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Citizens Inc – ‘PRES14A’ for 2/14/97

As of: Friday, 2/14/97 · For: 2/14/97 · Accession #: 950134-97-1000 · File #: 1-13004

  As Of                Filer                Filing    For·On·As Docs:Size              Issuer               Agent

 2/14/97  Citizens Inc                      PRES14A     2/14/97    1:521K                                   RR Donnelley

Preliminary Proxy Solicitation Material — Special Meeting — Schedule 14A
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: PRES14A     Preliminary Proxy Materials                          192    827K

Document Table of Contents

Page	(sequential)	\|	(alphabetic)	Top
			Alternative Formats (Word, et al.) Accounting American American Disclosure Statement American Investment Network, Inc. and Subsidiaries Assessment Authorized Shares Available Information Background and Reasons for the Exchange Board Recommendation Business of ALLIC Business of CICA Certain Federal Income Tax Consequences Certain Relationship and Related Transactions Certain Security Ownership of Citizens CICA Disclosure Statement Citizens, Inc. and Subsidiaries Commissions Comparison of Rights of Securityholders Conduct of Business Pending the Exchange; Other Covenants of the Parties Deadline for Citizens Shareholder Proposals Description of Properties Executive Officer and Director Compensation Exhibit B Exhibit C Expenses and Liability for Termination Experts Explanation of Balance Sheet Pro-Forma Adjustments Explanation of Statement of Operations Pro-Forma Adjustments Financial Information Regarding the Insurance Business Fractional Shares General Development of Business Geographical Distribution of Business Great American Investment Network, Inc Iii Independent Auditors' Report Index to Consolidated Financial Statements Information Concerning American Information Concerning Citizens Interests of Certain Persons in the Exchange Legal Matters Legal Proceedings Liability of Directors Liquidation Rights Management of American Management of Citizens Management's Discussion and Analysis of Financial Condition and Results of Operations - December 31, 1995 Management's Discussion and Analysis of Financial Condition and Results of Operations - December 31, 1995 and September 30, 1996 Management's Discussion and Analysis of Financial Conditions and Results of Operations - September 30, 1996 Market and Dividends on American Class A and Class B Common Equities and Related Stockholder Matters Market Prices Narrative Description of Business Notes to Consolidated Financial Statements Notes to Consolidated Financial Statements September 30, 1996 Other Conditions to Consummation of the Exchange Other Matters Preemptive Rights Pro-Forma Consolidated Statement of Operations for the Year Ended December 31, 1995 (unaudited) Proposed Exchange Receipt of Citizens Shares Recommendation of the Board of Directors Regulatory Requirements Reinsurance Revocability of Proxies Rights of American Dissenting Shareholders to Receive Payment For Shares Risk Factors Selected Financial Data Source of Citizens Shares Special Meeting, The Stock Exchange Listing Stock Transfer Restrictions Applicable to "Affiliates" of American Summary Termination or Amendment of the Exchange Agreement Terms of the Exchange Agreement The Special Meeting United Valuation Voting Rights Voting Securities
1	1st Page - Filing Submission
5	Iii
7	Available Information
8	Summary
14	Risk Factors
18	The Special Meeting
"	Voting Securities
20	Revocability of Proxies
21	Proposed Exchange
"	Background and Reasons for the Exchange
"	Valuation
22	American
"	Recommendation of the Board of Directors
24	Board Recommendation
"	Regulatory Requirements
"	Terms of the Exchange Agreement
25	Receipt of Citizens Shares
"	Fractional Shares
"	Accounting
"	Other Conditions to Consummation of the Exchange
26	Stock Exchange Listing
"	Termination or Amendment of the Exchange Agreement
27	Expenses and Liability for Termination
"	Conduct of Business Pending the Exchange; Other Covenants of the Parties
"	Stock Transfer Restrictions Applicable to "Affiliates" of American
"	Interests of Certain Persons in the Exchange
"	Certain Federal Income Tax Consequences
31	Information Concerning Citizens
"	General Development of Business
"	Financial Information Regarding the Insurance Business
36	Narrative Description of Business
"	Business of CICA
"	Geographical Distribution of Business
38	Commissions
"	Reinsurance
42	Business of ALLIC
46	Description of Properties
"	Legal Proceedings
47	Selected Financial Data
"	Management's Discussion and Analysis of Financial Condition and Results of Operations - December 31, 1995
55	Management's Discussion and Analysis of Financial Conditions and Results of Operations - September 30, 1996
60	Index to Consolidated Financial Statements
"	Citizens, Inc. and Subsidiaries
61	Independent Auditors' Report
69	Notes to Consolidated Financial Statements
82	Explanation of Balance Sheet Pro-Forma Adjustments
83	Pro-Forma Consolidated Statement of Operations for the Year Ended December 31, 1995 (unaudited)
84	Explanation of Statement of Operations Pro-Forma Adjustments
100	Notes to Consolidated Financial Statements September 30, 1996
101	Market Prices
"	Certain Security Ownership of Citizens
103	Management of Citizens
106	Executive Officer and Director Compensation
107	Source of Citizens Shares
"	Rights of American Dissenting Shareholders to Receive Payment For Shares
109	Comparison of Rights of Securityholders
"	Authorized Shares
110	Voting Rights
111	Preemptive Rights
"	Liability of Directors
"	Liquidation Rights
"	Assessment
"	Experts
112	Legal Matters
"	Other Matters
"	Deadline for Citizens Shareholder Proposals
113	Information Concerning American
"	United
123	Market and Dividends on American Class A and Class B Common Equities and Related Stockholder Matters
"	Management's Discussion and Analysis of Financial Condition and Results of Operations - December 31, 1995 and September 30, 1996
128	Certain Relationship and Related Transactions
129	Management of American
133	American Investment Network, Inc. and Subsidiaries
140	Great American Investment Network, Inc
178	Exhibit B
179	Exhibit C
181	CICA Disclosure Statement
182	American Disclosure Statement

PRES14A 1st Page of 192 TOC ↑Top Previous Next ↓Bottom Just 1st

SCHEDULE 14A
(RULE 14A-101)

INFORMATION REQUIRED IN PROXY STATEMENT

SCHEDULE 14A INFORMATION

PROXY STATEMENT PURSUANT TO SECTION 14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934

Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec. 240.14a-11(c) or sec. 240.14a-12

AMERICAN INVESTMENT NETWORK, INC.
--------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)

Reid A. Godbolt
--------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(l) and
0-11.

(1) Title of each class of securities to which transaction applies:

--------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:

--------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):

--------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:

--------------------------------------------------------------------------------
(5) Total fee paid:

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

[ ] Fee paid previously with preliminary materials.

[ ] Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which the
offsetting fee was paid previously. Identify the previous filing by
registration statement number, or the Form or Schedule and the date of
its filing.

(1) Amount Previously Paid:

--------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:

--------------------------------------------------------------------------------
(3) Filing Party:

--------------------------------------------------------------------------------
(4) Date Filed:

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

PRES14A 2nd Page of 192 TOC 1st Previous Next ↓Bottom Just 2nd
AMERICAN INVESTMENT NETWORK, INC.

NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON __________ , 1997

---------

To the Shareholders of American Investment Network, Inc.:

Notice is hereby given that a Special Meeting (the "Meeting") of
shareholders of American Investment Network, Inc. ("American") will be held on
______, _______, 1997 at 10:00 a.m. Central Standard Time, at
___________________, Mississippi, to consider and act upon the following:

1. To vote upon approval and adoption of a Plan and Agreement of
Exchange dated October 28, 1996, as amended ("Exchange Agreement"), under which
holders of Class A and Class B Common Stock of American will exchange their
shares for shares of Citizens, Inc. Class A Common Stock held by Citizens
Insurance Company of America ("CICA"), as described in the accompanying Proxy-
Information Statement.

2. To transact such other business, if any, as may properly come
before the Meeting or any adjournment thereof.

Only shareholders of record of American Class A and Class B Common
Stock as of the close of business on ___________, 1997 will be entitled to
notice of and to vote at the Meeting.

SHAREHOLDERS OF AMERICAN CLASS A AND CLASS B COMMON STOCK ARE ENTITLED
TO DISSENT FROM THE EXCHANGE AND OBTAIN PAYMENT FOR SHARES, AS DESCRIBED IN THE
ACCOMPANYING PROXY-INFORMATION STATEMENT. A COPY OF ARTICLE 13 OF THE
MISSISSIPPI BUSINESS CORPORATION ACT, WHICH SETS FORTH THE RIGHTS OF
DISSENTERS, IS ATTACHED TO THE PROXY-INFORMATION STATEMENT AS APPENDIX B.

Shareholders are cordially invited to attend the Meeting. Whether or
not you intend to attend the Meeting, please fill in, date, sign, and return
promptly the enclosed proxy card in the enclosed postage-prepaid envelope so
that your shares may be voted at the Meeting if you are unable to attend in
person. The giving of a proxy will not affect your right to vote in person if
you attend the Meeting.

By Order of the Board of Directors
Phillip E. Faller, Secretary
Flowood, Mississippi
________, 1997

PRES14A 3rd Page of 192 TOC 1st Previous Next ↓Bottom Just 3rd
AMERICAN INVESTMENT NETWORK, INC.
PROXY STATEMENT FOR SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD _________, 1997

CITIZENS, INC.
INFORMATION STATEMENT
CLASS A COMMON STOCK, NO PAR VALUE
UP TO 697,815 SHARES

This Proxy-Information Statement is furnished in connection with the
solicitation by the Board of Directors of American Investment Network, Inc.
("American") of proxies from holders of shares of American Class A and Class B
Common Stock, for use at the Special Meeting of American Shareholders (the
"Meeting") to be held on ___________, 1997. This Proxy-Information Statement
also pertains to the number of shares of Class A Common Stock, no par value, of
Citizens, Inc. ("Citizens") to be issued in connection with a statutory stock
exchange ("Exchange") under a Plan and Agreement of Exchange dated October 28,
1996, as amended ("Exchange Agreement"), between Citizens Insurance Company of
America ("CICA," a wholly-owned subsidiary of Citizens) and American. The
Exchange Agreement sets forth certain conditions to the Exchange, including a
fairness hearing and approval by the Mississippi Commissioner of Insurance in
which American shareholders may participate pursuant to Miss. Code Ann. Section
83-19-105. Assuming approval of the Exchange by the Mississippi Commissioner
of Insurance, the Citizens Class A Common Stock issued in the Exchange will be
issued pursuant to an exemption from registration under Section 3(a)(10) of the
Securities Act of 1933. Upon consummation of the Exchange, each 7.2
outstanding shares of American Class A or Class B Common Stock will be
converted into one share of Citizens Class A Common Stock, as described in this
Proxy-Information Statement. No fractional shares of Citizens Class A Common
Stock will be issued in the Exchange; rather, share fractions will evidence the
right to receive the cash value of such share based on the average closing
price of the Citizens Class A Common Stock as reported on the American Stock
Exchange for the five trading days prior to the effective date of the Exchange.
At present, the directors of American know of no other matters to be presented
at the Meeting. All information contained in the Proxy-Information Statement
with respect to Citizens and CICA has been furnished by Citizens, and all
information with respect to American has been furnished by American. The
approximate date of mailing of this Proxy-Information Statement to shareholders
of American is _________, 1997.

The proxy in the form enclosed is solicited by the Board of Directors of
American for use at the Meeting. Only shareholders of record at the close of
business on ___________, 1997 are entitled to notice of and to vote at the
Meeting. On __________, 1997, the number of outstanding shares of American
Class A Common Stock entitled to be voted at the Meeting was 5,021,764, each of
which is entitled to one vote; the number of outstanding shares of American
Class B Common Stock was 2,500, each of which is entitled to one vote per
share. Under the bylaws and the pertinent provisions of the Mississippi
Business Corporation Act, the Class A and Class B Common Stock will vote as
separate classes on the matters at the Meeting. If the accompanying proxy form
is signed and returned, the shares represented thereby will be voted as
instructed. In the event no instructions are given, it will be voted for the
Exchange and upon such other matters as may properly come before the Meeting.
If, after sending in your proxy, you decide to vote in person or decide to
revoke your proxy for any other reason, you may do so by notifying the
Secretary of American in writing prior to the voting of the proxy or attending
the Meeting in person and revoking your proxy.

The expenses of soliciting proxies and the cost of preparing, assembling and
mailing material in connection with the solicitation of proxies will be borne
by American. In addition to the use of the mails, certain directors, officers
or regular employees of American or its subsidiaries, who receive no
compensation for their services other than their regular salaries or fees, if
any, may solicit proxies personally.

PRES14A 4th Page of 192 TOC 1st Previous Next ↓Bottom Just 4th
The directors and management of American know of no matters to be brought
before the Meeting other than those mentioned herein. If, however, any other
matters properly come before the Meeting, it is intended that the proxies will
be voted in accordance with the judgment of the person or persons voting such
proxies.
---------

The Citizens Class A Common Stock is listed on the American Stock Exchange
under the symbol "CIA." On ______________, 1997, the closing price of Citizens
Class A Common Stock was $ per share.

---------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR THE SECURITIES REGULATORY AUTHORITY OF ANY STATE, NOR
HAS THE COMMISSION OR ANY STATE REGULATORY AUTHORITY PASSED UPON THE ACCURACY
OR ADEQUACY OF THE PROXY-INFORMATION STATEMENT. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.

---------

AN INVESTMENT IN THE SECURITIES OFFERED HEREBY INVOLVES SIGNIFICANT RISKS. SEE
"RISK FACTORS."
---------

No person is authorized to give any information or to make any representation
not contained in the Proxy-Information Statement, and if given or made, such
information or representation should not be relied upon as having been
authorized. The Proxy-Information Statement does not constitute an offer to
exchange or sell, or a solicitation of an offer to exchange or purchase, the
securities offered hereby, or the solicitation of a proxy, in any jurisdiction
to or from any person to whom it is unlawful to make such offer or solicitation
in such jurisdiction. Neither the delivery of the Proxy-Information Statement
nor any distribution of the securities to which the Proxy-Information Statement
relates shall, under any circumstances, create an implication that there has
been no change in the affairs of Citizens, CICA or American.

The Proxy-Information Statement does not cover any resales of shares of the
securities offered hereby to be received by shareholders of American upon
consummation of the Exchange Agreement. No person is authorized to use the
Proxy-Information Statement in connection with such resales, although such
securities may be traded without use of the Proxy-Information Statement by
those shareholders of American not deemed to be "affiliates" of either American
or Citizens.

---------

The principal executive offices of both Citizens and CICA are located at 400
East Anderson Lane, Austin, Texas 78752, telephone (512) 837-7100. The
principal executive offices of American are located at 660 Lakeland East Drive,
Suite 204, Flowood, Mississippi 39208, telephone (601) 936-2090.

---------

The date of the Proxy-Information Statement is ________, 1997.

PRES14A 5th Page of 192 TOC 1st Previous Next ↓Bottom Just 5th
TABLE OF CONTENTS

[Download Table]

PAGE
----

AVAILABLE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . V

SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . VI

RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

THE SPECIAL MEETING . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

PROPOSED EXCHANGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Background and Reasons for the Exchange . . . . . . . . . . . . . . 8
Valuation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Recommendation of the Board of Directors . . . . . . . . . . . . . 9
Board Recommendation . . . . . . . . . . . . . . . . . . . . . . . 11
Regulatory Requirements . . . . . . . . . . . . . . . . . . . . . . 11
Terms of the Exchange Agreement . . . . . . . . . . . . . . . . . . 11
Receipt of Citizens Shares . . . . . . . . . . . . . . . . . . . . 12
Fractional Shares . . . . . . . . . . . . . . . . . . . . . . . . . 12
Accounting . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Other Conditions to Consummation of the Exchange . . . . . . . . . 12
Stock Exchange Listing . . . . . . . . . . . . . . . . . . . . . . 13
Termination or Amendment of the Exchange Agreement . . . . . . . . 13
Expenses and Liability for Termination . . . . . . . . . . . . . . 14
Conduct of Business Pending the Exchange; Other Covenants
of the Parties . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Stock Transfer Restrictions Applicable to "Affiliates" of American . 14
Interests of Certain Persons in the Exchange . . . . . . . . . . . 14

CERTAIN FEDERAL INCOME TAX CONSEQUENCES . . . . . . . . . . . . . . . . . . 14

INFORMATION CONCERNING CITIZENS . . . . . . . . . . . . . . . . . . . . . . 18
General Development of Business . . . . . . . . . . . . . . . . . . 18
Financial Information Regarding the Insurance Business . . . . . . 18
Narrative Description of Business . . . . . . . . . . . . . . . . . 23
Description of Properties . . . . . . . . . . . . . . . . . . . . . 33
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . 33
Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . 33
Management's Discussion and Analysis of Financial Condition and
Results of Operations - December 31, 1995 . . . . . . . . . . . . . 34
Management's Discussion and Analysis of Financial Conditions and
Results of Operations - September 30, 1996 . . . . . . . . . . . . 42

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . F-1
CITIZENS, INC. AND SUBSIDIARIES . . . . . . . . . . . . . . . . . . F-1
Market Prices . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Certain Security Ownership of Citizens . . . . . . . . . . . . . . 47
Management of Citizens . . . . . . . . . . . . . . . . . . . . . . 49
Executive Officer and Director Compensation . . . . . . . . . . . . 52
Source of Citizens Shares . . . . . . . . . . . . . . . . . . . . . 53

III

PRES14A 6th Page of 192 TOC 1st Previous Next ↓Bottom Just 6th

[Download Table]

RIGHTS OF AMERICAN DISSENTING SHAREHOLDERS
TO RECEIVE PAYMENT FOR SHARES . . . . . . . . . . . . . . . . . . . . . . . 53

COMPARISON OF RIGHTS OF SECURITYHOLDERS . . . . . . . . . . . . . . . . . . 55
Authorized Shares . . . . . . . . . . . . . . . . . . . . . . . . . 55
Voting Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Preemptive Rights . . . . . . . . . . . . . . . . . . . . . . . . . 57
Liability of Directors . . . . . . . . . . . . . . . . . . . . . . 57
Liquidation Rights . . . . . . . . . . . . . . . . . . . . . . . . 57
Assessment . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57

EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57

LEGAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58

OTHER MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58

DEADLINE FOR CITIZENS SHAREHOLDER PROPOSALS . . . . . . . . . . . . . . . . 58

INFORMATION CONCERNING AMERICAN . . . . . . . . . . . . . . . . . . . . . . 59
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . 68
Market and Dividends on American Class A and Class B Common
Equities and Related Stockholder Matters . . . . . . . . . . . . . 69
Management's Discussion and Analysis of Financial Condition and
Results of Operations - December 31, 1995 and September 30, 1996 . . 69
Certain Relationship and Related Transactions . . . . . . . . . . . 74
Management of American . . . . . . . . . . . . . . . . . . . . . . 75

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . F-42
AMERICAN INVESTMENT NETWORK, INC. AND SUBSIDIARIES . . . . . . . . F-42

APPENDIX A -- PLAN AND AGREEMENT OF EXCHANGE - AMERICAN INVESTMENT NETWORK,
INC., CITIZENS INSURANCE COMPANY OF AMERICA, INC. AND CITIZENS,
INC., DATED OCTOBER 28, 1996, AS AMENDED

APPENDIX B -- ARTICLE 13 OF THE MISSISSIPPI BUSINESS CORPORATION ACT GOVERNING
RIGHTS OF DISSENTING AMERICAN SHAREHOLDERS

PRES14A 7th Page of 192 TOC 1st Previous Next ↓Bottom Just 7th
AVAILABLE INFORMATION

Both Citizens and American are subject to the informational requirements
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith file reports, proxy statements and other information with
the Securities and Exchange Commission (the "SEC"). Those reports, proxy
statements and other information can be inspected and copied at the public
reference facilities maintained by the SEC at Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549, and at the regional offices of the
SEC at 13th Floor, 7 World Trade Center, New York, New York 10048, and Suite
1400, Citicorp Center, 500 West Madison Street, Chicago, Illinois 60661.
Copies of such materials can be obtained at prescribed rates from the Public
Reference Section of the SEC at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549. Also, the SEC maintains a worldwide web site that
contains such materials of Citizens at "http://www.sec.gov." In addition, such
reports, proxy statements and other information concerning Citizens may be
inspected at the offices of the American Stock Exchange, 86 Trinity Place, New
York, New York 10006-1881.

PRES14A 8th Page of 192 TOC 1st Previous Next ↓Bottom Just 8th
SUMMARY

The following is a summary of certain information contained elsewhere in
the Proxy-Information Statement. This Summary is not intended to be complete
and is qualified in its entirety by reference to the more detailed information
appearing in the Proxy-Information Statement, including the Appendices.
Shareholders of American are urged to read the Proxy-Information Statement in
its entirety.

THE PARTIES TO THE EXCHANGE

The three parties to the Exchange Agreement are Citizens, Inc., a
Colorado corporation ("Citizens"), Citizens Insurance Company of America, a
Colorado corporation ("CICA"), and American.

Citizens is an insurance holding company. CICA is a life insurance
company which is wholly-owned by Citizens. The principal executive office of
Citizens and CICA is located at 400 East Anderson Lane, Austin, Texas 78752,
and the telephone number at such office is (512) 837-7100.

American is a Mississippi corporation which is a financial holding
company. The principal executive office of American is located at 660 Lakeland
East Drive, Suite 204, Flowood, Mississippi 39208. The telephone number at
such office is (601) 936-2090. Neither American nor any of its officers or
directors are affiliated with Citizens or CICA, nor are any officers or
directors of Citizens or CICA affiliated with American.

United Security Life Insurance Company ("United") is a Mississippi
domestic insurance company which is wholly-owned by American. United has the
same principal executive office as American. It is contemplated that United
will act as a separate indirect subsidiary of Citizens after the Exchange.

AMERICAN INVESTMENT NETWORK, INC. SPECIAL
MEETING OF SHAREHOLDERS

PERSONS ENTITLED TO VOTE; Holders of record of shares of American Class
RECORD DATE A and Class B Common Stock, at the close of
business on __________, 1997 ("Record Date"),
will be entitled to notice of and to vote at
the Special Meeting of Shareholders (the
"Meeting").

DATE, TIME AND PLACE OF The Meeting will be held on ______, 1997, at
MEETING 10:00 a.m. Central Standard Time, at
_____________ Mississippi.

BUSINESS TO BE TRANSACTED At the Meeting, shareholders of American will
be asked to consider and vote upon approval of
a Plan and Agreement of Exchange ("Exchange
Agreement") under which CICA and American will
effect an exchange of Class A Common Stock of
Citizens held by CICA for the Class A and
Class B Common Stock of American, with
shareholders of American receiving shares of
Citizens Class A Common Stock (the
"Exchange").

PRES14A 9th Page of 192 TOC 1st Previous Next ↓Bottom Just 9th
THE EXCHANGE AGREEMENT CICA and American have entered into a Plan and
Agreement of Exchange dated October 28, 1996,
as amended ("Exchange Agreement"), in which
American shareholders will receive shares of
Citizens Class A Common Stock in exchange for
their American shares (the "Exchange").

The transaction will be accounted for by the
purchase method of accounting.

Pursuant to the Exchange Agreement, holders of
American Class A and Class B Common Stock will
receive one share of Citizens Class A Common
Stock for each seven and two-tenths (7.2)
shares of American Class A or Class B Common
Stock held. Fractional shares will not be
issued in the Exchange; rather, such
fractional shares will evidence the right to
receive the cash value of such share based on
the average closing price of the Citizens
Class A Common Stock as reported on the
American Stock Exchange for the five trading
days prior to the effective date of the
Exchange. Any holder of American Class A or
Class B Common Stock who shall have properly
perfected the dissenters' rights under
Mississippi law will not have the right to
receive Citizens Class A Common Stock, but
only cash, in an amount equal to the fair
value of his or her American shares. See
"Proposed Exchange--Receipt of Citizens
Shares" and "Rights of American Dissenting
Shareholders to Receive Payment For Shares."

PROXY REVOCABILITY Proxies are revocable at any time prior to
voting at the Meeting. See "The Special
Meeting--Revocability of Proxies."

REQUIRED VOTE Approval of the Exchange Agreement and the
transactions contemplated thereby requires the
affirmative vote of holders of 66 2/3% of the
outstanding American Common Stock (Class A and
Class B voting as separate classes). See "The
Special Meeting--Voting Securities."
Citizens, as sole shareholder of CICA, has
approved the Exchange Agreement. No
shareholder vote of Citizens is required by
the Exchange Agreement or applicable law. As
of the Record Date there were _______ issued
and outstanding shares of Citizens Class A
Common Stock.

VII

PRES14A 10th Page of 192 TOC 1st Previous Next ↓Bottom Just 10th
RECOMMENDATION OF THE The American Board of Directors has
BOARD OF DIRECTORS unanimously approved the Exchange Agreement
and recommends that the shareholders vote FOR
approval of the Exchange. This recommendation
is based on factors described under "Proposed
Exchange--Background and Reasons for the
Exchange," and that based upon considerations
set forth therein, the exchange ratio in the
Exchange Agreement is fair, from a financial
point of view to all of the shareholders of
American.

OUTSTANDING SHARES As of the Record Date, there were outstanding
OF AMERICAN 5,021,764 shares of American Class A Common
Stock and 2,500 shares of Class B Common
Stock. As of the Record Date, American
directors, executive officers and their
affiliates held 947,958 shares of Class A
Common Stock and 1,666 shares of Class B
Common Stock, or 18.9% of the Class A Common
Stock, and 66.7% of the Class B Common Stock
entitled to vote on the Exchange. See "The
Special Meeting--Voting Securities."

CLOSING DATE The Exchange Agreement provides that the
actions contemplated thereby will be completed
at closing ("Closing") on a closing date
("Closing Date") which will be as soon as
possible after all regulatory approvals and
shareholder approvals are obtained in
accordance with law and shall become effective
on or as soon as possible after the Closing
Date. The Exchange is subject to the approval
of the Mississippi and Colorado Commissioners
of Insurance. It is fully anticipated that the
Closing will occur and the Exchange will be
effective on or shortly after the American
shareholder approval is obtained, but there
can be no assurance that the conditions to the
Exchange will be satisfied or that the
Exchange will be consummated.

CONDUCT OF BUSINESS OF American has agreed that it will not enter
AMERICAN PRIOR TO CLOSING into any transactions prior to the effective
date of the Exchange other than in the
ordinary course of business and will pay no
shareholder dividends nor increase the
compensation of officers and will not enter
into any agreement or transaction which will
adversely affect its financial condition. See
"Proposed Exchange--Conduct of Business
Pending the Exchange; Other Covenants of the
Parties."

VIII

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DISSENTERS' RIGHTS Under the Mississippi Business Corporation
Act, shareholders of American have the right
to dissent from the Exchange and demand
payment of the fair value of their shares in
cash. If holders of more than 2.5% of the
outstanding shares of American qualify as
dissenters, CICA may, at its option, decline
to proceed with the Exchange. See "Rights of
American Dissenting Shareholders to Receive
Payment for Shares," "Proposed Exchange--Other
Conditions to Consummation of the Exchange,"
and Appendix B which sets forth the relevant
Mississippi statutes concerning rights of
dissenting shareholders.

CONDITIONS PRECEDENT TO In addition to approval by the holders of
THE EXCHANGE American Class A and Class B Common Stock, the
Exchange is subject to the satisfaction (or
waiver by the party entitled to the benefit
thereof) of a number of conditions including
(1) the performance by each party of its
respective obligations, (2) the absence of any
legal proceedings relating to the transactions
contemplated by the Exchange Agreement, (3)
the continued material accuracy of
representations made by each party and (4) the
delivery of certain legal opinions. See
"Proposed Exchange--Other Conditions to
Consummation of the Exchange."

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SUMMARY OF FEDERAL INCOME The Exchange is intended to be treated as a
TAX CONSIDERATIONS reorganization within the meaning of Section
368(a) of the Internal Revenue Code of 1986,
as amended (the "Code"). Accordingly, for
federal income tax purposes both Citizens and
American believe: (i) no material gain or loss
will be recognized by American or CICA as a
result of the Exchange; (ii) no gain or loss
will generally be recognized by holders of
American Class A or Class B Common Stock on
the exchange of their shares for Citizens
Class A Common Stock pursuant to the Exchange;
and (iii) the aggregate adjusted tax basis of
the Citizens Class A Common Stock received by
an American shareholder in exchange for
Citizens Class A Common Stock will be the same
as the basis of the American Class A or Class
B Common Stock surrendered in exchange
therefor. If the Exchange were not to so
qualify, the exchange of shares would be
taxable. The Exchange may be terminated by any
party if it is determined by counsel of any
party that the Exchange will not constitute a
reorganization within the meaning of Section
368(a) of the Code. The parties are not
requesting a legal opinion on the Exchange,
nor is a ruling from the Internal Revenue
Service being sought in connection with the
Exchange. See "Certain Federal Income Tax
Consequences."

AMERICAN SHAREHOLDERS SHOULD CONSULT WITH
THEIR OWN TAX ADVISORS REGARDING THE FEDERAL
INCOME TAX CONSEQUENCES OF THE EXCHANGE, AS
WELL AS ANY APPLICABLE STATE, LOCAL, FOREIGN
OR OTHER TAX CONSEQUENCES, IN LIGHT OF THEIR
OWN PARTICULAR TAX SITUATIONS.

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TERMINATION OF THE The Exchange Agreement may be terminated by
EXCHANGE AGREEMENT either party if the effective date does not
occur by March 31, 1997. See "Proposed
Exchange--Other Conditions to Consummation of
the Exchange." The Exchange Agreement may be
amended upon the approval of the Board of
Directors of each party provided that the
number of shares of Citizens Class A Common
Stock to be issued cannot be changed without
the approval of the shareholders of American.
In addition, the Exchange Agreement may be
terminated and amended at any time prior to
the effective date by unanimous consent of the
parties; by any of the beneficiaries of the
conditions precedent to the consummation of
the Exchange unless the condition has been
satisfied or waived; by any party if any suit,
action, or proceeding pending in a court or
governmental agency threatens to prohibit the
transactions contemplated by the Exchange; or
if any party has discovered any material error
in the representations of the other parties.
See "Proposed Exchange- -Termination or
Amendment of the Exchange Agreement."

OTHER MATTERS The American Board knows of no other matters
that will come before the Meeting. If any
additional matters come before the Meeting,
the proxies will be voted at the discretion of
the proxy holder.

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RISK FACTORS

The following risk factors, in addition to those discussed elsewhere
in this Proxy-Information Statement, should be considered carefully in
evaluating Citizens and its business.

LACK OF FAIRNESS OPINION OR APPRAISAL. The American Board has not
retained nor sought investment banking or appraisal services to value American
or provide advice regarding the fairness of the terms of the Exchange.
However, in the event the Exchange is approved by the Mississippi Commissioner
of Insurance, the Miss. Code Ann. requires that a fairness finding be made.
The lack of a fairness opinion or appraisal from an investment banker or
appraisal firm conceivably could have negatively impacted the amount of
consideration to be received by the holders of American Class A and Class B
Common Stock.

NO DIVIDENDS. To date, Citizens has not paid cash dividends in
respect of its common stock and its current policy is to retain earnings for
use in the operations and expansion of its business. Hence, it is highly
unlikely that cash dividends will be paid in the near future. Also, the
Citizens Class A Common Stock has a right to twice the cash dividends of the
Citizens Class B Common Stock. Because the Class B shareholders control
Citizens, there is little economic incentive for the Class B shareholders to
determine that cash dividends should be paid when they will receive only
one-half of the per share cash dividends of the Class A common shares, except
that the beneficiaries and trustee of the Harold E. Riley Trust, which holds
the Citizens Class B Common Stock, are also the largest holders of Citizens
Class A Common Stock.

SIGNIFICANT MARKET OVERHANG. A registration statement of Citizens on
Form S-3 with the SEC is in effect relating to the public offer and sale by
certain holders of Citizens Class A Common Stock, including Harold E. Riley,
Chairman of the Board of Citizens. The registration statement relates to
approximately 6,099,657 shares of Class A Common Stock or approximately 30% of
the Citizens Class A Common Stock outstanding. It may be assumed that sales of
significant amounts of these shares in the public market could have a
depressive effect on the price of the Citizens Class A Common Stock. Further,
the prospect, even without the actual sales, of such significant amounts of
shares being offered into the public market place may have a depressive effect
on the price of the Citizens Class A Common Stock.

CONTROL. The shares of outstanding Citizens Class B Common Stock,
100% of which is owned indirectly by Harold E. Riley, Chairman of the Board,
President and Chief Executive Officer of Citizens (through the Harold E. Riley
Trust), have the right to elect a simple majority of the Board of Directors of
Citizens. This right may make it more difficult and time consuming for a third
party to acquire control of Citizens or to change the Board of Directors of
Citizens. Additionally, Mr. Riley is the largest holder of Class A Common
Stock. As a practical matter, Mr. Riley has veto power over significant
corporate transactions.

INABILITY TO ELECT DIRECTORS. The Citizens Class A Common Stock being
offered hereby represents a minority interest in Citizens. As cumulative
voting of shares is not permitted by the Articles of Incorporation of Citizens,
the minority shareholders of Citizens cannot through their votes alone elect
any of Citizens' directors or otherwise control Citizens. Also, the Citizens
Class B Common Stock elects a simple majority of the Citizens' Board.
Therefore, as a practical matter, control of Citizens lies outside the Class A
shareholders. See "Comparison of Rights of Securityholders."

SALE OF SHARES AND EFFECT THEREOF. On October 27, 1994, Citizens
completed an offering of 916,375 shares of its Class A Stock under an exemption
from registration under the Securities Act of 1933. The offering was made
under Regulation S, which generally provides that shares which are offered
outside of the United States to non-United States persons pursuant to certain
specific guidelines may be resold in the United States by persons who are not
an issuer, underwriter or dealer following the expiration of a 40-day period
after the close of the offering period. The offering price per share was
$7.00. Gross

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proceeds raised were $6,414,625 and net proceeds were approximately $5,400,000.
The subsequent resale of the Citizens Class A Common Stock sold in this
offering into the public market could adversely affect the price of the
Citizens Class A Common Stock, and it may be assumed that overseas investors
would have more of an incentive to sell their Class A common shares because the
price they paid for such stock was $7.00 per share.

PROPOSED OFFERING OF 3,500,000 SHARES OF CITIZENS CLASS A COMMON STOCK
OUTSIDE THE UNITED STATES AND EFFECT THEREOF. In May 1995, Citizens commenced
an offering of up to 3,500,000 shares of Class A Stock outside the United
States pursuant to a safe harbor rule relating to an exemption from
registration under the Securities Act of 1933. Citizens has restricted the
transfer of such shares for a period of three years following the initial
purchase, and a legend to such effect will be placed on each certificate for
such shares. The offering price is $7.50 per share. Management is unable to
determine how successful the offering will be. As of December 31, 1996,
approximately 133,000 shares had been sold in the offering. Subsequent resale
of these shares in the United States could have a depressive effect upon the
price of the Class A common shares, and it may be assumed that overseas
investors would have more of an incentive to sell their Class A common shares
because the price they paid for such stock will probably be lower than the
trading price of the Class A Common Stock.

DEPENDENCE ON CITIZENS' CHAIRMAN. Citizens relies heavily on the
active participation of its Chairman of the Board, President and Chief
Executive Officer, Mr. Harold E. Riley. The loss of Mr. Riley's services would
likely create a significant adverse effect on Citizens. Citizens does not have
an employment agreement with Mr. Riley, but does have "key man" life insurance
on him totaling $1.25 million of which Citizens is the beneficiary. Citizens
has no disability insurance regarding Mr. Riley.

CONCENTRATION OF BUSINESS FROM PERSONS RESIDING IN THIRD WORLD
COUNTRIES. For the years ended December 31, 1995 and 1994, approximately 92.0%
and 91.8%, respectively, of Citizens' total insurance premium revenue was
derived from policies issued on the lives of Latin Americans and South
Americans. The policies issued to such persons are ordinary, whole-life
policies with an average face amount of $60,000 and are marketed by independent
marketing firms primarily to heads of households which are in the top 3% to 5%
income bracket of such countries. Most of the new life insurance business of
Citizens comes from Latin America and South America. There is a risk of loss
of a significant portion of sales in these countries should adverse events
occur in the countries from which Citizens receives applications. To minimize
inherent risk, Citizens is not chartered as an insurance company in any foreign
country, maintains no assets or employees in foreign countries, accepts only
applications and premiums remitted directly to its main office in United States
currency drawn on U.S. banks, and includes various limitations to coverage
which are designed to minimize exposure to loss caused by social, economic and
political conditions. Citizens is not aware of any adverse trends in these
countries which would have a material adverse impact on Citizens' business.
Furthermore, management believes that political or economic instability in
these countries would likely have a favorable impact on Citizens' business
since such instability would generally strengthen the demand for U.S.
dollar-denominated policies.

PERSISTENCY. Persistency is the extent to which policies sold remain
in-force. Policy lapses over those actuarially anticipated could have an
adverse effect on the financial performance of Citizens. Policy sales costs
are deferred and recognized over the life of a policy. Excess policy lapses,
however, cause the immediate expensing or amortizing of deferred policy sales
costs. As long as Citizens maintains its lapse and surrender rate within its
pricing assumptions for its insurance policies, Citizens believes that its
present lapse and surrender rate should not have a material adverse effect on
its financial results. For the years ended December 31, 1995, 1994 and 1993,
the Citizens' lapse ratio on ordinary business was 5.1%, 6.7% and 6.5%,
respectively.

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COMPETITION. The life insurance business is highly competitive and
consists of a number of companies, many of which have greater financial
resources, longer business histories, and more diversified lines of insurance
coverage than Citizens. Such companies also generally have larger sales
forces. Citizens also faces competition from companies located within foreign
countries that conduct marketing in person and have direct mail sales
campaigns. Citizens may be at a competitive disadvantage in competing with
these entities although management believes the products of Citizens purchased
by its policyholders are competitive in the marketplace. Competition in the
market in which Citizens competes is from three sources. First, Citizens
competes with companies which are formed and operated within a particular
country. These types of companies are subject to risks of currency
fluctuations and generally use mortality tables which are based on the
experience of the local population as a whole. As a result, their prospects of
providing an economic return to policyholders are more uncertain than for U.S.
dollar-based policies, and their statistical cost of insurance is much higher
than Citizens because they use mortality tables that are based on significantly
shorter life spans than those that Citizens uses. The second source of
competition is from companies which are not formed within a given country but
are using local currencies. Again, the use of local-based currencies entails
greater risks of uncertainty, due to fluctuations of local currencies and
perceived instability and weakness of local currencies. Management has
observed that these first two types of companies tend to sell universal life
and annuities versus whole life, which is the predominant type of life
insurance sold by Citizens. Finally, Citizens faces competition from companies
which operate in the same mode as Citizens. Management believes that Citizens'
competitive advantages include a history of performance, its sales force and
its product, which has consistently paid a cash dividend on the policies
issued.

REGULATION. Insurance companies are subject to comprehensive
regulation in the jurisdictions in which they do business under statutes and
regulations administered by state insurance commissioners. Such regulation
relates to, among other things, prior approval of the acquisition of a
controlling interest in an insurance company; standards of solvency which must
be met and maintained; licensing of insurers and their agents; nature of and
limitations on investments; deposits of securities for the benefit of
policyholders; approval of policy forms and premium rates; triennial
examinations of insurance companies; annual and other reports required to be
filed on the financial condition of insurers or for other purposes; and
requirements regarding reserves for unearned premiums, losses and other
matters. Citizens is subject to this type of regulation in any state in which
it is licensed to do business. Such regulation could involve additional costs
and restrict operations.

Citizens is currently subject to regulation in Colorado under the
Colorado Insurance Holding Company Act. Intercorporate transfers of assets and
dividend payments from Citizens' life insurance subsidiaries are subject to
prior notice and approval if they are deemed "extraordinary" under this
statute. Citizens is required under Colorado insurance laws to file detailed
annual reports with the Colorado Division of Insurance and all of the states in
which it is licensed. The business and accounts of life insurance subsidiaries
of Citizens are subject to examination by the Colorado Division of Insurance.
The most recent triennial examination of Citizens' life insurance subsidiary
was for the year ended December 31, 1991, and Citizens has been advised by the
Colorado Division of Insurance that an examination as of December 31, 1996 will
commence in 1997.

Citizens is currently not subject to regulation in the various
countries in which its independent marketing consultants solicit applications
for insurance policies because acceptance of the applications and issuance of
the policies in the U.S. do not constitute conducting business in such
countries. However, there can be no assurance that such lack of regulation
will continue. Management is not able to predict the effect of any such
regulation of the business of Citizens.

UNINSURED CASH BALANCES. Citizens maintains average cash balances in
its primary depository, Texas Commerce Bank, Austin, Texas, that are
significantly in excess of Federal Deposit Insurance

PRES14A 17th Page of 192 TOC 1st Previous Next ↓Bottom Just 17th
Corporation coverage. If this depository were to cease business, Citizens
would likely lose a substantial amount of its cash. At September 30, 1996,
Citizens had approximately $3 million in Texas Commerce Bank. However,
management monitors the solvency of this depository and does not believe a
material risk of loss exists since this financial institution is currently
above the federally mandated levels of capital and liquidity. Management
utilizes short-term U.S. Treasury securities as well as top-rated commercial
paper issues as vehicles for managing temporary excess cash balances, and
expects to continue the practice for the foreseeable future.

INTEREST RATE VOLATILITY; INVESTMENT SPREAD RISKS. Profitability in
the insurance industry is affected by fluctuations in interest rates. Of prime
importance in achieving profitability is an insurance company's ability to
invest premiums at a higher interest rate than the interest rate credited to
existing policies. Rapid decreases or increases in interest rates may affect
an insurance company's ability to maintain a positive spread between the yield
on invested assets and the assumed interest rate credited to policy reserves.
Rapid interest rate changes could cause increased lapses of policies in-force,
although management believes the effect of such rate changes would be minimal
since Citizens does not issue interest sensitive or universal life insurance
policies and has only a small block of annuity business.

TAX RISKS. The Exchange is intended to be treated as a reorganization
within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as
amended (the "Code"). Accordingly, for federal income tax purposes, no gain or
loss will generally be recognized by holders of American Class A or Class B
Common Stock on the exchange of their shares for Citizens Class A Common Stock
pursuant to the Exchange, and the aggregate adjusted tax basis of the Citizens
Class A Common Stock received by an American shareholder in exchange for
Citizens Class A Common Stock will be the same as the basis of the American
Class A or Class B Common Stock surrendered in exchange therefor. If the
Exchange were not to so qualify the exchange of shares would be taxable. No
party to the Exchange nor any of their affiliates is seeking an opinion of
counsel with respect to the tax treatment of the Exchange. However, the
Exchange may be terminated by any party if it is determined by counsel of any
party that the Exchange will not constitute a reorganization within the meaning
of Section 368(a) of the Code. No party to the Exchange has requested and the
parties do not intend to request a ruling from the Internal Revenue Service in
connection with the Exchange. There are other tax risks that are discussed in
"Certain Federal Income Tax Consequences."

PRES14A 18th Page of 192 TOC 1st Previous Next ↓Bottom Just 18th
THE SPECIAL MEETING

Date, Time and Place of Meeting

A Special Meeting of Shareholders (the "Meeting") of American
Investment Network, Inc. ("American") will be held on ________, 1997 at 10:00
a.m., Central Standard Time, at ______________, Mississippi.

BUSINESS TO BE TRANSACTED AT THE MEETING

The Proxy-Information Statement, the mailing of which commenced on
_________, 1997, is being furnished to shareholders of American in connection
with the solicitation of proxies by the Board of Directors of American for use
at the Meeting and at any adjournments thereof. At the Meeting, holders of
American Class A and Class B Common Stock will be asked to consider and vote
upon approval of a Plan and Agreement of Exchange dated October 28, 1996, as
amended ("Exchange Agreement"), under which Citizens Insurance Company of
America ("CICA") will exchange shares of Class A Common Stock of Citizens, Inc.
("Citizens," the sole owner of CICA) for common shares of American. Pursuant
to the Exchange Agreement, American shareholders will receive in the Exchange
one (1.0) share of Citizens Class A Common Stock for each seven and two-tenths
(7.2) shares of either American Class A or Class B Common Stock held. The
Exchange Agreement sets forth certain conditions to the Exchange, including a
fairness hearing and approval by the Mississippi Commissioner of Insurance in
which American shareholders may participate pursuant to Miss. Code Ann. Section
83-19-105. Assuming approval of the Exchange by the Mississippi Commissioner
of Insurance, the Citizens Class A Common Stock issued in the Exchange will be
issued pursuant to an exemption from registration under Section 3(a)(10) of the
Securities Act of 1933.

As of the date of the Proxy-Information Statement, the Board of
Directors of American knows of no other business that will come before the
Meeting. Should any other matter requiring a vote of shareholders arise, the
proxies named in the enclosed form of proxy will vote the American shares in
accordance with their discretion with respect to any such matter.

VOTING SECURITIES

Only shareholders of record of American Class A and Class B Common
Stock, at the close of business on ________, 1997, will be entitled to vote at
the Meeting. On that date, there were issued and outstanding 5,021,764 shares
of Class A Common Stock and 2,500 shares of Class B Common Stock of American.
Each share of American Class A and Class B Common Stock is entitled to one vote
per share.

A majority of the number of shares of outstanding American Common
Stock of each of Class A and Class B will constitute a quorum for the
transaction of business at the Meeting. An affirmative vote of 66 2/3% of the
outstanding American Class A and Class B Common Stock, voting as separate
classes, is required to approve the Exchange. This two-thirds voting
requirement is necessitated by the interpretation placed upon the pertinent
insurance statutes (Title 83, Chapters 6 and 19, of the Miss. Code Ann.) by the
Mississippi Department of Insurance.

AMERICAN VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF

The following table sets forth certain information with respect to the
only persons known to American to be beneficial owner of more than 5% of either
class of American common shares outstanding, and the number and percent of each
class of shares beneficially owned at that date by each director and

PRES14A 19th Page of 192 TOC 1st Previous Next ↓Bottom Just 19th
officer of American and by all of the directors and officers as a group. Each
director or officer has sole voting and investment power over the shares listed
opposite his or her name.

NUMBER OF SHARES OWNED BENEFICIALLY AND
PERCENTAGE OF EACH CLASS OF SHARES

[Download Table]

Name, Address Class A Class A Class B Class B
and Title of Owner Common Percentage Common Percentage
------------------ --------- ---------- -------- ----------

Walter L. Shelton 312,930 6.2% 833 33.3%
Jackson, Mississippi 39211
Chairman, Director

Jesse L. Byrd 238,998 4.8% 833 33.3%
Brandon, Mississippi 39042
Vice Chairman, Director

John S. Camara 100 0% -0- 0%
Madison, Mississippi 39110
President and Director

H. Elton Cook 81,834 1.6% -0- 0%
Jackson, Mississippi 39211
Director

H. Harold Crumpler 6,394 .13% -0- 0%
Brandon, Mississippi 39042
Executive Vice President/
Treasurer and Director

Phillip E. Faller 18,000 .4% -0- 0%
Brandon, Mississippi 39042
Vice President/Secretary
and Director

Thomas S. Hayes 60,300 1.2% -0- 0%
Clarksdale, Mississippi 38614
Director

Billy George Janous 10,400 .2% -0- 0%
Belzoni, Mississippi 39038
Director

John T. Keeton, Jr 118,668 2.4% -0- 0%
Grenada, Mississippi 38901
Director

L. Homer Martin, Jr 59,000 1.2% -0- 0%
Belzoni, Mississippi 39038
Director

PRES14A 20th Page of 192 TOC 1st Previous Next ↓Bottom Just 20th
NUMBER OF SHARES OWNED BENEFICIALLY AND
PERCENTAGE OF EACH CLASS OF SHARES

[Download Table]

Name, Address Class A Class A Class B Class B
and Title of Owner Common Percentage Common Percentage
------------------ ------- ---------- -------- -----------

Linda M. Pepper 5,000 .09% -0- 0%
Madison, Mississippi 39110
Assistant Secretary

H. Shannon Williford 36,334 .7% -0- 0%
Vicksburg, Mississippi 39180
Director

All Directors and Officers
as a Group (12 persons) 947,958 18.9% 1,667 66.6%

Ben S. Yandell 234,000 4.7% 833 33.3%
Jackson, Mississippi 39216

REVOCABILITY OF PROXIES

Any American shareholder has the power to revoke his or her proxy
before its exercise at the Meeting or any adjournment thereof by (i) giving
written notice of such revocation to the Secretary of American, Phillip E.
Faller, 660 Lakeland East Drive, Suite 204, Flowood, Mississippi 39208, prior
to the Meeting; (ii) giving written notice of such revocation to the Secretary
at the Meeting; or (iii) signing and delivering a proxy bearing a later date.
The mere presence at the Meeting of a shareholder who has executed and
delivered a valid proxy will not revoke such proxy. However, being present at
the Meeting allows a shareholder vote in person and revoke any prior proxy.

PROXY SOLICITATION

The cost of soliciting proxies will be borne by American. In addition
to solicitation by mail, officers and employees of American and its
subsidiaries may solicit proxies by telephone and personally, although these
persons will receive no compensation for such solicitation other than their
regular salaries. American will reimburse brokers, custodians, nominees and
other fiduciaries for their charges and expenses in forwarding materials to
beneficial owners of American shares. American is obligated under the Exchange
Agreement to bear certain expenses concerning the preparation, including the
printing of this Proxy-Information Statement.

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PROPOSED EXCHANGE

BACKGROUND AND REASONS FOR THE EXCHANGE

American (formerly Great American Investment Network, Inc.) was
incorporated in 1987 for the purpose of acquiring stock in existing insurance
companies and organizing and operating other companies in the financial
services industry. In 1996 American changed to its present name from "Great
American Investment Network, Inc." American has two wholly-owned subsidiaries,
United Security Life Insurance Company ("United") and The Gain Agency, Inc.
(the "Agency") and, prior to 1995, owned a 50% interest in U.S. Star
International, Inc. ("U.S. Star") an inactive foreign corporation. In 1995
American conveyed its interest in U.S. Star to nonaffiliated parties. Prior to
April 1995, the Agency was a general insurance agency selling property and
casualty insurance. In April 1995, the Agency sold all of its inforce business
and certain assets. In 1990 United began selling and underwriting a
participating modified whole life insurance policy. In 1993 United began a
mass marketing program to offer limited benefit, accident and health policies.
The sale of accident and health products has been United's major focus since
1994. Shareholders of American are urged to review "Information Concerning
American--Business," for further information concerning the business of
American.

For continued expansion of its operations, American is dependent upon
obtaining and maintaining profitable operations, possible additional equity
offerings and obtaining such additional financing as may be required from time
to time. Management has been aware that American's ability to raise additional
financing is limited by the size and scope of American's operations. In
addition, the American Class A Common Stock has been traded on an extremely
limited basis. Although the American Class A Common Stock has been quoted on
the Nasdaq Over-the-Counter Electronic Bulletin Board, trades have been
sporadic. Therefore, in 1996 management undertook to determine the feasibility
of a business combination with a larger, better capitalized corporation, which
in addition, would afford American shareholders greater liquidity in their
stock.

In mid-1996, the management of Citizens and CICA approached management
of American with respect to a possible business combination of the parties.
After several discussions and meetings held over a several month period, the
Exchange Agreement between American and CICA was executed on October 28, 1996.
The Exchange Agreement was approved unanimously by the boards of directors of
both American and CICA.

VALUATION

The valuation of American and Citizens centered on a share exchange
ratio. Management of Citizens and American reviewed carefully the market value
of Citizens Class A Common Stock (see "Information Concerning Citizens--Market
Prices") and, lacking a similar market upon which to determine a fair price,
evaluated the assets and liabilities of American and its subsidiaries, and
decided that determination of the exchange ratio should begin with a book value
basis of American, adjusted to a substantial degree to reflect values which are
standard within the life insurance industry. The management of Citizens and
American reviewed the capital and surplus of their respective insurance
subsidiaries, along with annual life insurance premium revenue valued at
multiple factor depending upon the profitability of the product and paid up
policy reserves. In addition, state licenses, agency force, and nonadmitted
capital and surplus assets of the life insurance subsidiaries were reviewed.
These values are summarized in the table below.

PRES14A 22nd Page of 192 TOC 1st Previous Next ↓Bottom Just 22nd

[Download Table]

American
-----------

Capital and surplus of subsidiaries, along with a securities
valuation reserve and investment reserves $ 2,372,000

Life insurance in force as a multiple of annual premium revenue 1,191,000

Accident and health insurance in force as a factor of annual
premium revenue 791,000

Market value of real estate 694,000

State licenses 500,000

Agency force 600,000

Other miscellaneous values 83,000

(Less outstanding obligations) (a) (946,000)
-----------

TOTAL ADJUSTED BOOK VALUE $ 5,285,000
===========

---------
(a) Includes mortgage payable to bank on real estate.

The adjusted book value for American was divided by the shares
outstanding to arrive at an adjusted value per share of $1.05. This value was
compared to the trading prices of Citizens' shares on the American Stock
Exchange. The resulting comparison led to the ratio of one share of Citizens
for each 7.2 shares of American.

The resulting values were reviewed carefully by each party. Also
discussed at length were how payment would be made to American shareholders,
and the tax consequences of the Exchange. The fairness of the terms and
conditions of the Exchange must be approved by the Mississippi Commissioner of
Insurance before the Exchange will be effectuated.

RECOMMENDATION OF THE BOARD OF DIRECTORS

The Board of Directors of American believes that the Exchange should
be effectuated because the Board believes a fair exchange ratio will result to
the shareholders of American. Also, the market price of Citizens Class A
Common Stock was nearly eight times the adjusted book value of American Common
Stock at the time of the negotiations, thus making the trade fair from a market
price viewpoint. Accordingly, the American Board of Directors believes the
exchange ratio and, hence the price to be received for the American shares in
the Exchange, is fair.

American believes that Citizens' goal to build a profitable, expanding
life insurance holding company is consistent with the goals of American. The
Board of Directors and management of American, after careful study and
evaluation of the economic, financial, legal and market factors, believes that
the Exchange will provide Citizens with increased opportunity for profitable
expansion of its business, which in turn should benefit American shareholders
who become shareholders of Citizens.

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The terms of the Exchange Agreement were the result of arm's length
negotiations between representatives of American and Citizens. Among the
positive factors considered by the Board of Directors of American in deciding
to approve and recommend the Exchange were:

1. The terms and conditions of the Exchange Agreement, which
management of American believes is a fair price for the shares of American;

2. The financial condition, business assets and liabilities and
management of Citizens;

3. The financial and business prospects of Citizens because it is a
larger company than American;

4. An active market exists in the Citizens Class A Common Stock,
something that is substantially lacking for the American Class A Common Stock;

5. Economies of scale will be achieved by the two companies,
particularly given that fewer regulatory filings will be required of the
resulting single entity;

6. American's directors' familiarity with and review of American's
and Citizens' business, operations, financial condition, earnings and
prospects;

7. American's directors' belief that the exchange ratio is fair to
American shareholders, particularly given the capital needs if United is to
expand;

8. The expectation that the Exchange will generally be a tax-free
transaction to American and to the American shareholders (see "Certain Federal
Income Tax Consequences");

9. The growth and liquidity potential to holders of Citizens Class A
Common Stock compared to the historical growth and liquidity of the American
Class A and Class B Common Stock;

10. The demographics of American's shareholder base and their
expressed concerns regarding estate settlement, and, in that connection, desire
for liquidity;

11. The American Board's review of the business, operations, earnings
and financial condition of Citizens on a historical and prospective basis, and
the enhanced growth opportunities for growth that the Exchange makes possible;

12. The current and prospective economic environment and competitive
constraints facing small insurance companies, including United;

13. The American Board's evaluation of the risks to consummation of
the Exchange, including the risk associated with obtaining all necessary
regulatory approvals;

14. The increased liquidity that the Exchange would provide to
current American shareholders; and

15. The American Board's review of the possible alternatives to the
Exchange, the range of possible values to the American shareholders of such
alternatives and the timing and likelihood of actually receiving, and risks and
rewards associated with seeking to obtain, those values.

