UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                     Washington, D.C.  20549

                           FORM 10-KSB
(Mark One)
   X ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended   December 31, 1996  
                                OR
     TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
     SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from                 to                
Commission file number    0-13538   

                              NATIONAL AFFILIATED CORPORATION     
                   
          (Name of Small Business Issuer in its charter)
            Louisiana                                             
                                                 72-0947819       
(State or other jurisdiction of                                   
                                          (I.R.S. Employer
   incorporation or organization)                                 
                                           Identification Number)

  7228 England Drive, Suite 24, P.O. Box 12190, Alexandria, LA  71315          
             (address of principal executive office)

Issuer's telephone number, including area code      (318) 473-4355    
Securities registered under Section 12(b) of the Exchange Act:

                 Name of each exchange on
        Title of each class        which registered  
          
                None                None

Securities registered under Section 12(g) of the Exchange Act:

                   Common Stock (No Par Value)
                         (Title of class)

Check whether the issuer (1) filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the past 12
months (or for such shorter period that the Registrant was required
to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.  yes X    no        

Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this form, and no
disclosure will be contained, to the best of registrant's
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB.    X 

Issuer's revenues for its most recent fiscal year    $2,379,050   

Aggregate market value of the Common Stock held by non-affiliates
of the Registrant on December 31, 1996 was: $891,470.

                       VOTING COMMON SHARES
8,765,415 shares of Registrant's Common Stock were outstanding as
of March 31, 1997.

               DOCUMENTS INCORPORATED BY REFERENCE
None.
                              PART I

 Item 1:Business

          National Affiliated Corporation (hereinafter variously
          referred to as "NAC", the "Company", or  "Registrant") is
          a Louisiana Corporation incorporated on August 4, 1982.
          Registrant conducts the majority of its business through
          its wholly-owned subsidiary National Affiliated Investors
          Life Insurance Company.  

          Business segment information is provided in Note 11 to
          the Registrant's consolidated financial  statements.
     
          The Company plans to expand the business through the 
          acquisition and consolidation of other profitable life
          insurance companies or blocks of insurance 
          business.   See "Acquisition of Insurance Companies."
     
     INSURANCE OPERATIONS

          National Affiliated Investors Life Insurance Company
          
          National Affiliated Investors Life Insurance Company
          ("NAIL"), incorporated in Louisiana on March 4, 1983,
          underwrites a portfolio of life insurance and accident
          and health insurance products focused on selected niche
          markets.  NAIL is admitted for part or all of its
          insurance products in seventeen states and the District
          of Columbia, including Alabama, Florida, Indiana,
          Louisiana, Maryland, New Mexico, Oklahoma, South
          Carolina, Tennessee and Texas (see Regulation).  NAIL's 
          products are marketed primarily to individuals and groups
          located in exurban and rural areas through its contracted
          field force of more than 400 independent agents and National
          Affiliated Marketing Company ("NAMC"), a wholly-owned
          subsidiary of NAC.  At December 31, 1996, NAIL had
          approximately $108 million of life insurance in force and
          collected approximately $1.6 million in accident and
          health insurance premiums.

          From 1984 to 1988, NAIL was financed from contributions
          of two public offerings of NAC common stock and by the
          sale of FLA-100 "founders" participating whole life
          policies by NAIL.  During that period of time, NAIL
          failed to develop a stable field force of agents or
          sustainable insurance products, instead relying on
          premiums from the FLA-100 policies to fund operations. 
          In 1991, the Board of Directors replaced management, but 
          NAIL has not been successful in obtaining profitability
          since that time.  In June 1997, the Board of Directors
          again replaced management.  See "Item 9:  Executive Officers
          and Directors of Registrant."

          Products
         
            Life Products

            The majority of NAIL's life insurance products are sold
            under the  "StarFlex Series" and can be divided into four
            subgroups of policies:  Universal life and interest
            sensitive whole life; term life; adjustable premium whole
            life; and an annuity product.  NAIL marketed FLA-100
            "founders" participating life policies prior to July
            1988.  NAIL issued more than 14,000 individual FLA-100 
            founders policies from 1984 to 1988.  These policies 
            were "participating" life policies that paid dividends
            to the policyholders.  At December 31, 1996, approximately
            1,200 of these policies remained in force of which 
            approximately 600 were premium paying.  

            Universal Life and Interest-Sensitive Whole Life

            StarFlex I - Individual universal life
            StarFlex II - Joint universal life
            StarFlex IV - Individual interest-sensitive whole life
            StarFlex V - Joint interest-sensitive whole life
            StarFlex VI - Senior interest-sensitive whole life
            StarFlex VIII - Executive interest-sensitive whole life
            StarFlex XIII - IRA alternative

            StarFlex I & II are marketed primarily to government employees
            and to families in rural areas to assist with accelerated 
            mortgage payoffs.  StarFlex IV, V and VIII are offered to 
            middle income families as supplemental retirement coverage.
            StarFlex XIII is also a supplemental retirement alternative
            and provides for a 1% "bonus" increase in the interest rates
            in the 10th and 20th year.  StarFlex VI is coupled with 
            NAIL's "TLC" (Total Life Care) final expense policy and 
            offered to the senior market to fill final expense needs of
            individuals over 50 years of age.

            Term Life

            StarFlex XIV - Ten year level term (renewable and convertible)

            This policy is offered as a traditional life insurance product
            to middle income families.

            Adjustable Premium Whole Life

            StarFlex XV - Adustable premium whole life

            This policy is offered with the StarFlex XIV policy as a 
            traditional life insurance product to middle income families.

            Annuities

            StarFlex XI - Flexible premium deferred annuity

            This product is offered to the IRA market and provides for
            payment of a 1% "bonus" on accumulated cash balances after
            completion of the 10th and 20th years.

            Other

            TLC is a modified whole life policy offered to those age 50 to 80.

            TLCII is a simplified issue whole life policy issued to those
            age 20 to 80.

            In addition to offering these policies, NAIL in 1992 purchased a
            block of whole life policies from Companion Life and anticipates
            that as funds are available additional blocks of life policies
            may be purchased.

            Health Products
       
            NAIL offers three primary health products - a group
            hospitalization and surgical care policy (GHSC),  an
            alternative benefit option policy (ABO) and a true group
            health policy.

            Group Hospitalization and Surgical Care and Limited
            Benefit Policies

            These are limited benefit policies offered to individuals
            who join one of two consumer groups for purposes of
            obtaining this coverage.  The basic policies provide
            limited benefits covering hospitalization and surgical
            care only, but may be expanded to include limited
            outpatient coverage and other benefits.  These policies
            are marketed to individuals and small business employees
            in rural and urban areas who do not have access to group
            coverage through an employer.

            NAIL purchased a block of limited benefit
            hospitalization/surgical care policies from another
            insurer in 1994, which produced unexpected loss rates. 
            NAIL has taken action to increase premiums and enhance
            underwriting standards to limit losses under these
            policies.

            Alternative Benefit Option

            This is a limited benefit policy offered by employers on
            a voluntary basis to individuals already covered by a
            general group policy.  Policyholders can choose any or
            all of a group of twelve individual coverages to fill
            specific needs.  The available coverages include hospital
            indemnity, first occurrence, intensive care and
            outpatient coverages, which are effective to pay
            deductibles and initial copayment requirements under the
            base policy.  Options to provide supplemental benefits in
            the event of cancer, heart disease or stroke or other 
            specified serious illnesses are available as are
            supplemental payments upon accidental death and upon
            disability.  These coverages generally provide specified
            amounts of supplemental income in addition to any other
            coverages and assist the policyholder with copayment and
            uncovered charges associated with the specified
            conditions.

            True Group Health

            This is currently offered to the Native American Health
            and Welfare Trust of New Mexico and provides complete
            health benefits to all employees and their dependents of
            the schools that are members of the Native American
            Trust.

            Future Plans

            NAIL's marketing plan will be implemented as profits
            permit. NAIL is negotiating with a large Canadian 
            insurer, which markets in all 50 states, to market
            NAIL's products. ERISA Trust Health administration 
            is being negotiated with three marketing groups.

            Investments

            The investments of NAIL are limited as to type and amount
            by Louisiana insurance laws, which are designed to
            protect against imprudent investment policies.  The
            investment of capital, paid-in-capital, operating surplus
            and other funds of insurers organized under the laws of
            Louisiana is specified by R.S. 22:841 et seq.  This
            statute includes general and specific limitations on
            investments, records of investments and other matters. 
            The Louisiana insurance law regulating investments and
            other aspects of the management of insurance companies is
            designed primarily for the protection of policyholders
            rather than investors.

            NAIL's investments at year end at market value for each
            of the last two fiscal years were allocated as follows:
<TABLE>
       
<S>                        <C>             <C>       <C>             <C>

Type of Investment            1996           %          1995           %


Bonds:
  U.S. Government          $1,293,415      26.9      $3,006,781      60.0
  Political subdivisions          -0-       0.0          25,862       2.5
  Public utility               63,000       1.3         111,000       2.2
  Corporate                   428,487       8.9         877,481      17.5
  Less restricted bonds      (557,000)                 (565,162)
  Net fixed maturities      1,227,902                 3,555,962 
Common stocks                  80,938       1.7           1,250       -0-
Other long-term investments   127,775       2.7         173,673       3.5
Mortgage loans              1,425,000      29.7             -0-
Collateral loans              881,822      18.4             -0-    
Certificates of deposit and 
time deposits                 499,673      10.4         714,851      14.3
  Less: restricted CDs       (475,000)                 (475,000)
  Net CDs & time deposits      24,673                   239,851 
Subtotal                    3,768,110                 3,960,736 
Restricted assets           1,032,000                 1,050,162 
Total                      $4,800,110      100%      $5,010,898      100%

</TABLE>
            
            The Louisiana Insurance Code allows an insurance company
            a lesser premium tax if at least one third of its
            investments are qualifying Louisiana investments, that is,
            they're assets located in the state of Louisiana.  It has
            been the policy of NAIL when possible to invest its
            assets in a percentage in excess of the Louisiana
            requirement for purposes of incurring the lower
            premium tax.
            
            Reinsurance

            As is customary among insurance companies, NAIL reinsures
            with other companies portions of the insurance risks it
            underwrites.  The primary purpose of reinsurance is to
            enable an insurance company to reduce the amount of its
            risk on any particular policy and to write policies in
            amounts larger than it could without such agreements.

            The two principal types of life reinsurance treaties
            commonly in use in the industry are the yearly renewable
            term ("YRT") agreement and the coinsurance agreement
            (both are explained below) by which the reinsurer accepts risk
            on an "automatic" or "facultative" basis.  Under an
            "automatic" treaty, the reinsurer agrees that it will
            assume liability automatically for the excess over NAIL's
            retention limits on any application acceptable to NAIL up
            to the amount specified in the reinsurance treaty. 
            Applications in excess of that amount would be ceded on
            a facultative basis.  Under a "facultative" treaty, the
            reinsurer retains the right to accept or reject any
            reinsurance submitted after a survey of each individual
            application.

            Under a YRT agreement, the reinsurer establishes a 
            set premium for each $1,000 of
            risk assumed.  This premium changes each year as the age
            of the insured changes.  This contract is bought by NAIL
            from another insurance company.  Under coinsurance, the
            reinsurer is paid the same premium rate
            charged by the issuing insurance company for each $1,000
            of risk assumed, and a percentage of this 
            premium rate is returned to the issuing insurance
            company as commissions.  Coinsurance allows insurance
            companies to effectively share risk, premiums and
            statutory reserves.

            The effect of reinsurance is to transfer a portion of the
            risk, as well as a portion of the profit, if any, on the
            insurance ceded to the reinsurer.  Even though a portion
            of the risk may be reinsured, NAIL remains liable to
            perform all obligations of its policies 
            and is liable if its reinsurer should be unable to
            meet its obligations under the reinsurance agreements.

            NAIL reinsures life insurance coverage above $50,000
            on any one life. 
            Health insurance benefits in excess of $25,000 (other
            than alternative benefit option policies, for which the
            limit is $50,000) for any one individual during any
            contract year are reinsured.  NAIL reinsures all
            accidental death benefit risks written.

            As of December 31, 1996, approximately $37,459,000 in
            face amount of life insurance and $19,966,000 of
            accidental death benefits were reinsured by NAIL.

            The principal reinsurers utilized by NAIL are Optimum Re,
            Business Men's Assurance, Cigna Re, Continental
            Assurance, Employer's Reassurance, ERC Life, Phoenix
            Home Life and Reliastar Life Insurance Company.  
            Each of these  companies carries a Best's
            rating of A or better, except for Optimum Re, which is
            rated A-.  Management believes that the financial
            condition of each of these companies is more than
            adequate to carry the amounts of reinsurance ceded to
            them.

            Effective December 31, 1995, NAIL and Maryland Southern
            Life Insurance Company (MSLIC) entered into a coinsurance
            agreement whereby MSLIC assumed 80% of all the life
            insurance business retained by NAIL.   This agreement was
            terminated December 31, 1996 and the ceded business was
            recaptured by NAIL.

            Reserves

            NAIL has had an actuary compute the amount of reserves it needs to
            meet its anticipated obligations on its policies.
            These reserves are based on industry standard
            interest rates, mortality and policy withdrawal assumptions,
            and provide for the possibility of more adverse circumstances.  
            The liability for cash values of
            interest-sensitive and annuity products is accumulated
            based on rates stated in the policies, which are subject to
            periodic adjustment.  The reserves reported in statutory
            filings, which are reports filed with state insurance departments,
            are calculated on a basis that meets the requirements
            of Louisiana law.

            Regulation

            General

            All life insurance companies, including the Company's
            life insurance subsidiary NAIL, are subject to extensive
            regulation, supervision and licensing by state
            authorities.  These regulatory agencies have broad
            authority to review and to regulate the activities of
            life insurance companies such as NAIL and in certain
            instances the activities of the Company as an insurance
            holding company.   There can be no assurance that more
            restrictive laws or regulations will not be adopted or
            that regulatory review and oversight regarding existing
            laws and regulations may not increase with respect to the
            Company or NAIL, which could make compliance in the
            future more difficult or more expensive.  Legislative and
            regulatory proposals are frequently advanced which, if
            adopted, could adversely affect the Company's
            profitability or the manner in which the Company conducts
            its activities.         

            State Regulation of Insurance Companies

            NAIL is subject to regulation by the State of Louisiana,
            its state of domicile, and the other states in which it
            transacts business. The laws of such states are designed
            for the protection of policyholders rather than
            securityholders.  The Company and its wholly- owned
            subsidiary,  NAIL, are members of a holding company
            system in Louisiana. All transactions within a holding
            company system affecting insurers must be both reasonable
            in relation to its outstanding liabilities and adequate
            for its needs. State laws also require prior notice or
            regulatory agency approval of changes in control of an
            insurer or its holding company and of material
            intercorporate transfers of assets within the holding
            company structure.  Generally, under insurance holding
            company statutes, a state insurance authority must
            approve in advance the direct or indirect acquisition of
            10% or more of the voting securities of an insurance
            company chartered in its state.  According to such
            regulations, the  State of Louisiana Insurance Department
            approved, in October 1996, the acquisition of shares of
            common stock of the Company by The Southern Group, Inc.
            ("TSG").  See "Related Party Transactions."

            The laws of the various states establish regulatory
            agencies with broad administrative powers to approve
            policy forms, grant and revoke licenses to transact
            business, regulate trade practices, license agents, and
            prescribe the type and amount of investments permitted. 
            Insurance companies are required to file detailed annual
            statements with the state insurance regulators in each of
            the states in which they do business, and their business
            and accounts are subject to examination by such agencies
            at any time. In addition, insurance regulators
            periodically examine the insurer's financial condition,
            adherence to statutory accounting practices, and
            compliance with insurance department rules and
            regulations.  As part of their routine regulatory
            oversight process, state insurance departments conduct
            detailed examinations periodically (generally once every
            three years) of the books, records and accounts of
            insurance companies domiciled in their states. Such
            examinations are generally conducted in cooperation with
            the departments of two or three other states under
            guidelines set by the National Association of
            Insurance Commissioners ("NAIC").  In accordance with the
            insurance codes in the states in which it operates and
            the rules and practices of the National Association of
            Insurance Commissioners, NAIL is examined periodically by
            examiners from the Louisiana Insurance Department and by
            representatives (on an "association" or "zone" basis) of
            the other states in which it is licensed to do business. 
            NAIL has been examined through the end of 1994.

            During the first quarter of 1997, the Louisiana Insurance 
            Department began a review of the assets and operations of NAIL.
            In connection with that review, the
            Louisiana Insurance Department reviewed the transaction
            in which TSG acquired control of the Company,
            including individual assets transferred to the Company by
            TSG and by the Company to NAIL.  During the course of
            this regulatory examination, Company management agreed to
            increase the liquidity of the asset portfolio of NAIL, 
            by causing the Company, as the parent corporation of NAIL,
            to reacquire for $1,350,000 in cash, certain long-term mortgage 
            notes and corporate securities held by NAIL and to agree to 
            acquire an additional mortgage note of $475,000 on or before
            July 31, 1997.  The result of this was to provide additional 
            cash assets to NAIL, thereby increasing its liquidity and reducing 
            the average maturity of its investment portfolio.  To obtain 
            additional cash for this portfolio reorganization, the Company 
            sold convertible debentures.  See "Debenture."  

