SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20429

                                    FORM 10-K

[X]               ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                   For the fiscal year ended December 31, 1997

 [   ]          TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
          For the transition period from _____________ to _____________

                        Commission file Number 333-16867

                           Outsourcing Solutions Inc.
             (Exact name of registrant as specified in its charter)

               Delaware                                58-2197161
    (State or other jurisdiction of      (I.R.S. Employer Identification Number)
    incorporation or organization)
 390 South Woods Mill Road, Suite 350
        Chesterfield, Missouri                            63017
(Address of principal executive office)                (Zip Code)

Registrant's telephone number, including area code:  (314) 576-0022

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

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

Securities registered pursuant to Section (g) of the Act:

                                      None
                              (Title of each class)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days.

                          Yes    X       No

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation S-K (Section 229.405 if this chapter) is not contained herein, and
will not 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-K or any amendment to this Form 10-K. [X]

The  aggregate  market value of the voting stock held by  non-affiliates  of the
registrant is not determinable, as the stock is not publicly traded.

APPLICABLE  ONLY TO CORPORATE  REGISTRANTS:  As of March 17, 1998, the following
shares of the Registrant's common stock were issued and outstanding:

  Voting common stock                                               3,425,126.01
  Class A convertible nonvoting common stock                          391,740.58
  Class B convertible nonvoting common stock                          400,000.00
  Class C convertible nonvoting common stock                        1,040,000.00
                                                                    ------------
                                                                    5,256,866.59
                                                                    ============

DOCUMENTS INCORPORATED BY REFERENCE:  None


<PAGE>


PART I

ITEM 1.  BUSINESS

General

Outsourcing  Solutions Inc., a Delaware Corporation (the "Company" or "OSI") was
formed on September 21, 1995 to build, through a combination of acquisitions and
sustained internal growth,  one of the leading providers of accounts  receivable
management services.

In  September  1995,  OSI  initiated  this  strategy  with  the  acquisition  of
Atlanta-based  Accounts Portfolios,  L.P. ("API"), one of the largest purchasers
and managers of non-performing accounts receivable portfolios.  In January 1996,
OSI acquired Continental Credit Services, Inc. ("Continental") and A.M. Miller &
Associates  ("Miller"),  two industry  leaders in the  contingent  fee business.
Continental,  which is  headquartered  in Seattle and operates in eight  western
states,  provides  contingent fee services to a wide range of end markets,  with
particular emphasis on public utilities and regional telecommunications. Miller,
based in Minneapolis,  provides  contingent fee services to the student loan and
bank credit card end markets.

In November  1996,  OSI  acquired  Payco  American  Corporation  ("Payco")  with
corporate offices in Brookfield,  Wisconsin.  Originally founded as a contingent
fee service company,  Payco has diversified into other outsourcing services such
as student loan billing, health care accounts receivable billing and management,
contract management of accounts receivable and teleservicing. Upon completion of
the Payco  acquisition,  the  Company  became one of the  largest  providers  of
accounts receivable management services in the United States.

In October 1997, OSI acquired North Shore Agency,  Inc.  ("NSA"),  a fee service
company  headquartered  in Long Island,  New York.  NSA  specializes  in "letter
series"  collection  services for direct marketers  targeted at collecting small
balance debts.  The majority of NSA's  revenues are generated  from  traditional
contingent  collections  utilizing  letters with the remaining  revenues derived
from fixed fee letter services.

In November 1997, OSI acquired Accelerated Bureau of Collections,  Inc. ("ABC").
ABC is a Denver-based  national fee service  company.  ABC specializes in credit
card  collections and derives  approximately  25% of its revenues from early-out
programs with the remaining 75% of revenues derived from standard contingent fee
collections.

In December 1997, the Company  entered into a Share Purchase  Agreement and Plan
of Merger (the "Merger Agreement") with The Union Corporation ("Union") pursuant
to which Union will become a wholly-owned subsidiary of the Company. The Company
expects to complete the transaction by April 1998.

Industry

As a  result  of the  rapid  growth  of  outstanding  consumer  credit  and  the
corresponding  increase in  delinquencies,  credit  grantors  have  increasingly
looked to third party  service  providers in managing  the  accounts  receivable
process.  In  addition,  rapid  consolidation  in the  largest  credit  granting
industries,  including banking,  health care,  telecommunications and utilities,
has forced  companies  to focus on core  business  activities  and to  outsource
ancillary  functions,  including some or all aspects of the accounts  receivable
management  process.  Contingent fee companies dominate the accounts  receivable
management industry, with the American Collectors Association estimating that in
1996 there were  approximately  6,000  contingent fee agencies.  The industry is
currently  characterized by a high degree of fragmentation  with a corresponding
trend in recent  years  toward  consolidation.  Over the past  twenty  years the
number of contingent fee providers has decreased by approximately twenty percent
and, between 1992 and 1995, the ten largest  contingent fee providers  increased
their market share from 15% to over 42%.

The accounts receivable  management industry has undergone rapid growth over the
past fifteen  years.  According to the  industry  research  firm of M. Kaulkin &
Associates,  account  placements to servicers  increased at a compounded  annual
growth rate of 13.1% from 1980 to 1994 and are  projected to continue to grow at
8.5% from 1994 to 2000.  New placements in 1994, the last year for which data is
available,  totaled  $84.2  billion and are  expected to grow to $137 billion in
2000.  According to the Nilson Report, a leading expert in payment systems,  the
total  amount  of  revenues  generated  by  all  contingent  fee  companies  was
approximately  $5.0  billion in 1995.  Two  significant  trends in the  consumer
credit  industry are  primarily  responsible  for this industry  growth.  First,
consumer debt (a leading  indicator of current and future  business for accounts
receivable  management  companies) has increased  dramatically  in recent years.
Between 1990 and 1995,  total  consumer debt increased 37% from $3.6 trillion to
almost $5.0 trillion.  Second, in an effort to focus on core business activities
and to take advantage of the economies of scale,  better  performance  and lower
cost structure offered by accounts receivable management companies,  many credit
grantors have chosen to outsource some or all aspects of the accounts receivable
management process.

The customer base for the accounts  receivable  management industry is dominated
by credit issuers in four end-markets:  banks/bankcard,  health care,  utilities
and telecommunications.  According to the American Collectors Association, these
four  industries  accounted for $66.7 billion in account  placements in 1994, or
nearly 80% of the total placement volume.  Other significant  sources of account
placements  for the  industry  include  retail,  student  loan  agencies and oil
companies.  The Company believes that the ongoing  consolidation in the banking,
utilities,  telecommunications  and health care  industries  will create  larger
national customers seeking to place accounts with accounts receivable management
companies  that have the  resources  to offer  national  rather  than  local and
regional coverage.

The accounts receivable management industry is closely regulated by federal laws
such as the Fair Debt Collection Practices Act ("FDCPA") and similar state laws.

Contingent fee services are the  traditional  services  provided in the accounts
receivable   management  industry.   Creditors  typically  place  non-performing
accounts  after they have been deemed  non-collectible,  usually  when 90 to 120
days past due. The commission rate is generally based on the  collectability  of
the asset in terms of the costs, which the contingent fee servicer must incur to
effect repayment. The earlier the placement (i.e., the less elapsed time between
the past due date of the  receivable  and the date on which  the debt is  placed
with the contingent fee servicer),  the higher the probability of recovering the
debt,  and therefore the lower the cost to collect and the lower the  commission
rate. Creditors typically assign their charged-off receivables to contingent fee
servicers for a six to twelve month cycle,  and then reassign the receivables to
other  servicers as the accounts  become  further past due. There are three main
types  of  placements  in the  contingent  fee  business,  each  representing  a
different  stage in the cycle of  account  collection.  Primary  placements  are
accounts,  typically  120 to 270 days  past  due,  that are  being  placed  with
agencies for the first time and usually receive the lowest commission. Secondary
placements,  accounts 270 to 360 days past due,  have already been placed with a
contingent  fee  servicer  and  usually  require a process  including  obtaining
judgments,  asset  searches,  and other more rigorous  legal  remedies to ensure
repayment and,  therefore,  receive a higher  commission.  Tertiary  placements,
accounts  usually  over  360 days  past  due,  involve  legal  judgments,  and a
successful   collection   receives  the  highest   commission.   Customers   are
increasingly  placing  accounts with accounts  receivable  management  companies
earlier in the collection cycle, often prior to the 120 days past due typical in
primary placements, either under a contingent fee or fixed fee arrangement.

While contingent fee servicing  remains the most widely used method by creditors
in recovering  non-performing  accounts,  portfolio  purchasing has increasingly
become a popular  alternative.  Beginning in the 1980's,  the  Resolution  Trust
Company and the Federal Deposit Insurance  Company,  under government mandate to
do so,  began to sell  portfolios  of  non-performing  loans.  Spurred on by the
success of these  organizations in a selling  charged-off  debt, other creditors
likewise began to sell portfolios of non-performing  debt.  Management estimates
the total  principal  value of  purchased  portfolios  at between  $2.5 and $5.5
billion per year, and based on the Company's experience,  the annual growth rate
of the  portfolio  purchasing  market  segment  for the period  1990 to 1995 was
between 50% and 80%. The largest  percentage of purchased  portfolios  originate
from the bank card receivable and retail markets and are typically  purchased at
a deep  discount  from the aggregate  principal  value of the accounts,  with an
inverse correlation  between purchase price and age of the delinquent  accounts.
Once purchased, traditional collection techniques are employed to obtain payment
of non-performing accounts.

Accounts receivable  management  companies have responded to the increasing need
of credit granting companies to outsource other related services as well. Due to
the rapid growth in consumer credit, credit grantors need assistance in managing
increasingly large and complex call centers and accounts  receivable  management
companies  have  stepped  in to provide a variety of  services.  These  services
include, among others,  third-party billing services and customer teleservicing.
Accounts  receivable  management  companies  have found  that their  traditional
experience in managing a large staff in a telephone-based environment provides a
solid base for entering into these  relatively  new and rapidly  growing  market
segments.

The accounts  receivable  management  industry has  progressed in  technological
sophistication  over  the  past  several  years  with  the  advancement  of  new
technology. Today, leading companies in this industry use proprietary databases,
automated predictive dialers,  automatic call distributors and computerized skip
tracing   capabilities   to   significantly   increase  the  number  of  quality
interactions  with  debtors.  This  technological   advancement  is  helping  to
accelerate  industry  consolidation  and facilitates  providing related accounts
receivable  management  outsourcing  services.  The  firms  which  have the most
efficient operating system and can best use credit information typically collect
more funds per account dollar and thus are awarded  disproportionately  more new
accounts.

Business Strategy

The Company's market position and breadth of services distinguishes it as one of
the leading providers of accounts  receivable  management services in the United
States.  The Company's  business strategy is to expand this position through the
following initiatives:

     FULL SERVICE  PROVIDERS/CROSS-SELLING  SERVICES TO EXISTING CUSTOMERS.  The
Company is a full service firm which currently offers its customers a wide array
of accounts  receivable  management  options beyond  traditional  contingent fee
services,  including  letter  series and  higher  margin  portfolio  purchasing,
contract  management of accounts  receivable,  billing and  teleservicing.  This
range of services  allows the Company to  cross-sell  its  offerings  within its
existing  customer  base,  as well as to  potential  customers  in  specifically
targeted industries.

     EXPANSION  OF CUSTOMER  BASE.  Two of the most  important  determinants  in
selecting an accounts receivable  management service provider are reputation and
experience.  As the Company develops expertise and recognition with customers in
a particular industry, it markets that expertise to other credit grantors in the
industry. In addition, consolidation in the bank, retail, utility, student loan,
health care and telecommunications industries has created national customers who
are  moving  part or all of  their  accounts  receivable  collection  management
business to national service  providers.  With the ability to offer its services
in all 50 states  and  experience  in  successfully  managing  a high  volume of
placements on a national  basis,  the Company is well positioned to benefit from
this consolidation trend. The Company is also focused on increasing its business
with government  agencies at the federal,  state and local levels, many of which
have begun to outsource  accounts  receivable  functions for items such as taxes
and student loans to private companies.

     LEVERAGING   TECHNOLOGY.   The  Company  has   invested   aggressively   in
technological  innovations to enhance its  competitive  advantages  over smaller
competitors.  The Company  has  hardware  and  proprietary  software,  including
debtor-scoring models and debtor databases, which the Company believes, provides
it with a competitive  advantage in pricing  portfolios and  collecting  amounts
from debtors. In addition, the Company utilizes automated predictive dialers and
skip  tracing  databases  in  order  to allow  account  representatives  to work
accounts more efficiently. Through interface with creditor computer systems, the
Company can efficiently  receive new account placements from customers daily and
provide frequent updates to customers on the status of accounts collections.  As
the Company  begins to provide  more  comprehensive  outsourcing  services,  the
Company becomes more integrated with its customers'  systems,  making  switching
vendors both costly and inefficient.

     GROWTH  THROUGH  ACQUISITIONS.  The Company has built its position  through
strategic  acquisitions of accounts  receivable service providers in each of the
markets  in which it  participates.  The  Company  plans to  selectively  pursue
additional  acquisitions  which complement its existing services or increase its
customer base.

Services

The Company is one of the largest  providers of accounts  receivable  management
services in the United States.  The Company offers its customers  contingent fee
services, portfolio purchasing services and related outsourcing services.

     CONTINGENT  FEE  SERVICES.  The Company is one of the largest  providers of
contingent fee services in the United States. The Company offers a full range of
contingent fee services,  including early-out programs and letter series, to all
consumer credit end-markets.  The Company utilizes it sophisticated MIS and vast
experience  with  locating,  contacting  and effecting  payment from  delinquent
account  holders in providing its core  contingent  fee  services.  With 53 call
centers  in 25 states  and  approximately  4,100  account  representatives,  the
Company  has the  ability to service  large  volume of  accounts  with  national
coverage.  In addition to  traditional  contingent  fee services  involving  the
placement of accounts over 120 days  delinquent,  creditors have begun to demand
services in which accounts are outsourced  earlier in the collection  cycle. The
Company has responded to this trend by developing "early-out" programs,  whereby
the Company  receives  placed  accounts that are less than 120 days past due and
earns a fixed fee per  placed  account  rather  than a  percentage  of  realized
collections.   These  programs   require  a  greater  degree  of   technological
integration between the Company and it's customers,  leading to higher switching
costs. The Company primarily  services consumer  creditors  although the Company
has  a  growing  presence  in  the  commercial  collection  business,   offering
contingent fee services to commercial creditors as well.

     PORTFOLIO  PURCHASING  SERVICES.  The Company offers  portfolio  purchasing
services to a wide range of educational  institutions,  financial  institutions,
government  agencies  and  retailers.  The Company  purchases  large and diverse
portfolios  of  non-performing  consumer  receivables  both  on an  individually
negotiated basis as well as through "forward flow" agreements. Most individually
negotiated  transactions involve tertiary paper (i.e., accounts that are between
180 to 360 days past due). Under forward flow agreements,  the Company agrees to
purchase  charged off  receivables  on a monthly  basis as they become past due.
Creditors  selling  portfolios  to the  Company  realize a number  of  benefits,
including  increased  predictability  of cash flow,  reduction in monitoring and
administrative  expenses  and  reallocation  of assets  from  non-core  business
functions to core business functions.

The  Company's  purchased  portfolios  consist  primarily of consumer  loans and
credit card  receivables,  student loan receivables and health club receivables,
including  portfolios  purchased under forward flow  agreements.  Consumer loans
purchased include automobile receivables, mobile home receivables and commercial
real estate receivables.  The Company's most recent portfolio  acquisitions have
been  primarily  purchases  pursuant to the Company's  health club and bank card
forward  flow  agreements.  The  Company  continues  to pursue  acquisitions  of
portfolios in various industries for individually negotiated purchases.

The  Company has  recently  established  a sourcing  relationship  with  Sherman
Financial Group, L.L.C. ("Sherman"). Sherman's focus is singularly on developing
a  distressed  debt  business on behalf of the Company.  The Company  expects to
benefit  from  Sherman's  existing  client  relationships,   industry  marketing
expertise,  pricing technology and negotiating  expertise with illiquid products
in "one-off" transactions.