The American Board did not assign any specific or relative weight to
these factors in its consideration. All of the above factors contributed in
determining the consideration received.

PRES14A 24th Page of 192 TOC 1st Previous Next ↓Bottom Just 24th
The Board of Directors of American considers the Exchange particularly
advantageous to American shareholders in that shareholders will receive a
security which, in the opinion of the American Board, has the potential to
achieve a greater growth and market value and which now has significantly
greater market liquidity than the American Class A and Class B Common Stock.
The Exchange is also intended to be a nontaxable exchange, thereby giving
American shareholders the equity participation in Citizens without initially
incurring taxes. See "Certain Federal Income Tax Consequences."

A conceivable detriment to the shareholders of American of the
Exchange is the fact that the percentages for extraordinary growth in company
size may be less for Citizens than for American, because it may be considered
easier to expand the size of a small company versus a company several times its
size. However, based upon Citizens' growth record, American management
believes Citizens, under present circumstances, has better growth prospects
than American. Management is unable to articulate any other possible
detriments of the Exchange to American shareholders.

The Board of Directors of American made this determination without the
assistance of an outside, independent financial adviser, or a so-called
"fairness opinion." The Board believes that its members spent a sufficient
amount of time assessing the respective conditions of American and Citizens and
the terms of the Exchange Agreement, and believes that the Board is in a better
position to determine the fairness of the Exchange than is an outside party.

BOARD RECOMMENDATION

THE AMERICAN BOARD OF DIRECTORS HAS CONCLUDED THAT THE EXCHANGE IS IN
THE BEST INTERESTS OF AMERICAN, ITS SHAREHOLDERS AND THE POLICYHOLDERS OF
UNITED SECURITY AND RECOMMENDS UNANIMOUSLY THAT AMERICAN SHAREHOLDERS APPROVE
THE EXCHANGE AGREEMENT AT THE MEETING.

REGULATORY REQUIREMENTS

Conditions to consummation of the Exchange are the approval of the
Mississippi Commissioner of Insurance and the Colorado Commissioner of
Insurance. The parties do not believe the Exchange is subject to any other
insurance regulatory approvals. A public hearing by the Mississippi
Commissioner of Insurance is scheduled to be held at 9:30 a.m., Central
Standard Time, on Wednesday, March 5, 1997 at the offices of the Mississippi
Department of Insurance.

Neither Citizens nor American is aware of any other governmental or
regulatory approvals required for consummation of the Exchange.

TERMS OF THE EXCHANGE AGREEMENT

The discussion below contains a summary of the Exchange Agreement
attached hereto as Appendix A, which is incorporated by reference herein.
Shareholders of American are urged to read Appendix A in its entirety.

The Exchange Agreement provides that the Citizens Class A Common Stock
will be delivered to the Exchange Agent to be distributed at a closing
("Closing") on a closing date ("Closing Date") which shall be as soon as
possible after all regulatory approvals and shareholder approvals are obtained
in accordance with the law. In order for the Exchange to be consummated, the
Exchange Agreement must be approved by the Mississippi and Colorado
Commissioners of Insurance and by holders of American Common Stock. The
Exchange will become effective ("Effective Date") on or as soon after the
Closing Date as possible. It is presently anticipated that the Effective Date
will occur on or before March 31, 1997,

PRES14A 25th Page of 192 TOC 1st Previous Next ↓Bottom Just 25th
but there can be no assurance that the conditions to the Exchange will be
satisfied or that the Exchange will be consummated on that date or any other
date. The parties agreed to work diligently to consummate the proposed
transaction.

RECEIPT OF CITIZENS SHARES

If the Exchange is approved at the Meeting, American shareholders who
do not perfect dissenters' rights will be notified prior to the Closing Date of
the approvals and of the anticipated Closing Date. Shareholders will also be
furnished with a "Letter of Transmittal" to an exchange agent ("Exchange
Agent") that will be identified in the Letter of Transmittal. DO NOT SUBMIT
YOUR AMERICAN SHARES AT THIS TIME. IF THE EXCHANGE IS CONSUMMATED YOU WILL BE
SENT A LETTER OF TRANSMITTAL AND YOU MAY SUBMIT YOUR AMERICAN SHARES WITH THE
LETTER. As soon as administratively feasible after the Effective Time and
after receiving a properly completed Letter of Transmittal and the associated
certificates from American shareholders involved, the Exchange Agent will
distribute the Citizens Class A Common Stock to the American shareholders.
Presently, Citizens plans to appoint its current stock transfer agent, American
Stock Transfer and Trust Company, New York, New York, as Exchange Agent. The
instructions accompanying the Letter of Transmittal will provide details with
respect to the surrender of certificates for American shares and the procedure
for obtaining certificates for Citizens Class A Common Stock, including
instructions for obtaining certificates for Citizens Class A Common Stock for
lost or destroyed certificates of American shares.

The Exchange Agent will not be entitled to vote or exercise any rights
of ownership with respect to American shares held by it from time to time prior
to the issuance of Citizens Class A Common Stock to former holders of American
shares, except that it will receive any such distributions paid or distributed
with respect to the American shares for the account of the persons entitled to
those American shares. It is not contemplated that any such distributions will
be made in respect of the Citizens Class A Common Stock.

After the Effective Date, there will be no transfers on the stock
transfer books of American of American shares which were issued and outstanding
immediately prior to the Effective Date. If after the Effective Date
certificates representing American shares are properly presented to American,
they will be canceled and exchanged for certificates representing Citizens
Class A Common Stock in the ratio set forth above.

FRACTIONAL SHARES

No fractional shares of Citizens Class A Common Stock will be issued
as a result of the Exchange Agreement; rather, such shares will evidence the
right to receive the cash value of such share based on the average closing
price of the Citizens Class A Common Stock as reported on the American Stock
Exchange for the five trading days prior to the Effective Date.

ACCOUNTING

It is anticipated that the Exchange will be accounted for as a
purchase in accordance with generally accepted accounting principles.

OTHER CONDITIONS TO CONSUMMATION OF THE EXCHANGE

In addition to approval of the Exchange by the holders of the American
Class A and Class B Common Stock at the Meeting, the obligations of CICA and
American to consummate the Exchange are

PRES14A 26th Page of 192 TOC 1st Previous Next ↓Bottom Just 26th
subject to the satisfaction (or waiver by the party entitled to benefit
thereof) of a number of conditions, including:

1. The performance by each party of its respective obligations;

2. Approval of the Commissioner of Insurance of Mississippi in
accordance with the laws of Mississippi and approval of the
Commissioner of Insurance of Colorado in accordance with the
laws of Colorado;

3. The absence of any proceedings instituted or threatened to
restrain or prohibit the transactions contemplated by the
Exchange Agreement;

4. The continued accuracy in all material respects of the
representations and warranties made by each party in the
Exchange Agreement;

5. The delivery of certain legal opinions and closing
certificates;

6. CICA may, at its option, decline to proceed with the Exchange
if dissenters' rights are perfected by the holders of more
than 2.5% of the outstanding shares of stock of American; or

7. Any party to the Exchange Agreement may decline to proceed
with the Exchange if the Effective Date does not occur by
March 31, 1997.

Either party may waive any conditions to its obligations to complete
the Exchange, except those which are required by law (such as shareholder and
regulatory approval).

STOCK EXCHANGE LISTING

The Citizens Class A Common Stock is listed on the American Stock
Exchange ("AMEX"), and the additional shares of Citizens Class A Common Stock
issuable upon consummation of the Exchange must first be approved for listing
on the AMEX upon official notice of issuance. Citizens is in the process of
filing an Additional Listing Application with the AMEX and expects approval of
the application in the ordinary course of business.

TERMINATION OR AMENDMENT OF THE EXCHANGE AGREEMENT

The Exchange Agreement may be amended upon approval of the Board of
Directors of each party provided that the number of shares of Citizens Class A
Common Stock issuable cannot be amended without approval of the shareholders of
American.

The Exchange Agreement may be terminated and abandoned at any time
(whether before or after the approval and adoption by American shareholders)
prior to the Effective Date by mutual consent of the Boards of Directors of
CICA and American; by any of the parties who are beneficiaries of the
conditions precedent to the consummation of the Exchange unless the matter has
been satisfied or waived; by any party if any suit, action, or other proceeding
is pending or threatened before any court or governmental agency in which it is
sought to restrain, prohibit or otherwise affect the consummation of the
transactions contemplated by the Exchange Agreement; by any party if there is
discovered any material error, misstatement or omission in the representations
and warranties of any other party; by CICA if dissenters' rights are perfected
in accordance with Mississippi law for more than 2.5% of the outstanding shares
of American; by any party if the Agreement Effective Date does not occur by
March 31, 1997; or by any party

PRES14A 27th Page of 192 TOC 1st Previous Next ↓Bottom Just 27th
whose counsel determines that the Exchange will not constitute a reorganization
under Internal Revenue Code Section 368(a).

Any of the terms or conditions of the Exchange Agreement may be waived
at any time by the party which is entitled to the benefit thereof by action
taken by its Board of Directors.

EXPENSES AND LIABILITY FOR TERMINATION

Each of the parties to the Exchange Agreement will pay its own fees
and expenses incurred in connection with the transaction contemplated by the
Exchange Agreement, including costs incurred in connection with the termination
of the Exchange Agreement.

CONDUCT OF BUSINESS PENDING THE EXCHANGE; OTHER COVENANTS OF THE PARTIES

American has agreed that it will not enter into any transactions prior
to the Effective Date other than in the ordinary course of business and will
pay no shareholder dividends nor increase the compensation of officers and will
not enter into any agreement or transaction which would adversely affect its
financial condition. Each party has agreed to provide the other with
information as to any significant corporate developments during the term of the
Exchange Agreement and to promptly notify the other parties if it discovers
that any of its representations, warranties or covenants contained in the
Exchange Agreement or any document delivered in connection therewith was not
true and correct in all material respects or became untrue or incorrect in any
material respect. All of the parties to the Agreement have agreed to take all
such actions as may be reasonably necessary and appropriate in order to
consummate the transactions contemplated by the Exchange Agreement.

The Board of Directors of American, subject to its fiduciary
obligations to shareholders, has agreed to use its best efforts to obtain the
requisite approval of American shareholders for the Exchange Agreement and the
transactions contemplated thereby.

STOCK TRANSFER RESTRICTIONS APPLICABLE TO "AFFILIATES" OF AMERICAN

The Exchange Agreement provides that any American shareholder who is
an "affiliate" of American as defined in the rules adopted under the Securities
Act of 1933 will enter into an agreement to not dispose of any Citizens shares
received by him in violation of certain transfer restrictions under SEC Rules
144 and 145.

INTERESTS OF CERTAIN PERSONS IN THE EXCHANGE

Prior to the Proposed Exchange, there was no affiliation between
Citizens and CICA (including their directors, officers and affiliates) and
American and its directors, officers and affiliates.

CERTAIN FEDERAL INCOME TAX CONSEQUENCES

The following discussion summarizes all material federal income tax
considerations relevant to the exchange of shares of American Class A and Class
B Common Stock for Citizens Class A Common Stock pursuant to the Exchange.
This discussion is based on currently existing provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), existing and proposed Treasury
Regulations thereunder and current administrative rulings and court decisions,
all of which are subject to change. Any such change, which may or may not be
retroactive, could alter the tax consequences to CICA, American or American's
shareholders as described herein. There can be no assurance that such changes
will not occur.

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American shareholders should be aware that this discussion does not
deal with all federal income tax considerations that may be relevant to
particular American shareholders in light of their particular circumstances,
such as shareholders who are dealers in securities, who are financial
institutions, who are subject to the alternative minimum tax provisions of the
Code, who are foreign persons, who do not hold their American Class A or Class
B Common Stock as capital assets, or who acquired their shares in connection
with stock option or stock purchase plans or in other compensatory
transactions. In addition, the following discussion does not address the tax
consequences of the Exchange under foreign, state or local tax laws, the tax
consequences of transactions effectuated prior or subsequent to or concurrently
with, the Exchange (whether or not any such transactions are undertaken in
connection with the Exchange), including without limitation any transaction in
which shares of American Class A or Class B Common Stock are acquired or shares
of Citizens Class A Common Stock are disposed of. ACCORDINGLY, AMERICAN
SHAREHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE SPECIFIC TAX
CONSEQUENCES OF THE EXCHANGE, INCLUDING THE APPLICABLE FEDERAL, STATE, LOCAL
AND FOREIGN TAX CONSEQUENCES TO THEM OF THE EXCHANGE.

The Exchange is intended to constitute a "reorganization" within the
meaning of Section 368(a) of the Code (a "Reorganization"). As a
Reorganization, subject to the limitations and qualifications referred to
herein, the Exchange will result in the following federal income tax
consequences:

(a) No gain or loss will be recognized by holders of American
Class A or Class B Common Stock solely upon their receipt in the Exchange of
Citizens Class A Common Stock in exchange therefor (except to the extent of
cash received in lieu of a fractional share of Citizens Class A Common Stock).

(b) The aggregate tax basis of the Citizens Class A Common Stock
received by American shareholders in the Exchange (including any fractional
share of Citizens Class A Common Stock not actually received) will be the same
as the aggregate tax basis of the American Class A or Class B Common Stock
surrendered in exchange therefor.

(c) The holding period of the Citizens Class A Common Stock
received by each American shareholder in the Exchange will include the period
for which the American Class A or Class B Common Stock surrendered in exchange
therefor was considered to be held, provided that the American Common Stock so
surrendered is held as a capital asset at the time of the Exchange.

(d) Cash payments received by holders of American Class A or Class
B Common Stock in lieu of a fractional share will be treated as if such
fractional share of Citizens Class A Common Stock had been issued in the
Exchange and then redeemed by Citizens. An American shareholder receiving such
cash will recognize gain or loss, upon such payment, measured by the difference
(if any) between the amount of cash received and the basis in such fractional
share. Provided the fractional share was held as a capital asset at the time
of the redemption, such gain or loss will constitute capital gain or loss, and
such gain or loss will be long term capital gain or loss if the holding period
for such share (taking into account the holding period of the stock
surrendered) was greater than one year. It is possible the distribution of
cash may be treated as a dividend taxable as ordinary income if the Internal
Revenue Service (the "IRS") determines that the distribution in redemption is
essentially equivalent to a dividend.

(e) Cash received by the American shareholders who properly
exercise their dissenters' rights will be treated as having been received in
redemption of the shares so cashed out, and may result in taxable gain or loss,
measured by the difference (if any) between the amount of cash received and
such shareholder's basis in the American Class A or Class B Common Stock.
Provided the shares were held as a capital asset at the time of the redemption,
such gain or loss will constitute capital gain or loss, and such gain or loss
will be long term capital gain or loss if the holding period for such shares
was greater than

PRES14A 29th Page of 192 TOC 1st Previous Next ↓Bottom Just 29th
one year. It is possible that for some shareholders, the distribution of cash
may be treated as a dividend taxable as ordinary income.

(f) Neither Citizens, CICA nor American will recognize material
amounts of gain solely as a result of the Exchange. After the Exchange,
utilization of American net operating losses or built-in losses, if any, will
be subject to certain limitations contained in Section 382 of the Code. IRC
Section 383 will similarly limit the utilization of excess credits, net capital
losses, and foreign tax credits, if any. In addition, IRC Section 384 will
limit the use of preacquisition losses to offset built-in gains, if any.

American shareholders should also be aware that the IRS may examine
transactions taking place before, contemporaneously with, or after a
reorganization to determine whether reorganization treatment is appropriate, or
in some cases to determine whether shareholders will be taxed on other economic
benefits that are included as part of the overall transaction. Thus, any loan
transactions between parties, compensation arrangements, noncompete agreements,
consulting arrangements and other transactions could be reviewed by the IRS and
determined to constitute taxable income to specific parties to the Exchange.
Gain could also have to be recognized to the extent that an American
shareholder was treated as receiving (directly or indirectly) consideration
other than Citizens Class A Common Stock in exchange for the shareholder's
Class A or Class B Common Stock of American. Furthermore, if the IRS were to
establish as to some American shareholders that part of the Citizens Class A
Common Stock received in the Exchange is severable from the Exchange, resulting
in a proportionally increased equity interest being received in the Exchange by
other American shareholders, the American shareholders whose equity interests
were deemed to be constructively increased by the Exchange may be treated as
having received a taxable stock dividend. Thus, American shareholders should
consult with their tax advisors as to the tax consequences to them of the
Exchange.

Under Section 3406 of the Code, American shareholders may be subject
to "backup withholding" at the rate of 31% on "reportable payments", if any, to
be received by them if they fail to furnish their correct taxpayer
identification numbers to Citizens or for certain other reasons. Citizens will
report to these persons and to the IRS for each calendar year the amount of any
reportable payments during that year and the amount of tax withheld, if any,
with respect to those reportable payments.

The parties are not requesting and will not request a ruling from the
IRS in connection with the Exchange. One of the requirements for nontaxable
reorganization treatment is that shareholders of the acquired corporation
acquire a substantial and continuing interest in the acquiring corporation,
i.e., have "continuity of interest."

To satisfy the continuity of interest requirement, American
shareholders must not, pursuant to a plan or intent existing at or prior to the
Exchange, dispose of or transfer so much of either (i) their American Class A
or Class B Common Stock in anticipation of the Exchange or (ii) the Citizens
Class A Common Stock to be received in the Exchange (collectively, "Planned
Dispositions"), such that American shareholders, as a group, would no longer
have a significant equity interest in the American business being conducted
after the Exchange. American shareholders will generally be regarded as having
a significant equity interest as long as the number of shares of Citizens Class
A Common Stock received in the Exchange less the number of shares subject to
Planned Dispositions (if any) represents, in the aggregate, a substantial
portion of the entire consideration received by the American shareholders in
the Exchange. No assurance can be made that the "continuity of interest"
requirement will be satisfied, and if such requirement is not satisfied, the
Exchange would not be treated as a Reorganization.

Although literal compliance with Code Section 368 is a prerequisite to
nonrecognition of gain or loss, such compliance does not guarantee the desired
result. Regulation Section 1.368-1 describes the purpose of the reorganization
provisions as being to exempt from the general rule of taxation, specifically

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described exchanges incident to such readjustments of corporate structures made
in one of the particular ways specified in the Code, as are required by
business exigencies and which effect only a readjustment of continuing interest
in property under modified corporate forms.

A plan of reorganization having no business or corporate purpose will
not constitute a qualified reorganization plan. The reasons for the
reorganization set forth in "Proposed Exchange--Background of and Reasons for
the Exchange" contained in this Proxy-Information Statement provide several
corporate business purposes. Based upon the disclosure contained in this
Proxy-Information Statement and on other considerations both American and CICA
management believe that valid business purposes exist for the transaction.

Considered in conjunction with the business purpose test is the
"continuity of business enterprise" requirement. Regulation Section 1.368-
1(d)(2) provides the general rule that continuity of business enterprise
requires the acquiring corporation to either (i) continue the acquired
corporation's historic business or (ii) use a significant portion of acquired
corporation's historic business assets in a business. The application of this
general rule to certain transactions will depend on all of the facts and
circumstances. The policy underlying the general rule, which is to ensure that
reorganizations are limited to adjustments of continuing interests in property
under modified corporate form, provides the guidance necessary to make these
facts and circumstances determinations.

The historic business of a holding company generally comprises the
business operations of its subsidiary. Revenue Ruling 85-197, 1985-2 C.B. 120,
states that the continuity of business enterprise requirement is satisfied when
a holding company is merged into its wholly-owned operating subsidiary, because
the historic business of the holding company is the business of its operating
subsidiary. Revenue Ruling 81-247, 1981-2 C.B. 87 holds that where a
significant portion of an acquired corporation's historical business assets
received by the acquiring corporation remain with the acquiring corporation, or
corporations directly controlled by the acquiring corporation, the continuity
of business enterprise rules of Regulation Section 1.368-1(d) will be
satisfied. These rulings indicate that the historic business of American is
the business operated by its subsidiary United. Although subject to challenge
by the IRS, the continuity of business enterprise requirement should be
satisfied because after the Exchange, the historic business of American will be
continued by United as a second tier subsidiary of Citizens.

Pursuant to Section 1.368-3(b) of the Regulations, the shareholders of
American must file with their income tax returns for the year in which the
Exchange is consummated, a statement which provides details pertinent to the
nonrecognition of gain or loss on the Exchange, including the cost or other
basis of stock transferred in the exchange, and the amount of stock received.

A successful IRS challenge to the reorganization status of the
Exchange (as a result of a failure of the "continuity of interest" requirement
or otherwise) would result in American shareholders recognizing taxable gain or
loss with respect to each share of Class A or Class B Common Stock of American
surrendered equal to the difference between the shareholder's basis in such
share and the fair market value, as of the effective time of the Exchange, of
the Citizens Class A Common Stock received in exchange therefor. In such
event, a shareholder's aggregate basis in the Citizens Class A Common Stock so
received would equal its fair market value, and the shareholder's holding
period for such stock would begin the day after the Exchange.

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INFORMATION CONCERNING CITIZENS

GENERAL DEVELOPMENT OF BUSINESS

Citizens operates primarily as an insurance holding company. It was
incorporated in 1977. Citizens is the parent holding company that directly or
indirectly owns 100% of Citizens Insurance Company of America ("CICA"),
Computing Technology, Inc. ("CTI"), Insurance Investors, Inc. ("III"),
American Liberty Life Insurance Company ("ALLIC"), Funeral Homes of Louisiana
("FHL") and Funeral Homes of America ("FHA"). Additionally, Citizens owns
indirectly, 94.5% of First American Investment Corporation ("FAIC").
Collectively, Citizens and its subsidiaries are referred to herein as the
"Company." Pertinent information relating to Citizens' subsidiary companies is
set forth below:

[Download Table]

Year State of Business
Subsidiary Incorporated Incorporation Activity
---------- ------------ ------------- ---------------

CICA 1968 Colorado Life insurance
CTI 1986 Colorado Data processing
III 1965 Texas Aircraft transportation
ALLIC 1978 Louisiana Life insurance
FAIC 1984 Louisiana Holding company
FHL 1989 Louisiana Funeral home
FHA 1993 Louisiana Dormant

On September 14, 1995, Citizens acquired American Liberty Financial
Corporation ("ALFC"), a Baton Rouge, Louisiana based life insurance holding
company with $26 million in assets, $8 million of stockholders' equity, annual
revenues of $9 million and $40 million of insurance in force. In the
transaction, ALFC shareholders received 1.10 shares of Citizens Class A Common
Stock for each share of ALFC Common Stock owned and 2.926 shares of Citizens
Class A Common Stock for each one share of ALFC Preferred Stock owned.
Citizens issued approximately 2,340,000 Class A shares in connection with the
transaction, which was accounted for as a purchase. Citizens recently began a
consolidation process under which ALFC was merged into Citizens in early 1997
and ALLIC will merge into CICA, which transaction is expected to be completed
in the first quarter of 1997. ALFC conducted certain non-insurance businesses
which is immaterial to Citizens overall structure. Citizens plans to continue
to devote substantially all of its resources to the development and operation
of its insurance business.

On March 12, 1996 Citizens acquired Insurance Investors & Holding Co.
("Investors"), a Peoria, Illinois based life insurance holding company with
approximately $2.5 million in assets, $1 million of stockholders' equity,
approximately $140,000 of annual revenues and $6 million of insurance in force.
The Investors agreement provided that Investors' shareholders would receive one
share of Citizens Class A Common Stock for each eight shares of Investors
Common Stock owned. Additionally, Citizens acquired all shares of Central
Investors Life Insurance Company (a 100% owned subsidiary of Investors) not
already owned by Investors, based upon an exchange ratio of one share of
Citizens Class A Common Stock for each four shares of Central Investors owned.
The acquisition of these two companies involved the issuance of approximately
170,000 of Citizens Class A shares and was accounted for as a purchase. The
transaction had no effect on 1995 operations.

FINANCIAL INFORMATION REGARDING THE INSURANCE BUSINESS

Citizens, through CICA and ALLIC, currently operates principally in
one business segment, that of selling selected lines of individual life and
accident and health ("A&H") insurance policies. Except for certain
insignificant operations acquired as a part of ALFC's holdings, Citizens has no
present intention to engage in any non-insurance related business. The
following tables set forth certain statistical

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information concerning the operations of the Company for each of the five years
ended December 31, 1995. The information is presented in accordance with
generally accepted accounting principles.

TABLE I

The following table sets forth (i) life insurance in force and (ii)
mean life insurance in force.

[Download Table]

IN FORCE MEAN LIFE
BEGINNING IN FORCE INSURANCE
OF YEAR END OF YEAR IN FORCE
YEAR (a)(b) (a)(b) (a)(b)
---- ---------- ----------- ----------

1995 $2,144,709 $2,151,955 $2,148,332
1994 2,030,615 2,144,709 2,087,662
1993 1,696,606 2,030,615 1,863,610
1992 1,339,964 1,696,606 1,518,285
1991 1,006,300 1,339,964 1,173,132

---------
(a) In thousands (000s)
(b) Before ceding reinsurance to reinsurers.

The increases in insurance in force as shown above reflect the volumes
of new business written over the past five years. Approximately $40,243,000 of
the 1995 increase relates to the acquisition of ALFC described above.
Additionally, the change from 1991 to 1992 reflects the acquisition of First
Centennial Corporation ("FCC"), an insurance holding company.

TABLE II

The following table sets forth (i) the ratio of lapses and surrenders
to mean life insurance in force and (ii) life reinsurance ceded.

[Download Table]

REINSURANCE CEDED(b)
RATIO OF -----------------------------------------
LAPSES AND
SURRENDERS AMOUNT REINSURANCE
LAPSES AND TO MEAN OF PREMIUM
YEAR SURRENDERS(a) IN FORCE REINSURANCE(a) CEDED
---- ------------- ------------- --------------- -----------

1995 $87,273 4.1% $290,677 $2,241,111
1994 84,390 4.0% 285,104 2,309,672
1993 98,712 5.3% 303,727 1,939,425
1992 83,305 5.5% 238,677 1,486,531
1991 57,922 4.9% 236,757 1,317,406

-----
(a) In thousands (000s).
(b) Approximately 95% of the reinsurance is yearly renewable term insurance,
with the remainder being coinsurance.

TABLE III

The following table sets forth information with respect to total
insurance premiums.

PRES14A 33rd Page of 192 TOC 1st Previous Next ↓Bottom Just 33rd

[Download Table]

ORDINARY ANNUITY & ACCIDENT
YEAR LIFE(a) UNIVERSAL LIFE GROUP LIFE AND HEALTH TOTAL
---- ----------- -------------- ---------- ---------- -----

1995 $45,120,631 $119,335 $ 306,256 $698,206 $46,244,428
1994 42,984,741 75,564 541,370 259,250 43,860,925
1993 36,491,961 106,955 1,106,590 284,510 37,990,016
1992 28,415,877 3,067 469,514 316,395 29,204,853
1991 22,210,299 6,991 400,324 350,875 22,968,489

--------
(a) After deduction for reinsurance ceded.

Premium income has grown substantially since 1991 due to the volume of
new business written each year. However, new sales of life insurance decreased
in 1995, therefor, the increase overall during 1995 was less than for previous
years. The acquisition of ALFC lessened the decrease in new sales, although
only three months of ALFC's premiums are reflected in the above table for 1995
since the acquisition of ALFC occurred on September 14, 1995. In 1992, the FCC
acquisition added a small block of Universal Life business to the portfolio.
Additionally, during 1992, the Federal Government increased the amount of
insurance for veterans under the Servicemen's Group Life Insurance program,
causing a one-time increase in group life premiums. The growth in 1995 was the
result of a management decision to slow the rate of growth while directing
efforts toward increasing capitalization.

TABLE IV

The following table sets forth information relating to the ratio of
underwriting and other expenses to insurance revenues.

[Download Table]

COMMISSIONS, UNDERWRITING
AND OPERATING EXPENSES,
POLICY RESERVE INCREASES,
COMMISSIONS, UNDERWRITING POLICYHOLDER BENEFITS AND
AND OPERATING EXPENSES DIVIDENDS TO POLICYHOLDERS
------------------------ --------------------------
RATIO TO RATIO TO
INSURANCE INSURANCE INSURANCE
PREMIUMS(a) AMOUNT PREMIUMS AMOUNT PREMIUMS
----------- ------------ -------- ----------- --------

1995 $46,244,428 $17,369,414 37.6% $50,761,275 109.7%
1994 43,860,925 17,461,910 39.8 48,763,076 111.2
1993 37,990,017 15,918,491 41.9 43,644,554 114.9
1992 29,204,853 13,546,624 46.4 35,301,078 120.8
1991 22,968,489 11,187,768 48.7 27,853,117 121.3

--------
(a) After premiums ceded to reinsurers.

The ratios of expenses to premiums has declined each year since 1989.
These declines are the result of three factors: 1) underwriting and operating
expenses have generally not increased at the same rate as premium income due to
the economics of scale in operations; 2) sales commissions as a percentage of
total premium income are declining annually as the business enters renewal
stages and commissions are paid at a lower rate than first year; and 3) the
amount of new insurance writings annually represents a smaller percentage of
total premium income.

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TABLE V

The following table sets forth changes in new business produced
between participating and nonparticipating policies.

[Download Table]

PARTICIPATING NONPARTICIPATING
----------------------- -------------------------
TOTAL NEW
BUSINESS (a) AMOUNT(a) PERCENT AMOUNT(a) PERCENT
------------ --------- ------- --------- -------

1995 $296,811 $271,108 91.3% $25,703 8.7%
1994 380,281 352,535 92.7 27,739 7.3
1993 376,460 345,882 91.9 30,578 8.1
1992 315,142 278,694 88.4 36,448 11.6
1991 274,066 240,212 87.6 33,854 12.4

-------
(a) In thousands (000s).

The percentage of the new business produced that is participating has
increased steadily due to the fact that the Ultra Expansion products are all
participating and represent the majority of new business. The decline in new
business during 1995 was caused in part by disruptions in the international
market. See "Management's Discussion and Analysis."

TABLE VI

The following table sets forth changes in new business issued
according to policy types.

[Enlarge/Download Table]

WHOLE LIFE
AND ENDOWMENT TERM UNIVERSAL LIFE
----------------------- ----------------------- ---------------------------
TOTAL NEW
BUSINESS(a) AMOUNT(a) PERCENT AMOUNT(a) PERCENT AMOUNT(a) PERCENT
----------- --------- ------- ---------- ------- --------- -------

1995 $296,811 $270,963 91.3% $25,848 8.7% $ 0 -
1994 380,281 352,357 92.7 27,924 7.3 0 -
1993 376,460 345,516 91.9 30,777 8.1 0 -
1992 315,142 279,941 88.8 34,243 10.9 958 0.3%
1991 274,066 239,932 87.6 34,134 12.4 0 -

------
(a) In thousands (000s).

This table illustrates that virtually all of the new business written
is whole life. The 1995 results reflect a decrease in new business during the
year.

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TABLE VII

The following table sets forth deferred policy acquisition costs
capitalized and amortized compared to new business issued.

[Download Table]

DEFERRED POLICY
ACQUISITION COSTS
TOTAL NEW ---------------------------
BUSINESS
ISSUED CAPITALIZED AMORTIZED
------------- ----------- ---------

1995 $296,811,000 $10,579,704 $8,511,876
1994 380,281,000 13,128,049 7,203,593
1993 376,460,000 13,472,064 6,455,401
1992 315,142,000 10,670,569 4,412,007
1991 274,066,000 8,136,789 2,789,659

Capitalized policy acquisition costs increased steadily until 1994,
such increases reflecting the growing amount of new business issued. In 1994,
the rate of capitalization was affected by an adjustment due to the lower
interest environment. The amortization of these costs has grown as the
aggregate deferred acquisition cost asset has increased. For 1995, the
decrease in the capitalized amount reflects the reduction in the amount of new
business produced and lower commission expenses incurred as a result thereof.

TABLE VIII

The following table sets forth investment results.

[Download Table]

RATIO OF NET
INVESTMENT INCOME
MEAN AMOUNT OF NET INVESTMENT TO MEAN AMOUNT
INVESTED ASSETS(a) INCOME(b) OF INVESTED ASSETS(a)
------------------ -------------------------- ---------------------

1995 $111,926,695 $7,026,909 6.3%
1994 90,419,823 5,295,784 5.9
1993 82,598,407 4,771,079 5.8
1992 66,704,026 3,929,495 5.9
1991 50,920,030 4,117,165 8.1

--------
(a) The years 1992 forward includes assets acquired from FCC on July 31,
1992. The year 1995 includes assets acquired from ALFC on
September 14, 1995.
(b) Does not include realized and unrealized gains and losses on
investments.

The rate of return on invested assets declined in 1992 primarily due
to the sale of higher yielding bonds to realize capital gains. Since these
gains were not a component of investment income, and the proceeds were
reinvested at lower prevailing interest rates, the 1993 ratio of net to mean
was lower. Available returns continued to be less in 1994 than in earlier
periods of time; however, in mid to late 1994, yields began to increase and a
slight growth in the return on invested assets was achieved. This growth
continued throughout most of 1995.

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NARRATIVE DESCRIPTION OF BUSINESS

BUSINESS OF CITIZENS. Citizens' principal business is ownership of
CICA and ALFC and their affiliates. Additionally, it provides management
services to these companies under a management services agreement. Citizens
has approximately 75 full and part-time employees.

BUSINESS OF CICA. Historically, CICA's revenues have been derived
from insurance premiums and revenues from investments. CICA is a
Colorado-domiciled life insurance company marketing primarily ordinary
whole-life products on an international basis through marketing companies.
During the fiscal year ended December 31, 1995, 99.2% of CICA's premium income
was attributable to life, endowment and term insurance; 0.2% to individual
annuities; and 0.6% to accident and health insurance. Of the life policies in
force at December 31, 1995, 13.2% were nonparticipating and 86.8% were
participating.

The Ultra Expansion products are a series of participating whole life
policies targeted for international markets. All of the Ultra products are
participating with dividends ranging from 2% of the premium in the first year
to 123% in the 20th year. A unique feature of the Ultra plans is that the
dividends are payable immediately upon payment of the annual premium. In late
1990, an immediate endowment was added to the product line. This endowment is
paid annually in an amount determined by the insured at the time the policy is
sold. In December 1992, CICA added a flexible amount deposit rider as a new
feature to the ultra products. All of these products carry surrender charges
for the first 14 years and continuing benefit limitations to exclude certain
causes of death that are not anticipated in standard mortality ratings. There
are no other material policies or products offered by CICA.

The CICA underwriting policy requires a medical examination of
applicants for ordinary insurance in excess of certain prescribed limits.
These limits are graduated according to the age of the applicant and the amount
of insurance. Generally, the maximum amount of ordinary life insurance issued
domestically without a medical examination is $200,000 for ages 0 through 35;
$100,000 for ages 36 through 45; $50,000 for ages 46 through 50; $15,000 for
ages 51 through 55; and $10,000 for ages 56 and over. Medical examinations are
required for most all non-U.S. applicants for life insurance, except children.

Regarding life policies, CICA's maximum coverage on any one life is
not limited by company policy. However, CICA reinsures the amount of coverage
which is in excess of its retention policy. See "Business of CICA -
Reinsurance." CICA does not accept substandard risks above Table VI
(policyholders who cannot qualify for standard ordinary insurance because of
past medical history) in exchange for which CICA would charge higher premiums.

CICA has $22.4 million of insurance in force on individuals that are
classified as substandard risks, the majority of such business having been
acquired in the purchase of other companies. Management believes the exposure
to loss as a result of insuring these individuals is minimal, since the
premiums are increased to cover the nature of the risk, additional reserves are
established, and the amount of insurance represents less than 1.1% of the total
insurance in force.

GEOGRAPHICAL DISTRIBUTION OF BUSINESS. For the year ended December
31, 1995, insurance policies held by residents of the State of Texas accounted
for 2.7% of CICA's total premium income from direct business, and policies held
by residents of Colorado represented 2.1% of premium income from direct
business for the same period. All other states of the United States totaled
3.1% of the premium income from direct business with no single state, except as
set forth above, accounting for as much as 1% of premium income. Business on
foreign residents accounted for the remaining 91.8%. For the years ended
December 31, 1994 and 1993, residents of the State of Texas accounted for 3.0%
and 3.9%, respectively of CICA's total premium income. Residents of Colorado
provided 2.1% and 2.6%, respectively, during the same period. No other states
in the U.S. amounted to 1% of total premium income

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during the periods. Business on foreign citizens represented 91.8% of 1994 and
92.5% of 1993 premium income.

The participating whole life policies accepted by CICA on high net
worth residents of foreign countries have an average face amount of
approximately $60,000 and are marketed primarily to the top 5% of the
population in terms of household income.

CICA accepts applications for international insurance policies
marketed by several independent international marketing firms with whom CICA
has nonexclusive marketing contracts. These firms market life insurance
products to citizens of foreign countries, with a present emphasis in Latin
America and South America. Such life products are specially designed by CICA
to be compatible with marketing methods and commission requirements.

The international marketing firms have many years' experience
marketing life insurance products for CICA. The contract with the marketing
firms provides that they have the responsibility for recruiting and training
sales consultants. The marketing firms are responsible for all of their
overhead costs and bear the expense of sales incentives. These marketing firms
are guarantors for any advances against future commissions made by CICA to
sales consultants. In consideration for the services rendered, the marketing
firms receive an override commission on all new policies sold by them or their
sales consultants. See "Business of CICA - Commissions." The marketing
contracts may be terminated for various causes, at any time by mutual consent
of the parties or upon 30 days' notice by either party. These marketing firms
provide recruitment, training and supervision of their managers and sales
consultants in the sale of dollar-denominated life insurance products; however,
all managers and sales consultants contract directly with CICA and receive
their commissions from CICA. Accordingly, should the marketing arrangement
between any firm and CICA be canceled for any reason, CICA believes it could
continue suitable marketing arrangements with the individuals of the marketing
firms without appreciable loss of present and future sales. There is, however,
always a risk that sales could decrease.

At present, CICA is dependent on the non-U.S. markets for virtually
all of its new business. This subjects CICA to potential risks with regard to
the continued ability to write such business should adverse events occur in the
countries from which CICA receives applications. These potential risks include
lapses of policies if funds that flow out of such countries were to become
restricted and the improbable necessity that incorporating an insurance
subsidiary in such countries would become required. Based on more than 30
years' experience in the marketplace in which CICA competes, management
believes such risks are not material. CICA maintains no assets outside the
U.S. and requires all premiums to be paid in the U.S. with U.S. dollars via
drafts drawn on banks in the U.S.; therefore, it could lose no funds from
currency devaluation or foreign appropriation. Further, management does not
believe that the flow of funds will be restricted in the future, because almost
all of the insureds are in the upper percentiles of incomes in their country.
Management believes that such insureds are actively involved in business
leadership roles in their communities and would be opposed to funds flow
restriction. Many of the inherent risks in foreign countries, such as
political instability, hyper-inflation and economic disruptions tend to improve
rather than hurt CICA's business because it encourages individuals to convert
assets out of local currencies to the more stable U.S. dollar. Additionally,
management has made a concerted effort to expand the number of foreign
countries from which it accepts business in an effort to reduce the impact on
CICA of political or economic problems in any one country or region.

MARKETING OPERATIONS. CICA holds licenses to do business in 11 states
and accepts applications from numerous foreign countries. CICA's operations
are conducted on the independent contractor basis, with a sales force at
December 31, 1995 of 1,308 individuals and December 31, 1994 of 1,328
individuals.

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COMMISSIONS. CICA's marketing managers are independent contractors,
responsible for their respective expenses, that are compensated on a percentage
of premium basis. The maximum amount of commission expense which may be
incurred by CICA on an individual life insurance policy is 110% of the first
year premium, 10% of the premium for each of the next nine years and 2% of the
premium for the eleventh and subsequent years as a continuing service fee.
Percentage amounts paid to sales consultants on individual term, annuity and
accident and health insurance are substantially less than the levels paid for
individual ordinary life insurance. The marketing managers receive overriding
first year and renewal commissions on business written by sales consultants
under their supervision and all marketing expenses except sales conventions
related thereto are included in the above percentages.

RESERVES. CICA establishes actuarial reserves as liabilities to meet
obligations on all outstanding policies. Reserves and deferred acquisition
costs are prepared in conformity with the American Academy of Actuaries
Committee on Financial Reporting Principles. In determining such reserves CICA
used the 1955 to 1960, 1965 to 1970, and 1975 to 1980 Select and Ultimate
Mortality Tables with interest rates at 4% or in a range graded from 9% to 5%
with recent issues reserved at 7% graded to 6 1/2%. Withdrawal assumptions are
based primarily on actual historical experience. Statutory reserves are used
for paid-up life business. Claims reserves include an amount equal to the
expected benefit to be paid on reported claims in addition to an estimate of
claims that are incurred but not reported, based on actual historical
experience. CICA receives an independent actuarial certification of its
reserves prepared in accordance with both Generally Accepted Accounting
Principles and Statutory Accounting Principles. The certifications have noted
no deficiencies for the years presented herein.

REINSURANCE. CICA assumes and cedes insurance with other insurers,
reinsurers and members of various reinsurance pools. Reinsurance arrangements
are utilized to provide greater diversification of risk and minimize exposure
on larger risks.

INSURANCE CEDED. CICA generally retains $75,000 of risk on
any one person. As of December 31, 1995, the aggregate amount of life
insurance ceded amounted to $289,675,000 or 13.7% of total direct and assumed
life insurance in force. CICA is contingently liable with respect to ceded
insurance should any reinsurer be unable to meet the obligations reinsured.

CICA has in effect automatic reinsurance agreements that
provide for cessions of ordinary insurance from CICA. Additionally, CICA has
reinsurance treaties in force with several reinsurers of life and accident and
health insurance. These treaties provide for both automatic and facultative
reinsurance of standard and substandard risks ceded to them by CICA for life,
accident and health and supplemental benefits above CICA's retention limit on a
yearly renewable term, coinsurance or modified coinsurance basis.

A treaty with Employers Reassurance ("ERC") has historically
been the primary vehicle utilized by CICA for its international business. The
treaty is structured in such a way as to allow CICA to "self administer" the
cessions on a reduced cost basis. Prior to July 1, 1993, 100% of the risk up
to $300,000 in excess of CICA's retention was ceded to ERC. On July 1, 1993,
the treaty was amended and a like agreement was executed with Businessmen's
Assurance ("BMA"). During 1995, a third carrier was added as a principal
reinsurer, Riunione Adriatica di Sicurta, of Italy ("RAS").

The ERC and BMA agreements provide that on risks reinsured in
specified countries on and after July 1, 1993, 70% of each risk in excess of
CICA's retention will be ceded to ERC and 30% to BMA. The RAS agreement
provides that on risks reinsured in specified countries on or after January 1,
1995, 100% of the risk in excess of CICA's retention will be ceded to RAS.
CICA pays the premium to ERC, BMA and RAS on an annual basis and is responsible
for the production of the reporting monthly and annually to ERC, BMA and RAS to
allow proper accounting for the treaties.

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The cessions are on a yearly renewable term basis and are
automatic up to $300,000 for ERC and RAS and $425,000 for BMA at which point
the reinsurance is subject to a facultative review by the reinsurers. At
December 31, 1995, CICA had ceded $210,891,000 in face amount of insurance to
ERC, $27,040,000 to BMA and $16,906,000 to RAS under these agreements.

RAS is an unauthorized reinsurer in the state of Colorado;
however RAS has agreed to comply with all Colorado statutes regarding such
companies. Under these statutes, RAS will provide a letter of credit, issued
by a U.S. bank meeting the Colorado requirements, equal to any liabilities it
incurs under this agreement.

Citizens closely monitors the solvency of its reinsurers to
minimize the risk of loss in the event of a failure by one of the parties.
ERC, BMA and RAS, the primary reinsurers of CICA, are large, well capitalized
entities which have no current or prior history of financial difficulty.

INSURANCE ASSUMED. At December 31, 1995, CICA had in force
reinsurance assumed as follows:

[Download Table]

TYPE OF AMOUNT
BUSINESS IN FORCE AT
NAME OF COMPANY LOCATION ASSUMED END OF YEAR
--------------- -------- ------------ -----------

Prudential Insurance Newark, Ordinary
Company (Prudential) New Jersey Group Life $285,001,000

The reinsurance agreement with Prudential provides for CICA to
assume a portion of the insurance under a group insurance policy issued by
Prudential to the Administrator of Veterans' Affairs, in accordance with the
Servicemen's Group Life Insurance provisions of Sub-Chapter III of Chapter 19,
of Title 38, United States Code. CICA's portion of the total insurance under
the policy is allocated to CICA in accordance with the criteria established by
the Administrator.

CICA has also entered into a Serviceman's Group Life Insurance
Conversion Pool Agreement with Prudential, under the above described agreement,
whereby CICA assumed a portion of the risk of Prudential under the group policy
due to excess mortality under the conversion pool agreement resulting from
issuing conversion policies as prescribed for membership in the conversion
pool.

INVESTMENTS. State insurance statutes prescribe the quality and
percentage of the various types of investments which may be made by insurance
companies and generally permit investment in qualified state, municipal,
federal and foreign government obligations, high quality corporate bonds,
preferred and common stock, real estate and mortgage loans by certain specified
percentages. The Company's invested assets at December 31, 1995 were
distributed as follows: fixed maturities - 78.9%, equity securities - none,
mortgage loans - 1.7%, policy loans - 16.6%, government insured student loans
- 0.3%, short-term investments - 2.2% and other long-term investments - 0.3%
(see Note 2 of the "Notes to Consolidated Financial Statements"). Citizens did
not foreclose on any mortgage loans in 1995. All mortgage loans are supported
by independently appraised real estate. The investment policy of Citizens with
regard to mortgage loans is consistent with the provisions of the Colorado
Insurance Code.

At December 31, 1995, 97.2% of Citizens investments in fixed
maturities were comprised of U.S. Treasury Securities and obligations of U.S.
government corporations and agencies, including U.S. government guaranteed
mortgage-backed securities. Of these mortgage-backed securities, all were
guaranteed by U.S. government agencies or corporations that are backed by the
full faith and credit of the U.S. government or that bear the implied full
faith and credit of the U.S. government.

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REGULATION. CICA is subject to regulation and supervision by the
insurance department of each state or other jurisdiction in which it is
licensed to do business. These departments have broad administrative powers
relating to the granting and revocation of licenses to transact business, the
licensing of marketing persons, the approval of policy forms, the advertising
and solicitation of insurance, the form and content of mandatory financial
statements, the reserve requirements, and the type of investments which may be
made. CICA is required to file detailed annual reports with each such
insurance department, and its books and records are subject to examination at
any time. In accordance with state laws and the rules and practices of the
National Association of Insurance Commissioners, CICA is examined periodically
by examiners of its domiciliary state and by representatives (on an
"association" or "zone" basis) of the other states in which it is licensed to
do business. CICA's most recent examination which was completed during 1992,
was for the six years ended December 31, 1991, and was conducted by a public
accounting firm representing the Colorado Division of Insurance. CICA has been
notified by the Colorado Division of Insurance to expect an examination in the
near future. Citizens is audited annually by an independent public accounting
firm. See also "Management's Discussion and Analysis of Results of
Operations."

Various states, including Colorado, have enacted "Insurance Holding
Company" legislation which requires the registration and periodic reporting by
insurance companies which control, or are controlled by, other corporations or
persons. Under most of such legislation, control is presumed to exist with the
ownership of 10% or more of an insurance company's voting securities. Citizens
is subject to such regulation and has registered under such statutes as a
member of an "insurance holding company system." The legislation typically
requires periodic disclosure concerning the transactions between the registered
insurer, the ultimate controlling party, and all affiliates and subsidiaries of
the ultimate controlling party, and in many instances requires prior approval
of intercorporate transfers of assets (including in some instances payment of
dividends by the insurance subsidiary) within the holding company system.

Since Citizens does not physically conduct business in countries
outside the U.S. but rather accepts applications from overseas marketers, it is
not subject to regulation in countries where most of its insureds are
residents. The prospect of such regulation is viewed as remote by management
of Citizens because obtaining insurance through application by mail outside of
one's country is a common practice in many foreign countries, particularly
those where CICA's insureds reside.

COMPETITION. The life insurance business is highly competitive, and
CICA competes with a large number of stock and mutual insurance companies.
CICA believes that its premium rates and its policies are generally competitive
with those of other life insurance companies, many of which are larger than
CICA, selling similar types of insurance.

CICA's marketing plan stresses the sale of dollar-denominated life
insurance products to high net worth individuals residing in foreign countries,
with present emphasis in Latin America and South America. Approximately 92% of
CICA's total first year and renewal premium income during 1995 came from that
market, and a similar percentage of new insurance production during 1994 and
1993 was derived from that source. See "Business of CICA - Geographical
Distribution of Business". Management believes that CICA is a significant
competitor in this market and attributes its success in penetrating that market
to the expertise of management, the uniqueness of its life insurance products
and competitiveness of its pricing methods.

CICA faces competition from several other American life insurance
companies that also sell U.S. dollar denominated policies to non-U.S. citizens,
with no one company being dominant in the market. Some companies may be deemed
to have a competitive advantage due to histories of successful operations and
large agency forces. Management believes that its experience, combined with
the special features of the Ultra Expansion policies allows CICA to compete
effectively in maintaining and pursuing new business.

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Management believes that CICA competes indirectly with non-U.S.
companies in its business, particularly with respect to Latin American and
South American companies. CICA, as a U.S. domestic insurer paying claims in
U.S. dollars in the U.S., has a different clientele and product than
foreign-domiciled companies. CICA's product is usually acquired by persons in
the top 5% of income of their respective countries. The policies sold by
foreign companies are sold broadly and are priced based on the mortality of the
entire populace of the respective geographic region. Because of the
predominance of lower incomes in most of these countries, the mortality
experience tends to be very high on the average, causing mortality charges
which are considered unreasonable based on the life mortality experience of the
upper 5% of income of the population.

Additionally, the assets that back up the policies issued by foreign
companies are invested in the respective countries, and thus, are exposed to
the inflationary risks and economic crises that historically have impacted many
foreign countries. Another reason that CICA experiences an advantage is that
many of its policyholders desire to transfer capital out of their countries due
to the perceived financial strength and security of the United States by
foreigners. Also, management realizes that CICA competes indirectly with other
U.S. and European insurers in countries where CICA's insureds reside. CICA's
experience has been that its market niche is in attracting insureds who want
the safety and security of a U.S. domestic insurer. Management of Citizens
considers it to be difficult and speculative to estimate the potential of the
foreign market for U.S. insurers. However, based upon the volume of new
premium generated by CICA that originates from several countries in Latin
America and South America, management believes that CICA receives a substantial
share of such business. However, CICA does not have market share data to
confirm management's belief.

In CICA's limited block of accident and health insurance, (0.6% of
total premium income), it is in competition with many casualty and life
insurance companies as well as with voluntary and government-sponsored plans
for meeting hospitalization and medical expenses such as Blue Cross/Blue
Shield, "Medicare" and "Medicaid." Future expansion of such programs or the
establishment of additional government health programs could adversely affect
the future of accident and health insurance on CICA's books, most of which has
been acquired in the acquisition of other companies.

FEDERAL INCOME TAXATION. CICA is a "small company" as that term is
defined in the Internal Revenue Code (the "Code"), section 806. As such, CICA
qualifies for a special small company deduction (presently equal to 60% of
"tentative life insurance company taxable income") which serves to decrease
significantly the amount of tax which might otherwise have to be paid.

The Omnibus Reconciliation Act of 1993 (the "1993 Act") was signed
into law on August 10, 1993. Among its provisions was an increase in corporate
tax rates to 35% on taxable income between $10,000,000 and $15,000,000 and to
38% on taxable income between $15,000,000 and $18,300,000. This legislation
had no material impact on the financial position of Citizens.

The Revenue Reconciliation Act of 1990 revised the method in which
insurance companies claim deductions for policy acquisition costs. Previously,
insurance companies were allowed to deduct actual policy acquisition costs as
they were incurred. Beginning in 1990, policy acquisition costs are determined
as a percentage of annual net premiums and are then deductible on a
straight-line basis over a ten-year period rather than treated as an immediate
deduction. This change in treatment for acquisition costs has had a
significant impact on CICA's taxable income due to the relatively large amounts
of such deferrals caused by the increases in new business. See "Management's
Discussion and Analysis of Financial Conditions and Results of Operations".
CICA presently qualifies for a small company exception which allows it to
deduct the costs over a shorter five-year period.

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CICA files a consolidated Federal income tax return with Citizens and
its subsidiaries. At December 31, 1995, CICA had net operating loss
carryforwards of $497,526 available to offset taxable income in future years
and $400,242 in net operating loss carryforwards available to offset future
alternative minimum taxable income.

BUSINESS OF CTI. CTI is a wholly-owned subsidiary of CICA and engages
in the business of providing data processing services and acquisition and
leasing of furniture and equipment for its parent as data processing services
and software to other companies. Pursuant to an Information Systems Management
and Services Contract dated October 1, 1991, CTI provides data processing
services to CICA for a fixed fee of $60,000 per month. In October, 1992, this
fee was lowered to $53,000. As of and for the year ended December 31, 1995,
CTI's total assets were $875,000 and revenues were $675,000. All intercompany
fees and expenses have been eliminated in the consolidated financial
statements.

BUSINESS OF III. For much of the past decade, III has been dormant.
In August, 1993, Citizens sold the stock of III to CICA for its book value.
CICA subsequently contributed debit balances receivable of approximately
$169,000 to III. III collected such receivables and, as additional
consideration, received an airplane which it operates for Citizens and CICA.
During 1994, CICA made an additional capital contribution of $200,000 to III.
Also, during 1994, III acquired a different airplane for use in providing
aviation transportation and services to Citizens and the airplane previously
owned by III was sold. As of and for the year ended December 31, 1995, III's
total assets were $841,000 and revenues were $173,000. All intercompany fees
and expenses have been eliminated in the consolidated financial statements.

BUSINESS OF ALFC. ALFC is a wholly-owned subsidiary of Citizens.
Currently dormant, ALFC served as the parent holding company for the ALFC group
prior to the acquisition by Citizens as described above. ALFC's total assets,
which consist primarily of investments in its subsidiaries' stock, were
$8,215,000 and revenues were $320,000. All intercompany fees and expenses have
been eliminated in the consolidated financial statements.

BUSINESS OF ALLIC. Historically, ALLIC's revenues have been derived
from insurance premiums and revenues from investments. ALLIC is a
Louisiana-domiciled life insurance company marketing primarily ordinary,
whole-life products and accident and health, specified disease, hospital
indemnity and accidental death policies. During the fiscal year ended December
31, 1995, 48.1% of ALLIC's premium income was attributable to life, endowment
and term insurance; 4.0% to individual annuities; and 47.9% to accident and
health insurance. Of the life policies in force at December 31, 1995, 80.9%
were nonparticipating and 19.1% were participating. The products offered by
ALLIC are focused on niche markets. The primary niches currently targeted
include the sale of "pre-need" burial policies and daily hospital indemnity
policies for specified illness. On life policies, ALLIC's maximum coverage on
any one life is not limited by company policy. However, ALLIC reinsures the
amount of coverage which is in excess of the its retention policy.

GEOGRAPHICAL DISTRIBUTION OF ALLIC BUSINESS. For the year
ended December 31, 1995, insurance policies held by residents of the State of
Oklahoma accounted for 48.5% of ALLIC's total premium income from direct
business. Policies held by residents of Mississippi represented 15.1%,
Louisiana-12.4%, Georgia-9.9%, Texas- 8.1%, and Florida 2.2% of premium income
from direct business for the same period. All other states of the United
States totaled 1.8% of the premium income from direct business with no single
state, except as set forth above, accounting for as much as 2% of premium
income. For the year ended December 31, 1994, residents of Oklahoma accounted
for 41.6% of total premium income from direct business. Policies held by
residents of Mississippi represented 14.5%, Louisiana-12.9%, Georgia-11.7%,
Texas-7.9%, and Florida-2.1% of premium income for the same period. No other
states in the U.S. amounted to 2% of total premium income during the period.

