content: SECURITIES AND EXCHANGE COMMISSION
                               Washington, D.C. 20549
  
  
  
  
                                      FORM 8-K
  
                Current Report Pursuant to Section 13 or 15(d) of the
                           Securities Exchange Act of 1934
  
                           Date of Report: December 23, 1996
  
  
  
                                    CONSECO, INC.
  
                               State of Incorporation:
                                       Indiana
  
        Commission File Number                           IRS Employer Id. Number
              No. 1-9250                                      No. 35-1468632
  
                       Address of Principal Executive Offices:
                           11825 North Pennsylvania Street
                                Carmel, Indiana 46032
  
                                    Telephone No.
                                   (317) 817-6100
  
  <PAGE>
    
                           CONSECO, INC. AND SUBSIDIARIES
  
  
  
  
  
                                                         INDEX
  
  <TABLE>
  <CAPTION>
                                                                                                         Page
  <S>                                                                                                     <C>    
  
  Item 2.   Acquisition or Disposition of Assets.........................................................   3
  
  Item 7.   Financial Statements and Exhibits
            (a)  Transport Holdings Inc. Unaudited Condensed
                 Consolidated Financial Statements as of September 30, 1996,
                 and for the nine months ended September 30, 1996 and 1995
                    Condensed Consolidated Balance Sheets.................................................  5
                    Condensed Consolidated Statements of Income...........................................  7
                    Condensed Consolidated Statements of Cash Flows.......................................  8
                    Condensed Consolidated Statements of Shareholders' Equity.............................  9   
                    Notes to Condensed Consolidated Financial Statements.................................. 10
  
                 Transport Holdings Inc. Audited
                 Consolidated Financial Statements as of December 31,
                 1995 and 1994, and for each of the three years ended
                 December 31, 1995
                    Independent Auditors' Report ........................................................   13
                    Consolidated Balance Sheets..........................................................   14
                    Consolidated Statements of Income....................................................   15
                    Consolidated Statements of Shareholders' Equity......................................   16
                    Consolidated Statements of Cash Flows................................................   17
                    Notes to Consolidated Financial Statements...........................................   18
  
            (b)  Pro Forma Consolidated Financial Information of Conseco, Inc. and Subsidiaries..........   34
                    Pro forma Consolidated Statement of Operations for the nine months
                       ended September 30, 1996 .........................................................   36
                    Pro forma Consolidated Statement of Operations for the year ended
                       December 31, 1995 ................................................................   37
                    Pro Forma Consolidated Balance Sheet as of September 30, 1996........................   38
                    Notes to Pro Forma Consolidated Financial Statements.................................   40
  
            (c)  Exhibits
  
  
                     2.8    Agreement and Plan of Merger dated as of September 25, 1996, by and between Conseco, Inc.
                            and Transport Holdings Inc.*
  
  
                     2.8.1  First Amendment to Agreement and Plan of Merger dated as of November 7, 1996, by and between
                            Conseco, Inc. and Transport Holdings Inc.**
  
                            * Previously filed with Form 8-K dated September 25, 1996 filed by Conseco, Inc.
  
                           ** Previously filed as an exhibit to the Registration Statement on Form S-4 (file no. 333-14377)
                              filed by Conseco, Inc.
  </TABLE>
  
  
  
  
                                          2
  
  <PAGE>
  
  
  
                           CONSECO, INC. AND SUBSIDIARIES
  
  
  ITEM 2.  ACQUISITION OR DISPOSITION OF ASSETS.
  
       On December 23, 1996, Conseco,  Inc. ("Conseco")  completed its merger with
  Transport  Holdings Inc.  ("THI"),  in a  transaction  pursuant to which THI was
  merged with and into Conseco,  with Conseco being the surviving corporation (the
  "Merger").  The Merger was  consummated  pursuant  to an  Agreement  and Plan of
  Merger dated as of September 25, 1996, as amended by the First  Amendment to the
  Agreement and Plan of Merger,  dated as of November 7, 1996. In the Merger, each
  outstanding  share of THI common stock was exchanged for 1.4 shares of Conseco's
  common stock.  Conseco issued approximately 2.4 million shares of Conseco common
  stock or common stock  equivalents with a value of approximately  $121.7 million
  to acquire THI's common stock.  In addition,  pursuant to an exchange offer (the
  "Exchange  Offer"),  all of  THI's  Subordinated  Convertible  Notes  (the  "THI
  Convertible  Notes")  were  exchanged  for shares of Conseco  common stock on an
  equivalent  basis as the shares issued in the Merger plus a cash  premium.  Such
  THI  Convertible  Notes were converted into 2.1 million shares of Conseco common
  stock with a value of approximately $106.2 million.  Conseco also paid a premium
  of  approximately  $10 million to the  holders of the THI  Convertible  Notes in
  conjunction with the Exchange Offer.
  
         The acquisition of THI will be accounted for under the purchase method of
  accounting in the fourth quarter of 1996. Under this method, the cost to acquire
  THI will be  allocated  to the assets  and  liabilities  acquired  based on fair
  values as of the date of the Merger,  with the excess of the total purchase cost
  over the  fair  value  of the  assets  acquired  less  the  fair  values  of the
  liabilities assumed recorded as goodwill.
  
                                          3
  
  
  <PAGE>
  
  
                           CONSECO, INC. AND SUBSIDIARIES
  
  
  
  ITEM 7(a).     Financial Statements and Exhibits
  
                 (a)  Transport  Holdings  Inc.  Unaudited  Condensed Consolidated
                      Financial Statements as of September  30, 1996,  and for the
                      nine months ended  September 30, 1996 and 1995.
  
                                          4
  <PAGE>
   
                              TRANSPORT HOLDINGS INC.
  
                        Condensed Consolidated Balance Sheets
  <TABLE>
  <CAPTION>
                                                                         (in thousands)
                                                                    September 30,  December 31,
                                                                       1996            1995
  Assets                                                            (unaudited)        (a) <F1>
                                                                    -----------    -----------
  <S>                                                             <C>            <C>
  Fixed maturities available for sale, at market
     (cost:  1996 - $476,722; 1995 - $482,626)                    $    482,993   $    518,303
  Equity securities, at market
     (cost:  1996 - $76; 1995 - $1,850)                                  1,074          3,473
  Mortgage loans on real estate                                          8,335          9,348
  Investment in real estate                                                301            195
  Policy loans                                                          16,886         18,487
  Short-term investments                                                33,831         22,952
  Other investments                                                      6,212          4,872
                                                                    -----------    -----------
     Total investments                                                 549,632        577,630
  
  Cash and cash equivalents                                                742          2,198
  Accrued investment income                                              5,704          6,258
  Premiums due and unpaid                                                3,339          4,918
  Due from reinsurers                                                  328,564        298,867
  Due from agents                                                        3,408          5,332
  Value of insurance in force                                           10,778         12,177
  Deferred policy acquisition costs                                     28,392         29,531
  Debt issue costs                                                       3,439          3,738
  Other assets                                                           7,868          9,839
                                                                    -----------    -----------
        Total assets                                              $    941,866   $    950,488
                                                                    ===========    ===========
                                                                                   (Continued)
  <FN>
  <F1>
  (a) Condensed from audited financial statements.
  </FN>
  
  </TABLE>
  
                                    5
  <PAGE>
                               TRANSPORT HOLDINGS INC.
  
                   Condensed Consolidated Balance Sheets, Continued
  <TABLE>
  <CAPTION>
                                                                          (in thousands)
                                                                    September 30,  December 31,
                                                                       1996           1995
  Liabilities and Stockholders' Equity                              (unaudited)        (a) <F1>
                                                                    -----------    -----------
  <S>                                                             <C>            <C>
  Notes payable to banks                                          $     58,250   $     60,250
  Subordinated convertible notes payable                                50,000         50,000
  Future policy benefits                                               344,256        315,253
  Unearned premiums                                                     34,682         39,961
  Policy and contract claims                                           241,653        229,179
  Other policyholder funds                                               2,802          3,130
  Income taxes payable                                                  17,453         28,074
  Accrued expenses and other liabilities                                18,551         20,546
                                                                    -----------    -----------
        Total liabilities                                              767,647        746,393
  
  Stockholders' equity
     Preferred stock, $0.01 par value per share, 2,000,000
       shares authorized; shares issued and outstanding:
       91,030 at September 30, 1996, 182,060 at December 31,
       1995; redemption value: $25,630 at September 30, 1996,
       $46,911 at December 31, 1995                                     22,758         45,515
     Class A common stock, $0.01 par value per share,
        8,000,000 shares authorized;  shares issued and
        outstanding:  1,592,048 at September 30, 1996, 1,590,461
        at December 31, 1995                                                16             16
     Class B common stock, $0.01 par value per share,
        2,000,000 shares authorized, none issued                           - -            - -
     Paid in capital                                                   169,732        169,665
     Unrealized appreciation of securities, net                          4,725         24,245
     Retained (deficit)                                                (23,012)       (35,346)
                                                                    -----------    -----------
        Total equity                                                   174,219        204,095
                                                                    -----------    -----------
  Total liabilities and stockholders' equity                      $    941,866   $    950,488
                                                                    ===========    ===========
  <FN>
  <F1>
  (a) Condensed from audited financial statements.
  </FN>
  
  See accompanying notes to condensed consolidated financial statements.
  </TABLE>
  
  
                                    6
  <PAGE>
                               TRANSPORT HOLDINGS INC.
  
                     Condensed Consolidated Statements of Income
  
                                     (Unaudited)
  
                       (in thousands, except per share amounts)
  <TABLE>
  <CAPTION>
                                                               Three Months Ended                Nine Months Ended
                                                                 September 30,                     September 30,
                                                              1996           1995               1996           1995
                                                           -----------   -----------         -----------    -----------
  <S>                                                    <C>            <C>                <C>            <C>
  Revenues:
     Net premium income                                  $     26,829   $     51,449       $     82,451   $    160,067
     Investment income, net of related expenses                 9,673         13,668             29,552         39,708
     Realized investment gains                                     20          (449)                334            (80)
     Other income                                                 794            - -              1,394            - -
                                                           -----------   -----------         -----------    -----------
        Total revenues                                         37,316         64,668            113,731        199,695
  
  Benefits and expenses:
     Incurred claims and other policy benefits, net            17,040         34,762             54,101        108,479
     Commissions                                                5,933         10,573             17,266         33,728
     Capitalization of deferred policy acquisition costs       (1,098)       (2,838)             (3,686)       (10,495)
     Amortization of deferred policy acquisition costs
        and value of insurance in force                         2,004          6,837              6,224         18,174
     Interest expense and amortization
        of debt issue costs                                     2,238            - -              6,795            - -
     Expenses of spin-off and related transactions                - -          2,209                - -          2,209
     Other operating expenses                                   2,856          5,959              10,810         19,309
                                                           -----------    -----------         -----------    -----------
        Total benefits and expenses                            28,973         57,502              91,510        171,404
                                                           -----------    -----------         -----------    -----------
        Income before tax                                       8,343          7,166              22,221         28,291
  
     Provision for federal income tax                           2,920          3,048               7,777         10,133
                                                           -----------    -----------         -----------    -----------
        Net income                                       $      5,423   $      4,118        $     14,444   $     18,158
                                                           ===========    ===========         ===========    ===========
  Earnings per share:
        Primary                                          $       2.88   $     238.20 a <F2> $       6.73   $   3,116.72 a <F2>
                                                           ===========    ===========         ===========    ===========
        Fully diluted                                    $       1.68   $     121.89 b <F3> $       4.06   $   1,594.82 b <F3>
                                                           ===========    ===========         ===========    ===========
  <FN>
  <F2>
  (a) Primary earnings per share was based on average shares outstanding of 17,288
      for the three months ended September 30, 1995 and 5,826 for the nine months
      then ended.  Earnings per share as if the entire 1,590,461 shares outstanding
      after the September 29, 1995 distribution had been outstanding for the entire
      period would have been $2.59 for the three months ended September 30, 1995 and
      $11.42 for the nine months then ended.
  <F3>
  (b) Fully diluted earnings per share was based on average shares outstanding of
      33,786 for the three months ended September 30, 1995 and 11,386 for the nine
      months then ended.  Earnings per share as if the entire 3,108,266 shares
      outstanding on a fully diluted basis after the September 29, 1995 distribution
      had been outstanding for the entire period would have been $1.32 for the three
      months ended September 30, 1995 and $5.84 for the nine months then ended.
  
  </FN>
  <FN>
  See accompanying notes to condensed consolidated financial statements.
  </FN>
  
  </TABLE>
  
                                    7
  <PAGE>
                               TRANSPORT HOLDINGS INC.
  
                   Condensed Consolidated Statements of Cash Flows
  
                                     (Unaudited)
  <TABLE>
  <CAPTION>
                                                                          (in thousands)
                                                                        Nine Months Ended
                                                                          September 30,
                                                                       1996           1995
                                                                    -----------    -----------
  <S>                                                             <C>            <C>
  Operating activities:
     Net income                                                   $     14,444   $     18,158
     Adjustments to reconcile net income to net cash
        provided by operating activities:
        Gain on sale of securities                                        (334)            80
        Accretion of bond discount or premium                           (1,562)        (1,059)
        Amortization debt issue costs                                      454            - -
        Directors fees paid in capital stock                                67            - -
        Change in assets and liabilities:
           Accrued investment income                                       554            214
           Premiums due and unpaid                                       1,579          1,146
           Due from reinsurers                                         (29,697)        12,114
           Due from agents                                               1,924          1,774
           Value of insurance in force                                   1,399          1,847
           Deferred policy acquisition costs                             1,139          5,831
           Other assets                                                  1,972          1,686
           Reserves for future policy benefits and claims               35,870         11,778
           Income taxes payable                                           (110)        (1,849)
           Accrued expenses and other liabilities                        1,109           (270)
                                                                    -----------    -----------
                    Net cash provided by operating activities           28,808         51,450
  
  Investing activities:
     Sale of fixed maturities                                           64,251        143,190
     Maturity of fixed maturities                                        5,150            - -
     Sale of common stock                                                2,487         53,170
     Sale of preferred stock                                               - -          1,936
     Sale of investment in Travelers                                       - -         35,200
     Sale of real estate                                                   - -         16,585
     Sale of mortgage                                                      - -          7,000
     Purchase of fixed maturities                                      (62,336)      (300,359)
     Purchase of common stock                                              - -        (46,637)
     Principal payments on mortgages                                     1,013          1,508
     Principal payments on policy loans                                  1,601          1,662
     Security transactions in course of settlement                      (3,104)           - -
     Change in short-term and other invested assets                    (12,303)        23,652
                                                                    -----------    -----------
                    Net cash used in investing activities               (3,241)       (63,093)
  
  Financing activities:
     Issuance of long term debt                                            - -        112,000
     Debt issue costs                                                      - -         (3,868)
     Dividends paid                                                        - -       (105,000)
     Cost of preferred stock issue                                         - -           (466)
     Issuance of warrants                                                  - -             93
     Redemption of preferred stock                                     (24,868)           - -
     Principal payments on bank debt                                    (2,000)           - -
     Cost of borrowings capitalized                                       (155)           - -
                                                                    -----------    -----------
                    Net cash used in financing activities              (27,023)         2,759
  
  Decrease in cash and cash equivalents                                 (1,456)        (8,884)
  Cash and cash equivalents at beginning of period                       2,198          3,096
                                                                    -----------    -----------
  Cash and cash equivalents at end of period                      $        742   $     (5,788)
                                                                    ===========    ===========
  Supplemental disclosure of cash flow information:
     Cash paid for taxes                                          $      7,561   $     11,982
     Interest  paid                                               $      6,696   $        - -
  <FN>
  See accompanying notes to condensed consolidated financial statements.
  </FN>
  
  </TABLE>
  
                                    8
  <PAGE>
                                TRANSPORT HOLDINGS INC.
  
  
               Condensed Consolidated Statement of Stockholders' Equity
                                      (unaudited)
                          (in thousands except share amounts)
  <TABLE>
  <CAPTION>
                                                                                           Unrealized
                                                                                          appreciation
                                   Preferred Stock    Class A Common Stock               (depreciation)
                                  Shares               Shares                Paid in     of securities,   Retained
                                  Issued     Amount    Issued     Amount     Capital           net         Deficit       Total
                                  --------  --------  ---------   ------    ---------    --------------   ----------    ----------
  <S>                             <C>      <C>        <C>        <C>       <C>          <C>              <C>           <C>
  Balance December 31, 1995       182,060  $  45,515  1,590,461  $    16   $  169,665   $       24,245   $  (35,346)   $  204,095
  
  Net income                                                                                                 14,444        14,444
  
  Issuance of shares to directors                         1,587        0           67                                          67
  
  Redemption of preferred stock   (91,030)   (22,757)                                                        (2,110)      (24,867)
  
  Unrealized investment losses,
      net of taxes                                                                             (19,520)                   (19,520)
                                  --------   --------  ---------   ------   ---------    --------------   ----------    ----------
  
  Balance, September 30, 1996      91,030   $  22,758  1,592,048  $    16  $  169,732   $        4,725   $  (23,012)   $  174,219
                                  ========   ========  =========   ======   =========    ==============   ==========    ==========
  <FN>
  See accompanying notes to condensed consolidated financial statements.
  </FN>
  
  </TABLE>
  
  
  
  
  
  
  
  
                                    9
  <PAGE>
                                TRANSPORT HOLDINGS INC.
  
                 Notes to Condensed Consolidated Financial Statements
  
                                      (Unaudited)
  
  1.     Organization
  
  Transport  Holdings Inc. (the "Company") was incorporated  under the laws of the
  State of Delaware.  The Company is the sole stockholder of Intermediate Holdings
  Inc., a Delaware corporation. Intermediate Holdings Inc. is the sole stockholder
  of THD Inc., a Delaware corporation  organized in 1996 and TLSD Inc., a Delaware
  corporation  organized in 1995.  THD Inc. is the sole  shareholder  of TLIC Life
  Insurance  Company,  a Texas life insurance company organized in 1995. TLIC Life
  Insurance Company is the sole shareholder of Transport Life Insurance Company, a
  Texas life insurance company organized in 1958 and in continuous operation since
  that time. Transport Life Insurance Company in turn owns all of the common stock
  of Continental Life Insurance  Company,  a Texas insurance company formed and in
  continuous operation since 1969, and a wholly owned subsidiary of Transport Life
  Insurance  Company  since 1971.  TLIC Life  Insurance  Company,  Transport  Life
  Insurance  Company,  and  Continental  Life  Insurance  Company are  principally
  engaged in the supplemental life and health insurance business.
  
  These condensed  consolidated  financial  statements include the accounts of the
  Company,  Intermediate  Holdings Inc., THD Inc.,  TLSD Inc., TLIC Life Insurance
  Company,  Transport  Life  Insurance  Company,  and  Continental  Life Insurance
  Company,  which have been  combined  for all  periods  presented.  All  material
  intercompany accounts and transactions have been eliminated.  Prior to September
  1995, there were no material assets,  liabilities,  or results of operations for
  any of the consolidated  companies  except Transport Life Insurance  Company and
  Continental Life Insurance Company.
  
  2.     Basis of Presentation
  
  The condensed  consolidated  financial statements as of and for the three months
  and nine months ended September 30, 1996 are unaudited and have been prepared by
  the Company pursuant to the rules and regulations of the Securities and Exchange
  Commission.  Certain information and footnote  disclosures  normally included in
  financial  statements  prepared in accordance with generally accepted accounting
  principles   have  been  condensed  or  omitted   pursuant  to  such  rules  and
  regulations,  although the Company believes that the disclosures are adequate to
  make the information presented not misleading.  The interim financial statements
  reflect all adjustments,  consisting only of normal recurring adjustments,  that
  are, in the opinion of management, necessary for a fair statement of the results
  for the interim periods.
  
                                    10
  <PAGE>
  
  These  financial  statements  should  be read in  conjunction  with the  audited
  consolidated  financial  statements and the notes thereto included in the Annual
  Report dated March 22, 1996 and furnished to  stockholders  of the Company.  The
  results of operations for the three month and nine month periods ended September
  30, 1996 should not be  considered  indicative of the results to be expected for
  the entire year.
  
  3.     Earnings Per Share
  
  Substantially  all of the Company's Class A Common Stock was issued on September
  29, 1995. On April 30, 1996, 1,587 shares of Class A Common Stock were issued to
  certain  of the  Company's  directors  in payment of  directors'  fees.  Primary
  earnings  per share was based on the weighted  average  number of Class A shares
  outstanding  plus the  weighted  average  number  of  common  stock  equivalents
  outstanding for stock options  granted,  using the treasury stock method.  Fully
  diluted  earnings  per  share was based on the  number of shares  that  would be
  outstanding if the $50 million of  subordinated  convertible  notes payable were
  converted  into Class A shares (if such notes were  presently  convertible  into
  Class A shares) and assuming the exercise of outstanding stock options using the
  treasury stock method. None of the stock options outstanding were exercisable at
  September 30, 1996.
  
  On June 28, 1996,  the Company  redeemed  91,030 shares of preferred  stock then
  outstanding at a cost of approximately $25 million. Approximately $2 million was
  charged  to  retained  deficit  for  the  excess  of the  redemption  price,  as
  determined pursuant to the preferred stock certificate,  over the carrying value
  of the shares redeemed.  This excess represented  cumulative unpaid dividends on
  the preferred  stock redeemed for the period from issuance  (September 29, 1995)
  to redemption.
  
  4.     Pending Merger with Conseco, Inc.
  
  On  September  26,  1996,  the Company  announced  that it had  entered  into an
  agreement to merge with and into  Conseco,  Inc. of Carmel,  Indiana.  Under the
  terms of the  agreement,  each  share of the  Company's  common  stock  would be
  exchanged for the number of shares of Conseco,  Inc. common stock  determined by
  dividing  $70 by the  average  trading  price of the  Conseco  stock for the ten
  trading days immediately preceding the second trading day prior to closing (such
  number to be not more than 1.8301 nor less than  1.4000).  The merger is subject
  to stockholder and regulatory approvals.
  
  
  
                                    11
  
  
  <PAGE>
                           CONSECO, INC. AND SUBSIDIARIES
  
  
  ITEM 7(a)      Financial Statement and Exhibit, continued
  
                 (a), continued
  
                      Transport Holdings Inc. Audited Consolidated Financial 
                      Statements as of December 31, 1995 and 1994, and for each
                      of the three years ended December 31, 1995.
  
  
                                         12
  <PAGE>
  
                            INDEPENDENT AUDITORS' REPORT
  
  Board of Directors
  Transport Holdings, Inc.:
  
  
           We  have  audited  the  accompanying  consolidated  balance  sheets  of
  Transport Holdings,  Inc. and subsidiaries as of December 31, 1995 and 1994, and
  the related consolidated  statements of income,  stockholders'  equity, and cash
  flows for each of the years in the  three-year  period ended  December 31, 1995.
  These consolidated  financial statements are the responsibility of the Company's
  management.  Our  responsibility is to express an opinion on these  consolidated
  financial statements based on our audits.
  
           We conducted our audits in accordance with generally  accepted auditing
  standards.  Those standards require that we plan and perform the audit to obtain
  reasonable assurance about whether the financial statements are free of material
  misstatement.  An audit includes examining, on a test basis, evidence supporting
  the amounts and disclosures in the financial statements.  An audit also includes
  assessing the  accounting  principles  used and  significant  estimates  made by
  management,  as well as evaluating the overall financial statement presentation.
  We believe that our audits provide a reasonable basis for our opinion.
  
           In our opinion, the consolidated financial statements referred to above
  present fairly, in all material  respects,  the financial  position of Transport
  Holdings,  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.
  
           As discussed in Note 2 to the consolidated  financial  statements,  the
  Company  adopted the provisions of the Financial  Accounting  Standards  Board's
  Statement of Financial  Accounting  Standards No. 115,  "Accounting  for Certain
  Investments in Debt and Equity Securities" and Statement of Financial Accounting
  Standards No. 121,  "Accounting  for the  Impairment of Long-Lived  Assets to Be
  Disposed of."
  
  
  /s/KPMG Peat Marwick LLP
  ------------------------
  KPMG Peat Marwick LLP
  
  Dallas, Texas
  February 22, 1996
  
                                         13
  <PAGE>
  
                               TRANSPORT HOLDINGS INC.
  
                            CONSOLIDATED BALANCE SHEETS
  
                             December 31, 1995 and 1994
  
  <TABLE>
  <CAPTION>
                                                                                                            1995                 1994
                                                                                                          --------            --------
  
                                                                                                                    (in thousands)
  
                                       ASSETS
  <S>                                                                                                   <C>                  <C>
  
  Fixed maturities available for sale, at market (cost: 1995 --
     $482,626; 1994 -- $514,852) .............................................................            $518,303            $479,753
  Equity securities, at market (cost: 1995 -- $1,850; 1994 -- $12,234) .......................               3,473              12,416
  Investment in Travelers, at market (cost $22,500) ..........................................                --                35,200
  Mortgage loans on real estate ..............................................................               9,348              18,600
  Investment in real estate ..................................................................                 195              16,483
  Policy loans ...............................................................................              18,487              20,223
  Short-term investments .....................................................................              22,952              94,755
  Other investments ..........................................................................               4,872               3,942
                                                                                                             -----               -----
  
     Total investments .......................................................................             577,630             681,372
  
  Cash and cash  equivalents .................................................................               2,198               3,096
  Accrued  investment  income ................................................................               6,258               8,358
  Premiums due and unpaid ....................................................................               4,918              10,028
  Due from reinsurers ........................................................................             298,867              54,522
  Due from agents ............................................................................               5,332               4,261
  Value of insurance in force ................................................................              12,177              17,347
  Deferred  policy acquisition  costs ........................................................              29,531              89,455
  Debt issue costs ...........................................................................               3,738                -- 
  Other assets ...............................................................................               9,839              16,788
                                                                                                             -----              ------
  
     Total assets ............................................................................            $950,488            $885,227
                                                                                                          ========            ========
  
                        LIABILITIES AND STOCKHOLDERS' EQUITY
  
  Notes payable to banks .....................................................................            $ 60,250            $   --
  Subordinated convertible notes payable .....................................................              50,000                --
  Future policy benefits .....................................................................             315,253             271,049
  Unearned premiums ..........................................................................              39,961              51,436
  Policy and contract claims .................................................................             229,179             219,494
  Other policyholder funds ...................................................................               3,130               2,540
  Federal income taxes payable:
    Current ..................................................................................                 727               4,422
    Deferred .................................................................................              27,347              34,741
  Accrued expenses and other liabilities .....................................................              20,546              12,183
                                                                                                            ------              ------
  
     Total liabilities .......................................................................             746,393             595,865
  
  Stockholders' equity
    Preferred stock, $0.01 par value per share, 2,000,000 shares authorized, 182,060
      shares issued and outstanding at December 31, 1995,  redemption  value  
      $46,911 at December  31, 1995...........................................................              45,515                 -- 
    Class A common stock, $0.01 par value per share, 8,000,000 shares authorized,  1,590,461 shares
      issued and  outstanding  at December 31, 1995...........................................                  16                 -- 
    Class B common stock,  $0.01 par value per share,  2,000,000  shares  authorized,
      none  issued.............................................................................                 --                 -- 
    Paid in capital............................................................................            169,665            215,569
    Unrealized  appreciation  (depreciation) of securities, net................................             24,245            (22,694)
    Retained (deficit) earnings................................................................            (35,346)            96,487
                                                                                                           -------              ------
     Total equity ..........................................................................               204,095            289,362
                                                                                                           -------            -------
  
     Total liabilities and stockholders' equity .............................................             $950,488           $885,227
                                                                                                          ========           ========
  
            See accompanying notes to consolidated financial statements.
  </TABLE>
  
                                         14
  <PAGE>
  
                               TRANSPORT HOLDINGS INC.
  