     RELATED OUTSOURCING SERVICES. As the volume of consumer credit has expanded
across a number of  industries,  credit  grantors  have begun  demanding a wider
range of outsourcing services.  In response,  the Company has developed a number
of other accounts  receivable  management  services.  The Company  leverages its
operational  expertise and call and data  management  technology by offering the
following services: (1) contract management,  through which the Company performs
a range of accounts receivable  management services at the customer's  location,
(2) student loan billing,  whereby the Company provides  billing,  due diligence
and customer service services,  (3) health care accounts receivable  management,
whereby the Company assumes  responsibility  for managing  third-party  billing,
patient pay resolution,  inbound and outbound patient communication services and
cash application  functions,  and (4) teleservicing,  whereby the company offers
inbound and  outbound  calling  programs to perform  sales,  customer  retention
programs, market research and customer service.

Sales and Marketing

The  Company  has a sales  force  of  approximately  130  sales  representatives
providing  comprehensive  geographic  coverage of the United  States on a local,
regional  and  national  basis.  The Company also markets its services in Puerto
Rico and Mexico.  Each of the operating  companies  maintain its own sales force
and have a marketing  strategy closely tailored to the  credit-granting  markets
that it serves. The Company's primary sales and marketing objective is to expand
its  customer  base in those  customer  industries  in which it has a particular
expertise and to target new  customers in high growth end markets.  The Company,
through its established  operating company brand names,  emphasizes its industry
experience  and   reputation--two  key  factors  considered  by  creditors  when
selecting an accounts  receivable  service provider.  Increasingly,  the Company
will  focus on  cross-selling  its full  range of  outsourcing  services  to its
existing  customers  and will use its product  breadth as a key selling point in
creating new business.  The Company's overall sales and marketing strategies are
coordinated  by the  corporate  office  Chesterfield,  Missouri,  which  is also
responsible  for  monitoring  the  sales  performance  of each of the  operating
entities.

Customers

The  Company's  customer  base  includes  a full  range of local,  regional  and
national creditors. The company's customers include American Express,  Citicorp,
Bally's,  Time Warner,  Discover  Card,  Ameritech,  US West,  AT&T,  First USA,
Columbia  House,  New Jersey  Department of Treasury,  and various  student loan
guaranty agencies  (including the California  Student Aid Commission,  USA Group
Guaranty  Services Inc. and the Great Lakes Higher Education  Corporation).  The
Company's largest customer accounted for less than 10% of 1997 revenues.

Employees

The  company  employs  approximately  5,000  people,  of which 4,100 are account
representatives,    130   are   sales    representative    and   770   work   in
corporate/supervisory  and  administrative  functions.  None  of  the  Company's
employees are unionized,  and the Company  believes its relations with employees
are satisfactory.

The Company is  committed  to  providing  continuous  training  and  performance
improvement  plans to increase the productivity of its account  representatives.
Account  representatives  receive extensive training in a classroom  environment
for several  days on Company  procedures,  information  systems and  regulations
regarding contact with debtors.  The training includes technical topics, such as
use of on-line collection systems and skip-tracing techniques and tools, as well
as instruction  regarding the Company's  approach to the collection  process and
listening, negotiation and problem-solving skills, all of which are essential to
efficient and effective collections.

Account  representatives are then assigned to work groups for a training period.
Initially, the trainees only screen incoming calls. This allows less experienced
account  representatives  to communicate with debtors in a less  confrontational
environment  than may be  experienced  with outgoing  calls.  Additionally,  the
trainees  are  assigned  accounts,  which  based upon  scoring by the  Company's
information systems, have a higher likelihood of collection.  After the training
period, the account representatives begin working accounts directly.

Competition

The  accounts   receivable   management   industry  is  highly   fragmented  and
competitive.  According  to  the  American  Collectors  Association,  there  are
approximately  6,000 contingent fee service companies in the United States, with
the 15 largest  agencies  currently  receiving  33% of all accounts  placed with
outside  collection  agencies.  Competition is based largely on recovery  rates,
industry  experience  and reputation  and service fees.  Large volume  creditors
typically  employ more than one accounts  receivable  management  company at one
time,  and often  compare  performance  rate and  rebalance  account  placements
towards higher  performing  servicers.  The largest  competitors  include Deluxe
Corporation, Equifax Corporation, FCA International and G.C. Services.

Governmental Regulatory Matters

Certain of the Company's operations are subject to compliance with the FDCPA and
comparable  statutes in many states.  Under the FDCPA, a third-party  collection
agency is  restricted  in the  methods it uses to  collect  consumer  debt.  For
example,  a  third-party  collection  agency is  limited in  communicating  with
persons other than the consumer about the consumer's request. Requirements under
state collection agency statutes vary, with most requiring compliance similar to
that  required   under  the  FDCPA.   In  addition,   most  states  and  certain
municipalities  require collection  agencies to be licensed with the appropriate
authorities before collecting debts from debtors within those jurisdictions.  It
is the Company's  policy to comply with the provisions of the FDCPA,  comparable
state statues and applicable licensing requirements. The Company has established
policies and  procedures to reduce the likelihood of violations of the FDCPA and
related state statutes. All account  representatives  receive extensive training
on  these   policies   and  must  pass  a  test  on  the  FDCPA.   Each  account
representative's  desk has a list of suggested  and  prohibited  language by the
telephone.  The agents  work in an open  environment  which  allows  managers to
monitor interaction with debtors,  and the system  automatically alerts managers
of potential problems if calls extend beyond a certain duration.

There have been no further  developments in the Federal Trade Commission ("FTC")
inquiry at API. The FTC is  conducting  an informal  inquiry to determine if API
has violated any provision of the FDCPA.  The Company is fully  cooperating with
the FTC and responding to any and all inquiries.  The Company  believes that the
ultimate resolution of the FTC's inquiry will not have a material adverse effect
on the financial position or results of operations of the Company.

Subsequent Event

On January 23, 1998, the Company acquired  approximately  77% of the outstanding
shares of Union  common  stock for  $31.50  per  share.  Pursuant  to the Merger
Agreement, the Company agreed to acquire any of the remaining outstanding shares
of Union  pursuant to a second-step  merger in which holders of such shares will
receive  $31.50 per share.  The Company  expects to complete the merger by April
1998.  The aggregate  purchase  price of the common stock will be  approximately
$192.0  million.  The  acquisition  will be  accounted  for under  the  purchase
accounting method.

Union  was  originally  a  conglomerate  involved  in  businesses  ranging  from
electronic and industrial  components to financial  services.  Today, Union is a
leading  provider  of a range of  outsourcing  services  to both large and small
clients.  Union provides  contingent and fixed fee collection services and other
related outsourcing services.

Union  provides fee services  through the following  wholly-owned  subsidiaries:
Allied Bond & Collection  Agency,  Inc.  ("Allied"),  Capital Credit Corporation
("Capital  Credit"),  and  Transworld  Systems,  Inc.  ("Transworld").   Allied,
headquartered  in  Trevose,  Pennsylvania,  provides  contingent  and  fixed fee
collection  services for large clients  across a broad  spectrum of  industries.
Capital Credit, headquartered in Jacksonville, Florida, also provides contingent
and fixed fee collection  services for large national clients  primarily serving
the  bankcard,  telecommunications,  travel  and  entertainment  and  government
sectors.  Transworld,  headquartered in Rohnert Park, California, is the largest
prepaid,  fixed  fee  outsourcer  of  delinquent  account  management  services.
Transworld's  clients are primarily small companies with low balance  delinquent
accounts.  Transworld  provides  clients with a two phase  system.  Phase I is a
fixed  fee,  computer  generated  "letter  series".  Phase  II is a  traditional
contingent fee collection system designed to collect those accounts that are not
collected  during Phase I. Union provides related  outsourcing  services through
its Interactive  Performance,  Inc. ("IPI") and High Performance Services,  Inc.
("HPSI") subsidiaries.  IPI, headquartered in North Charleston,  South Carolina,
provides a range of credit and receivables  management  outsourcing  services to
telecommunications  companies  primarily  in the  form of  teleservicing.  IPI's
services include inbound and outbound calling programs for credit authorization,
customer   service,   usage   management  and  receivables   management.   HPSI,
headquartered in  Jacksonville,  Florida,  provides  services similar to IPI for
clients in the financial services industry.

Environmental Matters

Current  operations  of OSI  and  its  subsidiaries  do not  involve  activities
affecting  the  environment.   However,   Union  is  party  to  several  pending
environmental  proceedings involving the Environmental Protection Agency ("EPA")
and comparable state environmental agencies in Indiana, Maryland, Massachusetts,
New Jersey,  Ohio,  Pennsylvania,  South  Carolina,  and Virginia.  All of these
matters relate to discontinued operations of former divisions or subsidiaries of
Union for which it has potential continuing  responsibility.  Upon completion of
the Union  acquisition,  OSI will  establish  reserves  that it believes will be
adequate for the ultimate settlement of these environmental proceedings.

One group of Union's  known  environmental  proceedings  relates to Superfund or
other sites where Union's  liability  arises from  arranging for the disposal of
allegedly  hazardous  substances  in  the  ordinary  course  of  prior  business
operations. In most of these "generator" liability cases, Union's involvement is
considered to be de minimus (i.e.,  a volumetric  share of  approximately  1% or
less)  and in  each of  these  cases  Union  is  only  one of  many  potentially
responsible  parties.  From the  information  currently  available,  there are a
sufficient number of other  economically  viable  participating  parties so that
Union's  projected  liability,   although  potentially  joint  and  several,  is
consistent with its allocable share of liability.  At one "generator"  liability
site, Union's  involvement is potentially more significant because of the volume
of  waste  contributed  in  past  years  by  a  currently  inactive  subsidiary.
Insufficient information is available regarding the need for or extent and scope
of any remedial actions which may be required.
Union has recorded what it believes to be a reasonable  estimate of its ultimate
liability, based on current information, for this site.

The  second  group of  matters  relates to  environmental  issues on  properties
currently or formerly  owned or operated by a  subsidiary  or division of Union.
These cases generally involve matters for which Union or an inactive  subsidiary
is the sole or primary  responsible party. In one such case,  however,  although
the  affected   subsidiary   fully  performed  a  settlement  with  the  federal
government,  the government  has  subsequently  reopened the matter.  A group of
financially solvent responsible parties has completed an extensive investigation
of this Superfund site under a consent order with the EPA and submitted Remedial
Investigation  and  Feasibility  Study Reports (the "Reports") to the EPA, which
outline a range of various remedial  alternatives for the site. The EPA issued a
proposed  plan  which was  subject  to public  comments.  Union's  environmental
counsel retained several reputable environmental  consulting firms to review and
evaluate the Reports and proposed plan. The findings of these experts  indicated
that many of the assumptions,  purported facts and conclusions  contained in the
Reports  and  proposed  plan  are  significantly  flawed.  These  findings  were
submitted to the EPA to challenge the  perceived  need for and the extent of the
proposed  additional  remediation.  As  previously  reported by Union,  a better
estimate of costs  associated  with any further  remediation  to be taken at the
site could not be made until a Record of Decision was issued by the EPA. The EPA
issued  such  Record  of  Decision  for  this  site on  February  6,  1998  and,
notwithstanding  the information  contained in the findings  submitted by Union,
the  cost to  perform  the  remediation  selected  by the  EPA  for the  site is
estimated by the EPA to be  approximately  $17.3  million.  Notwithstanding  the
foregoing and Union's denial of liability  because of the prior  settlement with
the government,  the aggregate  amounts reserved by Union for this site is $13.8
million,  which  represents  Union's  best  estimate of the  ultimate  legal and
consulting  costs for this site, costs to defend its  aforementioned  settlement
with the  government  regarding  this site,  and its portion of the  remediation
costs that will ultimately be incurred by them, based on current information, if
Union's prior  settlement  with the government is not upheld in court.  However,
Union  may be  exposed  to  additional  substantial  liability  for this site as
additional information becomes available over the long-term.  Actual remediation
costs cannot be computed  until such remedial  action is completed.  Some of the
other sites  involving  Union or an inactive  subsidiary are at a state where an
assessment  of ultimate  liability,  if any,  cannot  reasonably be made at this
time.

It is  Union's  policy  to  comply  fully  with all laws  regulating  activities
affecting  the  environment  and to meet its  obligations  in this area. In many
"generator" liability cases, reasonable cost estimates are available on which to
base reserves on Union's  likely  allocated  share among viable  parties.  Where
insufficient  information is available  regarding projected remedial actions for
these  "generator"  liability  cases,  Union has recorded what it believes to be
reasonable  estimates of its potential  liabilities.  Reserves for liability for
sites on which former  operations  were conducted are based on cost estimates of
remedial actions projected for these sites. All known  environmental  claims are
periodically  reviewed by Union,  where  information  is  available,  to provide
reasonable  assurance that adequate  reserves are maintained.  Reserves recorded
for  environmental  liabilities  are  not net of  insurance  or  other  expected
recoveries.


ITEM 2.  PROPERTIES

As of December 31, 1997, the Company and its subsidiaries operated 65 facilities
in the U.S., all of which are leased.  The Company believes that such facilities
are suitable  and  adequate  for its  business.  The  Company's  facilities  are
strategically  located  across  the  U.S.  to give  effective  broad  geographic
coverage for customers.


ITEM 3.  LEGAL PROCEEDINGS

At December 31, 1997, the Company was involved in a number of legal  proceedings
and claims that were in the normal  course of business and routine to the nature
of the Company's business.  The Company has provided for the estimated uninsured
amounts and costs of defense  for pending  suits and  management  believes  that
reserves  established for the ultimate  settlement of such suits are adequate at
December 31, 1997.

Payco and its wholly owned subsidiary  Payco-General American Credits, Inc. were
party to a  class-action  lawsuit  filed in July  1995 in the  Circuit  Court of
Etowah County,  Alabama.  The suit alleged that Payco-General  American Credits,
Inc.,  which was performing  contingent  fee services on behalf of  co-defendant
Transamerica Business Credit Corporation ("Transamerica"),  committed violations
of the federal FDCPA and Alabama state law. In January 1996,  Transamerica filed
a cross-claim  against  Payco-General  American Credits,  Inc., seeking judgment
against Payco-General  American Credits,  Inc., for any liability,  loss cost or
expense Transamerica has or will incur.  Payco-General  American Credits,  Inc.,
has, in turn,  filed a similar claim against  Transamerica.  Payco  negotiated a
settlement with the plaintiff class, and on November 18, 1997, the Circuit Court
approved the class settlement.  Under the class settlement,  Payco agreed to pay
$1.3 million in cash to fund attorneys' fees to class counsel and to make credit
counseling services available to individual class members.

The Company believes that it has meritorious  defenses to the cross-claim in the
Transamerica suit and believes that the outcome of that litigation will not have
a material  adverse effect on the  operations or the financial  condition of the
Company.

In addition, Union is party to various legal proceedings and claims that were in
the normal  course of business and routine to the nature of its  business.  Upon
completion  of the  Union  acquisition,  OSI  will  establish  reserves  that it
believes   will  be  adequate  for  the  ultimate   settlement  of  these  legal
proceedings.


ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

There were no matters  submitted to a vote of security holders during the fourth
quarter of the year ended December 31, 1997.




<PAGE>

PART II.

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS

No public market currently exists for the Common Stock.

As of March 17,  1998,  there  were  approximately  21  holders of record of the
Common Stock.

The Company has not  declared  any cash  dividends on its Common Stock since the
Company's formation in September 1995. The Indenture (the "Indenture"), dated as
of  November  6, 1996,  by and among the  Company,  the  Guarantors  (as defined
therein)  and  Wilmington  Trust  Company,  as Trustee,  with respect to the 11%
Series  B  Senior  Subordinated  Notes  due 2006  contains  restrictions  on the
Company's   ability  to  declare  or  pay   dividends  on  its  capital   stock.
Additionally,  the Second  Amended and Restated  Credit  Agreement,  dated as of
January 26, 1998 by and among the Company,  the Lenders listed therein,  Goldman
Sachs Credit Partners L.P. and the Chase  Manhattan  Bank, as  Co-Administrative
Agents,  Goldman  Sachs Credit  Partners  L.P. and Chase  Securities,  Inc.,  as
Arranging  Agents and SunTrust Bank,  Atlanta,  as Collateral Agent (the "Credit
Agreement") contains certain restrictions on the Company's ability to declare or
pay dividends on its capital stock.  Both the Indenture and the Credit Agreement
prohibit  the  declaration  or  payment  of any  dividends  or the making of any
distribution  by  the  Company  or  any  subsidiary  (other  than  dividends  or
distributions payable in stock of the Company under certain  circumstances) or a
subsidiary and other than dividends or distributions payable to the Company.


