Treasurer,  Director of First Southern Bancorp, Inc. since 1986; Treasurer,  Director of
                           First  Southern  Funding,  LLC (formerly  First  Southern  Funding  Inc.) since 1992;  Director of The River
                           Foundation,  Inc. since 1990; President of Randall L. Attkisson & Associates from 1982 to 1986; Commissioner
                           of Kentucky  Department  of Banking & Securities  from 1980 to 1982;  Self-employed  Banking  Consultant  in
                           Miami, FL from 1978 to 1980.

John W. Collins  75        Director of FCC and certain affiliate companies since 1982; Director of UTG since 2000;  Consultant and past
                           President of Collins-Winston Group, an executive search firm, since 1976.

Jesse T. Correll  45       Chairman  and CEO of FCC and UTG since  2000;  Director  of FCC and UTG  since  1999;  Chairman,  President,
                           Director of First  Southern  Bancorp,  Inc.  since 1983;  President,  Director or Manager of First  Southern
                           Funding since 1992;  President,  Director of The River Foundation since 1990;  President,  Director and sole
                           member  manager of Dyscim LLC  (formerly  Dyscim  Holdings  Company,  Inc.) since  1990;  Director of Thomas
                           Nelson,  Inc. since 2001;  Director of Computer  Services,  Inc. since 2001;  Director of Global Focus since
                           2001; Young Life Dominican Republic Committee Member since 2000. Jesse Correll is the son of Ward Correll.

Ward F. Correll   73       Director of FCC since 1999 and UTG since 2000; President,  Director of Tradeway,  Inc. of Somerset, KY since
                           1973; President,  Director of Cumberland Lake Shell, Inc. of Somerset, KY since 1971; President, Director of
                           Tradewind Shopping Center,  Inc. of Somerset,  KY since 1966; Director of First Southern Bancorp since 1988;
                           Director or Manager of First Southern Funding since 1991;  Director of The River Foundation of Stanford,  KY
                           since 1990; and Director First Southern  Insurance  Agency of Stanford,  KY since 1987.  Ward Correll is the
                           father of Jesse Correll.

Thomas F. Darden  47       Director of FCC and UTG since 2001;  Managing  Partner of Cherokee  Investment  Partners  LLC, a real estate
                           investment  firm, and President and CEO of Cherokee  Sanford  Group,  Inc. an affiliated  predecessor  since
                           1983; Director of BTI Telecom,  Inc. since 1998; Director of Waste Industries,  Inc. since 1997; Director of
                           Winston Hotels,  Inc. since 1994; Trustee of Shaw University since 1993; Member of the Board of Governors of
                           Research,  Triangle  Institute since 1998; Former Chairman of the Triangle Transit  Authority,  serving from
                           1993 to 1998 and Chairman from 1996 to 1997;  Prior to 1996,  twice appointed to the North Carolina Board of
                           Transportation.
 .
Luther C. Miller  71       Director of FCC since 1984 and UTG since 2000;  Executive  Vice  President  and  Secretary  of FCC from 1984
                           until 1992; officer and director of certain affiliate companies until 1992.

Millard V. Oakley  71      Director of FCC and UTG since 1999;  Presently  serves on Board of  Directors  and  Executive  Committee  of
                           Thomas Nelson,  a publicly held publishing  company based in Nashville,  TN; Director of First National Bank
                           of the Cumberlands, Livingston-Cooksville,  TN; Lawyer with limited law practice since 1980; State Insurance
                           Commissioner  for  State  of  Tennessee  from  1975  to  1979;  General  Counsel,  United  States  House  of
                           Representatives,  Washington,  D.C., Congressional Committee on Small Business from 1971-1973; four elective
                           terms as County Attorney for Overton County,  TN; delegate to National  Democratic  Convention in 1964; four
                           elective terms in the Tennessee  General Assembly from 1956 to 1964;  Lawyer in Livingston,  TN from 1953 to
                           1971; Elected to the Tennessee Constitutional Convention in 1952.

Robert V. O'Keefe 80       Director of FCC since 1993 and UTG since 2000;  Director and Treasurer of UTG from 1988 to 1992; Director of
                           Cilcorp,  Inc.  from 1982 to 1994;  Director  of  Cilcorp  Ventures,  Inc.  from 1985 to 1994;  Director  of
                           Environmental Science and Engineering Co. from 1990 to 1994.

William W. Perry  45       Director of FCC and UTG since 2001;  Owner of SES  Investments,  Ltd.,  an oil and gas  investments  company
                           since 1991;  President of EGL  Resources,  Inc.,  an oil and gas  operations  company based in Texas and New
                           Mexico since 1992;  President of Midland Yucca Realty,  a Texas real estate  investment  company since 1993;
                           Chairman of Perry & Perry,  Inc., a Texas oil and gas consulting  company since 1977; Member of the Board of
                           Managers of Tall City Equity Fund since 2001;  President of Champion Title Group, a Florida based consulting
                           business  since  1999;  involved  with,  Young  Life,  youth  organization  as a  leader,  Chairman  of  the
                           international Committee and National Board since 1977.

Robert W. Teater  75       Director of FCC since 1992 and UTG since 1987;  member of Columbus School Board 1991-2001;  Former Director,
                           Ohio  Department of Natural  Resources;  Founder,  Teater-Gebhardt  and  Associates,  Inc., a  comprehensive
                           consulting  firm in natural  resources  development;  Combat  veteran and retired Major  General,  Ohio Army
                           National Guard.