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The life policies written by ALLIC have an average face amount
of approximately $4,000. The low face amount is typical for pre-need and
burial business. At December 31, 1995, ALLIC had approximately 10,000 such
policies in force.

ALLIC MARKETING OPERATIONS. ALLIC holds licenses to do
business in 20 states. ALLIC's operations are conducted through independent
contractors on a basis similar to a general agency approach, with a marketing
force at December 31, 1995 of 340 representatives.

ALLIC COMMISSIONS. ALLIC's marketing representatives are
independent contractors, responsible for their respective marketing-related
expenses, and they are compensated on a percentage of premium basis. The
maximum amount of commission expense which may be incurred by ALLIC on an
individual life insurance policy is 105% of the first year premium, and 15% of
the second through tenth year premium. For accident and health insurance, the
maximum commission is 100% of premium in the first year and 18% thereafter.
Marketing managers receive overriding first year and renewal commissions on
business written by individuals under their supervision.

ALLIC RESERVES. ALLIC records actuarial reserves established
to meet obligations on outstanding policies as liabilities. Reserves and
deferred acquisition costs are prepared in conformity with the American Academy
of Actuaries Committee on Financial Reporting Principles. In determining such
reserves ALLIC used the 1965 to 1970 Select and Ultimate Mortality Tables with
interest rates at 7% level for life Purchase GAAP reserves. Statutory reserves
are used for paid-up life business. Withdrawal assumptions are based primarily
on actual historical termination rates. Accident and Health Purchase GAAP
reserves are determined using various percentages of published 1974 Cancer
Tables with Linton C termination rates and 1984 NAIC Cancer Tables with Linton
CC termination rates and interest at 7% level. Historic GAAP reserves for
pre-need life insurance were calculated using a graded death benefit and 100%
of the 1965 to 1970 Ultimate Table, 7% interest, with terminations on single
premium business assumed to be 2% per year and Linton A rates on all other
plans. Claims reserves include an amount equal to the expected benefit to be
paid on reported claims in addition to an estimate of claims that are incurred
but not reported, based on actual historical experience. ALLIC receives an
independent actuarial certification of its reserves prepared in accordance with
both Generally Accepted Accounting Principles and Statutory Accounting
Principles. The certifications have noted no deficiencies for the years
presented herein.

ALLIC REINSURANCE. ALLIC cedes insurance with other insurers,
reinsurers and members of various reinsurance pools. Reinsurance arrangements
are utilized to provide greater diversification of risk and minimize exposure
on larger risks.

ALLIC generally retains $30,000 of risk on any one person for
life insurance and retains 10% of each accidental benefit risk on accident and
health insurance policies. As of December 31, 1995, the aggregate amount of
life insurance ceded amounted to $1,002,000 or 2.5% of total direct and assumed
life insurance in force. ALLIC is contingently liable with respect to ceded
insurance should any reinsurer be unable to meet the obligations assumed by it.

As of December 31, 1995, ALLIC had in effect one automatic
reinsurance agreement that provide for cessions of ordinary insurance from
ALLIC in excess of its retention of $30,000 with a minimum cession of $2,000.
On accident and health insurance, there is an additional agreement which
provides for automatic cession of 90% of accidental death risks.

A treaty with Businessmen's Assurance (BMA) is the primary
vehicle utilized by ALLIC for its life reinsurance and Life Reassurance for its
accidental death risks. ALLIC closely monitors the solvency of its reinsurers
to minimize the risk of loss in the event of a failure by one of the parties.
BMA

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and Life Re, the primary reinsurers of ALLIC, are large, well capitalized
entities which have no current or prior history of financial difficulty.

At December 31, 1995, ALLIC had in force no reinsurance
assumed.

ALLIC INVESTMENTS. State insurance statutes prescribe the
quality and percentage of the various types of investments which may be made by
insurance companies and generally permit investment in qualified state,
municipal, federal and foreign government obligations, high quality corporate
bonds, preferred and common stock, real estate and mortgage loans by certain
specified percentages. ALLIC's invested assets at December 31, 1995 were
distributed as follows: fixed maturities - 95.2%, equity securities - none,
mortgage loans - none, policy loans - 1.3%, government insured student loans -
none, short-term investments - 3.5% and other long-term investments - none.

At December 31, 1995, 20.2% of ALLIC investments in fixed
maturities were comprised of U.S. Treasury Securities and obligations of U.S.
government corporations and agencies, including U.S. government guaranteed
mortgage backed securities. Of these mortgage-backed securities, all were
guaranteed by U.S. government agencies or corporations that are backed by the
full faith and credit of the U.S. government or that bear the implied full
faith and credit of the U.S. government. Of the remaining bonds, 77.5% are
corporate securities and 2.3% are issued by States or Territories of the U.S.
and Canada. Less than 1.5% of ALLIC's bonds are less than investment grade.

ALLIC REGULATION. ALLIC is subject to regulation and
supervision by the insurance department of each state or other jurisdiction in
which it is licensed to do business.

These insurance departments have broad administrative powers
relating to the granting and revocation of licenses to transact business, the
licensing of salesmen, the approval of policy forms, the advertising and
solicitation of insurance, the form and content of mandatory financial
statements, the reserve requirements, and the type of investments which may be
made. ALLIC is required to file detailed annual reports with each such
insurance department, and its books and records are subject to examination at
any time. In accordance with state laws and the rules and practices of the
National Association of Insurance Commissioners, ALLIC is examined periodically
by examiners of its domiciliary state and by representatives (on an
"association" or "zone" basis) of the other states in which it is licensed to
do business. ALLIC's most recent examination which was completed during 1995,
was for the three years ended December 31, 1994, and was conducted by the
Louisiana Division of Insurance.

Various states, including Louisiana, have enacted "Insurance
Holding Company" legislation which requires the registration and periodic
reporting by insurance companies which control, or are controlled by, other
corporations or persons. Under most of such legislation, control is presumed
to exist with the ownership of 10% or more of an insurance company's voting
securities. Citizens is subject to such regulation and has registered under
such statutes as a member of an "insurance holding company system." The
statutes typically requires periodic disclosure concerning the transactions
between the registered insurer, the ultimate controlling party, and all
affiliates and subsidiaries of the ultimate controlling party, and in many
instances requires prior approval of intercorporate transfers of assets
(including in some instances payment of dividends by the insurance subsidiary)
within the holding company system.

ALLIC COMPETITION. The life insurance business is highly
competitive and ALLIC competes with a large number of stock and mutual
insurance companies. ALLIC believes that its premium rates and its policies
are generally competitive with those of other life insurance companies, many of
which are larger than ALLIC, selling similar types of insurance.

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ALLIC's marketing plan stresses the sale of pre-need or burial
policies as its primary life insurance product. Approximately 52% of ALLIC's
total first year and renewal premium income during 1995 came from that market
and a similar percentage of new insurance production during 1994 was derived
from that source. See "Business of ALLIC - Geographical Distribution of
Business."

ALLIC faces competition from several other life insurance
companies that also sell pre-need and burial policies, with no one company
being dominant in the market. Some companies may be deemed to have a
competitive advantage due to histories of successful operations and large
agency forces. Management believes that its experience, combined with the
special features of the pre-need program allows ALLIC to compete effectively in
maintaining and pursuing new business.

The second aspect of ALLIC's marketing program involves the
sale of hospital indemnity policies for specified illnesses. This block of
business accounted for approximately 48% of total first year and renewal
premium in 1995. ALLIC is in competition with many life insurance companies as
well as with voluntary and government-sponsored plans for meeting
hospitalization and medical expenses such as Blue Cross/Blue Shield, "Medicare"
and "Medicaid." Future expansion of such programs or the establishment of
additional government health programs could adversely affect the future of
accident and health insurance on ALLIC's books; however, ALLIC believes that it
will remain a competitor in this field due to the uniqueness of its products.

FEDERAL INCOME TAXATION OF ALLIC. ALLIC is a "small company"
as that term is defined in the Internal Revenue Code (the "Code"), section 806.
As such, ALLIC qualified for a special small company deduction (presently equal
to 60% of "tentative life insurance company taxable income") which serves to
decrease significantly the amount of tax which might otherwise have to be paid.

The Omnibus Reconciliation Act of 1993 (the "1993 Act") was
signed into law on August 10, 1993. Among its provisions was an increase to
corporate tax rates to 35% on taxable income between $10,000,000 and
$15,000,000 and to 38% on taxable income between $15,000,000 and $18,300,000.
This legislation had no material impact on the financial position of ALLIC.

The Revenue Reconciliation Act of 1990 revised the method in
which insurance companies claim deductions for policy acquisition costs.
Previously, insurance companies were allowed to deduct actual policy
acquisition costs as they were incurred. Beginning in 1990, policy acquisition
costs are determined as a percentage of annual net premiums and are then
deductible on a straight-line basis over a ten-year period rather than treated
as an immediate deduction. This change in treatment for acquisition costs has
had a significant impact on ALLIC's taxable income due to the relatively large
amounts of such deferrals caused by the increases in new business. ALLIC
presently qualifies for a small company exception which allows it to deduct the
costs over a shorter five-year period.

ALLIC filed a consolidated Federal income tax return with ALFC
and its subsidiaries prior to the acquisition by Citizens.

BUSINESS OF ALSC. ALSC was incorporated on July 1, 1981 for the
purpose of recruiting and training a sales staff to market specific qualifying
securities. This NASD registered broker/dealer is a wholly-owned subsidiary of
ALFC and has been relatively inactive since 1983. For the year ended December
31, 1995, ALSC had total assets of $26,100 and total revenues of $1,000. ALSC
was liquidated in December 1996.

BUSINESS OF FAIC. FAIC was formed in November 1984 for the purpose of
organizing and financing proposed funeral home companies (FHL and FHA) and a
proposed Louisiana life insurance company. FAIC offered stock to residents of
the State of Louisiana during 1993 and 1994, raising

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approximately $1,200,000 in gross proceeds. FHL was capitalized with
approximately $530,000 of the offering proceeds and FHA was capitalized with
approximately $500,000. The offering was terminated in 1995. FAIC's
activities are limited to ownership of FHL and FHA, comprising its total assets
of $1.1 million at December 31, 1995 with total revenues of $32,000. Citizens
filed a Registration Statement on Form S-4 in November 1996 for the purpose of
acquiring the remaining 5.5% of FAIC which it does not own. Management expects
to issue approximately 133,000 shares of Citizens Class A Common Stock in the
transaction.

BUSINESS OF IIH. IIH is the holding company that is the parent of
Central. It has been dormant for several years.

BUSINESS OF CENTRAL. Central is an Illinois domiciled life insurer.
It has been inactive for the past several years, but has yearly premium revenue
of approximately $60,000. It is licensed to do business in four states.

DESCRIPTION OF PROPERTIES

CICA owns its principal office in Austin, Texas, consisting of an
80,000 square foot office building. Approximately 27,000 square feet is
occupied by CICA and its affiliates with the remainder of the building being
leased. The occupancy rate of the property is approximately 99%.

CICA also owns 1.10 acres of land with a 13,000 square foot office
building which previously served as its executive offices. The property has a
book value of $158,000. A triple-net lease was executed by an unaffiliated
third party during 1995 on the building for a term of three years, with a
purchase option at a price of $850,000 during the period.

During 1995, CICA acquired a 7,500 square foot office property in
Wheat Ridge, Colorado for $116,000. This property, which has previously been
appraised for $475,000, was vacant as of December 31, 1995 pending completion
of minor interior renovations. Management had planned to use this building in
conjunction with CICA's operations; however, after further consideration has
deemed it appropriate to dispose of the property.

Additionally, CICA owns two parcels of commercial property acquired in
1991. During 1996 one of the properties, which had a book value of $134,700,
was sold for $200,000. The remaining property, with a book value of $107,234,
was sold for $185,000.

Through the acquisition of ALFC described above, ALLIC also owns a
6,324 square foot funeral home in Baker, Louisiana with a total cost of
$473,000. Management plans to continue to operate the funeral home.

LEGAL PROCEEDINGS

Citizens and its subsidiaries from time to time may be parties to
various legal proceedings incidental to their business. Management does not
expect the ultimate resolution of these legal proceedings to have a material
adverse impact on the financial condition of Citizens.

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SELECTED FINANCIAL DATA

The tables below set forth, in summary form, selected financial data
of Citizens. This data, which is not covered in the report of the independent
auditors, should be read in conjunction with the consolidated financial
statements and notes which are included elsewhere herein (amounts in thousands
except per share amounts).

CITIZENS, INC.
(in thousands, except per share amounts)

[Enlarge/Download Table]

NINE MONTHS
ENDED
SEPT. 30, 1996 1993 1992 1991
(UNAUDITED) 1995 1994 (AS RESTATED) (AS RESTATED) (AS RESTATED)
----------- -------- -------- ----------- ----------- -----------

NET OPERATING
REVENUES $ 46,156 $ 53,271 $ 49,157 $ 2,761 $ 33,134 $ 27,086
NET INCOME $ 1,312 $ 2,750 $ 4,175 $ 5,526 $ 3,907 $ 4,720
NET INCOME
PER SHARE $ 0.07 $ .16 $ .25 $ .34 $ .24 $ .31
TOTAL ASSETS $ 214,192 $ 205,486 $ 149,798 $ 134,105 $ 116,230 $ 76,482
TOTAL LIABILITIES $ 147,432 $ 140,773 $ 114,742 $ 106,090 $ 93,442 $ 63,282
TOTAL SHAREHOLDERS'
EQUITY $ 66,670 $ 64,713 $ 35,056 $ 28,015 $ 22,787 $ 13,083
BOOK VALUE PER
SHARE $ 3.31 $ 3.24 $ 1.99 $ 1.68 $ 1.37 $ .83

Citizens adopted the provisions of the Financial Accounting Standards
Board's Statement of Financial Accounting Standard No. 109 "Accounting for
Income Taxes" in 1993 and applied the provisions of Statement 109 retroactively
to January 1, 1991. The above table reflects the restatement for adoption of
Statement 109 as of and for the years ended December 31, 1991 and 1992.

In 1993, Citizens extended for 36 months the exercise date of stock
options held by a consultant relating to 100,000 shares of Citizens Class A
Stock. As a result, Citizens recognized compensation expense of $425,000 in
1993, which represents the amount the market value at the date of extension
exceeded the option price. The 1993 financial statements were restated to
reflect the compensation expense described above.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - DECEMBER 31, 1995

The discussion below should be read in conjunction with the
consolidated financial statements of Citizens elsewhere herein. Also, the
discussion contains certain forward looking statements of Citizens' management.
Readers are encouraged to read "Risk Factors" herein, in conjunction with the
discussion below for disclosure of various reasons why forward looking
statements may not ultimately prove to be correct.

On December 9, 1994, Citizens announced that it had signed definitive
written agreements for the acquisition of (i) American Liberty Financial
Corporation ("ALFC"), a Baton Rouge, Louisiana-based life insurance holding
company with $26 million in assets, $8 million of stockholders' equity,
revenues of $9 million and $40 million of life insurance in force and (ii)
Insurance Investors & Holding Co., a Peoria, Illinois based life insurance
holding company with $2.5 million in assets and $1 million of stockholders'
equity.

The ALFC acquisition was completed on September 14, 1995 with ALFC
shareholders receiving 1.10 shares of Citizens Class A Common Stock for each
share of ALFC Common Stock owned and 2.926 shares of Citizens Class A Common
Stock for each share of ALFC Preferred Stock owned. Citizens issued

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approximately 2.3 million Class A shares in connection with the transaction,
which was accounted for as a purchase.

The Insurance Investors agreement provided that, following the
acquisition by Citizens, Investors' shareholders will receive one share of
Citizens Class A Common Stock for each eight shares of Investors Common Stock
owned. Additionally, Citizens will acquire all shares of Central Investors
Life Insurance Company, a 95% owned subsidiary of Insurance Investors &
Holding, based upon an exchange ratio of one share of Citizens Class A Common
Stock for each four shares of Central Investors owned. The transaction was
completed on March 12, 1996 following approval by shareholders of Investors and
Central and involves issuance of approximately 171,000 of Citizens Class A
shares. The transaction will be accounted for as a purchase.

RESULTS OF OPERATIONS. Net income for the year ended December 31,
1995 was $2,750,212 or $.16 per share compared to $4,174,558 or $.25 per share
in 1994 and $5,526,393 or $.34 per share in 1993. Decreased writing of new
life insurance premiums contributed to the lower earnings in 1995, coupled with
increased operating expenses incurred to acquire and convert ALFC. The smaller
amount of capital gains on the fixed maturity portfolio in 1994 compared to
prior years was the primary reason for the reduction in net income compared to
1993. Realized losses in 1994 were $9,356, compared to gains of $2,120,837 in
1993.

Total revenues for the year ended December 31, 1995 were $53,271,337
compared to $49,156,709 in 1994, an increase of 8.4%. The smaller increase in
revenues during 1995 resulted primarily from a reduction in new premium sales,
whose decline offset the increase in investment income during the year.
Management expects to see revenues increase substantially in 1996 when ALFC is
included for the full year. In 1995, the revenues of ALFC are included only
from the purchase date of September 14, 1995, and as such, only $2.8 million of
ALFC's total revenues of $9 million are included in the results. The 1994
revenues were 15% greater than 1993 when total revenues were $42,761,095. The
predominant reason for the increase in revenues through 1994 is the growth in
premium income, which increased by 49.9% over the three-year period ended
December 31, 1994.

Premium income reached $46,125,093 in 1995, a 5.3% increase over the
previous year when premium income totaled $43,785,361. The 1994 amount
represented a 15.6% increase over 1993 when amounted to $37,883,061. The
increase through 1994 is attributable to the success of the Ultra Expansion
products that were introduced to the market in late 1987. Sales of the
products were relatively insignificant until mid-1988 at which time the sales
force obtained a thorough understanding of the features of the products and how
to market them. New business began to increase almost immediately after the
second calendar quarter of 1988 and grew each year from the $4 million produced
in 1988, reaching $11.3 million in 1993 and in 1994 exceeded $11.8 million.
During 1995, production dipped to $9.5 million. In 1994 and 1995, management
did not emphasize new business production due to its desire to increase
capitalization before further expanding its premium writing. Additionally,
during 1995, Citizens saw significant disruption in the Argentine economy,
lowering sales from that region which had been a major contributor to overall
sales in recent years. Management believes the disruption has passed in that
market and expects to see improved production from that area in 1996.
Additionally, only a small portion of the premium revenues of ALFC are included
in the 1995 results as described above. Management expects ALFC to continue to
make significant contributions to premium income in future years. However, as
Citizens grows and the size of its premium base expands, it will be more
difficult to achieve the dramatic increases in premium levels seen in earlier
years when Citizens was smaller. During 1995, insurance in force, measured in
face amount, exceeded $2.15 billion.

Persistency is the lifeblood of any writer of ordinary life insurance.
Citizens has been fortunate throughout its history to have better than average
persistency on its business. However, as in any

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business, there are periods where such persistency may lag. The disruption in
the economy of Argentina experienced recently created such a situation for
Citizens. This situation was addressed in the text. For the first time in
recent history, persistency on business sold in the last five years dropped.
As a result, management has made a renewed effort to communicate to clients and
marketing representatives about the value of their policies and the long term
benefits of maintaining such in force.

Net investment income increased 32.7% during 1995 to $7,026,909 from
$5,295,784 in 1994. In 1993, such income was $4,771,079. The 1995 results
reflect actions taken during late 1994 and early 1995 to extend the duration of
Citizens' portfolio slightly to take advantage of higher yields. Overall, the
duration was increased to approximately 6 years from 4 to 5 years.
Additionally, the acquisition of ALFC, which increased invested assets by
approximately $17 million, contributed, along with internal growth. ALFC
represented $550,000 of 1995's investment income; however, this amount
represented only slightly more than three months of investment income on ALFC's
asset base. Management expects ALFC to contribute approximately $2 million to
investment income in 1996. The increase in 1994 reflects the growth in the
invested asset base, which grew by 9.5%. The 1993 results were impacted by
actions taken by management during the first and fourth quarters of that year
to take advantage of volatility in the bond market. During those quarters
management made substantial sales of bonds to realize gains of approximately
$800,000 which are included in other income. The proceeds were temporarily
invested in short-term Treasury Bills until the volatility subsided at which
time the funds were reinvested in longer term instruments. Management
estimates that the reduction in investment income during the period the funds
were invested in such short-term instruments to be approximately $400,000;
however, management believes the transactions to be beneficial in that the net
effect was to increase net income for 1993 by approximately $800,000. The low
yields available in the bond market during Citizens' growth period have made it
difficult to increase the return on invested assets without exposing the
portfolio to undue risk; however, management believes that as yields rise
(which occurred during 1994 and early 1995) Citizens is positioned to take
advantage of the investment opportunities that will present themselves and,
thus, enhance future returns. Management hired the investment advisory firm of
Asset Allocation and Management, Inc. of Chicago ("AAM"), Illinois in late 1995
to manage Citizens' fixed maturity portfolio. It is the belief of management
that an overall increase in returns can be achieved by implementing the plans
of AAM to provide more diversity in the portfolio without significantly
increasing risk.

Future policy benefit reserves increased $11,033,763 in 1995, compared
to $11,910,751 in 1994 and $10,160,523 in 1993. The decreased production in
1995, coupled with lower reserves as a result of a lower capitalization rate on
policy acquisition costs, along with higher surrender activity in the
international market as a result of the disruption described above, were the
reasons for the lower reserve increase in 1995. Increasing premium income and
favorable persistency in relation to premiums are the primary reasons for the
increases in 1993 and 1994. Increases in surrender activity on the block of
Universal Life business acquired in the First Centennial Corporation
acquisition in 1992 slowed the level of increase, particularly in 1994. These
surrenders, which were expected by management, were increased by the relatively
low interest rates paid on these plans during 1994 compared to the rates that
were in effect several years ago when the plans were sold. Additionally, in
the early years of a policy, the net reserves (benefit reserve less deferred
acquisition costs) are small due to the large capitalized costs in the first
and second policy years. As the policy matures, the reserve increases. Also,
approximately 18% of new premium is passed through to the policyowner in the
form of endowments (dividends) and therefore not reserved. Citizens' reserves
are certified annually by an independent actuary. Such certification noted no
deficiencies for the years presented.

Overall policyholder dividends remained relatively stable in 1995
amounting to $2,422,168 from $2,381,581 in 1994 and $2,418,456 in 1993. In
late 1993, management reduced the dividends paid on various domestic plans to
reflect the lower levels of return that were available in the bond market. As
a result, the dividends paid in 1994 were less than those paid in 1993 and 1995
was only slightly larger than

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1994. Virtually all CICA's policies that have been sold since 1989 are
participating. Participating policies represent a large majority (87%) of
business in force and 91.3% of new policy issuances in 1995. As a result,
management expects continued growth in this item; however, dividends are
factored into the policies' premiums and thus management does not believe
continued increases in dividend expense will impair or dilute future
profitability.

Claims and surrenders increased 15.9% in 1995, reaching $19,282,954
from $16,635,259 in 1994. In 1993, such expenses were $14,166,018. The 1995
and 1994 increases result primarily from growth in surrenders and endowments.

Death benefits increased to $2,923,339 in 1995, compared to $2,533,569
in 1994. In 1993, such benefits were $3,115,247. A large portion of the 1995
increase ($290,945) is attributable to the acquisition of ALFC in September.
The remaining increase in 1995 is due to the growth in the in force business.
During 1994, the claims incurred on the Servicemen's Group Life Insurance
program ("Segli") returned to levels seen prior to 1993, declining by
approximately $500,000. Additionally, during 1994 claims on the in force
business remained static with those incurred in 1993, despite the increasing
block of business in force. The 1993 results were impacted by an approximately
$500,000 increase in claims assumed under the Segli program which were incurred
as a result of an increase in the amount of insurance provided to participants
in the program and the increased level of participation obtained due to its
growth in recent years. An increase in premium income received from the
program offset such increase. Citizens' has continued to adhere to its strict
underwriting policy which requires complete medical examinations on all
applicants who are foreign residents, except children, regardless of age or
face amount of the policy applied for. For 1996 and future years, management
expects to initiate a change to more selective medical examinations in
conjunction with dry spot blood tests and extensive medical questions on the
application in order to lower the cost of new business without sacrificing
necessary information for the underwriter. Additionally, X-rays and
electrocardiograms are required depending on age and face amount of the policy.
On all policies of $150,000 or more, inspection reports are required which
detail the background resources and lifestyle of the applicant. Citizens has
developed numerous contacts throughout Latin America with which its
underwriters can validate information contained in the application, medical or
inspection report.

Endowment expense grew from $4,475,462 in 1994 to $4,631,261 in 1995,
a 3.4% increase. Beginning in late 1990, Citizens introduced a new series of
plans called "Ultra Expansion Plus" which carried an immediate endowment
benefit of an amount elected by the policyowner. This endowment is factored
into the premium of the policy and is paid annually. Management does not
expect this benefit to adversely impact profitability since it is factored into
the cost of the policy.

Policy surrenders were $10,611,335 in 1995, compared to $8,637,306 in
1994 and $5,761,190 in 1993. The increase in surrenders is, in the opinion of
management, due to acquisitions and the growing block of business in force, as
well as representative of the economic problems seen in Argentina during 1995.

During 1995, commissions declined to $10,273,173. Commissions
increased 3.1% in 1994 to $12,382,372 from $12,011,822 in 1993. The majority
of such amounts paid relates to first year commissions which were $7,292,264,
$9,925,028 and $10,423,648, respectively, in 1995, 1994, and 1993. The decline
in first year commissions during 1995 relates to the slowdown in new sales
discussed earlier.

Underwriting, acquisition and insurance expenses increased to
$7,102,401 in 1995 from $5,079,538 in 1994 and $4,331,669 in 1993. The 1995
expense increase reflects the growth experienced in recent years, particularly
in the marketing area of Citizens. As a result of a change in late 1993 in the
management of marketing efforts, Citizens absorbs a greater portion of the
expense in exchange for paying lower first year commissions. The growth in
expense in 1994 is primarily related to the increased

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home office marketing costs. Additionally, a portion of the 1993 increase
relates to a one-time charge of $425,000 related to an extension of exercise
periods for options to purchase 100,000 shares of Citizens Class A Common
Stock. The charge represents the difference between the exercise price and the
fair market value of the shares as of the extension date.

Capitalized deferred policy acquisition costs were $10,579,704 in
1995, compared to $13,128,049 in 1994 and $13,472,064 in 1993. The decline in
amounts in 1995 reflects the lower level of new sales experienced during the
year, as well as the lower interest rate environment. The decrease from 1993
to 1994 relates to the adjustment of capitalization for 1994 issued policies to
reflect the lower interest rates available to be earned on the investment
portfolio compared to earlier years. Amortization of these costs was
$8,511,876, $7,203,593 and $6,455,401, respectively in 1995, 1994, and 1993.

Realized losses on investments were $109,096 in 1995 and $9,356 in
1994, compared to gains of $2,120,837 in 1993. The majority ($63,000) of the
1995 loss relates to the disposal of a parcel of real estate acquired in the
acquisition of First Centennial Corporation and foreclosed on several years
ago. Management made several moves during 1993 to take advantage of the price
volatility in the bond market to achieve gains.

LIQUIDITY AND CAPITAL RESOURCES. Stockholders' equity increased
substantially in 1995 to $64,712,990 from $35,055,373 in 1994. The acquisition
of ALFC was the primary reason for the growth in equity during 1995 amounting
to $27 million of the increase.

On October 27, 1994, Citizens completed the offering of 916,375 shares
of its Class A Common Stock under an exemption from registration under the
Securities Act of 1933. The offering was made under Regulation S, which
permits shares offered outside of the United States to non-United Stated
persons pursuant to its guidelines may be resold in the United States by
persons who are not an issuer, underwriter or dealer following a certain period
after the close of the offering period. The offering price was $7.00 per
share. The closing market price of the Class A common shares on the date of
the offering commencement was $7.75 per share (as reported by the American
Stock Exchange). The Company sold 916,375 shares, generating gross proceeds of
more than $6.4 million, and net proceeds of approximately $5.4 million.
Management was pleased with the amount of capital generated through the
offering; however, it believes that the offering period was too short in light
of the manner in which business is typically transacted overseas. Because of
the success of the offering in the limited time period, a second offering was
initiated in May 1995. As of December 31, 1995, approximately 95,500 shares
had been purchased through the second Regulation S offering, resulting in a net
increase to capital of $638,980.

Citizens has experienced significant cash flows from operations in
recent years. This operating cash has allowed Citizens to enhance return on
invested assets without liquidating its bond portfolio to fund operations.
During 1995, investments in bonds exceeded sales and maturities by more than
$7.5 million. In 1994, this amount was $25 million. The sale of stock via
recent offerings, has provided additional liquidity and investable funds;
however, these amounts comprised a relatively small portion of the overall cash
flow. The increasing size of Citizens and its invested asset base have
increased the interest income considerably over the past eight years, thus
providing more than adequate cash flow. Any acquisitions made by Citizens for
shares of its stock merely provide additional sources of future cash flows.

Invested assets grew to $130,024,739 in 1995 from $93,828,650 at
December 31, 1994, an increase of 38.6%. The acquisition of ALFC contributed
approximately $17 million to the increase. The balance of the growth is
attributable to the internal growth achieved by Citizens. At December 31,
1995, fixed maturities have been categorized into two classifications: Fixed
maturities held to maturity, which are valued at amortized cost, and fixed
maturities available for sale which are valued at market. Citizens does not
have a plan to make material dispositions of fixed maturities during 1996;
however, because of

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continued uncertainty regarding long-term interest rates, management cannot
rule out sales during 1996. Fixed maturities held to maturity, amounting to
$5,636,785 consist primarily of U.S. Treasury securities. Management has the
intent and believes Citizens has the ability to hold the securities to
maturity.

Because all new business written is ordinary whole life, Citizens does
not need to engage in formal asset/liability matching that is necessary for
companies writing universal life, interest sensitive or annuity business.
Management recognizes that the average life of its life policies is ten to
twelve years. As such, the investment portfolio considers the length of the
liability. This factor is weighed with the additional factors of what duration
achieves the maximum return with the minimum market risk. Currently, the
duration of Citizens's investment portfolio is five to six years. If the
duration of the portfolio is longer than seven years, management believes
Citizens could be exposed to unnecessary market volatility for a minimal
incremental return. Additionally, Citizens' actuaries monitor the cash flow of
the portfolio to insure adequate cash flow is available to meet obligations.

Citizens' mortgage loan portfolio, which constitutes 2.8% of invested
assets at December 31, 1995, has historically been composed of small
residential loans in Texas. At December 31, 1995, one mortgage loan was in
default with a principal balance of approximately $92,000. During 1995, the
loan to an affiliate described below was foreclosed. At December 31, 1994, two
mortgage loans were in default; one to an affiliate of Citizens, Continental
Investors Life Insurance Company, in the amount of $112,794, and another in the
principal amount of $30,665. Management believes that in the event of
foreclosure there is more than adequate collateralization on both loans to
avoid exposure to loss. Management has established a reserve of $145,080
(approximately 7.5% of the mortgage portfolio's balance) to cover potential
unforeseen losses in the mortgage portfolio.

Policy loans comprise 14.5% of invested assets at December 31, 1995
compared to 16.2% at December 31, 1994. These loans, which are secured by the
underlying policy values, have yields ranging from 5% to 10% percent and
maturities that are related to the maturity or termination of the applicable
policies. Management believes that Citizens maintains more than adequate
liquidity despite the uncertain maturities of these loans.

Cash balances of Citizens in its primary depository, Texas Commerce
Bank Austin, Texas, were significantly in excess of Federal Deposit Insurance
Corporation ("FDIC") coverage at December 31, 1995. Management monitors the
solvency of all financial institutions in which it has funds to minimize the
exposure for loss. At December 31, 1995, management does not believe Citizens
is at risk for such a loss. During 1996, Citizens intends to utilize
short-term Treasury Bills and highly-rated commercial paper as cash management
tools to minimize excess cash balances and enhance return.

In February 1992, Citizens paid cash for an 80,000 square foot office
building in Austin, Texas to serve as its primary office. This building will,
in the opinion of management, provide adequate space for Citizens' operations
for many years. Renovation and remodeling of the property began in the third
quarter of 1992 and Citizens relocated to the building in September 1993.
Citizens occupies approximately 27,000 square feet of space in the building.
Citizens' former office property, consisting of approximately 13,000 square
feet in Austin, with a carrying value of $158,000 was leased to a third party
on a triple-net basis for three years during 1995. The lease provides that the
party can purchase the building during the first 18 months of the lease for
$850,000 cash, with no lease payments applying to the purchase price.

CICA owned 1,955,457 shares of Citizens Class A Common Stock at
December 31, 1995 (2,075,685 shares at December 31, 1994). For statutory
accounting purposes, CICA received written approval from the Colorado Insurance
Department to carry its investment in Citizens at 50% of the fair market value
limited to 8% of admitted assets ($8,976,000), which differs from prescribed
statutory accounting practices. Statutory accounting practices prescribed by
Colorado require that CICA carry its

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investment at market value reduced by the percentage ownership of Citizens by
CICA, limited to 2% of admitted assets. As of December 31, 1995, that
permitted transaction increased statutory surplus by $4,077,000 over what it
would have been had prescribed accounting practice been followed. In the
Citizens' consolidated financial statements, this stock is shown as treasury
stock. During 1995, Citizens re-acquired 115,943 of these shares and retired
them.

CICA had outstanding at December 31, 1995, a $533,000 surplus
debenture payable to Citizens. For statutory accounting purposes, this
debenture is a component of surplus, while for GAAP it is eliminated in
consolidation. Citizens has recognized a liability for its related obligation
to a bank in a like amount.

The NAIC has established minimum capital requirements in the form of
Risk-Based Capital ("RBC"). Risk-based capital factors the type of business
written by a company, the quality of its assets, and various other factors into
account to develop a minimum level of capital called "authorized control level
risk-based capital" and compares this level to an adjusted statutory capital
that includes capital and surplus as reported under Statutory Accounting
Principles, plus certain investment reserves. Should the ratio of adjusted
statutory capital to control level risk-based capital fall below 200%, a series
of actions by insurance regulators begins. At December 31, 1995 and 1994,
CICA's ratios were 700.6% and 560.6%, respectively, well above minimum levels.
ALLIC's ratios were 939.6% and 1,000.8%, respectively, also well above minimum
levels.

The Deficit Reduction Act of 1984 added Section 807 to the Internal
Revenue Code ("IRC") which mandated the use of a new method for computing tax
reserves. In general, Section 807 provides that tax reserves can never exceed
the amount taken into account in computing statutory reserves. The applicable
reserve is the higher of the net surrender value of the contract or the reserve
determined by means of a formula. The term "net surrender value" means the
cash value of the policy reduced by any penalty or charge imposed upon
surrender.

The formula approach used in computing the reserve consists of the
following:

(1) The tax reserve method applicable to the contract - generally
the Commissioners' Reserve Valuation Method ("CRVM") for life insurance
contracts, the Commissioners' Annuities Reserve Valuation Method ("CARVM") for
annuity contracts, and the two-year full preliminary term method for
non-cancelable accident and health contracts;

(2) The greater of the applicable federal interest rate or the
prevailing state assumed interest rate which is the highest assumed interest
rate permitted by 26 states for computing reserves of a life insurance or an
annuity contract at the time the contract is issued; and

(3) The most recent commissioner's standard table permitted under
the insurance laws of 26 states at the time the contract is issued.

Generally, under prior law, a life insurance company's deduction for
increases in its reserves was based upon reserves required for state law
purposes which were computed using lower conservative interest rate
assumptions. The 1984 Act's required use of higher interest rates results in
substantially lower tax reserves and lower increases in reserves, and thereby
higher levels of taxable income and tax.

The Budget Reconciliation Act of 1990 added IRC Section 848 which
requires insurance companies, beginning in 1990, to capitalize and amortize
policy acquisition expenses. For statutory accounting purposes, these
acquisition expenses are deducted in the year incurred.

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The enactment of the two provisions above has had a severe impact upon
the effective tax rate paid by CICA, resulting in effective tax rates exceeding
100% in each of the last three years. The impact of such high effective tax
rates is that CICA is forced to pay federal income taxes out of surplus, rather
than income, thereby limiting the statutory surplus available for use in
writing new business. Although these provisions have little effect on
Citizens' overall results on a GAAP basis as a result of the recognition of
deferred taxes, they do have a considerable impact on the results under
Statutory Accounting Principles which do not recognize such items. For 1995,
CICA incurred tax expense on a Statutory basis at an effective tax rate of 74%
(eliminating intercompany capital gains). For the year ended December 31,
1994, taxes were incurred at an effective rate of approximately 289% of income
before tax. For 1993, the incurred rate was 131%. In the event that CICA was
unable to attract additional capital, as it did in 1994, its ability to write
new business would be severely limited due to the ongoing drain on Statutory
surplus. Management believes Citizens has adequate levels of capital on hand
with the additional capital infused during 1994 and 1995 to continue to expand
Citizens' writing of new business.

FINANCIAL ACCOUNTING STANDARDS. In December 1992, the FASB issued
Statement 113 "Accounting and Reporting for Reinsurance of Short-Duration and
Long-Duration Contracts" ("Statement 113"). Statement 113 eliminated the net
reporting of reinsurance amounts in the balance sheet previously required by
Statement 60 "Accounting by Insurance Enterprises." Statement 113 also
provides accounting guidance for ceding enterprises as well as disclosure
requirements and guidance on assessing transfer of risk in reinsurance
contracts. Furthermore, it precludes immediate recognition of gains related
to reinsurance contracts unless the ceding enterprise's liability to its
policyholders is extinguished. Citizens adopted Statement 113 in the first
quarter of 1993. There was no impact on the consolidated financial statements
due to implementation of the risk transfer provisions.

In May 1993, the FASB issued Statement 114 "Accounting by Creditors
for Impairment of a Loan" ("Statement 114"). Statement 114 requires impaired
loans to be measured based on the present value of expected future cash flows
discounted at the loan's effective interest rate or at the loan's observable
market price or the fair value of the collateral if the loan is collateral
dependent. Statement 114 is effective for years beginning after December 15,
1994 Implementation did not have a material impact on Citizens' financial
statements.

Also in 1993, the FASB issued Statement 115 "Accounting for Certain
Investments in Debt and Equity Securities" ("Statement 115"). Statement 115
requires the classification of debt and equity securities as held to maturity,
trading or available for sale based on established criteria. Trading
securities are bought and held principally for the purpose of resale in the
near term. Citizens had no investment securities classified as trading at
January 1, 1994, December 31, 1994 or December 31, 1995. Held-to-maturity
securities are those in which Citizens has the ability and intent to hold the
security until maturity. All other securities not included in trading or
held-to-maturity are classified as available-for-sale.

Trading and available-for-sale securities are recorded at fair value.
Held-to-maturity securities are recorded at amortized cost, adjusted for the
amortization or accretion of premiums or discounts. Unrealized holding gains
and losses on trading securities are included in earnings. Unrealized holding
gains and losses, net of the related tax effect, on available-for-sale
securities are excluded from earnings and are reported as a separate component
of stockholders' equity until realized. Transfers of securities between
categories are recorded at fair value at the date of transfer. Unrealized
holding gains and losses are recognized in earnings for transfers into trading
securities. Unrealized holding gains or losses associated with transfers of
securities from held-to-maturity to available-for-sale are recorded as a
separate component of stockholders' equity. The unrealized holding gains or
losses included in the separate component of equity for securities transferred
from available-for-sale to held-to-maturity are maintained and amortized into
earnings over the remaining life of the security as an adjustment to yield in a
manner consistent with the amortization or accretion of premium or discount on
the associated

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security. A decline in the market value of any available-for-sale or
held-to-maturity security below cost that is deemed other than temporary is
charged to earnings resulting in the establishment of a new cost basis for the
security. Premiums and discounts are amortized or accreted over the life of
the related security as an adjustment to yield using the effective interest
method. Dividend and interest income are recognized when earned. Realized
gains and losses for securities classified as available-for-sale and
held-to-maturity are included in earnings and are derived using the specific
identification method for determining the cost of securities sold. Citizens
adopted Statement 115 at January 1, 1994. The impact on the consolidated
stockholders' equity due to the implementation was $690,388 relating to the
unrealized gains on the available-for-sale portfolio, net of deferred tax.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF
OPERATIONS - SEPTEMBER 30, 1996

NINE-MONTHS ENDED SEPTEMBER 30, 1996 AND 1995. Net income for the
nine-months ended September 30, 1996 was $1,311,998 or $.07 per share, compared
to $2,191,922 or $.12 per share for the same period in 1995. Revenues increased
to $46,156,223, an increase of 24.2% over the first nine months of 1995 when
revenues were $37,155,615. The primary reasons for the lower earnings in 1996
were increases in operating expenses as a result of recent acquisition of ALFC
as well as increases in claims and surrenders

Premium income for the first nine months of 1996 was $39,301,429
compared to $32,166,889 for the same period in 1995. This 22.2% increase is the
result of the acquisition of ALFC as well as the volume of new business written
by Citizens over the past eight years. Recent downturns in the economies of
several Latin American countries where Citizens had generated a large amount of
new production, principally in Argentina, have slowed the rate of growth in
those countries. However, production has begun to appear from the Pacific Rim
countries and management believes that production for the year will exceed
levels produced in 1995, but be below that seen in 1994. Several new products
were introduced into the international market during the second quarter of 1996
which management believes will continue to give Citizens an advantage over its
competition; however, when such products have been introduced in the past,
there has typically been a three to six month period before significant volumes
of business are written. Management does not believe the slowing down of new
business from some of the Latin markets is long term in nature, but rather a
cyclical occurrence that will run its course in the near term. Submitted
annualized premium in September and October reflected significant increases
over the prior year. Additionally, management has taken steps to increase the
volume of new business produced by ALFC's marketing representatives. Management
is of the opinion that it will be sometime during the fourth quarter of 1996
before these steps, which include increased recruiting of new representatives,
will have an effect on Citizens' production.

Net investment income increased 34.4% in the first nine months of 1996
compared to the same period in 1995. Net investment income for the nine months
ended September 30, 1996 was $6,582,091 compared to $4,898,497 in 1995. This
increase reflects the earnings on the growth in Citizens' asset base that is
occurring, as well as the higher yields that have been available in the bond
market during the past year. Management is working with a new investment
management firm to further improve yields on Citizens' bond portfolio while
maintaining the overall credit quality.

Future policy benefit reserves increased by $6,549,858 in 1996,
compared to $7,355,554 in 1995. Increased lapsation of business in the
international market influenced by the economic conditions described above
affected the increase in 1996.

Claims and surrenders expense increased to $19,283,265 at September
30, 1996 from $13,791,382 for the same period in 1995. Death claims increased
to $3,312,101 in 1996 from $2,252,068

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in 1995. The addition of ALFC, which contributed $1,077,234 to death claim
expense and was not included in the 1995 results, caused the increase over the
prior years. Claims on accident and health insurance increased substantially
during 1996 to $1,294,922 from $50,213. This increase is the result of the ALFC
acquisition. ALFC markets an individual accident and health indemnity policy
which comprises approximately 50% of its premium income. Surrender expense
increased to $10,291,360 from $7,571,262. Management constantly monitors this
activity to insure that Citizens' persistency is holding at levels equal to or
above assumptions. Thus far, Citizens' persistency has exceeded the assumed
levels. The surrender activity in 1996 has been influenced by two factors-the
downturn in the economy of several Latin countries and the acquisition of ALFC.
Coupons and endowments increased to $3,698,624 in 1996 from $3,332,423 in 1995.
The endowment benefits are factored into the premium much like dividends and
therefore, management believes that the increase does not pose a threat to
future profitability. Management expects to see further increases in this
category in the future. The remaining components of claims and expenses,
consisting of supplemental contracts and payments of dividends and endowments
previously earned and held at interest, amounted to $686,258 in 1996, compared
to $585,416 in 1995.

Commission expense increased to $8,630,952 from $7,558,495 in 1995.
This increase relates to the larger block of premium income. Deferred policy
acquisition costs capitalized in 1996 were $7,526,271 compared to $7,919,024 in
1995. The decrease is related to the decreases in new business production.
Amortization of these costs was $7,525,764 for the first nine months of 1996
compared to $5,982,918 for 1995. The increase in amortization relates to the
larger block of capitalized costs being written off as well as the increased
surrender activity.

Underwriting, acquisition and insurance expenses increased 44.4% for
the first nine months of 1996 compared to the same period in 1995, reaching
$6,374,934 from $4,413,629. The increase is primarily attributable to the
absorption of ALFC and the conversion of its books and records to the systems
utilized by Citizens as well as costs associated with expanding Citizens'
management group. Management believes that reductions will begin to be achieved
in the fourth quarter of 1996 as ALFC's overhead is pared. Management is
contemplating the merger of ALFC into CICA as a means to further achieve
reductions in overhead. The consolidation is expected to occur in early 1997.

THREE-MONTHS ENDED SEPTEMBER 30, 1996 AND 1995. Net income for the
three-months ended September 30, 1996 was $645,535, or $.03 per share compared
to $901,266, or $.05 per share for the same period in 1995. Revenues increased
to $16,976,294, an increase of 26.5% over the same three months of 1995 when
revenues were $13,420,798. The primary reasons for the lower quarterly earnings
were increases in operating expenses and claim and surrender activity.

Premium income for the third quarter of 1996 was $14,619,278 compared
to $11,661,236 over the same period in 1995. This 25.4% increase is the result
of the acquisition of ALFC. The rate of increase on the Citizens block of
business slowed in 1996 as the amount of new business produced by Citizens
slowed. Uncertainties about the economies in certain Latin American countries,
principally Argentina, contributed to the lower rate of increase.

Net investment income increased 22.7% in the third quarter of 1996
compared to the same period in 1995. Net investment income for the three months
ended September 30, 1996 was $2,177,548 compared to $1,774,243 in 1995. This
increase reflects the earnings on the growth in Citizens' asset base that is
occurring, as well as the higher yields that have been available in the bond
market during the past year.

Future policy benefit reserves increased by $2,541,236 in 1996,
compared to $2,395,711 in 1995. The amount of increase in the third quarter of
1996 reflects the increased surrender activity as well as the lower levels of
production during the year.

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Claims and surrenders expense increased to $7,319,704 at September 30,
1996 from $4,797,568 for the same period in 1995. The additional accident and
health claims of ALFC as well as increased surrender activity were the reason
for the increase.

Underwriting, acquisition and insurance expenses increased 30.3% for
the third quarter 1996 compared to the same period in 1995, reaching $1,973,659
from $1,514,144. The increase is primarily attributable to the absorption of
ALFC's overhead and the conversion of its records, which was achieved late in
the second quarter of 1996. Management expects to see expense reductions
beginning late in 1996 as a result of the economies of scale that will be
achieved through the conversion.

LIQUIDITY AND CAPITAL RESOURCES. Stockholders' equity increased
during 1996 to $66,760,232 from $64,712,990 at December 31, 1995. The
acquisition of Insurance Investors & Holding Co., the earnings achieved in
1996, as well as an improvement in the market value of Citizens' available for
sale fixed maturity portfolio contributed to the increase.

On October 28, 1996, Citizens announced that it had signed a
definitive written agreement for the acquisition of American Investment
Network, Inc. ("American"), a Jackson, Mississippi, based life insurance
holding company with $7.5 million in assets, $3.4 million of stockholders'
equity, revenues of $3.2 million and $67 million of life insurance in force.
The American agreement provides that following the acquisition, American
shareholders will receive one share of Citizens Class A Common Stock for each
seven and two-tenths (7.2) shares of American Common Stock owned. Citizens
expects to issue approximately 700,000 Class A common shares in connection with
the transaction, which will be accounted for as a purchase. The companies will
continue to operate in their respective locations under a combined management
team with consolidation of computer data processing on Citizens' system. The
agreement is subject to approval by American shareholders and insurance
regulatory authorities.

On October 27, 1994, Citizens completed the offering of 916,375 shares
of its Class A Common Stock under an exemption from registration under the
Securities Act of 1933. The offering was made under Regulation S, which
provides that shares which are offered outside of the United States to
non-United States persons pursuant to certain specific guidelines may be resold
in the United States by persons who are not an issuer, underwriter or dealer
following a certain period after the close of the offering period. The offering
price was $7.00 per share. The closing market price of the Class A common
shares on the date of the offering commencement was $7.75 per share (as
reported by the American Stock Exchange). Citizens had succeeded in placing
916,375 shares, generating gross proceeds of more than $6.4 million, and net
proceeds of approximately $5.4 million. Management was pleased with the amount
of capital generated through the offering; however, it believes that the
offering period was too short in light of the manner in which business is
typically transacted overseas. Because of the success of the offering in the
limited time period, management initiated a second such offering which
commenced on May 1, 1995.

The new offering comprises up to 3,500,000 Class A shares and runs
over a period ending the earlier of 30 months, ending October 31, 1997, or when
3,500,000 shares have been purchased. The initial offering price is $7.50 per
share and purchases can be made in units of 50 shares each. Each overseas
policy owner of CICA is being offered the opportunity to purchase up to 100
units. As of September 30, 1996, approximately 130,000 shares had been sold.

Invested assets grew to $134,231,444 at September 30, 1996 from
$130,024,739 at December 31, 1995. At September 30, 1996 and December 31, 1995,
fixed maturities have been categorized into two classifications: Fixed
maturities held to maturity, which are valued at amortized cost, and fixed
maturities available for sale which are valued at market. Virtually all bonds
are classified as "available for sale." Citizens does not have a plan to make
material dispositions of fixed maturities during 1996; however,

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because of continued uncertainty regarding long-term interest rates, management
cannot rule out additional sales during 1996.

The mortgage loan portfolio, which constitutes 1.3% of invested assets
at September 30, 1996, has historically been composed of small residential
loans in Texas. Management does not expect to incur a significant loss on any
loans and has established a reserve of $145,080 (approximately 8% of the
mortgage portfolio's balance) to cover potential unforeseen losses in the
mortgage portfolio.

Policy loans comprise 15.0% of invested assets at September 30, 1996
compared to 14.5% at December 31, 1995. These loans, which are secured by the
underlying policy values, have yields ranging from 5% to 10% percent and
maturities that are related to the maturity or termination of the applicable
policies. Management believes that Citizens maintains more than adequate
liquidity despite the uncertain maturities of these loans.

Cash balances in Citizens' primary depository, Texas Commerce Bank
Austin, Texas, were significantly in excess of Federal Deposit Insurance
Corporation (FDIC) coverage at December 31, 1995 and September 30, 1996.
Management monitors the solvency of all financial institutions in which it has
funds to minimize the exposure for loss. Management does not believe Citizens
is at risk for such a loss. During 1996, Citizens has high grade commercial
paper as a cash management tool to minimize excess cash balances and enhance
return.

In February 1992, Citizens paid cash for an 80,000 square foot office
building in Austin, Texas to serve as its primary office. This building will,
in the opinion of management, provide adequate space for Citizens' operations
for many years. Renovation and remodeling of the property began in the third
quarter of 1992 and Citizens relocated to the building in September, 1993.
Citizens occupies approximately 30,000 square feet of space in the building.
Citizens' former office property, consisting of approximately 13,000 square
feet in Austin, with a carrying value of $158,000, was leased to a third party
on a triple-net basis for three years during 1995.

CICA owned 1,955,457 shares of Citizens Class A Common Stock at
September 30, 1996 and December 31, 1995. For statutory accounting purposes,
CICA received written approval from the Colorado Insurance Department to carry
its investment in Citizens at 50% of the fair market value limited to 8% of
admitted assets ($6,300,000), which differs from prescribed statutory
accounting practices. Statutory accounting practices prescribed by Colorado
require that CICA carry its investment at market value reduced by the
percentage ownership of Citizens by CICA, limited to 2% of admitted assets. As
of September 30, 1996, that permitted transaction increased statutory surplus
by $6,000,000 over what it would have been had prescribed accounting practices
been followed. In the Citizens' consolidated financial statements, this stock
is shown as treasury stock.

CICA had outstanding at September 30, 1996 and December 30, 1995, a
$466,000 surplus debenture payable to Citizens. For statutory accounting
purposes, this debenture is a component of surplus, while for GAAP it is
eliminated in consolidation. Citizens has recognized a liability for its
related obligation to a bank in a like amount.

The National Association of Insurance Commissioners ("NAIC") has
established minimum capital requirements in the form of Risk Based Capital
("RBC"). Risk-based capital factors the type of business written by a company,
the quality of its assets, and various other factors into account to develop a
minimum level of capital called "authorized control level risk-based capital"
and compares this level to an adjusted statutory capital that includes capital
and surplus as reported under Statutory Accounting Principles, plus certain
investment reserves. Should the ratio of adjusted statutory capital to control
level risk-based capital fall below 200%, a series of actions by insurance
regulators begins. At December 31,

PRES14A 59th Page of 192 TOC 1st Previous Next ↓Bottom Just 59th
1996 and 1995 CICA's ratios were 700.6% and 560.6%, respectively, well above
minimum levels. ALLIC's ratios were 939.6% and 1,000.8% respectively, also well
above minimum levels.

PRES14A 60th Page of 192 TOC 1st Previous Next ↓Bottom Just 60th
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

CITIZENS, INC. AND SUBSIDIARIES

[Download Table]

Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . . . F-2

Consolidated Balance Sheets as of December 31, 1995 and 1994 . . . . . . . F-3

Consolidated Statements of Operations for the Year Ended December 31, 1995,
1994 and 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . F-5

Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 1995, 1994 and 1993 . . . . . . . . . . . . . . . . . F-7

Consolidated Statements of Cash Flows for the Years Ended December 31, 1995,
1994 and 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . F-8

Notes to Consolidated Financial Statements for the Years Ended
December 31, 1995, 1994 and 1993 . . . . . . . . . . . . . . . . . F-10

Pro-Forma Consolidated Balance Sheets as of December 31, 1995 (unaudited) . F-21

Explanation of Balance Sheet Pro-Forma Adjustments . . . . . . . . . . . . F-23

Pro-Forma Consolidated Statement of Operations for the Year Ended
December 31, 1995 (unaudited) . . . . . . . . . . . . . . . . . . F-24

Explanation of Statement of Operations Pro-Forma Adjustments . . . . . . . F-25

Schedule II, Condensed Financial Information . . . . . . . . . . . . . . . F-29

Schedule IV, Reinsurance for the Years Ended December 31, 1995,
1994 and 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . F-32

Consolidated Balance Sheets for the Periods Ended September 30,
1996 and December 31, 1995 . . . . . . . . . . . . . . . . . . . . F-33

Consolidated Statements of Operations for the Three Months Ended
September 30, 1996 and 1995 . . . . . . . . . . . . . . . . . . . F-35

Consolidated Statements of Operations for the Nine Months Ended
September 30, 1996 and 1995 . . . . . . . . . . . . . . . . . . . F-36

Consolidated Statements of Changes in Cash Flows for the Three Months
Ended September 30, 1996 and 1995 . . . . . . . . . . . . . . . . F-37

Consolidated Statements of Changes in Cash Flows for the Nine Months
Ended September 30, 1996 and 1995 . . . . . . . . . . . . . . . . F-39

Notes to Consolidated Financial Statements September 30, 1996 . . . . . . . F-41

F-1

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INDEPENDENT AUDITORS' REPORT

The Board of Directors and Stockholders
Citizens, Inc.:

We have audited the consolidated financial statements of Citizens, Inc. and as
listed in the accompanying index. In connection with our audits of the
consolidated financial statements, we also have audited the statement schedules
as listed in the accompanying index. These consolidated financial statements
and financial statement schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
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 audits 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Citizens, Inc. and
subsidiaries as of December 31, 1995 and 1994, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1995, in conformity with generally accepted accounting
principles. Also in our opinion, the related financial statement schedules,
when considered in relation to the basic consolidated financial statements
taken as a whole, present fairly, in all material respects, the information set
forth therein.

