content: <PAGE> 1
                                                                               
                                      
  
  
                                                                               
                     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 (date of earliest event reported):
                          September 29, 1994
  
  
                             CONSECO, INC.
  
                                                                               
                        State of Incorporation:
                               Indiana
  
  Commission File                                 IRS Employer ID.
    No. 0-11164                                    No. 35-1468632 
  
                                                       
                    Address of Principal Executive Offices:
                       11825 North Pennsylvania Street
                          Carmel, Indiana  46032
  
                               Telephone No.
                              (317) 573-6100
  
                                                                               
                                            <PAGE>
  <PAGE> 2
                                                                               
                        CONSECO, INC. AND SUBSIDIARIES
  
  <TABLE>
  <CAPTION>
                                    INDEX
  
                                                                                                                                   
                                                                            Page
                                                                            ----
  <S>                                                                       <C>
  Item 2 -       Acquisition or Disposition of Assets                          3
  
  Item 7 -       Financial Statements and Exhibits
                 (a)   The Statesman Group, Inc. and Subsidiaries
                       Unaudited Consolidated Financial Statements 
                       as of June 30, 1994 and for the six months 
                       ended June 30, 1994 and 1993
                           Consolidated Balance Sheets                         6
                           Consolidated Statements of Income                   8                                                   
                           Consolidated Statements of Cash Flows               9
                           Notes to Consolidated Financial Statements         10
  
                     The Statesman Group, Inc. and Subsidiaries
                       Audited Consolidated Financial Statements
                       as of December 31, 1993 and 1992 and for 
                       each of the three years ended December 
                       31, 1993                                                                                                    
                           Report of Independent Auditors                     14
                           Consolidated Balance Sheets                        15
                           Consolidated Statements of Income                  17
                           Consolidated Statements of Stockholders' Equity    18
                           Consolidated Statement of Cash Flows               19
                           Notes to Consolidated Financial Statements         21
  
                 (b)   Pro Forma Consolidated Financial Information
                           of Conseco, Inc. and Subsidiaries
                              Pro Forma Consolidated Statement of Operations
                                 for the six months ended June 30, 1994       51
                              Pro Forma Consolidated Statement of Operations 
                                 for the year ended December 31, 1993         53
                              Pro Forma Consolidated Balance Sheet as of  
                                 June 30, 1994                                55
                              Notes to Pro Forma Consolidated Financial 
                                 Statements                                   57
                                 
                 (c)   Exhibits
  
                       2.1  Agreement and Plan of Merger dated as of May
                            1, 1994 by and among Conseco Capital Partners
                            II, L.P., CCP II Acquisition Company and The 
                            Statesman Group, Inc.
         
                       4.12 Indenture dated as of September 29, 1994 between 
                            ALHC Merger Corporation and LTCB Trust Company and
                            First Supplemental Indenture dated as of September
                            29, 1994 between American Life Holding Company and
                            the Trustees for the 11-1/4% Senior Subordinated 
                            Notes due 2004.
   
                            The document defining the rights of the holders of
                            the Senior Term Loan obtained by ALHC Merger 
                            Corporation as described in Item 2 has been omitted 
                            as an exhibit to the Form 8-K, pursuant to Item 601 
                            (b)(4)(iii) of Regulation S-K, because the total 
                            amount of the ALHC Senior Term Loan is less than 
                            10 percent of the total assets of the Registrant 
                            and its subsidiaries on a consolidated basis.  The 
                            Registrant hereby undertakes to furnish copies of 
                            such documents to the Commission upon request.
  </TABLE>
  <PAGE>
  <PAGE> 3                                                                     
                      CONSECO, INC. AND SUBSIDIARIES
  
  ITEM 2.  ACQUISITION OR DISPOSITION OF ASSETS
  
               On September 29, 1994, Conseco Capital Partners II, L.P. ("CCP
  II"), a Delaware limited partnership, completed the acquisition (the
  "Acquisition") of The Statesman Group, Inc. ("Statesman").  After the
  Acquisition and related financing transactions, CCP II owns approximately 80
  percent of the outstanding shares of Statesman's common stock.   Conseco, Inc. 
  ("Conseco") formed CCP II in February 1994 with several other investors for the
  purpose of investing in acquisitions of annuity, life and accident and health
  insurance companies and related businesses.  Conseco Partnership Management,
  Inc., a wholly owned subsidiary of Conseco, is the sole general partner of CCP
  II.  Because a subsidiary of Conseco is the sole general partner of CCP II,
  Conseco controls CCP II and Statesman.  Accordingly, Conseco's consolidated
  financial statements will include the accounts of CCP II and Statesman. 
  Conseco, through its direct investment and through its equity interest in the
  investments made by Bankers Life Holding Corporation ("BLH"), CCP Insurance,
  Inc. ("CCP Insurance") and Western National Corporation ("WNC"), has
  approximately a 27 percent ownership interest in Statesman.  The remaining 73
  percent ownership interest in Statesman is described as the "Statesman Minority
  Interest".
  
               The Acquisition was consummated pursuant to an Agreement and Plan
  of Merger dated May 1, 1994, providing for the merger of Statesman with a
  subsidiary of CCP II.  Statesman's former stockholders received $15.25 in cash
  per common equivalent share plus a contingent payment right to receive up to
  another $2.00 in cash per common equivalent share ("the Contingent
  Consideration") based on the outcome of Statesman's pending litigation against
  the U.S. Government concerning Statesman's former savings bank subsidiary (the
  "Government Litigation"). 
  
               The Acquisition and related transactions were funded with:  (i)
  $45.0 million of cash contributions made to CCP II by its partners (including
  $7.2 million provided by wholly owned subsidiaries of Conseco, $1.8 million by
  BLH, $1.8 million by CCP Insurance, and $3.6 million by WNC), (ii) $57.0
  million in cash from the sale in a private placement of the payment-in-kind
  preferred stock of Statesman (the "Statesman PIK Preferred Stock") (including
  $25.9 million purchased by BLH and $24.0 million purchased by CCP Insurance)
  (iii) $150.0 million in cash from the sale in a public offering by ALHC Merger
  Corporation, a subsidiary of CCP II which was merged into American Life Holding
  Company ("ALHC"), a wholly owned subsidiary of Statesman, of its 11-1/4% Senior
  Subordinated Notes due 2004 (the "ALHC Senior Subordinated Notes") and (iv)
  $200.0 million in cash from  a senior secured loan (the "ALHC Senior Term
  Loan") obtained by ALHC Merger Corporation (collectively referred to herein as
  the "Statesman Financing").  The sources and uses of this financing are
  summarized below (dollars in millions).
  <TABLE>
          <S>                                                                       <C>
           Sources of Funds:
                 ALHC Senior Term Loan:
                       Borrowed upon closing of the Acquisition                      $170.0
                       Borrowed upon determination of Government Litigation            30.0   (i)
                 ALHC Senior Subordinated Notes                                       150.0
                 Statesman PIK Preferred Stock                                         57.0
                 Common equity contribution from CCP II                                45.0
                                                                                     ------
                                    Total sources                                    $452.0
                                                                                     ======
           Uses of Funds:
                 Payment of cash consideration to acquire Statesman                  $314.1   (ii)
                 Payment upon determination of Government Litigation                   30.1   (i)
                 Repayment of bank indebtedness of a subsidiary of Statesman           55.5   (iii)
                 Transaction fees and expenses                                         14.8
                 Purchase of surplus note from American Life and 
                       Casualty Insurance Company ("American Life")
                       Statesman's principal operating subsidiary                      24.0
                 Cash retained                                                         13.5
                                                                                     ------
                                    Total uses                                       $452.0
                                                                                     ======
     
  <FN>
  (i)            In the event of an unfavorable determination of the Government
                 Litigation against the U.S. Government, $30.1 million would
                 be paid to the holders of Statesman's 1988 Series I and II
                 Preferred Stock $1 Par (the "Statesman 1988 Series Preferred
                 Stock"), which is currently held by the U.S. Government.  In the
                 event of a favorable determination of this litigation, the same
                 amount, representing a portion of the Contingent Consideration, 
                 would be paid to the other former stockholders of Statesman.
  <PAGE>
  <PAGE> 4
                                    CONSECO, INC. AND SUBSIDIARIES
  
  
  (ii)           This amount assumes conversion of all outstanding 6-1/4%
                 Convertible Subordinated Debentures due 2003 of Statesman (the 
                 "Convertible Debentures"), which were convertible into an
                 aggregate of 4,528,125 shares of Statesman common stock.  To
                 the extent that any holders of the Convertible Debentures do not
                 convert such securities, the proceeds which would have been used
                 to pay such holders will be held in escrow until the Convertible
                 Debentures are converted by the holders thereof, are redeemed
                 by Statesman, or mature.
  
  (iii)          A subsidiary of Statesman was the borrower under a credit
                 facility with an outstanding balance including accrued interest
                 and fees of $55.5 million at the Acquisition date which was
                 repaid with a portion of the proceeds from the Statesman
                 Financing.
  
           In accordance with the CCP II partnership agreement, Conseco received
  fees for services provided of (i) $4.0 million related to the ALHC Senior Term
  Loan and the ALHC Senior Subordinated Notes and (ii) $.9 million from the CCP
  II Partners.  
  
           The ALHC Senior Term Loan was provided by a syndicate of lenders with
  Bank of America Illinois (formerly Continental Bank, N.A.) (the "Bank") as the
  agent.  The loan has two tranches.  One tranche has an aggregate principal
  amount of $160.0 million ("Tranche A") and the other tranche has an aggregate
  principal amount of $40.0 million ("Tranche B").  On the Acquisition date,
  $130.0 million and $40.0 million were borrowed under Tranche A and Tranche B,
  respectively, with the remaining $30.0 million to be borrowed at a later date
  when needed to redeem the Statesman 1988 Series Preferred Stock or pay the
  Contingent Consideration, depending on the outcome of the Government
  Litigation.
  
           Tranche A and Tranche B bear interest at a rate of either the Banks's
  Alternate Reference Rate plus an applicable margin payable monthly or the
  Interbank Offered Rate ("IBOR") plus an applicable margin for periods of one,
  two, three or six months as selected by ALHC from time to time (such rate
  selected for the first three month period was 7.5 percent and 8.0 percent for
  Tranche A and Tranche B, respectively.)  The applicable margin for the rate
  based on the Bank's Alternate Reference Rate will vary from .25 percent to 1.0
  percent for Tranche A and from .75 percent to 1.5 percent for Tranche B
  depending on the principal amount plus unused commitments.  The applicable
  margin for the rate based on IBOR will vary from 1.5 percent to 2.25 percent
  for Tranche A and from 2.0 percent to 2.75 percent for Tranche B depending on
  the principal amount plus unused commitments. 
  
           The principal amounts of Tranche A and Tranche B are payable in annual
  installments on April 1 of each year according to the following amortization
  schedule (dollars in millions): 
  
  </TABLE>
  <TABLE>
  <CAPTION>
  
           Payment                                                    Principal Installment 
            Date                                              Tranche A                   Tranche B
            ----                                              ---------                   ---------
           <S>                                                <C>                        <C>
            1995                                               $ 15.0                     $   -
            1996                                                 16.5                         .5
            1997                                                 23.5                         .5
            1998                                                 26.0                         .5
            1999                                                 26.0                         .5
            2000                                                 26.0                         .5
            2001                                                 27.0                         .5
            2002                                                    -                       37.0
                                                               ------                      -----
  
                                                               $160.0                      $40.0       
                                                               ======                      ======
  </TABLE>
  
           Mandatory prepayments will be required (i) from 50 percent of Excess
  Cash Flow (as defined in the loan agreement), (ii) upon the sale or disposition
  of any significant assets other than in the ordinary course of business and 
  (iii) upon the sale or issuance of debt or equity securities of Statesman or
  any of its subsidiaries.  The ALHC Senior Term Loan is secured by, among other
  things, pledges of the capital stock of ALHC's subsidiaries (American Life and
  American Life and Casualty Marketing Division Co. ("AMCO") and the surplus
  notes of American Life held by ALHC.  The ALHC Senior Term Loan is
  unconditionally guaranteed by Statesman and AMCO.  Statesman has pledged the
  common stock of ALHC as security for its guarantee.  In addition, CCP II has
  pledged to the lenders the Statesman common stock owned by CCP II.  
  <PAGE>
  <PAGE> 5
                     CONSECO, INC. AND SUBSIDIARIES
  
           The ALHC Senior Subordinated Notes bear interest at 11.25 percent,
  payable semiannually on March 15 and September 15, and will mature on September
  15, 2004.  The ALHC Senior Subordinated Notes are redeemable at the option of
  ALHC, in whole or in part, at any time on and after September 15, 1999,
  initially at 105.625 percent of their principal amount, plus accrued interest,
  declining to 100 percent of their principal amount, plus accrued interest, on
  and after September 15, 2001.   
  
           Dividends on the Statesman PIK Preferred Stock accrue annually at 13
  percent in additional shares of Statesman PIK Preferred Stock through 2005. 
  Thereafter, dividends are payable quarterly at 15 percent per annum in cash. 
  The Statesman PIK Preferred Stock ranks senior to the Statesman common stock
  with respect to dividends, and upon liquidation, the Statesman PIK Preferred
  Stock will carry a liquidation preference equal to $1,000 per share, plus
  accrued unpaid dividends.   The Statesman PIK Preferred Stock is redeemable at
  the option of Statesman, in whole or from time to time in part.  The optional
  redemption price of the Statesman PIK Preferred Stock will be $1,000 per share,
  plus any accrued and unpaid dividends, and the Statesman PIK Preferred Stock
  generally will not have any voting rights.  As partial consideration for the
  purchase of the Statesman PIK Preferred Stock, the purchasers received common
  stock, representing 20 percent of the outstanding common stock of Statesman
  immediately after the Acquisition.  
  
  
  
  
  <PAGE>
  <PAGE> 6
  ITEM 7(a).  FINANCIAL STATEMENTS
  
                       THE STATESMAN GROUP, INC. and Subsidiaries              
  <TABLE>
  <CAPTION>
                               CONSOLIDATED BALANCE SHEETS                       
                                (dollars in thousands)                         
  
                                         ASSETS
                                                    June 30,       December 31,                
                                                    --------       ------------
                                                      1994             1993
                                                      ----             ----
                                                   (Unaudited)       (Audited)
  <S>                                           <C>               <C>
  Investments
      Fixed maturities
          Held-to-maturity                        $ 1,395,977       $    747,741
          Available-for-sale                        2,611,978          3,136,315 
                                                  -----------       ------------ 
                                                    4,007,955          3,884,056 
      Equity securities                                22,639             20,411 
      Mortgage loans on real estate                    71,000             66,541 
      Policy loans                                     58,065             56,265 
      Short-term investments                          110,500             13,919 
      Other                                            18,596             14,991 
                                                  -----------        -----------                                  
            Total investments                       4,288,755          4,056,183  
                                    
  Cash                                                  2,258              9,993 
  Accrued investment income                            56,726             49,653 
  Accounts and notes receivable                         9,778             10,310 
  Deferred policy acquisition costs                   346,193            293,938 
  Deferred federal income taxes                        45,275            
  Property and equipment                                9,916             10,518 
  Securities segregated for the future redemption of
      preferred stock of wholly-owned subsidiary       36,901             35,560 
  Other assets                                         13,276             11,747 
  Assets held in separate accounts                     10,680             12,809 
                                                  -----------        -----------                                  
            Total assets                          $ 4,819,758        $ 4,490,711 
                                                  ===========        ===========
  <FN>                                  
                                See accompanying notes.                                             
  </TABLE>
  <PAGE>
  <PAGE> 7
                           THE STATESMAN GROUP, INC. and Subsidiaries          
  <TABLE>
  <CAPTION>
                                    
                            CONSOLIDATED BALANCE SHEETS--(Continued)             
                                    (dollars in thousands)                                  
   
                             LIABILITIES AND STOCKHOLDERS' EQUITY 
  
                                                           June 30,       December 31,   
                                                           --------      ------------
                                                             1994             1993
                                                             ----             ----
                                                          (Unaudited)       (Audited)
  
  <S>                                                    <C>              <C>
  Liabilities                               
      Policy liabilities and accruals:                                
          Annuity reserves                                $ 4,089,891      $  3,690,557 
          Life insurance reserves                             307,370           301,284 
          Other                                                15,387            17,226 
                                                          -----------      ------------                                            
                                                            4,412,648         4,009,067 
      Other policyholders' funds                               66,761            60,395 
      Accrued expenses and other liabilities                   46,386            44,512 
      Long-term debt                                          123,980           120,375 
      Liabilities related to separate accounts                 10,680            12,809 
                                                          -----------      ------------                                            
               Total liabilities                            4,660,455         4,247,158 
  
  Commitments and contingencies                              
                                    
  Preferred stock of wholly-owned subsidiary                   95,429            95,298 
                                    
  Redeemable preferred stock                                 
      1987 Series II Preferred Stock $1 Par, at liquidation                                 
          value, less ESOP loan guarantee balance; 100,000                                  
          shares issued; 77,130 shares outstanding              3,713             2,963 
                                    
  Stockholders' equity                              
      Series Preferred Stock $1 Par, 5,000,000 shares                               
          authorized including redeemable preferred shares;                           
          issued and outstanding--338,640 shares                                            
          (aggregate liquidation preference $15,339)              339               339             
      Common stock, $1 par value, 35,000,000 shares                                                 
          authorized; 14,939,899 shares issued                 14,940            14,940                 
      Additional paid-in capital                               58,616            58,796                 
      Unrealized depreciation of securities                   (99,970)             (345)           
      Retained earnings                                        94,307            79,447                 
      Common stock in treasury, at cost--1994--1,525,172
          shares; 1993--1,510,243 shares                       (8,071)           (7,885)
                                                          -----------      ------------                                            
            Total stockholders' equity                         60,161           145,292                
                                                          -----------      ------------                                            
       
            Total liabilities and stockholders' equity    $ 4,819,758      $  4,490,711           
                                                          ===========      ============                
  <FN>
                                       See accompanying notes.                                            
  
  </TABLE>
                                                
  
  <PAGE>
  <PAGE> 8
                            THE STATESMAN GROUP, INC. and Subsidiaries         
             
  <TABLE>
  <CAPTION>
                           CONSOLIDATED STATEMENTS OF INCOME (Unaudited)         
                         (dollars in thousands, except per share amounts)      
                                          
                                                              Six Months               
                                                            Ended June 30,              
                                                            --------------              
                                                          1994         1993          
                                                          ----         ----          
  <S>                                                 <C>           <C>
  Revenues:                                     
      Premiums and policy fund charges                 $ 26,266      $ 24,335      
      Net investment income                             160,812       144,369      
      Realized gains (losses) on investments              5,084        10,852      
      Other                                               2,746         2,831      
                                                       --------      --------    
                                                        194,908       182,387      
                                                       --------      --------
  Benefits, losses and expenses:                        
      Benefits, claims, losses and                          
          settlement expenses                           119,114       110,920      
      Amortization of deferred policy                         
          acquisition costs                              22,268        18,546      
      Underwriting, acquisition, insurance                       
          and other expenses                             17,318        17,204      
      Interest                                            4,152         2,295      
                                                       --------      --------     
                                                        162,852       148,965      
                                                       --------      --------      
  
              Income before income 
                 Taxes and minority interest             32,056        33,422       
  
  Federal income tax expense                             10,280        11,415 
  Minority interest-dividends on preferred                         
      stock of wholly-owned subsidiary                    4,504         4,271       
                                                       --------      --------
              Net income                                 17,272        17,736       
  
  Less dividend requirements of Series                        
      Preferred Stock $1 Par, less                          
      applicable income tax benefits                        796           823          
                                                       --------      --------
               Net income applicable                             
                 to common stock                       $ 16,476      $ 16,913      
                                                       ========       ========
  Net income per common share:                            
         Primary                                       $   1.17      $   1.17      
         Fully diluted                                      .84           .89      
                                          
  Average shares outstanding used in                          
      computations (in thousands):                        
         Primary                                         14,105        14,496      
         Fully diluted                                   22,302        19,835      
                                          
  
  <FN>
  
                                    See accompanying notes. 
                                          
  </TABLE>
  
  <PAGE>
  <PAGE> 9
                             THE STATESMAN GROUP, INC. and Subsidiaries 
  <TABLE>
  <CAPTION>                   
                         CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
                                    (dollars in thousands)        
                                           
                                                                                    Six Months               
                                                                                  Ended June 30,             
                                                                                  -------------- 
                                                                                1994         1993  
                                                                                ----         ----      
  <S>                                                                     <C>            <C>
  Operating activities          
      Net income                                                           $    17,272    $   17,736
      Adjustments to reconcile net income to net cash
          from operating activities                                             38,600        10,640 
                                                                           -----------    ----------       
             Net cash from operating activities                                 55,872        28,376 
                                                                           -----------    ----------       
  Investing activities          
      Purchases of fixed maturity investments                               (1,122,887)   (1,933,346)
      Mortgage loans originated                                                (22,802)       (1,077)
      Purchases of equity securities                                           (20,571)       (1,199)
      Purchase of securities placed in escrow account                                         (9,895)
      Net purchases of short-term and other investments                       (100,367)     (113,365)
      Principal repayments on mortgage-backed securities
          and proceeds from the redemption and maturity of
          fixed maturity investments                                           351,782       298,643 
      Proceeds from sales of fixed maturity investments                        511,772     1,170,638
      Principal repayments on and sales of mortgage loans                       17,939        21,843 
      Proceeds from the redemption and sales of equity securities                7,291        29,585 
      Proceeds from sales of real estate acquired in
          satisfaction of debt                                                      56         3,406 
      Net sales (purchases) of property and equipment                               22          (777)
                                                                           -----------    ----------                  
             Net cash used in investing activities                            (377,765)     (535,544)
                                                                           -----------    ----------
  Financing activities          
      Issuance of long-term debt                                                20,600        98,694 
      Payments on long-term debt                                               (16,384)      (25,975)
      Treasury stock acquired                                                     (559)       (2,310)
      Stock options exercised                                                      193     
      Receipts from interest-sensitive insurance and
          annuity contracts                                                    549,238       565,614 
      Benefit payments on interest-sensitive insurance
          and annuity contracts                                               (236,120)     (135,358)
      Repayments on interest rate swap transaction                              (1,164)       (1,052)
      Dividends paid to stockholders                                            (1,646)         (740)
                                                                           -----------    ----------
             Net cash from financing activities                                314,158       498,873 
                                                                           -----------    ---------- 
  Net decrease in cash and cash equivalents                                     (7,735)       (8,295)
  Cash and cash equivalents at beginning of period                               9,993        19,404 
                                                                           -----------    ----------
             Cash and cash equivalents at end of period                     $    2,258    $   11,109 
                                                                           ===========    ==========   
  Schedule of noncash investing and financing activities:
      Reduction in ESOP loan guarantee                                      $      750    $      900 
      Exchange of subordinated debentures for redeemable
           preferred stock of wholly-owned subsidiary                                         30,000 
      Exchange of treasury stock for exercised stock options                       180         
  
  <FN>
                                                          See accompanying notes.       
  </TABLE>
  
  <PAGE>
  <PAGE> 10
                              THE STATESMAN GROUP, INC. and Subsidiaries
  
                              Notes to Consolidated Financial Statements
  
                NOTE A--BASIS OF PRESENTATION
  
                The accompanying unaudited consolidated financial statements have
  been prepared in accordance with generally accepted accounting principles for
  interim financial information and the instructions to Form 10-Q and Article 10
  of Regulation S-X.  Accordingly, they do not include all of the information and
  footnotes necessary for a fair presentation of financial position, results of
  operations and cash flows in conformity with generally accepted accounting
  principles.  In the opinion of management, all adjustments (consisting of
  normal recurring accruals) considered necessary for a fair presentation have
  been included.  For further information, refer to the consolidated financial
  statements and notes thereto for the year ended December 31, 1993.
  
                 On September 29, 1994, Conseco Capital Partners II, L.P. ("CCP
  II"), a Delaware limited partnership, completed the acquisition (the
  "Acquisition") of the Company (see Note E).  The Acquisition will be accounted
  for as a purchase business combination pursuant to which the reported values
  of the acquired assets and liabilities of the Company are adjusted to their
  estimated fair values at the Acquisition date.   As such, future results of
  operations and financial condition of the Company may vary significantly from
  historical reported results of operations and financial condition. 
  
                NOTE B--STOCKHOLDERS' EQUITY AND REDEEMABLE PREFERRED STOCK
  
                On January 13, 1994, the Company's Board of Directors authorized
  the repurchase by the Company of up to 1,000,000 shares of the Company's common
  stock in the open market at then-current market prices during calendar year
  1994.  Shares thus acquired will be used for general corporate purposes. 
  Through June 30, 1994, the Company had acquired 47,312 shares at an aggregate
  cost of $559,000 through the repurchase program.  As a result of entering into
  the merger agreement described in Note E, the Company is prohibited from
  acquiring any shares of its capital stock while the merger is pending. 
  
                The Board of Directors is authorized to issue 5,000,000 shares
  of  Series Preferred Stock $1 Par from time to time in one or more series and
  to fix the number of shares, designations, voting powers (if any), preferences
  and rights, and qualifications, limitations or restrictions of each series. 
  Each series of Series Preferred Stock $1 Par shall be distinctly designated
  and, except as otherwise stated, shall rank equally and be identical in all
  respects.  There were no changes in the number of shares of issued and
  outstanding Series Preferred Stock $1 Par during the period ended June 30,
  1994.
  
                The Company's redeemable preferred stock consists of 100,000
  shares of 1987 Series II Preferred Stock $1 Par, of which there were 77,130
  shares outstanding at June 30, 1994 and December 31, 1993.  The preferred
  shares provide that the holder may require the Company to redeem the shares if
  there is a change in control, as defined, of the Company.  The outstanding
  redeemable preferred shares are presented at their $100 per share liquidation
  preference, less the outstanding ESOP loan guarantee balance of $4,000,000 and
  $4,750,000 at June 30, 1994 and December 31, 1993, respectively.
  
                At June 30, 1994 there were 9,183,724 shares of common stock
  reserved for conversion of the Series Preferred Stock and 6 1/4% Convertible
  Subordinated Debentures and for exercise of stock options (includes 1,058,335
  shares reserved for conversion of 1987 Series II Preferred Stock $1 Par
  reported as redeemable preferred stock). 
  
                The Company declared a cash dividend on common stock of $.10 per
  share in January 1994, which was paid in February 1994.  All cumulative
  dividends on the Company's Series Preferred Stock have been declared and paid
  by the Company except that cumulative dividends aggregating $4,657,000 have
  been declared on the 143,640 issued and outstanding shares of the Company's
  1988 Series I and II Preferred Stock (the "1988 Series Preferred Stock") but
  have not been paid and cumulative dividends on the 1988 Series Preferred Stock
  aggregating $575,000 have not been declared.  The Company has set off the
  amount of the declared dividends on the 1988 Series Preferred Stock against
  damages believed by the Company to be owing to it by the United States of
  America arising from pending litigation related to the takeover of the
  Company's former savings bank subsidiary by government regulators in July 1990
  (see Note C). 
  
  <PAGE> 11     THE STATESMAN GROUP, INC. and Subsidiaries
  
                NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  
                 NOTE C--CONTINGENCIES
  
                The Company's subsidiaries are involved in various pending or
  threatened legal proceedings arising from the conduct of their businesses. 
  These proceedings in some instances  include claims for punitive damages and
  similar  types of relief in unspecified or substantial amounts, in addition to
  amounts for alleged contractual liability or claims for equitable relief.  In
  management's opinion, after consultation with counsel and  review of available 
  facts, these proceedings will be ultimately resolved without materially
  affecting the Company's financial condition.
  
                The Company's insurance subsidiaries reinsure with other
  reinsurers that portion of risks exceeding each company's retention limit. 
  These reinsured risks are treated as though, to the extent of the reinsurance,
  they are risks for which the subsidiaries are not liable.  The Company remains
  contingently liable in the event that the reinsuring companies do not meet
  their obligations under these reinsurance contracts. 
  
                Prior to 1984, a portion of the life insurance subsidiaries'
  income was not subject to current income taxation, but was accumulated, for
  income tax purposes, in "policyholders' surplus accounts."  At December 31,
  1993, the balances in the policyholders' surplus accounts aggregated
  $12,672,000.  These amounts are not taxable unless distributed to stockholders
  or unless they exceed certain limitations under the Internal Revenue Code. 
  Management does not intend to take actions nor does it expect any events to
  occur that would cause income tax to be payable on these amounts; therefore,
  deferred  income taxes of $4,435,000 have not been provided on these amounts.
  
                The Company has entered into employment continuation agreements
  with certain executives of the Company and its subsidiaries that provide for
  payments to these executives of amounts up to four times their annual
  compensation if there is a change in control of the Company (as defined), and
  a termination of their employment.  The agreements do not constitute employment
  contracts and only apply in circumstances following a change in control.  The
  maximum contingent liability at June 30, 1994 under these agreements is
  $6,407,000. 
  
                From time to time, mandatory assessments are levied on the
  Company's insurance subsidiaries by life and health guaranty associations of
  most states in which  these subsidiaries are licensed to cover losses to
  policyholders of insolvent or rehabilitated insurance companies.  These
  associations levy assessments (up to prescribed limits) on all member insurers
  in a particular state in order to pay claims on the basis of the proportionate
  share of premiums written by member insurers in the lines of business in which
  the insolvent or rehabilitated insurer engaged.  These assessments may be
  deferred or forgiven in certain states if they would threaten an insurer's
  financial strength and, in some states, these assessments can be partially
  recovered through a  reduction in future premium taxes.  Prior to 1991, these
  assessments were not material to the Company's financial statements.  However,
  during 1989 through 1992, the economy and other factors caused a number of
  failures of several  large life insurance companies which could result in
  future assessments in material amounts.  Assessments levied against the
  Company's insurance subsidiaries and charged to expense for the six months
  ended June 30, 1994 and 1993 and for the three months ended June 30, 1994 and
  1993 were $934,000, $228,000, $614,000 and $65,000, respectively.  The
  accompanying consolidated financial statements include provisions for all known
  assessments that will be levied against the Company as indicated to date by the
  various state guaranty associations.  At the present time, the Company is not
  able to reasonably estimate what amounts will ultimately be assessed to its
  subsidiaries in the future for failures that have occurred to date and, as
  such, the accompanying consolidated financial statements do not include any
  provision for such potential assessments. 
  
                In August 1990, the Company filed suit in the United States
  Claims Court (the "Claims Court") against the United States of America.  The
  pending lawsuit concerns contractual agreements which were made by the Federal
  Savings and Loan Insurance Corporation and the Federal Home Loan Bank Board,
  former government regulatory agencies that were abolished by the Financial
  Institutions Reform, Recovery and Enforcement Act of 1989, to induce the
  Company to capitalize Statesman Bank for Savings, FSB (the "savings bank"),
  formerly a wholly-owned subsidiary of the Company, for the purpose of acquiring
  four failed thrift institutions.  In the lawsuit, the Company claims that the
  defendant has breached its contractual agreements with respect to regulatory
  capital.  Accordingly, the pending lawsuit contends that this breach of
  contract, which resulted in the disallowance of $21 million of capital which
  the defendant promised would be perpetual for regulatory accounting purposes,
  constitutes a taking of the Company's property without just compensation and
  due process of law, in violation of the Fifth Amendment of the United States
  Constitution.
  <PAGE>
  <PAGE> 12
                        THE STATESMAN GROUP, INC. and Subsidiaries
  
                         NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  
                NOTE C--CONTINGENCIES--Continued
  
                The pending lawsuit seeks rescission of the transaction between
  the Company and the government agencies and recovery of the Company's
  investment plus compensation for monies expended, costs incurred and the value
  of benefits conferred on the defendant through the Company's purchase,
  operation and management of the savings bank.  Total restitution sought exceeds
  $30 million. 
                In July 1992, the Claims Court granted the Company's motion for
  summary judgment as to the defendant's liability in the above-described
  lawsuit.  The Claims Court also consolidated this case  with two others and
  certified these cases for interlocutory appeal to the United States Court of
  Appeals for the Federal Circuit (the "Court of Appeals").  Subsequently, the
  Court of Appeals reversed the order of the Claims Court by a margin of two to
  one and the Company filed a Petition for Rehearing with Suggestion for
  Rehearing in Banc (the "Rehearing Petition") with the Court of Appeals.  On
  August 18, 1993, the Court of Appeals accepted the Rehearing Petition, vacated
  its judgment entered on May 25, 1993 in favor of the defendant and withdrew its
  opinion accompanying the judgment.  The rehearing was held on February 10, 1994
  and a decision is pending.
  
                In 1985 the Company sold Statesman Insurance Company, a former
  property-casualty insurance subsidiary.  As part of this sale and as part of
  a certain reinsurance agreement between Statesman  Insurance Company and an
  unconsolidated affiliated property-casualty insurance company, the Company
  guaranteed and indemnified Statesman Insurance Company that it would suffer no
  loss on the insurance liability reinsured by it in excess of the loss and loss 
  adjustment expense reserves transferred to the affiliate pursuant to the terms
  of the reinsurance agreement.  The Company does not believe that the ultimate
  settlement of the remaining outstanding claims covered by this guarantee will
  materially exceed existing liabilities provided for such contingency.
  
                NOTE D--ADOPTION OF NEW ACCOUNTING STANDARD
  
                In May 1993, the Financial Accounting Standards Board issued
  Statement of Financial Accounting Standards No. 115, "Accounting for Certain
  Investments in Debt and Equity Securities," that became effective for fiscal
  years beginning after December 15, 1993.  The primary impact of Statement 115
  is to require companies to classify their securities into categories based upon
  the company's intent relative to the eventual disposition of the securities. 
  Under the new rules, the Company's investments in debt securities (including
  mortgage-backed securities) and equity securities that have readily
  determinable fair values are to be classified in three categories and accounted
  for as follows:
  
                Held-to-Maturity Securities:  Debt securities which the Company
  has the positive intent and ability to hold until maturity shall be reported
  at amortized cost.
  
                Trading Securities:  Debt and marketable equity securities
  purchased with the intent to sell in the near term shall be reported at fair
  value and unrealized gains and losses shall be included in results of
  operations.
  
                Available-for-Sale Securities:  Debt and marketable equity
  securities not classified as either held-to-maturity or trading shall be
  reported at fair value with unrealized gains and losses reported as adjustments
  to stockholders' equity.
  
                Beginning in the fourth quarter of 1992 and prior to the adoption
  of this standard, the Company segregated its fixed maturity investments into
  those that would be held until maturity and those that would be available for
  sale.  Available-for-sale fixed maturity investments were reported at the lower
  of cost or estimated fair value, in the aggregate.  At December 31, 1993 there
  was no unrealized net loss on these investments.<PAGE>
  <PAGE> 13
                   THE STATESMAN GROUP, INC. and Subsidiaries
   
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  
                NOTE D--ADOPTION OF NEW ACCOUNTING STANDARD--Continued
  
                As of January 1, 1994, the Company adopted the provisions of
  Statement 115 for investments held as of or acquired after that date.  In
  accordance with Statement 115, prior-period financial statements have not been
  restated to reflect the change in accounting principle.  The cumulative effect
  as of January 1, 1994 of adopting Statement 115 increased stockholders' equity
  by $38,171,000 (net of adjustments to deferred policy acquisition costs of
  $41,831,000 and deferred income taxes of $20,554,000) to reflect the net
  unrealized holding gains on securities previously carried at amortized cost;
  there was no effect on net income as a result of the adoption of Statement 115. 
  In the six-month period ended June 30, 1994, those net unrealized holding gains
  decreased by $136,109,000 (net of adjustments to deferred policy acquisition
  costs of $59,616,000 and deferred income taxes of $73,290,000).  As of June 30,
  1994, the Company's available-for-sale fixed maturity securities had net
  unrealized losses of $97,938,000 (net of adjustments to deferred policy
  acquisition costs of $17,785,000 and deferred income taxes of $52,736,000).
  
                NOTE E--MERGER AGREEMENT
  
                On September 29, 1994, CCP II completed the Acquisition of the
  Company.  Pursuant to an Agreement and Plan of Merger, the Company's former
  stockholders received $15.25 in cash per common equivalent share, plus the
  right to receive up to another $2.00 in cash per common equivalent share based
  on the outcome of the Company's pending litigation against the U. S. Government
  concerning the Company's former savings bank subsidiary.   CCP II is a Delaware
  limited partnership which was formed by Conseco, Inc. ("Conseco") to invest in
  acquisitions of annuity, life, and accident and health insurance companies and
  related businesses.  In connection with the Acquisition, the line of credit of
  a subsidiary of the Company with a balance at the acquisition date of
  approximately $54,800,000 was repaid. 
  
                The Acquisition will be accounted for as a purchase business
  combination pursuant to which the reported values of the acquired assets and
  liabilities of the Company are adjusted to their estimated fair values at the
  Acquisition date.  The Company incurred indebtedness aggregating $350 million
  to partially finance the Acquisition.  As such, future results of operations
  and the financial condition of the Company may vary significantly from
  historical reported results of operations and financial condition.  
  
                The Company and certain of the persons then serving on the Board
  of Directors have been named in a purported class action suit commenced on May
  3, 1994 relating to the Acquisition.  The complainant seeks injunctive relief
  and  compensatory damages.  The Company believes that such suit is without
  merit and intends to contest it vigorously.  
  
  
  <PAGE>
  <PAGE> 14                                                                    
                               
  
                                                                               
                                      REPORT OF INDEPENDENT AUDITORS
  
  
  
  Board of Directors and Stockholders
  The Statesman Group, Inc.
  
  
                       We have audited the accompanying consolidated balance
  sheets of The Statesman Group, Inc. and subsidiaries as of December 31, 1993
  and 1992, and the related consolidated statements of income, stockholders' 
  equity, and cash flows for each of the three years in the period ended December
  31, 1993.  These financial statements are the responsibility of the Company's
  management.  Our responsibility is to express an opinion on these financial
  statements based on our audits.
  
                       We conducted our audits in accordance with generally
  accepted auditing standards.  Those standards require that we plan and perform
  the audit to obtain reasonable assurance about whether the financial statements
  are free of material misstatement.  An audit includes examining, on a test
  basis, evidence supporting the amounts and disclosures in the financial 
  statements.  An audit also includes assessing the accounting principles used
  and significant estimates made by management, as well as evaluating the overall
  financial statement presentation.  We believe that our audits provide a
  reasonable basis for our opinion.
  
                       In our opinion, the consolidated financial statements
  referred to above present fairly, in all material respects, the consolidated
  financial position of The Statesman Group, Inc. and subsidiaries at December
  31, 1993 and 1992, and the consolidated results of their operations and their
  cash flows for each of the three years in the period ended December 31, 1993,
  in conformity with generally accepted accounting principles.
  
                       As discussed in Note C to the consolidated financial
  statements, during 1993 the Company changed its method of accounting for income
  taxes.
  
