SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

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

For the fiscal year ended December 31, 1998 Commission File Number 0-16867

UNITED TRUST, INC.
------------------
(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)

ILLINOIS 37-1172848
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

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

Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
- ------------------- -------------------
None NASDAQ

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

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

Common Stock

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].

The aggregate market value of voting stock (Common Stock) held by non affiliates
of the registrant as of March 12, 1999, was $7,156,753.

At March 12, 1999, the Registrant had outstanding 2,490,438 shares of Common
Stock, stated value $.02 per share.

DOCUMENTS INCORPORATED BY REFERENCE: None

Page 1 of 91

UNITED TRUST, INC.
FORM 10-K
YEAR ENDED DECEMBER 31, 1998

TABLE OF CONTENTS

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

ITEM 1. BUSINESS....................................................3
ITEM 2. PROPERTIES.................................................15
ITEM 3. LEGAL PROCEEDINGS..........................................16
ITEM 4. SUBMISSION OF MATTERS OF A VOTE OF SECURITY HOLDERS........16

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

ITEM 5. MARKET FOR COMPANY'S COMMON EQUITY AND RELATED
SHAREHOLDER MATTERS........................................17
ITEM 6. SELECTED FINANCIAL DATA....................................18
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS........................19
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA................35
ITEM 9. DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE...................................66

PART III...............................................................66

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF UTI...................66
ITEM 11. EXECUTIVE COMPENSATION UTI................................68
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT OF UTI.....................................73
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS............76

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

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

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

United Trust, Inc. (the "Registrant") was incorporated in 1984, under the laws
of the State of Illinois to serve as an insurance holding company. The
Registrant and its subsidiaries (the "Company") have only one significant
industry segment - insurance. The Company's dominant business is individual life
insurance which includes the servicing of existing insurance business in force,
the solicitation of new individual life insurance, and the acquisition of other
companies in the insurance business.

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

ORGANIZATIONAL CHART
AS OF DECEMBER 31, 1998

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

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

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

HISTORY

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

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

UTI currently owns 41% of the outstanding common stock of UII and accounts for
its investment in UII using the equity method.

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

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

On March 25, 1997, the Board of Directors of UTI and UII voted to recommend to
the shareholders a merger of the two companies. Under the Plan of Merger, UTI
would be the surviving entity with UTI issuing one share of its stock for each
share held by UII shareholders. Neither UTI 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. The merger will result in certain cost savings, primarily related
to costs associated with maintaining a corporation in good standing in the
states in which it transacts business. Additionally, the merger will further
simplify the group's holding company system making it easier to understand for
outside parties, including current investors, potential investors and lenders. A
vote of the shareholders of UTI and UII regarding the proposed merger is
anticipated to occur sometime during the second quarter of 1999.

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

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

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

PRODUCTS

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

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

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

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

The Company markets other products, none of which is significant to operations.
The Company has a variety of policies in force different from those which are
currently being marketed. Interest sensitive products including universal life
and excess interest whole life ("fixed premium UL") account for 50% of the
insurance in force. Approximately 34% of the insurance in force is participating
business, which represents policies under which the

policyowner shares in the insurance companies statutory divisible surplus. The
Company's average persistency rate for its policies in force for 1998 and 1997
has been 89.9% and 89.4%, respectively. The Company does not anticipate any
material fluctuations in these rates in the future that may result from
competition.

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

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

MARKETING

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

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

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

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

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

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

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

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

changes by State Insurance Departments, and a decrease in the total number of
insurance sales agents in the industry, have all had an impact, given the
relatively small size of the Company.

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

UNDERWRITING

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

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

RESERVES

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

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

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

REINSURANCE

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

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

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

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

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

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

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

Fixed maturities and fixed maturities
held for sale $ 11,981,660 $ 12,677,348 $ 13,326,312
Equity securities 92,196 87,211 88,661
Mortgage loans 859,543 802,123 1,047,461
Real estate 842,724 745,502 794,844
Policy loans 984,761 976,064 1,121,538
Other long-term investments 62,477 64,232 89,321
Short-term investments 29,907 70,624 17,664
Cash 1,235,888 632,254 605,549
--------------- ---------------- ----------------
Total consolidated investment income 16,089,156 16,055,358 17,091,350
Investment expenses (1,046,869) (1,198,061) (1,222,903)
--------------- ---------------- ----------------
Consolidated net investment income $ 15,042,287 $ 14,857,297 $ 15,868,447
=============== ================ ================

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

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

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

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

Carrying Value
-------------------------------------------------
1998 1997
-------------------- --------------------

U.S. government and government agencies $ 39,685,041 $ 29,701,879
States, municipalities and political subdivisions 23,919,754 22,814,301
Collateralized mortgage obligations 9,406,895 11,093,926
Public utilities 41,724,208 48,064,818
Corporate 62,515,762 70,964,039
-------------------- --------------------
$ 175,746,254 $ 182,638,963
==================== ====================

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

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

Fixed maturities and fixed
maturities held for sale $175,746,254 4 years 6.69%
Equity securities 2,087,416 not applicable 3.62%
Mortgage loans 10,941,614 10 years 8.42%
Real estate 10,529,183 not applicable 7.66%
Policy loans 14,134,041 not applicable 6.95%
Other long-term investments 906,278 5 years 7.16%
Short-term investments 1,062,796 190 days 5.57%
Cash and cash equivalents 26,378,463 on demand 5.82%
------------
Total Investments and cash $241,786,045 6.69%
===========

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

The Company holds $1,062,796 in short-term investments. Management monitors its
investment maturities and in their opinion is sufficient to meet the Company's
cash requirements. Fixed maturities of $18,431,309 mature in one year and
$82,995,251 mature in two to five years.

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

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

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

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

In addition, the Company also makes sure that current and adequate insurance on
the properties are 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-payments of real estate taxes are indicators that a loan is
potentially troubled. Correspondence with the mortgagee is performed to
determine the reasons for either of these events occurring.

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

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

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

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

The following table summarizes delinquent mortgage loan holdings.

Delinquent
90 days or More 1998 1997 1996
- ----------------------------------- ------------- ------------- -------------

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

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

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

COMPETITION

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

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

GOVERNMENT REGULATION

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

offset, known insolvencies and state guaranty fund assessment bases. However,
changes in the basis whereby assessments are charged to individual companies and
changes in the availability of the right to offset assessments against premium
tax payments could materially affect the company's results.

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

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

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

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

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

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

authorized control level RBC, as defined by the NAIC. Insurance companies below
specific trigger points or ratios are classified within certain levels, each of
which requires specific corrective action. The levels and ratios are as follows:

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

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

* Or, 2.5 with negative trend.

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

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

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

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

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

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

EMPLOYEES

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

ITEM 2. PROPERTIES

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

Property owned Amount % of Total
-------------- ----------- ----------
Home Office $ 2,667,325 20%

Investment real estate
----------------------
Commercial $ 4,571,312 35%
Residential development $ 4,407,871 33%
Foreclosed real estate $ 1,550,000 12%
----------- ---
$10,529,183 80%
-----------

Grand total $13,196,508 100%
=========== ====

Total investment real estate holdings represent approximately 3% of the total
assets of the Company net of accumulated depreciation of $685,526 and $539,366
at year-end 1998 and 1997 respectively. The Company owns an office complex in
Springfield, Illinois, which houses the primary insurance operations. The office
buildings contain 57,000 square feet of office and warehouse space. The
properties are carried at $2,522,898. In addition, an insurance subsidiary owns
a home office building in Huntington, West Virginia. The building has 15,000
square feet and is carried at $144,427. The facilities occupied by the Company
are adequate relative to the Company's present operations.

Commercial properties are leased to various unaffiliated companies and
organizations. Residential development property is primarily located in
Springfield, Illinois, and entails several developments, each targeted for a
different segment of the population. These targets include a development
primarily for the first time home buyer, an upscale development for existing
homeowners looking for a larger home, and duplex condominiums for those who
desire maintenance free exteriors and surroundings. The Company's primary focus
is on the development and sale of lots, with an occasional home construction to
help stimulate interest.

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

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

ITEM 3. LEGAL PROCEEDINGS

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

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

None

PART II

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

On June 18, 1990, UTI became a member of NASDAQ. Quotations began on that date
under the symbol UTIN. The following table shows the high and low bid quotations
for each quarterly period during the past two years, without retail mark-up,
mark-down or commission and may not necessarily represent actual transactions.

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

1998
First quarter 8.000 10.000
Second quarter 8.625 10.375
Third quarter 6.500 8.875
Fourth quarter 6.500 8.125

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

1997
First quarter 3.750 5.625
Second quarter 4.625 5.250
Third quarter 9.250 9.500
Fourth quarter 8.000 8.000

Current Market Makers are:

Knight Securities L.P. J.J.B. Hilliard, W.L. Lyons
800-222-4910 800-627-3557

Fox-Pitt, Kelton, Inc.
800-367-5528

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

Number of Common Shareholders as of March 11, 1999 is 5,166.

ITEM 6. SELECTED FINANCIAL DATA

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

Premium income
net of reinsurance $ 26,396 $ 28,639 $ 30,944 $ 33,099 $ 35,145
Total revenues $ 40,885 $ 43,992 $ 46,976 $ 49,869 $ 49,207
Net loss* $ (679) $ (559) $ (938) $ (3,001) $ (1,624)
Net loss per share $ (0.39) $ (0.32) $ (0.50) $ (1.61) $ (0.90)
Total assets $ 343,824 $ 349,300 $ 355,474 $ 356,305 $ 360,258
Total long-term debt $ 9,529 $ 21,460 $ 19,574 $ 21,447 $ 22,053
Dividends paid per share NONE NONE NONE NONE NONE

* Includes equity earnings of investees.

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 UTI and its subsidiaries at December 31,
1998.

Cautionary Statement Regarding Forward-Looking Statements
- ---------------------------------------------------------

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

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

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

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

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

Results of Operations

1998 Compared to 1997

(a) Revenues

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

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

New business production decreased significantly over the last two years. New
business production decreased 39% or approximately $2,063,000 when comparing
1998 to 1997. In recent years, the insurance industry as a whole has experienced
a decline in the total number of agents who sell insurance products, therefore
competition has

intensified for top producing sales agents. The relatively small size of our
companies, and the resulting limitations, have made it challenging to compete in
this area. The Company is currently in a position where it must increase its new
business writings or look at measures to reduce costs associated with new
business production to a level more in line with the current level of
production. In late 1998, A.M. Best Company, a leading insurance industry rating
agency, increased its rating assigned to UG, the Company's largest insurance
subsidiary, from a C++ to a B. This rating change should aid in the agents
selling ability although to what extent is currently unknown.

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

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

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

The overall investment yields for 1998, 1997 and 1996, are 6.69%, 6.71% and
6.87%, respectively. Cash generated from the sales of universal life insurance
products, has been invested primarily in our fixed maturity portfolio.

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

Realized investment losses were $1,119,000 and $279,000 in 1998 and 1997,
respectively. Approximately $440,000 of realized losses in 1998 is due to the
sale of real estate. During 1998 the Company re-evaluated its real estate
holdings, especially those properties acquired through acquisitions of other
companies and mortgage loan foreclosures, and determined it would be in the long
term interest of the Company to dispose of certain of these parcels. Parcels
targeted for sale were generally non-income or low income producing and located
in parts of the country where management has little other reason to travel to.
The disposal of these properties will free up management time to focus on the
properties that have a more viable long-term benefit to the Company. The

Company reduced its non-income producing investments $1,610,000 during 1998, as
a result of these actions. The Company incurred losses of $339,000 on the
foreclosure of three mortgage loans during the second quarter of 1998. The
foreclosed properties were sold before the end of 1998. As a result of these
foreclosures, management reassessed its remaining mortgage loan portfolio and
determined an allowance of $70,000 was appropriate to cover potential future
losses in the portfolio. The Company realized a loss of $88,000 on the
investment in John Alden Financial Corporation common stock. Under the terms of
an acquisition agreement beween Fortis, Inc. and John Alden all outstanding
common shares of John Alden were acquired. The Company had other gains and
losses during the period that comprised the remaining amount reported but were
immaterial on an individual basis.

