SOUTHERN SECURITY LIFE INSURANCE CO - 10-K Annual Report

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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549

FORM 10-K

(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED)

For the fiscal year ended December 31, 1996
OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

Commission File No. 2-35669

SOUTHERN SECURITY LIFE INSURANCE COMPANY
(Exact name of Company as specified in its charter)

Florida 59-1231733
(State or other jurisdiction (Employer Identification Number)
of incorporation or organization)

755 Rinehart Road, Lake Mary, Florida 32746
(Address of principal executive offices) (Zip Code)

Company's telephone number, including area code:(407) 321-7113

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

Name of Each Exchange on
Title of Each Class Which Registered
None None

Securities registered pursuant to Section 12(g) of the Act:
None
(Title of Class)

Indicate by check mark whether the Company (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 Company
was required to file such reports), and (2) has been subject to the filing
requirements for the past 90 days. X Yes No

Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of Company'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

State the aggregate market value of the voting stock held by nonaffiliates of
the Company: $3,989,366 as of March 31, 1996.

The number of shares of the Company outstanding as April 1, 1996 is as follows:
Number Outstanding at
Title of Class April 1, 1996
Common Stock
Par value $1.00 per share 1,907,989

1

PART I
Item 1. Business.

Southern Security Life Insurance Company ("the Company") is a legal
reserve life insurance company authorized to transact business in the states of
Alabama, Florida, Georgia, Hawaii, Indiana, Illinois, Kentucky, Louisiana,
Michigan, Missouri, Oklahoma, South Carolina, Tennessee and Texas. It was
incorporated under Florida law in 1966 and was licensed and commenced business
in 1969. The Company obtained authorization in the states of Indiana and
Oklahoma in 1996 and will continue the process of seeking authorization,
directly or through acquisition, to transact business in additional states
during 1997. During 1996, approximately 43% of the premium income of the Company
was from business in force in its state of domicile. The Company's only industry
segment is the ordinary life, accident and health and annuity business.

The Company at present writes universal life policies with various
companion riders as well as a traditional life product. In the past it has
written various forms of ordinary life insurance policies and annuity contracts.
The Company's accident and health insurance business has never been a
significant portion of the Company's business. It does not presently write
industrial life or group life insurance other than through its participation as
a reinsurer in the Servicemen's Group Life Insurance Program ("SGLI"). In 1996,
the Company introduced a new whole life product designed to appeal to the final
expense market.

The Company introduced its first universal life product in 1986 and
currently has two principal universal life products in force. These universal
life products offer flexibility to the client as well as tax advantages, both
currently and upon the death of the insured. These products allow the Company to
better compete in the current market environment. In excess of 60% and 98% of
the policies written by the Company in 1996 and 1995 respectively, were for the
universal life products.

During first quarter 1996, the Company introduced a new series of
products designed for the seniors market. This new series targets the needs of
senior citizens especially as they plan for their final expenses. A lead
generation program was used to support this new product as it was introduced.
New field sales representatives are actively recruiting to market the product.

The Company is continuing to support its traditional universal life
marketing as well. The Company established a lead generation program which has
been coupled with a recruiting program for new sales agents to help rebuild the
market. This has helped to increase opportunities to expand sales of its
universal life products which are designed to provide an insurance program as
well as a savings vehicle through the cash values of the policy.

2

The following table provides information (on a statutory basis)
concerning the amount and percentage of premium income resulting from the
principal lines of insurance written by the Company during the periods
indicated:

1996 1995 1994
==== ==== ====

Per- Per- Per-
Amount centage Amount centage Amount centage

Life
Insurance-
Ordinary
(1)(2) $9,225,755 92% $10,220,659 93% $11,549,563 95%

Individual
Annuities
(1) 307,618 3% 195,473 2% 102,992 1%

Life
Insurance-
Group
(SGLI) 529,554 5% 518,597 5% 536,880 4%

Other -
Accident &
Health 1,274 0% 1,385 0% 1,628 0%
----------- ---- ------------ ---- ----------- ----

$10,064,201 100% $10,936,114 100% $12,191,063 100%
=========== ==== =========== ==== =========== ====

(1) A portion of each of the deposit term policies previously
sold by the Company represents ordinary life insurance and
the balance represents an individual annuity.

(2) The 1995 and 1996 premium income for life insurance-ordinary
are net of reductions of $2,105,768 and $1,767,418,
respectively, in ceded premium paid to all reinsurers,
including Mega Life.

(The remainder of this page is intentionally left blank)

3

The following table gives information [on a generally accepted
accounting principles basis] for the Company concerning operating ratios for the
periods indicated:

1996 1995 1994
---- ---- ----

Total Net Insurance
revenues $7,915,027 $8,158,938 $9,299,789

Benefit Costs:
Amount $3,818,562 $4,061,096 $4,115,257
Ratio to Net Premium
Income 48.2% 49.8% 44.3%

Acquisition Expenses:
Amount $3,364,738 $3,069,742 $3,242,706
Ratio to Net Premium
Income 42.5% 37.6% 34.9%

General Insurance Expenses:
Amount $3,246,552 $2,825,280 $3,276,386
Ratio to Net Premium
Income 41% 34.6% 35.2%

Income Before Income Taxes:
Amount $1,588,505 $1,274,903 $1,543,979
Ratio to Net Premium
Income 20.1% 15.6% 16.6%
Ratio to Total Income 13.1% 11.4% 12.7%
Ratio to Equity 10.1% 8.6% 12.2%

(The remainder of this page is intentionally left blank)

4

The following table provides information about the Company concerning
changes in life insurance in force (shown in thousands -000 omitted) during the
periods indicated (exclusive of acciden tal death benefits):

1996 1995 1994
---- ---- ----

Total life insurance in force at
beginning of period:
Ordinary Whole Life &
Endowment-Participating $584 $583 $750
Ordinary Whole Life &
Endowment-Non-Participating 1,289,250 1,459,149 1,603,358
Term 8,371 9,422 12,051
SGLI 507,552 531,502 564,828
------- ------- -------

Total $1,805,757 $2,000,656 $2,180,987

Additions (including re-insurance assumed):
Ordinary Whole Life &
Endowment-Participating - 0 - - 0 - - 0 -
Ordinary Whole Life &
Endowment-Non-Participating 122,578 125,961 188,622
Term - 0 - - 0 - - 0 -
SGLI 64,071 8 9
------- ------- -------

Total $186,649 $125,969 $188,631

Terminations:
Death $1,756 $2,204 $1,849
Lapse and Expiry 73,919 89,868 114,372
Surrender 212,801 228,334 251,306
Other 280 463 1,435
------- ------- -----
Total $288,756 $320,869 $368,962

Life Insurance in force at end of period:
Ordinary Whole Life &
Endowment-Participating $441 $583 $583
Ordinary Whole Life &
Endowment-Non-Participating 1,157,624 1,289,250 1,459,149
Term 7,884 8,371 9,422
SGLI 537,701 507,552 531,502
------- ------- -------

Total $1,703,650 $1,805,756 $2,000,656
--------- --------- ---------
Reinsurance Ceded (386,084) (448,382) (502,185)
-------- -------- --------
Total after Reinsurance Ceded $1,317,566 $1,357,374 $1,498,471

Lapse Ratio (Reflecting termina-
tion by surrender and lapse;
ordinary life insurance only): 20.5% 21.1% 21.5%

5

The Company invests and reinvests portions of its funds in securities which
are permitted investments under the laws of the State of Florida, and part of
its revenue is derived from this source. Generally, securities comprising
permitted investments include obligations of Federal, state and local
governments; corporate bonds and preferred and common stocks; real estate
mortgages and certain leases. The following table summarizes certain information
regarding the Company's investment activities:

Mean Gross Net
Fiscal Investment Investment Investment Net
Year Assets (1) Income(2) Income (3) Yield (4)
- ----- ---------- ---------- ---------- ---------

1996 $51,752,712 $3,508,161 $3,318,267 6.41%

1995 $46,899,142 $3,225,630 $2,998,875 6.39%

1994 $46,573,901 $3,111,186 $2,750,771 5.91%

(1) Computed pursuant to valuations prescribed under generally
accepted accounting principles.

(2) Includes capital gains and net of capital losses.

(3) Net of investment expense and before income taxes or extra
ordinary terms.

(4) Computed on an annualized basis. Represents ratio of net
investment income to mean invested assets.

The Company continues its activities as a qualified lender under the
Federal Family Educational Loan Program. Through this program the Company makes
various types of student and parent loans available. All student loans made by
the Company are guaranteed by the Federal Government. As it has in the past, the
Company sells these student loans on a periodic basis to the Student Loan
Marketing Association ("SLMA") thereby keeping these funds liquid.

The Company presently sells its policies on a general agency basis
through a field force consisting of approximately 247 agents. All such agents
are licensed as agents of, and sell for, the Company and are independent
contractors who are paid exclusively on a commission basis for sales of the
Company's policies. Some of the Company's agents are part-time insurance agents.
Most of the Company's agents are associated with Insuradyne Corporation, a
wholly-owned subsidiary of the Company's parent, Consolidare Enterprises, Inc.
See "Certain Relationships and Related Transactions" in item 13, Part III of
this Report.

The Company presently employs 37 persons, none of whom are covered
under any collective bargaining agreements. The Company feels it has good
relations with its employees.

6

Section 624.408 of the Florida Statutes requires a stock life insurance
company to maintain minimum surplus on a statutory basis at the greater of
$1,500,000 or four percent (4%) of total liabilities. The Company's required
statutory minimum surplus calculated in accordance with this section is
approximately $1,800,000. If the capital and surplus of the Company computed on
such basis should fall below that amount, then the Company's license to transact
insurance business in the State of Florida, the Company's most significant
market, could be revoked unless the deficiency is promptly corrected. As of
December 31, 1996, the Company had statutory capital and surplus of $9,283,928,
well in excess of the required minimum.

The Risk-Based Capital for Life and/or Health Insurers Model Act (the
"Model Act") was adopted by the National Association of Insurance Commissioners
(NAIC) in 1992. The main purpose of the Model Act is to provide a tool for
insurance regulators to evaluate the capital resources of insurers as related to
the specific risks which they have incurred and is used to determine whether
there is a need for possible corrective action. The Model Act or similar
regulations may have been or may be enacted by the various states.

The Model Act provides for four different levels of regulatory action,
each of which may be triggered if an insurer's Total Adjusted Capital is less
than a corresponding "level" of Risk-Based Capital ("RBC").

The "Company Action Level" is triggered if an insurer's Total Adjusted
Capital is less than 200% of its "Authorized Control Level RBC" (as
defined in the Model Act), or less than 250% of its Authorized Control
Level RBC and the insurer has a negative trend ("the Company Action
Level"). At the Company Action Level, the insurer must submit a
comprehensive plan to the regulatory authority of its state of domicile
which discusses proposed corrective actions to improve its capital
position.

The "Regulatory Action Level" is triggered if an insurer's Total
Adjusted Capital is less than 150% of its Authorized Control Level RBC.
At the Regulatory Action Level, the regulatory authority will perform a
special examination of the insurer and issue an order specifying
corrective actions that must be followed.

The "Authorized Control Level" is triggered if an insurer's Total
Adjusted Capital is less than 100% of its Authorized Control Level RBC,
and at that level the regulatory authority is authorized (although not
mandated) to take regulatory control of the insurer.

The "Mandatory Control Level" is triggered if an insurer's Total
Adjusted Capital is less than 70% of its Authorized

7

Control level RBC, and at that level the regulatory authority must take
regulatory control of the insurer. Regulatory control may lead to
rehabilitation or liquidation of an insurer.

Based on calculations using the NAIC formula as of December 31, 1996,
the Company was well in excess of all four of the control levels listed.

The industry in which the Company is engaged is highly competitive.
There are in excess of 850 life insurance companies licensed in Florida, where a
substantial amount of the Company's premium income is produced, and there are
comparable numbers of insurance companies licensed in Alabama, Georgia, Hawaii,
Illinois, Kentucky, Louisiana, Michigan, Missouri, South Carolina, Tennessee and
Texas. Many of the Company's competitors have been in business for longer
periods of time, have substantially greater financial resources, larger sales
organizations, and have broader diver sification of risks. A large number of the
Company's competitors engage in business in many states and advertise nationally
while the Company conducts its business on a regional basis. The Company is not
a significant factor in the life insurance business in any state where the
Company does business.

The states of Alabama, Florida, Georgia, Hawaii, Illinois, Indiana,
Kentucky, Louisiana, Michigan, Missouri, Oklahoma, South Carolina, Tennessee and
Texas require that insurers secure and retain a license or a certificate of
authority based on compliance with established standards of solvency and
demonstration of managerial competence. The Company, like other life insurers,
is subject to extensive regulation and supervision by state insurance regulatory
authorities. Such regulation relates generally to such matters as minimum
capitalization, the nature of and limitations on investments, the licensing of
insurers and their agents, deposits of securities for the benefit and protection
of policyholders, the approval of policy forms and premium rates, periodic
examination of the affairs of insurance companies, the requirement of filing
annual reports on a specified form and the provision for various reserves and
accounting standards.

The Company reinsures or places a portion of its insured risks with
other insurers. Reinsurance reduces the amount of risk retained on any
particular policy and, correspondingly, reduces the risk of loss to the Company,
thus giving it greater financial stability. Reinsurance also enables the Company
to write more policies and policies in larger amounts than it would otherwise
consider prudent. On the other hand, reinsurance potentially reduces earnings,
since a portion of the premiums received must be paid to the insurers assuming
the reinsured portion of the risk.

The Company currently cedes its new reinsurance to
Businessmen's Assurance Company ("BMA") and the Reinsurance Company

8

of Hanover, both of which are unaffiliated reinsurers. Under the terms of the
reinsurance agreements, the Company cedes all risks in excess of the Company's
current retention limits.

The Company currently retains a maximum of $75,000 on any one life and
lesser amounts on substandard risks.

Reinsurance for policy amounts in excess of the Company's retention
limits is ceded on a renewable term basis, under which the amount reinsured
normally decreases annually by the amount of increase in the policy reserve. In
addition, the Company has coinsurance agreements with several insurers, under
which premiums are shared based upon the share of the risk assumed.

The Company remains directly liable to policyholders for the full
amount of all insurance directly written by it, even though all or a portion of
the risk is reinsured. Reinsurers, however, are obligated to reimburse the
Company for the reinsured portion of any claims paid. Consequently, if any
reinsurer becomes insolvent or is otherwise unable to make such reimbursement,
the Company would suffer an unexpected loss. The Company has no reason to
believe that any of its reinsurers will be unable to perform their obligations
under existing reinsurance agreements.