As discussed in Notes 1 and 2 to the consolidated financial statements, the
Company adopted the provisions of the Financial Accounting Standards Board's
Statement of Financial Accounting Standard No. 115, "Accounting for Certain
Investments in Debt and Equity Securities."

KPMG PEAT MARWICK LLP

Dallas, Texas
March 8, 1996, except as to the third paragraph of Note 9, which is as of March
12, 1996

F-2

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CITIZENS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994

[Enlarge/Download Table]

ASSETS 1995 1994
------ ------------ ------------

Investments (note 2):
Fixed maturities held to maturity, at amortized cost
(market $5,700,000 in 1995 and $14,846,900 in 1994) $ 5,636,785 $ 18,415,026
Fixed maturities available for sale at market, (cost
$97,515,359 in 1995 and $61,049,170 in 1994) 99,464,551 56,573,764
Equity securities, at market (cost $23,329 in 1995 and 1994) -- 1,892
Mortgage loans on real estate (net of reserve of $145,080 in
1995 and $145,080 in 1994) 1,910,608 2,623,531
Policy loans 18,911,275 15,220,005
Guaranteed student loans (net of reserve of $10,000 in 1995
and 1994) 333,387 240,243
Other long-term investments 679,436 754,189
Short-term investments 3,088,697 --
------------ ------------
Total investments 130,024,739 93,828,650
Cash 4,160,156 4,259,887
Other receivables 1,219,107 1,592,607
Accrued investment income 2,022,809 1,569,945
Reinsurance recoverable 1,857,900 1,680,287
Deferred policy acquisition costs 36,624,448 34,537,464
Other intangible assets 1,820,325 --
Deferred Federal income tax -- 1,521,296
Cost of insurance acquired (note 3) 7,522,827 2,271,866
Excess of cost over net assets acquired 14,045,848 3,344,844
Property, plant and equipment 5,546,075 4,694,022
Other assets 642,013 496,736
------------ ------------
TOTAL $205,486,247 $149,797,604
============ ============

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CITIZENS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS, CONTINUED
DECEMBER 31, 1995 AND 1994

[Enlarge/Download Table]

LIABILITIES AND STOCKHOLDERS' EQUITY 1995 1994
------------------------------------ ------------- -------------

Liabilities:
Future policy benefit reserves (notes 4 and 5):
Life insurance $ 114,727,748 $ 97,579,380
Annuities 4,261,847 3,408,745
Accident and health 4,337,782 766,710
Dividend accumulations 3,602,706 2,899,573
Premium deposits 1,553,414 1,648,697
Policy claims payable (notes 5 and 10) 3,197,291 2,149,631
Other policyholders' funds 1,945,332 1,611,908
------------- -------------
Total policy liabilities 133,626,120 110,064,644
Other liabilities 2,001,320 1,671,892
Commissions payable 692,578 916,886
Notes payable (note 6) 772,834 712,373
Deferred Federal income tax 2,372,742 --
Federal income tax payable 1,025,106 1,066,004
Minority interest 14,954 --
Amounts held on deposit 267,603 310,432
------------- -------------

Total liabilities 140,773,257 114,742,231
------------- -------------

Stockholders' equity (notes 7, 8, 9, and 11):
Common stock:
Class A, no par value, 50,000,000 shares authorized,
21,415,872 shares issued in 1995 and 19,178,515 shares
issued in 1994, including shares in treasury of 2,078,547 in
1995 and 2,198,175 in 1994 44,007,339 21,457,303
Class B, no par value, 1,000,000 shares authorized, 621,049
shares issued and outstanding in 1995 and 1994 283,262 283,262
Unrealized investment gain (loss) (note 2) 1,267,747 (2,970,597)
Retained earnings 21,216,908 18,466,696
------------- -------------
TOTAL 66,775,256 37,236,664
Treasury stock, at cost (2,062,266) (2,181,291)
------------- -------------

Total stockholders' equity 64,712,990 35,055,373
------------- -------------

Commitments and contingencies (notes 5, 8, 10 and 11) $ 205,486,247 $ 149,797,604
============= =============

See accompanying notes to consolidated financial statements.

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CITIZENS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993

[Enlarge/Download Table]

1993
1995 1994 (AS RESTATED)
------------ ------------ ------------

Revenues:
Premiums (notes 5 and 11):
Life insurance $ 45,426,887 $ 43,526,111 $ 37,598,551
Accident and health 698,206 259,250 284,510
Annuity and universal life considerations 119,335 75,564 106,955
Net investment income (note 2) 7,026,909 5,295,784 4,771,079
------------ ------------ ------------

Total revenues 53,271,337 49,156,709 42,761,095
------------ ------------ ------------

Other income and expense:
Other income 75,062 94,364 80,794
Realized gains (losses) on investments
(note 2) (109,096) (9,356) 2,120,837
Interest expense (107,131) (29,719) (198,719)
------------ ------------ ------------

Total revenues and other income
and expense 53,130,172 49,211,998 44,764,007
------------ ------------ ------------

Benefits and expenses:
Insurance benefits paid or provided:
Increase in future policy benefit reserves 11,033,763 11,910,751 10,160,523
Policyholders' dividends 2,422,168 2,381,581 2,418,456
Claims and surrenders (note 5) 19,282,954 16,635,259 14,166,018
Annuity expenses 652,976 373,575 699,455
------------ ------------ ------------

Total insurance benefits paid
or provided 33,391,861 31,301,166 27,444,452
------------ ------------ ------------

Commissions 10,273,173 12,382,372 12,011,822
Other underwriting, acquisition and
insurance expenses 7,102,401 5,079,538 4,331,669
Capitalization of deferred policy acquisition
costs (10,579,704) (13,128,049) (13,472,064)
Amortization of deferred policy acquisition
costs 8,511,876 7,203,593 6,455,401
Amortization of cost of insurance acquired
and excess of cost over net assets acquired 678,997 606,487 512,619
------------ ------------ ------------

Total benefits and expenses 49,378,604 43,445,107 37,283,899
------------ ------------ ------------

(Continued)

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CITIZENS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1995 1994, AND 1993

[Download Table]

1993
1995 1994 (AS RESTATED)
------------ ------------ ------------

Income before Federal income taxes $ 3,751,568 $ 5,766,891 $ 7,480,108
Federal income tax expense 1,001,356 1,592,333 1,953,715
------------ ------------ ------------

Net income $ 2,750,212 $ 4,174,558 $ 5,526,393
============ ============ ============

Net income per share
of common stock (note 8) $ .16 $ .25 $ .34
============ ============ ============

See accompanying notes to consolidated financial statements.

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CITIZENS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993

[Enlarge/Download Table]

COMMON STOCK UNREALIZED TOTAL
INVESTMENT RETAINED TREASURY STOCKHOLDERS'
CLASS A CLASS B GAINS(LOSSES) EARNINGS STOCK EQUITY
------------ ------------ ------------ ------------ ------------ ------------

BALANCE AT 12/31/92 $ 15,985,344 $ 283,262 $ (53,557) $ 8,765,745 $ (2,193,666) $ 22,787,128

Net income (as restated) -- -- -- 5,526,393 -- 5,526,393
Unrealized investment
losses -- -- (298,817) -- -- (298,817)
------------ ------------ ------------ ------------ ------------ ------------

BALANCE AT 12/31/93 15,985,344 283,262 (352,374) 14,292,138 (2,193,666) 28,014,704

Cumulative effect of adoption
of Statement No. 115 at
January 1, 1995, net of taxes -- -- 690,388 -- -- 690,388
Net income -- -- -- 4,174,558 -- 4,174,558
Unrealized investment
losses, net -- -- (3,308,611) -- -- (3,308,611)
Sale of stock 5,384,334 -- -- -- -- 5,384,334
Sale of treasury stock 87,625 -- -- -- 12,375 100,000
------------ ------------ ------------ ------------ ------------ ------------

BALANCE AT 12/31/1994 21,457,303 283,262 (2,970,597) 18,466,696 (2,181,291) 35,055,373
Net income -- -- -- 2,750,212 -- 2,750,212
Unrealized investment
gains, net -- -- 4,238,344 -- -- 4,238,344
Acquisition of ALFC(note 9) 22,246,163 -- -- -- -- 22,246,163
Sale of stock 638,980 -- -- -- -- 638,980
Stock issuance costs (257,495) -- -- -- -- (257,495)
Retire shares held in
treasury stock (114,782) -- -- -- 114,782 --
Sale of treasury stock 37,170 -- -- -- 4,243 41,413
------------ ------------ ------------ ------------ ------------ ------------

BALANCE AT 12/31/1995 $ 44,007,339 $ 283,262 $ 1,267,747 $ 21,216,908 $ (2,062,266) $ 64,712,990
============ ============ ============ ============ ============ ============

See accompanying notes to consolidated financial statements

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CITIZENS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993

[Enlarge/Download Table]

1993
1995 1994 (AS RESTATED)
------------ ------------ ------------

Cash flows from operating activities:
Net income $ 2,750,212 $ 4,174,558 $ 5,526,393
Adjustments to reconcile net income to net cash provided by operating
activities, net of assets acquired:
Realized gains (losses) on sale of investments and other assets (109,096) 9,356 (2,120,837)
Accrued investment income (131,835) (511,086) (454,000)
Net deferred policy acquisition costs (2,086,984) (5,924,456) (7,016,663)
Amortization of cost of insurance acquired and excess cost over
net assets acquired 678,997 606,487 512,619
Other receivables 602,662 (1,460,131) 552,769
Future policy benefit reserves 9,929,505 11,910,751 10,160,523
Other policy liabilities 1,527,695 (1,219,297) 1,366,012
Deferred Federal income tax (981,068) (383,195) 275,416
Federal income tax (104,424) (982,197) 892,354
Commissions payable and other liabilities (224,308) (154,510) 242,877
Amounts held on deposit (42,829) (124,087) 182,840
Other, net 613,198 2,110,818 221,921
------------ ------------ ------------

Net cash provided by operating activities 12,421,725 8,053,011 10,342,224
------------ ------------ ------------

Cash flows from investing activities:
Maturity of fixed maturities held to maturity 2,600,000 51,625 --
Sale of fixed maturities available for sale 28,419,387 13,152,225 83,532,049
Maturity of fixed maturities available for sale -- 963,151 7,474,997
Purchase of fixed maturities available for sale (38,614,148) (40,486,808) (88,980,557)
Sale of equity securities 1,892 174,761 --
Principal payments on mortgage loans 652,819 935,276 1,526,838
Mortgage loans funded (54,875) (340,474) --
Guaranteed student loans funded (272,635) (335,440) (721,963)
Guaranteed student loans sold 179,491 475,796 756,567
Sale of other long-term investments and property plant and equipment 474,257 331,276 41,152
Cash and short-term investments provided by merger 1,178,600 -- --
Increase in policy loans (net) (3,491,760) (1,214,520) (1,937,838)
Purchase of property, plant and equipment (947,733) (1,237,652) (2,048,024)
------------ ------------ ------------

Net cash used by investing activities $ (9,874,705) $(27,530,784) $ (356,779)
============ ============ ============

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CITIZENS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993

[Enlarge/Download Table]

1993
1995 1994 (AS RESTATED)
------------ ------------ ------------

Cash flows from financing activities:
Additional borrowings on notes payable 60,461 -- --
Payments on notes payable -- (388,359) (259,377)
Sale of stock 381,485 5,371,959 --
------------ ------------ ------------

Net cash provided (used) by financing activities 441,946 4,983,600 (259,377)
------------ ------------ ------------

Net increase (decrease) in cash and cash equivalents 2,988,966 (14,494,173) 9,726,068
------------ ------------ ------------

Cash and cash equivalents at beginning of year 4,259,887 18,754,060 9,027,992
------------ ------------ ------------

Cash and cash equivalents at end of year $ 7,248,853 $ 4,259,887 $ 18,754,060
============ ============ ============

Supplemental disclosures of cash flow information:
1995 1994 1993
------------ ------------ ------------

Cash paid during the year for:
Interest $ 53,030 $ 61,304 $ 88,184
============ ============ ============

Income taxes $ 2,000,000 $ 2,957,724 $ 785,915
============ ============ ============

Supplemental disclosures of non-cash investing and financing
activities (see also Note 9):

The Company issued Class A stock to purchase all of the capital stock
of ALFC $ 22,246,163 $ -- $ --

In conjunction with the acquisition, liabilities were assumed as follows:

Fair value of tangible assets acquired $ 18,744,097
Fair value of intangible assets acquired 18,574,952
------------

Net assets acquired 37,319,049
Capital stock issued for the capital stock of ALFC (22,246,163)
------------

Liabilities assumed $ 15,072,886
============

Issuance of 4,248 treasury shares of stock $ 41,413 $ -- $ --
============ ============ ============

See accompanying notes to consolidated financial statements.

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CITIZENS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.

(a) NATURE OF BUSINESS.

The consolidated financial statements include the accounts and
operations of Citizens, Inc. (Citizens), incorporated in the state of Colorado
on November 8, 1977 and its wholly-owned subsidiaries, Citizens Insurance
Company of America (CICA), Computing Technology, Inc. (CTI), formerly
Continental Leasing Company, Insurance Investors, Inc. (III), and American
Liberty Financial Corporation (ALFC). ALFC and its subsidiaries, American
Liberty Life Insurance Company (ALLIC), First American Investment Corp. (FAIC),
American Liberty Securities Corp. (ALSC), and American Liberty Exploration
Company (ALEC) were acquired by Citizens in September 1995. Citizens and its
subsidiaries are collectively referred to as "the Company." All significant
intercompany accounts and transactions have been eliminated.

Citizens, Inc. is primarily involved in the sale of life insurance
policies through two of its subsidiaries - CICA and ALLIC. CICA sells ordinary
whole-life policies internationally, with approximately 92% of premium income
derived outside the United States. ALLIC issues life policies primarily as
burial insurance and pre-need policies. Additionally, the ALLIC offers accident
and health specified disease, hospital indemnity, and accidental death
policies, as well as annuities. In 1995, premiums for life, health, and
annuities represented 48%, 48%, and 4% of total premium income, respectively.

(b) INVESTMENTS, OTHER THAN AFFILIATES.

Investments are shown on the following basis:

1. Fixed maturities, primarily consisting of bonds which the
Company has the ability and intent to hold to maturity are considered held for
investment and carried at amortized cost. Fixed maturities which may be sold
prior to maturity to support the Company's investment strategies are considered
held as available for sale and carried at fair value as of the balance sheet
date.

2. Equity securities include non-redeemable preferred stock and
are reported at fair market value.

3. Mortgage loans on real estate, policy loans, and guaranteed
student loans are reported at unpaid principal balances less an allowance for
uncollectible amounts, if any.

4. Other long-term investments consist primarily of real estate
which is reported at cost not to exceed fair market value net of accumulated
depreciation.

5. Short-term investments consist of Treasury Bills with a
maturity of ninety days or less and are carried at cost, which approximates
market.

Unrealized appreciation (depreciation) of equity securities and fixed
maturities held for sale is shown as a separate component of stockholders'
equity, net of tax in 1995 and 1994, and is not included in the determination
of net income.

Costs of investments sold are determined using the specific
identification method. Net realized gains and losses are included in other
income and expenses as incurred.

F-10

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The Company has assets with a fair value of $7,084,890 at December 31,
1995 on deposit with various state regulatory authorities to fulfill statutory
requirements.

Premiums on life and accident and health policies are reported as
earned when due or, for short duration contracts, over the contract periods.
Benefits and expenses are associated with earned premiums so as to result in
recognition of profits over the estimated life of the contracts. This matching
is accomplished by means of provisions for future benefits and the
capitalization and amortization of deferred policy acquisition costs.

Annuities are accounted for in a manner consistent with accounting for
interest bearing financial instruments. Premium receipts are not reported as
revenues but rather as deposits to annuity contracts.

(d) DEFERRED POLICY ACQUISITION COSTS AND COST OF INSURANCE
ACQUIRED.

Acquisition costs, consisting of commissions and policy issuance and
underwriting expenses which relate to and vary with, the production of new
business are deferred. These deferred policy acquisition costs are amortized
primarily over the estimated premium paying period of the related policies in
proportion to the ratio of the annual premium recognized to the total premium
revenue anticipated using the same assumptions as were used in computing
liabilities for future policy benefits.

The Company uses the factor method to determine the amount of costs to
be capitalized and the ending asset balance. During 1994, the factors used to
determine costs capitalized were modified to more accurately reflect the costs
attributable to each issue year. The capitalized costs and amortized costs for
each year presented have been reclassified to reflect this factor revision.
This reclassification did not change the ending asset balance for any year nor
did it change the net impact on earnings in any year. The method followed in
computing deferred policy acquisition costs limits the amount of such deferred
cost to their estimated realizable value.

The value of insurance acquired in the Company's various acquisitions,
which is included in cost of insurance acquired in the accompanying
consolidated financial statements, was determined based on the present value of
future profits discounted at a risk rate of return. The cost of insurance
acquired is being amortized over 30 years in proportion to the profit over the
lives of the related policies.

(e) POLICY LIABILITIES AND ACCRUALS.

Future policy benefit reserves have been computed by the net level
premium method with assumptions as to investment yields, dividends on
participating business, mortality and withdrawals based upon the Company's and
industry experience, which provide for possible unfavorable deviation (see note
4).

Annuity benefits are carried at accumulated contract values based on
premiums paid by participants, annuity rates of return ranging from 2.5% to 7%
(primarily at 5.5%) and annuity withdrawals.

Premium deposits accrue interest at rates ranging from 3.5% to 8.25%
per annum. Premiums are credited to income when due and accrued interest is
credited annually to the deposit account.

Policy and contract claims are based on case-basis estimates for
reported claims, and on estimates, based on experience, for incurred but
unreported claims and loss expenses.

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(f) EXCESS OF COST OVER NET ASSETS ACQUIRED AND OTHER INTANGIBLE
ASSETS.

The excess of cost over the fair value of net assets acquired in the
merger with Equities International Life Insurance Co., the 1992 acquisition of
the net assets of First Centennial Corporation (FCC), and the 1995 acquisition
of American Liberty Financial Corp. are amortized on a straight-line basis over
20 years.

Other intangible assets, primarily the value of state licenses, are
amortized on a straight-line basis over 10 years.

(g) PARTICIPATING POLICIES.

At December 31, 1995 and 1994, participating business approximated 91%
and 92%, respectively, of life insurance in force and premium income. The
amount of dividends to be paid is determined annually by the Board of
Directors. Dividends on participating policies are considered annually by the
Board of Directors. These dividends begin with a schedule that is anticipated
by the actuary at the time the product is developed based upon certain
assumptions made at that time.

(h) EARNINGS PER SHARE.

Earnings per share have been computed using the weighted average
number of shares of common stock outstanding during each period. The effects of
outstanding stock options and warrants have not been included in the
calculations because they are either not material or are antidilutive. The
weighted average shares outstanding for the years ended December 31, 1995, 1994
and 1993 were 17,668,047, 16,882,164 and 16,672,514, respectively.

(i) INCOME TAXES.

For the three months ended December 31, 1995, the Company will file
three income tax returns, one which includes ALFC and all direct non-life
subsidiaries, one which includes FAIC and subsidiaries, and one life return for
ALLIC. For the year ended December 31, 1995, the Company will file two income
tax returns, one which includes Citizens, Inc., the parent, and all direct
non-life subsidiaries except those related to ALFC, and one life return for
CICA.

Deferred tax asset and liabilities are recognized for the estimated
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 in effect for the year 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.

(j) ACCOUNTING PRONOUNCEMENTS.

In May 1993, the FASB issued Statement 115 "Accounting for Certain
Investments in Debt and Equity Securities" ("Statement 115"). Statement 115
requires the classification of debt and equity securities as held to maturity,
trading or available for sale based on established criteria. Held to maturity
debt securities will be carried at amortized cost while trading and available
for sale securities will be carried at fair value. Unrealized holding gains and
losses for trading securities will be included in earnings. Unrealized holding
gains or losses for available for sale securities will be included as a
component of equity on a net of tax basis. The Company adopted Statement 115 on
January 1, 1994. The impact on the consolidated stockholders' equity due to the
implementation was $690,388 relating to the unrealized gains on the available
for sale portfolio, net of tax expense.

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In October 1994, the FASB issued Statement 119, "Disclosure about
Derivative Financial Instruments and Fair Value of Financial Instruments."
Statement 119 requires disclosures about amounts, nature, and terms of
derivative financial instruments not subject to the reporting provisions of
Statement 105, "Disclosure of Information about Financial Instruments with
Off-Balance Sheet Risk and Financial Instruments with Concentrations of Credit
Risk." The disclosure provisions of Statement 119 require all entities to
distinguish between financial instruments held or issued for trading purposes
and financial instruments held or issued for other than trading. The Company
does not utilize derivative instruments in its business activities and has
applied the reporting provisions of Statement 119 in these financial
statements.

In March 1995, the FASB issued Statement 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of."
Statement 121 established accounting standards for the recognition and
measurement of impairment on long-lived assets, certain identifiable
intangibles, and goodwill related to those assets to be held and used and for
long-lived assets and certain intangibles to be disposed of. This statement
does not apply to long-lived assets such as deferred policy acquisition costs
and deferred tax assets. Statement 121 is effective for fiscal years beginning
after December 15, 1995. The Company does not expect Statement 121 to have a
material impact on its financial statements.

(k) CASH EQUIVALENTS.

The Company considers as cash equivalents all securities whose
duration does not exceed three months at the date of acquisition. These
securities are reflected as short-term investments in the accompanying
consolidated financial statements.

(l) RECLASSIFICATIONS. Certain reclassifications have been made to
the 1994 and 1993 amounts.

(m) DEPRECIATION. Depreciation is calculated on a straight line
basis using estimated
useful lives ranging from 3 to 10 years. Leasehold improvements are
depreciated over the estimated life of 30 years.

(n) USE OF ESTIMATES. The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from these estimates.

(2) CASH AND INVESTMENTS.

A decline in the market value of any available-for-sale or
held-to-maturity security below cost that is deemed other than temporary is
charged to earnings resulting in the establishment of a new cost basis for the
security.

Premiums and discounts are amortized or accreted over the life of the
related security as an adjustment to yield using the effective interest method.
Dividend and interest income are recognized when earned. Realized gains and
losses for securities classified as available-for-sale and held-to-maturity are
included in earnings and are derived using the specific identification method
for determining the cost of securities sold.

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The amortized cost and estimated market values of investments in debt
securities as of December 31, 1995 and 1994, respectively, are as follows:

[Enlarge/Download Table]

1995
------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
----------- ----------- ----------- -----------

Fixed maturities held for investment:
US Treasury securities $ 5,636,785 $ 63,215 $ -- $ 5,700,000
----------- ----------- ----------- -----------

Total 5,636,785 63,215 -- $ 5,700,000
=========== =========== =========== ===========

Fixed maturities available for sale:
US Treasury securities and obligations of US
government corporations and agencies 81,852,720 1,702,738 (171,686) 83,383,772
US Government guaranteed mortgage-backed securities 2,302,082 -- (43) 2,302,039
Public Utilities 5,146,972 111,606 (66,978) 5,191,600
Debt securities issued by States of the United States and
political subdivisions of the States 290,418 17,582 -- 308,000
Debt securities issued by foreign governments 400,398 30,091 (2,489) 428,000
Corporate securities 7,522,769 368,746 (40,375) 7,851,140
----------- ----------- ----------- -----------

Total $97,515,359 $ 2,230,763 $ (281,571) $99,464,551
=========== =========== =========== ===========

[Enlarge/Download Table]

1994
-----------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
----------- ----------- ----------- -----------

Fixed maturities held for investment:
US Treasury securities and obligations of US
government corporations and agencies $18,192,415 $ 0 $ 3,552,415 $14,640,000
Public Utilities 111,265 0 9,665 101,600
Corporate securities 111,346 0 6,046 105,300
----------- ----------- ----------- -----------

Total $18,415,026 $ 0 $ 3,568,126 $ 4,846,900
=========== =========== =========== ===========

Fixed maturities available for sale:
US Treasury securities and obligations of US
government corporations and agencies $56,214,724 $ 67,569 $ 4,489,231 $51,793,062
US Government guaranteed mortgage backed securities 4,834,446 229,312 283,056 4,780,702
----------- ----------- ----------- -----------

Equity securities
Preferred stock: 23,227 0 21,437 1,892
----------- ----------- ----------- -----------

Total $61,072,399 $ 296,881 $ 4,793,724 $56,575,656
=========== =========== =========== ===========

Concurrent with the adoption of the implementation guidance related to
Statement 115, "A Guide to Implementation of Statement 115 on Accounting for
Certain Investments in Debt and Equity Securities" issued by the Financial
Accounting Standards Board, the Company reclassified certain investments from
the held to maturity category to available for sale. The amortized cost of
securities transferred was $12,778,241 and the unrealized gain/loss on the date
of transfer amounted to $145,937, net of taxes.

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The amortized cost and fair value of fixed maturities at December 31,
1995, by contractual maturity are shown below. Expected maturities will differ
from contractual maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties.

Citizens has $2,559,863 of cash on deposit in excess of Federal
Deposit Insurance Corporation coverages at a financial institution at December
31, 1995.

[Download Table]

FIXED MATURITIES HELD FOR INVESTMENT
------------------------------------
AMORTIZED ESTIMATED
COST MARKET VALUE
------------ ------------

Due after ten years $ 5,636,785 $ 5,700,000
------------ ------------

Total $ 5,636,785 $ 5,700,000
============ ============

[Download Table]

FIXED MATURITIES AVAILABLE FOR SALE
-----------------------------------
AMORTIZED ESTIMATED
COST MARKET VALUE
------------ ------------

Due in one year or less $ 5,852,944 $ 5,806,661
Due after one year through
five years 36,360,037 37,065,062
Due after five years through
ten years 21,681,765 22,307,450
Due after ten years 31,318,722 31,923,339
------------ ------------

94,934,753 97,162,512
US Government guaranteed
mortgage-backed securities 2,302,082 2,302,039
------------ ------------

Totals $ 97,515,539 $ 99,464,551
============ ============

The Company had no investments in any one entity which exceeded 0.5%
of stockholders' equity at December 31, 1995 other than investments guaranteed
by the U.S. Government.

The Company's investment in mortgage loans is concentrated 44% in
Colorado, 41% in Texas and 15% in other states as of December 31, 1995.

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Major categories of investment income are summarized as follows:

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YEAR ENDED DECEMBER 31
--------------------------------------
1995 1994 1993
---------- ---------- ----------

Investment income on:
Fixed maturities $5,208,785 $4,045,481 $3,635,469
Equity securities 15,823 -- 2,099
Mortgage loans on real estate 195,321 242,331 367,342
Policy loans 1,478,333 1,001,939 943,373
Short-term investments 106,872 123,119 81,712
Other 900,341 795,352 413,552
---------- ---------- ----------

7,905,475 6,208,222 5,443,547

Investment expenses 878,566 912,438 672,468
---------- ---------- ----------

Net investment income $7,026,909 $5,295,784 $4,771,079
========== ========== ==========

Equity securities of $0, mortgage loans of $30,665, and other
long-term assets of $448,763 held by the Company as of December 31, 1995, did
not produce income during the preceding 12 months.

Proceeds from available for sale securities in 1995, 1994 and 1993
were $29,132,810, $13,152,225 and $83,532,049, respectively. Gross realized
gains and losses on such sales were $346,370 and $426,841, respectively, for
the year ended December 31, 1995, and $645,912 and $420,119, respectively, for
the year ended December 31, 1994, and $2,737,133 and $250,471, respectively,
for the year ended December 31, 1993. Realized and unrealized gains (losses)
on investments are as follows:

[Download Table]

YEAR ENDED DECEMBER 31
-----------------------------------------
1995 1994 1993
----------- ----------- -----------

Realized gains (losses):
Fixed maturities $ (80,471) $ 281,052 $ 2,443,730
Equity securities 0 (67,309) 0
Other (28,625) (223,099) (322,893)
----------- ----------- -----------

Net realized gains (losses)
on investments $ (109,096) $ (9,356) $ 2,120,837
=========== =========== ===========

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(3) COST OF INSURANCE ACQUIRED.

Cost of insurance acquired is summarized as follows:

[Download Table]

YEAR ENDED DECEMBER 31
--------------------------------------------
1995 1994 1993
------------ ------------ ------------

Balance at beginning of period $ 2,271,866 $ 2,692,389 $ 3,065,986
Purchase of ALFC 5,562,574 -- --
Interest 171,541 198,121 270,334
Amortization (483,154) (618,644) (643,931)
------------ ------------ ------------
Balance at end of period $ 7,522,827 $ 2,271,866 $ 2,692,389
============ ============ ============

Accretion of interest on cost of insurance acquired is calculated
based on the rates of interest used in setting the related policy reserves.
These rates range from 6.5% to 8.5%.

Estimated amortization in each of the next five years is as follows.
Actual future amortization will differ from these estimates due to variances
from estimated future withdrawal assumptions.

[Download Table]

1996 $1,038,782
1997 1,228,661
1998 884,738
1999 959,980
2000 705,989
Thereafter 5,067,326

(4) FUTURE POLICY BENEFIT RESERVES.

In applying purchase accounting to the future policy benefit reserves
acquired through mergers prior to American Liberty, the Company calculated
future policy benefits using reasonable assumptions as of the of each merger.
Future policy benefits calculated under these assumptions approximate 20.4% of
such reserves reflected in the December 31, 1995 consolidated balance sheet.

In applying purchase accounting to the American Liberty policy benefit
reserves acquired in 1995, the Company revalued policy benefit reserves to
reflect the Company's reserve assumptions with regard to interest lapse rates
and surrenders. These reserves approximate 12.7% of total future policy
benefit reserves in the consolidated balance sheet as of December 31, 1995.
The remaining future policy benefits are calculated using reasonable
assumptions at the date of issue.

Various assumptions used to determine the future policy benefit
reserves include the following: a) valuation interest rates from 4-9%; b) the
mortality assumptions are from the 1955-60, 1965-70 and 1975-80 Select and
Ultimate mortality tables, and c) withdrawals are based primarily on actual
historical termination rates.

(5) REINSURANCE.

CICA cedes all risks generally in excess of $75,000 per insured to
other companies through yearly renewable term insurance or coinsurance
contracts. ALLIC cedes life risk in excess of $32,000 per insured to other
companies through yearly renewable term insurance or coinsurance contracts. In
addition, ALLIC reinsures all accidental death policies through a coinsurance
arrangement whereby 90% of the benefit risk is assumed by the reinsurer. Risks
are reinsured with other companies to permit the recovery of a portion of any

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direct losses. The Company remains contingently liable to the extent that the
reinsuring companies cannot their obligations under these reinsurance treaties.

At December 31, 1995 and 1994, life insurance in force aggregating
approximately $285,001,000 and $384,794,000, respectively, was assumed and
$290,677,000 and $285,104,000, respectively, was ceded to insurance companies
out of a total in force of approximately $2,151,955,000 and $2,144,709,000,
respectively. Premiums assumed were approximately $306,000, $541,000, and
$1,106,000 in the years ended December 1995, 1994 and 1993, respectively.
Premiums ceded were approximately $2,380,000, $2,310,000, and $1,939,000 in the
years ended December 31, 1995, 1994 and 1993, respectively. Claims and
surrenders assumed were approximately $286,000, $530,000 and $1,083,000 and
claims and surrenders ceded were approximately $377,000, $928,000 and $994,000
in the years ended December 31, 1995, 1994 and 1993, respectively.

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

(6) NOTES PAYABLE. Notes payable as of December 31, 1995 and 1994
consist of:

[Enlarge/Download Table]

1995 1994
-------- --------

Note payable to bank, 7%, dated June 20, 1988, payable in nine annual installments
of $66,667 beginning June 30, 1989, with remainder due June 30, 1998 $533,334 $600,000
Note payable to bank, prime (8.75% at December 31, 1995) dated May 24, 1995,
payable in monthly installments of $3,000 plus interest beginning June 30, 1995 64,500 --
Note payable to individual, 6%, dated April 27, 1995, with principal and interest payable
at maturity, April 26, 1996 175,000 --
Note payable to bank, prime (8.75% at December 31, 1994) dated June 30, 1992,
payable in monthly installments of $3,506 plus interest beginning July 30, 1992 -- 105,191
Other obligations -- 7,182
-------- --------

Total $772,834 $712,373
======== ========

The first note payable to bank is secured by two life insurance
policies and proceeds from the surplus debenture between CICA and Citizens,
Inc.

The second note payable to bank is secured by computer equipment.

The note payable to individual is an unsecured note.

(7) STOCKHOLDERS' EQUITY AND RESTRICTIONS.

The two classes of stock of Citizens are equal in all respects, except
(a) the Class B common stock elects a simple majority of the Board of Directors
of Citizens and the Class A Common Stock elects the remaining directors; and
(b) each Class A share receives twice the cash dividends paid on a per share
basis to the Class B common stock.

Approximately $14,857,000 of consolidated stockholders' equity at
December 31, 1995 represented net assets of the Company's insurance
subsidiaries that are restricted as to their distribution to the Company. In
addition, the Company's insurance subsidiaries are required to maintain a
minimum total statutory capital and surplus of $4,915,000. The net assets of
the Company's insurance subsidiaries available for transfer to the parent
company are limited to the amounts that the insurance subsidiary's net assets,
as determined in

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accordance with statutory accounting practices, exceed minimum statutory
capital requirements; however, payments of such amounts as dividends may be
subject to approval by regulatory authorities.

Citizens Life Insurance Company and American Liberty Life Insurance
Company have calculated their risk based capital (RBC) in accordance with the
National Association of Insurance Commissioners' Model Rule and the RBC rules
as adopted by their state of domicile, Colorado and Louisiana, respectively.
The RBC as calculated exceeded levels requiring company or regulatory action.

(8) STOCK OPTIONS.

During 1989, the Company entered into an agreement granting Stephen B.
Booke, a financial public relations consultant providing services to the
Company, the right and option to purchase 100,000 shares of Class A no par
common stock of the Company at $2.50 per share, the fair market value of the
common stock at the date of the agreement. Such option is for authorized but
unissued shares at the date of the agreement. The option which would have
expired on February 8, 1994 was extended for an additional 30 months during
1993. As a result, the Company recognized compensation expense of $425,000 in
1993 which represents the amount the market value at the date of extension
exceeded the option price. The 10-K originally filed by the Company did not
reflect this expense, therefore, the 1993 financial statements have been
restated to reflect the compensation expense described above. This restatement
resulted net of tax in a decrease in net income and net income per share of
$280,500 and $.01 per share, respectively. Transfer of this option is limited
by the agreement. As of December 31, 1995, no options had been exercised.

(9) ACQUISITION AND PROPOSED ACQUISITION AND MERGER.

On December 9, 1994, Citizens announced that it had signed definitive
written agreements for the acquisition of (i) American Liberty Financial
Corporation, a Baton Rouge, Louisiana based life insurance holding company and
(ii) Insurance Investors & Holding Co., a Peoria, Illinois based life insurance
holding company.

The American Liberty agreement provided that following the acquisition
by Citizens, American Liberty shareholders would receive 1.10 shares of
Citizens Class A Common Stock for each share of American Liberty Common Stock
owned and 2.926 shares of Citizens Class A Common Stock for each one share of
American Liberty Preferred Stock owned. Citizens issued approximately 2.3
million Class A shares in connection with the transaction, which was accounted
for as a purchase. The companies will continue to operate in their respective
locations under a combined management team with consolidation of computer data
processing on the Citizens' system. The transaction was consummated on
September 14, 1995.

The Insurance Investors agreement provides that following the
acquisition by Citizens, Investors' shareholders will receive one share of
Citizens Class A Common Stock for each eight shares of Investors Common Stock
owned. Additionally, Citizens will acquire all shares of Central Investors
Life Insurance Company, a subsidiary of Insurance Investors & Holding, not
wholly-owned by Insurance Investors, based upon an exchange ratio of one share
of Citizens Class A Common Stock for each four shares of Central Investors
owned. The transaction will involve issuance of approximately 170,000 of
Citizens Class A shares and will also be accounted for as a purchase. The
transaction was consummated on March 12, 1996.

The following unaudited pro-forma condensed balance sheet as of
December 31, 1995 reflects the purchase of Insurance Investors by Citizens as
if it occurred on December 31, 1995. The unaudited pro-forma condensed
consolidated income statement for the twelve months ended December 31, 1995
reflects the purchase of Insurance Investors as if it occurred on January 1,
1995.

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Management's estimate of the impact of applying purchase accounting,
as if the acquisition had occurred as described above, is presented below. The
unaudited pro forma financial information is not necessarily indicative either
of the results of operations that would have occurred had the acquisition been
consummated at the beginning of 1995 or of future results of operations of the
consolidated entities.

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PRO-FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
(AMOUNTS IN THOUSANDS)

PRO-FORMA CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1995
(UNAUDITED)

[Enlarge/Download Table]

HISTORIC PURCHASE
CITIZENS, INC. HISTORICAL ADJUSTMENTS
AND INSURANCE AND PRO-FORMA
ASSETS SUBSIDIARIES INVESTORS ELIMINATIONS CONSOLIDATED
------ ------------ ------------ ------------ ------------

Long term Investments $ 126,937 2,279 10(a) 129,226
Short term Investments 3,088 -- 3,088
------------ ------------ ------------ ------------

Total Investments 130,025 2,279 10 132,314

Cash 4,160 72 -- 4,232
Other receivables 1,219 1,219 -- 1,219
Accrued investment income 2,023 37 -- 2,060
Deferred policy acquisition costs 36,624 47 (47)(b) 36,624
Cost of insurance acquired 7,523 120(c) 7,643
Other intangible assets 1,820 -- 1,820
Excess of cost over net assets
acquired 14,046 477(d) 14,523
Other assets 8,046 6 -- 8,052
------------ ------------ ------------ ------------

Total Assets $ 205,486 $ 2,441 $ 560 $ 208,487
============ ============ ============ ============

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PRO-FORMA CONSOLIDATED BALANCE SHEET (CONTINUED)
DECEMBER 31, 1995
(UNAUDITED)

[Enlarge/Download Table]

HISTORIC PURCHASE
CITIZENS, INC. HISTORICAL ADJUSTMENTS
AND INSURANCE AND PRO-FORMA
SUBSIDIARIES INVESTORS ELIMINATIONS CONSOLIDATED
------------ ------------ ------------ ------------

LIABILITIES AND STOCKHOLDERS'
EQUITY:
Future policy benefit reserves $ 123,327 735 148(e) 124,210
Other policyholder liabilities 10,299 354 -- 10,653
Other liabilities 3,986 59 -- 4,045
Notes payable 773 319 -- 1,092
Deferred tax liability 2,273 -- -- 2,373
Minority interest 15 94 (94)(f) 15
------------ ------------ ------------ ------------

Total liabilities 140,773 1,560 56 142,389

Class A Common Stock 44,007 819 1,135(f) 45,961
Class B Common Stock 283 47 (47)(f) 283
Additional Paid-in capital -- 576 (576)(f) --
Unrealized gain on investments 1,268 15 (15)(f) 1,268
Retained earnings 21,217 (568) -- 20,649
------------ ------------ ------------ ------------
66,775 889 497 68,161

Treasury stock (2,062) (9) 9 (2,062)
------------ ------------ ------------ ------------

Total stockholders' equity 64,713 880 506 66,099
------------ ------------ ------------ ------------

Total liabilities and
stockholders' equity $ 205,486 $ 2,441 $ 560 $ 208,487
============ ============ ============ ============

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EXPLANATION OF BALANCE SHEET PRO-FORMA ADJUSTMENTS:

(a) Adjustment necessary to record acquired fixed maturities at
market value.

(b) Deferred policy acquisition costs are reflected in the
accompanying pro-forma financial statements as follows:

[Download Table]

Historical Citizens $ 36,624
Historical II 47
--------

Historical DAC 36,671
Reverse historical II (47)
--------

Net DAC $ 36,624
========

(c) Reverse II policy acquisition costs at December 31, 1995 and
establish cost of insurance acquired. Cost of insurance acquired represents
the estimated present value of future profits in the acquired business. This
amount was calculated as the difference between II's historical future policy
benefit reserves and the estimated gross premium reserve at December assuming a
level interest yield of 7%. Life mortality was based on appropriate multiples
of the 1965-70 Select and Ultimate and the Ultimate Intercompany Table and
withdrawals based on Linton B and BB tables as deemed appropriate based on
individual life plan experience. Accident and health morbidity was based on
multiples of 1974 Cancer tables, Stroke/Heart Attack Indemnity Table, 1985 NAIC
Cancer Tables and published claim costs and withdrawals based on Linton C and
CC Tables as deemed appropriate based on individual health plan experience.
Cost of insurance acquired is being amortized in proportion to the profit over
the lives of the respective policies.

Cost of insurance acquired is presented in the accompanying pro-forma
financial statements as follows:

[Download Table]

Historical Citizens $7,523
II cost of insurance capitalized 120
------

Total $7,643
======

(d) Excess of cost over net assets acquired was calculated as
follows (in thousands):

[Download Table]

Acquisition of common stock $ 1,496
Estimated fair value of net assets acquired (1,019)
-------

Excess of cost (purchase price) over net assets acquired $ 477
=======

(e) Revaluation of policy benefit reserves to reflect Company
reserve assumptions with regard to interest rates, lapse rates and surrenders.

(f) Eliminate II capital, minority interest, and retained earnings
and record the cost of net assets acquired as increased capital of the Company
due to the issuance of additional Class A common shares.

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PRO-FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(UNAUDITED)

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HISTORIC PURCHASE
CITIZENS, INC. HISTORICAL ADJUSTMENTS
AND INSURANCE AND PRO-FORMA
SUBSIDIARIES INVESTORS ELIMINATIONS CONSOLIDATED
------------ ------------ ------------ ------------

Revenues:
Premiums $ 46,244 $ 52 -- $ 46,296
Net investment income 7,027 126 -- 7,153
Other (141) 14 -- (128)
------------ ------------ ------------ ------------

Total revenues 53,130 192 -- 53,321

Benefits and Expenses
Policy benefits 33,392 173 -- 33,565
Commissions 10,273 -- -- 10,273
Capitalization of DAC (10,580) -- -- (10,580)
Amortization of DAC 8,512 5 (5)(a) 8,512
Amortization of cost of insurance
acquired 312 -- 1 (b) 313
Amortization of other intangibles 46 -- -- 46
Amortization of excess of cost over
net assets acquired 321 -- 23(c) 344
Other expenses 7,102 104 -- 7,206
------------ ------------ ------------ ------------

Total benefits and expenses 49,378 282 19 49,679
------------ ------------ ------------ ------------

Income before taxes $ 3,752 (90) (19) 3,642
============ ============ ============ ============

Net income per share -- -- (d) 0.20
============

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EXPLANATION OF STATEMENT OF OPERATIONS PRO-FORMA ADJUSTMENTS:

(a) Amortization and capitalization of deferred policy acquisition
costs are reflected in the accompanying pro-forma statement of operations as
follows (in thousands):

[Download Table]

CAPITALIZATION AMORTIZATION
-------------- ------------

Historical Citizens $ (10,580) $ 8,512
Historical II 0 4

Total Historical (10,580) 8,516
Reverse Historical II (0) (4)
------------ ------------

Net $ (10,580) $ 8,512
============ ============

(b) Amortization of cost of insurance acquired is presented in the
accompanying pro-forma statement of operations as follows:

[Download Table]

Historical Citizens $ 311,613
Interest accrued @ 7% (22)
Amortization of II cost of insurance 525

Net Pro-forma adjustment 503
----------

Pro-forma amortization $ 312,116
==========

Estimated amortization of cost of insurance acquired assuming a
purchase date of January 1, 1995 is $503, $560, $621, $686, and $759 for each
year, respectively, in the five year period ending December 31, 1999.

(c) Excess of cost over net assets acquired is being amortized
over a 20-year period. Such amortization, reflected in the accompanying
pro-forma statement of operations is $23,000.

(d) Calculated using estimated common shares outstanding of
17,839,047.

(10) CONTINGENCIES.

The Company is a party to various legal proceedings incidental to its
business. Contingent liabilities that might arise from litigation are not
considered material in relation to the financial position of the Company.

Reserves for claims payable are based on the expected claim amount to
be paid after a case by case review of the facts and circumstances relating to
each claim. A contingency exists with regard to these reserves until such time
as the claims are adjudicated and paid.

(11) INTERNATIONAL SALES.

A significant portion of the Company's business is derived through
sales in Latin America. Approximately 66%, 77% and 87% of premiums recorded in
the 1995, 1994, and 1993 consolidated statements of operations, respectively,
represent policies sold to residents of Central and South America. Sales in
Argentina and Columbia represented approximately 40% and 19% of reported
premiums in 1995, 49%

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and 23% in 1994, and 43% and 23% in 1993, respectively. The Company has no
assets, offices or employees outside of the United States of America (U.S.) and
requires that all transactions be in U.S. dollars paid in the U.S.

The Company contracted with Negocios Savoy, S.A. ("Savoy"), a
Panamanian Corporation, as the marketing manager for its international
marketing operations prior to September, 1993. On September 1, 1993, the
Company and Savoy mutually agreed to terminate the contract. Several
International managers previously under contract with the Company assumed the
role previously managed by Savoy. The international manager contract defines
the commissions structure and other requirements of the relationship, including
the responsibility of an international manager for all of its expenses and the
subagents' debit balances.

(12) INCOME TAXES.

A reconciliation of Federal income tax expense computed by applying
the Federal income tax rate of 35% in 1995 and 34% in 1994 and 1993 to income
before Federal income tax expense for the years ended December 31, 1995, 1994
and 1993 follows:

[Enlarge/Download Table]

1993
1995 1994 (AS RESTATED)
------------ ------------ ------------

Computed normal tax expense $ 1,313,049 $ 1,960,743 $ 2,543,237
Small life insurance company deduction (423,084) (437,489) (446,313)
Change in valuation allowance (62,355) -- --
Decrease in beginning of the year balance of the
valuation allowance for deferred tax assets -- -- (286,422)
Amortization of excess of costs over net assets
acquired 109,041 63,228 47,267
Other 64,705 5,850 95,946
------------ ------------ ------------

Federal income tax expense $ 1,001,356 $ 1,592,332 $ 1,953,715
============ ============ ============

Income tax expense for the years ended December 31, 1995, 1994 and
1993 consists of:

[Download Table]

1993
1995 1994 (AS RESTATED)
------------ ------------ ------------

Current $ 1,982,424 $ 1,975,527 $ 1,678,269
Deferred (981,068) (383,195) 275,446
------------ ------------ ------------

Total $ 1,001,356 $ 1,592,332 $ 1,953,715
============ ============ ============

For the years ended December 31, 1995, 1994 and 1993, a valuation
allowance of $62,355, $0, and $286,428, respectively, are included as a
component of deferred income tax expense.

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The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December
31, 1995 and 1994 are presented below.

[Download Table]

1995 1994
------------ ------------

Deferred tax assets:
Future policy benefit reserves $ 10,804,429 $ 9,930,982
Net operating loss carryforwards 498,248 89,249
Investments, available for sale -- 1,528,927
Other 1,007,634 418,240
------------ ------------

Total gross deferred tax assets 12,310,311 11,967,398
Less valuation allowance 440,134 --
------------ ------------

Net deferred tax assets 11,870,177 11,967,398
------------ ------------

Deferred tax liabilities:
Deferred policy acquisition costs 9,315,657 9,392,481
Cost of insurance acquired 2,557,761 772,434
Investments available for sale 757,423 --
Other 1,612,080 281,187

Total gross deferred tax liabilities 14,242,921 10,446,102
------------ ------------

Net deferred tax asset (liability) $ (2,372,742) $ 1,521,297
============ ============

The Company and its subsidiaries have net operating losses at December
31, 1995 available to offset future taxable income of approximately $4,300,000
for Federal income tax and $227,000 for Federal alternative minimum tax
purposes which expire through 2008. The net operating loss carryforward is
subject to limitations under Section 382 of the Internal Revenue Code.

At December 31, 1995, the Company had accumulated approximately
$2,315,000 in its "policyholders' surplus account." This is a special
memorandum tax account into which certain amounts not previously taxed, under
prior tax laws, were accumulated. No new additions will be made to this
account. Federal income taxes will become payable thereon at the then current
tax rate (a) when and if distributions to the shareholder, other than stock
dividends and other limited exceptions, are made in excess of the accumulated
previously taxed income; or (b) when a company ceases to be a life insurance
company as defined by the Internal Revenue Code and such termination is not due
to another life insurance company acquiring its assets in a nontaxable
transaction. The Company does not anticipate any transactions that would cause
any part of this amount to become taxable. However, should the balance at
December 31, 1995 become taxable, the tax computed at present rates would be
approximately $810,000.

(13) FAIR VALUE OF FINANCIAL INSTRUMENTS.

The following information relates to estimated fair values of the
Company's financial instruments as of December 31, 1995.

Fair values for fixed maturities and equity securities were obtained
from the National Association of Insurance Commissioners' valuation
designations, independent brokers, and published valuation guides. At December
31, 1995, the fair value of bonds are $9,997,219 and $11,196,459, respectively.

Mortgage loans are secured principally by residential properties.
Weighted average interest rate for these loans as of December 31, 1995, was
approximately 9.4% with maturities ranging from one to fifteen years.
Management believes that reported amounts approximate fair value.

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Student loans are guaranteed by the government. Weighted average
interest rate for these loans as of December 31, 1995, was approximately 8.3%.
Management believes that the reported amounts approximate fair value as these
loans are sold as soon as possible.

Policy loans have a weighted average interest rate of 7.6% as of
December 31, 1995 and 1994 and have no specified maturity dates. The aggregate
market value of policy loans approximates the carrying value reflected on the
consolidated balance sheet. These loans typically carry an interest rate that
is tied to the crediting rate applied to the related policy and contract
reserves. Policy loans are an integral part of the life insurance policies
which the Company has in force and cannot be valued separately.

For cash, certificates of deposit, short-term investments, accrued
investment income, premiums and other considerations deferred and uncollected,
amounts recoverable from reinsurers, other assets, federal income tax payable,
dividends payable, and other liabilities, the carrying amounts approximate fair
value because of the short maturity of such financial instruments.

(14) QUARTERLY FINANCIAL INFORMATION (UNAUDITED).

The following table contains selected unaudited consolidated financial
data for each quarter.

[Download Table]

1995
------------------------------------------------------------
FOURTH THIRD SECOND FIRST
QUARTER QUARTER QUARTER QUARTER
------------ ------------ ------------ ------------

Revenues $ 16,115,722 $ 13,420,798 $ 12,872,679 $ 10,862,138
Expenses 15,659,326 11,727,114 11,488,128 10,497,876
Other (61,739) (31,757) (19,262) (28,407)
Net income 564,449 901,266 1,017,773 272,883
Net income per share .03 .05 .06 .02

[Download Table]

1994
------------------------------------------------------------
FOURTH THIRD SECOND FIRST
QUARTER QUARTER QUARTER QUARTER
------------ ------------ ------------ ------------

Revenues $ 13,752,088 $ 13,526,681 $ 12,114,056 $ 9,763,884
Expenses 11,982,416 11,810,114 10,461,651 9,190,926
Other (160,527) 74,999 (358,273) 499,090
Net income 878,741 1,447,695 929,361 918,761
Net income per share 0.03 0.09 0.06 0.06

[Download Table]

1993
------------------------------------------------------------
FOURTH THIRD SECOND FIRST
QUARTER QUARTER QUARTER QUARTER
------------ ------------ ------------ ------------

Revenues $ 13,568,969 $ 11,038,464 $ 9,725,014 $ 8,428,649
Expenses 11,622,467 9,613,840 8,504,857 7,424,860
Other 338,960 1,346,395 255,299 62,258
Net income 1,649,289 1,631,497 1,336,178 909,429
Net income per share 0.10 0.10 0.08 0.06

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SCHEDULE II

CITIZENS, INC. AND SUBSIDIARIES
CONDENSED FINANCIAL INFORMATION OF REGISTRANT

CITIZENS, INC. (PARENT COMPANY)

BALANCE SHEETS
DECEMBER 31, 1995 AND 1994

[Download Table]

1995 1994
------------ ------------

Assets:
Investment in subsidiaries $ 63,481,741 $ 33,125,422
Accrued investment income 24,346 26,589
Real estate 287,979 442,148
Cash 884,241 972,320
Notes receivable(1) 673,953 726,028
Other assets 680,502 642,040
------------ ------------

$ 66,032,762 $ 35,934,547
============ ============

Liabilities and Stockholders' Equity
Liabilities:
Notes payable $ 533,333 $ 607,182
Accrued expense and other 786,439 271,992
------------ ------------
$ 1,319,772 $ 879,174
Stockholders' equity:
Common stock:
Class A $ 44,007,339 $ 21,457,303
Class B 283,262 283,262
Retained earnings 21,216,908 18,466,696
Unrealized investment gain (loss) of securities
held by subsidiaries, net 1,267,747 (2,970,597)
Treasury stock (2,062,266) (2,181,291)
------------ ------------

64,712,990 35,055,373
------------ ------------

$ 66,032,762 $ 35,934,547
============ ============

---------
(1) Eliminated in consolidation.

See accompanying independent auditor's report.

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SCHEDULE II, CONTINUED

CITIZENS, INC. AND SUBSIDIARIES
CONDENSED FINANCIAL INFORMATION OF REGISTRANT

CITIZENS, INC. (PARENT COMPANY)
STATEMENTS OF OPERATIONS

YEARS ENDED DECEMBER 31, 1995 AND 1994 AND 1993

[Enlarge/Download Table]

1993
1995 1994 (AS RESTATED)
------------ ------------ ------------

Revenues:
Management service fees (1) $ 8,068,030 $ 6,749,976 $ 5,316,157
Investment income (1) 118,103 131,933 161,036
Other 11,551 7,691 417
Capital (gain) loss (1,573) (147,691) --
------------ ------------ ------------

8,196,111 6,741,909 5,477,610
------------ ------------ ------------
Expenses:
General 7,713,980 6,189,677 5,416,683
Interest 42,113 20,583 106,403
Taxes 327,815 263,917 (134,835)
------------ ------------ ------------

$ 8,082,335 $ 6,326,486 $ 5,388,251
------------ ------------ ------------

Income (loss) before equity in income of unconsolidated subsidiaries 115,349 563,114 89,359
Equity in income of unconsolidated subsidiaries 2,634,863 3,611,444 5,437,034
------------ ------------ ------------

Net income $ 2,750,212 $ 4,174,558 $ 5,526,393
============ ============ ============

---------
(1) Eliminated in consolidation.

See accompanying independent auditor's report.

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SCHEDULE II, CONTINUED

CITIZENS, INC. AND SUBSIDIARIES
CONDENSED FINANCIAL INFORMATION OF REGISTRANT

CITIZENS, INC. (PARENT COMPANY)
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993

[Enlarge/Download Table]

1993
1995 1994 (AS RESTATED)
------------ ------------ ------------

Cash flows from operating activities:
Net income $ 2,750,212 $ 4,174,558 $ 5,526,393
Adjustments to reconcile net loss to net cash used by operating activities:
Realized gains on sales of investments -- 313,796 --
Depreciation -- 36,214 32,487
Equity in net income of unconsolidated subsidiaries (3,871,812) (3,784,819) (5,420,150)
Accrued expenses and other liabilities 512,568 (290,422) 1,504
Amounts withheld as trustee 1,879 53,549 --
Accrued investment income 2,243 1,900 3,004
Other, net 2,951 (243,866) 351,152
------------ ------------ ------------

Net cash provided (used) by operating activities (601,959) 260,910 494,390
------------ ------------ ------------

Cash flows from investing activities:
Capital contribution to subsidiary -- (5,200,000) --
Sale of equity securities -- 174,761 --
Payments on notes receivable 52,075 51,022 88,775
Cash acquired in acquisition -- -- --
(Purchase) sale of real estate 154,169 216,168 17,387
------------ ------------ ------------

Net cash provided (used) by investing activities 206,244 (4,758,049) 106,162
------------ ------------ ------------

Cash flows from financing activities:
Sale of common stock, net 381,485 5,371,959 --
Payment on notes payable (73,849) (343,746) (219,836)
Net cash provided (used) by financing activities 307,636 5,028,213 (219,836)
------------ ------------ ------------

Net increase (decrease) in cash (88,079) 531,074 380,716
Cash at beginning of year 972,320 441,246 60,530
------------ ------------ ------------

Cash at end of year $ 884,241 $ 972,320 $ 441,246
============ ============ ============

See accompanying independent auditor's report.