                         CONSOLIDATED STATEMENTS OF INCOME
  
                   Years Ended December 31, 1995, 1994, and 1993
  <TABLE>
  <CAPTION>
  
  
                                                                                                 1995          1994             1993
                                                                                                 -----------------------------------
                                                                                                (in thousands, except share amounts)
  <S>                                                                                         <C>          <C>             <C>  
  
  Revenues:
    Premium income ......................................................................     $ 226,006      $ 255,809      $ 274,790
    Premiums ceded ......................................................................       (35,844)       (28,131)       (17,858)
                                                                                                -------        -------        ------- 
  
    Net premium income ..................................................................       190,162        227,678        256,932
    Investment income, net of related expenses ..........................................        49,665         46,635         43,974
    Other revenue .......................................................................          --             --            3,301
    Realized investment gains (losses) ..................................................         6,758         (3,393)        26,762
                                                                                                  -----         ------         ------
      Total revenues ....................................................................       246,585        270,920        330,969
  
  Benefits and expenses:
    Claims and other policy benefits ....................................................       119,698        134,778        179,942
    Reinsurance recoveries ..............................................................       (16,976)       (13,159)       (18,288)
                                                                                                -------        -------        ------- 
      Net claims and other policy benefits ..............................................       102,722        121,619        161,654
  
    Increase in future policy benefit reserves ..........................................        29,171         25,905         20,396
    Commissions .........................................................................        39,083         52,335         66,440
    Capitalization of deferred policy acquisition costs .................................       (11,688)       (21,931)       (27,939)
    Amortization of deferred policy acquisition
      costs and value of insurance in force .............................................        24,472         27,848         26,702
    Interest expense and amortization of debt issue costs ...............................         2,340           --             --   
    Expenses of spin-off and related transactions .......................................         2,209           --             --
    Loss on sale of long term care business .............................................        68,549           --             --
    Other operating expenses ............................................................        30,892         29,172         33,762
                                                                                                 ------         ------         ------
  
     Total benefits and expenses ........................................................       287,750        234,948        281,015
  
  Income (loss) before tax ..............................................................       (41,165)        35,972         49,954
  
  Provision for federal income tax:
    Current .............................................................................        18,337          6,858         12,077
    Deferred ............................................................................       (32,669)         6,163          5,072
                                                                                                -------          -----          -----
  
                                                                                                (14,332)        13,021         17,149
                                                                                                -------         ------         ------
  
  Income  (loss)  before  cumulative  effect  of change  in  accounting  principle ......       (26,833)        22,951         32,805
  Cumulative  effect  on  prior  years  of a  change  in
      accounting principle, net of taxes ................................................          --             --             (253)
                                                                                                 ------         ------         ------
  
          Net (loss) income .............................................................     $ (26,833)     $  22,951      $  32,552
                                                                                              =========      =========      =========
  
  
          Loss per share(a) .............................................................     $  (69.66)          (b)            (b)
                                                                                              =========      ==========      ======== 
  <FN>
  
  (a)  Loss per share was based on average  shares  outstanding of 405,241 for the
       year ended  December  31, 1995.  Loss per share as if the entire  1,590,461
       shares  outstanding  after the  September  29, 1995  distribution  had been
       outstanding  for the entire  period  would have been  ($17.75).  
  
  (b)  No per share amounts were  applicable  to the 1994 and 1993 periods,  which
       were prior to the distribution of the Company's  shares to the public.  
  
  See accompanying notes to consolidated financial statements.
  </FN>
  
  </TABLE>
  
                                         15
  <PAGE>
  
  
                               TRANSPORT HOLDINGS INC.
  
                  CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
  <TABLE>
  <CAPTION>
  
  
                                                                                                  Unrealized
                                                                          Class A                appreciation
                                              Preferred Stock           Common Stock            (depreciation) Retained
                                            Shares                    Shares           Paid-in  of securities,  Earnings      
                                            Issued     Amount        Issued   Amount  Capital      net        (Deficit)     Total
                                            ------     ------         ------   ------  -------      ---        ---------     -----
                                                                     (in thousands except share amounts) 
  <S>                                      <C>         <C>         <C>        <C>      <C>       <C>          <C>        <C>       
  
  Balance December 31, 1992 ..........          --      $  --       $--                 $197,331   $  2,809     $ 64,884   $ 265,024
  Net income .........................                                                                            32,552      32,552
  Dividends paid .....................                                                                           (20,000)    (20,000)
  Capital contributions ..............                                                    15,863                              15,863
  Tax benefit of stock options .......                                                       411                                 411
  Unrealized investment gains, net of
    taxes ............................                                                                9,218                    9,218
                                              ------     ------     ------   ------      -------     --------    ---------     -----
  Balance December 31, 1993 ..........          --         --        --          --      213,605     12,027       77,436     303,068
  Net income .........................                                                                            22,951      22,951
  Dividends paid .....................                                                                            (3,900)     (3,900)
  Capital contributions ..............                                                     8,255                               8,255
  Noncash dividend ...................                                                    (6,573)                             (6,573)
  Tax benefit of stock options .......                                                       282                                 282
  Cumulative effect of adoption of
    Statement No. 115 at January 1,
    1994, net of taxes ...............                                                               16,908                   16,908
  Unrealized investment losses, net of
    taxes ............................                                                              (51,629)                 (51,629)
                                             ------      ------     ------   ------      -------    ----------   ---------   --------
  
  Balance December 31, 1994...........         --          --                  --        215,569    (22,694)      96,487     289,362
  Net loss ...........................                                                                           (26,833)    (26,833)
  Dividends paid .....................                                                                          (105,000)   (105,000)
  Issuance of common stock ...........                            1,590,461    16            (16)                                 --
  Issuance of common stock purchase
    warrants .........................                                                        93                                  93
  Issuance of preferred stock.........       182,060    45,515                           (45,515)                                 --  
  Cost of preferred stock issued ....                                                       (466)                               (466)
  Unrealized investment gains, net of
    taxes ............................                                                               46,939                   46,939
                                             ------    --------   --------   ------      -------    ---------- ---------    --------
  
  Balance December 31, 1995                  182,060   $45,515    1,590,461   $16       $169,665    $24,245    $ (35,346)   $204,095
                                             =======   =======    =========   ===       ========    ========    =========   ========
  
  See accompanying notes to consolidated financial statements.
  </TABLE>
  
                                         16
  <PAGE>
  
                               TRANSPORT HOLDINGS INC.
  
                       CONSOLIDATED STATEMENTS OF CASH FLOWS
  
                   Years Ended December 31, 1995, 1994, and 1993
  <TABLE>
  <CAPTION>
  
  
                                                           1995        1994       1993
                                                           ----        ----       ----
                                                                   (in thousands)
  <S>                                                 <C>           <C>         <C> 
  
  Operating activities:
  Net income ........................................   $ (26,833)   $ 22,951    $ 32,552
  Adjustments to  reconcile  net  income  to
    net  cash  provided  by operating activities:
    (Gain) loss on sale of securities ...............      (6,758)      3,393     (26,762)
    Accretion of bond discount or premium ...........      (1,598)       (928)     (4,193)
    Amortization debt issue costs ...................         151        --          --
    Change in assets and liabilities:
      Change in real estate (depreciation) ..........        --           933         556
      Accrued investment income .....................       2,100        (959)     (1,791)
      Premiums due and unpaid .......................       5,110        (303)       (114)
      Due from reinsurers ...........................    (244,345)     (5,162)      17,451
      Due from agents ...............................      (1,071)      2,735         734
      Value of insurance in force ...................       5,170       5,856       6,220
      Deferred  policy acquisition  costs ...........      59,924          61      (7,457)
      Prepaid  commissions ..........................       5,376       1,259       1,859
      Intercompany receivables.......................         --          --       40,866
      Other assets ..................................       1,573       1,383         864
      Insurance reserves ............................      43,004       6,854      39,328
      Federal income taxes payable ..................      (3,695)      2,521      (4,322)
      Deferred income tax expense ...................     (32,669)      6,163       5,072
      Accrued  expenses  and other  liabilities .....       8,363         361      (5,774)
                                                         ---------     -------     ------ 
  Net cash (used in) provided by operating activities    (186,198)     47,118      95,089
                                                         --------      ------      ------
  Investing  activities:
    Sale of fixed  maturities .......................     430,813     199,933     256,243
    Maturity of fixed maturities ....................       6,000       6,884       9,197
    Sale of common  stock............................       8,614      85,596     110,680
    Sale of preferred stock..........................       2,258      22,369      13,882
    Sale of  investment in Travelers.................      35,200          --        --
    Sale of real estate..............................      16,585          --        --
    Acquisition of real estate through foreclosure...        (195)         --        --   
    Sale of mortgage ................................       7,000          --        --
    Purchase of fixed maturities ....................    (396,796)   (231,091)   (371,603)
    Purchase of preferred stock .....................        --          (248)     (3,853)
    Purchase of common stock ........................         (28)    (80,826)   (102,708)
    Principal  payments  on  mortgages ..............       2,252       4,942       1,831
    Principal  payments on policy  loans ............       1,736       1,207         786
    Change in  short-term  and  other  
      invested  assets                                     70,873     (49,346)     (5,966)
                                                           ------     -------      ------ 
  Net cash provided by (used in) investing activities     184,312     (40,580)    (91,511)
                                                         -------     -------      ------- 
  Financing activities:
    Issuance of long term debt ......................     112,000         --           --   
    Principal  payments on long term debt ...........      (1,750)        --           --
    Debt issue costs.................................      (3,889)        --           --   
    Dividends paid ..................................    (105,000)     (3,900)    (20,000) 
    Capital contribution ............................       --            282      16,274
    Cost of preferred stock issue ...................        (466)        --           --   
    Issuance of warrants ............................          93         --           --
                                                         ---------     -------    -------   
  
  Net cash provided by (used in)
  financing activities ..............................         988      (3,618)     (3,726)
                                                           -------     -------     ------ 
  (Decrease) increase in cash and cash equivalents ..        (898)      2,920        (148)
  Cash and cash equivalents at beginning of year.....       3,096         176         324
                                                            -----      -------     -------
  Cash and cash equivalents at end of year..........       $2,198      $3,096      $  176
                                                           ======      =======     =======
  
  See accompanying notes to consolidated financial statements.
  </TABLE>
                                         17
  
  <PAGE>
  
                               TRANSPORT HOLDINGS INC.
                     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          December 31, 1995, 1994 and 1993
  
  
  (1) Organization
  
           Transport  Holdings Inc. ("the Company") was incorporated in 1990 under
  the laws of the State of Delaware.  In a series of transactions which culminated
  on September 29, 1995, the Company became the sole  stockholder of  Intermediate
  Holdings Inc., a Delaware  corporation.  Intermediate  Holdings Inc. is the sole
  stockholder of TLIC Life Insurance Company, a Texas life insurance company,  and
  TLSD Inc., a Delaware  corporation,  both organized in 1995. TLIC Life Insurance
  Company is the sole  stockholder of Transport Life  Insurance  Company,  a Texas
  life insurance company organized in 1958 and in continuous  operation since that
  time.  Transport Life Insurance  Company in turn owns all of the common stock of
  Continental  Life Insurance  Company,  a Texas  insurance  company formed and in
  continuous operation since 1969, and a wholly owned subsidiary of Transport Life
  Insurance  Company since 1971.  Transport Life Insurance Company and Continental
  Life Insurance  Company are  principally  engaged in the  supplemental  life and
  health  insurance  business.  These  products  are  marketed by two  independent
  agencies.
  
           On September 29, 1995, all of the  outstanding  Class A common stock of
  the  Company  was  distributed  to the  stockholders  of  Travelers  Group  Inc.
  ("Travelers").  The Company was  recapitalized on September 29, 1995 immediately
  prior to the  distribution  of its shares.  The  recapitalization  involved  the
  filing of a Restated  Certificate of  Incorporation  which,  among other things,
  authorized Class A and Class B Common Stock,  increased the number of authorized
  shares of common stock, and authorized  preferred stock.  Upon the filing of the
  Restated  Certificate of Incorporation,  all of the outstanding shares of common
  stock then held by Travelers  were  exchanged  for  1,590,461  shares of Class A
  Common  Stock,  $0.01 par value.  The  financial  statements  of the  previously
  separate companies for prior periods have been restated on a consolidated basis.
  
           These  consolidated  financial  statements  include the accounts of the
  Company, Intermediate Holdings Inc., TLIC Life Insurance Company, Transport Life
  Insurance  Company,  and  Continental  Life Insurance  Company,  which have been
  combined  for all periods  presented.  All  material  intercompany  accounts and
  transactions have been eliminated. Prior to 1995, there were no material assets,
  liabilities,  or results of  operations  for any of the  consolidated  companies
  except Transport Life Insurance Company and Continental Life Insurance Company.
  
  (2) Summary of Significant Accounting Policies
  
  (a) Basis of Presentation
  
           The consolidated financial statements of the Company have been prepared
  in accordance with generally accepted accounting principles prescribed for stock
  life insurance companies for all years presented.
  
  (b) Investments
  
           Fixed  maturities  available  for  sale are  valued  at  market.  These
  securities  are classified as available for sale based on the  possibility  they
  could be sold prior to maturity.  Although no impairments in value have occurred
  which would require  adjustment to the carrying  value of such  securities,  any
  such  impairment  identified  in the future  would  result in a reduction of the
  carrying value and reflection of a  corresponding  realized  capital loss in the
  consolidated  statement of income.  The Company's policy is to recognize such an
  impairment  when the projected cash flows of these  securities have been reduced
  on an "other than temporary  basis," so that the realizable  value is reduced to
  an amount less than the carrying value.
  
           Equity securities include common and nonredeemable preferred stocks and
  are carried at market value.  Unrealized  gains and losses on marketable  equity
  securities and fixed  maturities  available for sale,  net of applicable  income
  taxes, are reflected as a direct charge or credit to stockholder's equity.
  
                                         18
  <PAGE>
                               TRANSPORT HOLDINGS INC.
               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
  
           Policy loans are reported at unpaid principal balances.  Mortgage loans
  are reported at unpaid  principal  balances,  net of any unamortized  premium or
  discount. Real estate, other than property acquired in foreclosure,  is reported
  at cost net of depreciation.
  
           Realized gains and losses on sales of  investments  are included in net
  income.  The  cost of  investment  securities  sold is  determined  based on the
  specific identification method.
  
  (c) Cash
  
           Cash includes cash on deposit with banking institutions.
  
  (d) Deferred Policy Acquisition Costs
  
           Those costs of acquiring new business which vary with and are primarily
  related to the  production of new business have been deferred to the extent that
  such costs are deemed  recoverable  from  future  premiums.  Such costs  include
  commissions,  certain  costs of policy  issuance  and  underwriting  and certain
  variable agency expenses.
  
           Deferred  costs  related  to life  insurance  and  accident  and health
  policies are amortized over the premium paying period of the related policies in
  proportion to the ratio of annual premium revenues to total anticipated  premium
  revenues.  Such  anticipated  premium  revenues  are  estimated  using  the same
  assumptions used for computing liabilities for future policy benefits.
  
  (e) Value of Insurance in Force
  
           The value of insurance in force,  net of  amortization,  represents the
  actuarially  determined present value of anticipated profits to be realized from
  life and  accident  and  health  business in force at  December  31,  1988  when
  Transport Life Insurance Company was acquired in a purchase  transaction,  using
  the same assumptions that were used for computing the related liabilities on the
  date of  acquisition.  The value of  insurance  in force is  amortized  over the
  estimated premium paying periods in relation to anticipated premiums.
  
           Accretion  of interest  on value of  insurance  in force is  calculated
  based on the rates of interest used in setting the related policy reserves.
  
  (f) Future Policy Benefits
  
           Liabilities  for  future  benefits  on life  and  accident  and  health
  policies are  established  in an amount  adequate to meet the  estimated  future
  obligations  on policies in force.  Liabilities  for future policy  benefits for
  accident  and health  and other  long-term  life  insurance  policies  have been
  computed based on expected investment yields, morbidity,  mortality,  withdrawal
  rates and other  assumptions.  These  assumptions  include a margin for  adverse
  deviation which varies with the  characteristics of the plan of insurance,  year
  of issue, age of insured and other appropriate  factors.  Interest rates average
  9% for life  policies and 8% for accident and health  policies.  The  morbidity,
  mortality and withdrawal  assumptions  are based on the Company's  experience as
  well as industry experience and standards.
  
           The   establishment  of  liabilities  for  future  policy  benefits  is
  inherently  based  on  estimates.   Should  actual  future  experience   deviate
  substantially from the Company's  expectations,  the liability for future policy
  benefits may require adjustment in the future with respect to policies presently
  in force. Of all of the Company's cancer insurance  policies presently in force,
  approximately 27% provide for radiation and chemotherapy  benefits which are not
  limited in amount. These benefits have been the subject of substantial inflation
  over the past several  years.  The Company has applied for rate  increases  with
  respect to these polices with the various state  departments of insurance  where
  the Company does business.  Rate increases were  implemented in each of the last
  three years.  The Company  expects to apply for future rate  increases for these
  policies as well. There can be
  
                                         19
  
  <PAGE>
                               TRANSPORT HOLDINGS INC.
               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
  
  no assurance that future rate increases will be approved, or, if approved,  will
  be in the amounts requested.  An inability to obtain future rate increases could
  have a material adverse effect on the Company's  financial  position and results
  of operations.
  
  (g) Policy Claims and Benefits
  
           A liability for unpaid claim costs,  including an estimate for incurred
  but not reported claims,  is accrued when insured events occur.  These estimates
  are determined using case basis estimates and lag studies of past experience and
  are reviewed  regularly.  Changes in estimates resulting from the review process
  and differences  between  estimates and actual payments are recognized in income
  in the period in which the estimates are changed or payments are made.
  
           The nature of the Company's  business is such that the time period over
  which an individual  claim is settled can range from a few months to ten or more
  years.  Because of the  uncertainties  surrounding  the ultimate amount of claim
  costs  with  respect to any  particular  case,  claim  liabilities  may  require
  adjustment  in the future with respect to claims which have been  incurred as of
  the date of these financial statements.
  
  (h) Reinsurance Arrangements
  
           The Company's  reinsurance  activities relate to both ordinary life and
  accident and health  reinsurance.  The Company cedes insurance in order to limit
  losses,   minimize   exposure  on  large  risks,  and  effect  business  sharing
  arrangements.  Reinsurance is  accomplished  primarily  through  coinsurance and
  yearly renewable term.
  
           In the  normal  course  of  business,  the  Company  seeks to limit its
  exposure to loss on any single insured and to recover a portion of benefits paid
  by ceding reinsurance to other insurance  enterprises or reinsurers under excess
  coverage and coinsurance contracts.  The Company currently follows the policy of
  reinsuring that portion of the risk in excess of $100,000 on any single life for
  most life insurance  plans. The Company also reinsures a portion of its accident
  and health business.
  
           In  December  1995,  the  Company  sold its long  term  care  insurance
  business. This transaction was effected by a reinsurance arrangement whereby the
  Company ceded all of its retained long-term care business in force to the buyer.
  
  (i) Federal Income Taxes
  
           For the three months ended December 31, 1995, the Company will file two
  consolidated income tax returns,  one which includes Transport Holdings Inc. and
  Intermediate  Holdings  Inc.  and  another  which  includes  the life  insurance
  subsidiaries.  For the nine months ended  September  30, 1995 and the year 1994,
  Travelers  Insurance Company,  an indirect wholly owned subsidiary of Travelers,
  was the  parent of the  consolidated  federal  income  tax  return  group  which
  included the Company.  For 1993, the Company's  operations  were included in the
  consolidated  federal income tax return of Travelers Insurance Holdings Inc., an
  indirect wholly owned subsidiary of Travelers.
  
           Income taxes are provided  based on taxes incurred for the three months
  ended  December 31, 1995.  For prior  periods,  taxes were provided based on tax
  allocation  agreements which included the Company and generally  represent those
  taxes that would  have been  incurred  if the  Company  had been  filing its own
  separate tax returns.
  
           Income  taxes  have been  provided  in  accordance  with  Statement  of
  Financial  Accounting  Standards No. 109, Accounting for Income Taxes.  Deferred
  income taxes result from temporary  differences  between the financial statement
  carrying amounts of assets and liabilities and their respective tax bases.
  
           Income  taxes  are not  provided  on the  Company's  retained  earnings
  designated as  "policyholders'  surplus"  because such taxes will become payable
  only to the extent such retained earnings are distributed as a dividend
  
                                         20
  
  <PAGE>
                               TRANSPORT HOLDINGS INC.
               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
  
  or exceed limits  prescribed by federal law.  Distributions are not contemplated
  from  the  Company's   policyholders'  surplus  which  aggregated  approximately
  $2,144,000 at December 31, 1995.
  
  (j) Recognition of Revenues and Related Expenses
  
           Premiums are  recognized as revenue over the premium  paying periods of
  the policies.  Benefits and expenses are associated with earned premiums so that
  profits are recognized over the life of the related contracts.  This association
  is  accomplished  through  the  provision  for future  policy  benefits  and the
  amortization of deferred policy acquisition costs.
  
  (k) 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.
  
  (l) Accounting Pronouncements
  
           Effective  January 1, 1994, the Company adopted  Statement of Financial
  Accounting  Standards No. 115,  "Accounting for Certain  Investments in Debt and
  Equity Securities," which addresses  accounting and reporting for investments in
  equity  securities that have a readily  determinable fair value and for all debt
  securities.  Those investments are classified in one of three  categories.  Debt
  securities  that the  Company  has the  positive  intent and  ability to hold to
  maturity  are  classified  as "held to  maturity"  and are reported at amortized
  cost. Securities that are bought and held principally for the purpose of selling
  them in the near term are classified as "trading securities" and are reported at
  fair value,  with unrealized  gains and losses included in earnings.  Securities
  that are  neither  to be held to  maturity  nor to be sold in the near  term are
  classified  as  "available  for  sale"  and are  reported  at fair  value,  with
  unrealized gains and losses included as a component of stockholders' equity, net
  of tax. The impact on consolidated stockholders' equity due to implementation of
  this  Statement  was  an  increase  of  approximately  $16,908,000  relating  to
  unrealized gains on the available for sale portfolio, net of deferred taxes.
  
           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 purposes 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.  The Company adopted Statement 121 in the fourth quarter of
  1995,  the  adoption  of which did not have a material  impact on the  financial
  statements.
  
                                         21
  <PAGE>
                               TRANSPORT HOLDINGS INC.
               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
  
  (3) Investments
  
           Premiums and  discounts  are amortized or accreted over the life of the
  related  security as an  adjustment  to  investment  income using the  effective
  interest method. Dividends and interest income are recognized when earned.
  
           The amortized cost,  unrealized gains and losses,  and estimated market
  values  of  investments  in  fixed  maturity   securities  are  as  follows  (in
  thousands):
  <TABLE>
  <CAPTION>
                                                                                                At December 31, 1995    
                                                                                ------------------------------------------------------
                                                                                                  Gross         Gross
                                                                                Amortized        unrealized     unrealized     Fair
                                                                                  cost             gains        losses         value 
                                                                                  ----             -----        ------         ----- 
  <S>                                                                          <C>              <C>           <C>            <C>  
  U.S. government and agencies ........................................         $138,066         $16,038         $--          $154,104
  States, municipalities and political subdivisions ...................           18,114             966         --             19,080
  Corporate securities ................................................          111,014           8,059         --            119,073
  Mortgage-backed securities ..........................................          191,114           9,187         (72)          200,229
  Other debt securities ...............................................           24,318           1,571         (72)           25,817
                                                                                 ------           -----         ------         -------
                                                                                $482,626         $35,821        $(144)        $518,303
                                                                                ========         =======        =====         ========
  </TABLE>
  
  <TABLE>
  <CAPTION>
                                                                                                At December 31, 1994    
                                                                                ------------------------------------------------------
                                                                                                  Gross         Gross
                                                                                Amortized        unrealized     unrealized     Fair
                                                                                  cost             gains        losses         value
                                                                                  ----             -----        ------         ----- 
  <S>                                                                          <C>              <C>           <C>            <C>  
  U.S. government and agencies ....................................         $166,983         $  373         $(14,509)         $152,847
  States, municipalities and political subdivisions ...............            7,882          2,362           (1,159)            9,085
  Corporate securities ............................................          112,530          1,224           (5,219)          108,535
  Mortgage-backed securities ......................................          186,377          1,094          (14,010)          173,461
  Other debt securities ...........................................           41,080             18           (5,273)           35,825
                                                                              ------          ------         -------          --------
                                                                            $514,852          $5,071        $(40,170)         $479,753
                                                                            ========          ======        ========          ========
  </TABLE>
  
           The amortized  cost and estimated  market 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.
  
           Fixed maturities available for sale (in thousands):
  
                                                           Amortized        Fair
                                                              cost          value
                                                              ----          -----
  Due in one year or less ..........................       $  5,144       $  5,196
  Due after one year  through  five years ..........         49,245         52,337
  Due after five years  through ten years ..........        124,540        131,988
  Due after ten years ..............................        112,583        128,553
  Mortgage-backed securities .......................        191,114        200,229
                                                            -------        -------
                                                           $482,626       $518,303
                                                           ========       ========
  
           There  were  no   investments  in  any  entity  in  excess  of  10%  of
  stockholder's  equity at  December  31,  1995 and 1994,  other than  investments
  issued or  guaranteed by the U.S.  government.  Publicly  traded fixed  maturity
  securities  are  valued  based  on  quoted  market  prices.   Private  placement
  securities  are valued based on the credit  quality and  duration of  marketable
  securities deemed comparable by the Company, which may be of another issuer.
  
                                         22
  <PAGE>
                               TRANSPORT HOLDINGS INC.
               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
  
           Investment  in real estate at December 31, 1995  consists of a shopping
  center in Houston,  Texas acquired by foreclosure.  Investment in real estate at
  December 31, 1994 consisted of an investment in land and commercial improvements
  located in Minnesota  with a net book value of  $13,841,000  and  properties  in
  Texas  acquired  via  foreclosure  with a net book  value of  $2,642,000.  These
  properties  were  sold  in  September  1995  to  subsidiaries  of  Travelers  in
  connection with the distribution of the Company's stock.
  
           Major categories of net investment income consist of the
  following (in thousands):
                                                    Year Ended December 31,
                                             ------------------------------------
                                              1995         1994          1993   
                                              ----         ----          ----  
  Fixed maturity securities .........      $ 40,621       $ 35,899       $ 29,955
  Policy loans ......................         1,062          1,251          1,296
  Mortgage loans ....................         1,668          2,000          2,624
  Short-term investments ............         3,934          3,104          2,490
  Other .............................         3,061          4,964          8,130
                                              -----          -----          -----
  Investment revenue ................        50,346         47,218         44,495
  Investment expense ................          (681)          (583)          (521)
                                            -------        -------        ------- 
  Net investment income .............      $ 49,665       $ 46,635       $ 43,974
                                           ========       ========       ========
  
           Proceeds from sales of bonds during 1995 and 1994 were $430,813,000 and
  $199,933,000,  respectively.  Gross realized gains and losses on such sales were
  $9,735,000 and  $3,916,000,  respectively,  for the year ended December 31, 1995
  and $2,022,000  and  $6,290,000,  respectively,  for the year ended December 31,
  1994.
  