ITEM 6.  SELECTED FINANCIAL DATA

The  following  selected  historical  financial  data set forth  below have been
derived  from,  and are  qualified by reference to (i) the audited  Consolidated
Financial  Statements of OSI for the period from  September 21, 1995 to December
31,  1995 and the two  years  ended  December  31,  1997  and  (ii) the  audited
consolidated  financial  statements of API (as  predecessor)  for the year ended
December  31, 1994 and the period  January 1, 1995 to September  20,  1995.  The
audited  financial  statements  of OSI and API  referred  to above are  included
elsewhere herein. The selected  historical  financial data set forth below as of
December  31, 1994 and for the year ended  December  31, 1993 have been  derived
from the audited financial  statements of API not included herein.  The selected
financial  data set forth  below  should be read in  conjunction  with,  and are
qualified by reference to,  "Management's  Discussion  and Analysis of Financial
Condition and Results of Operations" and the Consolidated  Financial  Statements
and accompanying notes thereto of API and OSI included elsewhere herein.








<PAGE>
<TABLE>
<CAPTION>



                                                     API (as predecessor)                          OSI (as successor)
                                           -----------------------------------------    --------------------------------------
                                                                                            From
                                                                           From         September 21
                                                                        January 1 to         To
                                           Year Ended December 31,     September 20,    December 31,   Year Ended December 31,
                                           -----------------------     -------------    ------------   -----------------------
                                               1993         1994            1995            1995          1996          1997
<S>                                          <C>          <C>              <C>            <C>           <C>           <C>
Income Statement Data:
Operating revenue (a)....................    $23,696      $39,292          $21,293         $ 8,311      $106,331      $271,683
Salaries and benefits....................      1,596        2,646            4,471           2,079        46,997       133,364
Other operating expenses (b)(c)..........     10,692        8,790            7,343           8,953        80,357       156,738
                                             -------      -------          -------         -------      --------      --------
Operating income (loss)..................     11,408       27,856            9,479          (2,721)      (21,023)      (18,419)
Interest expense, net....................      1,301        2,599              495           1,361        12,131        28,791
Other expense............................         --          166               --              --            --            --
                                             -------      -------          -------         -------      --------      --------
Income (loss) before taxes...............     10,107       25,091            8,894          (4,082)      (33,154)      (47,210)
Provision for income taxes (benefit).....         --           --               --          (1,605)      (11,757)       11,127
                                             -------      -------          -------         -------      --------      --------
Net income (loss) (c)....................    $10,107      $25,091          $ 8,984         $(2,477)     $(21,397)     $(58,337)
                                             =======      =======          =======         =======      ========      ========
Balance Sheet Data (at end of period):
Working capital..........................     $5,622      $16,897           $3,809         $22,438       $38,080       $18,558
Total assets.............................      8,945       22,941           11,272          85,652       355,207       381,690
Total debt...............................      3,544           --               --          36,462       247,616       324,966
Partners' capital/Stockholders equity
     (deficit)...........................      4,582       22,162           10,559          42,448        51,598        (5,478)
Other Financial Data:
Amortization of purchased portfolios (c).     $6,013       $2,667           $2,308          $5,390       $27,317       $52,042 (e)
Other depreciation and amortization......         57          102              167             331        18,281        33,574
Cash capital expenditures................        222          463              574              97         2,606         9,489
Portfolio purchases......................      7,088        6,800            5,502             903        10,373 (f)    46,494
Cash flows provided by (used in):
     Operating activities................      4,759       21,074            5,887           2,902        10,667        32,825
     Investing activities................     (2,222)        (463)           1,259         (31,007)     (200,435)     (119,499)
     Financing activities................     (3,775)     (11,055)         (20,587)         29,574       202,796        75,394
EBITDA (d)...............................     17,478       30,625           11,954           3,000        24,575        67,197
Adjusted EBITDA (d)......................     15,609       18,465           11,954           3,000        25,775        67,197

<FN>
(a)  1993 and 1994  operating  revenues  include  proceeds on sales of purchased
     portfolios of $1,869 and $13,325, respectively. The related amortization on
     the  portfolios  sold  included  in other  operating  expenses  was $54 and
     $1,155,  respectively.  In  addition,  transaction  costs  of  $1,165  were
     incurred  in  connection  with the  1994  sale  and are  included  in other
     operating expenses.
(b)  Other operating expenses include telephone,  postage,  supplies,  occupancy
     costs, data processing costs, depreciation,  amortization and miscellaneous
     operating expenses.
(c)  Effective January 1, 1994, API began amortizing on an individual  portfolio
     basis  the cost of  purchased  receivables  based on the  ratio of  current
     collections to current  anticipated  future  collections for that portfolio
     over a  maximum  period  of  three  years.  Prior to  1994,  API  amortized
     purchased  receivables under the cost recovery method. The change in method
     was a result of API's improved historical collection experience for similar
     types of loan  portfolios  and its ability to estimate  expected cash flow.
     The effect of this change was  accounted for  prospectively  as a change in
     estimate and reduced  amortization expense and increased net income by $962
     in 1994.
(d)  EBITDA is defined as income from  continuing  operations  before  interest,
     other  expense,  taxes,  depreciation  and  amortization.  Adjusted  EBITDA
     reflects  EBITDA as defined  above  adjusted  for proceeds  from  portfolio
     sales,  net of transaction  costs,  of $1,869 and $12,160 in 1993 and 1994,
     respectively,  and the  non-recurring  write-off of acquired  technology in
     process in connection with the Payco  acquisition  and relocation  expenses
     incurred by Continental of $1,000 and $200, respectively, in the year ended
     December  31, 1996.  EBITDA and  Adjusted  EBITDA are  presented  here,  as
     management believes they provide useful information regarding the Company's
     ability to service and/or incur debt. EBITDA and Adjusted EBITDA should not
     be considered  in isolation or as  substitutes  for net income,  cash flows
     from continuing operations,  or other consolidated income or cash flow data
     prepared in accordance with generally accepted accounting  principles or as
     measures of a company's profitability or liquidity.
(e)  In the fourth quarter of 1997, the Company  completed an in-depth  analysis
     of the carrying  value of the purchased  portfolios  acquired and valued in
     conjunction  with the Company's  September  1995  acquisition  of API. As a
     result  of this  analysis,  the  Company  recorded  $10,000  of  additional
     amortization related to these purchased portfolios to reduce their carrying
     value to their  estimated net realizable  value.  This amount  includes the
     $10,000.
(f)  In May 1996, a subsidiary of the Company acquired  participation  interests
     in certain loan portfolios,  representing the undivided ownership interests
     in  such  portfolios  which  were  originally  sold  pursuant  to  existing
     Participation  Agreements (the "MLQ Interests") for aggregate consideration
     of $14,772. This amount excludes the $14,772.
</FN>
</TABLE>


ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

Results of Operations

YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996

Revenues for the year ended December 31, 1997 were $271.7  million,  compared to
$106.3 million for the year ended December 31, 1996.  Revenues from fee services
(including outsourcing) were $203.9 million for the year ended December 31, 1997
compared to $60.8 million in the comparable  period in 1996. The increase in fee
revenues  was a  result  of the  acquisition  of  Payco in  November  1996,  the
acquisition of NSA in October 1997 and the  acquisition of ABC in November 1997.
Revenues  generated  from the  collection of purchased  portfolios  increased to
$67.8 million for the year ended December 31, 1997 compared to $45.5 million for
the  comparable  period in 1996.  The  increase in  collections  from  purchased
portfolios results from primarily an increase in purchased  portfolio levels and
related collection efforts and to a lesser extent from the Payco acquisition.

Operating  Expenses  for the year ended  December  31, 1997 were $290.1  million
compared to $127.4  million for the  comparable  period in 1996,  an increase of
$162.7 million.  Operating expenses,  exclusive of amortization and depreciation
charges,  were  $204.5  million for the year ended  December  31, 1997 and $80.8
million for the comparable  period in 1996.  Operating  expenses  increased as a
result  of the  Payco  acquisition  as  well as the  use of  outside  collection
agencies to service a portion of purchased portfolios.  Of the $290.1 million in
expenses for the year ended December 31, 1997,  $52.0 million  (including  $10.0
million of additional  amortization to reduce a portion of purchased  portfolios
to  their  estimated  fair  value - See  Note 12 to the  Consolidated  Financial
Statements) was  attributable to amortization of the purchase price of purchased
portfolios  (compared to $27.3 million in 1996),  $16.7 million was attributable
to amortization of account  inventory  (compared to $12.3 million in 1996), $8.0
million  was  attributable  to  amortization  of  goodwill  associated  with the
acquisitions of API, Miller,  Continental,  Payco, NSA and ABC (compared to $3.2
million in 1996) and $8.8 million was attributable to depreciation  (compared to
$2.8 million in 1996). The increase in amortization and depreciation expense was
the result of additional  goodwill and step-up in basis of fixed assets recorded
in connection with the Payco acquisition.

Operating Loss for the year ended  December 31, 1997 was $18.4 million  compared
to $21.0 million for the  comparable  period in 1996.  The operating  loss was a
result of  increased  amortization  related to the step-up in basis of purchased
portfolios  related  to the API  acquisition,  goodwill  and  account  placement
inventory related to the acquisition of Payco.

Operating earnings before interest expense, taxes, depreciation and amortization
(EBITDA)  for the year ended  December  31, 1997 was $67.2  million  compared to
$24.6 million for the  comparable  period in 1996. The increase of $42.6 million
in EBITDA reflects additional revenues associated with the acquisition of Payco,
NSA and ABC and  additional  portfolios  at API,  partially  offset by the costs
associated  with the use of outside  collection  agencies  to service  purchased
portfolios.

Interest  Expense,  net for the year ended  December 31, 1997 was $28.8  million
compared to $12.1 million for the  comparable  period in 1996.  The increase was
primarily due to increased  debt incurred in 1997 to finance the  acquisition of
Payco, NSA and ABC and to finance additional purchased portfolio purchases.

Net Loss for the year ended  December  31,  1997 was $58.3  million  compared to
$21.4 million for the  comparable  period in 1996.  The increase in net loss was
attributable  to  increased  amortization  expense  from the step-up in basis of
acquired  portfolios  related  to the  API  acquisition,  goodwill  and  account
placement  inventory  recorded in connection with the acquisition of Payco,  the
increase in interest expense related to the indebtedness incurred to finance the
Payco,  NSA and ABC  acquisitions  and  portfolio  purchases and a provision for
income  taxes of  $11.1  million  as a result  of the  Company  recording  a net
valuation allowance of $32.4 million to reflect management's  assessment,  based
on the weight of the  available  evidence of current and  projected  future book
taxable income,  that there is significant  uncertainty that any of the benefits
from the net deferred tax assets will be realized.

YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995

Revenues  for the twelve  months ended  December  31, 1996 were $106.3  million,
compared  to $29.6  million in the  comparable  period for 1995.  Revenues  from
contingent fee services including  outsourcing were $51.2 million for the twelve
months ended  December  31, 1996  compared to $0.0 in the  comparable  period in
1995. The increase in contingent  fee revenues was a result of the  acquisitions
of Miller,  Continental and Payco. OSI is experiencing  competitive  pressure on
prices of contingent fee services.  Revenues from purchased portfolios increased
to $45.5 million for the twelve months ended December 31, 1996 compared to $29.6
million  for  the  comparable  period  in  1995.  Purchased  portfolio  revenues
increased  as  a  result  of  additional  portfolio  purchases,  the  hiring  of
additional  account  representatives  at API,  facilitating  the  servicing of a
higher volume of accounts,  as well as from the acquisition of the MLQ Interests
and Payco.  Revenues from the outsourcing services increased to $9.5 million for
the twelve  months ended  December 31, 1996  compared to $0.0 in the  comparable
period in 1995. The increase was due to the acquisition of Payco.

Operating  Expenses for the twelve  months  ended  December 31, 1996 were $127.4
million compared to $22.8 million for the comparable period in 1995, an increase
of $104.6  million.  Cash  operating  expenses were $81.8 million for the twelve
months ended  December 31, 1996 and $14.7 million for the  comparable  period in
1995. Cash expenses  increased as a result of the Miller,  Continental and Payco
acquisitions,  the hiring of  additional  account  representatives  at API,  the
opening of an API  collection  facility in St. Louis,  Missouri,  one-time costs
associated with the relocation of Continental's  headquarters,  and the addition
of corporate  overhead of OSI. Of the $127.4  million in expenses for the twelve
months ended December 31, 1996,  $27.3 million was  attributable to amortization
of the  purchase  price of  purchased  portfolios  (compared  to $7.7 million in
1995),  $12.3 million was  attributable  to  amortization  of account  inventory
(compared to $0.0 in 1995),  $2.7 million was  attributable  to  amortization of
goodwill associated with the acquisitions of API, Miller,  Continental and Payco
(compared  to  $0.3  million  in  1995),   $0.5  million  was   attributable  to
amortization  in  non-compete  agreements  (compared  to $0.0 in 1995)  and $2.8
million was attributable to depreciation (compared to $0.2 million in 1995). The
increase in amortization  expense was the result of additional goodwill recorded
in  connection  with the  Miller,  Continental  and Payco  acquisitions  and the
step-up in basis of purchased portfolios related to the acquisition of API.

Operating  (Loss)  Income for the twelve  months  ended  December  31,  1996 was
$(21.0) million compared to $6.8 million for the comparable  period in 1995. The
operating loss was a result of increased  amortization related to the step-up in
basis of purchased  portfolios,  goodwill and account  inventory  related to the
acquisitions of Miller, Continental and Payco.

EBITDA for the twelve months ended December 31, 1996 was $24.6 million  compared
to $15.0 million for the comparable period in 1995. The increase of $9.6 million
in EBITDA  reflects  additional  revenues  associated  with the  acquisitions of
Miller, Continental,  the MLQ Interests and Payco, partially offset by the costs
associated with hiring additional account representatives at API.

Interest  Expense,  net for the twelve months ended  December 31, 1996 was $12.1
million compared to $1.9 million for the comparable period in 1995. The increase
was  primarily  due to  indebtedness  incurred  to finance the  acquisitions  of
Miller, Continental, the MLQ Interests and Payco during 1996 and the acquisition
of API in September 1995.

Net (Loss)  Income for the twelve  months  ended  December  31, 1996 was ($21.4)
million compared to $6.5 million for the comparable period in 1995. The decrease
in net income results  primarily from  increased  amortization  expense from the
step-up in the basis of acquired  portfolios,  goodwill  and  account  inventory
recorded in connection  with the  acquisition of API,  Miller,  Continental  and
Payco and the increase in interest due to the  indebtedness  incurred to finance
those acquisitions.

Liquidity and Capital Resources

At December 31, 1997, the Company had cash and cash equivalents of $3.2 million.
At year end, the Company had a $58.0 million  revolving credit  facility,  which
allows the Company to borrow for working capital, general corporate purposes and
acquisitions,  subject to certain  conditions.  As of  December  31,  1997,  the
Company had  outstanding  $31.9  million  under the  revolving  credit  facility
leaving $26.1 million available under the revolving credit facility.

Cash and Cash  Equivalents  decreased from $14.5 million at December 31, 1996 to
$3.2 million at December 31, 1997  principally  due to the use of $119.5 million
for investing  activities  primarily for the  acquisition of NSA and ABC and the
purchase of  portfolios,  offset by cash  provided by  operations  and financing
activities of $32.8 million and $75.4  million,  respectively.  The Company also
held $20.8 million of cash for clients in restricted  trust accounts at December
31, 1997.

Purchased Loans and Accounts Receivable  Portfolios decreased from $68.0 million
at December 31, 1996 to $62.5  million at December 31, 1997 due to new portfolio
purchases  of $46.5  million  during  the year which  were  partially  offset by
amortization of purchased portfolios of $52.0 million including $10.0 million of
additional  amortization as previously mentioned.  The amount of purchased loans
and accounts receivable  portfolios which are projected to be collectible within
one year  increased  slightly  from $42.5  million at December 31, 1996 to $42.9
million at December 31, 1997.