(b) Expenses

Life benefits, net of reinsurance benefits and claims, decreased 5% in 1998 as
compared to 1997. The most significant influence on the decrease in life
benefits was from a decline of $1,036,000 in death benefit claims. There was no
specific incident or event in 1998 or 1997 that caused this to occur. At the
September 1998 Board of Directors meeting, the Board lowered crediting rates one
half percent on all products crediting 5.5% or more. This adjustment was in
response to continued declines in interest rates in the market place. The change
affected approximately $60,000,000 of policy reserves and will result in
interest crediting reductions of $300,000 per year. This change had little
effect on the 1998 results, but will influence future periods. Policy interest
crediting rate changes become effective on an individual policy basis on the
next policy anniversary. Therefore, it will take a full year from the time the
change is determined for the full impact of such change to be realized.

Commissions and amortization of deferred policy acquisition costs increased 78%
in 1998 compared to 1997. At year-end 1998, the Company recorded an impairment
write off of deferred policy acquisition costs of $2,983,000. The impairment was
the result of the actuarial analysis of the recoverability of the asset based on
current trends and known events compared to assumptions used in the
establishment of the original asset. The recent decline in interest rates in the
marketplace combined with lower than expected new policy writings leaving the
Company with greater per policy costs as a result of fixed costs being spread
over fewer policies caused the impairment. Exclusive of the impairment write
down, commissions and amortization of deferred policy acquisition costs were
comparable to 1997 results. The write down will result in lower amortizations in
future periods, as there is now a smaller asset to amortize.

Amortization of cost of insurance acquired decreased 7% in 1998 compared to
1997. Cost of insurance acquired is established when an insurance company is
acquired. The Company assigns a portion of its cost to the right to receive
future cash flows from insurance contracts existing at the date of the
acquisition. The cost of policies purchased represents the actuarially
determined present value of the projected future cash flows from the acquired
policies. Cost of insurance acquired is comprised of individual life insurance
products including whole life, interest sensitive whole life and universal life
insurance products. Cost of insurance acquired is amortized with interest in
relation to expected future profits, including direct charge-offs for any excess
of the unamortized asset over the projected future profits. The interest rates
utilized in the amortization calculation are 9% on approximately 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. The improvement of
persistency during the year had a positive impact on amortization of cost of
insurance acquired. Persistency is a measure of insurance in force retained in
relation to the previous year. The Company's average persistency rate for all
policies in force for 1998 and 1997 has been approximately 89.9% and 89.4%,
respectively. Persistency has shown a steady improvement over the past several
years.

Operating expenses increased 16% in 1998 compared to 1997. Included in operating
expenses in 1998 is $2,534,317 from the release of discounts associated with the
Company's notes payable. The Company's subordinated debt was issued at rates
considered favorable to the Company at time of issue, therefore the notes were
discounted to reflect an effective interest rate of 15%. With the payment of
part of this debt in November 1998, the unamortized discount was written off.
Management's plan to repay the remaining debt in a much shorter period of time
from required repayment resulted in the determination to write off the entire
remaining note discount. See information contained below in interest expense
analysis for further details regarding debt retirement. Excluding the note
discount write off, operating expenses decreased 12% attributable primarily to
reduced salary and employee benefit costs in 1998, as a result of natural
attrition.

Interest expense increased 21% in 1998 compared to 1997. Included in interest
expense in 1998, is the write off of unamortized note discounts of $341,852 from
the early retirement of debt in November 1998. At December 31, 1998, there were
no unamortized note discounts remaining on the balance sheet. In November 1998,
UTI received approximately $11,000,000 from the issuance of common stock to
First Southern Funding and its affiliates. These funds were used to retire
outside debt. Additionally, with the new capital and expectations of future
growth, management has formulated a plan to repay the remaining outside debt
within the next two years. At December 31, 1998, UTI had $9,529,138 in notes
payable. On March 1, 1999, First Southern acquired the $2,560,000 of UTI
convertible debt outstanding from the seven officers and employees who
previously held the notes. Pursuant to the terms of an agreement with First
Southern, this debt will be converted to equity by July 31, 2000. UII, an equity
investee of UTI, holds notes receivable from UTI and its subsidiaries of
$1,364,100. Upon the merger of UTI and UII, these notes would be eliminated in
consolidation. UII has $902,300 of outside debt which would be assumed by UTI in
a merger. This means there would be $6,507,338 of outside debt remaining to be
repaid. The Company believes this can be accomplished in the next two years
through dividends from the subsidiaries, namely dividends to FCC from UG and
from expected operating cashflows.

The provision for income taxes reflected a significant change from the same
period one year ago. This is the result of changes in the deferred tax
liability. Deferred taxes are established to recognize future tax effects
attributable to temporary differences between the financial statements and the
tax return. As these differences are realized in the financial statement or tax
return, the deferred income tax established on the difference is recognized in
the financial statements as an income tax expense or credit. During 1997, the
insurance subsidiaries incurred a loss on their federal income tax return that
was carried forward to future periods. A tax benefit was not incurred in the
financial statements as a corresponding allowance was established against the
deferred tax asset attributable to the tax loss carryforward. In 1998, the
insurance company subsidiaries incurred taxable income for federal income tax
purposes which was offset through utilization of federal tax loss carryforwards.
Since these carryforwards had an allowance established against them for deferred
tax purposes, no corresponding expense was incurred in the financial statements.
Additionally, the Company incurred deferred tax credits of $2,050,709 from the
deferred policy acquisition costs impairment and the notes payable discounts
write offs.

The Company had a net loss of $679,000 in 1998 compared to a net loss of
$559,000 in 1997. During 1998, the deferred policy acquisition costs impairment
resulted in a net loss of $1,117,000 and the notes discount write offs resulted
in a net loss of $1,077,000. Exclusive of these two events, the Company would
have reported net income of $1,515,000. Lower death benefit claims and reduced
operating expenses from 1997 results provided improvements to the 1998 results.

1997 Compared to 1996
- ---------------------

(a) Revenues

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

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

New business production decreased significantly over the last two years. New
business production decreased 43% or $3,935,000 when comparing 1997 to 1996. In
recent years, the insurance industry as a whole has experienced a decline in the
total number of agents who sell insurance products, therefore competition has
intensified for top producing sales agents. The relatively small size of our
companies, and the resulting limitations, have made it challenging to compete in
this area.

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

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

The overall investment yields for 1997, 1996 and 1995, are 6.71%, 6.87% and
6.08%, respectively. Since 1995, investment yield improved due to the fixed
maturity investments. Cash generated from the sales of universal life insurance
products, has been invested primarily in our fixed maturity portfolio.

Realized investment losses were $279,000 and $988,000 in 1997 and 1996,
respectively. Approximately $522,000 of realized losses in 1996 are due to the
charge-off of two specific investments. The Company realized a loss of $207,000
from a single loan and $315,000 from an investment in First Fidelity Mortgage
Company ("FFMC"). The charge-off of the loan represented the entire loan balance
at the time of the charge-off. Additionally, the Company sold two foreclosed
real estate properties that resulted in approximately $357,000 in realized
losses in 1996. The Company had other gains and losses during the period that
comprised the remaining amount reported but were immaterial on an individual
basis.

(b) Expenses

Life benefits, net of reinsurance benefits and claims, decreased 11% in 1997 as
compared to 1996. The decrease in premium revenues resulted in lower benefit
reserve increases in 1997. In addition, policyholder benefits decreased due to a
decrease in death benefit claims of $162,000.

In 1994, UG became aware that certain new insurance business was being solicited
by certain agents and issued to individuals considered to be not insurable by
Company standards. These non-standard policies had a face amount of $22,700,000
and represented 1/2 of 1% of the insurance in-force in 1994. Management's
initial analysis indicated that expected death claims on the business in-force
was adequate in relation to mortality assumptions inherent in the calculation of
statutory reserves. Nevertheless, management determined it was in the best
interest of the Company to repurchase as many of the non-standard policies as
possible. Through December 31, 1996, the Company spent approximately $7,099,000
for the settlement of non-standard policies and for the legal defense of related
litigation. In relation to settlement of non-standard policies the Company

incurred life benefit costs of $3,307,000, and $720,000 in 1996 and 1995,
respectively. The Company incurred legal costs of $906,000 and $687,000 in 1996
and 1995, respectively. All policies associated with this issue have been
settled as of December 31, 1996. Therefore, expense reductions for 1997 would
follow.

Commissions and amortization of deferred policy acquisition costs decreased 14%
in 1997 compared to 1996. The decrease is due primarily to a reduction in
commissions paid. Commissions decreased 19% in 1997 compared to 1996. The
decrease in commissions was due to the decline in new business production. There
is a direct relationship between premium revenues and commission expense. First
year premium production decreased 43% and first year commissions decreased 33%
when comparing 1997 to 1996. Amortization of deferred policy acquisition costs
decreased 6% in 1997 compared to 1996. Management would expect commissions and
amortization of deferred policy acquisition costs to decrease in the future if
premium revenues continue to decline.

Amortization of cost of insurance acquired decreased 57% in 1997 compared to
1996. 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 24% 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. The
decrease in amortization during the current period is a fluctuation due to the
expected future profits. Amortization of cost of insurance acquired is
particularly sensitive to changes in persistency of certain blocks of insurance
in-force. The improvement of persistency during the year had a positive impact
on amortization of cost of insurance acquired. Persistency is a measure of
insurance in force retained in relation to the previous year. The Company's
average persistency rate for all policies in force for 1997 and 1996 has been
approximately 89.4% and 87.9%, respectively.

Operating expenses decreased 23% in 1997 compared to 1996. Approximately
one-half of the decrease in operating expenses is related to the settlement of
certain litigation in December of 1996 regarding non-standard policies. Included
in this decrease were legal fees and payments to the litigants to settle the
issue. In 1992, as part of the acquisition of Commonwealth Industries
Corporation, an agreement was entered into between John Cantrell and FCC for
future payments to be made by FCC. A liability was established at the date of
the agreement. Upon the death of Mr. Cantrell in late 1997, obligations under
this agreement transferred to Mr. Cantrell's wife at a reduced amount. This
resulted in a reduction of approximately $600,000 of the liability held for
future payments under the agreement. In addition, 1997 Consulting fees,
primarily in the area of actuarial services were reduced approximately $400,000
as the Company was able to hire an actuary, on a part-time basis, at a cost less
than fees paid in the previous year to consulting actuaries. The remaining
reduction in operating expenses is attributable to reduced salary and employee
benefit costs in 1997, as a result of natural attrition.

Interest expense increased 5% in 1997 compared to 1996. Since December 31, 1996,
notes payable increased approximately $1,886,000. Average outstanding
indebtedness was $20,517,000 with an average cost of 8.9% in 1997 compared to
average outstanding indebtedness of $20,510,000 with an average cost of 8.5% in
1996. The increase in outstanding indebtedness was due to the issuance of
convertible notes to seven individuals, all officers or employees of UTI. In
March 1997, the base interest rate for most of the notes payable increased a
quarter of a point. The base rate is defined as the floating daily, variable
rate of interest determined and announced by National City Bank. Please refer to
Note 12 "Notes Payable" in the Consolidated Notes to the Financial Statements
for more information.

The Company had a net loss of $559,000 in 1997 compared to a net loss of
$938,000 in 1996. The improvement is directly related to the decrease in life
benefits and operating expenses primarily associated with the 1996 settlement
and other related costs of the non-standard life insurance policies.

Financial Condition
- -------------------

(a) Assets

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

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

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

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

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

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

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

Deferred policy acquisition costs decreased 40% in 1998 compared to 1997.
Deferred policy acquisition costs, which vary with, and are primarily related to
producing new business, are referred to as ("DAC"). DAC consists primarily of
commissions and certain costs of policy issuance and underwriting, net of fees
charged to the policy in excess of ultimate fees charged. To the extent these
costs are recoverable from future profits, the Company defers these costs and
amortizes them with interest in relation to the present value of expected gross
profits from the contracts, discounted using the interest rate credited by the
policy. The Company had $892,000 in policy acquisition costs deferred, $397,000
in interest accretion and $2,582,000 in amortization in 1998. At year end 1998,
the Company recorded an impairment write off of deferred policy acquisition
costs of $2,983,000. The impairment was the result of the actuarial analysis of
the recoverability of the asset based on current trends and known events
compared to assumptions used in the establishment of the original asset. The
recent decline in interest rates in the marketplace combined with lower than
expected new policy writings leaving the Company with greater per policy costs
as a result of fixed costs being spread over fewer policies caused the
impairment.