            As a part of this portfolio reorganization
            and regulatory review, NAIL appointed an investment
            committee to be responsible for all aspects of asset
            acquisition and disposition, including continued
            compliance with applicable governmental regulations. NAIL also
            amended its applicable governmental filings to reflect
            accurately the change of control of the Company through
            acquisition of common stock by TSG and the results of the
            reacquistion transaction. The Company anticipates that
            its portfolio management activities and other business
            operations will continue to be reviewed by the Louisiana
            Insurance Department.  The Company does not anticipate
            that any such reviews or examinations will  adversely
            affect the business or operations of the Company.

            Due to the decline in surplus and operating losses
            suffered by NAIL in 1996 and past years, NAIL was
            notified during 1996 that its certificates of authority
            to sell insurance were suspended in the states of
            Alabama, Tennessee and Wyoming.  The principal result of
            these regulatory actions was to suspend the authority of
            NAIL to sell new insurance policies in these states,
            although NAIL is authorized to continue to collect
            premiums and provide coverage with respect to existing
            policies in such states. NAIL believes that the
            suspension of these state licenses and the resulting
            suspension of sales of new policies have not had a
            material adverse effect on the revenues of  NAIL. 
            Following the recent addition of capital to NAIL from the
            sale of the Company's common stock to TSG, NAIL has
            commenced the regulatory processes to request that these
            suspended licenses be reinstated and believes that these
            licenses will be reinstated.  

            Federal Regulation of Insurance Companies

            Although the federal government generally does not
            directly regulate the insurance business, federal
            initiatives often have an impact on the business in a
            variety of ways. Current and proposed federal measures
            that may significantly affect the insurance business
            include limitations on antitrust immunity, minimum
            solvency requirements and the removal of barriers
            restricting banks from engaging in the insurance and
            mutual fund business. 

            Competition

            The life and health insurance industry remains highly
            competitive.  Many of the larger competitors offer a
            broader line of insurance policies, including variable
            products, have larger distribution organizations and are
            highly capitalized.  For NAIL to compete in the industry,
            the Company has had to target certain niche markets in
            which management feels it can distribute and service in
            a profitable manner.  The pricing of the products offered
            in these niche markets is competitive with other
            companies also marketing in the targeted markets.

            Life insurance companies are not the only competition
            that NAIL must contend with for market share.  Security
            brokerage operations and banks are now entering into the
            industry.  Competition from these financial institutions
            and other insurance companies is strong.  The rates of
            return offered on interest sensitive products are subject
            to a 4% minimum per year, with excess interest accrued
            according to a quarterly determined rate based on the
            Salomon Brothers Index of the estimated yield on
            new-issue, long-term AAA rated industrial bonds.  The
            policies allowed NAIL to change this rate formula after
            July 1, 1996, but no changes have been made.

            NAIL must compete with other insurers to obtain agents to
            sell NAIL's products.  NAIL had been limited in its
            ability to contract qualified agents by ineffective
            efforts to develop a viable portfolio of insurance
            products during the period from 1986 to 1991.  While
            management believes that NAIL has benefitted in the last
            two years, and will continue to benefit from trends in
            the industry, which include a decreasing focus by larger
            insurers on the markets targeted by NAIL, NAIL will
            continue to face stiff competition from other insurers in
            these markets.  During 1994, NAIL shifted its focus on
            agent recruitment to the development of relationships
            with a smaller number of managing general agents, who
            bring access to larger numbers of subagents.  

            Litigation

            NAIL is from time to time involved in pursuing and
            defending claims made by beneficiaries of its insurance
            policies and disputes with its agents.  While NAIL
            reinsures coverage risks as described elsewhere herein,
            NAIL retains the risk of any other damages, including
            punitive damages, that might be assessed from the failure
            of NAIL to pay a disputed claim.  The legal climate
            existing today has encouraged claimants to pursue
            punitive damage claims, and the exposure of defendants,
            including NAIL, to such claims introduces substantial and
            unpredictable elements of risk into their business.  NAIL
            has pending against it several claims for denial of
            benefits which also request unspecified punitive damages. 
            Were any of such claims to succeed, NAIL s operations
            could be impaired or the resulting loss of capital and
            surplus could lead to regulatory action.  NAIL believes
            it has valid defenses to all pending claims and is
            vigorously contesting them.  See Item 3, "Legal
            Proceedings."

            Employees and Agents

            At December 31, 1996, NAC and its subsidiaries had 13
            permanent employees, of whom two are located in  remote
            marketing offices.

            Insurance policies are sold by approximately 400 licensed
            agents.  The agents are independent contractors and are
            compensated on a commission basis.  The commissions paid,
            along with a sales incentive bonus, are believed by
            management to be competitive with other life insurance
            companies.  NAIL faces considerable competition in
            recruiting qualified agents.  As a result, NAIL seeks to
            recruit agents from its targeted geographic markets and
            retrain them to sell its products effectively in its
            niche markets.

            Administrative Services Agreements

            On April 9, 1996, NAIL entered into a Master Services
            Agreement with Transaction Applications Group, Inc.
            ("TAG") to provide certain third party administration
            services including policy administration and policy
            accounting.  During 1996, NAIL paid to TAG $91,000 for
            such services.

            On September 1, 1996, NAIL entered into an Administrative
            Services Agreement with Pat Haney and Son Administrators,
            Inc. ("HSA") to provide certain third party
            administration services including policy administration
            and policy accounting with respect to the Native American
            Health and Welfare Trust and New Mexico Health Industries
            Health Benefit Trust.  During 1996, NAIL paid to HSA
            $17,000 for such services.

            The use of these third party administrators allowed NAIL
            to reduce its full-time staff and office space
            requirements and computer expenses.  Implementation of
            the third party administrative service agreements
            resulted in one-time conversion expenses of $70,000.  The
            Company anticipates that the full benefit of the expense
            reductions will be realized during 1997.

Item 2:     Properties

            NAC and all of its subsidiaries lease office space from
            England Economic and Industrial Development District. The
            two-year lease is for 4,016 square feet at an annual
            rental rate of $24,369 to expire in May, 1998.

Item 3:     Legal Proceedings

            From time to time, the Company and NAIL are
            involved in lawsuits related to their operations.  In
            most cases, such lawsuits involve claims under insurance
            policies of NAIL or other contracts of the Company. 

            NAIL has outstanding two lawsuits related to
            claims by purchasers of the FLA 100 founders policies.
            NAIL issued more than 14,000 individual FLA-100 founders
            policies from 1984 to 1988.  At December 31, 1996, approximately
            1,200 of these policies remained in force of which 
            approximately 600 were premium paying.  These founders 
            policies were participating life policies that paid a dividend
            to policyholders.  According to the terms of the policy,
            NAIL was not required to pay dividends after the third
            anniversary date of each policy.  While NAIL did pay dividends
            during the required three anniversary dates on each policy, in
            1992, NAIL ceased paying dividends with respect to any
            FLA-100 policies.  In Landreneau, et. al. v.
            NAIL,  the plaintiff filed a lawsuit in Louisiana's 13th
            Judicial District Court on May 10, 1995, alleging breach
            of contract and fraud regarding the sale of an FLA 100
            founders policy.  The plaintiff had purchased six units of
            coverage and paid for renewal for a total of five years
            on these policies.  The trial court rendered a judgement in favor
            of the plaintiff in the approximate amount of $34,000, less the 
            cost of insurance, which is approximately $7,000, plus interest. 
            This judgement was in general computed as the amount of premiums
            paid less the value of the life insurance coverage provided
            plus attorneys' fees.  This judgement was affirmed by
            the Third Circuit Court of Appeals of the State of Louisiana 
            and NAIL filed an appeal with the Supreme Court of the State 
            of Louisiana.  On May 9, 1997, the Supreme Court of the State of
            Louisiana denied the request of NAIL to hear an appeal of this
            matter.  Accordingly, NAIL will be required to pay the amount
            of the judgement entered by the trial court.  A
            separate lawsuit, Classert, et. al. v. NAIL, et. al.,
            filed in the 18th Judicial District Court, on August 26, 1996,
            also relates to the FLA 100 founders policies.  Five plaintiffs
            asserting to represent the class of persons that purchased FLA 100
            founders policies allege fraudulent sales practices by
            former employees of NAIL and are seeking  unspecified
            damages.  NAIL opposes the certification of these plaintiffs as
            representatives of the class of persons that purchased FLA-100
            policies and intends to continue to vigorously oppose such
            certification and otherwise to defend this case.  Although
            discovery has begun in the Classert case there remain significant
            procedural matters to be resolved and significant additional
            discovery before NAIL will be able to make an accurate prediction
            of the likely outcome of this case.  Based on the best estimates
            of the schedule for resolving the procedural and discovery
            matters in connection with this case, management believes that
            the issue of whether the case will proceed as a class action
            will be heard by the trial court in the third or fourth quarter
            of 1997 with a possible trial date not set until late 1998 or mid
            1999.  If the court certifies a class of persons including a
            significant number of the former FLA-100 policyholders and 
            a judgement is rendered in favor of such a class of plaintiffs,
            such an adverse judgement would have a material adverse effect on
            NAIL.  

            The Company and NAIL are defendants in four separate lawsuits 
            related to a common series of events regarding a health policy
            issued in Alabama: Johnson v. NAIL, Thomas v. NAIL,
            Gooden v. NAIL, Allen v. NAIL.  These cases, which have
            been consolidated for purposes of discovery, relate to
            claims regarding alleged misrepresentations by an agent
            to employees of a garment plant in Greensboro, Alabama,
            regarding the cost of health insurance policies. 
            Although NAIL believes that the amount of compensatory
            damages based on the total amount of premiums paid by each
            plaintiff is likely in the range of $1,000 per plaintiff,
            the plaintiffs have made claims for punitive damages.  The 
            Johnson, Thomas and Gooden cases were filed by individual 
            plaintiffs.  The Allen case includes as plaintiffs, approximately 
            50 employees of the garment plant.  NAIL believes
            that not all of the plaintiffs in the Allen case paid any
            policy premiums or were included in the policies.  NAIL
            is vigorously defending these cases and does not
            anticipate that a resolution of these outstanding
            lawsuits and claims will result in any additional
            material impact on the financial condition of the
            Company.

            In a lawsuit styled Newsome v. NAIL, et. al., filed in
            the Jefferson County Circuit Court in Alabama, the
            plaintiff alleges breach of contract, fraud and related
            causes of action based on the alleged failure of NAIL to
            provide coverage under a short-term medical policy.  The
            plaintiff has claimed approximately $30,000 in medical
            expenses and has requested other unspecified claims
            including a claim for punitive damages.  This claim
            arises from an agent that was not a licensed agent of
            NAIL allegedly failing to cause timely delivery to NAIL
            of the plaintiff's insurance policy application and
            premium payment during the required 30 day application
            period, and the subsequent denial by NAIL to provide
            coverage for claims related to injuries sustained by the
            plaintiff before an application was delivered to NAIL's
            home office.  NAIL is vigorously defending this suit and
            does not anticipate that a resolution of this outstanding
            lawsuit and claim will result in any additional material
            impact on the financial condition of the Company.

            The Company and NAIL have other outstanding lawsuits as well as
            other claims that arise in the ordinary course of business. 
            Even though the Company and NAIL may be contesting the validity 
            or extent of its liability in reponse to such lawsuits, the
            Company has established reserves in its consolidated financial
            statements that approximate its estimated potential liability.  
            Included in the financial statements is a total reserve of 
            $322,000 that has been established with respect to all of the 
            lawsuits and claims against the Company and NAIL.  In establishing
            this reserve, management has taken into account the facts and 
            circumstances of each case, the advice of counsel, the availability
            of insurance coverages and other factors deemed by them to be 
            relevant.

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

            None.

                             PART II

Item 5:     Market for Registrant's Common Equity and Related 
            Stockholder Matters
 
            (a)Market Information.

                 The Common Stock is traded in the over-the-counter
                 market.  The following represents the high and low
                 bid prices of the Common Stock during the noted
                 periods:
<TABLE>
             <S>               <C>                  <C>
                               High Bid             Low Bid
             1996
             First Quarter     $  1.00              $   .375 
             Second Quarter       1.64                 1.12 
             Third Quarter       2.250                 1.125
             Fourth Quarter      2.125                 1.125

             1995
             First Quarter     $  .125              $   .125
             Second Quarter       .125                  .03125
             Third Quarter        .125                  .0625
             Fourth Quarter       .500                  .0625
</TABLE>
            This information was obtained from the National Quotation
            Bureau.  The quotations reflect inter-dealer prices,
            without retail mark-up, mark-down or commission and may
            not represent actual transactions.

            (b)Holders.

                 As of March 31, 1997, there were 14,000,000
                 authorized and 8,765,415 issued and outstanding
                 shares of Registrant's Common Stock, no par value,
                 held of record by 3,483 persons.

            (c)Dividends.

                 Registrant has not paid any cash dividends to date. 
                 The Registrant does not have any plans to issue any
                 cash dividends in the reasonably foreseeable
                 future.  

Item 6:     Management's Discussion and Analysis of Financial
            Condition and Results of Operations

            Management's  discussion and analysis reviews the
            consolidated  financial condition of NAC at December 31,
            1996 and 1995, the consolidated  results of operations
            for the years ended December 31, 1996 and 1995, and,
            where  appropriate, factors that may affect future
            financial performance.  This discussion should be read in
            conjunction with the  accompanying  consolidated 
            financial  statements, notes thereto and selected
            financial data.

            The Company cautions readers regarding certain
            forward-looking statements contained in the  following 
            discussion  and elsewhere in this report and in any other
            statements made by, or on behalf of, the Company, whether
            or not in future filings with the Securities  and
            Exchange  Commission  ("SEC").  Forward-looking
            statements are statements  not based on historical 
            information.  They relate to future  operations, 
            strategies,  financial  results or other  developments. 
            In particular,  statements using verbs such as "expect,"
            "anticipate," "believe" or similar words  generally 
            involve  forward-looking  statements.  Forward-looking
            statements  include  statements that represent the
            Company's beliefs  concerning future  or  projected 
            levels  of sales of the  Company's  products,  investment
            spreads or yields, or the earnings or profitability of
            the Company's activities. 

            Forward-looking  statements are
            based upon estimates and assumptions that are subject to
            significant  business,  economic and  competitive 
            uncertainties, many of which are beyond the Company's
            control and are subject to change.  These uncertainties
            can affect actual results and could cause actual results
            to differ materially from those expressed in any
            forward-looking statements made by, or on behalf of, the
            Company.  Whether or not actual  results differ 
            materially  from forward-looking  statements may depend
            on numerous foreseeable and unforeseeable events or
            developments,  some of which may be national in scope,
            such as general economic  conditions and interest rates. 
            Some of these events may be related to the  insurance 
            industry  generally,  such as  pricing  competition, 
            regulatory developments   and  industry   consolidation. 
             Others  may  relate  to NAC specifically,  such as
            credit,  volatility and other risks  associated  with the
            Company's investment portfolio,  and other factors. 
            Investors are also directed to consider other risks and
            uncertainties  discussed in documents filed with the SEC.
            NAC disclaims any obligation to update forward-looking
            information. 

            The Company issues life and accident and health insurance
            policies to customers in targeted niche markets in urban
            and rural areas.  The Company's principal life insurance
            products include universal life, interest sensitive whole
            life, adjustable premium whole life, and term insurance,
            which targets middle income ($25,000-$75,000) families,
            senior citizens and government employees.  The Company's
            principal accident and health insurance policies include
            a group major medical policy, an association and group
            hospital and surgical policy and a supplemental
            alternative benefit option policy, which target middle
            income consumers who do not participate in other full
            coverage major medical policies, as well as participants
            in group plans who desire supplemental coverage. (See
            "Business - Products" for a more detailed description of
            the Company s insurance products.)

            The Company's history of operating losses is a direct
            result of a high level of operating expenses in relation
            to the premium income.  A contributing factor to the
            losses was the failure to develop viable insurance
            products or a stable field force of agents.  Management's efforts
            to build a portfolio of life and accident and health
            products and to improve and expand its field force 
            has been hampered by NAIL's limited capital and surplus.

            On January 15, 1996, a definitive Stock Purchase
            Agreement was signed with The Southern Group whereby the
            Company would sell 10,335,045 shares of authorized but
            unissued shares and treasury stock to The Southern Group
            for approximately $6.8 million.  The stock sale to The
            Southern Group was approved by the Louisiana Insurance
            Department on October 31, 1996 and an initial closing
            occurred on December 31, 1996.  The initial closing
            consisted of the completing of the sale of 5,435,928
            shares of stock to The Southern Group for $3.5 million in
            securities and other assets.  This sale resulted in The
            Southern Group acquiring 63% of the stock in the Company. 
            The Southern Group continues to have the right to
            purchase the remaining 4,899,117 shares to total the
            10,335,045 in the original purchase agreement.  Pursuant
            to an amendment to the Stock Purchase Agreement between
            the Company and The Southern Group, the right of The
            Southern Group to acquire additional shares is
            subordinated to the right of the holders of the Company's
            convertible debentures to convert such debentures into
            shares of common stock and the dates upon which rights of
            The Southern Group to acquire shares have been extended
            by an additional 90 days.  Each month the price at which
            the shares are sold to The Southern Group increases by an
            additional five cents per share. The prices at which The
            Southern Group has the right to acquire each share are
            $0.80 during April, $0.85 during May, $0.90 during June
            and $0.95 during July.  On July 31, 1997, the right of
            The Southern Group to acquire additional shares of common
            stock of the Company pursuant to the amended Stock
            Purchase Agreement terminates.