The purchased  loans and accounts  receivable  portfolios  consist  primarily of
consumer  loans and credit card  receivables,  commercial  loans,  student  loan
receivables  and health club  receivables.  Consumer loans  purchased  primarily
consist of  unsecured  term  debt.  A summary of  purchased  loans and  accounts
receivable  portfolios  at December  31, 1997 and  December  31, 1996 by type of
receivable is shown below:
<TABLE>
<CAPTION>

                                                     December 31, 1997                         December 31, 1996
                                          ---------------------------------------    -------------------------------------
                                          Original Gross                             Original Gross
                                          Principal Value   Current     Long-term    Principal Value   Current   Long-term
                                           (in millions)       (in thousands)         (in millions)       (in thousands)

<S>                                            <C>            <C>        <C>              <C>          <C>        <C>   
Consumer loans............................     $2,039         $ 8,978    $ 4,948          $1,770       $ 7,445    $ 4,592
Student loans.............................        322           4,629         --             322         7,456      4,699
Credit cards..............................        509          12,575     10,765             101         2,359      1,453
Health clubs..............................      1,309          15,307      2,248             954        23,364     13,865
Commercial................................         41           1,426      1,576              41         1,857        910
                                               ------         -------    -------          ------       -------    -------
                                               $4,220         $42,915    $19,537          $3,188       $42,481    $25,519
                                               ======         =======    =======          ======       =======    =======
</TABLE>

Most of the portfolio purchases involve tertiary paper (i.e., accounts more than
360 days past due which  have  been  previously  placed  with a  contingent  fee
servicer)  with  the  exception  of  portfolios  purchased  under  forward  flow
agreements  under which the Company agrees to purchase  subject to due diligence
charged off credit card and health club  receivables  on a monthly basis as they
become available.

Deferred  taxes  decreased from an asset of $5.8 million at December 31, 1996 to
an asset of $0.4  million at December  31,  1997.  The net deferred tax asset at
December 31, 1997 and December 31, 1996  relates  principally  to net  operating
loss  carryforwards.  The  realization  of this asset is dependent on generating
sufficient taxable income prior to expiration of the loss carryforwards in years
through 2012.  During 1997,  the Company  recorded a net valuation  allowance of
$32.4  million to reflect  management's  assessment,  based on the weight of the
available  evidence of current and projected  future book taxable  income,  that
there is significant  uncertainty that any of the benefits from the net deferred
tax assets will be  realized.  For all  federal  tax years  since the  Company's
formation in September  1995,  the Company has  incurred net  operating  losses.
During 1997, the Company has significantly  increased its total debt from $247.6
million at  December  31,  1996 to $325.0  million at December  31,  1997.  This
increase in debt  primarily  resulted from the  acquisitions  in 1997 of the net
assets of NSA and ABC. In addition,  on January 26, 1998,  the Company  incurred
significant  additional  borrowings to finance its acquisition of  approximately
77% of the shares of common  stock of Union.  Since the Company has a history of
generating  net  operating  losses  and has  significantly  increased  its total
interest  expense to be  incurred,  management  does not  expect the  Company to
generate  taxable  income in the  foreseeable  future  sufficient to realize tax
benefits from the net operating loss carryforwards or the future reversal of the
net  deductible  temporary  differences.  The amount of the  deferred tax assets
considered realizable,  however, could be increased in future years if estimates
of future taxable income during the carryforward period change.

The Company's  debt  structure at December 31, 1997 consists of a $219.3 million
bank credit facility, $100.0 million 11% Senior Subordinated Notes ("Notes") and
other  indebtedness of $5.7 million.  See Note 14 of the Consolidated  Financial
Statements of OSI included  elsewhere  herein for a  description  of the amended
bank  credit  agreement,  effective  January  1998,  which  provides  additional
financing for the Union acquisition.  Currently, the Company has borrowed $187.5
million to acquire  approximately 80% of the shares of common stock of Union and
plans to borrow an additional $37.5 million to complete the Union acquisition.

The Notes and the bank credit facility contain financial and operating covenants
and  restrictions  on the  ability of the  Company to incur  indebtedness,  make
investments  and  take  certain  other  corporate  actions.   The  debt  service
requirements  associated  with the  borrowings  under the facility and the Notes
significantly   impact  the  Company's  liquidity   requirements.   The  Company
anticipates  that its operating cash flow together with  availability  under the
bank credit facility will be sufficient to fund its anticipated future operating
expense  and  to  meet  its  debt  service  requirements  as  they  become  due.
Additionally,  future portfolio purchases may require signifi-cant  financing or
investment.  However, actual capital requirements may change,  particularly as a
result of acquisitions  the Company may make. The ability of the Company to meet
its debt  service  obligations  and  reduce  its total  debt will be  dependent,
however,  upon the future performance of the Company and its subsidiaries which,
in turn,  will be subject  to  general  economic  conditions  and to  financial,
business and other factors including factors beyond the Company's control.

Capital expenditures for the year ended December 31, 1997 were $9.5 million. The
Company  expects to spend  approximately  $17.0 million on capital  expenditures
(exclusive  of any  expenditures  in  connection  with  acquisitions)  in  1998.
Historical expenditures have been, and future expenditures are anticipated to be
primarily  for  replacement  and/or  upgrading  of  telecommunications  and data
processing  equipment,  leasehold  improvements  and continued  expansion of the
Company's   information  services  systems.   Subject  to  compliance  with  the
provisions of its debt agreements, the Company expects to finance future capital
expenditures with cash flow from operations,  borrowings and capital leases. The
Company will reduce its future capital  expenditures  to the extent it is unable
to fund its capital plan. The Company  believes that its facilities will provide
sufficient  capacity  for  increased  revenues  and  will not  require  material
additional capital expenditures in the next several years.

Inflation

The Company believes that inflation has not had a material impact on its results
of operations for the years ended December 31, 1996 and 1997.

Year 2000

The company has numerous computer-based systems and collection applications. The
Company has evaluated its systems and  applications to determine  whether or not
those systems were Year 2000 compliant.  Based upon its review,  the Company has
identified  those systems which are not compliant and has  implemented  plans to
update those  systems.  The cost of the effort is  currently  not expected to be
material and will be expensed as incurred over the next two years.

Derivative Financial Instruments

From time to time, the Company may employ derivative financial instruments as of
its risk  management  program.  The  Company's  objective is to manage risks and
exposures and not to trade such instruments for profit or loss.

Forward-Looking Statements

Except  for  the  historical   statements  and  discussions   contained  herein,
statements contained in this report constitute  "forward-looking  statements" as
defined in the Securities  Act of 1933 and the Securities  Exchange Act of 1934,
as amended.  These  forward-looking  statements  rely on a number of assumptions
concerning future events, and are subject to a number of risks and uncertainties
and other  factors,  many of which are outside the control of the Company,  that
could cause actual results to differ materially from such statements.

Readers  are  cautioned  not to  put  undue  reliance  on  such  forward-looking
statements,  each of  which  speaks  only as of the  date  hereof.  Factors  and
uncertainties that could affect the outcome of such  forward-looking  statements
include,  among others, market and industry conditions,  increased  competition,
changes  in  governmental  regulations,  general  economic  conditions,  pricing
pressures,  and  the  Company's  ability  to  continue  its  growth  and  expand
successfully into new markets and services.  The Company disclaims any intention
or  obligation  to update  publicly  or revise any  forward-looking  statements,
whether as a result of new information, future events or otherwise.


ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Reference  is  made  to the  Financial  Statements  and  Supplementary  Schedule
contained in Part IV hereof.


ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND 
         FINANCIAL DISCLOSURE

None


<PAGE>


PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Directors  of the  Company are elected  annually  by its  shareholders  to serve
during the ensuing  year or until a  successor  is duly  elected and  qualified.
Executive  officers of the Company are duly elected by its Board of Directors to
serve until their respective successors are elected and qualified. The following
table sets forth certain information with respect to the directors and executive
officers of the Company.

       Name                    Age                     Position or Office
       ----                    ---                     ------------------
Jeffrey E. Stiefler            52             Chairman of the Board of Directors
Timothy G. Beffa               47             Director, President and
                                                    Chief Executive Officer
David E. De Leeuw              53             Director
David E. King                  39             Director, Secretary and Treasurer
Tyler T. Zachem                32             Director and Vice President
David G. Hanna                 34             Director
Frank J. Hanna, III            36             Director
Dennis G. Punches              62             Director
Nathan W. Pearson, Jr.         46             Director
Daniel J. Dolan                45             Executive Vice President and
                                                    Chief Financial Officer

JEFFREY E. STIEFLER (52),  Chairman of the Board of Directors  since January 10,
1996.  Previously,  Mr. Stiefler was President and Director of American  Express
Company,  where he had  previously  served in  various  capacities  since  1983,
including President and Chief Executive Officer of IDS Financial Services. Prior
to joining the Company,  Mr.  Stiefler held various  positions  with the Meritor
Financial Group,  including Chairman of the Meritor Savings Bank Florida and the
Meritor Savings Bank Washington D.C., and Citicorp, including Vice President and
Regional  Business  Manager of the New York  Banking  Division  and Senior  Vice
President and Regional Business Manager of Nationwide  Financial  Services.  Mr.
Stiefler  currently  serves as a  director  of  National  Computer  Systems  and
chairman of International Data Response Corporation.

TIMOTHY G. BEFFA  (47),  President,  Chief  Executive  Officer  and  Director of
Outsourcing  Solutions  Inc.  since August  1996.  From August 1995 until August
1996,  Mr.  Beffa  served as  President  and Chief  Operating  Officer  of DIMAC
Corporation  ("DIMAC")  and DIMAC DIRECT Inc.  ("DDI") and as a director of DDI.
From 1989 until August 1995,  Mr. Beffa served as a Vice  President of DIMAC and
as Senior Vice  President and Chief  Financial  Officer of DDI. Prior to joining
DIMAC,  Mr. Beffa was Vice  President of  Administration  and Controller for the
International  Division  of Pet  Incorporated,  a  food  and  consumer  products
company, where he previously had been manager of Financial Analysis.

DAVID E. DE LEEUW (53), Director of the Company since September 21, 1995. Mr. De
Leeuw is a managing  general partner of MDC Management  Company III, L.P., which
is the general  partner of McCown De Leeuw & Co. III, L.P. and McCown De Leeuw &
Co. III (Europe),  L.P., a managing  general  partner of MDC Management  company
IIA,  L.P.,  which is the  general  partner of McCown De Leeuw & Co. III (Asia),
L.P. and a member of Gamma Fund,  LLC.  Prior to founding  McCown De Leeuw & Co.
with  George E.  McCown  in 1984,  Mr. De Leeuw  was  Manager  of the  Leveraged
Acquisition  Unit and Vice  President in the Capital  Markets Group at Citibank,
N.A.  Mr. De Leeuw also  worked  with W.R.  Grace & Co.  where he was  Assistant
Treasurer and manager of Corporate Finance.  Mr. De Leeuw began his career as an
investment  banker with Paine  Webber  Incorporated.  He  currently  serves as a
director of Vans, Inc., AmeriComm Holdings, Inc., Nimbus CD International, Inc.,
Aurora Foods Inc. and American Residential Inventory Trust.

DAVID E. KING (39),  Secretary,  Treasurer  and  Director of the  Company  since
September 21, 1995. Mr. King is a general partner of MDC management Company III,
L.P.,  which is the  general  partner of McCown De Leeuw & Co.  III,  L.P.,  and
McCown De Leeuw & Co.  Offshore  (Europe)  III,  L.P.  a general  partner of MDC
Management Company IIIA, L.P., which is the general partner of McCown De Leeuw &
Co.  III  (Asia),  L.P.  and a member  of Gamma  Fund,  LLC.  Mr.  King has been
associated  with McCown De Leeuw & Co.  since  1990.  He  currently  serves as a
director of AmeriComm Holdings,  Inc.,  International Data Response Corporation,
Fitness Holdings Inc., RSP Manufacturing Corporation and Sarcom.

TYLER T. ZACHEM (32), Vice President and Director of the Company since September
21, 1995. Mr. Zachem is a principal of MDC Management  Company III, which is the
general  partner  of McCown De Leeuw & Co.  III;  and  McCown De Leeuw & Co. III
(Europe),  L.P., and a principal of MDC Management  Company IIIA, L.P., which is
the general  partner of McCown De Leeuw & Co. III (Asia),  L.P.  Mr.  Zachem has
been  associated  with  McCown  De  Leeuw & Co.  since  July  1993.  Mr.  Zachem
previously  worked as a  consultant  with  McKinsey & Co.  and as an  investment
banker  with  McDonald  & Company.  He  currently  serves as a  director  of RSP
Manufacturing  Corporation,  The Brown Schools, Inc., Aurora Foods Inc. and Papa
Gino's Inc.

DAVID G. HANNA (34),  Director of the Company  since  September  21, 1995.  From
November  1992 to  September  1995,  Mr.  Hanna  served as  President of Account
Portfolios,  L.P. From 1988 to November  1992,  Mr. Hanna served as President of
the Governmental  Division of Nationwide Credit, Inc.,  administering  contracts
for  government  agencies  including the  Department of Education  Student Loans
program. David G. Hanna is the brother of Frank J. Hanna, III.

FRANK J. HANNA, III (36),  Director of the Company since September 21, 1995. Mr.
Hanna founded  Account  Portfolios,  L.P. in July 1990,  and served as its Chief
Executive  Officer until its acquisition by OSI in September 1995. From February
1988 to January  1990,  Mr. Hanna served as Group Vice  President of  Nationwide
Credit, Inc., a large accounts receivable management company. Frank J. Hanna III
is the brother of David G. Hanna.  Mr. Hanna  currently  serves as a director of
Cerulean Companies, Inc.

DENNIS G. PUNCHES (62),  Director of the Company since November  1996.  From May
1988 to October 1988 and from January 1990 to November  1996, Mr. Punches served
as  Chairman  of the Board of  Directors  of Payco  American  Corporation.  From
October 1988 to January 1990,  Mr. Punches served as Co-Chairman of the Board of
Directors of Payco American Corporation.  From 1969 to January 1990, Mr. Punches
served as President and Chief Executive Officer of Payco American Corporation.

NATHAN W.  PEARSON,  JR.  (46),  Director  of the Company  since July 1997.  Mr.
Pearson is an operating  affiliate of McCown De Leeuw & Co. Mr. Pearson has been
affiliated  with McCown De Leeuw since 1997.  Since 1996,  Mr.  Pearson has been
Managing Director of Commonwealth Holdings, a private investment firm. From 1988
to 1995, Mr. Pearson was Executive Vice President and Chief Financial Officer of
Broadcasting   Partners,   L.L.C.,   a  radio   broadcasting   leveraged  buyout
organization  and since 1995, Mr. Pearson has been a principal of investment and
management  of  Broadcasting  Partners,  L.L.C.  Prior to  joining  Broadcasting
Partners,  L.L.C.,  Mr.  Pearson was a management  consultant  with McKinsey and
Company from 1982 to 1988.

DANIEL J. DOLAN (45),  Executive Vice President and Chief  Financial  Officer of
the Company  since  October  1997.  Mr. Dolan has 23 years  experience in public
accounting, the last 11 years as a partner of Ernst & Young LLP.


ITEM 11.      EXECUTIVE COMPENSATION

The following table sets forth  information  concerning the compensation paid or
accrued for by the Company  for 1995,  1996 and 1997 on behalf of the  Company's
Chief  Executive  Officer and the four other most highly  compensated  executive
officers of the Company for the year ended December 31, 1997.
<TABLE>
<CAPTION>

                                                                       Summary Compensation Table

                                            ----------------------------------------------------------------------------- 
                                                                                           Long Term  
                                                                       Other Annual       Compensation         All Other
Name and                     Fiscal         Salary        Bonus        Compensation          Awards          Compensation
Principal Position            Year            ($)          ($)              ($)               (#)                 ($)
------------------           ------         ------        ------       ------------       ------------       ------------
<S>                          <C>            <C>          <C>           <C>                <C>                <C>     
Timothy G. Beffa(1)
President and CEO            1997           320,110      457,500
                             1996           103,846      200,000

Daniel J. Dolan (2)
Executive Vice               1997            56,571      130,000
  President and CFO

Patrick Carroll
Executive Vice               1997           186,875       60,000
   President, Sales          1996           120,000      200,000                                              267,000(4)

Michael Meyer (3)
Vice President, Chief        1997           159,812      142,000
   Information Officer

James F. Whalen (5)
Senior Vice President,       1997           192,044      100,000
  Business Operations        1996            20,533      100,000
  Analysts

<FN>
(1)  1996 compensation based on an annual salary of $300,000.

(2)  Based on an annual salary of $260,000. Mr. Dolan was hired in October 1997.

(3)  Based on an annual  salary of $190,000.  Mr. Meyer was hired in early March
     1997.

(4)  Represents  value of stock acquired in connection  with the  acquisition of
     Payco by the Company.