Cost of insurance acquired decreased 5% in 1998 compared to 1997. At December
31, 1998, cost of insurance acquired was $39,308,000 and amortization totaled
$2,215,000 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 5% in 1998 compared to 1997. Policy liabilities and
accruals, which represents most of total liabilities remained relatively
unchanged from the prior year. The significant changes in total liabilities were
from deferred income taxes and notes payable.

Income taxes payable and deferred income taxes payable decreased 33% in 1998
compared to 1997. Deferred taxes are established to recognize future tax effects
attributable to temporary differences between the financial statements and the
tax return. As these differences are realized in the financial statement or tax
return, the deferred income tax established on the difference is recognized in
the financial statements as an income tax expense or credit. The Company
released deferred taxes of $2,050,709 from the deferred policy acquisition costs
impairment and the notes payable discounts write offs. Federal income taxes are
discussed in more detail in Note 3 of the Consolidated Notes to the Financial
Statements.

Notes payable decreased 56% in 1998 compared to 1997. In November 1998, UTI
received approximately $11,000,000 from the issuance of common stock to First
Southern Funding and its affiliates. These funds were used to retire outside
debt. Additionally, with the new capital and expectations of future growth,
management has formulated a plan to repay the remaining outside debt within the
next two years. At December 31, 1998, UTI had $9,529,138 in notes payable. On
March 1, 1999, First Southern acquired the $2,560,000 of UTI convertible debt
outstanding from the seven officers and employees who previously held the notes.
Pursuant to the terms of an agreement with First Southern, this debt will be
converted to equity by July 31, 2000. UII, an equity investee of UTI, holds
notes receivable from UTI and its subsidiaries of $1,364,100. Upon the merger of
UTI and UII, these notes would be eliminated in consolidation. UII has $902,300
of outside debt which would be assumed by UTI in a merger. This means there
would be $6,507,338 of debt remaining to be repaid. The Company believes this
can be accomplished in the next two years through dividends from the
subsidiaries, namely dividends to FCC from UG and from expected operating
cashflows. The Company's long-term debt is discussed in more detail in Note 11
of the Notes to the Financial Statements.

Total shareholders' equity increased 65% in 1998 compared to 1997. The increase
is attributable to the Company's issuance of common stock to First Southern
Funding LLC.

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

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

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

Liquidity and Capital Resources

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

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

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

Cash provided by operating activities was $2,166,000, $23,000 and $3,140,000 in
1998, 1997 and 1996, respectively. Reporting regulations require cash inflows
and outflows from universal life insurance products to be shown as financing
activities when reporting on cash flows. The net cash provided by operating
activities plus policyholder contract deposits less policyholder contract
withdrawals equaled $5,244,000 in 1998, $3,412,000 in 1997 and $9,952,000 in
1996. Management utilizes this measurement of cash flows as an indicator of the
performance of the Company's insurance operations.

Cash provided by (used in) investing activities was $5,556,000, ($2,989,000) and
$15,808,000, for 1998, 1997 and 1996, respectively. The most significant aspect
of cash provided by (used in) investing activities are the fixed maturity
transactions. Fixed maturities account for 84%, 70% and 81% of the total cost of
investments acquired in 1998, 1997 and 1996, respectively. The net cash provided
by investing activities in 1996, is due to the fixed maturities sold in
conjunction with the coinsurance agreement with PALIC. The Company has not
directed its investable funds to so-called "junk bonds" or derivative
investments.

Net cash provided by (used in) financing activities was $2,551,000, $1,746,000
and ($14,150,000) for 1998, 1997 and 1996, respectively. The change between 1997
and 1996 is due to a coinsurance agreement with PALIC as of September 30, 1996.
At closing of the transaction, UG received a reinsurance credit of $28,318,000
for policy liabilities covered under the agreement. UG transferred assets equal
to the credit received. This transfer included policy loans of $2,855,000
associated with policies under the agreement and a net cash transfer of
$19,088,000 after deducting the ceding commission due UG of $6,375,000.

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

At December 31, 1998, the Company had a total of $9,529,000 in long-term debt
outstanding. The debt structure is described in the following paragraphs.

In November 1998, UTI received approximately $11,000,000 from the issuance of
common stock to First Southern Funding and its affiliates. These funds were used
to retire outside debt. Additionally, with the new capital and expectations of
future growth, management has formulated a plan to repay the remaining outside
debt within the next two years. At December 31, 1998, UTI had $9,529,138 in
notes payable. On March 1, 1999, First Southern acquired the $2,560,000 of UTI
convertible debt outstanding from the seven officers and employees who
previously held the notes. Pursuant to the terms of an agreement with First
Southern, this debt will be converted to equity by July 31, 2000. UII, an equity
investee of UTI, holds notes receivable from UTI and its subsidiaries of
$1,364,100. Upon the merger of UTI and UII, these notes would be eliminated in
consolidation. UII has $902,300 of outside debt which would be assumed by UTI in
a merger. This means there would be $6,507,338 of debt remaining to be repaid.
The Company believes this can be accomplished in the next two years through
dividends from the subsidiaries, namely dividends to FCC from UG and from
expected operating cashflows.

The senior debt is through National City Bank (formerly First of America Bank)
and is subject to a credit agreement. As of December 31, 1998 the outstanding
principal balance of the senior debt is $100,000. The debt bears interest to a
rate equal to the "base rate" plus nine-sixteenths of one percent. The Base rate
is defined as the floating daily, variable rate of interest determined and
announced by National City Bank from time to time as its "base lending rate".
The base rate at December 31, 1998 was 7.75% and has remained unchanged through
the date of this filing. Interest is paid quarterly and principal payments of
$1,000,000 are due in May of each year beginning in 1997, with a final payment
due May 8, 2005. On November 23, 1998, the Company prepaid all but $100,000 of
principal. The remaining principal balance will be payable on the maturity date
and is being maintained to keep the Company's credit relationship with National
City Bank in place.

The subordinated debt was incurred June 16, 1992 as a part of an acquisition and
consists of 10 and 20 year notes. As of December 31, 1998 the outstanding
principal balance of the 10-year notes is $2,267,000 and the 20-year notes is
$3,252,000. The 10-year notes bear interest at the rate of 7 1/2% per annum,
payable semi-annually beginning December 16, 1992. These notes except for one
$840,000 note provide for principal payments equal to 1/20th of the principal
balance due with each interest installment beginning December 16, 1997, with a
final payment due June 16, 2002. The $840,000 note provides for a lump sum
principal payment due June 16, 2002. In June 1997, the Company refinanced
$204,267 of its subordinated 10-year notes to subordinated 20-year notes bearing
interest at the rate of 8.75%. The repayment terms of these notes are the same
as the original subordinated 20 year notes. The 20-year notes bear interest at
the rate of 8 1/2% per annum on $3,530,000 and 8.75% per annum on $505,000,
payable semi-annually with a lump sum principal payment due June 16, 2012.

On July 31, 1997, United Trust Inc. issued convertible notes totaling $2,560,000
to seven individuals, all officers or employees of United Trust Inc. As of
December 31, 1998, the outstanding principal balance of the convertible notes is
$2,560,000. The notes bear interest at a rate of 1% over prime, currently at
7.75%, with interest payments due quarterly and principal due upon maturity of
July 31, 2004. The conversion price of the notes are graded from $12.50 per
share for the first three years, increasing to $15.00 per share for the next two
years and increasing to $20.00 per share for the last two years. As of December
31, 1998, the notes were convertible into 204,800 shares of UTI common stock
with no conversion privileges having been exercised. On March 1, 1999, First
Southern acquired the $2,560,000 of UTI convertible debt outstanding from the
seven officers and employees who previously

held the notes. Pursuant to the terms of an agreement with First Southern, this
debt will be converted to equity by July 31, 2000.

As of December 31, 1998 the Company has a total $26,378,000 of cash and cash
equivalents, short-term investments and investments held for sale in comparison
to $9,529,000 of notes payable. UTI and FCC service this debt through existing
cash balances and management fees received from the insurance subsidiaries. FCC
is further able to service this debt through dividends it may receive from UG.
See Note 2 in the notes to the consolidated financial statements for additional
information regarding dividends.

UTI is a holding company that has no day to day operations of its own. Funds
required to meet its expenses, generally costs associated with maintaining the
company in good standing with states in which it does business, are primarily
provided by its subsidiaries. On a parent only basis, UTI's cash flow is
dependent on revenues from a management agreement with UII and its earnings
received on invested assets and cash balances. At December 31, 1998,
substantially all of the consolidated shareholders equity represents net assets
of its subsidiaries and receivables from its subsidiaries. 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. UTI is the ultimate parent of UG through ownership of several
intermediary holding companies. UG can not pay a dividend directly to UTI due to
the ownership structure. However, if UG paid a dividend to its direct parent and
each subsequent intermediate company within the holding company structure paid a
dividend equal to the amount it received, UTI would receive 57% of the original
dividend paid by UG. Please refer to Note 1 of the Notes to the Consolidated
Financial Statements. UG's dividend limitations are described below without
effect of the ownership structure.

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

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

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

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

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

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

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

REGULATORY ENVIRONMENT
- ----------------------

The 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.

ACCOUNTING AND LEGAL DEVELOPMENTS
- ---------------------------------

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

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

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

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

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

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

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

YEAR 2000 ISSUE
- ---------------

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

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

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

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

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

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

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

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

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.
--------
UNITED TRUST, INC. AND CONSOLIDATED SUBSIDIARIES

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

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

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

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

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

Notes to Consolidated Financial Statements................. 41-65

Independent Auditors' Report

Board of Directors and Shareholders
United Trust, Inc.

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

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

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

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

KERBER, ECK & BRAECKEL LLP

Springfield, Illinois
March 26, 1999

UNITED TRUST, INC.
CONSOLIDATED BALANCE SHEETS
As of December 31, 1998 and 1997

ASSETS
1998 1997
--------------- --------------

Investments:
Fixed maturities at amortized cost (market $179,885,379 and $184,782,568) $ 174,240,848 $ 180,970,333
Investments held for sale:
Fixed maturities, at market (cost $1,494,636 and $1,672,298) 1,505,406 1,668,630
Equity securities, at market (cost $2,725,061 and $3,184,357) 2,087,416 3,001,744
Mortgage loans on real estate at amortized cost 10,941,614 9,469,444
Investment real estate, at cost, net of accumulated depreciation 8,979,183 9,760,732
Real estate acquired in satisfaction of debt 1,550,000 1,724,544
Policy loans 14,134,041 14,207,189
Other long-term investments 906,278 840,066
Short-term investments 1,062,796 1,798,878
--------------- --------------
215,407,582 223,441,560

Cash and cash equivalents 26,378,463 16,105,933
Investment in affiliates 5,549,515 5,636,674
Accrued investment income 3,563,383 3,686,562
Reinsurance receivables:
Future policy benefits 36,965,938 37,814,106
Policy claims and other benefits 3,563,963 3,529,078
Cost of insurance acquired 39,307,960 41,522,888
Deferred policy acquisition costs 6,324,548 10,600,720
Cost in excess of net assets purchased,
net of accumulated amortization 2,642,210 2,777,089
Property and equipment, net of accumulated depreciation 3,179,203 3,412,956
Other assets 941,656 772,258
--------------- --------------
Total assets $ 343,824,421 $ 349,299,824
=============== ==============

LIABILITIES AND SHAREHOLDERS' EQUITY
Policy liabilities and accruals:
Future policy benefits $ 248,391,753 $ 248,805,695
Policy claims and benefits payable 2,183,434 2,080,907
Other policyholder funds 2,150,632 2,445,469
Dividend and endowment accumulations 15,329,048 14,905,816
Income taxes payable:
Current 115,785 15,730
Deferred 9,438,758 14,174,260
Notes payable 9,529,138 21,460,223
Indebtedness to affiliates, net 22,244 18,475
Other liabilities 5,890,059 3,790,051
--------------- --------------
Total liabilities 293,050,851 307,696,626
--------------- --------------

Minority interests in consolidated subsidiaries 25,412,259 26,246,580
--------------- --------------

Shareholders' equity:
Common stock - no par value, stated value $.02 per share.
Authorized 3,500,000 shares - 2,490,438 and 1,634,779 shares
issued after deducting treasury shares of 28,000 and 277,460 49,809 32,696
Additional paid-in capital 27,403,172 16,488,375
Accumulated deficit (1,814,818) (1,135,326)
Accumulated other comprehensive income (276,852) (29,127)
--------------- --------------
Total shareholders' equity 25,361,311 15,356,618
--------------- -----------
Total liabilities and shareholders' equity $ 343,824,421 $ 349,299,824
=============== ==============