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SCHEDULE IV

CITIZENS, INC. AND SUBSIDIARIES

REINSURANCE
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993

[Enlarge/Download Table]

CEDED ASSUMED PERCENTAGE
GROSS TO OTHER FROM OTHER NET OF AMOUNT
AMOUNT COMPANIES COMPANIES AMOUNT ASSUMED TO NET
-------------- -------------- -------------- -------------- --------------

Year ended December 31, 1995:
Life insurance in force $1,866,954,000 $ 290,677,000 $ 285,001,000 $1,861,278,000 15.3%
Premiums
Life insurance 47,361,742 2,241,111 306,256 45,426,887 0.7%
Accident and health insurance 698,206 0 0 698,206 --
-------------- -------------- -------------- -------------- --------------

Total premiums $ 48,059,948 $ 2,241,111 $ 306,256 46,125,093 0.7%
============== ============== ============== ============== ==============

Year ended December 31, 1994:
Life insurance in force $1,759,915,000 $ 285,104,000 $ 384,794,000 $1,859,605,000 20.7%
Premiums:
Life insurance 45,294,285 2,309,544 541,370 43,526,111 1.2%
Accident and health insurance 259,378 128 0 259,250 --
-------------- -------------- -------------- -------------- --------------

Total premiums $ 45,553,663 $ 2,309,672 $ 541,370 $ 43,785,361 1.2%
============== ============== ============== ============== ==============

Year ended December 31, 1993:
Life insurance in force $1,567,840,000 $ 303,727,000 $ 462,775,000 $1,726,888,000 26.8%
Premiums:
Life insurance 38,431,240 1,939,279 1,106,590 37,598,551 2.9%
Accident and health insurance 284,656 146 0 284,510 --
-------------- -------------- -------------- -------------- --------------

Total premiums $ 38,715,896 $ 1,939,425 $ 1,106,590 $ 37,883,061 2.9%
============== ============== ============== ============== ==============

See accompanying independent auditor's report.

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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, 1996 and December 31, 1995

[Enlarge/Download Table]

(UNAUDITED)
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------ ------------

ASSETS
------
Investments:
Fixed maturities held for investment, at amortized cost (market
$5,038,500 in 1996 and $5,700,000 in 1995) $ 5,629,637 $ 5,636,785
Fixed maturities available for sale, at lower of cost or market
(cost $ 103,896,968 in 1996 and $97,515,359 in 1995) 104,372,404 99,464,551
Equity securities, at market (cost $89,580 in 1996
and $23,329 in 1995) 66,252 --
Mortgage loans on real estate (net of reserve of $145,080
in 1996 and 1995) 1,777,175 1,910,608
Policy loans 20,085,373 18,911,275
Guaranteed student loans (net of reserve of $10,000
in 1996 and 1995) 290,519 333,387
Other long-term investments 535,084 679,436
Short-term investments 1,475,000 3,088,697
------------ ------------
Total investments 134,231,444 130,024,739

Cash 7,869,692 4,160,156
Prepaid reinsurance 582,915 --
Reinsurance recoverable 2,039,732 1,857,900
Other receivables 573,018 1,219,107
Accrued investment income 1,404,529 2,022,809
Deferred policy acquisition costs 36,624,955 36,624,448
Cost of insurance acquired 7,245,448 7,522,827
Other intangible assets 1,680,300 1,820,325
Excess of cost over net assets acquired 15,147,044 14,045,848
Property, plant and equipment 5,618,141 5,546,075
Other assets 1,174,080 642,013

Total assets $214,192,098 $205,486,247
============ ============

(CONTINUED)

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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, 1996 and December 31, 1995

[Enlarge/Download Table]

(UNAUDITED)
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------ ------------

LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
LIABILITIES:
Future policy benefit reserves $130,873,733 $123,327,377
Dividend accumulations 3,931,803 3,602,706
Premium deposits 2,628,928 1,553,414
Policy claims payable 3,534,764 3,197,291
Other policyholders' funds 2,023,573 1,945,332

Total policy liabilities 142,992,801 133,626,120

Other liabilities 1,625,387 2,001,320
Commissions payable 742,292 692,578
Notes payable 499,667 772,834
Federal income tax payable 0 1,025,106
Deferred Federal income taxes 1,351,079 2,372,742
Minority interest 14,954 14,954
Amounts held on deposit 205,686 267,603
Total liabilities 147,431,866 140,773,257

STOCKHOLDERS' EQUITY:
Common stock:
Class A, no par value, 50,000,000 shares authorized,
21,651,161 shares issued in 1996 and 19,178,515 in
1995, including shares in treasury of 2,078,547 in
1996 and 2,198,175 in 1995 45,713,495 44,007,339
Class B, no par value, 1,000,000 shares authorized,
621,049 shares issued and outstanding in 1996 and 1995 283,262 283,262
Unrealized gain (loss) on investments 296,835 1,267,747
Retained earnings 22,528,906 21,216,908
------------ ------------
68,822,498 66,775,256
Treasury stock, at cost (2,062,266) (2,062,266)
------------ ------------
Total stockholders' equity 66,760,232 64,712,990

COMMITMENTS AND CONTINGENCIES

Total liabilities and stockholders' equity $214,192,098 $205,486,247
============ ============

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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Three-Months Ended September 30, 1996 and 1995
(Unaudited)

[Enlarge/Download Table]

THREE-MONTHS ENDED SEPTEMBER 30,
--------------------------------
1996 1995
------------ ------------

Revenues:
Premiums $ 14,619,278 $ 11,661,236
Annuity and Universal Life considerations 179,468 (14,681)
Net investment income 2,177,548 1,774,243
------------ ------------
16,976,294 13,420,798

OTHER INCOME AND EXPENSES:
Other income 53,495 43,120
Realized gains (losses) on investments 80,667 (63,851)
Interest expense (14,100) (11,026)
120,062 (31,757)
BENEFITS AND EXPENSES:
Insurance benefits paid or provided:
Increase in future policy benefit reserves 2,541,236 2,395,711
Policyholders' dividends 629,079 667,099
Claims and surrenders 7,319,704 4,797,568
Annuity expenses 168,791 275,813
10,658,810 8,136,191

Commissions 3,182,045 2,307,494
Underwriting, acquisition and insurance expenses 1,973,659 1,514,144
Capitalization of deferred policy acquisition costs (2,558,902) (2,421,047)
Amortization of deferred policy acquisition costs 2,784,806 2,112,115
Amortization of cost of insurance acquired, excess of cost over
net assets acquired and other intangibles 92,434 78,217
------------ ------------
16,132,852 11,727,114

Income before federal income tax $ 963,504 $ 1,661,927

FEDERAL INCOME TAX:
Federal income tax expense 317,969 760,661
------------ ------------
NET INCOME $ 645,535 $ 901,266
============ ============

PER SHARE AMOUNTS:
NET INCOME PER SHARE OF COMMON STOCK $ 0.03 $ 0.05
============ ============

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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Nine-Months Ended September 30, 1996 and 1995
(Unaudited)

[Enlarge/Download Table]

NINE-MONTHS ENDED SEPTEMBER 30,
-------------------------------
1996 1995
------------ ------------

Revenues:
Premiums $ 39,301,429 $ 32,166,889
Annuity and Universal Life considerations 272,703 90,229
Net investment income 6,582,091 4,898,497
46,156,223 37,155,615
OTHER INCOME AND EXPENSES:
Other income 89,573 53,261
Realized gains (losses) on investments 93,376 (94,193)
Interest expense (43,004) (38,494)
------------ ------------
139,945 (79,426)
BENEFITS AND EXPENSES:
Insurance benefits paid or provided:
Increase in future policy benefit reserves 6,549,858 7,355,554
Policyholders' dividends 1,733,240 1,780,506
Claims and surrenders 19,283,265 13,791,382
Annuity expenses 597,466 494,890
------------ ------------
28,163,829 23,422,332

Commissions 8,630,952 7,558,495
Underwriting, acquisition and insurance expenses 6,374,934 4,413,629
Capitalization of deferred policy acquisition costs (7,526,271) (7,919,024)
Amortization of deferred policy acquisition costs 7,525,764 5,982,918
Amortization of cost of insurance acquired, excess of cost over
cost over net assets acquired and other intangibles 858,709 254,768
------------ ------------
44,027,917 33,713,118

Income before federal income tax 2,268,251 3,363,071

FEDERAL INCOME TAX:
Federal income tax expense 956,253 1,171,149
------------ ------------
NET INCOME $ 1,311,998 $ 2,191,922
============ ============

PER SHARE AMOUNTS:
NET INCOME PER SHARE OF COMMON STOCK $ 0.07 $ 0.12
============ ============

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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three-Months Ended September 30, 1996 and 1995
(Unaudited)

[Enlarge/Download Table]

THREE-MONTHS ENDED SEPTEMBER 30,
--------------------------------
1996 1995
------------ ------------

Cash flows from operating activities:
Net gain $ 645,535 $ 901,266
Adjustments to reconcile net gain to net cash
provided by operating activities:
Accrued investment income 514,659 462,836
Deferred policy acquisition costs 225,904 (308,932)
Amortization of cost of insurance acquired, excess cost
over net assets acquired and other intangible assets 92,434 78,217
Prepaid reinsurance 582,211 565,099
Reinsurance recoverable (100,152) (603,398)
Other receivables 162,012 413,952
Property, plant and equipment 78,028 448,926
Future policy benefit reserves 2,541,236 2,395,711
Other policy liabilities 244,704 396,080
Commissions payable and other liabilities 415,767 274,066
Amounts paid out as trustee (38,234) (76,140)
Federal income tax payable 0 (1,161,858)
Deferred Federal income tax payable 904,605 510,804
Other, net (615,095) 368,283
------------ ------------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 5,653,614 4,664,912

CASH FLOWS FROM INVESTING ACTIVITIES:
Maturity of fixed maturities 1,672,058 20,871
Sale of fixed maturities available for sale 3,042,929 --
Purchase of fixed maturities available for sale (8,507,482) (12,499,332)
Net change in mortgage loans (31,036) 316,660
Net change in guaranteed student loans (42,640) (66,187)
Change in other long-term investments 106,861 (313,943)
Cash from merger -- 1,178,600
Increase in policy loans (net) (226,748) (1,120,804)
------------ ------------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES $ (3,986,058) $(12,484,135)
============ ============

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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three-Months Ended September 30, 1996 and 1995
(Unaudited)

[Enlarge/Download Table]

THREE-MONTHS ENDED SEPTEMBER 30,
--------------------------------
1996 1995
------------ ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
Sale of stock $ 81,047 $ --
Repayment of note payable (49,433) (7,000)
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 31,614 (7,000)

NET INCREASE (DECREASE) IN CASH AND SHORT-TERM INVESTMENTS 1,699,170 (7,826,223)
Cash and short term investments at beginning of period 7,645,522 12,768,969

CASH AND SHORT TERM INVESTMENTS AT END OF PERIOD $ 9,344,692 $ 4,942,746
============ ============

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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine-Months Ended September 30, 1996 and 1995
(Unaudited)

[Enlarge/Download Table]

NINE-MONTHS ENDED SEPTEMBER 30,
-------------------------------
1996 1995
------------ ------------

Cash flows from operating activities:
Net gain $ 1,311,998 $ 2,191,922
Adjustments to reconcile net gain to net cash provided by
operating activities:
Accrued investment income 618,280 160,643
Deferred policy acquisition costs (507) (1,936,106)
Amortization of cost of insurance acquired, excess cost over net assets
acquired and other intangibles 858,709 254,768
Prepaid reinsurance (582,915) (643,754)
Reinsurance recoverable (181,832) (614,971)
Other receivables 646,089 591,153
Property, plant and equipment (72,066) (197,444)
Future policy benefit reserves 6,549,858 7,355,554
Other policy liabilities 1,820,325 568,787
Commissions payable and other liabilities (326,219) (13,354)
Amounts paid out as trustee (61,917) (116,302)
Deferred Federal income tax (1,021,663) (33,799)
Federal income tax payable (1,025,106) (341,527)
Other, net (919,761) 125,357
------------ ------------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 7,613,273 7,350,927
------------ ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
Maturity of fixed maturities 4,985,682 5,982,417
Sale of fixed maturities available for sale 15,214,840 22,718,636
Purchase of fixed maturities available for sale (24,896,186) (35,064,718)
Net change in mortgage loans 133,433 700,996
Net change in guaranteed student loans 42,868 (27,173)
Cash from merger 78,436 1,178,600
Change in other long-term investments 144,352 545
Increase in policy loans (net) (1,174,098) (2,231,831)
------------ ------------

NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES $ (5,470,673) $ (6,742,528)
============ ============

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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine-Months Ended September 30, 1996 and 1995
(Unaudited)

[Enlarge/Download Table]

NINE-MONTHS ENDED SEPTEMBER 30,
-------------------------------
1996 1995
------------ ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowed funds $ 0 $ 175,000
Repayment of note payable (273,167) (100,540)
Sale of stock 226,406 0
------------ ------------
Net cash provided (used) by financing activities (46,761) 74,460

NET INCREASE IN CASH AND SHORT-TERM INVESTMENTS 2,095,839 682,859
Cash and short term investments at beginning of period 7,248,853 4,259,887
------------ ------------
CASH AND SHORT TERM INVESTMENTS AT END OF PERIOD $ 9,344,692 $ 4,942,746
============ ============

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996

(1) Financial Statements

The balance sheet for September 30, 1996, the statements of operations
for the three- and nine-month periods ended September 30, 1996 and 1995, and
the statements of cash flows for the three- and nine-month periods then ended
have been prepared by the Company without audit. In the opinion of management,
all adjustments (which include only normal recurring adjustments) necessary to
present fairly the financial position, results of operations and changes in
cash flows at September 30, 1996, and for comparative periods presented have
been made.

Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been omitted. It is suggested that these financial statements
be read in conjunction with the financial statements and notes thereto included
in the Company's December 31, 1995 annual 10-K report filed with the Securities
and Exchange Commission. The results of operations for the period ended
September 30, 1996 are not necessarily indicative of the operating results for
the full year.

(2) Merger and Exchange

On December 9, 1995, Citizens announced that it had signed definitive
written agreements for the acquisition of Insurance Investors & Holding Co., a
Peoria, Illinois based life insurance holding company. The agreement provided
that following the acquisition by Citizens, Investors' shareholders will
receive one share of Citizens Class A Common Stock for each eight shares of
Investors Common Stock owned. Additionally, Citizens will acquire all shares of
Central Investors Life Insurance Company, a subsidiary of Insurance Investors &
Holding, not wholly-owned by Insurance Investors, based upon an exchange ratio
of one share of Citizens Class A Common Stock for each four shares of Central
Investors owned. Following approval by the Illinois Department of Insurance and
the stockholders of Investors and Central, closing occurred on March 12, 1996.
The transaction involved issuance of approximately 171,000 of Citizens Class A
shares and was accounted for as a purchase.

(3) Proposed Merger and Exchange

On October 28, 1996, the Company announced that it had signed definitive
written agreements for the acquisition of American Investment Network, Inc.
(American Investment), a Jackson, Mississippi, based life insurance holding
company with $7.5 million in assets, $3.4 million of stockholders' equity,
revenues of $3.2 million and $67 million of life insurance in force.

The American Investment agreement provides that following the
acquisition by the Company, American Investment shareholders will receive 1
share of Citizens Class A Common Stock for each seven and two-tenths (7.2)
shares of American Investment Common Stock owned. The Company expects to issue
approximately 700,000 Class A shares in connection with the transaction, which
will be accounted for as a purchase. The companies will continue to operate in
their respective locations under a combined management team with consolidation
of computer data processing on Citizens' system. The agreement is subject to
approval by American Investment's shareholders and regulatory authorities.

F-41

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MARKET PRICES

Citizens Class A Common Stock is traded on the American Stock Exchange
("AMEX") under the symbol "CIA." The high and low prices per share as supplied
by the AMEX Monthly Statistical Report are as follows.

[Download Table]

1996 1995 1994
--------------- --------------- ---------------
QUARTER ENDED HIGH LOW HIGH LOW HIGH LOW
------ ------ ------ ------ ------ ------

March 31 $ 9.25 $ 8.25 $ 9.25 $ 7.13 $ 8.00 $ 7.75
June 30 8.94 5.13 9.69 8.25 8.25 8.12
September 30 8.13 5.88 15.63 7.25 8.38 7.63
December 31 9.75 7.69 9.88 8.06 9.13 7.63

The approximate number of record owners of Citizens Class A Common Stock
is 15,000. Citizens has not paid a cash dividend and does not expect to pay
cash dividends in the foreseeable future.

CERTAIN SECURITY OWNERSHIP OF CITIZENS

The following table sets forth information regarding the persons known
to Citizens to be the beneficial owners of more than 5% of Citizens Class A and
Class B Common Stock as of the date of this Proxy-Information Statement.

[Download Table]

Shares Owned and
Name and Address Nature of Ownership Percent of Class
---------------- ------------------- ----------------

Harold E. Riley 5,460,671 Class A 28.4%
P.O. Box 149151 direct and indirect(1)
Austin, TX 621,049 Class B indirect(1) 100.0%

Marjorie D. Riley 1,060,000 Class A direct(2) 5.7%
3410 Tripp
Amarillo, TX

---------
(1) See footnote (1) in the table immediately below.
(2) In record name.

The following table sets forth information as of the date of this Proxy-
Information Statement with regard to the beneficial ownership of Citizens
common shares by each director, the named executive officers and by the
executive officers and directors as a group.

[Download Table]

Shares Owned and
Name and Address Nature of Ownership Percent of Class
---------------- ------------------- ----------------

Harold E. Riley 5,460,671 Class A direct and indirect (1) 28.4%
621,049 Class B indirect (1) 100.0

Rick D. Riley 356,350 Class A direct and indirect (2) 1.7

PRES14A 102nd Page of 192 TOC 1st Previous Next ↓Bottom Just 102nd

[Download Table]

(CONTINUED)
Shares Owned and
Name and Address Nature of Ownership Percent of Class
---------------- ------------------- ----------------

Randall H. Riley 109,064 Class A direct and indirect (4) (3)

Timothy T. Timmerman 42,237 Class A direct (3)

Charles E. Broussard 37,041 Class A direct (3)

Flay F. Baugh 34,459 Class A direct and indirect (5) (3)

Joe R. Reneau, M.D. 32,652 Class A direct (3)

T. Roby Dollar 31,652 Class A direct and indirect (6) (3)

Ralph M. Smith, Th.D. 19,547 Class A direct and indirect (7) (3)

William P. Barnhill -0- (3)

Steven F. Shelton 1,886 Class A direct (3)

John K. Drisdale, Jr. -0- (3)

Clayton D. Dunham 250 Class A direct (3)

Mark A. Oliver 180 Class A direct (3)

All executive officers 6,125,989 Class A direct and indirect 31.7
and directors as a group 621,049 Class B direct 100.0
(14 persons)

---------
(1) Owns 5,205,184 shares of Class A Common Stock directly and spouse owns
255,487 shares of Class A Common Stock. The Harold E. Riley Trust, of
which Mr. Riley is the controlling Trustee, owns all of the 621,049
issued and outstanding shares of Class B Common Stock.

(2) Son of Harold E. Riley. Owns 264,382 shares of Class A Common Stock
directly, 14,100 shares of Class A Common Stock as joint tenant with
spouse, and 77,868 shares of Class A Common Stock indirectly as trustee
for minor children.

(3) Less than one percent (1%).

(4) Son of Harold E. Riley. Owns 99,785 shares of Class A Common Stock
directly, 2,000 shares of Class A Common Stock as joint tenant with
spouse, and 5,958 shares of Class A Common Stock indirectly as trustee
for minor children; spouse owns 1,321 shares of Class A Common Stock.

(5) Owns 8,873 shares of Class A Common Stock directly and 25,586 shares of
Class A Common Stock as joint tenant with spouse.

(6) Owns 16,652 shares of Class A Common Stock directly and spouse owns
15,000 shares of Class A Common Stock.

(7) Owns 10,863 shares of Class A Common Stock directly and spouse owns
8,684 shares of Class A Common Stock.

PRES14A 103rd Page of 192 TOC 1st Previous Next ↓Bottom Just 103rd
Citizens is not aware of any arrangement, including any pledge by any
person of securities of Citizens, the operation of which may at a subsequent
date result in a change in control of Citizens.

MANAGEMENT OF CITIZENS

DIRECTORS. The following table sets forth certain information regarding
the directors of Citizens.

[Download Table]

Principal Director
Name Age Occupation Since
---- --- ---------- ---------

Flay F. Baugh 82 Investments 1989
Temple, Texas

Charles E. Broussard 70 Rancher/Farmer 1996
Kaplan, Louisiana

Steven F. Shelton 40 Farmer/Rancher 1993
Lamar, Colorado

Timothy T. Timmerman 35 President, Texas Cable Systems 1989
Inc., TCSI-Huntsville and
Timmerman Investments, Inc.
Round Rock, Texas

T. Roby Dollar 58 Vice Chairman, Chief 1993
Actuary of Citizens
Austin, Texas

Joe R. Reneau, M.D. 64 Physician, Medical Consultant 1989
Austin, Texas

Harold E. Riley 68 Chairman of the Board, President 1987
and Chief Executive Officer of Citizens
Austin, Texas

Randall H. Riley (1) 41 Vice Chairman, Chief Operating 1993
Officer of Citizens
Austin, Texas

Rick D. Riley (1) 42 Executive Vice President, 1989
Electronic Systems of Citizens
Austin, Texas

Ralph M. Smith, Th.D. 65 Pastor Emeritus 1993
Hyde Park Baptist Church
Austin, Texas

---------
(1) Son of Harold E. Riley. There are no other family relationships between
or among Board members and the Executive Officers of Citizens.

PRES14A 104th Page of 192 TOC 1st Previous Next ↓Bottom Just 104th
FLAY F. BAUGH, Investments; President, Baugh's Inc., Temple, Texas, a
company engaged in shoe manufacturing, from 1954 to present; Director of
Citizens Insurance Company of America, former parent of Citizens, from 1978 to
1988. Director of Citizens from 1989 to present.

CHARLES F. BROUSSARD, rancher and farmer; Director of American Liberty
Financial Corporation and American Liberty Life Insurance Company from 1977 and
1978, respectively, to present; Director of Universal Fabricators, Inc. a
company engaged in steel fabrication, from 1980 to present; President of
Inexpo, LA Livestock Sanitary Board Commission from 1988 to present; Director
for Acadian District Livestock Show from 1992 to present; Member of the
Wetlands Task Force from 1992 to present; and Vice President of the Midwinter
Fair Association from 1993 to present. Director of Citizens from 1996 to
present.

T. ROBY DOLLAR, Vice Chairman, Chief Actuary of Citizens and its
affiliates from 1994 to present; President of Citizens and its affiliates from
1992 to 1994; Executive Vice President and Chief Actuary of Citizens and its
affiliates from 1987 to 1992.

JOE R. RENEAU, M.D., Physician - Medical Consultant, Abbott
Laboratories, Austin, Texas, from 1987 to present and IBM, Austin, Texas, from
1992 to present; Medical Director of Citizens and its affiliates from 1987 to
present.

HAROLD E. RILEY, controlling shareholder of Citizens; Chairman of
Citizens Board and its affiliates from 1994 to present; Chairman of the Board
and Chief Executive Officer of Citizens and its affiliates from 1992 to
present; Chairman of the Board, Chief Executive Officer and President of
Citizens and its affiliates, from 1987 to 1992; Chairman of the Board,
President and Chief Executive Officer, Continental Investors Life Insurance
Company from 1989 to 1992.

RANDALL H. RILEY, Vice Chairman and Chief Operating officer of Citizens
from 1995 to present; Vice Chairman and Chief Executive Officer of Citizens and
its affiliates from 1994 to 1995; Vice Chairman and Marketing Director of
Citizens, from 1993 to present; General Manager, Negocios Savoy, S.A. from 1989
to 1993. Director of Citizens from 1993 to present.

RICK D. RILEY, Executive Vice President of Citizens from 1995 to
present; Executive Vice President and Chief Operating Officer of Citizens from
September 1995 to October 1995; Chief Administrative Officer of Citizens and
its affiliates from 1994 to June 1995, and President thereafter until September
1995; Executive Vice President and Chief Operating Officer of Citizens and its
affiliates from 1990 to 1991 and 1992 to 1994; President, Computing Technology,
Inc. from 1991 to 1992; Executive Vice President, Data Processing, of Citizens
and its affiliates from 1987 to 1991; Executive Vice President, CILIC from 1989
to 1992.

STEVEN F. SHELTON, Rancher and farmer from 1974 to present; Director,
First Centennial Corporation, from January to October 1989 and August 1990 to
1992. Director of Citizens from 1993 to present.

RALPH M. SMITH, Th.D., Pastor Emeritus, Hyde Park Baptist Church,
Austin, Texas, from 1960 to March 1996. Director of Citizens from 1989 to 1990
and 1993 to present; Advisory Director of Citizens from 1991 to 1993.

TIMOTHY T. TIMMERMAN, President, Texas Cable Systems, Inc.; President,
TCSI-Huntsville; President, Northeast Cablevision, Inc.; President, Timmerman
Investments Inc., Round Rock, Texas, from 1984 to present. Director of
Citizens from 1989 to present.

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No director of Citizens is a director of any other company with a class
of securities registered under the Securities Exchange Act of 1934 or any
investment company registered under the Investment Company Act of 1940.

EXECUTIVE OFFICERS. The following table sets forth certain information
concerning the executive officers of Citizens. Executive officers are elected
annually by the Citizens Board at the first meeting of the Citizens Board
following the Annual Meeting of Shareholders of Citizens:

[Download Table]

Name Age Position(s)
---- --- -----------

Harold E. Riley (1) 68 Chairman of the Board, President and Chief
Executive Officer

Randall H. Riley (2) 41 Vice Chairman and Chief Operating Officer

T. Roby Dollar (1) 57 Vice Chairman, Chief Actuary and Assistant
Treasurer

Rick D. Riley (3) 42 Executive Vice President

Mark A. Oliver (1) 38 Executive Vice President, Chief Financial
Officer and Secretary/Treasurer

Clayton D. Dunham (4) 52 Senior Vice President and Director of
Marketing

John K. Drisdale, Jr. (5) 42 Vice President and Chief Counsel

William P. Barnhill (6) 45 Vice President and Controller

---------
(1) Messrs. H. Riley, Dollar, and Oliver have served since 1987. They hold
similar positions in affiliated subsidiaries. Messrs. H. Riley and
Oliver are also members of the First American Board.

(2) Randall H. Riley has served since September 1993 and holds similar
positions in affiliated subsidiaries. Prior to 1993, he served as
General Manager for Negocios Savoy, S.A., a marketing company. He is
also a member of the First American Board.

(3) Rick D. Riley has served from 1987 to 1991 and 1992 to present and holds
similar positions in affiliated subsidiaries. From 1991 to 1992, he was
President of Computing Technology, Inc. He is also a member of the
First American Board.

(4) Clayton D. Dunham was named Senior Vice President and Director of
Marketing of Citizens and its affiliates in November 1994. From 1990 to
1994, he served as President of DIA International. From 1987 through
1990, he was General Manager of Negocios Savoy, S.A.

(5) John K. Drisdale, Jr., joined Citizens in December 1995 as Vice
President and Chief Counsel. From 1987 to 1992, he was Vice President
and General Counsel of Exeter Holdings Corp., an acquisition and
investments company. In 1992, Mr. Drisdale entered private law practice
as a partner in Forman, Perry, Watkins & Krutz. In 1993, he started the
law firm of Drisdale & Lindstrom PLLC from which he joined Citizens.

(6) William P. Barnhill has served as Vice President and Controller of
Citizens since June 1996. From 1975 to 1981 he was Manager of Central
Disbursing of American General Insurance Company.

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From 1981 until joining Citizens, he was Senior Vice President and
Treasurer of Western General Life Insurance Company.

EXECUTIVE OFFICER AND DIRECTOR COMPENSATION

The following table presents the aggregate compensation which was earned
by the Chairman and the Chief Executive Officer of Citizens for each of the
past three years, for Citizen's four most highly compensated executive officers
other than the Chief Executive Officer (Harold E. Riley) for 1996 and for all
other officers whose aggregate compensation exceeded $100,000 in 1995. No other
employee of Citizens earned total annual salary and bonus in excess of $100,000
prior to 1994.

SUMMARY OF COMPENSATION TABLE

[Enlarge/Download Table]

LONG TERM COMPENSATION
----------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
--------------------------------------- ----------- -------
RESTRICTED
OTHER ANNUAL STOCK OPTIONS LTIP ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION AWARD(S) SARS PAYOUT COMPENSATION
---------------------------- ---- ------ ----- ------------ -------- ---- ------ ------------

Harold E. Riley, Chairman
and CEO 1996 $325,000 N/A N/A N/A N/A N/A $12,268 (1)
1995 $312,700 N/A N/A N/A N/A N/A $ 3,761 (1)
1994 $260,616 N/A N/A N/A N/A N/A $ 6,691 (1)

Randall H. Riley, 1996 $160,200 N/A N/A N/A N/A N/A $ 4,514 (1)
Vice Chairman and Chief 1995 $161,431 N/A N/A N/A N/A N/A $ 4,415 (1)
Operating Officer 1994 $150,200 N/A N/A N/A N/A N/A N/A

Clayton Dunham, Senior VP and
Director of Marketing 1996 $143,533 N/A N/A N/A N/A N/A $ 3,083 (1)
1995 $120,200 N/A N/A N/A N/A N/A N/A

Steve Rekedal (2) 1995 $120,200 N/A N/A N/A N/A N/A $ 3,078 (1)

James I. Dunham (3) 1996 $150,000 N/A N/A N/A N/A N/A N/A

Rick D. Riley, Executive
Vice President 1996 $107,680 N/A N/A N/A N/A N/A $10,709 (1)

---------
(1) Profit-sharing plan allocation made in year indicated for the preceding
year. The determinations for 1996 are not expected to be made until mid
1997.
(2) Mr. Rekedal, formerly Executive Vice President, resigned effective
December 31, 1995.
(3) Mr. Dunham, formerly Vice Chairman, resigned in November 1996. Messrs.
R.H. Riley and Clayton Dunham have employment contracts with Citizens
terminable by either party on 30 days or less notice without severance
pay or similar benefits. Harold E. Riley does not have an employment
contract with Citizens.

All employees of Citizens are covered under a non-contributory
profit-sharing plan. Under the terms of the Plan, all employees who have
completed one year of service are eligible to participate. Vesting begins
following completion of two years' service and employees become fully vested
after several years' service. During 1993, no contributions to the plan were
made. Citizens made $50,000 annual contributions to the plan in 1994 and 1995
and a $100,000 contribution in 1996. Messrs. H.E. Riley, R.H. Riley, R.D.
Riley, C. Dunham and Rekedal had $68,099, $64,670, $1,785, $0 and $615,
respectively, vested under the plan as of December 31, 1995, the last
allocation date.

The members of Citizens Board who are not officers of Citizens are paid
$300 per meeting, while Committee members who are not officers are paid $150.
Total directors' fees paid during 1996 were

PRES14A 107th Page of 192 TOC 1st Previous Next ↓Bottom Just 107th
approximately $4,500. Messrs. Reneau and Smith were paid $15,000 and $1,800,
respectively, in each of 1995 and 1996 for services performed as consultants to
Citizens.

SOURCE OF CITIZENS SHARES

The Citizens Class A Common Stock which will be transferred in the
Exchange will have been issued to CICA. The Citizens shares, when delivered
pursuant to the Exchange Agreement, will be duly authorized and validly issued,
fully paid and non-assessable.

RIGHTS OF AMERICAN DISSENTING SHAREHOLDERS
TO RECEIVE PAYMENT FOR SHARES

The following is a summary of dissenters' rights available to
shareholders of American, which summary is not intended to be a complete
statement of applicable Mississippi law and is qualified in its entirety by
reference to Article 13 of the Mississippi Business Corporation Act, set forth
in its entirety as Appendix B.

CICA HAS CONDITIONED THE EXCHANGE ON, SUBJECT TO ITS RIGHT TO WAIVE, AND
HAS RESERVED THE RIGHT TO ABANDON THE EXCHANGE AGREEMENT IN THE EVENT THAT
HOLDERS OF GREATER THAN 2.5% OF THE OUTSTANDING SHARES OF CLASS A AND CLASS B
COMMON STOCK OF AMERICAN DISSENT FROM THE EXCHANGE AND SEEK PAYMENT FOR THEIR
SHARES IN ACCORDANCE WITH THE MISSISSIPPI BUSINESS CORPORATION ACT.

PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS. A shareholder of American
who wishes to assert dissenters' rights must file with American, prior to or at
the Meeting, a written notice of his intent to demand payment for his or her
shares if the Exchange is effectuated, and must not vote his or her shares in
favor of the Exchange. A shareholder who does not satisfy the foregoing notice
requirement will not be entitled to payment for his or her shares under
Mississippi law.

If the Exchange is approved, American will deliver a written dissenters'
notice to all shareholders who satisfied the above notice requirements. The
notice to dissenters must be sent no later than 10 days after the Effective
Date of the Exchange and must: (1) state where the payment demand from the
shareholder must be sent and where and when certificates for certificated
shares must be deposited; (2) inform holders of uncertificated shares to what
extent transfer of shares will be restricted after the payment demand is
received; (3) supply a form for demanding payment that includes the date of the
first announcement to news media or to shareholders of the terms of the
Exchange and requires that the person asserting dissenters' rights certify
whether or not he acquired beneficial ownership of the shares before that date;
(4) set a date by which American must receive the payment demand, which date
may not be fewer than 30 nor more than 60 days after the date the notice from
the shareholder is delivered to American; and (5) be accompanied by a copy of
Article 13 of the Mississippi Business Corporation Act.

A shareholder sent a dissenters' notice from American must demand
payment, certify he or she acquired beneficial ownership of the shares before
the date required to be set forth in the notice from American and deposit his
or her certificates in accordance with the terms of the notice from American.
A shareholder who demands payment and deposits his or her shares will retain
all other rights as a shareholder until his or her rights are canceled or
modified by the Exchange becoming effective. A shareholder who does not demand
payment or deposit his certificates where required, each by the date set in the
notice sent by American, will not be entitled to payment for his or her shares
under the Mississippi Business Corporation Act.

PRES14A 108th Page of 192 TOC 1st Previous Next ↓Bottom Just 108th
Except for after acquired shares of a shareholder, as soon as the
Exchange is effective, or upon receipt of a payment demand, American will pay
to each dissenter who complied with the Mississippi Business Corporation Act
the amount American estimates to be the fair value of the shares of the
dissenting shareholders, plus accrued interest. The payment must be
accompanied by: (1) a balance sheet of American as of December 31, 1995 or
1996, an income statement for such year or years, a statement of changes in
shareholders' equity for such year and the latest available interim financial
statements of American, if any; (2) a statement of the estimate of American of
the fair value of the shares; (3) an explanation of how interest was
calculated; (4) a statement of the right of the dissenter to demand payment if
the shareholder is dissatisfied with the payment or offer; and (5) a copy of
Article 13 of the Mississippi Business Corporation Act.

If American does not effect the Exchange within 60 days after the date
set for demanding payment and depositing share certificates, American will
return the deposited certificates and release the transfer restrictions imposed
on uncertificated shares. If, after returning deposited certificates and
releasing transfer restrictions, American effects the Exchange, it must send a
new notice to dissenters under Article 13 of the Mississippi Business
Corporation Act and repeat the payment demand procedure.

American may elect to withhold payment required above from a dissenter
unless such dissenter was the beneficial owner of the shares before the date
set forth in the notice to dissenters as the date of the first announcement to
news media or to shareholders of the terms of the Exchange. To the extent
American elects to withhold payment as set forth in the foregoing sentence,
after the Exchange is effected, American will estimate the fair value of the
shares, plus accrued interest, and will pay this amount to each dissenter who
agrees to accept it in full satisfaction of his demand. American shall send
with its offer a statement of its estimate of the fair value of the shares, an
explanation of how interest was calculated and a statement of the right of the
dissenter to demand payment if the dissenter is dissatisfied with the payment
or offer.

A dissenter may notify American in writing of his own estimate of the
fair value of his or her shares and the amount of interest due, and demand
payment of his estimate (less any payment made theretofore) or reject
American's offer and payment of the fair value of his or her shares and
interest due if: (1) the dissenter believes that the amount paid or offered is
less than the fair value of his or her shares or that the interest due is
incorrectly calculated; (2) American fails to make payment in 60 days after the
date set for demanding payment; or (3) American, having failed to effect the
Exchange, does not return the deposited certificates or release the transfer
restrictions imposed on uncertificated shares within 60 days after the date set
for demanding payment. A dissenter waives his or her right to demand payment
under the foregoing procedure unless his or her notifies American of his demand
in writing within 30 days after American made or offered payment for his or her
shares.

JUDICIAL APPRAISAL OF SHARES. If a demand for payment remains
unsettled, American will commence a proceeding within 60 days after receiving
the payment demand and petition a court to determine the fair value of the
shares and accrued interest. If American does not commence the proceeding
within the 60-day period, it will pay each dissenter whose demand remains
unsettled the amount demanded. American will commence the proceeding in the
chancery court of the county where its principal office is located, Hinds
County, Mississippi, and it will make all dissenters whose demand's remain
unsettled parties to the proceeding as in an action against their shares and
all parties must be served with a copy of the petition. The jurisdiction of
the court in which the proceeding is commenced will be exclusive. The court
may appoint one or more persons as appraisers to receive evidence and recommend
the decision on the question of fair value. The dissenters will be entitled to
the same discovery rights as parties in other civil proceedings. Each
dissenter made a party to the proceeding is entitled to judgment (1) for the
amount, if any, by which the court finds that fair value of his or her shares,
plus

PRES14A 109th Page of 192 TOC 1st Previous Next ↓Bottom Just 109th
interest, exceeds the amount paid by American, or (2) for the fair value, plus
accrued interest, of his after acquired shares for which American elected to
withhold payment.

The court in an appraisal proceeding will determine all costs of the
proceeding, including the reasonable compensation and expenses of appraisers
appointed by the court. The court will assess the costs against American,
except that the court may access costs against all or some of the dissenters,
in amounts the court finds equitable, to the extent the court finds the
dissenters acted arbitrarily, vexatiously or not in good faith in demanding
payment. The court may also assess the fees and expenses of counsel and expert
for the respective parties in amounts the court finds equitable: (1) against
American and in favor of any or all dissenters if the court finds American did
not substantially comply with the requirements of the Mississippi Business
Corporation Act; or (2) against either American or a dissenter, in favor of any
other party, if the court finds that the party against whom the fees and
expenses are assessed acted arbitrarily, vexatiously or not in good faith with
respect to the rights provided by Article 13 of the Mississippi Business
Corporation Act. If the court finds that the services of counsel for any
dissenter were of substantial benefit to other dissenters similarly situated,
and that the fees for those services should not be assessed against American,
the court may award to the counsel reasonable fees to be paid out of the
amounts awarded to dissenters who were benefitted.

COMPARISON OF RIGHTS OF SECURITYHOLDERS

Upon consummation of the Exchange, the holders of issued and outstanding
American Class A and Class B Common Stock will receive Citizens Class A Common
Stock. The rights of the holders of Citizens shares are governed by Citizens'
Articles of Incorporation, its bylaws and Colorado law, while the rights of
holders of American shares are governed by American's Articles of
Incorporation, its bylaws and Mississippi law. In most respects, the rights of
holders of Citizens Class A Common Stock and holders of American Class A or
Class B Common Stock are similar. The following is a brief comparison of the
rights of the holders of American Class A or Class B Common Stock with those of
Citizens Class A Common Stock.

AUTHORIZED SHARES

The aggregate number of shares which Citizens is authorized to issue is
50,000,000 shares of Class A Common Stock with no par value and 1,000,000
shares of Class B Common Stock , with no par value; of which _______ shares of
such Class A Common Stock and 621,049 shares of Class B Common Stock are issued
and outstanding, fully paid and non-assessable. These numbers do not include
treasury shares.

The aggregate number of shares which American is authorized to issue is
15,000,000 shares of Class A Common Stock, no par value, and 2,500 shares Class
B Common Stock, $1.00 par value, of which 5,021,764 shares of Class A Common
Stock are issued and outstanding, fully paid and nonassessable, and 2,500
shares of Class B Common Stock are issued and outstanding, fully paid and
nonassessable.

Both Colorado and Mississippi law allow corporations to authorize one or
more classes of stock with or without par value and such designations,
preferences, limitations and other rights as allowed by the articles of
incorporation.

DIVIDEND RIGHTS

The cash dividends paid upon each share of Citizens Class A Common Stock
is twice the cash dividends paid on each share of Citizens Class B Common
Stock. No such differences exist in the dividend rights of American Class A or
Class B Common Stock.

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Generally, both Colorado and Mississippi law allow the Board of
Directors to declare dividends from time to time as long as such payment of
dividends would not make the corporation insolvent or the corporation's net
assets after such payment are sufficient that upon dissolution or liquidation
the corporation can satisfy any preferential rights of shareholders other than
those receiving the dividend.

VOTING RIGHTS

Those who hold American shares on the date of the Exchange becomes
effective will be entitled as a group to hold approximately 697,815 shares of
Citizens Class A Common Stock or approximately ___% of Citizens Class A shares
that Citizens anticipates will then be outstanding.

The voting rights of Citizens Class A Common Stock and Class B Common
Stock are equal in all respects except that the holders of Class B Common Stock
have the exclusive right to elect a simple majority of the members of Citizens'
Board of Directors, and the holders of the Class A Common Stock have the
exclusive right to elect the remaining directors.

The holders of American Class A and Class B Common Stock are entitled to
one vote for each share of stock held. No holders of Citizens Common Stock
have cumulative voting rights in the election of directors; however, the
holders of Class A and Class B Common Stock of American have the right to
cumulate their votes in the election of directors. The lack of cumulative
voting rights with respect to the Citizens Class A Common Stock makes it more
difficult for minority groups to effect election of one or more directors to
represent their interests.

The Articles of Incorporation of Citizens provide that when, with
respect to any action to be taken by Citizens shareholders the Colorado
Business Corporation Act requires the affirmative vote of the holders of two-
thirds of the outstanding shares entitled to vote thereon, or of any class or
series, such action may be taken by the affirmative vote of the holders of a
majority of the outstanding shares entitled to vote on such action. The power
to amend the Articles of Incorporation, approve mergers and approve
extraordinary asset transfers are all subject to this provision.

The Mississippi Business Corporation Act provides that, with respect to
any action to be taken by American shareholders including, but not limited to
shareholder approval of amendments, mergers, consolidations, or asset
transfers, such action may be taken by the affirmative vote of a majority of
the shares entitled to vote at a meeting called and held on due notice, at
which a quorum is present or represented. However, in some circumstances a
two-thirds vote may be required, as in the Exchange. Such requirement has been
communicated to American by the Mississippi Insurance Department.

American's bylaws provide that the power to alter, amend, or repeal
American's bylaws or to adopt new bylaws is vested in the Board of Directors.
However, the Mississippi Business Corporation Act gives shareholders the right
to amend and repeal bylaws even if not so provided for in the bylaws
themselves. Citizens' Articles of Incorporation provide that Citizens' Board
of Directors has the power to enact, alter, amend and repeal Citizens' bylaws
not inconsistent with the laws of Colorado or Citizens' Articles of
Incorporation, as the Board of Directors deems best for the management of
Citizens; however, the Colorado Business Corporation Act gives shareholders the
right to amend and repeal bylaws even if not so provided for in the bylaws
themselves.

Special meetings of American shareholders may be called by American's
President, its Board of Directors, or the holders of 10% or more of all the
American shares entitled to vote. Special meetings of Citizens' shareholders
may be called by the Chairman of its Board, the Board of Directors, or the
holders of 10% or more of all the Citizens shares entitled to vote. A majority
of the shares of the outstanding capital stock entitled to vote constitutes a
quorum of shareholders under the bylaws of American. The

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bylaws of Citizens provide that one-third of the votes entitled to be cast on a
matter by a voting group shall constitute a quorum of that voting group. The
bylaws of Citizens provide that shareholders can take action without a meeting
provided that all the shareholders of the corporation entitled to vote have
consented to the action in writing. American's Articles of Incorporation
provide that written consents signed by a majority of the voting shares
outstanding shall be sufficient to authorize an action without a meeting.

PREEMPTIVE RIGHTS

Authorized American and Citizens shares may be issued at any time, and
from time to time, in such amounts and for such consideration as may be fixed
by the Board of Directors of American and Citizens, respectively. No holder of
Citizens or American shares has any preemptive or preferential right to
purchase or to subscribe for any shares of capital stock or other securities
which may be issued by Citizens or American.

LIABILITY OF DIRECTORS

As authorized by Colorado law, Citizens' Articles of Incorporation
contain a provision to the effect that no director of Citizens shall be
personally liable to Citizens or any of its shareholders for damages for any
breach of duty as a director except to the extent limited by law. The Articles
of Incorporation of American contain no such provision; however, the bylaws of
American provide broad indemnification of American directors, officers,
employees and others.

LIQUIDATION RIGHTS

In the event of any liquidation, dissolution, or winding up of Citizens,
whether voluntary or involuntary, the holders of Citizens common shares are
entitled to share, on a share-for-share basis, any of the assets or funds of
Citizens which are distributable to its shareholders upon such liquidation,
dissolution, or winding up.

In the event of any liquidation, dissolution, or winding up of American,
whether voluntary or involuntary, American common shareholders will be entitled
to share, on a share-for-share basis, any of the remaining amounts or funds of
American which are distributable to its shareholders upon such liquidating,
dissolution or winding up.

ASSESSMENT

The Citizens shares to be distributed upon consummation of the Exchange
will be, upon issuance, fully paid and non-assessable. American shares, for
which full consideration has been paid, are fully paid and non-assessable.

EXPERTS

The consolidated financial statements of American Investment Network,
Inc. (formerly Great American Investment Network, Inc.) as of and for the years
ended December 31, 1995 and 1994 included in this proxy statement have been
audited by Deloitte & Touche, LLP, independent auditors, as stated in their
report appearing herein.

The consolidated financial statements (and the statement schedules) of
Citizens, Inc. and subsidiaries as of December 31, 1995 and 1994, and for each
of the years in the three-year period ended December 31, 1995, have been
included herein in reliance upon the report of KPMG Peat Marwick LLP,
independent certified public accountants, and upon the authority of such firm
as experts in accounting and auditing.

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LEGAL MATTERS

The legal status of the Citizens Class A Common Stock to be distributed
pursuant to the Exchange has been passed upon by Jones & Keller, P.C., Denver,
Colorado.

OTHER MATTERS

The American Board does not intend to bring any matters before the
Meeting other than those specifically set forth in the notice of meeting
accompanying this Proxy-Information Statement and does not know of any matters
to be brought before the Meeting by others. If any other matters properly come
before the Meeting, it is the intention of the persons named in the
accompanying proxy to vote such proxy in accordance with the judgment of the
American Board.

DEADLINE FOR CITIZENS SHAREHOLDER PROPOSALS

Any Citizens shareholder who wishes to present a proposal for action at
the 1998 Annual Meeting of the Citizens Shareholders must submit his or her
proposal in writing by Certified Mail -- Return Receipt Requested, to Citizens,
Inc., 400 East Anderson Lane, Austin, Texas 78752, by January 15, 1998.

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INFORMATION CONCERNING AMERICAN

American, formerly Great American Investment Network, Inc., was
incorporated under Mississippi law on January 15, 1987. American was organized
to serve as a parent company of a life insurance company and other subsidiary
companies dealing with insurance and financial services. In 1996 the name of
American was changed to its present name from "Great American Investment
Network, Inc."

Presently, American owns 100% of the outstanding capital stock of United
Security Life Insurance Company, a Mississippi domestic life insurance company
("United") and The Gain Agency, Inc., a Mississippi corporation (the "Agency").

From the inception of American in January, 1987, until May 1990,
American was in a development stage of organizational planning, receiving
capital through a private intrastate offering and a public intrastate offering,
establishing operating procedures, training a staff in United, acquiring its
insurance agency business, and buying and renting an office building. Its
principal revenues were from interest on invested capital, rental from the
portion of its building rented to outsiders and agency commissions.

UNITED. Effective December 31, 1994, American purchased Financial
Security Life of Mississippi ("FSL"), a Mississippi domestic life insurance
company and United and FSL were merged. FSL was the surviving company and
simultaneously with the merger the name of the surviving company was changed to
United. In compliance with the requirements of the Mississippi Department of
Insurance, certain operating transactions of both companies were combined in
the annual statutory financial statement for 1994. The statutory gain of
United approximated $185,000 in 1994 including the combination. The statutory
gain in 1995 was approximately $13,000. On a generally accepted accounting
principle basis, net income of United approximated $293,000 in 1995 and
$221,000 in 1994.

As of December 31, 1995, United had $66,528,000 of life insurance in
force and $23,655,000 in accidental death benefits. Of the life insurance in
force, United reinsured $39,236,000 and retained $27,292,000. The maximum
retention by United on any one life for life insurance policies is $20,000. It
reinsured all of the accidental death benefit coverage. United had 5,407
accident and health policies with $1,600,000 of annualized premium in-force.
Reinsurance is provided for amounts in excess of $25,000 on any one claim in
any calendar year on the cancer policy.

United has approximately 100 full and part time licensed
representatives. These agents are licensed to sell life, accident and health
insurance products and United will be recruiting additional agents in the nine
states it is authorized to sell its products.

INSURANCE PRODUCTS. United offers customary forms of life insurance,
including non-participating whole life, decreasing term, level term policies,
and a participating whole life policy. It has begun offering a limited line of
supplementary health policies. Its leading life policy in the past has been
the "Lifetime Accumulator," a participating whole life insurance policy. This
policy differs from the usual offering of life insurance in that the premium is
uniform but the amount of insurance varies by the age of the proposed insured.
The product is sold, therefore, in premium units rather than in face amount
units. While this policy is written only on persons at ages 0 - 40, other life
insurance products are offered at ages 0 - 70.

The Lifetime Accumulator, by being sold at ages less than 40 and in
small insurance amounts, does not usually require a medical examination of the
proposed insured. Examinations are obtained if the amounts exceed the usual
published guidelines of United. These guidelines affect all of its life
insurance products. Electrocardiograms, X-rays, blood profiles and urinalysis
are obtained. United can, and does, request records from the proposed
insured's attending physician, and it obtains investigative consumer reports as
well. Applications must be submitted on every proposed insured with questions
of a medical

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nature asked. Also questions regarding driving, habits, hazardous sports and
flying are asked. Supplementary questionnaires are also obtained where
required on aviation and hazardous avocations. The underwriting department may
always request additional information of this nature where indicated by
responses on the application.

Through 1993, United had written primarily the Lifetime Accumulator,
which accounted for approximately 98% of premium income. During latter 1993,
United shifted its marketing thrust to non-participating ordinary life products
and supplementary accident and health products. For 1995, 43% of premium
income was from life policies and 57% was from accident and health policies.
The persistency of the products has followed United's actuarial projection for
the products and lapses have not exceeded the assumptions. It is anticipated
that a major portion of the premium revenues in 1996 will come from the
accident and health products.

As mentioned above, United writes various forms of life insurance, and
in 1994 and 1995 it developed several new supplementary health insurance
products, i.e., cancer, hospital indemnity, mental illness, outpatient
sickness, catastrophic illness, emergency accident, intensive care and
disability income.

United plans to mass market these products through various companies
employee groups. Premiums will be employer paid or paid through payroll
deduction. United has been selective in its acceptance of the life insurance
risks. United can issue life insurance on a rated premium substandard basis up
through Table 16 (400% extra mortality), but in so doing it will reinsure all
of the risk. United only issues through Table 4 (100% extra mortality) on its
Lifetime Accumulator policy to improve the mortality and potential
profitability on that product line. The substandard risks are those that by
reason of health, occupation or avocation fall outside the normal anticipated
mortality levels of the general population as developed by the actuarial
sciences. United, prior to January 8, 1993, retained $15,000 of life insurance
on any one life; on January 8, 1993 it increased its retention to $20,000 on
any one life. It reinsures all of its accidental death risk. United also has
a reinsurance agreement on its cancer policy which limits its claim risk to
$25,000 in any calendar year on any one claim.

The applications for accident and health policies which United issues
are underwritten. Applications or applicants personal medical history records
which show pre-existing medical conditions will be declined or the policy will
be issued with exclusion endorsements. In those instances where the employer
pays a portion of the premium and at least 75% of the employees apply for the
coverage, the policies may be issued covering pre-existing conditions.

United's selling efforts are not usually concentrated on any one
economic, occupational, hazard or age group. The Lifetime Accumulator is the
only exception, and that is an exception due to limiting the age of proposed
insureds to a maximum of 40. As a result of the acquisition of FSL, the
marketing territory for United was expanded from three to nine states. The
direct sale of policies for the immediate future is limited to Alabama,
Arizona, Arkansas, Indiana, Louisiana, Mississippi, Oklahoma, Tennessee and
Texas. United's products are generally competitive with those of other
insurers in those states.

United's actual lapse ratios are well within the lapse assumptions used
in the development of the liability for future policy benefits.

United has a conservation program in place where a representative of
United contacts any policyholder whose policy has lapsed in an attempt to
retain the business. Because the Lifetime Accumulator product was sold
primarily to shareholders of American as opposed to sophisticated product
shoppers in a competitive environment, no excess lapsation is expected to occur
even though dividend reductions have and will occur.

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Substandard life risk will not be offered with the supplementary health
insurance products. Standard and substandard life risk are offered separately
from the health products. All of United's life policies may be issued
substandard whereby an extra premium is charged the insured provided there is
an increased mortality risk due to health or life style of the individual.
Additionally, a special guaranteed issue whole life policy is offered
exclusively to individuals who are substandard risk.

ADMINISTRATION. The issuance of policies, billing, preparation of
commission and production statements, posting of premium payments and serving
policyholders through computerized communications has been performed by Wakely
& Associates, an unaffiliated service company in Florida. Management developed
in 1995 its own data processing equipment and programs for the administration
of the accident and health business and is currently developing its own data
processing equipment and programs for the life products and general accounting.
Actuarial services for the development of new policies and rates are performed
by the actuarial firm of Allen Bailey and Associates, Austin, Texas.

SALES. United's policies are being sold by direct licensed
representatives and licensed general agents. None of these agents has
underwriting authority. The commissions paid are believed by management to be
competitive with commissions paid by other life insurance companies in the
states in which United is licensed to operate. United is aware that there is
considerable competition for obtaining qualified agents and that it will be
competing with well-established life insurance companies for agents to sell its
policies. United will also recruit agents from among persons who are not now
engaged in the selling of life and accident and health insurance, and United
expects to train such agents. United presently has approximately 100 licensed
agents. The agents recruited and licensed by United hold licenses with other
companies and possibly could sell other companies' policies that are similar in
some respects to United's policies. This arrangement is quite common with
companies that recruit and license general agents.

Effective with the acquisition and merger of FSL on December 31, 1994,
United became licensed in the states of Alabama, Arizona, Arkansas, Georgia,
Indiana, Louisiana, Mississippi, Oklahoma, Tennessee and Texas. United's
insurance policies are being submitted to all these states Insurance
Departments for approval and agents are being recruited to sell the products in
those states, except Georgia, in which United does not meet that states minimum
capital and surplus requirements in order to sell its products.

INVESTMENTS. United invests and reinvests certain of its reserves and
other funds. A part of its income will be derived from this source. The
investments of United are limited as to type and amount by the Mississippi
insurance laws which are designed to insure prudent investment policies.