            Debenture

            The Company also issued a convertible debenture totaling
            $1.5 million on May 21, 1997.   The proceeds of the
            debenture offering were used by the Company to pay the
            cost of the distribution of the debentures and to acquire
            approximately $1,350,000 of mortgage notes and other
            securities from NAIL and for the general working capital
            of NAIL.

            The terms of the debenture offering are as follows:

            Maximum amount of debentures offered:     $2,500,000
            Interest Rate:                            4 %
            Maturity:                                 April 1, 1999
            Conversion Feature:                       Convertible at
                                                      holder's option
                                                      into shares of
                                                      common stock of NAC

            Each holder of the debenture is entitled, at its option,
            to convert at any time commencing forty-five (45) days
            after the closing of the sale of the debenture.  The
            principal amount plus accrued interest on the debenture
            is converted into shares of the Company's common stock.
            The conversion price shall equal the lesser of (a) $4.00
            per share or (b) 80% of the Market Price on the
            Conversion Date. The Market Price is the average closing
            bid price of the common stock on the five (5) trading
            days immediately preceding the Closing or Conversion
            Date, as may be applicable, as reported by the National
            Association of Securities Dealers, or the closing bid
            price on the over-the-counter market on such date or, in
            the event the common stock is listed on a stock exchange,
            the Market Price shall be the closing price on the
            exchange on such date, as reported in the Wall Street
            Journal.  Interest accrued or accruing from the date of
            issuance to the date of conversion shall, at the option
            of the holder, be paid in cash or common stock upon
            conversion. 

            According to the terms of the debenture, the Company
            agreed to pay certain penalties and liquidated damages to
            the holders of the debentures for any delay in the
            delivery of any certificates representing shares of
            common stock of debenture holders that converted
            debentures into shares of common stock.   The Company
            also agreed to register for resale any of the shares of
            common stock of converting debenture holders if such
            shares are not freely tradeable under applicale federal
            securities laws.  A copy of the debenture is attached as
            Exhibit 10(h).
       
            Financial Conditions

            The Company's assets at December 31, 1996, totaled
            $9,280,615 as compared to $9,635,826 on December 31,
            1995.  The liabilities totaled $5,422,283 and $6,905,189
            on December 31, 1996 and 1995, respectively. 
            Stockholder's equity increased to $3,858,332 at December
            31, 1996, from $2,730,637 at December 31, 1995.  In 1996
            the Company had a net operating loss of $1,737,588. 
            Investments with fixed maturities available for sale at
            market decreased from $3,555,962 to $1,227,902 during
            1996 in part as a result of the Company selling
            securities to fund operations.  As a result of the
            continuing losses and a need for funding beyond the cash
            flow of the Company, the Company began to seek additional
            capital infusions.  During 1996, the  Company issued
            5,279,887 shares of common stock which added $3,428,102
            to the net equity of the Company.  Mortgage loans and
            collateral loans totaling $1,425,000 and $881,822
            respectively, as reflected on the balance sheet, were
            part of proceeds received from the issuance of the NAC
            common stock. The remainder consisted of publicly-traded
            common stocks and investment grade bonds.

            The decrease in reinsurance recoverable from $2,759,921
            at year end 1995 to $679,623 at December 31, 1996, is the
            result of the ceding of life insurance totaling
            $1,866,475 to Maryland Southern Life in 1995 and the
            recapture of the business in 1996 totaling $1,859,964. 
            The $2,139,330 other amounts receivable consists for the
            most part of $1,859,964 due from Maryland Southern Life
            for the recapture of the coinsurance business at December
            31, 1996.  The ceding of life insurance totaling
            $1,866,475 to Maryland Southern Life at December 31,
            1995, resulted in a payable on the Company's books at
            December 31, 1995, which was included in the $2,088,754
            liability captioned accounts payable and accruals.  This
            liability decreased to $301,464 at December 31, 1996.

            Results of Operations

            1996 Compared to 1995

            The Company had a net loss for 1996 of $1,737,588
            compared to a loss of $1,555,451 for  1995.  The loss per
            common share was $.49 for 1996 and $.47 for 1995.  Total
            revenues decreased from $3,142,782 in 1995 to $2,379,050
            in 1996.  Premium revenues as shown below decreased to
            $1,879,452 in 1996 from $2,727,313 in 1995.

<TABLE>
        <S>                            <C>                  <C>
                                           Year Ended December 31,
                                         1996                  1995

        Life premium                   $   976,271          $1,671,765
        Life reinsurance premium          (604,730)           (273,819)
        Accident and health premium      1,680,305           1,442,425
        A&H reinsurance premium           (172,394)           (113,058)
       
        Total premium revenues         $ 1,879,452          $2,727,313
</TABLE>
            The decline in life premiums is attributable to
            continuing lapses of FLA-100 policies.  The FLA-100
            participating life policies were the primary policies
            sold from 1984 to 1988.  The Company ceased paying
            projected dividends on these policies in 1992 when the
            Board of Directors determined the projected dividend to
            be excessive.  This action caused the lapse rate of these
            policies to increase substantially.  Sales of life
            products did not increase as planned during 1995 and 1996
            as the Company focused more on its recapitalization plan. 
            When the Company did not continue to stress marketing and
            recruiting in 1995 and 1996, the sale of new life
            business decreased.

            Effective December 31, 1995, NAIL and Maryland Southern
            Life Insurance Company (MSLIC), a wholly-owned subsidiary
            of The Southern Group, entered into a coinsurance
            agreement whereby MSLIC assumed 80% of all the life
            insurance business retained by NAIL resulting in a
            reserve transfer to MSLIC in the amount of $1,866,475. 
            MSLIC paid the Company a ceding commission in the amount
            of $373,295 for a net decrease to premium revenues of
            $1,493,180.  This agreement was terminated December 31,
            1996, and all business was recaptured by NAIL.

            TSG has elected to utilize a $387,000 coinsurance
            recapture fee as a pro rata reduction in price of options
            to be exercised in the future.

            The increase in the accident and health premium is the
            result of adding additional new members to the New Mexico
            group business.  Management expects this business to
            continue to expand in 1997.

            The Company claims and benefits amounted to $1,520,601
            for 1996 as compared to $1,376,242 in 1995.  The
            following schedule reflects the claims and other
            benefits:
<TABLE>
     <S>                            <C>                   <C>
                                      1996                  1995
     
     Life benefits                  $   61,442            $  500,300
     Accident and health benefits    1,459,159               875,942
     Total benefits                 $1,520,601            $1,376,242
</TABLE>

            The large amount of accident and health (A & H) claims
            resulted from the operations of the New Mexico Group. 
            The Company expects the A & H claims will remain high,
            but premiums will be increased by 20% in 1997.

            Commission expense decreased during 1996 primarily as a
            result of decreased life insurance sales and a lower
            commission rate on the New Mexico Group A & H business.
            The composition of commission expense was as follows:


<TABLE>
    <S>                            <C>                   <C>
                                     1996                  1995

    Life commissions               $ 146,641             $ 338,034
    Accident & health commissions    150,639               389,332

     Total                         $ 297,280             $ 727,366
</TABLE>

         Salaries and other operating expenses increased to
         $2,367,460 in 1996 from $2,128,734 in 1995. The Company
         expects a decrease in salaries and other operating
         expenses in 1997.  The Company has moved its offices and
         decreased its rent, utility and maintenance costs.  The
         Company has downsized its office staff and outsourced its
         computer and policy administrative services.  This should
         result in a substantial decrease in 1997.  Management is
         continuing to evaluate operations to further reduce
         operating costs.

         Amortization of deferred policy acquisition costs
         decreased to $(544,583) in 1996 from $797,752 in 1995. 
         Due to the reinsurance contract with Maryland Southern
         Life, the Company was required to write off 80% of the
         deferred acquisition costs on the business, which was 80%
         reinsured.  When the agreement was canceled at December
         31, 1996, the DAC was also recaptured.  The amortization
         of deferred acquisition costs is allocated between life
         and health as follows:

<TABLE>
     <S>                            <C>                  <C>
                                       1996                 1995

     Life                           $(617,727)           $777,662
     Accident and health               73,144              20,090
               

     Total                          $(544,583)           $797,752
</TABLE>

          Liquidity and Capital Resources

          The liquidity requirements for the Company's operations
          generally arise from the insurance operations of NAIL and
          the administrative activities of NAC, and include payment
          of claims  to policyholders, payment of commissions and
          other costs of acquiring new business, payment of
          operating costs, and payment of cash values upon
          termination of policies.  These demands have generally
          been met by NAIL with funds generated by its operations,
          from its reserves and liquid assets, and from capital
          contributions by NAC.  NAC has funded its operations
          through management fees charged to its subsidiaries,
          including NAIL.  NAIL is prohibited by Louisiana law from
          paying any dividends to NAC other than from statutory
          profits.

          Statutory losses over the last few years by NAIL have had
          a substantial negative impact on the amount of its
          surplus.  Due to the decline in surplus and continual
          operating losses, NAIL was notified during 1996 that its
          licenses were suspended in the states of Alabama,
          Tennessee and Wyoming.  With the stock purchase by The
          Southern Group, the Company contributed $2,766,913 to
          NAIL's surplus at December 31, 1996.   According to the
          statutory statement filed, this enabled NAIL to end 1996
          with $2,669,157 in capital and surplus. 

          On May 21, 1997 NAC issued $1,500,000 in convertible
          debentures of which $1,350,000 were used to repurchase
          from NAIL certain mortgage notes and securities.

          Acquisition of Life Insurance Companies

          The Company's business plans will focus on growth through
          the acquisition and consolidation  of other life
          insurance companies.  The Company plans to seek to
          acquire undervalued life insurance companies in the $2 to
          $50 million equity range. This acquisition strategy will
          require acquisition candidates, evaluation, acquisition
          finance, and regulatory approvals.  The Southern Group
          has implemented a program of identifying potential
          acquisition candidates and the Company  intends to review
          acquisition opportunities presented by The Southern
          Group. 

          The Southern Group signed a strategic alliance with
          Conseco Capital Management (CCM), an asset management
          company with $29 billion of assets under management,  to
          provide assistance in the evaluation of the assets of
          life insurance companies identified by The Southern Group
          or the Company.

          The Company plans to rely on its controlling stockholder,
          The Southern Group,  to implement financing for
          acquisitions. This will include prudent amounts of senior
          debt, acquisition partnerships, a preferred stock issue,
          and the limited use of the Company's common stock. 

          Two new principals of NAC have extensive insurance
          experience:  Michael J. Dugan, Director, former Director of 
          Insurance - State of Nebraska (see resume) and Edward J. Birrane, 
          Executive Vice President , former Commissioner of Insurance - 
          State of Maryland (see resume).


Item 7:   Financial Statements and Supplementary Data

          Attached following the Signature Pages and Exhibits.

Item 8:   Changes in and Disagreements with Accountants on
          Accounting and Financial Disclosure

          None.

                             PART III

Item 9:   Executive Officers and Directors of the Registrant

       Name                      Age                     Position

Benjamin P. Wall(1)(2)(3)(4)(5)   53           Chairman of the Board
T. Brent Chapel, CPA (6)          50           Vice Chairman, Chief Financial
                                                   Officer
Ira L. Gottshall, FLMI (7)        39           President, Chief Executive 
                                                   Officer and Director
Edward J. Birrane, Esq.           61           Executive Vice President
Clayton A. Carney, FLMI           57           Vice President and Chief 
                                                   Operating Officer
Jayne Davis Chapel (6)            40           Secretary
Michael J. Dugan, Esq.            59           Director
Mary K. Descant, FLMI             38           Treasurer
Susan A. Davis                    50           Director
Robert W. Chapel, CPA             40           Director
Sidney C. Shaw, II                50           Director
Robert F. Meredith, III (1)(2)(4) 45           Director
G. Vaughn Walton                  48           Director
Bobby Williams (1)(3)(4)(5)       67           Director
Dan Van Wormer (1)(3)             54           Director

(1) Member of Executive Committee
(2) Member of Nominating Committee
(3) Member of Compensation Committee
(4) Member of Audit Committee
(5) Member of Investment Committee
(6) Was elected to office in June 1997
(7) Was elected to office of President in June 1997

          Benjamin P. Wall.   Mr. Wall joined the Board of
          Directors of the Company in May 1990 and has served as
          Chairman of the Board since June 1991.  Mr. Wall is also
          President of Paul Wall Farm Service Center, Inc.,
          President of Cenla Computers, Inc., Vice President of
          Mid-State Elevator, Inc., and Vice President of Paul Wall
          Truck Line, Inc., and is a former Board member of
          Louisiana Agriculture Industries Association.  Mr. Wall
          studied Agri-Business at Louisiana State University.

          T. Brent Chapel, CPA.   Mr. Chapel joined the Board of
          Directors in March 1996 and was elected Vice Chairman in
          January 1997.  He was elected Chief Financial Officer in
          June 1997.  Mr. Chapel is Chairman of The Southern
          Group, Inc., a  life insurance holding company in
          Maryland. The Southern Group is the controlling
          stockholder of National Affiliated Corporation. Mr.
          Chapel also serves on the Board and is Chairman of
          Maryland Southern Life Insurance Company, a Maryland
          domiciled life insurance company. He is a Director of
          Delmay Energy Corporation, a Canadian public company, and
          Badger Drilling Inc., a privately-held environmental
          drilling company in Virginia.  Mr. Chapel has been a
          Certified Public Accountant since 1972.  He received a
          Bachelor of Science in Accounting from Oklahoma State
          University in Stillwater, Oklahoma and a Master of
          Accountancy from the University of Georgia in Athens,
          Georgia.  Mr. Chapel is the spouse of Jayne Davis Chapel, 
          the Secretary of the Company.

          Ira L. Gottshall, FLMI.   Mr. Gottshall joined the Board
          of Directors and was elected Chief Executive Officer in
          January 1997. He was elected President in June 1997.
          He currently is a Board member and President of
          Maryland Southern Life Insurance Company, and a Board member
          and President of The Southern Group, a life insurance
          holding company in Maryland. The Southern Group is the
          controlling stockholder of National Affiliated
          Corporation. From January 1994 to December 1995, Mr.
          Gottshall was the Operations Officer for Pierce
          Financial, a  real estate and insurance firm.  From June
          1984 to December 1993 he was with First Delaware Life
          Insurance, a life insurance company domiciled in Delaware
          where he served as President and Chief Executive Officer
          from 1991 to December 1993.  Mr. Gottshall was President
          and Chief Executive Officer of  Lincoln Liberty Life
          Insurance Company from January 1993 to January 1994. Mr.
          Gottshall will serve on the Company's Compensation
          Committee and Executive Committee.  He also serves as a
          Board member for Regency Equities Corp. Mr. Gottshall
          received a Bachelor of Science from the University of
          Shippensburg, Shippensburg PA.

          Edward J. Birrane, Esq.  Mr. Birrane was elected 
          Executive Vice President of Acquisitions in January 1997.
          Mr. Birrane is also a Board member and  Executive Vice President of
          Acquisitions for the board of The Southern Group, the controlling
          stockholder of National Affiliated Corporation. Mr.
          Birrane serves on the Board and is General Counsel to
          Maryland Southern Life Insurance Company.  Mr. Birrane
          was Commissioner of Insurance for the Maryland Insurance
          Administration from 1976 - 1983.  He served on the
          regional Executive Committee for the National Association
          of Insurance Commissioners and chaired the Securities
          Valuation Office Oversight Committee and the Property and
          Casualty Committee. Mr. Birrane serves on the Board of
          Directors for Lexington National Insurance Corporation,
          and is General Counsel and Board member for the Flagship
          Insurance Agency. He is also Counsel to the Maryland
          Health Underwriters Association and the Baltimore Health
          Underwriters Association, and is Liaison on health
          legislative issues for the National Health Underwriters
          Association. Mr. Birrane received a Bachelor of Science
          from Loyola College, Baltimore, Maryland and a Juris
          Doctorate from the University of Maryland, College Park,
          Maryland. 

          Clayton A. Carney, FLMI.   Mr. Carney joined the Company
          in October 1993 as Vice President and Chief Operating
          Officer. Mr. Carney also serves as Vice President and
          Chief Operating Officer of NAIL and in January 1995,
          became Vice President of NAMC.  From 1980 to September
          1993, Mr. Carney was employed by United Companies Life
          Insurance Co., serving as Vice President and Chief
          Underwriter. From 1962 to 1979, Mr. Carney was employed
          by Continental Service Life Insurance Co. in various
          capacities, including Assistant Vice President and Chief
          Underwriter.  Mr. Carney attended Louisiana State
          University and also received Fellowship Diplomas from the
          Life Management Institute and from the International
          Claims Association, each located in Atlanta, Georgia.