On December 31, 1992, the Company entered into a Coinsurance
Reinsurance Agreement with United Group Insurance Company ("UGIC"), now Mega
Life. In this agreement, UGIC agreed to indemnify and the Company agreed to
transfer risk to UGIC in the amount of 18% of all universal life premium paying
polices which were in force on December 31, 1992. Mega Life is an A rated
company with A.M. Best and is an authorized reinsurer in the State of Florida.

As a result of the 1992 agreement, the Company will continue to pay
reinsurance premiums to Mega Life while receiving ceding commissions. As a part
of the coinsurance agreement, Mega Life agreed to share in the expenses of death
claims, surrenders, commissions, taxes and the funding of policy loans.

The Company does not assume any reinsurance at the present time other
than its participation in SGLI.

The Company is required to establish policy benefit and other reserves
which are calculated in accordance with statutory requirements and standards of
actuarial practice and established at amounts which, with additions from
premiums to be received and assumed interest on policy reserves compounded
annually, are believed to be sufficient to meet policy obligations as they
mature. Life reserves for the Company are based upon the Commissioner's 1958 and
1980 Standard Ordinary Table of Mortality, with interest on policies computed at
3, 3-1/2, 4 or 4-1/2%. Annuity reserves are based on the 1937 Standard Annuity
Table, with interest on policies computed at 3-1/2 or 4%. Reserves on the

9

annuity portion of the Company's deposit term policies are computed on the
accumulation method. Reserves for universal life policies, which comprise most
of the Company's insurance in force, have been valued by the California Method
which was approved by the Florida Department of Insurance. Reserves under this
method are the linear average of the policy account value and the policy cash
surrender value (account value less the surrender charge).

In 1994, the Florida Department of Insurance issued a new regulation
that required all companies who are not already using the CRVM method to phase
into that method over a period of five years. As required, the Company has filed
with the Department its plan to comply with the new regulation and implemented
the plan beginning January 1, 1995. This has resolved then pending discussions
with the Florida Insurance Department on the Company's reserving methods. The
CRVM reserving method applies only to the Company's statutory financial
statements. For the year 1995 the increase in the statutory reserve due to the
implementation of this regulation was approximately $404,000, for 1996 the
increase was $158,000.

Estimation and provision for the cost of HIV-related claims covered
under life and accident and health insurance policies of the Company have been
made. The Company utilizes the services of KPMG Peat Marwick, LLP, consulting
actuaries, in calculating such reserves.

In preparing generally accepted accounting principle Financial
Statements, the cost of insurance and expense charges on universal life products
are recognized as revenue. For "Annuity Contracts" with flexible terms, amounts
received from policyholders are not recognized as revenue but are recorded as
deposits in a manner similar to interest-bearing instruments. Accumulations on
these universal life and annuity contracts are held as "Policyholders' Account
Balances." For all other policies (primarily whole-life) revenue and reserves
are calculated using the net level premium method. Accumulation values for these
types of policies are held as benefit reserves. See "Future Policy Benefits" in
Note 1 of the Notes to Financial Statements included in this report.

The Company maintains its own policy files, prepares its own policy
forms (with the assistance of its consulting actuaries), selects risks,
calculates premiums, prepares premium notices, pre authorized checks and
commission statements, and maintains all of its accounting records.

The Company is not affected by Federal, state or local
provisions relating to discharge of materials into the environment.
The Company has not spent a material amount of money during the
last three fiscal years on research and development activities.
The business of the Company is not seasonal in nature and is not
dependent on the sources and availability of raw materials. The

10

business of the Company is not dependent upon a single customer or a few
customers, and no material portion of the Company's business is subject to
renegotiation of profits or termination at the election of the Government.

Item 2. Properties.

The Company's corporate headquarters is located in a two story office
building in Lake Mary, Florida which is owned by the Company. The Company
occupies the entire second floor of the building. The remaining rentable space
is fully leased as of December 31, 1996.

Item 3. Pending Legal Proceedings.

Lawsuits against the Company may have arisen in the course of the
Company's business. However, contingent liabilities arising from litigation and
other matters are not considered material in relation to the financial position
of the Company.

To the best of the Company's knowledge, it has no potential or pending
contingent liabilities that might be material to the Company's financial
condition, results of operations or liquidity, pursuant to product and
environmental liabilities. The Company maintains insurance coverage for
unforeseen events and the insurance carriers, to the best of managements
knowledge, have no solvency issues.

Item 4. Submission of Matters to a Vote of Security Holders.

During the fourth quarter of the Company's fiscal year, no matter was
submitted to a vote of security holders.

11

PART II

Item 5. Market for the Company's Common Stock and Related
Stockholder Matters.

(a) Principal Market and Stock Price. The principal market on which the
Company's common stock is traded is the over-the-counter market. Trading
information with respect to the Company's shares is available through the
National Association of Securities Dealers Automated Quotation (NASDAQ) System
under the symbol SSLI.

The table below presents the high and low market prices for the
Company's common stock during the calendar quarters indicated, as quoted in the
NASDAQ system. The quotations represent prices between dealers in securities and
do not include retail markups, markdowns or commissions and do not necessarily
represent actual transactions.

QUARTER ENDED
- ----------------------------------------------------------------------------
1996 1995
- ----------------------------------------------------------------------------

Mar.31 Jun.30 Sep.30 Dec.31 Mar.31 Jun.30 Sep.30 Dec.31

Common
Shares:
High 5 5 5/8 7 1/2 7 7/8 5 7/8 5 3/8 5 3/8 5 3/8
Low 4 7/8 4 7/8 5 3/8 7 1/8 4 5/8 4 7/8 5 4 7/8

(b) Approximate Number of Holders of Common Stock. There
were 1,499 holders of record of the Company's Common Stock at
December 31, 1996.

(c) Dividends. The Company has paid no cash dividends to stockholders
during the past two years, and it is not anticipated that any cash dividends
will be paid at any time in the foreseeable future. The payment of dividends by
the Company is subject to the regulation of the State of Florida Department of
Insurance. Under such regulation an insurance company may pay dividends, without
prior approval of the State of Florida Department of Insurance, equal to or less
than the greater of (a) 10% of its accumulated capital gains (losses) (i.e.
unassigned surplus) or (b) certain net operating profits and realized net
capital gains of the Company, as defined in the applicable insurance statutes.
In no case can such dividends be paid if the Company will have less than 115% of
the minimum required statutory surplus as to policyholders after the dividend is
paid. The maximum amount which the Company could pay as a dividend during 1997
pursuant to such regulation is $1,022,183.

12

Item 6. Selected Financial Data.

The following table presents selected financial data (on a GAAP basis)
concerning the Company and its financial results during the periods indicated.

(The remainder of this page is intentionally left blank)

13

YEARS ENDED DECEMBER 31,

1996 1995 1994 1993 1992
---------- --------- ----------- ----------- --------

Revenues:
Life insurance $7,915,027 $8,158,938 $9,299,789 $10,738,921 $9,512,468
Net investment
income 3,318,627 $2,998,875 2,750,771 2,518,005 2,445,460
Realized Gain
(Loss)on
Investments 869,502 60,237 60,732 138,985 169,955
Gain on
Reinsurance
Transaction - - - - 639,455
-------- ----------- ----------- ----------- --------

Total Revenue $12,103,156 $11,218,050 $12,111,292 $13,395,911 $12,767,338

Benefits, Losses
& Expenses:
Insurance
living
benefits $2,420,021 $2,636,851 $2,815,194 $2,848,888 $2,934,734
Insurance death
benefits 1,398,541 1,424,245 1,300,063 1.871,590 1,562,431
in policy
reserves (5,201) (12,971) (67,036) (152,011) (246,642)
Amortization of
deferred policy
acquisition
costs 3,364,738 3,069,742 3,242,706 5,216,871 4,411,788
Commissions and
General
Expenses 3,246,552 2,735,280 3,186,386 2,814,921 2,292,977
Interest expense
with related
party 90,000 90,000 90,000 90,000 91,250
------ ------ ------ ------ ------

Total Expenses: $10,514,651 $9,943,147 $10,567,313 $12,690,259 $11,046,538
----------- ---------- ----------- ----------- -----------
Income before
Income Taxes $1,588,505 $1,274,903 $1,543,979 $705,652 $1,720,800
---------- ---------- ---------- -------- ----------
Income taxes 196,000 $160,000 $530,000 $1,000 $(49,400)
---------- -------- -------- ------ ---------

NET INCOME $1,392,505 $1,114,903 $1,013,979 $704,652 $1,770,200
========== ========== ========== ======== ==========

Weighted average
number of
shares
outstanding 1,907,989 1,907,989 1,907,989 1,844,694 1,844,694
--------- --------- --------- --------- ---------

Net income per
common
share $.73 $.58 $.53 $.38 $.96
--- ---- ---- ---- ----

Shareholders'
Equity $15,661,588 $14,826,610 $12,644,525 $12,238,101 $11,352,540
=========== =========== =========== =========== ===========

Shareholders'
equity per
common
share $8.20 $7.77 $6.63 $6.63 $6.15
===== ====== ===== ===== =====

14

1996 1995 1994 1993 1992
---------- -------------- -------------- ------------- --------

Assets $81,809,360 $81,872,350 $77,185,070 $81,211,540 $64,431,214
----------- ----------- ----------- ----------- -----------

Life Insurance:
Insurance in
force $1,703,650,00 $1,805,756,000 $2,000,656,000 $2,180,987,000 $2,063,910,000
------------- -------------- -------------- -------------- --------------

Individual
insurance
issued during
current
year $121,646,000 $124,222,000 $184,364,000 $325,869,000 $556,570,000
------------ ------------ ------------ ------------ ------------

Long term
obligation $1,000,000 $1,000,000 $1,000,000 $1,000,000 $1,000,000

Dividends
declared per
common share $0.00 $0.00 $0.00 $0.00 $0.00

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15

Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operation.

Overview.

This analysis of the results of operations and financial condition of
Southern Security Life should be read in conjunction with the Selected Financial
Data and Financial Statements and Notes to the Financial Statements included in
this report.

In recent years the Company has primarily issued one type of insurance
product, universal life. Universal life provides insurance coverage with
flexible premiums, within limits, which allow policyholders to accumulate cash
values. These accumulated cash values are credited with tax-deferred interest,
as adjusted by the Company on a periodic basis. Deducted from these cash
accumulations are administrative charges and mortality costs. Should a policy
surrender in its early years, the Company assesses a surrender fee against these
same cash accumulations, based on issue age of the insured, smoker verses
non-smoker status, sex of the insured and the duration of the policy at the time
of surrender.

Pursuant to the accounting methods prescribed by Statement of Financial
Accounting Standards No. 97 (SFAS 97), premiums received from policyholders on
universal life products are credited to policyholder account balances, a
liability, rather than income. Revenues on such products result from the
mortality and administrative fees charged to policyholder balances in addition
to surrender charges assessed at the time of surrender as explained above. Such
costs of insurance, expense charges, and surrender fees are recognized as
revenue as earned. In addition, the Company has adopted policy designs with the
characteristic of having higher expense charges during the first policy year
than in renewal years. Under SFAS 97, the excess of these charges are reported
as unearned revenue. The unearned revenue is then amortized into income over the
life of the policy using the same assumptions and factors used to amortize
capitalized acquisition costs. Interest credited to policyholder balances is
shown as a part of benefit expenses.

In accordance with generally accepted accounting principles, certain
costs directly associated with the issuance of new policies are deferred and
amortized over the lives of the policies. These costs are defined as deferred
policy acquisition costs and are shown in the asset section of the balance sheet
of the Company. Capitalized acquisition costs are amortized over the life of the
business at a constant rate, based on the present value of the estimated gross
profits expected to be realized over the life of the business. SFAS 97 requires
that estimates of expected gross profits used as a basis for amortization be
evaluated on a regular basis, and the total amortization to date be adjusted as
a charge or credit to earnings if actual experience or other evidence suggests
that earlier estimates be revised. Thus, variations in

16

the amortization of the deferred policy acquisition costs, from one period to
the next, are a normal aspect of universal life insurance business and are
generally attributed to the recognition of current and emerging experience in
accordance with the principles of SFAS 97.

Annuity products, of which the Company currently has a minor amount,
are recorded in similar fashion to universal life products. Considerations
received by the Company are credited to the annuity account balances which are
shown as a liability in the balance sheet. Interest is credited to these
accounts as well and shown as an expense of the Company. Income is derived
primarily from surrender charges on this type product.

An additional source of income to the Company is investment revenue.
The Company invests those funds deposited by policy-holders of universal life
and annuity products in debt and equity securities in order to earn interest and
dividend income, a portion of which is credited back to the policyholders.
Interest rates and maturities of the Company's investment portfolio play a part
in determining the interest rates credited to policyholders.

Product profitability is affected by several different factors, such as
mortality experience ( actual versus expected), interest rate spreads (excess
interest earned over interest credited to policyholders) and controlling policy
acquisition costs and other costs of operation. The results of any one reporting
period may be significantly affected by the level of death claims or other
policyholder benefits incurred due to the Company's relatively small size.

(The remainder of this page is intentionally left blank)

17

The following table sets forth certain percentages reflecting financial
data and results of operations (a) for 1996, 1995 and 1994 premium and
investment revenues and (b) for period to period increases and (decreases).

Relationships to
Total Revenues Period to Period
Years Ended December 31 (Increase or Decrease)

1996 1995 1994 96-95 95-94
------ ------ ------ ------- ------

Insurance Revenues 65% 73% 77% (3%) (12%)
Net Investment Income 35 27 23 11% 9%
Other Income

Total Revenues 100% 100% 100% 8% (7%)

Losses, claims and
loss adjustment
expenses 31% 36% 33% 6% (0%)
Acquisition costs 28 27 27 10% 5%

Other operating
costs and
expenses 27 26 27 18% (14%)
---- ---- ---- ---- -----

Total Expenses 86% 89% 87% 6% (4%)

Income before income
taxes 14% 11% 13% 24% (17%)
Provision for
taxes 2 1 5 22% (70%)
--- --- ---- --- -----

Net Income 12% 10% 8% 25% 10%

Results of Operations.

New business written was 122, 124 and 189 million dollars in face value
for 1996, 1995 and 1994, respectively. While the face amount issued declined
again in 1996, new business production actually increased. The company entered a
new market known as the final expense market. Generally, policies issued in this
market are of a lesser face value than those of the Universal Life market. That
being the case, the face amount of insurance appears to have declined, however
the actual number of policies issued increased. In 1995 the Company issued 1,696
new policies. In 1996, 2,702 policies were issued for an increase of 59%. The
Company is encouraged by these results and anticipates a continuation of this
trend throughout 1997.

Premium and policy charges for 1996 was recorded at $7.7 million, 1995
was recorded at $7.9 million and 1994 at $9.1 million. While policy production
was up for 1996, premium and policy cahrges went down.