EXECUTIVE OFFICERS OF THE COMPANY

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

Jesse T. Correll           Chairman of the Board and Chief Executive Officer
Randall L. Attkisson       President and Chief Operating Officer

Other officers of FCC are set forth below:

Name, Age                  Position with FCC and, Business Experience

James P. Rousey 43         Executive Vice President and Chief  Administrative  Officer since September 2001;  Regional CEO and Director
                           of First Southern  National Bank from 1988 to 2001.  Board Member with the Illinois  Fellowship of Christian
                           Athletes since 2001.

Theodore C. Miller 39      Corporate  Secretary since December 2000, Senior Vice President and Chief Financial Officer since July 1997;
                           Vice  President  and  Treasurer  since October 1992;  Vice  President  and  Controller of certain  Affiliate
                           Companies from 1984 to 1992.

Brad M. Wilson  50         Senior Vice President and Chief Information Officer since 1992; Chief  Administrative  Officer from December
                           2000 to September 2001.

ITEM 11.  EXECUTIVE COMPENSATION

Executive Compensation Table

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

                                                      SUMMARY COMPENSATION TABLE


Name and                                   Annual Compensation         Other Annual (1)        All Other (1)
Principal Position             Year      Salary ($)      Bonus ($)     Compensation ($)       Compensation ($)                                                                                                      ($)

Jesse T. Correll (2)           2001          56,250              -              -                  -
Chairman of the Board          2000               -              -              -                  -
Chief Executive Officer        1999               -              -              -                  -

Brad M. Wilson                 2001         160,000          3,000              -                3,150
Senior Vice President          2000         157,500          3,227              -                3,150
Chief Information Officer      1999         147,700          3,000            3,665              3,150

Theodore C. Miller             2001         100,000          5,000              -                3,000
Corporate Secretary            2000          91,749              -              -                2,752
Senior Vice President          1999          86,783              -            3,179              2,603
Chief Financial Officer


(1)  Other  annual   compensation   consists  of  interest  earned  on  deferred
     compensation   amounts  and  UTG's  matching   contribution  to  the  First
     Commonwealth Corporation Employee Savings Trust 401(k) Plan.

(2)  On March 27, 2000, Mr. Jesse T. Correll assumed the position as Chairman of
     the Board and Chief  Executive  Officer of UTG and each of its  affiliates.
     Mr. Correll did not receive a salary,  bonus or other  compensation for his
     duties with UTG and each of its affiliates in the year 2000. In March 2001,
     the  Board of  Directors  approved  an annual  salary  for Mr.  Correll  of
     $75,000, with payments to begin on April 1, 2001.


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

At December  31, 2001 there were no shares of the common stock of FCC subject to
unexercised options held by the named executive officers.  There were no options
or stock  appreciation  rights granted to the named  executive  officers for the
past three fiscal years.

Compensation of Directors

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

Employment Contracts

FCC  entered  into an  employment  agreement  dated July 31,  1997 with Larry E.
Ryherd.  Formerly,  Mr.  Ryherd  had served as  Chairman  of the Board and Chief
Executive Officer of UTG and its affiliates,  until his resignation on March 27,
2000.  Pursuant to the agreement,  Mr. Ryherd agreed to serve as Chairman of the
Board and Chief  Executive  Officer  of UTG and in  addition,  to serve in other
positions of the  affiliated  companies if appointed or elected.  The  agreement
provides  for an  annual  salary  of  $400,000  as  determined  by the  Board of
Directors.  The term of the agreement is for a period of five years.  Mr. Ryherd
has  deferred  portions of his income under a plan  entitling  him to a deferred
compensation  payment which was paid to him on January 2, 2000, in the amount of
$240,000,  which included  interest at the rate of approximately  8.5% annually.
Additionally,  Mr.  Ryherd was granted an option to purchase up to 13,800 of the
Common Stock of UTG at $17.50 per share. The option was immediately  exercisable
and  transferable.  At December 31, 2000,  all previously  granted  options have
expired.  In accordance with the employment  agreement,  Mr. Ryherd continues to
receive his annual  Salary of $400,000  until the agreement  expiration  date of
July 31, 2002. The entire $933,333  payable to Mr. Ryherd,  from the date of his
resignation  until the end of his  employment  agreement  was accrued,  and thus
expensed, by FCC in the first quarter of 2000.

FCC  entered  into an  employment  agreement  dated July 31,  1997 with James E.
Melville  pursuant to which Mr.  Melville is  employed  as  President  and Chief
Operating Officer and in addition, to serve in other positions of the affiliated
companies if appointed or elected at an annual  salary of $238,200.  The term of
the agreement  expires July 31, 2002. Mr. Melville has deferred  portions of his
income under a plan entitling him to a deferred  compensation  payment which was
paid to him on January 2, 2000 of $400,000 which  includes  interest at the rate
of approximately 8.5% annually. Additionally, Mr. Melville was granted an option
to purchase up to 30,000  shares of the Common Stock of UTG at $17.50 per share.
The option is immediately  exercisable and  transferable.  At December 31, 2000,
all previously  granted options have expired.  Mr. Melville continues to receive
his annual Salary of $238,200  until the agreement  expiration  date of July 31,
2002.  An  accrual  of  $562,000  was  established  through a charge to  general
expenses at year-end 2000 for the remaining  payments  required  pursuant to the
terms of Mr. Melville's employment contract and other settlement costs.