          Michael J. Dugan, Esq.   Mr. Dugan joined the Board of
          Directors in January 1997. Mr. Dugan is also a Board member 
          and Director of Regulatory Relations for the Board, and
          General Counsel to The Southern Group, the controlling
          stockholder of National Affiliated Corporation. Mr. Dugan
          will direct regulatory relations with the state insurance
          commissioners and the National Association of Insurance
          Commissioners. He also serves as the Director of
          Insurance Law for Kennedy, Holland, DeLacy, & Svoboda in
          Omaha, Nebraska. Mr. Dugan was the Commissioner of
          Insurance for the State of Nebraska from 1983 - 1987. He
          also served as Chairman of the state Democratic Party.
          Mr. Dugan serves on the Board of Directors for the
          following companies: Farmers Union Co-operative Insurance
          Company of Nebraska, First Delaware Life Insurance
          Company, First Landmark Life Insurance Company, Lincoln
          Indemnity Company, Lincoln Liberty Life Insurance
          Company, National American Insurance Company, and Risk
          Capital Reinsurance Company.  He received a Bachelor of
          Philosophy from Notre Dame in South Bend, Indiana in 1959
          and a Juris Doctorate from Creighton University in Omaha,
          Nebraska in 1962 . 

          Mary K. Descant, FLMI.   Mrs. Descant joined the Company
          as an Accounting Supervisor in January 1986 and became
          Treasurer in August 1994.  Mrs. Descant also serves as a
          Treasurer of NAIL and NAMC.  From June 1982 until October
          1985, Mrs. Descant was a computer programmer with Delta
          Computers.  From June 1980 until January 1982, Mrs.
          Descant served as a software engineer with E Systems,
          Inc.  Mrs. Descant received a Bachelor of Science from
          Louisiana Tech University.

          Susan A. Davis.   Ms. Davis joined the Board of Directors
          in January 1997. Ms. Davis is also a Board member of and advises
          on public affairs and marketing for The Southern Group, the
          controlling stockholder of National Affiliated
          Corporation. She is a Director of Maryland Southern Life
          Insurance Company. Ms. Davis is the Chief Executive
          Officer and Board member of Susan Davis International,
          Ltd., a communications and public affairs firm
          headquartered in Washington, D.C. She has managed
          national media, public policy and political campaigns for
          20 years. Washingtonian magazine called Ms. Davis one of
          "Washington's Most Powerful Women." She is a trustee and
          the Past President of the International Women's Forum, a
          worldwide organization of 1,500 women leaders. She serves
          on the Board of Directors for The Center for Democracy,
          the National Alliance to End Homelessness, Techmatics,
          Inc., and is a Board member and Vice Chairman of the
          International Business Council. Ms. Davis was honored as
          "National Business Woman of the Year" in 1994 and "Woman
          Business Advocate of the United States" by the Small
          Business Administration. She received a Bachelor of Arts
          from the University of Wisconsin, Madison, Wisconsin. 

          Robert W. Chapel, CPA.   Mr. Chapel joined the Board of
          Directors in January 1997. Mr. Chapel is also a Director
          of The Southern Group, the controlling stockholder of
          National Affiliated Corporation. He currently is the Vice
          President of Finance for Volunteer Hospital Association,
          Inc., a healthcare alliance of 1,500 hospitals. Mr.
          Chapel was previously a manager with the Dallas office of
          Price Waterhouse, a big six CPA firm. Mr. Chapel received
          a Bachelor of Science and a Master Of Science in
          Accounting from Oklahoma State University.

          Sidney Clark "Rusty" Shaw II.   Mr. Shaw joined the Board
          of Directors in January 1997. Mr. Shaw is a Director of
          The Southern Group, the controlling stockholder of
          National Affiliated Corporation, and a Director of
          Maryland Southern Life Insurance Company.   Mr. Shaw is
          President of Shaw's Gulf, Inc., a retail sales firm
          located in Stillwater, Oklahoma, and he has held that
          position since 1971. Mr. Shaw received a Bachelor of Arts
          degree in Business Administration from Oklahoma State
          University, Stillwater, Oklahoma.
 
          Robert F. Meredith, III.   Mr. Meredith joined the Board
          of Directors of the Company and NAIL in June 1994, and
          the Board of Directors of NAMC in January 1995.  Mr.
          Meredith also serves as a Director of the Louisiana
          Independent Oil & Gas Association, the Louisiana
          Association of Business & Industry, and Caldwell Bank &
          Trust Company.  Mr. Meredith is the co-owner of Hogan
          Exploration, Inc. and Hogan Energy Corporation, which
          operates in Louisiana and Mississippi.  Mr. Meredith
          received a  Bachelor of Science from Louisiana State
          University.

          G. Vaughn Walton.   Mr. Walton joined the Board of
          Directors in March 1993 and also serves as a Director of
          NAIL and of NAMC.  Mr. Walton is the owner of Royal
          Investment Company, Inc. and co-owner of The Oil Exchange
          in Alexandria, Louisiana.  Mr. Walton received a Bachelor
          of Science from Louisiana Tech University. 

          Bobby Williams.  Mr. Williams joined the Board of
          Directors in May 1986 and also serves as a Director of
          NAIL.  Mr. Williams is the President of Williams Brothers
          Furniture & Appliance Center in Many, Louisiana;
          President of Bob Ray Williams Enterprises, a real estate
          investment firm; Managing Partner of Bobby & Ray Williams
          Partnership, a real estate and timber firm; former
          President of the Sabine Parish School Board; Director of
          Sabine State Bank in Many, Louisiana; and Commissioner,
          Sabine Parish Sales Tax Commission.  Mr. Williams
          attended Northwestern State University.

          Dan Van Wormer.   Mr. Van Wormer joined the Board of
          Directors of the Company in 1992 and also serves as a Director of
          NAMC.  Mr. Van Wormer served as Vice President and Chief
          Marketing Officer of Providian Corporation, formerly
          Capital Holding Corporation until his retirement in
          October 1994.  Mr. Van Wormer joined Capital Holding
          Corporation in 1979 and, in  addition to his current
          position, has held the positions of Vice President,
          Corporate Services and Vice President, Agency Group. 
          Prior to joining Capital Holding Corporation, Mr. Van
          Wormer served as an Underwriter, Manager of the New
          Business Department, Agent, and Vice President of Policy
          Services for People's Life Insurance Company.  Mr. Van
          Wormer, who has over thirty years of experience in the
          life insurance industry, is a Fellow with the Life
          Insurance Management Institute and a member of LIMRA's
          committee for marketing through supplemental distribution
          systems.  Mr. Van Wormer is a former member of the Board
          of Directors of Inter Company Marketing and a past member
          of the Life Insurance Conference's committee on pre-need
          marketing.  Mr. Van Wormer earned a BSBA from Prince
          Georges College.
 
          Jayne Davis Chapel.  Ms. Chapel became Corporate Secretary of
          the Company and National Affiliated Investors Life in June 1997.
          Ms. Chapel is Director of Communications for and a Board member
          of The Southern Group, the controlling stockholder of National
          Affiliated Corporation.  She is also on the Boards of Maryland
          Southern Life Insurance Company and Badger Drilling of Virginia,
          Inc.  Prior to joining the Company, Ms. Chapel was Associate
          Director of Communications for the Chemical Manufacturers
          Association.  Prior to that she worked at The White House during
          the Reagan Administration as a communications specialist.
          Ms. Chapel received a Bachelor of Arts from the University of
          Wisconsin, Madison, Wisconsin.  Ms. Chapel is the spouse of
          Mr. Brent Chapel, the Vice Chairman and Chief Financial Officer
          of the Company.

Item 10:  Director and Officer Compensation

          Director Compensation

          The Company pays its outside directors (directors who are
          not employees or officers of the Company) a director's
          fee of $200 for each board meeting attended.  Each
          director except Benjamin P. Wall has received options to
          purchase 10,000 shares of the Company s Common Stock
          pursuant to the Company s Stock Option Plan.  Mr. Wall
          received options to purchase 25,000 shares of Common
          Stock.  During the term of the Stock Option Plan, each
          new director that joins the Board of Directors will also
          receive options to purchase 10,000 shares of Common
          Stock.  See "Executive Compensation -- Stock Option Plan"
          and "Security Ownership of Certain Beneficial Owners and
          Management."  Additionally, the Company pays Mr. Wall
          $18,000 a year as compensation for his position as
          Chairman of the Board of the Company.

          Executive Compensation

          The following table sets forth the salary and bonus paid
          by the Company to the Company's former President and the chief
          executive officer of the Company.  As mentioned
          above, Benjamin P. Wall receives compensation for his
          services as Chairman of the Board.
<TABLE>
                    Summary Compensation Table         

     Name and
Principal Position     Year      Salary    Bonus    Car Allowance   401(k)
                                                                  Contribution

<S>                    <C>     <C>        <C>          <C>          <C>

Edward A. Carroll, Jr.
  Former President     1996    $ 92,000   $ 5,355      $  5,198     $ 2,760
                       1995    $ 92,000   $ 5,355      $  5,198     $ 2,760
                       1994    $ 92,000   $ 7,624      $  5,198     $ 2,760
Ira Gottshall, CEO     1996    $ 72,000

</TABLE>


          Stock Option Plan

          In January 1995, the Board of Directors of NAC adopted
          the National Affiliated Corporation Stock Option Plan,
          which provides for grants of incentive and non-qualified
          stock options to directors, officers and employees of the
          Company.  The Stock Option Plan provides for the issuance
          of up to 385,466 shares of Common Stock.  Any shares
          subject to unexercised portions of stock options that
          have terminated may be reissued under new stock option
          grants.

          The Stock Option Plan is administered by a committee of
          disinterested directors (the "Stock Option Committee"),
          which has the authority to determine who will receive
          stock options, the number of shares of Common Stock
          subject to such stock options, and the terms of such
          stock options, including the exercise price of stock
          options and any vesting periods.

          In accordance with the Stock Option Plan, the exercise
          price of stock options issued in January 1995 was set at
          $.50 per share, which the Board of Directors determined
          to be a fair market value of the common stock on the date
          of grant.  The options expire in January 2005.  The Stock
          Option Plan permits the exercise of stock options by
          delivery of shares of common stock owned by the optionee
          in lieu of or in addition to cash or by financing made
          available by the Company.

          Options granted generally vest over a two or three-year
          period, with 25% or 50% (depending on years of service)
          vested immediately upon the later of the first
          anniversary of employment or the date of grant and an
          additional 25% vesting upon each anniversary.  Non-vested
          portions will vest automatically if there is a sale of
          NAIL, a change of control of NAC, or the employee dies,
          retires due to disability or is terminated by the Company
          without cause.

          No options were issued to the individuals named in the
          executive compensation table during the last fiscal year.

          Employment Agreements

          The Company had employment agreements with each of the
          executive officers.  The employment agreements, which
          have three-year terms, were renewed by the Company in
          July 1995.  Pursuant to the terms of the employment 
          agreement with the former President of the Company, 
          the Company is obligated to pay to Mr. Carroll one year's 
          salary and benefits in the event Mr. Carroll is terminated 
          other than for cause. Other officers are each entitled to 
          six month's salary and benefits under the terms of their 
          respective employment agreements.  In June 1997, the President,
          Chief Financial Officer and Secretary were replaced.  No
          new employment contracts have been entered into by the Company.

Item 11:  Security Ownership of Certain Beneficial Owners and Management

          The following table sets forth certain information
          regarding the beneficial ownership of the Company's
          outstanding common stock as of March 31, 1997 by each
          director of the Company, each executive officer named in
          the executive compensation table and all officers and
          directors as a group.
<TABLE>
            Name of             Number of Shares        Ownership
       Beneficial Owner        Beneficially Owned       Percentage
       <S>                     <C>                      <C>        <C>

       Michael J. Dugan            15,000                    *
       Sidney Clark Shaw, II       20,000                    *
       Robert F. Meredith, III     16,474                    *
       Dan Van Wormer               7,580                    *
       Benjamin P. Wall            51,397                    *
       G. Vaughn Walton            19,476                    *     1/
       Bobby Williams              14,325                    *     2/
       T. Brent Chapel         10,335,045                  73.8%   3/
       Ira L. Gottshall            20,000                    *
       Susan A. Davis              20,000                    *
       Robert W. Chapel            20,000                    *
       Clayton A. Carney           28,500                    *
       Mary K. Descant             16,500                    *

       The Southern Group      10,335,045                  73.8%   4/
       7212 Old Stage Road
       North Bethesda, MD  20852

       All Directors and       10,504,297                  75.03%
       Officers as a Group 
       (13 Persons) 

     * Less than .01%
     1/   Includes 598 shares held by Mr. Walton's children.
     2/   Includes 500 shares held by a partnership composed of Mr.
          Williams and his family.
     3/   Reflects shares owned by The Southern Group and its wholly-
          owned subsidiary, Maryland Southern Life Insurance Company,
          as to which Mr. Chapel has voting and investment power.
     4/   Includes the 5,435,928 held by The Southern Group and the 
          additional  4,899,117 shares for which The Southern Group
          holds the right to acquire subject to the conversion
          rights of the Debenture holders.
</TABLE>

Item 12:  Certain Relationships and Related Transactions

          The Company renewed a $2,000,000 face amount Directors
          and Officers Liability and Corporation Reimbursement
          Policy from Lexington Insurance Company on March 31,
          1997.  This policy, which provides coverage for alleged
          wrongful acts occurring on or after March 31, 1989,
          contains numerous exclusions.  For the policy term of
          April 1, 1996 to April 1, 1997 the policy premium was
          $56,805 and for the policy term of April 1, 1997 to April
          1, 1998 the policy premium was $70,350.

          It is the policy of the Company that all transactions
          with officers and directors be on terms that are no less
          favorable to the Company than would be available from
          unaffiliated parties.  The Board of Directors believes
          that all transactions described under "Certain
          Transactions" meet this standard.

          The Company is involved in a transaction with The
          Southern Group, as indicated in the Stock Purchase
          Agreement at Exhibit (10)(b).  The Southern Group is
          controlled by T. Brent Chapel, who is also a Director of
          the Company.  This transaction provided to The Southern
          Group, which owns 5,435,928 shares of the Company, the
          ability to purchase 4,899,117 additional shares of the
          Company.  The ability of The Southern Group to acquire
          the additional 4,899,117 is subordinated to the rights of
          holders of the debentures to convert the debentures into
          shares of the Company's common stock.  See "Related Party
          Transacations" and "Debenture Offering."

          Related Party Transactions

          Effective December 31, 1995, NAIL and Maryland Southern
          Life Insurance Company, (MSLIC), entered into a
          coinsurance agreement whereby MSLIC assumed 80% of all
          the life insurance business retained by NAIL.  This
          resulted in a reserve transfer to MSLIC in the amount of
          $1,866,475.  MSLIC paid the Company a ceding commission
          in the amount of $373,295 for a net reserve transfer of
          $1,493,180.  MSLIC is a wholly-owned subsidiary of The
          Southern Group.  This agreement was terminated December
          31, 1996, and all business was recaptured by NAIL.  The 
          fees earned by MSLIC upon the recapture of this business 
          are to be applied as an offset to the price of options to
          be acquired in the future.

          On January 16, 1996, TSG and the Company entered into a
          Stock Purchase Agreement, dated January 15, 1996
          ("Stock Purchase Agreement"), to which TSG agreed, subject
          to required state insurance regulatory
          approvals, to acquire an aggregate of 10,335,045 shares
          of common stock, or approximately 75% of the outstanding
          common stock of the Company for a purchase price of $6.8
          million.  In connection with the Stock Purchase Agreement the
          following transactions occurred: 
     
          On February 26, 1996, TSG and the Company entered into the
          First Amendment to the Stock Purchase Agreement.  TSG
          transferred $400,000 of  investment grade corporate
          and governmental bonds from its working capital to
          National Affiliated Corporation for 300,000 shares (approximately
          9%) of NAC common stock at $.65 per share, the balance
          represented a payable due to TSG which was to be
          used to purchase additional NAC common stock after
          approval of the acquisition by the Louisiana Insurance Commission. 

          On May 13, 1996, TSG and the Company entered into the 
          Second Amendment to the Stock Purchase Agreement.
          TSG purchased $500,000 of National Affiliated Corporation 
          convertible preferred stock by transferring $250,000  of  
          investment grade corporate and governmental bonds and $250,000 of
          publicly-traded common stocks from its working capital.

          On August 13, 1996, TSG and the Company entered into the
          Third Amendment to the Stock Purchase Agreement.  TSG
          purchased  $881,822 of NAC convertible preferred stock by 
          transferring $881,822 in notes collateralized by publicly-traded
          stock. TSG acquired these notes in an exchange 
          transaction with two parties unrelated to TSG. No
          profit was realized in this transaction. 

          On September 5, 1996, TSG purchased 108,539 shares of common
          stock by drawing on $70,550 of the balance remaining from the
          February 26, 1996 transaction.

          On December 31, 1996, TSG and the Company entered into the
          Fourth Amendment to the Stock Purchase Agreement.  TSG
          purchased 5,027,389 of NAC common stock by converting the NAC 
          convertible preferred stock, contributing $1,425,000 in
          mortgages and $326,531 in publicly-traded common stock.  
          TSG acquired the mortgages by issuing preferred stock and the 
          stock was held in its investment portfolio.