18

The 1996 premium and policy charges for 1996 was recorded at 7.7%.
Several factors have combined to create this decline. Continued lapsation in the
universal life book of business has resulted in reduced revenues in
administrative and mortality fees. New production has not increased as
significantly as would be needed to be beneficial and the new product currently
being marketed has lower premiums than those of the universal life product.
Surrender fee income declined 13.7% from that of 1995. Surrender fee income is
dependent upon the duration and value of the policies lapsing. Should the
policies be in their early years, the fee is high, however, limited to the value
in the policy which is smaller in the early years. The older policies have lower
surrender fees and greater account values from which to collect those fees.

The 1995 decline of 13% in premium and policy charges was attributed
somewhat to the decline in the Company's insurance in force and therefore an
associated reduction in administrative and mortality fees. Surrender fees for
1995 decreased by approximately 5% from 1994.

The balance of the decline in 1996, 1995 and 1994 premium and policy
charges is related to the unlocking, for current and future experience, of
unearned premium. Unearned premium essentially represents the excess first year
charges in the policy. With the advice and assistance of our consulting
actuaries, each year the Company reviews its current experience rates for
mortality, credited interest spreads, lapse rates, surrender fees and the like,
and adjusts its amortization of deferred acquisition costs and unearned premium
to the appropriate levels for both the current experience and anticipated future
experience. This is an ongoing refinement process.

Increased investment in debt securities coupled with reduced expenses
for student loan processing are responsible for the 10% increase in 1996 and 9%
increase in 1995 investment income. The Company continues to review its
investment strategies to increase its earned interest rate. As a part of this
process of review and refinement, the Company sold its entire stock portfolio
just prior to year end 1996. This created a significant increase in realized
gains for 1996. The resulting funds are to be invested in a more aggressive
stock market fund which should create an increased yield for the Company.
Additional changes in the Company's holdings are being planned for 1997.

Annuity, death and other benefits decreased slightly in both 1996 and
1995. This expense line is a combination of several expenses with death claims,
annuity benefits and surrender benefits comprising the most significant portion
of the total line. In 1996 each of these expenses declined slightly, whereas in
1995 death claims actually rose slightly. A significant increase or decrease in
death claims in any given year can have a marked impact on the

19

results of operations in a small company.

The amortization of deferred acquisition costs increased in 1996,
following a two year decline in 1995 and 1994. The amortization of deferred
acquisition costs is a continuous refinement process which relates to current
experience in connection with revenues, mortality gains and losses, credited
interest rate spreads, expense charges and surrender charges. The change in the
rate of amortization of both deferred acquisition costs and unearned premium
liabilities is due to "unlocking" for current and future experience based on the
results of the changing experience encountered as required under FAS 97.

Operating expenses for the Company were $3.3 million, $2.7 million and
$3.2 million for 1996, 1995 and 1994, respectively. Several items are
responsible for the increased operating costs of 1996. The lead program used to
introduce and promote our new product was not without cost. The Company also
attempted some new marketing procedures in 1996 which added to these costs. In
addition, legal expenses were higher in 1996 than in 1995. The Company has
reviewed its promotional expenses and now that the new product has established a
market, has cut back on these expenses. The increased legal costs were related
to the settlement of another lawsuit whereby the Company received settlement of
approximately $400,000, which flowed through income and paid the associated
attorneys fees. Operating expenses for 1994 also reflect increased legal
expenses, however these expenses were associated with settlements paid rather
than received.

Reinsurance premiums ceded for 1996, 1995 and 1994 were $1,767,418,
$2,112,884 and $2,508,749 respectively. Policy benefits were reduced due to
reinsurance recoveries of $709,643, $405,345 and $679,622 for 1996, 1995 and
1994, respectively. Reinsurance commissions amounted to $308,179 for 1996 and
$397,253 and $679,522 for 1995 and 1994 respectively. In addition, under the
terms of the Company's treaty with Mega Life (formerly United Group Insurance
Company) expenses of $956,143 were transferred for 1996 and $911,452 and
$1,163,843 for 1995 and 1994 respectively. In 1995, the company amortized the
remaining $200,000 of deferred gain, under the aforementioned treaty, against
deferred acquisition costs for 1995.

Income, before income taxes, in 1996 was $1,588,505, inclusive of gain
on equity securities of $873,299, compared to $1,274,903 in 1995 and $1,543,979
in 1994. The 1995 income declined 17% from prior year as a result of reduced
premium income and level amortization expenses.

Liquidity and Capital Resources.

Effective January 1, 1994, the Company adopted Statement of
Financial Accounting Standards No. 115 ("SFAS 115"), "Accounting

20

for Certain Investments in Debt and Equity Securities." SFAS 115 required that
investments in all debt securities and those equity securities with readily
determinable market values be classified into one of three categories:
held-to-maturity, trading or available-for-sale. Classification of investments
is based upon management's current intent. Debt securities which management has
a positive intent and ability to hold until maturity are classified as
securities held-to-maturity and are carried at amortized cost. Unrealized
holding gains and losses on securities held-to-maturity, are not reflected in
the financial statements. Debt and equity securities that are purchased for
short-term resale are classified as trading securities. Trading securities are
carried at market value, with unrealized holding gains and losses included in
earnings. All other debt and equity securities not included in the above two
categories are classified as securities available-for-sale. Securities
available-for-sale are carried at market value, with unrealized holding gains
and losses reported as a separate component of stockholders' equity, net of tax
and a valuation allowance against deferred acquisition costs. Adoption of this
statement had no effect on the income of the Company.

The Company's insurance operations have historically provided adequate
positive cash flow enabling the Company to continue to meet operational needs as
well as increase its investment-grade securities to provide ample protection for
policyholders.

Student loans are a service the Company makes available to the public
as well as an investment. While the Company anticipates the seasonal demand for
student loan funds and the subsequent sale of such loans to the Student Loan
Marketing Association (SLMA), there are times when additional funds are required
to meet demand for student loans until such time as the sale thereof to SLMA can
be completed. In 1995 the Company renewed its $5,000,000 line of credit with
SLMA in order to meet these seasonal borrowing requirements. The Company made no
draws against this line of credit throughout the seasonal period for 1996. The
Company anticipates continued borrowings to be made through this line of credit
with SLMA to the extent that student loan borrowings are required for 1997. SLMA
offers a more competitive rate of interest on such borrowings than the Company
has been able to obtain through banks.

21

The following table displays pertinent information regarding the
short-term borrowings of the Company as they relate to these credit lines:

1995 SLMA 1994 SLMA
========= =========

Balance @ Year End $1,400,553.30 $891,823.47

Weighted Avg. Interest
@ Year End 6.3705% 6.566%

Maximum Balance $1,891,823.47 $3,823,957.61

Average Balance $1,159,300.15 $1,443,478.84

Weighted Rate 6.3705% 6.1024%

The Company began a new association with USA Group, CAP Program in
1996, for the purpose of making more student loan funds available without
increased costs to the Company. This association aided in eliminating borrowings
for 1996. In 1995, a similar program was in effect with University Support
Services.

Except as otherwise provided herein, management believes that cash flow
levels in future periods will be such that the Company will be able to continue
its prior growth patterns in writing life insurance policies, fund Federally
insured student loans and meet normal operating expenses.

The National Association of Insurance Commissioners, in order to
enhance the regulation of insurer solvency, issued a model law to implement
risk-based capital (RBC) requirements for life insurance companies, which are
designed to assess capital adequacy. Pursuant to the model law, insurers having
less statutory surplus than required by the RBC calculation will be subject to
varying degrees of regulatory action. While Florida, the Company's state of
domicile, had yet to adopt the provisions of the RBC model law, the Company is
monitoring their RBC results in anticipation of future adoption. At December 31,
1996, the Company had statutory surplus well in excess of any RBC action level
requirements.

The Company has now fully leased all rentable space on the first floor
of its office building. The Company has no material commitments for capital
expenditures throughout the balance of the year 1997.

Item 8. Financial Statements and Supplementary Data.

(The remainder of this page is intentionally left blank)

22

Independent Auditors' Report

Board of Directors
Southern Security Life Insurance Company:

We have audited the accompanying financial statements of Southern Security Life
Insurance Company as listed in the accompanying index under Item 14(a). In
connection with our audit of the financial statements, we have also audited the
amounts included in the financial statement schedules as listed in the
accompanying index under Item 14(a)2. These financial statements and financial
statement schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedules 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 financial position of Southern Security Life
Insurance Company as of December 31, 1996 and 1995, and the results of its
operations and its cash flows for each of the years in the three year period
ended December 31, 1996, in conformity with generally accepted accounting
principles. Also in our opinion, the related financial statement schedules, when
considered in relation to the basic financial statements taken as a whole,
present fairly, in all material respects, the information set forth therein.

KPMG Peat Marwick, LLP

Orlando, Florida
April 18, 1997

23

SOUTHERN SECURITY LIFE INSURANCE COMPANY

Balance Sheets

December 31, 1996 and 1995

Assets 1996 1995
------ ---- ----

Investment (note 3):
Fixed maturities held to maturity
(fair value, $15,140,919 and
$15,494,540 at December 31,
1996 and 1995, respectively) $14,974,962 15,165,395
Securities available for sale,
at fair value:
Fixed maturities (cost of
$24,298,618 at December 31,
1996 and $21,077,410 at
December 31, 1995) 24,476,239 21,812,096
Equity securities (cost, $0
and $1,297,041 at
December 31, 1996 and
1995, respectively) - 1,715,386
Policy and student loans 7,315,809 9,971,653
Short-term investments 4,539,106 1,499,100
Other invested assets 13,100 22,578
---------- ----------

51,319,216 50,186,208

Cash and cash equivalents 206,056 406,752
Accrued investment income 687,699 638,809
Deferred policy acquisition costs
(note 4) 16,979,612 18,145,111
Policyholders' account balances on
deposit with reinsurer (Note 7) 8,522,449 8,440,660
Reinsurance receivable (note 7) 379,692 514,341
Receivables:
Agent balances 588,290 345,014
Other 340,680 318,274
Refundable income taxes - -
Property and equipment, net,
at cost (note 5) 2,785,666 2,877,181

$81,809,360 81,872,350
=========== ==========

See accompanying notes to financial statements

24

SOUTHERN SECURITY LIFE INSURANCE COMPANY

Balance Sheets (continued)

December 31, 1996 and 1995

Liabilities and Shareholders' Equity 1996 1995
------------------------------------ ---- ----

Liabilities:
Policy liabilities and accruals (notes 6 and 7):
Future policy benefits $ 985,720 1,050,498
Policyholders' account balances 52,347,996 50,624,276
Unearned premiums 8,249,190 9,116,890
Other policy claims and benefits
payable 293,221 191,955
Other policyholders' funds, dividend
and Endowment accumulations 59,596 57,444
Funds held in reinsurance treaties
with Reinsurers (note 7) 1,193,366 977,416
Note payable (note 8) - 1,400,553
Note payable to related party
(note 9) 1,000,000 1,000,000
Due to affiliated insurance
agency (note 11) 33,411 243,368
General expenses accrued 894,131 1,025,372
Unearned investment income 228,032 188,360
Other liabilities 204,845 248,258
Income taxes payable 70,164 16,350
Deferred income taxes (note 10) 588,100 905,000
------- -------

66,147,772 67,045,740
---------- ----------

Shareholders' equity (notes 2,3 and 12):
Common stock, $1 par, authorized
2,000,000 shares; issued and out-
standing, 1,907,989 shares 1,907,989 1,907,989
Capital in excess of par 4,011,519 4,011,519
Unrealized appreciation (depreciation)
on securities available for sale, net
of adjustment to deferred policy acquisition
costs of $187,196 ($(273,077)
in 1995) and net of deferred Federal
income tax benefit of ($675)
($331,000 expense in 1995) (8,880) 548,647
Retained earnings 9,750,960 8,358,455
--------- ---------

15,661,588 14,826,610
Commitments and contingencies
(notes 7 and 14)

$81,809,360 81,872,350
=========== ==========

25

SOUTHERN SECURITY LIFE INSURANCE COMPANY

Statements of Income

Years ended December 31, 1996, 1995, and 1994

1996 1995 1994
---- ---- ----

Revenues:
Premium and policy
charges $7,702,639 7,919,362 9,122,389
Less reinsurance ceded (1,030,673) (1,201,432) (1,344,907)
Surrender fee income 1,243,061 1,441,008 1,522,307
--------- --------- ---------

Net insurance revenue 7,915,027 8,158,938 9,299,789
Net investment income
(notes 3 & 8) 3,318,627 2,998,875 2,750,771
Realized gain on
investments (note 3) 869,502 60,237 60,732
------- ------ ------

12,103,156 11,218,050 12,111,292
---------- ---------- ----------

Benefits, losses and expenses:
Annuity, death, surrender
and other benefits 3,818,562 4,061,096 4,115,257
Decrease in future policy
benefits (5,201) (12,971) (67,036)
Amortization of deferred
policy acquisition
costs (note 4) 3,364,738 3,069,742 3,242,706
Operating expenses
(note 11) 3,246,552 2,735,280 3,186,386
Interest expense with
related party (Note 9) 90,000 90,000 90,000
------ ------ ------

10,514,651 9,943,147 10,567,313
---------- --------- ----------

Income before income taxes 1,588,505 1,274,903 1,543,979

Income tax expense (benefit) (note 10) 196,000 160,000 530,000
-------- ------- -------

Net income $1,392,505 1,114,903 1,013,979
========== ========= =========

Earnings per share, based on
1,907,989 weighted average
shares outstanding in 1996,
1995 and 1994 $.73 .58 .53
==== === ===

See accompanying notes to financial statements.

26

SOUTHERN SECURITY LIFE INSURANCE COMPANY

Statements of Shareholders' Equity

Years ended December 31, 1996, 1995 and 1994

Unrealized
Appreciation
(depreciation) Agents
Capital of equity Incentive
Common stock in excess security Stock Retained
Shares Amount of par investments Bonus earnings

Balances,
December 31,
1993 1,844,694 1,844,694 3,918,292 120,542 125,000 6,229,573

Capital Stock
issued 63,295 63,295 93,227 - (125,000)
Net income for
the year - - - - - 1,013,979
Unrealized
depreciation
of securities
available
for sale
investments - - - (639,077) - -
------- ------- ------- -------- -------- -----

Balances,
December
31, 1994 1,907,989 1,907,989 $4,011,519 (518,535) - 7,243,552
--------- --------- ---------- --------- -------- ---------

Net income for
the year - - - - - 1,114,903
Unrealized
appreciation
of securities
available
for sale - - - 1,067,182 - -
------- ------- ------- --------- -------- -----

Balances,
December
31, 1995 1,907,989 $1,907,989 4,011,519 548,647 - 8,358,455
--------- --------- --------- ------- -------- ---------

Capital Stock
issued
Net income for
the year to
date - - - - - 1,392,505
Unrealized
depreciation
of securities
available
for sale
investments - - - (557,527) - -
------- ------- ------- --------- -------- ----

Balances,
December 31,
1996 1,907,989 $1,907,989 4,011,519 (8,880) - 9,750,960
========= ========== ========= ====== ======== =========

See accompanying notes to financial statements.