See accompanying notes
37

UNITED TRUST, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Years Ended December 31, 1998

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

Revenues:

Premiums and policy fees $ 30,938,609 $ 33,373,950 $ 35,891,609
Reinsurance premiums and policy fees (4,542,532) (4,734,705) (4,947,151)
Net investment income 15,042,287 14,857,297 15,868,447
Realized investment gains and (losses), net (1,119,156) (279,096) (987,930)
Other income 566,192 774,884 1,151,395
--------------- ---------------- ----------------
40,885,400 43,992,330 46,976,370

Benefits and other expenses:

Benefits, claims and settlement expenses:
Life 23,078,145 23,644,252 26,568,062
Reinsurance benefits and claims (2,499,394) (2,078,982) (2,283,827)
Annuity 1,462,385 1,560,828 1,892,489
Dividends to policyholders 3,431,238 3,929,073 4,149,308
Commissions and amortization of deferred
policy acquisition costs 6,450,529 3,616,365 4,224,885
Amortization of cost of insurance acquired 2,214,928 2,394,392 5,524,815
Operating expenses 10,665,976 9,222,913 11,994,464
Interest expense 2,198,773 1,816,491 1,731,309
--------------- ---------------- ----------------
47,002,580 44,105,332 53,801,505
--------------- ---------------- ----------------

Loss before income taxes, minority
interest and equity in loss of investees (6,117,180) (113,002) (6,825,135)
Income tax credit (expense) 4,624,032 (986,229) 4,703,741
Minority interest in loss
of consolidated subsidiaries 835,181 563,699 1,278,883
Equity in loss of investees (21,525) (23,716) (95,392)
-------------- ---------------- ----------------

Net loss $ (679,492) $ (559,248)$ (937,903)
=============== ================ ================

Basic loss per share from continuing
operations and net loss $ (0.39) $ (0.32)$ (0.50)
=============== ================ ================

Diluted loss per share from continuing
operations and net loss $ (0.39) $ (0.32)$ (0.50)
=============== ================ ================

Basic weighted average shares outstanding 1,726,843 1,772,870 1,869,511
=============== ================ ================

Diluted weighted average shares outstanding 1,726,843 1,772,870 1,869,511
=============== ================ ================

See accompanying notes
38

UNITED TRUST, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Three Years Ended December 31, 1998

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

Common stock
Balance, beginning of year $ 32,696 $ 37,402 $ 37,352
Issued during year 17,264 0 50
Stock retired from purchase
of fractional shares of
reverse stock split 0 (7) 0
Treasury stock acquired (151) (4,699) 0
-------------- -------------- --------------

Balance, end of year $ 49,809 $ 32,696 $ 37,402
============== ============== ==============

Additional paid-in capital
Balance, beginning of year $ 16,488,375 $ 18,638,591 $ 18,624,578
Issued during year 10,982,731 0 14,013
Stock retired from purchase
of fractional shares of
reverse stock split 0 (2,374) 0
Treasury stock acquired (67,934) (2,147,842) 0
-------------- -------------- --------------

Balance, end of year $ 27,403,172 $ 16,488,375 $ 18,638,591
============== ============== ==============

Accumulated deficit
Balance, beginning of year $ (1,135,326) $ (576,078) $ 361,825
Net loss (679,492) $ (679,492) (559,248) $ (559,248) (937,903) $ (937,903)
-------------- -------------- --------------

Balance, end of year $ (1,814,818) $ (1,135,326) $ (576,078)
============== ============== ==============

Accumulated other comprehensive
income
Balance, beginning of year (29,127) (86,058) (1,499)
Other comprehensive income
Unrealized holding gain
(loss) on securities (247,725) (247,725) 56,931 56,931 (84,559) (84,559)
-------------- ---------- -------------- -------------- -------------- -----------

Comprehensive income $ (927,217) $ (502,317) $ (1,022,462)
=========== ============== ==============

Balance, end of year (276,852) (29,127) (86,058)
-------------- -------------- --------------
Total shareholders' equity,
end of year $ 25,361,311 $ 15,356,618 $ 18,013,857
============== ============== ==============

See accompanying notes
39

UNITED TRUST, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Years Ended December 31, 1998

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

Increase (decrease) in cash and cash equivalents
Cash flows from operating activities:
Net loss $ (679,492) $ (559,248) $ (937,903)
Adjustments to reconcile net loss to net cash provided by
operating activities net of changes in assets and
liabilities resulting from the sales and purchases
of subsidiaries:
Amortization/accretion of fixed maturities 657,863 670,185 899,445
Realized investment losses, net 1,119,156 279,096 987,930
Policy acquisition costs deferred (892,000) (586,000) (1,276,000)
Amortization of deferred policy acquisition costs 5,168,172 1,310,636 1,387,372
Amortization of cost of insurance acquired 2,214,928 2,394,392 5,524,815
Amortization of costs in excess of net assets purchased 90,000 155,000 185,279
Depreciation 494,364 469,854 390,357
Minority interest (835,181) (563,699) (1,278,883)
Equity in (earnings) loss of investees 21,525 23,716 95,392
Change in accrued investment income 123,179 (224,763) 210,043
Change in reinsurance receivables 813,283 1,257,953 83,871
Change in policy liabilities and accruals 75,087 (547,081) 3,326,651
Charges for mortality and administration
of universal life and annuity products (10,771,795) (10,588,874) (10,239,476)
Interest credited to account balances 7,014,683 7,212,406 7,075,921
Change in income taxes payable (4,635,447) 925,896 (4,714,258)
Change in indebtedness (to) from affiliates, net 3,769 (13,362) 119,706
Change in other assets and liabilities, net 2,184,079 (1,593,358) 1,299,773
------------ ------------- ------------
Net cash provided by operating activities 2,166,173 22,749 3,140,035
------------ ------------- ------------

Cash flows from investing activities:
Proceeds from investments sold and matured:
Fixed maturities held for sale 164,520 290,660 1,219,036
Fixed maturities sold 0 0 18,736,612
Fixed maturities matured 54,642,223 21,488,265 20,721,482
Equity securities 450,000 76,302 8,990
Mortgage loans 1,785,859 1,794,518 3,364,427
Real estate 1,716,124 1,136,995 3,219,851
Policy loans 3,661,834 4,785,222 3,937,471
Short term 1,593,749 410,000 825,000
------------ ------------- ------------
Total proceeds from investments sold and matured 64,014,309 29,981,962 52,032,869
Cost of investments acquired:
Fixed maturities (48,745,594) (23,220,172) (29,365,111)
Equity securities (79,053) (1,248,738) 0
Mortgage loans (3,667,061) (245,234) (503,113)
Real estate (1,346,299) (1,444,980) (813,331)
Policy loans (3,588,686) (4,554,291) (4,329,124)
Other long-term investments (66,212) 0 0
Short term (851,198) (1,726,035) (830,983)
------------ ------------- ------------
Total cost of investments acquired (58,344,103) (32,439,450) (35,841,662)
Purchase of property and equipment (114,449) (531,528) (383,411)
------------ ------------- ------------
Net cash provided by (used in) investing activities 5,555,757 (2,989,016) 15,807,796
------------ ------------- ------------

Cash flows from financing activities:
Policyholder contract deposits 15,480,745 17,905,246 22,245,369
Policyholder contract withdrawals (12,402,530) (14,515,576) (15,433,644)
Net cash transferred from coinsurance ceded 0 0 (19,088,371)
Net cash transferred from coinsurance assumed 420,790 0 0
Proceeds from notes payable 500,000 2,560,000 9,050,000
Payments of principal on notes payable (12,420,373) (1,874,597) (10,923,475)
Payment for fractional shares from reverse stock split 0 (2,381) 0
Payment for fractional shares from reverse stock split
of subsidiary 0 (534,251) 0
Purchase of stock of affiliates (1,500) (865,877) 0
Purchase of treasury stock (26,527) (926,599) 0
Proceeds from issuance of common stock 10,999,995 0 500
------------ ------------- ------------
Net cash provided by (used in ) financing activities 2,550,600 1,745,965 (14,149,621)
------------ ------------- ------------

Net increase (decrease) in cash and cash equivalents 10,272,530 (1,220,302) 4,798,210
Cash and cash equivalents at beginning of year 16,105,933 17,326,235 12,528,025
------------ ------------- ------------
Cash and cash equivalents at end of year $ 26,378,463 $ 16,105,933 $ 17,326,235
============ ============= ============

See accompanying notes
40

UNITED TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

ORGANIZATIONAL CHART
AS OF DECEMBER 31, 1998

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 - United Trust, Inc. is an insurance holding
company, which sells individual life insurance products through its
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 United Trust,
Inc.'s life insurance subsidiaries have been prepared in accordance
with generally accepted accounting principles which differ from
statutory accounting practices permitted by insurance regulatory
authorities.

E. PRINCIPLES OF CONSOLIDATION - The consolidated financial statements
include the accounts of the Company and its majority-owned
subsidiaries. Investments in 20% to 50% owned affiliates in which
management has the ability to exercise significant influence are
included based on the equity method of accounting and the Company's
share of such affiliates' operating results is reflected in Equity in
loss of investees. Other investments in affiliates are carried at
cost. All significant intercompany accounts and transactions have been
eliminated.

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

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

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

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

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

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

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

Other long-term investments -- at cost.

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

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

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

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

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

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

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

K. COST OF INSURANCE ACQUIRED - When an insurance company is acquired,
the Company assigns a portion of its cost to the right to receive
future cash flows from insurance contracts existing at the date of the
acquisition. The cost of policies purchased represents the actuarially
determined present value of the projected future cash flows from the
acquired policies. The Company utilized 9% discount rate on
approximately 25% of the business and 15% discount rate on
approximately 75% 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 25% 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.

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

Cost of insurance acquired,
beginning of year $ 41,522,888 $ 43,917,280 $ 55,816,934
Interest accretion 5,624,883 5,962,644 6,312,931
Amortization (7,839,811) (8,357,036) (11,837,746)
---------------- ---------------- ----------------
Net amortization (2,214,928) (2,394,392) (5,524,815)
Balance attributable to
coinsurance agreement 0 0 (6,374,839)
---------------- ---------------- ----------------

Cost of insurance acquired,
end of year $ 39,307,960 $ 41,522,888 $ 43,917,280
================ ================ ================

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

Interest Net
Accretion Amortization Amortization

1999 5,319,000 6,887,000 1,568,000
2000 5,107,000 6,421,000 1,314,000
2001 4,934,000 6,423,000 1,489,000
2002 4,737,000 6,203,000 1,466,000
2003 4,542,000 6,187,000 1,645,000

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.

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

Deferred, beginning of year $ 10,600,720 $ 11,325,356 $ 11,436,728

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

Interest accretion 397,000 425,000 408,000
Amortization charged to income (2,582,172) (2,421,636) (2,391,372)
---------------- ---------------- ----------------
Net amortization

Amortization due to impairment (2,983,000) 0 0

---------------- ---------------- ----------------
Change for the year (4,276,172) (724,636) (111,372)
---------------- ---------------- ----------------

Deferred, end of year $ 6,324,548 $ 10,600,720 $ 11,325,356
================ ================ ================

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

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

Net amortization of deferred
policy acquisition costs $ 5,168,172 $ 1,996,636 $ 1,983,372
Commissions 1,282,357 1,619,729 2,241,513
---------- ---------- ----------
Total $ 6,450,529 $ 3,616,365 $ 4,224,885
========== ========== ==========

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

Interest Net
Accretion Amortization Amortization

1999 $ 157,000 $ 1,367,000 $ 1,210,000
2000 140,000 1,202,000 1,062,000
2001 124,000 1,053,000 929,000
2002 110,000 920,000 810,000
2003 98,000 803,000 705,000

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 $1,510,146
and $1,420,146 as of December 31, 1998 and 1997, respectively.

N. PROPERTY AND EQUIPMENT - Company-occupied property, data processing
equipment and furniture and office equipment are stated at cost less
accumulated depreciation of $1,939,501 and $1,990,314 at December 31,
1998 and 1997, respectively. Depreciation is computed on a
straight-line basis for financial reporting purposes using estimated
useful lives of three to 30 years. Depreciation expense was $348,204
and $372,861 for the years ended December 31, 1998 and 1997,
respectively.