          Subject to the voting agreement described below, through the
          ownership of more than a majority of the common stock of the
          Company, TSG has the ability to elect or remove all of the
          directors of the Company and, generally, as a result thereof,
          to exercise control over the management and affairs of the
          Company.  By agreement between TSG and the Company, following
          the acquisition by TSG of a majority of the common stock of the
          Company, a Board of Directors meeting of the Company was held
          January 7, 1997, for the purpose of electing five persons 
          nominated by TSG to serve on the Board of Directors of the
          Company.  In order to make room on the Board of Directors for the
          nominees of TSG, John Boxberger, a member of the Board of 
          Directors of the Company, voluntarily resigned his position on
          the Board.  At the meeting, TSG nominated Sidney Shaw, Michael
          Dugan, Susan Davis, Robert Chapel and Ira Gottshall to the Board
          of Directors of the Company and the remaining members of the
          Board of Directors of the Company duly elected such persons to
          serve as directors until the next annual meeting of stockholders.
          In addition, Brent Chapel was elected to serve as Vice Chairman
          and Mr Gottshall was elected to serve as Chief Executive Officer
          of the Company.  Accordingly, certain persons nominated by TSG,
          who also serve on the Board of Directors of TSG, now comprise a
          majority of the Board of Directors of the Company and occupy 
          certain executive officer positions.

          Pursuant to the terms of the Fourth Amendment to the Stock 
          Purchase Agreement, TSG has agreed to vote its shares of common
          stock of the Company for five persons designated by the Company
          to serve as directors of the Company.  In addition, TSG has agreed
          for a period of two years (commencing December 31, 1996) to vote
          its shares of common stock of the Company in favor of the election
          of not fewer than three persons designated by the Company to serve
          as directors of the Company and to cause all committees of the
          Board of Directors of the Company to have at least one member who
          is a designee of the Company.  The Fourth Amendment also provides
          that if TSG does not complete the purchase of 6,321,942 shares of
          common stock of the Company remaining unissued on or before 
          April 30, 1997, TSG will for two years after vote its common stock
          to elect such number of designees of the Company to the Board of
          Directors of the Company as is necessary to constitute a majority.

          Brent Chapel, Chairman of the Board of Directors of TSG, owns
          approximately 67% of the voting securities of TSG and, therefore,
          has the ability to control the management and affairs of TSG 
          through the election and removal of its directors.  Certain shares
          of preferred stock of TSG owned by Mr Chapel has been pledged by
          him to secure certain promissory notes issued by him in connection
          with the acquisition of certain notes and assets that were
          contributed by Mr Chapel to TSG in exchange for shares of TSG stock.
          Certain of these notes and assets have been used by TSG to purchase
          the common and preferred stock of the Company, as set forth above.
          To the knowledge of the Company, an event of default by Mr Chapel
          under the notes or documents securing such notes and the forclosure
          by the holders thereof upon the preferred stock of TSG securing 
          same would not result in any change of control of TSG or of the
          Company.

          On May 20, 1997, TSG and the Company entered into the Fifth Amendment
          to the Stock Purchase Agreement.  The purpose of the Fifth Amendment
          was to subordinate the rights of TSG to acquire additional shares of
          common stock to allow the Company to have sufficient shares 
          available for the holders of the debentures to convert such debentures
          into shares of common stock.  This Fifth Amendment extended the time
          periods for TSG to acquire additional shares of common stock until
          July 31, 1997, and also extended the April 30, 1997 date in the 
          above referenced voting agreement until July 31, 1997.  The Company
          agreed to take all steps to increase the number of authorized shares
          of common stock to allow TSG to purchase the full number of shares
          of common stock as provided in the Stock Purchase Agreement.  A
          copy of this amendment is provided as an exhibit.

          The assets transferred by TSG to the Company in
          connection with the NAC Agreement were acquired by TSG
          during 1995 and 1996.  The cost of these assets to the
          Company was the same as the cost of such assets to TSG.


                             PART IV

ITEM 13:  Exhibits and Reports on Form 8-K

          (a)  Financial Statements (included in Item 8):
               1)  Independent Auditors' Report
               2)  Consolidated Balance Sheets
               3)  Consolidated Statements of Operations
               4)  Consolidated Statements of Cash Flows
               5)  Consolidated Statements of Stockholders' Equity
               6)  Notes to Consolidated Financial Statements

          (b)  Reports on Form 8-K:
               Form 8-K filed January 26, 1996
               Stock Purchase Agreement
               Form 8-K filed January 15, 1997

          (c)  Exhibits:
             Exhibit Table                                    Note/
                Number        Description of Exhibit          Page Number

                (3)(a)   Articles of Incorporation of            1/
                          Registrant (8/4/82)

                (3)(b)   Articles of Amendment of                1/
                          Registrant (8/27/83)

                (3)(c)   By-Laws                                 1/

                (10)(a)  National Affiliated Corporation 1995    1/  
                          Stock Option Plan and forms of
                          Option Agreements

                (10)(b)  Stock Purchase Agreement hereby incorporated
                          by reference from 8-K filed on January 26,
                          1996                                   1/

                (10)(c)  First Amendment to Stock Purchase Agreement

                (10)(d)  Second Amendment to Stock Purchase Agreement,
                          incorporated by reference from Form 10QSB,
                          filed May 15, 1996.
    
                (10)(e)  Third Amendment to Stock Purchase Agreement, 
                          incorporated by reference from Form 10QSB,
                          filed August 15, 1996.
 
                (10)(f)  Fourth Amendment to Stock Purchase Agreement,
                          incorporated by reference from Form 8-K,
                          filed January 15, 1997.

                (10)(g)  Fifth Amendment to Stock Purchase Agreement

                (10)(h)  Debenture Agreement - 4% Convertible Debenture,
                          due April 1, 1999.

                (22)     Subsidiaries of the Registrant          1/

          1/   Exhibits (3)(a) and (3)(b) are hereby incorporated
               by reference from Registrant's Amended Form 10
               dated September 14, 1985.  Exhibit (3)(c) is
               incorporated by reference from Registrant's Form
               10-KSB for the fiscal year ended December 31, 1993. 
               Exhibit (10)(a) is incorporated by reference from
               Registrant's Form 10-KSB for the fiscal year ended
               December 31, 1994.  Exhibit (22) is incorporated by
               reference from Item 1 of this Form 10-KSB.


                            SIGNATURES

Pursuant to the requirements of Section 13 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.

(Registrant)                     National Affiliated Corporation  
                                    



By (Signature and Title)                Ira L. Gottshall, FLMI               
        Ira L. Gottshall, FLMI, President and Chief Executive Officer, Director
Date     June 19, 1997                              

By (Signature and Title)                T. Brent Chapel, CPA 
                      T. Brent Chapel, CPA, Vice Chairman of the Board and
                             Chief Financial Officer, Director
Date     June 19, 1997                              


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

By (Signature and Title)                Benjamin P. Wall           
                           Benjamin P. Wall, Chairman of the Board, Director
Date    June 19, 1997                                             
                                         

By (Signature and Title)                Michael J. Dugan, Esq.                
                           Michael J. Dugan, Esq., Director
Date    June 19, 1997                                             
                                         

By (Signature and Title)                Susan A. Davis 
                           Susan A. Davis, Director
Date    June 19, 1997                                            
                                          

By (Signature and Title)                Sidney Clark ("Rusty") Shaw, II      
                           Sidney Clark ("Rusty") Shaw, II, Director
Date    June 19, 1997                                            
                                             
                                
By (Signature and Title)                 Robert W. Chapel, CPA             
                           Robert W. Chapel, CPA, Director
Date    June 19, 1997                                               
                                       

By (Signature and Title)                 Robert F. Meredith, III       
                           Robert F. Meredith, III, Director
Date    June 19, 1997                                              
                                        

By (Signature and Title)                  Gary Vaughn Walton         
                           Gary Vaughn Walton,  Director
Date    June 19, 1997                                              
                                        

By (Signature and Title)                  Bobby Williams 
                           Bobby Williams,  Director
Date    June 19, 1997                                             
                                         

By (Signature and Title)                  Dan Van Wormer            
                           Dan Van Wormer, Director
Date     June 19, 1997                                           
                                               


INDEPENDENT AUDITOR'S REPORT

The Board of Directors of
 National Affiliated Corporation

We have audited the accompanying consolidated balance sheets of National
Affiliated Corporation and its subsidiaries as of December 31, 1996 and 1995, 
and the related consolidated statements of operations, stockholders' equity, and
cash flows for the years then ended.  These financial statements are the 
responsibility of the Company's management.  Our responsibility is to express 
an opinion on these financial statements based on our audits.

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

In our opinion, such consolidated financial statements present fairly, in all 
material respects, the financial position of National Affiliated Corporation and
its subsidiaries at December 31, 1996 and 1995, and the results of their 
operations and their cash flows for the years then ended in conformity with 
generally accepted accounting principles.

The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern.  As discussed in Note 13 to 
the financial statements, the insurance operations of the Company have sustained
significant losses over the last five years, which has adversely affected its 
working capital and its net equity.  Should the losses continue, the Company's 
ability to maintain minimum capital requirements of the various states in which 
the Company is licensed may also be affected.  These factors, among others, 
raise substantial doubt about the Company's ability to continue as a going 
concern.  Management's plans in regard to these matters are also described in 
Note 13.  The consolidated financial statements do not include any adjustments 
that might result from the outcome of this uncertainty.

Deloitte & Touche, LLP

March 21, 1997, except for Note 7, as to which 
 the date is May 9, 1997 and except for Note 16,
 as to which the date is May 21, 1997

NATIONAL AFFILIATED CORPORATION AND SUBSIDIARIES
 
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
                                                           
<TABLE>
<S>                                      <C>     <C>         <C>
                                         Notes    1996        1995
ASSETS:
Cash                                             $195,835    $306,686
Invested assets:                           3               
   Fixed maturities available-for-sale at mark  1,227,902   3,555,962
   Equity securities available-for-sale at mar     80,938       1,250
   Mortgage loans                          15   1,425,000           0
   Collateral loans                        15     881,822           0
   Other long-term investments at equity          127,775     144,673
   Other long-term investments at market                0      29,000
   Certificates of deposit and time deposits       24,673     239,851
   Restricted assets at market                  1,032,000   1,040,162
Accrued investment income                          62,313      63,360
Finance notes receivable - net             4        7,117       8,750
Policy loans                                      107,830      83,571
Reinsurance receivable                            679,623   2,759,921
Other amounts receivable:
   Premiums due and uncollected                    25,458      21,028
   Agents' balances (net of allowance for unco    138,133     150,009
     account of $150,000 in 1996 and $131,500 in 1995)
   Other                                        2,139,330     398,957
Property - net                            5,6     136,839     192,794
Deferred policy acquisition costs         12      966,545     421,962
Other assets                                       21,482     217,890
TOTAL                                          $9,280,615  $9,635,826
 
LIABILITIES AND STOCKHOLDERS' EQUITY:
Policy benefit reserves                        $3,650,190  $3,429,414
Policy claims                                     961,697     781,256
Unearned premiums                                  24,642      23,980
Dividends left on deposit                         304,697     389,955
Advance premium deposits                          168,141     174,678
Other policyholders' funds                         11,452      17,152
Accounts payable and accruals                     301,464   2,088,754
   Total liabilities                            5,422,283   6,905,189
Commitments and contingent liabilities   7,10
Stockholders' equity:                     3,8
   Voting common shares, no par; 14,000,000 sh             
     authorized; 8,740,915 and 3,461,028 share  9,275,003   5,846,901
   Additional paid-in capital                     154,500     154,500
   Net unrealized investment gains (losses)      (508,846)    171,973
   Accumulated deficit                         (5,062,325) (2,710,237)
        Subtotal                                3,858,332   3,463,137
   Less treasury stock - at cost (181,539 shar          0     732,500
   Total stockholders' equity                   3,858,332   2,730,637
TOTAL                                          $9,280,615  $9,635,826
</TABLE>
See notes to consolidated financial statements.




NATIONAL AFFILIATED CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<S>                                      <C>   <C>         <C>
                                         Notes    1996        1995
REVENUES:
Insurance premiums                             $1,879,452  $2,727,313
Net investment income                      3      450,836     366,431
Finance company interest and fees                   1,136       1,360
Other income                                       47,626      47,678
   Total revenues                               2,379,050   3,142,782

EXPENSES:
Increase (decrease) in policy benefit reserves    385,307    (428,664)
Claims and other benefits                       1,520,601   1,376,242
Policyholder dividends                             12,523      13,347
Commission expense                                297,280     727,366
Depreciation and amortization                      20,186      29,446
Interest expense                                   57,864      54,010
Salaries, wages and taxes                         729,611     786,628
Other operating expense                         1,637,849   1,342,106
Amortization of deferred acquisition cost 12     (544,583)    797,752
   Total expenses                               4,116,638   4,698,233

LOSS BEFORE INCOME TAXES                       (1,737,588) (1,555,451)

PROVISION FOR INCOME TAXES                 9            0           0

NET LOSS                                      ($1,737,588)($1,555,451)

LOSS PER COMMON SHARE                              ($0.49)     ($0.47)

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING      3,576,718   3,279,489
</TABLE>


See notes to consolidated financial statements.

NATIONAL AFFILIATED CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<S>                <C>          <C>     <C>        <C>          <C>
                    Balance     Stock   Change in               Balance
                    12-21-94    Issued  Unrealized Net Loss     12-31-95
                                        Gain/Loss

Voting Common Shar                                 
      Number        3,461,028                                    3,461,028
      Amount       $5,846,901                                   $5,846,901

Additional Paid-In   $154,500                                     $154,500

Net Unrealized Los  ($284,084)           $456,057                 $171,973

Accumulated Defici($1,154,786)                     ($1,555,451)($2,710,237)

Treasury Stock
      Number         (181,539)                                    (181,539)
      Amount        ($732,500)                                   ($732,500)

TOTAL              $3,830,031        $0  $456,057  ($1,555,451) $2,730,637


                    Balance     Stock   Change in                Balance
                    12-31-95    Issued  Unrealized Net Loss      12-31-96
                                        Gain/Loss
Voting Common Shares
      Number        3,461,028  5,279,887                          8,740,915
      Amount       $5,846,901 $3,428,102                         $9,275,003

Additional Paid-In   $154,500                                      $154,500

Convertible Preferred            24,277                              24,277
      Stock Issued            $2,427,700                         $2,427,700

Preferred Stock                 (24,277)                            (24,277)
       Converted to Common   ($2,427,700)                       ($2,427,700)

Net Unrealized Los   $171,973           ($680,819)                ($508,846)

Accumulated Defici($2,710,237) ($614,500)          ($1,737,588) ($5,062,325)

Treasury Stock
      Number         (181,539)   181,539                                  0
      Amount        ($732,500)  $732,500                                 $0

TOTAL              $2,730,637  $3,546,102 ($680,819) ($1,737,588) $3,858,332
</TABLE>

See notes to consolidated financial statements.


NATIONAL AFFILIATED CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<S>                                      <C>      <C>           <C>
                                         Notes    1996          1995
Cash flows from operating activities:
Net loss                                          ($1,737,588)  ($1,555,451)
Non-cash and non-operating items:
   Gain on sale of invested assets                   (208,840)       (1,390)
   Undistributed losses of investee                         0         1,254
   Increase of uncollectible accounts receivab         28,062        78,700
   Depreciation and amortization                       20,186        29,446
   Loss on disposal of property                        47,300             0
Change in assets and liabilities:
   Deferred policy acquisition costs      13         (544,583)      797,752
   Policy benefit reserves and unearned premiu        221,438       179,696
   Policy claims                                      180,441       163,748
   Equity write-down of other long-term invest         16,898        11,379
   Accounts payable and accruals                   (1,787,290)    1,841,406
   Due from reinsurance companies                   2,080,298    (2,379,521)
   Other                                           (1,549,726)     (426,929)
Net cash used in operating activities              (3,233,404)   (1,259,910)

Cash flows from investing activities:
Acquisitions of:
   Invested assets
      Fixed maturities available-for-sale            (849,958)   (1,283,330)
   Finance notes receivable                           (10,000)            0
   Property                                           (11,531)      (81,186)
Proceeds from:
   Invested assets                             
      Fixed maturities available-for-sale           3,861,044     2,361,392
      Other long-term investments                      29,000             0
      Certificates of deposit and time deposit        215,178       315,912
   Finance notes receivable                             2,071        38,713
Policy loans                                          (24,259)       11,622
Agent's balances - net                                 (6,624)        5,678
Net cash provided from investing activities         3,204,921     1,368,801

Cash flows from financing activities:
Withdrawals of dividends and advance premiums         (95,117)     (163,635)
Sale of common stock                                   12,749             0
Net cash provided from (used in) financing act        (82,368)     (163,635)
Net decrease in cash                                 (110,851)      (54,744)
Cash at beginning of year                             306,686       361,430
Cash at end of year                                  $195,835      $306,686

</TABLE>


NATIONAL AFFILIATED CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
Continued

                                                     1996        1995
Supplemental Cash Flows Disclosures:
Interest paid                                     $30,497     $46,330
Income taxes paid                                      $0          $0

Supplemental Schedule of Noncash Investing and Financing Activities:

181,539 shares of treasury stock was converted to issued shares and fixed
maturity investments of $118,000 were acquired.

227,000 shares of common stock was issued and fixed maturity investments of
$147,550 were acquired.