  
  
                                                ERNST & YOUNG LLP
   
  
  
  Des Moines, Iowa
  January 27, 1994 
  <PAGE>
  <PAGE> 15
                                     THE STATESMAN GROUP, INC. and Subsidiaries 
  <TABLE>
  <CAPTION>                                                                            
                                           CONSOLIDATED BALANCE SHEETS
                                              (dollars in thousands)             
                                                                                                 
                                                     ASSETS
  
                                                                                                       December 31,
                                                                                           -----------------------------------
                                                                                           1993                           1992
                                                                                           ----                           ----
  <S>                                                                                   <C>                           <C>
  Investments:                                                                                                                     
                                    
        Fixed maturities:
             Held for investment (market: 1993--$777,975; 1992--$2,393,615)              $   747,741                   $2,329,571
             Available for sale (market: 1993--$3,221,593; 1992--$586,389)                 3,136,315                      580,977
                                                                                          ----------                   ----------
                                                                                           3,884,056                    2,910,548
        Equity securities (cost: 1993--$20,942; 1992--$39,647)                                20,411                       38,160
        Mortgage loans on real estate, less allowances for loan losses of                                                         
             $1,000 in 1993 and 1992                                                          66,541                       87,086
        Policy loans                                                                          56,265                       53,403
        Short-term investments                                                                13,919                        7,712
        Other                                                                                 14,991                        4,546
                                                                                          ----------                   ----------
             Total investments                                                             4,056,183                    3,101,455
  
  Cash                                                                                         9,993                       19,404
  Accrued investment income                                                                   49,653                       42,779
  Accounts and notes receivable, less allowances for doubtful accounts                                                           
        of $2,636 in 1993 and $3,330 in 1992                                                  10,310                        5,744
  Deferred policy acquisition costs                                                          293,938                      235,071
  Property and equipment, less allowances for depreciation of                                                                    
        $10,592 in 1993 and $9,596 in 1992                                                    10,518                       10,334
  Securities segregated for the future redemption of preferred                                                                   
        stock of wholly-owned subsidiary                                                      35,560                       23,183
  Other assets                                                                                11,747                       11,075
  Assets held in separate accounts                                                            12,809                       17,002
                                                                                          ----------                   ----------
             Total assets                                                                 $4,490,711                   $3,466,047
                                                                                          ==========                   ==========
                   
                   
  
  
  
  
  
  
  
  
  
  
  
  
  <FN>
                                          See accompanying notes.                 
  </TABLE>
  
  <PAGE>
  <PAGE> 16                                                                    
                               THE STATESMAN GROUP, INC. and Subsidiaries      
  <TABLE>
  <CAPTION>
                                CONSOLIDATED BALANCE SHEETS--(Continued)
                           (dollars in thousands, except per share amounts)
  
                                  LIABILITIES AND STOCKHOLDERS' EQUITY
  
                                                                                                       December 31,
                                                                                           -----------------------------------
                                                                                           1993                           1992
                                                                                           ----                           ----
  <S>                                                                                   <C>                           <C>
  Liabilities:                                           
        Policy liabilities and accruals:
             Annuity reserves                                                            $3,690,557                   $2,798,602 
             Life insurance reserves                                                        301,284                      286,904 
             Other                                                                           17,226                       14,342 
                                                                                         ----------                   ---------- 
                                                                                          4,009,067                    3,099,848 
        Other policyholders' funds                                                           60,395                       53,964 
        Accrued expenses and other liabilities                                               44,512                       42,398 
        Long-term debt                                                                      120,375                       71,633 
        Liabilities related to separate accounts                                             12,809                       17,002 
                                                                                         ----------                   ---------- 
                                                                                          4,247,158                    3,284,845 
  
  Commitments and contingencies   
  Preferred stock of wholly-owned subsidiary                                                 95,298                       65,172 
  Redeemable preferred stock                                                                       
        1987 Series II Preferred Stock $1 Par, at liquidation value,             
             less ESOP loan guarantee balance; issued--100,000 shares;     
             outstanding--1993--77,130 shares; 1992--81,901 shares                            2,963                        2,290 
  Stockholders' equity: 
        Series Preferred Stock $1 Par, 5,000,000 shares authorized                                                  
             including redeemable preferred shares; issued and                                                      
             outstanding--1993--338,640 shares  (aggregate liquidation 
             preference $15,339); 1992--343,640 shares                                          339                          344 
        Common stock, $1 par value, 35,000,000 shares authorized;
             issued--1993--14,939,899 shares; 1992--14,252,127 shares                        14,940                       14,252 
        Additional paid-in capital                                                           58,796                       50,594 
        Unrealized depreciation of equity securities                                           (345)                      (1,487)
        Retained earnings                                                                    79,447                       52,968
        Common stock in treasury, at cost--1993--1,510,243 shares;                   
             1992--1,142,888 shares                                                          (7,885)                      (2,931)
                                                                                         ----------                   ---------- 
             Total stockholders' equity                                                     145,292                      113,740
                                                                                         ----------                   ---------- 
             Total liabilities and stockholders' equity                                  $4,490,711                   $3,466,047 
                                                                                         ==========                   ==========   
               
  
  
  
  <FN>
                             See accompanying notes.                    </TABLE>
  <PAGE>
  <PAGE> 17
                      THE STATESMAN GROUP, INC. and Subsidiaries
  <TABLE>
  <CAPTION>
                           CONSOLIDATED STATEMENTS OF INCOME
                     (dollars in thousands, except per share amounts)
  
                                                                                                                       
                                                                     Year Ended December 31,   
                                                                 -------------------------------
                                                                 1993         1992         1991
                                                                 ----         ----         -----
  <S>                                                            <C>         <C>          <C>
  Revenues:
     Premiums and policy fund charges                             $ 49,959    $ 51,723     $ 53,321 
     Net investment income                                         298,902     272,231      244,409 
     Realized gains on investments                                  24,803      12,369       10,655 
     Other                                                           5,557       3,712        3,468 
                                                                   -------     -------      -------  
                                                                   379,221     340,035      311,853 
                                                                   -------     -------      -------  
  Benefits, losses and expenses:                                                                   
     Benefits, claims, losses and settlement expenses              227,642     225,184      222,002 
     Amortization of deferred policy acquisition costs              41,559      30,727       16,881 
     Underwriting, acquisition, insurance and other expenses        35,461      35,500       31,477 
     Interest                                                        6,097       5,570        5,846 
                                                                   -------     -------      -------  
                                                                   310,759     296,981      276,206 
                                                                   -------     -------      -------  
        Income from continuing operations before           
           income taxes and minority interest                       68,462      43,054       35,647 
  Federal income tax expense                                        22,440      14,867       12,240 
  Minority interest--dividends on preferred stock of 
     wholly-owned subsidiary                                         8,775       2,170              
                                                                   -------     -------      -------  
        Income from continuing operations                           37,247      26,017       23,407 
  Discontinued operations:                                                                         
     Net loss from operations and in 1991, net                                                     
        loss on disposal of subsidiaries of $541                                  (71)        (756)
                                                                   -------     -------      -------  
        Income before extraordinary credit                          37,247      25,946       22,651 
  Extraordinary credit--reduction of federal income tax expense
  arising                                                                                          
     from carryforward of prior years' realized losses on
  investments                                                                                      
     and non-life operating losses                                               4,875        5,750 
                                                                   -------     -------      -------  
        Net income                                                  37,247      30,821       28,401 
  Less dividend requirements of Series Preferred Stock                                             
     $1 Par, less applicable income tax benefits                     1,593       1,650        1,776 
                                                                   -------     -------      -------  
  
        Net income applicable to common stock                     $ 35,654    $ 29,171     $ 26,625 
                                                                   =======     =======      =======      
  
  Primary earnings per common share:
     Income from continuing operations                            $   2.49    $   1.71     $   1.57 
     Loss from discontinued operations                                                         (.06)
     Extraordinary credit                                                          .34          .42 
                                                                   -------     -------      -------  
        Net income                                                $   2.49    $   2.05     $   1.93 
                                                                   =======     =======      =======      
     Weighted average shares outstanding (in thousands)             14,322      14,258       13,777
                                                                   =======     =======      =======      
  Fully diluted earnings per common share:                                                         
     Income from continuing operations                            $   1.85    $   1.42     $   1.29 
     Loss from discontinued operations                                                         (.04)
     Extraordinary credit                                                          .27          .33 
                                                                   -------     -------      -------  
        Net income                                                $   1.85    $   1.69     $   1.58 
                                                                   =======     =======      =======      
     Weighted average shares outstanding (in thousands)             21,111      18,050       17,681 
                                                                   =======     =======      =======      
  <FN>
                                      See accompanying notes.
  </TABLE>
  
  <PAGE> 18
                              THE STATESMAN GROUP, INC. and Subsidiaries
  <TABLE>
  <CAPTION>
                            CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                           (dollars in thousands, except per share amounts)
                                                                                                                       
                                                                      Year Ended December 31,   
                                                                  -------------------------------
                                                                  1993          1992         1991
                                                                  ----          ----         -----
  <S>                                                          <C>         <C>           <C>
  Series Preferred Stock $1 Par:
     Balance, beginning of year                                 $    344     $    344     $    344 
        Conversion into common stock                                  (5)                          
                                                                 -------      -------      -------
     Balance, end of year                                       $    339     $    344     $    344 
                                                                 =======      =======      ======= 
  
  Common stock:                                                                                    
     Balance, beginning of year                                  $14,252      $14,252      $14,231 
        5% stock dividend                                            688 
        Exercise of stock options                                                               21
                                                                 -------      -------      ------- 
     Balance, end of year                                        $14,940      $14,252      $14,252 
                                                                 =======      =======      ======= 
  
  Additional paid-in capital:
     Balance, beginning of year                                  $50,594      $50,371      $50,246 
        5% stock dividend                                          8,683                           
        Issuance of treasury stock to employee benefit plans                       88         (205)
        Exchange of common stock for 1987 Series II 
           Preferred Stock                                           270          135          309 
        Conversion of 1976 Series Preferred Stock                    (39)
        Tax benefit related to issuance of shares 
           under stock option plan                                   180 
        Exercise of stock options                                   (892)                       21 
                                                                 -------      -------      ------- 
     Balance, end of year                                        $58,796      $50,594      $50,371
                                                                 =======      =======      ======= 
  Unrealized depreciation of equity securities:                                                    
     Balance, beginning of year                                  $(1,487)     $ (678)      $  (923)
        (Increase) decrease during year                            1,142        (809)          245 
                                                                 -------      -------      ------- 
     Balance, end of year                                        $  (345)     $(1,487)     $  (678)
                                                                 =======      =======      ======= 
  Retained earnings (deficit):
     Balance, beginning of year                                  $52,968      $26,839      $  (744)
        Net income                                                37,247       30,821       28,401 
        Cash dividends:                                                                            
           1976 Series Preferred Stock                               (85)         (85)         (85)
           1987 Series II Preferred Stock                           (555)        (621)        (904)
           1988 Series I and II Preferred Stock                     (287)      (3,508)
           Common stock (1993 and 1992--$.05 per share)             (655)        (653)
        5% stock dividend                                         (9,371)
        Tax benefit on 1987 Series II Preferred Stock 
           dividends                                                 185          175          300 
        Redemption of preferred stock purchase rights                                         (129)
                                                                 -------      -------      ------- 
     Balance, end of year                                        $79,447      $52,968      $26,839 
                                                                 =======      =======      =======
  Common stock in treasury:                                                                        
     Balance, beginning of year                                  $(2,931)     $(3,092)     $(4,220)
        Cost of shares acquired                                   (6,189)
        Issued to employee benefit plans                                           65          703 
        Net issuance under stock option plans                        984 
        Exchange of common stock for 1987 Series II 
           Preferred Stock                                           207           96          425 
        Conversion of 1976 Series Preferred Stock                     44                           
                                                                 -------      -------      ------- 
     Balance, end of year                                        $(7,885)     $(2,931)     $(3,092)
                                                                 =======      =======      =======
  <FN>
                                     See accompanying notes.
  </TABLE>
  <PAGE>
  <PAGE> 19
                              THE STATESMAN GROUP, INC. and Subsidiaries
  
                                 CONSOLIDATED STATEMENTS OF CASH FLOWS
                                        (dollars in thousands)
  <TABLE>
  <CAPTION>
  
                                                                      Year Ended December 31,   
                                                                  -------------------------------
                                                                  1993          1992         1991
                                                                  ----          ----         -----
  <S>                                                        <C>           <C>           <C>
  OPERATING ACTIVITIES
  Continuing operations:
     Income from continuing operations                         $   37,247    $  26,017    $  23,407 
     Adjustments to reconcile income from continuing                                               
        operations to net cash provided by 
        continuing operations:
        Changes in:
           Policy liabilities and accruals                       157,756      144,952      141,328 
           Other policyholders' funds, accrued expenses
             and other liabilities                                10,967       12,377       22,181 
           Accrued investment income                              (6,874)      (5,648)      (4,634)
           Accounts and notes receivable                          (7,982)       1,798           66 
           Deferred policy acquisition costs                     (58,867)     (12,411)     (17,159)
           Amortization of discounts and premiums on 
             investments, net                                    (53,568)     (43,761)     (13,262)
           Provision for depreciation and amortization             1,432        1,412        1,475 
           Realized gains on investments                         (24,803)     (12,369)     (10,655)
           Other                                                  (3,159)      (3,846)      (2,153)
                                                                --------     --------     -------- 
             Net cash provided by continuing operations           52,149      108,521      140,594 
                                                                --------     --------     -------- 
  
  Net cash provided by (used in) discontinued operations:                                          
     Net loss                                                                     (71)        (756)
     Items not affecting cash                                                                 (463)
                                                                --------     --------     -------- 
                                                                                  (71)      (1,219)
                                                                --------     --------     -------- 
             Net cash provided by operating activities            52,149      108,450      139,375
                                                                --------     --------     -------- 
                                                                         
  INVESTING ACTIVITIES
     Purchases of fixed maturity investments                  (3,817,415)  (1,705,842)  (1,994,318)
     Mortgage loans originated                                    (7,318)     (16,765)     (64,861)
     Purchases of equity securities                              (23,898)      (9,698)      (2,753)
     Purchases of short-term and other investments               (17,325)      (2,262)      (5,054)
     Purchases of securities placed in escrow account             (9,895)     (22,588)
     Principal repayments on mortgage-backed securities
        and proceeds from the redemption and maturity                                              
        of fixed maturity investments                            755,245      430,348      112,621 
     Proceeds from sales of fixed maturity investments         2,166,253      816,701    1,572,416 
     Principal repayments on and sales of mortgage loans          26,671       81,290       19,409 
     Proceeds from sales and maturities of short-term and                                          
        other investments                                            484          246       44,921 
     Proceeds from sales of equity securities                     41,092        1,550          413 
     Proceeds from sales of real estate acquired in 
        satisfaction of debt                                       5,514        2,768        3,234 
     Proceeds from the sale of subsidiary                                                    1,011 
     Net purchases of property and equipment                      (1,205)        (514)      (1,240)
                                                                --------     --------     --------
           Net cash used in investing activities                (881,797)    (424,766)    (314,201)
                                                                --------     --------     --------
  <FN>
                                     See accompanying notes.
  </TABLE>
  <PAGE>
  <PAGE> 20
                              THE STATESMAN GROUP, INC. and Subsidiaries
  <TABLE>
  <CAPTION>
                          CONSOLIDATED STATEMENTS OF CASH FLOWS--(Continued)
                                        (dollars in thousands)
  
                                                                      Year Ended December 31,   
                                                                  -------------------------------
                                                                  1993          1992         1991
                                                                  ----          ----         -----
  <S>                                                        <C>          <C>           <C>
  FINANCING ACTIVITIES                                                                         
     Issuance of long-term debt                               $  115,656   $   16,677    $  21,100 
     Payments on long-term debt                                  (37,332)      (9,133)      (6,344)
     Issuance of preferred stock by wholly-owned subsidiary                    65,088 
     Issuance of common stock                                         91                        42 
     Treasury stock acquired                                      (6,189)
     Receipts from interest-sensitive insurance
        and annuity contracts                                  1,035,003      478,237      354,018 
     Benefit payments on interest-sensitive insurance
        and annuity contracts                                   (283,539)    (217,787)    (190,906)
     Repayments on interest rate swap transaction                 (2,158)      (1,950)      (1,762)
     Dividends paid to stockholders and redemption of stock
        purchase rights                                           (1,295)      (1,359)      (1,118)
                                                                --------     --------     --------
           Net cash provided by financing activities             820,237      329,773      175,030 
                                                                --------     --------     --------
  Net increase (decrease) in cash                                 (9,411)      13,457          204 
  Cash and cash equivalents, beginning of year                    19,404        5,947        5,743
                                                                --------     --------     -------- 
  Cash and cash equivalents, end of year                        $  9,993     $ 19,404     $  5,947 
                                                                ========     ========     ========                                 
                
  SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION                                                
  Cash paid during the year for:
     Interest                                                   $  4,801     $  5,872      $ 5,717 
     Income taxes                                                 19,963       12,575        5,150 
  Noncash Investing and Financing Activities:                                                      
     Reduction in ESOP loan guarantee balance                      1,150        1,100        1,000 
     Exchange of subordinated debentures for redeemable                                            
        preferred stock of wholly-owned subsidiary                30,000 
     Exchange of common stock for 1987 Series II 
        Preferred Stock                                              477          231          734 
     Exchange of treasury stock for exercised stock options          809 
     Conversion of 1976 Series Preferred Stock 
        into common stock                                             44 
     Common stock issued to employee benefit plans                                153          498
     Foreclosure on mortgage of subsidiary's home 
        office building                                                         2,616                                              
     Equity security received upon sale of subsidiary                                          127
  
  
  
  
  
  
  
  <FN>
  
                                        See accompanying notes.
  </TABLE>
  <PAGE>
  <PAGE> 21
  NOTE A--SIGNIFICANT ACCOUNTING POLICIES
  
     The accompanying consolidated financial statements have been prepared in
  conformity with generally accepted accounting principles ("GAAP"), which, as
  to the subsidiary insurance companies, differ in some respects from statutory
  accounting practices followed in the preparation of financial statements
  submitted to state insurance departments.
  
     Principles of Consolidation:  The consolidated financial statements include
  the accounts of the Company and its subsidiaries after elimination of all
  significant intercompany accounts and transactions.
  
     Investments:  Fixed maturity investments (bonds, notes and redeemable
  preferred stocks) are reported at amortized cost less adjustments for other
  than temporary declines in value and the allowance for credit losses unless
  they have been identified for possible sale prior to maturity, in which case
  they are carried at the lower of cost or estimated fair value, in the aggregate
  (see Note B for discussion of the impact of the adoption of Statement of
  Financial Accounting Standards No. 115, "Accounting for Certain Investments in
  Debt and Equity Securities," on January 1, 1994).  The Company has the ability
  and the intent to hold those fixed maturities reported as held for investment
  until maturity.  Actual principal prepayments and estimates of future principal
  prepayments are used in the determination of amortized cost for certain
  mortgage-backed securities.  Factors used in determining estimates of future
  prepayments include historical prepayment data and expected prepayment
  performance under varying interest rate scenarios. 
  
     Equity securities (common and non-redeemable preferred stocks) are carried
  at current market value.  Mortgage loans and policy loans are reported at
  unpaid principal less allowance for loan losses. Short-term investments are
  carried at amortized cost, which approximates fair value. 
  
     Realized gains and losses on sales of investments are determined on the
  specific identification basis and are recognized in net income upon sale. 
  Unrealized gains and losses on equity securities and unrealized net losses on
  fixed maturities available for sale net of applicable deferred income taxes,
  are included directly in stockholders' equity and, accordingly, have no effect
  on net income. 
   
     Recognition of Revenues:  Premiums for traditional life insurance products,
  which include those products with fixed and guaranteed premiums and benefits,
  are recognized as revenues when due.  Accident and health insurance premiums 
  are earned pro rata over the periods to which the premiums relate.
  
     Revenues for investment contracts (principally deferred annuities) and
  universal life and single premium whole life insurance policies consist of
  policy fund charges for cost of insurance, policy administration, and surrender
  charges assessed against policyholder account balances and amortization of
  policy initiation fees.  Universal life insurance, single premium whole life
  insurance and immediate annuity policies generate unearned policy fund charges
  that represent fees assessed against policyholder fund balances in the policy
  issue year.  These unearned charges are included in other liabilities and are
  amortized into income over the period benefitted using the same assumptions and
  factors used to amortize deferred policy acquisition costs.
  
     Deferred Policy Acquisition Costs:  Commissions and other costs of issuing
  and acquiring new business that vary with and are primarily related to the
  production of new and renewal business, to the extent recoverable, have been
  deferred. 
  
     Traditional life insurance deferred policy acquisition costs are being
  amortized (with interest) over the expected premium-paying period of the
  related policies using assumptions consistent with those used in computing
  policy benefit reserves, including provisions for possible unfavorable
  deviations.
  <PAGE>
  <PAGE> 22
  
     For deferred annuity contracts and universal life and single premium whole
  life insurance policies, deferred policy acquisition costs are being amortized
  generally in proportion to the present value (using the assumed crediting rate)
  of expected gross profits from surrender charges and investment, mortality and
  expense margins over the expected life of the policies, but not more than
  fifteen years.  This amortization is adjusted retrospectively when estimates
  of current or future gross profits to be realized are revised.  In 1993 and
  1992, realized investment gains resulted in  accelerated amortization expense
  of $9,760,000 and $5,250,000, respectively. 
  
     Policy Liabilities and Accruals -- Future Policy Benefits and Unearned
  Premiums:  Benefit reserves for deferred annuity contracts and universal life
  and single premium whole life insurance policies are computed under a
  retrospective deposit method and represent policyholder account balances before
  applicable surrender charges.  Policyholder account balances consist of
  policyholder deposits accumulated at credited interest rates generally ranging
  from 5.00% to 8.10% in 1993, 6.00% to 8.10% in 1992 and 7.00% to 8.95% in 1991,
  less withdrawals and charges for mortality, administrative and policy
  initiation expenses.  Policy benefits and claims that are charged to expense
  include benefit claims incurred in the period in excess of related policyholder
  account balances. 
     The liabilities for traditional life insurance policy benefits have been
  determined using the net level reserve method
  including assumptions as to investment yields, mortality, withdrawals and other
  assumptions based on the life insurance
  subsidiaries' prior experience modified as necessary to reflect anticipated
  trends and to include provisions for possible
  unfavorable deviations.  Reserve interest assumptions generally range from
  2.75% to 8.75%.  Policy benefit claims are
  charged to expense in the period that claims are incurred.  Participating
  business is immaterial and dividends related to such
  business are included as part of the policy reserves.
  
     Accident and health insurance reserves are comprised of unearned premium
  reserves computed on the pro rata basis, and return of premium reserves and the
  present value of amounts not yet due on long-term disability policies computed
  on the same basis as life insurance.
  
     Reinsurance:  Effective January 1, 1993, the Company adopted Statement of
  Financial Accounting Standard No. 113, "Accounting and Reporting for
  Reinsurance of Short-Duration and Long-Duration Contracts."  Under Statement
  113, insurance liabilities are reported before the effects of reinsurance. 
  Reinsurance receivables, including amounts related to insurance liabilities,
  are reported as assets.  Amounts recoverable from reinsurers are estimated in
  a manner consistent with the liabilities relating to the underlying reinsured
  contracts. 
  
     Prior to the adoption of Statement 113, insurance liabilities were reported
  net of amounts ceded to and recoverable from reinsurers.  As permitted by
  Statement 113, the Company has elected not to reclassify prior year balance
  sheet amounts to conform to the 1993 presentation and accordingly, policy
  liabilities and accruals at December 31,  1992 were reduced by $6,089,000 for
  estimated recoveries under reinsurance contracts. 
  
     Separate Account Assets and Liabilities:  Separate account assets and
  liabilities represent funds held for the exclusive benefit of certain annuity
  contract holders. Fees are received for administrative expenses and for
  assuming certain mortality, investment and expense risks.  Operations of the
  separate account are not included in the accompanying consolidated financial
  statements. 
  
     Real Estate Acquired in Satisfaction of Debt:  Real estate acquired in
  satisfaction of debt is reported at the lower of the recorded investment in the
  loan satisfied or estimated fair value of the assets received, adjusted for
  estimated disposal costs.  Specific write-downs for the estimated losses are
  provided when the carrying value of real estate acquired exceeds the
  estimated disposal value based on current appraisal.
  
  <PAGE>
  <PAGE> 23
  
     Property and Equipment:  Property and equipment, which includes a building
  and equipment recorded under a capitalized lease obligation, are reported at
  cost, less accumulated depreciation and amortization.  Provisions for
  depreciation and amortization are computed by straight-line and
  declining-balance methods over the estimated useful lives of the assets.
  
     Excess of Cost Over Net Assets of Acquired Subsidiaries ("Goodwill"): 
  Goodwill arising from acquisitions after 1970 is amortized over 40 years on a
  straight-line basis, while amounts arising from acquisitions prior to 1971 are
  not amortized because, in the opinion of management, there is a continuing
  benefit.
  
     Income Taxes:  As discussed in Note C, effective January 1, 1993, the
  Company adopted Statement of Financial Accounting Standards No. 109,
  "Accounting for Income Taxes."  Under Statement 109, deferred income tax assets
  or liabilities are computed based on the difference between the financial
  statement and income tax bases of assets and liabilities and are measured using
  the enacted marginal tax rates and laws that will be in effect when the
  differences are expected to reverse.  Deferred income tax expenses or credits
  are based on the changes in the asset or liability from period to period. 
  Prior to the adoption of Statement 109, deferred income tax expenses or credits
  were recorded to reflect the income tax consequences of timing differences
  between the recording of  income and expenses for financial reporting purposes
  and for purposes of filing federal income tax returns at income tax rates in
  effect when the difference arose.
  
     Interest Rate Swaps and Collar:  Net interest received or paid on interest
  rate swap and collar contracts that qualify as hedges is recognized as an
  interest adjustment as earned or incurred over the term of the contract.  Gains
  or losses on termination of such contracts are deferred and amortized as an
  interest adjustment over the remaining original term of the contract.  Interest
  rate swaps that do not qualify as hedges are reported at the lower of cost
  (accrued value of periodic net settlement amounts) or market, with changes in
  the value of such swaps recognized in net investment income. 
  
     Employee Benefits:  Effective January 1, 1993, the Company adopted Statement
  of Financial Accounting Standards No. 106, "Employers' Accounting for
  Post-retirement Benefits Other Than Pensions," and Statement of Financial
  Accounting Standards No. 112, "Employers' Accounting for Postemployment
  Benefits."  Statements 106 and 112 required companies to recognize expense
  related to anticipated postretirement and postemployment benefits, other than
  pensions, for current or former employees, their beneficiaries and covered
  dependents and retirees.  Adoption of these new statements did not have a
  material impact on results of operations for the year ended December 31, 1993
  and the cumulative effect of the change in accounting was not material.  Prior
  year financial statements were not restated to reflect adoption of these new
  statements.
  
     Earnings Per Share:  Primary earnings per common share is based on the
  weighted average number of common and common equivalent shares outstanding and
  net income, after recognition of dividend requirements of the Series Preferred
  Stock $1 Par and the tax benefits on the 1987 Series II Preferred Stock
  dividends.
  <PAGE>
  <PAGE> 24
  
     Fully diluted earnings per common share assumes that the Series Preferred
  Stock $1 Par and the 6 1/4% Convertible Subordinated Debentures were converted
  into common stock as of the date of issuance and that the related dividend and
  interest requirements were eliminated.  In addition, net income has been
  reduced by the additional contribution to the employee stock ownership plan
  ("ESOP"), less applicable income tax  benefits, that would be required to
  service the ESOP debt, if the shares of 1987 Series II Preferred Stock were
  converted into common stock. 
  
     The number of shares and per share amounts reported for earnings per share
  have been restated to give retroactive effect to the 5% stock dividend paid in
  December 1993.
  
     Cash Flow Information:  For purposes of the consolidated statements of cash
  flows, the Company considers all demand deposits and all interest-bearing
  accounts not related to the investment function to be cash equivalents. 
  
     Business Segments:  The Company operates in the single business segment of
  providing individual life insurance and annuity coverage within the United
  States.
  
     Fair Values of Financial Instruments:  The following methods and assumptions
  were used by the Company in determining estimated fair values of financial
  instruments:
  
     Cash and cash equivalents, short-term investments:  The carrying amount
  reported in the consolidated balance sheets for these instruments approximates
  their estimated fair value.
  
     Investment securities:  Estimated fair values for fixed maturity securities
  and equity securities are based on quoted market prices, where available.  For
  investment securities not actively traded, estimated fair values are determined
  using values obtained from independent pricing services or, in the case of
  private placements, are determined by discounting expected future cash flows
  using current market interest rates applicable to the yield, credit quality,
  and for fixed maturity securities,  maturity of the investments.  The estimated
  fair values for equity securities are recognized in the consolidated balance
  sheets.
  
     Mortgage loans and policy loans:  The estimated fair values of mortgage
  loans and policy loans are determined by discounting future expected cash flow,
  using interest rates currently being offered for similar loans to borrowers
  with similar credit ratings.  Loans with similar characteristics are aggregated
  for purposes of the calculations.  
  
     Off-balance sheet financial instruments:  Estimated fair values of interest
  rate swaps and the collar are based on bids from swap dealers which represent
  the net value or cost of terminating the contracts at the balance sheet date. 
  Estimated fair values for the Company's lending commitments are based on fees
  currently charged to enter into similar agreements, taking into account the
  remaining terms of the  agreements and the counterparties' credit standing.
  
     Investment contracts:  Estimated fair values of the Company's annuity
  contracts are equal to the cash surrender value available to the policyholder
  on the balance sheet date.  Estimated fair values for the Company's liabilities
  under other investment-type insurance contracts, such as supplementary
  contracts without life contingencies, are determined by discounting expected
  future cash flows using interest rates currently being offered for similar
  contracts with maturities consistent with those remaining for the contracts
  being valued.
  
  <PAGE>
  <PAGE> 25
  
     The following table presents the reported value and estimated fair value of
  deferred and immediate annuities and supplementary contracts without life
  contingencies at December 31, 1993 and 1992:
  <TABLE>
  <CAPTION>
                                                                 Reported                  Fair
                                                                  Value                   Value
                                                                  -----                   -----
                                                                      (dollars in thousands)
        <S>                                                     <C>                     <C>
         December 31, 1993
         Deferred and immediate annuities                        $3,690,557              $3,446,954
         Supplementary contracts without life contingencies          58,483                  60,821
                                                                 ----------              ----------
                                                                 $3,749,040              $3,507,775
                                                                 ==========              ==========
  
         December 31, 1992
         Deferred and immediate annuities                        $2,798,602              $2,612,922
         Supplementary contracts without life contingencies          51,358                  53,056 
                                                                 ----------              ----------
                                                                 $2,849,960              $2,665,978
                                                                 ==========              ==========
  </TABLE>
  
         Estimated fair values of the Company's insurance contracts other than
  investment contracts are not required to be disclosed.  However, the estimated
  fair values of liabilities under all insurance contracts are taken into
  consideration in the Company's overall management of interest rate risk.
  
         Long-term debt:  The estimated fair value of the Company's
  publicly-traded convertible subordinated debentures is based on quoted market
  prices.  The estimated fair value of other fixed rate long-term debt is
  determined by discounting expected future cash flows using assumed incremental
  borrowing rates for similar duration borrowing arrangements.  The estimated
  fair value of variable rate long-term debt approximates its reported value. 
  
         Redeemable preferred stock:  The estimated fair value of the
  publicly-traded redeemable preferred stock issued by the Company's wholly-owned
  subsidiary is based on quoted market prices.  The estimated fair value of the
  privately placed redeemable preferred stock issued by the Company's
  wholly-owned subsidiary is determined by discounting expected future cash flows
  using assumed incremental dividend rates for similar duration securities.  The
  estimated fair value of the parent company's redeemable preferred stock (1987
  Series II) is determined using pricing models for convertible equity
  securities.
  
         Pending Accounting Standards:  In May 1993, the Financial Accounting
  Standards Board ("FASB") issued Statement of Financial Accounting Standards
  ("SFAS") No. 114, "Accounting by Creditors for Impairment of a Loan." 
  Statement 114 applies to all loans except large groups of smaller-balance
  homogeneous loans that are collectively evaluated for impairment, loans
  measured at fair value or at lower of cost or fair value, leases and debt
  securities as defined in Statement 115.  Statement 114 requires that impaired
  loans be valued at the present value of expected future cash flows discounted
  at the loan's effective interest rate or at the loan's observable market price
  or the fair market value of the collateral if the loan is collateral dependent. 
  Statement 114 is effective for fiscal years beginning after December 15, 1994,
  with earlier adoption encouraged.
  
         Statement 114 applies primarily to the Company's mortgage loan
  portfolio.  The Company actively monitors this portfolio and evaluates the net
  realizable value of any loan which is deemed to be impaired.  Net realizable
  value is generally assessed based upon current appraisal value of the
  underlying collateral.  If carrying value exceeds this estimated realizable
  value, carrying value is reduced to the estimated realizable value by a charge
  to earnings (realized loss on investments).  As such, this statement does not
  represent a material change from the Company's current accounting practices and
  the Company does not expect adoption of this Statement to have any material
  effect on its reported financial results.
  <PAGE>
  <PAGE> 26
  
         In June 1993, the FASB issued an Exposure Draft entitled "Accounting for
  Stock-based Compensation."  If adopted as a SFAS in its present form, this
  exposure draft would require that compensation expense be recognized for all
  stock options in an amount equal to "fair value" on the date of grant.  Fair
  value is to be calculated using an option pricing model or similar valuation
  technique.  Recognition of compensation expense using this methodology is
  expected to be required for options granted after December 31, 1996 with
  pro-forma disclosure for the options granted after December 31, 1993.  The
  terms of the stock options granted by the Company in recent years have always
  been fixed with option prices equal to market value on the date of grant.  As
  a result, the Company does not currently recognize compensation expense on
  these options.  The final form of the proposed SFAS has not been issued and,
  accordingly, the effect of implementation of the proposed SFAS on the Company
  has not been determined.
  
         Reclassification:  Certain items in the 1992 and 1991 consolidated
  financial statements and notes thereto have been reclassified to conform to the
  presentations made in the 1993 consolidated financial statements.  
  
  
  NOTE B--INVESTMENTS
  
         In May 1993, the Financial Accounting Standards Board issued Statement
  of Financial Accounting Standards No. 115, "Accounting for Certain Investments
  in Debt and Equity Securities," that becomes effective for fiscal years
  beginning after December 15, 1993.  The primary impact of Statement 115 is to
  require companies to classify their securities into categories based upon the
  company's intent relative to the eventual disposition of the securities.  Under
  the new rules, the Company's investments in debt securities (including
  mortgage-backed securities) and equity securities that have readily
  determinable fair values are to be classified in three categories and accounted
  for as follows:
  
         Held-to-Maturity Securities:  Debt securities which the Company has the
  positive intent and ability to hold until maturity shall be reported at
  amortized cost.                             
  
         Trading Securities:  Debt and marketable equity securities purchased
  with the intent to sell in the near term shall be reported at fair value and
  unrealized gains and losses shall be included in results of operations.
  
         Available-for-Sale:  Debt and marketable equity securities not
  classified as either held-to-maturity or trading shall be reported at fair
  value with unrealized gains and losses reported as adjustments to stockholders'
  equity.
  
         During the fourth quarter of 1992, the Company segregated its fixed
  maturity investments into those that would be held until maturity and those
  that would be available for sale.  Available for sale fixed maturity
  investments are presently reported at the lower of cost or estimated fair
  value, in the aggregate.  Unrealized net losses on these investments were $0
  at December 31, 1993 and 1992.  Statement 115 precludes sales of securities
  classified as held-to-maturity as well as transfers of such securities to one
  of the other two classifications except in very limited circumstances.  As a
  result, a greater portion of the Company's fixed maturity investments are
  classified as available for sale at December 31, 1993 than at December 31,
  1992.
  
         The adoption of Statement 115 will expose the Company's stockholders'
  equity to greater volatility due to changes in market interest rates and the
  attendant changes in the reported value of securities classified as
  available-for-sale.  The Company presently does not anticipate entering into
  certain portfolio management  practices, such as hedging transactions, to
  minimize this volatility; however, the Company will continue to study this
  matter.  The Company intends to adopt Statement 115 on January 1, 1994.  Upon
  adoption, there may be some changes in the classifications of securities from
  those reported herein but such changes are not expected to be significant.
  <PAGE>
  <PAGE> 27
  
         Upon adoption of Statement 115 on January 1, 1994, stockholders' equity
  will increase by the amount of net unrealized gain on securities designated as
  available-for-sale ($85,278,000 at December 31, 1993) less adjustments for (a)
  additional amortization of certain deferred policy acquisition costs that would
  have been reported if such gains were realized estimated at 40% - 50% of the
  net unrealized gain and (b) applicable federal income taxes of 35% of the
  difference between the net unrealized gain and the deferred policy acquisition
  cost adjustment.  The net increase in stockholders' equity attributable to the
  adoption of Statement 115 is estimated to be $30,000,000 - $35,000,000.
  
         The reported value and estimated fair value of fixed maturity
  investments are as follows:
  <TABLE>
  <CAPTION>
                                                                Gross          Gross          Estimated
                                                Reported      Unrealized     Unrealized         Fair
                                                  Value          Gains         Losses           Value
                                                  -----          -----         ------           -----
                                                                (dollars in thousands)            
  <S>                                         <C>              <C>              <C>         <C>   
  December 31, 1993
  Held for investment:
     U.S. Treasury securities                  $    22,537      $   3,046                    $    25,583
     Corporate securities                          453,490         25,628        $ 1,513         477,605
     Mortgage-backed securities                    271,714          5,482          2,409         274,787
                                                ----------       --------        -------      ----------
                                                $  747,741       $ 34,156        $ 3,922      $  777,975
                                                ==========       ========        =======      ==========                           
  
  Available for sale:
     U.S. Treasury securities                  $    88,579      $   8,846       $     15     $    97,410
     Corporate securities                        1,018,191         49,746          7,836       1,060,101
     Mortgage-backed securities                  2,019,545         49,596         16,185       2,052,956
     Other debt securities                          10,000          1,126                         11,126
                                                ----------       --------        -------      ----------
                                                $3,136,315       $109,314        $24,036      $3,221,593
                                                ==========       ========        =======      ==========
  
  December 31, 1992
  Held for investment:
     U.S. Treasury securities and obligations
         of U.S. government corporations
         and agencies                          $   111,386      $   2,239        $   315     $   113,310
     Corporate securities                          725,028         22,743          4,509         743,262
     Mortgage-backed securities                  1,480,903         69,916         26,196       1,524,623
     Other debt securities                          12,254            244             78          12,420
                                                ----------       --------        -------      ----------
                                                $2,329,571       $ 95,142        $31,098      $2,393,615
                                                ==========       ========        =======      ==========                           
  Available for sale:
     U.S. Treasury securities                  $    39,879      $     414       $    153     $    40,140
     Mortgage-backed securities                    541,098         16,276         11,125         546,249
                                                ----------       --------        -------      ----------
                                                $  580,977       $ 16,690        $11,278      $  586,389
                                                ==========       ========        =======      ==========                           
  </TABLE>
  <PAGE>
  <PAGE> 28
  
         The reported value and estimated fair value of fixed maturity securities
  at December 31, 1993 including those available for sale, by contractual
  maturity, are as follows.  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.
  <TABLE>
  <CAPTION>
                                                                                         Estimated
                                                                  Reported                 Fair
                                                                    Value                  Value
                                                                    -----                  -----                         
                                                                        (dollars in thousands)
        <S>                                                    <C>                   <C>
         Due in one year or less                                $     7,576           $     7,766
         Due after one year through five years                       44,987                47,183
         Due after five years through ten years                     154,163               166,709
         Due after ten years                                      1,386,071             1,450,167
                                                                 ----------            ----------
                                                                  1,592,797             1,671,825
         Mortgage-backed securities                               2,291,259             2,327,743
                                                                 ----------            ----------
                                                                 $3,884,056            $3,999,568
                                                                 ==========            ==========
  </TABLE>
  
         Proceeds from sales of fixed maturity investments were $2,166 million,
  $817 million and $1,572 million for the years ended December 31, 1993, 1992 and
  1991, respectively.  Realized gains (losses) on investments included in
  revenues are as follows:
  <TABLE>
  <CAPTION>
                                                                 Year Ended December 31
                                                             1993          1992         1991
                                                             ----          ----         ----
                                                                 (dollars in thousands)
        <S>                                                <C>          <C>          <C>
         Fixed maturities:
             Gross gains                                    $ 84,595      $ 32,675     $ 53,088 
             Gross losses                                    (55,680)      (15,368)     (20,989)
             Security writedowns and 
                increase in allowance 
                for credit losses                                           (3,106)     (16,370)
                                                            --------      --------     --------
                                                              28,915        14,201       15,729 
  
         Equity securities                                    (2,895)         (166)         106 
         Mortgage loans on real estate                        (1,027)       (1,182)      (2,708)
         Other                                                  (190)         (484)      (2,472)
                                                            --------      --------     --------
                                                            $ 24,803      $ 12,369     $ 10,655
                                                            ========      ========     ========
  </TABLE>
  
  
         At December 31, 1993, there were no  fixed maturity securities which had
  been written down to net realizable value.  The $3,000,000 allowance for credit
  losses established in 1991 to provide a general allowance for potential losses
  on fixed maturity securities for which specific write-downs are not yet
  required was unchanged at December 31, 1993 and 1992.
  <PAGE>
  <PAGE> 29
  
         Net investment income is summarized as follows:
  <TABLE>
  <CAPTION>
                                                                    Year Ended December 31
                                                              1993         1992          1991
                                                              ----         ----          ----
                                                                    (dollars in thousands)
        <S>                                                 <C>           <C>          <C>
         Fixed maturities                                    $281,713      $250,937     $223,119
         Equity securities                                      1,444         3,154           14
         Mortgage loans on real estate                          8,206        14,946       15,750
         Policy loans                                           3,366         3,515        3,322
         Short-term investments                                 6,138         1,427        4,389
         Other                                                  2,538         1,196          527
                                                             --------      --------     --------
                                                              303,405       275,175      247,121
         Less investment expenses                               4,503         2,944        2,712
                                                             --------      --------     --------
                                                             $298,902      $272,231     $244,409
                                                             ========      ========     ========
  </TABLE>
  
         Mortgage loans on real estate and other investments with reported values
  at December 31, 1993 of $98,000 and $345,000, respectively, were non-income
  producing for the year ended December 31, 1993.
  
         The changes in unrealized appreciation (depreciation) of investments are
  as follows: 
  <TABLE>
  <CAPTION>
                                                                    Year Ended December 31
                                                              1993         1992          1991
                                                              ----         ----          ----
                                                                    (dollars in thousands)
        <S>                                                <C>          <C>          <C>
  
         Equity securities                                  $    956     $    (809)   $     245 
         Deferred income tax benefit                             186                            
                                                             -------      --------     -------- 
                                                               1,142          (809)         245 
         Fixed maturities                                     46,056        (9,750)     135,422
                                                             -------      --------     -------- 
                                                             $47,198      $(10,559)    $135,667 
                                                             =======      ========     ========
  </TABLE>
  
         At December 31, 1993, gross unrealized appreciation pertaining to equity 
  securities was $313,000 and gross unrealized depreciation was $844,000 (before
  federal income tax benefit of $186,000). 
  
         The estimated fair value of policy loans at December 31, 1993 and 1992
  was $53,424,000 and $51,606,000, respectively.
  <PAGE>
  <PAGE> 30
  
         The Company's mortgage loans on real estate, which represented less than
  2% of total investments, are diversified by geographic location and property
  type.  The reported value and estimated fair value of the Company's mortgage
  loans on real estate are as follows:
  <TABLE>
  <CAPTION>                                                                                Estimated
                                                                   Reported                  Fair
                                                                     Value                   Value
                                                                     -----                   -----
                                                                         (dollars in thousands)
        <S>                                                        <C>                     <C>
         December 31, 1993
         Commercial mortgages                                       $55,453                 $56,906
         Residential mortgages                                       12,088                  12,250
                                                                    -------                 -------
              Total mortgage loans                                  $67,541                 $69,156
                                                                    =======                 =======
  
         December 31, 1992
         Commercial mortgages                                       $68,344                 $69,101
         Residential mortgages                                       19,742                  20,076
                                                                    -------                 -------
              Total mortgage loans                                  $88,086                 $89,177
                                                                    =======                 =======
  </TABLE>
  
         The Company manages its investments to limit credit risk by diversifying
  its portfolio among various security types and industry sectors.  At December
  31, 1993, the Company's unrated or below investment grade corporate fixed
  maturities amounted to 1% of the Company's fixed maturity investments and less
  than 1% of total investments and total assets. 
   
         Investments in mortgage-backed securities at December 31, 1993
  principally consisted of collateralized mortgage obligations ("CMOs") and
  comprised 59% of the Company's fixed maturity investments at that date. 
  Included in such investments were $1.5 billion of CMOs and mortgage-backed
  pass-through securities issued by non-government agencies (39% of total fixed
  maturity investments).  The Company's holdings primarily consist of senior
  securities in the CMO structures which are collateralized by first mortgage
  liens on single family and multifamily residences.  Approximately 53% of such
  investments are secured by properties located in California with no other state
  representing more than 7%.  All of these securities are rated investment grade
  with more than 85% of such securities rated AAA by Standard & Poor's
  Corporation, or the comparable equivalent rating by another independent
  nationally recognized rating agency. 
  
  
         Investments, all of which are fixed maturities, in any entity in excess
  of ten percent of stockholders' equity at December 31, 1993, other than
  investments in affiliates and investments issued or guaranteed by the United
  States Government or a United States Government agency, are as follows. 
  Mortgage-backed securities issued by non-government entities are aggregated by
  the issuing entity with the number of individual securities identified
  parenthetically following the issuer's name.  The creditworthiness of these
  securities is based solely on the underlying segregated pools of mortgage loan
  collateral and related credit enhancements rather than the general
  creditworthiness of the issuing entity.
  