(5)  1996  compensation  based on an  annual  salary  of  $200,000.  Mr.  Whalen
     resigned effective November 30, 1997.
</FN>
</TABLE>

Employment Agreement

On September 1, 1997, OSI entered into an amendment to the employment  agreement
with Timothy G. Beffa. Pursuant to the employment agreement, Mr. Beffa serves as
Chief Executive  Officer of the Company.  Mr. Beffa receives an annual salary of
$350,000 and  received a bonus of $457,500 for fiscal year 1997.  In fiscal year
1998, Mr. Beffa is eligible for an annual bonus of up to 150% of his annual base
salary.  Effective  October 9, 1996,  Mr.  Beffa  received  options to  purchase
131,421.66  shares of common stock of the Company,  which  options vest upon the
satisfaction  of certain  performance  targets  and/or the occurrence of certain
liquidity  events.  Effective  March 14,  1997,  Mr. Beffa  received  additional
options to purchase up to 41,555  shares of common stock of the  Company,  which
also vest upon the  satisfaction  of  certain  performance  targets  and/or  the
occurrence of certain liquidity events.

On October 16, 1997,  OSI entered into an  employment  agreement  with Daniel J.
Dolan. Pursuant to the employment agreement, Mr. Dolan serves as Chief Financial
Officer of the  Company.  Mr.  Dolan  receives an annual  salary of $260,000 and
received a bonus of  $130,000  for fiscal year 1997.  Commencing  in fiscal year
1998,  Mr.  Dolan is eligible for an annual bonus of up to 66-2/3% of his annual
base salary.  Effective December 2, 1997, Mr. Dolan received options to purchase
75,000  shares  of  common  stock of the  Company,  such  options  vest upon the
satisfaction  of certain  performance  targets  and/or the occurrence of certain
liquidity events.

Director Compensation

Non-employee  directors of OSI receive $2,000 per regularly scheduled meeting of
the Board of Directors, $1,000 per special meeting of the Board of Directors and
$500 per  committee  meeting plus,  in each case,  reimbursement  for travel and
out-of-pocket  expenses  incurred  in  connection  with  attendance  at all such
meetings.  Except as  described  below,  no director of OSI  receives  any other
compensation  from OSI for  performance  of services as a director of OSI (other
than reimbursement for travel and out-of-pocket  expenses incurred in connection
with attendance at Board of Director meetings). Effective February 16, 1996, Mr.
Stiefler  received  options to  purchase  23,044  shares of common  stock of the
Company, which options vest upon the satisfaction of certain performance targets
and/or the occurrence of certain liquidity events.

Option Plans

The  Company  maintains  a 1995 Stock  Option and Stock  Award Plan (the  "Stock
Option  Plan").  The  Stock  Option  Plan is  administered  by the  Compensation
Committee of the Board of Directors of the Company. Under the Stock Option Plan,
the  Compensation  Committee may grant or award (a) options to purchase stock of
the Company (which may either be incentive  stock options  ("ISOs"),  within the
meaning of Section 422 of the  Internal  Revenue  Code of 1986,  as amended,  or
stock  options  other  than  ISOs),  (b) stock  appreciation  rights  granted in
conjunction with stock options,  (c) restricted stock, or (d) bonuses payable in
stock, to key salaried employees of the Company,  including officers, as well as
to consultants of the Company, and non-employee directors.

A total of  750,000  shares of common  stock of the  Company  are  reserved  for
issuance under the Stock Option Plan. As of March 17, 1998,  options to purchase
up to 568,520.66  shares of the Company's common stock are outstanding under the
Stock Option Plan.

As of March 17, 1998, the following table sets forth options held by the current
executive officers:
                             # of Options       Exercisable       Unexercisable
                             ------------       -----------       -------------
Timothy G. Beffa              172,976.66          13,142            159,834.66
President and CEO

Daniel J. Dolan                   75,000           7,500                67,500
Executive Vice President
  and CFO

Patrick Carroll                   25,000           2,500                22,500
Executive Vice President,
  Sales

Michael Meyer                     25,000           2,500                22,500
Vice President, Chief
  Information Officer

As of the date of this Report,  the potential  realizable value of each grant of
options is not  applicable  due to the lack of a public  trading  market for the
Company's common stock.

Committee Report on Executive Compensation

The Compensation Committee currently consists of Mr. David E. DeLeeuw, Mr. David
E. King and Mr. Tyler T. Zachem.

The  Compensation  Committee  recommends   compensation   arrangements  for  the
Company's  executive  officers and  administers the Company's Stock Option Plan.
The Company's  compensation program is designed to be competitive with companies
similar in structure and business to the Company.

The Company's executive  compensation  program is structured to help the Company
achieve its business objectives by:

o    Setting  levels of  compensation  designed to attract  and retain  superior
     executives in a highly competitive environment.

o    Designing equity-related and other performance-based incentive compensation
     programs to align the interests of management with the ongoing interests of
     shareholders; and

o    Providing  incentive  compensation  that varies  directly with both Company
     financial performance and individual contributions to that performance.

The  Company  has used a  combination  of  salary  and  incentive  compensation,
including cash bonuses and  equity-based  incentives to achieve its compensation
goals.


ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The authorized  capital stock of the Company consists of (i) 1,000,000 shares of
Preferred  Stock,  no par value (the  "Preferred  Stock"),  of which  935,886.85
shares are issued and outstanding, (ii) 7,500,000 shares of Voting Common Stock,
par value $.01 per share (the "Voting Common Stock"),  of which 3,477,126.01 are
issued and  outstanding,  (iii)  7,500,000  shares of Class A Non-Voting  Common
Stock,  par value $.01 per share (the "Class A  Non-Voting  Common  Stock"),  of
which  391,740.58  are issued and  outstanding,  (iv) 500,000  shares of Class B
Non-Voting  Stock,  par value $.01 per share  (the  "Class B  Non-Voting  Common
Stock"),  of which 400,000 are issued and outstanding,  and (v) 1,500,000 shares
of Class C  Non-Voting  Common  Stock,  par value $.01 per share  (the  "Class C
Non-Voting  Common Stock" and together with the Class A Non-Voting  Common Stock
and the Class B Non-Voting  Common Stock,  the  "Non-Voting  Common  Stock," and
together with the Voting Common Stock, the "Common  Stock"),  of which 1,040,000
are issued and outstanding.  In addition,  a total of 46,088.67 shares of Voting
Common Stock were issuable  upon  exercise of warrants  held by certain  warrant
holders,  and up to 246,021.20  shares of Voting Common Stock were issuable upon
the exercise of certain management options.

Each Holder of Voting  Common Stock has one vote for each share of Voting Common
Stock held by such holder on all matters to be voted upon by the stockholders of
the Company.  The holders of  Preferred  Stock have no voting  rights  except as
expressly  provided by law and the holders of  Non-Voting  Common  Stock have no
voting  rights  other  than the  right to vote as a  separate  class on  certain
matters that would adversely the rights of such holders. Each share of Preferred
Stock is  convertible  into one share of Common Stock at the holder's  option at
any time after  September  20, 1996.  The Company may, at its sole option,  upon
written  notice to the  holders  of  Preferred  Stock,  redeem any or all of the
shares of Preferred  Stock  outstanding  for $12.50 per share plus cash equal to
all accrued and unpaid  dividends  through the redemption  date,  whether or not
such  dividends  have been  authorized or declared.  Each share of Voting Common
Stock is  convertible  into one share of Class A Non-Voting  Common Stock at the
holder's  option,  and  each  share  of  Class  A  Non-Voting  Common  Stock  is
convertible into one share of Voting Common Stock at the holder's  option.  Each
share of Class B Non-Voting  Common Stock and Class C Non-Voting Common Stock is
convertible into one share of Voting Common Stock, at the holder's option,  upon
the  occurrence  of certain  "Conversion  Events,"  as defined in the  Company's
certificate of incorporation.

The following table sets forth the number and percentage of shares of each class
of the Company's capital stock beneficially owned as of December 31, 1997 by (i)
each person known to the Company to be the  beneficial  owner of more than 5% of
any  class  of the  Company's  equity  securities,  (ii)  each of the  Company's
directors  and nominees,  and (iii) all directors and executive  officers of the
Company as a group.
<TABLE>
<CAPTION>

                                                                                          Amount and
                                                                                          Nature of       Percent
                                                                                          Beneficial         of
Title of Class               Name and Address Beneficial Owner                            Ownership       Class(1)
--------------               ---------------------------------                            ----------      --------
<S>                          <C>                                                          <C>                <C>
Preferred Stock              McCown De Leeuw & Co. III, L.P.(2)                           623,924.21         66.6%
                             McCown De Leeuw & Co. III
                                 (Europe), L.P.(2)                                        623,924.21         66.6%
                             McCown De Leeuw & Co. III (Asia), L.P.(2)                    623,924.21         66.6%
                             Gamma Fund LLC(2)                                            623,924.21         66.6%
                             Rainbow Trust One(3)                                         155,981.86         16.7%
                             Rainbow Trust Two(4)                                         155,980.78         16.7%
                             David E. De Leeuw(2)                                         623,924.21         66.6%
                             David E. King(2)                                             623,924.21         66.6%
                             Frank J. Hanna, III(3)                                       155,981.86         16.7%
                             David G. Hanna(4)                                            155,980.78         16.7%
                             All directors and officers as a group(2)(3)(4)               935,886.85        100.0%

Voting Common Stock          McCown De Leeuw & Co. III, L.P.(5)                         1,897,793.01         54.6%
                             McCown De Leeuw & Co. Offshore III
                                 (Europe), L.P.(5)                                      1,897,793.01         54.6%
                             McCown De Leeuw & Co. III (Asia), L.P.(5)                  1.897,793.01         54.6%
                             Gamma Fund LLC(5)                                          1,897,793.01         54.6%
                             Rainbow Trust One(3)                                         466,667.00         13.4%
                             Rainbow Trust Two(4)                                         466,666.00         13.4%
                             Peter C. Rosvall                                             383,600.00         11.0%
                             David E. De Leeuw(5)                                       1,897,793.01         54.6%
                             David E. King(5)                                           1,897,793.01         54.6%
                             Frank J. Hanna, III(3)                                       466,667.00         13.4%
                             David G. Hanna(4)                                            466,666.00         13.4%
                             Nathan W. Pearson                                             12,000.00           *
                             All directors and officers as a group(3)(4)(5)             3,238,726.01         92.8%

Class A Non-Voting           McCown De Leeuw & Co. III, L.P.(6)                           391,740.58        100.0%
Common Stock                 David E. De Leeuw(6)                                         391,740.58        100.0%
                             David E. King(6)                                             391,740.58        100.0%
                             All directors and officers as a group(6)                     391,740.58        100.0%

Class B Non-Voting           Chase Equity Associates, L.P.(7)                             400,000.00        100.0%
Common Stock                 All directors and officers as a group                              0.00          0.0%

Class C. Non-Voting          MLQ Investors, L.P.(8)                                       640,000.00         61.5%
Common Stock                 The Clipper Group(9)                                         400,000.00         38.5%
                             All directors and officers as a group                              0.00          0.0%

*  Less than one percent.
<FN>
(1)  The information as to beneficial ownership is based on statements furnished
     to the Company by the beneficial owners. As used in this table, "beneficial
     ownership"  means the sole or shared power to vote, or direct the voting of
     a  security,  or the sole or shared  investment  power  with  respect  to a
     security  (i.e.,  the power to dispose of, or direct the  disposition  of a
     security). A person is deemed as of any date to have "beneficial ownership"
     of any  security  that such person has the right to acquire  within 60 days
     after such date.  For purposes of computing the  percentage of  outstanding
     shares held by each person named above,  any security  that such person has
     the right to acquire within 60 days of the date of calculation is deemed to
     be  outstanding,  but is not  deemed  to be  outstanding  for  purposes  of
     computing the percentage ownership of any other person.
(2)  Shares of Preferred Stock are convertible,  at the holder's option, into an
     identical  number of shares of Common Stock at anytime after  September 20,
     1996.  Includes 553,732.69 shares owned by McCown De Leeuw & Co. III, L.P.,
     an investment  partnership whose general partner is MDC Management  Company
     III, L.P. ("MDC III"),  46,794.35  shares held by McCown De Leeuw & Co. III
     (Europe), L.P., an investment partnership whose general partner is MDC III,
     10,918.75  shares held by McCown De Leeuw & Co. III (Asia),  an  investment
     partnership  whose general  partner is MDC  Management  Company IIIA,  L.P.
     ("MDC  IIIA"),and  12,478.42  shares  owned by Gamma Fund LLC, a California
     limited liability company.  The voting members of Gamma Fund LLC are George
     E. McCown,  David De Leeuw, David E. King, Robert B. Hellman,  Jr., Charles
     Ayres and Steven  Zuckerman,  who are also the only general partners of MDC
     III and MDC IIIA.  Dispositive  decisions regarding the Preferred Stock are
     made by Mr. McCown and Mr. De Leeuw, as Managing  General  Partners of each
     of MDC  III and  MDC  IIIA,  who  together  have  more  than  the  required
     two-thirds-in-interest  vote of the Managing General Partners  necessary to
     effect such  decision on behalf of any such entity.  Dispositive  decisions
     regarding the Preferred Stock owned by Gamma Fund LLC are made by a vote or
     consent  of a  majority  in  number of voting  members  of Gamma  Fund LLC.
     Messrs. McCown, De Leeuw, King, Hellman, Ayres and Zuckerman have no direct
     ownership  of  any  shares  of  Preferred  Stock  and  disclaim  beneficial
     ownership  of any shares of  Preferred  Stock except to the extent of their
     proportionate partnership interests or membership interests (in the case of
     Gamma Fund LLC).  The  address of all the  above-mentioned  entities is c/o
     McCown De Leeuw & Co.,  3000 Sand Hill Road,  Building 3, Suite 290,  Menlo
     Park, California 94025.
(3)  Shares of Preferred Stock are convertible,  at the holder's option, into an
     identical  number of shares of Common Stock at any time after September 20,
     1996. Frank J. Hanna, III, a director of the Company, is trustee of Rainbow
     Trust One. The address of Rainbow Trust One is c/o HBR Capital, Two Ravinia
     Drive, Suite 1750, Atlanta, Georgia 30346.
(4)  Shares of Preferred Stock are convertible,  at the holder's option, into an
     identical  number of shares of Common Stock at any time after September 20,
     1996.  David G.  Hanna,  a director of the  Company,  is trustee of Rainbow
     Trust Two. The address of Rainbow Trust Two is c/o HBR Capital, Two Ravinia
     Drive, Suite 1750, Atlanta, Georgia 30346.
(5)  Includes  1,640,220.48  shares owned by McCown De Leeuw & Co. III, L.P., an
     investment  partnership whose general partner is MDC III, 171,715.02 shares
     held by McCown De Leeuw & Co. III (Europe), L.P., an investment partnership
     whose general partner is MDC III,  40,066.84 shares held by McCown De Leeuw
     & Co. III (Asia), L.P., an investment  partnership whose general partner is
     MDC IIIA,  and  45,790.67  shares  owned by Gamma  Fund LLC,  a  California
     limited liability company.  The voting members of Gamma Fund LLC are George
     E. McCown,  David De Leeuw, David E. King, Robert B. Hellman,  Jr., Charles
     Ayres and Steven  Zuckerman,  who are also the only general partners of MDC
     III and MDC IIIA.  Voting and  dispositive  decisions  regarding the Voting
     Common Stock are made by Mr. McCown and Mr. De Leeuw,  as Managing  General
     Partners of each of MDC III and MDC IIIA,  who together  have more than the
     required  two-thirds-in-interest  vote  of the  Managing  General  Partners
     necessary to effect such decision on behalf of any such entity.  Voting and
     dispositive decisions regarding the Voting Common Stock owned by Gamma Fund
     LLC are made by a vote or consent of a majority in number of voting members
     of Gamma Fund LLC.  Messrs.  McCown,  De Leeuw,  King,  Hellman,  Ayres and
     Zuckerman have no direct ownership of any shares of Voting Common Stock and
     disclaim  beneficial  ownership of any shares of Voting Common Stock except
     to the extent of their  proportionate  partnership  interests or membership
     interests (in the case of Gamma Fund LLC).
(6)  Shares of Class A Non-Voting Common Stock are convertible,  at the holder's
     option,  into an identical  number of shares of Voting  Common Stock at the
     holder's option. See "Security Ownership". The general partner of McCown De
     Leeuw & Co. III, L.P. is MDC III. The only general  partners of MDC III are
     George E. McCown,  David De Leeuw,  David E. King, Robert B. Hellman,  Jr.,
     Charles  Ayres and  Steven  Zuckerman.  Voting  and  dispositive  decisions
     regarding  the Voting Common Stock are made by Mr. McCown and Mr. De Leeuw,
     as Managing  General Partners of each of MDC III and MDC IIIA, who together
     have more than the  required  two-thirds-in-interest  vote of the  Managing
     General  Partners  necessary to effect such  decision on behalf of any such
     entity.  Voting and dispositive decisions regarding the Voting Common Stock
     owned by Gamma  Fund LLC are made by a vote or  consent  of a  majority  in
     number of voting members of Gamma Fund LLC. Messrs. McCown, De Leeuw, King,
     Hellman,  Ayres and  Zuckerman  have no direct  ownership  of any shares of
     Class A Non-Voting Common Stock except to the extent of their proportionate
     partnership.  The  address of each of the above  mentioned  entities is c/o
     McCown De Leeuw & Co., 3000 Sand Hill Road, Build 3, Suite 290, Menlo Park,
     California 94025.
(7)  Shares of Class B Non-Voting Common Stock are convertible,  at the holder's
     option,  into an identical number of shares of Voting Common Stock upon the
     occurrence  of certain  "Conversion  Events,"  as defined in the  Company's
     certificate of incorporation. See "Security Ownership." The general partner
     of Chase Equity Associates, L.P., is Chase Capital Partners. The address of
     each of these  entities is c/o Chase  Capital  Partners,  380 Madison Ave.,
     12th Floor, New York, New York 10017.
(8)  Shares of Class C Non-Voting Common Stock are convertible,  at the holder's
     option,  into an identical number of shares of Voting Common Stock upon the
     occurrence  of certain  "Conversion  Events,"  as defined in the  Company's
     certificate of incorporation. See "Security Ownership." The general partner
     of MLQ  Investors,  L.P. is MLQ, Inc. The address of each of these entities
     is c/o Goldman Sachs & Co., 85 Broad Street, New York, New York 10004.
(9)  Shares of Class C Non-Voting Common Stock are convertible,  at the holder's
     option,  into an identical number of shares of Voting Common Stock upon the
     occurrence  of certain  "Conversion  Events",  as defined in the  Company's
     certificate of incorporation.  See "Security Ownership." Consists of shares
     held as follows: Clipper Capital Associates, L.P. ("CCA"), 9,268.50 shares;
     Clipper/Merchant Partners, L.P., 102,642.16 shares; Clipper Equity Partners
     I, L.P.,  90,168.81 shares;  Clipper/Merban,  L.P.  ("Merban"),  120,225.07
     shares;  Clipper/European  Re, L.P.,  60,112.54 shares; and CS First Boston
     Merchant Investments 1995/96, L.P.  ("Merchant"),  17,582.92 shares. CCA is
     the general  partner of all of the Clipper  Group  partnerships  other than
     Merchant.  The general partner of CCA is Clipper Capital  Associates,  Inc.
     ("CCI"),  and Mr.  Robert B.  Calhoun,  Jr. is the sole  stockholder  and a
     director of CCI. Clipper Capital Partners, an affiliate of Mr. Calhoun, has
     sole  investment  power with  respect to the shares  beneficially  owned by
     Merchant.  As a  result,  each of Mr.  Calhoun,  CCA and CCI is  deemed  to
     beneficially own all shares of Class C Non-Voting Common Stock beneficially
     owned by the Clipper Group (other than Merchant), and Mr. Calhoun is deemed
     to  beneficially  own  the  shares  of  Class  C  Non-Voting  Common  Stock
     beneficially  owned  by  Merchant.   Merchant  Capital,   Inc.   ("Merchant
     Capital"),  an  affiliate of CS First  Boston  Corporation,  is the general
     partner  of  Merchant  and  the 99%  limited  partner  of  Clipper/Merchant
     Partners, L.P. CS Holding, an affiliate of CS First Boston Corporation,  is
     the 99% limited partner of Merban.  None of Merchant,  Merchant Capital, CS
     First Boston  Corporation and CS Holding is an affiliate of Clipper or CCA.
     The address for Merchant is 11 Madison  Avenue,  26th Floor,  New York,  NY
     10010, the address for  Clipper/European  Re, L.P. and Merban is c/o CITCO,
     De Ruyterkade,  62, P.O. Box 812, Curacao,  Netherlands  Antilles,  and the
     address for all other Clipper  Group  entities is 11 Madison  Avenue,  26th
     Floor, New York, NY 10010.
</FN>
</TABLE>