24,277 shares of preferred stock was issued and the following assets were
assumed:

             Equity investments                  $120,878
             Mortgage loans                     1,425,000
             Collateral loans                     881,822
                                               $2,427,700

5,027,389 shares of common stock was issued upon the conversion of preferred
stock and the assumption of the following assets:

             Preferred stock conversion        $2,427,700
             Fixed maturity investments           384,450
             Equity investments                   455,653
                                               $3,267,803

See notes to consolidated financial statements.


                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
                    
                    
                    NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
                    
                    
                    The Company  -  The consolidated financial statements
                    include National Affiliated Corporation (the "Company") and
                    its wholly-owned subsidiaries.  The Company's subsidiaries
                    market and sell life and health insurance.  All significant
                    intercompany accounts and transactions have been eliminated
                    in the consolidated financial statements.
                    
                    Use of Estimates - The preparation of financial statements
                    in conformity with generally accepted accounting principles
                    requires management to make estimates and assumptions that
                    affect the reported amounts of assets and liabilities and
                    disclosure of contingent assets and liabilities at the date
                    of the financial statements and the reported amounts of
                    revenues and expenses during the reporting period.  Actual
                    results could differ from those estimates.
                    
                    Fair Value -  For all financial instruments affected by this
                    statement recorded or disclosed in the Company's financial
                    statements, the carrying amount is a reasonable estimate of
                    fair value.
                    
                    Invested Assets consist of common and preferred stocks,
                    bonds and government securities carried at market value,
                    mortgage loans, collateral loans and certificates of deposit
                    carried at cost, and other investments (which are
                    investments in limited partnerships) carried at equity. 
                    Permanent declines are accounted for as realized losses.
                    
                    Investment securities are classified into three categories: 
                    held-to-maturity, trading and available-for-sale.  The
                    Company has classified all of its investment securities as
                    available-for-sale.  As a result these securities are 
                    required to be reported in the balance sheet at their market
                    value, with unrealized gains and losses reported in a
                    separate component of stockholders' equity.
                    
                    Property is stated at cost less accumulated depreciation. 
                    Depreciation is computed on the straight-line method over
                    the estimated useful lives of the assets which range from
                    three to eight years.
                    
                    Income Taxes  -  The tax effect of temporary differences
                    that exist between the financial reporting basis and basis
                    of assets and liabilities for income tax reporting,
                    primarily as a result of deferred policy acquisition costs
                    and differences in methods of calculating policy benefit
                    reserves, are recognized in accordance with enacted tax
                    rates, to the extent that realization of such benefits is
                    more likely than not.
                    
                    Loss Per Common Share is based on the weighted average
                    number of voting common shares outstanding.
                    
                    Statement of Cash Flows  -  For purposes of reporting cash
                    flows, cash includes cash on hand and in demand deposit
                    accounts with banks.
                    
                    Reclassifications  -  Certain amounts have been reclassified
                    for comparative purposes.  Such reclassifications had no
                    effect on net income for the respective years.
                    
                    NOTE 2  -  INSURANCE ACCOUNTING AND DISCLOSURES
                    
                    
                    Premiums on traditional life insurance contracts are
                    recognized as income when due from policyholders.  Health
                    premiums are recognized ratably as earned over the term of
                    the contracts.  Future policy benefits and policy
                    acquisition costs are associated with premiums as earned so
                    as to result in recognition of profits over the life of the
                    contracts by means of the provision for policy benefit
                    reserves and the amortization of deferred policy acquisition
                    costs.
                    
                    Revenues for universal life insurance, other interest-
                    sensitive life insurance, and annuity contracts include
                    policy charges for administration and cost of insurance, and
                    surrender charges assessed against policyholder account
                    balances during the period.  Charges to expense relating to
                    these policies and contracts include interest credited as
                    well as benefits paid during the period in excess of related
                    policy account balances.
                    
                    Policy Benefit Reserves related to traditional life
                    insurance contracts have been calculated on a net level
                    basis.  Assumed interest yields used in determining the
                    majority of reserves are 7% graded to 4.5%.  1980 CSO
                    mortality tables are used with provision for possible
                    adverse deviation.  Policy benefit reserves related to
                    universal life-type and annuity contracts represent the
                    accumulated amounts which accrue to the benefit of
                    policyholders, and reflect interest credited at rates which
                    are subject to periodic adjustment.
                    
                    Policy Claims  -  Life and health insurance claim costs are
                    accrued as they occur. The claim costs reported include
                    provisions for: (1) reported losses in the process of
                    settlement; and (2) estimated losses incurred but not yet
                    reported. The liability for reported losses in the process
                    of settlement was determined by estimating the anticipated
                    amount payable on each reported claim. At December 31, 1996,
                    there were approximately $16,200 in unsettled life claims
                    and $13,900 in health claims in the process of settlement.
                    
                    The liability for health claims incurred but not yet
                    reported was estimated using a claim lag approach or
                    ultimate completion approach.  As of December 31, 1996,
                    approximately $916,000 has been recorded as an estimate of
                    the incurred but not yet reported liability for health
                    claims.
                    
                    Deferred Policy Acquisition Costs  -  The Company defers the
                    costs of acquiring new business, principally commissions and
                    certain policy issue and underwriting expenses, which vary
                    with and are primarily related to the production of new
                    business.  These deferred acquisition costs are being
                    amortized over the premium-paying periods in proportion to
                    premium revenue recognized using the same assumptions as to
                    interest, mortality and withdrawals as are used for
                    computing liabilities for policy benefit reserves. 
                    
                    Participating Policies comprise approximately 32% of total
                    life insurance in force at December 31, 1996.  Dividends on
                    such policies are determined annually by the Board of
                    Directors of the insurance company.  During 1984, the
                    Company's management adopted a policy providing that such
                    policy dividends each year would total at least 50% of the
                    total earnings and profits of its life insurance subsidiary,
                    as determined in accordance with statutory accounting
                    practices prescribed by insurance regulatory authorities. On
                    December 10, 1991, the Board of Directors passed a
                    resolution to limit the amount of statutory earnings that
                    may be paid as dividends to holders of the above policies to
                    50% of such earnings as determined at the end of each
                    calendar year. 
                    
                    Life Insurance in force was approximately $107,891,000 and
                    $145,395,000 December 31, 1996 and 1995, respectively.
                    
                    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 under excess
                    coverage and coinsurance contracts.  The Company retains a
                    maximum of $50,000 per individual for mortality and $25,000
                    for health claims (except for ABO policies for which the
                    stop-loss limit is $50,000).
                    
                    Effective December 31, 1995, NAIL and Maryland Southern Life
                    Insurance Company, (MSLIC), entered into a coinsurance
                    agreement whereby MSLIC assumed 80% of all the life
                    insurance business retained by the insurance subsidiary.  At
                    December 31, 1996, the agreement was terminated and NAIL
                    recaptured the ceded amount.
                    
                    Amounts paid or deemed to have been paid under reinsurance
                    contracts are recorded as reinsurance receivables on the
                    balance sheet.  The cost of reinsurance related to contracts
                    is accounted for over the life of the underlying reinsured
                    policies using assumptions consistent with those used to
                    account for the underlying policies.  The Company is
                    contingently liable for insurance ceded in the event any
                    reinsurer is unable to meet its obligation and,
                    consequently, the Company evaluates the financial condition
                    of its reinsurers.  The effect of reinsurance on premiums
                    for the years ended December 31 is as follows:
<TABLE>
                         <S>                   <C>               <C>
                    
                                                  1996               1995
                         Direct premiums       $2,834,940        $3,114,190 
                         Premiums ceded          (955,488)         (386,877)
                         Net premiums          $1,879,452        $2,727,313
</TABLE>
                                                        
                    
                    Regulatory Accounting  -  Accounting records of the
                    insurance subsidiary are also maintained in accordance with
                    statutory accounting practices prescribed or authorized by
                    insurance regulatory authorities.  The insurance
                    subsidiary's combined equity pursuant to statutory
                    accounting principles as filed March 1, 1997 was $2,469,157
                    and $1,238,325 at December 31, 1996 and 1995, respectively. 
                    Regulatory accounting basis net loss for the years ended
                    December 31, 1996 and 1995 was $1,709,728 and $1,056,397,
                    respectively.
                    
                    Approval by regulatory authorities is required for payment
                    of common stock dividends by insurance companies other than
                    from unassigned retained earnings, as determined on a
                    statutory accounting basis.  At December 31, 1996, no
                    dividends could be paid by the Company's insurance
                    subsidiary.  Loans and advances by insurance companies to
                    parents and affiliates are restricted by law.
                    

NOTE 3 - INVESTED ASSETS

The Company's invested assets at December 31, 1996 and 1995 consisted of the 
following:
<TABLE>
                                             Gross     Gross
                                 Amortized UnrealizedUnrealized  Market
<S>                             <C>          <C>        <C>    <C>
                                   Value     Gains     Losses    Value
1996
Fixed maturities available-for-sale
   US Government and agencies   $1,289,787   $10,876    $7,248 $1,293,415
   Public utilities                 60,063     2,937         0     63,000
   Corporate                       416,503    14,703     2,719    428,487
 Less restricted bonds            (556,752)     (421)     (173)  (557,000)
     Total fixed maturities      1,209,601    28,095     9,794  1,227,902

Redeemable preferred stock           2,144         0     2,144          0
Common stocks:
   Banks                            30,000         0    28,750      1,250
   Corporate                       576,531         0   496,843     79,688
     Total equity securities       608,675         0   527,737     80,938
Other long-term investments        127,775         0         0    127,775
Mortgage loans                   1,425,000         0         0  1,425,000
Collateral loans                   881,822         0         0    881,822
Certificates of deposit and time   499,673         0         0    499,673
   Less restricted CDs            (475,000)        0         0   (475,000)
      Total CDs and time deposits   24,673         0         0     24,673
Subtotal                         4,277,546    28,095   537,531  3,768,110
Restricted assets                1,031,752       421       173  1,032,000
Total invested assets           $5,309,298   $28,516  $537,704 $4,800,110

1995
Fixed maturities available-for-sale
   US Government and agencies   $2,826,739  $183,067    $3,025 $3,006,781
   States, municipalities, and political
       subdivisions                122,728     3,134         0    125,862
   Public utilities                100,115    10,885         0    111,000
   Corporate                       820,332    59,175     2,026    877,481
 Less restricted bonds            (551,032)  (14,130)        0   (565,162)
     Total fixed maturities avail3,318,882   242,131     5,051  3,555,962

Redeemable preferred stock           2,144         0     2,144          0
Common stocks:
   Banks                            30,000         0    28,750      1,250
     Total equity securities        32,144         0    30,894      1,250

Other long-term investments        222,358         0    48,685    173,673
Certificates of deposit and time   714,851         0         0    714,851
   Less restricted CDs            (475,000)        0         0   (475,000)
      Total CDs and time deposits  239,851         0         0    239,851
Subtotal                         3,813,235   242,131    84,630  3,970,736
Restricted assets                1,026,032    14,130         0  1,040,162
Total invested assets           $4,839,267  $256,261   $84,630 $5,010,898
</TABLE>


The amortized value and market value of debt securities at
December 31, 1996, by contractual maturity, are shown below.
Expected maturities may differ from contractual maturities
because borrowers may have the right to call or prepay
obligations.
<TABLE>
     <S>                           <C>                    <C>
                                   Amortized              Market
                                   Value                  Value
     
     Due in years 1 through 5      $  680,818             $  681,868
     Due in years 6 through 10        322,458                325,189
     Due after 10 years               300,158                312,911
     Fixed maturities               1,303,434              1,319,968

     Mortgage-backed securities       462,919                464,934
     Total                         $1,766,353             $1,784,902
</TABLE>

Certificates of deposit and fixed maturities in the aggregate amount of 
$1,032,000 are being held in safekeeping by banks for state insurance 
departments as required by law and,
as such, these funds are not available for use in operations.

There were no fixed maturities and other long-term investments which were 
non-income producing in the two-year period ended December 31, 1996.

The composition of net investment income for the two years ended December 31 
follows:
<TABLE>
<S>                                            <C>               <C>
                                                  1996                1995
Gross investment income:
   Equity securities                           $     730         $       50
   Certificates of deposit and time deposits      28,081             43,054
   Fixed maturities and long-term investments    227,690            346,617
       Subtotal                                  256,501            389,721
   Net realized gains                            208,840              1,390
   Investment expenses                          ( 14,505)           (24,680)
   Net investment income                       $ 450,836         $  366,431
</TABLE>

The cost of investments sold is generally determined using the specific 
identification method.  Proceeds, gains and losses from sales of investments, 
all of which are related to fixed maturity securities, for the two years ended 
December 31 are:
<TABLE>
     <S>                           <C>             <C>             <C>
                                    Proceeds        Gains           Losses
1996
     Fixed maturities              $3,861,044      $282,702        $25,217
     Other long term investments       29,000             0         48,645
     Total                         $3,890,044      $282,702        $73,862   

1995
     Fixed maturities              $2,361,392       $30,291        $28,901
</TABLE>

NOTE 4 - FINANCE NOTES RECEIVABLE


Components of the finance notes receivable at December 31 were as follows:
<TABLE>
     <S>                                 <C>                   <C>
                                            1996                1995

     Premium finance                     $ 157,000             $ 157,000
     Precomputed direct                      9,075                 9,075
     Interest bearing direct                35,774                27,845
     Total                                 201,849               193,920
     Less:    Allowance for uncollectible
              accounts                    (194,732)             (185,170)
     Total                               $   7,117             $   8,750
</TABLE>

NOTE 5 - LEASES


Company as Lessee  -  The Company is committed under operating leases involving 
office facilities and various equipment.  The lease with England Economic and 
Industrial Development District for office space will expire May 1, 1998.

Rent expense under operating leases was:  1996 - $85,370; 1995 - $103,437.

NOTE 6 - PROPERTY


Property at December 31 is summarized as follows:
<TABLE>
      <S>                                  <C>                   <C>
                                             1996                 1995
      Land held for future development     $ 124,303             $ 124,303
      Furniture and equipment                220,620               369,069
      Subtotal                               344,923               493,372
      Less accumulated depreciation         (208,840)              (300,78)
      Property - net                       $ 136,839             $ 192,794
</TABLE>

Depreciation and amortization expense for the years ended December 31, 1996 and
1995 was $20,186 and  $29,446,  respectively.

NOTE 7 - COMMITMENTS AND CONTINGENT LIABILITIES


The Company is contingently liable for insurance ceded to reinsurers in the 
event that reinsurance companies are unable to meet their obligations.  
(See Note 2)

From time to time, the Company and its subsidiaries are involved in lawsuits 
related to their operations.  In most cases, such lawsuits involve claims under
insurance policies or other contracts of the Company.  Even though the Company 
may be contesting the validity or extent of its liability in response to such 
lawsuits, the Company has established reserves in the consolidated financial 
statements that approximate its estimated potential liability.  Included in 
the financial statements is a total reserve of $322,000 that has been
established with respect to all of the lawsuits and claims against the Company.
In management's opinion, resolution of these outstanding lawsuits and claims 
will not result in any additional material impact on the financial condition of
the Company.

The Company has two lawsuits outstanding related to claims by purchasers of the
FLA 100 founders policies issued from 1984 to 1988.  In one of the suits, the 
plaintiff is alleging breach of contract and fraud regarding the sale of an 
FLA 100 founders policy.  The trial court rendered a judgement in the 
approximate amount of $34,000 plus interest in favor of the plaintiff.  This 
judgement was affirmed by the Third Circuit Court of Appeals and NAIL filed an 
appeal with the Supreme Court of State of Louisiana.  On May 9, 1997, the 
Supreme Court of the State of Louisiana denied the request of NAIL to hear an 
appeal on this matter.  In a separate lawsuit also
related to the FLA 100 founders policies, plaintiffs representing the class of 
persons that purchased FLA 100 founders policies allege fraudulent sales 
practices by former employees of NAIL and are seeking unspecified damages.  
While the Company intends to vigorously defend these lawsuits, an adverse 
judgement in the class action lawsuit would have a material adverse effect on 
the Company.

NAIL is a defendant in four separate lawsuits related to a common series of 
events regarding a health policy issued in Alabama. These cases involve alleged
misrepresentations by an agent to employees of a garment plant in Greensboro, 
Alabama regarding the use of earned income credit to fund the cost of health 
insurance policies.  Although NAIL believes that the amount of compensatory 
damages claimed for each plaintiff are likely in the range of $1,000 the 
plaintiffs have made claims for punitive damages. Three of the cases were filed
by individual plaintiffs.  The fourth case includes as plaintiffs approximately
50 employees of the garment plant and a stipulation that the
maximum recovery for any one plaintiff would be $50,000.  NAIL believes that
not all of the plaintiffs in the fourth case paid any policy premiums or were 
included in the policies. NAIL is vigorously defending these cases and does not
anticipate that a resolution of the outstanding lawsuits and claims will result
in any additional material impact on the financial condition of the Company.

In an additional lawsuit in Alabama the plaintiff alleges breach of contract, 
fraud and related causes of action based on the alleged failure of NAIL to 
provide coverage under a short-term medical policy.  The plaintiff has claimed 
approximately $30,000 in medical expenses and has requested other unspecified 
claims including a claim for punitive damages.  This claim arises from an agent
that was not a licensed agent of NAIL allegedly
failing to cause timely delivery to NAIL of the plaintiff's insurance policy 
application and premium payment during the required 30 day application period, 
and the subsequent denial by NAIL to provide coverage for claims related to 
injuries sustained by the plaintiff before a policy was delivered to NAIL's 
home office.  NAIL is vigorously defending this suit and
does not anticipate that a resolution of this outstanding lawsuit and claim
will result in any additional material impact on the financial condition of 
the Company.