  
  
  <PAGE>
  <PAGE> 31
  <TABLE>
  <CAPTION>
  
                                                                                           Estimated
                                                                   Reported                  Fair
                                                                     Value                   Value
                                                                     -----                   -----
                                                                         (dollars in thousands)
        <S>                                                       <C>                     <C>
         Allegheny Generating Company                              $ 20,180                $ 19,475
         Borden, Inc.                                                14,940                  15,188
         Chemical Mortgage Securities                                18,886                  18,895
         Cincinnati Bell Telephone                                   19,926                  19,550
         Countrywide Funding (3 issues)                             107,351                 104,849
         Dayton Hudson                                               20,466                  21,966
         Florida Power & Light                                       20,750                  21,220
         GE Capital Mortgage Corp. (4 issues)                       137,587                 137,170
         GTE Corporation                                             15,209                  15,600
         Housing Securities Inc. (2 issues)                          73,784                  74,451
         Interstate Power                                            16,716                  17,289
         K Mart Corporation                                          15,087                  15,415
         Limited Inc.                                                16,329                  16,500
         Loral                                                       15,309                  14,260
         Metropolitan Life Insurance                                 20,406                  19,885
         New York Telephone                                          20,644                  19,475
         Northern Indiana Public Service                             15,500                  15,554
         Nova Alberta Corporation                                    15,155                  15,900
         Pacific Gas & Electric                                      22,917                  22,475
         Pacificcorp                                                 15,500                  15,832
         Prudential Home Mortgage (17 issues)                       469,582                 468,430
         Residential Funding Corp. (8 issues)                       272,894                 275,970
         Ryland Acceptance Corp.                                     36,153                  35,989
         Sears Mortgage Securities (2 issues)                        49,986                  50,769
         Securitized Asset Sales                                     25,713                  24,948
         SMART Mortgage                                              28,503                  29,272
         Southern California Edison                                  20,522                  19,885
         U.S. West Communications                                    27,583                  27,875
  </TABLE>
  
  
  NOTE C--INCOME TAXES
  
         Effective January 1, 1993, the Company changed its method of accounting
  for income taxes from the deferred method to the liability method required by
  Statement of Financial Accounting Standards No. 109, "Accounting for Income
  Taxes" (see Note A).  The cumulative effect of adopting Statement 109 as of
  January 1, 1993 and the effect of the change on federal income tax expense for
  the year ended December 31, 1993 was not material.  Under Statement 109, the
  Company no longer reports the tax benefits from operating and capital loss
  carryforwards as extraordinary credits.  As permitted by Statement 109, the
  Company has elected not to restate prior years' financial statements.
  <PAGE>
  <PAGE> 32
  
          Under Statement 109, deferred income taxes reflect the net income tax
  effects of temporary differences between the carrying amounts of assets and
  liabilities for financial reporting purposes and the amounts used for income
  tax purposes.  Income tax liabilities and assets as of December 31, 1993 and
  January 1, 1993 are as follows:
  <TABLE>
  <CAPTION>
                                                                    Dec. 31                 Jan. 1
                                                                    -------                 ------
                                                                          (dollars in thousands)
        <S>                                                        <C>                   <C>
         Deferred income tax liabilities                                                           
         Deferred policy acquisition costs and 
              policy initiation fees                                $93,688                $75,073 
         Payment-in-kind dividends                                                           3,245 
         Other items                                                    859                  1,001 
                                                                    -------                ------- 
         Total deferred income tax liabilities                       94,547                 79,319 
                                                                    -------                ------- 
  
         Deferred income tax assets
         Policy liabilities and accruals                             78,954                 66,416 
         Net operating loss carryforwards                             9,143                  8,330 
         Reduction in reported values
              of investments not currently
              deductible for tax                                      3,867                  4,806 
         Accrued expenses                                             1,334                  1,254 
         Allowance for doubtful accounts                              1,052                  1,254 
         Other items                                                  1,059                  1,042 
                                                                    -------                ------- 
         Total deferred income tax assets                            95,409                 83,102 
  
         Valuation allowance, including 
              $506 attributable to unrealized
              depreciation of equity securities
              at January 1, 1993                                      2,688                  4,575
                                                                    -------                ------- 
         Net deferred income tax assets                              92,721                 78,527 
                                                                    -------                -------
         Net deferred income tax liabilities                        $ 1,826                $   792 
                                                                    =======                =======
         Current income tax liabilities (assets)                    $   150                $  (742)
                                                                    =======                =======
  </TABLE>
  
  <PAGE>
  <PAGE> 33
  
         Federal income tax expense is included in the accompanying consolidated
  statements of income as follows:
  <TABLE>
  <CAPTION>
                                                                    Year Ended December 31
                                                                1993         1992          1991
                                                                ----         ----          ----
                                                                    (dollars in thousands)
        <S>                                                  <C>          <C>          <C>
         Continuing operations
             Current                                          $21,220      $12,274      $13,019 
             Deferred                                           1,220        2,593         (779)
                                                              -------      -------      ------- 
  
                   Subtotal                                    22,440       14,867       12,240 
                                                              -------      -------      ------- 
  
         Discontinued operations
             -current                                                          (37)        (365)
         Extraordinary credit
             -current                                                       (2,712)      (5,879)
             -deferred                                                      (2,163)         129
                                                              -------      -------      ------- 
                   Subtotal                                                 (4,875)      (5,750)
                                                              -------      -------      -------
                      Total                                   $22,440      $ 9,955      $ 6,125 
                                                              =======      =======      =======
  </TABLE>
  
         Federal income tax expense differs from that computed at the applicable
  statutory federal income tax rate (35% in 1993, 34% in 1992 and 1991) as
  follows:
  <TABLE>
  <CAPTION>
                                                                    Year Ended December 31
                                                                1993         1992          1991
                                                                ----         ----          ----
                                                                    (dollars in thousands)
        <S>                                                 <C>            <C>          <C>
         Computed income tax expense
             at statutory rate                               $23,962        $14,638      $12,120
         Change in valuation allowance
             for deferred income tax assets,                         
             excluding impact on unrealized
             depreciation of equity securities                (1,381)              
         Other items--net                                       (141)           229          120
                                                             -------        -------      -------
                                                             $22,440        $14,867      $12,240
                                                             =======        =======      =======
  </TABLE>
  
         The Company files a consolidated federal income tax return including all
  eligible subsidiaries.  At December 31, 1993, the Company has net operating
  loss carry-forwards of $26,123,000 which expire in 1999 through 2008.  These
  loss carryforwards relate to the operations of the non-life consolidated group. 
  Utilization of these loss carryforwards to offset taxable income of the life
  insurance subsidiaries is limited under existing federal income tax rules and
  regulations.  Valuation allowances of $2,688,000 and $4,069,000 have been
  established at December 31, 1993 and January 1, 1993, respectively, to offset
  the related deferred income tax assets due to the uncertainty of realizing the
  benefit of the loss carryforwards.
  
         The Omnibus Reconciliation Act of 1993 changed the Company's prevailing
  federal income tax rate from 34% to 35% effective January 1, 1993.  The
  Company's additional federal income tax expense for 1993 due to the increase
  in the tax rate was $685,000.  The application of the 35% tax rate to the
  December 31, 1992 deferred income tax liability balance did not have a material
  effect on the Company's 1993 provision for federal income taxes.
  
  <PAGE>
  <PAGE> 34
         The components of deferred income tax expense (benefit) for the years
  ended December 31, 1992 and 1991 are as follows:
  <TABLE>
  <CAPTION>
  
                                                                     1992                    1991
                                                                     ----                    ----
                                                                       (dollars in thousands)
        <S>                                                        <C>                     <C>
         Deferred policy acquisition costs
              and policy initiation fees                            $  444                  $2,070 
         Policy and other reserves                                  (2,873)                 (2,809)
         Utilization of net operating losses
              and capital losses to offset 
              deferred income taxes                                 (4,828)                   (127)
         Deferred income taxes arising from
              utilization of net operating
              loss carryforwards                                     1,553                   1,567 
         Investment income items                                     2,009                   1,287 
         Capital losses                                              2,665                  (1,311)
         Losses on mortgage loans and other 
              invested assets                                          693                  (1,110)
         Allowance for uncollectible 
              accounts receivable                                    1,117 
         Other items--net                                             (350)                   (217)
                                                                    ------                  ------
                                                                    $  430                  $ (650)
                                                                    ======                  ======
  </TABLE>
  
         Prior to 1984, a portion of the life insurance subsidiaries' income was
  not subject to current income taxation, but was accumulated, for  income tax
  purposes, in "policyholders' surplus accounts."  At December 31, 1993, the
  balances in the policyholder surplus accounts aggregated $12,672,000.  These
  amounts are not taxable unless distributed to stockholders or unless they
  exceed certain limitations under the Internal Revenue Code.  Management does
  not intend to take actions nor does it expect any events to occur that would
  cause income tax to be payable on these amounts; therefore, deferred income
  taxes of $4,435,000 have not been provided on these amounts.
  <PAGE>
  <PAGE> 35
  
  NOTE D--LONG-TERM DEBT
  
         Long-term debt is summarized as follows:
  <TABLE>
  <CAPTION>
                                                                             December 31,      
                                                                    1993                     1992
                                                                    ----                     ----
                                                                        (dollars in thousands)
        <S>                                                      <C>                      <C>
         Reported Value
         Parent Company:
              6 1/4% convertible subordinated debentures          $ 66,347                         
              Senior bank debt and ESOP notes                        4,750                 $ 15,400
         By Subsidiaries:
              11 1/2% subordinated debentures                                                30,000
              Bank line of credit                                    45,366                  22,110
              10% real estate mortgage                                2,281                   2,387
              10% capitalized lease obligation                        1,619                   1,662
              Other                                                      12                      74
                                                                   --------                 -------
                                                                   $120,375                 $71,633
                                                                   ========                 =======
         Estimated Fair Value                                      $128,278                 $74,721
                                                                   ========                 =======
  </TABLE>
  
         6 1/4% Convertible Subordinated Debentures Due 2003:  On April 28, 1993,
  the Company issued $69 million face amount of 6 1/4% Convertible Subordinated
  Debentures due 2003.  Net proceeds from the public offering of $66,161,000 were
  used to retire all outstanding senior bank debt, to repurchase 516,600 shares
  of the Company's common stock through open market purchases, to fund a $35
  million capital contribution to the Company's primary life insurance subsidiary
  and for general corporate purposes.
  
         The debentures are presented at their face amount less unamortized
  issuance costs, pay interest semi-annually and are subordinated in right of
  payment to all senior indebtedness as defined in the indenture governing the
  debentures.  The indenture does not restrict the Company or any subsidiary from
  incurring additional senior indebtedness or other obligations.
  
         The debentures are convertible at any time prior to maturity, unless
  previously redeemed, into shares of the Company's common stock at a conversion
  ratio of 65.625 shares of common stock for each 1,000 principal amount of
  debentures ($15.24 per share of common stock).  The debentures are redeemable,
  in whole or in part, at the option of the Company, at any time on or after May
  1, 1996 initially at 106% of the principal amount and declining to 100% of the
  principal amount on or after May 1, 1999. In the event of a change in control
  as defined in the indenture, debenture holders have the right to require the
  Company to purchase all or any part of such holder's debentures at 100% of the
  principal amount plus accrued interest.  At the option of the Company, such
  purchase may be made for cash or  shares of the Company's common stock.
  <PAGE>
  <PAGE> 36
  
         Senior Bank Debt and ESOP Notes:   In January 1993, the Company entered
  into a new senior credit facility with a commercial bank.  Under the new
  facility, the final maturity of the Company's then outstanding term loan was
  extended until July 1997 and the Company borrowed an additional $10,000,000
  under a new $10,000,000 revolving line of credit.  Proceeds from the additional
  borrowing were used to fund an escrow account established by the Company's
  subsidiary in connection with the exchange of that subsidiary's 11 1/2%
  subordinated debentures for redeemable preferred stock issued by the subsidiary
  (see Note G).  In April 1993, the Company used a portion of the net proceeds
  from the sale of its 6 1/4% convertible subordinated debentures to retire all
  of its outstanding senior bank debt and the revolving line of credit facility
  was terminated.
  
         The commercial bank referred to above also holds the outstanding notes
  issued by the Company's employee stock ownership plan (the "ESOP").  The
  $4,750,000 outstanding principal balance on these notes at December 31, 1993
  is repayable as follows: $750,000 in 1994, annual installments of $1,000,000
  each in 1995 and 1996 and two $1,000,000 installments in 1997.  Interest
  charges on the ESOP notes are payable quarterly at 97% of the prime rate of the
  commercial bank.  The annual rate of interest is subject to adjustment in the
  event that certain changes in federal income tax laws or rates occur.  In
  addition, the Company has agreed to pay the commercial bank a quarterly fee so
  that, after giving effect to such fee and the interest paid by the ESOP, the
  commercial bank would receive an aggregate payment equal to the greater of the
  prime rate of the commercial bank plus .5% or the Federal Funds Rate plus 1%.
  
         The obligations to the commercial bank for the ESOP notes are secured
  by a pledge of, and a security interest in, 37,396 shares of the Company's 1987
  Series II Preferred Stock $1 Par owned by the ESOP.  The ESOP loan is further
  secured by the Company's guaranty and the Company's agreement to make
  contributions to the ESOP from time to time in such amounts as may be necessary
  to enable the ESOP to make all payments of principal and interest on the ESOP
  notes when due.
  
         The ESOP credit agreement contains restrictions and covenants which,
  among other things, limit the amount of future indebtedness, limit the amounts
  and types of investments including investments in below investment grade bonds,
  equity securities and real property, require the maintenance of specified
  amounts of consolidated tangible net worth, statutory capital and surplus and
  fixed charge coverage and limit the payment of cash dividends.  Under the most
  restrictive of these covenants, $17,042,000 of consolidated retained earnings
  at December 31, 1993 is not restricted as to the declaration or payment of cash 
  dividends.  The credit agreement also contains a change of control covenant
  that may result in the acceleration of the payment of all amounts due under the
  ESOP notes in the event of a change in control as defined in the agreement.
  
         11 1/2% Subordinated Debentures:  In 1991 and 1990, a wholly-owned
  subsidiary of the Company issued $30,000,000 of 11 1/2% subordinated
  debentures.  Proceeds from the debenture issues were invested in preferred
  stock and surplus notes issued by the Company's primary life insurance
  subsidiary. On February 2, 1993, the Company's subsidiary redeemed the
  debentures at par by exchanging $30,000,000 of a new series of its redeemable
  preferred stock for all of the outstanding debentures (see Note G).
  <PAGE>
  <PAGE> 37
  
         Subsidiary's Bank Line of Credit:  On September 30, 1993, a
  non-insurance subsidiary of the Company entered into an amended and restated
  credit agreement with several commercial banks pursuant to which the banks
  agreed to provide this subsidiary with a $125,000,000 line of credit.  The new
  agreement amended and restated an existing agreement previously entered into
  in May 1990, as subsequently amended, between the Company's noninsurance
  subsidiary and the commercial bank referred to above to provide for, among
  other things, an increase in the amount of the credit facility and for
  additional lenders to become parties thereto.  At December 31, 1993,
  $79,798,000 remains available through June 1995 under this line of credit.  The
  actual amount funded will be determined based on the amount of new annuity
  business written by the Company's primary life insurance subsidiary during the
  funding period. 
  
         Principal and interest on the funds drawn under this line of credit are
  payable in sixteen quarterly installments beginning on the eighth calendar day
  following the end of each calendar year quarter in which the funds are drawn. 
  The credit agreement requires the Company's subsidiary to make loan prepayments
  with any excess funds not otherwise used to fund commission payments to agents
  or to make scheduled principal and interest payments.  Interest charges are,
  at the Company's option, LIBOR plus 1.25% or the greater of the agent bank's
  prime rate or the Federal Funds Rate plus .5%, and a quarterly commitment fee
  is charged equal to .375% per annum of the average daily unused amount of the
  line of credit.  The weighted average interest rate on the outstanding loan
  balance at December 31, 1993 was 4.74%. 
  
         Borrowings under the line of credit are principally secured by a pledge
  of certain contract rights between the Company's primary life insurance
  subsidiary and the Company's non-insurance subsidiary.  The credit agreement
  imposes various restrictions on the Company's non-insurance subsidiary and
  requires it to hedge at least $25,000,000 of borrowings through July 1996 to
  protect  itself against three-month LIBOR exceeding 4.74% per annum.  Pursuant
  to that requirement, this subsidiary is the fixed rate payor under an interest
  rate swap contract having a notional amount of $25,000,000 and a term of three
  years ending July 1996 (see Note I). 
  
         In addition to customary events of default, the credit agreement
  specifies certain events of default with respect to the Company and its
  subsidiaries, including its primary life insurance subsidiary, which include,
  among other things, the occurrence of a change in control, as defined in the
  credit agreement, of the Company, its non-insurance subsidiary, its primary
  life insurance subsidiary and another non-insurance subsidiary, payment
  defaults by the Company or its primary life insurance subsidiary on certain
  obligations to the non-insurance subsidiary, and failure by the primary life
  insurance subsidiary to maintain specified amounts of statutory capital and
  surplus and to limit the amount of future indebtedness and the amount of its
  investments in below investment grade bonds, equity securities and real
  property.  The occurrence of any event of default could result in the
  commercial banks terminating their commitments under the credit agreement
  and/or accelerating the payment of amounts due thereunder.  The credit
  agreement is an "evergreen" agreement renewable for additional eighteen month
  periods by mutual consent of the Company, its subsidiaries and the commercial
  banks.  The line of credit is not guaranteed by the Company, its primary life
  insurance subsidiary or any of its other subsidiaries. 
  
         Real Estate Mortgage:  The 10% real estate mortgage is payable in
  monthly installments of $28,000 including interest, through 1994 with a balloon
  payment of $2,185,000 due in December 1994.  The net book value at December 31,
  1993 of the Company's home office building pledged as collateral for the loan
  is $4,067,000. <PAGE>
  <PAGE> 38
  
         Capitalized Lease Obligation:  The 10% capitalized lease obligation
  requires monthly payments of $17,000, including interest, through 2009.  The
  lease relates to a subsidiary's former home office building financed through
  the issuance of a municipality's industrial development revenue bonds.  The
  subsidiary's former home office building, land and equipment, having a cost of
  $3,101,000 and accumulated amortization of $1,050,000 at December 31, 1993, are
  pledged as collateral for the lease obligation.  Approximately 90% of this
  building is subleased to unrelated parties under sublease agreements expiring
  in 1995 and 1998 with aggregate annual sublease payments of $475,000.  
  
         Aggregate Maturities of Long-term Debt:  Aggregate maturities of
  long-term debt, including the present value of  the 10% capitalized lease
  obligation, during each of the five years subsequent to 1993 are as follows:
  1994--$19,909,000; 1995--$15,120,000; 1996--$11,771,000; 1997--$5,813,000 and
  1998--$66,000.
  
  NOTE E--SERIES PREFERRED STOCK
  
         The Board of Directors is authorized to issue 5,000,000 shares of Series
  Preferred Stock $1 Par from time to time in one or more series and to fix the
  number of shares, designations, voting powers (if any), preferences and rights,
  and qualifications, limitations or restrictions of each series.  Each series
  of Series Preferred Stock $1 Par shall be distinctly designated and, except as
  otherwise stated, shall rank equally and be identical in all respects.
  
         Redeemable Preferred Stock:  There were 77,130 shares and 81,901 shares
  of 1987 Series II Preferred Stock $1 Par outstanding at December 31, 1993 and
  1992, respectively.  All of the 1987 Series II shares are owned by the
  Company's employee stock ownership plan (the "ESOP") (see Note H) and the
  shares are presented at their $100 per share liquidation preference less the
  outstanding ESOP loan guarantee balance (see Note D).  The estimated fair value
  of the 1987 Series II  shares at December 31, 1993 and 1992 was $14,848,000 and
  $14,496,000, respectively. 
  
         The 1987 Series II shares are entitled to annual cumulative cash
  dividends equal to the issue price multiplied by the prime rate of a specified
  commercial bank plus 3/4 of 1% (6.75% at December 31, 1993), payable quarterly. 
  Cash dividends paid in 1993, 1992 and 1991 were equivalent to $6.75 per share,
  $7.37 per share and $9.87 per share, respectively. 
  
         The Company may, at its option,  redeem the 1987 Series II shares, in
  whole or in part, at any time after ten years from date of issue at a price of
  $100 per share plus cumulative unpaid dividends.  In the event of a change in
  control of the Company, as specified in the resolution creating the series,
  each 1987 Series II share shall be redeemed at a price equal to the greater of
  $100 per share, plus cumulative unpaid dividends or the fair market value
  thereof.  In liquidation, 1987 Series II stockholders are entitled to $100 per
  share (aggregate $7,713,000) plus cumulative unpaid dividends before any
  distribution shall be made to common stockholders.  The 1987 Series II shares
  rank on parity with the other Series Preferred Stock shares with respect to
  dividends and distributions.
  
         During 1993, 1992, and 1991, the Company exchanged 70,510 shares, 32,403
  shares and 126,166 shares, respectively, of its common stock with the ESOP for
  4,771 shares, 2,312 shares and 7,334 shares, respectively, of its 1987 Series
  II Preferred Stock for the purpose of making distributions of the 1987 Series
  II shares to terminated ESOP plan
  participants.
  
         Each 1987 Series II share is entitled to eleven votes on each matter
  submitted to a vote at any meeting of the Company's stockholders.  In addition,
  with respect to the approval of certain business combinations, the 1987 Series
  II shares are entitled to vote separately as a class, and the affirmative vote
  of at least 75% of the outstanding 1987 Series II shares is required for such
  approval. 
  
         Each 1987 Series II share is convertible at any time into 13.7214 shares
  of common stock.  Antidilution rights of the owners of 1987 Series II shares
  are specified in the resolutions creating the series.  At December 31, 1993,
  1,058,335 shares of common stock are reserved for conversion of the 1987 Series
  II shares.
  <PAGE>
  <PAGE> 39
  
         1976 Series Preferred Stock:  The Company has issued 200,000 shares of
  1976 Series Preferred Stock $1 Par, of which there were 195,000 shares and
  200,000 shares outstanding at December 31, 1993 and 1992, respectively.  During
  1993, 5,000 1976 Series shares were converted into 15,281 shares of common
  stock.
  
         The 1976 Series shares are entitled to annual cumulative cash dividends
  of $.425 per share, payable semi-annually.  All of the 1976 Series shares are
  owned by the ESOP (see Note H).  The Company may, at its option, redeem the
  1976 Series shares, in whole or in part, at any time at a price of $5 per share
  plus cumulative unpaid dividends.  In liquidation, 1976 Series stockholders are
  entitled to receive $5 per share (aggregate $975,000) plus cumulative unpaid
  dividends before any distribution shall be made to common stockholders.  The
  1976 Series shares rank on parity with the other Series Preferred Stock shares
  with respect to dividends and distributions.  
  
         Each 1976 Series share is entitled to one vote and is convertible at any
  time into 3.21 shares of common stock.  Antidilution rights of the owners of
  1976 Series shares are specified in the resolutions creating the series.  At
  December 31, 1993, 625,769 shares of common stock are reserved for conversion
  of the 1976 Series shares.  
  
         1988 Series I and Series II Preferred Stock:  In 1988 and 1989, the
  Company issued a total of 143,640 shares of 1988 Series I and Series II
  Preferred Stock (the "1988 Series shares") to its former savings bank
  subsidiary which was taken over by government regulators in 1990 (see Note K). 
  The Company has a lawsuit pending against the United States government which
  litigation seeks, among other  things, recovery of the Company's investment in
  its former savings bank subsidiary, including the 1988 Series shares.  Because
  there is no assurance beyond a reasonable doubt that the Company will prevail
  in its lawsuit, the 1988 Series shares are presented as issued and outstanding
  in the accompanying consolidated financial statements as of December 31, 1993
  and 1992 and were given full recognition in the computations of primary and
  fully diluted earnings per share for all periods presented.
  
         Beginning in 1990, the 1988 Series shares are entitled to annual
  cumulative cash dividends of $8 per share, payable quarterly.   The Company has
  declared but not paid cumulative dividends on the 1988 Series shares
  aggregating $4,657,000 ($40 per share on 7,560 shares of 1988 Series II
  Preferred Stock and $32 per share on the balance of the 1988 Series shares),
  including $862,000 ($6 per share) declared in January 1994.  As discussed
  above, the 1988 Series shares are involved in the pending litigation related
  to the takeover of the Company's former savings bank subsidiary (see Note K)
  and the Company has set off the amount of the declared dividends against
  damages believed by the Company to be owing to the Company by the United States
  of America.
  
         The Company may, at its option, redeem the 1988 Series shares, in whole
  or in part, at any time after ten years (five years for the 1988 Series II
  shares) from the date of issue at a price of $100 per share plus cumulative
  unpaid dividends.  In liquidation, 1988 Series stockholders are entitled to
  $100 per share (aggregate $14,364,000) plus cumulative unpaid dividends before
  any distribution shall be made to common stockholders. The 1988 Series shares
  rank on parity with the other Series Preferred Stock shares with respect to
  dividends and distributions.
  
  <PAGE>
  <PAGE> 40
  
         The 1988 Series shares are non-voting except as required by the Delaware
  General Corporation Law and except if the Company fails to pay dividends on
  such shares for six consecutive quarters, in which case holders of the 1988
  Series shares are entitled to one vote per share on each matter submitted to
  a vote at any meeting of the Company's stockholders.  Each 1988 Series share
  is convertible at any time into 13.7214 shares of common stock.  Antidilution
  rights of the owners of 1988 Series shares are specified in the resolutions
  creating the series.  At December 31, 1993, 1,970,942 shares of common stock
  are reserved for conversion of the 1988 Series shares. 
  
         Preferred Stock Purchase Rights:  In April 1991, the Company redeemed
  all of its outstanding preferred stock purchase rights that had been issued
  pursuant to a Rights Agreement adopted in 1987.  Each share of the Company's
  common stock had one preferred stock purchase right attached and received the
  redemption price of $.01 per  right.  Subsequent to the rights redemption, the
  Board of Directors eliminated the series of 250,000 shares of Series A Junior
  Participating Preferred Stock, which had been designated and reserved for
  issuance upon exercise of the now redeemed rights, from the Company's
  Certificate of Incorporation.
  
  NOTE F--STOCKHOLDERS' EQUITY AND RESTRICTIONS
  
         Changes in the number of shares of common stock outstanding are as
  follows:
  <TABLE>
  <CAPTION>
                                                                Year Ended December 31
                                                            1993           1992         1991
                                                            ----           ----         ----
  <S>                                                    <C>            <C>          <C>
                                                                               
  Outstanding at beginning of year                        13,109,239     13,055,186   12,708,020
        5% stock dividend
           Shares issued (a)                                 687,772 
           Shares acquired for treasury (b)                  (52,628)
        Shares acquired through open market purchases       (516,600)
        Issued in exchange for 1987 Series II 
           Preferred Stock                                    70,510         32,403      126,166
        Conversion of 1976 Series Preferred Stock             15,281 
        Issued to employee benefit plans                                     21,650      200,000
        Issued upon exercise of stock options                116,082                      21,000 (a)
                                                          ----------     ----------   ----------
  Outstanding at end of year                              13,429,656     13,109,239   13,055,186    
                                                          ==========     ==========   ==========
  <FN>
  __________                                                                       
  (a)  Issued from authorized but unissued shares.  All other issuances were from common stock in treasury.
  (b)  Includes 50,823 shares issued to a subsidiary and 1,805 fractional shares purchased for cash.
  </TABLE>
  
         On May 5, 1993, the Company's stockholders approved an amendment to the
  Company's Certificate of Incorporation increasing the number of authorized
  shares of common stock from 25,000,000 to 35,000,000 shares.  On May 19, 1993,
  the Company's Board of Directors authorized the repurchase by the Company of
  up to 1,000,000 shares of the Company's common stock.  This authorization
  expired on December 31, 1993 and 516,600 shares were acquired for treasury
  through the repurchase program.  Authorization for the Company to repurchase
  up to 1,000,000 additional shares of its common stock during calendar year 1994
  was approved by its Board of Directors on January 13, 1994.
  <PAGE>
  <PAGE> 41
         At December 31, 1993, there were 9,224,270 shares of common stock
  reserved for conversion of the Series Preferred Stock and 6 1/4% Convertible
  Subordinated Debentures and for exercise of stock options.  Treasury stock at
  December 31, 1993 and 1992 included 927,299 shares and 1,016,476 shares,
  respectively, of common stock owned by a subsidiary of the Company.  Treasury
  shares held by subsidiaries are entitled to dividends but do not have voting
  rights. 
  
         The net assets of the insurance subsidiaries available for transfer to
  the Company are limited to the amounts by which the insurance subsidiaries' net
  assets, as determined in accordance with statutory accounting practices
  prescribed or permitted by state regulatory authorities, exceed minimum
  regulatory statutory capital and surplus requirements; however, payment of
  dividends or other  distributions to stockholders may also be subject to prior
  approval by regulatory authorities.  In addition, the ability of the insurance
  subsidiaries to transfer funds to the Company is limited by certain provisions
  in the Company's loan agreements relating to the maintenance of specified
  minimum levels of statutory capital and surplus (see Note D).  At December 31,
  1993, $43,856,000 of consolidated stockholders' equity (based on amounts
  reported in accordance with statutory accounting practices) represents net
  assets of the insurance subsidiaries that cannot be transferred to the Company
  in the form of dividends, surplus note payments, loans or advances.
  
         Combined capital and surplus of the insurance subsidiaries, as reported
  in accordance with statutory accounting practices of their respective states
  of domicile, was $214,317,000 and $178,842,000 at December 31, 1993 and 1992,
  respectively.  Combined statutory net income for 1993, 1992 and 1991 was
  $32,019,000, $16,538,000 and $32,566,000, respectively.
  
  NOTE G--PREFERRED STOCK OF WHOLLY-OWNED SUBSIDIARY
  
         On August 25, 1992, a wholly-owned subsidiary of the Company issued 
  2,760,000 shares of non-convertible redeemable preferred stock at a public
  offering price of $25 per share.  $42,500,000 of the net proceeds from the
  offering were contributed to the capital of the Company's primary life
  insurance subsidiary. Remaining net proceeds of approximately $22,600,000 were
  used to purchase $69,000,000 face amount of zero coupon U.S. Treasury
  securities maturing in August 2007.  These securities have been placed in an
  escrow account to be used for the future redemption of the redeemable preferred
  stock on or before its mandatory redemption date in 2007.
  
         The subsidiary's redeemable preferred stock is entitled to annual
  cumulative cash dividends of $2.16 per share, payable quarterly.  The
  redeemable preferred stock is mandatorily redeemable in September 2007 at a
  redemption price of $25 per share, plus cumulative unpaid dividends.  In
  liquidation, holders of the subsidiary's redeemable preferred stock are
  entitled to $25 per share (aggregate $69,000,000) plus cumulative unpaid
  dividends. 
  
         On February 2, 1993, the subsidiary referred to above issued 1,200,000
  shares of a non-convertible redeemable preferred stock at an issue price of $25
  per share (aggregate $30,000,000) in exchange for all of the subsidiary's
  outstanding 11 1/2% subordinated debentures which were retired (see Note D). 
  In connection therewith, the subsidiary purchased $30,000,000 face amount of
  zero coupon U.S. Treasury securities maturing in February 2008 with the
  proceeds of a $10,000,000 borrowing under the Company's revolving line of
  credit (see Note D).   These securities have been placed in an escrow account
  to be used for the future redemption of the second series of redeemable
  preferred stock on or before its mandatory redemption date in 2008.
  <PAGE>
  <PAGE> 42
  
         The second series of the subsidiary's redeemable preferred stock is
  entitled to annual cumulative cash dividends of $2.32 per share, payable
  quarterly.  This series of redeemable preferred stock is mandatorily redeemable
  in February 2008 at a redemption price of $25 per share, plus cumulative unpaid
  dividends.  In liquidation, holders of this series of the subsidiary's
  redeemable preferred stock are entitled to $25 per share (aggregate
  $30,000,000) plus cumulative unpaid dividends.
  
         The subsidiary's redeemable preferred stock is presented at its fair
  value on the date of issue ($69,000,000 and $30,000,000, respectively) less
  unamortized issue costs.  The excess of the mandatory redemption value over the
  reported value is being accreted by periodic charges to income from continuing
  operations over the life of the issue.  The aggregate fair value of the
  subsidiary's redeemable preferred stock was $109,276,000 and $65,895,000, at
  December 31, 1993 and 1992, respectively.
  
  NOTE H--EMPLOYEE BENEFIT PLANS
  
         The Company and its subsidiaries participate in a qualified trusteed
  plan, The Statesman Group, Inc. Employee Stock Ownership Plan and Trust
  ("Plan"), which provides for a uniform noncontributory retirement program
  covering all eligible employees of the Company and its subsidiaries. 
  Contributions to the Plan are equal to 10% of eligible compensation of all
  participants plus such additional amounts (2.9%, 3.1% and 1.8% for 1993, 1992
  and 1991, respectively) as may be  determined annually by the Board of
  Directors.  In addition, the Company has agreed that it will make contributions
  to the Plan from time to time in such amounts as may be necessary to enable the
  Plan to make all payments of principal and interest on the Plan's bank loan
  when due (see Note D).  Total plan expense for 1993, 1992 and 1991 amounted to
  $900,000, $900,000 and $815,000, respectively. 
  
         In 1987, the Plan purchased 100,000 shares of the Company's 1987 Series
  II Preferred Stock $1 Par for $10,000,000 financed by a ten-year bank loan
  guaranteed by the Company (see Note D).  For the years ended December 31, 1993,
  1992 and 1991, interest expense of $293,000, $367,000 and $577,000,
  respectively, on the ESOP loan was funded by the dividends received on the 1987
  Series II Preferred Stock.  The remaining ESOP loan guarantee balance of
  $4,750,000 at December 31, 1993, which is included in long-term debt and
  deducted from redeemable preferred stock in the accompanying consolidated
  balance sheets, will be further reduced in future years as the Plan's debt is
  reduced and shares are allocated to Plan participants.  At December 31, 1993,
  the Plan owned 44,757 shares of the Company's common stock, 195,000 shares of
  the Company's 1976 Series Preferred Stock $1 Par and 77,130 shares of the
  Company's 1987 Series II Preferred Stock $1 Par.
  
         The Company and its subsidiaries participate in the Statesman Savings
  Plan 401(k) (the "401(k) plan"), a qualified salary deferral retirement plan
  covering all eligible employees of the Company and its subsidiaries.  Employees
  may contribute a portion of their annual salary, subject to limitation, to the
  401(k) plan.  The Company and its subsidiaries contribute an additional amount,
  subject to limitation but not to exceed 2% of eligible compensation, based on
  the voluntary contributions of the employees.  The 401(k) plan provides that
  all employer matching contributions will be invested in shares of Company
  stock.  At December 31, 1993,  the 401(k) plan held 55,900 shares of the
  Company's common stock.  Plan contributions charged to expense for 1993, 1992
  and 1991 were  $90,000, $85,000 and $76,000, respectively. <PAGE>
  <PAGE> 43
  
  NOTE I--COMMITMENTS AND CONTINGENCIES
  
         Litigation:  The Company's subsidiaries are involved in various pending
  or threatened legal proceedings arising from the conduct of their businesses. 
  These proceedings in some instances include claims for punitive damages and
  similar types of relief in unspecified or substantial amounts, in addition to
  amounts for alleged contractual liability or claims for equitable relief.  In
  management's opinion, after consultation with counsel and review of available
  facts, these proceedings will ultimately be resolved without materially
  affecting the Company's financial condition.
  
         Reinsurance:  In the normal course of business, the Company seeks to
  limit its exposure to loss on any single insured and to recover a portion of
  benefits paid by ceding reinsurance to other insurance enterprises or
  reinsurers.  The Company's maximum retention limit on any one life is $100,000. 
  Reinsurance assumed from other companies is not significant.
  
         Reinsurance contracts do not relieve the Company from its obligations
  to its policyholders.  The Company remains contingently liable to its
  policyholders for the portion reinsured to the extent that the reinsuring
  companies do not meet their obligations assumed under the reinsurance
  agreements.  The aggregate receivable from reinsurers at December 31, 1993 was
  $6,026,000, all of which was deemed collectible.  Ceded reinsurance premiums
  deducted from premiums and policy fund charges were  $4,437,000, $4,389,000 and
  $4,724,000 for the years ended December 31, 1993, 1992 and 1991, respectively.
  
         Certain policy liabilities were reinsured under reinsurance transactions
  which represented financing arrangements and, in accordance with generally
  accepted accounting principles, are not reflected in the accompanying
  consolidated financial statements except for the risk fees paid to reinsurers. 
  These transactions were effectively terminated as of December 31, 1993.  Net
  statutory surplus provided by such treaties totaled $24.7 million at December
  31, 1992.  Risk fees paid to the reinsurers approximated 2.75% of the net
  amount of surplus provided.
  
         Employment Arrangements:  The Company has entered into employment
  continuation agreements with certain executives of the Company and its
  subsidiaries that provide for payments to these executives of amounts up to
  four times their annual compensation if there is a change in control of the
  Company (as defined), and a termination of their employment.  The agreements
  do not constitute employment contracts and only apply in circumstances
  following a change in control.  The maximum contingent liability at December
  31, 1993 under these agreements is $6,167,000.
  
         Guaranty Fund Assessments:  From time to time, mandatory assessments are
  levied on the Company's insurance subsidiaries by life and health guaranty
  associations of most states in which these subsidiaries are licensed to cover
  losses to policyholders of insolvent or rehabilitated insurance companies. 
  These associations levy assessments (up to prescribed limits) on all member
  insurers in a particular state in order to pay claims on the basis of the
  proportionate share of premiums written by member insurers in the lines of
  business in which the insolvent or rehabilitated insurer engaged.  These
  assessments may be deferred or forgiven in certain states if they would
  threaten an insurer's financial strength and, in some states, these assessments
  can be partially recovered through a reduction in future premium taxes.  Prior
  to 1991, these assessments were not material to the Company's financial
  statements.  However, the economy and other factors have recently caused a
  number of failures of substantially larger companies which could result in
  future assessments in material amounts.  Assessments levied against the
  Company's insurance subsidiaries and charged to expense in 1993, 1992 and 1991
  were $2,623,000, $2,233,000, and $638,000, respectively.  The accompanying
  consolidated financial statements include provisions for all known assessments
  that will be levied against the Company's insurance subsidiaries by various
  state guaranty associations.  At the present time, the Company is not able to
  reasonably estimate what amounts will ultimately be assessed to its
  subsidiaries in  the future for failures that have occurred to date and, as
  such,  the accompanying consolidated financial statements do not include any
  provision for such potential assessments.
  <PAGE>
  <PAGE> 44
  
         Interest Rate Swaps:  The Company has entered into certain interest rate
  swap and collar agreements to match the interest rate characteristics of
  investments and related insurance liabilities for a portion of its single
  premium deferred annuity liabilities.  These agreements involve the exchange
  of fixed and floating rate interest payments without an exchange of the
  underlying notional principal amounts.  The interest rate swap and collar
  agreements effectively modify the interest rate characteristics of the single
  premium deferred annuity liabilities which reprice annually at discretionary
  rates determined by the Company to be less sensitive to changes in interest
  rates. In addition, a non-insurance subsidiary of the Company has entered into
  interest rate swap agreements to limit its exposure to increases in short-term
  borrowing rates. 
  
         Swap agreements subject the Company to the risk that the swap
  counterparty will fail to perform.  However, the potential credit loss is
  limited to the periodic net settlement amounts due under the agreements and
  nonperformance is not anticipated.  In addition, with respect to those swap
  contracts that do not qualify as hedges, the Company is subject to market risk
  associated with changes in interest rates and declines in value of the
  underlying financial instrument and with respect to the interest rate swaps
  used to hedge floating rate bank debt, the Company has incurred higher interest
  costs than if these agreements were not in place because short-term borrowing
  rates have been lower than the applicable fixed rates indicated in the swap
  agreements.
  
         The notional amounts of interest rate swap and collar financial
  instruments in effect at December 31, 1993 and 1992 are as follows:
  <TABLE>
  <CAPTION>
                                                                            1993           1992
                                                                            ----           ----
                                                                           (dollars in millions)
        <S>                                                               <C>           <C>
         Used to hedge single premium deferred annuity liabilities:
              Receive variable rates:
                 Interest rate collar                                      $ 250          $  250 
                 Interest rate swap                                           50              50 
         Used to offset a portion of the costs of interest 
            rate collar and swap used as hedges:                                   
              Receive fixed rates                                            300             300 
              Received variable rates                                        250   
         Used to hedge non-insurance subsidiary's floating 
            rate bank debt                                                    25               5 
  
  </TABLE>
  
         The interest rate collar and $250 million of interest rate swaps on
  which the Company receives fixed rates expire in May 1996.  The interest rate
  collar is a combination of an interest rate cap and floor whereby the Company
  is to receive payment if the six-month LIBOR exceeds 14% (the "cap") or is to
  make payment if the six-month LIBOR is less than 7.35% (the "floor").  There
  is no cost to either party while the six-month LIBOR is between 7.35% and 14%. 
  At December 31, 1993, the effective six-month LIBOR rate under this agreement
  was 3.50%. 
  
         The interest rate swaps which expire in May 1996 discussed above offset
  a portion of the cost of the floor and, as long as the six-month LIBOR remains
  at or below the 7.35% floor rate, the net cost of the floor is fixed as the 
  difference between 7.35% and the weighted average fixed rate under the swaps
  of 6.59%.  Amounts payable under the floor are netted against amounts
  receivable under the interest rate swaps.
  <PAGE>
  <PAGE> 45
  
         The Company also has a $250 million interest rate swap in effect at
  December 31, 1993 under which the Company receives six-month LIBOR and pays the
  swap counterparty six-month LIBOR minus .37%. In the event that six-month LIBOR
  increases by more than .50% on any semi-annual reset date, the amount the
  Company receives for the subsequent six month period is capped at the previous
  six-month LIBOR plus .50%.  The purpose of this swap is to further reduce the
  cost of the interest rate floor described above, however this swap exposes the
  Company to incremental liability in the event that the six-month LIBOR
  increases at a faster rate than .87% every six months.  This swap expires in
  May 1996. 
  
         In 1989, the Company entered into a $50 million interest rate swap
  contract and, at the inception of this agreement, received a $10,000,000
  advance payment of the swap counterparty's obligations over the term of the
  swap agreement, which amount is being repaid with interest as an adjustment to
  the net interest settlements during the five year term of the swap.  This
  advance, net of a $150,000 arrangement fee, is being amortized on the interest
  method over the term of the swap using the interest rate implicit in the 
  payment adjustment.  The unamortized amount of the advance included in accrued
  expenses and other liabilities in the accompanying consolidated balance sheets
  was $2,388,000 and $4,545,000 at December 31, 1993 and 1992, respectively. 
  
         In May 1991, the Company effectively terminated the $50 million interest
  rate swap referred to above by entering into an offsetting $50 million interest
  rate swap.  The loss on termination of $1,312,000, which was equal to the
  discounted present value of the net future payments under both swaps of
  $435,000 annually, exclusive of the repayment of the $10,000,000 advance, is
  being recognized over three and one-half years, the remaining term of both
  swaps on the date of termination.  The unrecognized loss on termination was
  $354,000 and $740,000 at December 31, 1993 and 1992, respectively, and the
  remaining term of the two offsetting $50 million interest rate swaps at
  December 31, 1993 was eleven months. 
  
         Under the $25 million interest rate swap used to hedge floating rate
  bank debt, the Company receives a floating rate equal to three-month LIBOR and
  pays the swap counterparty a fixed rate of 4.74%.  This swap expires in July
  1996.
  