The investment of capital, paid-in and operating surplus and other funds
of insurers organized under the laws of the State of Mississippi is specified
by Mississippi Insurance Code 83-19-51. This statute includes general and
specific limitations on investments, records of investments and other matters.
The Mississippi insurance law regulating investments and other aspects of the
management of insurance companies is designed primarily for the protection of
policyholders rather than investors.

The administration of United's investment portfolio is handled by a
committee of its Board of Directors with consultation and advice from
experienced professional investment experts from J. C. Bradford and Company.
The guidelines used require that bonds, both government and corporate, are of
the highest quality and comprise a majority of the investment portfolio. The
assets selected are intended to mature in accordance with the average maturity
of the insurance products and to provide the cash flow for United to meet its
policyholder obligations. The type, quality and mix will enable United to
compete effectively in the life insurance marketplace and to provide
appropriate interest margins to assure its continued solvency and attain
profitability.

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The Mississippi Insurance Code allows an insurance company a lesser
premium tax if up to 25% of its investments are invested in the State of
Mississippi including Mississippi corporation, state, county, and other
subdivision bonds. It is and has been the policy of United to invest its
assets in a percentage in excess of the Mississippi requirement, contingent on
the availability in the market of these securities, both for purposes of
incurring the lower premium tax and returning United's appreciation for the
support given to it by the American shareholders and United policyholders.

In both 1995 and 1994 net investment income represented approximately
9.0%, and 9.5% respectively of American's total revenues. Investment balances
which are held principally by United, and investment results for the two years
ended December 31, 1995, are as follows:

[Download Table]

Net
Investments at Unrestricted Investment Investment
Amortized Costs Cash Total Income Yield
--------------- ------------ ---------- ---------- ----------

1995 $3,599,517 $121,102 $3,720,619 $294,807 7.6%

1994 $3,432,370 $283,747 $3,716,117 $246,933 7.0%

Investment yield reflects net investment income on the sum of average
invested assets plus average investment income accrued.

The following table compares United's fixed maturity investment
portfolio at amortized cost by investment rating category as of December 31,
1995 and 1994.

[Enlarge/Download Table]

12/31/95 Rating 12/31/94 Rating
Class Amount Percent Class Amount Percent
----- ------ ------- ----- ------ -------

U. S. Treasury and other
government agencies $ 580,371 22.2 $ 403,674 17.3
Public utilities and industrial
and miscellaneous:
Class 1 1,056,888 40.5 1 759,471 32.9
Class 2 876,574 33.6 2 1,042,048 44.8
Class 3 98,447 3.7 3 118,498 5.0
---------- ---------- ---------- ----------
$2,612,280 100.0 $2,323,691 100.0

The ratings used in the above schedule are those used by the Securities
Valuation Office of the National Association of Insurance Commissioners and
compare generally to the Moody and Standard and Poor's bond ratings as follows:

[Download Table]

SVO RATING MOODY & STANDARD & POOR QUALITY RATING
---------- ----------------------- --------------

1 AAA, AA, A Highest Quality
2 Baa, BBB High Quality
3 Ba, BB Medium Quality
4 B Low Quality
5 Caa, Ca, CCC, CC Lower Quality
6 CI, D In or Near Default

American has classified all its investments as securities available-for-
sale which are carried at fair value. As of December 31, 1995, the unrealized
gain of American's available-for-sale security portfolio approximated $48,062
and was presented as a component of stockholders' equity.

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REINSURANCE. As is customary among insurance companies, United will
reinsure with other companies portions of the life insurance risks it will
underwrite. The two principal types of reinsurance treaties commonly in use in
the industry are the "automatic" and the "facultative" agreements. Under an
"automatic" treaty, the reinsurer agrees that it will assume liability
automatically for the excess over the retention limits on any application
acceptable to United. Under a "facultative" treaty, the reinsurer retains the
right to accept or reject any reinsurance submitted, after a survey of each
individual application. In order to gain advantage of the reinsurer's
underwriting experience in evaluating applications for insurance, United may
submit some applications for insurance to the reinsurer on a facultative basis,
and, if the reinsurer rejects any such application as an unsatisfactory risk,
United will also reject the application.

If the application exceeds United's automatic binding limit, it must
send the application and all underwriting papers to the appropriate reinsurer
according to the alphabetical split (per the reinsurance treaty) for its
underwriting action. The amount of the automatic binding limit is set at
$200,000. This limit is ten times United's life retention, and it may be
increased as United's retention increases. United may send any application on
a facultative basis to the appropriate reinsurer, if after evaluation of the
underwriting information, United's underwriter wishes to take advantage of the
reinsurer's enlarged data base and experience for additional underwriting
input. If the case is rejected by the reinsurer, United must also reject the
application.

The primary purpose of reinsurance agreements is to enable an insurance
company to reduce the amount of its risk on any particular policy and, by
reinsuring the amount exceeding the maximum amount the insurance company is
willing to retain, to write policies in amounts larger than it could without
such agreements. The effect of reinsurance is to transfer a portion of the
profit, if any, on the insurance ceded to the reinsurer. Even though a portion
of the risk may be reinsured, United will remain liable to perform all
obligations imposed by the policies issued by it and is liable if its reinsurer
should be unable to meet its obligation under the reinsurance agreements. It
should be noted that when insurance is reinsured under either a facultative or
automatic arrangement, a portion of the premium received on that policy is
still utilized to post the required actuarial reserves to cover the risk.
United's general policy is to reinsure business with insurance companies with
an A.M. Best and Company rating of "A" or better.

United's life reinsurance is being ceded through automatic and
facultative treaties to two unaffiliated insurance companies. These
reinsurance companies are Business Men's Assurance Company, Kansas City,
Missouri, and Optimum Re, Irving, Texas, both rated "A" by A.M. Best and
Company. On September 1, 1993 United entered into a reinsurance agreement with
North Western Mutual Life Insurance Company, Minneapolis, Minnesota, to cover
claims on its cancer policies in excess of $25,000 in any calendar year on any
one claim. It is the practice of United to reinsure all accidental death
benefit risks that are written with the Participating Lifetime Accumulator or
with other forms of insurance.

RESERVES. In accordance with the Mississippi insurance laws and
regulations under which operates, United has set up actuarially computed
reserves as liabilities to meet the obligations on the policies it writes.
These reserves are the amounts which, with additions from premiums to be
received and with interest on such reserves, compounded annually at certain
assumed rates, are calculated to be sufficient according to accepted actuarial
principles to meet policy obligations as they mature. The various actuarial
factors are determined from mortality tables and interest rates in effect when
the policies are issued. The reserves to be included in statutory filings will
be valued on a basis that meets the requirements of law in Mississippi.

REGULATION AND SPECIAL ACCOUNTING PRACTICES RELATING TO LIFE INSURANCE
COMPANIES. Mississippi insurance laws and regulations generally govern the
accounting practices and prescribe the procedures and forms for financial
reports of insurance companies. Reports prepared in accordance with the
prescribed statutory accounting practices are primarily intended to insure the
ability of an insurance

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company to meet its obligations to policyholders and do not necessarily reflect
going concern value. Balance sheets prepared in accordance with statutory
accounting practices are designed primarily to reflect the financial position
of insurance companies from the standpoint of solvency. Certain of the
prescribed or permitted accounting practices differ in some respects from
generally accepted accounting principles (GAAP) followed by other business
enterprises in determining financial position and results of operations.

Basically, a life insurance company's gross income is generated from two
sources, premiums and investment income. The cost of placing new policies in
force may exceed the premiums received for the first year. In subsequent
policy years some of these costs, such as commissions, medical examinations and
investigative expenses, are reduced substantially or do not recur. Also,
policy lapses and surrenders are generally greater in the first few years that
policies are in force. Although the costs of acquiring new business are large
and generally not duplicated thereafter, statutory accounting procedures for
insurance companies and state laws and regulations designed to protect
policyholders provide that the entire amount of acquisition costs must be
charged to operations currently, instead of being spread over the life of the
policies. As a result of this and other factors, new insurance companies
normally show no profit on a statutory accounting basis in their early years of
operation.

The interests of policyholders and of the public in the financial
integrity of the life insurance industry make it important and proper that the
solvency of life insurance companies be demonstrated to insurance regulatory
authorities. Solvency must be continuously demonstrated for a life insurance
company to be permitted to offer its services to the public.

The National Association of Insurance Commissioners has established a
model act for insurance companies regarding risk-based capital. Risk based
capital is a method of measuring the amount of capital appropriate for an
insurance company to support its overall business operations in light of its
size and risk profile. It provides a means of setting the capital requirement
in which the degrees of risk taken by the insurer is the primary determinant.
The four major risks involved are:

Asset risk: This is the risk of asset default.

Insurance risk: This is the risk of adverse mortality and morbidity
experience.

Interest rate risk: This is the disintermediation risk of policyholders
withdrawing funds.

Business risk: This is normal business and management risk.

A company's risk based capital is calculated by applying a factor to
various assets, premium and reserve items, where the factor is higher for those
items with greater underlying risk and lower for less risky items. The
adequacy of a company's actual capital may then be measured by its risk based
capital ratio, that is, the ratio of its total capital, as defined by the
formula, to its risk based capital. In addition to providing a new standard
for minimum capital, risk based capital standards will be used by regulations
to set in motion appropriate regulatory actions relating to insurers which show
signs of weak or deteriorating condition. The first level requires company
action. The three levels of regulatory action and involvement are:

Level A: Identifies situations requiring the initial level of
regulatory scrutiny.

Level B: Identifies situations requiring a detailed investigation
of the company.

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Level C: Identifies the minimum level of total adjusted capital
below which state conservatorship shall be required.

As of December 31, 1995, United had a statutory-basis paid-in capital
and surplus of $2,372,279. This capital and surplus is invested in government
obligations, corporate bonds, and other investments currently permitted by the
insurance company investment laws of the State of Mississippi.

Pursuant to the laws and regulations of the State of Mississippi, United
is presently required to maintain minimum capital of $400,000 and minimum
surplus of $600,000. These minimum requirements may require amendment as a
result of recently adopted risk based capital requirements effective for 1993
as issued by the National Association of Insurance Commissioners. The Total
Adjusted Capital for United at December 31, 1995 was $2,430,728 and the Risk
Based Capital was $107,039. No action is required by United regarding its
capital and surplus.

The insurance laws of the State of Mississippi also provide that a life
insurance company will be assessed a lower premium tax if up to 25% of the life
company's investments are in Mississippi securities. The management of United
has invested its assets in a manner to incur the lower tax rate.

Statutory accounting requires that the policy reserve liabilities be
increased in each year that a policy is in force. The amount of the reserves
is recorded as an expense for statutory accounting purposes. Cash received
from renewal premiums, net of amounts used for current operations, is invested
by a life insurance company in accordance with applicable state law. Income
earned on invested assets becomes operating income to the life insurance
company to the extent that it exceeds the interest required to be added to
reserves.

The financial statements presented to shareholders, the public, and the
Securities and Exchange Commission are required to be prepared in conformity
with generally accepted accounting principles. The objective of these
statements is to provide reliable financial information about economic
resources and obligations of a business enterprise and changes in net resources
resulting from its business activities, measured as a going concern. To the
extent that the accounting practices prescribed or permitted by state
regulatory authorities differ from generally accepted accounting principles,
appropriate adjustments will be made including, but not limited to the
following:

1. Premiums are recognized as revenues over the premium-paying period
and future benefits and expenses are related to such premium revenues resulting
in the recognition of profits over the life of the insurance contracts. This
relationship is accomplished by a provision for future policy benefit
liabilities and amortization of deferred policy acquisition costs.

2. Certain assets designated as "non-admitted assets" for statutory
purposes (normally office equipment and agents' balances) are included in the
balance sheet. In this connection, American will purchase all office equipment
and lease it to United at prevailing lease rates for purposes of generating
operating revenues for American.

3. The Asset Valuation Reserve is reclassified as retained earnings
rather than as a liability.

4. Deferred federal income taxes are provided for differences in the
timing of recognition of certain items of income or expense for tax and
financial statement purposes. These temporary differences relate primarily to
different methods of calculating policy reserves, treatment of acquisition
costs, and recognition of deferred and uncollected premiums.

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In common with other insurance companies operating in Mississippi,
United is subject to the regulation and supervision of the Mississippi
Insurance Commissioner. After making application for admission and receiving
proper license, United may operate in other states and, at that time, will be
subject to regulation and supervision in any other state where it may be
permitted to transact business. Such regulation is primarily for the benefit
and protection of insurance policyholders rather than shareholders of insurance
companies. Broad administrative powers are possessed by the Mississippi
Department of Insurance and other supervising agencies. Although the powers
differ from state to state, in general they include authority to grant and
revoke licenses to transact business, to be an agent, to supervise premium
rates, to approve the form of insurance contracts, to supervise the form of
financial statements filed with such agency, to regulate capital requirements,
to regulate the investment portfolio, to regulate insurable interest on one
life and to require the filing of detailed annual reports. United's business
and accounts will be subject to examination by the Mississippi Department of
Insurance. Such regulation includes the filing of financial statements by
United, periodic reporting and examination by the insurance regulatory
authorities, and review of transactions between members of the holding company
group.

State laws regulating insurance holding companies such as American may
significantly limit the ability of United to pay, or American's ability to
cause United to pay or make dividends, loans or advances to American.

Under insurance guaranty fund laws, insurers doing business in states
having such laws can be assessed up to prescribed limits for policyholder
losses incurred by insolvent companies. Mississippi and the other states in
which United is licensed have guaranty fund laws and United has been assessed
amounts under these laws of $446 for 1995 and $6,446 for 1994. While actual
assessments for the last three years have been immaterial, the amount of any
future assessments on United under this law cannot be reasonably estimated.
State laws provide for carrying the assessed amounts as an asset and amortizing
the amount over a five year period by deductions from premium taxes.
Management is not aware of any known uncertainties relating to future
assessments that would materially impact American's liquidity or results of
operations. Additional discussion regarding the guaranty fund is included in
the "Management's Discussion and Analysis."

Mississippi, in which United is licensed to do business, regulates
insurers and their affiliates under insurance holding company legislation.
Under such laws, transactions by United with American or any other future
affiliates may be subject to prior notice or approval depending on the size of
the transaction in relation to their financial position.

Although the federal government generally does not directly regulate the
business of insurance, federal initiatives often have an impact on the business
in a variety of ways. Current and proposed federal measures which may
significantly affect the insurance business include employee benefit
regulation, securities regulation concerning insurance products, tax law
changes affecting the taxation of insurance companies, the tax treatment of
insurance products and its impact on the relative desirability of various
personal investment vehicles and proposed legislation to more fully subject
insurance companies to antitrust laws.

COMPETITION. The life insurance industry is highly competitive. There
are approximately 2,100 life insurance companies in the United States and
approximately 750 life insurance companies licensed to do business in
Mississippi. Many of them are well-established firms with fine reputations,
offering a broader line of insurance policies, having larger selling
organizations and having greater financial resources than United. Many of
these companies operate on a mutual basis, which may give them a competitive
advantage over United on certain types of policies due to the fact that all
profits accrue to the policyholders.

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EMPLOYEES. As of December 31, 1995, American had 20 full time and 5
temporary employees. A major portion of American's data processing and
accounting functions were performed by a service bureau, Wakely and Associates,
Clearwater, Florida (as of April 1, 1996, those functions were assumed by
American). Agents marketing United's insurance portfolio are designated by
United as independent contractors and are not considered employees.

THE GAIN AGENCY, INC. (the "Agency"). Prior to April 1995 the Agency
was a general insurance agency selling property and casualty insurance for
various insurance companies. In April 1995, the Agency sold its inforce
business and certain net assets. Prior to this sale, the Agency received
commissions from various insurance companies on the premiums collected from the
policies sold by the Agency. Commission and other income received by the
Agency approximated $65,000 in 1995 and $221,000 in 1994.

After negotiations between the Agency's management and Mr. John U.
White, Jr., the manager of the Agency, an agreement was reached to sell to Mr.
White the in-force property and casualty business which had been produced by
the Agency. The agreement also included the sale of net book value of certain
assets and liabilities in the Agency. After an independent appraisal of the
in-force business and the other assets, the Board of Directors approved the
sale for the sum of $180,000 and a definitive contract was executed effective
April 1, 1995. The gain on disposition and the income (loss) from operations
of the Agency have been accounted for as discontinued operations. The Board of
Directors has no immediate plans for the future use of the Agency.

U.S. STAR INTERNATIONAL, INC. On November 5, 1993, American acquired
controlling interest in U. S. Star International, Inc., a Cayman Island
corporation. This company was acquired to serve as an entity to purchase the
foreign reinsurance license in Mexico for United and to serve as the marketing
agency for United's international sales operation. United was licensed in
Mexico as a foreign reinsurer on March 14, 1994.

The Board of Directors determined that the objective to get United
licensed in Mexico as a foreign reinsurer had been accomplished and that U. S.
Star International could not serve any other immediate useful purpose. The
Board decided to terminate the Agency's interest in U.S. Star International and
a contract was executed to this effect on April 28, 1995. Accordingly, the
investment of $30,000 was written off in 1995 as foreign operations marketing
expense.

DESCRIPTION OF PROPERTY. American owns a two story brick building and
lot located at 660 Lakeland East Drive, Flowood, Mississippi. There is
approximately 13,600 square feet in the building which is leased to United.
American and its subsidiaries occupy approximately 7,500 square feet. The
remaining space in the building is leased to third party tenants at
approximately $8 per square foot per year. As of December 31, 1995, the
building and lot had a cost basis of approximately $564,000. The building is
being depreciated over 32 years by the straight-line method. Its carrying
value as of December 31, 1995 approximated $386,000.

On December 19, 1994, the mortgage on the property was refinanced with
Merchants and Farmers Bank, Brandon, Mississippi. The refinancing allowed
American to receive cash of $175,000 from the equity in the property which was
used to purchase Financial Security Life of Mississippi. The property received
a recent appraisal of $925,000. The mortgage amount at December 31, 1995 was
approximately $526,000 with an interest rate of prime plus 1 and 1/2 percent.
Principal and interest payments are approximately $5,800 per month. The note
is secured by a deed of trust on the building and lot. The rental income
received from third party tenants totaled $52,000 in 1995 and $44,000 in 1994.

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The principal provisions of the outside party lease agreements provide
for a term ranging from one to five years and the right to terminate the
agreement without penalty on and after the first year anniversary by giving 30
days advance written notice. The lessor agrees to give the lessees the right
of refusal to obtain a new lease on the premises 120 days prior to the
termination date. The leases state the purpose and business of the lessees,
the right of the lessor to enter said premises, the utilities and maintenance
to be furnished by the lessor and the lessees' covenants to hold the lessor
harmless from any liability and expenses arising out of their use of the lease
premises.

There are several commercial office buildings located in the area of the
property which have rentable office space. This creates a highly competitive
market and there may be periods of time when American is unable to find
suitable tenants.

American carries insurance on the property of $750,000 which represents
approximately $200,000 more than the purchase price paid by American. It is
management's judgment that there is adequate insurance coverage on the
property. The occupancy rate of the property was 100% as of December 31, 1995.
The rental income received by American represents approximately 100% of
American's revenues excluding the revenues in the subsidiaries. Due to
existing net operating loss carry forwards, American is in a non-taxable
position and no federal taxes are paid. The tax value is carried at $438,000
with a tax base of approximately $66,000. The realty tax rate is .11510 and
the current annual realty taxes approximate $7,000. Management believes that
its corporate office building will be adequate for American and its
subsidiaries' anticipated growth for the next several years.

LEGAL PROCEEDINGS

American was a party to legal proceeding filed on December 20, 1990 in
the Chancery Court, First Judicial District, Hinds County, Mississippi. The
principal parties were: plaintiffs - Tillman Insurance Agency, Inc. and Robert
Tillman. The defendants - the Agency, American, Walter L. Shelton, Jesse L.
Byrd, and Sam Dunlap. A description of facts underlying the proceeding is as
follows: In 1988, the Agency bought the book of business of a general
insurance agency in Philadelphia, Mississippi; namely, the Tillman Insurance
Agency, Inc. The purchase price was to be 25% of the commission income from
the book of business for the life of the plaintiff, Robert Tillman. The
commission income was not as great as the plaintiff anticipated and in fact
ceased altogether. The plaintiff claims the conduct of the defendants caused
this reduction in the commission income and was seeking actual damages of
$500,000 and punitive damage of $5,000,000.

On March 3, 1995, an out of court settlement agreement was executed by
all parties wherein the defendants will pay to the plaintiffs the sum of
$180,000 including attorneys fees (discounted to a present value of $150,000).
An initial amount of $35,000 was paid on the settlement date and the balance
will be paid in installments over a period of five years beginning April 1,
1995. Nothing contained in any of the settlement documents is an admission by
any party thereto for purposes of the Civil Action. Adequate reserve
provisions have been included in the 1994 and 1995 consolidated financial
statement of American.

United is a party to legal proceedings filed on December 5, 1995 with
the Circuit Court of Lee County, Mississippi. The principal parties are Donald
and Karen Mayo, plaintiffs, and United, defendant. The complaint results from
United's denial of a claim for benefits under a policy issued by United. The
policy provides benefits for up to 12 outpatient treatments for chiropractic
service for an individual and up to 36 for a family. The complainant had 32
treatments. United paid for the first 12 and denied benefits for the
additional treatments which is in accordance with the policy provisions. The
plaintiff contends she was entitled to benefits for the additional treatments
because she purchased a policy with family coverage. The plaintiff is
requesting in her suit that she be awarded actual and punitive damages in an
amount to be determined by a jury, but no less than $100,000. Legal counsel is
unable to render an opinion on the

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estimated outcome of these matters as they are presently in discovery stage.
However, management intends to vigorously defend these matters and, is of the
opinion that the ultimate outcome of these matters will not result in a
material adverse effect on the consolidated financial statements. Accordingly,
no provision for any loss or liability has been provided in the consolidated
financial statements of American.

United is a party to legal proceedings filed on February 5, 1996 in the
Circuit Court of Lee County, Mississippi. The principal parties are David
Anderson and Marty Stanford, d/b/a Premier Insurance Agency and Chiropractic
National Associations, plaintiffs and United, defendant. The plaintiffs were
licensed in 1994 with United as insurance agents to solicit and sell insurance
policies to pay primarily for chiropractic services. The plaintiffs allege the
following: (1) that the defendant refused to pay claims which were owed, (2)
that the defendant arbitrarily refused to pay the chiropractic doctors 5% fees
claiming that it was illegal, (3) that the defendant placed "riders" on certain
of the policies which were so broad to eliminate any coverage at all, (4) that
United threatened plaintiffs with potential criminal prosecution if false
claims were made of which the purpose for this was to discourage the making of
claims. The plaintiffs allege that they have suffered damages because their
reputations have been greatly damaged and they have suffered extreme mental
anxiety and stress by reason of the defendant's action in these matters. The
plaintiffs are claiming for unspecified punitive damages. Legal counsel is
unable to render an opinion on the estimated outcome of these matters as they
are presently in discovery stage. However, management intends to vigorously
defend these matters and, is of the opinion that the ultimate outcome of these
matters will not result in a material adverse effect on the consolidated
financial statements. Accordingly, no provision for any loss or liability has
been provided in the consolidated financial statements of American.

MARKET AND DIVIDENDS ON AMERICAN CLASS A AND CLASS B COMMON EQUITIES AND
RELATED STOCKHOLDER MATTERS

The American Class A Common Stock has been traded on a very limited
basis. On January 30, 1996, the National Association of Securities Dealers,
Inc. cleared a request to allow the buy and sell transactions of the Class A
Common Stock to be displayed on Over-The-Counter Electronic Bulletin Board.
The Over-The-Counter Electronic Bulletin Board is an electronic computer system
whereby securities dealers have access to information regarding the trading of
shares of various companies' stock. The symbol for the American Class A Common
Stock is "GANI." Morgan Keegan and Company has agreed to match buyers and
sellers of the stock to the best of their ability in an effort to create a
market. None of the American Class B Common stock has traded and there is no
market.

The present policy of American's Board of Directors is to retain funds
for the operation and expansion of American and its subsidiaries. There have
been no cash dividends paid on the Class A Common Stock or the Class B Common
Stock, and the Board of Directors of American has no immediate plans for the
payment of dividends but, from time to time will review this policy in light of
American's earnings, financial condition and other relevant factors. American
currently intends to retain the major portion of any future earnings to finance
the development and expansion of its business and does not contemplate the
payment of cash dividends in the foreseeable future.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - DECEMBER 31, 1995 AND SEPTEMBER 30, 1996

OVERVIEW. This section discusses and analyzes American's results of
operations, financial condition, and the changes in financial condition. Also
included is information regarding American's operation that may not be evident
in the financial statements. This analysis should be read in conjunction with
American's consolidated financial statements and related notes included below.

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LIQUIDITY AND CAPITAL RESOURCES. American was initially capitalized
though a private placement of stock followed by two intrastate stock offerings.
A total of $4,481,000, net of commissions and other costs of issuance, was
received through these offerings principally for the purchase and
capitalization of the insurance subsidiary.

The capital funds contributed to United were invested in fixed
maturities and equity securities with fair values approximating $3,648,000 as
of December 31, 1995. The investment income received from these investments
(effective yield of 7.6% in 1995) and premiums received from insurance policies
represent the primary sources of operating funds for United. Investment income
and portions of the asset account provide sources for operating funds as
needed. In addition, American receives rental income from the lease of office
space in its home office building. Another possible source of operating funds
to American is dividends from its subsidiaries. There have been no dividends
paid to American by either subsidiary. Mississippi insurance regulations limit
the amount of dividends United is permitted to pay without prior approval by
the Department of Insurance of the State of Mississippi to the lesser of
statutory earnings, as defined to include the prior two years, or 10% of
capital and surplus. As of December 31, 1995, approximately $237,000 was
available for dividends to American without such approval.

Management believes that American's retained cash, its investment and
lease income, and its source for subsidiary dividends will be sufficient to
finance its short term operations and its present forecast of long term needs.
In addition, during 1995, American sold the in-force business and certain other
net assets of the Agency for $180,000. An initial cash payment was made for
$10,000 with monthly principal and interest payments of $2,006 for five years
and the balance of approximately $101,000, due at the end of the five years.

The acquisition of FSL for $175,000 on December 31, 1994 was purchased
through the refinancing of American's home office building. The refinancing
created a monthly payment of $5,751 and a balloon payment of approximately
$441,000 due in December 1999. The settlement of the Tillman lawsuit on March
3, 1995 involved an initial payment of $35,000 and the remainder of $145,000
plus interest, to be paid over a period of five years. Management is not aware
of any other significant long term working capital requirements for American.
American and its subsidiaries' principal operations, the life insurance
industry, is generally not capital intensive. No significant capital
expenditures are anticipated in 1996.

For its principal subsidiary, United, management believes that cash
flows from operations and proceeds from investment maturities will be
sufficient to finance current and forecasted operations, which do not
anticipate significant outlays of cash for ordinary life claim settlements
within the next three to five years due to the type of insureds covered.
During 1995, United had a significant increase in the volume of accident and
health claims as a result of its penetration and emphasis into the limited
benefit accident and health insurance business. United anticipates that the
volume of accident and health claims will increase in 1996. However, United's
positive cash flow and the maturities of investments should provide proceeds
more than sufficient for its operations. United has classified its marketable
securities as available-for-sale which will provide an additional source of
liquidity as needed.

Since 1993, United has had an aggressive mass marketing program to sell
limited benefit accident and health policies the premiums for which are
collected through company monthly payroll deduction from the policyholder's
employer. Total revenues in 1995 included approximately $1,582,000 of accident
and sickness premiums. The accident and health polices in force on December
31, 1995, will generate approximately $1,600,000 in annualized premiums.
Management anticipates this program will generate additional sources for
liquidity and operational needs for United through increased revenues.

There are no known trends, events, or uncertainties that will have or
that are reasonably likely to have a material effect on American's liquidity,
capital resources or operations.

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A regular triennial examination of United was conducted by the
Mississippi Department of Insurance in 1994 for the period of January 1, 1990
through December 31, 1993. Recommendations of the examiners had no material
effect on the financial or operational conditions of United.

Neither American nor its insurance subsidiary are a party to any surplus
relief reinsurance or any other agreement wherein reserve credits would be
disallowed and the likelihood of such an agreement is remote. Further, there
are no transaction or items in United's statutory surplus which has enhanced
the statutory surplus and which has been eliminated in the preparation of the
consolidated GAAP financial statements.

FINANCIAL CONDITION. Total assets as of December 31, 1995 were
$7,487,000, an increase of $743,000 from December 31, 1994. Significant
changes within American's composition of assets and liabilities compared to the
1994 year end related principally to (i) a general increase in the fair values
of United's fixed maturity and preferred stock securities resulting from market
and economic improvements, (ii) the payment of acquisition liabilities
resulting from purchase of Financial Security Life of Mississippi (FSL) on
December 31, 1994, (iii) the issuance of a note receivable of $170,000 for the
sale of the Agency's inforce business and certain net assets, and (iv)
anticipated increases in the assets and liabilities related to United's growth
in the accident and health insurance market. As of December 31, 1995, United's
unrealized gain on marketable securities available for sale increased $423,000.

Cash and cash equivalents decreased $163,000 as compared to December 31,
1994, excluding cash of the Agency at December 31, 1994 of $31,000 which is
included in net assets of discontinued operations. Included in this amount was
the payment of accrued acquisition liabilities of approximately $100,000. In
addition, restricted cash decreased $161,000 (as well as the corresponding
liability included in accounts payable and other liabilities) as a result of
the settlement of certain liabilities and contingencies of FSL for which seller
funds were escrowed. As of December 31, 1995, United's deferred policy
acquisition cost increased $400,000 as compared to December 31, 1994 and future
policy benefit and unpaid claims liabilities increased an aggregate of
$240,000. While approximately $173,000 of this increase related to anticipated
increases in United's life products (principally the Lifetime Accumulator
Policy which is a participating policy requiring dividend benefit accruals),
the remaining increase of $67,000 related primarily to accident and health
products. Other policyholder funds increased principally as a result of
dividend accumulations relative to United's participating life policies which
increased $190,000.

In April 1995, American sold all of the inforce business and certain net
assets of the Agency to an officer of the Agency for $180,000 of which $170,000
was received in the form of a five-year note. This accounted for the major
reason for the increase in notes and accounts receivable and the decrease in
net assets of discontinued operations. The note bears interest at 7.50% per
annum and is payable in monthly installments of $2,006, including interest, and
approximated $164,000 as of December 31, 1995.

Included in accounts payable and other liabilities as of December 31,
1995, was approximately $55,000 accrued as minimum obligations under an
executive compensation plan for two executives. The plan provides for
compensation for future and past services in the form of benefits that could
range from $20,000 to $100,000 annually for each of the executives over a ten-
year period.

RESULTS OF OPERATIONS. Total revenues for the year ended December 31,
1995 were $3,151,000 compared with revenues of $2,589,000 for 1994 or an
increase of $562,000.

Accident and health premiums represent the principal reason for the
increase with premium revenues of $1,582,000 in 1995 compared to $953,000 in
1994. United began issuing accident and health products in latter 1993 and
anticipates that this will represent its major market emphasis during 1996.
The

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insurance subsidiary offers limited pay accident and health products
principally through a mass marketing payroll deduction process.

Net investment income increased $48,000 or 19% for 1995 as compared to
the prior year and resulted principally from an increase in invested assets and
interest income on the note receivable from the sale of the Agency of
approximately $7,000.

Policy benefits and claims increased $160,000 for year ended December
31, 1995 as compared to 1994. This increase is principally related to the
growth in accident and health business and increases in dividend benefits
related to United's Lifetime Accumulator participating policies. During 1995
accident and health benefits approximated $557,000 and included an increase in
accident and health future policy benefit liabilities of $39,000. This
compared to total accident and health benefits in 1994 of $458,000.

Amortization of deferred policy acquisition cost increased $87,000 for
1995 as compared to the same period of the prior year. This increase is due
principally to anticipated increases related to the amortization of accident
and health acquisition cost which approximated $170,000 in 1995 as compared to
$61,000 in 1994.

Interest expense increased $39,000 as a result of increased mortgage
debt from a refinancing in latter 1994 to provide funds for the acquisition of
FSL.

Depreciation and amortization expense increased $40,000 or 129% due to
the addition of furniture and fixtures resulting from the growth in the
accident and health business. The cost of property, equipment and computer
software purchased increased approximately $116,000 in 1995 and $75,000 on
December 31, 1994 (for which no depreciation was taken in 1994).

Other general operating expenses increased approximately $40,000 for
1995 as compared to 1994. This increase was a combination of several factors
including an increase in non-deferrable renewal commissions of approximately
$65,000 and additional computer and processing cost relative to the growth in
the accident and health business as off set by a decrease in insurance
department fees when compared to 1994. During 1994, other operating expenses
included insurance department fees of $30,000 relative to United's tri-annual
insurance department examination. During 1995, American wrote off its
remaining investment in U. S. Star, a foreign subsidiary, which approximated
$30,000 and was presented as foreign operations marketing expenses. This
represented the final cost related to American's efforts at determining the
feasibility of marketing products in Mexico. American suspended these efforts
due to the current economic conditions in Mexico and the instability of the
current Mexican government.

Management believes that the cash flow generated from insurance
operations, investment income and proceeds from sales and maturities of
investments will be sufficient to meet American's current and future operating
requirements. American is monitoring the volume of new accident and health
business written in order to manage the possible cash flow and statutory
surplus effects resulting from the related acquisition expenses to secure such
business in the first year.

All insurers licensed to transact a life and health insurance business
in Mississippi are members of the Mississippi Life and Health Insurance
Guaranty Association. Membership in the association is required as a condition
for authority to transact insurance in Mississippi. For the purpose of
providing funds necessary to carry out the powers and duties of the association
each member insurer is assessed amounts that are required to pay the
administrative, legal, and other expenses of the association and assessed
amounts necessary to carry out the duties of the association regarding impaired
or insolvent insurers operating in Mississippi. While actual assessments
during the last two years have been immaterial, future assessments cannot be
reasonably estimated. Assessments are based on a factor

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calculated by the amount of premiums received by each company as it relates to
the total premiums collected by all companies operating in Mississippi and the
amount of funds needed by the Association. United is subject to assessments by
each state's Life and Health Guaranty Association in the states in which it is
licensed to operate. Generally, each state will allow a percentage of the
assessment as a credit against premium taxes each year until the total of the
credits equal the assessment.

FINANCIAL CONDITION - SEPTEMBER 30, 1996. Total assets as of September
30, 1996 were $7,573,000, which represented an increase of $87,000 when
compared to December 31, 1995. Significant changes within the composition of
assets and liabilities as compared to its most recent fiscal year end related
principally to (i) a general decline in the fair values of fixed maturity and
preferred stock securities resulting from market and economic changes, (ii) the
payment of contingent liabilities resulting from the purchase of FSL with cash
escrowed for such purposes, and (iii) anticipated increases in the assets and
liabilities related to the growth in the accident and health insurance market.
As of September 30, 1996, the unrealized loss on marketable securities was
$65,000 compared to an unrealized gain of $48,000 as of December 31, 1995 or an
adverse change of $113,000.

Restricted cash decreased $95,000 (as well as the corresponding
liability included in accounts payable and other liabilities) as a result of
the settlement of certain liabilities and contingencies of FSL for which seller
funds were escrowed. As of September 30, 1996, deferred policy acquisition
cost increased $84,000 as compared to December 31, 1995 and future policy
benefit and unpaid claims liabilities increased an aggregate of $319,000. This
increase principally related to accident and health products.

Policyholders' dividend accumulations increased $76,000 and relates to
the dividend scale of participating life policies.

RESULTS OF OPERATIONS. Total revenues for the nine months ended
September 30, 1996 were $2,304,000 compared with revenues of $2,379,000 at the
same period in 1995 or a decrease of $75,000.

Accident and health premiums increased during the first nine months of
1996 by $72,000 or 6%. Life premiums, however, continued their decreasing
trend and reflected a reduction of $153,000 when compared to 1995. This trend
is expected to continue due to the emphasis in accident and health lines.
Other income increased in 1996 by $5,000 principally as a result of increased
rental income from the home office facility.

Policy benefits and claims increased $148,000 for the nine month period
ended September 30, 1996 over the same period ended September 30, 1995. This
increase is principally related to the growth in accident and health business
and related claims and increases in dividend benefits related to the Lifetime
Accumulator participating policies.

Amortization of deferred policy acquisition cost increased $63,000 for
the nine month period ended September 30, 1996 as compared to 1995. The
amortization of deferred policy acquisition cost related to accident and health
business increased $14,000 resulting from increases in business volume. The
remaining increase of $49,000 resulted from the increase in anticipated lapses
and terminations in United's declining life insurance business.

Salaries and wages reflected a decrease of $74,000 or 13% for the first
nine months of 1996. This decrease principally results from the accrual of
$55,000 in compensation cost in 1995 as a result of the obligation relative to
past services resulting from the adoption of an executive compensation plan in
May 1995 and salary continuation payments to certain retired executives in 1995
of $27,000.

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Actuarial and other professional fees decreased from $112,000 for the
first nine months of 1995 to $96,000 for the nine months ended September 30,
1996. This $16,000 decrease was the direct result of less legal and actuarial
services in 1996. During 1995 legal fees approximated $25,000 and included
final billings relative to previously accrued litigation settlements and cost
relating to the sale of certain assets. In 1996, legal fees approximated
$17,000. Additionally actuarial fees decreased approximately $12,000 due to
less cost related to new product development.

Other general operating expenses increased by $26,000 for the first nine
months of 1996 as compared to the same period in 1995. This net increase was a
combination of several factors including (i) an increase in non-deferrable
renewal commissions of $69,000; (ii) an increase of $31,000 resulting from
director fees under the executive compensation plan; (iii) a decrease in the
cost of outside computer processing of $51,000 due to a migration to in-house
processing; (iv) a decrease in 1996 of $30,000 as compared to 1995 resulting
from the write-off of the remaining investment in U.S. Star during the first
quarter of 1995, and (v) cost containment measures in controllable expenses.

Management believes that the cash flow generated from the insurance
operations, investment income and proceeds from sales and maturities of
investments will be sufficient to meet its current and future operating
requirements. Management is monitoring the volume of new accident and health
business written in 1996 in order to manage the possible cash flow and
statutory surplus effects resulting from the related acquisition expenses to
secure such business in the first year.

CERTAIN RELATIONSHIP AND RELATED TRANSACTIONS

American maintains regular bank checking and money market accounts at a
local bank of which one of American's founders and shareholders is a director.
This bank also holds the mortgage on American's home office building. No
compensation has been paid to this shareholder as a result of these accounts.

Non-management directors of American and its life insurance subsidiary
receive director's fees in the amount of $200 plus reimbursement for out-of-
pocket travel expenses in connection with the attendance of each meeting of the
Board of Directors. Messrs. Elton Cook, and Shannon Williford, non-management
directors, who are members of the Executive and Finance Committees, also
receive $500 each month in connection with the monthly or more frequent
meetings of the Executive and Finance committees.

During September 1992, American entered into consulting arrangements
with 13 of its original founders who subscribed for stock pursuant to its 1992
intrastate offering for purposes of solicitation of their advice, support and
promotion of American through a consulting group. Consulting fees are based
upon an 8% return on each respective founder's investment during the 1992
intrastate offering and payable over twelve years. Consulting fees paid
approximated $42,000 in 1995 and in 1994. Future consulting fees will be
approximately $42,000 annually.

As indicated above, the primary purpose of the consulting arrangements
with American's founders is for American to benefit from the expertise and
influence through the advice, support, and promotion of a group of very
successful business and professional individuals located in various areas of
the State of Mississippi. American invites these founders to an annual meeting
at the home office at which the management solicits their advice regarding
marketing, investments and various other aspects of its operations. All
through the year these founders are contacted by management and sales
representatives for their recommendations as to prospects for insurance agents
in their communities and applicants for life insurance coverage and, in
addition, for property and casualty insurance written through American's
subsidiary, the American Agency. During American's stock offerings, numerous
stock sales were made

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as a result of the promotion and recommendations given by these founders. None
of the founders received any commission from stock sold during the offering
which began October 2, 1991 and ended September 30, 1992.

MANAGEMENT OF AMERICAN

The following table sets forth the beneficial ownership of American
Class A and Class B Common Stock as of the date of this Proxy-Information
Statement of named directors and officers of American and by all such persons,
as a group. Each director or officer has sole voting and investment power over
the shares listed opposite his or her name.

[Download Table]

# OF PRINCIPAL DIRECTOR
NAME CLASS SHARES OCCUPATION SINCE
---- ----- ------ ---------- ---------

Jesse L. Byrd Class "A" 238,998 Vice Chairman 1987
(age - 71) Common of the Board
Class "B" 833 1/3
Common

John S. Camara Class "A" 100 President 1993
(age - 65) Common

H. Elton Cook Class "A" 81,834 President 1988
(age - 62) Common Miss. Materials

H. Harold Crumpler Class "A" 6,394 Executive Vice 1991
(age - 67) Common President & Treasurer

Phillip E. Faller Class "A" 18,000 Vice President 1991
(age - 55) Common & Secretary

Thomas S. Hayes Class "A" 60,300 Planter 1992
(age - 68) Common

Billy George Janous Class "A" 10,400 Catfish Farmer 1990
(age - 53) Common

John T. Keeton, Jr Class "A" 118,668 Attorney 1993
(age - 72) Common

L. Homer Martin, Jr Class "A" 59,000 Planter 1987
(age - 65) Common

Linda M. Pepper Class "A" 5,000 Assistant Secretary --
(age - 44) Common

Walter L. Shelton Class "A" 312,930 Director 1987
(age - 75) Common
Class "B" 833 1/3
Common

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[Download Table]

H. Shannon Williford Class "A" 36,334 Chairman of 1988
(age - 64) Common the Board

ALL DIRECTORS & OFFICERS
AS A GROUP Class "A" 947,958
Common

Class "B" 1,666 2/3
Common

Additional information concerning the officers and directors of American
is set forth below.

Mr. Jesse L. Byrd, Vice Chairman, was a founder and has been a member of
the Board of Directors since 1987. He served as President until his retirement
on August 31, 1993. Since receiving his Bachelor of Commercial Science degree
from the University of Georgia in 1951, Mr. Byrd has spent his entire career in
insurance and related businesses.

Mr. John S. Camara was elected to the position of Vice President and
Chief Marketing Officer effective January 1, 1993 and to the office of
President and a Director effective September 1, 1993. From April 1976 until
October 31, 1992, Mr. Camara was President and Chief Executive Officer of
Commonwealth National Life Insurance Company, Cleveland, Mississippi. He
earned a Bachelor of Arts degree in accounting in 1952 from Herricks College.
From 1952 to 1954, Mr. Camara did post graduate study in International Finance
at the University of Frieburg, Frieburg, Germany.

Mr. H. Elton Cook was a founder and elected a Director of American in
1988. He is President of Mississippi Materials, a position he has held since
April, 1988. Mississippi Materials is a concrete and building supplies company
located in Jackson, Mississippi.

Mr. H. Harold Crumpler joined American in May, 1991 as Vice President,
Treasurer and Director. He was elected Executive Vice President, Treasurer,
and Chief Operating Officer on September 1, 1993. From 1986 to 1991, he was
Vice President and Chief Financial Officer of Franklin American Corporation,
Franklin American Life Insurance Company, Franklin American Life Insurance
Company of Texas and Franklin American Insurance Agency. He earned a Bachelor
of Science degree from Wake Forest University in 1949 and has done graduate
work in accounting, finance, and business.

Mr. Phillip E. Faller, ALHC, has been Vice President, Secretary, and
Director of American since May, 1991. Mr. Faller has been associated with
American since 1990. From 1985 to 1990, he served as Vice President and
Secretary of National Affiliated Investors Life Insurance Company and of
Federal Life Assurance Guarantee Corporation.

Mr. Thomas S. Hayes was a founder and elected a Director of American in
1992. He has been a self-employed farmer near Clarksdale, Mississippi since
1953.

Mr. Billy George Janous was elected a Director of American in 1990. He
is owner of Janous Fish Farms.

Mr. John T. Keeton, Jr. was a founder and elected a Director of American
in 1988. He is a practicing attorney and a member of the Mississippi Bar
Association. From 1983 until 1992 he served as a Senator in the Mississippi
State Senate. He earned a Bachelor of Science Degree in 1947 from the
University of Mississippi and a Law Degree in 1954 from the University of
Mississippi Law School.

PRES14A 131st Page of 192 TOC 1st Previous Next ↓Bottom Just 131st
Mr. L. Homer Martin, Jr. was a founder and elected a Director of
American in 1987. He has been a cotton producer since 1949.

Mr. Walter L. Shelton, Chairman of the Board from 1987 to 1996, was a
founder of American and has been a member of the Board of Directors since 1987.
Mr. Shelton has a diverse business background, having served as founder and
president of Progressive Citizen Life Insurance Company of Jackson,
Mississippi, President of Highland Inns Corporation; a motel company, Secretary
of First Sunflower Savings and Loan of Sunflower County, Mississippi, President
of Yazoo Barge Lines, and President of Humphreys County Development Company.
Mr. Shelton served in the United States Air Force as a Combat Intelligence
Officer and also served as a special assistant to the Billy Graham Evangelistic
Association. He attended Davidson College, University of Mississippi and
Bowling Green Business University.

Mr. H. Shannon Williford was a founder, has been a Director since 1987,
and has been Chairman of the Board since September 1996. Mr. Williford is
President and owner of Vicksburg Terminal Company, Inc., a gasoline and diesel
fuel terminal in Vicksburg, Mississippi. He graduated from the University of
Alabama with a B.S. Degree in Aeronautical Engineering.

COMMITTEES AND MEETINGS. During the year ended December 31, 1995, the
Board of Directors held five meetings. Each Director attended at least 75% of
the meetings except directors Roy S. Foster, Billy George Janous and L. Homer
Martin attended two meetings and William T. Dawson attended one meeting.

The Board of Directors has a compensation committee which meets once
annually prior to the annual meeting of the Board of Directors. All members
attended. The members consist of H. Elton Cook, Thomas S. Hayes, and Billy G.
Janous. The duty of the Compensation Committee is to review and recommend to
the Board of Directors the annual salary of the officers of American and its
subsidiaries.

The Board of Directors has an Executive Committee consisting of Walter
L. Shelton, Jesse L. Byrd, H. Elton Cook, John T. Keeton, Jr., and H. Shannon
Williford. The Executive Committee held 8 meetings of which all members
attended at least 75% of the meetings. The duty of the Executive Committee is
to meet, advise and direct management generally on a monthly basis regarding
American's general operations.

The Board of Directors has a Finance and Nominating committee consisting
of Jesse L. Byrd, H. Elton Cook, Walter L. Shelton, and H. Shannon Williford.
The duties of the Finance and Nominating Committee are as follows: (a)
recommend and approve investments made by management, (b) review periodic
financial statements, (c) recommend to the shareholders as to selection of
independent accountants, (d) recommend to the shareholders nominees for
directors. The committee held seven meetings in 1995 of which all members
attended at least 75% of the meetings.

COMPENSATION OF DIRECTORS. American's directors are paid $200 per
meeting in which they attend. The directors who also serve on the Finance and
Nominating Committees are paid $500 per month. Walter L. Shelton, Chairman,
and Jesse L. Byrd, Vice Chairman, are paid under a compensation plan approved
by shareholders which provides a monthly based compensation of $1,666 plus
bonus contingent on premium income and statutory profits. Directors who are
also officers receive no fees other than their normal salary.

COMPENSATION OF EXECUTIVES. American's officers compensation program is
administered by the Compensation Committee. The officers compensation policy
is designed to provide a competitive compensation that will enable the company
to attract, motivate, reward and retain officers who have the

PRES14A 132nd Page of 192 TOC 1st Previous Next ↓Bottom Just 132nd
skills, experience and talents required to promote short and long term
financial performance and growth of American. The compensation policy is based
on the principle that the financial rewards to the officers must be aligned
with the financial interest of the shareholders of American.

The Compensation Committee determines the salary of each officer based
upon the level and scope of responsibilities of the officer and the pay levels
of similarly positioned officers in comparable companies. Due to the
relatively short period American has been in operation and the fact that
American is still in a developing stage to a large degree, salaries have been
at the lower end of comparable salary ranges and increases have been very
nominal. All officer salaries and increases are presented for approval to the
Board of Directors at its annual meeting in May.

The following table sets forth certain compensation information for the
Chief Executive Officer of American. No executive officer of the corporation
received compensation which exceeded $100,000.

[Download Table]

NAME AND INCENTIVE STOCK
PRINCIPAL POSITION YEAR SALARY BONUS OTHER OPTIONS
------------------ ---- -------- ------- ------ ---------------

John S. Camara 1995 $ 70,000 $16,565 $4,800(2) 35,000(1)
President, Chief
Executive Officer

All Executive Officers
as a Group 1995 $154,000 $ 9,000 $ -0- 92,000

--------
(1) The Stock Options were granted on May 3, 1994. The exercise price per
share is $1.80, being 100% of the fair market value on the date of
grant. The term of the option expires on November 29, 2003 and is non-
transferable. No options have been exercised.
(2) Other compensation represents travel allowance.

American formed a consulting group in 1992 composed of 17 influential
persons who are shareholders from various locations throughout the State of
Mississippi. The purpose of this committee is to seek advice and support for
the promotion of American and to promote the sale of American's products. The
annual consulting fees range from $250 to $16,667. The total annual fees for
all members will not exceed $42,177. Four members of the Board of Directors
and the various committees are also members of the consulting group. The fees
paid to these four persons for membership on the Board of Directors, committees
and consulting group in 1995 were $1,750 to Mr. Foster, $1,750 to Mr. Hayes,
$16,667 to Mr. Keeton, and $1,750 to Mr. Martin.

COMPLIANCE WITH SECTION 16 OF THE SECURITIES EXCHANGE ACT OF 1934.
Section 16(a) of the Securities Exchange Act of 1934 requires directors and
executive officers of American to file with the Securities and Exchange
Commission initial reports of ownership and reports of changes in ownership of
equity securities of American. To American's knowledge, all Section 16(a)
filing requirements applicable to reporting persons were complied with during
the year ended December 31, 1995.

PRES14A 133rd Page of 192 TOC 1st Previous Next ↓Bottom Just 133rd
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

AMERICAN INVESTMENT NETWORK, INC. AND SUBSIDIARIES

[Download Table]

Consolidated Balance Sheet (unaudited) as of September 30, 1996 . . . . . F-43

Consolidated Statements of Operations (unaudited) for the Three and
Nine Months Ended September 30, 1996 and 1995 . . . . . . . . . . . F-44

Consolidated Statements of Cash Flows (unaudited) for the Nine Months
Ended September 30, 1996 and 1995 . . . . . . . . . . . . . . . . . F-45

Notes to Consolidated Financial Statements for the Nine Months Ended
September 30, 1996 (unaudited) . . . . . . . . . . . . . . . . . . F-47

Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . . . F-48

Consolidated Balance Sheets as of December 31, 1995 and 1994 . . . . . . . F-49

Consolidated Statements of Income for the Years Ended December 31, 1995
and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-51

Consolidated Statements of Changes in Stockholders' Equity for the
Years Ended December 31, 1995 and 1994 . . . . . . . . . . . . . . F-53

Consolidated Statements of Cash Flows for the Years Ended December 31,
1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . F-54

Notes to Consolidated Financial Statements for the Years Ended
December 31, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . F-59

F-42

PRES14A 134th Page of 192 TOC 1st Previous Next ↓Bottom Just 134th
AMERICAN INVESTMENT NETWORK, INC. AND SUBSIDIARIES
Consolidated Balance Sheet (Unaudited)
September 30, 1996

[Download Table]

ASSETS:

SECURITIES AVAILABLE FOR SALE:
Fixed maturities $ 2,772,845
Equity securities 965,888
Total investments 3,738,733

OTHER ASSETS:
Cash and cash equivalents 126,948
Accrued investment income 83,547
Notes and accounts receivable 309,650
Reinsurance receivable 37,888
Property and equipment - net 740,432
Deferred policy acquisition costs 2,324,953
Intangible and other assets 210,877

TOTAL ASSETS $ 7,573,028

LIABILITIES AND STOCKHOLDERS' EQUITY:

LIABILITIES:
Future policy benefits $ 2,261,834
Unpaid claims 196,481
Unearned premiums 89,213
Policyholder's dividend accumulations 839,535
Accounts payable and other liabilities 250,260
Notes payable 513,969
Total liabilities 4,151,292

STOCKHOLDERS' EQUITY:
Class A Common Stock, participating, no par value
15,000,000 shares authorized; 5,025,490 shares
issued; 4,480,620
Class B Common Stock, $1 par value; 2,500
shares authorized, issued and outstanding 2,500
Unrealized loss on marketable securities (65,579)
Retained earnings (deficit) (988,353)
3,429,188
Less: Cost of treasury stock - 3,726 shares (7,452)
Total stockholders' equity 3,421,736

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 7,573,028
===========

See notes to consolidated financial statements.

F-43

PRES14A 135th Page of 192 TOC 1st Previous Next ↓Bottom Just 135th
AMERICAN INVESTMENT NETWORK, INC. AND SUBSIDIARIES
Consolidated Statements of Operations (Unaudited)

[Enlarge/Download Table]

Three Months Ended Nine Months Ended
-------------------------- --------------------------
September 30, September 30,
-------------------------- --------------------------
1996 1995 1996 1995
----------- ----------- ----------- -----------

REVENUE:
Premiums $ 652,212 $ 660,751 $ 2,043,005 $ 2,123,575
Net investment income 70,904 71,070 216,458 217,786
Gross realized investment losses (2,325)
Other income 13,974 14,675 44,299 39,821
737,090 746,496 2,303,762 2,378,857

BENEFITS AND EXPENSES:
Benefits and claims 272,242 240,161 1,029,463 881,256
Amortization of deferred policy
acquisition costs 137,938 112,883 390,104 326,762
Interest expense 15,321 19,038 45,787 56,906
Salaries and employee benefits 135,800 174,900 487,252 561,632
Actuarial and other professional fees 23,560 26,564 96,069 112,495
Depreciation and amortization
expense 21,146 15,830 55,289 51,990
Other expenses 144,963 84,371 366,245 340,447
750,970 673,747 2,470,209 2,331,488

(LOSS) INCOME FROM
CONTINUING OPERATIONS (13,880) 72,749 (166,447) 47,369

DISCONTINUED OPERATIONS:
Income (loss) from operations 3,151 (3,558)
Gain on sale of agency subsidiary 47,133
3,151 43,575

NET (LOSS) INCOME $ (13,880) $ 75,900 $ (166,447) $ 90,944

NET (LOSS) INCOME PER COMMON SHARE:
(Loss) income from continuing
operations $ (0.01) $ 0.01 $ (0.03) $ 0.01
Discontinued operations .01 $ 0.01
Net (loss) income $ (0.01) $ 0.02 $ (0.03) $ 0.02

WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 5,024,264 5,024,264 5,024,264 5,024,264

See notes to consolidated financial statements.