           Net  unrealized  gains  (losses)  included in  stockholders'  equity at
  December 31 were as follows (in thousands):
  
                                                              1995          1994
                                                              ----          ----
  
  Fixed maturities available for sale ....................   $ 35,677    $(35,100)
  Equity securities ......................................      1,623         186
  Provision for deferred income tax (expense) benefit ....    (13,055)     12,220
                                                              -------      ------
  Net unrealized gains (losses) ..........................   $ 24,245    $(22,694)
                                                             ========    ======== 
  
           Net realized gains (losses) were as follows (in thousands):
  
                                            1995            1994            1993
                                            ----            ----            ----
  
  Fixed maturities ...............        $ 5,819         $ (4,268)        $21,977
  Equity securities ..............            512              815           4,754
  Real estate ....................            (69)            --              --
  Other ..........................            495               60              31
                                          -------         --------         -------
                                          $ 6,757         $ (3,393)        $26,762
                                          =======         ========         =======
  
           Securities  with an  amortized  cost of  approximately  $7,518,000  and
  $7,503,000  at December  31, 1995 and 1994,  respectively,  were on deposit with
  various state insurance departments to comply with applicable insurance laws.
  
           In April 1994, the Company exchanged investment  securities with a cost
  of approximately  $171,263,000 and a market value of approximately  $167,114,000
  with a  subsidiary  of  Travelers  for an equal  amount,  at  market  value,  of
  securities and cash. The transaction resulted in a loss of $2,697,000 net of tax
  benefits of $1,452,000.
  
                                         23
  <PAGE>
  
                               TRANSPORT HOLDINGS INC.
               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
  
  (4) Long Term Borrowings
  
           On September 29, 1995, the Company borrowed $62 million from a group of
  banks and issued $50 million in subordinated  convertible  notes ($42 million of
  Series A notes and $8 million of Series B notes).
  
           The bank loans bear interest at a floating rate based, at the Company's
  option,  on a Eurodollar rate plus 1.25% or a rate which  approximates the Chase
  Manhattan  Bank's prime rate plus 0.25%.  The weighted  average interest rate in
  effect for the three  months  ended  December  31, 1995 was 7.185%.  Interest is
  payable  quarterly.  The bank  loans  mature  in  September  2001,  and call for
  semi-annual  principal  payments.  Payments  aggregating $4.0 million are due in
  1996;  $6.75 million is due in 1997; $12.0 million is due in 1998; $14.0 million
  is due in 1999; $15 million is due in 2000; and $8.5 million is due on maturity.
  
           The  subordinated  convertible  notes  bear  interest  at 8.5%  payable
  semi-annually  and mature in September 2005. No principal  payments are required
  until  maturity.  The notes  become  convertible  into  Class B Common  stock in
  September  1997 and become  convertible  into Class A Common  stock in September
  2000  (earlier  under  certain   circumstances).   The  Series  A  notes  become
  convertible  into 1,335,987 shares of common stock and the Series B notes become
  convertible into 181,818 shares of common stock.
  
           Interest  expense  on the bank loans is  subject  to  fluctuation  with
  changes in prevailing  market rates.  The Company has the option to fix rates of
  interest for periods of up to six months.
  
           Cash payments for interest expense were $1,126,000 in 1995.
  
  (5) Common Stock
  
           Class A Common Stock and Class B Common Stock are identical except that
  holders of Class A Common Stock are entitled to one vote for each share held and
  holders of Class B Common Stock would be entitled to  approximately  0.118 votes
  per share held.  There is  presently  no Class B Common  Stock  outstanding.  If
  issued,  Class B Common Stock would become convertible into Class A Common Stock
  in September 2000 (earlier in certain circumstances).
  
           The  terms of the  bank  debt and the  subordinated  convertible  notes
  restrict the payment of dividends on the common stock. Furthermore, the terms of
  the preferred stock prohibit the payment of dividends on common stock except for
  certain limited exceptions.
  
           The Company has common stock purchase warrants  outstanding at December
  31, 1995  entitling  the holders to  purchase  250,000  shares of Class A common
  stock for $55 per share.  The  warrants  are held by trusts  for the  benefit of
  family members of two of the Company's  executives.  The holders of the warrants
  have the right to require the Company to  register,  at the  Company's  expense,
  stock received from exercise of the warrants.
  
  (6) Redeemable Preferred Stock
  
           The  Company's  preferred  stock  has a  redemption  value per share of
  $257.67 at December 31, 1995. Dividends, at 12% per year, are cumulative and, if
  not declared and paid, are added to the redemption value quarterly. No dividends
  are required to be paid until 2003. At December 31, 1995,  the entire  preferred
  stock issue is held by  Travelers.  The  preferred  stock is  redeemable  at the
  option of the Company at the redemption value plus accrued dividends. Should the
  Company elect to redeem the preferred stock before September 1998, an additional
  redemption premium would be required if the preferred stock were held by a party
  other than  Travelers.  The Company must redeem the preferred stock in September
  2006. The $1,396,000  aggregate  excess of redemption value over carrying amount
  at December  31, 1995  represents  undeclared  cumulative  dividends in arrears,
  which will be charged to retained earnings when and if declared.
  
           At the option of the Company, after September 1997, the preferred stock
  may be exchanged in whole,  but not in part, for debt  securities  having a face
  amount equal to the liquidation value of the preferred stock at the
  
                                         24
  <PAGE>
    TRANSPORT HOL6ES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
  
  date of the  exchange and having  economic  terms  substantially  similar to the
  preferred stock. Holders of the preferred stock or any debt securities for which
  it may be  exchanged  have the right to require the  Company to  register  these
  securities at the Company's expense.
  
  (7) Sale of Long Term Care Business
  
           In December  1995,  the Company  completed a sale of its long term care
  insurance business. The transaction was structured as a reinsurance  arrangement
  whereby  the  Company  transferred   approximately   $249,970,000  in  cash  and
  marketable securities to the buyer, who assumed all of the Company's liabilities
  for the business on a coinsurance  basis.  Net liabilities for the sold business
  were  approximately  $182,771,000  and  costs  associated  with  the  sale  were
  approximately   $1,350,000,   resulting  in  a  pre-tax  loss  of  approximately
  $68,549,000 on the sale.
  
           In  addition to the loss on the sale,  $2,650,000  for costs of exiting
  the long term care  business  was  charged  to  earnings  in 1995.  These  costs
  included severance benefits for terminated  employees and remaining  contractual
  payments on vacated office space.
  
           The long term care business  represented  a substantial  portion of the
  Company's  premium income and policies in force.  There can be no assurance that
  the Company will be able to eliminate all or  substantially  all of the expenses
  which were  associated  with the marketing and  administration  of this block of
  business.
  
  (8) Expenses of Spin-off and Related Transactions
  
           Results of operations  for 1995 reflect a charge of  $2,209,000  before
  taxes for expenses  associated with the distribution of the Company's shares and
  the related transactions.  In addition, $3,900,000 of costs associated with long
  term borrowings  were  capitalized and are being amortized as a charge to income
  over the life of the associated borrowings, using the effective interest method.
  Expenses  of $466,000  were  charged to paid in capital in  connection  with the
  issuance of preferred stock.
  
  (9) Earnings Per Share
  
           All of the  Company's  1,590,461  outstanding  shares of Class A Common
  Stock were issued on September 29, 1995, and were outstanding for 93 days during
  1995.  Loss per  share was  based on the  number of Class A shares  outstanding.
  Fully diluted loss per share is not presented  because such a computation  would
  have the  effect  of  decreasing  the  loss  per  share  amount.  The  Company's
  subordinated convertible notes become convertible into 1,517,806 shares of Class
  B Common  stock in  September  1996 and into the same  number  of Class A Common
  shares in 2000  (earlier  under  certain  circumstances).  The Company  also has
  outstanding 192,000 stock options granted during the fourth quarter of 1995, the
  assumed exercise of which would increase the number of common shares outstanding
  by 2,942 shares, using the treasury stock method.
  
  (10) Transactions with Affiliates
  
           In April 1994, the Company's  investment in Travelers common stock with
  a cost of $22,500,000 was exchanged for a Travelers preferred stock issue with a
  market value of  $35,200,000.  The  exchange  resulted in an increase in paid-in
  capital of  $8,255,000  net of a  deferred  tax  liability  of  $4,445,000.  The
  preferred  stock was sold to Travelers in September 1995 in connection  with the
  distribution of the Company's stock. No gain or loss resulted from the sale.
  
           During  1993,  the  Company  terminated  a  reinsurance  treaty  with a
  subsidiary of Travelers which resulted in a capital contribution of $15,863,000.
  Effective  January 1, 1994, the Company  reinsured its credit insurance block of
  business to a subsidiary of Travelers,  resulting in a charge to paid-in capital
  of $6,573,000.
  
                                         25
  <PAGE>
                               TRANSPORT HOLDINGS INC.
               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
  
           The  Company  has an  investment  advisory  agreement  with  Associated
  Madison Companies,  Inc. (AMAD), a subsidiary of Travelers.  AMAD provides, on a
  fee basis to the Company, certain custodial and advisory services, including but
  not limited to the possession and trading of securities,  the  recommendation of
  investments and, subject to the Company's  investment  objectives,  restrictions
  and  limitations,  the execution  and  performance  of the Company's  investment
  program.  In 1995, 1994 and 1993, the Company paid fees to AMAD of approximately
  $681,000, $583,000 and $521,000, respectively, under the terms of the investment
  advisory agreement.
  
           Until  September  29, 1995,  the Company had a service  agreement  with
  Resource Deployment,  Inc. (RDI), a wholly owned subsidiary of Travelers,  under
  which RDI provided certain management services to the Company.  The Company paid
  fees to RDI of approximately  $1,350,000 for the nine months ended September 30,
  1995, $1,800,000 in 1994 and none in 1993. After September 29, 1995, certain RDI
  employees became employees of the Company.
  
  (11) Reinsurance
  
           Reinsurance  contracts  do not  relieve  the  Company  from its  direct
  obligations to  policyholders.  Failure of reinsurers to honor their obligations
  could result in losses to the Company; consequently,  allowances are established
  for any amounts  determined to be uncollectible.  At December 31, 1995, 1994 and
  1993,  no  allowances  were  necessary.  The  Company  evaluates  the  financial
  condition of its reinsurers periodically.
  
           Summarized  financial  information  for the  credit  block of  business
  reinsured effective January 1, 1994 is as follows for 1993 (in thousands):
  
  Premiums earned .........................................              $ 11,964
  Investment income .......................................                 1,769
  Other income ............................................                 3,301
                                                                            -----
                                                                           17,034
  Benefits and expenses ...................................               (17,139)
                                                                          ------- 
  Pretax operating loss ...................................              $   (105)
                                                                         ======== 
  
           Life insurance in force and related  reinsurance amounts at December 31
  are summarized as follows (in millions):
  
                                                     1995       1994        1993
                                                     ----       ----        ----
  
  Direct life insurance in force ...............    $ 846     $ 1,234     $ 2,451
  Reinsurance risk ceded to other companies ....     (620)       (985)     (1,959)
                                                     ----        ----      ------ 
  Net life insurance in force ..................    $ 226     $   249     $   492
                                                    =====     =======     =======
  
           Amounts  recoverable  from  reinsurers at December 31 are summarized as
  follows (in thousands):
  
                                                             1995           1994
                                                             ----           ----
  
  Future policy benefit reserves ceded ..............       $159,006       $17,071
  Unearned premiums ceded ...........................         34,064        19,436
  Policy and contract claims ceded ..................        105,797        18,015
                                                             -------        ------
  Total amounts due from reinsurers .................       $298,867       $54,522
                                                            ========       =======
  
           Of the balances due from reinsurers at December 31, 1995, 86% of future
  policy benefit  reserves ceded,  69% of unearned premium reserves ceded, and 87%
  of claim reserves ceded were due from a single reinsurer in
  
                                         26
  <PAGE>
                               TRANSPORT HOLDINGS INC.
               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
  
  connection  with the sale of the long term care business.  The aggregate  amount
  due from this reinsurer was approximately $253,379,000 and was secured by assets
  (generally marketable  securities) held in trust at a commercial bank. The trust
  fund balance was approximately $299,888,000 at December 31, 1995.
  
           Of the  balances  due from  reinsurers  at December  31,  1994,  all of
  unearned  premium reserves ceded and 52% of claim reserves ceded were due from a
  single reinsurer.
  
  (12) Policy and Contract Claims
  
           Activity in the liability for policy and contract  claims is summarized
  as follows (in thousands):
  
                                                1995        1994           1993
                                                ----        ----           ----
  
  Beginning of year balance ............    $ 219,494     $ 215,737     $ 183,625
  Less: reinsurance recoverables .......      (18,015)      (13,776)       (9,452)
                                              -------       -------        ------ 
  Net balance beginning of year ........      201,479       201,961       174,173
  
  Incurred related to:
  Current year .........................      121,847       143,888       182,329
  Prior years ..........................      (19,125)      (22,269)      (20,675)
                                              -------       -------       ------- 
  Net incurred .........................      102,722       121,619       161,654
  Paid related to:
  Current year .........................       24,873        44,592        57,779
  Prior years ..........................       67,774        77,509        76,087
                                               ------        ------        ------
  Total paid ...........................       92,647       122,101       133,866
  Released in connection with
   sale of long term carebusiness ......       88,172          --            --
  Net balance end of year ..............      123,382       201,479       201,961
  Plus: reinsurance recoverables .......      105,797        18,015        13,776
                                              -------        ------        ------
  End of year balance ..................    $ 229,179     $ 219,494     $ 215,737
                                            =========     =========     =========
  
           The  development  of prior  year  claim  reserves  in all  three  years
  reflects  normal changes in actuarial  estimates.  Both paid and incurred claims
  decreased from 1994 to 1995 because of the run-off of discontinued lines and the
  sale of the long term care business.
  
  (13) Deferred Policy Acquisition Costs
  
           The following reflects the amounts of policy acquisition costs deferred
  and amortized (in thousands):
  
                                               1995          1994          1993
                                               ----          ----          ----
  Deferred acquisition cost:
  Beginning of year ....................     $ 89,455      $ 89,516      $ 82,059
  Capitalized ..........................       11,688        21,931        27,939
  Amortized ............................      (19,300)      (21,992)      (20,482)
  Extinguished in connection with
   sale of long term care business .....      (52,312)         --            --
                                              -------        ------      --------
  
  End of year ..........................     $ 29,531      $ 89,455      $ 89,516
                                             ========      ========      ========
                                         27
  
  <PAGE>
                               TRANSPORT HOLDINGS INC.
               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
  
  (14) Income Taxes
  
           Income tax expense  differed from the amounts  computed by applying the
  U.S. federal income tax rate of 35% in 1995, 1994 and 1993 to pretax income as a
  result of the following (in thousands):
  
                                               1995          1994         1993
                                               ----          ----         ----
  
  Income tax expense computed
    at federal statutory rate ..........     $(14,407)     $ 12,590      $ 17,484
  Increase (decrease) in income
   taxes resulting from:
  Tax exempt interest ..................         --            (551)       (1,079)
  Dividends received deduction .........         (585)         (685)       (1,050)
  Increase in tax rate(1%) .............         --            --           1,790
  Expenses of spin-off .................          660          --            --
  Other, net ...........................         --            --               4
  Increase in valuation allowance
    on deferred tax asset ..............         --           1,667          --
                                             -------       --------      --------
  Total tax expense ....................     $(14,332)     $ 13,021      $ 17,149
                                             ========      ========      ========
  
           The tax effects of temporary  differences that give rise to significant
  portions of the  deferred  tax assets and  liabilities  at December 31, 1995 and
  1994 are presented below (in thousands):
  
                                                       1995                 1994
                                                       ----                 ----
  Deferred tax assets:
  Claim settlements .........................      $  1,167              $  2,333
  Investments ...............................           489                 4,010
  Accrued expenses ..........................         2,843                 1,236
  Deferred acquisition costs
   and value of insurance in force ..........           981                  --
  Other, net ................................           255                 1,925
                                                   --------              --------
  
                                                      5,735                 9,504
  Less valuation allowance ..................          --                  (1,667)
                                                   --------              --------
  
                                                   $  5,735                 7,837
                                                   --------              --------
  
  Deferred liabilities:
  Deferred  acquisition  costs  and
    value  of  insurance  in  force .........          --                 (18,201)
  Investments ...............................       (13,711)                 --   
  Policy  reserves ..........................       (16,941)              (19,918)
  Value of insurance licenses ...............        (1,895)               (1,947)
  Other, net ................................          (535)               (2,512)
                                                   --------              -------- 
                                                    (33,082)              (42,578)
                                                   --------              -------- 
  Net deferred liability ....................      $(27,347)             $(34,741)
                                                   ========              ======== 
  
           At December 31, 1995, the Company's life insurance tax filing group had
  a net operating loss carryforward of approximately  $1,183,000 and the Company's
  non-life tax filing group had a net operating loss carryforward of approximately
  $151,000.  The Company had no tax credit  carryforwards.  During 1995,  1994 and
  1993, the Company made approximately $22,032,000,  $4,054,000 and $24,576,000 in
  income tax payments, respectively.
  
  (15) Employee Benefit Plans
  
           Effective October 1, 1995, the Company sponsored a defined contribution
  pension plan  covering the majority of its  employees.  Employees  who elect may
  defer a portion of their compensation in a savings plan
  
                                         28
  <PAGE>
                               TRANSPORT HOLDINGS INC.
               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
  
  governed by Internal  Revenue Code Section  401(k).  The Company matches part of
  such  employees'  contributions.  In  addition,  the Company may  contribute  an
  additional  amount which is allocated to the accounts of all eligible  employees
  (whether or not they  participate  in the savings plan) based on the  employees'
  age.  Pension costs  associated  with the plan were  $124,000 in 1995.  Prior to
  September 29, 1995, the Company  participated  in a plan sponsored by Travelers.
  Pension  costs  allocated  to the Company  pursuant to the  Travelers  plan were
  $220,000, $243,000 and $237,000 in 1995, 1994 and 1993, respectively.
  
           Effective  January  1,  1993,  the  Company  implemented  Statement  of
  Financial   Accounting   Standards   No.   112,   "Employers'   Accounting   for
  Postemployment  Benefits."  Statement 112 establishes  accounting  standards for
  employers who provide benefits to former or inactive employees after employment,
  but before  retirement.  These benefits include,  but are not limited to, salary
  continuation,    supplemental   unemployment,   severance,    disability-related
  (including workers' compensation), job training and counseling, and continuation
  of  benefits  such as health care and life  insurance  coverage.  The  statement
  requires  employers to recognize  the cost of the  obligation  to provide  these
  benefits on an accrual  basis,  and employers  must  implement  Statement 112 by
  recognizing  a  cumulative  effect of a change  in  accounting  principle.  This
  resulted  in a noncash  after-tax  charge to net  income of  $253,000  ($389,000
  pre-tax) in 1993. The Company  continues to fund benefits on a "pay-as-  you-go"
  basis. Payments and annual expense for providing postemployment benefits in 1995
  and 1994 were not material.
  
  (16) Stock Option Plan
  
           The Company  maintains a stock  option plan  pursuant to which  425,000
  shares of common stock are reserved for issuance.  The plan permits the Board of
  Directors to grant incentive stock options and nonqualified  stock options.  The
  following incentive stock options had been granted as of December 31, 1995:
  
                                                             Option       Number
  Grant Date                                                Price       of Shares
  ----------                                                -----       ---------
  
  October 31, 1995 ..........................            $   39.45          62,657
  December 15, 1995 .........................            $   39.83         129,343
                                                                          --------
                                                                           192,000
                                                                          ========
  
           None of the granted options were  exercisable at December 31, 1995, and
  no shares were issued in 1995  pursuant to the stock  option  plan.  The options
  vest over a five  year  period  at 20% per year on the  anniversary  date of the
  grant.
  
           The plan also  permits the Board of  Directors to grant stock awards of
  restricted  stock.  Such  awards  have  conditions  and  restrictions  which are
  designed to encourage  recipients to remain in the Company's  service and retain
  stock ownership in the Company. There were no restricted shares issued under the
  plan in 1995.
  
  (17) Fair Value of Invested Assets
  
           The  following  information  relates to  estimated  fair  values of the
  Company's financial instruments as of December 31, 1995 and 1994.
  
           Fair values for bonds and common and  preferred  stocks  were  obtained
  from independent brokers and published valuation guides, as disclosed in Note 3.
  
           Mortgage and other loans are secured  principally  by  commercial  real
  estate. Weighted average interest rates for these loan portfolios as of December
  31,  1995 were  approximately  10% with  maturities  ranging  from 1996 to 2004.
  Management believes that reported amounts approximate fair value.
  
                                         29
  <PAGE>
                               TRANSPORT HOLDINGS INC.
               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
  
           Real estate acquired by foreclosure is valued at the lower of estimated
  market value at date of foreclosure or principal balance of the loan foreclosed.
  
           Policy loans have a weighted average interest rate of 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.
  
           Carrying  values of  amounts  due from  reinsurers  and  agents,  other
  receivables and certain other  liabilities  disclosed on the face of the balance
  sheets  approximate fair value due to the relatively short period to maturity of
  the instruments.
  
           For cash,  cash  equivalents and short-term  investments,  the carrying
  amounts   approximate  fair  value  because  of  the  short  maturity  of  these
  instruments.
  
  (18) Contingent Liabilities and Commitments
  
  (a) Litigation
  
           In the normal course of its  operations,  the Company has been named as
  defendant in various  legal  actions  seeking  payments for claims denied by the
  Company and other monetary damages. In the opinion of the Company's  management,
  the ultimate liability,  if any, resulting from disposition of these claims will
  not have a material  adverse  effect on the  Company's  results  of  operations,
  financial position, or liquidity.
  
           In recent years, the Company's  major/catastrophic  hospital  insurance
  business  has been the  subject of claims by both  private  litigants  and state
  insurance  regulators.  These claims,  certain of which have resulted in adverse
  determinations  against the Company,  have  generally  involved  allegations  of
  misrepresentations  on the part of independent  agents selling certain insurance
  products of Transport  Life  Insurance  Company  (such agents were  subsequently
  terminated),  and  plaintiffs  have often sought (and in at least two  instances
  have been  awarded)  punitive  damages.  Although  such claims have  declined in
  number in the last three years, there can be no assurance that claims based upon
  similar  allegations will not be brought in the future by other persons or other
  regulatory  authorities.  Any such existing claims, or any other types of claims
  alleged in the future  involving  the  marketing,  sale or other  aspects of the
  Company's insurance products, which could include claims for actual and punitive
  damages,  or any  regulatory  actions  which could  impose  fines or  regulatory
  restrictions on operations, could have a material adverse effect on the Company.
  
  (b) Leases
  
           The Company leases its home office building,  data processing equipment
  and  other  equipment.   Future  minimum  lease  commitments  for  noncancelable
  operating  leases and sublease  commitments  which will  partially  offset these
  commitments are shown as follows (in thousands):
  
                                                                           Net
            Year Ended December 31,      Leases           Sub-leases    Commitment
            -----------------------      ------           ----------    ----------
                         1996            $1,090              (598)            $492
                         1997             1,028              (576)             452
                         1998             1,028                              1,028
                         1999               573                                573
                         2000                28                                 28
  
           Rent  expense,  net of  sublease  income,  incurred  under  such  lease
  agreements aggregated approximately $502,000,  $645,000, and $1,236,000 in 1995,
  1994 and 1993, respectively.
  
                                         30
  <PAGE>
                               TRANSPORT HOLDINGS INC.
               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
  
  (c) Reinsurance Dispute
  
           In March 1995,  the Company  became  involved in a dispute with several
  foreign reinsurers  concerning the underwriting of certain life policies written
  from 1974 to 1985.  In the opinion of the  Company's  management,  the  ultimate
  liability,  if any,  resulting  from  disposition of this matter will not have a
  material  adverse  effect on the  Company's  results  of  operations,  financial
  position, or liquidity.
  
  (d) Declines in New Sales
  
           The Company has experienced  substantial declines in new sales over the
  past several years,  and has ceased  marketing long term care  insurance,  which
  accounted for a substantial  part of the Company's  premium  income.  Should the
  decline in new sales continue, the Company's future earnings could be materially
  adversely affected.
  
  (19) Stockholders' Equity and Restrictions
  
           The amount of statutory capital and surplus of the Company's  insurance
  subsidiaries  was  $150,056,249,  $110,065,457  and  $94,532,010 at December 31,
  1995,  1994 and 1993,  respectively.  Statutes in Texas  restrict the payment of
  dividends by insurance  companies to the  available  surplus  funds derived from
  their net profits.  The maximum  amount of cash  dividends  that may be declared
  without  regulatory  approval in any  twelve-month  period is the greater of ten
  percent (10%) of the insurer's  statutory  surplus,  as shown by its last annual
  statement on file with the Texas Department of Insurance, or one hundred percent
  (100%) of statutory net gain from operations for the preceding year. The maximum
  amount  which  may be  paid by  TLIC  Life  Insurance  Company  in 1996  without
  regulatory approval is approximately $15,000,000.
  
           TLIC Life  Insurance  Company,  Transport  Life  Insurance  Company and
  Continental  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,  Texas.  The
  RBC as calculated exceeded levels requiring company or regulatory action.
  
  (20) Selected Quarterly Financial Data (unaudited)
  <TABLE>
  <CAPTION>
  
                                                                                 Year Ended December 31, 1995
                                                          ---------------------------------------------------------------------------
                                                          First       Second             Third         Fourth                 Total
                                                          -----       ------             -----         ------                 -----
  
                                                                                (in thousands, except per share data)
  <S>                                                    <C>        <C>                  <C>         <C>                  <C>  
  
  Net premium income ................................    $ 55,815     $ 52,803            $ 51,449     $ 30,095            $ 190,162
  Net investment income .............................      12,637       13,403              13,668        9,957               49,665
  Realized gains (losses) ...........................         479         (110)               (449)       6,838                6,758
  Loss on sale of long term care business ...........        --           --                  --        (68,549)             (68,549)
  Other benefits and expenses .......................     (58,095)     (55,807)            (57,502)     (47,797)            (219,201)
  Provision for income taxes ........................      (3,638)      (3,447)             (3,048)      24,465               14,332
                                                         --------     --------            --------     --------            ---------
  Net income ........................................    $  7,198     $  6,842            $  4,118     $(44,991)           $ (26,833)
                                                         ========     ========            ========     ========            ========= 
  
  Earnings (loss) per share .........................       (a)          (a)              $ 238.20     $ (29.15)          $(69.66)(b)
  
           (a) No per  share  amounts  are  applicable  to the  first  and  second
  quarters,  which were  before the  distribution  of the  Company's  stock to the
  public.
  
           (b)  Amounts  shown are based on actual  shares  outstanding.  Loss per
  share as if the Company's  stock which was distributed on September 29, 1995 had
  been outstanding for the entire year would have been $(17.75).
  
  </TABLE>
                                         31
  
  <PAGE>
                               TRANSPORT HOLDINGS INC.
               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
  
  <TABLE>
  <CAPTION>
  
                                                                           Year Ended December 31, 1994
                                                    ---------------------------------------------------------------------------
                                                    First       Second             Third              Fourth                 Total
                                                    -----       ------             -----              ------                 -----
  
                                                                                (in thousands, except per share data)
  <S>                                              <C>            <C>             <C>            <C>                     <C>  
  
  Net premium income .......................       $ 59,795        $ 57,606        $ 55,561        $ 54,716                 $ 227,678
  Net investment income ....................         10,731          11,133          12,605          12,166                    46,635
  Realized gains (losses) ..................            817          (3,565)           (506)           (139)                   (3,393)
  Other benefits and expenses ..............        (61,121)        (59,353)        (58,089)        (56,385)                 (234,948)
  Provision for income taxes ...............         (2,848)         (3,288)         (3,394)         (3,491)                  (13,021)
                                                     ------          ------          ------          ------                   ------- 
  Net income ...............................       $  7,374        $  2,533        $  6,177        $  6,867                 $  22,951
                                                   ========        ========        ========        ========                 =========
  
       No per share amounts are  applicable to the 1994 periods,  which were prior
  to distribution of the Company's stock to the public.
  </TABLE>
  
                                         32
  
  
  <PAGE>
                        CONSECO, INC. AND SUBSIDIARIES
                                _________________
  
  ITEM 7(b).     Financial Statements and Exhibits, continued
  
                 (b)  Pro forma financial statements of Conseco, Inc. and
                      subsidiaries.
  