         Income (expense) recognized in the accompanying consolidated statements
  of income for interest rate swaps and the interest rate collar, including
  periodic settlement amounts and realized and unrealized gains and losses 
  recognized on interest rate swaps that do not qualify as hedges, is as follows: 
  <TABLE>
  <CAPTION>
                                                                     Year Ended December 31
                                                                1993         1992          1991
                                                                ----         ----          ----
                                                                    (dollars in thousands)
        <S>                                                 <C>             <C>        <C>  
         Reported as
         Net investment income                               $(2,143)        $ 898      $(1,002)
         Interest expense                                       (281)         (284)        (160)
  </TABLE>
  
  <PAGE>
  <PAGE> 46
  
         The reported amount and estimated fair value of the Company's
  liabilities (assets) under the interest rate swaps and the interest rate collar
  are as follows:
  <TABLE>
  <CAPTION>
                                                                                         Estimated
                                                                          Reported         Fair
                                                                           Amount          Value
                                                                           ------          -----
                                                                          (dollars in thousands)
        <S>                                                             <C>              <C>
         December 31, 1993
         Qualifying for hedge accounting                                 $ 2,852          $ 6,043
         Not qualifying for hedge accounting                                (157)              15
         December 31, 1992                                               $ 5,276          $13,216
  
  </TABLE>
  
         Leases:  Total rental expense for all leases is as follows:  1993 --
  $1,238,000; 1992 -- $1,141,000; and 1991 -- $1,346,000.  Future minimum rental
  commitments for operating leases having initial or remaining noncancelable
  lease terms in excess of one year are not material.
  
  NOTE J--STOCK OPTIONS AND STOCK APPRECIATION RIGHTS
  
         Under the terms of two stock option plans adopted by the Company's
  stockholders in 1984, certain officers and key employees of the Company and its
  subsidiaries may be granted options to purchase up to 1,246,292 shares of the
  Company's common stock.  Because the exercise price of all stock options
  awarded under these plans can be no less than the fair market value of a share
  of optioned stock at the date of grant, no compensation expense has been
  recorded for these awards. Options expire no later than ten years after the
  date of grant and no options can be granted after 1993.
  
         In addition, one of the stock option plans provides for the granting of
  stock appreciation rights ("SARs") on a maximum of 465,034 shares of the
  Company's common stock. SARs entitle the holder to receive, upon exercise, a
  cash payment equal to the excess of the fair market value of a share of common
  stock on the date of exercise over the option price.  Compensation expense of
  $31,000, $610,000 and $90,000 is included in the 1993, 1992 and 1991
  consolidated statement of income, respectively, based on the difference between
  the market value of the rights outstanding at the end of each year and the
  option price and cash payments made during each year on SARs exercised.
  <PAGE>
  <PAGE> 47
  
         Information concerning stock options and SARs is as follows.  All shares
  and option prices have been adjusted to give retroactive effect to stock
  dividends declared subsequent to the date of grant. Outstanding stock options
  and SARs will expire over periods ending no later than November 2003.
  <TABLE>
  <CAPTION>
  
                                                             Number of Shares              Price
                                                          Options         SARs           Per Share
                                                          -------         ----           ---------
        <S>                                               <C>           <C>           <C>
         Outstanding, January 1, 1991                      434,601       161,831       $1.90-$ 4.81
              Granted                                      641,550                      2.38-  2.60
              Exercised                                    (22,050)                            1.90
              Terminated or expired                         (5,775)      (26,973)       2.60-  4.81
                                                         ---------       -------
         Outstanding, December 31, 1991                  1,048,326       134,858        2.38-  4.81
              Exercised                                                  (28,832)              4.81
                                                         ---------       -------
         Outstanding, December 31, 1992                  1,048,326       106,026        2.38-  4.81
              Granted                                      170,500       157,500              12.38
              Exercised                                   (177,727)      (28,832)       2.60-  4.81
                                                         ---------       -------
         Outstanding, December 31, 1993                  1,041,099       234,694        2.38- 12.38
                                                         =========       =======
         Exercisable, December 31, 1993                  1,000,849        77,194        2.38- 12.38
                                                         =========       =======
         Available for future grant,
              December 31, 1992                            175,916       195,315 
                                                         =========       =======
  </TABLE>
  
  NOTE K--DISCONTINUED OPERATIONS
  
         In July 1990, the Office of Thrift Supervision ("OTS"), an office of the
  United States Department of Treasury, placed Statesman Bank for Savings, FSB
  (the "savings bank"), formerly a wholly-owned subsidiary of the Company, in
  receivership and a new federal institution, operating under the oversight of
  the Resolution Trust Corporation, assumed the savings bank's assets and
  liabilities. The OTS action was predicated on its assertion that the savings
  bank failed to meet the minimum federal regulatory capital requirements under
  the Financial Institutions Reform, Recovery and Enforcement Act of 1989
  ("FIRREA") which became effective in December 1989.  The Company had previously
  capitalized the savings bank with $8,400,000 of cash and 126,000 shares of its
  1988 Series Preferred Stock $1 Par (see Note E) in March 1988 for the purpose
  of acquiring four failed thrift institutions with federal agency financial
  assistance.  The Company reduced the carrying value of its investment in the
  savings bank to zero and recognized a loss on disposal in its 1990 consolidated
  financial statements.
  
         In August 1990, the Company filed suit in the United States Claims Court
  (the "Claims Court") against the United States of America.  The pending lawsuit
  concerns contractual agreements which were made by the Federal Savings and Loan
  Insurance Corporation and the Federal Home Loan Bank Board, former government
  regulatory agencies that were abolished by FIRREA, to induce the Company to
  capitalize the savings bank, for the purpose of acquiring the four failed
  thrift institutions.  In the lawsuit, the Company claims that the defendant has
  breached its contractual agreements with respect to regulatory capital. 
  Accordingly, the pending lawsuit contends that this breach of contract, which
  resulted in the disallowance of $21 million of capital which the defendant
  promised would be perpetual for regulatory accounting purposes, constitutes a
  taking of the Company's property without just compensation and due process of
  law, in violation of the Fifth Amendment of the United States Constitution.
  
  <PAGE>
  <PAGE> 48
  
         The pending lawsuit seeks rescission of the transaction between the
  Company and the government agencies and recovery of the Company's investment
  plus compensation for monies expended, costs incurred and the value of benefits
  conferred on the defendant through the Company's purchase, operation and
  management of the savings bank.  Total restitution sought exceeds $30 million. 
  
         In July 1992, the Claims Court granted the Company's motion for summary
  judgment as to the defendant's liability in the above-described lawsuit.  The
  Claims Court also  consolidated this case with two others and certified these
  cases for interlocutory appeal to the United States Court of Appeals for the
  Federal Circuit (the "Court of Appeals").  Subsequently, the Court of Appeals
  reversed the order of the Claims Court by a margin of two to one and the
  Company filed a Petition for Rehearing with Suggestion for Rehearing in Banc
  (the "Rehearing Petition") with the Court of Appeals.  On August 18, 1993, the
  Court of Appeals accepted the Company's Rehearing Petition.  The Court of
  Appeals also vacated its judgment entered on May 25, 1993 in favor of the
  defendant and withdrew its opinion accompanying the judgment.  The rehearing
  is currently scheduled for February 10, 1994.
  
         In 1985, the Company sold Statesman Insurance Company, a former
  property-casualty insurance subsidiary.  As part of this sale and as part of
  a certain reinsurance agreement between Statesman Insurance Company and another
  former affiliate, the Company guaranteed and indemnified Statesman Insurance
  Company that it would suffer no loss on the insurance liability reinsured by
  it in excess of the loss and loss adjustment expense reserves transferred to
  the affiliate pursuant to the terms of the reinsurance agreement.  The Company
  does not believe that the ultimate settlement of the remaining outstanding
  claims covered by this guarantee will materially exceed existing liabilities
  provided for such contingency.
  
         In 1989, the Company sold its investment banking and retail brokerage
  subsidiary.  The stock purchase agreement between the Company and the purchaser
  provided in part that the Company could be required to indemnify the purchaser
  for certain uncollectible receivables and debits of the former subsidiary and
  certain claims by or against the former subsidiary.  In 1990, the purchaser
  filed for bankruptcy protection under Chapter 7 of the federal bankruptcy laws
  and the Bankruptcy Trustee for the purchaser purported to assign the
  purchaser's indemnification rights, if any, under the stock purchase agreement
  to the former subsidiary.
  
         In January 1991, the former subsidiary filed a declaratory judgement
  action seeking indemnification by the Company with respect to certain claims
  by or against the former subsidiary.  The Company vigorously disputed its
  former subsidiary's claim to indemnification and believes that it had
  meritorious defenses to such claim.  To avoid the cost and uncertainty of
  long-term litigation, the Company entered into a settlement agreement and
  release with the former subsidiary in October 1991.  The charge related to the
  settlement, including related attorneys' fees in excess of amounts previously
  accrued at December 31, 1990, was recognized in the fourth quarter of 1991 as
  a loss on disposal of subsidiaries and did not have a material effect on the
  Company's financial position or results of  operations.
  <PAGE>
  <PAGE> 49
  
  NOTE L--QUARTERLY FINANCIAL INFORMATION (Unaudited)
  
         Unaudited quarterly results of operations are as follows:
  <TABLE>
  <CAPTION>
                                                                        Quarter
                                                   1st            2nd            3rd             4th
                                                   ---            ---            ---             ---
                                                   (dollars in thousands, except per share amounts)
    <S>                                           <C>           <C>             <C>             <C>
     Year Ended December 31, 1993
     Premiums and policy fund charges              $12,812       $11,523         $12,388         $13,236
     Net investment income                          70,494        73,875          78,259          76,274
     Realized gains on investments                   6,423         4,429           6,274           7,677
     Total revenues                                 91,054        91,333          98,329          98,505
     Net income                                      8,947         8,789           9,392          10,119
     Net income applicable to common stock           8,536         8,377           8,981           9,760
     Primary earnings per common share                 .59           .58             .63             .69
     Fully diluted earnings per common share           .49           .41             .47             .48
  
     Year Ended December 31, 1992
     Premiums and policy fund charges               13,675        13,247          11,921          12,880
     Net investment income                          65,136        67,245          69,515          70,335
     Realized gains on investments                   1,382         2,318           3,120           5,549
     Total revenues                                 80,959        83,580          85,522          89,974
     Income from continuing operations               5,779         6,665           7,705           5,868
     Income before extraordinary credit              5,769         6,619           7,690           5,868
     Extraordinary credit                              550           810           1,090           2,425
     Net income                                      6,319         7,429           8,780           8,293
     Net income applicable to common stock           5,892         7,002           8,363           7,914
     Primary earnings per common share                    
         Income from continuing operations             .38           .44             .51             .38
         Income before extraordinary credit            .38           .44             .51             .38
         Extraordinary credit                          .04           .05             .08             .17
         Net income                                    .42           .49             .59             .55
     Fully diluted earnings per common share
         Income from continuing operations             .32           .36             .42             .32
         Income before extraordinary credit            .32           .36             .42             .32
         Extraordinary credit                          .03           .05             .06             .13
         Net income                                    .35           .41             .48             .45
  </TABLE>
  
         Earnings per share amounts for each quarter are computed independently
  of earnings per share amounts for the year.  All per share amounts prior to the
  fourth quarter of 1993 have been restated to give retroactive effect to the 5%
  stock dividend paid in December 1993.
  
         Amounts previously reported as discontinued operations for the first
  three quarters of 1993 have been reclassified to be consistent with the year
  end presentation.
  
         Insurance operations are typically not seasonal in nature.  However, the
  recognition of realized gains and losses on investments may vary from quarter
  to quarter as indicated above.  Fourth quarter 1992 operations include
  additional amortization of deferred policy acquisition costs related to
  realized gains on investments of $4,125,000.
  <PAGE>
  <PAGE> 50
  
  NOTE M -- SUBSEQUENT EVENT (UNAUDITED)
  
         On September 29, 1994, CCP II completed the Acquisition of the Company. 
  Pursuant to an Agreement and Plan of Merger, the Company's former stockholders
  received $15.25 in cash per common equivalent share, plus the right to receive
  up to another $2.00 in cash per common equivalent share based on the outcome
  of the Company's pending litigation against the U. S. Government concerning the
  Company's former savings bank subsidiary.   CCP II is a Delaware limited
  partnership which was formed by Conseco, Inc. ("Conseco") to invest in
  acquisitions of annuity, life, and accident and health insurance companies and
  related businesses.  In connection with the Acquisition, the line of credit of
  a subsidiary of the Company with a balance at the acquisition date of
  approximately $54,800,000 was repaid.
  
         The Acquisition will be accounted for as a purchase business combination
  pursuant to which the reported values of the acquired assets and liabilities
  of the Company are adjusted to their estimated fair values at the Acquisition
  date.  The Company incurred indebtedness aggregating $350 million to partially
  finance the Acquisition.  As such, future results of operations and the
  financial condition of the Company may vary significantly from historical
  reported results of operations and financial condition.  
  
         The Company and certain of the persons then serving on the Board of
  Directors have been named in a purported class action suit commenced on May 3,
  1994 relating to the Acquisition.  The complainant seeks injunctive relief and 
  compensatory damages.  The Company believes that such suit is without merit and
  intends to contest it vigorously.  
  
  <PAGE>
  <PAGE> 51
  ITEM 7(b).     PRO FORMA CONSOLIDATED FINANCIAL INFORMATION OF CONSECO, INC.
                 AND SUBSIDIARIES.
  <TABLE>
  <CAPTION>
                                        CONSECO, INC. AND SUBSIDIARIES
                                PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
                                    For the Six Months Ended June 30, 1994
                                (Dollars in millions, except per share amounts)
                                                  (Unaudited)
  
                                                Pro Forma                      Pro Forma
                                                 Conseco                      Adjustments
                                               Before the                     Relating to
                                                Statesman        Statesman   the Statesman      Pro Forma
                                               Acquisition      Historical    Acquisition        Conseco
                                               -----------      ----------    -----------        -------
  <S>                                          <C>              <C>             <C>           <C>
  Revenues:
    Insurance policy income                     $633.9           $ 26.3          ($.2) (1)     $660.0 
    Investment activity:
       Net investment income                     142.4            160.8           (.3) (2)      302.4 
                                                                                  (.5) (2)
       Net trading loss                           (2.4)                                          (2.4)
       Net realized gain (loss)                   (7.4)             5.1          (3.9) (2)       (6.2)
    Fee and commission revenue                    28.1                                           28.1 
    Equity in earnings of CCP Insurance, Inc.     17.2                            (.1) (2)       17.1 
    Equity in earnings of Western National 
       Corporation                                20.3                                           20.3 
    Other income                                    .2              2.7                           2.9 
                                                 -----           ------          ----         -------
           Total revenues                        832.3            194.9          (5.0)        1,022.2 
                                                 -----           ------          ----         -------
  Benefits and expenses:
    Insurance policy benefits and change in 
       future policy benefits                    476.7             16.3                         493.0 
    Interest expense on annuities and financial
      products                                    32.8            102.8                         135.6 
    Interest expense on long-term debt            24.2              4.1          11.1  (3)       39.4 
    Interest expense on short-term debt            4.9                                            4.9 
    Amortization related to operations            64.0             19.5           1.4  (1)       87.2 
                                                                                  2.3  (4)            
    Amortization and change in future policy
      benefits related to realized gains           (.3)             2.8          (1.8) (5)         .7 
    Other operating costs and expenses           103.6             17.3                         120.9 
                                                 -----           ------          ----         -------
           Total benefits and expenses           705.9            162.8          13.0           881.7 
                                                 -----           ------          ----         -------
           Income before income taxes, minority
             interest and extraordinary charge   126.4             32.1         (18.0)          140.5 
  
  Income tax expense                              37.7             10.3          (5.5) (6)       42.5 
                                                 -----           ------          ----         -------
   
                                          (Continued on next page)
  <FN>
        The accompanying notes are an integral part of the pro forma consolidated financial statements.
  
  
  <PAGE>
  <PAGE> 52
                                        CONSECO, INC. AND SUBSIDIARIES
  
  </TABLE>
  <TABLE>
  <CAPTION>
                                PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
                               For the Six Months Ended June 30, 1994, continued
                                (Dollars in millions, except per share amounts)
                                                  (Unaudited)
  
                                                Pro Forma                      Pro Forma
                                                 Conseco                      Adjustments
                                               Before the                     Relating to
                                                Statesman        Statesman   the Statesman      Pro Forma
                                               Acquisition      Historical    Acquisition        Conseco
                                               -----------      ----------    -----------        -------
  <S>                                          <C>              <C>             <C>           <C>
          
           Income before minority interest and
             extraordinary charge                 88.7             21.8         (12.5)           98.0 
  
  Less minority interest                          22.6              4.5            .7  (7)       29.0 
                                                                                 (1.1) (8)            
                                                                                  2.3  (9)            
                                               -------            -----        ------           -----
           Income before extraordinary charge  $  66.1            $17.3        ($14.4)          $69.0 
                                               =======            =====        ======           =====
  
  Earnings before extraordinary charge 
    per common share and common 
    equivalent share:
         Primary:
            Weighted average shares         27,396,000                                     27,396,000
                                            ==========                                     ========== 
            Earnings before extraordinary 
              charge                             $2.07                                          $2.18 
                                                 =====                                          =====
         Fully diluted:
            Weighted average shares         31,905,000                                     31,905,000 
                                            ==========                                     ==========
            Earnings before extraordinary   
              charge                             $2.07                                          $2.16 
                                                 =====                                          =====
  
  
  
  
  
  
  
  
  
  
  
  
  <FN>
        The accompanying notes are an integral part of the pro forma consolidated financial statements.
  </TABLE>
  <PAGE>
  <PAGE> 53
                                        CONSECO, INC. AND SUBSIDIARIES
  <TABLE>
  <CAPTION>
                                PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
                                     For the Year Ended December 31, 1993
                                (Dollars in millions, except per share amounts)
                                                  (unaudited)
  
                                                Pro Forma                      Pro Forma
                                                 Conseco                      Adjustments          
                                               Before the                     Relating to
                                                Statesman       Statesman    the Statesman     Pro Forma
                                               Acquisition     Historical     Acquisition       Conseco
                                               -----------     ----------     -----------       -------
  <S>                                         <C>               <C>            <C>           <C>
  Revenues:
    Insurance policy income                    $1,272.7          $50.0           ($.4)(1)     $1,322.3
    Investment activity:
      Net investment income                       279.5          298.9            (.2)(2)        577.1
                                                                                 (1.1)(2)
      Net trading income                           44.9                                           44.9
      Net realized gains                           64.9           24.8          (13.0)(2)         76.7
    Equity in earnings of CCP Insurance, Inc.      40.1                           (.2)(2)         39.9
    Equity in earnings of Western National 
      Corporation                                  47.4                                           47.4
    Fee and commission revenue                     41.5                                           41.5
    Other income                                    1.4            5.5                             6.9
                                                -------          -----          -----          -------
         Total revenues                         1,792.4          379.2          (14.9)         2,156.7
                                                -------          -----          -----          -------
  Benefits and expenses:
    Insurance policy benefits and change in future
      policy benefits                             943.2           31.7                           974.9
    Interest expense on annuities and financial
      products                                     75.4          195.9                           271.3
    Interest expense on long-term debt             54.4            6.1           24.4 (3)         84.9
    Interest expense on short-term debt             4.4                                            4.4
    Amortization related to operations            134.2           31.7            4.4 (1)        174.9
                                                                                  4.6 (4)
    Amortization and change in future policy
      benefits related to realized gains           47.6            9.8           (3.2)(5)         54.2
    Other operating costs and expenses            219.6           35.5                           255.1
                                                -------          -----          -----          -------
         Total benefits and expenses            1,478.8          310.7           30.2          1,819.7
                                                -------          -----          -----          -------
         Income before income taxes, minority          
           interest and extraordinary charge      313.6           68.5          (45.1)           337.0
  
  Income tax expense                               99.0           22.5          (13.1) (6)       108.4
                                                -------          -----          -----          -------
  
                                           (Continued on next page)
  <FN>
        The accompanying notes are an integral part of the pro forma consolidated financial statements.
  </TABLE>
  
  <PAGE>
  <PAGE> 54
                                        CONSECO, INC. AND SUBSIDIARIES
  <TABLE>
  <CAPTION>
  
                                PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
                                For the Year Ended December 31, 1993, continued
                                (Dollars in millions, except per share amounts)
                                                  (unaudited)
  
                                                Pro Forma                      Pro Forma
                                                 Conseco                      Adjustments          
                                               Before the                     Relating to
                                                Statesman       Statesman    the Statesman     Pro Forma
                                               Acquisition     Historical     Acquisition       Conseco
                                               -----------     ----------     -----------       -------
  <S>                                         <C>               <C>            <C>           <C>
         Income before minority interest and
           extraordinary charge                   214.6            46.0         (32.0)           228.6
  
  Less minority interest                           56.3             8.8           (.9) (7)        66.1
                                                                                 (2.2) (8)
                                                                                  4.1  (9)            
                                                -------         -------        ------         --------
         Income before extraordinary charge     $ 158.3         $  37.2        ($33.0)        $  162.5
                                                =======         =======        ======         ========
  
  Earnings before extraordinary charge per common
    share and common equivalent share:
  
         Primary:
            Weighted average shares          29,245,000                                     29,245,000
                                             ==========                                     ==========
            Earnings before extraordinary 
              charge                              $4.71                                          $4.85
                                                  =====                                          =====
         Fully diluted:
            Weighted average shares          33,495,000                                     33,495,000
                                             ==========                                     ==========
            Earnings before extraordinary 
              charge                              $4.62                                          $4.75
                                                  =====                                          =====
  
  
  
  
  
  
  
  
  
  
  
  
  
  <FN>
        The accompanying notes are an integral part of the pro forma consolidated financial statements.
  </TABLE>
  <PAGE>
  <PAGE> 55
  
                                        CONSECO, INC. AND SUBSIDIARIES
  <TABLE>
  <CAPTION>
                                     PRO FORMA CONSOLIDATED BALANCE SHEET
                                                 June 30, 1994
                                             (Dollars in millions)
  
                                                                               Pro Forma
                                                                              Adjustments
                                                                              Relating to
                                                 Conseco       Statesman     the Statesman     Pro Forma
                                               as Reported     Historical     Acquisition       Conseco
                                               -----------     ----------     -----------       -------
  <S>                                         <C>            <C>           <C>               <C> 
  Assets
    Investments:
      Fixed maturities:
         Actively managed                      $2,788.5       $2,612.0      $1,240.5 (10)     $6,641.0
         Held to maturity                             -        1,396.0      (1,240.5)(10)           - 
                                                                              (155.5)(11)
      Equity securities                            14.7           22.6                            37.3
      Mortgage loans                               77.2           71.0            .9 (11)        149.1
      Credit-tenant loans                          46.0                                           46.0
      Policy loans                                116.9           58.1                           175.0
      Investment in CCP Insurance, Inc.           218.1                                          218.1
      Investment in Western National Corporation  193.1                                          193.1
      Other invested assets                        49.2           18.6                            67.8
      Trading account securities                   27.8                                           27.8
      Short-term investments                      472.0          110.5           2.3 (12)        595.8
                                                                               422.0 (12)
                                                                              (380.8)(13)             
                                                                               (30.2)(14)
      Assets held in separate accounts             73.7           10.7                            84.4
                                               --------       --------        ------         ---------
  
           Total investments                    4,077.2        4,299.5        (141.3)          8,235.4
  
    Cash                                              -            2.3          (2.3)(12)           - 
    Accrued investment income                      56.9           56.7                           113.6
    Reinsurance receivables                        39.4                                           39.4
    Deferred income taxes                          48.0           45.3          14.8 (15)        108.1
    Cost of policies purchased                    621.6                        478.2 (16)      1,099.8
    Cost of policies produced                     216.7          346.2        (346.2)(17)        216.7
    Goodwill                                      316.0            2.8         244.3 (18)        563.1
    Property and equipment                         74.3            9.9           2.2 (11)         86.4
    Securities segregated for the future 
      redemption of preferred stock of 
      wholly owned subsidiary                         -           36.9          (1.1)(11)         35.8
    Other assets                                  149.3           20.2          (5.2)(19)        164.3
                                               --------       --------        ------         ---------
           Total assets                        $5,599.4       $4,819.8        $243.4         $10,662.6
                                               ========       ========        ======         =========
  
  <FN>
  
  
        The accompanying notes are an integral part of the pro forma consolidated financial statements.
  </TABLE>
  <PAGE>
  <PAGE> 56
                                        CONSECO, INC. AND SUBSIDIARIES
  <TABLE>
  <CAPTION>
                                     PRO FORMA CONSOLIDATED BALANCE SHEET
                                                 June 30, 1994
                                             (Dollars in millions)
  
                                                                                Pro Forma
                                                                               Adjustments
                                                                               Relating to
                                                Conseco        Statesman      the Statesman    Pro Forma
                                              as Reported     Historical       Acquisition      Conseco
                                              -----------     ----------       -----------      -------
  <S>                                        <C>            <C>             <C>             <C>
  Liabilities:
    Insurance liabilities                     $3,527.6       $4,479.4                        $8,007.0 
    Investment borrowings                        189.7                                          189.7 
    Other liabilities                            258.2           46.4           22.5 (20)       353.7 
                                                                                (3.5)(21)
                                                                                30.1 (22)
    Liabilities related to separate accounts      72.9           10.7                            83.6 
    Long-term debt                               230.5                                          230.5 
    Notes payable of CCP II entities, not 
      direct obligations of Conseco                  -          124.0          182.8 (23)       306.8 
    Notes payable of BLH, not direct 
      obligations of Conseco                     279.7                                          279.7 
                                              --------       --------      --------         ---------   
         Total liabilities                     4,558.6        4,660.5          231.9          9,451.0 
                                              --------       --------      --------         ---------   
  Minority interest                              185.9           95.4           67.1 (24)       354.4 
                                                                                 6.0 (25)
  Redeemable preferred stock                         -            3.7           (3.7)(26)           - 
  
  Shareholders' equity:
    Preferred stock                              287.5                                          287.5 
    Series Preferred Stock                           -             .3            (.3)(26)             
    Common stock and additional 
       paid-in capital                           172.4           65.5          (65.5)(26)       172.4 
    Unrealized depreciation                     (118.5)         (99.9)          99.9 (26)      (118.5)
    Retained earnings                            513.5           94.3          (94.3)(26)       515.8 
                                                                                 2.3 (14)              
                                              --------       --------      --------         ---------   
         Total shareholders' equity              854.9           60.2         (57.9)            857.2
                                              --------       --------      --------         --------- 
         Total liabilities and 
            shareholders' equity              $5,599.4       $4,819.8      $  243.4         $10,662.6 
                                              ========       ========      ========         =========
  
  <FN>
        The accompanying notes are an integral part of the pro forma consolidated financial statements.
  </TABLE>
  <PAGE>
  <PAGE> 57
                                        CONSECO, INC. AND SUBSIDIARIES
  
                                              NOTES TO PRO FORMA
                                       CONSOLIDATED FINANCIAL STATEMENTS
                                                  (Unaudited)
  
  BASIS OF PRESENTATION
  
         On September 29, 1994, Conseco Capital Partners II, L.P. ("CCP II"), a
  Delaware limited partnership, completed the acquisition (the "Acquisition") of
  The Statesman Group, Inc. ("Statesman").  After the Acquisition and related
  financing transactions, CCP II owns approximately 80 percent of the outstanding
  shares of Statesman's common stock.  Conseco, Inc. ("Conseco") formed CCP II
  in February 1994 with several other investors for the purpose of investing in
  acquisitions of annuity, life and accident and health insurance companies and
  related businesses.  Conseco Partnership Management, Inc., a wholly owned
  subsidiary of Conseco, is the sole general partner of CCP II. Because a
  subsidiary of Conseco is the sole general partner of CCP II, Conseco controls
  CCP II and Statesman.  Accordingly, Conseco's consolidated financial statements
  will include the accounts of CCP II and Statesman.  Conseco, through its direct
  investment and through its equity interest in the investments made by Bankers
  Life Holding Corporation ("BLH"), CCP Insurance, Inc. ("CCP Insurance") and
  Western National Corporation ("WNC"), has a 27 percent ownership interest in
  Statesman.  The remaining 73 percent ownership interest in Statesman is
  described as the "Statesman Minority Interest."
  
         The unaudited pro forma consolidated statements of operations of Conseco
  for the year ended December 31, 1993, and the six months ended June 30, 1994,
  present the consolidated operating results for Conseco as if the Acquisition
  had occurred on January 1, 1993.  The unaudited pro forma consolidated balance
  sheet as of June 30, 1994, gives effect to the Acquisition as if it had
  occurred on June 30, 1994.  The historical statement of operations data for
  Conseco set forth in the unaudited pro forma consolidated statements of
  operations for the year ended December 31, 1993, and for the six months ended
  June 30, 1994, under the column "Pro Forma Conseco Before the Statesman
  Acquisition", to which the pro forma adjustments for the Acquisition are being
  applied, already reflect the prior application of certain pro forma adjustments
  for the following transactions, all of which occurred prior to June 30, 1994,
  as if such transactions had occurred on January 1, 1993:  the initial public
  offering of WNC, the initial public offering of BLH, the purchase by Conseco
  of 13.3 million additional shares of BLH common stock in September 1993 and the
  purchase by Conseco of 2.0 million additional shares of CCP Insurance common
  stock in September 1993.  These pro forma adjustments are set forth in Exhibit
  99.1 to Conseco's Form 10-Q for the quarterly period ended June 30, 1994. 
  
         The unaudited pro forma consolidated financial statements should be read
  in conjunction with the accompanying notes, the historical financial statements
  and notes thereto of Conseco, the historical financial statements of Statesman
  as of June 30, 1994, and for the six months then ended and for the year ended
  December 31, 1993 included in Item 7(a) herein, and the unaudited pro forma
  financial information of Conseco as of June 30, 1994, and for the six months
  then ended and for the year ended December 31, 1993, contained in Exhibit 99.1
  to Conseco's Form 10-Q for the quarterly period ended June 30, 1994. Certain
  amounts from the prior periods have been reclassified to conform to the current
  presentation. 
  
  PRO FORMA ADJUSTMENTS
    
  Transactions Relating to the Acquisition of Statesman
  
         The Acquisition was consummated pursuant to an Agreement and Plan of
  Merger dated May 1, 1994, providing for the merger of Statesman with a
  subsidiary of CCP II.  Statesman's former stockholders received $15.25 in cash
  per common equivalent share plus a contingent payment right to receive up to
  another $2.00 in cash per common equivalent share ("the Contingent
  Consideration") based on the outcome of Statesman's pending litigation against
  the U.S. Government concerning Statesman's former savings bank subsidiary (the
  "Government Litigation").
  <PAGE>
  <PAGE> 58
  
         The Acquisition and related transactions were funded with:  (i) $45.0
  million of cash contributions made to CCP II by its partners (including $7.2
  million provided by wholly owned subsidiaries of Conseco, $1.8 million by BLH,
  $1.8 million by CCP Insurance and $3.6 million by WNC), (ii) $57.0 million in
  cash from the sale in a private placement of the payment-in-kind preferred
  stock of Statesman (the "Statesman PIK Preferred Stock") (including $25.9
  million purchased by BLH and $24.0 million purchased by CCP Insurance), (iii)
  $150.0 million in cash from the sale in a public offering by ALHC Merger
  Corporation, a subsidiary of CCP II which was merged into American Life Holding
  Company ("ALHC"), a wholly owned subsidiary of Statesman, of its 11-1/4% Senior
  Subordinated Notes due 2004 (the "ALHC Senior Subordinated Notes") and (iv)
  $200.0 million in cash from a senior secured loan (the "ALHC Senior Term Loan")
  obtained by ALHC Merger Corporation (collectively referred to herein as the
  "Statesman Financing").  The sources and uses of this financing are summarized
  below (dollars in millions).
  <TABLE>
     <S>                                                                                 <C>   
      Sources of Funds:
          ALHC Senior Term Loan:
             Borrowed upon closing of the Acquisition                                      $170.0
             Borrowed upon determination of Government Litigation                            30.0   (i)
          ALHC Senior Subordinated Notes                                                    150.0
          Statesman PIK Preferred Stock                                                      57.0
          Common equity contribution from CCP II                                             45.0
                                                                                           ------
                    Total sources                                                          $452.0
                                                                                           ======
  
      Uses of Funds:
          Payment of cash consideration to acquire Statesman                               $314.1   (ii)
          Payment upon determination of Government Litigation                                30.1   (i)
          Repayment of bank indebtedness of a subsidiary of Statesman                        55.5   (iii)
          Transaction fees and expenses                                                      14.8
          Purchase of surplus note from American Life and Casualty 
             Insurance Company ("American Life"), Statesman's 
             principal operating subsidiary                                                  24.0
          Cash retained                                                                      13.5
                                                                                           ------
                    Total uses                                                             $452.0
                                                                                           ======
  <FN>
  
  (i)     In the event of an unfavorable determination of the Government 
          Litigation, $30.1 million would be paid to the holders of Statesman's
          1988 Series I and II Preferred Stock $1 Par (the "Statesman 1988 Series
          Preferred Stock"), which is currently held by the U.S. Government.  In 
          the event of a favorable determination of this litigation, the same
          amount, representing a portion of the Contingent Consideration, would
          be paid to the other former stockholders of Statesman.
  
  (ii)    This amount assumes conversion of all outstanding 6-1/4% Convertible
          Subordinated Debentures due 2003 of Statesman (the "Convertible
          Debentures"), which are convertible into an aggregate of 4,528,125
          shares of Statesman common stock.  To the extent that any holders of
          the Convertible Debentures do not convert such securities, the
          proceeds which would have been used to pay such holders will be held
          in escrow until the Convertible Debentures are converted by the
          holders, are redeemed by Statesman, or mature.
  
  (iii)   A subsidiary of Statesman was the borrower under a credit facility with
          an outstanding balance of $51.9 million at June 30, 1994. The  
          outstanding balance under this facility (which totalled $55.5 million
          at the Acquisition date) was repaid with a portion of the proceeds from
          the Statesman Financing.
  </TABLE>
  <PAGE>
  <PAGE> 59
  
         The pro forma adjustments are applied to the historical consolidated
  financial statements of Conseco and Statesman to account for the Acquisition
  using the purchase method of accounting.  Under purchase accounting, the total
  purchase cost of Statesman will be allocated to the assets and liabilities
  acquired based on their relative fair values as of the date of acquisition,
  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 cost allocations will be based on appraisals and other studies, which are
  not yet completed.  Accordingly, the final allocations will be different from
  the amounts reflected herein.  Although the final allocations will differ, the
  pro forma consolidated financial statements reflect management's best estimate
  based on currently available information.
  
         Adjustments to give effect to the Acquisition and related transactions
  are summarized as follows: 
  
         (1)  Amortization of deferred acquisition costs and the recognition of
  deferred revenues for policies sold by Statesman prior to January 1, 1993, are
  replaced with the  amortization of cost of policies purchased (amortized in 
  relation to estimated profits on the policies purchased  with interest equal
  to the liability or contract rates  ranging from 5.3% to 8.2%).  See Note 16
  below.
  
         (2)  Net investment income and net realized gains of Statesman are
  adjusted to include the effect of the restatement of (i) fixed maturities, (ii)
  mortgage loan investments and (iii) interest rate swap and collar agreements
  to estimated fair value as of January 1, 1993, the assumed date of the
  Acquisition.  The reported value and estimated fair value of fixed maturities,
  mortgage loan investments and interest rate swap and collar agreements as of
  January 1, 1993, are as follows (dollars in millions):
  <TABLE>
  <CAPTION>
                                                                          Reported      Estimated
                                                                            Value      Fair Value
                                                                            -----      ----------
  <S>                                                                    <C>           <C>
      Fixed maturities                                                    $2,910.6      $2,980.0
      Mortgage loan investments                                               87.1          88.2
      Interest rate swap and collar agreements                                 (.7)         (7.5)
  </TABLE>
  
         In addition, net investment income is reduced to reflect the reduction
  in short-term investments in connection with the purchase of investments in CCP
  II and the Statesman PIK Preferred Stock by Conseco and its consolidated
  subsidiaries.  Additionally, equity in earnings of CCP Insurance is reduced to
  reflect the reduction in net investment income as a result of its investment
  in CCP II and the Statesman PIK Preferred Stock. 
  
         No additional investment income is assumed to be earned on the cash
  retained from the proceeds of the Statesman Financing after payment of the
  costs of the Acquisition and related transactions.  Pro forma net realized gain
  (loss) represents the difference between (i) the actual proceeds from the sales
  of investments and (ii) the fair value of the investments as of the assumed
  date of the Acquisition, adjusted for the accretion of discount or premium
  based on the new cost basis.
  <PAGE>
  <PAGE> 60
  
         (3)  Interest expense is adjusted to reflect the following transactions
  as if they occurred as of the assumed date of the Acquisition:
  <TABLE>
  <CAPTION>
                                                                                         Six Months
                                                                      Year Ended            Ended
                                                                   December 31, 1993    June 30, 1994
                                                                   -----------------    -------------
     <S>                                                                <C>              <C>
      Use of proceeds to repay certain bank 
          indebtedness of a subsidiary of Statesman                      $(2.4)           $(1.6)
      The assumed conversion of all of the Convertible Debentures         (3.3)            (2.4)
      The borrowings under the ALHC Senior Term Loan (i)                  12.1              6.1
      The issuance of the ALHC Senior Subordinated Notes (ii)             16.9              8.4
      Amortization of debt issuance costs (iii)                            1.1               .6
                                                                         -----            -----
                                                                         $24.4            $11.1
                                                                         =====            =====
  <FN>
      
            (i)  Based on borrowings of $170.0 million ($130.0 million at an
                 assumed interest rate of 7.0% and $40.0 million at an assumed
                 interest rate of 7.5%).
  
           (ii)  Based on a principal amount of $150.0 million at an assumed
                 interest rate of 11.25%.
  
           (iii)  Based on debt issuance costs of $6.8 million and $8.0 million
                  related to the ALHC Senior Subordinated Notes and the ALHC 
                  Senior Term Loan, respectively, which are amortized at a level
                  yield over the term of such debt.
  </TABLE>
  
         A change in interest rates on the ALHC Senior Term Loan of .5% would
  result in (i) an increase (or decrease) in pro forma interest expense of $.9
  million and $.4 million for the year ended December 31, 1993 and the six months
  ended June 30, 1994, respectively, and (ii) a decrease (or increase) in pro
  forma net income of $.1 million and $.1 million for the same respective
  periods.  Under the terms of the ALHC Senior Term Loan, $30 million will remain
  available to borrow at a later date when needed to pay a portion of the
  Contingent Consideration or to pay to the holders of the Statesman 1988 Series
  Preferred Stock upon the determination of the Government Litigation.  If such
  $30 million were outstanding during 1993 and the six months ended June 30, 1994
  (with an assumed interest rate of 7.0% during such periods), pro forma interest
  expense would increase by $2.1 million and $1.1 million, respectively, and pro
  forma net income would decrease by $.3 million and $.2 million, respectively.
  
         (4)  Amortization of goodwill calculated as of January 1, 1993 is
  recognized over a 40-year period on a straight-line basis.
  
         (5)  Anticipated returns, including realized gains and losses, from the
  investment of policyholder balances are considered in determining the
  amortization of the cost of policies purchased.  Amortization of cost of
  policies purchased is adjusted to reflect amortization related to pro forma
  realized gains by Statesman during the period. 
  
         (6)  All applicable pro forma adjustments to operations are tax effected
  at the appropriate rate.  Additionally, for the year ended December 31, 1993,
  income tax expense is increased by $1.1 million to reflect the effect of the
  increase in the corporate income tax rate to 35% from 34% on adjustments to
  deferred income tax liabilities resulting from pro forma adjustments.
  
         (7)  The Statesman Minority Interest in the earnings of Statesman is
  recognized. 
  <PAGE>
  <PAGE> 61
  
         (8) After the Acquisition, investment advisory services are provided to
  Statesman by a subsidiary of Conseco.  Statesman's historical net investment
  income is not reduced to reflect the advisory fees to be paid under the
  agreement in excess of investment expenses incurred prior to the Acquisition,
  since, in accordance with GAAP, such intercompany fees are eliminated in
  consolidation.  Minority interest, however, is adjusted to charge the Statesman
  Minority Interest for its portion of such investment advisory fees.  Net
  investment income is not increased to reflect any additional investment income
  and realized gains which may be earned as a result of services provided by the
  Conseco subsidiary.
         
         (9)  All investors in the Statesman PIK Preferred Stock, other than BLH
  and CCP Insurance to the extent of Conseco's interest therein, have 
  approximately a 56 percent ownership interest in such Statesman PIK Preferred
  Stock (the "Statesman PIK Preferred Minority Interest").  Income is reduced to
  reflect the dividends accrued on the Statesman PIK Preferred Stock attributable
  to the Statesman PIK Preferred Minority Interest. 
  
         (10)  After the Acquisition, all existing fixed maturity investments are
  classified as available-for-sale.  Fixed maturities previously classified as
  held-to-maturity are reclassified as available-for-sale. 
  
         (11)  Statesman's fixed maturity investments, mortgage loans, property
  and equipment and securities segregated for the future redemption of preferred
  stock of a wholly owned subsidiary are restated to market value as of the
  assumed date of the Acquisition. 
   
         (12)  After the Acquisition, all cash is invested in short-term
  investments.  Short-term investments are increased to reflect the gross
  proceeds from the Statesman Financing.
  
         (13)  Short-term investments are reduced for the amounts distributed
  related to the Acquisition.
  
         (14)  Short-term investments are reduced to reflect the investment of
  Conseco and its consolidated subsidiaries in CCP II related to the Acquisition
  and in Statesman PIK Preferred Stock, offset by fees of $4.9 million paid to
  Conseco.  Retained earnings is increased by $2.3 million to reflect net income
  attributable to the fees collected from the Statesman Minority Interest.
  
         (15)  All of the applicable pro forma balance sheet adjustments are tax
  effected at the appropriate rate.  
  
         (16)  Cost of policies purchased reflects the estimated fair value of
  the business in force and represents the portion of the cost to acquire
  Statesman that is allocated to the value of the right to receive future cash
  flows from insurance contracts existing as of the assumed date of the
  Acquisition.  Such value is the present value of the actuarially determined
  projected cash flows from the acquired policies.
  
         The 15% discount rate used to determine such value is the rate of return
  required by CCP II 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 expected future 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.
  <PAGE>
  <PAGE> 62
  
         The value allocated to cost of policies purchased is based on a
  preliminary valuation; accordingly, this allocation may be adjusted upon final
  determination of such value.  On a pro forma basis, assuming that the
  Acquisition occurred as of June 30, 1994, expected gross amortization using
  current assumptions and accretion of interest based on an interest rate equal
  to the liability or contract rate (such rates ranging from 5.3% to 7.7%) for
  each of the years in the five-year period ending June 30, 1999 is as follows
  (dollars in millions):
  <TABLE>
  <CAPTION>
              Year ended    Beginning         Gross        Accretion         Net           Ending
                June 30      Balance      Amortization    of Interest   Amortization      Balance
                -------      -------      ------------    -----------   ------------      -------
                <S>          <C>              <C>            <C>            <C>           <C>
                 1995         $478.2           $68.5          $24.9          $43.6         $434.6
                 1996          434.6            69.6           22.0           47.6          387.0
                 1997          387.0            65.7           19.5           46.2          340.8
                 1998          340.8            61.4           17.1           44.3          296.5
                 1999          296.5            56.2           14.8           41.4          255.1
  </TABLE>
  
         (17)  Deferred acquisition costs of Statesman are eliminated since such
  amounts are reflected in the determination of the cost of policies purchased. 
  
         (18)  Goodwill reflects the excess of cost of investment in Statesman
  over the net assets acquired.
  