F-44

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AMERICAN INVESTMENT NETWORK, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)

[Download Table]

Nine Months Ended September 30,
1996 1995
-------------------------------

OPERATING ACTIVITIES:
Net (loss) income $(166,447) $ 90,944
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Discontinued operations (43,575)
Realized loss on sale of investments 2,325
Write-off of investment in U.S. Star subsidiary 30,000
Depreciation and amortization 55,289 51,990
Amortization of deferred policy acquisition costs 390,104 326,762
Change in net assets of discontinued operations 39,800
Decrease in restricted cash 95,000 161,000
Decrease (increase) in accrued investment income,
accounts receivable and other assets 8,650 (32,320)
Policy acquisition costs deferred (473,654) (651,365)
Increase in liability for future policy benefits
and unpaid claims 319,152 218,183
Increase in unearned premiums and policyholders'
dividend accumulations 125,570 132,007
Decrease in accounts payable and other
liabilities (65,716) (252,183)

NET CASH PROVIDED BY OPERATING ACTIVITIES 287,948 73,568

INVESTING ACTIVITIES:
Cost of fixed maturities investments acquired (220,000) (429,368)
Proceeds from sales, maturities and repayments of
fixed-maturities investments 15,205 253,829
Property and equipment purchased (64,829) (96,494)

NET CASH USED IN INVESTING ACTIVITIES (269,624) (272,033)

F-45

PRES14A 137th Page of 192 TOC 1st Previous Next ↓Bottom Just 137th
AMERICAN INVESTMENT NETWORK, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited) (Continued)

[Enlarge/Download Table]

Nine Months Ended September 30,
1996 1995
-------------------------------

FINANCING ACTIVITIES:
Repayments of notes payable $ (12,478) $ (7,848)

NET CASH USED IN FINANCING ACTIVITIES (12,478) (7,848)

NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 5,846 (206,313)

CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 121,102 283,747

CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 126,948 $ 77,434

SUPPLEMENTAL INFORMATION:
Non-cash activities:
Change in unrealized (loss) gain on marketable
securities $(113,000) $ 373,000

Sale of agency subsidiary in exchange for
note receivable $ 170,000

Interest paid $ 46,000 $ 57,000

Income taxes paid $ 9,000 $ 0

See notes to consolidated financial statements.

F-46

PRES14A 138th Page of 192 TOC 1st Previous Next ↓Bottom Just 138th
AMERICAN INVESTMENT NETWORK, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements Nine Months Ended September 30, 1996
(Unaudited)

Note 1. Basis of Presentation

The consolidated condensed unaudited interim financial statements of American
Investment Network, Inc. and its subsidiaries ("American") have been prepared
in accordance with generally accepted accounting principles ("GAAP").

In the opinion of management, the attached unaudited financial statements
reflect all adjustments necessary for a fair presentation of the financial
position, results of operations, and cash flows of American. The results of
operations for the interim periods are not indicative of results for the full
year.

The consolidated interim financial statements should be read in conjunction
with the audited consolidated financial statements for the year ended December
31, 1995, and the notes related thereto.

Note 2. Subsequent Event

On October 25, 1996, American signed a definitive written agreement whereby
Citizens Insurance Company of America, (CICA), Austin, Texas, a wholly-owned
subsidiary of Citizens, Inc. ("Citizens") will acquire 100% of the outstanding
shares of the Company for shares of Citizens Class A Common Stock.

Pursuant to the terms of the Agreement which is subject to approval of
regulatory authorities and shareholders of the Company, CICA will issue one
share of Citizens Class A Common Stock it owns for each seven and two-tenths
(7.2) shares of the Company's Class A and Class B Common Stock issued and
outstanding. CICA expects to issue approximately 700,000 shares of Citizens
Class A Common Stock to consummate the transaction. The companies will continue
to operate in their respective locations under a combined management team with
consolidation of computer data processing on CICA's system.

F-47

PRES14A 139th Page of 192 TOC 1st Previous Next ↓Bottom Just 139th
[Deloitte & Touche LLP Letterhead]

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Shareholders
Great American Investment Network, Inc.
Jackson, Mississippi

We have audited the consolidated balance sheets of Great American Investment
Network, Inc. and subsidiaries as of December 31, 1995 and 1994, and the
related consolidated statements of income, changes in stockholders' equity and
cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

In our opinion, such consolidated financial statements present fairly, in all
material respects, the consolidated financial position of Great American
Investment Network, Inc. and subsidiaries as of December 31, 1995 and 1994, and
the results of their operations and their cash flows for the years then ended
in conformity with generally accepted accounting principles.

Jackson, Mississippi
March 19, 1996
F-48

PRES14A 140th Page of 192 TOC 1st Previous Next ↓Bottom Just 140th
GREAT AMERICAN INVESTMENT NETWORK, INC.
AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
------------------------------------------------------------------------------

[Enlarge/Download Table]

1995 1994

SECURITIES AVAILABLE FOR SALE:
Fixed maturities - at fair value $2,666,979 $2,094,360
Equity securities - at fair value 980,600 963,357
---------- ----------

3,647,579 3,057,717

OTHER ASSETS:
Cash and cash equivalents 121,102 283,747
Restricted cash 95,000 256,000
Accrued investment income 76,737 50,320
Notes and accounts receivable, no allowance for uncollectible
accounts deemed necessary 339,172 151,626
Reinsurance receivable 35,393 36,675
Property and equipment - net 723,864 678,147
Deferred policy acquisition costs 2,241,403 1,841,468
Intangibles and other assets, net of accumulated amortization of
$7,000 in 1995 206,338 238,555
Net assets of discontinued operations - agency subsidiary 149,414

---------- ----------
TOTAL ASSETS $7,486,588 $6,743,669
========== ==========

See notes to consolidated financial statements.

F-49

PRES14A 141st Page of 192 TOC 1st Previous Next ↓Bottom Just 141st

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

[Download Table]

LIABILITIES AND STOCKHOLDERS' EQUITY 1995 1994

LIABILITIES:
Future policy benefits $ 1,998,386 $ 1,786,004
Unpaid claims 140,777 113,329
Unearned premiums 71,724 101,930
Policyholders' dividend accumulations 731,454 540,655
Accounts payable and other liabilities 315,976 613,267
Notes payable 526,447 535,563
----------- -----------

Total liabilities 3,784,764 3,690,748

CONTINGENCIES

STOCKHOLDERS' EQUITY:
Class A common stock, participating, no par value;
authorized 15,000,000 shares, issued 5,025,490 4,480,620 4,480,620
Class B common stock, non-participating, $1 par value;
2,500 shares authorized, issued and outstanding 2,500 2,500
Unrealized gain (loss) on marketable securities 48,062 (374,653)
Retained earnings (deficit) (821,906) (1,048,094)
----------- -----------

3,709,276 3,060,373
Less cost of treasury stock - 3,726 shares (7,452) (7,452)
----------- -----------

Total stockholders' equity 3,701,824 3,052,921
----------- -----------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 7,486,588 $ 6,743,669
=========== ===========

F-50

PRES14A 142nd Page of 192 TOC 1st Previous Next ↓Bottom Just 142nd
GREAT AMERICAN INVESTMENT NETWORK, INC.
AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1995 AND 1994
------------------------------------------------------------------------------

[Download Table]

1995 1994

REVENUE:
Premiums (net of ceded premium of $70,000 in 1995 and
$74,000 in 1994) $ 2,797,260 $ 2,303,083
Net investment income 294,807 246,933
Rental income 51,608 43,922
Realized investment losses (2,325) (6,209)
Other income 9,365 1,258
----------- -----------

3,150,715 2,588,987

BENEFITS AND EXPENSES:
Benefits and claims 1,107,183 946,704
Amortization of deferred policy acquisition costs 449,204 362,394
Interest expense 70,148 31,280
Salaries and employee cost 743,640 517,753
Actuarial and other professional fees 175,620 179,654
Depreciation and amortization expense 77,721 37,633
Other expenses 308,273 267,841
Foreign operations marketing expenses 30,000 101,971
----------- -----------

2,961,789 2,445,230
----------- -----------

INCOME FROM CONTINUING OPERATIONS 188,926 143,757

DISCONTINUED OPERATIONS:
(Loss) income from operations (9,871) 10,707
Litigation settlement cost of agency subsidiary (149,527)
Gain on sale of agency subsidiary 47,133
----------- -----------

37,262 (138,820)
----------- -----------

NET INCOME $ 226,188 $ 4,937
=========== ===========

(Continued)

F-51

PRES14A 143rd Page of 192 TOC 1st Previous Next ↓Bottom Just 143rd
GREAT AMERICAN INVESTMENT NETWORK, INC.
AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1995 AND 1994
------------------------------------------------------------------------------

[Download Table]

1995 1994

NET INCOME PER COMMON SHARE:

Income from continuing operations $ 0.04 $ 0.03
Discontinued operations 0.01 (0.03)
------------- -------------
Net income $ 0.05 $ 0.00
============= =============

WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 5,024,264 5,024,264
============= =============

See notes to consolidated financial statements. (Concluded)

F-52

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GREAT AMERICAN INVESTMENT NETWORK, INC.
AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995 AND 1994
-------------------------------------------------------------------------------

[Enlarge/Download Table]

COMMON STOCK
--------------------------------------------------
CLASS A CLASS B
SHARES AMOUNT SHARES AMOUNT
BALANCE,

JANUARY 1, 1994 5,025,490 $4,480,620 2,500 $ 2,500
--------- ---------- ----- ----------
Unrealized gain on
marketable securities
Net income

BALANCE,
DECEMBER 31, 1994 5,025,490 4,480,620 2,500 2,500
Unrealized gain on
marketable securities

--------- ---------- ----- ----------
Net income

BALANCE,
DECEMBER 31, 1995 5,025,490 $4,480,620 2,500 $ 2,500
========= ========== ===== ==========

UNREALIZED
GAIN (LOSS) RETAINED TOTAL
ON MARKETABLE EARNINGS TREASURY STOCKHOLDERS'
SECURITIES (DEFICIT) STOCK EQUITY

BALANCE,
JANUARY 1, 1994 $ 57,471 $(1,053,031) $ (7,452) $ 3,480,108
Unrealized gain on
marketable securities (432,124) (432,124)
Net income 4,937 4,937
----------- ----------- ----------- -----------

BALANCE,
DECEMBER 31, 1994 (374,653) (1,048,094) (7,452) 3,052,921
Unrealized gain on
marketable securities 422,715 422,715

Net income 226,188 226,188
----------- ----------- ----------- -----------

BALANCE,
_DECEMBER 31, 1995 $ 48,062 $ (821,906) $ (7,452) $ 3,701,824
=========== =========== =========== ===========

See notes to consolidated finanicial statements.

F-53

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GREAT AMERICAN INVESTMENT NETWORK, INC.
AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995 AND 1994
------------------------------------------------------------------------------

[Enlarge/Download Table]

1995 1994

OPERATING ACTIVITIES:
Net income $ 226,188 $ 4,937
Adjustments to reconcile net income to net cash
provided by operating activities:
Discontinued operations (37,262) 138,820
Realized loss on sale of investments 2,325 6,209
Write-off of foreign marketing subsidiary investment 30,000
Provision for doubtful accounts 4,243 30,000
Amortization on investment premium and discounts (157) (674)
Depreciation and amortization 77,721 37,633
Amortization of deferred policy acquisition costs 449,204 362,394
Policy acquisition costs deferred (849,139) (838,704)
Decrease (increase) in restricted cash 161,000 (256,000)
(Increase) decrease in accrued investment income (26,417) (7,052)
Decrease (increase) in accounts receivable (27,544) (81,732)
Decrease (increase) in other assets (5,335) 121
Decrease (increase) in reinsurance receivables 1,282 672
Increase in liability for future policy benefits 212,382 388,365
Increase in unpaid claims 27,448 90,439
Increase in unearned premiums and policyholders' dividend
accumulations 160,593 223,244
Increase in accounts payable and other liabilities (297,291) 410,384
Decrease in net assets of discontinued operations 16,676 16,306
--------- ---------

Net cash provided by operating activities 125,917 525,362
--------- ---------

INVESTING ACTIVITIES:
Acquisition of business (206,634)
Cost of investments acquired (429,368) (770,764)
Proceeds from sale of investments 238,000 603,992
Proceeds from maturities and repayments of fixed-maturities investments 22,053 50,485
Property and equipment purchased (115,886) (177,083)
Collections on note receivable 5,755
--------- ---------

Net cash used in investing activities (279,446) (500,004)
========= =========

(Continued)

F-54

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GREAT AMERICAN INVESTMENT NETWORK, INC.
AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995 AND 1994
------------------------------------------------------------------------------

[Enlarge/Download Table]

1995 1994

FINANCING ACTIVITIES:
Proceeds from issuance of notes payable $ 535,563
Repayments on notes payable $ (9,116) (376,086)
--------- ---------

Net cash provided by (used in) financing activities (9,116) 159,477
--------- ---------

NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (162,645) 184,835

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 283,747 98,912
--------- ---------

CASH AND CASH EQUIVALENTS AT END OF YEAR $ 121,102 $ 283,747
========= =========

SUPPLEMENTAL INFORMATION:
Non-cash activities:

Changes in unrealized (loss) gain on available for sale securities $ 423,000 $(432,000)
========= =========

Sale of agency subsidiary in exchange for note receivable $ 170,000
========= =========

Interest paid $ 60,000 $ 29,000
========= =========

See notes to consolidated financial statements. (Concluded)

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GREAT AMERICAN INVESTMENT NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1994
-------------------------------------------------------------------------------

1. SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

Organization and Business - Great American Investment Network, Inc.
(GAIN) was incorporated in 1987 for the purpose of acquiring stock in
existing insurance companies and organizing and operating other
companies in the financial services industry. GAIN has two wholly-owned
subsidiaries, United Security Life Insurance Company (USLI) and The Gain
Agency, Inc. (The Agency) and , prior to 1995, owned a 50.025% interest
in U. S. Star International, Inc. (US Star), an inactive Cayman Island
Corporation. In 1995, the Company conveyed its interest in US Star to US
Star's other shareholder and wrote-off its remaining investment of
$30,000, which is included in foreign operations marketing expenses.

Prior to April 1995, the Agency was a general insurance agency selling
property and casualty insurance. In April 1995, the Agency sold all of
its inforce business and certain net assets (see Note 2).

On May 10, 1990, USLI began selling and underwriting a participating
modified whole life insurance policy which accounts for over 98% of its
inforce life insurance policies and, in latter 1993, began a mass
marketing program to offer limited benefit accident and health policies.
The sale of accident and health products has been USLI's major focus
during the past two years and presently it plans to offer additional
competitive insurance products.

Prior to 1990 the Company incurred operating losses resulting from its
developmental stages and as of December 31, 1995 had a cumulative
deficit in retained earnings of approximately $822,000. For continued
expansion of its operations, the Company will be dependent on (i)
attaining and maintaining profitable operations, (I) possible additional
equity offerings, and (iii) obtaining such additional financing as may
be required from time to time.

a. BASIS OF PRESENTATION - The accounts of GAIN and its subsidiaries
are stated on the basis of generally accepted accounting
principles. For USLI, these principles differ in some respects
from the statutory basis of accounting required by the
Mississippi Insurance Department.

b. PRINCIPLES OF CONSOLIDATION - The consolidated financial
statements include the accounts of GAIN and its wholly-owned
subsidiaries, USLI and The Agency (collectively "the Company").
For 1994, the 50.025% interest in U. S. Star (a $30,000
investment) was included in intangibles and other assets. All
significant intercompany balances and transactions have been
eliminated.

In preparing the consolidated financial statements, the Company
is required to make estimates and assumptions that affect the
reported amounts of assets and liabilities as of the dates of the
balance sheets and the reported amounts of revenues and expenses
for the years then ended. Actual results could differ
significantly from those estimates.

c. INVESTMENT SECURITIES - Fixed maturities of the Company
include all debt securities and consists of bonds and notes with
maturities beyond one year. Equity securities consist of non-
redeemable preferred stocks.

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The Company has classified all its equity and fixed maturity
securities as securities available for sale, which are carried at
fair value. Unrealized gains and losses are excluded from
earnings and reported net of tax, as a separate component of
stockholders' equity. Securities within the available for sale
portfolio may be used as part of the Company's asset/liability
strategy and may be sold in response to changes in interest rate
risk, prepayment risk or other similar economic factors. The
specific identification method is used to compute gains or losses
on the sale of these assets. Interest earned on these assets is
included in interest income.

Fixed maturities and equity securities that reflect a market
decline below cost or amortized cost that is deemed other than
temporary are written down to net realizable value by a charge to
earnings. Investment premiums and discounts are amortized by a
method which approximates the interest method.

d. CASH AND CASH EQUIVALENTS - For purposes of the consolidated
statements of cash flows, the Company considers checking accounts
and cash on hand to be cash and cash equivalents. Short-term
investments are included in the investments category in order to
conform to insurance holding company reporting requirements.

e. PROPERTY AND EQUIPMENT - Property and equipment are stated at
cost. Major additions and betterments are charged to the
property accounts while replacements, maintenance and repairs
which do not improve or extend the lives of the respective assets
are expensed to operations. Depreciation of property and
equipment is provided using the straight-line method over the
estimated useful lives of the related assets which range from
five to thirty-two years.

f. DEFERRED POLICY ACQUISITION COSTS - The costs (consisting of
commissions, premium taxes and other costs) which both vary with
and are primarily related to the production of new insurance
business are deferred and amortized over the anticipated premium
paying period of the related policies in proportion to the ratio
of the annual premium revenue to the total premium revenue
anticipated. Such anticipated premium revenue is estimated using
the same assumptions as are used for computing liabilities for
future policy benefits.

g. INTANGIBLE ASSETS - Intangible assets consist of the cost of
noncompete and employment agreements, acquired insurance license
agreements, and the excess of cost over net assets of businesses
acquired. These intangibles are being amortized by the
straight-line method over their estimated lives, which range from
five to twenty-five years.

h. FUTURE POLICY BENEFITS - The liabilities for future policy
benefits have been determined by the net level premium method.
The significant assumptions used to determine these liabilities
are as follows:

[Download Table]

LIFE ACCIDENT AND HEALTH

Interest rates 8% first five years graded to
7% at the fifteenth year 7%

Mortality and 85% of 1965-70 Male Select 50% (cancer) and 60%
Morbidity and Ultimate Table (non-cancer) of Underwriting
Selection graded to 100%
after five years, 1980 CSO ALB

Withdrawals 22.5% first year graded to 5% 25% first year graded to 7.5%
(Lapse Rates) in years eleven and later (cancer) and 10% (non-cancer)
in years five and later

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i. UNPAID CLAIMS - Unpaid claims represent the estimated liabilities
on claims reported to the Company plus a provision for claims
incurred but not yet reported. The liability for unpaid claims is
determined using both evaluations of each claim and statistical
analyses and represents the estimated ultimate net cost of all
claims incurred through the end of the reporting period.

j. INCOME TAXES - Prior to 1995, GAIN and The Agency filed a
consolidated income tax return and USLI filed its income tax
return on a separate company basis. In 1995, the Company
anticipates including USLI in a consolidated income tax return.

Deferred tax liabilities and assets are determined based on the
differences between the financial statement and tax bases of
assets and liabilities using enacted tax rates in effect in the
years in which the differences are expected to reverse.

k. PREMIUM AND COMMISSION REVENUE RECOGNITION - Premiums are
recognized as revenue when due from policyholders. Benefits and
expenses are associated with the earned premiums to result in
recognition of profits over the life of the insurance contracts.
This association is accomplished by accrual of the liability for
future policy benefits on insurance in force and the amortization
of deferred policy acquisition costs.

(Loss) income from discontinued operations includes commission
income (none of which was received from USLI) for insurance
coverage, principally property and casualty, placed with
underwriters. These revenues are recognized at the effective date
of the policy.

l. NET INCOME PER COMMON SHARE - Net income per common share is
computed on the basis of the weighted average number of shares of
both classes of stocks and share equivalents outstanding during
the year.

m. FAIR VALUES OF FINANCIAL INSTRUMENTS - Effective December 31,
1995, the Company implemented Statement of Financial Accounting
Standards (SFAS) No. 107, " Disclosures about Fair Value of
Financial Instruments," which requires disclosure of fair value
information about financial instruments, whether or not
recognized in the balance sheet. SFAS No. 107 further requires
disclosure of the significant assumptions used in estimating
fair values and excludes certain financial instruments and all
nonfinancial instruments from its disclosure requirements.
Accordingly, the aggregate fair value amounts presented do not
represent the underlying value of the Company.

The following methods and assumptions were used by the Company to
estimate the fair value of each class of financial instruments:

CASH AND CASH EQUIVALENTS: The carrying amounts reported in the
balance sheet for these financial instruments, including
restricted cash, approximate their fair value.

INVESTMENT SECURITIES AVAILABLE FOR SALE: Fair values for these
financial instruments are based upon quoted market prices or
dealer quotes, where available. If quoted market prices are not
available, fair values are based upon quoted market prices of
comparable instruments.

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NOTE RECEIVABLE FOR SALE OF AGENCY ASSETS: The fair value of the
note receivable from the sale of agency assets is estimated by
discounting the future cash flows using current rates at which a
similar loan would be made to the borrower for the same remaining
maturity.

NOTES PAYABLE: The fair value of the note payable is estimated
using rates currently available to the Company for debt with a
similar term and remaining maturity.

n. RECLASSIFICATIONS - Certain reclassifications have been made to
the 1994 consolidated financial statements in order to conform to
the 1995 method of presentation.

2. BUSINESS ACQUISITION AND DISPOSITION

In April 1995, The Agency sold all of the inforce business and certain
net assets to a former officer of The Agency for approximately $180,000
of which $170,000 was received in the form of a five year note
receivable. The sale resulted in a net gain of approximately $47,000.
The gain on disposition of this business segment has been accounted for
as discontinued operations and, accordingly, 1994 financial statements
have been restated to reflect the income of the agency, litigation
settlement cost related to The Agency, and its net assets as
discontinued operations. Revenues of the agency approximated $65,000 in
1995 prior to the sale and $221,000 for the year ended December 31,
1994. The note receivable from the former officer, which is included in
notes and accounts receivables, approximated $164,000 at December 31,
1995.

On December 31, 1994, GAIN acquired all of the outstanding capital stock
of Financial Security Life of Mississippi (FSL), an inactive life
insurance company licensed to write insurance in ten states, for cash
approximating $201,000. USLI acquired certain assets from the seller for
approximately $81,000.

Simultaneously with the acquisition, USLI was merged into FSL and its
name was changed to USLI.

The business acquisition was accounted for by the purchase method of
accounting and, accordingly, no earnings were recorded in 1994.

A summary of the assets of the business acquired were as follows:

[Download Table]

Data processing equipment $ 75,000
Prepaid expenses 6,000
Intangible assets 201,000
--------

$282,000
========

Pursuant to the business acquisition, the Company and the seller entered
into certain agreements to indemnify the Company and the acquired
company from certain liabilities and contingencies. In connection
therewith, an escrow agreement was executed wherein $256,000 of the
acquired company's assets, which would have been transferred to the
seller, were deposited in an escrow account. Those assets are presented
as restricted cash of the Company with a corresponding liability in
accounts payable and other liabilities for certain potential
contingencies. Upon termination, all remaining funds will be distributed
to the seller. During March 1996, the Company released the remaining
funds which were distributed to the seller and approximated $95,000 at
December 31, 1995.

The pro forma effect on the Company's results of operations had the
business acquisition occurred as of the beginning of 1994 was not
presented as it was not material.

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3. INVESTMENTS

The amortized cost and related approximate fair value of investments
securities available for sale were as follows:

[Download Table]

Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----

1995
Fixed Maturities:
U. S. Treasury obligations $ 306,458 $ 1,000 $ 4,458 $ 303,000
State, county and municipal
obligations 214,188 3,862 218,050
FHLB and GNMA certificates 273,913 2,000 4,985 270,928
Public utility bonds 806,544 10,671 3,714 813,501
Industrial bonds 1,011,177 50,323 0 1,061,500
---------- ---------- ---------- ----------

$2,612,280 $ 67,856 $ 13,157 $2,666,979
========== ========== ========== ==========

Equity Securities $ 987,237 $ 6,637 $ 980,600
========== ========== ==========

1994
Fixed Maturities:
U. S. Treasury obligations $ 207,310 $ 33,310 $ 174,000
GNMA certificates 196,365 16,365 180,000
Public utility bonds 920,411 100,851 819,560
Industrial bonds 999,605 78,805 920,800
---------- ---------- ----------

$2,323,691 $ 229,331 $2,094,360
========== ========== ==========

Equity Securities $1,108,679 $ 145,322 $ 963,357
========== ========== ==========

Fixed maturity investments with an amortized cost of $1,156,000 in 1995
and $960,000 in 1994 (fair values of $1,189,000 in 1995 and $858,000 in
1994) were held by and pledged to various states in which the Company is
licensed pursuant to regulatory requirements.

The components of net investment income were as follows:

[Download Table]

1995 1994

Fixed maturities $185,487 $155,724
Equity securities 95,483 86,097
Short-term investments 3,860 3,259
Other 9,977 1,853
-------- --------

Net investment income $294,807 $246,933
======== ========

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The following is an analysis of the amortized cost and fair value of
investments in fixed maturities at December 31, 1995, by contractual
maturity:

[Download Table]

Amortized Fair
Cost Value

Due in one year $ 200,052 $ 201,000
Due after one year through five years 130,714 132,900
Due after five years through ten years 1,308,193 1,336,100
Due after ten years 973,321 996,979
---------- ----------

$2,612,280 $2,666,979
========== ==========

Actual maturities may differ from contractual maturities because of the
borrowers right to call or prepay obligations.

Proceeds from sales of fixed maturity securities approximated $238,000
in 1995 and $603,000 in 1994. Gross realized security gains approximated
$4,000 in 1994 (none in 1995). Gross realized security losses from
security sales approximated $2,000 in 1995 and $10,000 in 1994.

4. PROPERTY AND EQUIPMENT

Property and equipment were as follows:

[Download Table]

1995 1994

Land $ 80,000 $ 80,000
Buildings 483,749 483,749
Furniture and equipment 385,704 269,903
-------- --------

949,453 833,652

Less accumulated depreciation 225,589 155,505
-------- --------

Property and equipment, net $723,864 $678,147
======== ========

5. REINSURANCE

The maximum amount of risk that USLI retains on any one life is $20,000.
Life insurance coverage in excess of this retention limit, accidental
death benefit coverage and substandard insurance risks are ceded to
other reinsurers. In addition, the Company reinsures all of its accident
and health cancer policies to provide reinsurance for all individual
claims over $25,000 in any calendar year. Under the terms of the life
reinsurance contracts dated in May 1990, USLI received a commission
allowance equal to 100% of first year premiums to be paid on the excess
life coverage. Premiums ceded for the excess life coverage relating to
the second and subsequent years approximated $67,000 in 1995 and $71,000
in 1994. Accident and health ceded premiums approximated $3,000 in 1995
and in 1994.

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Although ceding of insurance does not discharge the primary liability of
the original insurer, insurance liabilities are presented net of
reinsurance. The reinsured portion of the liabilities for future policy
benefits for life products approximated $35,000 in 1995 and $36,000 in
1994 relating to insurance in force of $39,236,000 and $43,303,000,
respectively, and is included in reinsurance receivables.

6. NOTES PAYABLE

Notes payable consisted of the following:

[Enlarge/Download Table]

1995 1994

Prime plus 1.5% mortgage note (effective rate of 10.25% in 1995 and 10.0% in
1994) payable in monthly installments of $5,751, including interest, with a
balloon payment due on December 19, 1999 and collateralized by property with
a carrying value of $386,000 in 1995 $ 526,447 $ 535,563
=========== ===========

Aggregate future principal payments on notes payable were as follows:

Year Ended December 31,

[Download Table]

1996 $ 17,139
1997 18,933
1998 20,916
1999 469,459
-----------
$ 526,447
===========

During 1994, the Company refinanced its mortgage note with proceeds of
approximately $175,000 used for a business acquisition (see Note 2).

7. REGULATORY DISCLOSURES AND RESTRICTIONS

Pursuant to the laws and regulations of the State of Mississippi, USLI
is required to maintain minimum capital of $400,000 and minimum surplus
of $600,000. The approximate statutory capital and surplus and net
income of USLI, as determined in accordance with statutory accounting
practices required by the Department of Insurance of the State of
Mississippi (the Department), were as follows:

[Download Table]

1995 1994

Statutory capital and surplus $2,372,000 $2,388,000
========== ==========

Statutory net income and realized gains
and losses $ 13,000 $ 60,000
========== ==========

Stockholders' dividends are payable out of statutory surplus of USLI
with the approval of the Department, based upon limitations relating to
statutory capital and surplus and statutory net income. As of December
31, 1995, approximately $237,000 was available for dividends to GAIN
without prior approval by the Department.

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During 1992, the National Association of Insurance Commissioners (NAIC)
adopted certain risk-based capital requirements effective for all
insurance companies in 1993. These requirements provide a measurement of
minimum capital appropriate for an insurance company to support its
overall business operations based upon its size and risk profile which
considers (i) asset risk, (ii) insurance risk, (iii) interest rate risk,
and (iv) business risk. An insurance company's risk-based capital is
calculated by applying a defined factor to various statutory based
assets, premiums and reserve items, wherein the factor is higher for
items with greater underlying risk. The adequacy of a company's capital
is then measured by its risk-based capital ratio (the ratio of its total
capital, as defined, to its risk-based capital).

The NAIC has provided levels of progressively increasing regulatory
action for remedies when an insurance company's risk-based capital ratio
falls below a ratio of 1:1. USLI was in compliance with these new
minimum capital requirements as follows:

[Download Table]

1995 1994

Total adjusted capital $2,431,000 $2,466,000
Authorized control level risk-based capital 107,000 105,000
Ratio (in percentages) 2,315% 2,349%

8. STOCKHOLDERS' EQUITY

During 1994, the Company amended its articles of incorporation to
equalize the rights of the shareholders of the Non-participating Common
and Class A Preferred stock and to change the names of the two classes
to Class A common stock (previously designated as Class A preferred
stock) and Class B common stock (previously designated as
NonParticipating common stock). These changes provided for identical
voting and participating rights. Prior to 1994, the non-participating
common stock had full voting rights but was not entitled to participate
in dividends, company earnings or asset distribution upon liquidation.

Prior to 1994, the Class A preferred stock participated in the earnings
of the Company and was entitled to assets upon dissolution of the
Company, but these shares had no voting rights except to elect six of
the fifteen members comprising the Board of Directors.

During 1994, the Company adopted a stock incentive plan for employees
wherein 500,000 shares of unissued Class A common stock was reserved for
option as directed by the Board of Directors. As of December 31, 1995,
the Company had granted options to acquire 150,000 shares of Class A
common stock at an exercise price of $1.80 per share (estimated fair
value at date of grant) which were still outstanding. These options are
exercisable at any time and expire at the earlier of November 29, 2003
or termination of employment.

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9. PARTICIPATING POLICIES

Approximately 98% of the Company's life insurance in force and premium
revenue is participating whole life insurance. Dividends on these
policies are payable at the discretion of the Board of Directors from
divisible surplus as calculated using statutory accounting practices as
required by law. All amounts allocable to policyholders have been
accrued and none of the Company's retained earnings as reported was
allocable to participating policies. No dividends are paid until the
second annual premium has been paid in full. The accrued dividends on
participating policies have been included in the liability for future
policy benefits. Dividends, included in benefits and claims expense,
approximated $336,000 in 1995 and $283,000 in 1994.

10. LIABILITY FOR UNPAID CLAIMS

Activity in the liability for unpaid claims is summarized as follows:

[Download Table]

1995 1994

Balance at January 1 $113,329 $ 22,890
Less reinsurance recoverables
-------- --------

Net Balance at January 1 113,329 22,890
-------- --------

Incurred related to:
Current year 444,384 273,087
Prior years 73,514
-------- --------

Total incurred 517,898 273,087

Paid related to:
Current year 416,936 177,258
Prior years 73,514 5,390
-------- --------

Total paid 490,450 182,648
-------- --------

Net Balance at December 31 140,777 113,329
-------- --------
Plus reinsurance recoverables

Balance at December 31 $140,777 $113,329
======== ========

11. INCOME TAXES

There was no provision for income taxes in 1995 and 1994 as a result of
the utilization of net operating loss carryforwards and the offset of
potential net deferred tax assets by valuation allowances.

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Deferred income taxes reflect the net tax effects of (a) temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax
purposes, and (b) operating loss carryforwards. The tax effects of
significant items comprising the Company's net deferred tax asset as of
December 31, 1995 and 1994 are as follows:

[Download Table]

1995 1994

Deferred tax liabilities:
Property and equipment $ (31,812) $ (17,063)
Deferred policy acquisition costs (248,624) (201,387)
Unrealized gain on securities available for sale (16,341) --
--------- ---------

(296,777) (218,450)
========= =========

Deferred tax assets:
Unrealized loss on securities available for sale $ -- $ 127,382
Future policy benefit liabilities 235,876 221,998
Allowance for bad debts -- 4,531
Deferred compensation liability 18,700 20,024
Accrual for litigation 32,019 50,839
Operating loss carryforwards 281,238 278,881
--------- ---------

567,833 703,655
Valuation allowance (271,056) (485,205)
--------- ---------

296,777 218,450
--------- ---------

Net deferred tax asset $ -- $ --
========= =========

The valuation allowance decreased by approximately $115,000 in 1995 and
increased by $118,000 in 1994, exclusive of valuation changes related to
the 1994 unrealized loss on securities available for sale..

The provision for federal income taxes differs from the amount computed
by applying the federal income tax statutory rate to income from
operations before income taxes as follows:

[Download Table]

1995 1994

Taxes calculated at federal statutory rate $ 76,904 $ 1,679
Increases (decreases) resulting from:
Change in deferred tax valuation allowance
and utilization of operating loss carrforwards (61,888) 11,910
Other (15,016) (13,589)
-------- --------

$ -- $ --
======== ========

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At December 31, 1995, the Company had net operating loss carryforwards
for income tax reporting purposes available to offset future taxable
income as follows:

[Download Table]

Year of Expiration USLI Gain

2004 $ 263,000
2005 220,000
2006 46,000
2007 60,000
2008 96,000
2009 53,000
2010 $ 60,000 88,000
---------- ------

$ 60,000 $ 826,000
========== ===========

The Company has not been examined by the Internal Revenue Service for
any of the periods presented.

12. TRANSACTIONS WITH RELATED PARTIES

In a prior year, the Board of Directors approved the expenditure of up
to $200,000 for purposes of determining the feasibility of marketing
certain of its products in Mexico and obtaining license approval of USLI
as a foreign reinsurer. As of December 31, 1994, the Company had
expended the $200,000, including the purchase of an investment in an
inactive foreign corporation approximating $30,000. Foreign operations
marketing expenses charged to operations include the write-off of the
investment of the foreign corporation, US Star, in 1995 of $30,000.
Considering the current economic conditions in Mexico and the
instability of the current Mexican government, management has suspended
any additional foreign operations marketing activities and conveyed its
interest in US Star to US Star's other shareholder.

On May 2, 1995, shareholders of the Company approved an executive
compensation plan and agreement for the Company's Chairman and Vice
Chairman of the Board. Pursuant to the non-qualified compensation plan,
the executives will receive the greater of fixed annual compensation of
$20,000 each or 1% of statutory premium revenues of USLI up to a maximum
premium amount of $10,000,000 (equivalent to annual benefits of $100,000
each). The 1% is reduced based upon the ratio of statutory net gain from
operations to gross statutory revenues. The plan is effective for a ten
year period beginning May 2, 1995. In connection with the adoption of
this plan, the Company accrued the minimum obligation relative to past
services, based upon its best estimates of anticipated future statutory
premium revenues and statutory operating gains. This obligation, which
approximated $55,000 at December 31, 1995, is included in accounts
payable and other liabilities. Compensation expense paid to the
executive officers pursuant to this plan and under a Board of Director
approved salary continuation arrangement upon their retirement through
April 1994, approximated $27,000 in 1995 and $51,000 in 1994.

Pursuant to the above salary continuation compensation one of the
retiring executive officers entered into a deferred compensation
arrangement with the Company wherein the salary continuation payments
were deferred under the plan. The deferred compensation liability
approximated $59,000 in 1994 and was paid during 1995.

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The Company entered into consulting arrangements with certain of its
original founders who subscribed for stock for purposes of solicitation
of their advice, support and promotion of the Company through a
consulting group. Consulting fees are based upon an 8% return on each
respective founder's original investment and payable over twelve years.
Consulting fees incurred approximated $42,000 in 1995 and in 1994.

The Agency had entered into an administrative services agreement with a
professional organization which was owned by an officer of The Agency
wherein The Agency received a specified percentage of gross revenues.
The agreement expired on August 31, 1994. No income was earned in 1994
as the professional organization was principally inactive.

Prior to the sale of its inforce business and certain net assets in
April 1995, The Agency had entered into an employment and
non-competition agreement with an officer of The Agency which provided
for payment to the officer of amounts equal to 40% of all commissions
earned by The Agency while the officer was employed. The agreement
further provided that the officer would own 50% of all new business
produced after the date of his employment with a first right of refusal
between The Agency and the officer for the purchase or sell of its
respective 50% ownership at such time as the officer retired or
terminated employment. This arrangement was considered in the
negotiation and sale of the inforce business (see Note 2). Compensation
expense paid to the officer under this arrangement approximated $18,000
in 1995 and $55,000 in 1994.

13 ACCOUNTING STANDARDS TO BE ADOPTED IN THE FUTURE

In 1995, the Financial Accounting Standards Board issued SFAS No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed," which is effective for fiscal years beginning
after December 15, 1995. This Statement requires that long-lived assets
and certain identifiable intangibles to be held and used by an entity be
reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable.
Management has not fully evaluated the effect but believes that the
adoption of SFAS No. 121 will not have a material effect on the
Company's consolidated financial statements.

In October 1995, the Financial Accounting Standards Board issued SFAS
No. 123, "Accounting for Stock-Based Compensation". The Statement
requires expanded disclosures of stock-based compensation arrangements
with employees and encourages (but does not require) application of the
"fair value" recognition provisions in the new Statement. The Statement
does not rescind or amend existing accounting rules for employee stock-
based arrangements. Companies may continue following those rules to
recognize and measure compensation but they will be required to disclose
the pro forma amounts of net income and earnings per share that would
have been reported had the Company elected to follow the "fair value"
recognition provisions of SFAS 123.

For non-employee stock-based transactions, no previous authoritative
accounting literature provided direct guidance. Under SFAS 123, all
companies must apply the fair value method for their nonemployee stock-
based transactions.

The provisions of SFAS 123 are required for financial statements for
fiscal years beginning after December 15, 1995. The Company has not yet
determined the effect of implementation of this standard.

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14. CONTINGENCIES

The Company has been named defendant in two litigation matters resulting
from the denial of claim benefits under a policy issued by USLI. Legal
counsel is unable to render an opinion on the estimated outcome of these
matters as they are presently in discovery stage. However, management
intends to vigorously deferred these matters and, is of the opinion that
the ultimate outcome of these matters will not result in a material
adverse effect on the consolidated financial statements. Accordingly, no
provision for any loss or liability has been provided in the
consolidated financial statements.

In 1994, the Company was a defendant in litigation filed by the former
owner of an insurance agency acquired by the Agency wherein the
plaintiff sought damages for alleged failure to make payments due under
a purchase agreement for a specified percentage of renewal commissions.
On March 3, 1995, an out-of-court settlement was reached wherein the
Company agreed to pay over a five year period installments aggregating
$180,000, including plaintiff legal costs. The Company accrued the
present value of this settlement which approximated $150,000 as of
December 31, 1994, and included it as litigation settlement costs of
discontinued operations as it related to the agency subsidiary's
operations. This obligation is included in accounts payable and other
liabilities and approximated $94,000 as of December 31, 1995.

15. FAIR VALUE DISCLOSURES

The carrying values and estimated fair values of the Company's financial
instruments as of December 31, 1995 were as follows:

[Download Table]

Carrying Estimated
Value Fair Value

Financial Assets:
Investment securities available for sale $3,647,579 $3,647,579
Cash and cash equivalents 121,102 121,102
Restricted cash 95,000 95,000
Note receivable from sale of agency assets 164,245 124,444

Financial Liabilities:
Notes payable $ 526,447 $ 522,337

The estimated fair values are significantly affected by assumptions
used, principally the timing of future cash flows, the discount rate,
judgments regarding current economic conditions, risk characteristics of
various financial instruments and other factors. Because assumptions are
inherently subjective in nature, the estimated fair values cannot be
substantiated by comparison to independent quotes and, in many cases,
the estimated fair values could not necessarily be realized in an
immediate sale or settlement of the instrument. Potential tax
ramifications related to the realization of unrealized gains or losses
that would be incurred in an actual sale and/or settlement have not been
taken into consideration.

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16. SUBSEQUENT EVENT

During February 1996, the Board of Directors approved the adoption of an
Agents' Stock Option Plan for eligible agents licensed with the Company
wherein 200,000 shares of Class A common stock was reserved for option
as directed by the Board. The plan is subject to shareholder approval.

* * * * * *

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APPENDIX A

PLAN AND AGREEMENT OF EXCHANGE

This Plan and Agreement of Exchange ("Agreement") is entered into
between and among CITIZENS INSURANCE COMPANY OF AMERICA, a Colorado-domiciled
insurance company ("CICA") and AMERICAN INVESTMENT NETWORK, INC., a Mississippi
corporation ("American").

WITNESSETH

WHEREAS, CICA, which was chartered on February 13, 1968 in Colorado as
Continental Investors Life Insurance Company, Inc. ("CILIC"), and by Articles
of Merger filed with the Secretary of State of Colorado on August 31, 1988,
CILIC changed its corporate name to Citizens Insurance Company of America is a
wholly owned subsidiary of Citizens, Inc., a Colorado corporation ("Citizens");
and

WHEREAS, American, which was chartered in 1987 in the State of
Mississippi as Great American Investment Network, Inc., and in 1995 changed its
name to American Investment Network, Inc., owns all of the issued and
outstanding capital stock of United Security Life Insurance Company, a
Mississippi-domiciled stock insurance company ("USLI"), which was chartered in
1967 in the State of Mississippi as American Empire Life Insurance Company,
which name was changed in 1973 to Financial Security Life of Mississippi, which
was in 1994 merged with United Security Life Insurance Company, a corporation
chartered in 1987 in the State of Mississippi, and at which time the name of
the merged corporation was changed to United Security Life Insurance Company;
and

WHEREAS, CICA and American desire to effect a share exchange pursuant to
Mississippi Code Ann. 79-4-11.01 et seq. and 83-19-99 et seq. (together the
"Exchange Act") in which all the outstanding shares of Class "A" Common Stock
and Class "B" Common Stock of American will be exchanged for shares of Class A
Common Stock of Citizens owned and held by CICA;

NOW, THEREFORE, it is agreed among the parties as follows:

ARTICLE I

The Exchange

1.1 Subject to the terms and conditions set forth herein, the
transactions contemplated by this Agreement shall be completed at a closing
("Closing") on a closing date ("Closing Date") to occur as soon as possible
after all regulatory approvals and shareholder approvals are obtained in
accordance with law and as required by this Agreement. On the Closing Date, all
of the documents to be furnished to American and CICA, including the documents
to be furnished pursuant to Article VII of this Agreement, shall be delivered
to Jones & Keller, P.C., counsel to CICA ("Jones & Keller") to be held in
escrow until the Effective Date or the date of termination of this Agreement,
whichever first occurs and thereafter shall be promptly distributed to the
parties as their interests may appear.

1.2 The terms of the Exchange shall be:

(i) The Exchange shall be effective ("Effective Date")
as of the filing of the Certificate of Exchange by
American and CICA with the Secretary of State and
the Commissioner of Insurance of the State of
Mississippi or, if later, the date specified
therein.

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(ii) At and as of the Effective Date:

(a) each shareholder of American prior to the Effective
Date shall cease to be a shareholder of American;

(b) The ownership of all issued and outstanding stock
of American (other than shares for which dissenter's
rights are perfected in accordance with the Exchange Act)
shall vest in CICA automatically without any physical
transfer or deposit of the certificates representing such
shares, and CICA will become the sole shareholder of
American;

(c) the holders of each issued and outstanding share of
American Class A or Class B Common Stock prior to the
Effective Date (other than any shares for which
dissenter's rights are perfected in accordance with the
Exchange Act) shall have the right to receive from CICA in
accordance with Article II of the Agreement one (1) share
of Citizens Class A Common Stock, no par value, for each
seven and two-tenths (7.2) shares of American Class A or
Class B Common Stock prior to the Effective Date,
provided, however, that all consideration to be received
shall be subject to equitable adjustment in the event of
any stock split, stock dividend, reverse stock split, or
other change in the number of American shares outstanding;
and

(d) the holders of each issued and outstanding share of
American Class A or Class B Common Stock prior to the
Effective Date for which dissenter's rights are perfected
in accordance with the Exchange Act shall have the right
to receive from American payment therefor in accordance
with the Exchange Act.

(iii) The directors and officers of American shall be
removed as of the Effective Date, and the directors
and officers of CICA shall become the directors and
officers of American as of the Effective Date.

(iv) The Exchange shall have the effect set forth in the
Exchange Act.

1.3 On the Closing Date, American and CICA will file with the
Secretaries of State of Mississippi and Colorado Articles of Share Exchange in
the forms attached hereto as Exhibit A.

ARTICLE II

Exchange of Shares

2.1 At the Effective Date, the shares of Citizens Class A Common
Stock to be exchanged as provided in Section 1.2 shall be distributed by CICA
to shareholders of American (other than those shares as to which dissenters'
rights have been perfected in accordance with the Exchange Act).

2.2 The stock transfer books of American shall be closed on the
Effective Date, and thereafter no transfers of the stock of American shall be
made. CICA shall appoint an exchange agent ("Exchange Agent"), which is
expected to be Citizens' then stock transfer agent ("Stock Transfer Agent"), to
accept surrender of the certificates representing the shares of American and to
deliver for such surrendered certificates, shares of Class A Common Stock of
Citizens. If outstanding certificates for shares of American are not
surrendered or the payment for them is not claimed prior to such date on which
such payments would otherwise escheat to or become the property of any
governmental unit or agency, the

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unclaimed items shall, to the extent permitted by abandoned property and other
applicable law, become the property of CICA (and to the extent not in its
possession shall be paid over to it), free and clear of all claims or interest
of any persons previously entitled to such items. Notwithstanding the
foregoing, neither the Exchange Agent nor any party to this Agreement shall be
liable to any holder of American shares for any amount paid to any governmental
unit or agency having jurisdiction of such unclaimed item pursuant to the
abandoned property or other applicable law of such jurisdiction.

2.3 No fractional shares of Citizens stock shall be exchanged as a
result of the Agreement; rather, such shares shall evidence the right to
receive the cash value of such share based on the average closing price of the
Class A Common Stock of Citizens as reported on the American Stock Exchange for
the five trading days prior to the Effective Date. In the event the exchange of
shares results in any shareholder being entitled to a fraction less than a
whole share of Citizens stock, such shareholder shall be given a cash payment
by American for such fractional share at the rate per share as calculated in
the previous sentence.

2.4 At the Effective Date, each holder of a certificate or
certificates representing shares of American, upon presentation and surrender
of such certificate or certificates to the Exchange Agent, shall be entitled to
receive the consideration set forth herein, except that holders of those shares
as to which dissenters' rights shall have been asserted and perfected pursuant
to the Exchange Act shall not be converted into shares of Citizens Class A
Common Stock, but shall represent only such dissenters' rights. Upon such
presentation, surrender, and exchange as provided in this Section 2.4,
certificates representing shares of American previously held shall be canceled.
Until so presented and surrendered, each certificate or certificates which
represented issued and outstanding shares of American at the Effective Date
shall be deemed for all purposes to evidence the right to receive the
consideration set forth in Section 1.2 of this Agreement. If the certificates
representing shares of American have been lost, stolen, mutilated or destroyed,
the Exchange Agent shall require the submission of an indemnity agreement and
may require the submission of a bond in lieu of such certificate.

ARTICLE III

Representations , Warranties and Covenants of CICA

No representations or warranties are made by any director, officer,
employee or shareholder of CICA as individuals, except as and to the extent
stated in this Agreement or in a separate written statement (the "CICA
Disclosure Statement"). CICA hereby represents, warrants and covenants to
American, except as stated in the CICA Disclosure Statement, as follows:

3.1 Citizens and CICA are, respectively, a corporation and an
insurance company, each duly organized, validly existing and in good standing
under the laws of the State of Colorado, and each have the corporate power and
authority to own or lease its properties and to carry on its business as it is
now being conducted. The Articles of Incorporation and Bylaws of Citizens and
CICA, copies of which have been delivered to American, are complete and
accurate, and the minute books of Citizens and CICA contain a record, which is
complete and accurate in all material respects, of all meetings, and all
corporate actions of the shareholders and Board of Directors of Citizens and
CICA.

3.2 The aggregate number of shares which Citizens is authorized to
issue is 50,000,000 shares of Class A Common Stock, no par value, and 1,000,000
shares of Class B common stock, no par value; of which 21,651,161 shares of
such Class A Common Stock are issued and 19,572,614 shares are outstanding,
fully paid and nonassessable and 621,049 shares of Class B common stock are
issued and outstanding, fully paid and nonassessable. There are 1,955,457
shares of Class A Common Stock of Citizens owned and held by CICA that will be
used to satisfy the exchange obligations of CICA under

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the Agreement. Citizens has no outstanding options, warrants, or other rights
to purchase, or subscribe to, or securities convertible into or exchangeable
for any shares of capital stock, except an option for 76,000 shares of Class A
Common Stock. The two (2) classes of stock of Citizens are equal in all
respects, except (a) the Class B common stock elects a simple majority of the
Board of Directors of Citizens, and the Class A Common Stock elects the
remaining directors; and (b) each Class A share receives twice the cash
dividends paid on a per share basis to the Class B common stock.

3.3 CICA has complete and unrestricted power to enter into and, upon
the appropriate approvals as required by law, to consummate the transactions
contemplated by this Agreement. None of Citizens, and its subsidiaries have
any liability or obligation to pay any fee or commission to any broker, agent
or finder with respect to the transaction contemplated hereby except to Merger
& Acquisition Profiles, Inc.

3.4 Neither the making of nor the compliance with the terms and
provisions of this Agreement and consummation of the transactions contemplated
herein by CICA will conflict with or result in a breach or violation of the
Articles of Incorporation or Bylaws of CICA.

3.5 The execution, delivery and performance of this Agreement have
been duly authorized and approved by the Board of Directors of CICA.

3.6 CICA has delivered to American consolidated financial statements
of Citizens and its subsidiaries, dated December 31, 1995 and June 30, 1996.
All such statements, herein sometimes called "Citizens Financial Statements,"
are complete and correct in all material respects and, together with the notes
to these financial statements, present fairly the financial position and
results of operations of Citizens and its subsidiaries for the periods
included. The December 31, 1995 and June 30, 1996 Citizens consolidated
financial statements have been prepared in accordance with generally accepted
accounting principles.

3.7 Since the dates of the Citizens Financial Statements there have
not been any material adverse changes in the business or condition, financial
or otherwise, of Citizens. Citizens and its subsidiaries do not have any
material liabilities or obligations, secured or unsecured (whether accrued,
absolute, contingent or otherwise) except as disclosed in the Citizens
Financial Statement.

3.8 CICA has delivered to American a list and description of all
pending legal proceedings involving Citizens, none of which will materially
adversely affect it, and, except for these proceedings, there are no legal
proceedings or regulatory proceedings involving material claims pending, or to
the knowledge of the officers of Citizen, threatened against Citizens or
affecting any of its assets or properties, and Citizens is not in any material
breach or violation of or default under any contract or instrument to which
Citizens is a party, and no event has occurred which with the lapse of time or
action by a third party could result in a material breach or violation of or
default by Citizens under any contract or other instrument to which Citizens is
a party or by which it or any of its properties may be bound or affected, or
under its respective Articles of Incorporation or Bylaws, nor is there any
court or regulatory order pending, applicable to Citizens or its subsidiaries.

3.9 Citizens shall not enter into or consummate any transactions
prior to the Effective Date other than (i) in the ordinary course of business
or (ii) business acquisitions, combinations and exchanges. Citizens will not
pay any dividend or, except in the ordinary course of business, enter into an
agreement or transaction which would adversely affect its financial condition.

3.10 Neither CICA nor Citizens is a party to any contract performable
in the future except insurance policies, customary agent contracts, normal
reinsurance agreements, agreements with subsidiaries, and those which will not
adversely affect it.

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3.11 The representations and warranties of CICA shall be true and
correct as of the date hereof and as of the Effective date.

3.12 CICA has delivered, or will deliver within two weeks of the date
of this Agreement, to American true and correct copies of Citizens Annual
Report to Shareholders for the years ended December 31, 1995 and 1994. CICA
will also deliver to American on or before the Closing Date any reports
relating to the financial and business condition of Citizens which are filed
with the SEC after the date of this Agreement and any other reports sent
generally to its shareholders after the date of this Agreement. Citizens has
duly filed all reports required to be filed by it under the Securities Act of
1933, as amended, and the Securities Exchange Act of 1934, as amended (the
"Federal Securities Laws"). No such reports, or any reports sent to the
shareholders of Citizens generally as of their respective dates, contained any
untrue statement of material fact or omitted to state any material fact
required to be stated therein or necessary to make the statements in such
reports, in light of the circumstances under which they were made, not
misleading.

3.13 CICA has delivered to American a copy of each of the consolidated
federal income tax returns of Citizens and its subsidiaries for the year ended
December 31, 1994 and for any additional open years. The provisions for taxes
paid by Citizens are believed by Citizens to be sufficient for payment of all
accrued and unpaid federal, state, county and local taxes of Citizens
(including any penalties or interest payable) whether or not disputed for the
periods then ended and for all prior fiscal periods. All returns and reports or
other information required or requested by federal, state, county, and local
tax authorities have been filed or supplied in a timely fashion, and all such
information is true and correct in all material respects. Provision has been
made for the payment of all taxes due to date by Citizens.

3.14 Citizens has no employee benefit plan, except for a
noncontributory, qualified profit-sharing plan and a group accident and health
insurance plan.

3.15 No representation or warranty by CICA in this Agreement, the CICA
Disclosure Statement or any certificate delivered pursuant hereto contains any
untrue statement of a material fact or omits to state any material fact
necessary to make such representation or warranty not misleading.

ARTICLE IV

Representations, Warranties and Covenants of American

No representations or warranties are made by any director, officer,
employee or shareholder of American as individuals, except as and to the extent
stated in this Agreement or in a separate written statement (the "American
Disclosure Statement"). American hereby represents, warrants and covenants to
CICA, except as stated in the American Disclosure Statement, as follows:

4.1 American and USLI are, respectively, a corporation and an
insurance company duly organized, validly existing and in good standing under
the laws of the State of Mississippi, each having the corporate power and
authority to own or lease its properties and to carry on its business as it is
now being conducted. The Articles of Incorporation and Bylaws of American and
USLI, copies of which have been delivered to CICA, are complete and accurate,
and the minute books of American and USLI contain a record, which is complete
and accurate in all material respects, of all meetings, and all corporate
actions of the shareholders and Board of Directors of American and USLI.

4.2 The aggregate number of shares which American is authorized to
issue is 15,000,000 shares of Class A Common Stock, participating, no par
value, and 2,500 shares of Class B Common

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Stock, participating (by virtue of a 1994 amendment to the Articles of
Incorporation), $1.00 par value; of which 5,025,490 shares of such Class A
Common Stock are issued and 5,021,764 are outstanding, fully paid and
nonassessable and 2,500 shares of Class B Common Stock are issued and
outstanding, fully paid and nonassessable. American has no outstanding options,
warrants or other rights to purchase or subscribe to, or securities convertible
into or exchangeable for any shares of capital stock, except as shown on the
American Disclosure Statement attached to and made a part of this Agreement.
There are 3,726 shares of Class A Common Stock owned and held by USLI.

The aggregate number of shares which USLI is authorized to issue is
4,000 shares of Common Stock, participating, $500.00 par value, of which 2,000
shares are issued and outstanding, fully paid and nonassessable. USLI has no
outstanding options, warrants or other rights to purchase or subscribe to, or
securities convertible into or exchangeable for any shares of capital stock.
All issued and outstanding shares of USLI stock are owned and held by American.

The subsidiaries of American are each an association, corporation, or
other entity duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation or association; each has the
power and authority to lease its properties and to carry on its business as now
being conducted and is qualified to do business; and each holds or shall hold
all licenses, franchises, permits or other governmental authorizations required
to enable it to conduct its business or own its properties in every
jurisdiction in which it currently conducts business or owns property and where
the failure to do so would have a material adverse effect on the business of
the subsidiary. All outstanding shares of capital stock of each subsidiary are
duly and validly authorized and issued, fully paid and nonassessable. American
directly or indirectly owns all of the issued and outstanding capital stock of
such subsidiaries, including USLI. There are no outstanding options, warrants
or other rights to purchase or subscribe to, or securities convertible into or
exchangeable for any shares of capital stock of any subsidiary of American or
USLI, except as shown on the American Disclosure Statement.