ITEM 13.      CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Acquisition Arrangements

OSI  invested  $5  million  for  a  minority  interest  in a  limited  liability
corporation  ("LLC") formed for the purpose of acquiring an accounts  receivable
portfolio.  The  majority  interest in the LLC is held by an affiliate of one of
the Company's stockholders.

Advisory Services Agreement

On September 21, 1995 the Company  entered into an Advisory  Services  Agreement
(the "Advisory Services  Agreement") with MDC Management Company III, L.P. ("MDC
Management"),   an  affiliate.   Under  the  Advisory  Services  Agreement,  MDC
Management  provides  consulting,  financial,  and  managerial  functions  for a
$300,000 annual fee. The Advisory Services  Agreement expires September 21, 2005
and is renewable  annually  thereafter,  unless  terminated by the Company.  The
Company may terminate the Advisory  Services  Agreement at any time for cause by
written notice to MDC Management authorized by a majority of the directors other
than those who are partners, principals or employees of MDC Management or any of
its  affiliates.  The  Advisory  Services  Agreement  may be  amended by written
agreement of MDC Management and the Company. The Company believes that the terms
of and  fees  paid  for the  professional  services  rendered  are at  least  as
favorable to the Company as those which could be negotiated with a third party.

In 1996 upon closing of the acquisition of Payco, the offering by OSI of the 11%
Senior  Subordinated Notes and the $200 million credit facility,  MDC Management
received a one-time fee of $3 million for financial  advisory  services provided
to OSI in  connection  therewith.  In 1998 upon  closing of the  acquisition  of
Union,  MDC  Management  received a one-time fee of $2.5  million for  financial
advisory services provided to OSI in connection therewith.

Certain Interests of Initial Purchasers

Goldman  Sachs and its  affiliates  have  certain  interests  in the  Company in
addition to being an initial  purchaser  of the 11% Senior  Subordinated  Notes.
Goldman  Sachs also served as financial  advisor to OSI in  connection  with the
acquisitions of Payco and Union and received  certain fees and  reimbursement of
expenses in connection therewith.  Moreover,  Goldman Sachs acted as co-arranger
and Goldman Sachs Credit Partners,  L.P., an affiliate of Goldman Sachs, acts as
co-administrative  agent and lender in connection  with its credit  facility and
receives certain fees and reimbursement of expenses in connection therewith. MLQ
Investors,  L.P.,  an  affiliate  of Goldman  Sachs,  owns a  non-voting  equity
interest in the Company.

In addition  to acting as an initial  purchaser  of the 11% Senior  Subordinated
Notes,  Chase  Securities  Inc.  ("Chase  Securities")  and its affiliates  have
certain  other  relationships  with  the  Company.  Chase  Securities  acted  as
co-arranging  agent  and  The  Chase  Manhattan  Bank,  an  affiliate  of  Chase
Securities,  acts as  co-administrative  agent  and a lender  under  the  credit
facility  and each  receives  customary  fees and  reimbursement  of expenses in
connection therewith.  Additionally,  Chase Equity Associates, L.P. an affiliate
of Chase Securities, owns a non-voting equity interest in the Company.

Arrangement with Certain Affiliates

Payco leases its  corporate  headquarters  in  Brookfield,  Wisconsin,  its data
processing center in New Berlin, Wisconsin and the office space for three of its
collection  operations from  partnerships in which certain officers of Payco are
the principal  partners.  The terms of the leases provided for aggregate  annual
payments of  approximately  $1.8  million  and $2.2  million for the years ended
December 31, 1997 and 1996,  respectively.  Such lease amounts are subject to an
escalation adjustment,  not to exceed 5% annually. All operating and maintenance
costs  associated with these buildings are paid by Payco.  The Company  believes
that the terms of these  leases  are at least as  favorable  as could  have been
obtained in arms-length negotiations with an unaffiliated lessor.

ABC leases its  headquarters in Englewood,  Colorado from a partnership in which
certain  officers  of ABC are the  principal  partners.  The  terms of the lease
provided  for  aggregate   annual  payments  of  $336,000.   All  operating  and
maintenance  costs  associated  with this  building are paid by ABC. The Company
believes  that the terms of this lease are at least as  favorable  as could have
been obtained in arms-length negotiations with an unaffiliated lessor.

Master Services Agreement

API  had  entered  into  a  Master  Services  Agreement  (the  "Master  Services
Agreement") with HBR Capital,  Ltd.  ("HBR"),  which is wholly owned by David G.
Hanna and Frank J. Hanna, III. Under the Master Services Agreement, HBR provided
certain management and investment  services to API for a monthly fee of $50,000.
The Master  Services  Agreement  expired on October 1, 1997 and was not renewed.
The  Company  believed  that in terms of and the fees paid for the  professional
services  rendered  were at least as  favorable to API as those which could have
been negotiated with a third party.

In 1997 upon closing of the acquisitions of NSA and ABC, HBR received a one-time
fee of $600,000 for financial  advisory  services  provided to OSI in connection
therewith.




<PAGE>


PART IV.

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a)   1.  Financial Statements

          See  index  on  page  38  for  a  listing  of  consolidated  financial
          statements filed with this report.

      2.  Financial Statement Schedule

          See  index  on  page  38  for  a  listing  of  consolidated  financial
          statements schedule required to be filed by Item 8 of this Form 10-K.

      3.  Exhibits

Exhibit No.
-----------
*2.1      Agreement  and Plan of Merger dated as of August 13, 1996 by and among
          the Company, Boxer Acquisition Corp. and Payco American Corporation.
*2.2      Purchase  Agreement  dated as of  September  21, 1995 by and among the
          Company,  Account Portfolios,  Inc., Account Portfolios G.P., Inc., AP
          Management,  Inc., GSC management,  Inc.,  Perimeter Credit Management
          Corporation, Account Portfolios Trust One and Account Portfolios Trust
          Two.
*2.3      Stock Purchase Agreement dated as of January 10, 1996 by and among the
          Company, The Continental Alliance, Inc. and Peter C. Rosvall.
*2.4      Stock  Purchase  Agreement  dated as of December 13, 1995 by and among
          the Company,  Outsourcing  Solutions  Inc.,  A.M. Miller & Associates,
          Inc. and Alan M. Miller.
*2.5      Purchase  and  Inducement  Agreement  dated as of May 17,  1996 by and
          among the Company, Account Portfolios, Inc., Account Portfolios, L.P.,
          Gulf State Credit, L.P.,  Perimeter Credit, L.P., MLQ Investors,  L.P.
          and Goldman, Sachs & Co.
2.6       Asset  Purchase  Agreement  dated  October  8,  1997 by and  among NSA
          Acquisition  Corporation,  Outsourcing  Solutions  Inc.,  North  Shore
          Agency,  Inc.,  Automated Mailing Services,  Inc.,  Mailguard Security
          System, Inc., DMM Consultants and Certain Stockholders.
2.7       Asset  Purchase  Agreement  dated  November  10,  1997  by  and  among
          Outsourcing  Solutions  Inc.,  ABC  Acquisition  Company,  Accelerated
          Bureau of Collections Inc., Accelerated Bureau of Collections of Ohio,
          Inc.,  Accelerated Bureau of Collections of Virginia Inc., Accelerated
          Bureau of Collections of Massachusetts,  Inc.,  Travis J. Justus,  and
          Linda Brown.
2.8       Share  Purchase  Agreement and Plan of Merger dated as of December 22,
          1997 by and among  Outsourcing  Solutions  Inc.,  Sherman  Acquisition
          Corporation and The Union Corporation.
*3.1      Certificate of Incorporation of the Company, as amended to date, filed
          with the  Secretary of State of the State of Delaware on September 21,
          1995.
*3.2      By-laws of the Company
*4.1      Indenture  dated as of November 6, 1996 by and among the Company,  the
          Guarantors and Wilmington Trust Company (the "Indenture").
*4.2      Specimen   Certificate  of  11%  Senior  Subordinated  Note  due  2006
          (included in Exhibit 4.1 hereto).
*4.3      Specimen Certificate of 11% Series B Senior Subordinated Note due 2006
          (the "New Notes") (included in Exhibit 4.1 hereto).
*4.4      Form of  Guarantee  of  securities  issued  pursuant to the  Indenture
          (included in Exhibit 4.1 hereto).
*10.1     Amended and Restated  Stockholders  Agreement dated as of February 16,
          1996 by and among the Company and various stockholders of the Company.
*10.2     Advisory  Services  Agreement  dated  September  21, 1995  between the
          Company and MDC Management Company III, L.P.
*10.3     Lease Agreement between Payco American  Corporation and the Brookfield
          Investment Company dated July 12, 1979, as amended to the date hereof.
*10.4     Lease  Agreement  between Payco American  Corporation  and the Perncom
          Investment  Company  dated  April 27,  1984,  as  amended  to the date
          hereof.
*10.5     Lease  Agreement  between Payco American  Corporation and the Westlake
          Investment  Corporation  dated  June 1,  1984,  as amended to the date
          hereof.
*10.6     Lease  Agreement  between Payco  American  Corporation  and the Dublin
          Investment Company dated July 14, 1986, as amended to the date hereof.
*10.7     Lease  Agreement  between Payco American  Corporation and the Hacienda
          Investment  Company  dated  October 14,  1986,  as amended to the date
          hereof.
**10.8    Amended  Employment  Agreement dated as of August 27, 1997 between the
          Company and Timothy G. Beffa.
*10.9     Consulting  Agreement  dated  as of  August  13,  1996  between  Payco
          American Corporation and Dennis G. Punches.
10.10     Employment  Agreement  dated  October  16,  1997  between  Outsourcing
          Solutions Inc. and Daniel J. Dolan.
*10.11    9%  Non-Negotiable  Junior  Subordinated  Note dated  January 10, 1996
          issued by the Company to Alan M. Miller.
*10.12    1995 Stock Option and Stock Award Plan of the Company.
10.13     First Amendment to  1995  Stock  Option  and  Stock  Award Plan of the
          Company
*10.14    Form of Non-Qualified Stock Option Award Agreement [A]
*10.15    Form of Non-Qualified Stock Option Award Agreement [B]
 10.16    Lease  Agreement  dated June 1, 1997  between  Justus  Realty  Limited
          Partnership and Accelerated Bureau of Collections Inc.
 10.17    Earn-out  Agreement dated October 8, 1997 by and among NSA Acquisition
          Corporation,  Outsourcing  Solutions Inc.,  North Shore Agency,  Inc.,
          Automated Mailing Services,  Inc.,  Mailguard Security Systems,  Inc.,
          and DMM Consultants.
 10.18    Second Amended and Restated  Credit  Agreement dated as of January 26,
          1998 by and among the Company,  the Lenders  listed  therein,  Goldman
          Sachs  Credit   Partners  L.P.  and  The  Chase   Manhattan  Bank,  as
          Co-Administrative Agents, Goldman Sachs Credit Partners L.P. and Chase
          Securities,  Inc., as Arranging Agents and Suntrust Bank,  Atlanta, as
          Collateral Agent.
21        Subsidiaries of registrant.
27        Financial Data Schedule.

_________________  

*    Previously filed with OSI's  Registration  Statement on Form S-4 filed with
     Securities and Exchange Commission on November 26, 1996.

**   Previously  filed with OSI's Form 10-Q for the period ended  September  30,
     1997 with the Securities and Exchange Commission on November 14, 1997.

(b)  Reports on Form 8-K

     During the quarter, the following report on Form 8-K was filed:

          Report on Form 8-K under Item 5 dated December 22, 1997 announcing the
          Company's tender offer for The Union Corporation.




<PAGE>


SIGNATURES

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

                                         OUTSOURCING SOLUTIONS INC.