         (19)  Several deferred costs of Statesman that are not relevant after
  the acquisition are eliminated as of the assumed date of the Acquisition.
  
         (20)  A liability is established to reflect the fair value of interest
  rate swap and collar agreements of Statesman outstanding as of the assumed date
  of the Acquisition.  The fair value was determined based on estimates obtained
  from an unaffiliated dealer in such instruments.
  
         (21)  Deferred revenues on certain life insurance and annuity policies
  of Statesman are eliminated, since such amounts are reflected in the
  determination of the cost of policies purchased.
  
         (22)  A liability is established for the amount payable when the outcome
  of the Government Litigation is determined.  
  
         (23)  Long-term debt is reduced as of June 30, 1994 to reflect the
  repayment of the bank debt of a subsidiary of Statesman (with a principal
  balance as of June 30, 1994 of $51.9 million), repayment of notes payable
  issued by Statesman's employee stock ownership plan (principal balance as of
  June 30, 1994 of $4.0 million) and the assumed conversion and retirement of the
  Convertible Debentures.  Additionally, long-term debt is increased to reflect
  (i) $170.0 million gross proceeds from the ALHC Senior Term Loan and (ii)
  $150.0 million gross proceeds from the ALHC Senior Subordinated Notes, reduced
  by $14.8 million to reflect the costs associated with the issuance of such
  debt.  Under the terms of the ALHC Senior Term Loan, $30.0 million will remain
  available to borrow when needed to pay a portion of the Contingent
  Consideration or to pay to the holder of the Statesman 1988 Series Preferred
  Stock upon the determination of the Government Litigation.  See Note 22 above.
  
         (24)  An adjustment is made to reflect the Statesman Minority Interest
  in the common equity of Statesman and the Statesman PIK Preferred Minority
  Interest related to the Statesman PIK Preferred Stock.
  
         (25)  The carrying value of the preferred stock of a wholly owned
  subsidiary of Statesman is adjusted to its estimated fair value as of the
  assumed date of the Acquisition. 
  
         (26)  The prior shareholders' equity and the redeemable preferred stock
  of Statesman are eliminated in conjunction with the Acquisition and related
  transactions.<PAGE>
  <PAGE> 63
  ITEM 7(c).       EXHIBIT. 
  
                   (c)  Exhibits 
  
                        2.1      Agreement and Plan of Merger dated as of May 1,
                                 1994 by and among Conseco Capital Partners II, 
                                 L.P., CCP II Acquisition Company and The 
                                 Statesman Group, Inc.
  
                        4.12     Indenture dated as of September 29, 1994
                                 between ALHC Merger Corporation and LTCB Trust
                                 Company and First Supplemental Indenture dated
                                 as of September 29, 1994 between American Life 
                                 Holding Company and the Trustees for the 11-1/4%
                                 Senior Subordinated Notes due 2004.
  
                                 The document defining the rights of the holders
                                 of the Senior Term Loan obtained by ALHC Merger 
                                 Corporation (the "ALHC Senior Term Loan") as  
                                 described in Item 2 has been omitted as an
                                 exhibit to the Form 8-K, pursuant to Item
                                 601(b)(4)(iii) of Regulation S-K, because the
                                 total amount of the ALHC Senior Term Loan is
                                 less than 10 percent of the total assets of the 
                                 Registrant and its subsidiaries on a
                                 consolidated basis.  The Registrant hereby
                                 undertakes to furnish copies of such documents
                                 to the Commission upon request.
  <PAGE>
  <PAGE> 64
  
  
                                        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 hereunto duly authorized.
  
  
  
                                             CONSECO, INC.
  
  
    Dated: October 13, 1994                   By: /s/ ROLLIN M. DICK           
                                                  --------------------
                                                  Rollin M. Dick
                                                  Executive Vice President and
                                                  Chief Financial Officer     
                                                  (authorized officer and      
                                                   principal financial officer)
metadata_documents: [{"type": "8-K", "sequence": "1", "description": "CONSECO FORM 8-K FOR SEPTEMBER 29, 1994", "secsgml_size_bytes": 249246}]
metadata_filer: {"company-data": {"conformed-name": "CONSECO INC", "cik": "0000719241", "assigned-sic": "6311", "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": "94552695"}, "business-address": {"street1": "11825 N PENNSYLVANIA ST", "city": "CARMEL", "state": "IN", "zip": "46032", "phone": "3175736100"}, "former-company": {"former-conformed-name": "SECURITY NATIONAL OF INDIANA CORP", "date-changed": "19840207"}}
text: 1
                                                                               
                                      
  
                                                                               
                     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 (date of earliest event reported):
                          September 29, 1994
  
                             CONSECO, INC.
  
                                                                               
                        State of Incorporation:
                               Indiana
  
  Commission File                                 IRS Employer ID.
    No. 0-11164                                    No. 35-1468632 
  
                                                       
                    Address of Principal Executive Offices:
                       11825 North Pennsylvania Street
                          Carmel, Indiana  46032
  
                               Telephone No.
                              (317) 573-6100
  2
                                                                               
                        CONSECO, INC. AND SUBSIDIARIES
  INDEX
  
                                                                                                                                   
                                                                            Page
                                                                            ----
  Item 2 -       Acquisition or Disposition of Assets                          3
  
  Item 7 -       Financial Statements and Exhibits
                 (a)   The Statesman Group, Inc. and Subsidiaries
                       Unaudited Consolidated Financial Statements 
                       as of June 30, 1994 and for the six months 
                       ended June 30, 1994 and 1993
                           Consolidated Balance Sheets                         6
                           Consolidated Statements of Income                   8                                                   
                           Consolidated Statements of Cash Flows               9
                           Notes to Consolidated Financial Statements         10
  
                     The Statesman Group, Inc. and Subsidiaries
                       Audited Consolidated Financial Statements
                       as of December 31, 1993 and 1992 and for 
                       each of the three years ended December 
                       31, 1993                                                                                                    
                           Report of Independent Auditors                     14
                           Consolidated Balance Sheets                        15
                           Consolidated Statements of Income                  17
                           Consolidated Statements of Stockholders' Equity    18
                           Consolidated Statement of Cash Flows               19
                           Notes to Consolidated Financial Statements         21
  
                 (b)   Pro Forma Consolidated Financial Information
                           of Conseco, Inc. and Subsidiaries
                              Pro Forma Consolidated Statement of Operations
                                 for the six months ended June 30, 1994       51
                              Pro Forma Consolidated Statement of Operations 
                                 for the year ended December 31, 1993         53
                              Pro Forma Consolidated Balance Sheet as of  
                                 June 30, 1994                                55
                              Notes to Pro Forma Consolidated Financial 
                                 Statements                                   57
                                 
                 (c)   Exhibits
  
                       2.1  Agreement and Plan of Merger dated as of May
                            1, 1994 by and among Conseco Capital Partners
                            II, L.P., CCP II Acquisition Company and The 
                            Statesman Group, Inc.
         
                       4.12 Indenture dated as of September 29, 1994 between 
                            ALHC Merger Corporation and LTCB Trust Company and
                            First Supplemental Indenture dated as of September
                            29, 1994 between American Life Holding Company and
                            the Trustees for the 11-1/4% Senior Subordinated 
                            Notes due 2004.
   
                            The document defining the rights of the holders of
                            the Senior Term Loan obtained by ALHC Merger 
                            Corporation as described in Item 2 has been omitted 
                            as an exhibit to the Form 8-K, pursuant to Item 601 
                            (b)(4)(iii) of Regulation S-K, because the total 
                            amount of the ALHC Senior Term Loan is less than 
                            10 percent of the total assets of the Registrant 
                            and its subsidiaries on a consolidated basis.  The 
                            Registrant hereby undertakes to furnish copies of 
                            such documents to the Commission upon request.
  3                                                                     
                      CONSECO, INC. AND SUBSIDIARIES
  
  ITEM 2.  ACQUISITION OR DISPOSITION OF ASSETS
  
               On September 29, 1994, Conseco Capital Partners II, L.P. ("CCP
  II"), a Delaware limited partnership, completed the acquisition (the
  "Acquisition") of The Statesman Group, Inc. ("Statesman").  After the
  Acquisition and related financing transactions, CCP II owns approximately 80
  percent of the outstanding shares of Statesman's common stock.   Conseco, Inc. 
  ("Conseco") formed CCP II in February 1994 with several other investors for the
  purpose of investing in acquisitions of annuity, life and accident and health
  insurance companies and related businesses.  Conseco Partnership Management,
  Inc., a wholly owned subsidiary of Conseco, is the sole general partner of CCP
  II.  Because a subsidiary of Conseco is the sole general partner of CCP II,
  Conseco controls CCP II and Statesman.  Accordingly, Conseco's consolidated
  financial statements will include the accounts of CCP II and Statesman. 
  Conseco, through its direct investment and through its equity interest in the
  investments made by Bankers Life Holding Corporation ("BLH"), CCP Insurance,
  Inc. ("CCP Insurance") and Western National Corporation ("WNC"), has
  approximately a 27 percent ownership interest in Statesman.  The remaining 73
  percent ownership interest in Statesman is described as the "Statesman Minority
  Interest".
  
               The Acquisition was consummated pursuant to an Agreement and Plan
  of Merger dated May 1, 1994, providing for the merger of Statesman with a
  subsidiary of CCP II.  Statesman's former stockholders received $15.25 in cash
  per common equivalent share plus a contingent payment right to receive up to
  another $2.00 in cash per common equivalent share ("the Contingent
  Consideration") based on the outcome of Statesman's pending litigation against
  the U.S. Government concerning Statesman's former savings bank subsidiary (the
  "Government Litigation"). 
  
               The Acquisition and related transactions were funded with:  (i)
  $45.0 million of cash contributions made to CCP II by its partners (including
  $7.2 million provided by wholly owned subsidiaries of Conseco, $1.8 million by
  BLH, $1.8 million by CCP Insurance, and $3.6 million by WNC), (ii) $57.0
  million in cash from the sale in a private placement of the payment-in-kind
  preferred stock of Statesman (the "Statesman PIK Preferred Stock") (including
  $25.9 million purchased by BLH and $24.0 million purchased by CCP Insurance)
  (iii) $150.0 million in cash from the sale in a public offering by ALHC Merger
  Corporation, a subsidiary of CCP II which was merged into American Life Holding
  Company ("ALHC"), a wholly owned subsidiary of Statesman, of its 11-1/4% Senior
  Subordinated Notes due 2004 (the "ALHC Senior Subordinated Notes") and (iv)
  $200.0 million in cash from  a senior secured loan (the "ALHC Senior Term
  Loan") obtained by ALHC Merger Corporation (collectively referred to herein as
  the "Statesman Financing").  The sources and uses of this financing are
  summarized below (dollars in millions).
  Sources of Funds:
                 ALHC Senior Term Loan:
                       Borrowed upon closing of the Acquisition                      $170.0
                       Borrowed upon determination of Government Litigation            30.0   (i)
                 ALHC Senior Subordinated Notes                                       150.0
                 Statesman PIK Preferred Stock                                         57.0
                 Common equity contribution from CCP II                                45.0
                                                                                     ------
                                    Total sources                                    $452.0
                                                                                     ======
           Uses of Funds:
                 Payment of cash consideration to acquire Statesman                  $314.1   (ii)
                 Payment upon determination of Government Litigation                   30.1   (i)
                 Repayment of bank indebtedness of a subsidiary of Statesman           55.5   (iii)
                 Transaction fees and expenses                                         14.8
                 Purchase of surplus note from American Life and 
                       Casualty Insurance Company ("American Life")
                       Statesman's principal operating subsidiary                      24.0
                 Cash retained                                                         13.5
                                                                                     ------
                                    Total uses                                       $452.0
                                                                                     ======
  (i)            In the event of an unfavorable determination of the Government
                 Litigation against the U.S. Government, $30.1 million would
                 be paid to the holders of Statesman's 1988 Series I and II
                 Preferred Stock $1 Par (the "Statesman 1988 Series Preferred
                 Stock"), which is currently held by the U.S. Government.  In the
                 event of a favorable determination of this litigation, the same
                 amount, representing a portion of the Contingent Consideration, 
                 would be paid to the other former stockholders of Statesman.
  4
                                    CONSECO, INC. AND SUBSIDIARIES
  
  (ii)           This amount assumes conversion of all outstanding 6-1/4%
                 Convertible Subordinated Debentures due 2003 of Statesman (the 
                 "Convertible Debentures"), which were convertible into an
                 aggregate of 4,528,125 shares of Statesman common stock.  To
                 the extent that any holders of the Convertible Debentures do not
                 convert such securities, the proceeds which would have been used
                 to pay such holders will be held in escrow until the Convertible
                 Debentures are converted by the holders thereof, are redeemed
                 by Statesman, or mature.
  
  (iii)          A subsidiary of Statesman was the borrower under a credit
                 facility with an outstanding balance including accrued interest
                 and fees of $55.5 million at the Acquisition date which was
                 repaid with a portion of the proceeds from the Statesman
                 Financing.
  
           In accordance with the CCP II partnership agreement, Conseco received
  fees for services provided of (i) $4.0 million related to the ALHC Senior Term
  Loan and the ALHC Senior Subordinated Notes and (ii) $.9 million from the CCP
  II Partners.  
  
           The ALHC Senior Term Loan was provided by a syndicate of lenders with
  Bank of America Illinois (formerly Continental Bank, N.A.) (the "Bank") as the
  agent.  The loan has two tranches.  One tranche has an aggregate principal
  amount of $160.0 million ("Tranche A") and the other tranche has an aggregate
  principal amount of $40.0 million ("Tranche B").  On the Acquisition date,
  $130.0 million and $40.0 million were borrowed under Tranche A and Tranche B,
  respectively, with the remaining $30.0 million to be borrowed at a later date
  when needed to redeem the Statesman 1988 Series Preferred Stock or pay the
  Contingent Consideration, depending on the outcome of the Government
  Litigation.
  
           Tranche A and Tranche B bear interest at a rate of either the Banks's
  Alternate Reference Rate plus an applicable margin payable monthly or the
  Interbank Offered Rate ("IBOR") plus an applicable margin for periods of one,
  two, three or six months as selected by ALHC from time to time (such rate
  selected for the first three month period was 7.5 percent and 8.0 percent for
  Tranche A and Tranche B, respectively.)  The applicable margin for the rate
  based on the Bank's Alternate Reference Rate will vary from .25 percent to 1.0
  percent for Tranche A and from .75 percent to 1.5 percent for Tranche B
  depending on the principal amount plus unused commitments.  The applicable
  margin for the rate based on IBOR will vary from 1.5 percent to 2.25 percent
  for Tranche A and from 2.0 percent to 2.75 percent for Tranche B depending on
  the principal amount plus unused commitments. 
  
           The principal amounts of Tranche A and Tranche B are payable in annual
  installments on April 1 of each year according to the following amortization
  schedule (dollars in millions):
  Payment                                                    Principal Installment 
            Date                                              Tranche A                   Tranche B
            ----                                              ---------                   ---------
  1995                                               $ 15.0                     $   -
            1996                                                 16.5                         .5
            1997                                                 23.5                         .5
            1998                                                 26.0                         .5
            1999                                                 26.0                         .5
            2000                                                 26.0                         .5
            2001                                                 27.0                         .5
            2002                                                    -                       37.0
                                                               ------                      -----
  
                                                               $160.0                      $40.0       
                                                               ======                      ======
  Mandatory prepayments will be required (i) from 50 percent of Excess
  Cash Flow (as defined in the loan agreement), (ii) upon the sale or disposition
  of any significant assets other than in the ordinary course of business and 
  (iii) upon the sale or issuance of debt or equity securities of Statesman or
  any of its subsidiaries.  The ALHC Senior Term Loan is secured by, among other
  things, pledges of the capital stock of ALHC's subsidiaries (American Life and
  American Life and Casualty Marketing Division Co. ("AMCO") and the surplus
  notes of American Life held by ALHC.  The ALHC Senior Term Loan is
  unconditionally guaranteed by Statesman and AMCO.  Statesman has pledged the
  common stock of ALHC as security for its guarantee.  In addition, CCP II has
  pledged to the lenders the Statesman common stock owned by CCP II.
  5
                     CONSECO, INC. AND SUBSIDIARIES
  
           The ALHC Senior Subordinated Notes bear interest at 11.25 percent,
  payable semiannually on March 15 and September 15, and will mature on September
  15, 2004.  The ALHC Senior Subordinated Notes are redeemable at the option of
  ALHC, in whole or in part, at any time on and after September 15, 1999,
  initially at 105.625 percent of their principal amount, plus accrued interest,
  declining to 100 percent of their principal amount, plus accrued interest, on
  and after September 15, 2001.   
  
           Dividends on the Statesman PIK Preferred Stock accrue annually at 13
  percent in additional shares of Statesman PIK Preferred Stock through 2005. 
  Thereafter, dividends are payable quarterly at 15 percent per annum in cash. 
  The Statesman PIK Preferred Stock ranks senior to the Statesman common stock
  with respect to dividends, and upon liquidation, the Statesman PIK Preferred
  Stock will carry a liquidation preference equal to $1,000 per share, plus
  accrued unpaid dividends.   The Statesman PIK Preferred Stock is redeemable at
  the option of Statesman, in whole or from time to time in part.  The optional
  redemption price of the Statesman PIK Preferred Stock will be $1,000 per share,
  plus any accrued and unpaid dividends, and the Statesman PIK Preferred Stock
  generally will not have any voting rights.  As partial consideration for the
  purchase of the Statesman PIK Preferred Stock, the purchasers received common
  stock, representing 20 percent of the outstanding common stock of Statesman
  immediately after the Acquisition.
  6
  ITEM 7(a).  FINANCIAL STATEMENTS
  
                       THE STATESMAN GROUP, INC. and Subsidiaries
  CONSOLIDATED BALANCE SHEETS                       
                                (dollars in thousands)                         
  
                                         ASSETS
                                                    June 30,       December 31,                
                                                    --------       ------------
                                                      1994             1993
                                                      ----             ----
                                                   (Unaudited)       (Audited)
  Investments
      Fixed maturities
          Held-to-maturity                        $ 1,395,977       $    747,741
          Available-for-sale                        2,611,978          3,136,315 
                                                  -----------       ------------ 
                                                    4,007,955          3,884,056 
      Equity securities                                22,639             20,411 
      Mortgage loans on real estate                    71,000             66,541 
      Policy loans                                     58,065             56,265 
      Short-term investments                          110,500             13,919 
      Other                                            18,596             14,991 
                                                  -----------        -----------                                  
            Total investments                       4,288,755          4,056,183  
                                    
  Cash                                                  2,258              9,993 
  Accrued investment income                            56,726             49,653 
  Accounts and notes receivable                         9,778             10,310 
  Deferred policy acquisition costs                   346,193            293,938 
  Deferred federal income taxes                        45,275            
  Property and equipment                                9,916             10,518 
  Securities segregated for the future redemption of
      preferred stock of wholly-owned subsidiary       36,901             35,560 
  Other assets                                         13,276             11,747 
  Assets held in separate accounts                     10,680             12,809 
                                                  -----------        -----------                                  
            Total assets                          $ 4,819,758        $ 4,490,711 
                                                  ===========        ===========
  See accompanying notes.
  7
                           THE STATESMAN GROUP, INC. and Subsidiaries
  CONSOLIDATED BALANCE SHEETS--(Continued)             
                                    (dollars in thousands)                                  
   
                             LIABILITIES AND STOCKHOLDERS' EQUITY 
  
                                                           June 30,       December 31,   
                                                           --------      ------------
                                                             1994             1993
                                                             ----             ----
                                                          (Unaudited)       (Audited)
  Liabilities                               
      Policy liabilities and accruals:                                
          Annuity reserves                                $ 4,089,891      $  3,690,557 
          Life insurance reserves                             307,370           301,284 
          Other                                                15,387            17,226 
                                                          -----------      ------------                                            
                                                            4,412,648         4,009,067 
      Other policyholders' funds                               66,761            60,395 
      Accrued expenses and other liabilities                   46,386            44,512 
      Long-term debt                                          123,980           120,375 
      Liabilities related to separate accounts                 10,680            12,809 
                                                          -----------      ------------                                            
               Total liabilities                            4,660,455         4,247,158 
  
  Commitments and contingencies                              
                                    
  Preferred stock of wholly-owned subsidiary                   95,429            95,298 
                                    
  Redeemable preferred stock                                 
      1987 Series II Preferred Stock $1 Par, at liquidation                                 
          value, less ESOP loan guarantee balance; 100,000                                  
          shares issued; 77,130 shares outstanding              3,713             2,963 
                                    
  Stockholders' equity                              
      Series Preferred Stock $1 Par, 5,000,000 shares                               
          authorized including redeemable preferred shares;                           
          issued and outstanding--338,640 shares                                            
          (aggregate liquidation preference $15,339)              339               339             
      Common stock, $1 par value, 35,000,000 shares                                                 
          authorized; 14,939,899 shares issued                 14,940            14,940                 
      Additional paid-in capital                               58,616            58,796                 
      Unrealized depreciation of securities                   (99,970)             (345)           
      Retained earnings                                        94,307            79,447                 
      Common stock in treasury, at cost--1994--1,525,172
          shares; 1993--1,510,243 shares                       (8,071)           (7,885)
                                                          -----------      ------------                                            
            Total stockholders' equity                         60,161           145,292                
                                                          -----------      ------------                                            
       
            Total liabilities and stockholders' equity    $ 4,819,758      $  4,490,711           
                                                          ===========      ============
  See accompanying notes.
  8
                            THE STATESMAN GROUP, INC. and Subsidiaries
  CONSOLIDATED STATEMENTS OF INCOME (Unaudited)         
                         (dollars in thousands, except per share amounts)      
                                          
                                                              Six Months               
                                                            Ended June 30,              
                                                            --------------              
                                                          1994         1993          
                                                          ----         ----
  Revenues:                                     
      Premiums and policy fund charges                 $ 26,266      $ 24,335      
      Net investment income                             160,812       144,369      
      Realized gains (losses) on investments              5,084        10,852      
      Other                                               2,746         2,831      
                                                       --------      --------    
                                                        194,908       182,387      
                                                       --------      --------
  Benefits, losses and expenses:                        
      Benefits, claims, losses and                          
          settlement expenses                           119,114       110,920      
      Amortization of deferred policy                         
          acquisition costs                              22,268        18,546      
      Underwriting, acquisition, insurance                       
          and other expenses                             17,318        17,204      
      Interest                                            4,152         2,295      
                                                       --------      --------     
                                                        162,852       148,965      
                                                       --------      --------      
  
              Income before income 
                 Taxes and minority interest             32,056        33,422       
  
  Federal income tax expense                             10,280        11,415 
  Minority interest-dividends on preferred                         
      stock of wholly-owned subsidiary                    4,504         4,271       
                                                       --------      --------
              Net income                                 17,272        17,736       
  
  Less dividend requirements of Series                        
      Preferred Stock $1 Par, less                          
      applicable income tax benefits                        796           823          
                                                       --------      --------
               Net income applicable                             
                 to common stock                       $ 16,476      $ 16,913      
                                                       ========       ========
  Net income per common share:                            
         Primary                                       $   1.17      $   1.17      
         Fully diluted                                      .84           .89      
                                          
  Average shares outstanding used in                          
      computations (in thousands):                        
         Primary                                         14,105        14,496      
         Fully diluted                                   22,302        19,835
  See accompanying notes.
  9
                             THE STATESMAN GROUP, INC. and Subsidiaries
  CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
                                    (dollars in thousands)        
                                           
                                                                                    Six Months               
                                                                                  Ended June 30,             
                                                                                  -------------- 
                                                                                1994         1993  
                                                                                ----         ----
  Operating activities          
      Net income                                                           $    17,272    $   17,736
      Adjustments to reconcile net income to net cash
          from operating activities                                             38,600        10,640 
                                                                           -----------    ----------       
             Net cash from operating activities                                 55,872        28,376 
                                                                           -----------    ----------       
  Investing activities          
      Purchases of fixed maturity investments                               (1,122,887)   (1,933,346)
      Mortgage loans originated                                                (22,802)       (1,077)
      Purchases of equity securities                                           (20,571)       (1,199)
      Purchase of securities placed in escrow account                                         (9,895)
      Net purchases of short-term and other investments                       (100,367)     (113,365)
      Principal repayments on mortgage-backed securities
          and proceeds from the redemption and maturity of
          fixed maturity investments                                           351,782       298,643 
      Proceeds from sales of fixed maturity investments                        511,772     1,170,638
      Principal repayments on and sales of mortgage loans                       17,939        21,843 
      Proceeds from the redemption and sales of equity securities                7,291        29,585 
      Proceeds from sales of real estate acquired in
          satisfaction of debt                                                      56         3,406 
      Net sales (purchases) of property and equipment                               22          (777)
                                                                           -----------    ----------                  
             Net cash used in investing activities                            (377,765)     (535,544)
                                                                           -----------    ----------
  Financing activities          
      Issuance of long-term debt                                                20,600        98,694 
      Payments on long-term debt                                               (16,384)      (25,975)
      Treasury stock acquired                                                     (559)       (2,310)
      Stock options exercised                                                      193     
      Receipts from interest-sensitive insurance and
          annuity contracts                                                    549,238       565,614 
      Benefit payments on interest-sensitive insurance
          and annuity contracts                                               (236,120)     (135,358)
      Repayments on interest rate swap transaction                              (1,164)       (1,052)
      Dividends paid to stockholders                                            (1,646)         (740)
                                                                           -----------    ----------
             Net cash from financing activities                                314,158       498,873 
                                                                           -----------    ---------- 
  Net decrease in cash and cash equivalents                                     (7,735)       (8,295)
  Cash and cash equivalents at beginning of period                               9,993        19,404 
                                                                           -----------    ----------
             Cash and cash equivalents at end of period                     $    2,258    $   11,109 
                                                                           ===========    ==========   
  Schedule of noncash investing and financing activities:
      Reduction in ESOP loan guarantee                                      $      750    $      900 
      Exchange of subordinated debentures for redeemable
           preferred stock of wholly-owned subsidiary                                         30,000 
      Exchange of treasury stock for exercised stock options                       180
  See accompanying notes.
  10
                              THE STATESMAN GROUP, INC. and Subsidiaries
  
                              Notes to Consolidated Financial Statements
  
                NOTE A--BASIS OF PRESENTATION
  
                The accompanying unaudited consolidated financial statements have
  been prepared in accordance with generally accepted accounting principles for
  interim financial information and the instructions to Form 10-Q and Article 10
  of Regulation S-X.  Accordingly, they do not include all of the information and
  footnotes necessary for a fair presentation of financial position, results of
  operations and cash flows in conformity with generally accepted accounting
  principles.  In the opinion of management, all adjustments (consisting of
  normal recurring accruals) considered necessary for a fair presentation have
  been included.  For further information, refer to the consolidated financial
  statements and notes thereto for the year ended December 31, 1993.
  
                 On September 29, 1994, Conseco Capital Partners II, L.P. ("CCP
  II"), a Delaware limited partnership, completed the acquisition (the
  "Acquisition") of the Company (see Note E).  The Acquisition will be accounted
  for as a purchase business combination pursuant to which the reported values
  of the acquired assets and liabilities of the Company are adjusted to their
  estimated fair values at the Acquisition date.   As such, future results of
  operations and financial condition of the Company may vary significantly from
  historical reported results of operations and financial condition. 
  
                NOTE B--STOCKHOLDERS' EQUITY AND REDEEMABLE PREFERRED STOCK
  
                On January 13, 1994, the Company's Board of Directors authorized
  the repurchase by the Company of up to 1,000,000 shares of the Company's common
  stock in the open market at then-current market prices during calendar year
  1994.  Shares thus acquired will be used for general corporate purposes. 
  Through June 30, 1994, the Company had acquired 47,312 shares at an aggregate
  cost of $559,000 through the repurchase program.  As a result of entering into
  the merger agreement described in Note E, the Company is prohibited from
  acquiring any shares of its capital stock while the merger is pending. 
  
                The Board of Directors is authorized to issue 5,000,000 shares
  of  Series Preferred Stock $1 Par from time to time in one or more series and
  to fix the number of shares, designations, voting powers (if any), preferences
  and rights, and qualifications, limitations or restrictions of each series. 
  Each series of Series Preferred Stock $1 Par shall be distinctly designated
  and, except as otherwise stated, shall rank equally and be identical in all
  respects.  There were no changes in the number of shares of issued and
  outstanding Series Preferred Stock $1 Par during the period ended June 30,
  1994.
  
                The Company's redeemable preferred stock consists of 100,000
  shares of 1987 Series II Preferred Stock $1 Par, of which there were 77,130
  shares outstanding at June 30, 1994 and December 31, 1993.  The preferred
  shares provide that the holder may require the Company to redeem the shares if
  there is a change in control, as defined, of the Company.  The outstanding
  redeemable preferred shares are presented at their $100 per share liquidation
  preference, less the outstanding ESOP loan guarantee balance of $4,000,000 and
  $4,750,000 at June 30, 1994 and December 31, 1993, respectively.
  
                At June 30, 1994 there were 9,183,724 shares of common stock
  reserved for conversion of the Series Preferred Stock and 6 1/4% Convertible
  Subordinated Debentures and for exercise of stock options (includes 1,058,335
  shares reserved for conversion of 1987 Series II Preferred Stock $1 Par
  reported as redeemable preferred stock). 
  
                The Company declared a cash dividend on common stock of $.10 per
  share in January 1994, which was paid in February 1994.  All cumulative
  dividends on the Company's Series Preferred Stock have been declared and paid
  by the Company except that cumulative dividends aggregating $4,657,000 have
  been declared on the 143,640 issued and outstanding shares of the Company's
  1988 Series I and II Preferred Stock (the "1988 Series Preferred Stock") but
  have not been paid and cumulative dividends on the 1988 Series Preferred Stock
  aggregating $575,000 have not been declared.  The Company has set off the
  amount of the declared dividends on the 1988 Series Preferred Stock against
  damages believed by the Company to be owing to it by the United States of
  America arising from pending litigation related to the takeover of the
  Company's former savings bank subsidiary by government regulators in July 1990
  (see Note C).
  11     THE STATESMAN GROUP, INC. and Subsidiaries
  
                NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  
                 NOTE C--CONTINGENCIES
  
                The Company's subsidiaries are involved in various pending or
  threatened legal proceedings arising from the conduct of their businesses. 
  These proceedings in some instances  include claims for punitive damages and
  similar  types of relief in unspecified or substantial amounts, in addition to
  amounts for alleged contractual liability or claims for equitable relief.  In
  management's opinion, after consultation with counsel and  review of available 
  facts, these proceedings will be ultimately resolved without materially
  affecting the Company's financial condition.
  
                The Company's insurance subsidiaries reinsure with other
  reinsurers that portion of risks exceeding each company's retention limit. 
  These reinsured risks are treated as though, to the extent of the reinsurance,
  they are risks for which the subsidiaries are not liable.  The Company remains
  contingently liable in the event that the reinsuring companies do not meet
  their obligations under these reinsurance contracts. 
  
                Prior to 1984, a portion of the life insurance subsidiaries'
  income was not subject to current income taxation, but was accumulated, for
  income tax purposes, in "policyholders' surplus accounts."  At December 31,
  1993, the balances in the policyholders' surplus accounts aggregated
  $12,672,000.  These amounts are not taxable unless distributed to stockholders
  or unless they exceed certain limitations under the Internal Revenue Code. 
  Management does not intend to take actions nor does it expect any events to
  occur that would cause income tax to be payable on these amounts; therefore,
  deferred  income taxes of $4,435,000 have not been provided on these amounts.
  
                The Company has entered into employment continuation agreements
  with certain executives of the Company and its subsidiaries that provide for
  payments to these executives of amounts up to four times their annual
  compensation if there is a change in control of the Company (as defined), and
  a termination of their employment.  The agreements do not constitute employment
  contracts and only apply in circumstances following a change in control.  The
  maximum contingent liability at June 30, 1994 under these agreements is
  $6,407,000. 
  
                From time to time, mandatory assessments are levied on the
  Company's insurance subsidiaries by life and health guaranty associations of
  most states in which  these subsidiaries are licensed to cover losses to
  policyholders of insolvent or rehabilitated insurance companies.  These
  associations levy assessments (up to prescribed limits) on all member insurers
  in a particular state in order to pay claims on the basis of the proportionate
  share of premiums written by member insurers in the lines of business in which
  the insolvent or rehabilitated insurer engaged.  These assessments may be
  deferred or forgiven in certain states if they would threaten an insurer's
  financial strength and, in some states, these assessments can be partially
  recovered through a  reduction in future premium taxes.  Prior to 1991, these
  assessments were not material to the Company's financial statements.  However,
  during 1989 through 1992, the economy and other factors caused a number of
  failures of several  large life insurance companies which could result in
  future assessments in material amounts.  Assessments levied against the
  Company's insurance subsidiaries and charged to expense for the six months
  ended June 30, 1994 and 1993 and for the three months ended June 30, 1994 and
  1993 were $934,000, $228,000, $614,000 and $65,000, respectively.  The
  accompanying consolidated financial statements include provisions for all known
  assessments that will be levied against the Company as indicated to date by the
  various state guaranty associations.  At the present time, the Company is not
  able to reasonably estimate what amounts will ultimately be assessed to its
  subsidiaries in the future for failures that have occurred to date and, as
  such, the accompanying consolidated financial statements do not include any
  provision for such potential assessments. 
  
                In August 1990, the Company filed suit in the United States
  Claims Court (the "Claims Court") against the United States of America.  The
  pending lawsuit concerns contractual agreements which were made by the Federal
  Savings and Loan Insurance Corporation and the Federal Home Loan Bank Board,
  former government regulatory agencies that were abolished by the Financial
  Institutions Reform, Recovery and Enforcement Act of 1989, to induce the
  Company to capitalize Statesman Bank for Savings, FSB (the "savings bank"),
  formerly a wholly-owned subsidiary of the Company, for the purpose of acquiring
  four failed thrift institutions.  In the lawsuit, the Company claims that the
  defendant has breached its contractual agreements with respect to regulatory
  capital.  Accordingly, the pending lawsuit contends that this breach of
  contract, which resulted in the disallowance of $21 million of capital which
  the defendant promised would be perpetual for regulatory accounting purposes,
  constitutes a taking of the Company's property without just compensation and
  due process of law, in violation of the Fifth Amendment of the United States
  Constitution.
  12
                        THE STATESMAN GROUP, INC. and Subsidiaries
  
                         NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  
                NOTE C--CONTINGENCIES--Continued
  
                The pending lawsuit seeks rescission of the transaction between
  the Company and the government agencies and recovery of the Company's
  investment plus compensation for monies expended, costs incurred and the value
  of benefits conferred on the defendant through the Company's purchase,
  operation and management of the savings bank.  Total restitution sought exceeds
  $30 million. 
                In July 1992, the Claims Court granted the Company's motion for
  summary judgment as to the defendant's liability in the above-described
  lawsuit.  The Claims Court also consolidated this case  with two others and
  certified these cases for interlocutory appeal to the United States Court of
  Appeals for the Federal Circuit (the "Court of Appeals").  Subsequently, the
  Court of Appeals reversed the order of the Claims Court by a margin of two to
  one and the Company filed a Petition for Rehearing with Suggestion for
  Rehearing in Banc (the "Rehearing Petition") with the Court of Appeals.  On
  August 18, 1993, the Court of Appeals accepted the Rehearing Petition, vacated
  its judgment entered on May 25, 1993 in favor of the defendant and withdrew its
  opinion accompanying the judgment.  The rehearing was held on February 10, 1994
  and a decision is pending.
  
                In 1985 the Company sold Statesman Insurance Company, a former
  property-casualty insurance subsidiary.  As part of this sale and as part of
  a certain reinsurance agreement between Statesman  Insurance Company and an
  unconsolidated affiliated property-casualty insurance company, the Company
  guaranteed and indemnified Statesman Insurance Company that it would suffer no
  loss on the insurance liability reinsured by it in excess of the loss and loss 
  adjustment expense reserves transferred to the affiliate pursuant to the terms
  of the reinsurance agreement.  The Company does not believe that the ultimate
  settlement of the remaining outstanding claims covered by this guarantee will
  materially exceed existing liabilities provided for such contingency.
  
                NOTE D--ADOPTION OF NEW ACCOUNTING STANDARD
  
                In May 1993, the Financial Accounting Standards Board issued
  Statement of Financial Accounting Standards No. 115, "Accounting for Certain
  Investments in Debt and Equity Securities," that became effective for fiscal
  years beginning after December 15, 1993.  The primary impact of Statement 115
  is to require companies to classify their securities into categories based upon
  the company's intent relative to the eventual disposition of the securities. 
  Under the new rules, the Company's investments in debt securities (including
  mortgage-backed securities) and equity securities that have readily
  determinable fair values are to be classified in three categories and accounted
  for as follows:
  
                Held-to-Maturity Securities:  Debt securities which the Company
  has the positive intent and ability to hold until maturity shall be reported
  at amortized cost.
  
                Trading Securities:  Debt and marketable equity securities
  purchased with the intent to sell in the near term shall be reported at fair
  value and unrealized gains and losses shall be included in results of
  operations.
  
                Available-for-Sale Securities:  Debt and marketable equity
  securities not classified as either held-to-maturity or trading shall be
  reported at fair value with unrealized gains and losses reported as adjustments
  to stockholders' equity.
  
                Beginning in the fourth quarter of 1992 and prior to the adoption
  of this standard, the Company segregated its fixed maturity investments into
  those that would be held until maturity and those that would be available for
  sale.  Available-for-sale fixed maturity investments were reported at the lower
  of cost or estimated fair value, in the aggregate.  At December 31, 1993 there
  was no unrealized net loss on these investments.
  13
                   THE STATESMAN GROUP, INC. and Subsidiaries
   
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  
                NOTE D--ADOPTION OF NEW ACCOUNTING STANDARD--Continued
  
                As of January 1, 1994, the Company adopted the provisions of
  Statement 115 for investments held as of or acquired after that date.  In
  accordance with Statement 115, prior-period financial statements have not been
  restated to reflect the change in accounting principle.  The cumulative effect
  as of January 1, 1994 of adopting Statement 115 increased stockholders' equity
  by $38,171,000 (net of adjustments to deferred policy acquisition costs of
  $41,831,000 and deferred income taxes of $20,554,000) to reflect the net
  unrealized holding gains on securities previously carried at amortized cost;
  there was no effect on net income as a result of the adoption of Statement 115. 
  In the six-month period ended June 30, 1994, those net unrealized holding gains
  decreased by $136,109,000 (net of adjustments to deferred policy acquisition
  costs of $59,616,000 and deferred income taxes of $73,290,000).  As of June 30,
  1994, the Company's available-for-sale fixed maturity securities had net
  unrealized losses of $97,938,000 (net of adjustments to deferred policy
  acquisition costs of $17,785,000 and deferred income taxes of $52,736,000).
  
                NOTE E--MERGER AGREEMENT
  
                On September 29, 1994, CCP II completed the Acquisition of the
  Company.  Pursuant to an Agreement and Plan of Merger, the Company's former
  stockholders received $15.25 in cash per common equivalent share, plus the
  right to receive up to another $2.00 in cash per common equivalent share based
  on the outcome of the Company's pending litigation against the U. S. Government
  concerning the Company's former savings bank subsidiary.   CCP II is a Delaware
  limited partnership which was formed by Conseco, Inc. ("Conseco") to invest in
  acquisitions of annuity, life, and accident and health insurance companies and
  related businesses.  In connection with the Acquisition, the line of credit of
  a subsidiary of the Company with a balance at the acquisition date of
  approximately $54,800,000 was repaid. 
  
                The Acquisition will be accounted for as a purchase business
  combination pursuant to which the reported values of the acquired assets and
  liabilities of the Company are adjusted to their estimated fair values at the
  Acquisition date.  The Company incurred indebtedness aggregating $350 million
  to partially finance the Acquisition.  As such, future results of operations
  and the financial condition of the Company may vary significantly from
  historical reported results of operations and financial condition.  
  
                The Company and certain of the persons then serving on the Board
  of Directors have been named in a purported class action suit commenced on May
  3, 1994 relating to the Acquisition.  The complainant seeks injunctive relief
  and  compensatory damages.  The Company believes that such suit is without
  merit and intends to contest it vigorously.
  14                                                                    
                               
  
                                                                               
                                      REPORT OF INDEPENDENT AUDITORS
  
  Board of Directors and Stockholders
  The Statesman Group, Inc.
  
                       We have audited the accompanying consolidated balance
  sheets of The Statesman Group, Inc. and subsidiaries as of December 31, 1993
  and 1992, and the related consolidated statements of income, stockholders' 
  equity, and cash flows for each of the three years in the period ended December
  31, 1993.  These financial statements are the responsibility of the Company's
  management.  Our responsibility is to express an opinion on these financial
  statements based on our audits.
  
                       We conducted our audits in accordance with generally
  accepted auditing standards.  Those standards require that we plan and perform
  the audit to obtain reasonable assurance about whether the financial statements
  are free of material misstatement.  An audit includes examining, on a test
  basis, evidence supporting the amounts and disclosures in the financial 
  statements.  An audit also includes assessing the accounting principles used
  and significant estimates made by management, as well as evaluating the overall
  financial statement presentation.  We believe that our audits provide a
  reasonable basis for our opinion.
  
                       In our opinion, the consolidated financial statements
  referred to above present fairly, in all material respects, the consolidated
  financial position of The Statesman Group, Inc. and subsidiaries at December
  31, 1993 and 1992, and the consolidated results of their operations and their
  cash flows for each of the three years in the period ended December 31, 1993,
  in conformity with generally accepted accounting principles.
  
                       As discussed in Note C to the consolidated financial
  statements, during 1993 the Company changed its method of accounting for income
  taxes.
  