The Company has other outstanding lawsuits as well as other claims that arise 
in the ordinary course of business.

NOTE 8 - CAPITAL STOCK


The classes of stock outstanding at December 31, 1996 and 1995 are as follows:
Voting Common Shares, no par value  -  The Company is authorized to issue 
14,000,000 shares of this class of stock and, except as otherwise determined by
the Board of Directors, it is the only class of stock entitled to vote for the 
directors of the Company.

Voting privileges attaching to the voting common shares are subject to any 
rights that may be conferred by the Board of Directors on holders of the 
preferred stock of the Company should such class of stock be issued in the 
future.  Voting common shares do not have preemptive or cumulative voting 
rights.

Preferred Stock, $100 par value  -  The Company has 1,500,000 authorized shares
of $100 par value preferred stock, none of which is outstanding at either 
December 31, 1996 or 1995.



NOTE 9 - INCOME TAXES


Reported income tax expense for the two years ended December 31, 1996, differs 
from the amount computed by applying the normal federal and state income tax 
rates to consolidated income before taxes for the following reasons:
<TABLE>
        <S>                             <C>                       <C>
                                           1996                      1995
        Normal tax benefit              $ (599,659)               $ (606,626)
 
 Differences result from:
         Operating losses not given 
            tax benefit                    594,659                   601,626
         Other                               5,000                     5,000
 
        Reported tax expense            $      -0-                $      -0-  
</TABLE>

Deferred income taxes primarily consist of future tax benefits (liabilities) 
attributable to:
<TABLE>
    <S>                                      <C>                  <C>
    Assets (Liabilities)                       1996                  1995
    Unamortized deferred acquisition costs   $  (260,309)         $ (136,425)
    Policy benefit reserves                     (367,377)           ( 87,730)
    Unearned premiums                             (9,610)           (  9,352)
    Net operating loss carryforward            1,616,205             880,796
    Tax credits                                   13,708              13,708
    Total                                        992,617             660,997

    Less valuation allowance                  (  992,617)           (660,997)
    Net deferred tax asset                   $       -0-          $      -0-
</TABLE>

Based on conservatism, Management has elected to record a full valuation 
allowance at this time.

At December 31, 1996, the Company has for tax purposes, approximately $4,144,000
of net operating loss carryforward expiring between 2007 and 2011. Additionally,
the Company has alternative minimum tax credits of $35,200 available to offset 
future income taxes subject to certain limitations.

NOTE 10 - RELATED PARTY BALANCES AND TRANSACTIONS


Effective December 31, 1995, NAIL and Maryland Southern Life Insurance Company,
(MSLIC), entered into a coinsurance agreement whereby MSLIC assumed 80% of all 
the life insurance business retained by NAIL.  This resulted in a reserve 
transfer to MSLIC in the amount of $1,866,475.  MSLIC paid the Company a ceding
commission in the amount of $373,295 which resulted in a net reserve transfer 
of $1,493,180.  MSLIC is a wholly-owned subsidiary of The Southern Group.  This
agreement was terminated December 31, 1996 and all business was recaptured by 
NAIL.

On January 16, 1996, TSG and the Company entered into a Stock Purchase 
Agreement, dated as of January 15, 1996, pursuant to which TSG agreed, subject 
to receipt of required state insurance regulatory approvals, to acquire an 
aggregate of 10,335,045 shares of common stock, or approximately 75% of the 
outstanding common stock of NAC for a purchase price of $6.8 million dollars.  
In connection with the NAC agreement the following transactions occurred:

March 7, 1996 - The Southern Group, Inc. transferred $400,000 of  investment
grade corporate and governmental bonds from its working capital to National
Affiliated Corporation for 300,000 shares of NAC common stock at $.65 per
share.  The balance represented a payable due to TSG which was to be used to
purchase additional NAC common stock after approval of the acquisition by the
Louisiana Insurance Commission. 

May 15, 1996 - TSG purchased $500,000 of National Affiliated Corporation
convertible preferred stock by transferring $250,000  of  investment grade
corporate and governmental bonds and $250,000 of publicly-traded common
stocks from its working capital.

August 15, 1996 - TSG purchased  $881,822 of NAC convertible preferred stock
by transferring $881,822 in notes collateralized by publicly-traded stock. TSG
acquired these notes in an exchange  transaction with two parties unrelated to
TSG. No profit was realized in this transaction. TSG purchased 108,539 NAC
common shares by drawing on $70,550 of the balance remaining from the 3/7/96
transaction.

December 31, 1996 - TSG purchased 5,027,389 of NAC common stock by
converting the NAC convertible preferred stock, contributing $1,425,000 in
mortgages and $326,531 in publicly-traded common stock.  TSG acquired the
mortgages by issuing preferred stock and the stock was held in its investment
portfolio.

NOTE 11 - SEGMENT INFORMATION


The Company's operations consist primarily of the sales of insurance products.  
The following table indicates the Company's revenues, income (loss) from 
operations and assets for each segment for the years ended December 31, 1996 
and 1995.
<TABLE>
                                      General    Adjustments
                                     Corporate       and
<S>                    <C>          <C>           <C>             <C>
                         Insurance   and Other   Eliminations    Consolidated
Year ended December 31, 1996:
Revenues from unaffiliated
 customers             $ 2,351,442  $     27,608                  $ 2,379,050
Intersegment revenues                    142,817  $  (142,817)           
                                              
Total revenue          $ 2,351,442  $    170,425  $  (142,817)    $ 2,379,050

Net (loss) income      $(1,451,059) $   (286,529)                 $(1,737,588)

Assets                 $ 8,726,948  $  8,689,576  $(8,135,909)    $ 9,280,615
Deprec and amort       $    18,240  $      1,946                  $    20,186
Capital expenditures   $     5,230  $      6,301                  $    11,531
-------------------------------------------------------------------------------
Year ended December 31, 1995:
Revenues from unaffiliated
   customers           $ 3,139,732  $      3,050                  $ 3,142,782
Intersegment revenues                    241,319  $  (241,319)                  
Total revenue          $ 3,139,732  $    244,369  $  (241,319)    $ 3,142,782

Net (loss) income      $(1,545,203) $    (10,248)                 $(1,555,451)

Assets                 $ 9,391,125  $  5,629,163  $(5,384,462)    $ 9,635,826
Deprec and amort       $    21,473  $      7,973                  $    29,446
Capital expenditures   $    81,186                                $    81,186
</TABLE>

Intersegment revenue is recorded at estimated fair market value and income from
intersegment transactions is included in operating income (loss).

NOTE 12 - DEFERRED POLICY ACQUISITION COSTS


On an annual basis, the Company estimates its future experience on the policies
in force, projects future premiums, expenses and benefit payments, and compares
the present values of these with the unamortized deferred policy acquisition 
costs (DAC).  If future profits are not sufficient to amortize the recorded 
deferred acquisition costs, additional amortization is taken. The total 
amortization of DAC for 1996 and 1995 was $(544,583) and $797,752,  
respectively.  The high expense in 1995 resulted from the reinsurance ceded
to MSLIC and the high credit in 1996 was a result of the recapture of this 
ceded amount.

NOTE 13 - GOING CONCERN

The Company's consolidated financial statements have been presented on a going 
concern basis which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business.  The net equity and working 
capital of the Company have been adversely affected by significant losses from 
the insurance operations over the last five years.  The Company's ability to 
maintain the minimum capital requirements of the various insurance regulators 
may also be adversely impacted by the continuing operating losses.

The Company has begun an active program of reviewing potential candidates for
acquisition of profitable insurance companies and blocks of business as well as
reviewing proposals from sources of acquisition financing.  The Company intends
to attempt to acquire at least on additional life insurance company during the
remainder of 1997.

NOTE 14 - STOCK OPTION PLAN

In January 1995, the Board of Directors of NAC adopted the National Affiliated
Corporation Stock Option Plan, which provides for grants of incentive and 
nonqualified stock options to directors, officers and employees of the Company.
The Stock Option Plan covers 385,466 shares of common stock. Any shares subject
to unexercised and terminated portions of stock options may be reissued under 
new stock option grants.

The Stock Option Plan is administered by a committee of disinterested directors,
(the "Stock Option Committee"), which has the authority to determine who will 
receive stock options, the number of shares of common stock subject to such 
stock options, and the terms of such stock options, including the exercise 
price of stock options and any vesting periods.

In accordance with the Stock Option Plan, the exercise price of stock options 
issued in January 1995 was set at $.50 per share, which the Board of Directors 
believes approximates a fair market value of the common stock on the date of 
grant.  The options expire in January 2005.  The Stock Option Plan permits the 
exercise of stock options by delivery of shares of common stock owned by the 
optionee in lieu of or in addition to cash or by financing made available by 
the Company.

Granted options generally vest over a two or three-year period, with 25% or 50%
(depending on years of service) vested immediately upon the later of the first 
anniversary of employment or the date of grant and an additional 25% vesting 
upon each anniversary.  Non-vested portions will vest automatically if there is
a sale of NAIL, a change of control of NAC, or the employee dies, retires due to
disability or is terminated by the Company without cause.

In addition, the Company granted a one time stock option for 50,000 shares to a
professional financial public relations firm who assisted the Company in its 
recapitalization efforts.  This option may be exercised over a two-year period 
from May 1, 1995 at a cost of $.50 per share.
<TABLE>
       Stock Options              Number of Shares       Option Price
    <S>                                <C>                   <C>
   
    Granted                            435,466               $.50
    Lapsed or canceled                  83,857                .50
    Exercised                           49,998                .50
    Outstanding at December 31, 1996   301,611                .50
    Exercisable at December 31, 1996   301,611                .50
</TABLE>

The  Company  applies   Accounting   Principles  Board  Opinion  No.  25, 
"Accounting for Stock  Issued to  Employees"  and  related  interpretations  in
accounting for its stock option plans.  Accordingly, no compensation  cost has
been recognized for such plans. Had compensation cost been determined based on
the fair  value at the grant  dates for awards in 1996 and 1995  under the 
plan consistent  with the method of Statement of Financial  Accounting  
Standards No. 123,  "Accounting for Stock-Based  Compensation"
("SFAS 123"), the Company's pro forma net income and pro forma  earnings per 
share for the years ended  December 31, 1996 and 1995, would have been as 
follows:
<TABLE>
<S>                           <C>         <C>           <C>          <C>
                                    1996                             1995
                           As reported   Pro forma    As reported    Pro forma
                              (Dollars in thousands, except per share amounts)

Net income (loss)..........   $(1,738)    $(1,613)      $(1,555)      $(2,204)
Primary earnings per share.     (0.49)      (0.45)        (0.47)        (0.67)
Fully diluted earnings per share(0.45)      (0.42)        (0.42)        (0.59)

</TABLE>
The fair value of each option grant used for purposes of  estimating  the pro 
forma amounts  summarized  above is estimated on the date of grant using the 
Black-Scholes option-price model with the following weighted-average assumptions
for 1996 and 1995:
                                               1995 Grants
                                    Employee and Director Stock Option Plan
                                   --------------------------------------------
Risk-free interest rates..............         6.0%
Dividend yields.......................         0.0%
Volatility factors....................         466%
Weighted average expected life........       5 years
Weighted average fair value per share.        $1.44

The  Black-Scholes   option  valuation  model  was  developed  for  use  in 
estimating the fair value of traded options which have no vesting restrictions
and are fully transferrable.  In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility.   Because our employee stock options have characteristics 
significantly  different from those of traded  options, and because 
changes in subjective  assumptions can materially affect the fair value  
estimate, in management's opinion, the existing models do not provide a 
reliable  single measure of the fair value of its  employee  stock  options. 

A summary of the Company's  stock option activity and related information for 
the years ended December 31, 1996 and 1995, is presented below:
<TABLE>
<S>                                    <C>      <C>      <C>          <C>
                                         1996                        1995 
                                        ----------          ----------------   
                                      Weighted             Weighted
                                       average Exercise     average  Exercise
                                        shares  price       shares     price

Outstanding at the beginning of year.  435,466   N/A           0      
Granted..............................        0            435,466     $0.50
Exercised............................  (49,998)  $0.50 
Forfeited............................  (83,857)  $0.50                       
Outstanding at the end of the year...  301,611   $0.50    435,466     $0.50
Options exercisable at year-end......  301,611            435,466 
Available for future grant...........   83,857                  0
</TABLE>

NOTE 15 - MORTGAGE LOANS/COLLATERAL LOANS


The Company has three mortgage loans dated December 30, 1996, for $475,000 each.
Principal and interest (8%) is payable semi-annually in forty equal installments
beginning June 30, 1997.  The notes are secured by land with an estimated market
value of $1,900,000.

The Company has two collateral loans dated October 31, 1996 for $440,911 each. 
Interest (8%) is payable quarterly and principal is payable at July 31, 1997.  
The notes are secured by equity securities with a market value of $1,148,000 at
December 31, 1996.

NOTE 16 - SUBSEQUENT EVENTS

The Company also issued a convertible debenture totaling $1.5 million on 
May 21, 1997.  The proceeds of the debenture offering were used by the Company 
to pay the cost of the distribution of the debentures and to acquire 
approximately $1.35 million of mortgage notes and other securities from NAIL 
and for the general working capital of NAIL.

The terms of the debenture offering are as follows:

       Maximum amount of debentures offered:          $2,500,000
       Interest rate:                                 4 %
       Maturity:                                      April 1, 1999
       Conversion feature:                  Convertible at holder's option into
                                            shares of common stock of NAC

Each holder of the debenture is entitled, at its option, to convert at any time 
commencing forty-five (45) days after the closing of the sale of the debenture 
the principal amount plus accrued interest on the debenture into shares of the 
Company's common stock.  The conversion price shall equal the lesser of 
(a) $4.00 per share or (b) 80% of the market price of the conversion date.


                                                             Exhibit 10(g)
      FIFTH AMENDMENT TO STOCK PURCHASE AGREEMENT

     This Fifth Amendment ("Amendment") is to that certain Stock Purchase
Agreement ("Agreement") dated January 15, 1996, and as amended as of
February 26, 1996, May 13, 1996, August 13, 1996 and December 31, 1996
by and between National Affiliated Corporation, a Louisiana corporation and
registered insurance holding corporation ("Seller" or "NAC"), and The
Southern Group, Inc. a Maryland corporation ("Buyer" or "TSG").

     WHEREAS, the board of directors of NAC and the board of directors
of TSG have determined that it is in the best interests of NAC and TSG to
allow NAC to obtain additional capital through the sale of certain convertible
debentures to unrelated persons;

     WHEREAS, the terms of the convertible debentures provide each
holder of debentures with the right to convert any unpaid principal and accrued
interest with respect to the debentures into shares of common stock of NAC 
("NAC Shares");
     
     WHEREAS, the terms of the Stock Purchase Agreement, as amended,
provide to TSG as Buyer  the right to purchase all remaining authorized but
unissued NAC Shares;

     WHEREAS, the parties desire to enter into this Fifth Amendment to the
Stock Purchase Agreement ("Fifth Amendment") to provide for the
subordination of the rights of TSG to purchase additional NAC Shares to the
rights of any debenture holders to convert debentures into NAC Shares and for
the extension of the closing date for the acquisition of the NAC Shares by TSG
and  for an adjustment in the price per share for any NAC Shares acquired by
TSG after April 30, 1997;

     WHEREAS, the parties desire for the acquisition of the NAC Preferred
Stock,  Additional NAC Preferred Stock and the NAC Shares, as described in
the Agreement, the Amendment, the Second Amendment, the Third
Amendment, the Fourth Amendment and the Fifth Amendment, to constitute
a series of acquisitions all part of a common plan of transfer of assets from
Buyer to NAC in a transaction that will qualify as a non-taxable corporate
reorganization under section 368 of the Internal Revenue Code of 1986, as
amended;

     NOW THEREFORE, the parties hereby agree to modify the terms of
the Agreement as follows:

       1.Subordination of Stock Purchase Rights.TSG hereby
subordinates its rights to purchase additional NAC Shares to the conversion
rights of holders of the 4% Convertible Debentures, which are being issued by
NAC in a maximum principal amount of two million five hundred thousand
dollars ($2,500,000) ("Debentures").  This subordination shall remain effective
so long as any Debenture remain outstanding.  Once converted to NAC Shares,
a Debenture shall not be considered to be outstanding.  This subordination
shall also terminate on the date that the Articles of Incorporation of NAC are
duly amended to authorize additional shares of common stock in a number,
sufficient in the reasonable opinion of the board of directors of NAC to allow
for the conversion of any outstanding Debentures and the purchase by TSG of
the same number of shares as TSG has the right to purchase on the date
immediately preceding the date of this Fifth Amendment.

      2.Covenant to Propose Authorization of Additional NAC Shares.
     NAC agrees to take all reasonable efforts cause an increase in the
number of authorized shares of NAC common stock, including without
limitation proposing to its shareholders an amendment of the articles of
incorporation to increase the number of authorized shares of common stock.