27

SOUTHERN SECURITY LIFE INSURANCE COMPANY

Statements of Cash Flows

Years ended December 31, 1996, 1995 and 1994

1996 1995 1994
---- ---- ----

Cash flows provided by (used in)
operating activities:
Net income (including net realized
gains and losses on investments) $1,392,505 $1,114,903 $1,013,979
Adjustments to reconcile net cash
provided by (used in) operating
activities:
Depreciation 173,601 182,971 190,288
Net realized (gains) or
losses on investments (873,298) (60,237) (60,732)
Loss on disposal of property,
plant & equipment 918 5,326
Deferred income taxes 16,900 (221,000) 430,000
Amortization of deferred
policy acquisition costs 3,364,738 3,069,742 3,242,706
Acquisition costs deferred (2,018,043) (2,779,393) (3,967,255)
Change in assets and liabilities
affecting cash provided by
operations:
Accrued investment income (48,890) (33,958) 842,643
Due from affiliated insurance
agency - 10,419 (50)
Accounts receivable (265,682) 305,725 324,561
Reinsurance Receivable 134,649 (191,157) (11,835)
Other policy claims and
future benefits payable 36,488 (96,568) (403,263)
Policyholders' Account balances 2,332,863 2,388,047 2,325,599
Funds held under reinsurance 215,950 276,715 202,827
Unearned premiums (962,941) (427,955) (525,609)
Dividend and endowment
accumulations 2,152 2,069 838
Payable to affiliated insurance
agent (209,957) 18,155 (123,959)
Income taxes payable 53,814 16,350 -
Other liabilities (134,983) (361,184) (800,006)
-------- -------- --------

Net cash provided by operating
activities 3,209,866 3,214,562 2,686,058
--------- --------- ---------

(continued)

28

SOUTHERN SECURITY LIFE INSURANCE COMPANY

Statements of Cash Flows (continued)

Years ended December 31, 1996, 1995 and 1994

1996 1995 1994
---- ---- ----

Cash flows from (used in) investing activities:
Purchase of investments:
Purchase of investments held to maturity (1,965,240) (3,492,860) (6,471,251)
Purchase of investments available for sale (8,085,785) (3,754,242) (8,599,060)
Proceeds from maturity of held to
maturity securities 2,165,750 1,135,203 1,955,675

Proceeds from maturity of available
for sale securities 635,533 141,150 2,508,813
Proceeds from sale of available for
sale securities (equity and fixed
maturity) 6,367,780 2,664,089 650,294
Net change in short term investments (3,040,006) 376,658 (1,247,532)
Net change in policy and student loans 2,655,845 (1,104,685) 15,693,088
Net change in other investments 7,605 8,476 -
Acquisition of property and equipment (60,559) (204,142) (41,787)
------- -------- -------

Net cash provided by (used in)
investing activities (1,319,077) (4,230,353) 4,448,240
---------- ----------- ---------

Cash flows from financing activities:
Receipts from universal life and
certain annuity policies credited
to policyholder account balances 5,213,760 5,609,910 6,103,433
Return of policyholder account
balances on universal life and
certain annuity policies (5,904,692) (5,334,176) (4,142,868)
Proceeds from short-term borrowings 2,500,000 3,250,000 8,462,932
Repayment of short-term
borrowings (3,900,553) (2,741,270) (17,009,177)
----------- ---------- -----------

Net cash provided by (used in)
financing activities (2,091,485) 784,464 (6,585,680)
----------- ------- ----------

Increase (decrease) in cash and cash
equivalents (200,696) (231,327) 548,618

Cash and cash equivalents at
beginning of year 406,752 638,079 89,461
------- ------- ------

Cash and cash equivalents at
end of year $206,056 $406,752 $638,079
======== ======== ========

29

SOUTHERN SECURITY LIFE INSURANCE COMPANY

Statements of Cash Flows (continued)

Years ended December 31, 1996, 1995 and 1994

1996 1995 1994
---- ---- ----

Supplemental schedule of cash flow
Information:
Interest paid during the year, net 12,094 24,935 164,790
====== ====== =======

Income taxes paid during the year 130,500 249,000 145,000
======= ======= =======

Change in market value adjustments-
investments available for sale:
Fixed maturities (557,065) 2,109,314 (1,374,628)
Equity securities (418,345) 406,612 11,733

Change in deferred acquisition costs 181,196 (1,669,168) 1,100,581
Change in premium deposit funds (95,241) 871,220 (575,711)
Deferred income tax asset (liability) 333,800 (651,000) 320,000
Other (1,872) 204 (510)
------ --- ----

Net change in unrealized appreciation
(depreciation) (557,527) 1,067,182 (518,535)
======== ========= ========

See accompanying notes to financial statements.

30

SOUTHERN SECURITY LIFE INSURANCE COMPANY
Notes to Financial Statements
December 31, 1996, 1995 and 1994

1. Nature of business and summary of significant accounting
policies:

(a) Nature of Business

The primary business purpose of Southern Security Life Insurance
Company (the "Company") is the issuance of long duration
universal life insurance contracts. Prior to 1986, the Company's
business included traditional whole life and annuity contracts.
The majority of the Company's business is conducted in the states
of Florida (43%), Georgia (13%) and Texas (14%). None of the
remaining eleven states in which the Company is licensed to
conduct business account for over 10% of the Company's total
business.

The following is a description of the most significant risks
facing life and health insurers and how the Company mitigates
those risks:

Legal/Regulatory Risk is the risk that changes in the legal or
regulatory environment in which an insurer operates will create
additional expenses not anticipated by the insurer in pricing its
products. That is, regulatory initiatives designed to reduce
insurer profits, new legal theories or insurance company
insolvencies through guaranty fund assessments may create costs
for the insurer beyond those recorded in the consolidated
financial statements. The Company seeks to mitigate this risk
through geographic marketing of their insurance products.

Credit Risk is the risk that issuers of securities owned by the
Company will default or that other parties, including reinsurers,
which owe the Company money, will not pay. The Company minimizes
this risk by adhering to a conservative investment strategy, by
maintaining sound reinsurance and by providing for any amounts
deemed uncollectible.

Interest Rate Risk is the risk that interest rates will change
and cause a decrease in the value of an insurer's investments.
This change in rates may cause certain interest-sensitive
products to become uncompetitive or may cause disintermediation.
The Company mitigates this risk by charging fees for
nonconformance with certain policy provisions, by offering
products that transfer this risk to the purchaser, and/or by
attempting to match the maturity schedule of its assets with the
expected payouts

31

SOUTHERN SECURITY LIFE INSURANCE COMPANY
Notes to Financial Statements (continued)

1. Nature of business and summary of significant accounting
policies, continued

(a) of its liabilities. To the extent that liabilities come due more
quickly than assets mature, an insurer would have to sell assets
prior to maturity and potentially recognize a gain or loss.

(b) Basis of Financial Statements

The financial statements have been prepared on the basis of
generally accepted accounting principles ("GAAP"), which vary
from reporting practices prescribed or permitted by regulatory
authorities.

(c) Use of Estimates

In preparing the financial statements, management is required to
make estimates and assumptions that affect the reported amounts
of assets and liabilities. Actual results could differ
significantly from those estimates.

The estimates susceptible to significant change are those used in
determining the liability for future policy benefits and claims,
deferred income taxes and deferred policy acquisition costs.
Although some variability is inherent in these estimates,
management believes that the amounts provided are adequate.

(d) Investments

Investments in all debt securities and those equity securities
with readily determinable market values are classified into one
of three categories: held-to-maturity, trading or
available-for-sale. Classification of investments is based upon
management's current intent. Debt securities which management has
a positive intent and ability to hold until maturity are
classified as securities held-to-maturity and are carried at
amortized cost. Unrealized holding gains and losses on securities
held-to-maturity are not reflected in the financial statements.
Debt and equity securities that are purchased for short-term
resale are classified as trading securities. Trading securities
are carried at fair value, with unrealized holding gains and
losses included in earnings. All other debt and equity securities
not included in the above two categories are classified as
securities available-for-sale. Securities available-for-sale are
carried at fair value,

32

SOUTHERN SECURITY LIFE INSURANCE COMPANY
Notes to Financial Statements (continued)

1. Nature of business and summary of significant accounting
policies, continued

(d) with unrealized holding gains and losses reported as a
separate component of stockholders' equity, net of tax and a
valuation allowance against deferred acquisition costs. At
December 31, 1996 and 1995, the Company did not have any
investments categorized as trading securities.

The Company's carrying value for investments in the
held-to-maturity and available-for-sale categories is reduced to
its estimated realizable value if a decline in the market value
is deemed other than temporary. Such reductions in carrying
values are recognized as realized losses and charged to income.

Interest on fixed maturities and short-term investments is
credited to income as it accrues on the principal amounts
outstanding adjusted for amortization of premiums and discounts
computed by the scientific method which approximates the
effective yield method. Realized gains and losses on disposition
of investments are included in net income. The cost of
investments sold is determined on the specific identification
method. Dividends are recorded as income on the ex-dividend
dates.

Policy loans and student loans are carried at the unpaid
principal balance, less any amounts deemed to be uncol-lectible.
The Company's policy is that policy loans are not made for
amounts in excess of the cash surrender value of the related
policy. Accordingly, policy loans are fully collateralized by the
related liability for future policy benefits for traditional
insurance policies and by the policyholders' account balance for
interest sensitive policies.

(e) Cash and Cash Equivalents

For purposes of the statements of cash flows, the Company
considers all highly liquid debt instruments purchased with an
original maturity of one month or less to be cash equivalents.

(f) Deferred Policy Acquisition Costs

The costs of acquiring new business, net of the effects of
reinsurance, principally commissions and those home office
expenses that tend to vary with and are primarily related

33

SOUTHERN SECURITY LIFE INSURANCE COMPANY
Notes to Financial Statements (continued)

1. Nature of business and summary of significant accounting
policies, continued

(f) to the production of new business, have been deferred.
Deferred policy acquisition costs applicable to non- universal
life policies are being amortized over the premium-paying period
of the related policies in a manner that will charge each year's
operations in direct proportion to the estimated receipt of
premium revenue over the life of the policies. Premium revenue
estimates are made using the same interest, mortality and
withdrawal assumptions as are used for computing liabilities for
future policy benefits. Acquisition costs relating to universal
life policies are being amortized at a constant rate based on the
present value of the estimated gross profit amounts expected to
be realized over the life of the policies. Deferred policy
acquisition costs are adjusted to reflect the impact of
unrealized gains and losses on fixed maturity securities
available for sale.

The Company has performed several tests concerning the
recoverability of deferred acquisition costs. These methods
include those typically used by many companies in the life
insurance industry. Further, the Company conducts a sensitivity
analysis of its assumptions that are used to estimate the future
expected gross profits, which management has used to determine
the future recoverability of the deferred acquisition costs.

(g) Depreciation

Depreciation is being provided on the straight-line method over
the estimated useful lives of the assets.

(h) Future Policy Benefits

The liability for future policy benefits has been provided on a
net level premium basis based upon estimated investment yields,
withdrawals, mortality and other assumptions that were
appropriate at the time the policies were issued. Such estimates
are based upon industry data and the Company's past experience as
adjusted to provide for possible adverse deviation from the
estimates.

34

SOUTHERN SECURITY LIFE INSURANCE COMPANY
Notes To Financial Statements (continued)

1. Nature of business and summary of significant accounting
policies, continued

(i) Recognition of Premium Revenue and Related Costs

Premiums are recognized as revenue as follows:

Universal life policies - premiums received from policy-holders
are reported as deposits. Cost of insurance, policy
administration and surrender charges which are charged against
the policyholder account balance during the period, are
recognized as revenue as earned. Amounts assessed against the
policyholder account balance that represent compensation to the
Company for services to be provided in future periods are
reported as unearned revenue and recognized in income using the
same assumptions and factors used to amortize acquisition costs
capitalized.

Annuity contracts with flexible terms - premiums received from
policyholders are reported as deposits.

All other policies - recognized as revenue over the premium
paying period.

(j) Income Taxes

Deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets
and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates
is recognized in income in the period that includes the enactment
date.

(k) Earnings Per Share

Earnings per share are computed based on weighted average
outstanding shares for each year.

(l) Reclassification

Certain amounts presented in the 1995 and 1994 financial
statements have been restated to conform to the 1996
presentation.

35

SOUTHERN SECURITY LIFE INSURANCE COMPANY
Notes to Financial Statements (continued)

2. Basis of Financial Statements

The more significant generally accepted accounting principles applied in
the preparation of financial statements that differ from life insurance
statutory accounting practices prescribed or permitted by regulatory
authorities (which are primarily designed to demonstrate solvency) are as
follows:

a. Costs of acquiring new business are deferred and amortized,
rather than being charged to operations as incurred.

b. The liability for future policy benefits and expenses is based on
conservative estimates of expected mortality, morbidity,
interest, withdrawals and future maintenance and settlement
expenses, rather than on statutory rates for mortality and
interest.

c. The liability for policyholder funds associated with universal
life and certain annuity contracts are based on the provisions of
Statement of Financial Accounting Standards Statement No. 97,
rather than on the statutory rates for mortality and interest.

d. Investments in securities are reported as described in Note
1,(c), rather than in accordance with valuations established by
the National Association of Insurance Commissioners ("NAIC").
Pursuant to NAIC valuations, bonds eligible for amortization are
reported at amortized value; other securities are carried at
values prescribed by or deemed acceptable by NAIC including
common stocks, other than stocks of affiliates, at market value.

e. Deferred income taxes, if applicable, are recognized for future
tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and
liabilities and their respective tax bases.

f. The statutory liabilities for the asset valuation reserve and
interest maintenance reserve have not been provided in the
financial statements.

g. Certain assets, principally receivables from agents and
equipment, are reported as assets rather than being charged
directly to surplus.

h. Expenses attributable to the public offering of the common
shares have been reclassified from retained earnings to capital
in excess of par.

36

SOUTHERN SECURITY LIFE INSURANCE COMPANY
Notes to Financial Statements (continued)

2. Basis of financial statements, continued

i. Realized gains or losses on the sale or maturity of investments
are included in the statement of income and not recorded net of
taxes and amounts transferred to the interest maintenance reserve
as required by statutory accounting practices.

j. Certain proceeds from a note payable (note 9) that are treated
as shareholder's equity for statutory purposes are treated as a
liability under generally accepted accounting principles.

k. Reinsurance assets and liabilities are reported on a gross
basis rather than shown on a net basis as permitted by statutory
accounting practices.