                                                ERNST & YOUNG LLP
   
  
  Des Moines, Iowa
  January 27, 1994
  15
                                     THE STATESMAN GROUP, INC. and Subsidiaries
  CONSOLIDATED BALANCE SHEETS
                                              (dollars in thousands)             
                                                                                                 
                                                     ASSETS
  
                                                                                                       December 31,
                                                                                           -----------------------------------
                                                                                           1993                           1992
                                                                                           ----                           ----
  Investments:                                                                                                                     
                                    
        Fixed maturities:
             Held for investment (market: 1993--$777,975; 1992--$2,393,615)              $   747,741                   $2,329,571
             Available for sale (market: 1993--$3,221,593; 1992--$586,389)                 3,136,315                      580,977
                                                                                          ----------                   ----------
                                                                                           3,884,056                    2,910,548
        Equity securities (cost: 1993--$20,942; 1992--$39,647)                                20,411                       38,160
        Mortgage loans on real estate, less allowances for loan losses of                                                         
             $1,000 in 1993 and 1992                                                          66,541                       87,086
        Policy loans                                                                          56,265                       53,403
        Short-term investments                                                                13,919                        7,712
        Other                                                                                 14,991                        4,546
                                                                                          ----------                   ----------
             Total investments                                                             4,056,183                    3,101,455
  
  Cash                                                                                         9,993                       19,404
  Accrued investment income                                                                   49,653                       42,779
  Accounts and notes receivable, less allowances for doubtful accounts                                                           
        of $2,636 in 1993 and $3,330 in 1992                                                  10,310                        5,744
  Deferred policy acquisition costs                                                          293,938                      235,071
  Property and equipment, less allowances for depreciation of                                                                    
        $10,592 in 1993 and $9,596 in 1992                                                    10,518                       10,334
  Securities segregated for the future redemption of preferred                                                                   
        stock of wholly-owned subsidiary                                                      35,560                       23,183
  Other assets                                                                                11,747                       11,075
  Assets held in separate accounts                                                            12,809                       17,002
                                                                                          ----------                   ----------
             Total assets                                                                 $4,490,711                   $3,466,047
                                                                                          ==========                   ==========
  See accompanying notes.
  16                                                                    
                               THE STATESMAN GROUP, INC. and Subsidiaries
  CONSOLIDATED BALANCE SHEETS--(Continued)
                           (dollars in thousands, except per share amounts)
  
                                  LIABILITIES AND STOCKHOLDERS' EQUITY
  
                                                                                                       December 31,
                                                                                           -----------------------------------
                                                                                           1993                           1992
                                                                                           ----                           ----
  Liabilities:                                           
        Policy liabilities and accruals:
             Annuity reserves                                                            $3,690,557                   $2,798,602 
             Life insurance reserves                                                        301,284                      286,904 
             Other                                                                           17,226                       14,342 
                                                                                         ----------                   ---------- 
                                                                                          4,009,067                    3,099,848 
        Other policyholders' funds                                                           60,395                       53,964 
        Accrued expenses and other liabilities                                               44,512                       42,398 
        Long-term debt                                                                      120,375                       71,633 
        Liabilities related to separate accounts                                             12,809                       17,002 
                                                                                         ----------                   ---------- 
                                                                                          4,247,158                    3,284,845 
  
  Commitments and contingencies   
  Preferred stock of wholly-owned subsidiary                                                 95,298                       65,172 
  Redeemable preferred stock                                                                       
        1987 Series II Preferred Stock $1 Par, at liquidation value,             
             less ESOP loan guarantee balance; issued--100,000 shares;     
             outstanding--1993--77,130 shares; 1992--81,901 shares                            2,963                        2,290 
  Stockholders' equity: 
        Series Preferred Stock $1 Par, 5,000,000 shares authorized                                                  
             including redeemable preferred shares; issued and                                                      
             outstanding--1993--338,640 shares  (aggregate liquidation 
             preference $15,339); 1992--343,640 shares                                          339                          344 
        Common stock, $1 par value, 35,000,000 shares authorized;
             issued--1993--14,939,899 shares; 1992--14,252,127 shares                        14,940                       14,252 
        Additional paid-in capital                                                           58,796                       50,594 
        Unrealized depreciation of equity securities                                           (345)                      (1,487)
        Retained earnings                                                                    79,447                       52,968
        Common stock in treasury, at cost--1993--1,510,243 shares;                   
             1992--1,142,888 shares                                                          (7,885)                      (2,931)
                                                                                         ----------                   ---------- 
             Total stockholders' equity                                                     145,292                      113,740
                                                                                         ----------                   ---------- 
             Total liabilities and stockholders' equity                                  $4,490,711                   $3,466,047 
                                                                                         ==========                   ==========
  See accompanying notes.
  17
                      THE STATESMAN GROUP, INC. and Subsidiaries
  CONSOLIDATED STATEMENTS OF INCOME
                     (dollars in thousands, except per share amounts)
  
                                                                                                                       
                                                                     Year Ended December 31,   
                                                                 -------------------------------
                                                                 1993         1992         1991
                                                                 ----         ----         -----
  Revenues:
     Premiums and policy fund charges                             $ 49,959    $ 51,723     $ 53,321 
     Net investment income                                         298,902     272,231      244,409 
     Realized gains on investments                                  24,803      12,369       10,655 
     Other                                                           5,557       3,712        3,468 
                                                                   -------     -------      -------  
                                                                   379,221     340,035      311,853 
                                                                   -------     -------      -------  
  Benefits, losses and expenses:                                                                   
     Benefits, claims, losses and settlement expenses              227,642     225,184      222,002 
     Amortization of deferred policy acquisition costs              41,559      30,727       16,881 
     Underwriting, acquisition, insurance and other expenses        35,461      35,500       31,477 
     Interest                                                        6,097       5,570        5,846 
                                                                   -------     -------      -------  
                                                                   310,759     296,981      276,206 
                                                                   -------     -------      -------  
        Income from continuing operations before           
           income taxes and minority interest                       68,462      43,054       35,647 
  Federal income tax expense                                        22,440      14,867       12,240 
  Minority interest--dividends on preferred stock of 
     wholly-owned subsidiary                                         8,775       2,170              
                                                                   -------     -------      -------  
        Income from continuing operations                           37,247      26,017       23,407 
  Discontinued operations:                                                                         
     Net loss from operations and in 1991, net                                                     
        loss on disposal of subsidiaries of $541                                  (71)        (756)
                                                                   -------     -------      -------  
        Income before extraordinary credit                          37,247      25,946       22,651 
  Extraordinary credit--reduction of federal income tax expense
  arising                                                                                          
     from carryforward of prior years' realized losses on
  investments                                                                                      
     and non-life operating losses                                               4,875        5,750 
                                                                   -------     -------      -------  
        Net income                                                  37,247      30,821       28,401 
  Less dividend requirements of Series Preferred Stock                                             
     $1 Par, less applicable income tax benefits                     1,593       1,650        1,776 
                                                                   -------     -------      -------  
  
        Net income applicable to common stock                     $ 35,654    $ 29,171     $ 26,625 
                                                                   =======     =======      =======      
  
  Primary earnings per common share:
     Income from continuing operations                            $   2.49    $   1.71     $   1.57 
     Loss from discontinued operations                                                         (.06)
     Extraordinary credit                                                          .34          .42 
                                                                   -------     -------      -------  
        Net income                                                $   2.49    $   2.05     $   1.93 
                                                                   =======     =======      =======      
     Weighted average shares outstanding (in thousands)             14,322      14,258       13,777
                                                                   =======     =======      =======      
  Fully diluted earnings per common share:                                                         
     Income from continuing operations                            $   1.85    $   1.42     $   1.29 
     Loss from discontinued operations                                                         (.04)
     Extraordinary credit                                                          .27          .33 
                                                                   -------     -------      -------  
        Net income                                                $   1.85    $   1.69     $   1.58 
                                                                   =======     =======      =======      
     Weighted average shares outstanding (in thousands)             21,111      18,050       17,681 
                                                                   =======     =======      =======
  See accompanying notes.
  18
                              THE STATESMAN GROUP, INC. and Subsidiaries
  CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                           (dollars in thousands, except per share amounts)
                                                                                                                       
                                                                      Year Ended December 31,   
                                                                  -------------------------------
                                                                  1993          1992         1991
                                                                  ----          ----         -----
  Series Preferred Stock $1 Par:
     Balance, beginning of year                                 $    344     $    344     $    344 
        Conversion into common stock                                  (5)                          
                                                                 -------      -------      -------
     Balance, end of year                                       $    339     $    344     $    344 
                                                                 =======      =======      ======= 
  
  Common stock:                                                                                    
     Balance, beginning of year                                  $14,252      $14,252      $14,231 
        5% stock dividend                                            688 
        Exercise of stock options                                                               21
                                                                 -------      -------      ------- 
     Balance, end of year                                        $14,940      $14,252      $14,252 
                                                                 =======      =======      ======= 
  
  Additional paid-in capital:
     Balance, beginning of year                                  $50,594      $50,371      $50,246 
        5% stock dividend                                          8,683                           
        Issuance of treasury stock to employee benefit plans                       88         (205)
        Exchange of common stock for 1987 Series II 
           Preferred Stock                                           270          135          309 
        Conversion of 1976 Series Preferred Stock                    (39)
        Tax benefit related to issuance of shares 
           under stock option plan                                   180 
        Exercise of stock options                                   (892)                       21 
                                                                 -------      -------      ------- 
     Balance, end of year                                        $58,796      $50,594      $50,371
                                                                 =======      =======      ======= 
  Unrealized depreciation of equity securities:                                                    
     Balance, beginning of year                                  $(1,487)     $ (678)      $  (923)
        (Increase) decrease during year                            1,142        (809)          245 
                                                                 -------      -------      ------- 
     Balance, end of year                                        $  (345)     $(1,487)     $  (678)
                                                                 =======      =======      ======= 
  Retained earnings (deficit):
     Balance, beginning of year                                  $52,968      $26,839      $  (744)
        Net income                                                37,247       30,821       28,401 
        Cash dividends:                                                                            
           1976 Series Preferred Stock                               (85)         (85)         (85)
           1987 Series II Preferred Stock                           (555)        (621)        (904)
           1988 Series I and II Preferred Stock                     (287)      (3,508)
           Common stock (1993 and 1992--$.05 per share)             (655)        (653)
        5% stock dividend                                         (9,371)
        Tax benefit on 1987 Series II Preferred Stock 
           dividends                                                 185          175          300 
        Redemption of preferred stock purchase rights                                         (129)
                                                                 -------      -------      ------- 
     Balance, end of year                                        $79,447      $52,968      $26,839 
                                                                 =======      =======      =======
  Common stock in treasury:                                                                        
     Balance, beginning of year                                  $(2,931)     $(3,092)     $(4,220)
        Cost of shares acquired                                   (6,189)
        Issued to employee benefit plans                                           65          703 
        Net issuance under stock option plans                        984 
        Exchange of common stock for 1987 Series II 
           Preferred Stock                                           207           96          425 
        Conversion of 1976 Series Preferred Stock                     44                           
                                                                 -------      -------      ------- 
     Balance, end of year                                        $(7,885)     $(2,931)     $(3,092)
                                                                 =======      =======      =======
  See accompanying notes.
  19
                              THE STATESMAN GROUP, INC. and Subsidiaries
  
                                 CONSOLIDATED STATEMENTS OF CASH FLOWS
                                        (dollars in thousands)
  Year Ended December 31,   
                                                                  -------------------------------
                                                                  1993          1992         1991
                                                                  ----          ----         -----
  OPERATING ACTIVITIES
  Continuing operations:
     Income from continuing operations                         $   37,247    $  26,017    $  23,407 
     Adjustments to reconcile income from continuing                                               
        operations to net cash provided by 
        continuing operations:
        Changes in:
           Policy liabilities and accruals                       157,756      144,952      141,328 
           Other policyholders' funds, accrued expenses
             and other liabilities                                10,967       12,377       22,181 
           Accrued investment income                              (6,874)      (5,648)      (4,634)
           Accounts and notes receivable                          (7,982)       1,798           66 
           Deferred policy acquisition costs                     (58,867)     (12,411)     (17,159)
           Amortization of discounts and premiums on 
             investments, net                                    (53,568)     (43,761)     (13,262)
           Provision for depreciation and amortization             1,432        1,412        1,475 
           Realized gains on investments                         (24,803)     (12,369)     (10,655)
           Other                                                  (3,159)      (3,846)      (2,153)
                                                                --------     --------     -------- 
             Net cash provided by continuing operations           52,149      108,521      140,594 
                                                                --------     --------     -------- 
  
  Net cash provided by (used in) discontinued operations:                                          
     Net loss                                                                     (71)        (756)
     Items not affecting cash                                                                 (463)
                                                                --------     --------     -------- 
                                                                                  (71)      (1,219)
                                                                --------     --------     -------- 
             Net cash provided by operating activities            52,149      108,450      139,375
                                                                --------     --------     -------- 
                                                                         
  INVESTING ACTIVITIES
     Purchases of fixed maturity investments                  (3,817,415)  (1,705,842)  (1,994,318)
     Mortgage loans originated                                    (7,318)     (16,765)     (64,861)
     Purchases of equity securities                              (23,898)      (9,698)      (2,753)
     Purchases of short-term and other investments               (17,325)      (2,262)      (5,054)
     Purchases of securities placed in escrow account             (9,895)     (22,588)
     Principal repayments on mortgage-backed securities
        and proceeds from the redemption and maturity                                              
        of fixed maturity investments                            755,245      430,348      112,621 
     Proceeds from sales of fixed maturity investments         2,166,253      816,701    1,572,416 
     Principal repayments on and sales of mortgage loans          26,671       81,290       19,409 
     Proceeds from sales and maturities of short-term and                                          
        other investments                                            484          246       44,921 
     Proceeds from sales of equity securities                     41,092        1,550          413 
     Proceeds from sales of real estate acquired in 
        satisfaction of debt                                       5,514        2,768        3,234 
     Proceeds from the sale of subsidiary                                                    1,011 
     Net purchases of property and equipment                      (1,205)        (514)      (1,240)
                                                                --------     --------     --------
           Net cash used in investing activities                (881,797)    (424,766)    (314,201)
                                                                --------     --------     --------
  See accompanying notes.
  20
                              THE STATESMAN GROUP, INC. and Subsidiaries
  CONSOLIDATED STATEMENTS OF CASH FLOWS--(Continued)
                                        (dollars in thousands)
  
                                                                      Year Ended December 31,   
                                                                  -------------------------------
                                                                  1993          1992         1991
                                                                  ----          ----         -----
  FINANCING ACTIVITIES                                                                         
     Issuance of long-term debt                               $  115,656   $   16,677    $  21,100 
     Payments on long-term debt                                  (37,332)      (9,133)      (6,344)
     Issuance of preferred stock by wholly-owned subsidiary                    65,088 
     Issuance of common stock                                         91                        42 
     Treasury stock acquired                                      (6,189)
     Receipts from interest-sensitive insurance
        and annuity contracts                                  1,035,003      478,237      354,018 
     Benefit payments on interest-sensitive insurance
        and annuity contracts                                   (283,539)    (217,787)    (190,906)
     Repayments on interest rate swap transaction                 (2,158)      (1,950)      (1,762)
     Dividends paid to stockholders and redemption of stock
        purchase rights                                           (1,295)      (1,359)      (1,118)
                                                                --------     --------     --------
           Net cash provided by financing activities             820,237      329,773      175,030 
                                                                --------     --------     --------
  Net increase (decrease) in cash                                 (9,411)      13,457          204 
  Cash and cash equivalents, beginning of year                    19,404        5,947        5,743
                                                                --------     --------     -------- 
  Cash and cash equivalents, end of year                        $  9,993     $ 19,404     $  5,947 
                                                                ========     ========     ========                                 
                
  SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION                                                
  Cash paid during the year for:
     Interest                                                   $  4,801     $  5,872      $ 5,717 
     Income taxes                                                 19,963       12,575        5,150 
  Noncash Investing and Financing Activities:                                                      
     Reduction in ESOP loan guarantee balance                      1,150        1,100        1,000 
     Exchange of subordinated debentures for redeemable                                            
        preferred stock of wholly-owned subsidiary                30,000 
     Exchange of common stock for 1987 Series II 
        Preferred Stock                                              477          231          734 
     Exchange of treasury stock for exercised stock options          809 
     Conversion of 1976 Series Preferred Stock 
        into common stock                                             44 
     Common stock issued to employee benefit plans                                153          498
     Foreclosure on mortgage of subsidiary's home 
        office building                                                         2,616                                              
     Equity security received upon sale of subsidiary                                          127
  See accompanying notes.
  21
  NOTE A--SIGNIFICANT ACCOUNTING POLICIES
  
     The accompanying consolidated financial statements have been prepared in
  conformity with generally accepted accounting principles ("GAAP"), which, as
  to the subsidiary insurance companies, differ in some respects from statutory
  accounting practices followed in the preparation of financial statements
  submitted to state insurance departments.
  
     Principles of Consolidation:  The consolidated financial statements include
  the accounts of the Company and its subsidiaries after elimination of all
  significant intercompany accounts and transactions.
  
     Investments:  Fixed maturity investments (bonds, notes and redeemable
  preferred stocks) are reported at amortized cost less adjustments for other
  than temporary declines in value and the allowance for credit losses unless
  they have been identified for possible sale prior to maturity, in which case
  they are carried at the lower of cost or estimated fair value, in the aggregate
  (see Note B for discussion of the impact of the adoption of Statement of
  Financial Accounting Standards No. 115, "Accounting for Certain Investments in
  Debt and Equity Securities," on January 1, 1994).  The Company has the ability
  and the intent to hold those fixed maturities reported as held for investment
  until maturity.  Actual principal prepayments and estimates of future principal
  prepayments are used in the determination of amortized cost for certain
  mortgage-backed securities.  Factors used in determining estimates of future
  prepayments include historical prepayment data and expected prepayment
  performance under varying interest rate scenarios. 
  
     Equity securities (common and non-redeemable preferred stocks) are carried
  at current market value.  Mortgage loans and policy loans are reported at
  unpaid principal less allowance for loan losses. Short-term investments are
  carried at amortized cost, which approximates fair value. 
  
     Realized gains and losses on sales of investments are determined on the
  specific identification basis and are recognized in net income upon sale. 
  Unrealized gains and losses on equity securities and unrealized net losses on
  fixed maturities available for sale net of applicable deferred income taxes,
  are included directly in stockholders' equity and, accordingly, have no effect
  on net income. 
   
     Recognition of Revenues:  Premiums for traditional life insurance products,
  which include those products with fixed and guaranteed premiums and benefits,
  are recognized as revenues when due.  Accident and health insurance premiums 
  are earned pro rata over the periods to which the premiums relate.
  
     Revenues for investment contracts (principally deferred annuities) and
  universal life and single premium whole life insurance policies consist of
  policy fund charges for cost of insurance, policy administration, and surrender
  charges assessed against policyholder account balances and amortization of
  policy initiation fees.  Universal life insurance, single premium whole life
  insurance and immediate annuity policies generate unearned policy fund charges
  that represent fees assessed against policyholder fund balances in the policy
  issue year.  These unearned charges are included in other liabilities and are
  amortized into income over the period benefitted using the same assumptions and
  factors used to amortize deferred policy acquisition costs.
  
     Deferred Policy Acquisition Costs:  Commissions and other costs of issuing
  and acquiring new business that vary with and are primarily related to the
  production of new and renewal business, to the extent recoverable, have been
  deferred. 
  
     Traditional life insurance deferred policy acquisition costs are being
  amortized (with interest) over the expected premium-paying period of the
  related policies using assumptions consistent with those used in computing
  policy benefit reserves, including provisions for possible unfavorable
  deviations.
  22
  
     For deferred annuity contracts and universal life and single premium whole
  life insurance policies, deferred policy acquisition costs are being amortized
  generally in proportion to the present value (using the assumed crediting rate)
  of expected gross profits from surrender charges and investment, mortality and
  expense margins over the expected life of the policies, but not more than
  fifteen years.  This amortization is adjusted retrospectively when estimates
  of current or future gross profits to be realized are revised.  In 1993 and
  1992, realized investment gains resulted in  accelerated amortization expense
  of $9,760,000 and $5,250,000, respectively. 
  
     Policy Liabilities and Accruals -- Future Policy Benefits and Unearned
  Premiums:  Benefit reserves for deferred annuity contracts and universal life
  and single premium whole life insurance policies are computed under a
  retrospective deposit method and represent policyholder account balances before
  applicable surrender charges.  Policyholder account balances consist of
  policyholder deposits accumulated at credited interest rates generally ranging
  from 5.00% to 8.10% in 1993, 6.00% to 8.10% in 1992 and 7.00% to 8.95% in 1991,
  less withdrawals and charges for mortality, administrative and policy
  initiation expenses.  Policy benefits and claims that are charged to expense
  include benefit claims incurred in the period in excess of related policyholder
  account balances. 
     The liabilities for traditional life insurance policy benefits have been
  determined using the net level reserve method
  including assumptions as to investment yields, mortality, withdrawals and other
  assumptions based on the life insurance
  subsidiaries' prior experience modified as necessary to reflect anticipated
  trends and to include provisions for possible
  unfavorable deviations.  Reserve interest assumptions generally range from
  2.75% to 8.75%.  Policy benefit claims are
  charged to expense in the period that claims are incurred.  Participating
  business is immaterial and dividends related to such
  business are included as part of the policy reserves.
  
     Accident and health insurance reserves are comprised of unearned premium
  reserves computed on the pro rata basis, and return of premium reserves and the
  present value of amounts not yet due on long-term disability policies computed
  on the same basis as life insurance.
  
     Reinsurance:  Effective January 1, 1993, the Company adopted Statement of
  Financial Accounting Standard No. 113, "Accounting and Reporting for
  Reinsurance of Short-Duration and Long-Duration Contracts."  Under Statement
  113, insurance liabilities are reported before the effects of reinsurance. 
  Reinsurance receivables, including amounts related to insurance liabilities,
  are reported as assets.  Amounts recoverable from reinsurers are estimated in
  a manner consistent with the liabilities relating to the underlying reinsured
  contracts. 
  
     Prior to the adoption of Statement 113, insurance liabilities were reported
  net of amounts ceded to and recoverable from reinsurers.  As permitted by
  Statement 113, the Company has elected not to reclassify prior year balance
  sheet amounts to conform to the 1993 presentation and accordingly, policy
  liabilities and accruals at December 31,  1992 were reduced by $6,089,000 for
  estimated recoveries under reinsurance contracts. 
  
     Separate Account Assets and Liabilities:  Separate account assets and
  liabilities represent funds held for the exclusive benefit of certain annuity
  contract holders. Fees are received for administrative expenses and for
  assuming certain mortality, investment and expense risks.  Operations of the
  separate account are not included in the accompanying consolidated financial
  statements. 
  
     Real Estate Acquired in Satisfaction of Debt:  Real estate acquired in
  satisfaction of debt is reported at the lower of the recorded investment in the
  loan satisfied or estimated fair value of the assets received, adjusted for
  estimated disposal costs.  Specific write-downs for the estimated losses are
  provided when the carrying value of real estate acquired exceeds the
  estimated disposal value based on current appraisal.
  23
  
     Property and Equipment:  Property and equipment, which includes a building
  and equipment recorded under a capitalized lease obligation, are reported at
  cost, less accumulated depreciation and amortization.  Provisions for
  depreciation and amortization are computed by straight-line and
  declining-balance methods over the estimated useful lives of the assets.
  
     Excess of Cost Over Net Assets of Acquired Subsidiaries ("Goodwill"): 
  Goodwill arising from acquisitions after 1970 is amortized over 40 years on a
  straight-line basis, while amounts arising from acquisitions prior to 1971 are
  not amortized because, in the opinion of management, there is a continuing
  benefit.
  
     Income Taxes:  As discussed in Note C, effective January 1, 1993, the
  Company adopted Statement of Financial Accounting Standards No. 109,
  "Accounting for Income Taxes."  Under Statement 109, deferred income tax assets
  or liabilities are computed based on the difference between the financial
  statement and income tax bases of assets and liabilities and are measured using
  the enacted marginal tax rates and laws that will be in effect when the
  differences are expected to reverse.  Deferred income tax expenses or credits
  are based on the changes in the asset or liability from period to period. 
  Prior to the adoption of Statement 109, deferred income tax expenses or credits
  were recorded to reflect the income tax consequences of timing differences
  between the recording of  income and expenses for financial reporting purposes
  and for purposes of filing federal income tax returns at income tax rates in
  effect when the difference arose.
  
     Interest Rate Swaps and Collar:  Net interest received or paid on interest
  rate swap and collar contracts that qualify as hedges is recognized as an
  interest adjustment as earned or incurred over the term of the contract.  Gains
  or losses on termination of such contracts are deferred and amortized as an
  interest adjustment over the remaining original term of the contract.  Interest
  rate swaps that do not qualify as hedges are reported at the lower of cost
  (accrued value of periodic net settlement amounts) or market, with changes in
  the value of such swaps recognized in net investment income. 
  
     Employee Benefits:  Effective January 1, 1993, the Company adopted Statement
  of Financial Accounting Standards No. 106, "Employers' Accounting for
  Post-retirement Benefits Other Than Pensions," and Statement of Financial
  Accounting Standards No. 112, "Employers' Accounting for Postemployment
  Benefits."  Statements 106 and 112 required companies to recognize expense
  related to anticipated postretirement and postemployment benefits, other than
  pensions, for current or former employees, their beneficiaries and covered
  dependents and retirees.  Adoption of these new statements did not have a
  material impact on results of operations for the year ended December 31, 1993
  and the cumulative effect of the change in accounting was not material.  Prior
  year financial statements were not restated to reflect adoption of these new
  statements.
  
     Earnings Per Share:  Primary earnings per common share is based on the
  weighted average number of common and common equivalent shares outstanding and
  net income, after recognition of dividend requirements of the Series Preferred
  Stock $1 Par and the tax benefits on the 1987 Series II Preferred Stock
  dividends.
  24
  
     Fully diluted earnings per common share assumes that the Series Preferred
  Stock $1 Par and the 6 1/4% Convertible Subordinated Debentures were converted
  into common stock as of the date of issuance and that the related dividend and
  interest requirements were eliminated.  In addition, net income has been
  reduced by the additional contribution to the employee stock ownership plan
  ("ESOP"), less applicable income tax  benefits, that would be required to
  service the ESOP debt, if the shares of 1987 Series II Preferred Stock were
  converted into common stock. 
  
     The number of shares and per share amounts reported for earnings per share
  have been restated to give retroactive effect to the 5% stock dividend paid in
  December 1993.
  
     Cash Flow Information:  For purposes of the consolidated statements of cash
  flows, the Company considers all demand deposits and all interest-bearing
  accounts not related to the investment function to be cash equivalents. 
  
     Business Segments:  The Company operates in the single business segment of
  providing individual life insurance and annuity coverage within the United
  States.
  
     Fair Values of Financial Instruments:  The following methods and assumptions
  were used by the Company in determining estimated fair values of financial
  instruments:
  
     Cash and cash equivalents, short-term investments:  The carrying amount
  reported in the consolidated balance sheets for these instruments approximates
  their estimated fair value.
  
     Investment securities:  Estimated fair values for fixed maturity securities
  and equity securities are based on quoted market prices, where available.  For
  investment securities not actively traded, estimated fair values are determined
  using values obtained from independent pricing services or, in the case of
  private placements, are determined by discounting expected future cash flows
  using current market interest rates applicable to the yield, credit quality,
  and for fixed maturity securities,  maturity of the investments.  The estimated
  fair values for equity securities are recognized in the consolidated balance
  sheets.
  
     Mortgage loans and policy loans:  The estimated fair values of mortgage
  loans and policy loans are determined by discounting future expected cash flow,
  using interest rates currently being offered for similar loans to borrowers
  with similar credit ratings.  Loans with similar characteristics are aggregated
  for purposes of the calculations.  
  
     Off-balance sheet financial instruments:  Estimated fair values of interest
  rate swaps and the collar are based on bids from swap dealers which represent
  the net value or cost of terminating the contracts at the balance sheet date. 
  Estimated fair values for the Company's lending commitments are based on fees
  currently charged to enter into similar agreements, taking into account the
  remaining terms of the  agreements and the counterparties' credit standing.
  
     Investment contracts:  Estimated fair values of the Company's annuity
  contracts are equal to the cash surrender value available to the policyholder
  on the balance sheet date.  Estimated fair values for the Company's liabilities
  under other investment-type insurance contracts, such as supplementary
  contracts without life contingencies, are determined by discounting expected
  future cash flows using interest rates currently being offered for similar
  contracts with maturities consistent with those remaining for the contracts
  being valued.
  25
  
     The following table presents the reported value and estimated fair value of
  deferred and immediate annuities and supplementary contracts without life
  contingencies at December 31, 1993 and 1992:
  Reported                  Fair
                                                                  Value                   Value
                                                                  -----                   -----
                                                                      (dollars in thousands)
  December 31, 1993
         Deferred and immediate annuities                        $3,690,557              $3,446,954
         Supplementary contracts without life contingencies          58,483                  60,821
                                                                 ----------              ----------
                                                                 $3,749,040              $3,507,775
                                                                 ==========              ==========
  
         December 31, 1992
         Deferred and immediate annuities                        $2,798,602              $2,612,922
         Supplementary contracts without life contingencies          51,358                  53,056 
                                                                 ----------              ----------
                                                                 $2,849,960              $2,665,978
                                                                 ==========              ==========
  Estimated fair values of the Company's insurance contracts other than
  investment contracts are not required to be disclosed.  However, the estimated
  fair values of liabilities under all insurance contracts are taken into
  consideration in the Company's overall management of interest rate risk.
  
         Long-term debt:  The estimated fair value of the Company's
  publicly-traded convertible subordinated debentures is based on quoted market
  prices.  The estimated fair value of other fixed rate long-term debt is
  determined by discounting expected future cash flows using assumed incremental
  borrowing rates for similar duration borrowing arrangements.  The estimated
  fair value of variable rate long-term debt approximates its reported value. 
  
         Redeemable preferred stock:  The estimated fair value of the
  publicly-traded redeemable preferred stock issued by the Company's wholly-owned
  subsidiary is based on quoted market prices.  The estimated fair value of the
  privately placed redeemable preferred stock issued by the Company's
  wholly-owned subsidiary is determined by discounting expected future cash flows
  using assumed incremental dividend rates for similar duration securities.  The
  estimated fair value of the parent company's redeemable preferred stock (1987
  Series II) is determined using pricing models for convertible equity
  securities.
  
         Pending Accounting Standards:  In May 1993, the Financial Accounting
  Standards Board ("FASB") issued Statement of Financial Accounting Standards
  ("SFAS") No. 114, "Accounting by Creditors for Impairment of a Loan." 
  Statement 114 applies to all loans except large groups of smaller-balance
  homogeneous loans that are collectively evaluated for impairment, loans
  measured at fair value or at lower of cost or fair value, leases and debt
  securities as defined in Statement 115.  Statement 114 requires that impaired
  loans be valued at the present value of expected future cash flows discounted
  at the loan's effective interest rate or at the loan's observable market price
  or the fair market value of the collateral if the loan is collateral dependent. 
  Statement 114 is effective for fiscal years beginning after December 15, 1994,
  with earlier adoption encouraged.
  
         Statement 114 applies primarily to the Company's mortgage loan
  portfolio.  The Company actively monitors this portfolio and evaluates the net
  realizable value of any loan which is deemed to be impaired.  Net realizable
  value is generally assessed based upon current appraisal value of the
  underlying collateral.  If carrying value exceeds this estimated realizable
  value, carrying value is reduced to the estimated realizable value by a charge
  to earnings (realized loss on investments).  As such, this statement does not
  represent a material change from the Company's current accounting practices and
  the Company does not expect adoption of this Statement to have any material
  effect on its reported financial results.
  26
  
         In June 1993, the FASB issued an Exposure Draft entitled "Accounting for
  Stock-based Compensation."  If adopted as a SFAS in its present form, this
  exposure draft would require that compensation expense be recognized for all
  stock options in an amount equal to "fair value" on the date of grant.  Fair
  value is to be calculated using an option pricing model or similar valuation
  technique.  Recognition of compensation expense using this methodology is
  expected to be required for options granted after December 31, 1996 with
  pro-forma disclosure for the options granted after December 31, 1993.  The
  terms of the stock options granted by the Company in recent years have always
  been fixed with option prices equal to market value on the date of grant.  As
  a result, the Company does not currently recognize compensation expense on
  these options.  The final form of the proposed SFAS has not been issued and,
  accordingly, the effect of implementation of the proposed SFAS on the Company
  has not been determined.
  
         Reclassification:  Certain items in the 1992 and 1991 consolidated
  financial statements and notes thereto have been reclassified to conform to the
  presentations made in the 1993 consolidated financial statements.  
  
  NOTE B--INVESTMENTS
  
         In May 1993, the Financial Accounting Standards Board issued Statement
  of Financial Accounting Standards No. 115, "Accounting for Certain Investments
  in Debt and Equity Securities," that becomes effective for fiscal years
  beginning after December 15, 1993.  The primary impact of Statement 115 is to
  require companies to classify their securities into categories based upon the
  company's intent relative to the eventual disposition of the securities.  Under
  the new rules, the Company's investments in debt securities (including
  mortgage-backed securities) and equity securities that have readily
  determinable fair values are to be classified in three categories and accounted
  for as follows:
  
         Held-to-Maturity Securities:  Debt securities which the Company has the
  positive intent and ability to hold until maturity shall be reported at
  amortized cost.                             
  
         Trading Securities:  Debt and marketable equity securities purchased
  with the intent to sell in the near term shall be reported at fair value and
  unrealized gains and losses shall be included in results of operations.
  
         Available-for-Sale:  Debt and marketable equity securities not
  classified as either held-to-maturity or trading shall be reported at fair
  value with unrealized gains and losses reported as adjustments to stockholders'
  equity.
  
         During the fourth quarter of 1992, the Company segregated its fixed
  maturity investments into those that would be held until maturity and those
  that would be available for sale.  Available for sale fixed maturity
  investments are presently reported at the lower of cost or estimated fair
  value, in the aggregate.  Unrealized net losses on these investments were $0
  at December 31, 1993 and 1992.  Statement 115 precludes sales of securities
  classified as held-to-maturity as well as transfers of such securities to one
  of the other two classifications except in very limited circumstances.  As a
  result, a greater portion of the Company's fixed maturity investments are
  classified as available for sale at December 31, 1993 than at December 31,
  1992.
  
         The adoption of Statement 115 will expose the Company's stockholders'
  equity to greater volatility due to changes in market interest rates and the
  attendant changes in the reported value of securities classified as
  available-for-sale.  The Company presently does not anticipate entering into
  certain portfolio management  practices, such as hedging transactions, to
  minimize this volatility; however, the Company will continue to study this
  matter.  The Company intends to adopt Statement 115 on January 1, 1994.  Upon
  adoption, there may be some changes in the classifications of securities from
  those reported herein but such changes are not expected to be significant.
  27
  
         Upon adoption of Statement 115 on January 1, 1994, stockholders' equity
  will increase by the amount of net unrealized gain on securities designated as
  available-for-sale ($85,278,000 at December 31, 1993) less adjustments for (a)
  additional amortization of certain deferred policy acquisition costs that would
  have been reported if such gains were realized estimated at 40% - 50% of the
  net unrealized gain and (b) applicable federal income taxes of 35% of the
  difference between the net unrealized gain and the deferred policy acquisition
  cost adjustment.  The net increase in stockholders' equity attributable to the
  adoption of Statement 115 is estimated to be $30,000,000 - $35,000,000.
  
         The reported value and estimated fair value of fixed maturity
  investments are as follows:
  Gross          Gross          Estimated
                                                Reported      Unrealized     Unrealized         Fair
                                                  Value          Gains         Losses           Value
                                                  -----          -----         ------           -----
                                                                (dollars in thousands)
  December 31, 1993
  Held for investment:
     U.S. Treasury securities                  $    22,537      $   3,046                    $    25,583
     Corporate securities                          453,490         25,628        $ 1,513         477,605
     Mortgage-backed securities                    271,714          5,482          2,409         274,787
                                                ----------       --------        -------      ----------
                                                $  747,741       $ 34,156        $ 3,922      $  777,975
                                                ==========       ========        =======      ==========                           
  
  Available for sale:
     U.S. Treasury securities                  $    88,579      $   8,846       $     15     $    97,410
     Corporate securities                        1,018,191         49,746          7,836       1,060,101
     Mortgage-backed securities                  2,019,545         49,596         16,185       2,052,956
     Other debt securities                          10,000          1,126                         11,126
                                                ----------       --------        -------      ----------
                                                $3,136,315       $109,314        $24,036      $3,221,593
                                                ==========       ========        =======      ==========
  
  December 31, 1992
  Held for investment:
     U.S. Treasury securities and obligations
         of U.S. government corporations
         and agencies                          $   111,386      $   2,239        $   315     $   113,310
     Corporate securities                          725,028         22,743          4,509         743,262
     Mortgage-backed securities                  1,480,903         69,916         26,196       1,524,623
     Other debt securities                          12,254            244             78          12,420
                                                ----------       --------        -------      ----------
                                                $2,329,571       $ 95,142        $31,098      $2,393,615
                                                ==========       ========        =======      ==========                           
  Available for sale:
     U.S. Treasury securities                  $    39,879      $     414       $    153     $    40,140
     Mortgage-backed securities                    541,098         16,276         11,125         546,249
                                                ----------       --------        -------      ----------
                                                $  580,977       $ 16,690        $11,278      $  586,389
                                                ==========       ========        =======      ==========
  28
  
         The reported value and estimated fair value of fixed maturity securities
  at December 31, 1993 including those available for sale, by contractual
  maturity, are as follows.  Expected maturities will differ from contractual
  maturities because borrowers may have the right to call or prepay obligations
  with or without call or prepayment penalties.
  Estimated
                                                                  Reported                 Fair
                                                                    Value                  Value
                                                                    -----                  -----                         
                                                                        (dollars in thousands)
  Due in one year or less                                $     7,576           $     7,766
         Due after one year through five years                       44,987                47,183
         Due after five years through ten years                     154,163               166,709
         Due after ten years                                      1,386,071             1,450,167
                                                                 ----------            ----------
                                                                  1,592,797             1,671,825
         Mortgage-backed securities                               2,291,259             2,327,743
                                                                 ----------            ----------
                                                                 $3,884,056            $3,999,568
                                                                 ==========            ==========
  Proceeds from sales of fixed maturity investments were $2,166 million,
  $817 million and $1,572 million for the years ended December 31, 1993, 1992 and
  1991, respectively.  Realized gains (losses) on investments included in
  revenues are as follows:
  Year Ended December 31
                                                             1993          1992         1991
                                                             ----          ----         ----
                                                                 (dollars in thousands)
  Fixed maturities:
             Gross gains                                    $ 84,595      $ 32,675     $ 53,088 
             Gross losses                                    (55,680)      (15,368)     (20,989)
             Security writedowns and 
                increase in allowance 
                for credit losses                                           (3,106)     (16,370)
                                                            --------      --------     --------
                                                              28,915        14,201       15,729 
  
         Equity securities                                    (2,895)         (166)         106 
         Mortgage loans on real estate                        (1,027)       (1,182)      (2,708)
         Other                                                  (190)         (484)      (2,472)
                                                            --------      --------     --------
                                                            $ 24,803      $ 12,369     $ 10,655
                                                            ========      ========     ========
  At December 31, 1993, there were no  fixed maturity securities which had
  been written down to net realizable value.  The $3,000,000 allowance for credit
  losses established in 1991 to provide a general allowance for potential losses
  on fixed maturity securities for which specific write-downs are not yet
  required was unchanged at December 31, 1993 and 1992.
  29
  
         Net investment income is summarized as follows:
  Year Ended December 31
                                                              1993         1992          1991
                                                              ----         ----          ----
                                                                    (dollars in thousands)
  Fixed maturities                                    $281,713      $250,937     $223,119
         Equity securities                                      1,444         3,154           14
         Mortgage loans on real estate                          8,206        14,946       15,750
         Policy loans                                           3,366         3,515        3,322
         Short-term investments                                 6,138         1,427        4,389
         Other                                                  2,538         1,196          527
                                                             --------      --------     --------
                                                              303,405       275,175      247,121
         Less investment expenses                               4,503         2,944        2,712
                                                             --------      --------     --------
                                                             $298,902      $272,231     $244,409
                                                             ========      ========     ========
  Mortgage loans on real estate and other investments with reported values
  at December 31, 1993 of $98,000 and $345,000, respectively, were non-income
  producing for the year ended December 31, 1993.
  
         The changes in unrealized appreciation (depreciation) of investments are
  as follows:
  Year Ended December 31
                                                              1993         1992          1991
                                                              ----         ----          ----
                                                                    (dollars in thousands)
  Equity securities                                  $    956     $    (809)   $     245 
         Deferred income tax benefit                             186                            
                                                             -------      --------     -------- 
                                                               1,142          (809)         245 
         Fixed maturities                                     46,056        (9,750)     135,422
                                                             -------      --------     -------- 
                                                             $47,198      $(10,559)    $135,667 
                                                             =======      ========     ========
  At December 31, 1993, gross unrealized appreciation pertaining to equity 
  securities was $313,000 and gross unrealized depreciation was $844,000 (before
  federal income tax benefit of $186,000). 
  
         The estimated fair value of policy loans at December 31, 1993 and 1992
  was $53,424,000 and $51,606,000, respectively.
  30
  
         The Company's mortgage loans on real estate, which represented less than
  2% of total investments, are diversified by geographic location and property
  type.  The reported value and estimated fair value of the Company's mortgage
  loans on real estate are as follows:
  Estimated
                                                                   Reported                  Fair
                                                                     Value                   Value
                                                                     -----                   -----
                                                                         (dollars in thousands)
  December 31, 1993
         Commercial mortgages                                       $55,453                 $56,906
         Residential mortgages                                       12,088                  12,250
                                                                    -------                 -------
              Total mortgage loans                                  $67,541                 $69,156
                                                                    =======                 =======
  
         December 31, 1992
         Commercial mortgages                                       $68,344                 $69,101
         Residential mortgages                                       19,742                  20,076
                                                                    -------                 -------
              Total mortgage loans                                  $88,086                 $89,177
                                                                    =======                 =======
  The Company manages its investments to limit credit risk by diversifying
  its portfolio among various security types and industry sectors.  At December
  31, 1993, the Company's unrated or below investment grade corporate fixed
  maturities amounted to 1% of the Company's fixed maturity investments and less
  than 1% of total investments and total assets. 
   
         Investments in mortgage-backed securities at December 31, 1993
  principally consisted of collateralized mortgage obligations ("CMOs") and
  comprised 59% of the Company's fixed maturity investments at that date. 
  Included in such investments were $1.5 billion of CMOs and mortgage-backed
  pass-through securities issued by non-government agencies (39% of total fixed
  maturity investments).  The Company's holdings primarily consist of senior
  securities in the CMO structures which are collateralized by first mortgage
  liens on single family and multifamily residences.  Approximately 53% of such
  investments are secured by properties located in California with no other state
  representing more than 7%.  All of these securities are rated investment grade
  with more than 85% of such securities rated AAA by Standard & Poor's
  Corporation, or the comparable equivalent rating by another independent
  nationally recognized rating agency. 
  