  
                                         33
  <PAGE>
     CONSECO, INC. AND SUBSIDIARIES PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
  
       The  unaudited pro forma  consolidated  statement of operations of Conseco,
  Inc.  ("Conseco") for the nine months ended September 30, 1996, and for the year
  ended December 31, 1995, presents the consolidated operating results for Conseco
  as if the merger (the "Merger") of Transport Holdings Inc. ("THI") with and into
  Conseco, had occurred on January 1, 1995.
  
       The pro forma consolidated statement of operations data for Conseco for the
  year ended December 31, 1995, set forth in the unaudited pro forma  consolidated
  statement of operations  under the column "Pro forma Conseco  before the Merger"
  reflect the prior application of certain pro forma adjustments for the following
  transactions,  all of which have already  occurred,  as if such transactions had
  occurred  on  January  1,  1995:  (i) the  issuance  of $275.0  million of Trust
  Originated  Preferred  Securities  ("TOPrS") having a distribution  rate of 9.16
  percent (the "TOPrS Offering") completed November 19, 1996; (ii) the issuance of
  $325.0  million of Capital  Trust  Pass-through  Securities  ("TruPS")  having a
  distribution rate of 8.70 percent (the "TruPS Offering")  completed November 27,
  1996;  (iii) the merger (the "ATC  Merger") of American  Travellers  Corporation
  ("ATC") with and into  Conseco  completed  December 17, 1996;  (iv) the call for
  redemption  of Conseco's  Series D  Convertible  Preferred  Stock (the "Series D
  Call")  completed  on  September  26, 1996;  (v) the  acquisition  of all of the
  outstanding common stock of American Life Holdings, Inc. ("ALH"), not previously
  owned by Conseco, and related transactions (the "ALH Transaction")  completed on
  September 30, 1996; (vi) the acquisition of Life Partners Group,  Inc. (the "LPG
  Merger") completed  effective June 30, 1996; (vii) the acquisition of all of the
  outstanding common stock of CCP Insurance,  Inc. ("CCP") not previously owned by
  Conseco and related  transactions  (including  the  repayment of the  borrowings
  under Conseco's  existing $250.0 million revolving credit  agreement)  completed
  August 31,  1995;  (viii) the  increase of  Conseco's  ownership in Bankers Life
  Holding  Corporation ("BLH") to 90.4 percent, as a result of purchases of common
  shares of BLH by Conseco and BLH during 1995 and the first three months of 1996;
  (ix) the  issuance of 4.37  million  shares of  Preferred  Redeemable  Increased
  Dividend Equity Securities  Convertible Preferred Stock ("PRIDES") of Conseco in
  January  1996;  (x) the BLH tender  offer for and  repurchase  of its 13 percent
  senior subordinated notes due 2002 and related financing  transactions completed
  in March 1996 (the "BLH Tender Offer");  and (xi) the debt  restructuring of ALH
  in the fourth quarter of 1995. Such pro forma  adjustments are set forth in: (i)
  Conseco's  Current Report on Form 8-K dated December 17, 1996; (ii) Exhibit 99.2
  included in Conseco's Current Report on Form 8-K dated September 25, 1996; (iii)
  Conseco's Current Report on Form 8-K dated August 2, 1996; and (iv) Exhibit 99.1
  included in Conseco's Current Report on Form 8-K dated April 10, 1996.
  
       The pro forma consolidated statement of operations data for Conseco for the
  nine months ended  September  30,  1996,  set forth in the  unaudited  pro forma
  consolidated  statement of operations under the column "Pro forma Conseco before
  the Merger" reflect the prior  application of certain pro forma  adjustments for
  the  following  transactions,  all of which have  already  occurred,  as if such
  transactions  had occurred on January 1, 1995: (i) the TOPrS Offering;  (ii) the
  TruPs  Offering;  (iii)  the ATC  Merger;  (iv) the  Series D Call;  (v) the ALH
  Transaction;  (vi) the LPG Merger;  (vii) the issuance of 4.37 million shares of
  Conseco PRIDES in January 1996; and (viii) the BLH Tender Offer.  Such pro forma
  adjustments  are set forth in: (i)  Conseco's  Current  Report on Form 8-K dated
  December 17, 1996; and (ii) Exhibit 99.1 included in Conseco's Form 10-Q for the
  quarterly period ended September 30, 1996.
  
       The  unaudited  pro  forma  consolidated  balance  sheet of  Conseco  as of
  September  30,  1996,  gives  effect  to the  Merger  as if it had  occurred  on
  September 30, 1996.
  
       The unaudited pro forma consolidated balance sheet data as of September 30,
  1996,  set  forth  in  the  unaudited  pro  forma balance sheet under the column
  "Pro forma Conseco before the Merger"  reflect the prior application  of certain
  pro forma adjustments for the following transactions,  all of which have already
  occurred,  as if such  transactions  had occurred on September 30, 1996: (i) the
  TOPrS  Offering;  (ii) the TruPS  Offering;  and (iii) the ATC Merger.  Such pro
  forma  adjustments  are set forth in Conseco's  Current Report on Form 8-K dated
  December 17, 1996.
  
       The pro forma consolidated financial statements are based on the historical
  financial  statements of  Conseco, LPG, ATC and THI and are  qualified  in their
  entirety by, and should be read in conjunction with, these financial  statements
  and the notes thereto. The pro forma data are not necessarily  indicative of the
  results of operations or financial  condition of Conseco had these  transactions
  occurred  on January  1, 1995,  nor the  results of future  operations.  Conseco
  anticipates  cost savings and additional  benefits as a result of certain of the
  transactions  contemplated in the pro forma financial statements.  Such benefits
  and any other changes that might have  resulted from  management of the combined
  companies have not been included as  adjustments  to the pro forma  consolidated
  financial  statements.   Certain  amounts  from  the  prior  periods  have  been
  reclassified to conform to the current presentation.
  
                                         34
  <PAGE>
  
       The  unaudited pro forma  consolidated  financial  statements  reflect cost
  allocations for  the  LPG  Merger, the  ALH Transaction, the  ATC Merger and the
  Merger using estimated  values of the assets and liabilities of LPG, ALH and ATC
  as of the assumed merger dates based on appraisals and other studies,  which are
  not yet complete.  Accordingly, the final allocations will be different than the
  amounts  included  in  the  accompanying   pro  forma   consolidated   financial
  statements.   Although  the  final  allocations  will  differ,   the  pro  forma
  consolidated  financial  statements reflect  management's best estimate based on
  currently  available  information  as  if  the LPG Merger,  the ALH Transaction,
  the ATC Merger and the Merger had occurred on the assumed merger dates.
  
                                         35
  <PAGE>
  
  <TABLE>
  <CAPTION>
                            CONSECO, INC AND SUBSIDIARIES
                   PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
                       for the nine months ended September 30, 1996
                   (Amounts in millions, except per share amounts)
                                     (unaudited)
  
  
  
                                                              Pro forma
                                    Pro forma                adjustments
                                     Conseco                   relating       Pro forma
                                    before the      THI        to the          Conseco
                                     Merger      historical    Merger          totals
                                    ---------   ------------  ----------     ---------
  <S>                              <C>           <C>           <C>            <C>
  Revenues:
   Insurance policy income         $1,632.3       $  82.4       $     -       $1,714.7
   Investment activity:
      Net investment income         1,118.7          29.6           (5.0)(1)   1,143.3
      Net trading losses               (6.5)                                      (6.5)
      Net realized gains               26.6            .3            (.3)(1)      26.6
    Fee revenue                        29.7                                       29.7
    Restructuring income               30.4                                       30.4
    Other income                       11.4           1.4                         12.8
                                  ---------      --------       --------      --------
          Total revenues            2,842.6         113.7           (5.3)      2,951.0
                                  ---------      --------       --------      --------
  
  Benefits and expenses:
   Insurance policy benefits
     and change in future
     policy benefits                1,149.4          54.1                      1,203.5
   Interest expense
     on annuities and
     financial products               549.5                                      549.5
   Interest expense on
     notes payable                     75.8           6.8           (6.8)(2)      76.7
                                                                      .9 (2)
    Interest expense on
     investment borrowings             17.2                                       17.2
    Amortization related
      to operations                   273.6           6.2           (6.2)(3)     283.9
                                                                    10.3 (3)
    Amortization related
      to realized gains                22.3                                       22.3
    Other operating
     costs and expenses               307.9          24.4                        332.3
                                  ---------      --------       --------       -------
          Total benefits
           and expenses             2,395.7          91.5           (1.8)      2,485.4
                                  ---------      --------       --------       -------
  
          Income before income
              taxes, minority interest
              and extraordinary
              charge                  446.9          22.2           (3.5)        465.6
  Income tax expense                  171.5           7.8           (1.2)(4)     178.1
                                  ---------     ---------       --------       -------
          Income before
              minority interest
              and extraordinary
              charge                  275.4          14.4           (2.3)        287.5
  
  Minority interest in consolidated
     subsidiaries:
       Dividends on Company - obligated
         mandatorily redeemable
         preferred securities of
         subsidiary trusts             26.1                                       26.1
       Dividends on preferred stock     6.4                                        6.4
       Equity in earnings              13.9                                       13.9
                                   --------     ---------       --------       -------
          Income before
              extraordinary
              charge               $  229.0      $   14.4       $   (2.3)      $ 241.1
                                   ========      ========       ========       =======
  
  
  
  
  
  
  
  
  
  
  Earnings per common share and
   common equivalent share:
     Primary:
       Weighted average
         shares outstanding            87.6                          4.5 (5)     92.1
                                       ====                       ======         ====
       Income before
         extraordinary  charge        $2.61                                     $2.62
                                      =====                                     =====
  
     Fully diluted:
       Weighted average shares
         outstanding                   93.1                          4.5 (5)     97.6
                                       ====                       ======         ====
       Income before
         extraordinary charge         $2.47                                     $2.48
                                      =====                                     =====
  
  
  
   The accompanying notes are an integral part of the pro forma consolidated financial statements.
  
                                         36
  </TABLE>
  
  <PAGE>
  
  <TABLE>
  <CAPTION>
                            CONSECO, INC AND SUBSIDIARIES
                   PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
                       for the year ended December 31, 1995
                   (Amounts in millions, except per share amounts)
                                     (unaudited)
  
  
                                                              Pro forma
                                    Pro forma                adjustments
                                     Conseco                   relating       Pro forma
                                    before the      THI        to the          Conseco
                                     Merger      historical    Merger          totals
                                    ---------   ------------  ----------     ---------
  <S>                              <C>           <C>           <C>            <C>
  Revenues:
   Insurance policy income         $2,026.7       $ 190.2       $     -       $2,216.9
   Investment activity:
      Net investment income         1,486.1          49.7           (6.9)(1)   1,528.9
      Net trading income                2.5                                        2.5
      Net realized gains              222.5           6.7           (6.7)(1)     222.5
    Fee revenue                        33.9                                       33.9
    Restructuring income               15.2                                       15.2
    Other income                       12.6                                       12.6
                                  ---------      --------       --------      --------
           Total revenues           3,799.5         246.6          (13.6)      4,032.5
                                  ---------      --------       --------      --------
  
  Benefits and expenses:
   Insurance policy benefits
     and change in future
     policy benefits                1,434.3         131.9                      1,566.2
   Interest expense
     on annuities and
     financial products               758.5                                      758.5
   Interest expense on
     notes payable                    107.3           2.3           (2.3)(2)     108.5
                                                                     1.2 (2)
    Interest expense on
     investment borrowings             30.2                                       30.2
    Amortization related
      to operations                   345.2          24.5          (24.5)(3)     361.1
                                                                    15.9 (3)
    Amortization related
      to realized gains               144.4                                      144.4
    Loss on sale of long-
      term care business                 -           68.5          (68.5)(6)        -
    Expenses of spin-off and
      related transactions               -            2.2           (2.2)(6)        -
    Other operating
     costs and expenses               420.1          58.3                        478.4
                                  ---------      --------       --------       -------
          Total benefits
           and expenses             3,240.0         287.7          (80.4)      3,447.3
                                  ---------      --------       --------       -------
  
          Income before income
              taxes, minority interest
              and extraordinary
              charge                  559.5         (41.1)          66.8         585.2
  Income tax expense                  218.2         (14.3)          22.7 (4)     226.6
                                  ---------     ---------       --------       -------
          Income before
              minority interest
              and extraordinary
              charge                  341.3         (26.8)          44.1         358.6
  
  Minority interest in consolidated
     subsidiaries:
       Dividends on Company - obligated
         mandatorily redeemable
         preferred securities of
         subsidiary trusts             34.8                                       34.8
       Dividends on preferred stock     8.7                                        8.7
       Equity in earnings              12.6                                       12.6
                                   --------     ---------       --------       -------
          Income before
              extraordinary
              charge               $  285.2      $  (26.8)      $   44.1       $ 302.5
                                   ========      ========       ========       =======
  
  
  
  
  
  
  
  
  
  
  
  
  Earnings per common share and
   common equivalent share:
     Primary:
       Weighted average
         shares outstanding            86.1                          4.5 (5)     90.6
                                       ====                       ======         ====
       Income before
         extraordinary  charge        $3.31                                     $3.34
                                      =====                                     =====
  
     Fully diluted:
       Weighted average shares
         outstanding                   90.4                          4.5 (5)     94.9
                                       ====                       ======         ====
       Income before
         extraordinary charge         $3.15                                     $3.19
                                      =====                                     =====
  
   The accompanying notes are an integral part of the pro forma consolidated financial statements.
  
                                         37
  </TABLE>
  
  
  <PAGE>
  <TABLE>
  <CAPTION>
  
                           CONSECO, INC. AND SUBSIDIARIES
                        PRO FORMA CONSOLIDATED BALANCE SHEET
                                 September 30, 1996
                                (Dollars in millions)
                                     (unaudited)
  
  
                                                              Pro forma
                                    Pro forma                adjustments
                                     Conseco                   relating       Pro forma
                                    before the      THI        to the          Conseco
                                     Merger      historical    Merger          totals
                                    ---------   ------------  ----------     ---------
  <S>                              <C>           <C>         <C>         <C>
  
  
  Assets
   Investments:
       Actively managed fixed
        maturity securities
        at fair value               $16,649.5     $  483.0     $ (83.9)(7)  $17,048.6
       Equity securities at
        fair value                      104.2          1.1                      105.3
       Mortgage loans                   372.9          8.3                      381.2
       Credit-tenant loans              393.8                                   393.8
       Policy loans                     526.0         16.9                      542.9
       Other invested assets            211.0          6.5                      217.5
       Short-term investments           224.5         34.6        83.9 (7)      259.1
                                                                  18.5 (8)
                                                                (102.4)(8)
       Assets held in separate
         accounts                       300.4                                   300.4
                                     --------     --------     ---------    ---------
  
              Total investments      18,782.3        550.4       (83.9)      19,248.8
  
   Accrued investment income            284.4          5.7                      290.1
   Cost of policies purchased         2,115.9         10.8       112.8 (9)    2,228.7
                                                                 (10.8)(9)  
   Cost of policies produced            541.0         28.4       (28.4)(10)     541.0
   Reinsurance receivables              400.6        328.6      (260.0)(12)     469.2
   Income taxes                          85.6                    (25.8)(11)      42.3
                                                                 (17.5)(11)  
   Goodwill                           2,087.5                                 2,087.5
   Property and equipment               109.8           .7                      110.5
   Securities segregated for
       future redemption of
       redeemable preferred
       stock of a
       subsidiary                        45.0                                    45.0
   Other assets                         230.2         17.3                      247.5
                                    ---------     --------     ---------    ---------
  
              Total assets          $24,682.3     $  941.9     $  (313.6)   $25,310.6
                                    =========     ========     =========    =========
  
  
  
   The accompanying notes are an integral part of the pro forma consolidated financial statements.
  
                                          38
  </TABLE>
  
  <PAGE>
  <TABLE>
  <CAPTION>
  
                           CONSECO, INC. AND SUBSIDIARIES
                        PRO FORMA CONSOLIDATED BALANCE SHEET
                                 September 30, 1996
                                (Dollars in millions)
                                     (unaudited)
  
                                                               Pro forma
                                      Pro forma               adjustments
                                       Conseco                  relating     Pro forma
                                        for the      THI        to the        Conseco
                                        Merger    historical    Merger         totals
                                      ---------  ------------  ----------    ---------
  <S>                                <C>         <C>         <C>            <C>
  
  Liabilities:
    Insurance liabilities             $18,737.0   $ 623.4   $ (260.0)(12)   $19,100.4
    Income tax liabilities                   -       17.5      (17.5)(11)          -
    Investment borrowings                 539.4                                 539.4
    Other liabilities                     504.2      18.5                       522.7
    Liabilities related
      to separate accounts                300.1                                 300.1
    Notes payable of Conseco              851.2     108.3      (58.3)(13)       869.7
                                                               (50.0)(13)
                                                                18.5 (13)
  
    Notes payable of
      Bankers Life Holding
      Corporation, not
      direct obligations
      of Conseco                          418.1                                 418.1
    Notes payable of American
      Life Holdings, Inc., not
      direct obligations of
      Conseco                              13.0                                  13.0
                                      ---------    ------    -------         --------
              Total liabilities        21,363.0     767.7     (367.3)        21,763.4
                                      ---------    ------    -------         --------
  
  Minority interest in consolidated
     subsidiaries:
       Company - obligated mandatorily
         redeemable preferred securities
         of subsidiary trusts             600.0                                 600.0
       Preferred stock                     92.5                                  92.5
       Common stock                        55.3                                  55.3
                                      ---------    ------    -------        ---------
  
  Shareholders' equity:
    Preferred stock                       267.1      22.8      (22.8)(14)       267.1
    Common stock and additional
      paid-in capital                   1,670.1     169.7     (169.7)(14)     1,898.0
                                                               121.7 (14)
                                                               106.2 (14)
    Unrealized appreciation
      (depreciation) of securities        (47.0)      4.7       (4.7)(14)       (47.0)
    Retained earnings                     681.3     (23.0)      23.0 (14)       681.3
                                      ---------    ------    -------        ---------
  
          Total shareholders' equity    2,571.5     174.2       53.7          2,799.4
                                      ---------    ------    -------        ---------
  
             Total liabilities and
               shareholders' equity   $24,682.3    $941.9    $(313.6)       $25,310.6
                                      =========    ======    =======        =========
  
   The accompanying notes are an integral part of the pro forma consolidated financial statements.
  
                                         39
  
  </TABLE>
  
  
  <PAGE>
  
                              CONSECO AND SUBSIDIARIES
                NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
                                     (unaudited)
  
       TRANSACTIONS RELATING TO THE MERGER
  
       The Merger will be accounted for under the  purchase  method of accounting.
  Under this  method,  the total  cost  to acquire  THI  will be  allocated to the
  assets and liabilities acquired based on their fair values as of the date of the
  Merger,  with any excess of the total  purchase  cost over the fair value of the
  assets  acquired  less the fair value of the  liabilities  assumed  recorded  as
  goodwill.  The Merger will not qualify to be accounted  for under the pooling of
  interests  method in accordance  with APB No. 16 because THI was a subsidiary of
  another  corporation  within two years of the contemplated  transaction.  In the
  Merger,  each outstanding share of THI common stock was exchanged for 1.4 shares
  of Conseco's common stock.  Conseco issued  approximately  2.4 million shares of
  Conseco common stock and common stock  equivalents with a value of approximately
  $121.7  million to acquire  THI's  common stock (or  equivalents).  In addition,
  pursuant to an exchange offer (the "Exchange Offer"),  all of THI's Subordinated
  Convertible  Notes (the "THI  Convertible  Notes") were  exchanged for shares of
  Conseco  common stock on an equivalent  basis as the shares issued in the Merger
  plus a cash premium.  Such THI Convertible Notes were converted into 2.1 million
  shares of Conseco  common stock with a value of  approximately  $106.2  million.
  Conseco also paid a premium of approximately $10.0 million to the holders of the
  THI Convertible Notes in conjunction with the Exchange Offer.  Conseco estimates
  that it will incur costs related to the Merger (including contract  termination,
  relocation, legal, accounting and other costs) of approximately $8.5 million.
  
       The cost to acquire THI is allocated as follows (dollars in millions):
  <TABLE>
  <CAPTION>
  
  <S>                                                                                     <C>
  Book value of assets acquired based on the assumed date of the
       Merger (September 30, 1996) ...................................................    $174.2
  THI Convertible Notes converted to Conseco common stock pursuant to the
       Exchange Offer  ................................................... ...........      50.0
  Less book value of THI preferred stock .............................................     (22.8)
  Increase (decrease) in THI's net asset value to reflect estimated fair value and
       asset reclassifications at the assumed date of the Merger:
          Cost of policies purchased (related to the Merger)..........................     112.8
          Cost of policies produced and cost of policies purchased (historical).......     (39.2)
          Income taxes................................................................     (25.8)
          Premium paid in conjunction with the Exchange Offer ........................     (10.0)
          Premium incurred to retire THI preferred stock .............................      (2.8)
                                                                                          ------
               Total estimated fair value adjustments.................................      35.0
                                                                                         -------
  
               Total cost to acquire THI..............................................    $236.4
                                                                                          ======
  </TABLE>
  
       Adjustments to the pro forma  consolidated  statement of operations to give
  effect to the Merger as of January 1, 1995, are summarized below.
  
       (1)   Net  investment  income and net realized gains of THI are adjusted to
             include the effect of adjustments to restate the amortized cost basis
             of  fixed  maturity  securities to  their  estimated  fair  value and
             the effect  of the  assumed  sale of  $83.9  million  fixed  maturity
             investments  investments,  with  the  proceeds  used  to  repay $58.3
             million of bank debt and redeem  preferred  stock  with a  redemption
             value of $25.6 million.
  
       (2)   Interest expense is  reduced to reflect the repayment of bank debt of
             $58.3 million  and the  conversion of the THI Convertible  Notes into
             Conseco common stock pursuant to the Exchange Offer. Interest expense
             is  increased  to  reflect  borrowings  by  Conseco  to: (i) pay  the
             estimated cost of the Merger; and (ii) pay the $10.0 million  premium
             in conjunction  with the Exchange Offer.
  
       (3)  Amortization of the cost of policies produced and the cost of policies
            purchased prior to the Merger is replaced with the amortization of the
            cost  of  policies  purchased  (amortized  in  relation  to  estimated
            premiums  on  the  policies  purchased  with  interest  equal  to  the
            liability rate which averages 5.5 percent).
  
       (4)  Reflects  the  tax  adjustment  for  the  pro forma adjustments at the
            approximate rate for the specific item.
  
       (5)   Common shares outstanding are increased to reflect the Conseco shares
             issued in the Merger and the  conversion of the THI Convertible Notes
             in conjunction with the Exchange Offer.
  
                                         40
  <PAGE>
  
       (6)   Effective October 1, 1995, THI sold its long  term  care  business to
             ATC.  An adjustment is made to remove  the loss  on  the  sale of the
             long term care business. However, the revenues, benefits and expenses
             related to this business prior to its sale are not eliminated,  since
             the business is retained within the Conseco  consolidated group after
             the ATC Merger (and pro forma adjustments for the  ATC  Merger do not
             include adjustments related to THI's long term care business prior to
             its purchase by ATC). In addition, expenses related to THI's spin-off
             from  its  parent are eliminated.  Such  costs include certain legal,
             accounting, actuarial and advisory fees.
  
       Adjustments to the pro forma  consolidated  balance sheet to give effect to
  the Merger as of  September  30,  1996,  are   summarized  below.
  
       (7)   Actively managed fixed maturity securities with a  carrying  value of
             $83.9 million are assumed to be sold at the date of the Merger.
  
       (8)   Short-term investments are reduced for: (i) payments made to complete
             the Merger; (ii) the repayment  of bank debt with a balance  of $58.3
             million; (iii)  the  redemption of preferred  stock with a redemption
             value of $25.6 million;  and (iv) the  payment of the  $10.0  million
             premium   in  conjunction   with  the  Exchange   Offer.   Short-term
             investments  are  increased  by  additional  borrowings by Conseco of
             $18.5 million to complete the Merger and related transactions.
  
       (9)   THI's  historical  cost  of  policies  purchased  is  eliminated  and
             replaced  with  the  cost  of  policies  purchased  recognized in the
             Merger.  Cost of policies purchased reflects the estimated fair value
             of THI's business  in force and represents the portion of the cost to
             acquire THI that is allocated  to the value of the  right to  receive
             future  cash  flows  from  the  acquired  policies.  
  
            The 18 percent  discount rate used to determine such value is the rate
            of  return  required  by  Conseco  to  invest  in the  business  being
            acquired.  In determining such rate of return,  the following  factors
            are considered.
  
               - The magnitude of the  risks associated with each of the actuarial
                 assumptions used in determining the expected cash flows.
  
              -  Cost of capital available to fund the acquisition.
  
              -  The  perceived likelihood of changes in insurance regulations and
                 tax laws.
  
              -  Complexity of the acquired company.
  
              -  Prices paid (i.e., discount rates used in determining valuations)
                 on similar blocks of business sold recently.
  
          The  value  allocated  to the cost of policies purchased  is based  on a
          preliminary valuation; accordingly, this allocation may be adjusted upon
          final  determination of such value.  Expected gross amortization of such
          value using current  assumptions  and accretion of interest  based on an
          interest  rate  equal to the  liability  rate (such  rate  averages  5.5
          percent) for each of the years in the five-year  period ending September
          30, 2001, are as follows  (dollars in millions):
  
  <TABLE>
  <CAPTION>
  
  Year ending     Beginning     Gross      Accretion         Net          Ending
  September 30,    balance  amortization  of interest   amortization      balance
  -------------    -------  ------------  -----------   -------------     -------
     <S>          <C>          <C>          <C>           <C>            <C>
     1997         $112.8       $19.2        $ 6.3         $12.9           $99.9
     1998           99.9        15.9          5.6          10.3            89.6
     1999           89.6        14.5          5.0           9.5            80.1
     2000           80.1        13.3          4.4           8.9            71.2
     2001           71.2        12.8          4.0           8.8            62.4
  </TABLE>
  
       (10)  THI's cost of policies produced is eliminated since such  amounts are
             reflected in the determination of the cost of policies purchased.
  
  
                                         41
  <PAGE>
  
  
                              CONSECO AND SUBSIDIARIES
                NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
                                     (unaudited)
  
       (11)  All of the  applicable  pro forma balance sheet  adjustments  are tax
             affected  at the  appropriate  rate.  Deferred tax  assets are netted
             against deferred tax liabilities.
  
       (12)  Reinsurance receivables and insurance liabilities related to business
             of THI ceded to ATC are eliminated in consolidation.
  
       (13)  Notes  payable  are increased  to  reflect: (i) the repayment of bank
             debt of $58.3 million; and (ii) the conversion of the THI Convertible
             Notes into  Conseco  common stock in  conjunction with  the  Exchange
             Offer.  In   addition,  notes  payable  are  increased   to   reflect
             additional  borrowings  by  Conseco  used to  complete the Merger and
             related transactions.
  