A reconciliation of net income (loss) for the years ended December 31,
1996, 1995 and 1994 and shareholders' equity as of December 31, 1996 and
1995 between the amounts reported on a statutory basis and the related
amounts presented on the basis of generally accepted accounting
principles is as follows:

(The remainder of this page is intentionally left blank)

37

SOUTHERN SECURITY LIFE INSURANCE COMPANY
Notes to Financial Statements (continued)

2. Basis of financial statements, continued

Shareholders'
Net income equity
Years ended December 31, December 31,
1996 1995 1994 1996 1995
---- ---- ---- ---- ----

As reported
on a statutory
basis 1,022,183 $232,180 55,816 9,283,928 8,770,411
---------- -------- ------ --------- ---------

Adjustments:
Deferred policy
acquisition
costs, net (1,346,695) (290,344) 724,549 16,979,611 18,145,111

Future policy
benefits, un-
earned premiums
and policy-
holders' funds 1,626,090 1,006,862 586,243 (10,643,224) (12,340,766)

Deferred
income taxes (16,900) 221,000 (430,000) (588,100) (905,000)

Asset valuation
reserve - - - 307,364 807,899

Interest main-
tenance reserve (18,221) 24,909 (4,092) 209,736 227,957
Non-admitted
assets - - - 795,659 265,507
Unrealized gains
-SFAS 115 - - - 177,621 734,686
Capital and
surplus note - - - (1,000,000) (1,000,000)
Other adjustments,
net 126,048 (79,704) 81,463 138,993 120,805
------- ------- ------ ------- -------
Net increase
(decrease) 370,322 882,723 958,163 6,377,660 6,056,199
--------- ------- ------- --------- ---------

As reported on a
GAAP basis $1,392,505 1,114,903 1,013,979 15,661,588 14,826,610
========= ========= ========= ========== ==========

Under applicable laws and regulations, the Company is required to
maintain minimum surplus as to policyholders, determined in accordance
with regulatory accounting practices, in the aggregate amount of
approximately $1,800,000.

The payment of dividends by the Company is subject to the regulation
of the State of Florida Department of Insurance. A dividend may be
declared and paid without prior Florida

38

SOUTHERN SECURITY LIFE INSURANCE COMPANY
Notes to Financial Statements (continued)

2. Basis of financial statements, continued

Insurance Commissioner's approval if the dividend is equal to or less
than the greater of: (a) 10% of the Company's surplus as to
policyholder's derived from realized net operating profits on its
business and net realized capital gains; or (b) the Company's entire net
operating profits and realized net capital gains derived during the
immediately preceding calendar year, if the Company will have surplus as
to policyholders equal to or exceeding 115% of the minimum required
statutory surplus as to policyholders after the dividend is declared and
paid. As a result of such restrictions, the maximum dividend payable by
the Company during 1997 without prior approval is approximately
$1,022,183.

The Risk-Based Capital ("RBC") for Life and/or Health Insurers Model Act
(the "Model Act") was adopted by the National Association of Insurance
Commissioners (NAIC) in 1992. The main purpose of the Model Act is to
provide a tool for insurance regulators to evaluate the capital of
insurers. Based on calculations using the appropriate NAIC formula, the
Company exceeded the RBC requirements at December 31, 1996.

3. Investments

(a) Equity Securities and Fixed Maturities

Equity securities consist of $0 and $1,715,385 of common stock at
December 31, 1996 and 1995 respectively.

Unrealized (depreciation) appreciation in investments in equity
securities for the years ended December 31, 1996, 1995, and 1994 is $0,
$406,611 and ($108,809), respectively.

The amortized cost and estimated market values of investments in debt
securities are as follows:

39

SOUTHERN SECURITY LIFE INSURANCE COMPANY
Notes to Financial Statements (continued)

3. Investments, continued

(a) Continued

Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value

December 31, 1996:
Held to maturity:
U.S. Treasury securities
and obligations of U.S.
government corporations
and agencies (guaranteed) $ 4,503,477 61,523 - 4,565,000

Corporate securities 9,461,064 120,955 - 9,582,019

Special revenue and
special assessment
obligations and all
nonguaranteed obligations
of agencies and authorities
of governments and their
political subdivisions 1,010,421 - 16,521 993,900
--------- ------ ------ -------

14,974,962 182,478 16,521 15,140,919
---------- ------- ------ ----------
Available for sale:
U.S. Treasury securities
and obligations of U.S.
government corporations
and agencies (guaranteed) 20,383,080 180,672 - 20,563,752

Corporate securities 3,585,084 - 2,084 3,583,000

Special revenue and
special assessment
obligations and all
nonguaranteed obligations
of agencies and authorities
of governments and their
political subdivisions 330,454 - 967 329,487
------- ------- --- -------

24,298,618 180,672 3,051 24,476,239
---------- ------- ----- ----------

$39,273,580 363,150 19,572 39,617,158
=========== ======= ====== ==========

40

SOUTHERN SECURITY LIFE INSURANCE COMPANY
Notes to Financial Statements (continued)

3. Investments, continued

(a) Continued

Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value

December 31, 1995:
Held to maturity:
U.S. Treasury
securities and
obligations of U.S.
government corpora-
tions and agencies
(guaranteed) 6,410,291 157,709 - 6,568,000

Corporate securities 7,743,286 171,436 - 7,914,722

Special revenue and
special assessment
obligations and all
nonguaranteed obligations
of agencies and
authorities of
governments and
their political
subdivisions 1,011,818 - - 1,011,818
--------- ------- ------ ---------

15,165,395 329,145 0 15,494,540
---------- ------- - ----------

Available for sale:
U.S. Treasury
securities and
obligations of U.S.
government corporations
and agencies (guaranteed) 16,533,564 721,436 - 17,255,000

Corporate securities 3,931,378 16,622 - 3,948,000

Special revenue and
special assessment
obligations and all
nonguaranteed
obligations of agencies
and authorities of
governments and their
political subdivisions 612,468 - 3,372 609,096
------- ------- ----- -------

21,077,410 738,058 3,372 21,812,096
---------- ------- ----- ----------

$36,242,805 1,067,203 3,372 37,306,636
=========== ========= ===== ==========

41

SOUTHERN SECURITY LIFE INSURANCE COMPANY
Notes to Financial Statements (continued)

3. Investments, continued

(a) Continued

Unrealized (depreciation) appreciation of fixed maturities for
years ending December 31, 1996, 1995 and 1994 is ($720,253),
$2,779,872 and $(2,534,413) respectively.

The amortized cost and estimated fair value of fixed maturities
at December 31, 1996, by contractual maturity, are summarized
below. Expected maturities will differ from contractual
maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.

Fixed maturity securities held-to-maturity:

Amortized Estimated
Cost Fair value

Due in one year or less $998,865 998,865
Due after one year through
five years 11,706,730 11,862,590
Due after five years through
ten years 983,382 1,010,000
Due after ten years 275,564 275,564
------- -------

13,964,541 14,147,019
Mortgage backed securities 1,010,421 993,900
--------- -------

$14,974,962 15,140,919
=========== ==========

Fixed maturity securities available-for-sale:

Due in one year or less 3,005,565 3,000,000
Due after one year through
5 years 12,011,351 12,057,800
Due after five years through
ten years 6,163,237 6,138,952
Due after ten years 2,788,011 2,950,000
--------- ---------

23,968,164 24,146,752
Mortgage backed securities 330,454 329,487
------- -------

$24,298,618 24,476,239
=========== ==========

42

SOUTHERN SECURITY LIFE INSURANCE COMPANY
Notes to Financial Statements (continued)

3. Investments, continued

(a) Continued

Proceeds from sale of equity securities and fixed maturities
available for sale and related realized gains and losses are
summarized as follows:

1996 1995 1994
---------- ---------- -------

Proceeds from sale of
equity securities $2,885,010 $854,339 650,294
========= ======= =======

Proceeds from sale of
fixed maturities
available for sale 3,482,770 $1,809,750 -
========= ========= ====

Fixed maturities:
Gross realized gains 15,013 145,136 67,146
Gross realized (losses) (18,881) (119,908) (16,474)
Equity securities:
Gross realized gains 930,919 55,543 -
Gross realized (losses) (57,620) (20,540) -
-------- ------- ------

$869,431 $60,231 50,672
======= ====== ======

Certain of the fixed maturity securities classified as available for
sale and held to maturity were called during the year ended December
31, 1996, 1995 and 1994 resulting in the following realized gains and
losses:

1996 1995 1994
---- ---- ----

Held to maturity:
Gross realized gains $71 6 -
Available for sale:
Gross realized gains - - 10,060
--- - ------
$71 6 10,060
=== = ======

43

SOUTHERN SECURITY LIFE INSURANCE COMPANY
Notes to Financial Statements (continued)

3. Investments, continued

(b) Concentrations of credit risk

At December 31, 1996 and 1995, the Company did not hold any
unrated or less-than-investment grade corporate debt securities.
The Company also invests in subsidized and unsubsidized student
loans totaling $514,483 and $4,403,061 at December 31, 1996 and
1995, respectively, which are guaranteed by the U.S. government.
Subsequent to December 31, 1996, all of these loans were sold at
their unpaid principal balance.

(c) Investment Income

Net investment income for the years ended December 31, 1996,
1995, and 1994 consists of the following:

1996 1995 1994
---- ---- ----

Interest:
Fixed maturities $2,581,198 2,319,914 2,080,464
Policy and student loans 526,820 483,382 768,631
Short-term investments 280,158 333,850 176,941

Dividends on equity securities
Common stock, including mutual
fund 31,245 28,247 24,418
------ ------ ------

3,419,421 3,165,393 3,050,454
Less investment expenses 100,794 166,518 299,683
------- ------- -------

$3,318,627 2,998,875 2,750,771
========= ========= =========

(d) Investments on Deposit

In order to comply with statutory regulations, investments were
on deposit with the Insurance Departments of certain states as
follows:

1996 1995 1994
---- ---- ----

Florida $1,718,751 1,735,900 1,744,017
Alabama 100,000 100,000 100,000
South Carolina 306,028 304,696 305,356
Georgia 255,024 251,193 250,000
Indiana 199,752 - -
------- -------- ---------

$2,579,555 2,391,789 2,399,373
========= ========= =========

44

SOUTHERN SECURITY LIFE INSURANCE COMPANY
Notes to Financial Statements (continued)

3. Investments, continued

(d) Continued

Certain of these assets, totaling approximately $650,000 for each
of the years ended December 31, 1996 and 1995, are restricted for
the future benefit of policyholders in a particular state.

4. Deferred policy acquisition costs

Deferred policy acquisition costs at December 31, 1996, 1995 and 1994
consist of the following:

1996 1995 1994
---- ---- ----

Deferred policy acquisition
costs at beginning of year 18,145,111 $20,104,624 18,279,497

Policy acquisition costs
deferred:
Commissions 1,030,875 1,418,644 2,200,505
Underwriting and issue
costs 652,868 805,794 1,060,192
Other 334,300 554,955 706,558
Change in unrealized
appreciation, (depreciation) 181,196 (1,669,164) 1,100,578
------- ---------- ---------
2,199,239 1,110,229 5,067,833

Amortization of deferred
policy acquisition costs (3,364,738) (3,069,742) (3,242,706)
---------- ---------- ----------

Deferred policy acquisition
costs at end of year 16,979,612 $18,145,111 20,104,624
========== =========== ==========

5. Property and equipment

Property and equipment consists of the following:

December December
1996 1995

Land $982,027 $982,027
Building and improvements 2,173,955 2,152,203
Furniture and equipment 1,019,621 1,013,268
--------- ---------

4,175,603 4,147,498
Less accumulated depreciation 1,389,937 1,270,317
--------- ---------

$2,785,666 $2,877,181
========= =========

45

SOUTHERN SECURITY LIFE INSURANCE COMPANY
Notes to Financial Statements (continued)

5. Property and equipment, continued

Depreciation expense for the years ended December 31, 1996, 1995 and 1994
totaled $151,950, $150,213, and $148,355, respectively.

6. Future policy benefits

At December 31, 1996 and 1995, future policy benefits, exclusive of
universal life and flexible term annuities consist of the following:

December December
1996 1995

Life insurance $672,913 746,477
Annuities 304,394 296,242
Accident & health
insurance 8,413 7,779
----- -----

Total life
insurance policies $985,720 $1,050,498
======= =========

Life insurance in-force aggregated approximately $1.2 billion and $1.3
billion at December 31, 1996, and 1995, respectively.

Mortality and withdrawal assumptions are based upon the Company's
experience and actuarial judgment with an allowance for possible
unfavorable deviations from the expected experience.

The mortality table used in calculating benefit reserves is the
1965-1970 Basic Select and Ultimate for males.

For non-universal life policies written during 1983 through 1988,
interest rates used are 8.0 percent for policy years one through five,
decreasing by .1 percent per year for policy years six through twenty,
to 6.5 percent for policy years twenty-one and thereafter. For
non-universal life policies written in 1982 and prior, interest rates
vary, depending on policy type, from 7 percent for all policy years to
6 percent for policy years one through five and 5 percent for years six
and thereafter. For universal life policies written since 1988, the
interest rate used is a credited rate based upon the Company's
investment yield plus 1 percent.

46

SOUTHERN SECURITY LIFE INSURANCE COMPANY
Notes to Financial Statements (continued)

7. Reinsurance

The Company routinely cedes and, to a limited extent, assumes reinsurance
to limit its exposure to loss on any single insured. Ceded insurance is
treated as a risk and liability of the assuming companies. As of December
31, 1996, ordinary insurance coverage in excess of $75,000 is reinsured;
however for some policies previously issued, the first $30,000, $40,000
or $50,000 was retained and the excess ceded. The retention limit for
some substandard risks is less than $75,000. Reinsured risks would give
rise to liability to the Company only in the event that the reinsuring
company might be unable to meet its obligations under the reinsurance
agreement in force, as the Company remains primarily liable for such
obligations. Under these contracts, the Company has ceded premium of
$448,327, $525,662 and $585,957 included in reinsurance ceded, and
received recoveries of $608,355, $204,171 and $514,868 included in
annuity, death and other benefits for the years ended December 31, 1996,
1995 and 1994, respectively.

On December 31, 1992, the Company entered into a reinsurance agreement
ceding an 18% share of all universal life policies in force at December
31, 1992 as a measure to manage the future needs of the Company. The
reinsurance agreement is a co-insurance treaty entitling the assuming
company to 18% of all future premiums, while making them responsible for
18% of all future claims and policyholder loans relating to the ceded
policies. In addition, the Company receives certain commission and
expense reimbursements.

As of December 31, 1992, the Company ceded premiums of $5,240,058, equal
to the 18% of net statutory reserves ceded on the effective date of the
contract. In return, the Company received a commission and expense
allowance of $2,497,370. The economic gain on the reinsurance transaction
amounted to approximately $1,600,000, however, management deferred
approximately $1,000,000 of the gain against deferred acquisition costs
as a provision for the recoverability of such costs. Based upon
management's and actuarial evaluation of such costs, approximately $0,
$200,000 and $500,000 of the amount deferred was amortized against
deferred acquisition costs during 1996, 1995 and 1994, respectively.