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

P. EARNINGS PER SHARE - Earnings per share are based on the weighted
average number of common shares outstanding during each year,
retroactively adjusted to give effect to all stock splits. In
accordance with Statement of Financial Accounting Standards No. 128,
the computation of diluted earnings per share is the same as basic
earnings per share since the Company has a loss from continuing
operations in each period presented, and any assumed conversion,
exercise, or contingent issuance of securities would have an
antidilutive effect on earnings per share. Had the Company not been in
a loss position, the outstanding dilutive instruments would have been
convertible notes of 204,800, 0 and 0 shares in 1998, 1997 and 1996,
respectively, and stock options exercisable of 1,562, 1,562, and 4,062
shares in 1998, 1997, and 1996, respectively. UTI had stock options
outstanding during each of the periods presented for 1,555,000,
105,000 and 105,000 shares of common stock at a per share price in
excess of the average market price, and would therefore not have been
included in the computation of diluted earnings per share for 1998,
1997 and 1996, respectively.

Q. RECOGNITION OF REVENUES AND RELATED EXPENSES - Premiums for
traditional life insurance products, which include those products with
fixed and guaranteed premiums and benefits, consist principally of
whole life insurance policies, 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.

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

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

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

2. SHAREHOLDER DIVIDEND RESTRICTION

At December 31, 1998, substantially all of consolidated shareholders' equity
represents net assets of UTI's subsidiaries. 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. UTI is the ultimate parent of UG through ownership of several
intermediary holding companies. UG can not pay a dividend directly to UTI due to
the ownership structure. UG's dividend limitations are described below without
effect of the ownership structure.

Ohio domiciled insurance companies require five days prior notification to the
insurance commissioner for the payment of an ordinary dividend. Ordinary
dividends are defined as the greater of: a) prior year statutory earnings or b)
10% of statutory capital and surplus. For the year ended December 31, 1998, UG
had a statutory gain from operations of $3,226,364. At December 31, 1998, UG's
statutory capital and surplus amounted to $15,280,577. Extraordinary dividends
(amounts in excess of ordinary dividend limitations) require prior approval of
the insurance commissioner and are not restricted to a specific calculation.

3. INCOME TAXES

Until 1984, the insurance companies were taxed under the provisions of the Life
Insurance Company Income Tax Act of 1959 as amended by the Tax Equity and Fiscal
Responsibility Act of 1982. These laws were superseded by the Deficit Reduction
Act of 1984. All of these laws are based primarily upon statutory results with
certain special deductions and other items available only to life insurance
companies. Under the provision of the pre-1984 life

insurance company income tax regulations, a portion of "gain from operations" of
a life insurance company was not subject to current taxation but was
accumulated, for tax purposes, in a special tax memorandum account designated as
"policyholders' surplus account". Federal income taxes will become payable on
this account at the then current tax rate when and if distributions to
shareholders, other than stock dividends and other limited exceptions, are made
in excess of the accumulated previously taxed income maintained in the
"shareholders surplus account".

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

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

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

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

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

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

Current tax expense $ 111,470 $ 5,400 $ (148,148)
Deferred tax expense (credit) (4,735,502) 980,829 (4,555,593)
---------------- ----------------- ----------------
$ (4,624,032) $ 986,229 $ (4,703,741)
================ ================= ================

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

UTI UG FCC
------------- ------------- ---------------
2004 369,265 0 0
2005 292,656 0 0
2006 212,852 0 0
2007 110,758 0 136,058
2008 0 0 4,595
2009 0 0 168,800
2010 0 0 19,112
2012 0 386,669 0
------------- ------------- ---------------
TOTAL $ 985,531 $ 386,669 $ 328,565
============= ============= ===============

The Company has established a deferred tax asset of $595,268 for its operating
loss carryforwards and has established an allowance of $250,332.

The following table shows the reconciliation of net income to taxable income of
UTI:

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

Net income (loss) $ (679,492) $ (559,248) $ (937,903)
Federal income tax provision (credit) (121,495) 414,230 (59,780)
Loss of subsidiaries 421,738 356,422 714,916
Loss of investees 21,525 23,716 95,392
Write off of investment in affiliate 0 0 315,000
Write off of note receivable 0 (4,368) 211,419
Write off of note discounts 586,462 48,427 25,528
Depreciation 0 0 1,046
=============== =============== ================
Taxable income $ 228,738 $ 279,179 $ 365,618
=============== =============== ================

UTI has a net operating loss carryforward of $985,531 at December 31, 1998. UTI
has averaged approximately $290,000 in taxable income over the past three years
and must average taxable income of approximately $200,000 per year to fully
realize its net operating loss carryforwards. UTI's operating loss carryforwards
do not begin to expire until the year 2004. Management believes future earnings
of UTI will be sufficient to fully utilize its net operating loss carryforwards.

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

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

Tax computed at statutory rate $ (2,141,013) $ (39,551) $ (2,388,797)
Changes in taxes due to:
Cost in excess of net assets purchased 31,500 54,250 64,848
Current year loss for which no benefit realized 0 1,039,742 0
Benefit of prior losses (2,587,353) (324,705) (2,393,395)
Other 72,834 256,493 13,603
--------------- --------------- ----------------
Income tax expense (credit) $ (4,624,032) $ 986,229 $ (4,703,741)
=============== =============== ================

The following table summarizes the major components that comprise the deferred
tax liability as reflected in the balance sheets:
1998 1997
---------------- ---------------
Investments $ (182,000) $ (228,027)
Cost of insurance acquired 14,935,793 15,753,308
Other assets (72,468) (72,468)
Deferred policy acquisition costs 2,213,592 3,710,252
Agent balances (22,257) (23,954)
Property and equipment (149) (19,818)
Discount of notes 0 1,097,352
Management/consulting fees (376,852) (573,182)
Future policy benefits (6,144,399) (4,421,038)
Gain on sale of subsidiary 2,312,483 2,312,483
Net operating loss carryforward (344,936) (424,679)
Other liabilities (797,832) (756,482)
Federal tax DAC (2,082,217) (2,179,487)
---------------- ---------------
Deferred tax liability $ 9,438,758 $ 14,174,260
================ ===============

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

Fixed maturities and fixed maturities
held for sale $ 11,981,660 $ 12,677,348 $ 13,326,312
Equity securities 92,196 87,211 88,661
Mortgage loans 859,543 802,123 1,047,461
Real estate 842,724 745,502 794,844
Policy loans 984,761 976,064 1,121,538
Other long-term investments 62,477 64,232 89,321
Short-term investments 29,907 70,624 17,664
Cash 1,235,888 632,254 605,549
--------------- ---------------- ----------------
Total consolidated investment income 16,089,156 16,055,358 17,091,350
Investment expenses (1,046,869) (1,198,061) (1,222,903)
--------------- --------------- ----------------
Consolidated net investment income $ 15,042,287 $ 14,857,297 $ 15,868,447
=============== ================ ================

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

Carrying Value
----------------------------------------
1998 1997
--------------- ---------------

Investments held for sale:
Fixed maturities $ 1,505,406 $ 1,668,630
Equity securities 2,087,416 3,001,744
Fixed maturities:
U.S. Government, government agencies and authorities 36,809,239 28,259,322
State, municipalities and political subdivisions 23,835,306 22,778,816
Collateralized mortgage obligations 9,406,895 11,093,926
Public utilities 41,724,208 47,984,322
All other corporate bonds 62,465,200 70,853,947
--------------- ---------------
$ 177,833,670 $ 185,640,707
=============== ===============

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

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

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

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

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
1998 Cost Gains Losses Value
- --------------------------------- -------------- -------------- -------------- --------------

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

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

Cost or Gross Gross Estimated
Amortized Unrealized Unrealized Market
1997 Cost Gains Losses Value
- --------------------------------- -------------- -------------- -------------- --------------

Investments Held for Sale:
U.S. Government and govt.
agencies and authorities $ 1,448,202 $ 0 $ (5,645) $ 1,442,557
States, municipalities and
political subdivisions 35,000 485 0 35,485
Collateralized mortgage
obligations 0 0 0 0
Public utilities 80,169 328 0 80,496
All other corporate bonds 108,927 1,164 0 110,092
-------------- -------------- -------------- --------------
1,672,298 1,977 (5,645) 1,668,630
Equity securities 3,184,357 176,508 (359,121) 3,001,744
-------------- -------------- -------------- --------------
Total $ 4,856,655 $ 176,485 $ (364,766) $ 4,670,374
============== ============== ============== ==============

Held to Maturity Securities:
U.S. Government and govt.
agencies and authorities $ 28,259,322 $ 415,419 $ (51,771) $ 28,622,970
States, municipalities and
political subdivisions 22,778,816 672,676 (1,891) 23,449,601
Collateralized mortgage
obligations 11,093,926 210,435 (96,714) 11,207,647
Public utilities 47,984,322 1,241,969 (84,754) 49,141,537
All other corporate bonds 70,853,947 1,599,983 (93,117) 72,360,813
-------------- -------------- -------------- --------------
Total $ 180,970,333 $ 4,140,482 $ (328,247) $ 184,782,568
============== ============== ============== ==============

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

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

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

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

Cost or Gross Gross Proceeds
Amortized Realized Realized from
Year ended December 31, 1998 Cost Gains Losses Sale
- ------------------------------------- --------------- ------------- --------------- ---------------

Scheduled principal repayments,
calls and tenders:
Held for sale $ 164,161 $ 359 $ 0 $ 164,520
Held to maturity 54,824,249 126,285 (308,311) 54,642,223
Sales:
Held for sale 0 0 0 0
Held to maturity 0 0 0 0
--------------- ------------- --------------- ---------------
Total $ 54,988,410 $ 126,644 $ (308,311) $ 54,806,743
=============== ============= =============== ===============

Cost or Gross Gross Proceeds
Amortized Realized Realized from
Year ended December 31, 1997 Cost Gains Losses Sale
- ------------------------------------- --------------- ------------- --------------- ---------------

Scheduled principal repayments,
calls and tenders:
Held for sale $ 299,390 $ 931 $ (9,661) $ 290,660
Held to maturity 21,467,552 21,435 (722) 21,488,265
Sales:
Held for sale 0 0 0 0
Held to maturity 0 0 0 0
--------------- ------------- --------------- ---------------
Total $ 21,766,942 $ 22,366 $ (10,383) $ 21,778,925
=============== ============= =============== ===============

Cost or Gross Gross Proceeds
Amortized Realized Realized from
Year ended December 31, 1996 Cost Gains Losses Sale
- ------------------------------------- --------------- ------------- --------------- ---------------

Scheduled principal repayments,
calls and tenders:
Held for sale $ 699,361 $ 6,035 $ (813) $ 704,583
Held to maturity 20,900,159 13,469 (192,146) 20,721,482
Sales:
Held for sale 517,111 0 (2,658) 514,453
Held to maturity 18,735,848 81,283 (80,519) 18,736,612
--------------- ------------- --------------- ---------------
Total $ 40,852,479 $ 100,787 $ (276,136) $ 40,677,130
=============== ============= =============== ===============

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

D. INVESTMENTS IN AND ADVANCES TO AFFILIATED COMPANIES - The Company's
investment in United Income, Inc., a 40% owned affiliate, is carried at an
amount equal to the Company's share of the equity of United Income. The
Company's equity in United Income, Inc. includes the original investment of
$194,304, an increase of $4,359,749 resulting from a public offering of
stock and the Company's share of earnings and losses since inception.

5. DISCLOSURES ABOUT FAIR VALUES OF FINANCIAL INSTRUMENTS

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

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

(a) Cash and Cash equivalents

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

(b) Fixed maturities and investments held for sale

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

The fair values of mortgage loans are estimated using discounted cash flow
analyses 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 mortgage loans and certificates of
deposit with various banks that are protected under FDIC.

(g) Other long-term investments

The Company holds a $840,066 note receivable for which the determination of fair
value is estimated by discounting the future cash flows using the current rates
at which similar loans would be made to borrowers with similar credit ratings
and for the same remaining maturities.