There are no other employment  agreements in effect with any executive  officers
or employees of the Company.


REPORT ON EXECUTIVE COMPENSATION

Introduction

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

Executive Compensation Plan Elements

Base  Salary.  The  Board of  Directors  establishes  base  salaries  at a level
intended to be within the competitive market range of comparable  companies.  In
addition  to the  competitive  market  range,  many  factors are  considered  in
determining  base  salaries,  including  the  responsibilities  assumed  by  the
executive, the scope of the executive's position, experience, length of service,
individual performance and internal equity considerations. In addition to a base
salary,  increased  compensation of current and future executive officers of the
Company  will  be  determined  using a  "performance  based"  philosophy.  FCC's
financial  results are analyzed and future  increases  to  compensation  will be
proportionately based on the profitability of the Company.

Stock  Options.  Stock  options  are granted at the  discretion  of the Board of
Directors.  There were no options granted to the named executive officers during
the last three fiscal years.

Deferred Compensation. There are currently no deferred compensation arrangements
with any executive officers or employees of the Company.

Chief Executive Officer

On March 27, 2000, Mr. Jesse T. Correll  assumed the position of Chairman of the
Board and Chief Executive  Officer of UTG and each of its affiliates.  Under Mr.
Correll's  leadership,  he declined to receive a salary, bonus or other forms of
compensation  for his  duties  with UTG and each of its  affiliates  in the year
2000.  In March 2001,  the Board of Directors  approved an annual salary for Mr.
Correll of $75,000,  with payments to begin on April 1, 2001. As a reflection of
Mr.  Correll's  leadership,  the  compensation  of current and future  executive
officers of the Company will be  determined  by the Board of  Directors  using a
"performance  based"  philosophy.  The Board of Directors  will  consider  UTG's
financial results and future salary decisions will be  proportionately  based on
the profitability of the Company.

Conclusion

The Board of Directors  believes  this  Executive  Compensation  Plan provides a
competitive and motivational  compensation package to the executive officer team
necessary to produce the results FCC strives to achieve.  The Board of Directors
also believes the Executive  Compensation  Plan  addresses both the interests of
the shareholders and the executive team.

                   BOARD OF DIRECTORS

John S. Albin                          Luther C. Miller
Randall L. Attkisson                   Millard V. Oakley
John W. Collins                        Robert V. O'Keefe
Jesse T. Correll                       William W. Perry
Ward F. Correll                        Robert W. Teater
Thomas F. Darden



PERFORMANCE GRAPH

The following graph compares the cumulative  total  shareholder  return on FCC's
Common  Stock  during the five  fiscal  years ended  December  31, 2001 with the
cumulative total return on the NASDAQ Composite Index Performance and the NASDAQ
Insurance  Stock Index (1). The graph assumes that $100 was invested on December
31, 1996 in each of the Company's  common stock, the NASDAQ Composite Index, and
the NASDAQ Insurance Stock Index, and that any dividends were reinvested.

Performance Graph


(1)  FCC selected  the NASDAQ  Composite  Index  Performance  as an  appropriate
     comparison  because  FCC's  Common  Stock is not listed on any exchange but
     FCC's Common Stock is traded in the over-the-counter  market.  Furthermore,
     FCC  selected  the NASDAQ  Insurance  Stock Index as the second  comparison
     because there is no similar single "peer company" in the NASDAQ system with
     which  to   compare   stock   performance   and  the   closest   additional
     line-of-business  index which could be found was the NASDAQ Insurance Stock
     Index.  Trading activity in FCC's Common Stock is limited,  which may be in
     part a result of FCC's low profile from not being  listed on any  exchange,
     and its  reported  operating  losses.  The Return  Chart is not intended to
     forecast or be indicative of possible future performance of FCC's stock.

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


Compensation Committee Interlocks and Insider Participation

The following  persons  served as directors of the Company  during 2001 and were
officers or employees of the Company or its  subsidiaries  during 2001: Jesse T.
Correll  and  Randall  L.  Attkisson.   Accordingly,   these   individuals  have
participated in decisions  related to compensation of executive  officers of the
Company and its subsidiaries.

During 2001,  Jesse T. Correll and Randall L. Attkisson.  executive  officers of
the Company, were also members of the Board of Directors of UTG.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

PRINCIPAL HOLDERS OF SECURITIES

The following  tabulation sets forth the name and address of the entity known to
be the  beneficial  owners of more than 5% of FCC's Common Stock and shows:  (i)
the total number of shares of Common Stock  beneficially owned by such person as
of March 1, 2002 and the nature of such  ownership;  and (ii) the percent of the
issued and outstanding shares of Common Stock so owned as of the same date.


           Title                                                      Number of Shares                 Percent
            of                  Name and Address                        and Nature of                    of
           Class               of Beneficial Owner                  Beneficial Ownership              Class (1)

         Common             United Trust Group, Inc.                       44,465                       81.8%
         Stock $1.00        5250 South Sixth Street
         par value          Springfield, Illinois  62703

(1)  The  percentage of  outstanding  shares is based on 54,385 shares of common
     stock outstanding.