4.3 American and USLI each have complete and unrestricted power to
enter into and, upon the appropriate approvals as required by law, to
consummate the transactions contemplated by this Agreement. None of American
and its subsidiaries have any liability or obligation to pay any fee or
commission to any broker, agent or finder with respect to the transactions
contemplated hereby.

4.4 Neither the making of nor the compliance with the terms and
provisions of this Agreement and consummation of the transaction contemplated
herein by American will conflict with or result in a breach or violation of any
Articles of Incorporation or Bylaws of American or its subsidiaries.

4.5 The execution of this Agreement has been duly authorized and
approved by American's Board of Directors.

4.6 American has delivered to CICA consolidated financial statements
of American and its subsidiaries, dated December 31, 1995 and June 30, 1996,
and the annual and quarterly convention statements of USLI as of December 31,
1995 and the six months ended June 30, 1996, as filed with the Mississippi
Department of Insurance. All such statements, herein sometimes called "American
Financial Statements," are complete and correct in all material respects and,
together with the notes to these financial statements, present fairly the
financial position and results of operations of American and USLI for the
periods indicated. The December 31, 1995 and June 30, 1996 American
consolidated financial statements have been prepared in accordance with
generally accepted accounting principles and the December 31, 1995 and June 30,
1996 convention statements have been prepared in accordance with statutory
accounting practices.

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4.7 Since the dates of the American Financial Statements there have
not been any material adverse changes in the business or condition, financial
or otherwise, of American or any of its subsidiaries. None of American or its
subsidiaries have any material liabilities or obligations, secured or unsecured
(whether accrued, absolute, contingent or otherwise), except as disclosed in
the American Financial Statements

4.8 American has delivered to CICA a list and description of all
pending legal proceedings involving American or any of its subsidiaries, all of
which are listed on the American Disclosure Statement, none of which will
materially adversely affect American or such subsidiary, and, except for these
proceedings, there are no legal proceedings or regulatory proceedings involving
material claims pending, or to the knowledge of the officers of American,
threatened against American or USLI or affecting any of its assets or
properties, and American and USLI are not in any material breach or violation
of or default under any contract or instrument to which American or USLI is a
party, and no event has occurred which with the lapse of time or action by a
third party could result in a material breach or violation of or default by
American or USLI under any contract or other instrument to which American or
USLI is a party or by which either of them or any of their respective
properties may be bound or affected, or under their respective Articles of
Incorporation or Bylaws, nor is there any court or regulatory order pending,
applicable to American or USLI.

4.9 Neither American nor USLI shall enter into or consummate any
transactions prior to the Effective Date other than in the ordinary course of
business and will pay no dividend, or increase the compensation of officers and
will not enter into any agreement or transaction which would adversely affect
their financial condition in a material manner.

4.10 The assets of USLI had admissible values at least equal to those
attributed to them on its December 31, 1995 or June 30, 1996 convention
statements.

4.11 Neither American nor USLI nor any subsidiary of American or USLI
is a party to any contract performable in the future except insurance policies,
customary agent contracts, normal reinsurance agreements and those which will
not adversely affect them, except as set out on the American Disclosure
Statement attached to this Agreement.

4.12 All policy and claim reserves of USLI have been properly provided
for and are adequate to comply with all regulatory requirements regarding same.

4.13 The representations and warranties of American shall be true and
correct as of the date hereof and as of the Effective Date.

4.14 American has delivered, or will deliver within two weeks of the
date of this Agreement, to CICA true and correct copies of American's Annual
Report to Shareholders for the years ended December 31, 1995 and 1994 and each
of its other reports to shareholders and filings with the Securities and
Exchange Commission ("SEC") for the years ended December 31, 1995, 1994 and
1993. American will also deliver to CICA on or before the Closing Date any
reports relating to the financial and business condition of American which are
filed with the SEC after the date of this Agreement and any other reports sent
generally to its shareholders after the date of this Agreement. American has
duly filed all reports required to be filed by it under the Securities Act of
1933, as amended, and the Securities Exchange Act of 1934, as amended (the
"Federal Securities Laws"). No such reports, or any reports sent to the
shareholders of American generally, contained any untrue statement of material
fact or omitted to state any material fact required to be stated therein or
necessary to make the statements in such report, in light of the circumstances
under which they were made, not misleading.

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4.15 American has delivered to CICA a copy of each of the federal
income tax returns of American for the years ended December 31, 1995, 1994 and
1993 and for any additional open years. The provisions for taxes paid by
American are believed by American to be sufficient for payment of all accrued
and unpaid federal, state, county and local taxes of American (including any
penalties or interest payable) whether or not disputed for the periods then
ended and for all prior fiscal periods. All returns and reports or other
information required or requested by federal, state, county and local tax
authorities have been filed or supplied in a timely fashion, and all such
information is true and correct in all material respects. Provision has been
made for the payment of all taxes due to date by American.

4.16 Neither American nor USLI have any employee benefit plans, except
for a noncontributory 401K plan and a group accident, health and life insurance
plans.

4.17 No representation or warranty by American in this Agreement, the
American Disclosure Statement or any certificate delivered pursuant hereto
contains any untrue statement of a material fact or omits to state any material
fact necessary to make such representation or warranty not misleading.

ARTICLE V

Obligations of the Parties Pending the Effective Date

5.1 This Agreement shall be duly submitted to the shareholders of
American for the purpose of considering and acting upon this Agreement in the
manner required by law at a meeting of shareholders on a date selected by
American, such date to be the earliest practicable date after the proxy
statement may first be sent to American shareholders without objection by
applicable governmental authorities. CICA will furnish to American the
information relating to Citizens required by the Federal Securities Laws to be
included in the proxy statement. CICA represents and warrants that at the time
of the American shareholders' meeting, the proxy statement, insofar as it
relates to Citizens and contains information furnished by CICA specifically for
use in such proxy statement, (a) will comply in all material respects with the
provisions of the Federal Securities Laws; and (b) will not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. The Board of
Directors of American, subject to its fiduciary obligations to shareholders,
shall use its best efforts to obtain the requisite approval of American
shareholders of this Agreement and the transactions contemplated herein.
American and CICA shall take all reasonable and necessary steps and actions to
comply with and to secure American shareholders approval of this Agreement and
the transactions contemplated herein as may be required by the statutes, rules
and regulations of such states.

5.2 At all times prior to the Effective Date, during regular business
hours each party will permit the other to examine its books and records and the
books and records of any subsidiaries and will furnish copies thereof on
request. It is recognized that, during the performance of this Agreement, each
party may provide the other parties with information which is confidential or
proprietary information. During the term of this Agreement, and for four years
following the termination of this Agreement, the recipient of such information
shall protect such information from disclosure to persons, other than members
of its own or affiliated organizations and its professional advisors in the
same manner as it protects its own confidential or proprietary information from
unauthorized disclosure, and not use such information to the competitive
detriment of the disclosing party. In addition, if this Agreement is terminated
for any reason, each party shall promptly return or cause to be returned all
documents or other written records of such confidential or proprietary
information, together with all copies of such writings and, in addition, shall
either furnish or cause to be furnished, or shall destroy, or shall maintain
with such standard of care as is exercised with respect to its own confidential
or proprietary information, all copies of all documents or other written
records developed or prepared by such party on the basis of such confidential
or proprietary information.

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No information shall be considered confidential or proprietary if it is (a)
information already in the possession of the party to whom disclosure is made;
(b) information acquired by the party to whom the disclosure is made from other
sources; or (c) information in the public domain or generally available to
interested persons or which at a later date passes into the public domain or
becomes available to the party to whom disclosure is made without any
wrongdoing by the party to whom the disclosure is made.

5.3 American and CICA shall promptly provide each other with
information as to any significant developments in the performance of this
Agreement, and shall promptly notify the other if it discovers that any of its
representations, warranties and covenants contained in this Agreement or in any
document delivered in connection with this Agreement was not true and correct
in all material respects or became untrue or incorrect in any material respect.

5.4 All parties to this Agreement shall take all such action as may
be reasonably necessary and appropriate and shall use their best efforts in
order to consummate the transactions contemplated hereby as promptly as
practicable.

ARTICLE VI

Procedure for Exchange

6.1 As soon as practical and in any event within 30 days after the
Execution of this Agreement, the parties shall file with the Insurance
Commissioner of Mississippi all of the documents required by Mississippi law.

ARTICLE VII

Conditions Precedent to the Consummation of the Exchange

The following are conditions precedent to the consummation of the
Agreement on or before the Effective Date:

7.1 CICA and American shall have performed and complied with all of
their respective obligations hereunder which are to be complied with or
performed on or before the Effective Date and American and CICA shall provide
one another at the Closing with a certificate to the effect that such party has
performed each of the acts and undertakings required to be performed by it on
or before the Closing Date pursuant to the terms of this Agreement.

7.2 This Agreement and the transactions contemplated herein shall
have been duly and validly authorized, approved and adopted, at a meeting of
the shareholders of American duly and properly called for such purposes in
accordance with the applicable laws.

7.3 This Agreement is in all things subject to the provisions of the
applicable insurance laws and the regulations promulgated thereunder, and shall
not become effective until all necessary approvals are obtained from the
Commissioners of Insurance of the States of Colorado and Mississippi in
accordance with the provisions of the laws of said states. CICA and American as
soon as practical after the execution and delivery of this Agreement, agree to
file and to use their best efforts to obtain such approvals of the transactions
contemplated by this Agreement. Neither CICA nor American shall be obligated to
file a suit or to appeal from any Commissioner's adverse ruling, nor shall CICA
or American be obligated to make any material changes in any lawful, good faith
management policy in order to gain such approval. In the event either approval
is denied, this Agreement shall terminate.

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7.4 No action, suit or proceeding shall have been instituted or shall
have been threatened before any court or other governmental body or by any
public authority to restrain, enjoin or prohibit the transactions contemplated
herein, or which might subject any of the parties hereto or their directors or
officers to any material liability, fine, forfeiture or penalty on the grounds
that the transactions contemplated hereby, the parties hereto or their
directors or officers, have violated any applicable law or regulation, or have
otherwise acted improperly in connection with the transactions contemplated
hereby, and the parties hereto have been advised by counsel that, in the
opinion of such counsel, such action, suit or proceeding raises substantial
questions of law or fact which could reasonably be decided adversely to any
party hereto or its directors or officers.

7.5 All actions, proceedings, instruments and documents required to
carry out this Agreement and the transactions contemplated hereby and the form
and substance of all legal proceedings and related matters shall have been
approved by counsel for CICA and American.

7.6 The representations and warranties by CICA and American in this
Agreement shall be true as though such representations and warranties had been
made or given on and as of the Effective Date, except to the extent that such
representations and warranties may be untrue on and as of the Effective Date
because of (1) changes caused by transactions suggested or approved in writing
by CICA; or (2) events or changes (which shall not in the aggregate, have
materially and adversely affected the business, assets, or financial condition
of American or Citizens) during or arising after the date of this Agreement.

7.7 American shall have furnished CICA with:

(1) a certified copy of a resolution or resolutions duly
adopted by the Board of Directors of American approving
this Agreement and the transactions contemplated by it in
accordance with applicable law and directing the
submission thereof to a vote of the shareholders of
American;

(2) a certified copy of a resolution or resolutions duly
adopted by the shareholders of American approving this
Agreement and the transactions contemplated by it in
accordance with applicable law;

(3) an opinion of Spencer, Tyra & Crecink, counsel for
American, dated as of the Closing Date as set forth in
"Exhibit B" attached hereto;

(4) an agreement from each "affiliate" of American as defined
in the rules adopted under the Securities Act of 1933, as
amended, to the effect that (a) the affiliate is familiar
with SEC Rule 144; (b) none of the shares of Citizens
Class A Common Stock will be transferred by or through the
affiliate in violation of the Federal Securities Laws; (c)
the affiliate will not sell or in any way reduce his risk
relative to any Citizens Class A Common Stock received
pursuant to this Agreement until such time as financial
results covering at least 30 days of post-closing date
combined operations shall have been published by Citizens
on SEC Form 10-Q or otherwise.

7.8 CICA shall furnish American with:

(1) a certified copy of a resolution or resolutions duly
adopted by the Board of Directors approving this Agreement
and the transactions contemplated by it; and

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(2) an opinion dated the Effective Date of Jones & Keller,
P.C., counsel for CICA, as set forth in "Exhibit C"
attached hereto.

ARTICLE VIII

Termination and Abandonment

8.1 Anything contained in this Agreement to the contrary
notwithstanding, the Agreement may be terminated and abandoned at any time
(whether before or after the approval and adoption thereof by the shareholders
of American and/or CICA) prior to the Effective date.

(a) By mutual consent of the Boards of Directors of CICA and
American:

(b) By CICA or American, if any condition set forth in Article
VII relating to the other party has not been satisfied or
has not been waived;

(c) By CICA or American, if any suit, action or other
proceeding shall be pending or threatened by the federal
or a state government before any court or governmental
agency, in which it is sought to restrain, prohibit or
otherwise affect the consummation of the transactions
contemplated hereby;

(d) By any party, if there is discovered any material error,
misstatement or omission in the representations and
warranties of another party; or

(e) By CICA, if dissenters' rights are perfected in accordance
with the Exchange Act for more than 2.5 of the outstanding
shares of American; or

(f) By either party if the Effective Date does not occur
within ninety (90) days from the date hereof.

(g) By any party, if it is determined by counsel of either
party that the transaction will not constitute a
reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended.

8.2 Any of the terms or conditions of the Agreement may be waived at
any time by the party which is entitled to the benefit thereof, by action by
its Board of Directors; provided, however, that such action shall be taken only
if, in the judgment of the Board of Directors taking the action, such waiver
will not have a materially adverse effect on the benefits intended under this
Agreement to the party waiving such term or condition.

ARTICLE IX

Termination of Representation and
Warranties and Certain Agreements

9.1 The respective representations and warranties of the parties
hereto shall expire with, and be terminated and extinguished by consummation of
the Agreement; provided, however, that the covenants and agreements of the
parties hereto shall survive in accordance with their terms.

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ARTICLE X

Miscellaneous

10.1 This Agreement embodies the entire agreement between the parties,
and there have been and are no agreements, representations or warranties among
the parties other than those set forth herein or those provided for herein.

10.2 To facilitate the execution of this Agreement, any number of
counterparts hereof may be executed, and each such counterpart shall be deemed
to be an original instrument, but all such counterparts together shall
constitute but one instrument.

10.3 Each of the parties hereto will pay its own fees and expenses
incurred in connection with the transactions contemplated by this Agreement.
Except as otherwise disclosed in their respective Disclosure Statements, CICA
and American each represent to the other that it has not employed any
investment bankers, brokers, finders, or intermediaries in connection with the
transaction contemplated hereby who might be entitled to any fee or other
payment from American or Citizens or any of their respective subsidiaries upon
consummation of the transactions contemplated by this Agreement.

10.4 All parties to this Agreement agree that if it becomes necessary
or desirable to execute further instruments or to make such other assurances as
are deemed necessary, the party requested to do so will use its best efforts to
provide such executed instruments or do all things necessary of proper to carry
out the purpose of this Agreement.

10.5 This Agreement may be amended upon approval of the Board of
Directors of each party provided that the share exchange ratio hereunder shall
not be amended without approval of the requisite shareholders of American.

10.6 Any notices, requests, or other communications required or
permitted hereunder shall be delivered personally or sent by overnight courier
service, fees prepaid, addressed as follows:

To CICA, Inc.: and to American:
Citizens Insurance Company American Investment Network, Inc.
of America United Security Life Insurance
Post Office Box 149151 Company
Austin, Texas 78714-9159 660 Lakeland East Drive
Attn: Harold E. Riley Flowood, Mississippi 39208
Chairman Attn: John S. Camara, President

Phone: (512) 837-7100 Phone: (601) 936-2090
Fax: (512) 836-9334 Fax: (691) 939-4372

with copies to: with copies to:

Jones & Keller, P.C. Spencer, Tyra & Crecink
1625 Broadway, Ste 1600 660 Lakeland East Drive, Ste 100
Denver, Colorado 80202 Jackson, Mississippi 39208
Attn: Reid A. Godbolt, Esq. Attn: Ernest O. Spencer, III, Esq.

Phone: (303) 573-1600 Phone: (601) 939-9193
Fax: (303) 573-0769 Fax: (601) 939-9195

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or such other addresses as shall be furnished in writing by any party, and any
such notice or communication shall be deemed to have been given as of the date
received.

10.7 No press release or public statement will be issued relating to
the transactions contemplated by this Agreement without prior approval of CICA
and American. However, either CICA or American may issue at any time any press
release or other public statement it believes on the advise of its counsel it
is obligated to issue to avoid liability under the law relating to disclosures
to itself or any of its affiliates, but the party issuing such press release or
public statement shall make a reasonable effort to give the other party prior
notice of and opportunity to participate in h release or statement.

10.8 The parties have participated jointly in the negotiation and
drafting of this Agreement. In the event an ambiguity or question of intent or
interpretation arises, this Agreement shall be construed as if drafted jointly
by the parties and no presumption or burden of proof shall arise favoring or
disfavoring any party by virtue of the authorship of any of the provisions of
this Agreement. Any references to any federal, state, local, or foreign statute
or law shall be deemed also to refer to all rules and regulations promulgated
thereunder, unless the context otherwise requires. The word "including" shall
mean including without limitation.

10.9 The Exhibits and Schedules identified in this Agreement are
incorporated herein by reference and made a part hereof.

10.10 This Agreement shall be governed by and construed in accordance
with the domestic laws of the State of Mississippi without giving effect to any
choice or conflict of law provision or rule (whether of the State of
Mississippi or any other jurisdiction) that would cause the application of the
laws or any jurisdiction other than the State of Mississippi.

IN WITNESS WHEREOF, the parties have set their hands and seals this 28th
day of October, 1996.

CITIZENS INSURANCE COMPANY AMERICAN INVESTMENT NETWORK,
OF AMERICA INC.

By:/s/ Mark A. Oliver By:/s/ John S. Camara
------------------- --------------------------------
Mark A. Oliver John S. Camara, President
Executive Vice-President
and Treasurer

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EXHIBIT A

OFFICE OF THE MISSISSIPPI SECRETARY OF STATE
P.O. BOX 136, JACKSON, MS 39205-0135, (601) 359-1333

ARTICLES OF MERGER OR SHARE EXCHANGE
PROFIT CORPORATION

The undersigned corporation pursuant to Section 79-1-1.05, as amended, hereby
executes the following document and sets forth:

1. Name of Corporation 1: American Investment Network, Inc.

2. Name of Corporation 2: Citizens Insurance Company of America.

3. Name of Corporation 3:

4. The future effective date is _______________, 1997.

5. The plan of merger or share exchange (attach page).

6. Mark appropriate box.

(a) Shareholder approval of the plan of merger or share exchange was
----- not required.

x (b) If approval of the shareholders of one or more corporations
----- party to the merger or share exchange was required

(i) the designation, number of outstanding shares, and number of
votes entitled to be cast by each class entitled to vote
separately on the plan as to each corporation were

[Enlarge/Download Table]

Name of corporation Designation No. of outstanding shares No. of votes entitled to be cast
------------------- ----------- ------------------------- --------------------------------

American Investment Class A Common
Network, Inc. Stock 5,021,764 5,021,764

American Investment Class B Common
Network, Inc. Stock 2,500 2,500

AND the total number of votes cast for and against the plan by each class
entitled to vote separately on the plan was

[Enlarge/Download Table]

Name of corporation Class Total No. of votes cast for plan No. of votes cast against plan
------------------- ----- -------------------------------- ------------------------------

American Investment Class A Common
Network, Inc. Stock

American Investment Class B Common
Network, Inc. Stock

Citizens Insurance Common Stock
Company of America

and the number of votes cast for the plan by each class was sufficient for
approval by that class.

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Name of Corporation 1

AMERICAN INVESTMENT NETWORK, INC.

By:
-----------------------------------
President

Name of Corporation 2

CITIZENS INSURANCE COMPANY OF AMERICA

By:
-----------------------------------
Executive Vice President and Treasurer

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ATTACHMENT TO ARTICLES OF SHARE EXCHANGE
OF
AMERICAN INVESTMENT NETWORK, INC.
AND
CITIZENS INSURANCE COMPANY OF AMERICA

In accordance with Mississippi Code Ann. 79-4-11.01 et seq. and 83-19-99
et. seq. (together the "Exchange Act"), a plan and agreement of exchange ("Plan
of Exchange") has been approved, adopted and executed by American Investment
Network, Inc. and Citizens Insurance Company of America as follows:

1. The Exchange shall be effective as of _________, 1997 ("Effective
Date").

2. At and as of the Effective Date:

(a) each shareholder of American prior to the Effective Date
shall cease to be a shareholder of American:

(b) the ownership of all issued and outstanding stock of
American (other than shares for which dissenter's rights are
perfected in accordance with the Exchange Act) shall vest in CICA
automatically without any physical transfer or deposit of the
certificates representing such shares, and CICA will become the
sole shareholder of American;

(c) the holders of each issued and outstanding share of
American Class A or Class B Common Stock prior to the Effective
Date (other than any shares for which dissenter's rights are
perfected in accordance with the Exchange Act) shall have the
right to receive from CICA in accordance with Article II of the
Plan of Exchange one (1) share of Citizens, Inc. Class A Common
Stock, no par value, for each seven and two-tenths (7.2) shares
of American Class A or Class B Common Stock; provided, however,
that all consideration to be received shall be subject to
equitable adjustment in the event of any stock split, stock
dividend, reverse stock split, or other change in the number of
American shares outstanding; and

(d) the holders of each issued and outstanding share of
American Class A or Class B Common Stock prior to the Effective
Date for which dissenter's rights are perfected in accordance
with the Exchange Act shall have the right to receive from
American payment therefor in accordance with the Exchange Act.

3. The Exchange shall have the effect set forth in the Exchange Act.

4. The Plan of Share Exchange has been approved by the Shareholders
of American. No shareholder approval by the shareholders CICA, Colorado stock
insurance company, was required, pursuant to Section 7-111-103(7) of the
Colorado Business Corporation Act and Sections 79-4-11.01 et seq. of the
Mississippi Code of 1972, as amended.

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ARTICLES OF SHARE EXCHANGE

Pursuant to the provisions of the Colorado Business Corporation Act,
AMERICAN INVESTMENT NETWORK, INC., a Mississippi corporation ('American"), and
CITIZENS INSURANCE COMPANY OF AMERICA, a stock insurance company organized
under the laws of the State of Colorado ("CICA"), adopt the following articles
of share exchange:

FIRST: The plan of share exchange (the "Plan of Exchange") is summarized
as follows: At and as of the effective time set forth below (the "Effective
Date"):

(a) each shareholder of American Prior to the Effective Date
shall cease to be a shareholder of American;

(b) the ownership of all issued and outstanding stock of
American (other than shares for which dissenter's rights are perfected
in accordance with applicable law) shall vest in CICA automatically
without any physical transfer or deposit of the certificates
representing such shares, and CICA will become the sole shareholder of
American;

(c) the holders of each issued and outstanding share of
American Class A or Class B Common Stock prior to the Effective Date
(other than any shares for which dissenter's rights are perfected in
accordance with applicable law) shall have the right to receive from
CICA in accordance with Article II of the Plan of Exchange one (1) share
of Citizens Class A Common Stock, no par value, for each seven and two-
tenths (7.2) shares of American Class A or Class B Common Stock;
provided, however, that all consideration to be received shall be
subject to equitable adjustment in the event of any stock split, stock
dividend, reverse stock split, or other change in the number of American
shares outstanding; and

(d) the holders of each issued and outstanding share of
American Class A or Class B Common Stock prior to the Effective Date for
which dissenter's rights are perfected in accordance with applicable law
shall have the right to received from American payment therefor in
accordance with applicable law.

SECOND: The plan of share exchange was approved by the
shareholders of American. Approval by the shareholders of CICA was not
required.

THIRD: As to American, whose shareholders were required to vote for
approval, the number of votes cast for the plan by each voting group entitled
to vote separately on the share exchange was sufficient for approval by that
voting group.

FOURTH: These articles are to become effective on January 1, 1997
at 12:01 a.m., unless prior to the effective date they are abandoned and a
statement of abandonment if filed prior to the effective date.

Dated: __________, 1997

AMERICAN INVESTMENT NETWORK, INC. CITIZENS INSURANCE COMPANY
OF AMERICA, INC.

By: By:
------------------------------ ------------------------------
John S. Camara Mark A. Oliver
Title: President Title: Executive Vice President and
Treasurer

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EXHIBIT B

Opinion of Counsel for American

At the Closing, American shall deliver to CICA an opinion, in form and
substance satisfactory to CICA and its counsel, dated the Closing Date, of
Spencer, Tyra & Crecink, counsel to American, to the effect that:

(i) The execution, delivery, and performance of the Agreement by
American shall not result in a breach of, or constitute a default
(or an event which, with or without notice or lapse of time or
both, would constitute a default) under any contract, commitment,
agreement, indenture, mortgage, pledge agreement, note, bond,
license, or other instrument or obligation to which American is a
party or by which American is bound or the charter or bylaws of
American or other governing instruments of American

(ii) The Agreement has been duly authorized, executed and delivered by
American and is a legal, valid and binding obligation of American
enforceable against American in accordance with its terms
(subject to the applicability of equitable principles or the
effect of bankruptcy or creditors' rights laws on the
enforceability of the Agreement);

(iii) American and USLI are, respectively, a corporation and a stock
insurance company duly organized, validly existing and in good
standing under the laws of the State of Mississippi;

(iv) American has full corporate power and authority to enter into
Agreement and to carry out the transactions contemplated by the
Agreement;

(v) To such counsel's knowledge, after due inquiry, there are no
civil or criminal actions, suits, arbitrations, administrative or
other proceedings or governmental investigations pending or
threatened against American or its subsidiaries which will
constitute a breach of the representations, warranties or
covenant under the Agreement or will prevent American from
consummating the transactions contemplated by the Agreement;

(vi) The authorized and outstanding capital stock of American and USLI
are as stated in Section 4.2 of the Agreement, and such shares
have been duly authorized, are fully paid and nonassessable and
were not issued in violation of the preemptive rights of any
party;

(vii) To such counsel's knowledge, after due inquiry, except as set
forth in the Agreement, there are no outstanding subscriptions,
options, warrants, rights, convertible securities, calls,
commitments, privileges or other arrangements, preemptive or
contractual, calling for or requiring the acquisition of, or the
issuance, transfer, sale, or other disposition of any shares of
the capital stock of American or USLI, or calling for or
requiring the issuance of any securities or rights convertible
into or exchangeable for shares of capital stock of American or
USLI, except as disclosed in the Agreement; and

(viii) The execution, delivery, and performance of the Agreement, and
the performance by American of its obligations thereunder, is not
in contravention of any law, ordinance, rule, or regulation, or
contravene any order, writ, judgment, injunction, decree,
determination, or award of any court or other authority having
jurisdiction, will not cause the suspension or revocation of any
authorization, consent, approval, or license, presently in
effect, which affects or binds, American, USLI or any of their
material properties.

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EXHIBIT C

Opinion of Counsel for CICA

At the Closing, CICA shall deliver to American, an opinion, in form and
substance satisfactory to American and its counsel, dated the Closing Date, of
Jones & Keller, P.C., counsel to CICA, to the effect that:

(i) The execution, delivery, and performance of the Agreement by CICA
shall not result in a breach of, or constitute a default (or an
event which, with or without notice or lapse of time or both,
would constitute a default) under any contract, commitment,
agreement, indenture, mortgage, pledge agreement, note, bond,
license, or other instrument or obligation to which CICA is a
party or by which CICA is bound or the charter or bylaws of CICA
or other governing instruments of CICA;

(ii) The Agreement has been duly authorized, executed and delivered by
CICA and is a legal, valid and binding obligation of CICA
enforceable against CICA in accordance with its terms (subject to
the applicability of equitable principles or the effect of
bankruptcy or creditors' rights laws on the enforceability of the
Agreement);

(iii) Citizens and CICA respectively are a corporation and a stock
insurance company, duly organized, validly existing and in good
standing under the laws of the State of Colorado;

(iv) CICA has full corporate power and authority to enter into the
Agreement and to carry out the transactions contemplated by the
Agreement;

(v) To such counsel's knowledge, after due inquiry, there are no
civil or criminal actions, suits, arbitrations, administrative or
other proceedings or governmental investigations pending or
threatened against CICA which will constitute a breach of the
representations, warranties or covenants under the Agreement or
will prevent CICA from consummating the transactions contemplated
by the Agreement;

(vi) The authorized and outstanding capital stock of Citizens is as
stated in Section 3.2 of the Agreement, and each of the shares of
Class A Common Stock to be issued pursuant to the agreement has
been duly authorized and when issued pursuant to the terms of the
Agreement shall be validly issued and fully paid and
non-assessable and issued in violation of the preemptive rights
of any party;

(vii) To such counsel's knowledge, after due inquiry, except as set
forth in the Agreement or CICA's Disclosure Statement, there are
no outstanding subscriptions, options, warrants, rights,
convertible securities, calls, commitments, privileges or other
arrangements, preventive or contractual, calling for or requiring
the acquisition of, or the issuance, transfer, sale, or other
disposition of any shares of the capital stock of Citizens, or
calling for or requiring the issuance of any securities or rights
convertible into or exchangeable for shares of capital stock of
Citizens;

(viii) The execution, delivery, and performance of the Agreement, and
the performance by CICA of its obligations thereunder, is not in
contravention of any law, ordinance, rule, or regulation, or
contravene any order, writ, judgment, injunction, decree,
determination, or award of any court or other authority having
jurisdiction, will not cause the suspension or revocation of any
authorization, consent, approval, or license presently in effect,
which

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affects or binds CICA or any of its subsidiaries or any of its or
their material properties;

(xi) Consummation of the transaction in accordance with the terms of
the Agreement will constitute a reorganization within the meaning
of the Internal Revenue Code of 1986, as amended (the "Code");
American and CICA will each be a party to the reorganization; no
gain or loss will be recognized pursuant to the Code by American
as a consequence of the transactions contemplated hereby; CICA
will succeed to and take into account the items of American
described in the Code; when a American shareholder receives
solely Citizens Class A Common Stock in accordance with the
transactions contemplated hereby, such American shareholder will
not recognize gain or loss; the basis for the Citizens Class A
Common Stock to be received by American shareholders will be the
same as the basis for the shares of American stock they surrender
in connection with the transactions contemplated hereby; the
holding period for any American shareholder of the Citizens Class
A Common Stock received in the transactions contemplated hereby
will include the period during which the shares of the American
stock surrendered were held provided that the American stock was
a capital asset in the hands of such American shareholder on the
Effective Date; and the payment of cash to any American
shareholder in lieu of a fractional share of Citizens Class A
Common Stock will be treated as received as a distribution and
redemption of the fractional share interest, subject to the
limitations of Section 302 of the Code; and

(x) The exchange of Citizens Class A Common Stock for shares of
American stock is exempt from registration under the Securities
Act of 1933, as amended, pursuant to Section 3(a)(10) thereof
and, with respect to state securities laws and the securities
laws of other applicable jurisdictions, if any, is either exempt
from qualification or registration thereunder or such
qualification or registration requirements have been satisfied.

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CICA DISCLOSURE STATEMENT

Pursuant to the provisions of Article III of the Plan and Agreement of
Exchange between and among CICA and American, CICA hereby makes the following
disclosures respecting the similarly numbered sections in the Plan and
Agreement of Exchange:

3.3 At the Effective Date, brokerage commissions will be owed to
Merger & Acquisition Profiles, Inc.

3.7 Citizens has the liabilities disclosed in the Citizens Financial
Statements and those incurred thereafter in the ordinary course
of business.

3.10 Computer Maintenance Agreement between Computing Technology, Inc.
and Wang Laboratories, effective 7/1/91 and amended 8/26/91.

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AMERICAN DISCLOSURE STATEMENT

Pursuant to the provisions of Article IV of the Plan and Agreement of
Exchange between and among CICA and American, American hereby makes the
following disclosures respecting the similarly numbered sections in the Plan
and Agreement of Exchange:

4.2 Outstanding warrants, options, or other rights to purchase or
subscribe to, or securities convertible into, or exchangeable
for, shares of capital stock of American:

(1) Stock Incentives issued to certain key employees of Great
American Investment Network, Inc. and USLI pursuant to the
1994 Stock Incentive Plan, adopted by the Board of
Directors on November 30, 1994, and approved by the
Shareholders on May 3, 1994.

4.7 American has liabilities disclosed in their financial statements
and those incurred thereafter in the ordinary course of business.

4.8 Pending litigation: As of the date of execution hereof, the
following litigation against American and/or USLI was ending:

(1) David Anderson and Marty Stanford, D/B/A Premiere
Insurance Agency, and Chiropractic National Association,
Plaintiffs, versus United Security Life Insurance Company,
Defendant, Civil Action No. 96-002(r)L, in the Circuit
Court of Lee County, Mississippi.

(2) Donald and Karen Mayo, Plaintiffs, versus United Security
Life Insurance Company, Defendant, Civil Action No.
95-268(f)L, in the Circuit Court of Lee County,
Mississippi.

4.11 American is subject to the following contracts and agreements
which are, or may be, performable in the future, copies of which
have heretofore been furnished to CICA:

(1) Settlement Agreement dated March 2, 1995, among Robert
Tillman and Tillman Insurance Agency, Inc. ("Plaintiffs"),
and The Gain Agency, Inc., Great American Investment
Network, Inc., Walter L. Shelton and Jesse Byrd
(Defendants).

(2) Executive Compensation Plan and Agreement adopted November
11, 1994 by the Directors, and approved by the
Shareholders on May 2, 1995, between Great American
Investment Network, Inc. and Walter L. Shelton and Jesse
L. Byrd.

(3) Employment Agreement dated August 23, 1996, between,
American, USLI and John S. Camara.

(4) Employment Agreement dated August 23, 1996, between,
American, USLI and H. Harold Crumpler.

(5) Employment Agreement dated August 23, 1996, between,
American, USLI and Phillip E. Faller.

(6) Employment Agreement dated August 23, 1996, between,
American, USLI and Linda M. Pepper.

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(7) Contract Agreements between Great American Investment
Network, Inc. and the individual members of Magnolia
Consulting Group, an unincorporated

(8) Promissory Note dated December 19, 1994, in favor of
Merchants and Farmers Bank, in the original principal
amount of $535,562.62, with a final maturity date of
December 15, 1999. The Promissory Note is secured by a
Deed of Trust between the parties dated as of the same
date, and recorded in the Office of the Chancery Clerk of
Rankin County, Mississippi in Book 1018 at Page 89.

(9) Second Deed of Trust dated March 2, 1995, securing the
Settlement Agreement referenced as Item No. (1), above,
among Great American Investment Network, Inc., Mark T.
Davis as Trustee, and Dale Hubbard, Tillman Insurance
Agency, Inc. and Robert Tillman, beneficiaries. This
instrument is recorded in the Office of the Chancery Clerk
of Rankin County, Mississippi in Book 1031 at Page 649.

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AMENDMENT TO PLAN AND AGREEMENT OF EXCHANGE

This Amendment to Plan and Agreement of Exchange ("Amendment") is
entered into among CITIZENS, INC., a Colorado corporation ("Citizens"),
CITIZENS INSURANCE OF AMERICA, a Colorado-domiciled insurance company ("CICA")
and AMERICAN INVESTMENT NETWORK, INC., a Mississippi corporation ("American").

WITNESSETH

WHEREAS, CICA and American have heretofore entered into a Plan and
Agreement of Exchange dated October 28, 1996 (the "Plan"), to effect a share
exchange between them under Mississippi law, provided in the Plan; and

WHEREAS, CICA and American desire to amend the Plan, as adopted, as to
the source of stock to be used to implement the exchange, said stock to be
additional shares of Citizens Class A Common Stock to be issued by Citizens and
distributed to CICA;

NOW, THEREFORE, Citizens, CICA and American hereby agree that the Plan
should be, and hereby is, amended as follows:

Article III, Section 3.2 of the Plan, is hereby amended to read as
follows:

"3.2 The aggregate number of shares which Citizens is authorized to
issue is 50,000,000 shares of Class A Common Stock, no par value, and 1,000,000
shares of Class B Common Stock, no par value; of which 21,651,161 shares of
such Class A Common Stock were issued and 19,572,614 shares were outstanding,
fully paid and nonassessable and 621,049 shares of Class B Common Stock are
issued and outstanding, fully paid and nonassessable, as of October 28, 1996,
the date of the Plan. A total of 700,000 shares of Class A Common Stock of
Citizens, previously authorized but unissued, will be issued by Citizens and
distributed to CICA to satisfy the exchange obligations of CICA under the
Agreement. Citizens has no outstanding options, warrants or other rights to
purchase, or to subscribe to, or securities convertible into or exchangeable
for any shares of capital stock, except an option for 76,000 shares of Class A
Common Stock. The two (2) classes of stock of Citizens are equal in all
respects, except: (a) the Class B Common Stock elects a simple majority of the
Board of Directors of Citizens, and the Class A Common Stock elects the
remaining directors; and (b) each Class A share receives twice the cash
dividends paid on a per share basis to the Class B Common Stock."

II.

Article VIII, Section 8.1(f) of the Plan, is hereby amended to read as
follows:

"(f) By either party, if the Effective Date does not occur on or
before March 31, 1997."

III.

Except as amended herein, the Plan remains in full force and effect,
without change.

IN WITNESS WHEREOF, Citizens, CICA and American have set their hands and
seals this 17th day of January, 1997, but effective as of the 31st of December,
1996.

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CITIZENS INSURANCE COMPANY AMERICAN INVESTMENT NETWORK, INC.
OF AMERICA

By: /s/ Mark A. Oliver By: /s/ John S. Camara
----------------------- -----------------------------------
Mark A. Oliver, Executive Vice John S. Camara, President
President and Treasurer

CITIZENS, INC.

By: /s/ Mark A. Oliver
-------------------------------
Mark A. Oliver, Executive Vice
President and Treasurer

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APPENDIX B
ARTICLE 13

DISSENTERS' RIGHTS

SUBARTICLE A. RIGHT TO DISSENT AND OBTAIN PAYMENT FOR SHARES

79-4-13.01 DEFINITIONS--In this Article:

(1) "Corporation" means the issuer of the shares held by a dissenter
before the corporate action, or the surviving or acquiring corporation by
merger or share exchange of that issuer.

(2) "Dissenter" means a shareholder who is entitled to dissent from
corporate action under Section 79-4-13.02 and who exercises that right when and
in the manner required by Sections 79-4-13.20 through 79-4-13.28.

(3) "Fair value," with respect to a dissenter's shares, means the value
of the shares immediately before the effectuation of the corporate action to
which the dissenter objects, excluding any appreciation or depreciation in
anticipation of the corporate action unless exclusion would be inequitable.

(4) "Interest" means interest from the effective date of the corporate
action until the date of payment, at the average rate currently paid by the
corporation on its principal bank loans or, if none, at a rate that is fair and
equitable under all the circumstances.

(5) "Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial owner of shares to
the extent of the rights granted by a nominee certificate on file with a
corporation.

(6) "Beneficial shareholder" means the person who is a beneficial owner
of shares held in a voting trust or by a nominee as the record shareholder.

(7) "Shareholder" means the record shareholder or the beneficial
shareholder.

79-4-13.02 RIGHT TO DISSENT--(a) A shareholder is entitled to dissent
from, and obtain payment of the fair value of his shares in the event of, any
of the following corporate action:

(1) Consummation of a plan of merger to which the corporation is a party
(i) if shareholder approval is required for the merger by Section 79-4-11.03 or
the articles of incorporation and the shareholder is entitled to vote on the
merger, or (ii) if the corporation is a subsidiary that is merged with its
parent under Section 79-4-11.04;

(2) Consummation of a plan of share exchange to which the corporation is
a party as the corporation whose shares will be acquired, if the shareholder is
entitled to vote on the plan;

(3) Consummation of a sale or exchange of all, or substantially all, of
the property of the corporation other than in the usual and regular course of
business, if the shareholder is entitled to vote on the sale or exchange,
including a sale in dissolution, but not including a sale pursuant to court
order or a sale for cash pursuant to a plan by which all or substantially all
of the net proceeds of the sale will be distributed to the shareholders within
one (1) year after the date of sale;

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(4) An amendment of the articles of incorporation that materially and
adversely affects rights in respect of a dissenter's shares because it:

(i) Alters or abolishes a preferential right of the shares;

(ii) Creates, alters or abolishes a right in respect of redemption,
including a provision respecting a sinking fund for the redemption or
repurchase, of the shares;

(iii) Alters or abolishes a preemptive right of the holder of the shares
to acquire shares or other securities;

(iv) Excludes or limits the right of the shares to vote on any matter,
or to cumulate votes, other than a limitation by dilution through issuance of
shares or other securities with similar voting rights; or

(v) Reduces the number of shares owned by the shareholder to a fraction
of a share if the fraction share so created is to be acquired for cash under
Section 79-4-6.04, or

(5) Any corporate action taken pursuant to a shareholder vote to the
extent the articles of incorporation, bylaws or a resolution of the board of
directors provides that voting or nonvoting shareholders are entitled to
dissent and obtain payment for their shares.

(b) Nothing in subsection (a)(4) shall entitle a shareholder of a
corporation to dissent and obtain payment for his shares as a result of an
amendment of the articles of incorporation exclusively for the purpose of
either (i) making such corporation subject to application of the Mississippi
Control Share Act, or (ii) making such act inapplicable to a control share
acquisition of such corporation.

(c) A shareholder entitled to dissent and obtain payment for his shares
under this article may not challenge the corporate action creating his
entitlement unless the action is unlawful or fraudulent with respect to the
shareholder or the corporation.

79-4-13.03 DISSENT BY NOMINEES AND BENEFICIAL OWNERS--(a) A record
shareholder may assert dissenters' rights as to fewer than all the shares
registered in his name only if he dissents with respect to all shares
beneficially owned by any one person and notifies the corporation in writing of
the name and address of each person on whose behalf he asserts dissenters'
rights. The rights of a partial dissenter under this subsection are determined
as if the shares as to which he dissents and his other shares were registered
in the names of different shareholders.

(b) A beneficial shareholder may assert dissenters' rights as to shares
held on his behalf only if:

(1) He submits to the corporation the record shareholder 's written
consent to the dissent not later than the time the beneficial shareholder
asserts dissenters' rights; and

(2) He does so with respect to all shares of which he is the beneficial
shareholder or over which he has power to direct the vote.

79-4-13.20 NOTICE OF DISSENTERS' RIGHTS--(a) If proposed corporate
action creating dissenters' rights under Section 79-4-13.02 is submitted to a
vote at a shareholders' meeting, the meeting notice must state that
shareholders are or may be entitled to assert dissenters' rights under this
article and be accompanied by a copy of this article.

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(b) If corporate action creating dissenters' rights under Section
79-4-13.02 is taken without a vote of shareholders, the corporation shall
notify in writing all shareholders entitled to assert dissenters' rights that
the action was taken and send them the dissenters' notice described in Section
79-4-13.22.

79-4-13.21 NOTICE OF INTENT TO DEMAND PAYMENT--(a) If proposed corporate
action creating dissenters' rights under Section 79-4-13.02 is submitted to a
vote at a shareholders' meeting, a shareholder who wishes to assert dissenters'
rights (1) must deliver to the corporation before the vote is taken written
notice of his intent to demand payment for his shares if the proposed action is
effectuated, and (2) must not vote his shares in favor of the proposed action.

(b) A shareholder who does not satisfy the requirement of subsection (a)
is not entitled to payment for his shares under this article.

79-4-13.22 DISSENTERS' NOTICE--(a) If proposed corporate action creating
dissenters' rights under Section 79-4-13.02 is authorized at a shareholders'
meeting, the corporation shall deliver a written dissenters' notice to all
shareholders who satisfied the requirements of Section 79-4-13.21.

(b) The dissenters' notice must be sent no later than ten (10) days
after the corporate action was taken, and must:

(1) State where the payment demand must be sent and where and when
certificates for certificated shares must be deposited;

(2) Inform holders of uncertificated shares to what extent transfer of
the shares will be restricted after the payment demand is received;

(3) Supply a form for demanding payment that includes the date of the
first announcement to news media or to shareholders of the terms of the
proposed corporate action and requires that the person asserting dissenters'
rights certify whether or not he acquired beneficial ownership of the shares
before that date;

(4) Set a date by which the corporation must receive the payment demand,
which date may not be fewer than thirty (30) nor more that sixty (60) days
after the date the subsection (a) notice is delivered; and

(5) Be accompanied by a copy of this article.

79-4-13.23 DUTY TO DEMAND PAYMENT--(a) A shareholder sent a dissenters'
notice described in Section 79-4-13.22 must demand payment, certify whether he
acquired beneficial ownership of the shares before the date required to be set
forth in the dissenters' notice pursuant to Section 79-4-13.22(b)(3), and
deposit his certificates in accordance with the terms of the notice.

(b) The shareholder who demands payment and deposits his shares under
subsection (a) retains all other rights of a shareholder until these rights are
canceled or modified by the taking of the proposed corporate action.

(c) A shareholder who does not demand payment or deposit his share
certificates where required, each by the date set in the dissenters' notice, is
not entitled to payment for his shares under this article.

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79-4-13.24 SHARE RESTRICTIONS--(a) The corporation may restrict the
transfer of uncertificated shares from the date the demand for their payment is
received until the proposed corporate action is taken or the restrictions
released under Section 79-4-13.26.

(b) The person for whom dissenters' rights are asserted as to
uncertificated shares retains all other rights of a shareholder until these
rights are canceled or modified by the taking of the proposed corporate action.

79-4-13.25 PAYMENT--(a) Except as provided in Section 79-4-13.27, as
soon as the proposed corporate action is taken, or upon receipt of a payment
demand, the corporation shall pay each dissenter who complied with Section
79-4-13.23 the amount the corporation estimates to be the fair value of his
shares, plus accrued interest.

(b) The payment must be accompanied by:

(1) The corporation's balance sheet as of the end of a fiscal year
ending not more than sixteen (16) months before the date of payment, an income
statement for that year, a statement of changes in shareholders' equity for
that year, and the latest available interim financial statements, if any;

(2) A statement of the corporation's estimate of the fair value of the
shares;

(3) An explanation of how the interest was calculated;

(4) A statement of the dissenters' right to demand payment under Section
79-4-13.28; and

(5) A copy of this article.

79-4-13.26 FAILURE TO TAKE ACTION--(a) If the corporation does not take
the proposed action within sixty (60) days after the date set for demanding
payment and depositing share certificates, the corporation shall return the
deposited certificates and release the transfer restrictions imposed on
uncertificated shares.

(b) If after returning deposited certificates and releasing transfer
restrictions, the corporation takes the proposed action, it must send a new
dissenters' notice under Section 79-4-13.22 and repeat the payment demand
procedure.

79-4-13.27 AFTER-ACQUIRED SHARES--(a) A corporation may elect to
withhold payment required by Section 79-4-13.25 from a dissenter unless he was
the beneficial owner of the shares before the date set forth in the dissenters'
notice as the date of the first announcement to news media or to shareholders
of the terms of the proposed corporate action.

(b) To the extent the corporation elects to withhold payment under
subsection (a), after taking the proposed corporate action, it shall estimate
the fair value of the shares, plus accrued interest, and shall pay this amount
to each dissenter who agrees to accept it in full satisfaction of his demand.
The corporation shall send with its offer a statement of its estimate of the
fair value of the shares, an explanation of how the interest was calculated and
a statement of the dissenter's right to demand payment under Section
79-4-13.28.

79-4-13.28 PROCEDURE IF SHAREHOLDER DISSATISFIED WITH PAYMENT OR OFFER--
(a) A dissenter may notify the corporation in writing of his own estimate of
the fair value of his shares and amount of interest due, and demand payment of
his estimate (less any payment under Section

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79-4-13.25), or reject the corporation's offer under Section 79-4-13.27 and
demand payment of the fair value of his shares and interest due, if:

(1) The dissenter believes that the amount paid under Section 79-4-13.25
or offered under Section 79-4-13.27 is less than the fair value of his shares
or that the interest due is incorrectly calculated;

(2) The corporation fails to make payment under Section 79-4-13.25
within sixty (60) days after the date set for demanding payment; or

(3) The corporation, having failed to take the proposed action, does not
return the deposited certificates or release the transfer restrictions imposed
on uncertificated shares within sixty (60) days after the date set for
demanding payment.

(b) A dissenter waives his right to demand payment under this section
unless he notifies the corporation of his demand in writing under subsection
(a) within thirty (30) days after the corporation made or offered payment for
his shares.

SUBARTICLE C. JUDICIAL APPRAISAL OF SHARES

79-4-13.30 COURT ACTION--(a) If a demand for payment under Section
79-4-13.28 remains unsettled, the corporation shall commence a proceeding
within sixty (60) days after receiving the payment demand and petition the
court to determine the fair value of the shares and accrued interest. If the
corporation does not commence the proceeding within the 60-day period, it shall
pay each dissenter whose demand remains unsettled the amount demanded.

(b) The corporation shall commence the proceeding in the chancery court
of the county where a corporation's principal office (or, if none in this
state, its registered office) is located. If the corporation is a foreign
corporation without a registered office in this state, it shall commence the
proceeding in the county in this state where the registered office of the
domestic corporation merged with or whose shares were acquired by the foreign
corporation was located.

(c) The corporation shall make all dissenters (whether or not residents
of this state) whose demands remain unsettled parties to the proceeding as in
an action against their shares and all parties must be served with a copy of
the petition. Nonresidents may be served by registered or certified mail or by
publication as provided by law.

(d) The jurisdiction of the court in which the proceeding is commenced
under subsection (b) is plenary and exclusive. The court may appoint one or
more persons as appraisers to receive evidence and recommend decision on the
question of fair value. The appraisers have the powers described in the order
appointing them, or in any amendment to it. The dissenters are entitled to the
same discovery rights as parties in other civil proceedings.

(e) Each dissenter made a party to the proceeding is entitled to
judgment (1) for the amount, if any, by which the court finds the fair value of
his or her shares, plus interest, exceeds the amount paid by the corporation,
or (2) for the fair value, plus accrued interest, of his after-acquired shares
for which the corporation elected to withhold payment under Section 79-4-13.27.

79-4-13.31 COURT COSTS AND COUNSEL FEES--(a) The court in an appraisal
proceeding commenced under Section 79-4-13.30 shall determine all costs of the
proceeding, including the reasonable compensation and expenses of appraisers
appointed by the court. The court shall assess the costs against the
corporation, except that the court may assess costs against all or some of the
dissenters, in

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amounts the court finds equitable, to the extent the court finds the dissenters
acted arbitrarily, vexatiously or not in good faith in demanding payment under
Section 79-4-13.28.

(b) The court may also assess the fees and expenses of counsel and
experts for the respective parties, in amounts the court finds equitable:

(1) Against the corporation and in favor of any or all dissenters if the
court finds the corporation did not substantially comply with the requirements
of Sections 79-4-13.20 through 79-4-13.28; or

(2) Against either the corporation or a dissenter, in favor of any other
party, if the court finds that the party against whom the fees and expenses are
assessed acted arbitrarily, vexatiously or not in good faith with respect to
the rights provided by this article.

(c) If the court finds that the services of counsel for any dissenter
were of substantial benefit to other dissenters similarly situated, and that
the fees for those services should not be assessed against the corporation, the
court may award to these counsel reasonable fees to be paid out of the amounts
awarded the dissenters who were benefited.

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PROXY PROXY

AMERICAN INVESTMENT NETWORK, INC.

THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS

The undersigned shareholder of American Investment Network, Inc.
("American") acknowledges receipt of the Notice of Special Meeting of
Shareholders, to be held on __________, 1997, at ____ __.m. Central Standard
Time, at __________________, Mississippi, and hereby appoints _______________
and _____________, each of them with the power of substitution, as attorneys
and proxies to vote all the shares of the undersigned at said Special Meeting
and at all adjournments thereof, hereby ratifying and confirming all that said
attorneys and proxies may do or cause to be done by virtue hereof. The above-
named attorneys and proxies are instructed to vote all of the undersigned's
shares as follows:

THE DIRECTORS RECOMMEND A VOTE FOR THE ITEMS INDICATED BELOW:

1. A proposal to approve and adopt the Plan and Agreement of Exchange dated
October 28, 1996, as amended, under which shareholders of American will
receive shares of Citizens, Inc. Class A Common Stock for their American
Class A and Class B Common Stock as described in the accompanying Proxy-
Information Statement.

FOR _____ AGAINST _____ ABSTAIN _____

2. To transact such other business as may properly come before the Special
Meeting or any adjournment thereof.

THIS PROXY, WHEN PROPERTY EXECUTED, WILL BE VOTED AS DIRECTED HEREIN BY
THE UNDERSIGNED SHAREHOLDER IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED
FOR PROPOSAL 1.

Dated this ______ day of ________________, 1997.

___________________________________________
Signature

Please sign your name exactly as it appears
on your stock certificate. If shares are
held jointly, each holder should sign.
Executors, trustees, and other fiduciaries
should so indicate when signing.

Please sign, date and return this proxy
immediately.

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Dates Referenced Herein and Documents Incorporated by Reference

		Referenced-On Page
This ‘PRES14A’ Filing	Date	First	Last	Other Filings

	11/29/03	132	154
	12/31/99	84		10-K405
	12/19/99	153
	12/15/99	183
	6/30/98	77		10-Q
	1/15/98	112
	10/31/97	57
	3/31/97	13	184	10-K, 10-Q
	3/5/97	24
Filed on / For Period End:	2/14/97
	1/1/97	177
	12/31/96	15	16	10-K, 10-K/A, DEF 14A
	10/28/96	2	192	8-K
	10/25/96	138
	9/30/96	17	138	10-Q
	8/23/96	182
	6/30/96	164	167	10-Q, 10-Q/A
	4/1/96	121		10-K405
	3/19/96	139
	3/12/96	31	100
	3/8/96	61
	2/5/96	123
	1/30/96	123
	12/31/95	15	168	10-K405, 10-K405/A, DEF 14A
	12/30/95	58
	12/15/95	72	158
	12/9/95	100
	12/5/95	122		10-Q/A
	9/30/95	55	133	10-Q, 10-Q/A
	9/14/95	31	78	8-K
	5/24/95	77
	5/2/95	157	182	S-4
	5/1/95	57
	4/28/95	121
	4/27/95	77
	4/1/95	121	122
	3/3/95	122	159
	3/2/95	182	183
	1/1/95	38	84
	12/31/94	15	168	10-K/A, DEF 14A
	12/19/94	121	183
	12/15/94	54
	12/9/94	47	78
	11/30/94	182
	11/11/94	182
	10/27/94	14	57
	8/31/94	158
	5/3/94	132	182
	3/14/94	121
	2/8/94	78
	1/1/94	54	144
	12/31/93	15	168
	11/5/93	121
	9/1/93	85	130
	8/31/93	130
	8/10/93	41	45
	7/1/93	38
	1/8/93	114
	1/1/93	130
	10/31/92	130
	9/30/92	129
	7/31/92	35
	7/30/92	77
	6/30/92	77
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Filing Submission 0000950134-97-001000 – Alternative Formats (Word / Rich Text, HTML, Plain Text, et al.)

Citizens Inc – ‘PRES14A’ for 2/14/97

As of: Friday, 2/14/97 · For: 2/14/97 · Accession #: 950134-97-1000 · File #: 1-13004

Preliminary Proxy Solicitation Material — Special Meeting — Schedule 14AFiling Table of Contents

Document Table of Contents

Dates Referenced Herein and Documents Incorporated by Reference

Preliminary Proxy Solicitation Material — Special Meeting — Schedule 14A
Filing Table of Contents