(h) Notes payable

For borrowings under the senior loan agreement, which is subject to floating
rates of interest, carrying value is a reasonable estimate of fair value. For
subordinated borrowings fair value was determined based on the borrowing rates
currently available to the Company for loans with similar terms and average
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:

1998 1997
--------------------------------------------------------------------------
Estimated Estimated
Carrying Fair Carrying Fair
Assets Amount Value Amount Value
- ------ --------------- --------------- -------------- ---------------

Fixed maturities $ 174,240,848 $ 179,885,379 $ 180,970,333 $ 184,782,568
Fixed maturities
held for sale 1,505,406 1,505,406 1,668,630 1,668,630
Equity securities 2,087,416 2,087,416 3,001,744 3,001,744
Mortgage loans on
real estate 10,941,614 10,979,378 9,469,444 9,837,530
Investment in real
estate 8,979,183 8,979,183 9,760,732 9,760,732
Real estate
acquired in
satisfaction of debt 1,550,000 1,550,000 1,724,544 1,724,544
Policy loans 14,134,041 14,134,041 14,207,189 14,207,189
Other long-term 906,278 879,037 840,066 784,831
investments
Short-term
investments 1,062,796 1,062,796 1,798,878 1,798,878

Liabilities
- -----------
Notes payable 9,529,138 9,431,363 21,460,223 20,925,184

6. STATUTORY EQUITY AND GAIN FROM OPERATIONS

The Company's insurance subsidiaries are domiciled in Ohio, Illinois and West
Virginia and prepare their statutory-based financial statements in accordance
with accounting practices prescribed or permitted by the respective insurance
department. These principles differ significantly from generally accepted
accounting principles. "Prescribed" statutory accounting practices include state
laws, regulations, and general administrative rules, as well as a variety of
publications of the National Association of Insurance Commissioners ("NAIC").
"Permitted" statutory accounting practices encompass all accounting practices
that are not prescribed; such practices may differ from state to state, from
company to company within a state, and may change in the future. The NAIC
currently is in the process of codifying statutory accounting practices, the
result of which is expected to constitute the only source of "prescribed"
statutory accounting practices. Accordingly, that project, which is expected to
become effective January 1, 2001, will likely change prescribed statutory
accounting practices and may result in changes to the accounting practices that
insurance enterprises use to prepare their statutory financial statements. UG's
total statutory shareholders' equity was $15,280,577 and $10,997,365 at December
31, 1998 and 1997, respectively. The Company's four life insurance subsidiaries
reported combined statutory operating income before taxes (exclusive of
intercompany dividends) of $5,485,000, $2,067,000 and $2,134,000 for 1998, 1997
and 1996, respectively.

7. REINSURANCE

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

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

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

One of the Company's insurance subsidiaries (UG) entered into a coinsurance
agreement with First International Life Insurance Company ("FILIC") as of
September 30, 1996. The transaction resulted in no gain or loss in the GAAP
financial statements. The transaction was entered into to increase the statutory
surplus position of UG. The ceding commission received was equal to the value
reflected on this block of business in the Cost of Insurance Acquired asset. The
ceding commission reduced this asset. Under the terms of the agreement, UG ceded
to FILIC substantially all of its paid-up life insurance policies. Paid-up life
insurance generally refers to non-premium paying life insurance policies. A.M.
Best assigned FILIC a Financial Performance Rating (FPR) of 7 (Strong) on a
scale of 1 to 9. A.M. Best assigned a Best's Rating of A++ (Superior) to The
Guardian Life Insurance Company of America ("Guardian"), parent of FILIC, based
on the consolidated financial condition and operating performance of the company
and its life/health subsidiaries. During 1997, FILIC changed its name to Park
Avenue Life Insurance Company ("PALIC"). The agreement with PALIC accounts for
approximately 65% of the reinsurance receivables as of December 31, 1998.

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

8. COMMITMENTS AND CONTINGENCIES

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

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

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

9. RELATED PARTY TRANSACTIONS

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

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

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

arrangements in 1998, 1997 and 1996, respectively. UG paid $8,018,141,
$8,660,481 and $9,626,559 to FCC in 1998, 1997 and 1996, respectively.

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

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

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

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

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

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

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

10. CAPITAL STOCK TRANSACTIONS

A. STOCK OPTION PLAN

In 1985, the Company initiated a nonqualified stock option plan for employees,
agents and directors of the Company under which options to purchase up to 44,000
shares of UTI's common stock are granted at a fixed price of $.20 per share.
Through December 31, 1998 options for 42,438 shares were granted and exercised.
Options for 1,562 shares remain available for grant.

A summary of the status of the Company's stock option plan for the three years
ended December 31, 1998, and changes during the years ending on those dates is
presented below:

1998 1997 1996
------------------------ ------------------------ --------------------------
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
---------- ------------ ---------- ------------ ---------- ------------

Outstanding at beginning of year 1,562 $ 0.20 1,562 $ 0.20 4,062 $ 0.20
Granted 0 0.00 0 0.00 0 0.00
Exercised 0 0.00 0 0.00 (2,500) 0.20
Forfeited 0 0.00 0 0.00 0 0.00
---------- ---------- ----------
Outstanding at end of year 1,562 $ 0.20 1,562 $ 0.20 1,562 $ 0.20
========== ========== ==========

Options exercisable at year end 1,562 $ 0.20 1,562 $ 0.20 1,562 $ 0.20
Fair Value of options granted $ 0.00 $ 0.00 $ 5.43
during the year

The following information applies to options outstanding at December 31,
1998:

Number outstanding 1,562
Exercise price $ 0.20
Remaining contractual life Indefinite

B. DEFERRED COMPENSATION PLAN

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

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

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

C. CHANGE IN CONTROL OF UTI

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

D. CONVERTIBLE NOTES

On July 31, 1997, United Trust Inc. issued convertible notes for cash in the
amount of $2,560,000 to seven individuals, all officers or employees of United
Trust Inc. The notes bear interest at a rate of 1% over prime, with interest
payments due quarterly and principal due upon maturity of July 31, 2004. The
conversion price of the notes are graded from $12.50 per share for the first
three years, increasing to $15.00 per share for the next two years and
increasing to $20.00 per share for the last two years. As of December 31, 1998,
the notes were convertible into 204,800 shares of UTI common stock with no
conversion privileges having been exercised. At December 31, 1998, UTI common
stock had a market price of $8.125 per share. On March 1, 1999, the individuals
holding the convertible notes sold their interests in said notes to First
Southern Bancorp, Inc. in private transactions. Pursuant to the terms of the
stock purchase agreement with First Southern and UTI, the convertible notes must
be converted to stock by July 31, 2000.

E. REVERSE STOCK SPLIT

On May 13, 1997, UTI effected a 1 for 10 reverse stock split. Fractional shares
received a cash payment on the basis of $1.00 for each old share. The reverse
split was completed to enable UTI to meet new NASDAQ requirements regarding
market value of stock to remain listed on the NASDAQ market and to increase the
market value per share to a level where more brokers will look at UTI and its
stock. Prior period numbers have been restated to give effect of the reverse
split.

11. NOTES PAYABLE

At December 31, 1998 and 1997, the Company has $9,529,138 and $21,460,223 in
long-term debt outstanding, respectively. The debt is comprised of the following
components:

1998 1997
------------- -------------
Senior debt $ 100,000 $ 6,900,000
Subordinated 10 yr. notes 2,267,067 5,746,774
Subordinated 20 yr. notes 3,252,071 3,902,582
Convertible notes 2,560,000 2,560,000
Other notes payable 1,350,000 2,350,867
------------- -------------
$ 9,529,138 $ 21,460,223
============= =============

A. SENIOR DEBT

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

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

B. SUBORDINATED DEBT

The subordinated debt was incurred June 16, 1992 as a part of the acquisition of
the now dissolved Commonwealth Industries Corporation, (CIC). The 10-year notes
bear interest at the rate of 7 1/2% per annum, payable semi-annually beginning
December 16, 1992. These notes, except for one $840,000 note, provide for
principal payments equal to 1/20th of the principal balance due with each
interest installment beginning December 16, 1997, with a final payment due June
16, 2002. The aforementioned $840,00 note provides for a lump sum principal
payment due June 16, 2002. In addition to regularly scheduled semi-annual
principal payments, the Company made principal reduction payments totaling
$2,608,099 on November 23, 1998, and $500,000 on December 16, 1998, on its 10
year subordinated debt. The original 20-year notes bear interest at the rate of
8 1/2% per annum on $2,747,109 and 8.75% per annum on $504,962 payable
semi-annually with a lump sum principal payment due June 16, 2012.

C. CONVERTIBLE NOTES

On July 31, 1997, UTI issued convertible notes for cash in the amount of
$2,560,000 to seven individuals, all officers or employees of UTI The notes bear
interest at a rate of 1% over prime, with interest payments due quarterly and
principal due upon maturity of July 31, 2004. The conversion price of the notes
are graded from $12.50 per share for the first three years, increasing to $15.00
per share for the next two years and increasing to $20.00 per share for the last
two years.

D. OTHER NOTES PAYABLE

UII holds three promissory notes receivable totaling $1,350,000 due from FCC.
Two of the notes, totaling $850,000, bear interest at the rate of 1% over prime
as published in the Wall Street Journal, with interest payments due quarterly.
Principal of $150,000 is due upon the maturity date of June 1, 1999, with the
remaining principal payment of $700,000 becoming due upon the maturity date of
May 8, 2006. The third note in the amount of $500,000 bears interest at the rate
of 7.5%, with interest payments due quarterly, and principal due upon the
maturity date of March 31, 2004.

E. GENERAL DISCUSSION

In November 1998, UTI received approximately $11,000,000 from the issuance of
common stock to First Southern Funding and its affiliates. These funds were used
to retire outside debt. At December 31, 1998, there were no unamortized note
discounts remaining on the balance sheet and total notes payable of $9,529,138
represented a 56% decrease in notes payable from the previous year end. In
addition, subsequent to the balance sheet date, on March 1, 1999, First Southern
acquired the $2,560,000 of UTI convertible debt outstanding from the seven
officers and employees who previously held the notes. Pursuant to the terms of
an agreement with First Southern, this debt will be converted to equity by July
31, 2000.

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

Year Amount

1999 $ 376,714
2000 226,714
2001 226,714
2002 1,586,925
2003 0

12. OTHER CASH FLOW DISCLOSURES

On a cash basis, the Company paid $1,851,386, $1,800,110 and $1,700,973 in
interest expense for the years 1998, 1997 and 1996, respectively. The Company
paid $15,805, $57,277 and $17,634 in federal income tax for 1998, 1997 and 1996,
respectively.

As partial proceeds for the acquisition of common stock of UTI during 1998, UTI
issued a promissory note of $53,053 due seven years from issue.

As partial proceeds for the acquisition of common stock of UTI and UII during
1997, UTI issued promissory notes of $140,000 due in eighteen months, $61,000
due in seven years and $1,281,000 due in seven and one-half years.