      (14)  The  prior  shareholders'  equity of THI is  eliminated in conjunction
            with  the  Merger.  Common  stock and  additional  paid-in  capital is
            increased by the value of Conseco common  stock  issued in the Merger.
            The value of  the THI Convertible Notes  represents  the  value of the
            Conseco common stock which was issued in conjunction with the Exchange
            Offer. Preferred stock of THI is eliminated to reflect its redemption.
  
  
  
  
  
                                         42
  
  
  
  <PAGE>
  
                           CONSECO, INC. AND SUBSIDIARIES
                                _________________
  
  
  
  ITEM 7(c).     EXHIBITS.
  
                 (c) Exhibits
  
                     2.8    Agreement and Plan of Merger dated as of September 25,
                            1996,  by  and between  Conseco, Inc. and  Transport 
                            Holdings Inc.*
                             
  
                     2.8.1  First Amendment to Agreement and Plan of Merger dated
                            as of November 7, 1996, by and between Conseco, Inc.
                            and Transport Holdings Inc.**
  
  
                     *      Previously filed with Form 8-K dated September 25, 
                            1996, filed by Conseco, Inc.
  
                     **     Previously filed as an exhibit to the Registration
                            Statement on Form S-4 (File No. 333-14377) filed by
                            Conseco, Inc.
  
  
                                         43
  
                    
  <PAGE>
  
                           CONSECO, INC. AND SUBSIDIARIES
                                _________________
  
  
  
  
  
                                      SIGNATURE
  
           Pursuant to the  requirements  of the Securities  Exchange Act of 1934,
  the  Registrant  has duly  caused  this report to be signed on its behalf by the
  undersigned thereunto duly authorized.
  
  
  
  Date: December 23, 1996
  
  
                                           CONSECO, INC.
  
  
  
                                           By:     /s/ ROLLIN M. DICK
                                                   -----------------------------
  
                                                    Rollin M. Dick
                                                    Executive Vice President
                                                      and Chief Financial Officer
  
  
  
  
  
  
                                         44
metadata_documents: [{"type": "8-K", "sequence": "1", "description": "FORM 8-K OF CONSECO, INC.", "secsgml_size_bytes": 159634}]
metadata_filer: {"company-data": {"conformed-name": "CONSECO INC ET AL", "cik": "0000719241", "assigned-sic": "6321", "irs-number": "351468632", "state-of-incorporation": "IN", "fiscal-year-end": "1231"}, "filing-values": {"form-type": "8-K", "act": "34", "file-number": "001-09250", "film-number": "96688147"}, "business-address": {"street1": "11825 N PENNSYLVANIA ST", "city": "CARMEL", "state": "IN", "zip": "46032", "phone": "3175736100"}, "mail-address": {"street1": "11825 N PENNSYLVANIA ST", "city": "CARMEL", "state": "IN", "zip": "46032"}, "former-company": {"former-conformed-name": "SECURITY NATIONAL OF INDIANA CORP", "date-changed": "19840207"}}
text: SECURITIES AND EXCHANGE COMMISSION
                               Washington, D.C. 20549
  
                                      FORM 8-K
  
                Current Report Pursuant to Section 13 or 15(d) of the
                           Securities Exchange Act of 1934
  
                           Date of Report: December 23, 1996
  
                                    CONSECO, INC.
  
                               State of Incorporation:
                                       Indiana
  
        Commission File Number                           IRS Employer Id. Number
              No. 1-9250                                      No. 35-1468632
  
                       Address of Principal Executive Offices:
                           11825 North Pennsylvania Street
                                Carmel, Indiana 46032
  
                                    Telephone No.
                                   (317) 817-6100
  CONSECO, INC. AND SUBSIDIARIES
  
                                                         INDEX
  Page
  Item 2.   Acquisition or Disposition of Assets.........................................................   3
  
  Item 7.   Financial Statements and Exhibits
            (a)  Transport Holdings Inc. Unaudited Condensed
                 Consolidated Financial Statements as of September 30, 1996,
                 and for the nine months ended September 30, 1996 and 1995
                    Condensed Consolidated Balance Sheets.................................................  5
                    Condensed Consolidated Statements of Income...........................................  7
                    Condensed Consolidated Statements of Cash Flows.......................................  8
                    Condensed Consolidated Statements of Shareholders' Equity.............................  9   
                    Notes to Condensed Consolidated Financial Statements.................................. 10
  
                 Transport Holdings Inc. Audited
                 Consolidated Financial Statements as of December 31,
                 1995 and 1994, and for each of the three years ended
                 December 31, 1995
                    Independent Auditors' Report ........................................................   13
                    Consolidated Balance Sheets..........................................................   14
                    Consolidated Statements of Income....................................................   15
                    Consolidated Statements of Shareholders' Equity......................................   16
                    Consolidated Statements of Cash Flows................................................   17
                    Notes to Consolidated Financial Statements...........................................   18
  
            (b)  Pro Forma Consolidated Financial Information of Conseco, Inc. and Subsidiaries..........   34
                    Pro forma Consolidated Statement of Operations for the nine months
                       ended September 30, 1996 .........................................................   36
                    Pro forma Consolidated Statement of Operations for the year ended
                       December 31, 1995 ................................................................   37
                    Pro Forma Consolidated Balance Sheet as of September 30, 1996........................   38
                    Notes to Pro Forma Consolidated Financial Statements.................................   40
  
            (c)  Exhibits
  
                     2.8    Agreement and Plan of Merger dated as of September 25, 1996, by and between Conseco, Inc.
                            and Transport Holdings Inc.*
  
                     2.8.1  First Amendment to Agreement and Plan of Merger dated as of November 7, 1996, by and between
                            Conseco, Inc. and Transport Holdings Inc.**
  
                            * Previously filed with Form 8-K dated September 25, 1996 filed by Conseco, Inc.
  
                           ** Previously filed as an exhibit to the Registration Statement on Form S-4 (file no. 333-14377)
                              filed by Conseco, Inc.
  2
  CONSECO, INC. AND SUBSIDIARIES
  
  ITEM 2.  ACQUISITION OR DISPOSITION OF ASSETS.
  
       On December 23, 1996, Conseco,  Inc. ("Conseco")  completed its merger with
  Transport  Holdings Inc.  ("THI"),  in a  transaction  pursuant to which THI was
  merged with and into Conseco,  with Conseco being the surviving corporation (the
  "Merger").  The Merger was  consummated  pursuant  to an  Agreement  and Plan of
  Merger dated as of September 25, 1996, as amended by the First  Amendment to the
  Agreement and Plan of Merger,  dated as of November 7, 1996. In the Merger, each
  outstanding  share of THI common stock was exchanged for 1.4 shares of Conseco's
  common stock.  Conseco issued approximately 2.4 million shares of Conseco common
  stock or common stock  equivalents with a value of approximately  $121.7 million
  to acquire THI's common stock.  In addition,  pursuant to an exchange offer (the
  "Exchange  Offer"),  all of  THI's  Subordinated  Convertible  Notes  (the  "THI
  Convertible  Notes")  were  exchanged  for shares of Conseco  common stock on an
  equivalent  basis as the shares issued in the Merger plus a cash  premium.  Such
  THI  Convertible  Notes were converted into 2.1 million shares of Conseco common
  stock with a value of approximately $106.2 million.  Conseco also paid a premium
  of  approximately  $10 million to the  holders of the THI  Convertible  Notes in
  conjunction with the Exchange Offer.
  
         The acquisition of THI will be accounted for under the purchase method of
  accounting in the fourth quarter of 1996. Under this method, the cost to acquire
  THI will be  allocated  to the assets  and  liabilities  acquired  based on fair
  values as of the date of the Merger,  with the excess of the total purchase cost
  over the  fair  value  of the  assets  acquired  less  the  fair  values  of the
  liabilities assumed recorded as goodwill.
  
                                          3
  CONSECO, INC. AND SUBSIDIARIES
  
  ITEM 7(a).     Financial Statements and Exhibits
  
                 (a)  Transport  Holdings  Inc.  Unaudited  Condensed Consolidated
                      Financial Statements as of September  30, 1996,  and for the
                      nine months ended  September 30, 1996 and 1995.
  
                                          4
  TRANSPORT HOLDINGS INC.
  
                        Condensed Consolidated Balance Sheets
  (in thousands)
                                                                    September 30,  December 31,
                                                                       1996            1995
  Assets                                                            (unaudited)        (a)
  -----------    -----------
  Fixed maturities available for sale, at market
     (cost:  1996 - $476,722; 1995 - $482,626)                    $    482,993   $    518,303
  Equity securities, at market
     (cost:  1996 - $76; 1995 - $1,850)                                  1,074          3,473
  Mortgage loans on real estate                                          8,335          9,348
  Investment in real estate                                                301            195
  Policy loans                                                          16,886         18,487
  Short-term investments                                                33,831         22,952
  Other investments                                                      6,212          4,872
                                                                    -----------    -----------
     Total investments                                                 549,632        577,630
  
  Cash and cash equivalents                                                742          2,198
  Accrued investment income                                              5,704          6,258
  Premiums due and unpaid                                                3,339          4,918
  Due from reinsurers                                                  328,564        298,867
  Due from agents                                                        3,408          5,332
  Value of insurance in force                                           10,778         12,177
  Deferred policy acquisition costs                                     28,392         29,531
  Debt issue costs                                                       3,439          3,738
  Other assets                                                           7,868          9,839
                                                                    -----------    -----------
        Total assets                                              $    941,866   $    950,488
                                                                    ===========    ===========
                                                                                   (Continued)
  (a) Condensed from audited financial statements.
  5
  TRANSPORT HOLDINGS INC.
  
                   Condensed Consolidated Balance Sheets, Continued
  (in thousands)
                                                                    September 30,  December 31,
                                                                       1996           1995
  Liabilities and Stockholders' Equity                              (unaudited)        (a)
  -----------    -----------
  Notes payable to banks                                          $     58,250   $     60,250
  Subordinated convertible notes payable                                50,000         50,000
  Future policy benefits                                               344,256        315,253
  Unearned premiums                                                     34,682         39,961
  Policy and contract claims                                           241,653        229,179
  Other policyholder funds                                               2,802          3,130
  Income taxes payable                                                  17,453         28,074
  Accrued expenses and other liabilities                                18,551         20,546
                                                                    -----------    -----------
        Total liabilities                                              767,647        746,393
  
  Stockholders' equity
     Preferred stock, $0.01 par value per share, 2,000,000
       shares authorized; shares issued and outstanding:
       91,030 at September 30, 1996, 182,060 at December 31,
       1995; redemption value: $25,630 at September 30, 1996,
       $46,911 at December 31, 1995                                     22,758         45,515
     Class A common stock, $0.01 par value per share,
        8,000,000 shares authorized;  shares issued and
        outstanding:  1,592,048 at September 30, 1996, 1,590,461
        at December 31, 1995                                                16             16
     Class B common stock, $0.01 par value per share,
        2,000,000 shares authorized, none issued                           - -            - -
     Paid in capital                                                   169,732        169,665
     Unrealized appreciation of securities, net                          4,725         24,245
     Retained (deficit)                                                (23,012)       (35,346)
                                                                    -----------    -----------
        Total equity                                                   174,219        204,095
                                                                    -----------    -----------
  Total liabilities and stockholders' equity                      $    941,866   $    950,488
                                                                    ===========    ===========
  (a) Condensed from audited financial statements.
  See accompanying notes to condensed consolidated financial statements.
  6
  TRANSPORT HOLDINGS INC.
  
                     Condensed Consolidated Statements of Income
  
                                     (Unaudited)
  
                       (in thousands, except per share amounts)
  Three Months Ended                Nine Months Ended
                                                                 September 30,                     September 30,
                                                              1996           1995               1996           1995
                                                           -----------   -----------         -----------    -----------
  Revenues:
     Net premium income                                  $     26,829   $     51,449       $     82,451   $    160,067
     Investment income, net of related expenses                 9,673         13,668             29,552         39,708
     Realized investment gains                                     20          (449)                334            (80)
     Other income                                                 794            - -              1,394            - -
                                                           -----------   -----------         -----------    -----------
        Total revenues                                         37,316         64,668            113,731        199,695
  
  Benefits and expenses:
     Incurred claims and other policy benefits, net            17,040         34,762             54,101        108,479
     Commissions                                                5,933         10,573             17,266         33,728
     Capitalization of deferred policy acquisition costs       (1,098)       (2,838)             (3,686)       (10,495)
     Amortization of deferred policy acquisition costs
        and value of insurance in force                         2,004          6,837              6,224         18,174
     Interest expense and amortization
        of debt issue costs                                     2,238            - -              6,795            - -
     Expenses of spin-off and related transactions                - -          2,209                - -          2,209
     Other operating expenses                                   2,856          5,959              10,810         19,309
                                                           -----------    -----------         -----------    -----------
        Total benefits and expenses                            28,973         57,502              91,510        171,404
                                                           -----------    -----------         -----------    -----------
        Income before tax                                       8,343          7,166              22,221         28,291
  
     Provision for federal income tax                           2,920          3,048               7,777         10,133
                                                           -----------    -----------         -----------    -----------
        Net income                                       $      5,423   $      4,118        $     14,444   $     18,158
                                                           ===========    ===========         ===========    ===========
  Earnings per share:
        Primary                                          $       2.88   $     238.20 a
  $       6.73   $   3,116.72 a
  ===========    ===========         ===========    ===========
        Fully diluted                                    $       1.68   $     121.89 b
  $       4.06   $   1,594.82 b
  ===========    ===========         ===========    ===========
  (a) Primary earnings per share was based on average shares outstanding of 17,288
      for the three months ended September 30, 1995 and 5,826 for the nine months
      then ended.  Earnings per share as if the entire 1,590,461 shares outstanding
      after the September 29, 1995 distribution had been outstanding for the entire
      period would have been $2.59 for the three months ended September 30, 1995 and
      $11.42 for the nine months then ended.
  (b) Fully diluted earnings per share was based on average shares outstanding of
      33,786 for the three months ended September 30, 1995 and 11,386 for the nine
      months then ended.  Earnings per share as if the entire 3,108,266 shares
      outstanding on a fully diluted basis after the September 29, 1995 distribution
      had been outstanding for the entire period would have been $1.32 for the three
      months ended September 30, 1995 and $5.84 for the nine months then ended.
  See accompanying notes to condensed consolidated financial statements.
  7
  TRANSPORT HOLDINGS INC.
  
                   Condensed Consolidated Statements of Cash Flows
  
                                     (Unaudited)
  (in thousands)
                                                                        Nine Months Ended
                                                                          September 30,
                                                                       1996           1995
                                                                    -----------    -----------
  Operating activities:
     Net income                                                   $     14,444   $     18,158
     Adjustments to reconcile net income to net cash
        provided by operating activities:
        Gain on sale of securities                                        (334)            80
        Accretion of bond discount or premium                           (1,562)        (1,059)
        Amortization debt issue costs                                      454            - -
        Directors fees paid in capital stock                                67            - -
        Change in assets and liabilities:
           Accrued investment income                                       554            214
           Premiums due and unpaid                                       1,579          1,146
           Due from reinsurers                                         (29,697)        12,114
           Due from agents                                               1,924          1,774
           Value of insurance in force                                   1,399          1,847
           Deferred policy acquisition costs                             1,139          5,831
           Other assets                                                  1,972          1,686
           Reserves for future policy benefits and claims               35,870         11,778
           Income taxes payable                                           (110)        (1,849)
           Accrued expenses and other liabilities                        1,109           (270)
                                                                    -----------    -----------
                    Net cash provided by operating activities           28,808         51,450
  
  Investing activities:
     Sale of fixed maturities                                           64,251        143,190
     Maturity of fixed maturities                                        5,150            - -
     Sale of common stock                                                2,487         53,170
     Sale of preferred stock                                               - -          1,936
     Sale of investment in Travelers                                       - -         35,200
     Sale of real estate                                                   - -         16,585
     Sale of mortgage                                                      - -          7,000
     Purchase of fixed maturities                                      (62,336)      (300,359)
     Purchase of common stock                                              - -        (46,637)
     Principal payments on mortgages                                     1,013          1,508
     Principal payments on policy loans                                  1,601          1,662
     Security transactions in course of settlement                      (3,104)           - -
     Change in short-term and other invested assets                    (12,303)        23,652
                                                                    -----------    -----------
                    Net cash used in investing activities               (3,241)       (63,093)
  
  Financing activities:
     Issuance of long term debt                                            - -        112,000
     Debt issue costs                                                      - -         (3,868)
     Dividends paid                                                        - -       (105,000)
     Cost of preferred stock issue                                         - -           (466)
     Issuance of warrants                                                  - -             93
     Redemption of preferred stock                                     (24,868)           - -
     Principal payments on bank debt                                    (2,000)           - -
     Cost of borrowings capitalized                                       (155)           - -
                                                                    -----------    -----------
                    Net cash used in financing activities              (27,023)         2,759
  
  Decrease in cash and cash equivalents                                 (1,456)        (8,884)
  Cash and cash equivalents at beginning of period                       2,198          3,096
                                                                    -----------    -----------
  Cash and cash equivalents at end of period                      $        742   $     (5,788)
                                                                    ===========    ===========
  Supplemental disclosure of cash flow information:
     Cash paid for taxes                                          $      7,561   $     11,982
     Interest  paid                                               $      6,696   $        - -
  See accompanying notes to condensed consolidated financial statements.
  8
  TRANSPORT HOLDINGS INC.
  
               Condensed Consolidated Statement of Stockholders' Equity
                                      (unaudited)
                          (in thousands except share amounts)
  Unrealized
                                                                                          appreciation
                                   Preferred Stock    Class A Common Stock               (depreciation)
                                  Shares               Shares                Paid in     of securities,   Retained
                                  Issued     Amount    Issued     Amount     Capital           net         Deficit       Total
                                  --------  --------  ---------   ------    ---------    --------------   ----------    ----------
  Balance December 31, 1995       182,060  $  45,515  1,590,461  $    16   $  169,665   $       24,245   $  (35,346)   $  204,095
  
  Net income                                                                                                 14,444        14,444
  
  Issuance of shares to directors                         1,587        0           67                                          67
  
  Redemption of preferred stock   (91,030)   (22,757)                                                        (2,110)      (24,867)
  
  Unrealized investment losses,
      net of taxes                                                                             (19,520)                   (19,520)
                                  --------   --------  ---------   ------   ---------    --------------   ----------    ----------
  
  Balance, September 30, 1996      91,030   $  22,758  1,592,048  $    16  $  169,732   $        4,725   $  (23,012)   $  174,219
                                  ========   ========  =========   ======   =========    ==============   ==========    ==========
  See accompanying notes to condensed consolidated financial statements.
  9
  TRANSPORT HOLDINGS INC.
  
                 Notes to Condensed Consolidated Financial Statements
  
                                      (Unaudited)
  
  1.     Organization
  
  Transport  Holdings Inc. (the "Company") was incorporated  under the laws of the
  State of Delaware.  The Company is the sole stockholder of Intermediate Holdings
  Inc., a Delaware corporation. Intermediate Holdings Inc. is the sole stockholder
  of THD Inc., a Delaware corporation  organized in 1996 and TLSD Inc., a Delaware
  corporation  organized in 1995.  THD Inc. is the sole  shareholder  of TLIC Life
  Insurance  Company,  a Texas life insurance company organized in 1995. TLIC Life
  Insurance Company is the sole shareholder of Transport Life Insurance Company, a
  Texas life insurance company organized in 1958 and in continuous operation since
  that time. Transport Life Insurance Company in turn owns all of the common stock
  of Continental Life Insurance  Company,  a Texas insurance company formed and in
  continuous operation since 1969, and a wholly owned subsidiary of Transport Life
  Insurance  Company  since 1971.  TLIC Life  Insurance  Company,  Transport  Life
  Insurance  Company,  and  Continental  Life  Insurance  Company are  principally
  engaged in the supplemental life and health insurance business.
  
  These condensed  consolidated  financial  statements include the accounts of the
  Company,  Intermediate  Holdings Inc., THD Inc.,  TLSD Inc., TLIC Life Insurance
  Company,  Transport  Life  Insurance  Company,  and  Continental  Life Insurance
  Company,  which have been  combined  for all  periods  presented.  All  material
  intercompany accounts and transactions have been eliminated.  Prior to September
  1995, there were no material assets,  liabilities,  or results of operations for
  any of the consolidated  companies  except Transport Life Insurance  Company and
  Continental Life Insurance Company.
  
  2.     Basis of Presentation
  
  The condensed  consolidated  financial statements as of and for the three months
  and nine months ended September 30, 1996 are unaudited and have been prepared by
  the Company pursuant to the rules and regulations of the Securities and Exchange
  Commission.  Certain information and footnote  disclosures  normally included in
  financial  statements  prepared in accordance with generally accepted accounting
  principles   have  been  condensed  or  omitted   pursuant  to  such  rules  and
  regulations,  although the Company believes that the disclosures are adequate to
  make the information presented not misleading.  The interim financial statements
  reflect all adjustments,  consisting only of normal recurring adjustments,  that
  are, in the opinion of management, necessary for a fair statement of the results
  for the interim periods.
  
                                    10
  These  financial  statements  should  be read in  conjunction  with the  audited
  consolidated  financial  statements and the notes thereto included in the Annual
  Report dated March 22, 1996 and furnished to  stockholders  of the Company.  The
  results of operations for the three month and nine month periods ended September
  30, 1996 should not be  considered  indicative of the results to be expected for
  the entire year.
  
  3.     Earnings Per Share
  
  Substantially  all of the Company's Class A Common Stock was issued on September
  29, 1995. On April 30, 1996, 1,587 shares of Class A Common Stock were issued to
  certain  of the  Company's  directors  in payment of  directors'  fees.  Primary
  earnings  per share was based on the weighted  average  number of Class A shares
  outstanding  plus the  weighted  average  number  of  common  stock  equivalents
  outstanding for stock options  granted,  using the treasury stock method.  Fully
  diluted  earnings  per  share was based on the  number of shares  that  would be
  outstanding if the $50 million of  subordinated  convertible  notes payable were
  converted  into Class A shares (if such notes were  presently  convertible  into
  Class A shares) and assuming the exercise of outstanding stock options using the
  treasury stock method. None of the stock options outstanding were exercisable at
  September 30, 1996.
  
  On June 28, 1996,  the Company  redeemed  91,030 shares of preferred  stock then
  outstanding at a cost of approximately $25 million. Approximately $2 million was
  charged  to  retained  deficit  for  the  excess  of the  redemption  price,  as
  determined pursuant to the preferred stock certificate,  over the carrying value
  of the shares redeemed.  This excess represented  cumulative unpaid dividends on
  the preferred  stock redeemed for the period from issuance  (September 29, 1995)
  to redemption.
  
  4.     Pending Merger with Conseco, Inc.
  
  On  September  26,  1996,  the Company  announced  that it had  entered  into an
  agreement to merge with and into  Conseco,  Inc. of Carmel,  Indiana.  Under the
  terms of the  agreement,  each  share of the  Company's  common  stock  would be
  exchanged for the number of shares of Conseco,  Inc. common stock  determined by
  dividing  $70 by the  average  trading  price of the  Conseco  stock for the ten
  trading days immediately preceding the second trading day prior to closing (such
  number to be not more than 1.8301 nor less than  1.4000).  The merger is subject
  to stockholder and regulatory approvals.
  
                                    11
  CONSECO, INC. AND SUBSIDIARIES
  
  ITEM 7(a)      Financial Statement and Exhibit, continued
  
                 (a), continued
  
                      Transport Holdings Inc. Audited Consolidated Financial 
                      Statements as of December 31, 1995 and 1994, and for each
                      of the three years ended December 31, 1995.
  
                                         12
  INDEPENDENT AUDITORS' REPORT
  
  Board of Directors
  Transport Holdings, Inc.:
  
           We  have  audited  the  accompanying  consolidated  balance  sheets  of
  Transport Holdings,  Inc. and subsidiaries as of December 31, 1995 and 1994, and
  the related consolidated  statements of income,  stockholders'  equity, and cash
  flows for each of the years in the  three-year  period ended  December 31, 1995.
  These consolidated  financial statements are the responsibility of the Company's
  management.  Our  responsibility is to express an opinion on these  consolidated
  financial statements based on our audits.
  
           We conducted our audits in accordance with generally  accepted auditing
  standards.  Those standards require that we plan and perform the audit to obtain
  reasonable assurance about whether the financial statements are free of material
  misstatement.  An audit includes examining, on a test basis, evidence supporting
  the amounts and disclosures in the financial statements.  An audit also includes
  assessing the  accounting  principles  used and  significant  estimates  made by
  management,  as well as evaluating the overall financial statement presentation.
  We believe that our audits provide a reasonable basis for our opinion.
  
           In our opinion, the consolidated financial statements referred to above
  present fairly, in all material  respects,  the financial  position of Transport
  Holdings,  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.
  
           As discussed in Note 2 to the consolidated  financial  statements,  the
  Company  adopted the provisions of the Financial  Accounting  Standards  Board's
  Statement of Financial  Accounting  Standards No. 115,  "Accounting  for Certain
  Investments in Debt and Equity Securities" and Statement of Financial Accounting
  Standards No. 121,  "Accounting  for the  Impairment of Long-Lived  Assets to Be
  Disposed of."
  
  /s/KPMG Peat Marwick LLP
  ------------------------
  KPMG Peat Marwick LLP
  
  Dallas, Texas
  February 22, 1996
  
                                         13
  TRANSPORT HOLDINGS INC.
  
                            CONSOLIDATED BALANCE SHEETS
  
                             December 31, 1995 and 1994
  1995                 1994
                                                                                                          --------            --------
  
                                                                                                                    (in thousands)
  
                                       ASSETS
  Fixed maturities available for sale, at market (cost: 1995 --
     $482,626; 1994 -- $514,852) .............................................................            $518,303            $479,753
  Equity securities, at market (cost: 1995 -- $1,850; 1994 -- $12,234) .......................               3,473              12,416
  Investment in Travelers, at market (cost $22,500) ..........................................                --                35,200
  Mortgage loans on real estate ..............................................................               9,348              18,600
  Investment in real estate ..................................................................                 195              16,483
  Policy loans ...............................................................................              18,487              20,223
  Short-term investments .....................................................................              22,952              94,755
  Other investments ..........................................................................               4,872               3,942
                                                                                                             -----               -----
  
     Total investments .......................................................................             577,630             681,372
  
  Cash and cash  equivalents .................................................................               2,198               3,096
  Accrued  investment  income ................................................................               6,258               8,358
  Premiums due and unpaid ....................................................................               4,918              10,028
  Due from reinsurers ........................................................................             298,867              54,522
  Due from agents ............................................................................               5,332               4,261
  Value of insurance in force ................................................................              12,177              17,347
  Deferred  policy acquisition  costs ........................................................              29,531              89,455
  Debt issue costs ...........................................................................               3,738                -- 
  Other assets ...............................................................................               9,839              16,788
                                                                                                             -----              ------
  
     Total assets ............................................................................            $950,488            $885,227
                                                                                                          ========            ========
  
                        LIABILITIES AND STOCKHOLDERS' EQUITY
  
  Notes payable to banks .....................................................................            $ 60,250            $   --
  Subordinated convertible notes payable .....................................................              50,000                --
  Future policy benefits .....................................................................             315,253             271,049
  Unearned premiums ..........................................................................              39,961              51,436
  Policy and contract claims .................................................................             229,179             219,494
  Other policyholder funds ...................................................................               3,130               2,540
  Federal income taxes payable:
    Current ..................................................................................                 727               4,422
    Deferred .................................................................................              27,347              34,741
  Accrued expenses and other liabilities .....................................................              20,546              12,183
                                                                                                            ------              ------
  
     Total liabilities .......................................................................             746,393             595,865
  
  Stockholders' equity
    Preferred stock, $0.01 par value per share, 2,000,000 shares authorized, 182,060
      shares issued and outstanding at December 31, 1995,  redemption  value  
      $46,911 at December  31, 1995...........................................................              45,515                 -- 
    Class A common stock, $0.01 par value per share, 8,000,000 shares authorized,  1,590,461 shares
      issued and  outstanding  at December 31, 1995...........................................                  16                 -- 
    Class B common stock,  $0.01 par value per share,  2,000,000  shares  authorized,
      none  issued.............................................................................                 --                 -- 
    Paid in capital............................................................................            169,665            215,569
    Unrealized  appreciation  (depreciation) of securities, net................................             24,245            (22,694)
    Retained (deficit) earnings................................................................            (35,346)            96,487
                                                                                                           -------              ------
     Total equity ..........................................................................               204,095            289,362
                                                                                                           -------            -------
  
     Total liabilities and stockholders' equity .............................................             $950,488           $885,227
                                                                                                          ========           ========
  
            See accompanying notes to consolidated financial statements.
  14
  TRANSPORT HOLDINGS INC.
  