SECURITY OWNERSHIP OF MANAGEMENT

The  following  tabulation  shows  with  respect  to each of the  directors  and
nominees of FCC, with respect to FCC's chief executive officer and each of FCC's
executive  officers whose salary plus bonus  exceeded  $100,000 for fiscal 2001,
and with respect to all executive  officers and directors of FCC as a group: (i)
the total  number of shares of all classes of stock of FCC or any of its parents
or subsidiaries,  beneficially  owned as of March 1, 2002 and the nature of such
ownership;  and (ii) ) the percent of the issued and outstanding shares of stock
so owned, and granted stock options available as of the same date.


   Title               Directors, Named Executive              Number of Shares                   Percent
    of                 Officers, & All Directors &               and Nature of                      of
  Class               Executive Officers as a Group                Ownership                     Class (1)

UTG's                 John S. Albin                                  10,503  (4)                     *
Common                Randall L. Attkisson                                0  (2)                     *
Stock, no             John W. Collins                                     0                          *
par value             Jesse T. Correll                            2,002,823  (3)                   56.9%
                      Ward F. Correll                                98,523  (5)                   2.8%
                      Thomas F. Darden                                    0                          *
                      Luther C. Miller                                    0                          *
                      Theodore C. Miller                                  0                          *
                      Millard V. Oakley                              16,471                          *
                      Robert V. O'Keefe                                 300  (6)                     *
                      William W. Perry                                    0                          *
                      James P. Rousey                                     0                          *
                      Robert W. Teater                                7,380  (7)                     *
                      Brad M. Wilson                                      0                          *
                      All directors and executive officers
                      as a group (fourteen in number)             2,136,000                        60.7%


FCC's                 John S. Albin                                       0                          *
Common                Randall L. Attkisson                                0     (2)                  *
Stock, $1.00          John W. Collins                                     0                          *
par value             Jesse T. Correll                                1,217     (3)                2.2%
                      Ward F. Correll                                     0                          *
                      Thomas F. Darden                                    0                          *
                      Luther C. Miller                                    0                          *
                      Theodore C. Miller                                 15                          *
                      Millard V. Oakley                                   0                          *
                      Robert V. O'Keefe                                   0                          *
                      William W. Perry                                    0                          *
                      James P. Rousey                                     0                          *
                      Robert W. Teater                                    0                          *
                      Brad M. Wilson                                      2                          *
                      All directors and executive officers            1,234                        2.3%
                      as a group (fourteen in number)


(1)  The percentage of outstanding  shares for UTG is based on 3,519,065  shares
     of Common Stock  outstanding.  The percentage of outstanding shares for FCC
     is based on 54,385 shares of Common Stock outstanding.

(2)  Randall L.  Attkisson is an associate and business  partner of Mr. Jesse T.
     Correll and holds minority ownership  positions in certain of the companies
     listed as owning UTG and FCC Common Stock including First Southern  Funding
     LLC and First Southern Bancorp, Inc. Ownership of these shares is reflected
     in the ownership of Jesse T. Correll.

(3)  The share ownership of Mr. Correll  includes 112,704 shares of United Trust
     Group common stock owned by him  individually  and 150,545 shares of United
     Trust Group common stock held by Dyscim,  LLC. Mr.  Correll owns all of the
     outstanding  membership  interests of Dyscim,  LLC, and  therefore has sole
     voting  and  dispositive  power  over  the  shares  held by it.  The  share
     ownership of Mr. Correll also includes  72,750 shares of United Trust Group
     common stock held by WCorrell,  Limited Partnership,  a limited partnership
     in which Mr. Correll serves as managing  general  partner and, as such, has
     sole voting and dispositive  power over the shares held by it. In addition,
     by virtue of his ownership of voting  securities of First Southern Funding,
     LLC and First Southern Bancorp,  Inc., and in turn, their ownership of 100%
     of the outstanding  membership  interests of First Southern  Holdings,  LLC
     (the holder of 1,483,791  shares of United Trust Group common  stock),  Mr.
     Correll  may be deemed to  beneficially  own the total  number of shares of
     United Trust Group common stock owned by First Southern  Holdings,  and may
     be deemed to share with First  Southern  Holdings  the right to vote and to
     dispose  of  such  shares.  Mr.  Correll  owns  approximately  82%  of  the
     outstanding  membership  interests  of  First  Southern  Funding;  he  owns
     directly  approximately  38%,  companies he controls own approximately 23%,
     and he has the  power  to vote but  does  not own an  additional  3% of the
     outstanding voting stock of First Southern Bancorp.  First Southern Bancorp
     and First  Southern  Funding in turn own 99% and 1%,  respectively,  of the
     outstanding membership interests of First Southern Holdings. Mr. Correll is
     also a manager of First Southern  Capital Corp.,  LLC, and thereby may also
     be deemed to  beneficially  own the  183,033  shares of United  Trust Group
     common  stock held by First  Southern  Capital,  and may be deemed to share
     with it the right to vote and to dispose of such shares. Share ownership of
     Mr.  Correll in United  Trust Group  common  stock does not include  18,575
     shares  of  United  Trust  Group  common  stock  held  by  First   Southern
     Investments, LLC, of which Dyscim, LLC is a member.

     First Southern Bancorp owns 1,217 shares of FCC's common stock.