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

13. CONCENTRATION OF CREDIT RISK

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

14. NEW ACCOUNTING STANDARDS

15. PROPOSED MERGER

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

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

16. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

1998
-------------------- --------------------- --------------------- --------------------
1st 2nd 3rd 4th
--------------- --------------- --------------- ---------------

Premiums and policy fees, net $ 7,231,481 $ 7,111,079 $ 6,243,869 $ 5,809,648
Net investment income 3,727,002 3,786,410 3,791,774 3,737,101
Total revenues 11,226,760 10,557,065 9,767,526 9,334,049
Policy benefits including
dividends 6,827,040 6,287,460 6,217,272 6,140,602
Commissions and
amortization of DAC 1,043,677 776,558 824,516 3,805,778
Operating expenses 2,237,840 2,237,899 1,953,061 4,237,176
Operating income (loss) 19,707 163,392 (204,429) (6,095,850)
Net income (loss) 114,441 228,704 458,002 (1,480,639)
Basic earnings (loss) per share 0.07 0.14 0.28 (0.88)
Diluted earnings (loss) per share 0.08 0.15 0.27 (0.88)

1997
-------------------- --------------------- --------------------- --------------------
1st 2nd 3rd 4th
--------------- --------------- --------------- ---------------

Premiums and policy fees, net $ 7,926,386 $ 7,808,782 $ 6,639,394 $ 6,264,683
Net investment income 3,844,899 3,825,457 3,686,861 3,500,080
Total revenues 11,965,571 11,871,953 10,354,133 9,800,673
Policy benefits including
dividends 7,718,015 6,861,699 6,467,739 6,007,718
Commissions and
amortization of DAC 1,110,410 553,913 1,083,006 869,036
Operating expenses 2,589,176 2,777,409 2,378,618 1,477,710
Operating income (loss) (393,242) 683,223 (679,495) 276,512
Net income (loss) 47,026 101,812 (524,441) (183,645)
Basic earnings (loss) per share 0.03 0.05 (0.28) (0.12)
Diluted earnings (loss) per share 0.03 0.05 (0.28) (0.12)

1996
-------------------- --------------------- --------------------- --------------------
1st 2nd 3rd 4th
--------------- --------------- --------------- ---------------

Premiums and policy fees, net $ 8,481,511 $ 8,514,175 $ 7,348,199 $ 6,600,573
Net investment income 3,973,349 3,890,127 4,038,831 3,966,140
Total revenues 12,870,140 12,455,875 11,636,614 10,013,741
Policy benefits including
dividends 6,528,760 7,083,803 8,378,710 8,334,759
Commissions and
amortization of DAC 1,161,850 924,174 703,196 1,435,665
Operating expenses 3,447,329 2,851,752 3,422,654 2,272,729
Operating income (loss) (71,615) (137,198) (2,346,452) (4,269,870)
Net income (loss) 304,737 9,038 (892,761) (358,917)
Basic earnings (loss) per share 0.16 0.00 (0.48) (0.18)
Diluted earnings (loss) per share 0.16 0.00 (0.48) (0.18)

ITEM 9. DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

NONE

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF UTI

THE BOARD OF DIRECTORS

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

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

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

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

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

DIRECTORS

Name, Age

Position with the Company, Business Experience and Other Directorships

John S. Albin 70

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

Randall L. Attkisson 53

Director of UTI since 1998, Chief Financial Officer, Treasurer,
Director of First Southern Bancorp, Inc. since 1986; Director of The
Galilean Home, Liberty, KY since 1996; Treasurer, Director of First
Southern Funding, Inc. since 1992; Director of The River Foundation,
Inc. since 1990; Treasurer, Director of Somerset Holdings, Inc. since
1987; President of Randall L. Attkisson & Associates from 1982 to
1986; Commissioner of Kentucky Department of Banking & Securities from
1980 to 1982; Self-employed Banking Consultant in Miami, FL from 1978
to 1980.

William F. Cellini 64

Director of UTI since 1996 and Director of FCC and certain affiliate
companies since 1984; Chairman of the Board of New Frontier
Development Group, Chicago, Illinois for more than the past five
years; Executive Director of Illinois Asphalt Pavement Association.

Robert E. Cook 73

Director of UTI since 1984, President of Cook-Witter, Inc., a
governmental consulting and lobbying firm with offices in Springfield,
Illinois, from 1985 until 1990.

Jesse T. Correll 42

Director of UTI since 1998, Chairman, President, Director of First
Southern Bancorp, Inc. since 1983; President, Director of First
Southern Funding, Inc. since 1992; President, Director of Somerset
Holdings, Inc. and Lancaster Life Reinsurance Company and First
Southern Insurance Agency since 1987; President, Director of The River
Foundation since 1990; President, Director of Dyscim Holdings Company,
Inc. since 1990; Director or Adamas Diamond Corporation since 1980;
Secretary, Director Lovemore Holding Company since 1987; President,
Director of North Plaza of Somerset since 1990; Director of St. Joseph
Hospital, Lexington, KY since 1997; Managing Partner of World Wide
Minerals from 1978 to 1983.

Larry R. Dowell 64

Director of UTI since 1984; cattleman and farmer in Stronghurst,
Henderson County, Illinois since 1956; member of the Illinois Beef
Association; past Board and Executive Committee member of Illinois
Beef Council; Chairman of Henderson County Board of Supervisors since
1992.

Donald G. Geary 75

Director of UTI since 1996, Director of FCC and certain affiliate
companies since 1984; industrial warehousing developer and founder of
Regal 8 Inns for more than the past five years.

Raymond L. Larson 64

Director of UTI since 1984; cattleman and farmer since 1953; Director
of the Bank of Sugar Grove, Illinois since 1977; Board member of
National Livestock and Meat Board since 1983 and currently Treasurer,
Board member and past President of Illinois Beef Council; member of
National Cattlemen's Association and Illinois Cattlemen's Association.

Dale E. McKee 80

Director of UTI since 1984; pork producer and farmer in Rio, Illinois
since 1947; President of McKee and Flack, Inc., an Iowa corporation
engaged in farming since 1975; director of St. Mary's Hospital of
Galesburg since 1984.

James E. Melville 53

Director, President and Chief Operating Officer since July 1997; Chief
Financial Officer of UTI since 1993, Senior Executive Vice President
of UTI since September 1992; President of certain Affiliate Companies
from May 1989 until September 1991; Chief Operating Officer of FCC
from 1989 until September 1991; Chief Operating Officer of certain
Affiliate Companies from 1984 until September 1991; Senior Executive
Vice President of certain affiliate companies from 1984 until 1989;
Consultant to UTI and UTG from March 1992 through September 1992;
President and Chief Operating Officer of certain affiliate life
insurance companies and Senior Executive Vice President of
non-insurance affiliate companies since 1992.

Thomas F. Morrow 54

Director of UTI since 1984; Director of certain affiliate companies
since 1992. Mr. Morrow has served as Vice Chairman and Director of
certain affiliate life insurance companies since 1992 as well as
having held similar positions with other affiliate life insurance
companies from 1987 to 1992.

Millard V. Oakley 68

Director of UTI since 1998; presently serves on Board of Directors and
Executive Committee of Thomas Nelson, a publicly held publishing
company based in Nashville, TN; Director of First National Bank of the
Cumberlands, Livingston-Cooksville, TN; Lawyer with limited law
practice since 1980; State Insurance Commissioner for State of
Tennessee from 1975 to 1979; Served as General Counsel, United States
House of Representatives, Washington, D.C., Congressional Committee on
Small Business from 1971-1973; Served four elective terms as County
Attorney for Overton County, Tennessee; Elected delegate to National
Democratic Convention in 1964; Served four elective terms in the
Tennessee

General Assembly from 1956 to 1964; Lawyer in Livingston, TN from 1953
to 1971; Elected to the Tennessee Constitutional Convention in 1952.

Larry E. Ryherd 58

Chairman of the Board of Directors and a Director since 1984, CEO
since 1991; Chairman of the Board of UII since 1987, CEO since 1992
and President since 1993; Chairman, CEO and Director of UTG since
1992; Chairman of the Board, CEO, President and COO of certain
affiliate life insurance companies since 1992.

EXECUTIVE OFFICERS OF UTI

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

Larry E. Ryherd Chairman of the Board and Chief Executive Officer
James E. Melville President and Chief Operating Officer

Other officers of UTI are set forth below:

Name, Age

Position with UTI, Business Experience and Other Directorships

George E. Francis 55

Executive Vice President and Chief Administrative Officer since July
1997; Secretary of UTI since February 1993; Director of certain
Affiliate Companies since October 1992; Senior Vice President and
Chief Administrative Officer of certain Affiliate Companies since
1989; Secretary of certain Affiliate Companies since March 1993;
Treasurer and Chief Financial Officer of certain Affiliate Companies
from 1984 until September 1992.

Theodore C. Miller 36

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

ITEM 11. EXECUTIVE COMPENSATION UTI

Executive Compensation Table

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

SUMMARY COMPENSATION TABLE

Annual Compensation (1)

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

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

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

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

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

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

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

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

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

Name Exercisable Unexercisable Exercisable Unexercisable

Larry E. Ryherd - - 13,800 - - -
James E. Melville - - 30,000 - - -
George E. Francis - - 4,600 - - -

Compensation of Directors

UTI'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. UTI's director
compensation policy also provides that directors who are either employees of UTI
or directors or officers of First Southern Funding, LLC and affiliates do not
receive any compensation for their services as directors except for
reimbursement for reasonable travel expenses for attending each meeting; namely
Messers Ryherd, Melville, Attkisson, Correll and Oakley.

Employment Contracts

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

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

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

On July 31, 1997, UTI entered into a severance agreement with Thomas F. Morrow,
Director of the Company since 1984. Mr. Morrow had certain expectations and
understandings as to the length of time he would be employed by UTI and desired
to retire effective July 31, 1997. Mr. Morrow has agreed to continue as director
of UTI and his duties as an executive officer ceased. UTI paid Mr. Morrow six
months' severance in a lump sum of $150,000. In lieu of renewal commissions that
Mr. Morrow was entitled to under prior agreements, Mr. Morrow will be paid a
monthly sum of $4,000 for a period of 24 months commencing July 31, 1997.
Thereafter, Morrow will be paid a monthly sum of $3,000 for the next 24 month
period ending July 31, 2001. Prior to his retirement, Mr. Morrow deferred
portions of his income under a plan entitling him to a deferred compensation
payment on January 2, 2000 in the amount of $300,000 which includes interest at
the rate of approximately 8.5% annually. Additionally, Mr. Morrow was granted an
option to purchase up to 17,200 of UTI Common Stock at $17.50 per share. The
option is immediately exercisable and transferable. The option will expire
December 31, 2000. Mr. Morrow also redeemed the Common Stock of the Company and
UII held by himself and his family. See "Related Party Transactions".

REPORT ON EXECUTIVE COMPENSATION

Introduction

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

Executive Compensation Plan Elements

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

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

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

Chief Executive Officer

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

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

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

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

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

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

Conclusion.

The Board of Directors believes the mix of structured employment agreements with
certain key executives, conservative market based salaries, competitive cash
incentives for short-term performance and the potential for equity-based rewards
for long term performance represents an appropriate balance. This balanced
Executive Compensation Plan provides a competitive and motivational compensation
package to the executive officer team necessary to continue to produce the
results UTI 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 Raymond L. Larson
Randall L. Attkisson Dale E. McKee
William F. Cellini James E. Melville
Robert E. Cook Thomas F. Morrow
Jesse T. Correll Millard V. Oakley
Larry R. Dowell Larry E. Ryherd
Donald G. Geary

PERFORMANCE GRAPH

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

1993 1994 1995 1996 1997 1998
UTI 100 40 30 50 64 65
NASDAQ 100 98 138 170 209 293
NASDAQ Insurance 100 94 134 153 223 199

(1) UTI selected the NASDAQ Composite Index Performance as an appropriate
comparison as UTI's Common Stock is traded on the NASDAQ Small Cap
exchange under the sign "UTIN". Furthermore, UTI 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
UTI's Common Stock is limited, which may be due in part as a result of
UTI's low profile, and its reported operating losses. UTI has experienced
a tremendous growth rate over the period shown in the Return Chart with
assets growing from approximately $233 million in 1991 to approximately
$347 million in 1998. The growth rate has been the result of acquisitions
of other companies and new insurance writings. UTI has incurred costs of
conversions and administrative consolidations associated with the
acquisitions which has contributed to the operating losses. The Return
Chart is not intended to forecast or be indicative of possible future
performance of UTI's stock.

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

Compensation Committee Interlocks and Insider Participation

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

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

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

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

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 UTI's Common Stock and shows: (i)
the total number of shares of Common Stock beneficially owned by such person as
of December 31, 1998 and the nature of such ownership; and (ii) the percent of
the issued and outstanding shares of Common Stock so owned as of the same date.

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

Common First Southern Funding, LLC 1,054,440 (1) 42.34%
Stock no 99 Lancaster Street
Par value P.O. Box 328
Stanford, KY 40484

Larry E. Ryherd 501,701 (2) 19.63%
12 Red Bud Lane
Springfield, IL 62707

(1) Includes 123,241 shares owned by First Southern Bancorp, 183,033 shares
owned by First Southern Capital, and 22,135 shares owned by First Southern
Investments, all affiliates of First Southern Funding, LLC. Jesse T.
Correll, Director of UTI, by reason of ownership of 83% of the outstanding
shares of First Southern Funding, LLC may be considered a beneficial owner
of UTI.