For the years ended December 31, 1996, 1995 and 1994, the Company ceded
premiums of $582,346, $675,770 and $758,956, included in reinsurance
ceded, and received recoveries of $367,295, $459,090 and $386,509,
included in annuity, death

47

SOUTHERN SECURITY LIFE INSURANCE COMPANY
Notes to Financial Statements (continued)

7. Reinsurance, continued

death and other benefits, respectively. The funds held in reinsurance
treaties with reinsurer of $1,193,366 and $977,416 represent the 18%
share of policy loans ceded to the reinsurer at December 31, 1996 and
1995, respectively.

8. Notes Payable

The note payable of $0, and $1,400,553 at December 31, 1996 and 1995
respectively, secured by student loans equaling 115% of the unpaid
principal balance, relates to advances under a $5,000,000 line of credit
($5,000,000 available to be drawn at December 31, 1996). The note bears
interest at a variable rate and matures on September 18, 1997.

Interest expense relating to these notes payable during the three years
ended December 31, 1996, 1995 and 1994 totaled $12,094, $26,240, and
$60,864, respectively and is included in net investment income.

9. Note Payable to Related Party

Note payable to related party consists of amounts due on demand to
Consolidare Enterprises, Inc., the Company's majority shareholder. The
note proceeds were obtained in December, 1988 and the note qualifies as
shareholders' equity for statutory accounting purposes in accordance with
Section 628.401 of the Florida Statutes. At December 31, 1996, the note
bears interest at 9.0% percent (payable monthly); principal repayment is
contingent upon the Company maintain-ing statutory surplus in excess of
$1,750,000 and approval in advance by the Florida Department of
Insurance. Interest expense relating to the balance of note payable to
related party during 1996, 1995 and 1994 aggregated $90,000, $90,000, and
$90,000 respectively.

48

SOUTHERN SECURITY LIFE INSURANCE COMPANY
Notes to Financial Statements (continued)

10. Income taxes

Total income taxes for the years ended December 31, 1996, 1995, and 1994
were allocated as follows:

1996 1995 1994
---- ---- ----

Net income 196,000 160,000 530,000
Unrealized appreciation
(depreciation) of
investments (675) 331,000 (319,500)
---- ------- --------
195,325 491,000 210,500
======= ======= =======

Income taxes for the years ended December 31, 1996, 1995 and 1994 is
summarized as follows:

1996 1995 1994
---- ------ ------

Current:
Federal 167,700 $370,800 100,000
State 11,400 10,200 -
-------- -------- -------

179,100 381,000 100,000
-------- -------- -------
Deferred:
Federal 14,450 (188,700) 387,000
State 2,450 (32,300) 43,000
-------- --------- -------

16,900 (221,000) 430,000
-------- --------- -------

$196,000 $160,000 530,000
======== ======= =======

49

SOUTHERN SECURITY LIFE INSURANCE COMPANY
Notes to Financial Statements (continued)

10. Income taxes, continued

Income tax expense for the years ended December 31, 1996, 1995 and 1994
differs from "expected" tax (computed by applying the U.S. federal
income tax rate of 35% in 1996, 35% in 1995 and 1994 and to pretax
income) as a result of the following:

1996 1995 1994
-------- -------- ------

Computed "expected" tax expense 540,100 446,200 541,000
Increase (reduction) in income
taxes resulting from:
Small life insurance
company deduction (346,000) (340,200) (83,000)
Changes in the valuation
allowance for deferred
tax assets, allocated to
income tax expense 64,900 62,600 14,000
(Over) under accrual of
prior year expense (82,000) 11,000 29,000
State taxes, net of federal
income tax benefit 9,000 (14,600) 28,000
Other, net 10,000 (5,000) 1,000
------ ------- -----

$196,000 $160,000 530,000
======== ======== =======

Under tax laws in effect prior to 1984, a portion of a life insurance
company's gain from operations was not currently taxed but was
accumulated in a memorandum "Policyholders' Surplus Account." As a
result of the Tax Reform Act of 1984, the balance of the Policyholders'
Surplus Account has been frozen as of December 31, 1983 and no
additional amounts will be accumulated in this account. However,
distributions from the account will continue to be taxed, as under
previous law, if any of the following conditions occur:

a. The Policyholders' Surplus exceeds a prescribed maximum,
or;

b. Distributions, other than stock dividends, are made to
shareholders in excess of Shareholders' Surplus, as
defined by prior law, or;

c. The entity ceases to qualify for taxation as a life
insurance company.

At December 31, 1996, the balance of the Policyholders' Surplus account
aggregated approximately $236,000. The Company has not recorded
deferred income taxes totaling approximately

50

SOUTHERN SECURITY LIFE INSURANCE COMPANY
Notes to Financial Statements (continued)

10. Income taxes, continued

$80,000 relating to this amount as it has no plan to distribute the
amounts in Policyholders' Surplus in the foreseeable future.

The Tax Reform Act of 1986 enacted a new separate parallel tax system
referred to as the Alternative Minimum Tax (AMT) system. AMT is based on
a flat rate applied to a broader tax base. It is calculated separately
from the regular Federal income tax and the higher of the two taxes is
paid. The excess of the AMT over regular tax is a tax credit, which can
be carried forward indefinitely to reduce regular tax liabilities of
future years. In 1996, 1995 and 1994, AMT exceeded regular tax by
$64,900, $62,600, and $14,000, respectively. At December 31, 1996, the
AMT tax credit available to reduce future regular tax totaled $398,500.

The principal elements of deferred income taxes consist of the
following:

1996 1995 1994
-------- --------- -------

Deferred policy acquisition costs (431,500) $(155,500) 213,000
Future policy benefits 532,000 (23,000) 175,000
Other (83,600) (42,500) 42,000
------- -------- ------
16,900 (221,000) 430,000
====== ======== =======

The tax effect of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
December 31, 1996 and 1995 are presented below:

1996 1995
---------- -------

Deferred tax assets:
Unearned premiums, due to deferral of
"front-end" fee $3,180,000 $3,542,000
Policy liabilities and accruals,
principally due to adjustments
to reserves for tax purposes 1,814,000 1,984,000
Deferred policy acquisition costs
related to unrealized appreciation
(depreciation) 68,900 103,100
Other 141,900 39,200
Alternative minimum tax credit
carry forwards 398,500 333,600
------- -------

Total gross deferred tax assets 5,603,300 6,001,900
Less valuation allowance (398,500) (333,600)
-------- --------
Net deferred tax assets 5,204,800 5,668,300
--------- ---------

51

SOUTHERN SECURITY LIFE INSURANCE COMPANY
Notes to Financial Statements (continued)

10. Income taxes, continued

1996 1995
---------- -------

Deferred tax liabilities:
Deferred policy acquisition costs,
principally due to
deferrals (5,645,000) (6,076,500)
Other (81,100) (62,800)
Unrealized appreciation (66,800) (434,000)
------- --------

Total gross deferred tax liabilities (5,792,900) (6,573,300)
---------- ---------

Net deferred tax asset (liability) (588,100) (905,000)

======== ========

The net change in the total valuation allowance for the years ended
December 31, 1996, 1995, and 1994 was an increase of $64,900, $62,000
and $14,000, respectively.

In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or all
of the deferred tax assets will not be realized. The ultimate
realization of deferred tax assets is dependent upon the generation of
future taxable income during the periods in which those temporary
differences become deductible. Management considers the scheduled
reversal of deferred tax liabilities, projected future taxable income,
and tax planning strategies in making this assessment. Based upon the
level of historical taxable income and projections for future taxable
income over the periods which the deferred tax assets are deductible,
management believes it is more likely than not the Company will
realize the benefits of these deductible differences, net of the
existing valuation allowances at December 31, 1996.

11. Related party transactions

The Company's general agent, Insuradyne Corporation, is a wholly-owned
subsidiary of Consolidare Enterprises, Inc., which owns approximately
fifty-seven percent (57%) of the Company's outstanding stock. The
balances due (to) from affiliated insurance agency reflected in the
accompanying balance sheets principally represent unearned commission
advances paid to Insuradyne. The Company incurred commission expense to
Insuradyne aggregating $344,904, $422,121 and $582,059, in 1996, 1995,
and 1994, respectively. These amounts are included as components of
acquisition costs

52

SOUTHERN SECURITY LIFE INSURANCE COMPANY
Notes to Financial Statements (continued)

12. Agents' Incentive Stock Bonus Plan

deferred and related amortization. Insuradyne incurred insurance-related
expenses aggregating $31,703, $35,271, and $192,332 in 1996, 1995 and
1994, respectively.

The Company had an incentive bonus plan for agents that was adopted in
1983 and effective through December 31, 1990. Bonuses granted under the
plan were vesting over a five year period commencing on the fifth
anniversary date of the award. Once vested, the agent had the option to
receive the bonus in cash or shares of common stock. The number of
shares of common stock was determined on the date of the award as the
number of whole shares equal to the award based on the applicable stock
price on that date.

The first awards granted became fully vested during April, 1993. On
November 17, 1993, the Board of Directors approved an amendment to the
plan to provide an early payment option. The agents were given an
increased award in exchange for settling the awards early. During 1994,
a total award was distributed in the form of 63,295 shares of common
stock, totaling $125,000 and cash of $3,336.

13. Disclosures About Fair Value of Financial Instruments

Statement of Financial Accounting Standards No. 107 Disclosures About
Fair Value of Financial Instruments (SFAS 107) requires the Company to
disclose estimated fair value information. The following methods and
assumptions were used by the Company in estimating fair values of
financial instruments as disclosed herein:

Cash and cash equivalents, short-term investments and policy and student
loans: The carrying amount reported in the balance sheet for these
instruments approximate their fair value.

Investment securities available-for-sale and held-to-maturity: Fair
value for fixed maturity and equity securities is based on quoted market
prices at the reporting date for those or similar investments.

The following table presents the carrying amounts and estimated fair
values of financial instruments held at December 31, 1996 and 1995. The
fair value of a financial instrument is the amount at which the
instrument could be exchanged in a current transaction between willing
parties.

53

SOUTHERN SECURITY LIFE INSURANCE COMPANY
Notes to Financial Statements (continued)

13. Disclosures About Fair Value of Financial Instruments,
continued

1996 1995
---------------------- ----------------
Carrying Estimated Carrying Estimated
amount fair value amount fair value

Financial assets:
Fixed maturities
held to maturity
(see note 3) $14,974,962 15,140,919 $15,165,395 15,494,540
Fixed maturities
Available for
sale (see note 3) 24,476,239 24,476,239 21,812,096 21,812,096
Equity securities
Available for sale 0 0 1,715,386 1,715,386
Policy and student
loans 7,315,809 7,315,809 9,971,653 9,971,653
Short-term invest-
ments 4,539,106 4,539,106 1,499,100 1,499,100
Cash and cash
equivalents 206,056 206,056 406,752 406,752

Financial liabilities:
Policy liabilities-
Policyholders'
account balances 52,347,996 52,347,996 50,624,276 50,624,276

14. Legal proceedings:

Lawsuits against the Company have arisen in the normal course of the
Company's business. However, contingent liabilities arising from
litigation and other matters are not considered material in relation
to the financial position of the Company.

To the best of the Company's knowledge, it has no potential or pending
contingent liabilities that might be material to the Company's
financial condition, results of operations or liquidity pursuant to
product and environmental liabilities.

54

Schedule I
SOUTHERN SECURITY LIFE INSURANCE COMPANY
Summary of Investments Other Than Investments in Related Parties
December 31, 1996

Number of shares
or units- Amount at
Principal which shown
amounts of bonds in the
or notes Cost Value balance sheet

Type of investment
Fixed maturities held for investment:
U.S. Government and government agencies and authorities 4,500,000 $4,503,477 $4,565,000 $4,503,477
Public utilities 2,000,000 1,976,675 2,007,500 1,976,675
Industrial and miscellaneous 7,500,000 7,484,389 7,574,519 7,484,389
Special revenue and special assessment of agencies and
authorities of governments and political
subdivisions 1,000,000 1,010,421 993,900 1,010,421
--------- --------- ------- ---------

Total fixed maturities 15,000,000 14,974,962 15,140,919 14,974,962
---------- ---------- ---------- ----------

Fixed maturities available for sale:
U.S. Government and government agencies and authorities 20,400,000 20,383,080 20,563,752 20,563,752
Public utilities 2,300,000 2,289,605 2,298,000 2,298,000
Industrial and miscellaneous 1,300,000 1,295,479 1,285,000 1,285,000
Special revenue and special assessment of agencies and
authorities of governments and political
subdivisions 332,322 330,454 329,487 329,487
------- ------- ------- -------

24,332,322 24,298,618 24,476,239 24,476,239
---------- ---------- ---------- ----------

Total fixed maturities 39,332,322 39,273,580 39,617,158 39,451,201
========== ========== ========== ==========

Equity securities:
Common, including investments in Mutual fund - - - -
====== ======= ======= ====

Policy loans 6,801,326 6,801,326
--------- ---------

Student loans 514,483 514,483
------- -------

Short-term investments 4,539,106 4,539,106
--------- ---------

Other invested assets 13,100 13,100
------ ------

Total investments $51,141,595 $51,319,216

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

See accompanying auditors' report.