                                         /s/Timothy G. Beffa
                                         -------------------
                                         Timothy G. Beffa
                                         President and Chief Executive Officer


                                         /s/Daniel J. Dolan
                                         ------------------
                                         Daniel J. Dolan
                                         Executive Vice President and
                                         Chief Financial Officer

DATE:  March 31, 1998

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.
<TABLE>
<CAPTION>

         Signature                                      Title                                      Date
         ---------                                      -----                                      ---- 
<S>                                     <C>                                                  <C>
 /s/ Jeffrey E. Stiefler                Chairman of the Board of Directors                   March 30, 1998
------------------------------------
Jeffrey E. Stiefler

 /s/ Timothy G. Beffa                   President and Chief Executive                        March 30, 1998
------------------------------------
Timothy G. Beffa                        Officer, Director

 /s/ David E. De Leeuw                  Director                                             March 23, 1998
------------------------------------
David E. De Leeuw

 /s/ David E. King                      Secretary and Treasurer, Director                    March 30, 1998
------------------------------------
David E. King

 /s/ Tyler T. Zachem                    Vice President and Director                          March 30, 1998
------------------------------------
Tyler T. Zachem

 /s/ David G. Hanna                     Director                                             March 30, 1998
------------------------------------
David G. Hanna

 /s/ Frank J. Hanna, III                Director                                             March 24, 1998
------------------------------------
Frank J. Hanna, III

 /s/ Dennis G. Punches                  Director                                             March 26, 1998
------------------------------------
Dennis G. Punches

 /s/ Nathan W. Pearson, Jr              Director                                             March 23, 1998
------------------------------------
Nathan W. Pearson, Jr.
</TABLE>


<PAGE>


INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND CONSOLIDATED  FINANCIAL STATEMENT
SCHEDULE

<TABLE>
<CAPTION>

                                                                                                           Page
                                                                                                           ----
<S>                                                                                                        <C>
Consolidated Financial Statements

Outsourcing Solutions Inc. and Subsidiaries
     Independent Auditors' Report.................................................................          F-1
     Consolidated Balance Sheets at December 31, 1997 and 1996....................................          F-2
     Consolidated Statements of Operations for the years ended December 31, 1997
         and 1996 and for the period September 21, 1995 to December 31, 1995......................          F-3
     Consolidated Statements of Stockholders' Equity (Deficit) for the years ended
         December 31, 1997 and 1996 and for the period September 21, 1995 to
         December 31, 1995........................................................................          F-4
     Consolidated Statements of Cash Flows for the years ended December 31, 1997
         and 1996 and for the period September 21, 1995 to December 31, 1995......................          F-5
     Notes to Consolidated Financial Statements...................................................          F-6

Account Portfolios, L.P. and Subsidiaries
     Independent Auditors' Report.................................................................         F-21
     Consolidated Balance Sheets at December 31, 1994 and September 20, 1995......................         F-22
     Consolidated Statements of Operations for the year ended December 31, 1994
         and for the period from January 1, 1995 to September 20, 1995............................         F-23
     Consolidated Statements of Partners' Capital for the year ended December 31,
         1994 and for the period for January 1, 1995 to September 20, 1995........................         F-24
     Consolidated Statements of Cash Flows for the year ended December 31,1994
         and for the period from January 1, 1995 to September 20, 1995............................         F-25
     Notes to Consolidated Financial Statements...................................................         F-26

Consolidated Financial Statement Schedule

Independent Auditors' Report.....................................................................          F-31
Schedule II - Valuation and Qualifying Accounts and Reserves......................................         F-32
</TABLE>



<PAGE>


















INDEPENDENT AUDITORS' REPORT


To the Stockholders of Outsourcing Solutions Inc.:

We have audited the  accompanying  consolidated  balance  sheets of  Outsourcing
Solutions Inc. and subsidiaries as of December 31, 1997 and 1996 and the related
consolidated  statements of operations,  stockholders' equity (deficit) and cash
flows for each of the two years in the period  ended  December  31, 1997 and for
the period from  September  21, 1995 (date of  inception)  to December 31, 1995.
These financial  statements are the responsibility of the Company's  management.
Our responsibility is to express an opinion on these financial  statements based
on our audits.

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

In our opinion,  such consolidated  financial  statements present fairly, in all
material  respects,  the financial  position of  Outsourcing  Solutions Inc. and
subsidiaries  as of  December  31,  1997  and  1996  and the  results  of  their
operations  and their cash  flows for each of the two years in the period  ended
December  31, 1997 and for the period from  September  21, 1995 to December  31,
1995 in conformity with generally accepted accounting principles.





/s/ Deloitte & Touche LLP
-------------------------
Deloitte & Touche LLP



St. Louis, Missouri
February 13, 1998

<PAGE>



OUTSOURCING SOLUTIONS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>

ASSETS                                                                                               1997          1996
                                                                                                     ----          ----         

<S>                                                                                               <C>           <C>
CURRENT ASSETS
  Cash and cash equivalents                                                                       $  3,217      $ 14,497
  Cash and cash equivalents held for clients                                                        20,762        20,255
  Current portion of purchased loans and accounts receivable portfolios                             42,915        42,481
  Accounts receivable - trade, less allowance for doubtful receivables of $538 and $641             27,192        20,738
  Deferred income taxes                                                                               -            2,617
  Other current assets                                                                               2,119         3,453
                                                                                                  --------      --------
    Total current assets                                                                            96,205       104,041
PURCHASED LOANS AND ACCOUNTS RECEIVABLE PORTFOLIOS                                                  19,537        25,519
PROPERTY AND EQUIPMENT, net                                                                         32,563        36,451
INTANGIBLE ASSETS, net                                                                             219,795       173,470
DEFERRED FINANCING COSTS, less accumulated amortization of $2,376 and $337                          12,517        12,563
OTHER ASSETS                                                                                           693          -
DEFERRED INCOME TAXES                                                                                  380         3,163
                                                                                                  --------      --------
TOTAL                                                                                             $381,690      $355,207
                                                                                                  ========      ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

CURRENT LIABILITIES:
  Accounts payable - trade                                                                        $  6,977      $  6,495
  Collections due to clients                                                                        20,762        20,255
  Accrued severance and office closing costs                                                         6,487         7,558
  Accrued compensation                                                                               8,332         9,574
  Other current liabilities                                                                         19,644        12,047
  Current portion of long-term debt                                                                 15,445        10,032
                                                                                                  --------      --------
         Total current liabilities                                                                  77,647        65,961
LONG-TERM DEBT                                                                                     309,521       237,584
OTHER LONG-TERM LIABILITIES                                                                          -                64
COMMITMENTS AND CONTINGENCIES                                                                        -              -
STOCKHOLDERS' EQUITY (DEFICIT):
  8% nonvoting cumulative redeemable exchangeable preferred stock, authorized 1,000,000             11,699        10,816
    shares, 935,886.85 and 865,280.01 shares, respectively, issued and outstanding, at
    liquidation value of $12.50 per share
  Voting common stock; $.01 par value; authorized 7,500,000 shares, 3,477,126.01 and                    35            35
    3,425,126.01 shares, respectively, issued and outstanding
  Class A convertible nonvoting common stock; $.01 par value; authorized 7,500,000                       4             4
    shares, 391,740.58 shares issued and outstanding
  Class B convertible nonvoting common stock; $.01 par value; authorized 500,000                         4             4
    shares, 40,000 shares issued and outstanding
  Class C convertible nonvoting common stock; $.01 par value; authorized 1,500,000                      10            10
    shares, 1,040,000 shares issued and outstanding
  Paid-in capital                                                                                   66,958        65,658
  Retained capital                                                                                 (84,188)      (24,929)
                                                                                                  --------      --------
      Total Stockholders' equity (deficit)                                                          (5,478)       51,598
                                                                                                  --------      --------
TOTAL                                                                                             $381,690      $355,207
                                                                                                  ========      ========
See notes to consolidated financial statements.
</TABLE>


<PAGE>


OUTSOURCING SOLUTIONS INC. AND SUBSIDIARIES

CONSOLIDATED  STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1997 AND
1996 AND FOR THE PERIOD  SEPTEMBER  21, 1995 (DATE OF INCEPTION) TO DECEMBER 31,
1995 (IN THOUSANDS)


<TABLE>
<CAPTION>

                                                                               1997             1996              1995
                                                                               ----             ----              ----
<S>                                                                           <C>              <C>               <C>
REVENUES                                                                     $271,683         $106,331          $ 8,311

EXPENSES:
  Salaries and benefits                                                       133,364           46,997            2,079
  Service fees and other operating and administrative expenses                 71,122           33,759            3,232
  Amortization of purchased loans and accounts receivable                      52,042           27,317            5,390
    portfolios
  Amortization of goodwill and other intangibles                               24,749           15,452              250
  Depreciation expense                                                          8,825            2,829               81
  Purchased in-process research and development                                   -              1,000              -
                                                                             ---------        ---------         -------- 

      Total expenses                                                          290,102          127,354           11,032
                                                                             ---------        ---------         -------- 

OPERATING LOSS                                                                (18,419)         (21,023)          (2,721)

INTEREST EXPENSE - Net                                                         28,791           12,131            1,361
                                                                             ---------        ---------         -------- 

LOSS BEFORE INCOME TAXES                                                      (47,210)         (33,154)          (4,082)

PROVISION FOR INCOME TAXES (BENEFIT)                                            11,127         (11,757)          (1,605)
                                                                             ---------        ---------         -------- 

NET LOSS                                                                      (58,337)         (21,397)          (2,477)

PREFERRED STOCK DIVIDEND REQUIREMENTS                                             922              830              225
                                                                             ---------        ---------         -------- 

NET LOSS TO COMMON STOCKHOLDERS                                              $(59,259)        $(22,227)         $(2,702)
                                                                             =========        =========         ========
</TABLE>

See notes to consolidated financial statements.






<PAGE>


OUTSOURCING SOLUTIONS INC.  AND SUBSIDIARIES

CONSOLIDATED  STATEMENTS OF  STOCKHOLDERS'  EQUITY (DEFICIT) FOR THE YEARS ENDED
DECEMBER  31,1997  AND  1996  AND FOR THE  PERIOD  SEPTEMBER  21,1995  (DATE  OF
INCEPTION) TO DECEMBER 31,1995 (IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>

                                      NON-VOTING
                                      CUMULATIVE
                                      REDEEMABLE
                                     EXCHANGEABLE             COMMON      STOCK
                                       PREFERRED    VOT-       CLASS      CLASS      CLASS     PAID-IN    RETAINED
                                         STOCK       ING         A          B          C       CAPITAL     DEFICIT   TOTAL

<S>                                   <C>         <C>         <C>        <C>       <C>         <C>        <C>       <C>
BALANCE, SEPTEMBER 21,1995            $    -      $    -      $   -      $   -    $    -      $    -     $    -    $    -

Issuance of 800,000.01 shares
   of preferred stock                     10,000       -          -          -         -           -          -       10,000

Issuance of 2,812,000 shares
   of common stock                         -          28          -          -         -         35,122       -       35,150

Preferred stock dividend
  requirements of
  $0.28 per share                          -           -          -          -         -           -         (225)      (225)

Net loss                                   -           -          -          -         -           -       (2,477)    (2,477)
                                       ---------   ---------  ---------  ---------  ---------  ---------  ---------  ---------

BALANCE, DECEMBER 31, 1995            $   10,000     $28          -          -          -       $ 35,122  $(2,702)    $42,448

Issuance of 118,866.59 shares of
   common stock in exchange for
    notes payable to stockholders          -           2          -          -          -          1,484      -         1,486

Issuance of 2,326,000 shares
   of common stock                         -           7           10        -              6     29,052      -        29,075

Conversion of common stock                 -          (2)          (6)          4           4      -          -          -

Payment of preferred stock dividends
   through issuance of 65,290
   shares of preferred stock and
   recorded preferred stock dividend 
   requirements of $1 per share              816       -          -          -          -          -         (830)        (14)

Net loss                                   -           -          -          -          -          -      (21,397)    (21,397)
                                       ---------   ---------  ---------  ---------  ---------  ---------  --------    --------

BALANCE, DECEMBER 31, 1996                10,816      35            4           4          10     65,658  (24,929)     51,598

Issuance of 52,000 shares
of common stock                            -           -          -          -          -          1,300      -         1,300

Payment of preferred stock dividends
   through issuance of 70,606.84
  shares of preferred stock and
  recorded preferred stock dividend
  requirements of $1 per share              883                                                               (922)       (39)

Net loss                                   -           -          -          -          -          -       (58,337)   (58,337)
                                       ---------   ---------  ---------  ---------  ---------  ---------  ---------  ---------

BALANCE, DECEMBER 31,1997               $ 11,699         $35        $ 4       $ 4        $ 10   $ 66,958  $(84,188)  $ (5,479)
                                       =========   =========  =========  =========  =========  =========  =========  =========
</TABLE>

See notes to consolidated financial statements.

<PAGE>


OUTSOURCING SOLUTIONS INC.  AND SUBSIDIARIES

CONSOLIDATED  STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1997 AND
1996 AND FOR THE PERIOD  SEPTEMBER  21, 1995 (DATE OF INCEPTION) TO DECEMBER 31,
1995 (In thousands)
<TABLE>
<CAPTION>

                                                                               1997              1996            1995
<S>                                                                     <C>               <C>                 <C>
OPERATING ACTIVITIES:
 Net loss                                                               $    (58,337)     $    (21,397)       $ (2,477)
 Adjustments to reconcile net loss to net cash
  provided by (used in) operating activities:
  Depreciation and amortization                                                35,613            18,618             331
  Amortization of purchased loans and accounts receivable portfolios           52,042            27,317           5,390
  Deferred taxes                                                               10,877          (11,757)         (1,605)
  Other                                                                            48             -               -
  Change in assets and liabilities:
    Other current assets                                                          147             (578)           (233)
    Accounts payable and other current liabilities                             (7,565)          (1,536)           1,496
                                                                        --------------   --------------  --------------

      Net cash provided by operating activities                                32,825            10,667           2,902
                                                                        --------------   --------------  --------------
INVESTING ACTIVITIES:
  Purchase of loans and accounts receivable portfolios                       (46,494)          (13,645)           (903)
  Payments for acquisitions, net of cash acquired                            (62,913)         (184,184)        (30,007)
  Acquisition of property and equipment                                       (9,489)           (2,606)            (97)
  Other                                                                         (603)           -               -
                                                                        --------------   --------------  --------------
      Net cash used in investing activities                                 (119,499)         (200,435)        (31,007)
                                                                        --------------   --------------  --------------
FINANCING ACTIVITIES:
  Proceeds from term loans                                                     55,000           337,000         -
  Borrowings under revolving credit agreement                                  66,150           -               -
  Repayments under revolving credit agreement                                (34,300)           -               -
  Repayments of debt                                                          (9,763)         (136,615)           (576)
  Deferred financing fees                                                     (1,993)          (12,563)         -
  Proceeds from issuance of common stock                                          300            14,974          30,150
                                                                        --------------   --------------  --------------

      Net cash provided by financing activities                                75,394           202,796          29,574
                                                                        --------------   --------------  --------------

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS                         (11,280)            13,028           1,469

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                                 14,497             1,469         -
                                                                        --------------   --------------  --------------

CASH AND CASH EQUIVALENTS, END OF PERIOD                                $        3,217   $       14,497  $        1,469
                                                                        ==============   ==============  ==============

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION -
  Cash paid during period for interest                                  $       26,372   $        7,655  $          543
                                                                        ==============   ==============  ==============
</TABLE>

See notes to consolidated financial statements.





<PAGE>


OUTSOURCING SOLUTIONS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
--------------------------------------------------------------------------------


1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     CONSOLIDATION  POLICY - The consolidated  financial  statements include the
     accounts   of   Outsourcing   Solutions   Inc.   ("OSI")  and  all  of  its
     majority-owned  subsidiaries  (collectively,  the "Company").  Ownership in
     entities  of less than 50% are  accounted  for  either  under the equity or
     proportionate  consolidation method. All significant  intercompany accounts
     and transactions have been eliminated.

     CASH AND CASH  EQUIVALENTS  - Cash and cash  equivalents  consist  of cash,
     money market  investments,  and overnight  deposits.  Cash  equivalents are
     valued at cost, which approximates market. Cash held for clients consist of
     certain  restricted  accounts which are used to maintain cash collected and
     held on behalf of the Company's clients.

     PURCHASED  LOANS AND ACCOUNTS  RECEIVABLE  PORTFOLIOS - Purchased loans and
     accounts receivable portfolios  ("Receivables") acquired in connection with
     acquisitions  in  September  1995 and  November  1996 were  recorded at the
     present value of estimated future net cash flows.  Receivables purchased in
     the  normal   course  of  business  are  recorded  at  cost.   The  Company
     periodically reviews all Receivables to assess recoverability.  Impairments
     are  recognized  in  operations  if  the  expected  discounted  future  net
     operating cash flows derived from the  individual  portfolios are less than
     their respective carrying value (see Note 12).