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

SECURITY OWNERSHIP OF MANAGEMENT OF UTI

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

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

FCC's John S. Albin 0 *
Common Randall L. Attkisson 0 *
Stock, $1.00 William F. Cellini 0 *
Par value Robert E. Cook 0 *
Jesse T. Correll 0 *
Larry R. Dowell 0 *
George E. Francis 0 *
Donald G. Geary 225 *
Raymond L. Larson 0 *
Dale E. McKee 0 *
James E. Melville 544 (1) *
Thomas F. Morrow 0 *
Millard V. Oakley 0 *
Larry E. Ryherd 0 *
All directors and executive officers
as a group (fourteen in number) 769 *

UII's John S. Albin 0 *
Common Randall L. Attkisson 0 *
Stock, no William F. Cellini 0 *
Par value Robert E. Cook 4,025 *
Jesse T. Correll 0 *
Larry R. Dowell 0 *
George E. Francis 0 *
Donald G. Geary 0 *
Raymond L. Larson 0 *
Dale E. McKee 0 *
James E. Melville 0 *
Thomas F. Morrow 0 *
Millard V. Oakley 0 *
Larry E. Ryherd 47,250 (2) 3.4%
All directors and executive officers
as a group (fourteen in number) 51,275 3.7%

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

UTI's John S. Albin 10,503 (3) *
Common Randall L. Attkisson 0 *
Stock, no William F. Cellini 1,000 *
Par value Robert E. Cook 10,199 *
Jesse T. Correll 0 (4) *
Larry R. Dowell 10,142 *
George E. Francis 4,600 (5) *
Donald G. Geary 1,200 *
Raymond L. Larson 4,400 (6) *
Dale E. McKee 11,122 *
James E. Melville 52,500 (7) 2.1%
Thomas F. Morrow 40,555 (8) 1.6%
Millard V. Oakley 9,000 *
Larry E. Ryherd 501,701 (9) (10) 19.6%
All directors and executive officers
as a group (fourteen in number) 656,922 25.7%

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

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

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

(4) In addition, Mr. Correll is a director and officer of First Southern
Funding, LLC & Affiliates which owns 1,054,440 shares (42.34%) of the
Company. (See Principal Holders of Securities)

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

(6) Includes 375 shares owned directly by Mr. Larson's spouse.

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

(8) Includes 1,500 shares as custodian for grandchildren. Includes 17,200
shares which may be acquired upon exercise of outstanding stock options.

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

(10) In addition, Mr. Ryherd is a director and officer of UII. The Company owns
565,766 shares of UII. Mr. Ryherd disclaims any beneficial interest of the
565,766 shares of UII owned by the Company as the Company's Board of
directors controls the voting and investment decisions regarding such
shares.

* Less than 1%.

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

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

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

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

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

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

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

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

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

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

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

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

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

YEAR 2000 ISSUE

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

have been corrected. Testing was completed by the end of the first quarter
of 1998. Periodic regression testing is being performed to monitor
continuing compliance. By addressing year 2000 compliance in a timely
manner, compliance has been achieved using existing staff and without
significant impact on the Company operationally or financially.

CHANGE IN CONTROL OF UNITED TRUST, INC.

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

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

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

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

PROPOSED MERGER

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

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

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

RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS

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

PART IV

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

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

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

(2) Financial Statement Schedules

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

Schedule II - Condensed financial information of registrant

Schedule IV - Reinsurance

Schedule V - Valuation and qualifying accounts

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

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

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

Index to Exhibits (See Pages 80 and 81).

INDEX TO EXHIBITS

Exhibit
Number

3(a) (1) Amended Articles of Incorporation for the Company dated November
20, 1987.

3(b) (1) Amended Articles of Incorporation for the Company dated December
6, 1991.

3(c) (1) Amended Articles of Incorporation for the Company dated March 30,
1993.

3(d) (1) Code of By-Laws for the Company.

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

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

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

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

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

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

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

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

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

INDEX TO EXHIBITS

Exhibit
Number

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

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

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

10(m)(3) Employment Agreement dated as of July 31, 1997 between George E.
Francis and First Commonwealth Corporation. Agreements containing
the same terms and conditions excepting title and current salary
were also entered into by Joseph H. Metzger, Brad M. Wilson,
Theodore C. Miller, Michael K. Borden and Patricia G. Fowler.

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

10(o)(1) Termination Agreement dated as of January 29, 1993 between Scott
J. Engebritson and United Trust, Inc., United Fidelity, Inc.,
United Income, Inc., First Commonwealth Corporation and United
Security Assurance Company.

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

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

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

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

Footnote:

(1) Incorporated by reference from the Company's Annual Report on Form 10-K,
File No. 0-5392, as of December 31, 1993.
(2) Incorporated by reference from the Company's Annual Report on Form 10-K,
File No. 0-5392, as of December 31, 1996.
(3) Incorporated by reference from the Company's Annual Report on Form 10-K,
File No. 0-5392, as of December 31, 1997.

UNITED TRUST, INC.
SUMMARY OF INVESTMENTS - OTHER THAN
INVESTMENTS IN RELATED PARTIES
As of December 31, 1998

Schedule I
Column A Column B Column C Column D
- -------------------------------------------------------------------------- ---------------- ----------------

Amount at
Which Shown
in Balance
Cost Value Sheet
--------------- ---------------- ----------------

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

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

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

Mortgage loans on real estate 10,941,614 10,941,614
Investment real estate 8,979,183 8,979,183
Real estate acquired in satisfaction of debt 1,550,000 1,550,000
Policy loans 14,134,041 14,134,041
Other long-term investments 906,278 906,278
Short-term investments 1,062,796 1,062,796
--------------- ----------------
Total investments $ 216,034,457 $ 215,407,582
=============== ================

UNITED TRUST, INC.
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 United Trust, Inc. and
Consolidated Subsidiaries.

UNITED TRUST, INC.
CONDENSED FINANCIAL INFORMATION OF
REGISTRANT PARENT ONLY BALANCE SHEETS
As of December 31, 1998 and 1997

Schedule II

1998 1997
---------------- ---------------
ASSETS

Investment in affiliates $ 19,495,824 $ 19,974,098
Cash and cash equivalents 510,886 342,294
Notes receivable from affiliate 10,590,344 1,682,245
Receivable from affiliates, net 30,069 31,502
Accrued interest income 19,446 21,334
Other assets 12,368 225,986
---------------- ---------------
Total assets $ 30,658,937 $ 22,277,459
================ ===============

LIABILITIES AND SHAREHOLDERS' EQUITY

Liabilities:
Notes payable $ 2,560,000 $ 4,060,866
Notes payable to affiliate 840,000 840,000
Deferred income taxes 1,895,080 2,016,575
Other liabilities 2,546 3,400
---------------- ---------------
Total liabilities 5,297,626 6,920,841
---------------- ---------------

Shareholders' equity:
Common stock 49,809 32,696
Additional paid-in capital 27,403,172 16,488,375
Accumulated other comprehensive
income of affiliates (276,852) (29,127)
Accumulated deficit (1,814,818) (1,135,326)
---------------- ---------------
Total shareholders' equity 25,361,311 15,356,618
---------------- ---------------
Total liabilities and
shareholders' equity $ 30,658,937 $ 22,277,459
================ ===============

UNITED TRUST, INC.
CONDENSED FINANCIAL INFORMATION OF
REGISTRANT PARENT ONLY STATEMENTS OF OPERATIONS
Three Years Ended December 31, 1998

Schedule II

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

Revenues:

Management fees from affiliates $ 501,207 $ 593,577 $ 940,734
Other income from affiliates 47,048 73,515 115,235
Interest income from affiliates 236,058 53,492 21,264
Interest income 25,283 37,620 29,340
Realized investment losses 0 0 (207,051)
Loss from write down of investee 0 0 (315,000)
--------------- ---------------- ----------------
809,596 758,204 584,522

Expenses:

Management fee to affiliate 0 200,000 575,000
Interest expense 787,432 194,543 0
Interest expense to affiliates 63,000 63,000 63,000
Operating expenses 316,888 65,541 133,897
--------------- ---------------- ----------------
1,167,320 523,084 771,897
--------------- ---------------- ----------------

Operating income (loss) (357,724) 235,120 (187,375)

Income tax credit (expense) 121,495 (414,230) 59,780
Equity in loss of investees (21,525) (23,716) (95,392)
Equity in loss of subsidiaries (421,738) (356,422) (714,916)
--------------- ---------------- ----------------
Net loss $ (679,492) $ (559,248)$ (937,903)
=============== ================ ================

Basic loss per share from continuing
operations and net loss $ (0.39) $ (0.32)$ (0.50)
=============== ================ ================

Diluted loss per share from continuing
operations and net loss $ (0.39) $ (0.32)$ (0.50)
=============== ================ ================

Basic weighted average shares outstanding 1,726,843 1,772,870 1,869,511
=============== ================ ================

Diluted weighted average shares outstanding 1,726,843 1,772,870 1,869,511
=============== ================ ================

UNITED TRUST, INC.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
PARENT ONLY STATEMENTS OF CASH FLOWS
Three Years Ended December 31, 1998
Schedule II

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

Increase (decrease) in cash and cash equivalents
Cash flows from operating activities:
Net loss $ (679,492) $ (559,248) $ (937,903)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Equity in loss of subsidiaries 421,738 356,422 714,916
Equity in loss of investees 21,525 23,716 95,392
Compensation expense through stock option plan 0 0 13,563
Change in accrued interest income 1,888 (19,283) 14,222
Depreciation 7,683 12,439 18,366
Amortization of notes payable discount 586,462 48,427 25,528
Realized investment losses 0 0 207,051
Loss from writedown of investee 0 0 315,000
Change in deferred income taxes (121,495) 414,230 (60,524)
Change in indebtedness (to) from affiliates, net 1,433 (1,255) (104,766)
Change in other assets and liabilities 4,147 (4,398) (26,256)
---------------- --------------- ----------------
Net cash provided by operating activities 243,889 271,050 274,589
---------------- --------------- ----------------

Cash flows from investing activities:
Purchase of stock of affiliates 0 (865,877) 0
Issuance of notes receivable to affiliates (9,120,813) (1,116,345) (250,000)
Capital contribution to affiliate 0 0 (106,000)
---------------- --------------- ----------------

Net cash used in investing activities (9,120,813) (1,982,222) (356,000)
---------------- --------------- ----------------

Cash flows from financing activities:
Purchase of treasury stock (26,527) (926,599) 0
Proceeds from issuance of notes payable 0 2,560,000 0
Payments on notes payable (1,927,952) 0 0
Payment for fractional shares from reverse stock split 0 (2,381) 0
Proceeds from issuance of common stock 10,999,995 0 500
---------------- --------------- ----------------
Net cash provided by financing activities 9,045,516 1,631,020 500
---------------- --------------- ----------------

Net increase (decrease) in cash and cash equivalents 168,592 (80,152) (80,911)
Cash and cash equivalents at beginning of year 342,294 422,446 503,357
---------------- --------------- ----------------
Cash and cash equivalents at end of year $ 510,886 $ 342,294 $ 422,446
================ =============== ================

UNITED TRUST, INC.
REINSURANCE
As of December 31, 1998 and the year ended December 31, 1998

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 $ 3,424,677,000 $ 924,404,000 $ 1,036,005,000 $ 3,536,278,000 29.3%
=============== ============== ============== ===============

Premiums and policy fees:

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

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

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

UNITED TRUST, INC.
REINSURANCE
As of December 31, 1997 and the year ended December 31, 1997

Schedule IV

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

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

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

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

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

Premiums and policy fees:

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

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

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

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

UNITED TRUST, INC.
REINSURANCE
As of December 31, 1996 and the year ended December 31, 1996

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 $ 3,952,958,000 $ 1,108,534,000 $ 1,271,766,000 $ 4,116,190,000 30.9%
================ =============== =============== ================

Premiums and policy fees:

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

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

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

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

UNITED TRUST, INC.
VALUATION AND QUALIFYING ACCOUNTS
For the years ended December 31, 1998, 1997 and 1996

Schedule V

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

December 31, 1998

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

December 31, 1997

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

December 31, 1996

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

SIGNATURES
----------

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

UNITED TRUST, INC.
------------------
(Registrant)

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

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

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

/s/ Robert E. Cook March 23, 1999
- ----------------------------------------------------
Robert E. Cook, Director

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

/s/ Larry R. Dowell March 23, 1999
- ----------------------------------------------------
Larry R. Dowell, Director

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

/s/ Raymond L. Larson March 23, 1999
- ------------------------------------------------
Raymond L. Larson, Director

/s/ Dale E. McKee March 23, 1999
- ----------------------------------------------------
Dale E. McKee, Director

/s/ Thomas F. Morrow March 23, 1999
- -------------------------------------------------
Thomas F. Morrow, Director

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

/s/ Larry E. Ryherd March 23, 1999
- -----------------------------------------------------
Larry E. Ryherd, Chairman of the Board,
Chief Executive Officer and Director

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

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