         Investments, all of which are fixed maturities, in any entity in excess
  of ten percent of stockholders' equity at December 31, 1993, other than
  investments in affiliates and investments issued or guaranteed by the United
  States Government or a United States Government agency, are as follows. 
  Mortgage-backed securities issued by non-government entities are aggregated by
  the issuing entity with the number of individual securities identified
  parenthetically following the issuer's name.  The creditworthiness of these
  securities is based solely on the underlying segregated pools of mortgage loan
  collateral and related credit enhancements rather than the general
  creditworthiness of the issuing entity.
  31
  Estimated
                                                                   Reported                  Fair
                                                                     Value                   Value
                                                                     -----                   -----
                                                                         (dollars in thousands)
  Allegheny Generating Company                              $ 20,180                $ 19,475
         Borden, Inc.                                                14,940                  15,188
         Chemical Mortgage Securities                                18,886                  18,895
         Cincinnati Bell Telephone                                   19,926                  19,550
         Countrywide Funding (3 issues)                             107,351                 104,849
         Dayton Hudson                                               20,466                  21,966
         Florida Power & Light                                       20,750                  21,220
         GE Capital Mortgage Corp. (4 issues)                       137,587                 137,170
         GTE Corporation                                             15,209                  15,600
         Housing Securities Inc. (2 issues)                          73,784                  74,451
         Interstate Power                                            16,716                  17,289
         K Mart Corporation                                          15,087                  15,415
         Limited Inc.                                                16,329                  16,500
         Loral                                                       15,309                  14,260
         Metropolitan Life Insurance                                 20,406                  19,885
         New York Telephone                                          20,644                  19,475
         Northern Indiana Public Service                             15,500                  15,554
         Nova Alberta Corporation                                    15,155                  15,900
         Pacific Gas & Electric                                      22,917                  22,475
         Pacificcorp                                                 15,500                  15,832
         Prudential Home Mortgage (17 issues)                       469,582                 468,430
         Residential Funding Corp. (8 issues)                       272,894                 275,970
         Ryland Acceptance Corp.                                     36,153                  35,989
         Sears Mortgage Securities (2 issues)                        49,986                  50,769
         Securitized Asset Sales                                     25,713                  24,948
         SMART Mortgage                                              28,503                  29,272
         Southern California Edison                                  20,522                  19,885
         U.S. West Communications                                    27,583                  27,875
  NOTE C--INCOME TAXES
  
         Effective January 1, 1993, the Company changed its method of accounting
  for income taxes from the deferred method to the liability method required by
  Statement of Financial Accounting Standards No. 109, "Accounting for Income
  Taxes" (see Note A).  The cumulative effect of adopting Statement 109 as of
  January 1, 1993 and the effect of the change on federal income tax expense for
  the year ended December 31, 1993 was not material.  Under Statement 109, the
  Company no longer reports the tax benefits from operating and capital loss
  carryforwards as extraordinary credits.  As permitted by Statement 109, the
  Company has elected not to restate prior years' financial statements.
  32
  
          Under Statement 109, deferred income taxes reflect the net income tax
  effects of temporary differences between the carrying amounts of assets and
  liabilities for financial reporting purposes and the amounts used for income
  tax purposes.  Income tax liabilities and assets as of December 31, 1993 and
  January 1, 1993 are as follows:
  Dec. 31                 Jan. 1
                                                                    -------                 ------
                                                                          (dollars in thousands)
  Deferred income tax liabilities                                                           
         Deferred policy acquisition costs and 
              policy initiation fees                                $93,688                $75,073 
         Payment-in-kind dividends                                                           3,245 
         Other items                                                    859                  1,001 
                                                                    -------                ------- 
         Total deferred income tax liabilities                       94,547                 79,319 
                                                                    -------                ------- 
  
         Deferred income tax assets
         Policy liabilities and accruals                             78,954                 66,416 
         Net operating loss carryforwards                             9,143                  8,330 
         Reduction in reported values
              of investments not currently
              deductible for tax                                      3,867                  4,806 
         Accrued expenses                                             1,334                  1,254 
         Allowance for doubtful accounts                              1,052                  1,254 
         Other items                                                  1,059                  1,042 
                                                                    -------                ------- 
         Total deferred income tax assets                            95,409                 83,102 
  
         Valuation allowance, including 
              $506 attributable to unrealized
              depreciation of equity securities
              at January 1, 1993                                      2,688                  4,575
                                                                    -------                ------- 
         Net deferred income tax assets                              92,721                 78,527 
                                                                    -------                -------
         Net deferred income tax liabilities                        $ 1,826                $   792 
                                                                    =======                =======
         Current income tax liabilities (assets)                    $   150                $  (742)
                                                                    =======                =======
  33
  
         Federal income tax expense is included in the accompanying consolidated
  statements of income as follows:
  Year Ended December 31
                                                                1993         1992          1991
                                                                ----         ----          ----
                                                                    (dollars in thousands)
  Continuing operations
             Current                                          $21,220      $12,274      $13,019 
             Deferred                                           1,220        2,593         (779)
                                                              -------      -------      ------- 
  
                   Subtotal                                    22,440       14,867       12,240 
                                                              -------      -------      ------- 
  
         Discontinued operations
             -current                                                          (37)        (365)
         Extraordinary credit
             -current                                                       (2,712)      (5,879)
             -deferred                                                      (2,163)         129
                                                              -------      -------      ------- 
                   Subtotal                                                 (4,875)      (5,750)
                                                              -------      -------      -------
                      Total                                   $22,440      $ 9,955      $ 6,125 
                                                              =======      =======      =======
  Federal income tax expense differs from that computed at the applicable
  statutory federal income tax rate (35% in 1993, 34% in 1992 and 1991) as
  follows:
  Year Ended December 31
                                                                1993         1992          1991
                                                                ----         ----          ----
                                                                    (dollars in thousands)
  Computed income tax expense
             at statutory rate                               $23,962        $14,638      $12,120
         Change in valuation allowance
             for deferred income tax assets,                         
             excluding impact on unrealized
             depreciation of equity securities                (1,381)              
         Other items--net                                       (141)           229          120
                                                             -------        -------      -------
                                                             $22,440        $14,867      $12,240
                                                             =======        =======      =======
  The Company files a consolidated federal income tax return including all
  eligible subsidiaries.  At December 31, 1993, the Company has net operating
  loss carry-forwards of $26,123,000 which expire in 1999 through 2008.  These
  loss carryforwards relate to the operations of the non-life consolidated group. 
  Utilization of these loss carryforwards to offset taxable income of the life
  insurance subsidiaries is limited under existing federal income tax rules and
  regulations.  Valuation allowances of $2,688,000 and $4,069,000 have been
  established at December 31, 1993 and January 1, 1993, respectively, to offset
  the related deferred income tax assets due to the uncertainty of realizing the
  benefit of the loss carryforwards.
  
         The Omnibus Reconciliation Act of 1993 changed the Company's prevailing
  federal income tax rate from 34% to 35% effective January 1, 1993.  The
  Company's additional federal income tax expense for 1993 due to the increase
  in the tax rate was $685,000.  The application of the 35% tax rate to the
  December 31, 1992 deferred income tax liability balance did not have a material
  effect on the Company's 1993 provision for federal income taxes.
  34
         The components of deferred income tax expense (benefit) for the years
  ended December 31, 1992 and 1991 are as follows:
  1992                    1991
                                                                     ----                    ----
                                                                       (dollars in thousands)
  Deferred policy acquisition costs
              and policy initiation fees                            $  444                  $2,070 
         Policy and other reserves                                  (2,873)                 (2,809)
         Utilization of net operating losses
              and capital losses to offset 
              deferred income taxes                                 (4,828)                   (127)
         Deferred income taxes arising from
              utilization of net operating
              loss carryforwards                                     1,553                   1,567 
         Investment income items                                     2,009                   1,287 
         Capital losses                                              2,665                  (1,311)
         Losses on mortgage loans and other 
              invested assets                                          693                  (1,110)
         Allowance for uncollectible 
              accounts receivable                                    1,117 
         Other items--net                                             (350)                   (217)
                                                                    ------                  ------
                                                                    $  430                  $ (650)
                                                                    ======                  ======
  Prior to 1984, a portion of the life insurance subsidiaries' income was
  not subject to current income taxation, but was accumulated, for  income tax
  purposes, in "policyholders' surplus accounts."  At December 31, 1993, the
  balances in the policyholder surplus accounts aggregated $12,672,000.  These
  amounts are not taxable unless distributed to stockholders or unless they
  exceed certain limitations under the Internal Revenue Code.  Management does
  not intend to take actions nor does it expect any events to occur that would
  cause income tax to be payable on these amounts; therefore, deferred income
  taxes of $4,435,000 have not been provided on these amounts.
  35
  
  NOTE D--LONG-TERM DEBT
  
         Long-term debt is summarized as follows:
  December 31,      
                                                                    1993                     1992
                                                                    ----                     ----
                                                                        (dollars in thousands)
  Reported Value
         Parent Company:
              6 1/4% convertible subordinated debentures          $ 66,347                         
              Senior bank debt and ESOP notes                        4,750                 $ 15,400
         By Subsidiaries:
              11 1/2% subordinated debentures                                                30,000
              Bank line of credit                                    45,366                  22,110
              10% real estate mortgage                                2,281                   2,387
              10% capitalized lease obligation                        1,619                   1,662
              Other                                                      12                      74
                                                                   --------                 -------
                                                                   $120,375                 $71,633
                                                                   ========                 =======
         Estimated Fair Value                                      $128,278                 $74,721
                                                                   ========                 =======
  6 1/4% Convertible Subordinated Debentures Due 2003:  On April 28, 1993,
  the Company issued $69 million face amount of 6 1/4% Convertible Subordinated
  Debentures due 2003.  Net proceeds from the public offering of $66,161,000 were
  used to retire all outstanding senior bank debt, to repurchase 516,600 shares
  of the Company's common stock through open market purchases, to fund a $35
  million capital contribution to the Company's primary life insurance subsidiary
  and for general corporate purposes.
  
         The debentures are presented at their face amount less unamortized
  issuance costs, pay interest semi-annually and are subordinated in right of
  payment to all senior indebtedness as defined in the indenture governing the
  debentures.  The indenture does not restrict the Company or any subsidiary from
  incurring additional senior indebtedness or other obligations.
  
         The debentures are convertible at any time prior to maturity, unless
  previously redeemed, into shares of the Company's common stock at a conversion
  ratio of 65.625 shares of common stock for each 1,000 principal amount of
  debentures ($15.24 per share of common stock).  The debentures are redeemable,
  in whole or in part, at the option of the Company, at any time on or after May
  1, 1996 initially at 106% of the principal amount and declining to 100% of the
  principal amount on or after May 1, 1999. In the event of a change in control
  as defined in the indenture, debenture holders have the right to require the
  Company to purchase all or any part of such holder's debentures at 100% of the
  principal amount plus accrued interest.  At the option of the Company, such
  purchase may be made for cash or  shares of the Company's common stock.
  36
  
         Senior Bank Debt and ESOP Notes:   In January 1993, the Company entered
  into a new senior credit facility with a commercial bank.  Under the new
  facility, the final maturity of the Company's then outstanding term loan was
  extended until July 1997 and the Company borrowed an additional $10,000,000
  under a new $10,000,000 revolving line of credit.  Proceeds from the additional
  borrowing were used to fund an escrow account established by the Company's
  subsidiary in connection with the exchange of that subsidiary's 11 1/2%
  subordinated debentures for redeemable preferred stock issued by the subsidiary
  (see Note G).  In April 1993, the Company used a portion of the net proceeds
  from the sale of its 6 1/4% convertible subordinated debentures to retire all
  of its outstanding senior bank debt and the revolving line of credit facility
  was terminated.
  
         The commercial bank referred to above also holds the outstanding notes
  issued by the Company's employee stock ownership plan (the "ESOP").  The
  $4,750,000 outstanding principal balance on these notes at December 31, 1993
  is repayable as follows: $750,000 in 1994, annual installments of $1,000,000
  each in 1995 and 1996 and two $1,000,000 installments in 1997.  Interest
  charges on the ESOP notes are payable quarterly at 97% of the prime rate of the
  commercial bank.  The annual rate of interest is subject to adjustment in the
  event that certain changes in federal income tax laws or rates occur.  In
  addition, the Company has agreed to pay the commercial bank a quarterly fee so
  that, after giving effect to such fee and the interest paid by the ESOP, the
  commercial bank would receive an aggregate payment equal to the greater of the
  prime rate of the commercial bank plus .5% or the Federal Funds Rate plus 1%.
  
         The obligations to the commercial bank for the ESOP notes are secured
  by a pledge of, and a security interest in, 37,396 shares of the Company's 1987
  Series II Preferred Stock $1 Par owned by the ESOP.  The ESOP loan is further
  secured by the Company's guaranty and the Company's agreement to make
  contributions to the ESOP from time to time in such amounts as may be necessary
  to enable the ESOP to make all payments of principal and interest on the ESOP
  notes when due.
  
         The ESOP credit agreement contains restrictions and covenants which,
  among other things, limit the amount of future indebtedness, limit the amounts
  and types of investments including investments in below investment grade bonds,
  equity securities and real property, require the maintenance of specified
  amounts of consolidated tangible net worth, statutory capital and surplus and
  fixed charge coverage and limit the payment of cash dividends.  Under the most
  restrictive of these covenants, $17,042,000 of consolidated retained earnings
  at December 31, 1993 is not restricted as to the declaration or payment of cash 
  dividends.  The credit agreement also contains a change of control covenant
  that may result in the acceleration of the payment of all amounts due under the
  ESOP notes in the event of a change in control as defined in the agreement.
  
         11 1/2% Subordinated Debentures:  In 1991 and 1990, a wholly-owned
  subsidiary of the Company issued $30,000,000 of 11 1/2% subordinated
  debentures.  Proceeds from the debenture issues were invested in preferred
  stock and surplus notes issued by the Company's primary life insurance
  subsidiary. On February 2, 1993, the Company's subsidiary redeemed the
  debentures at par by exchanging $30,000,000 of a new series of its redeemable
  preferred stock for all of the outstanding debentures (see Note G).
  37
  
         Subsidiary's Bank Line of Credit:  On September 30, 1993, a
  non-insurance subsidiary of the Company entered into an amended and restated
  credit agreement with several commercial banks pursuant to which the banks
  agreed to provide this subsidiary with a $125,000,000 line of credit.  The new
  agreement amended and restated an existing agreement previously entered into
  in May 1990, as subsequently amended, between the Company's noninsurance
  subsidiary and the commercial bank referred to above to provide for, among
  other things, an increase in the amount of the credit facility and for
  additional lenders to become parties thereto.  At December 31, 1993,
  $79,798,000 remains available through June 1995 under this line of credit.  The
  actual amount funded will be determined based on the amount of new annuity
  business written by the Company's primary life insurance subsidiary during the
  funding period. 
  
         Principal and interest on the funds drawn under this line of credit are
  payable in sixteen quarterly installments beginning on the eighth calendar day
  following the end of each calendar year quarter in which the funds are drawn. 
  The credit agreement requires the Company's subsidiary to make loan prepayments
  with any excess funds not otherwise used to fund commission payments to agents
  or to make scheduled principal and interest payments.  Interest charges are,
  at the Company's option, LIBOR plus 1.25% or the greater of the agent bank's
  prime rate or the Federal Funds Rate plus .5%, and a quarterly commitment fee
  is charged equal to .375% per annum of the average daily unused amount of the
  line of credit.  The weighted average interest rate on the outstanding loan
  balance at December 31, 1993 was 4.74%. 
  
         Borrowings under the line of credit are principally secured by a pledge
  of certain contract rights between the Company's primary life insurance
  subsidiary and the Company's non-insurance subsidiary.  The credit agreement
  imposes various restrictions on the Company's non-insurance subsidiary and
  requires it to hedge at least $25,000,000 of borrowings through July 1996 to
  protect  itself against three-month LIBOR exceeding 4.74% per annum.  Pursuant
  to that requirement, this subsidiary is the fixed rate payor under an interest
  rate swap contract having a notional amount of $25,000,000 and a term of three
  years ending July 1996 (see Note I). 
  
         In addition to customary events of default, the credit agreement
  specifies certain events of default with respect to the Company and its
  subsidiaries, including its primary life insurance subsidiary, which include,
  among other things, the occurrence of a change in control, as defined in the
  credit agreement, of the Company, its non-insurance subsidiary, its primary
  life insurance subsidiary and another non-insurance subsidiary, payment
  defaults by the Company or its primary life insurance subsidiary on certain
  obligations to the non-insurance subsidiary, and failure by the primary life
  insurance subsidiary to maintain specified amounts of statutory capital and
  surplus and to limit the amount of future indebtedness and the amount of its
  investments in below investment grade bonds, equity securities and real
  property.  The occurrence of any event of default could result in the
  commercial banks terminating their commitments under the credit agreement
  and/or accelerating the payment of amounts due thereunder.  The credit
  agreement is an "evergreen" agreement renewable for additional eighteen month
  periods by mutual consent of the Company, its subsidiaries and the commercial
  banks.  The line of credit is not guaranteed by the Company, its primary life
  insurance subsidiary or any of its other subsidiaries. 
  
         Real Estate Mortgage:  The 10% real estate mortgage is payable in
  monthly installments of $28,000 including interest, through 1994 with a balloon
  payment of $2,185,000 due in December 1994.  The net book value at December 31,
  1993 of the Company's home office building pledged as collateral for the loan
  is $4,067,000.
  38
  
         Capitalized Lease Obligation:  The 10% capitalized lease obligation
  requires monthly payments of $17,000, including interest, through 2009.  The
  lease relates to a subsidiary's former home office building financed through
  the issuance of a municipality's industrial development revenue bonds.  The
  subsidiary's former home office building, land and equipment, having a cost of
  $3,101,000 and accumulated amortization of $1,050,000 at December 31, 1993, are
  pledged as collateral for the lease obligation.  Approximately 90% of this
  building is subleased to unrelated parties under sublease agreements expiring
  in 1995 and 1998 with aggregate annual sublease payments of $475,000.  
  
         Aggregate Maturities of Long-term Debt:  Aggregate maturities of
  long-term debt, including the present value of  the 10% capitalized lease
  obligation, during each of the five years subsequent to 1993 are as follows:
  1994--$19,909,000; 1995--$15,120,000; 1996--$11,771,000; 1997--$5,813,000 and
  1998--$66,000.
  
  NOTE E--SERIES PREFERRED STOCK
  
         The Board of Directors is authorized to issue 5,000,000 shares of Series
  Preferred Stock $1 Par from time to time in one or more series and to fix the
  number of shares, designations, voting powers (if any), preferences and rights,
  and qualifications, limitations or restrictions of each series.  Each series
  of Series Preferred Stock $1 Par shall be distinctly designated and, except as
  otherwise stated, shall rank equally and be identical in all respects.
  
         Redeemable Preferred Stock:  There were 77,130 shares and 81,901 shares
  of 1987 Series II Preferred Stock $1 Par outstanding at December 31, 1993 and
  1992, respectively.  All of the 1987 Series II shares are owned by the
  Company's employee stock ownership plan (the "ESOP") (see Note H) and the
  shares are presented at their $100 per share liquidation preference less the
  outstanding ESOP loan guarantee balance (see Note D).  The estimated fair value
  of the 1987 Series II  shares at December 31, 1993 and 1992 was $14,848,000 and
  $14,496,000, respectively. 
  
         The 1987 Series II shares are entitled to annual cumulative cash
  dividends equal to the issue price multiplied by the prime rate of a specified
  commercial bank plus 3/4 of 1% (6.75% at December 31, 1993), payable quarterly. 
  Cash dividends paid in 1993, 1992 and 1991 were equivalent to $6.75 per share,
  $7.37 per share and $9.87 per share, respectively. 
  
         The Company may, at its option,  redeem the 1987 Series II shares, in
  whole or in part, at any time after ten years from date of issue at a price of
  $100 per share plus cumulative unpaid dividends.  In the event of a change in
  control of the Company, as specified in the resolution creating the series,
  each 1987 Series II share shall be redeemed at a price equal to the greater of
  $100 per share, plus cumulative unpaid dividends or the fair market value
  thereof.  In liquidation, 1987 Series II stockholders are entitled to $100 per
  share (aggregate $7,713,000) plus cumulative unpaid dividends before any
  distribution shall be made to common stockholders.  The 1987 Series II shares
  rank on parity with the other Series Preferred Stock shares with respect to
  dividends and distributions.
  
         During 1993, 1992, and 1991, the Company exchanged 70,510 shares, 32,403
  shares and 126,166 shares, respectively, of its common stock with the ESOP for
  4,771 shares, 2,312 shares and 7,334 shares, respectively, of its 1987 Series
  II Preferred Stock for the purpose of making distributions of the 1987 Series
  II shares to terminated ESOP plan
  participants.
  
         Each 1987 Series II share is entitled to eleven votes on each matter
  submitted to a vote at any meeting of the Company's stockholders.  In addition,
  with respect to the approval of certain business combinations, the 1987 Series
  II shares are entitled to vote separately as a class, and the affirmative vote
  of at least 75% of the outstanding 1987 Series II shares is required for such
  approval. 
  
         Each 1987 Series II share is convertible at any time into 13.7214 shares
  of common stock.  Antidilution rights of the owners of 1987 Series II shares
  are specified in the resolutions creating the series.  At December 31, 1993,
  1,058,335 shares of common stock are reserved for conversion of the 1987 Series
  II shares.
  39
  
         1976 Series Preferred Stock:  The Company has issued 200,000 shares of
  1976 Series Preferred Stock $1 Par, of which there were 195,000 shares and
  200,000 shares outstanding at December 31, 1993 and 1992, respectively.  During
  1993, 5,000 1976 Series shares were converted into 15,281 shares of common
  stock.
  
         The 1976 Series shares are entitled to annual cumulative cash dividends
  of $.425 per share, payable semi-annually.  All of the 1976 Series shares are
  owned by the ESOP (see Note H).  The Company may, at its option, redeem the
  1976 Series shares, in whole or in part, at any time at a price of $5 per share
  plus cumulative unpaid dividends.  In liquidation, 1976 Series stockholders are
  entitled to receive $5 per share (aggregate $975,000) plus cumulative unpaid
  dividends before any distribution shall be made to common stockholders.  The
  1976 Series shares rank on parity with the other Series Preferred Stock shares
  with respect to dividends and distributions.  
  
         Each 1976 Series share is entitled to one vote and is convertible at any
  time into 3.21 shares of common stock.  Antidilution rights of the owners of
  1976 Series shares are specified in the resolutions creating the series.  At
  December 31, 1993, 625,769 shares of common stock are reserved for conversion
  of the 1976 Series shares.  
  
         1988 Series I and Series II Preferred Stock:  In 1988 and 1989, the
  Company issued a total of 143,640 shares of 1988 Series I and Series II
  Preferred Stock (the "1988 Series shares") to its former savings bank
  subsidiary which was taken over by government regulators in 1990 (see Note K). 
  The Company has a lawsuit pending against the United States government which
  litigation seeks, among other  things, recovery of the Company's investment in
  its former savings bank subsidiary, including the 1988 Series shares.  Because
  there is no assurance beyond a reasonable doubt that the Company will prevail
  in its lawsuit, the 1988 Series shares are presented as issued and outstanding
  in the accompanying consolidated financial statements as of December 31, 1993
  and 1992 and were given full recognition in the computations of primary and
  fully diluted earnings per share for all periods presented.
  
         Beginning in 1990, the 1988 Series shares are entitled to annual
  cumulative cash dividends of $8 per share, payable quarterly.   The Company has
  declared but not paid cumulative dividends on the 1988 Series shares
  aggregating $4,657,000 ($40 per share on 7,560 shares of 1988 Series II
  Preferred Stock and $32 per share on the balance of the 1988 Series shares),
  including $862,000 ($6 per share) declared in January 1994.  As discussed
  above, the 1988 Series shares are involved in the pending litigation related
  to the takeover of the Company's former savings bank subsidiary (see Note K)
  and the Company has set off the amount of the declared dividends against
  damages believed by the Company to be owing to the Company by the United States
  of America.
  
         The Company may, at its option, redeem the 1988 Series shares, in whole
  or in part, at any time after ten years (five years for the 1988 Series II
  shares) from the date of issue at a price of $100 per share plus cumulative
  unpaid dividends.  In liquidation, 1988 Series stockholders are entitled to
  $100 per share (aggregate $14,364,000) plus cumulative unpaid dividends before
  any distribution shall be made to common stockholders. The 1988 Series shares
  rank on parity with the other Series Preferred Stock shares with respect to
  dividends and distributions.
  40
  
         The 1988 Series shares are non-voting except as required by the Delaware
  General Corporation Law and except if the Company fails to pay dividends on
  such shares for six consecutive quarters, in which case holders of the 1988
  Series shares are entitled to one vote per share on each matter submitted to
  a vote at any meeting of the Company's stockholders.  Each 1988 Series share
  is convertible at any time into 13.7214 shares of common stock.  Antidilution
  rights of the owners of 1988 Series shares are specified in the resolutions
  creating the series.  At December 31, 1993, 1,970,942 shares of common stock
  are reserved for conversion of the 1988 Series shares. 
  
         Preferred Stock Purchase Rights:  In April 1991, the Company redeemed
  all of its outstanding preferred stock purchase rights that had been issued
  pursuant to a Rights Agreement adopted in 1987.  Each share of the Company's
  common stock had one preferred stock purchase right attached and received the
  redemption price of $.01 per  right.  Subsequent to the rights redemption, the
  Board of Directors eliminated the series of 250,000 shares of Series A Junior
  Participating Preferred Stock, which had been designated and reserved for
  issuance upon exercise of the now redeemed rights, from the Company's
  Certificate of Incorporation.
  
  NOTE F--STOCKHOLDERS' EQUITY AND RESTRICTIONS
  
         Changes in the number of shares of common stock outstanding are as
  follows:
  Year Ended December 31
                                                            1993           1992         1991
                                                            ----           ----         ----
  Outstanding at beginning of year                        13,109,239     13,055,186   12,708,020
        5% stock dividend
           Shares issued (a)                                 687,772 
           Shares acquired for treasury (b)                  (52,628)
        Shares acquired through open market purchases       (516,600)
        Issued in exchange for 1987 Series II 
           Preferred Stock                                    70,510         32,403      126,166
        Conversion of 1976 Series Preferred Stock             15,281 
        Issued to employee benefit plans                                     21,650      200,000
        Issued upon exercise of stock options                116,082                      21,000 (a)
                                                          ----------     ----------   ----------
  Outstanding at end of year                              13,429,656     13,109,239   13,055,186    
                                                          ==========     ==========   ==========
  __________                                                                       
  (a)  Issued from authorized but unissued shares.  All other issuances were from common stock in treasury.
  (b)  Includes 50,823 shares issued to a subsidiary and 1,805 fractional shares purchased for cash.
  On May 5, 1993, the Company's stockholders approved an amendment to the
  Company's Certificate of Incorporation increasing the number of authorized
  shares of common stock from 25,000,000 to 35,000,000 shares.  On May 19, 1993,
  the Company's Board of Directors authorized the repurchase by the Company of
  up to 1,000,000 shares of the Company's common stock.  This authorization
  expired on December 31, 1993 and 516,600 shares were acquired for treasury
  through the repurchase program.  Authorization for the Company to repurchase
  up to 1,000,000 additional shares of its common stock during calendar year 1994
  was approved by its Board of Directors on January 13, 1994.
  41
         At December 31, 1993, there were 9,224,270 shares of common stock
  reserved for conversion of the Series Preferred Stock and 6 1/4% Convertible
  Subordinated Debentures and for exercise of stock options.  Treasury stock at
  December 31, 1993 and 1992 included 927,299 shares and 1,016,476 shares,
  respectively, of common stock owned by a subsidiary of the Company.  Treasury
  shares held by subsidiaries are entitled to dividends but do not have voting
  rights. 
  
         The net assets of the insurance subsidiaries available for transfer to
  the Company are limited to the amounts by which the insurance subsidiaries' net
  assets, as determined in accordance with statutory accounting practices
  prescribed or permitted by state regulatory authorities, exceed minimum
  regulatory statutory capital and surplus requirements; however, payment of
  dividends or other  distributions to stockholders may also be subject to prior
  approval by regulatory authorities.  In addition, the ability of the insurance
  subsidiaries to transfer funds to the Company is limited by certain provisions
  in the Company's loan agreements relating to the maintenance of specified
  minimum levels of statutory capital and surplus (see Note D).  At December 31,
  1993, $43,856,000 of consolidated stockholders' equity (based on amounts
  reported in accordance with statutory accounting practices) represents net
  assets of the insurance subsidiaries that cannot be transferred to the Company
  in the form of dividends, surplus note payments, loans or advances.
  
         Combined capital and surplus of the insurance subsidiaries, as reported
  in accordance with statutory accounting practices of their respective states
  of domicile, was $214,317,000 and $178,842,000 at December 31, 1993 and 1992,
  respectively.  Combined statutory net income for 1993, 1992 and 1991 was
  $32,019,000, $16,538,000 and $32,566,000, respectively.
  
  NOTE G--PREFERRED STOCK OF WHOLLY-OWNED SUBSIDIARY
  
         On August 25, 1992, a wholly-owned subsidiary of the Company issued 
  2,760,000 shares of non-convertible redeemable preferred stock at a public
  offering price of $25 per share.  $42,500,000 of the net proceeds from the
  offering were contributed to the capital of the Company's primary life
  insurance subsidiary. Remaining net proceeds of approximately $22,600,000 were
  used to purchase $69,000,000 face amount of zero coupon U.S. Treasury
  securities maturing in August 2007.  These securities have been placed in an
  escrow account to be used for the future redemption of the redeemable preferred
  stock on or before its mandatory redemption date in 2007.
  
         The subsidiary's redeemable preferred stock is entitled to annual
  cumulative cash dividends of $2.16 per share, payable quarterly.  The
  redeemable preferred stock is mandatorily redeemable in September 2007 at a
  redemption price of $25 per share, plus cumulative unpaid dividends.  In
  liquidation, holders of the subsidiary's redeemable preferred stock are
  entitled to $25 per share (aggregate $69,000,000) plus cumulative unpaid
  dividends. 
  
         On February 2, 1993, the subsidiary referred to above issued 1,200,000
  shares of a non-convertible redeemable preferred stock at an issue price of $25
  per share (aggregate $30,000,000) in exchange for all of the subsidiary's
  outstanding 11 1/2% subordinated debentures which were retired (see Note D). 
  In connection therewith, the subsidiary purchased $30,000,000 face amount of
  zero coupon U.S. Treasury securities maturing in February 2008 with the
  proceeds of a $10,000,000 borrowing under the Company's revolving line of
  credit (see Note D).   These securities have been placed in an escrow account
  to be used for the future redemption of the second series of redeemable
  preferred stock on or before its mandatory redemption date in 2008.
  42
  
         The second series of the subsidiary's redeemable preferred stock is
  entitled to annual cumulative cash dividends of $2.32 per share, payable
  quarterly.  This series of redeemable preferred stock is mandatorily redeemable
  in February 2008 at a redemption price of $25 per share, plus cumulative unpaid
  dividends.  In liquidation, holders of this series of the subsidiary's
  redeemable preferred stock are entitled to $25 per share (aggregate
  $30,000,000) plus cumulative unpaid dividends.
  
         The subsidiary's redeemable preferred stock is presented at its fair
  value on the date of issue ($69,000,000 and $30,000,000, respectively) less
  unamortized issue costs.  The excess of the mandatory redemption value over the
  reported value is being accreted by periodic charges to income from continuing
  operations over the life of the issue.  The aggregate fair value of the
  subsidiary's redeemable preferred stock was $109,276,000 and $65,895,000, at
  December 31, 1993 and 1992, respectively.
  
  NOTE H--EMPLOYEE BENEFIT PLANS
  
         The Company and its subsidiaries participate in a qualified trusteed
  plan, The Statesman Group, Inc. Employee Stock Ownership Plan and Trust
  ("Plan"), which provides for a uniform noncontributory retirement program
  covering all eligible employees of the Company and its subsidiaries. 
  Contributions to the Plan are equal to 10% of eligible compensation of all
  participants plus such additional amounts (2.9%, 3.1% and 1.8% for 1993, 1992
  and 1991, respectively) as may be  determined annually by the Board of
  Directors.  In addition, the Company has agreed that it will make contributions
  to the Plan from time to time in such amounts as may be necessary to enable the
  Plan to make all payments of principal and interest on the Plan's bank loan
  when due (see Note D).  Total plan expense for 1993, 1992 and 1991 amounted to
  $900,000, $900,000 and $815,000, respectively. 
  
         In 1987, the Plan purchased 100,000 shares of the Company's 1987 Series
  II Preferred Stock $1 Par for $10,000,000 financed by a ten-year bank loan
  guaranteed by the Company (see Note D).  For the years ended December 31, 1993,
  1992 and 1991, interest expense of $293,000, $367,000 and $577,000,
  respectively, on the ESOP loan was funded by the dividends received on the 1987
  Series II Preferred Stock.  The remaining ESOP loan guarantee balance of
  $4,750,000 at December 31, 1993, which is included in long-term debt and
  deducted from redeemable preferred stock in the accompanying consolidated
  balance sheets, will be further reduced in future years as the Plan's debt is
  reduced and shares are allocated to Plan participants.  At December 31, 1993,
  the Plan owned 44,757 shares of the Company's common stock, 195,000 shares of
  the Company's 1976 Series Preferred Stock $1 Par and 77,130 shares of the
  Company's 1987 Series II Preferred Stock $1 Par.
  
         The Company and its subsidiaries participate in the Statesman Savings
  Plan 401(k) (the "401(k) plan"), a qualified salary deferral retirement plan
  covering all eligible employees of the Company and its subsidiaries.  Employees
  may contribute a portion of their annual salary, subject to limitation, to the
  401(k) plan.  The Company and its subsidiaries contribute an additional amount,
  subject to limitation but not to exceed 2% of eligible compensation, based on
  the voluntary contributions of the employees.  The 401(k) plan provides that
  all employer matching contributions will be invested in shares of Company
  stock.  At December 31, 1993,  the 401(k) plan held 55,900 shares of the
  Company's common stock.  Plan contributions charged to expense for 1993, 1992
  and 1991 were  $90,000, $85,000 and $76,000, respectively.
  43
  
  NOTE I--COMMITMENTS AND CONTINGENCIES
  
         Litigation:  The Company's subsidiaries are involved in various pending
  or threatened legal proceedings arising from the conduct of their businesses. 
  These proceedings in some instances include claims for punitive damages and
  similar types of relief in unspecified or substantial amounts, in addition to
  amounts for alleged contractual liability or claims for equitable relief.  In
  management's opinion, after consultation with counsel and review of available
  facts, these proceedings will ultimately be resolved without materially
  affecting the Company's financial condition.
  
         Reinsurance:  In the normal course of business, the Company seeks to
  limit its exposure to loss on any single insured and to recover a portion of
  benefits paid by ceding reinsurance to other insurance enterprises or
  reinsurers.  The Company's maximum retention limit on any one life is $100,000. 
  Reinsurance assumed from other companies is not significant.
  
         Reinsurance contracts do not relieve the Company from its obligations
  to its policyholders.  The Company remains contingently liable to its
  policyholders for the portion reinsured to the extent that the reinsuring
  companies do not meet their obligations assumed under the reinsurance
  agreements.  The aggregate receivable from reinsurers at December 31, 1993 was
  $6,026,000, all of which was deemed collectible.  Ceded reinsurance premiums
  deducted from premiums and policy fund charges were  $4,437,000, $4,389,000 and
  $4,724,000 for the years ended December 31, 1993, 1992 and 1991, respectively.
  
         Certain policy liabilities were reinsured under reinsurance transactions
  which represented financing arrangements and, in accordance with generally
  accepted accounting principles, are not reflected in the accompanying
  consolidated financial statements except for the risk fees paid to reinsurers. 
  These transactions were effectively terminated as of December 31, 1993.  Net
  statutory surplus provided by such treaties totaled $24.7 million at December
  31, 1992.  Risk fees paid to the reinsurers approximated 2.75% of the net
  amount of surplus provided.
  
         Employment Arrangements:  The Company has entered into employment
  continuation agreements with certain executives of the Company and its
  subsidiaries that provide for payments to these executives of amounts up to
  four times their annual compensation if there is a change in control of the
  Company (as defined), and a termination of their employment.  The agreements
  do not constitute employment contracts and only apply in circumstances
  following a change in control.  The maximum contingent liability at December
  31, 1993 under these agreements is $6,167,000.
  
         Guaranty Fund Assessments:  From time to time, mandatory assessments are
  levied on the Company's insurance subsidiaries by life and health guaranty
  associations of most states in which these subsidiaries are licensed to cover
  losses to policyholders of insolvent or rehabilitated insurance companies. 
  These associations levy assessments (up to prescribed limits) on all member
  insurers in a particular state in order to pay claims on the basis of the
  proportionate share of premiums written by member insurers in the lines of
  business in which the insolvent or rehabilitated insurer engaged.  These
  assessments may be deferred or forgiven in certain states if they would
  threaten an insurer's financial strength and, in some states, these assessments
  can be partially recovered through a reduction in future premium taxes.  Prior
  to 1991, these assessments were not material to the Company's financial
  statements.  However, the economy and other factors have recently caused a
  number of failures of substantially larger companies which could result in
  future assessments in material amounts.  Assessments levied against the
  Company's insurance subsidiaries and charged to expense in 1993, 1992 and 1991
  were $2,623,000, $2,233,000, and $638,000, respectively.  The accompanying
  consolidated financial statements include provisions for all known assessments
  that will be levied against the Company's insurance subsidiaries by various
  state guaranty associations.  At the present time, the Company is not able to
  reasonably estimate what amounts will ultimately be assessed to its
  subsidiaries in  the future for failures that have occurred to date and, as
  such,  the accompanying consolidated financial statements do not include any
  provision for such potential assessments.
  44
  
         Interest Rate Swaps:  The Company has entered into certain interest rate
  swap and collar agreements to match the interest rate characteristics of
  investments and related insurance liabilities for a portion of its single
  premium deferred annuity liabilities.  These agreements involve the exchange
  of fixed and floating rate interest payments without an exchange of the
  underlying notional principal amounts.  The interest rate swap and collar
  agreements effectively modify the interest rate characteristics of the single
  premium deferred annuity liabilities which reprice annually at discretionary
  rates determined by the Company to be less sensitive to changes in interest
  rates. In addition, a non-insurance subsidiary of the Company has entered into
  interest rate swap agreements to limit its exposure to increases in short-term
  borrowing rates. 
  
         Swap agreements subject the Company to the risk that the swap
  counterparty will fail to perform.  However, the potential credit loss is
  limited to the periodic net settlement amounts due under the agreements and
  nonperformance is not anticipated.  In addition, with respect to those swap
  contracts that do not qualify as hedges, the Company is subject to market risk
  associated with changes in interest rates and declines in value of the
  underlying financial instrument and with respect to the interest rate swaps
  used to hedge floating rate bank debt, the Company has incurred higher interest
  costs than if these agreements were not in place because short-term borrowing
  rates have been lower than the applicable fixed rates indicated in the swap
  agreements.
  
         The notional amounts of interest rate swap and collar financial
  instruments in effect at December 31, 1993 and 1992 are as follows:
  1993           1992
                                                                            ----           ----
                                                                           (dollars in millions)
  Used to hedge single premium deferred annuity liabilities:
              Receive variable rates:
                 Interest rate collar                                      $ 250          $  250 
                 Interest rate swap                                           50              50 
         Used to offset a portion of the costs of interest 
            rate collar and swap used as hedges:                                   
              Receive fixed rates                                            300             300 
              Received variable rates                                        250   
         Used to hedge non-insurance subsidiary's floating 
            rate bank debt                                                    25               5
  The interest rate collar and $250 million of interest rate swaps on
  which the Company receives fixed rates expire in May 1996.  The interest rate
  collar is a combination of an interest rate cap and floor whereby the Company
  is to receive payment if the six-month LIBOR exceeds 14% (the "cap") or is to
  make payment if the six-month LIBOR is less than 7.35% (the "floor").  There
  is no cost to either party while the six-month LIBOR is between 7.35% and 14%. 
  At December 31, 1993, the effective six-month LIBOR rate under this agreement
  was 3.50%. 
  
         The interest rate swaps which expire in May 1996 discussed above offset
  a portion of the cost of the floor and, as long as the six-month LIBOR remains
  at or below the 7.35% floor rate, the net cost of the floor is fixed as the 
  difference between 7.35% and the weighted average fixed rate under the swaps
  of 6.59%.  Amounts payable under the floor are netted against amounts
  receivable under the interest rate swaps.
  45
  
         The Company also has a $250 million interest rate swap in effect at
  December 31, 1993 under which the Company receives six-month LIBOR and pays the
  swap counterparty six-month LIBOR minus .37%. In the event that six-month LIBOR
  increases by more than .50% on any semi-annual reset date, the amount the
  Company receives for the subsequent six month period is capped at the previous
  six-month LIBOR plus .50%.  The purpose of this swap is to further reduce the
  cost of the interest rate floor described above, however this swap exposes the
  Company to incremental liability in the event that the six-month LIBOR
  increases at a faster rate than .87% every six months.  This swap expires in
  May 1996. 
  
         In 1989, the Company entered into a $50 million interest rate swap
  contract and, at the inception of this agreement, received a $10,000,000
  advance payment of the swap counterparty's obligations over the term of the
  swap agreement, which amount is being repaid with interest as an adjustment to
  the net interest settlements during the five year term of the swap.  This
  advance, net of a $150,000 arrangement fee, is being amortized on the interest
  method over the term of the swap using the interest rate implicit in the 
  payment adjustment.  The unamortized amount of the advance included in accrued
  expenses and other liabilities in the accompanying consolidated balance sheets
  was $2,388,000 and $4,545,000 at December 31, 1993 and 1992, respectively. 
  
         In May 1991, the Company effectively terminated the $50 million interest
  rate swap referred to above by entering into an offsetting $50 million interest
  rate swap.  The loss on termination of $1,312,000, which was equal to the
  discounted present value of the net future payments under both swaps of
  $435,000 annually, exclusive of the repayment of the $10,000,000 advance, is
  being recognized over three and one-half years, the remaining term of both
  swaps on the date of termination.  The unrecognized loss on termination was
  $354,000 and $740,000 at December 31, 1993 and 1992, respectively, and the
  remaining term of the two offsetting $50 million interest rate swaps at
  December 31, 1993 was eleven months. 
  
         Under the $25 million interest rate swap used to hedge floating rate
  bank debt, the Company receives a floating rate equal to three-month LIBOR and
  pays the swap counterparty a fixed rate of 4.74%.  This swap expires in July
  1996.
  
         Income (expense) recognized in the accompanying consolidated statements
  of income for interest rate swaps and the interest rate collar, including
  periodic settlement amounts and realized and unrealized gains and losses 
  recognized on interest rate swaps that do not qualify as hedges, is as follows:
  Year Ended December 31
                                                                1993         1992          1991
                                                                ----         ----          ----
                                                                    (dollars in thousands)
  Reported as
         Net investment income                               $(2,143)        $ 898      $(1,002)
         Interest expense                                       (281)         (284)        (160)
  46
  
         The reported amount and estimated fair value of the Company's
  liabilities (assets) under the interest rate swaps and the interest rate collar
  are as follows:
  Estimated
                                                                          Reported         Fair
                                                                           Amount          Value
                                                                           ------          -----
                                                                          (dollars in thousands)
  December 31, 1993
         Qualifying for hedge accounting                                 $ 2,852          $ 6,043
         Not qualifying for hedge accounting                                (157)              15
         December 31, 1992                                               $ 5,276          $13,216
  Leases:  Total rental expense for all leases is as follows:  1993 --
  $1,238,000; 1992 -- $1,141,000; and 1991 -- $1,346,000.  Future minimum rental
  commitments for operating leases having initial or remaining noncancelable
  lease terms in excess of one year are not material.
  
  NOTE J--STOCK OPTIONS AND STOCK APPRECIATION RIGHTS
  
         Under the terms of two stock option plans adopted by the Company's
  stockholders in 1984, certain officers and key employees of the Company and its
  subsidiaries may be granted options to purchase up to 1,246,292 shares of the
  Company's common stock.  Because the exercise price of all stock options
  awarded under these plans can be no less than the fair market value of a share
  of optioned stock at the date of grant, no compensation expense has been
  recorded for these awards. Options expire no later than ten years after the
  date of grant and no options can be granted after 1993.
  