                         CONSOLIDATED STATEMENTS OF INCOME
  
                   Years Ended December 31, 1995, 1994, and 1993
  1995          1994             1993
                                                                                                 -----------------------------------
                                                                                                (in thousands, except share amounts)
  Revenues:
    Premium income ......................................................................     $ 226,006      $ 255,809      $ 274,790
    Premiums ceded ......................................................................       (35,844)       (28,131)       (17,858)
                                                                                                -------        -------        ------- 
  
    Net premium income ..................................................................       190,162        227,678        256,932
    Investment income, net of related expenses ..........................................        49,665         46,635         43,974
    Other revenue .......................................................................          --             --            3,301
    Realized investment gains (losses) ..................................................         6,758         (3,393)        26,762
                                                                                                  -----         ------         ------
      Total revenues ....................................................................       246,585        270,920        330,969
  
  Benefits and expenses:
    Claims and other policy benefits ....................................................       119,698        134,778        179,942
    Reinsurance recoveries ..............................................................       (16,976)       (13,159)       (18,288)
                                                                                                -------        -------        ------- 
      Net claims and other policy benefits ..............................................       102,722        121,619        161,654
  
    Increase in future policy benefit reserves ..........................................        29,171         25,905         20,396
    Commissions .........................................................................        39,083         52,335         66,440
    Capitalization of deferred policy acquisition costs .................................       (11,688)       (21,931)       (27,939)
    Amortization of deferred policy acquisition
      costs and value of insurance in force .............................................        24,472         27,848         26,702
    Interest expense and amortization of debt issue costs ...............................         2,340           --             --   
    Expenses of spin-off and related transactions .......................................         2,209           --             --
    Loss on sale of long term care business .............................................        68,549           --             --
    Other operating expenses ............................................................        30,892         29,172         33,762
                                                                                                 ------         ------         ------
  
     Total benefits and expenses ........................................................       287,750        234,948        281,015
  
  Income (loss) before tax ..............................................................       (41,165)        35,972         49,954
  
  Provision for federal income tax:
    Current .............................................................................        18,337          6,858         12,077
    Deferred ............................................................................       (32,669)         6,163          5,072
                                                                                                -------          -----          -----
  
                                                                                                (14,332)        13,021         17,149
                                                                                                -------         ------         ------
  
  Income  (loss)  before  cumulative  effect  of change  in  accounting  principle ......       (26,833)        22,951         32,805
  Cumulative  effect  on  prior  years  of a  change  in
      accounting principle, net of taxes ................................................          --             --             (253)
                                                                                                 ------         ------         ------
  
          Net (loss) income .............................................................     $ (26,833)     $  22,951      $  32,552
                                                                                              =========      =========      =========
  
          Loss per share(a) .............................................................     $  (69.66)          (b)            (b)
                                                                                              =========      ==========      ========
  (a)  Loss per share was based on average  shares  outstanding of 405,241 for the
       year ended  December  31, 1995.  Loss per share as if the entire  1,590,461
       shares  outstanding  after the  September  29, 1995  distribution  had been
       outstanding  for the entire  period  would have been  ($17.75).  
  
  (b)  No per share amounts were  applicable  to the 1994 and 1993 periods,  which
       were prior to the distribution of the Company's  shares to the public.  
  
  See accompanying notes to consolidated financial statements.
  15
  TRANSPORT HOLDINGS INC.
  
                  CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
  Unrealized
                                                                          Class A                appreciation
                                              Preferred Stock           Common Stock            (depreciation) Retained
                                            Shares                    Shares           Paid-in  of securities,  Earnings      
                                            Issued     Amount        Issued   Amount  Capital      net        (Deficit)     Total
                                            ------     ------         ------   ------  -------      ---        ---------     -----
                                                                     (in thousands except share amounts)
  Balance December 31, 1992 ..........          --      $  --       $--                 $197,331   $  2,809     $ 64,884   $ 265,024
  Net income .........................                                                                            32,552      32,552
  Dividends paid .....................                                                                           (20,000)    (20,000)
  Capital contributions ..............                                                    15,863                              15,863
  Tax benefit of stock options .......                                                       411                                 411
  Unrealized investment gains, net of
    taxes ............................                                                                9,218                    9,218
                                              ------     ------     ------   ------      -------     --------    ---------     -----
  Balance December 31, 1993 ..........          --         --        --          --      213,605     12,027       77,436     303,068
  Net income .........................                                                                            22,951      22,951
  Dividends paid .....................                                                                            (3,900)     (3,900)
  Capital contributions ..............                                                     8,255                               8,255
  Noncash dividend ...................                                                    (6,573)                             (6,573)
  Tax benefit of stock options .......                                                       282                                 282
  Cumulative effect of adoption of
    Statement No. 115 at January 1,
    1994, net of taxes ...............                                                               16,908                   16,908
  Unrealized investment losses, net of
    taxes ............................                                                              (51,629)                 (51,629)
                                             ------      ------     ------   ------      -------    ----------   ---------   --------
  
  Balance December 31, 1994...........         --          --                  --        215,569    (22,694)      96,487     289,362
  Net loss ...........................                                                                           (26,833)    (26,833)
  Dividends paid .....................                                                                          (105,000)   (105,000)
  Issuance of common stock ...........                            1,590,461    16            (16)                                 --
  Issuance of common stock purchase
    warrants .........................                                                        93                                  93
  Issuance of preferred stock.........       182,060    45,515                           (45,515)                                 --  
  Cost of preferred stock issued ....                                                       (466)                               (466)
  Unrealized investment gains, net of
    taxes ............................                                                               46,939                   46,939
                                             ------    --------   --------   ------      -------    ---------- ---------    --------
  
  Balance December 31, 1995                  182,060   $45,515    1,590,461   $16       $169,665    $24,245    $ (35,346)   $204,095
                                             =======   =======    =========   ===       ========    ========    =========   ========
  
  See accompanying notes to consolidated financial statements.
  16
  TRANSPORT HOLDINGS INC.
  
                       CONSOLIDATED STATEMENTS OF CASH FLOWS
  
                   Years Ended December 31, 1995, 1994, and 1993
  1995        1994       1993
                                                           ----        ----       ----
                                                                   (in thousands)
  Operating activities:
  Net income ........................................   $ (26,833)   $ 22,951    $ 32,552
  Adjustments to  reconcile  net  income  to
    net  cash  provided  by operating activities:
    (Gain) loss on sale of securities ...............      (6,758)      3,393     (26,762)
    Accretion of bond discount or premium ...........      (1,598)       (928)     (4,193)
    Amortization debt issue costs ...................         151        --          --
    Change in assets and liabilities:
      Change in real estate (depreciation) ..........        --           933         556
      Accrued investment income .....................       2,100        (959)     (1,791)
      Premiums due and unpaid .......................       5,110        (303)       (114)
      Due from reinsurers ...........................    (244,345)     (5,162)      17,451
      Due from agents ...............................      (1,071)      2,735         734
      Value of insurance in force ...................       5,170       5,856       6,220
      Deferred  policy acquisition  costs ...........      59,924          61      (7,457)
      Prepaid  commissions ..........................       5,376       1,259       1,859
      Intercompany receivables.......................         --          --       40,866
      Other assets ..................................       1,573       1,383         864
      Insurance reserves ............................      43,004       6,854      39,328
      Federal income taxes payable ..................      (3,695)      2,521      (4,322)
      Deferred income tax expense ...................     (32,669)      6,163       5,072
      Accrued  expenses  and other  liabilities .....       8,363         361      (5,774)
                                                         ---------     -------     ------ 
  Net cash (used in) provided by operating activities    (186,198)     47,118      95,089
                                                         --------      ------      ------
  Investing  activities:
    Sale of fixed  maturities .......................     430,813     199,933     256,243
    Maturity of fixed maturities ....................       6,000       6,884       9,197
    Sale of common  stock............................       8,614      85,596     110,680
    Sale of preferred stock..........................       2,258      22,369      13,882
    Sale of  investment in Travelers.................      35,200          --        --
    Sale of real estate..............................      16,585          --        --
    Acquisition of real estate through foreclosure...        (195)         --        --   
    Sale of mortgage ................................       7,000          --        --
    Purchase of fixed maturities ....................    (396,796)   (231,091)   (371,603)
    Purchase of preferred stock .....................        --          (248)     (3,853)
    Purchase of common stock ........................         (28)    (80,826)   (102,708)
    Principal  payments  on  mortgages ..............       2,252       4,942       1,831
    Principal  payments on policy  loans ............       1,736       1,207         786
    Change in  short-term  and  other  
      invested  assets                                     70,873     (49,346)     (5,966)
                                                           ------     -------      ------ 
  Net cash provided by (used in) investing activities     184,312     (40,580)    (91,511)
                                                         -------     -------      ------- 
  Financing activities:
    Issuance of long term debt ......................     112,000         --           --   
    Principal  payments on long term debt ...........      (1,750)        --           --
    Debt issue costs.................................      (3,889)        --           --   
    Dividends paid ..................................    (105,000)     (3,900)    (20,000) 
    Capital contribution ............................       --            282      16,274
    Cost of preferred stock issue ...................        (466)        --           --   
    Issuance of warrants ............................          93         --           --
                                                         ---------     -------    -------   
  
  Net cash provided by (used in)
  financing activities ..............................         988      (3,618)     (3,726)
                                                           -------     -------     ------ 
  (Decrease) increase in cash and cash equivalents ..        (898)      2,920        (148)
  Cash and cash equivalents at beginning of year.....       3,096         176         324
                                                            -----      -------     -------
  Cash and cash equivalents at end of year..........       $2,198      $3,096      $  176
                                                           ======      =======     =======
  
  See accompanying notes to consolidated financial statements.
  17
  TRANSPORT HOLDINGS INC.
                     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          December 31, 1995, 1994 and 1993
  
  (1) Organization
  
           Transport  Holdings Inc. ("the Company") was incorporated in 1990 under
  the laws of the State of Delaware.  In a series of transactions which culminated
  on September 29, 1995, the Company became the sole  stockholder of  Intermediate
  Holdings Inc., a Delaware  corporation.  Intermediate  Holdings Inc. is the sole
  stockholder of TLIC Life Insurance Company, a Texas life insurance company,  and
  TLSD Inc., a Delaware  corporation,  both organized in 1995. TLIC Life Insurance
  Company is the sole  stockholder of Transport Life  Insurance  Company,  a Texas
  life insurance company organized in 1958 and in continuous  operation since that
  time.  Transport Life Insurance  Company in turn owns all of the common stock of
  Continental  Life Insurance  Company,  a Texas  insurance  company formed and in
  continuous operation since 1969, and a wholly owned subsidiary of Transport Life
  Insurance  Company since 1971.  Transport Life Insurance Company and Continental
  Life Insurance  Company are  principally  engaged in the  supplemental  life and
  health  insurance  business.  These  products  are  marketed by two  independent
  agencies.
  
           On September 29, 1995, all of the  outstanding  Class A common stock of
  the  Company  was  distributed  to the  stockholders  of  Travelers  Group  Inc.
  ("Travelers").  The Company was  recapitalized on September 29, 1995 immediately
  prior to the  distribution  of its shares.  The  recapitalization  involved  the
  filing of a Restated  Certificate of  Incorporation  which,  among other things,
  authorized Class A and Class B Common Stock,  increased the number of authorized
  shares of common stock, and authorized  preferred stock.  Upon the filing of the
  Restated  Certificate of Incorporation,  all of the outstanding shares of common
  stock then held by Travelers  were  exchanged  for  1,590,461  shares of Class A
  Common  Stock,  $0.01 par value.  The  financial  statements  of the  previously
  separate companies for prior periods have been restated on a consolidated basis.
  
           These  consolidated  financial  statements  include the accounts of the
  Company, Intermediate Holdings Inc., TLIC Life Insurance Company, Transport Life
  Insurance  Company,  and  Continental  Life Insurance  Company,  which have been
  combined  for all periods  presented.  All  material  intercompany  accounts and
  transactions have been eliminated. Prior to 1995, there were no material assets,
  liabilities,  or results of  operations  for any of the  consolidated  companies
  except Transport Life Insurance Company and Continental Life Insurance Company.
  
  (2) Summary of Significant Accounting Policies
  
  (a) Basis of Presentation
  
           The consolidated financial statements of the Company have been prepared
  in accordance with generally accepted accounting principles prescribed for stock
  life insurance companies for all years presented.
  
  (b) Investments
  
           Fixed  maturities  available  for  sale are  valued  at  market.  These
  securities  are classified as available for sale based on the  possibility  they
  could be sold prior to maturity.  Although no impairments in value have occurred
  which would require  adjustment to the carrying  value of such  securities,  any
  such  impairment  identified  in the future  would  result in a reduction of the
  carrying value and reflection of a  corresponding  realized  capital loss in the
  consolidated  statement of income.  The Company's policy is to recognize such an
  impairment  when the projected cash flows of these  securities have been reduced
  on an "other than temporary  basis," so that the realizable  value is reduced to
  an amount less than the carrying value.
  
           Equity securities include common and nonredeemable preferred stocks and
  are carried at market value.  Unrealized  gains and losses on marketable  equity
  securities and fixed  maturities  available for sale,  net of applicable  income
  taxes, are reflected as a direct charge or credit to stockholder's equity.
  
                                         18
  TRANSPORT HOLDINGS INC.
               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
  
           Policy loans are reported at unpaid principal balances.  Mortgage loans
  are reported at unpaid  principal  balances,  net of any unamortized  premium or
  discount. Real estate, other than property acquired in foreclosure,  is reported
  at cost net of depreciation.
  
           Realized gains and losses on sales of  investments  are included in net
  income.  The  cost of  investment  securities  sold is  determined  based on the
  specific identification method.
  
  (c) Cash
  
           Cash includes cash on deposit with banking institutions.
  
  (d) Deferred Policy Acquisition Costs
  
           Those costs of acquiring new business which vary with and are primarily
  related to the  production of new business have been deferred to the extent that
  such costs are deemed  recoverable  from  future  premiums.  Such costs  include
  commissions,  certain  costs of policy  issuance  and  underwriting  and certain
  variable agency expenses.
  
           Deferred  costs  related  to life  insurance  and  accident  and health
  policies are amortized over the premium paying period of the related policies in
  proportion to the ratio of annual premium revenues to total anticipated  premium
  revenues.  Such  anticipated  premium  revenues  are  estimated  using  the same
  assumptions used for computing liabilities for future policy benefits.
  
  (e) Value of Insurance in Force
  
           The value of insurance in force,  net of  amortization,  represents the
  actuarially  determined present value of anticipated profits to be realized from
  life and  accident  and  health  business in force at  December  31,  1988  when
  Transport Life Insurance Company was acquired in a purchase  transaction,  using
  the same assumptions that were used for computing the related liabilities on the
  date of  acquisition.  The value of  insurance  in force is  amortized  over the
  estimated premium paying periods in relation to anticipated premiums.
  
           Accretion  of interest  on value of  insurance  in force is  calculated
  based on the rates of interest used in setting the related policy reserves.
  
  (f) Future Policy Benefits
  
           Liabilities  for  future  benefits  on life  and  accident  and  health
  policies are  established  in an amount  adequate to meet the  estimated  future
  obligations  on policies in force.  Liabilities  for future policy  benefits for
  accident  and health  and other  long-term  life  insurance  policies  have been
  computed based on expected investment yields, morbidity,  mortality,  withdrawal
  rates and other  assumptions.  These  assumptions  include a margin for  adverse
  deviation which varies with the  characteristics of the plan of insurance,  year
  of issue, age of insured and other appropriate  factors.  Interest rates average
  9% for life  policies and 8% for accident and health  policies.  The  morbidity,
  mortality and withdrawal  assumptions  are based on the Company's  experience as
  well as industry experience and standards.
  
           The   establishment  of  liabilities  for  future  policy  benefits  is
  inherently  based  on  estimates.   Should  actual  future  experience   deviate
  substantially from the Company's  expectations,  the liability for future policy
  benefits may require adjustment in the future with respect to policies presently
  in force. Of all of the Company's cancer insurance  policies presently in force,
  approximately 27% provide for radiation and chemotherapy  benefits which are not
  limited in amount. These benefits have been the subject of substantial inflation
  over the past several  years.  The Company has applied for rate  increases  with
  respect to these polices with the various state  departments of insurance  where
  the Company does business.  Rate increases were  implemented in each of the last
  three years.  The Company  expects to apply for future rate  increases for these
  policies as well. There can be
  
                                         19
  TRANSPORT HOLDINGS INC.
               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
  
  no assurance that future rate increases will be approved, or, if approved,  will
  be in the amounts requested.  An inability to obtain future rate increases could
  have a material adverse effect on the Company's  financial  position and results
  of operations.
  
  (g) Policy Claims and Benefits
  
           A liability for unpaid claim costs,  including an estimate for incurred
  but not reported claims,  is accrued when insured events occur.  These estimates
  are determined using case basis estimates and lag studies of past experience and
  are reviewed  regularly.  Changes in estimates resulting from the review process
  and differences  between  estimates and actual payments are recognized in income
  in the period in which the estimates are changed or payments are made.
  
           The nature of the Company's  business is such that the time period over
  which an individual  claim is settled can range from a few months to ten or more
  years.  Because of the  uncertainties  surrounding  the ultimate amount of claim
  costs  with  respect to any  particular  case,  claim  liabilities  may  require
  adjustment  in the future with respect to claims which have been  incurred as of
  the date of these financial statements.
  
  (h) Reinsurance Arrangements
  
           The Company's  reinsurance  activities relate to both ordinary life and
  accident and health  reinsurance.  The Company cedes insurance in order to limit
  losses,   minimize   exposure  on  large  risks,  and  effect  business  sharing
  arrangements.  Reinsurance is  accomplished  primarily  through  coinsurance and
  yearly renewable term.
  
           In the  normal  course  of  business,  the  Company  seeks to limit its
  exposure to loss on any single insured and to recover a portion of benefits paid
  by ceding reinsurance to other insurance  enterprises or reinsurers under excess
  coverage and coinsurance contracts.  The Company currently follows the policy of
  reinsuring that portion of the risk in excess of $100,000 on any single life for
  most life insurance  plans. The Company also reinsures a portion of its accident
  and health business.
  
           In  December  1995,  the  Company  sold its long  term  care  insurance
  business. This transaction was effected by a reinsurance arrangement whereby the
  Company ceded all of its retained long-term care business in force to the buyer.
  
  (i) Federal Income Taxes
  
           For the three months ended December 31, 1995, the Company will file two
  consolidated income tax returns,  one which includes Transport Holdings Inc. and
  Intermediate  Holdings  Inc.  and  another  which  includes  the life  insurance
  subsidiaries.  For the nine months ended  September  30, 1995 and the year 1994,
  Travelers  Insurance Company,  an indirect wholly owned subsidiary of Travelers,
  was the  parent of the  consolidated  federal  income  tax  return  group  which
  included the Company.  For 1993, the Company's  operations  were included in the
  consolidated  federal income tax return of Travelers Insurance Holdings Inc., an
  indirect wholly owned subsidiary of Travelers.
  
           Income taxes are provided  based on taxes incurred for the three months
  ended  December 31, 1995.  For prior  periods,  taxes were provided based on tax
  allocation  agreements which included the Company and generally  represent those
  taxes that would  have been  incurred  if the  Company  had been  filing its own
  separate tax returns.
  
           Income  taxes  have been  provided  in  accordance  with  Statement  of
  Financial  Accounting  Standards No. 109, Accounting for Income Taxes.  Deferred
  income taxes result from temporary  differences  between the financial statement
  carrying amounts of assets and liabilities and their respective tax bases.
  
           Income  taxes  are not  provided  on the  Company's  retained  earnings
  designated as  "policyholders'  surplus"  because such taxes will become payable
  only to the extent such retained earnings are distributed as a dividend
  
                                         20
  TRANSPORT HOLDINGS INC.
               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
  
  or exceed limits  prescribed by federal law.  Distributions are not contemplated
  from  the  Company's   policyholders'  surplus  which  aggregated  approximately
  $2,144,000 at December 31, 1995.
  
  (j) Recognition of Revenues and Related Expenses
  
           Premiums are  recognized as revenue over the premium  paying periods of
  the policies.  Benefits and expenses are associated with earned premiums so that
  profits are recognized over the life of the related contracts.  This association
  is  accomplished  through  the  provision  for future  policy  benefits  and the
  amortization of deferred policy acquisition costs.
  
  (k) 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.
  
  (l) Accounting Pronouncements
  
           Effective  January 1, 1994, the Company adopted  Statement of Financial
  Accounting  Standards No. 115,  "Accounting for Certain  Investments in Debt and
  Equity Securities," which addresses  accounting and reporting for investments in
  equity  securities that have a readily  determinable fair value and for all debt
  securities.  Those investments are classified in one of three  categories.  Debt
  securities  that the  Company  has the  positive  intent and  ability to hold to
  maturity  are  classified  as "held to  maturity"  and are reported at amortized
  cost. Securities that are bought and held principally for the purpose of selling
  them in the near term are classified as "trading securities" and are reported at
  fair value,  with unrealized  gains and losses included in earnings.  Securities
  that are  neither  to be held to  maturity  nor to be sold in the near  term are
  classified  as  "available  for  sale"  and are  reported  at fair  value,  with
  unrealized gains and losses included as a component of stockholders' equity, net
  of tax. The impact on consolidated stockholders' equity due to implementation of
  this  Statement  was  an  increase  of  approximately  $16,908,000  relating  to
  unrealized gains on the available for sale portfolio, net of deferred taxes.
  
           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 purposes 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.  The Company adopted Statement 121 in the fourth quarter of
  1995,  the  adoption  of which did not have a material  impact on the  financial
  statements.
  
                                         21
  TRANSPORT HOLDINGS INC.
               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
  
  (3) Investments
  
           Premiums and  discounts  are amortized or accreted over the life of the
  related  security as an  adjustment  to  investment  income using the  effective
  interest method. Dividends and interest income are recognized when earned.
  
           The amortized cost,  unrealized gains and losses,  and estimated market
  values  of  investments  in  fixed  maturity   securities  are  as  follows  (in
  thousands):
  At December 31, 1995    
                                                                                ------------------------------------------------------
                                                                                                  Gross         Gross
                                                                                Amortized        unrealized     unrealized     Fair
                                                                                  cost             gains        losses         value 
                                                                                  ----             -----        ------         -----
  U.S. government and agencies ........................................         $138,066         $16,038         $--          $154,104
  States, municipalities and political subdivisions ...................           18,114             966         --             19,080
  Corporate securities ................................................          111,014           8,059         --            119,073
  Mortgage-backed securities ..........................................          191,114           9,187         (72)          200,229
  Other debt securities ...............................................           24,318           1,571         (72)           25,817
                                                                                 ------           -----         ------         -------
                                                                                $482,626         $35,821        $(144)        $518,303
                                                                                ========         =======        =====         ========
  At December 31, 1994    
                                                                                ------------------------------------------------------
                                                                                                  Gross         Gross
                                                                                Amortized        unrealized     unrealized     Fair
                                                                                  cost             gains        losses         value
                                                                                  ----             -----        ------         -----
  U.S. government and agencies ....................................         $166,983         $  373         $(14,509)         $152,847
  States, municipalities and political subdivisions ...............            7,882          2,362           (1,159)            9,085
  Corporate securities ............................................          112,530          1,224           (5,219)          108,535
  Mortgage-backed securities ......................................          186,377          1,094          (14,010)          173,461
  Other debt securities ...........................................           41,080             18           (5,273)           35,825
                                                                              ------          ------         -------          --------
                                                                            $514,852          $5,071        $(40,170)         $479,753
                                                                            ========          ======        ========          ========
  The amortized  cost and estimated  market 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.
  
           Fixed maturities available for sale (in thousands):
  
                                                           Amortized        Fair
                                                              cost          value
                                                              ----          -----
  Due in one year or less ..........................       $  5,144       $  5,196
  Due after one year  through  five years ..........         49,245         52,337
  Due after five years  through ten years ..........        124,540        131,988
  Due after ten years ..............................        112,583        128,553
  Mortgage-backed securities .......................        191,114        200,229
                                                            -------        -------
                                                           $482,626       $518,303
                                                           ========       ========
  
           There  were  no   investments  in  any  entity  in  excess  of  10%  of
  stockholder's  equity at  December  31,  1995 and 1994,  other than  investments
  issued or  guaranteed by the U.S.  government.  Publicly  traded fixed  maturity
  securities  are  valued  based  on  quoted  market  prices.   Private  placement
  securities  are valued based on the credit  quality and  duration of  marketable
  securities deemed comparable by the Company, which may be of another issuer.
  
                                         22
  TRANSPORT HOLDINGS INC.
               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
  
           Investment  in real estate at December 31, 1995  consists of a shopping
  center in Houston,  Texas acquired by foreclosure.  Investment in real estate at
  December 31, 1994 consisted of an investment in land and commercial improvements
  located in Minnesota  with a net book value of  $13,841,000  and  properties  in
  Texas  acquired  via  foreclosure  with a net book  value of  $2,642,000.  These
  properties  were  sold  in  September  1995  to  subsidiaries  of  Travelers  in
  connection with the distribution of the Company's stock.
  
           Major categories of net investment income consist of the
  following (in thousands):
                                                    Year Ended December 31,
                                             ------------------------------------
                                              1995         1994          1993   
                                              ----         ----          ----  
  Fixed maturity securities .........      $ 40,621       $ 35,899       $ 29,955
  Policy loans ......................         1,062          1,251          1,296
  Mortgage loans ....................         1,668          2,000          2,624
  Short-term investments ............         3,934          3,104          2,490
  Other .............................         3,061          4,964          8,130
                                              -----          -----          -----
  Investment revenue ................        50,346         47,218         44,495
  Investment expense ................          (681)          (583)          (521)
                                            -------        -------        ------- 
  Net investment income .............      $ 49,665       $ 46,635       $ 43,974
                                           ========       ========       ========
  
           Proceeds from sales of bonds during 1995 and 1994 were $430,813,000 and
  $199,933,000,  respectively.  Gross realized gains and losses on such sales were
  $9,735,000 and  $3,916,000,  respectively,  for the year ended December 31, 1995
  and $2,022,000  and  $6,290,000,  respectively,  for the year ended December 31,
  1994.
  