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

(5)  Cumberland Lake Shell,  Inc. owns 98,523 shares of UTG Common Stock, all of
     the outstanding voting shares of which are owned by Ward F. Correll and his
     wife.  As a result  Ward F.  Correll  may be deemed to share the voting and
     dispositive power over these shares. Ward F. Correll is the father of Jesse
     T.  Correll.  There are 72,750 shares of UTG Common Stock owned by WCorrell
     Limited  Partnership in which Jesse T. Correll  serves as managing  general
     partner and, as such, has sole voting and dispositive power over the shares
     of Common Stock held by it. The aforementioned  72,750 shares are deemed to
     be beneficially owned by and listed under Jesse T. Correll in this section.

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

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

* Less than 1%.

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




ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

RELATED PARTY TRANSACTIONS

At a December  17, 2001 joint  meeting of the board of directors of UTG, FCC and
their  insurance  subsidiaries,   the  boards  of  directors  of  the  insurance
subsidiaries discussed and decided to further explore and pursue a possible sale
of the insurance  charters of each of APPL and ABE. In the alternative to a sale
of the APPL charter,  the boards also discussed and decided to further explore a
possible  merger of APPL into UG.  Regardless  of whether a merger is ultimately
pursued or the charters of each  subsidiary are sold, UG would likely assume and
reinsure  the  existing  insurance  policies of those  subsidiaries  in any such
transaction.

During the fourth  quarter of 2001,  UG  purchased  real  estate from an outside
third party through the  formation of an LLC in which UG is a two-thirds  owner.
The other one-third partner is Millard V. Oakley,  who is a Director of both UTG
and FCC.  Hampshire Plaza,  LLC consists of a twenty story,  254,000 square foot
office  tower,  an attached  72,000  square foot retail  plaza,  and an attached
parking garage with approximately 350 parking spaces located in Manchester,  New
Hampshire  for  $6,333,336.  At December 31,  2001,  the property was carried at
$6,491,734.

On October 26, 2001,  APPL effected a reverse stock split,  as a result of which
(i) it became a  wholly-owned  subsidiary  of UG, and an  indirect  wholly-owned
subsidiary  of FCC and UTG,  and  (ii) its  minority  shareholders  received  an
aggregate  of  $1,055,294.50  in respect of their  shares.  Prior to the reverse
stock split, UG owned 88% of the outstanding shares of APPL.

On December 31, 1999, UTG and Jesse T. Correll entered a transaction whereby Mr.
Correll,  in combination with other  individuals,  made an equity  investment in
UTG.  Under the terms of the Stock  Acquisition  Agreement,  the  Correll  group
contributed  their 100%  ownership  of North Plaza of  Somerset,  Inc. to UTG in
exchange for 681,818  authorized  but unissued  shares of UTG common stock.  The
Board of Directors of UTG approved the  transaction  at their regular  quarterly
board meeting held on December 7, 1999.  North Plaza of Somerset,  Inc. owns for
investment  purposes,  a shopping  center in Somerset,  Kentucky,  approximately
12,000 acres of timberland  in Kentucky,  and a 50%  partnership  interest in an
additional 11,000 acres of Kentucky timberland. North Plaza has no debt. The net
assets were valued at $7,500,000,  which equates to $11.00 per share for the new
shares of UTG that were issued in the transaction.

Mr.  Correll is Chairman of the Board of  Directors of UTG and  currently  UTG's
largest  shareholder  through his ownership control of FSF, FSBI and affiliates.
Mr. Correll is the majority  shareholder of FSF and FSBI, a bank holding company
that operates out of 14 locations in central Kentucky. At December 31, 2001, Mr.
Correll owns or controls directly and indirectly approximately 60% of UTG.

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

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

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

United  Income,  Inc.  ("UII")  had a service  agreement  with  United  Security
Assurance  Company  ("USA").  The agreement was originally  established upon the
formation  of USA which  was a 100%  owned  subsidiary  of UII.  Changes  in the
affiliate  structure have resulted in USA no longer being a direct subsidiary of
UII, though still a member of the same affiliated  group.  The original  service
agreement  remained in place  without  modification.  USA paid UII monthly  fees
equal to 22% of the amount of collected first year premiums,  20% in second year
and 6% of the renewal  premiums in years three and after.  UII had a subcontract
agreement with UTG to perform services and provide personnel and facilities. The
services  included  in  the  agreement  were  claim  processing,   underwriting,
processing and servicing of policies, accounting services, agency services, data
processing and all other  expenses  necessary to carry on the business of a life
insurance company.  UII's subcontract agreement with UTG states that UII pay UTG
monthly  fees equal to 60% of collected  service fees from USA as stated  above.
The service fees received from UII were recorded in UTG's  financial  statements
as other income.  With the merger of UII into UTG in July 1999, the sub-contract
agreement ended and UTG assumed the direct contract with USA. This agreement was
terminated upon the merger of USA into UG in December 1999.

USA paid $677,807  under their  agreement  with UII for 1999.  UII paid $223,753
under their agreement with UTG for 1999.  Additionally,  UII paid FCC $30,000 in
1999 for  reimbursement  of costs  attributed to UII. These  reimbursements  are
reflected as a credit to general expenses.

UTG  paid  FCC  $550,000,   $750,000  and  $600,000  in  2001,  2000  and  1999,
respectively for reimbursement of costs attributed to UTG.

On January 1, 1993,  FCC  entered an  agreement  with UG  pursuant  to which FCC
provides management services necessary for UG to carry on its business.  UG paid
$6,156,903,   $6,061,515  and  $6,251,340  to  FCC  in  2001,   2000  and  1999,
respectively.