55

SOUTHERN SECURITY LIFE INSURANCE COMPANY

Financial Data Schedule

For the periods ending December 31, 1996, 1995 and 1994

YTD YTD YTD
December 31, December 31, December 31,
1996 1995 1994
----------- ----------- --------

Fixed maturities held
for sale 24,276,239 $21,812,096 18,641,197
Fixed maturities held
To maturity (carrying
value) 14,974,962 15,165,395 12,816,337
Fixed maturities held
to maturity (market
value) 15,140,919 15,494,540 12,474,492
Investment in equity
securities - 1,715,386 1,380,761
Mortgage loans on real
estate - - -
Investment in real estate - - -
Total investments 51,319,216 50,186,208 43,612,075
Cash and cash equivalents 206,056 406,752 638,079
Reinsurance recoverable on
paid losses 379,692 514,341 323,184
Deferred policy acquisition costs 16,979,612 18,145,111 20,104,624
Total assets 81,809,360 81,872,350 77,185,070
Policy liabilities-future
benefits, losses, claims 985,720 1,050,498 1,041,645
Policy liabilities-unearned
premiums 8,249,190 9,116,890 10,416,064
Policy liabilities-other claims
and benefits 293,221 191,955 297,376
Other policyholder funds 59,596 57,444 55,375
Notes payable, bonds, mortgages,
and similar debt 1,000,000 2,400,553 1,891,823
Preferred stocks mandatory
Redemption - - -
Preferred stocks non-
mandatory redemption - - -
Common stock 1,907,989 1,907,989 1,907,989
Other stockholders equity 4,011,519 4,011,519 4,011,519
Total liabilities and
stockholders equity 81,809,360 81,872,350 77,185,070
Premiums 7,915,019 8,158,938 9,299,789
Net investment income 3,318,627 2,998,875 2,750,771
Realized investment gains
and losses 869,502 60,237 60,732
Other income - - -
Benefits, claims, losses
and settlement expenses 3,812,463 4,048,125 4,048,221
Underwriting acquisition and
insurance expenses-
amortization of deferred
policy acquisition costs 3,364,738 3,069,742 3,242,706

56

SOUTHERN SECURITY LIFE INSURANCE COMPANY

Financial Data Schedule, continued

YTD YTD YTD
December 31, December 31, December 31,
1996 1995 1994
----------- ----------- --------

Underwriting acquisitions and
insurance expense other 3,246,552 2,735,280 3,186,386
Income or loss before taxes 1,588,505 1,274,903 1,543,979
Income tax expense 196,000 160,000 530,000
Income/Loss continuing
operations 1,392,505 1,114,903 1,013,979
Discontinued operations - - -
Extraordinary items - - -
Cumulative effect-changes in
accounting principals - - -
Net income or loss 1,392,505 1,114,903 1,013,979

Earnings per share - primary .73 0.58 0.53
Earnings per share - fully diluted .73 0.58 0.53

57

Schedule III

SOUTHERN SECURITY LIFE INSURANCE COMPANY

Supplementary Insurance Information

December 31, 1996, 1995 and 1994

Future policy Other Benefits Amortization
Deferred benefits, Policy- policy claims of deferred
policy losses claims holders' claims & Net losses & policy Other
acquisition and loss account Unearned benefits Premium investment settlement acquisition operating
cost expenses balances premiums payable revenue income expenses costs expenses
----------- ------------- -------- -------- -------- ------- ------ -------- ----- --------

1996 Life
and
annuities $16,979,612 985,720 52,347,996 8,249,190 293,221 7,915,019 3,318,627 3,812,463 3,364,738 3,246,552
=========== ======= ========== ========= ======= ========= ========= ========= ========= =========

1995 Life
and
annuities $18,145,111 1,050,498 50,624,276 9,116,890 191,955 8,158,938 2,998,875 4,048,125 3,069,742 2,735,280
=========== ========= ========== ========= ======= ========= ========= ========= ========= =========

1994 Life
and
annuities $20,104,624 1,041,645 47,618,490 10,416,064 297,376 9,299,789 2,750,771 4,048,221 3,242,706 3,186,386
=========== ========= ========== ========== ======= ========= ========= ========= ========= =========

See accompanying auditors' report.

58

Schedule IV
SOUTHERN SECURITY LIFE INSURANCE COMPANY

Reinsurance

December 31, 1996, 1995 and 1994

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

December 31, 1996:
Life insurance in force 1,165,948,000 386,084,000 537,743,000 1,317,607,000 41%
============= =========== =========== ============= ===
Premiums:
Life insurance 8,315,790 1,030,673 528,636 7,813,753 7%
Accident & health insurance 1,274 - - 1,274 -
----- ------- ------- ----- -

Total Premiums 8,317,064 1,030,673 528,636 7,815,027 7%
========= ========= ======= ========= ==

December 31, 1995:
Life insurance in force $1,298,205,000 448,382,000 507,552,000 1,357,375,000 37%
============== =========== =========== ============= ===

Premiums:
Life insurance 8,829,072 1,201,432 529,912 8,157,552 7%
Accident & health insurance 1,385 - - 1,385 -
----- ----- ----- ----- -

Total Premiums $8,830,457 1,201,432 529,912 8,158,937 7%
========== ========= ======= ========= ==

December 31, 1994:
Life insurance in force $1,469,154,000 502,185,000 531,502,000 1,498,471,000 35%
============== =========== =========== ============= ===

Premiums:
Life insurance 10,047,808 1,344,907 595,260 9,298,161 6%
Accident & health insurance 1,628 - - 1,628 -
----- ----- ----- ----- -

Total Premiums $10,049,436 1,344,907 595,260 9,299,789 6%
=========== ========= ======= ========= ==

59

Item 9. Change in and disagreements on Accounting and Financial
Disclosure.

Not applicable
PART III

Item 10. Directors and Executive Officers of the Company.

(a) Directors. The following table lists the names and ages of all directors of
the Company at December 31, 1996, states the date when service as a director of
the Company began, and lists all other positions or offices with the Company
presently held by each such person.

Director Other Positions &
Name Age Since Offices with Company

Samuel F. Brewer 61 May, 1978 Member, Audit Committee

A. Thomas Frank 72 June, 1986 Member, Executive Committee

Frank A. Hulet 77 May 1978 Chairman, Audit Committee

C. Wesley Johnson 77 May, 1978

Lewis E. Kassis 84 Jan., 1981

Robert L. Martin 55 June, 1979 Member, Audit Committee

Charles W. Mullenix 80 April, 1979 Member, Executive Committee

George Pihakis 71 May, 1978 President & Chief Executive
Officer, Member, Executive
Committee

Ferris Ritchey, Jr. 67 April, 1978 Chairman of the Board, Chairman
Executive Committee

John M. Roehm 43 July, 1996

David C. Thompson 59 April, 1978 Executive Vice President & Chief
Operating Officer, Secretary,
Treasurer

Lloyd C. Zobrist 69 May, 1978 Member, Executive Committee

All Directors serve until the next Annual Meeting of Shareholders and
until their respective successors are duly elected and qualified. All of the
Directors named in the table above are stock-holders of Consolidare Enterprises,
Inc., which purchased effective control of the Company on May 3, 1978. Except
for such affiliation with Consolidare

60

Enterprises, Inc., there exists no arrangement or understanding between any
Director and any other person or persons pursuant to which any of such Directors
were selected as Directors of the Company.

(b) Executive Officers. The following table lists the names and ages of the
executive officers of the Company, the positions with the Company presently held
by each such officer, and the period during which each has served as such:

Position Commencement
Name Age Held of Service

George Pihakis 71 President & Chief Executive June, 1979
Officer; Director

David C. Thompson 59 Executive Vice President and April, 1978
Chief Operating Officer;
Treasurer; Secretary; Director

Terri Seamon 42 Vice President; Controller July, 1992

Nikki Clark 49 Vice President; Director of July, 1992
Financial Services

Stephen Reck 55 Vice President; Chief Actuary July, 1995

The Company has an executive compensation agreement with George Pihakis,
President and Chief Executive Officer of the Company. The term of the agreement
is automatically extended each year for an additional five year period unless
either party gives notice of termination. The agreement provides for annual
increases in Mr. Pihakis' compensation in such amounts as shall be determined by
the Board of Directors.

At a meeting of the Company's Board of Directors in January of 1993, the
base compensation payable to Mr. Pihakis under the agreement was raised to
$244,800.

Except as set forth herein, the officers of the Company have no definite
terms of office as such; they serve at the pleasure of the Board of Directors.
The Board of Directors customarily elects officers annually.

(c) Business Experience of Officers and Directors. The following is a brief
account of the business experience of each executive officer and Director of the
Company during the past five years or more:

Samuel F. Brewer - Since July of 1990, Mr. Brewer has been the owner of
Brewer Development Corporation, Inc., a food service company. From 1976 to
present, Mr. Brewer has been owner and President of Brewer-Costin Inc.
Insurance. From 1983 to 1989, Mr. Brewer served as the State Executive Director
of the Georgia office of the Agricultural Stabilization and Conservation
Services of the U.S. Department of

61

Agriculture. Mr. Brewer is the brother-in-law of Ferris S. Ritchey, Jr., a
director of the Company.

Nikki Clark - Ms. Clark has been employed by the Company since 1988. Since
her employment by the Company, her duties have included responsibility for
policyholder services, data processing services, agent advances and commissions,
agent licensing matters and record keeping. In July of 1992, Ms. Clark was
elected to the office of Vice President and Director of Financial Services for
the Company. Ms. Clark is the daughter of Mr. George Pihakis, the President and
Chief Executive Officer of the Company.

A. Thomas Frank - Mr. Frank was the Chairman of the Board and the President
of Medidentic, Inc., a financial consulting firm for physicians, from 1959 -
1989. Mr. Frank retired from this position in 1989.

Frank A. Hulet - Mr. Hulet served as a consultant to Food-Mills, Inc. d/b/a
Jayhawk Manufacturing Company, a manufacturer of food processing machinery
located in Hutchinson, Kansas until he retired in 1992. From 1977 to 1983, Mr.
Hulet served as Secretary/Treasurer and General Manager of Jayhawk Manufacturing
Company.

C. Wesley Johnson - For more than five years, Mr. Johnson had been manager
of the Sacramento Field Office of the Fort Worth Division of General Dynamics
Corporation, a diversified aerospace company. Mr. Johnson retired from this
position in 1984.

Lewis E. Kassis - Mr. Kassis has for many years been the Chairman of the
Board and part owner of Wholesale Cash & Carry (Grocers), Sacramento,
California. He is also a partner of Kassis Enterprises, Country Club Lanes,
Kassis Wholesale Co. and an officer of Kassis Building Co.

Robert L. Martin - Mr. Martin is a rancher and cattlebroker. He is the
owner of Robert Lee Martin Ranch and a partner in I. L. Martin Ranch, both of
which are located in Jacksboro, Texas.

Charles W. Mullenix - Dr. Mullenix is an ophthalmologist who has served for
more than five years as President of Charles W. Mullenix and Richard B. O'Grady,
S. C., Ophthalmologists, Glenview, Illinois.

George Pihakis - Mr. Pihakis has served as President and Chief Executive
Officer of the Company since June of 1978. He is also the President of
Insuradyne Corporation. Mr. Pihakis is the father of Ms. Nikki Clark, a Vice
President and the Director of Financial Services for the Company.

Stephen L. Reck - Mr. Reck has been an FSA, Fellow of the Society of
Actuaries, since 1972. He has been with Southern Security since 1993 serving as
the Chief Actuary. His primary responsibility has been developing new products
as the Company expands its marketing

62

efforts to other distribution outlets. Prior to joining Southern Security
he was the President of Coastal States Life Insurance Company. In July of 1995,
Mr. Reck was elected to the office of Vice President and Chief Actuary.

Ferris S. Ritchey, Jr. - Mr. Ritchey, an attorney, is the senior partner in
the law firm of Ritchey & Ritchey, P. A., a position which he has occupied for
more than five years. He is an officer of Bowlo- Mac, Inc., Super Bowl, Inc.,
Stonehenge, Inc., Vestavia Bowl, Inc., and P.R. Leasing Co., Inc. Mr. Ritchey is
the brother-in-law of Samuel F. Brewer, a Director of the Company.

John M. Roehm - Mr. Roehm, RPH, is a pharmacist and President of Fisher
Pharmacy in Defuniak Springs, FL. Mr. Roehm is the son of Charles J. Roehm who
served as a Director of Southern Security for many years.

Terri Seamon - Ms. Seamon has been an employee of the Company since August
of 1985. Since her employment by the Company her duties have included chief
accountant and controller. In July of 1992 Ms. Seamon was elected to the office
of Vice President and Controller of the Company. Ms. Seamon resigned subsequent
to December 31, 1996.

David C. Thompson - Since April of 1978, Mr. Thompson has served as
Executive Vice President and Chief Operating Officer and Treasurer of the
Company. Since 1982, Mr. Thompson has served as Secretary of the Company. He
also serves as Vice President of Consolidare Enterprises and is Vice President
and Treasurer of Insuradyne Corporation. He is also the President of and a
stock-holder in BBQ Rib Ranch, Inc. Mr. Thompson is a certified public
accountant.

Lloyd C. Zobrist - Mr. Zobrist is a retired general contractor and real
estate developer from Morton, Illinois. He is a partner in Zobrist Development
Co., WRCL, Co., and Cross Creek Development Company and is Secretary/Treasurer
of N. Zobrist & Sons, Inc.

Except as otherwise noted above, no family relationships exist between any
of the Directors or executive officers of the Company.

No officer or Director of the Company presently holds a directorship
in any other company with a class of securities registered pursuant to Section
12 of the Securities Exchange Act or subject to the requirements of Section
15(d) of the Securities Exchange Act or any company registered as an investment
company under the Investment Company Act of 1940.

No person named as an officer or Director of the Company has, during
the past five years, filed a petition under the Bankruptcy Code, been convicted
of a crime, or been enjoined from participating in activities related to
securities or engaging in any type of business practice. Neither has any such
person been the subject of any order suspending his right to engage in any
securities related

63

activity or finding any person so named to have violated any Federal or state
securities laws.

(d) Compliance with Section 16(a) of the Exchange Act. The Company has no
class of securities registered pursuant to Section 12 of the Exchange Act.

Item 11. Executive Compensation.

(a) Summary Compensation. The following summary compensation table is
provided with respect to the Company's Chief Executive Officer and its Executive
Vice President, who constitute all of the executive officers of the Company
whose total annual salary and bonus exceed $100,000:

SUMMARY COMPENSATION TABLE

Long Term Compensation

Annual Compensation Awards | Awards Payouts
| |
(a) (b) (c) (d) (e) | (f) | (g) (h) (i)
|
Other | Securities All other
Name and Annual | Restricted Underlying LTIP Compen-
Principal Compensation | Stock Awards Options/ Payouts | sation
Position Year Salary ($) Bonus ($) ($) | ($) SARs(#) ($) | ($)
| |
President | |
and Chief | |
Executive | | |
Officer | | |
| | |

George Pihakis 1996 $244,800 $0.00 $11,500(1) | $0.00 N/A | N/A | N/A
| | |
George Pihakis 1995 $247,976 $0.00 $9,574(1) | $0.00 N/A | N/A | N/A
| | |
George Pihakis 1994 $244,800 $0.00 $8,624(1) | $0.00 N/A | N/A | N/A
| | |
| | |
| | |
Executive Vice | | |
President | | |
| | |
David C. Thompson 1996 $121,275 $0.00 $13,625(2) | $0.00 N/A | N/A | N/A
| | |
David C. Thompson 1995 $114,634 $0.00 $11,770(2) | $0.00 N/A | N/A | N/A
| | |
David C. Thompson 1994 $114,300 $0.00 $10,700(2) | $0.00 N/A | N/A | N/A
| | |

(1) During 1996 this amount included $6,300 paid in the form of a Director's
fee, $550 paid in the form of an Executive Committee Fee, and $4,650 paid
in the form of a car allowance. During 1995 this amount included $4,800
paid in the form of a Director's fee, $250 paid in the form of an Executive
Committee Fee, $4,524 paid in the form of a car allowance. During 1994 this
amount included $3,600 paid in the form of a Director's fee, $500 paid in
the form of an Executive Committee Fee, and $4,524 paid in the form of a
car allowance.
64

(2) During 1996 this amount included $6,300 paid in the form of a Director's
Fee, $550 paid in the form of an Executive Committee Fee, $6,000 paid in
the form of a car allowance, and $835 paid in the form of dues at a social
club used exclusively for business purposes. During 1995 this amount
included $4,800 paid in the form of a Director's Fee, $250 paid in the form
of an Executive Committee Fee, $6,000 paid in the form of a car allowance,
and $720 paid in the form of dues at a social club used exclusively for
business purposes. During 1994 this amount included $3,600 paid in the form
of a Director's fee, $500 paid in the form of an Executive Committee fee,
$6,000 paid in the form of a car allowance and $600 paid in the form of
dues at a social club used exclusively for business purposes.