           Net  unrealized  gains  (losses)  included in  stockholders'  equity at
  December 31 were as follows (in thousands):
  
                                                              1995          1994
                                                              ----          ----
  
  Fixed maturities available for sale ....................   $ 35,677    $(35,100)
  Equity securities ......................................      1,623         186
  Provision for deferred income tax (expense) benefit ....    (13,055)     12,220
                                                              -------      ------
  Net unrealized gains (losses) ..........................   $ 24,245    $(22,694)
                                                             ========    ======== 
  
           Net realized gains (losses) were as follows (in thousands):
  
                                            1995            1994            1993
                                            ----            ----            ----
  
  Fixed maturities ...............        $ 5,819         $ (4,268)        $21,977
  Equity securities ..............            512              815           4,754
  Real estate ....................            (69)            --              --
  Other ..........................            495               60              31
                                          -------         --------         -------
                                          $ 6,757         $ (3,393)        $26,762
                                          =======         ========         =======
  
           Securities  with an  amortized  cost of  approximately  $7,518,000  and
  $7,503,000  at December  31, 1995 and 1994,  respectively,  were on deposit with
  various state insurance departments to comply with applicable insurance laws.
  
           In April 1994, the Company exchanged investment  securities with a cost
  of approximately  $171,263,000 and a market value of approximately  $167,114,000
  with a  subsidiary  of  Travelers  for an equal  amount,  at  market  value,  of
  securities and cash. The transaction resulted in a loss of $2,697,000 net of tax
  benefits of $1,452,000.
  
                                         23
  TRANSPORT HOLDINGS INC.
               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
  
  (4) Long Term Borrowings
  
           On September 29, 1995, the Company borrowed $62 million from a group of
  banks and issued $50 million in subordinated  convertible  notes ($42 million of
  Series A notes and $8 million of Series B notes).
  
           The bank loans bear interest at a floating rate based, at the Company's
  option,  on a Eurodollar rate plus 1.25% or a rate which  approximates the Chase
  Manhattan  Bank's prime rate plus 0.25%.  The weighted  average interest rate in
  effect for the three  months  ended  December  31, 1995 was 7.185%.  Interest is
  payable  quarterly.  The bank  loans  mature  in  September  2001,  and call for
  semi-annual  principal  payments.  Payments  aggregating $4.0 million are due in
  1996;  $6.75 million is due in 1997; $12.0 million is due in 1998; $14.0 million
  is due in 1999; $15 million is due in 2000; and $8.5 million is due on maturity.
  
           The  subordinated  convertible  notes  bear  interest  at 8.5%  payable
  semi-annually  and mature in September 2005. No principal  payments are required
  until  maturity.  The notes  become  convertible  into  Class B Common  stock in
  September  1997 and become  convertible  into Class A Common  stock in September
  2000  (earlier  under  certain   circumstances).   The  Series  A  notes  become
  convertible  into 1,335,987 shares of common stock and the Series B notes become
  convertible into 181,818 shares of common stock.
  
           Interest  expense  on the bank loans is  subject  to  fluctuation  with
  changes in prevailing  market rates.  The Company has the option to fix rates of
  interest for periods of up to six months.
  
           Cash payments for interest expense were $1,126,000 in 1995.
  
  (5) Common Stock
  
           Class A Common Stock and Class B Common Stock are identical except that
  holders of Class A Common Stock are entitled to one vote for each share held and
  holders of Class B Common Stock would be entitled to  approximately  0.118 votes
  per share held.  There is  presently  no Class B Common  Stock  outstanding.  If
  issued,  Class B Common Stock would become convertible into Class A Common Stock
  in September 2000 (earlier in certain circumstances).
  
           The  terms of the  bank  debt and the  subordinated  convertible  notes
  restrict the payment of dividends on the common stock. Furthermore, the terms of
  the preferred stock prohibit the payment of dividends on common stock except for
  certain limited exceptions.
  
           The Company has common stock purchase warrants  outstanding at December
  31, 1995  entitling  the holders to  purchase  250,000  shares of Class A common
  stock for $55 per share.  The  warrants  are held by trusts  for the  benefit of
  family members of two of the Company's  executives.  The holders of the warrants
  have the right to require the Company to  register,  at the  Company's  expense,
  stock received from exercise of the warrants.
  
  (6) Redeemable Preferred Stock
  
           The  Company's  preferred  stock  has a  redemption  value per share of
  $257.67 at December 31, 1995. Dividends, at 12% per year, are cumulative and, if
  not declared and paid, are added to the redemption value quarterly. No dividends
  are required to be paid until 2003. At December 31, 1995,  the entire  preferred
  stock issue is held by  Travelers.  The  preferred  stock is  redeemable  at the
  option of the Company at the redemption value plus accrued dividends. Should the
  Company elect to redeem the preferred stock before September 1998, an additional
  redemption premium would be required if the preferred stock were held by a party
  other than  Travelers.  The Company must redeem the preferred stock in September
  2006. The $1,396,000  aggregate  excess of redemption value over carrying amount
  at December  31, 1995  represents  undeclared  cumulative  dividends in arrears,
  which will be charged to retained earnings when and if declared.
  
           At the option of the Company, after September 1997, the preferred stock
  may be exchanged in whole,  but not in part, for debt  securities  having a face
  amount equal to the liquidation value of the preferred stock at the
  
                                         24
  TRANSPORT HOL6ES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
  
  date of the  exchange and having  economic  terms  substantially  similar to the
  preferred stock. Holders of the preferred stock or any debt securities for which
  it may be  exchanged  have the right to require the  Company to  register  these
  securities at the Company's expense.
  
  (7) Sale of Long Term Care Business
  
           In December  1995,  the Company  completed a sale of its long term care
  insurance business. The transaction was structured as a reinsurance  arrangement
  whereby  the  Company  transferred   approximately   $249,970,000  in  cash  and
  marketable securities to the buyer, who assumed all of the Company's liabilities
  for the business on a coinsurance  basis.  Net liabilities for the sold business
  were  approximately  $182,771,000  and  costs  associated  with  the  sale  were
  approximately   $1,350,000,   resulting  in  a  pre-tax  loss  of  approximately
  $68,549,000 on the sale.
  
           In  addition to the loss on the sale,  $2,650,000  for costs of exiting
  the long term care  business  was  charged  to  earnings  in 1995.  These  costs
  included severance benefits for terminated  employees and remaining  contractual
  payments on vacated office space.
  
           The long term care business  represented  a substantial  portion of the
  Company's  premium income and policies in force.  There can be no assurance that
  the Company will be able to eliminate all or  substantially  all of the expenses
  which were  associated  with the marketing and  administration  of this block of
  business.
  
  (8) Expenses of Spin-off and Related Transactions
  
           Results of operations  for 1995 reflect a charge of  $2,209,000  before
  taxes for expenses  associated with the distribution of the Company's shares and
  the related transactions.  In addition, $3,900,000 of costs associated with long
  term borrowings  were  capitalized and are being amortized as a charge to income
  over the life of the associated borrowings, using the effective interest method.
  Expenses  of $466,000  were  charged to paid in capital in  connection  with the
  issuance of preferred stock.
  
  (9) Earnings Per Share
  
           All of the  Company's  1,590,461  outstanding  shares of Class A Common
  Stock were issued on September 29, 1995, and were outstanding for 93 days during
  1995.  Loss per  share was  based on the  number of Class A shares  outstanding.
  Fully diluted loss per share is not presented  because such a computation  would
  have the  effect  of  decreasing  the  loss  per  share  amount.  The  Company's
  subordinated convertible notes become convertible into 1,517,806 shares of Class
  B Common  stock in  September  1996 and into the same  number  of Class A Common
  shares in 2000  (earlier  under  certain  circumstances).  The Company  also has
  outstanding 192,000 stock options granted during the fourth quarter of 1995, the
  assumed exercise of which would increase the number of common shares outstanding
  by 2,942 shares, using the treasury stock method.
  
  (10) Transactions with Affiliates
  
           In April 1994, the Company's  investment in Travelers common stock with
  a cost of $22,500,000 was exchanged for a Travelers preferred stock issue with a
  market value of  $35,200,000.  The  exchange  resulted in an increase in paid-in
  capital of  $8,255,000  net of a  deferred  tax  liability  of  $4,445,000.  The
  preferred  stock was sold to Travelers in September 1995 in connection  with the
  distribution of the Company's stock. No gain or loss resulted from the sale.
  
           During  1993,  the  Company  terminated  a  reinsurance  treaty  with a
  subsidiary of Travelers which resulted in a capital contribution of $15,863,000.
  Effective  January 1, 1994, the Company  reinsured its credit insurance block of
  business to a subsidiary of Travelers,  resulting in a charge to paid-in capital
  of $6,573,000.
  
                                         25
  TRANSPORT HOLDINGS INC.
               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
  
           The  Company  has an  investment  advisory  agreement  with  Associated
  Madison Companies,  Inc. (AMAD), a subsidiary of Travelers.  AMAD provides, on a
  fee basis to the Company, certain custodial and advisory services, including but
  not limited to the possession and trading of securities,  the  recommendation of
  investments and, subject to the Company's  investment  objectives,  restrictions
  and  limitations,  the execution  and  performance  of the Company's  investment
  program.  In 1995, 1994 and 1993, the Company paid fees to AMAD of approximately
  $681,000, $583,000 and $521,000, respectively, under the terms of the investment
  advisory agreement.
  
           Until  September  29, 1995,  the Company had a service  agreement  with
  Resource Deployment,  Inc. (RDI), a wholly owned subsidiary of Travelers,  under
  which RDI provided certain management services to the Company.  The Company paid
  fees to RDI of approximately  $1,350,000 for the nine months ended September 30,
  1995, $1,800,000 in 1994 and none in 1993. After September 29, 1995, certain RDI
  employees became employees of the Company.
  
  (11) Reinsurance
  
           Reinsurance  contracts  do not  relieve  the  Company  from its  direct
  obligations to  policyholders.  Failure of reinsurers to honor their obligations
  could result in losses to the Company; consequently,  allowances are established
  for any amounts  determined to be uncollectible.  At December 31, 1995, 1994 and
  1993,  no  allowances  were  necessary.  The  Company  evaluates  the  financial
  condition of its reinsurers periodically.
  
           Summarized  financial  information  for the  credit  block of  business
  reinsured effective January 1, 1994 is as follows for 1993 (in thousands):
  
  Premiums earned .........................................              $ 11,964
  Investment income .......................................                 1,769
  Other income ............................................                 3,301
                                                                            -----
                                                                           17,034
  Benefits and expenses ...................................               (17,139)
                                                                          ------- 
  Pretax operating loss ...................................              $   (105)
                                                                         ======== 
  
           Life insurance in force and related  reinsurance amounts at December 31
  are summarized as follows (in millions):
  
                                                     1995       1994        1993
                                                     ----       ----        ----
  
  Direct life insurance in force ...............    $ 846     $ 1,234     $ 2,451
  Reinsurance risk ceded to other companies ....     (620)       (985)     (1,959)
                                                     ----        ----      ------ 
  Net life insurance in force ..................    $ 226     $   249     $   492
                                                    =====     =======     =======
  
           Amounts  recoverable  from  reinsurers at December 31 are summarized as
  follows (in thousands):
  
                                                             1995           1994
                                                             ----           ----
  
  Future policy benefit reserves ceded ..............       $159,006       $17,071
  Unearned premiums ceded ...........................         34,064        19,436
  Policy and contract claims ceded ..................        105,797        18,015
                                                             -------        ------
  Total amounts due from reinsurers .................       $298,867       $54,522
                                                            ========       =======
  
           Of the balances due from reinsurers at December 31, 1995, 86% of future
  policy benefit  reserves ceded,  69% of unearned premium reserves ceded, and 87%
  of claim reserves ceded were due from a single reinsurer in
  
                                         26
  TRANSPORT HOLDINGS INC.
               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
  
  connection  with the sale of the long term care business.  The aggregate  amount
  due from this reinsurer was approximately $253,379,000 and was secured by assets
  (generally marketable  securities) held in trust at a commercial bank. The trust
  fund balance was approximately $299,888,000 at December 31, 1995.
  
           Of the  balances  due from  reinsurers  at December  31,  1994,  all of
  unearned  premium reserves ceded and 52% of claim reserves ceded were due from a
  single reinsurer.
  
  (12) Policy and Contract Claims
  
           Activity in the liability for policy and contract  claims is summarized
  as follows (in thousands):
  
                                                1995        1994           1993
                                                ----        ----           ----
  
  Beginning of year balance ............    $ 219,494     $ 215,737     $ 183,625
  Less: reinsurance recoverables .......      (18,015)      (13,776)       (9,452)
                                              -------       -------        ------ 
  Net balance beginning of year ........      201,479       201,961       174,173
  
  Incurred related to:
  Current year .........................      121,847       143,888       182,329
  Prior years ..........................      (19,125)      (22,269)      (20,675)
                                              -------       -------       ------- 
  Net incurred .........................      102,722       121,619       161,654
  Paid related to:
  Current year .........................       24,873        44,592        57,779
  Prior years ..........................       67,774        77,509        76,087
                                               ------        ------        ------
  Total paid ...........................       92,647       122,101       133,866
  Released in connection with
   sale of long term carebusiness ......       88,172          --            --
  Net balance end of year ..............      123,382       201,479       201,961
  Plus: reinsurance recoverables .......      105,797        18,015        13,776
                                              -------        ------        ------
  End of year balance ..................    $ 229,179     $ 219,494     $ 215,737
                                            =========     =========     =========
  
           The  development  of prior  year  claim  reserves  in all  three  years
  reflects  normal changes in actuarial  estimates.  Both paid and incurred claims
  decreased from 1994 to 1995 because of the run-off of discontinued lines and the
  sale of the long term care business.
  
  (13) Deferred Policy Acquisition Costs
  
           The following reflects the amounts of policy acquisition costs deferred
  and amortized (in thousands):
  
                                               1995          1994          1993
                                               ----          ----          ----
  Deferred acquisition cost:
  Beginning of year ....................     $ 89,455      $ 89,516      $ 82,059
  Capitalized ..........................       11,688        21,931        27,939
  Amortized ............................      (19,300)      (21,992)      (20,482)
  Extinguished in connection with
   sale of long term care business .....      (52,312)         --            --
                                              -------        ------      --------
  
  End of year ..........................     $ 29,531      $ 89,455      $ 89,516
                                             ========      ========      ========
                                         27
  TRANSPORT HOLDINGS INC.
               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
  
  (14) Income Taxes
  
           Income tax expense  differed from the amounts  computed by applying the
  U.S. federal income tax rate of 35% in 1995, 1994 and 1993 to pretax income as a
  result of the following (in thousands):
  
                                               1995          1994         1993
                                               ----          ----         ----
  
  Income tax expense computed
    at federal statutory rate ..........     $(14,407)     $ 12,590      $ 17,484
  Increase (decrease) in income
   taxes resulting from:
  Tax exempt interest ..................         --            (551)       (1,079)
  Dividends received deduction .........         (585)         (685)       (1,050)
  Increase in tax rate(1%) .............         --            --           1,790
  Expenses of spin-off .................          660          --            --
  Other, net ...........................         --            --               4
  Increase in valuation allowance
    on deferred tax asset ..............         --           1,667          --
                                             -------       --------      --------
  Total tax expense ....................     $(14,332)     $ 13,021      $ 17,149
                                             ========      ========      ========
  
           The tax effects of temporary  differences that give rise to significant
  portions of the  deferred  tax assets and  liabilities  at December 31, 1995 and
  1994 are presented below (in thousands):
  
                                                       1995                 1994
                                                       ----                 ----
  Deferred tax assets:
  Claim settlements .........................      $  1,167              $  2,333
  Investments ...............................           489                 4,010
  Accrued expenses ..........................         2,843                 1,236
  Deferred acquisition costs
   and value of insurance in force ..........           981                  --
  Other, net ................................           255                 1,925
                                                   --------              --------
  
                                                      5,735                 9,504
  Less valuation allowance ..................          --                  (1,667)
                                                   --------              --------
  
                                                   $  5,735                 7,837
                                                   --------              --------
  
  Deferred liabilities:
  Deferred  acquisition  costs  and
    value  of  insurance  in  force .........          --                 (18,201)
  Investments ...............................       (13,711)                 --   
  Policy  reserves ..........................       (16,941)              (19,918)
  Value of insurance licenses ...............        (1,895)               (1,947)
  Other, net ................................          (535)               (2,512)
                                                   --------              -------- 
                                                    (33,082)              (42,578)
                                                   --------              -------- 
  Net deferred liability ....................      $(27,347)             $(34,741)
                                                   ========              ======== 
  
           At December 31, 1995, the Company's life insurance tax filing group had
  a net operating loss carryforward of approximately  $1,183,000 and the Company's
  non-life tax filing group had a net operating loss carryforward of approximately
  $151,000.  The Company had no tax credit  carryforwards.  During 1995,  1994 and
  1993, the Company made approximately $22,032,000,  $4,054,000 and $24,576,000 in
  income tax payments, respectively.
  
  (15) Employee Benefit Plans
  
           Effective October 1, 1995, the Company sponsored a defined contribution
  pension plan  covering the majority of its  employees.  Employees  who elect may
  defer a portion of their compensation in a savings plan
  
                                         28
  TRANSPORT HOLDINGS INC.
               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
  
  governed by Internal  Revenue Code Section  401(k).  The Company matches part of
  such  employees'  contributions.  In  addition,  the Company may  contribute  an
  additional  amount which is allocated to the accounts of all eligible  employees
  (whether or not they  participate  in the savings plan) based on the  employees'
  age.  Pension costs  associated  with the plan were  $124,000 in 1995.  Prior to
  September 29, 1995, the Company  participated  in a plan sponsored by Travelers.
  Pension  costs  allocated  to the Company  pursuant to the  Travelers  plan were
  $220,000, $243,000 and $237,000 in 1995, 1994 and 1993, respectively.
  
           Effective  January  1,  1993,  the  Company  implemented  Statement  of
  Financial   Accounting   Standards   No.   112,   "Employers'   Accounting   for
  Postemployment  Benefits."  Statement 112 establishes  accounting  standards for
  employers who provide benefits to former or inactive employees after employment,
  but before  retirement.  These benefits include,  but are not limited to, salary
  continuation,    supplemental   unemployment,   severance,    disability-related
  (including workers' compensation), job training and counseling, and continuation
  of  benefits  such as health care and life  insurance  coverage.  The  statement
  requires  employers to recognize  the cost of the  obligation  to provide  these
  benefits on an accrual  basis,  and employers  must  implement  Statement 112 by
  recognizing  a  cumulative  effect of a change  in  accounting  principle.  This
  resulted  in a noncash  after-tax  charge to net  income of  $253,000  ($389,000
  pre-tax) in 1993. The Company  continues to fund benefits on a "pay-as-  you-go"
  basis. Payments and annual expense for providing postemployment benefits in 1995
  and 1994 were not material.
  
  (16) Stock Option Plan
  
           The Company  maintains a stock  option plan  pursuant to which  425,000
  shares of common stock are reserved for issuance.  The plan permits the Board of
  Directors to grant incentive stock options and nonqualified  stock options.  The
  following incentive stock options had been granted as of December 31, 1995:
  
                                                             Option       Number
  Grant Date                                                Price       of Shares
  ----------                                                -----       ---------
  
  October 31, 1995 ..........................            $   39.45          62,657
  December 15, 1995 .........................            $   39.83         129,343
                                                                          --------
                                                                           192,000
                                                                          ========
  
           None of the granted options were  exercisable at December 31, 1995, and
  no shares were issued in 1995  pursuant to the stock  option  plan.  The options
  vest over a five  year  period  at 20% per year on the  anniversary  date of the
  grant.
  
           The plan also  permits the Board of  Directors to grant stock awards of
  restricted  stock.  Such  awards  have  conditions  and  restrictions  which are
  designed to encourage  recipients to remain in the Company's  service and retain
  stock ownership in the Company. There were no restricted shares issued under the
  plan in 1995.
  
  (17) Fair Value of Invested Assets
  
           The  following  information  relates to  estimated  fair  values of the
  Company's financial instruments as of December 31, 1995 and 1994.
  
           Fair values for bonds and common and  preferred  stocks  were  obtained
  from independent brokers and published valuation guides, as disclosed in Note 3.
  
           Mortgage and other loans are secured  principally  by  commercial  real
  estate. Weighted average interest rates for these loan portfolios as of December
  31,  1995 were  approximately  10% with  maturities  ranging  from 1996 to 2004.
  Management believes that reported amounts approximate fair value.
  
                                         29
  TRANSPORT HOLDINGS INC.
               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
  
           Real estate acquired by foreclosure is valued at the lower of estimated
  market value at date of foreclosure or principal balance of the loan foreclosed.
  
           Policy loans have a weighted average interest rate of 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.
  
           Carrying  values of  amounts  due from  reinsurers  and  agents,  other
  receivables and certain other  liabilities  disclosed on the face of the balance
  sheets  approximate fair value due to the relatively short period to maturity of
  the instruments.
  
           For cash,  cash  equivalents and short-term  investments,  the carrying
  amounts   approximate  fair  value  because  of  the  short  maturity  of  these
  instruments.
  
  (18) Contingent Liabilities and Commitments
  
  (a) Litigation
  
           In the normal course of its  operations,  the Company has been named as
  defendant in various  legal  actions  seeking  payments for claims denied by the
  Company and other monetary damages. In the opinion of the Company's  management,
  the ultimate liability,  if any, resulting from disposition of these claims will
  not have a material  adverse  effect on the  Company's  results  of  operations,
  financial position, or liquidity.
  
           In recent years, the Company's  major/catastrophic  hospital  insurance
  business  has been the  subject of claims by both  private  litigants  and state
  insurance  regulators.  These claims,  certain of which have resulted in adverse
  determinations  against the Company,  have  generally  involved  allegations  of
  misrepresentations  on the part of independent  agents selling certain insurance
  products of Transport  Life  Insurance  Company  (such agents were  subsequently
  terminated),  and  plaintiffs  have often sought (and in at least two  instances
  have been  awarded)  punitive  damages.  Although  such claims have  declined in
  number in the last three years, there can be no assurance that claims based upon
  similar  allegations will not be brought in the future by other persons or other
  regulatory  authorities.  Any such existing claims, or any other types of claims
  alleged in the future  involving  the  marketing,  sale or other  aspects of the
  Company's insurance products, which could include claims for actual and punitive
  damages,  or any  regulatory  actions  which could  impose  fines or  regulatory
  restrictions on operations, could have a material adverse effect on the Company.
  
  (b) Leases
  
           The Company leases its home office building,  data processing equipment
  and  other  equipment.   Future  minimum  lease  commitments  for  noncancelable
  operating  leases and sublease  commitments  which will  partially  offset these
  commitments are shown as follows (in thousands):
  
                                                                           Net
            Year Ended December 31,      Leases           Sub-leases    Commitment
            -----------------------      ------           ----------    ----------
                         1996            $1,090              (598)            $492
                         1997             1,028              (576)             452
                         1998             1,028                              1,028
                         1999               573                                573
                         2000                28                                 28
  
           Rent  expense,  net of  sublease  income,  incurred  under  such  lease
  agreements aggregated approximately $502,000,  $645,000, and $1,236,000 in 1995,
  1994 and 1993, respectively.
  
                                         30
  TRANSPORT HOLDINGS INC.
               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
  
  (c) Reinsurance Dispute
  
           In March 1995,  the Company  became  involved in a dispute with several
  foreign reinsurers  concerning the underwriting of certain life policies written
  from 1974 to 1985.  In the opinion of the  Company's  management,  the  ultimate
  liability,  if any,  resulting  from  disposition of this matter will not have a
  material  adverse  effect on the  Company's  results  of  operations,  financial
  position, or liquidity.
  
  (d) Declines in New Sales
  
           The Company has experienced  substantial declines in new sales over the
  past several years,  and has ceased  marketing long term care  insurance,  which
  accounted for a substantial  part of the Company's  premium  income.  Should the
  decline in new sales continue, the Company's future earnings could be materially
  adversely affected.
  
  (19) Stockholders' Equity and Restrictions
  
           The amount of statutory capital and surplus of the Company's  insurance
  subsidiaries  was  $150,056,249,  $110,065,457  and  $94,532,010 at December 31,
  1995,  1994 and 1993,  respectively.  Statutes in Texas  restrict the payment of
  dividends by insurance  companies to the  available  surplus  funds derived from
  their net profits.  The maximum  amount of cash  dividends  that may be declared
  without  regulatory  approval in any  twelve-month  period is the greater of ten
  percent (10%) of the insurer's  statutory  surplus,  as shown by its last annual
  statement on file with the Texas Department of Insurance, or one hundred percent
  (100%) of statutory net gain from operations for the preceding year. The maximum
  amount  which  may be  paid by  TLIC  Life  Insurance  Company  in 1996  without
  regulatory approval is approximately $15,000,000.
  
           TLIC Life  Insurance  Company,  Transport  Life  Insurance  Company and
  Continental  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,  Texas.  The
  RBC as calculated exceeded levels requiring company or regulatory action.
  
  (20) Selected Quarterly Financial Data (unaudited)
  Year Ended December 31, 1995
                                                          ---------------------------------------------------------------------------
                                                          First       Second             Third         Fourth                 Total
                                                          -----       ------             -----         ------                 -----
  
                                                                                (in thousands, except per share data)
  Net premium income ................................    $ 55,815     $ 52,803            $ 51,449     $ 30,095            $ 190,162
  Net investment income .............................      12,637       13,403              13,668        9,957               49,665
  Realized gains (losses) ...........................         479         (110)               (449)       6,838                6,758
  Loss on sale of long term care business ...........        --           --                  --        (68,549)             (68,549)
  Other benefits and expenses .......................     (58,095)     (55,807)            (57,502)     (47,797)            (219,201)
  Provision for income taxes ........................      (3,638)      (3,447)             (3,048)      24,465               14,332
                                                         --------     --------            --------     --------            ---------
  Net income ........................................    $  7,198     $  6,842            $  4,118     $(44,991)           $ (26,833)
                                                         ========     ========            ========     ========            ========= 
  
  Earnings (loss) per share .........................       (a)          (a)              $ 238.20     $ (29.15)          $(69.66)(b)
  
           (a) No per  share  amounts  are  applicable  to the  first  and  second
  quarters,  which were  before the  distribution  of the  Company's  stock to the
  public.
  
           (b)  Amounts  shown are based on actual  shares  outstanding.  Loss per
  share as if the Company's  stock which was distributed on September 29, 1995 had
  been outstanding for the entire year would have been $(17.75).
  31
  TRANSPORT HOLDINGS INC.
               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
  Year Ended December 31, 1994
                                                    ---------------------------------------------------------------------------
                                                    First       Second             Third              Fourth                 Total
                                                    -----       ------             -----              ------                 -----
  
                                                                                (in thousands, except per share data)
  Net premium income .......................       $ 59,795        $ 57,606        $ 55,561        $ 54,716                 $ 227,678
  Net investment income ....................         10,731          11,133          12,605          12,166                    46,635
  Realized gains (losses) ..................            817          (3,565)           (506)           (139)                   (3,393)
  Other benefits and expenses ..............        (61,121)        (59,353)        (58,089)        (56,385)                 (234,948)
  Provision for income taxes ...............         (2,848)         (3,288)         (3,394)         (3,491)                  (13,021)
                                                     ------          ------          ------          ------                   ------- 
  Net income ...............................       $  7,374        $  2,533        $  6,177        $  6,867                 $  22,951
                                                   ========        ========        ========        ========                 =========
  
       No per share amounts are  applicable to the 1994 periods,  which were prior
  to distribution of the Company's stock to the public.
  32
  CONSECO, INC. AND SUBSIDIARIES
                                _________________
  
  ITEM 7(b).     Financial Statements and Exhibits, continued
  
                 (b)  Pro forma financial statements of Conseco, Inc. and
                      subsidiaries.
  