ABE pays fees to FCC pursuant to a cost sharing and  management  fee  agreement.
FCC provides management services for ABE to carry on its business. The agreement
requires ABE to pay a percentage of the actual expenses incurred by FCC based on
certain activity indicators of ABE business to the business of all the insurance
company  subsidiaries  plus a management fee based on a percentage of the actual
expenses  allocated to ABE. ABE paid fees of $332,673,  $371,211 and $392,005 in
2001, 2000 and 1999, respectively under this agreement.

APPL has a  management  fee  agreement  with FCC  whereby FCC  provides  certain
administrative  duties,  primarily data processing and investment  advice.  APPL
paid  fees  of  $444,000,   $444,000  and  $300,000  in  2001,  2000  and  1999,
respectively under this agreement.

Respective domiciliary insurance departments have approved the agreements of the
insurance companies and it is Management's opinion that where applicable,  costs
have been  allocated  fairly  and such  allocations  are based  upon  accounting
principles generally accepted in the United States of America.

Since the Company's affiliation with FSF, UG has acquired mortgage loans through
participation  agreements  with FSNB.  FSNB  services the loans covered by these
participation  agreements.  UG pays a .25%  servicing  fee on these  loans and a
one-time fee at loan  origination  of .50% of the original  loan amount to cover
costs incurred by FSNB relating to the processing and establishment of the loan.
UG paid $79,730,  $34,721 and $11,578 in servicing fees and $22,626, $91,392 and
$0 in origination fees to FSNB during 2001, 2000 and 1999, respectively.

The  Company  reimbursed  expenses  incurred by Mr.  Correll  and Mr.  Attkisson
relating  to travel and other  costs  incurred  on behalf of or  relating to the
Company.  The Company  paid  $145,407,  $96,599  and  $39,336 in 2001,  2000 and
1999,respectively  to First  Southern  Bancorp,  Inc. in  reimbursement  of such
costs.  In addition,  beginning in 2001,  the Company began  reimbursing  FSBI a
portion of salaries for Mr. Correll and Mr.  Attkisson.  The  reimbursement  was
approved  by the UTG board of  directors  and  totaled  $128,411  in 2001  which
included salaries and other benefits.


RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS

Kerber,  Eck and  Braeckel  LLP ("KEB")  served as FCC's  independent  certified
public  accounting  firm for the fiscal  year ended  December  31,  2001 and for
fiscal year ended December 31, 2000. In serving its primary  function as outside
auditor for FCC, KEB performed  the following  audit  services:  examination  of
annual consolidated financial statements; assistance and consultation on reports
filed  with  the  Securities  and  Exchange   Commission  and;   assistance  and
consultation  on  separate  financial  reports  filed  with the State  insurance
regulatory  authorities pursuant to certain statutory  requirements.  Audit Fees
billed for these audit  services in the year 2001  totaled  $165,000,  and audit
fees billed for quarterly reviews of the Company's financial  statements totaled
$16,979.  No other  services were performed by, and therefore no other fees were
billed by, KEB for services performed in the current year.

FCC does not expect that a  representative  of KEB will be present at the Annual
Meeting of  Shareholders  of FCC. No  accountants  have been selected for fiscal
year  2002  because  FCC  generally  chooses   accountants  shortly  before  the
commencement of the annual audit work.



                                     PART IV

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

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

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

     (2)  Financial Statement Schedules

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

          Schedule II - Condensed financial information of registrant

          Schedule IV - Reinsurance

          Schedule V - Valuation and Qualifying Accounts

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


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

               None


(c)  Exhibits:

     Index to Exhibits (see pages 75 and 76).




                                INDEX TO EXHIBITS


Exhibit
Number


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

3(b) (1) Amended  Articles of  Incorporation  for the Company  dated January 27,
         1988.

3(c) (1) Charter Agreement for the Company dated May 22, 1991.

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

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

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

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

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

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

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

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


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

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

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

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

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


                                INDEX TO EXHIBITS

Exhibit
Number

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

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

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

99(a)    Audit Committee Charter



      Footnotes:

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

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

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





                         FIRST COMMONWEALTH CORPORATION
                       SUMMARY OF INVESTMENTS - OTHER THAN
                         INVESTMENTS IN RELATED PARTIES
                             As of December 31, 2001

                                                                                                    Schedule I


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

                                                                                                  Amount at
                                                                                                 Which Shown
                                                                                                 in Balance
                                                              Cost               Value              Sheet
                                                         ----------------   ----------------   ----------------
Fixed maturities:
    Bonds:
      United States Government and
         government agencies and authorities           $       6,904,757  $       7,183,965  $       6,904,757
      State, municipalities, and political
         subdivisions                                         11,788,567         12,029,784         11,788,567
      Collateralized mortgage obligations                        128,471            133,291            128,471
      Public utilities                                        22,219,127         23,008,044         22,219,127
      All other corporate bonds                               33,964,473         35,370,326         33,964,473
                                                         ----------------   ----------------   ----------------
    Total fixed maturities                                    75,005,395  $      77,725,410         75,005,395
                                                                            ================