         In addition, one of the stock option plans provides for the granting of
  stock appreciation rights ("SARs") on a maximum of 465,034 shares of the
  Company's common stock. SARs entitle the holder to receive, upon exercise, a
  cash payment equal to the excess of the fair market value of a share of common
  stock on the date of exercise over the option price.  Compensation expense of
  $31,000, $610,000 and $90,000 is included in the 1993, 1992 and 1991
  consolidated statement of income, respectively, based on the difference between
  the market value of the rights outstanding at the end of each year and the
  option price and cash payments made during each year on SARs exercised.
  47
  
         Information concerning stock options and SARs is as follows.  All shares
  and option prices have been adjusted to give retroactive effect to stock
  dividends declared subsequent to the date of grant. Outstanding stock options
  and SARs will expire over periods ending no later than November 2003.
  Number of Shares              Price
                                                          Options         SARs           Per Share
                                                          -------         ----           ---------
  Outstanding, January 1, 1991                      434,601       161,831       $1.90-$ 4.81
              Granted                                      641,550                      2.38-  2.60
              Exercised                                    (22,050)                            1.90
              Terminated or expired                         (5,775)      (26,973)       2.60-  4.81
                                                         ---------       -------
         Outstanding, December 31, 1991                  1,048,326       134,858        2.38-  4.81
              Exercised                                                  (28,832)              4.81
                                                         ---------       -------
         Outstanding, December 31, 1992                  1,048,326       106,026        2.38-  4.81
              Granted                                      170,500       157,500              12.38
              Exercised                                   (177,727)      (28,832)       2.60-  4.81
                                                         ---------       -------
         Outstanding, December 31, 1993                  1,041,099       234,694        2.38- 12.38
                                                         =========       =======
         Exercisable, December 31, 1993                  1,000,849        77,194        2.38- 12.38
                                                         =========       =======
         Available for future grant,
              December 31, 1992                            175,916       195,315 
                                                         =========       =======
  NOTE K--DISCONTINUED OPERATIONS
  
         In July 1990, the Office of Thrift Supervision ("OTS"), an office of the
  United States Department of Treasury, placed Statesman Bank for Savings, FSB
  (the "savings bank"), formerly a wholly-owned subsidiary of the Company, in
  receivership and a new federal institution, operating under the oversight of
  the Resolution Trust Corporation, assumed the savings bank's assets and
  liabilities. The OTS action was predicated on its assertion that the savings
  bank failed to meet the minimum federal regulatory capital requirements under
  the Financial Institutions Reform, Recovery and Enforcement Act of 1989
  ("FIRREA") which became effective in December 1989.  The Company had previously
  capitalized the savings bank with $8,400,000 of cash and 126,000 shares of its
  1988 Series Preferred Stock $1 Par (see Note E) in March 1988 for the purpose
  of acquiring four failed thrift institutions with federal agency financial
  assistance.  The Company reduced the carrying value of its investment in the
  savings bank to zero and recognized a loss on disposal in its 1990 consolidated
  financial statements.
  
         In August 1990, the Company filed suit in the United States Claims Court
  (the "Claims Court") against the United States of America.  The pending lawsuit
  concerns contractual agreements which were made by the Federal Savings and Loan
  Insurance Corporation and the Federal Home Loan Bank Board, former government
  regulatory agencies that were abolished by FIRREA, to induce the Company to
  capitalize the savings bank, for the purpose of acquiring the four failed
  thrift institutions.  In the lawsuit, the Company claims that the defendant has
  breached its contractual agreements with respect to regulatory capital. 
  Accordingly, the pending lawsuit contends that this breach of contract, which
  resulted in the disallowance of $21 million of capital which the defendant
  promised would be perpetual for regulatory accounting purposes, constitutes a
  taking of the Company's property without just compensation and due process of
  law, in violation of the Fifth Amendment of the United States Constitution.
  48
  
         The pending lawsuit seeks rescission of the transaction between the
  Company and the government agencies and recovery of the Company's investment
  plus compensation for monies expended, costs incurred and the value of benefits
  conferred on the defendant through the Company's purchase, operation and
  management of the savings bank.  Total restitution sought exceeds $30 million. 
  
         In July 1992, the Claims Court granted the Company's motion for summary
  judgment as to the defendant's liability in the above-described lawsuit.  The
  Claims Court also  consolidated this case with two others and certified these
  cases for interlocutory appeal to the United States Court of Appeals for the
  Federal Circuit (the "Court of Appeals").  Subsequently, the Court of Appeals
  reversed the order of the Claims Court by a margin of two to one and the
  Company filed a Petition for Rehearing with Suggestion for Rehearing in Banc
  (the "Rehearing Petition") with the Court of Appeals.  On August 18, 1993, the
  Court of Appeals accepted the Company's Rehearing Petition.  The Court of
  Appeals also vacated its judgment entered on May 25, 1993 in favor of the
  defendant and withdrew its opinion accompanying the judgment.  The rehearing
  is currently scheduled for February 10, 1994.
  
         In 1985, the Company sold Statesman Insurance Company, a former
  property-casualty insurance subsidiary.  As part of this sale and as part of
  a certain reinsurance agreement between Statesman Insurance Company and another
  former affiliate, the Company guaranteed and indemnified Statesman Insurance
  Company that it would suffer no loss on the insurance liability reinsured by
  it in excess of the loss and loss adjustment expense reserves transferred to
  the affiliate pursuant to the terms of the reinsurance agreement.  The Company
  does not believe that the ultimate settlement of the remaining outstanding
  claims covered by this guarantee will materially exceed existing liabilities
  provided for such contingency.
  
         In 1989, the Company sold its investment banking and retail brokerage
  subsidiary.  The stock purchase agreement between the Company and the purchaser
  provided in part that the Company could be required to indemnify the purchaser
  for certain uncollectible receivables and debits of the former subsidiary and
  certain claims by or against the former subsidiary.  In 1990, the purchaser
  filed for bankruptcy protection under Chapter 7 of the federal bankruptcy laws
  and the Bankruptcy Trustee for the purchaser purported to assign the
  purchaser's indemnification rights, if any, under the stock purchase agreement
  to the former subsidiary.
  
         In January 1991, the former subsidiary filed a declaratory judgement
  action seeking indemnification by the Company with respect to certain claims
  by or against the former subsidiary.  The Company vigorously disputed its
  former subsidiary's claim to indemnification and believes that it had
  meritorious defenses to such claim.  To avoid the cost and uncertainty of
  long-term litigation, the Company entered into a settlement agreement and
  release with the former subsidiary in October 1991.  The charge related to the
  settlement, including related attorneys' fees in excess of amounts previously
  accrued at December 31, 1990, was recognized in the fourth quarter of 1991 as
  a loss on disposal of subsidiaries and did not have a material effect on the
  Company's financial position or results of  operations.
  49
  
  NOTE L--QUARTERLY FINANCIAL INFORMATION (Unaudited)
  
         Unaudited quarterly results of operations are as follows:
  Quarter
                                                   1st            2nd            3rd             4th
                                                   ---            ---            ---             ---
                                                   (dollars in thousands, except per share amounts)
  Year Ended December 31, 1993
     Premiums and policy fund charges              $12,812       $11,523         $12,388         $13,236
     Net investment income                          70,494        73,875          78,259          76,274
     Realized gains on investments                   6,423         4,429           6,274           7,677
     Total revenues                                 91,054        91,333          98,329          98,505
     Net income                                      8,947         8,789           9,392          10,119
     Net income applicable to common stock           8,536         8,377           8,981           9,760
     Primary earnings per common share                 .59           .58             .63             .69
     Fully diluted earnings per common share           .49           .41             .47             .48
  
     Year Ended December 31, 1992
     Premiums and policy fund charges               13,675        13,247          11,921          12,880
     Net investment income                          65,136        67,245          69,515          70,335
     Realized gains on investments                   1,382         2,318           3,120           5,549
     Total revenues                                 80,959        83,580          85,522          89,974
     Income from continuing operations               5,779         6,665           7,705           5,868
     Income before extraordinary credit              5,769         6,619           7,690           5,868
     Extraordinary credit                              550           810           1,090           2,425
     Net income                                      6,319         7,429           8,780           8,293
     Net income applicable to common stock           5,892         7,002           8,363           7,914
     Primary earnings per common share                    
         Income from continuing operations             .38           .44             .51             .38
         Income before extraordinary credit            .38           .44             .51             .38
         Extraordinary credit                          .04           .05             .08             .17
         Net income                                    .42           .49             .59             .55
     Fully diluted earnings per common share
         Income from continuing operations             .32           .36             .42             .32
         Income before extraordinary credit            .32           .36             .42             .32
         Extraordinary credit                          .03           .05             .06             .13
         Net income                                    .35           .41             .48             .45
  Earnings per share amounts for each quarter are computed independently
  of earnings per share amounts for the year.  All per share amounts prior to the
  fourth quarter of 1993 have been restated to give retroactive effect to the 5%
  stock dividend paid in December 1993.
  
         Amounts previously reported as discontinued operations for the first
  three quarters of 1993 have been reclassified to be consistent with the year
  end presentation.
  
         Insurance operations are typically not seasonal in nature.  However, the
  recognition of realized gains and losses on investments may vary from quarter
  to quarter as indicated above.  Fourth quarter 1992 operations include
  additional amortization of deferred policy acquisition costs related to
  realized gains on investments of $4,125,000.
  50
  
  NOTE M -- SUBSEQUENT EVENT (UNAUDITED)
  
         On September 29, 1994, CCP II completed the Acquisition of the Company. 
  Pursuant to an Agreement and Plan of Merger, the Company's former stockholders
  received $15.25 in cash per common equivalent share, plus the right to receive
  up to another $2.00 in cash per common equivalent share based on the outcome
  of the Company's pending litigation against the U. S. Government concerning the
  Company's former savings bank subsidiary.   CCP II is a Delaware limited
  partnership which was formed by Conseco, Inc. ("Conseco") to invest in
  acquisitions of annuity, life, and accident and health insurance companies and
  related businesses.  In connection with the Acquisition, the line of credit of
  a subsidiary of the Company with a balance at the acquisition date of
  approximately $54,800,000 was repaid.
  
         The Acquisition will be accounted for as a purchase business combination
  pursuant to which the reported values of the acquired assets and liabilities
  of the Company are adjusted to their estimated fair values at the Acquisition
  date.  The Company incurred indebtedness aggregating $350 million to partially
  finance the Acquisition.  As such, future results of operations and the
  financial condition of the Company may vary significantly from historical
  reported results of operations and financial condition.  
  
         The Company and certain of the persons then serving on the Board of
  Directors have been named in a purported class action suit commenced on May 3,
  1994 relating to the Acquisition.  The complainant seeks injunctive relief and 
  compensatory damages.  The Company believes that such suit is without merit and
  intends to contest it vigorously.
  51
  ITEM 7(b).     PRO FORMA CONSOLIDATED FINANCIAL INFORMATION OF CONSECO, INC.
                 AND SUBSIDIARIES.
  CONSECO, INC. AND SUBSIDIARIES
                                PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
                                    For the Six Months Ended June 30, 1994
                                (Dollars in millions, except per share amounts)
                                                  (Unaudited)
  
                                                Pro Forma                      Pro Forma
                                                 Conseco                      Adjustments
                                               Before the                     Relating to
                                                Statesman        Statesman   the Statesman      Pro Forma
                                               Acquisition      Historical    Acquisition        Conseco
                                               -----------      ----------    -----------        -------
  Revenues:
    Insurance policy income                     $633.9           $ 26.3          ($.2) (1)     $660.0 
    Investment activity:
       Net investment income                     142.4            160.8           (.3) (2)      302.4 
                                                                                  (.5) (2)
       Net trading loss                           (2.4)                                          (2.4)
       Net realized gain (loss)                   (7.4)             5.1          (3.9) (2)       (6.2)
    Fee and commission revenue                    28.1                                           28.1 
    Equity in earnings of CCP Insurance, Inc.     17.2                            (.1) (2)       17.1 
    Equity in earnings of Western National 
       Corporation                                20.3                                           20.3 
    Other income                                    .2              2.7                           2.9 
                                                 -----           ------          ----         -------
           Total revenues                        832.3            194.9          (5.0)        1,022.2 
                                                 -----           ------          ----         -------
  Benefits and expenses:
    Insurance policy benefits and change in 
       future policy benefits                    476.7             16.3                         493.0 
    Interest expense on annuities and financial
      products                                    32.8            102.8                         135.6 
    Interest expense on long-term debt            24.2              4.1          11.1  (3)       39.4 
    Interest expense on short-term debt            4.9                                            4.9 
    Amortization related to operations            64.0             19.5           1.4  (1)       87.2 
                                                                                  2.3  (4)            
    Amortization and change in future policy
      benefits related to realized gains           (.3)             2.8          (1.8) (5)         .7 
    Other operating costs and expenses           103.6             17.3                         120.9 
                                                 -----           ------          ----         -------
           Total benefits and expenses           705.9            162.8          13.0           881.7 
                                                 -----           ------          ----         -------
           Income before income taxes, minority
             interest and extraordinary charge   126.4             32.1         (18.0)          140.5 
  
  Income tax expense                              37.7             10.3          (5.5) (6)       42.5 
                                                 -----           ------          ----         -------
   
                                          (Continued on next page)
  The accompanying notes are an integral part of the pro forma consolidated financial statements.
  52
                                        CONSECO, INC. AND SUBSIDIARIES
  PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
                               For the Six Months Ended June 30, 1994, continued
                                (Dollars in millions, except per share amounts)
                                                  (Unaudited)
  
                                                Pro Forma                      Pro Forma
                                                 Conseco                      Adjustments
                                               Before the                     Relating to
                                                Statesman        Statesman   the Statesman      Pro Forma
                                               Acquisition      Historical    Acquisition        Conseco
                                               -----------      ----------    -----------        -------
  Income before minority interest and
             extraordinary charge                 88.7             21.8         (12.5)           98.0 
  
  Less minority interest                          22.6              4.5            .7  (7)       29.0 
                                                                                 (1.1) (8)            
                                                                                  2.3  (9)            
                                               -------            -----        ------           -----
           Income before extraordinary charge  $  66.1            $17.3        ($14.4)          $69.0 
                                               =======            =====        ======           =====
  
  Earnings before extraordinary charge 
    per common share and common 
    equivalent share:
         Primary:
            Weighted average shares         27,396,000                                     27,396,000
                                            ==========                                     ========== 
            Earnings before extraordinary 
              charge                             $2.07                                          $2.18 
                                                 =====                                          =====
         Fully diluted:
            Weighted average shares         31,905,000                                     31,905,000 
                                            ==========                                     ==========
            Earnings before extraordinary   
              charge                             $2.07                                          $2.16 
                                                 =====                                          =====
  The accompanying notes are an integral part of the pro forma consolidated financial statements.
  53
                                        CONSECO, INC. AND SUBSIDIARIES
  PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
                                     For the Year Ended December 31, 1993
                                (Dollars in millions, except per share amounts)
                                                  (unaudited)
  
                                                Pro Forma                      Pro Forma
                                                 Conseco                      Adjustments          
                                               Before the                     Relating to
                                                Statesman       Statesman    the Statesman     Pro Forma
                                               Acquisition     Historical     Acquisition       Conseco
                                               -----------     ----------     -----------       -------
  Revenues:
    Insurance policy income                    $1,272.7          $50.0           ($.4)(1)     $1,322.3
    Investment activity:
      Net investment income                       279.5          298.9            (.2)(2)        577.1
                                                                                 (1.1)(2)
      Net trading income                           44.9                                           44.9
      Net realized gains                           64.9           24.8          (13.0)(2)         76.7
    Equity in earnings of CCP Insurance, Inc.      40.1                           (.2)(2)         39.9
    Equity in earnings of Western National 
      Corporation                                  47.4                                           47.4
    Fee and commission revenue                     41.5                                           41.5
    Other income                                    1.4            5.5                             6.9
                                                -------          -----          -----          -------
         Total revenues                         1,792.4          379.2          (14.9)         2,156.7
                                                -------          -----          -----          -------
  Benefits and expenses:
    Insurance policy benefits and change in future
      policy benefits                             943.2           31.7                           974.9
    Interest expense on annuities and financial
      products                                     75.4          195.9                           271.3
    Interest expense on long-term debt             54.4            6.1           24.4 (3)         84.9
    Interest expense on short-term debt             4.4                                            4.4
    Amortization related to operations            134.2           31.7            4.4 (1)        174.9
                                                                                  4.6 (4)
    Amortization and change in future policy
      benefits related to realized gains           47.6            9.8           (3.2)(5)         54.2
    Other operating costs and expenses            219.6           35.5                           255.1
                                                -------          -----          -----          -------
         Total benefits and expenses            1,478.8          310.7           30.2          1,819.7
                                                -------          -----          -----          -------
         Income before income taxes, minority          
           interest and extraordinary charge      313.6           68.5          (45.1)           337.0
  
  Income tax expense                               99.0           22.5          (13.1) (6)       108.4
                                                -------          -----          -----          -------
  
                                           (Continued on next page)
  The accompanying notes are an integral part of the pro forma consolidated financial statements.
  54
                                        CONSECO, INC. AND SUBSIDIARIES
  PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
                                For the Year Ended December 31, 1993, continued
                                (Dollars in millions, except per share amounts)
                                                  (unaudited)
  
                                                Pro Forma                      Pro Forma
                                                 Conseco                      Adjustments          
                                               Before the                     Relating to
                                                Statesman       Statesman    the Statesman     Pro Forma
                                               Acquisition     Historical     Acquisition       Conseco
                                               -----------     ----------     -----------       -------
  Income before minority interest and
           extraordinary charge                   214.6            46.0         (32.0)           228.6
  
  Less minority interest                           56.3             8.8           (.9) (7)        66.1
                                                                                 (2.2) (8)
                                                                                  4.1  (9)            
                                                -------         -------        ------         --------
         Income before extraordinary charge     $ 158.3         $  37.2        ($33.0)        $  162.5
                                                =======         =======        ======         ========
  
  Earnings before extraordinary charge per common
    share and common equivalent share:
  
         Primary:
            Weighted average shares          29,245,000                                     29,245,000
                                             ==========                                     ==========
            Earnings before extraordinary 
              charge                              $4.71                                          $4.85
                                                  =====                                          =====
         Fully diluted:
            Weighted average shares          33,495,000                                     33,495,000
                                             ==========                                     ==========
            Earnings before extraordinary 
              charge                              $4.62                                          $4.75
                                                  =====                                          =====
  The accompanying notes are an integral part of the pro forma consolidated financial statements.
  55
  
                                        CONSECO, INC. AND SUBSIDIARIES
  PRO FORMA CONSOLIDATED BALANCE SHEET
                                                 June 30, 1994
                                             (Dollars in millions)
  
                                                                               Pro Forma
                                                                              Adjustments
                                                                              Relating to
                                                 Conseco       Statesman     the Statesman     Pro Forma
                                               as Reported     Historical     Acquisition       Conseco
                                               -----------     ----------     -----------       -------
  Assets
    Investments:
      Fixed maturities:
         Actively managed                      $2,788.5       $2,612.0      $1,240.5 (10)     $6,641.0
         Held to maturity                             -        1,396.0      (1,240.5)(10)           - 
                                                                              (155.5)(11)
      Equity securities                            14.7           22.6                            37.3
      Mortgage loans                               77.2           71.0            .9 (11)        149.1
      Credit-tenant loans                          46.0                                           46.0
      Policy loans                                116.9           58.1                           175.0
      Investment in CCP Insurance, Inc.           218.1                                          218.1
      Investment in Western National Corporation  193.1                                          193.1
      Other invested assets                        49.2           18.6                            67.8
      Trading account securities                   27.8                                           27.8
      Short-term investments                      472.0          110.5           2.3 (12)        595.8
                                                                               422.0 (12)
                                                                              (380.8)(13)             
                                                                               (30.2)(14)
      Assets held in separate accounts             73.7           10.7                            84.4
                                               --------       --------        ------         ---------
  
           Total investments                    4,077.2        4,299.5        (141.3)          8,235.4
  
    Cash                                              -            2.3          (2.3)(12)           - 
    Accrued investment income                      56.9           56.7                           113.6
    Reinsurance receivables                        39.4                                           39.4
    Deferred income taxes                          48.0           45.3          14.8 (15)        108.1
    Cost of policies purchased                    621.6                        478.2 (16)      1,099.8
    Cost of policies produced                     216.7          346.2        (346.2)(17)        216.7
    Goodwill                                      316.0            2.8         244.3 (18)        563.1
    Property and equipment                         74.3            9.9           2.2 (11)         86.4
    Securities segregated for the future 
      redemption of preferred stock of 
      wholly owned subsidiary                         -           36.9          (1.1)(11)         35.8
    Other assets                                  149.3           20.2          (5.2)(19)        164.3
                                               --------       --------        ------         ---------
           Total assets                        $5,599.4       $4,819.8        $243.4         $10,662.6
                                               ========       ========        ======         =========
  The accompanying notes are an integral part of the pro forma consolidated financial statements.
  56
                                        CONSECO, INC. AND SUBSIDIARIES
  PRO FORMA CONSOLIDATED BALANCE SHEET
                                                 June 30, 1994
                                             (Dollars in millions)
  
                                                                                Pro Forma
                                                                               Adjustments
                                                                               Relating to
                                                Conseco        Statesman      the Statesman    Pro Forma
                                              as Reported     Historical       Acquisition      Conseco
                                              -----------     ----------       -----------      -------
  Liabilities:
    Insurance liabilities                     $3,527.6       $4,479.4                        $8,007.0 
    Investment borrowings                        189.7                                          189.7 
    Other liabilities                            258.2           46.4           22.5 (20)       353.7 
                                                                                (3.5)(21)
                                                                                30.1 (22)
    Liabilities related to separate accounts      72.9           10.7                            83.6 
    Long-term debt                               230.5                                          230.5 
    Notes payable of CCP II entities, not 
      direct obligations of Conseco                  -          124.0          182.8 (23)       306.8 
    Notes payable of BLH, not direct 
      obligations of Conseco                     279.7                                          279.7 
                                              --------       --------      --------         ---------   
         Total liabilities                     4,558.6        4,660.5          231.9          9,451.0 
                                              --------       --------      --------         ---------   
  Minority interest                              185.9           95.4           67.1 (24)       354.4 
                                                                                 6.0 (25)
  Redeemable preferred stock                         -            3.7           (3.7)(26)           - 
  
  Shareholders' equity:
    Preferred stock                              287.5                                          287.5 
    Series Preferred Stock                           -             .3            (.3)(26)             
    Common stock and additional 
       paid-in capital                           172.4           65.5          (65.5)(26)       172.4 
    Unrealized depreciation                     (118.5)         (99.9)          99.9 (26)      (118.5)
    Retained earnings                            513.5           94.3          (94.3)(26)       515.8 
                                                                                 2.3 (14)              
                                              --------       --------      --------         ---------   
         Total shareholders' equity              854.9           60.2         (57.9)            857.2
                                              --------       --------      --------         --------- 
         Total liabilities and 
            shareholders' equity              $5,599.4       $4,819.8      $  243.4         $10,662.6 
                                              ========       ========      ========         =========
  The accompanying notes are an integral part of the pro forma consolidated financial statements.
  57
                                        CONSECO, INC. AND SUBSIDIARIES
  
                                              NOTES TO PRO FORMA
                                       CONSOLIDATED FINANCIAL STATEMENTS
                                                  (Unaudited)
  
  BASIS OF PRESENTATION
  
         On September 29, 1994, Conseco Capital Partners II, L.P. ("CCP II"), a
  Delaware limited partnership, completed the acquisition (the "Acquisition") of
  The Statesman Group, Inc. ("Statesman").  After the Acquisition and related
  financing transactions, CCP II owns approximately 80 percent of the outstanding
  shares of Statesman's common stock.  Conseco, Inc. ("Conseco") formed CCP II
  in February 1994 with several other investors for the purpose of investing in
  acquisitions of annuity, life and accident and health insurance companies and
  related businesses.  Conseco Partnership Management, Inc., a wholly owned
  subsidiary of Conseco, is the sole general partner of CCP II. Because a
  subsidiary of Conseco is the sole general partner of CCP II, Conseco controls
  CCP II and Statesman.  Accordingly, Conseco's consolidated financial statements
  will include the accounts of CCP II and Statesman.  Conseco, through its direct
  investment and through its equity interest in the investments made by Bankers
  Life Holding Corporation ("BLH"), CCP Insurance, Inc. ("CCP Insurance") and
  Western National Corporation ("WNC"), has a 27 percent ownership interest in
  Statesman.  The remaining 73 percent ownership interest in Statesman is
  described as the "Statesman Minority Interest."
  
         The unaudited pro forma consolidated statements of operations of Conseco
  for the year ended December 31, 1993, and the six months ended June 30, 1994,
  present the consolidated operating results for Conseco as if the Acquisition
  had occurred on January 1, 1993.  The unaudited pro forma consolidated balance
  sheet as of June 30, 1994, gives effect to the Acquisition as if it had
  occurred on June 30, 1994.  The historical statement of operations data for
  Conseco set forth in the unaudited pro forma consolidated statements of
  operations for the year ended December 31, 1993, and for the six months ended
  June 30, 1994, under the column "Pro Forma Conseco Before the Statesman
  Acquisition", to which the pro forma adjustments for the Acquisition are being
  applied, already reflect the prior application of certain pro forma adjustments
  for the following transactions, all of which occurred prior to June 30, 1994,
  as if such transactions had occurred on January 1, 1993:  the initial public
  offering of WNC, the initial public offering of BLH, the purchase by Conseco
  of 13.3 million additional shares of BLH common stock in September 1993 and the
  purchase by Conseco of 2.0 million additional shares of CCP Insurance common
  stock in September 1993.  These pro forma adjustments are set forth in Exhibit
  99.1 to Conseco's Form 10-Q for the quarterly period ended June 30, 1994. 
  
         The unaudited pro forma consolidated financial statements should be read
  in conjunction with the accompanying notes, the historical financial statements
  and notes thereto of Conseco, the historical financial statements of Statesman
  as of June 30, 1994, and for the six months then ended and for the year ended
  December 31, 1993 included in Item 7(a) herein, and the unaudited pro forma
  financial information of Conseco as of June 30, 1994, and for the six months
  then ended and for the year ended December 31, 1993, contained in Exhibit 99.1
  to Conseco's Form 10-Q for the quarterly period ended June 30, 1994. Certain
  amounts from the prior periods have been reclassified to conform to the current
  presentation. 
  
  PRO FORMA ADJUSTMENTS
    
  Transactions Relating to the Acquisition of Statesman
  
         The Acquisition was consummated pursuant to an Agreement and Plan of
  Merger dated May 1, 1994, providing for the merger of Statesman with a
  subsidiary of CCP II.  Statesman's former stockholders received $15.25 in cash
  per common equivalent share plus a contingent payment right to receive up to
  another $2.00 in cash per common equivalent share ("the Contingent
  Consideration") based on the outcome of Statesman's pending litigation against
  the U.S. Government concerning Statesman's former savings bank subsidiary (the
  "Government Litigation").
  58
  
         The Acquisition and related transactions were funded with:  (i) $45.0
  million of cash contributions made to CCP II by its partners (including $7.2
  million provided by wholly owned subsidiaries of Conseco, $1.8 million by BLH,
  $1.8 million by CCP Insurance and $3.6 million by WNC), (ii) $57.0 million in
  cash from the sale in a private placement of the payment-in-kind preferred
  stock of Statesman (the "Statesman PIK Preferred Stock") (including $25.9
  million purchased by BLH and $24.0 million purchased by CCP Insurance), (iii)
  $150.0 million in cash from the sale in a public offering by ALHC Merger
  Corporation, a subsidiary of CCP II which was merged into American Life Holding
  Company ("ALHC"), a wholly owned subsidiary of Statesman, of its 11-1/4% Senior
  Subordinated Notes due 2004 (the "ALHC Senior Subordinated Notes") and (iv)
  $200.0 million in cash from a senior secured loan (the "ALHC Senior Term Loan")
  obtained by ALHC Merger Corporation (collectively referred to herein as the
  "Statesman Financing").  The sources and uses of this financing are summarized
  below (dollars in millions).
  Sources of Funds:
          ALHC Senior Term Loan:
             Borrowed upon closing of the Acquisition                                      $170.0
             Borrowed upon determination of Government Litigation                            30.0   (i)
          ALHC Senior Subordinated Notes                                                    150.0
          Statesman PIK Preferred Stock                                                      57.0
          Common equity contribution from CCP II                                             45.0
                                                                                           ------
                    Total sources                                                          $452.0
                                                                                           ======
  
      Uses of Funds:
          Payment of cash consideration to acquire Statesman                               $314.1   (ii)
          Payment upon determination of Government Litigation                                30.1   (i)
          Repayment of bank indebtedness of a subsidiary of Statesman                        55.5   (iii)
          Transaction fees and expenses                                                      14.8
          Purchase of surplus note from American Life and Casualty 
             Insurance Company ("American Life"), Statesman's 
             principal operating subsidiary                                                  24.0
          Cash retained                                                                      13.5
                                                                                           ------
                    Total uses                                                             $452.0
                                                                                           ======
  (i)     In the event of an unfavorable determination of the Government 
          Litigation, $30.1 million would be paid to the holders of Statesman's
          1988 Series I and II Preferred Stock $1 Par (the "Statesman 1988 Series
          Preferred Stock"), which is currently held by the U.S. Government.  In 
          the event of a favorable determination of this litigation, the same
          amount, representing a portion of the Contingent Consideration, would
          be paid to the other former stockholders of Statesman.
  
  (ii)    This amount assumes conversion of all outstanding 6-1/4% Convertible
          Subordinated Debentures due 2003 of Statesman (the "Convertible
          Debentures"), which are convertible into an aggregate of 4,528,125
          shares of Statesman common stock.  To the extent that any holders of
          the Convertible Debentures do not convert such securities, the
          proceeds which would have been used to pay such holders will be held
          in escrow until the Convertible Debentures are converted by the
          holders, are redeemed by Statesman, or mature.
  
  (iii)   A subsidiary of Statesman was the borrower under a credit facility with
          an outstanding balance of $51.9 million at June 30, 1994. The  
          outstanding balance under this facility (which totalled $55.5 million
          at the Acquisition date) was repaid with a portion of the proceeds from
          the Statesman Financing.
  59
  
         The pro forma adjustments are applied to the historical consolidated
  financial statements of Conseco and Statesman to account for the Acquisition
  using the purchase method of accounting.  Under purchase accounting, the total
  purchase cost of Statesman will be allocated to the assets and liabilities
  acquired based on their relative fair values as of the date of acquisition,
  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 cost allocations will be based on appraisals and other studies, which are
  not yet completed.  Accordingly, the final allocations will be different from
  the amounts reflected herein.  Although the final allocations will differ, the
  pro forma consolidated financial statements reflect management's best estimate
  based on currently available information.
  
         Adjustments to give effect to the Acquisition and related transactions
  are summarized as follows: 
  
         (1)  Amortization of deferred acquisition costs and the recognition of
  deferred revenues for policies sold by Statesman prior to January 1, 1993, are
  replaced with the  amortization of cost of policies purchased (amortized in 
  relation to estimated profits on the policies purchased  with interest equal
  to the liability or contract rates  ranging from 5.3% to 8.2%).  See Note 16
  below.
  
         (2)  Net investment income and net realized gains of Statesman are
  adjusted to include the effect of the restatement of (i) fixed maturities, (ii)
  mortgage loan investments and (iii) interest rate swap and collar agreements
  to estimated fair value as of January 1, 1993, the assumed date of the
  Acquisition.  The reported value and estimated fair value of fixed maturities,
  mortgage loan investments and interest rate swap and collar agreements as of
  January 1, 1993, are as follows (dollars in millions):
  Reported      Estimated
                                                                            Value      Fair Value
                                                                            -----      ----------
  Fixed maturities                                                    $2,910.6      $2,980.0
      Mortgage loan investments                                               87.1          88.2
      Interest rate swap and collar agreements                                 (.7)         (7.5)
  In addition, net investment income is reduced to reflect the reduction
  in short-term investments in connection with the purchase of investments in CCP
  II and the Statesman PIK Preferred Stock by Conseco and its consolidated
  subsidiaries.  Additionally, equity in earnings of CCP Insurance is reduced to
  reflect the reduction in net investment income as a result of its investment
  in CCP II and the Statesman PIK Preferred Stock. 
  
         No additional investment income is assumed to be earned on the cash
  retained from the proceeds of the Statesman Financing after payment of the
  costs of the Acquisition and related transactions.  Pro forma net realized gain
  (loss) represents the difference between (i) the actual proceeds from the sales
  of investments and (ii) the fair value of the investments as of the assumed
  date of the Acquisition, adjusted for the accretion of discount or premium
  based on the new cost basis.
  60
  
         (3)  Interest expense is adjusted to reflect the following transactions
  as if they occurred as of the assumed date of the Acquisition:
  Six Months
                                                                      Year Ended            Ended
                                                                   December 31, 1993    June 30, 1994
                                                                   -----------------    -------------
  Use of proceeds to repay certain bank 
          indebtedness of a subsidiary of Statesman                      $(2.4)           $(1.6)
      The assumed conversion of all of the Convertible Debentures         (3.3)            (2.4)
      The borrowings under the ALHC Senior Term Loan (i)                  12.1              6.1
      The issuance of the ALHC Senior Subordinated Notes (ii)             16.9              8.4
      Amortization of debt issuance costs (iii)                            1.1               .6
                                                                         -----            -----
                                                                         $24.4            $11.1
                                                                         =====            =====
  (i)  Based on borrowings of $170.0 million ($130.0 million at an
                 assumed interest rate of 7.0% and $40.0 million at an assumed
                 interest rate of 7.5%).
  
           (ii)  Based on a principal amount of $150.0 million at an assumed
                 interest rate of 11.25%.
  
           (iii)  Based on debt issuance costs of $6.8 million and $8.0 million
                  related to the ALHC Senior Subordinated Notes and the ALHC 
                  Senior Term Loan, respectively, which are amortized at a level
                  yield over the term of such debt.
  A change in interest rates on the ALHC Senior Term Loan of .5% would
  result in (i) an increase (or decrease) in pro forma interest expense of $.9
  million and $.4 million for the year ended December 31, 1993 and the six months
  ended June 30, 1994, respectively, and (ii) a decrease (or increase) in pro
  forma net income of $.1 million and $.1 million for the same respective
  periods.  Under the terms of the ALHC Senior Term Loan, $30 million will remain
  available to borrow at a later date when needed to pay a portion of the
  Contingent Consideration or to pay to the holders of the Statesman 1988 Series
  Preferred Stock upon the determination of the Government Litigation.  If such
  $30 million were outstanding during 1993 and the six months ended June 30, 1994
  (with an assumed interest rate of 7.0% during such periods), pro forma interest
  expense would increase by $2.1 million and $1.1 million, respectively, and pro
  forma net income would decrease by $.3 million and $.2 million, respectively.
  
         (4)  Amortization of goodwill calculated as of January 1, 1993 is
  recognized over a 40-year period on a straight-line basis.
  
         (5)  Anticipated returns, including realized gains and losses, from the
  investment of policyholder balances are considered in determining the
  amortization of the cost of policies purchased.  Amortization of cost of
  policies purchased is adjusted to reflect amortization related to pro forma
  realized gains by Statesman during the period. 
  
         (6)  All applicable pro forma adjustments to operations are tax effected
  at the appropriate rate.  Additionally, for the year ended December 31, 1993,
  income tax expense is increased by $1.1 million to reflect the effect of the
  increase in the corporate income tax rate to 35% from 34% on adjustments to
  deferred income tax liabilities resulting from pro forma adjustments.
  
         (7)  The Statesman Minority Interest in the earnings of Statesman is
  recognized.
  61
  
         (8) After the Acquisition, investment advisory services are provided to
  Statesman by a subsidiary of Conseco.  Statesman's historical net investment
  income is not reduced to reflect the advisory fees to be paid under the
  agreement in excess of investment expenses incurred prior to the Acquisition,
  since, in accordance with GAAP, such intercompany fees are eliminated in
  consolidation.  Minority interest, however, is adjusted to charge the Statesman
  Minority Interest for its portion of such investment advisory fees.  Net
  investment income is not increased to reflect any additional investment income
  and realized gains which may be earned as a result of services provided by the
  Conseco subsidiary.
         
         (9)  All investors in the Statesman PIK Preferred Stock, other than BLH
  and CCP Insurance to the extent of Conseco's interest therein, have 
  approximately a 56 percent ownership interest in such Statesman PIK Preferred
  Stock (the "Statesman PIK Preferred Minority Interest").  Income is reduced to
  reflect the dividends accrued on the Statesman PIK Preferred Stock attributable
  to the Statesman PIK Preferred Minority Interest. 
  
         (10)  After the Acquisition, all existing fixed maturity investments are
  classified as available-for-sale.  Fixed maturities previously classified as
  held-to-maturity are reclassified as available-for-sale. 
  
         (11)  Statesman's fixed maturity investments, mortgage loans, property
  and equipment and securities segregated for the future redemption of preferred
  stock of a wholly owned subsidiary are restated to market value as of the
  assumed date of the Acquisition. 
   
         (12)  After the Acquisition, all cash is invested in short-term
  investments.  Short-term investments are increased to reflect the gross
  proceeds from the Statesman Financing.
  
         (13)  Short-term investments are reduced for the amounts distributed
  related to the Acquisition.
  
         (14)  Short-term investments are reduced to reflect the investment of
  Conseco and its consolidated subsidiaries in CCP II related to the Acquisition
  and in Statesman PIK Preferred Stock, offset by fees of $4.9 million paid to
  Conseco.  Retained earnings is increased by $2.3 million to reflect net income
  attributable to the fees collected from the Statesman Minority Interest.
  
         (15)  All of the applicable pro forma balance sheet adjustments are tax
  effected at the appropriate rate.  
  
         (16)  Cost of policies purchased reflects the estimated fair value of
  the business in force and represents the portion of the cost to acquire
  Statesman that is allocated to the value of the right to receive future cash
  flows from insurance contracts existing as of the assumed date of the
  Acquisition.  Such value is the present value of the actuarially determined
  projected cash flows from the acquired policies.
  
         The 15% discount rate used to determine such value is the rate of return
  required by CCP II 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 expected future 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.
  62
  
         The value allocated to cost of policies purchased is based on a
  preliminary valuation; accordingly, this allocation may be adjusted upon final
  determination of such value.  On a pro forma basis, assuming that the
  Acquisition occurred as of June 30, 1994, expected gross amortization using
  current assumptions and accretion of interest based on an interest rate equal
  to the liability or contract rate (such rates ranging from 5.3% to 7.7%) for
  each of the years in the five-year period ending June 30, 1999 is as follows
  (dollars in millions):
  Year ended    Beginning         Gross        Accretion         Net           Ending
                June 30      Balance      Amortization    of Interest   Amortization      Balance
                -------      -------      ------------    -----------   ------------      -------
  1995         $478.2           $68.5          $24.9          $43.6         $434.6
                 1996          434.6            69.6           22.0           47.6          387.0
                 1997          387.0            65.7           19.5           46.2          340.8
                 1998          340.8            61.4           17.1           44.3          296.5
                 1999          296.5            56.2           14.8           41.4          255.1
  (17)  Deferred acquisition costs of Statesman are eliminated since such
  amounts are reflected in the determination of the cost of policies purchased. 
  
         (18)  Goodwill reflects the excess of cost of investment in Statesman
  over the net assets acquired.
  
         (19)  Several deferred costs of Statesman that are not relevant after
  the acquisition are eliminated as of the assumed date of the Acquisition.
  
         (20)  A liability is established to reflect the fair value of interest
  rate swap and collar agreements of Statesman outstanding as of the assumed date
  of the Acquisition.  The fair value was determined based on estimates obtained
  from an unaffiliated dealer in such instruments.
  
         (21)  Deferred revenues on certain life insurance and annuity policies
  of Statesman are eliminated, since such amounts are reflected in the
  determination of the cost of policies purchased.
  
         (22)  A liability is established for the amount payable when the outcome
  of the Government Litigation is determined.  
  
         (23)  Long-term debt is reduced as of June 30, 1994 to reflect the
  repayment of the bank debt of a subsidiary of Statesman (with a principal
  balance as of June 30, 1994 of $51.9 million), repayment of notes payable
  issued by Statesman's employee stock ownership plan (principal balance as of
  June 30, 1994 of $4.0 million) and the assumed conversion and retirement of the
  Convertible Debentures.  Additionally, long-term debt is increased to reflect
  (i) $170.0 million gross proceeds from the ALHC Senior Term Loan and (ii)
  $150.0 million gross proceeds from the ALHC Senior Subordinated Notes, reduced
  by $14.8 million to reflect the costs associated with the issuance of such
  debt.  Under the terms of the ALHC Senior Term Loan, $30.0 million will remain
  available to borrow when needed to pay a portion of the Contingent
  Consideration or to pay to the holder of the Statesman 1988 Series Preferred
  Stock upon the determination of the Government Litigation.  See Note 22 above.
  
         (24)  An adjustment is made to reflect the Statesman Minority Interest
  in the common equity of Statesman and the Statesman PIK Preferred Minority
  Interest related to the Statesman PIK Preferred Stock.
  
         (25)  The carrying value of the preferred stock of a wholly owned
  subsidiary of Statesman is adjusted to its estimated fair value as of the
  assumed date of the Acquisition. 
  
         (26)  The prior shareholders' equity and the redeemable preferred stock
  of Statesman are eliminated in conjunction with the Acquisition and related
  transactions.
  63
  ITEM 7(c).       EXHIBIT. 
  
                   (c)  Exhibits 
  
                        2.1      Agreement and Plan of Merger dated as of May 1,
                                 1994 by and among Conseco Capital Partners II, 
                                 L.P., CCP II Acquisition Company and The 
                                 Statesman Group, Inc.
  
                        4.12     Indenture dated as of September 29, 1994
                                 between ALHC Merger Corporation and LTCB Trust
                                 Company and First Supplemental Indenture dated
                                 as of September 29, 1994 between American Life 
                                 Holding Company and the Trustees for the 11-1/4%
                                 Senior Subordinated Notes due 2004.
  
                                 The document defining the rights of the holders
                                 of the Senior Term Loan obtained by ALHC Merger 
                                 Corporation (the "ALHC Senior Term Loan") as  
                                 described in Item 2 has been omitted as an
                                 exhibit to the Form 8-K, pursuant to Item
                                 601(b)(4)(iii) of Regulation S-K, because the
                                 total amount of the ALHC Senior Term Loan is
                                 less than 10 percent of the total assets of the 
                                 Registrant and its subsidiaries on a
                                 consolidated basis.  The Registrant hereby
                                 undertakes to furnish copies of such documents
                                 to the Commission upon request.
  64
  
                                        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 hereunto duly authorized.
  
                                             CONSECO, INC.
  
    Dated: October 13, 1994                   By: /s/ ROLLIN M. DICK           
                                                  --------------------
                                                  Rollin M. Dick
                                                  Executive Vice President and
                                                  Chief Financial Officer     
                                                  (authorized officer and      
                                                   principal financial officer)