                                         33
  CONSECO, INC. AND SUBSIDIARIES PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
  
       The  unaudited pro forma  consolidated  statement of operations of Conseco,
  Inc.  ("Conseco") for the nine months ended September 30, 1996, and for the year
  ended December 31, 1995, presents the consolidated operating results for Conseco
  as if the merger (the "Merger") of Transport Holdings Inc. ("THI") with and into
  Conseco, had occurred on January 1, 1995.
  
       The pro forma consolidated statement of operations data for Conseco for the
  year ended December 31, 1995, set forth in the unaudited pro forma  consolidated
  statement of operations  under the column "Pro forma Conseco  before the Merger"
  reflect the prior application of certain pro forma adjustments for the following
  transactions,  all of which have already  occurred,  as if such transactions had
  occurred  on  January  1,  1995:  (i) the  issuance  of $275.0  million of Trust
  Originated  Preferred  Securities  ("TOPrS") having a distribution  rate of 9.16
  percent (the "TOPrS Offering") completed November 19, 1996; (ii) the issuance of
  $325.0  million of Capital  Trust  Pass-through  Securities  ("TruPS")  having a
  distribution rate of 8.70 percent (the "TruPS Offering")  completed November 27,
  1996;  (iii) the merger (the "ATC  Merger") of American  Travellers  Corporation
  ("ATC") with and into  Conseco  completed  December 17, 1996;  (iv) the call for
  redemption  of Conseco's  Series D  Convertible  Preferred  Stock (the "Series D
  Call")  completed  on  September  26, 1996;  (v) the  acquisition  of all of the
  outstanding common stock of American Life Holdings, Inc. ("ALH"), not previously
  owned by Conseco, and related transactions (the "ALH Transaction")  completed on
  September 30, 1996; (vi) the acquisition of Life Partners Group,  Inc. (the "LPG
  Merger") completed  effective June 30, 1996; (vii) the acquisition of all of the
  outstanding common stock of CCP Insurance,  Inc. ("CCP") not previously owned by
  Conseco and related  transactions  (including  the  repayment of the  borrowings
  under Conseco's  existing $250.0 million revolving credit  agreement)  completed
  August 31,  1995;  (viii) the  increase of  Conseco's  ownership in Bankers Life
  Holding  Corporation ("BLH") to 90.4 percent, as a result of purchases of common
  shares of BLH by Conseco and BLH during 1995 and the first three months of 1996;
  (ix) the  issuance of 4.37  million  shares of  Preferred  Redeemable  Increased
  Dividend Equity Securities  Convertible Preferred Stock ("PRIDES") of Conseco in
  January  1996;  (x) the BLH tender  offer for and  repurchase  of its 13 percent
  senior subordinated notes due 2002 and related financing  transactions completed
  in March 1996 (the "BLH Tender Offer");  and (xi) the debt  restructuring of ALH
  in the fourth quarter of 1995. Such pro forma  adjustments are set forth in: (i)
  Conseco's  Current Report on Form 8-K dated December 17, 1996; (ii) Exhibit 99.2
  included in Conseco's Current Report on Form 8-K dated September 25, 1996; (iii)
  Conseco's Current Report on Form 8-K dated August 2, 1996; and (iv) Exhibit 99.1
  included in Conseco's Current Report on Form 8-K dated April 10, 1996.
  
       The pro forma consolidated statement of operations data for Conseco for the
  nine months ended  September  30,  1996,  set forth in the  unaudited  pro forma
  consolidated  statement of operations under the column "Pro forma Conseco before
  the Merger" reflect the prior  application of certain pro forma  adjustments for
  the  following  transactions,  all of which have  already  occurred,  as if such
  transactions  had occurred on January 1, 1995: (i) the TOPrS Offering;  (ii) the
  TruPs  Offering;  (iii)  the ATC  Merger;  (iv) the  Series D Call;  (v) the ALH
  Transaction;  (vi) the LPG Merger;  (vii) the issuance of 4.37 million shares of
  Conseco PRIDES in January 1996; and (viii) the BLH Tender Offer.  Such pro forma
  adjustments  are set forth in: (i)  Conseco's  Current  Report on Form 8-K dated
  December 17, 1996; and (ii) Exhibit 99.1 included in Conseco's Form 10-Q for the
  quarterly period ended September 30, 1996.
  
       The  unaudited  pro  forma  consolidated  balance  sheet of  Conseco  as of
  September  30,  1996,  gives  effect  to the  Merger  as if it had  occurred  on
  September 30, 1996.
  
       The unaudited pro forma consolidated balance sheet data as of September 30,
  1996,  set  forth  in  the  unaudited  pro  forma balance sheet under the column
  "Pro forma Conseco before the Merger"  reflect the prior application  of certain
  pro forma adjustments for the following transactions,  all of which have already
  occurred,  as if such  transactions  had occurred on September 30, 1996: (i) the
  TOPrS  Offering;  (ii) the TruPS  Offering;  and (iii) the ATC Merger.  Such pro
  forma  adjustments  are set forth in Conseco's  Current Report on Form 8-K dated
  December 17, 1996.
  
       The pro forma consolidated financial statements are based on the historical
  financial  statements of  Conseco, LPG, ATC and THI and are  qualified  in their
  entirety by, and should be read in conjunction with, these financial  statements
  and the notes thereto. The pro forma data are not necessarily  indicative of the
  results of operations or financial  condition of Conseco had these  transactions
  occurred  on January  1, 1995,  nor the  results of future  operations.  Conseco
  anticipates  cost savings and additional  benefits as a result of certain of the
  transactions  contemplated in the pro forma financial statements.  Such benefits
  and any other changes that might have  resulted from  management of the combined
  companies have not been included as  adjustments  to the pro forma  consolidated
  financial  statements.   Certain  amounts  from  the  prior  periods  have  been
  reclassified to conform to the current presentation.
  
                                         34
  The  unaudited pro forma  consolidated  financial  statements  reflect cost
  allocations for  the  LPG  Merger, the  ALH Transaction, the  ATC Merger and the
  Merger using estimated  values of the assets and liabilities of LPG, ALH and ATC
  as of the assumed merger dates based on appraisals and other studies,  which are
  not yet complete.  Accordingly, the final allocations will be different than the
  amounts  included  in  the  accompanying   pro  forma   consolidated   financial
  statements.   Although  the  final  allocations  will  differ,   the  pro  forma
  consolidated  financial  statements reflect  management's best estimate based on
  currently  available  information  as  if  the LPG Merger,  the ALH Transaction,
  the ATC Merger and the Merger had occurred on the assumed merger dates.
  
                                         35
  CONSECO, INC AND SUBSIDIARIES
                   PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
                       for the nine months ended September 30, 1996
                   (Amounts in millions, except per share amounts)
                                     (unaudited)
  
                                                              Pro forma
                                    Pro forma                adjustments
                                     Conseco                   relating       Pro forma
                                    before the      THI        to the          Conseco
                                     Merger      historical    Merger          totals
                                    ---------   ------------  ----------     ---------
  Revenues:
   Insurance policy income         $1,632.3       $  82.4       $     -       $1,714.7
   Investment activity:
      Net investment income         1,118.7          29.6           (5.0)(1)   1,143.3
      Net trading losses               (6.5)                                      (6.5)
      Net realized gains               26.6            .3            (.3)(1)      26.6
    Fee revenue                        29.7                                       29.7
    Restructuring income               30.4                                       30.4
    Other income                       11.4           1.4                         12.8
                                  ---------      --------       --------      --------
          Total revenues            2,842.6         113.7           (5.3)      2,951.0
                                  ---------      --------       --------      --------
  
  Benefits and expenses:
   Insurance policy benefits
     and change in future
     policy benefits                1,149.4          54.1                      1,203.5
   Interest expense
     on annuities and
     financial products               549.5                                      549.5
   Interest expense on
     notes payable                     75.8           6.8           (6.8)(2)      76.7
                                                                      .9 (2)
    Interest expense on
     investment borrowings             17.2                                       17.2
    Amortization related
      to operations                   273.6           6.2           (6.2)(3)     283.9
                                                                    10.3 (3)
    Amortization related
      to realized gains                22.3                                       22.3
    Other operating
     costs and expenses               307.9          24.4                        332.3
                                  ---------      --------       --------       -------
          Total benefits
           and expenses             2,395.7          91.5           (1.8)      2,485.4
                                  ---------      --------       --------       -------
  
          Income before income
              taxes, minority interest
              and extraordinary
              charge                  446.9          22.2           (3.5)        465.6
  Income tax expense                  171.5           7.8           (1.2)(4)     178.1
                                  ---------     ---------       --------       -------
          Income before
              minority interest
              and extraordinary
              charge                  275.4          14.4           (2.3)        287.5
  
  Minority interest in consolidated
     subsidiaries:
       Dividends on Company - obligated
         mandatorily redeemable
         preferred securities of
         subsidiary trusts             26.1                                       26.1
       Dividends on preferred stock     6.4                                        6.4
       Equity in earnings              13.9                                       13.9
                                   --------     ---------       --------       -------
          Income before
              extraordinary
              charge               $  229.0      $   14.4       $   (2.3)      $ 241.1
                                   ========      ========       ========       =======
  
  Earnings per common share and
   common equivalent share:
     Primary:
       Weighted average
         shares outstanding            87.6                          4.5 (5)     92.1
                                       ====                       ======         ====
       Income before
         extraordinary  charge        $2.61                                     $2.62
                                      =====                                     =====
  
     Fully diluted:
       Weighted average shares
         outstanding                   93.1                          4.5 (5)     97.6
                                       ====                       ======         ====
       Income before
         extraordinary charge         $2.47                                     $2.48
                                      =====                                     =====
  
   The accompanying notes are an integral part of the pro forma consolidated financial statements.
  
                                         36
  CONSECO, INC AND SUBSIDIARIES
                   PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
                       for the year ended December 31, 1995
                   (Amounts in millions, except per share amounts)
                                     (unaudited)
  
                                                              Pro forma
                                    Pro forma                adjustments
                                     Conseco                   relating       Pro forma
                                    before the      THI        to the          Conseco
                                     Merger      historical    Merger          totals
                                    ---------   ------------  ----------     ---------
  Revenues:
   Insurance policy income         $2,026.7       $ 190.2       $     -       $2,216.9
   Investment activity:
      Net investment income         1,486.1          49.7           (6.9)(1)   1,528.9
      Net trading income                2.5                                        2.5
      Net realized gains              222.5           6.7           (6.7)(1)     222.5
    Fee revenue                        33.9                                       33.9
    Restructuring income               15.2                                       15.2
    Other income                       12.6                                       12.6
                                  ---------      --------       --------      --------
           Total revenues           3,799.5         246.6          (13.6)      4,032.5
                                  ---------      --------       --------      --------
  
  Benefits and expenses:
   Insurance policy benefits
     and change in future
     policy benefits                1,434.3         131.9                      1,566.2
   Interest expense
     on annuities and
     financial products               758.5                                      758.5
   Interest expense on
     notes payable                    107.3           2.3           (2.3)(2)     108.5
                                                                     1.2 (2)
    Interest expense on
     investment borrowings             30.2                                       30.2
    Amortization related
      to operations                   345.2          24.5          (24.5)(3)     361.1
                                                                    15.9 (3)
    Amortization related
      to realized gains               144.4                                      144.4
    Loss on sale of long-
      term care business                 -           68.5          (68.5)(6)        -
    Expenses of spin-off and
      related transactions               -            2.2           (2.2)(6)        -
    Other operating
     costs and expenses               420.1          58.3                        478.4
                                  ---------      --------       --------       -------
          Total benefits
           and expenses             3,240.0         287.7          (80.4)      3,447.3
                                  ---------      --------       --------       -------
  
          Income before income
              taxes, minority interest
              and extraordinary
              charge                  559.5         (41.1)          66.8         585.2
  Income tax expense                  218.2         (14.3)          22.7 (4)     226.6
                                  ---------     ---------       --------       -------
          Income before
              minority interest
              and extraordinary
              charge                  341.3         (26.8)          44.1         358.6
  
  Minority interest in consolidated
     subsidiaries:
       Dividends on Company - obligated
         mandatorily redeemable
         preferred securities of
         subsidiary trusts             34.8                                       34.8
       Dividends on preferred stock     8.7                                        8.7
       Equity in earnings              12.6                                       12.6
                                   --------     ---------       --------       -------
          Income before
              extraordinary
              charge               $  285.2      $  (26.8)      $   44.1       $ 302.5
                                   ========      ========       ========       =======
  
  Earnings per common share and
   common equivalent share:
     Primary:
       Weighted average
         shares outstanding            86.1                          4.5 (5)     90.6
                                       ====                       ======         ====
       Income before
         extraordinary  charge        $3.31                                     $3.34
                                      =====                                     =====
  
     Fully diluted:
       Weighted average shares
         outstanding                   90.4                          4.5 (5)     94.9
                                       ====                       ======         ====
       Income before
         extraordinary charge         $3.15                                     $3.19
                                      =====                                     =====
  
   The accompanying notes are an integral part of the pro forma consolidated financial statements.
  
                                         37
  CONSECO, INC. AND SUBSIDIARIES
                        PRO FORMA CONSOLIDATED BALANCE SHEET
                                 September 30, 1996
                                (Dollars in millions)
                                     (unaudited)
  
                                                              Pro forma
                                    Pro forma                adjustments
                                     Conseco                   relating       Pro forma
                                    before the      THI        to the          Conseco
                                     Merger      historical    Merger          totals
                                    ---------   ------------  ----------     ---------
  Assets
   Investments:
       Actively managed fixed
        maturity securities
        at fair value               $16,649.5     $  483.0     $ (83.9)(7)  $17,048.6
       Equity securities at
        fair value                      104.2          1.1                      105.3
       Mortgage loans                   372.9          8.3                      381.2
       Credit-tenant loans              393.8                                   393.8
       Policy loans                     526.0         16.9                      542.9
       Other invested assets            211.0          6.5                      217.5
       Short-term investments           224.5         34.6        83.9 (7)      259.1
                                                                  18.5 (8)
                                                                (102.4)(8)
       Assets held in separate
         accounts                       300.4                                   300.4
                                     --------     --------     ---------    ---------
  
              Total investments      18,782.3        550.4       (83.9)      19,248.8
  
   Accrued investment income            284.4          5.7                      290.1
   Cost of policies purchased         2,115.9         10.8       112.8 (9)    2,228.7
                                                                 (10.8)(9)  
   Cost of policies produced            541.0         28.4       (28.4)(10)     541.0
   Reinsurance receivables              400.6        328.6      (260.0)(12)     469.2
   Income taxes                          85.6                    (25.8)(11)      42.3
                                                                 (17.5)(11)  
   Goodwill                           2,087.5                                 2,087.5
   Property and equipment               109.8           .7                      110.5
   Securities segregated for
       future redemption of
       redeemable preferred
       stock of a
       subsidiary                        45.0                                    45.0
   Other assets                         230.2         17.3                      247.5
                                    ---------     --------     ---------    ---------
  
              Total assets          $24,682.3     $  941.9     $  (313.6)   $25,310.6
                                    =========     ========     =========    =========
  
   The accompanying notes are an integral part of the pro forma consolidated financial statements.
  
                                          38
  CONSECO, INC. AND SUBSIDIARIES
                        PRO FORMA CONSOLIDATED BALANCE SHEET
                                 September 30, 1996
                                (Dollars in millions)
                                     (unaudited)
  
                                                               Pro forma
                                      Pro forma               adjustments
                                       Conseco                  relating     Pro forma
                                        for the      THI        to the        Conseco
                                        Merger    historical    Merger         totals
                                      ---------  ------------  ----------    ---------
  Liabilities:
    Insurance liabilities             $18,737.0   $ 623.4   $ (260.0)(12)   $19,100.4
    Income tax liabilities                   -       17.5      (17.5)(11)          -
    Investment borrowings                 539.4                                 539.4
    Other liabilities                     504.2      18.5                       522.7
    Liabilities related
      to separate accounts                300.1                                 300.1
    Notes payable of Conseco              851.2     108.3      (58.3)(13)       869.7
                                                               (50.0)(13)
                                                                18.5 (13)
  
    Notes payable of
      Bankers Life Holding
      Corporation, not
      direct obligations
      of Conseco                          418.1                                 418.1
    Notes payable of American
      Life Holdings, Inc., not
      direct obligations of
      Conseco                              13.0                                  13.0
                                      ---------    ------    -------         --------
              Total liabilities        21,363.0     767.7     (367.3)        21,763.4
                                      ---------    ------    -------         --------
  
  Minority interest in consolidated
     subsidiaries:
       Company - obligated mandatorily
         redeemable preferred securities
         of subsidiary trusts             600.0                                 600.0
       Preferred stock                     92.5                                  92.5
       Common stock                        55.3                                  55.3
                                      ---------    ------    -------        ---------
  
  Shareholders' equity:
    Preferred stock                       267.1      22.8      (22.8)(14)       267.1
    Common stock and additional
      paid-in capital                   1,670.1     169.7     (169.7)(14)     1,898.0
                                                               121.7 (14)
                                                               106.2 (14)
    Unrealized appreciation
      (depreciation) of securities        (47.0)      4.7       (4.7)(14)       (47.0)
    Retained earnings                     681.3     (23.0)      23.0 (14)       681.3
                                      ---------    ------    -------        ---------
  
          Total shareholders' equity    2,571.5     174.2       53.7          2,799.4
                                      ---------    ------    -------        ---------
  
             Total liabilities and
               shareholders' equity   $24,682.3    $941.9    $(313.6)       $25,310.6
                                      =========    ======    =======        =========
  
   The accompanying notes are an integral part of the pro forma consolidated financial statements.
  
                                         39
  CONSECO AND SUBSIDIARIES
                NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
                                     (unaudited)
  
       TRANSACTIONS RELATING TO THE MERGER
  
       The Merger will be accounted for under the  purchase  method of accounting.
  Under this  method,  the total  cost  to acquire  THI  will be  allocated to the
  assets and liabilities acquired based on their fair values as of the date of the
  Merger,  with any excess of the total  purchase  cost over the fair value of the
  assets  acquired  less the fair value of the  liabilities  assumed  recorded  as
  goodwill.  The Merger will not qualify to be accounted  for under the pooling of
  interests  method in accordance  with APB No. 16 because THI was a subsidiary of
  another  corporation  within two years of the contemplated  transaction.  In the
  Merger,  each outstanding share of THI common stock was exchanged for 1.4 shares
  of Conseco's common stock.  Conseco issued  approximately  2.4 million shares of
  Conseco common stock and common stock  equivalents with a value of approximately
  $121.7  million to acquire  THI's  common stock (or  equivalents).  In addition,
  pursuant to an exchange offer (the "Exchange Offer"),  all of THI's Subordinated
  Convertible  Notes (the "THI  Convertible  Notes") were  exchanged for shares of
  Conseco  common stock on an equivalent  basis as the shares issued in the Merger
  plus a cash premium.  Such THI Convertible Notes were converted into 2.1 million
  shares of Conseco  common stock with a value of  approximately  $106.2  million.
  Conseco also paid a premium of approximately $10.0 million to the holders of the
  THI Convertible Notes in conjunction with the Exchange Offer.  Conseco estimates
  that it will incur costs related to the Merger (including contract  termination,
  relocation, legal, accounting and other costs) of approximately $8.5 million.
  
       The cost to acquire THI is allocated as follows (dollars in millions):
  Book value of assets acquired based on the assumed date of the
       Merger (September 30, 1996) ...................................................    $174.2
  THI Convertible Notes converted to Conseco common stock pursuant to the
       Exchange Offer  ................................................... ...........      50.0
  Less book value of THI preferred stock .............................................     (22.8)
  Increase (decrease) in THI's net asset value to reflect estimated fair value and
       asset reclassifications at the assumed date of the Merger:
          Cost of policies purchased (related to the Merger)..........................     112.8
          Cost of policies produced and cost of policies purchased (historical).......     (39.2)
          Income taxes................................................................     (25.8)
          Premium paid in conjunction with the Exchange Offer ........................     (10.0)
          Premium incurred to retire THI preferred stock .............................      (2.8)
                                                                                          ------
               Total estimated fair value adjustments.................................      35.0
                                                                                         -------
  
               Total cost to acquire THI..............................................    $236.4
                                                                                          ======
  Adjustments to the pro forma  consolidated  statement of operations to give
  effect to the Merger as of January 1, 1995, are summarized below.
  
       (1)   Net  investment  income and net realized gains of THI are adjusted to
             include the effect of adjustments to restate the amortized cost basis
             of  fixed  maturity  securities to  their  estimated  fair  value and
             the effect  of the  assumed  sale of  $83.9  million  fixed  maturity
             investments  investments,  with  the  proceeds  used  to  repay $58.3
             million of bank debt and redeem  preferred  stock  with a  redemption
             value of $25.6 million.
  
       (2)   Interest expense is  reduced to reflect the repayment of bank debt of
             $58.3 million  and the  conversion of the THI Convertible  Notes into
             Conseco common stock pursuant to the Exchange Offer. Interest expense
             is  increased  to  reflect  borrowings  by  Conseco  to: (i) pay  the
             estimated cost of the Merger; and (ii) pay the $10.0 million  premium
             in conjunction  with the Exchange Offer.
  
       (3)  Amortization of the cost of policies produced and the cost of policies
            purchased prior to the Merger is replaced with the amortization of the
            cost  of  policies  purchased  (amortized  in  relation  to  estimated
            premiums  on  the  policies  purchased  with  interest  equal  to  the
            liability rate which averages 5.5 percent).
  
       (4)  Reflects  the  tax  adjustment  for  the  pro forma adjustments at the
            approximate rate for the specific item.
  
       (5)   Common shares outstanding are increased to reflect the Conseco shares
             issued in the Merger and the  conversion of the THI Convertible Notes
             in conjunction with the Exchange Offer.
  
                                         40
  (6)   Effective October 1, 1995, THI sold its long  term  care  business to
             ATC.  An adjustment is made to remove  the loss  on  the  sale of the
             long term care business. However, the revenues, benefits and expenses
             related to this business prior to its sale are not eliminated,  since
             the business is retained within the Conseco  consolidated group after
             the ATC Merger (and pro forma adjustments for the  ATC  Merger do not
             include adjustments related to THI's long term care business prior to
             its purchase by ATC). In addition, expenses related to THI's spin-off
             from  its  parent are eliminated.  Such  costs include certain legal,
             accounting, actuarial and advisory fees.
  
       Adjustments to the pro forma  consolidated  balance sheet to give effect to
  the Merger as of  September  30,  1996,  are   summarized  below.
  
       (7)   Actively managed fixed maturity securities with a  carrying  value of
             $83.9 million are assumed to be sold at the date of the Merger.
  
       (8)   Short-term investments are reduced for: (i) payments made to complete
             the Merger; (ii) the repayment  of bank debt with a balance  of $58.3
             million; (iii)  the  redemption of preferred  stock with a redemption
             value of $25.6 million;  and (iv) the  payment of the  $10.0  million
             premium   in  conjunction   with  the  Exchange   Offer.   Short-term
             investments  are  increased  by  additional  borrowings by Conseco of
             $18.5 million to complete the Merger and related transactions.
  
       (9)   THI's  historical  cost  of  policies  purchased  is  eliminated  and
             replaced  with  the  cost  of  policies  purchased  recognized in the
             Merger.  Cost of policies purchased reflects the estimated fair value
             of THI's business  in force and represents the portion of the cost to
             acquire THI that is allocated  to the value of the  right to  receive
             future  cash  flows  from  the  acquired  policies.  
  
            The 18 percent  discount rate used to determine such value is the rate
            of  return  required  by  Conseco  to  invest  in the  business  being
            acquired.  In determining such rate of return,  the following  factors
            are considered.
  
               - The magnitude of the  risks associated with each of the actuarial
                 assumptions used in determining the expected cash flows.
  
              -  Cost of capital available to fund the acquisition.
  
              -  The  perceived likelihood of changes in insurance regulations and
                 tax laws.
  
              -  Complexity of the acquired company.
  
              -  Prices paid (i.e., discount rates used in determining valuations)
                 on similar blocks of business sold recently.
  
          The  value  allocated  to the cost of policies purchased  is based  on a
          preliminary valuation; accordingly, this allocation may be adjusted upon
          final  determination of such value.  Expected gross amortization of such
          value using current  assumptions  and accretion of interest  based on an
          interest  rate  equal to the  liability  rate (such  rate  averages  5.5
          percent) for each of the years in the five-year  period ending September
          30, 2001, are as follows  (dollars in millions):
  Year ending     Beginning     Gross      Accretion         Net          Ending
  September 30,    balance  amortization  of interest   amortization      balance
  -------------    -------  ------------  -----------   -------------     -------
  1997         $112.8       $19.2        $ 6.3         $12.9           $99.9
     1998           99.9        15.9          5.6          10.3            89.6
     1999           89.6        14.5          5.0           9.5            80.1
     2000           80.1        13.3          4.4           8.9            71.2
     2001           71.2        12.8          4.0           8.8            62.4
  (10)  THI's cost of policies produced is eliminated since such  amounts are
             reflected in the determination of the cost of policies purchased.
  
                                         41
  CONSECO AND SUBSIDIARIES
                NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
                                     (unaudited)
  
       (11)  All of the  applicable  pro forma balance sheet  adjustments  are tax
             affected  at the  appropriate  rate.  Deferred tax  assets are netted
             against deferred tax liabilities.
  
       (12)  Reinsurance receivables and insurance liabilities related to business
             of THI ceded to ATC are eliminated in consolidation.
  
       (13)  Notes  payable  are increased  to  reflect: (i) the repayment of bank
             debt of $58.3 million; and (ii) the conversion of the THI Convertible
             Notes into  Conseco  common stock in  conjunction with  the  Exchange
             Offer.  In   addition,  notes  payable  are  increased   to   reflect
             additional  borrowings  by  Conseco  used to  complete the Merger and
             related transactions.
  
      (14)  The  prior  shareholders'  equity of THI is  eliminated in conjunction
            with  the  Merger.  Common  stock and  additional  paid-in  capital is
            increased by the value of Conseco common  stock  issued in the Merger.
            The value of  the THI Convertible Notes  represents  the  value of the
            Conseco common stock which was issued in conjunction with the Exchange
            Offer. Preferred stock of THI is eliminated to reflect its redemption.
  
                                         42
  CONSECO, INC. AND SUBSIDIARIES
                                _________________
  
  ITEM 7(c).     EXHIBITS.
  
                 (c) Exhibits
  
                     2.8    Agreement and Plan of Merger dated as of September 25,
                            1996,  by  and between  Conseco, Inc. and  Transport 
                            Holdings Inc.*
                             
  
                     2.8.1  First Amendment to Agreement and Plan of Merger dated
                            as of November 7, 1996, by and between Conseco, Inc.
                            and Transport Holdings Inc.**
  
                     *      Previously filed with Form 8-K dated September 25, 
                            1996, filed by Conseco, Inc.
  
                     **     Previously filed as an exhibit to the Registration
                            Statement on Form S-4 (File No. 333-14377) filed by
                            Conseco, Inc.
  
                                         43
  CONSECO, INC. AND SUBSIDIARIES
                                _________________
  
                                      SIGNATURE
  
           Pursuant to the  requirements  of the Securities  Exchange Act of 1934,
  the  Registrant  has duly  caused  this report to be signed on its behalf by the
  undersigned thereunto duly authorized.
  
  Date: December 23, 1996
  
                                           CONSECO, INC.
  
                                           By:     /s/ ROLLIN M. DICK
                                                   -----------------------------
  
                                                    Rollin M. Dick
                                                    Executive Vice President
                                                      and Chief Financial Officer
  
                                         44