Investments held for sale:
    Fixed maturities:
      United States Government and
         government agencies and authorities                  35,240,384  $      36,182,839         36,182,839
      State, municipalities, and political
         subdivisions                                            192,059            202,256            202,256
      Collateralized mortgage obligations                     53,777,577         54,003,623         54,003,623
      Public utilities                                                 0                  0                  0
      All other corporate bonds                                8,374,074          8,239,722          8,239,722
                                                         ----------------   ----------------   ----------------
                                                              97,584,094  $      98,628,440         98,628,440
                                                                            ================

    Equity securities:
      Banks, trusts and insurance companies                    1,000,000  $       1,100,000          1,100,000
      All other corporate securities                           2,934,512          2,752,716          2,752,716
                                                         ----------------   ----------------   ----------------
                                                               3,934,512  $       3,852,716          3,852,716
                                                                            ================


Mortgage loans on real estate                                 23,386,895                            23,386,895
Investment real estate                                         8,876,298                             8,876,298
Policy loans                                                  13,608,456                            13,608,456
Other long-term investments                                            0                                     0
Short-term investments                                           550,001                               550,001
                                                         ----------------                      ----------------
    Total investments                                  $     222,945,651                     $     223,908,201
                                                         ================                      ================







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


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









                         FIRST COMMONWEALTH CORPORATION
                  CONDENSED FINANCIAL INFORMATION OF REGISTRANT
                           PARENT ONLY BALANCE SHEETS
                        As of December 31, 2001 and 2000

                                                                                     Schedule II


                                                                     2001              2000
                                                                ---------------   ---------------

ASSETS

    Investment in affiliates                                  $     43,928,067  $     43,820,542
    Cash and cash equivalents                                          705,309           400,749
    Income taxes recoverable                                            13,705            22,817
    Deferred income taxes                                              524,737         1,044,167
    Other assets                                                        25,784            51,730
                                                                ---------------   ---------------
          Total assets                                         $     45,197,602  $     45,340,005
                                                                ===============   ===============




LIABILITIES AND SHAREHOLDERS' EQUITY

Liabilities:
    Notes payable                                             $     11,536,698  $     12,839,193
    Indebtedness to subsidiaries and affiliates, net                    40,733           205,626
    Other liabilities                                                1,607,678         3,168,893
                                                                ---------------   ---------------
         Total liabilities                                          13,185,109        16,213,712
                                                                ---------------   ---------------




Shareholders' equity:
    Common stock, net of treasury shares                                54,385            54,393
    Additional paid-in capital, net of treasury                     51,860,574        51,861,366
    Accumulated deficit                                            (20,515,821)      (22,701,428)
    Accumulated other comprehensive income (deficit)                   613,355           (88,038)
                                                                ---------------   ---------------
         Total shareholders' equity                                 32,012,493        29,126,293
                                                                ---------------   ---------------
         Total liabilities and shareholders' equity           $     45,197,602  $     45,340,005
                                                                ===============   ===============












                         FIRST COMMONWEALTH CORPORATION
                  CONDENSED FINANCIAL INFORMATION OF REGISTRANT
                      PARENT ONLY STATEMENTS OF OPERATIONS
                       Three Years Ended December 31, 2001


                                                                                               Schedule II



                                                                2001            2000             1999
                                                            -------------   --------------   --------------

Revenues:

    Management fees from affiliates                       $    7,230,903  $     6,549,685  $     6,633,876
    Interest income                                               22,629          125,655           94,057
    Other income                                                 101,684          109,182          116,748
                                                            -------------   --------------   --------------
                                                               7,355,216        6,784,522        6,844,681


Expenses:

    Interest expense                                             987,886        1,243,819        1,344,888
    Operating expenses                                         4,459,313        6,763,645        5,277,169
                                                            -------------   --------------   --------------
                                                               5,447,199        8,007,464        6,622,057
                                                            -------------   --------------   --------------

    Operating income (loss)                                    1,908,017       (1,222,942)         222,624

    Income tax credit (expense)                                 (528,542)         218,422          (66,372)
    Equity in income (loss) of subsidiaries                      806,132         (842,320)        (534,209)
                                                            -------------   --------------   --------------
         Net income (loss)                                $    2,185,607  $    (1,846,840) $      (377,957)
                                                            =============   ==============   ==============


Basic income (loss) per share from continuing
   operations and net inome (loss)                        $        40.19  $        (33.90) $         (6.93)
                                                            =============   ==============   ==============


Basic weighted average shares outstanding                         54,385           54,485           54,539
                                                            =============   ==============   ==============








                         FIRST COMMONWEALTH CORPORATION
                  CONDENSED FINANCIAL INFORMATION OF REGISTRANT
                      PARENT ONLY STATEMENTS OF CASH FLOWS
                       Three Years Ended December 31, 2001
                                                                                                      Schedule II

                                                                       2001               2000              1999
                                                                  ----------------   ---------------   ---------------

Increase (decrease) in cash and cash equivalents
Cash flows from operating activities:
   Net income (loss)                                            $       2,185,607  $     (1,846,840) $       (377,957)
   Adjustments to reconcile net income (loss) to net
     cash provided by operating activities:
    Equity in (income) loss of subsidiaries                              (806,132)          842,320           534,209
    Change in income taxes recoverable (payable)                            9,112                 0           (39,291)
    Change in deferred income taxes                                       519,430          (218,422)           74,189
    Change in indebtedness (to) from affiliates, net                     (164,893)       (1,263,989)          497,749
    Change in other assets and liabilities                             (1,535,269)          658,482          (431,977)
                                                                  ----------------   ---------------   ---------------
 Net cash provided by (used in) operating activities                       207,855        (1,828,449)          256,922
                                                                  ----------------   ---------------   ---------------