      3.Modification of Dates for Subsequent Purchases of NAC Shares
 by TSG.

     The Agreement is amended hereby to permit additional closings at any
time prior to July 31, 1997, at which Buyer may purchase any or all of the
6,321,942 NAC Shares which have not been issued as of the Closing
("Additional Closings").  At each Additional Closing, Seller will deliver to
Buyer the NAC Shares to be issued, free and clear of all liens and
encumbrances and Buyer will deliver to Seller the Purchase Price therefor, and
no other deliveries of documents contemplated by Section 3.2 or 3.3 of the
Agreement will be required. The price per share of each of the NAC Shares
shall be increased to $0.85  for any acquisition of NAC Shares that is closed
after April 30, 1997 but before May 31, 1997, and shall be increased to $0.90 
for any acquisition of NAC Shares that is closed after May 31, 1997 but before
June 30, 1997, and shall be increased to $0.95 per share for any acquisition of
NAC Shares that closes after June 30, 1997 and before July 31, 1997.    

       4.Voting Agreement.The voting agreement provided in the
Fourth Amendment shall be amended to replace any reference to April 30,
1997 with a reference to July 31, 1997.

       5.Miscellaneous.Any other references in the Fourth
Amendment to April 30, 1997, which in such document was the last day on
which TSG could acquire NAC Shares under the terms of that document, are
hereby replaced with references to July 31, 1997, the last day on which TSG
is authorized to acquire NAC Shares under the terms of this Fifth Amendment.

       6.Interpretation.Terms used herein, which are not otherwise
defined or modified herein, but which are defined in the Agreement, shall have
the meanings therein ascribed to them.

       7.Binding Effect.This Amendment (a) shall be binding upon
and inure to the benefit of the parties hereto and their respective successors
and assigns; (b) may be modified or amended only in writing signed by each
party hereto; (c) may be executed by facsimile signatures and in several
counterparts, and by the parties hereto on separate counterparts, and each
counterpart, when so executed and delivered, shall constitute an original
agreement, and all such separate counterparts shall constitute one and the same
agreement; and (d) embodies the entire agreement and understanding between
the parties with respect to the subject matter hereof and supersedes all prior
agreements relating to such subject matter.  Accordingly, except as modified
by the terms of this Amendment, the terms of the Fourth Amendment shall
remain without amendment or modification.  In the event of a conflict between
this Fifth Amendment and any other written agreement between the parties,
including the Fourth Amendment, the terms of this Fifth Amendment shall
control.  
     
     IN WITNESS WHEREOF, the parties have duly executed this
Agreement on this the __ day of May, 1997.

SELLER:

NATIONAL AFFILIATED CORPORATION

By:______________________________
Name:___________________________
Its:______________________________

SUBSIDIARIES:

NATIONAL AFFILIATED INVESTORS LIFE INSURANCE COMPANY

By:______________________________
Name:___________________________
Its:______________________________

NATIONAL AFFILIATED MARKETING COMPANY

By:______________________________
Name:___________________________
Its:______________________________

AFFILIATED INVESTMENT MARKETING

By:______________________________
Name:___________________________
Its:______________________________

NATIONAL AFFILIATED FINANCE COMPANY

By:______________________________
Name:___________________________
Its:______________________________


PRACTICAL LEASING UNLIMITED SYSTEMS

By:______________________________
Name:___________________________
Its:______________________________


BUYER:

THE SOUTHERN GROUP, INC.

By:______________________________
Name:___________________________
Its:______________________________



                                                                 Exhibit 10(h)

     NEITHER THESE SECURITIES NOR THE SECURITIES
     ISSUABLE UPON CONVERSION  HEREOF HAVE BEEN
     REGISTERED WITH THE UNITED STATES SECURITIES
     AND EXCHANGE COMMISSION OR THE SECURITIES
     COMMISSION OF ANY STATE OR UNDER THE
     SECURITIES ACT OF 1933, AS AMENDED.  THE
     SECURITIES ARE RESTRICTED AND MAY NOT BE
     OFFERED, RESOLD, PLEDGED OR TRANSFERRED EXCEPT
     IN ACCORDANCE WITH REGULATION S UNDER THE ACT,
     OR AS PERMITTED UNDER THE ACT PURSUANT TO
     REGISTRATION OR EXEMPTION OR SAFE HARBOR
     THEREFROM. 

No. _________                                      US $

NATIONAL AFFILIATED CORPORATION

4% CONVERTIBLE DEBENTURE DUE APRIL 1, 1999


         THIS DEBENTURE is one of a duly authorized issue of $2,500,000 in
Debentures of NATIONAL AFFILIATED CORPORATION, a corporation duly
organized and existing under the laws of the State of Florida (the "Company")
designated as its 4% Convertible Debenture Due April 1, 1999.

         FOR VALUE RECEIVED, the Company promises to pay to
_____________________________, the registered holder hereof (the "Holder"),
the principal sum of ____________________________________ and no/100 (US
$_______________) Dollars on April 1, 1999 (the "Maturity Date") and to pay
interest on the principal sum outstanding from time to time in arrears on 
April 1, 1999 at the rate of 4% per annum accruing from the date of initial 
issuance.  Accrual of interest shall commence on the first such business day to
occur after the date hereof until payment in full of the principal sum has 
been made or duly provided for.    Subject to the provisions of Paragraph 4 
below, the principal of, and interest on, this Debenture are payable at the 
option of the Holder, in shares of Common Stock of the Company or in such coin 
or currency of the United States of America as at the time of payment is legal 
tender for payment of public and private debts, at
the address last appearing on the Debenture Register of the Company as
designated in writing by the Holder from time to time.  The Company will pay the
principal of and interest upon this Debenture on the Maturity Date, less any
amounts required by law to be deducted, to the registered holder of this 
Debenture as of the tenth day prior to the Maturity Date and addressed to such 
holder as the last address appearing on the Debenture Register.  The forwarding
of such check shall constitute a payment of interest hereunder and shall 
satisfy and discharge the liability for principal and interest on this Debenture
to the extent of the sum represented by such check plus any amounts so deducted.

         This Debenture is subject to the following additional provisions:

          1.The Debentures are issuable in denominations of Ten Thousand
Dollars (US$ 10,000) and integral multiples thereof.  The Debentures are
exchangeable for an equal aggregate principal amount of Debentures of different
authorized denominations, as requested by the Holders surrendering the same.  No
service charge will be made for such registration or transfer or exchange.

          2.The Company shall be entitled to withhold from all payments of
principal of, and interest on, this Debenture any amounts required to be 
withheld under the applicable provisions of the United States income tax laws 
or other applicable laws at the time of such payments, and Holder shall execute
and deliver all required documentation in connection therewith.

          3.This Debenture has been issued subject to investment
representations of the original purchaser hereof and may be transferred or
exchanged only in compliance with the Securities Act of 1933, as amended (the
"Act"), and other applicable state and foreign securities laws.  In the event of
any proposed transfer of this Debenture, the Company may require, prior to 
issuance of a new Debenture in the name of such other person, that it receive 
reasonable transfer documentation including opinions that the issuance of the 
Debenture in such other name does not and will not cause a violation of the Act
or any applicable state or foreign securities laws.   Prior to due presentment 
for transfer of this Debenture, the Company and any agent of the Company may 
treat the person in whose name this Debenture is duly registered on the 
Company's Debenture Register as the owner hereof for the purpose of receiving 
payment as herein provided and for all other purposes, whether or not this 
Debenture be overdue, and neither the Company nor any such agent shall be 
affected by notice to the contrary.

          4.The Holder of this Debenture is entitled, at its option, to convert
at any time (a) commencing forty-five (45) days after the closing of sale of the
debenture (the "Closing"), the principal amount of this Debenture, provided that
the principal amount is at least US $10,000 (unless if at the time of such 
election to convert the aggregate principal amount of all Debentures registered
to the Holder is less that Ten Thousand Dollars (US $10,000), then the whole 
amount thereof) into shares of Common Stock of the Company at a conversion price
for each share of Common Stock equal to lesser of (a) $4.00 or (b) 80% of the 
Market Price on the Conversion Date.  For purposes of this Section 4, the Market
Price shall be the average closing bid price of the Common Stock on the five (5)
trading days immediately preceding the Closing or Conversion Date, as may be 
applicable, as reported by the National Association of Securities Dealers, or 
the  closing bid price on the over-the-counter market on such date or, in the 
event the Common Stock is listed on a stock exchange, the Market Price shall be
the closing price on the exchange on such date, as reported in the Wall Street 
Journal.  Conversion shall be effectuated by surrendering the Debentures to be 
converted to the Company with the form of conversion notice attached hereto as 
Exhibit A, executed by the Holder of the Debenture evidencing such Holder's 
intention to convert this Debenture or a specified portion (as above provided) 
hereof, and accompanied, if required by the
Company, by proper assignment hereof in blank.  Interest accrued or accruing
from the date of issuance to the date of conversion shall, at the option of the
Holder, be paid in cash or Common Stock upon conversion.  No fraction of Shares
or scrip representing fractions of shares will be issued on conversion, but the
number of shares issuable shall be rounded to the nearest whole share.  The date
on which notice of conversion is given (the "Conversion Date") shall be deemed 
to be the date on which the Holder has delivered this Debenture, with the 
conversion notice duly executed, to the Company or, if earlier, the date set 
forth in such notice of conversion if the Debenture is received by the Company 
within three (3) business days therefrom.  Facsimile delivery of the conversion 
notice shall be accepted by the Company at telephone number (318) 442-3318.  
Certificates representing Common Stock upon conversion will be delivered within
two (2) business days from the date the notice of conversion is delivered to the
Company.

          5.No provision of this Debenture shall alter or impair the obligation
of the Company, which is absolute and unconditional, to pay the principal of, 
and interest on, this Debenture at the time, place, and rate, and in the coin or
currency, herein proscribed.  This Debenture and all other Debentures now or 
hereafter issued of similar terms are direct obligations of the Company.  

          6.No recourse shall be had for the payment of the principal of, or the
interest on, this Debenture, or for any claim based hereon, or otherwise in 
respect hereof, against any incorporator, shareholder, officer or director, as 
such, past, present or future, of the Company or any successor corporation, 
whether by virtue of any constitution, statute or rule of law, or by the 
enforcement of any assessment or penalty or otherwise, all such liability being,
by the acceptance hereof and as part of the consideration for the issue hereof,
expressly waived and released.

          7.If the Company merges or consolidates with another corporation or
sells or transfers all or substantially all of its assets to another person and
the holders of the Common Stock are entitled to receive stock, securities or 
property in respect of or in exchange for Common Stock, then as a condition of
such merger, consolidation, sale or transfer, the Company and any such 
successor, purchaser or transferee shall amend this Debenture to provide that it
may thereafter be converted on the terms and subject to the conditions set forth
above into the kind and amount of stock, securities or property receivable upon
such merger, consolidation, sale or transfer by a holder of the number of shares
of Common Stock into which this Debenture might have been converted immediately
before such merger, consolidation, sale or transfer, subject to adjustments 
which shall be as nearly equivalent as may be practicable.  In the event of any
proposed merger, consolidation or sale or transfer of all or substantially all 
of the assets of the Company (a "Sale"), the Holder hereof shall have the right
to convert by delivering a Notice of Conversion to the Company within fifteen 
(15) days of receipt of notice of such Sale from the Company.  In the event the
Holder hereof shall elect not to convert, the Company may prepay all outstanding
principal and accrued interest on this Debenture, less all amounts required by 
law to be deducted, upon wtice, the right of conversion shall terminate.

          8.The Holder of the Debenture, by acceptance hereof, agrees that this
Debenture is being acquired for investment and that such Holder will not offer,
sell or otherwise dispose of this Debenture or the Shares of Common Stock 
issuable upon conversion thereof except under circumstances which will not 
result in a violation of the Act or any applicable state Blue Sky or foreign 
laws or similar laws relating to the sale of securities.

          9.      This Debenture shall be governed by and construed in 
accordance with the laws of
the State of New York.  Each of the parties consents to the jurisdiction of the
federal courts whose districts encompass any part of the City of New York or the
state courts of the State of New York sitting in the City of New York in
connection with any dispute arising under this Agreement and hereby waives, to
the maximum extent permitted by law, any objection, including any objection 
based on forum non coveniens, to the bringing of any such proceeding in such 
jurisdictions.

          10.The following shall constitute an "Event of Default":

         a.   The Company shall default in the payment of principal or
              interest on this Debenture; or

         b.   Any of the representations or warranties made by the
              Company herein, in the Subscription Agreement, or in any
              certificate or financial or other written statements heretofore
              or hereafter furnished by the Company in connection with
              the execution and delivery of this Debenture or the
              Subscription Agreement shall be false or misleading in any
              material respect at the time made; or

         c.   The Company fails to issue shares of Common Stock to the
              Holder or to cause its Transfer Agent to issue shares of
              Common Stock upon exercise by the Holder of the
              Conversion rights of the Holder in accordance with the
              terms of this Debenture, fails to transfer or to cause its
              Transfer Agent to transfer any certificate for shares of
              Common Stock issued to the Holder upon conversion of
              this Debenture and when required by this Debenture, or fails
              to remove any restrictive legend or to cause its Transfer
              Agent to transfer on any certificate or any shares of
              Common Stock issued to the Holder upon conversion of
              this Debenture as when required by this Debenture, and any
              such failure to the Company of such failure; or

         .    The Company shall fail to perform or observe, in any
              material respect, any other covenant, term, provision,
              condition, agreement or obligation of the Company under
              this Debenture and such failure shall continue uncured for a
              period of thirty (30) days after written notice from the
              Holder of such failure; or

         e.   The Company shall (1)  admit in writing its inability to pay
              its debts generally as they mature; (2) make an assignment
              for the benefit of creditors or commence proceedings for its
              dissolution; or (3) apply for or consent to the appointment
              of a trustee, liquidator or receiver for its or for a substantial
              part of its property or business; or

         f.   A trustee, liquidator or receiver shall be appointed for the
              Company or for a substantial part of its property or business
              without its consent and shall not be discharged within sixty
              (60) days after such appointment; or

         g.   Any governmental agency or any court of competent
              jurisdiction at the instance of any governmental agency shall
              assume custody or control of the whole or any substantial
              portion of the properties or assets of the Company and shall
              not be dismissed within sixty (60) days thereafter; or

         h.   Any money judgment, writ or warrant of attachment, or
              similar process in excess of Two Hundred Thousand
              ($200,000) Dollars in the aggregate shall be entered or filed
              against the Company or any of its properties or other assets
              and shall remain unpaid, unvacated, unbonded or unstayed
              for a period of sixty(60) days or in any event later than five
              (5) days prior to the date of any proposed sale thereunder;
              or

         i.   Bankruptcy, reorganization, insolvency or liquidation
              proceedings or other proceedings for relief under any
              bankruptcy law or any law for the relief of debtors shall be
              instituted by or against the Company and, if instituted
              against the Company, shall not be dismissed within sixty
              (60) days after such institution or the Company shall by any
              action or answer approve of, consent to, or acquiesce in any
              such proceedings or admit the material allegations of, or
              default in answering a petition filed in any such proceeding;
              or

         j.   The Company shall have its Common Stock suspended or
              delisted from an exchange or over-the-counter market from
              trading. 

Then, or at any time thereafter, and in each and every such case, unless such 
Event of Default shall have been waived in writing by the Holder (which waiver 
shall not be deemed to be a waiver of any subsequent default) at the option of 
the Holder and in the Holder's sole discretion, the Holder may consider this 
Debenture immediately due and payable, without presentment, demand, protest or 
notice of any kinds, all of which are hereby expressly waived, anything herein 
or in any note or other instruments contained to the contrary notwithstanding, 
and the Holder may immediately enforce any and all of the Holder's rights and 
remedies provided herein or any other rights or remedies afforded by law.

          11.Nothing contained in this Debenture shall be construed as
conferring upon the Holder the right to vote or to receive dividends or to 
consent or receive notice as a shareholder in respect of any meeting of 
shareholders or any rights whatsoever as a shareholder of the Company, unless 
and to the extent converted in accordance with the terms hereof.

         IN WITNESS WHEREOF, the Company has caused this instrument to be
duly executed
by an officer thereunto duly authorized.

Dated: __________________, 1997
         NATIONAL AFFILIATED CORPORATION
         By:
_________________________________________
         
_________________________________________
         (Print Name)
_________________________________________
         (Title)

ATTEST:


________________________________________

                       EXHIBIT A


                  NOTICE OF CONVERSION

(To be Executed by the Registered Holder in order to Convert the Debenture)



         The undersigned hereby irrevocably elects to convert $
________________ of the principal amount of the above Debenture No. ___ into
Shares of Common Stock of NATIONAL AFFILIATED CORPORATION. (the
"Company") according to the conditions hereof, as of the date written below.

         The undersigned represents that it is not a U.S. Person as defined in
Regulation S promulgated under the Securities Act of 1933 and is not converting
the Debenture on Behalf of any U.S. Person.

Date of Conversion 
_______________________________________________________________

Applicable Conversion Price 
________________________________________________________


Signature
__________________________________________________________________
         [Name]

 Address:
__________________________________________________________________
         
__________________________________________________________________




* This original Debenture and Notice of Conversion must be received by the
Company by the fifth business date following the Date of Conversion.