(b) Perquisites. Executive officers of the Company who are employees of the
Company are covered under a group life, group disability, and hospitalization
plan that does not discriminate in favor of officers and that is generally
available to all salaried employees. The Company does not have a pension,
retirement or other deferred compensation plan, or any other similar
arrangement.

(c) Director's Fees and Other Fees. Directors of the Company receive a
Director's fee of $6,300 per year for serving as Directors of the Company. Each
director of the Company also receives the sum of $275.00 for each committee
meeting attended, if such committee meeting is not in conjunction with a meeting
of the Company's Board of Directors held at the same time and place.

(d) Employment Contracts. The Company has an executive compensation
agreement with George Pihakis, President and Chief Executive Officer of the
Company. The term of the agreement is automatically extended each year for an
additional five year period unless either party gives notice of termination. The
agreement provides for annual increases in Mr. Pihakis' compensation in such
amounts as shall be determined by the Board of Directors. The base compensation
payable to Mr. Pihakis under the agreement is $244,800.

(e) Compensation Committee Interlocks and Insider Participation. The
Executive Committee of the Company's Board of Directors makes recommendation to
the Board of Directors concerning the compensation of the Company's executive
officers. Subsequently, the Board of Directors makes all final decisions
concerning such compensation. The Company's Executive Committee consists of
Charles W. Mullenix, Ferris S. Ritchey, Jr., A. Thomas Frank, Lloyd C. Zobrist
and George Pihakis, President and Chief Executive Officer.

(f) Board Compensation Committee Report on Executive Compensation. In
determining what level and type of compensation was made available to the
Company's executive officers during 1996, the Executive Committee and Board of
Directors considered the over-all performance of the Company and each officer's
contribution to that performance. Specifically, in determining the compensation
of Mr. Pihakis, the

65

Company's President and Chief Executive Officer, the Executive Committee and
Board of Directors considered his length of employment with the Company, his
experience in the industry, the financial condition of the Company, payments
received by other executive officers holding similar positions and performing
similar duties, and other subjective criteria.

66

Item 12. Security Ownership of Certain Beneficial Owners and Management.

(a) The following table sets forth, as of December 31, 1996, information
with respect to the only persons known by the Company to be the beneficial owner
of more than 5% of the Company's outstanding voting securities:

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

Common Consolidare Enterprises, Inc 1,095,496 57.4%
Shares c/o Southern Security Life Direct
Insurance Company
755 Rinehart Road
Lake Mary, FL 32746

Common Capital Indemnity Corp., 142,872 7.5%
Shares George A. Fait Direct
4610 University Ave, Madison, WI

Executive officers and directors of the Company are shareholders of
Consolidare Enterprises, Inc., which was the owner of approximately 57% of the
Company's voting securities at December 31, 1996. At December 31, 1996,
approximately 62.8% of the issued and outstanding common shares of Consolidare
Enterprises, Inc. was owned by directors and executive officers of Company. The
following table sets forth information as to the common shares of Company's
parent, Consolidare Enterprises, Inc., beneficially owned by all directors and
executive officers of the Company at December 31, 1996.

Name Number of Shares Percent of Class

Samuel F. Brewer 95,966 2.84%

A. Thomas Frank(1) 75,640 2.24%

Frank A. Hulet(2) 129,180 3.82%

C. Wesley Johnson(3) 109,999 3.25%

Lewis Kassis(4) 280,152 8.29%

Robert L. Martin(5) 135,987 4.02%

Charles W. Mullenix(6) 315,548 9.33%

George Pihakis(7) 167,446 4.95%

Ferris S. Ritchey, Jr. 326,870 9.67%

John M. Roehm 194,298 5.74%

67

Name Number of Shares Percent of Class

David C. Thompson(8) 69,043 2.04%

Lloyd C. Zobrist(9) 153,550 4.54%

All Directors &
Officers 2,053,679 60.8%

(1) Includes 70,645 shares registered in the name of Margaret
Jeanne Frank, his wife.

(2) Shares registered in the name of Frank and Virginia Hulet.

(3) Shares registered in the name of Johnson Family Revocable Trust.

(4) Shares registered in the name of Lewis and Helen Kassis Trust.

(5) Shares attributed to Mr. Martin are registered in the name of
his children.

(6) 240,000 shares attributed to Mr. Mullenix are registered to the
Mullenix Family Partnership. 75,548 shares are registered in the
name of Mr. Mullenix and his wife, Mary Jane Mullenix.

(7) Shares attributed to Mr. Pihakis are registered in the name of
his wife, Dolores Pihakis. Mr. Pihakis disclaims any beneficial
ownership of such shares.

(8) Shares registered in the name of David C. and Patricia M.
Thompson.

(9) 141,799 Shares registered in the name of WRCL Company, of which
Mr. Zobrist is a principal, and 11,751 shares are registered to
Lloyd C. Zobrist, individually.

In addition to common stock, Consolidare Enterprises, Inc. has
outstanding one additional class of securities, 14.25% Convertible Subordinated
Debentures which are convertible into common shares of Consolidare.

68

Item 13. Certain Relationships and Related Transactions.

Insuradyne Corporation, a wholly-owned subsidiary of Consolidare
Enterprises, Inc., serves as general agent for the Company, pursuant to a
general agency agreement, which is terminable by either party with 30 days
notice. In such capacity, Insuradyne receives a commission on the first year
commissionable premium on certain of the Company's policies as well as a small
renewal commission on certain other policies. In accordance with the Florida
Insurance Code, a copy of the Company's General Agency Agreement with Insuradyne
Corporation was filed with and approved by the Florida Department of Insurance.
Management of the Company believes that the terms of its General Agency
Agreement with Insuradyne are as favorable to the Company as terms which could
be obtained from independent third parties. During 1996, gross commissions in
the amount of $344,904 were earned by Insuradyne Corporation. At December 31,
1996, the Company owed $17,841 to Insuradyne as a result of commissions earned
by Insuradyne but for which Insuradyne has not yet requested payment.

No Director or officer of the Company or any associates of any director
or officer of the Company was indebted to the Company at December 31, 1996.

The Company continues to be indebted to its parent, Consolidare
Enterprises, Inc., in the amount of $1,000,000, pursuant to a promissory note
dated December, 1988, which bears interest at the annual rate of interest equal
to the Prime Rate (as hereinafter defined) plus 2%, with such interest rate not
to be less than 9% nor in excess of 11%. For purposes of this promissory note,
"Prime Rate" is defined to mean the Prime Rate as announced by Compass Bank,
Birmingham, Alabama, from time to time, as its prime rate (which interest rate
is only a bench mark, is purely discretionary and is not necessarily the best or
lowest rate charged borrowing customers). This promissory note is due on demand
and is payable out of capital surplus in excess of $1,750,000, pursuant to
Florida Statutes ss.628.401 (1990). Interest and principal can only be repaid
upon the express written approval of the Florida Department of Insurance.

On December 31, 1996, approximately 60.8% of the issued and outstanding
stock of Consolidare Enterprises, Inc. was owned by the directors and executive
officers of the Company. See item 12 Security Ownership of Certain Beneficial
Owners and Management.

Ferris S. Ritchey, Jr., a Director and a member of the Executive
Committee, is a member of the law firm of Ritchey & Ritchey, P.A., which serves
as legal counsel to the Company on certain matters.

69

PART IV

Item 14. Financial Statements, Exhibits filed and Reports on Form 8-K.

(a) 1. Financial Statements Page Number

The following financial statements
of Southern Security Life Insurance
Company are included in Part II,
Item 8:

Independent Auditors' Report............ 23

Balance Sheets - December 31,
1996 and 1995........................... 24

Statements of Income - years ended
December 31, 1996, 1995 and 1994........ 26

Statements of Shareholders' Equity - years
ended December 31, 1996, 1995 and 1994.. 27

Statements of Cash Flows - years ended
December 31, 1996, 1995 and 1994........ 28

Notes to Financial Statements........... 31

2. Supplemental Schedules.

Required Financial Data - for the years
ended December 31, 1996, 1995 and 1994 -
included in Part II, Item 8:

Schedule I - Summary of Investments -
Other than Investments in Related
Parties........................... 55

Financial Data Schedule................. 56

Schedule III - Supplementary Insurance
Information................... 58

Schedule IV - Reinsurance............... 59

Schedules other than those listed above have been omitted because they
are not applicable or because the required information is included in the
financial statements and notes thereto or in Item 7 -Management's Discussion and
Analysis of Financial Condition and
Results of Operations.

70

3. Exhibits

Exhibit Number Page Number

3. Articles of Incorporation, as
amended, and By-Laws, as amended
(without exhibits) dated September 1994,
incorporated by reference herein from
From Exhibit 3(1) of the Annual Report of
the Company filed on Form 10-K for the
fiscal year ended December 31, 1994..... 83

10. Executive Compensation Agreement between the Company
and George Pihakis (without exhibits) incorporated by
reference herein from Exhibit 10(B) of the Annual
Report of the Company filed on Form 10-K for the
fiscal year
ended December 31, 1984................. 84

10.A Revolving Financing Agreement between
the Company and the Student Loan
Marketing Association, dated as of
September 19, 1996...................... 85

10.B Reinsurance Agreement between the Company and United
Group Insurance Company, dated as of December 31,
1992 incorporated by reference herein from Exhibit
10(B) of the Annual Report of the Company filed on
Form 10-K for the fiscal
year ended December 31, 1992............ 86

10.C Agency Agreement between the Company and Insuradyne
Corporation incorporated by reference herein from
Exhibit 10(C) of the Annual Report of the Company
filed on Form 10-K for the fiscal year ended
December 31, 1993....................... 87

11. Statement Re Computation of Net Income per
common share............................ 88

20. Definitive proxy materials for the
Annual Meeting of Shareholders held
July 13, 1996................. 89

(b) Reports on Form 8-K

None.

71

SIGNATURES

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

SOUTHERN SECURITY LIFE INSURANCE COMPANY

By: /s/George Pihakis
George Pihakis
President, Chief Executive
Officer and Director

By: /s/David C. Thompson
David C. Thompson
Executive Vice President
Secretary, Treasurer,
Chief Operating Officer and
Director

Date: April 30, 1997

(F:\USERS\TINA\MEMOS\10K96)

72

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following Director of the Company on the date
indicated.

SOUTHERN SECURITY LIFE INSURANCE COMPANY

By: /s/Samuel F. Brewer
Samuel F. Brewer (Director)
April 30, 1997

73

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following Director of the Company on the date
indicated.

SOUTHERN SECURITY LIFE INSURANCE COMPANY

By: /s/Alfred T. Frank
Alfred T. Frank (Director)
April 30, 1997

74

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following Director of the Company on the date
indicated.

SOUTHERN SECURITY LIFE INSURANCE COMPANY

By: /s/Frank A. Hulet
Frank A. Hulet (Director)
April 30, 1997

75

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following Director of the Company on the date
indicated.

SOUTHERN SECURITY LIFE INSURANCE COMPANY

By: /s/C. Wesley Johnson
C. Wesley Johnson (Director)
April 30, 1997

76

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following Director of the Company on the date
indicated.

SOUTHERN SECURITY LIFE INSURANCE COMPANY

By: /s/Robert Lee Martin
Robert Lee Martin (Director)
April 30, 1997

77

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following Director of the Company on the date
indicated.

SOUTHERN SECURITY LIFE INSURANCE COMPANY

By: /s/Dr. Charles W. Mullenix
Dr. Charles W. Mullenix (Director)
April 30, 1997

78

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following Director of the Company on the date
indicated.

SOUTHERN SECURITY LIFE INSURANCE COMPANY

By: /s/Ferris S. Ritchey, Jr.
Ferris S. Ritchey, Jr. (Director)
April 30, 1997

79

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following Director of the Company on the date
indicated.

SOUTHERN SECURITY LIFE INSURANCE COMPANY

By: /s/John M. Roehm
John M. Roehm (Director)
April 30, 1997

80

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following Director of the Company on the date
indicated.

SOUTHERN SECURITY LIFE INSURANCE COMPANY

By: /s/Lloyd C. Zobrist
Lloyd C. Zobrist (Director)
April 30, 1997

81

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following Director of the Company on the date
indicated.

SOUTHERN SECURITY LIFE INSURANCE COMPANY

By: /s/Lewis Kassis
Lewis Kassis (Director)
April 30, 1997

82

SOUTHERN SECURITY LIFE INSURANCE COMPANY

EXHIBIT 3

EXHIBITS FILED WITH ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1994

83

SOUTHERN SECURITY LIFE INSURANCE COMPANY

EXHIBIT 10

EXHIBITS FILED WITH ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1984

84

SOUTHERN SECURITY LIFE INSURANCE COMPANY

EXHIBIT 10.A

REVOLVING FINANCING AGREEMENT BETWEEN
THE COMPANY AND THE STUDENT LOAN
MARKETING ASSOCIATION

85

SOUTHERN SECURITY LIFE INSURANCE COMPANY

EXHIBIT 10.B

REINSURANCE AGREEMENT
BETWEEN THE COMPANY AND
UNITED GROUP INSURANCE COMPANY

EXHIBIT FILED WITH ANNUAL REPORT ON
FORM 10-K FOR THE YEAR ENDED
DECEMBER 31, 1992

86

SOUTHERN SECURITY LIFE INSURANCE COMPANY

EXHIBIT 10.C

AGENCY AGREEMENT BETWEEN THE
COMPANY AND INSURADYNE CORPORATION

EXHIBIT FILED WITH ANNUAL REPORT ON
FORM 10-K FOR THE YEAR ENDED
DECEMBER 31, 1993

87

SOUTHERN SECURITY LIFE INSURANCE COMPANY

EXHIBIT 11

COMPUTATION OF NET INCOME

PER COMMON SHARE

1996 1995 1994
------- -------- ----------

Weighted Average
Shares Outstanding 1,907,989 1,907,989 1,907,989

Net Income $1,392,505 $1,114,903 $1,013,979

Per Share Amount $.73 $.58 $.53

88

SOUTHERN SECURITY LIFE INSURANCE COMPANY

EXHIBIT 20

DEFINITIVE PROXY MATERIALS FOR THE ANNUAL MEETING

89