Cash flows from financing activities:
    Payments of principal on notes payable                             (1,302,495)       (2,025,000)       (2,505,800)
    Dividend received from subsidiary                                   1,400,000         2,000,000         3,266,000
    Purchase of treasury stock                                               (800)          (14,500)             (100)
                                                                  ----------------   ---------------   ---------------
Net cash provided by (used in) financing activities                        96,705           (39,500)          760,100
                                                                  ----------------   ---------------   ---------------

Net increase (decrease) in cash and cash equivalents                      304,560        (1,867,949)        1,017,022
Cash and cash equivalents at beginning of year                            400,749         2,268,698         1,251,676
                                                                  ----------------   ---------------   ---------------
Cash and cash equivalents at end of year                        $         705,309  $        400,749  $      2,268,698
                                                                  ================   ===============   ===============





















                         FIRST COMMONWEALTH CORPORATION
                                   REINSURANCE
          As of December 31, 2001 and the year ended December 31, 2001

                                                                                                        Schedule IV



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


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

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

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






Life insurance
   in force                     $  2,630,460,130 $    653,610,000 $  1,632,820,870  $  3,609,671,000          45.2%
                                  ===============  ===============  ===============   ===============



Premiums and policy fees:

   Life insurance               $     20,150,537 $      3,135,311 $        109,457  $     17,124,683           0.6%

   Accident and health
     insurance                           170,923           36,787                0           134,136           0.0%
                                  ---------------  ---------------  ---------------   ---------------

                                $     20,321,460 $      3,172,098 $        109,457  $     17,258,819           0.6%
                                  ===============  ===============  ===============   ===============

















                         FIRST COMMONWEALTH CORPORATION
                                   REINSURANCE
          As of December 31, 2000 and the year ended December 31, 2000

                                                                                                        Schedule IV



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


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

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

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






Life insurance
   in force                     $  2,878,693,447 $    734,621,000 $  1,020,170,553  $  3,164,243,000          32.2%
                                  ===============  ===============  ===============   ===============



Premiums and policy fees:

   Life insurance               $     22,789,885 $      3,518,015 $         76,069  $     19,347,939           0.4%

   Accident and health
     insurance                           179,904           38,157                0           141,747           0.0%
                                  ---------------  ---------------  ---------------   ---------------

                                $     22,969,789 $      3,556,172 $         76,069  $     19,489,686           0.4%
                                  ===============  ===============  ===============   ===============

















                         FIRST COMMONWEALTH CORPORATION
                                   REINSURANCE
          As of December 31, 1999 and the year ended December 31, 1999

                                                                                                       Schedule IV



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


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

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

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






Life insurance
   in force                     $  3,142,274,477 $    831,024,000 $  1,008,903,523  $  3,320,154,000        30.4%
                                  ===============  ===============  ===============   ===============



Premiums and policy fees:

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

   Accident and health
     insurance                           193,541           48,677                0           144,864         0.0%
                                  ---------------  ---------------  ---------------   ---------------

                                $     25,539,384 $      3,978,565 $         20,324  $     21,581,143         0.1%
                                  ===============  ===============  ===============   ===============

















                         FIRST COMMONWEALTH CORPORATION
                        VALUATION AND QUALIFYING ACCOUNTS
         As of and for the years ended December 31, 2001, 2000 and 1999

                                                                                     Schedule V


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


December 31, 2001

Allowance for doubtful accounts -
     mortgage loans                      $    240,000   $     30,000  $    150,000  $      120,000                                                                            $              $




December 31, 2000

Allowance for doubtful accounts -
     mortgage loans                      $     70,000   $    170,000  $          0  $      240,000                                                                            $              $




December 31, 1999

Allowance for doubtful accounts -
    mortgage loans                       $     70,000   $          0  $          0  $       70,000                                                                            $              $








                                                     SIGNATURES

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

                                                FIRST COMMONWEALTH CORPORATION
                                                          Registrant


 John S. Albin                                                         Date:  March 26, 2002
John S. Albin, Director

/s/  Randall L. Attkisson                                              Date:  March 26, 2002
Randall L. Attkisson, President, Chief
  Operating Officer and Director

/s/  John W. Collins                                                   Date:  March 26, 2002
John W. Collins, Director

/s/  Jesse T. Correll                                                  Date:  March 26, 2002
Jesse T. Correll, Chairman, Chief
  Executive Officer and Director

/s/  Ward F. Correll                                                   Date:  March 26, 2002
Ward F. Correll, Director

/s/  Thomas F. Darden                                                  Date:  March 26, 2002
Thomas F. Darden, Director

/s/  Luther C. Miller                                                  Date:  March 26, 2002
Luther C. Miller, Director

/s/  Millard V. Oakley                                                 Date:  March 26, 2002
Millard V. Oakley, Director

/s/  Robert V. O'Keefe                                                 Date:  March 26, 2002
Robert V. O'Keefe, Director

/s/  William W. Perry                                                  Date:  March 26, 2002
William W. Perry, Director

/s/  Robert W. Teater                                                  Date:  March 26, 2002
Robert W. Teater, Director

/s/  Theodore C. Miller                                                Date:  March 26, 2002
Theodore C. Miller, Corporate Secretary
  and Chief Financial Officer