     The Company  amortizes  on an  individual  portfolio  basis the cost of the
     Receivables  based on the ratio of current  collections  for a portfolio to
     current and anticipated future collections including any terminal value for
     that  portfolio.  Such  portfolio  cost  is  amortized  over  the  expected
     collection  period as  collections  are  received  which,  depending on the
     individual portfolio, generally ranges from 3 to 5 years.

     REVENUE  RECOGNITION - Collections on Receivables are generally recorded as
     revenue  when  received.  Revenue  from loan  servicing is recorded as such
     services are provided.

     PROPERTY  AND  EQUIPMENT - Property  and  equipment  are  recorded at cost.
     Depreciation is computed on the straight-line method based on the estimated
     useful  lives  (3 years  to 10  years)  of the  related  assets.  Leasehold
     improvements are amortized over the term of the related lease.

     INTANGIBLE ASSETS - The excess of cost over the fair value of net assets of
     businesses  acquired is  amortized on a  straight-line  basis over 20 to 30
     years. Other identifiable  intangible assets are primarily comprised of the
     fair value of  existing  account  placements  acquired in  connection  with
     business  combinations  and  non-compete   agreements.   These  assets  are
     short-lived   and  are  being   amortized  over  the  assets'   periods  of
     recoverability,  which  are  estimated  to  be 1 to 3  years.  The  Company
     periodically   reviews   goodwill   and   other   intangibles   to   assess
     recoverability.  Impairments  will  be  recognized  in  operations  if  the
     expected future  operating cash flows  (undiscounted  and without  interest
     charges)  derived  from such  intangible  assets are less than its carrying
     value.

     INCOME  TAXES - The Company  accounts  for income  taxes using an asset and
     liability  approach.  The Company recognizes the amount of taxes payable or
     refundable for the current year and deferred tax liabilities and assets for
     expected future tax consequences of events that have been recognized in the
     consolidated financial statements.

     DEFERRED   FINANCING  COSTS  -  Costs  incurred  to  obtain  financing  are
     capitalized  and amortized over the term of the  underlying  debt using the
     straight line method.

     STOCK-BASED  COMPENSATION  -  The  Company  accounts  for  its  stock-based
     compensation plan using the intrinsic value method prescribed by Accounting
     Principles Board Opinion No. 25,  Accounting for Stock Issued to Employees.
     Statement of Financial  Accounting  Standard (SFAS) No. 123, Accounting for
     Stock-Based Compensation, requires that companies using the intrinsic value
     method make pro forma  disclosures of net income as if the fair value-based
     method  of  accounting  had been  applied.  See  Note 9 for the fair  value
     disclosures required under SFAS No. 123.

     ACCOUNTING   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.

     NEW ACCOUNTING  PRONOUNCEMENTS - In February 1997, the Financial Accounting
     Standards  Board ("FASB")  issued SFAS No. 128,  Earnings per Share,  which
     requires  adoption in the quarter  ended  December 31, 1997,  and prohibits
     early  compliance.  SFAS No. 128 simplifies the calculation of earnings per
     share and is applicable only to public companies.  Under generally accepted
     accounting principles' and Securities and Exchange Commission's  disclosure
     requirements,  SFAS No. 128 is not currently applicable to the Company and,
     accordingly, earnings per share is not presented.

     In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income,
     which is effective for fiscal years beginning after December 15, 1997. SFAS
     No. 130  establishes  standards for reporting and display of  comprehensive
     income and its components in financial statements.

     In June 1997, the FASB issued SFAS No. 131,  Disclosures  About Segments of
     an Enterprise and Related Information,  which is effective for fiscal years
     beginning  after  December 15, 1997.  The  statement  changes the method of
     determining   segments  from  that  currently  required  and  requires  the
     reporting  of certain  information  about  segments.  The  Company  has not
     determined how its segments will be reported, or whether and to what extent
     segment information will be presented.

     RECLASSIFICATIONS - Certain amounts in prior periods have been reclassified
     to conform to the current year presentation.


2.   ORGANIZATION & ACQUISITIONS

     OSI was formed on September  21, 1995 to build,  through a  combination  of
     acquisitions and sustained internal growth, one of the leading providers of
     accounts receivable management services. The Company purchases and collects
     portfolios  of  non-performing   loans  and  accounts  receivable  for  the
     Company's  own  account,  services  accounts  receivable  placements  on  a
     contingent and fixed fee basis and provides contract management of accounts
     receivable.   The  Company's  customers  are  mainly  in  the  educational,
     utilities,  telecommunications,  retail,  healthcare and financial services
     industries. The markets for the Company's services currently are the United
     States, Puerto Rico and Mexico.

     In September 1995, the Company acquired Account Portfolios, L.P. ("API"), a
     partnership in the business of purchasing and managing large  portfolios of
     non-performing consumer loans and accounts receivable, for cash of $30,000,
     common stock of $15,000 and notes of $35,000,  which were subsequently paid
     in March 1996.

     In  January  1996,  the  Company  acquired  A.M.  Miller &  Associates  and
     Continental  Credit Services,  Inc.,  accounts  receivable and fee services
     companies,  for total cash  consideration of $38,500 including  transaction
     costs of $3,600, common stock of $6,000, a 9% unsecured,  subordinated note
     of $5,000  and a 10%  unsecured,  subordinated  note of  $3,000,  which was
     subsequently paid in November 1996.

     In November 1996, the Company acquired all of the outstanding  common stock
     of Payco American Corporation ("Payco"),  an accounts receivable management
     company primarily focused on healthcare,  education and bank/credit  cards,
     in a  merger  transaction  for  cash of  approximately  $154,800  including
     transaction costs of $4,600. The Company allocated the total purchase price
     including  additional  liabilities  reserves  to the fair  value of the net
     assets  acquired  resulting  in  goodwill  of  approximately  $123,000.  In
     addition,  the Company allocated $1,000 of the purchase price to in-process
     research and development that had not reached technological feasibility and
     had no alternative  future uses, which accordingly was expensed at the date
     of the acquisition.

     In October and November 1997, the Company  acquired The North Shore Agency,
     Inc.  ("NSA"),  a  fee  service  company   specializing  in  letter  series
     collection services, and Accelerated Bureau of Collections, Inc. ("ABC"), a
     fee service company specializing in credit card collections, for total cash
     consideration  of  approximately  $53,800  including  transaction  costs of
     $1,173 and common stock of $1,000. One of the acquisitions contains certain
     contingent payment obligations,  $1,520 through December 31, 1997, based on
     the  attainment  by  the  newly  formed  subsidiary  of  certain  financial
     performance  targets over each of the next three years.  Future  contingent
     payment  obligations,  if any, will be accounted for as additional goodwill
     as the payments are made.

     The above acquisitions were accounted for as purchases.  The excess of cost
     over the fair value of net assets of businesses  acquired is amortized on a
     straight-line  basis  over  20 to 30  years.  Results  of  operations  were
     included in the  consolidated  financial  statements from their  respective
     acquisition dates.

     In May 1996, a subsidiary of the Company acquired  participation  interests
     in certain loan  portfolios  for cash of $3,300,  Class C Nonvoting  common
     stock of $8,000 and a 10% unsecured  promissory  note of $3,500,  which was
     subsequently paid in November 1996.

     The  unaudited  pro  forma  consolidated  financial  data  presented  below
     provides pro forma effect of the  acquisitions as if such  acquisitions had
     occurred as of January 1, 1996.  The  unaudited  results have been prepared
     for comparative purposes only and do not necessarily reflect the results of
     operations  of the  Company  that  actually  would  have  occurred  had the
     acquisitions been consummated as of January 1, 1996, nor does the data give
     effect to any transactions other than the acquisitions.

                                                       PRO FORMA
                                                   1997         1996 

                         Net revenues           $313,219     $299,542
                                                =========    =========

                         Net loss               $(58,005)    $(39,945)
                                                =========    =========



3.   PROPERTY AND EQUIPMENT

     Property  and  equipment,  which  is  recorded  at  cost,  consists  of the
     following at December 31:


                                                          1997           1996

                  Furniture and fixtures                 $ 4,478       $ 3,591
                  Machinery and equipment                    716          -
                  Data processing equipment               21,452        19,647
                  Telephone equipment                      5,956         3,670
                  Leasehold improvements                   1,599         1,090
                  Computer software                       10,494        11,310
                                                         --------      --------
                                                          44,695        39,308
                  Less accumulated depreciation          (12,132)       (2,857)
                                                         --------      --------

                                                         $32,563       $36,451
                                                         ========      ========


4.   INTANGIBLE ASSETS

     Intangible assets consist of the following at December 31:

                                                          1997           1996

     Goodwill                                           $226,770       $155,693
     Value of favorable contracts and placements          29,000         29,000
     Covenants not to compete                              4,498          4,514
                                                        ---------      ---------
                                                         260,268        189,207
                                                         (40,473)       (15,737)
                                                        ---------      ---------
Less accumulated amortization                           $219,795       $173,470
                                                        ========        ========

5.   DEBT

     Long-term debt consists of the following at December 31:

                                                           1997            1996

         Term Loan A Credit Facility                    $ 62,500        $ 71,000
         Term Loan B Credit Facility                     124,922          71,000
         Revolving Credit Facility                        31,850            -
         11% Senior Subordinated Notes                       -           100,000
         11% Series B Senior Subordinated Notes          100,000            -
         Note payable to stockholder                       4,429           5,000
         Other                                             1,265             616
                                                        --------        --------
                  Total debt                             324,966         247,616
         Less current portion of long-term debt           15,445          10,032
                                                        --------        --------
                  Long-term debt                        $309,521        $237,584
                                                        ========        ========




     In November 1996, the Company issued  $100,000 of 11%  unregistered  Senior
     Subordinated  Notes (the "Notes") in  conjunction  with the  acquisition of
     Payco. Interest on the Notes is payable semi-annually on May 1 and November
     1 of each year. The Notes are general unsecured  obligations of the Company
     and are  subordinated in right of payment to all senior debt of the Company
     presently outstanding and incurred in the future. The Notes contain certain
     restrictive  covenants the more  significant  of which are  limitations  on
     asset  sales,  additional  indebtedness,  mergers  and  certain  restricted
     payments.

     On April 28, 1997, the Company  registered  $100,000 of 11% Series B Senior
     Subordinated  Notes (Senior Notes),  with no material  alteration in terms,
     with the  Securities  and Exchange  Commission to exchange for the existing
     Notes. The exchange offer was completed by May 29, 1997.

     In  November  1996,  the  Company  entered  into a new  $200,000  financing
     commitment  ("Credit  Facility") from a group of banks to finance a portion
     of the Payco acquisition and refinance existing  outstanding  indebtedness.
     The Credit Facility was subsequently  amended with the Amended and Restated
     Credit  Agreement  ("Amended  Facility") in October 1997 to finance the NSA
     and ABC acquisitions (see Note 4).

     The  Amended  Facility  consists  of a $189,877  term loan  facility  and a
     $58,000 Revolving Credit Facility (the "Revolving Facility"). The term loan
     facility consists of a term loan of $64,627 ("Term Loan A") and a term loan
     of  $125,250  ("Term Loan B"),  which  mature on October 15, 2001 and 2003,
     respectively.   The  Company  is  required  to  make  quarterly   principal
     repayments on each term loan. Term Loan A bears interest,  at the Company's
     option,  (a) at a base rate equal to the greater of the federal  funds rate
     plus 0.5% or the  lender's  customary  base  rate,  plus 1.5% or (b) at the
     reserve adjusted Eurodollar rate plus 2.5%. Term Loan B bears interest,  at
     the  Company's  option,  (a) at a base  rate  equal to the  greater  of the
     federal funds rate plus 0.5% or the lender's customary base rate, plus 2.0%
     or (b) at the reserve adjusted Eurodollar rate plus 3.0%.

     The  Revolving  Facility  has a term of five  years and is fully  revolving
     until  October 15, 2001.  The Revolving  Facility  bears  interest,  at the
     Company's  option,  (a) at a base rate equal to the  greater of the federal
     funds rate plus 0.5% or the lender's  customary base rate, plus 1.5% or (b)
     at the reserve adjusted Eurodollar rate plus 2.5%.

     The Amended Facility is guaranteed by all of the Company's present domestic
     subsidiaries  and is secured by all of the stock of the  Company's  present
     domestic  subsidiaries and by substantially  all of the Company's  domestic
     property assets.  The Amended Facility  contains certain covenants the more
     significant  of  which  limit  dividends,  asset  sales,  acquisitions  and
     additional indebtedness, as well as requires the Company to satisfy certain
     financial performance ratios.

     The Senior Notes are fully and  unconditionally  guaranteed  on a joint and
     several basis by each of the Company's  current  domestic  subsidiaries and
     any  additional  domestic  subsidiaries  formed by the Company  that become
     guarantors under the Amended Facility (the "Restricted Subsidiaries").

     The Restricted  Subsidiaries are wholly-owned by the Company and constitute
     all of the direct and indirect subsidiaries of the Company except for three
     subsidiaries that are individually,  and in the aggregate  inconsequential.
     The Company is a holding company with no separate  operations,  although it
     incurs some expenses on behalf of its operating  subsidiaries.  The Company
     has no significant assets or liabilities other than the common stock of its
     subsidiaries,  debt,  related deferred financing costs and accrued expenses
     relating  to expenses  paid on behalf of its  operating  subsidiaries.  The
     aggregate  assets,  liabilities,  results of operations  and  stockholders'
     equity of the Restricted Subsidiaries are substantially equivalent to those
     of  the  Company  on  a  consolidated  basis  and  the  separate  financial
     statements of each of the Restricted Subsidiaries are not presented because
     management has determined that they would not be material to investors.

     Summarized combined financial information of the Restricted Subsidiaries is
     shown below:

                                                1997            1996

           Current assets                    $  96,133       $  96,146
                                             ==========      ==========
           Noncurrent assets                 $ 272,730       $ 238,003
                                             ==========      ==========
           Current liabilities               $  57,169       $  47,909
                                             ==========      ==========
           Noncurrent liabilities            $   5,284       $   5,461
                                             ==========      ==========
           Operating revenue                 $ 271,683       $ 106,331
                                             ==========      ==========
           Loss from operations              $ (14,679)      $ (15,325)
                                             ==========      ==========
           Net loss                          $ (23,857)      $ (15,143)
                                             ==========      ==========


     Maturities of long-term debt and capital leases at December 31, 1997 are as
     follows:

                                                           Debt         Capital
                                                                        Leases
                                                         ---------     ---------
         1998                                            $ 15,035      $    504
         1999                                              15,117           463
         2000                                              18,783           333
         2001                                              57,062            13
         2002                                              49,922             -
         Thereafter                                       167,867             -
                                                         ---------     ---------
         Total payments                                   323,786         1,313
         Less amounts representing interest                                 133
                                                                       ---------
         Present value of minimum lease payments                          1,180
         Less current portion                              15,035           410
                                                         =========     =========
                                                         $308,751      $    770
                                                         =========     =========

     During 1997,  the Company  entered into  interest  rate cap  agreements  to
     reduce the  impact of  increases  in  interest  rates on its  floating-rate
     long-term  debt. At December 31, 1997,  the Company had three interest rate
     cap agreements outstanding.  The agreements effectively entitle the Company
     to receive from a bank the amount, if any, by which the Company's  interest
     payments  on  specified  principal  of its  floating-rate  term loans for a
     specified  period exceed 10%. The amounts paid for these agreements of $243
     are  included  in  deferred  financing  costs  and are being  amortized  to
     interest expense over the terms of the various  agreements through November
     1999.


6.   STOCKHOLDERS' EQUITY

     On September 21, 1995, the Company issued 800,000.01 shares of 8% Nonvoting
     Cumulative  Redeemable  Exchangeable  Preferred Stock ("Preferred Shares").
     The  liquidation  value of each Preferred  Share is $12.50 plus accrued and
     unpaid dividends.  Dividends,  as may be declared by the Company's Board of
     Directors,  are cumulative at an annual rate of 8% of the liquidation value
     and are payable in equal  semi-annual  installments  of $.50 per  preferred
     share on the  dividend  payment  date,  as  defined in the  Certificate  of
     Incorporation.  The Company may, at its sole option and upon written notice
     to  preferred  shareholders,  redeem all or any portion of the  outstanding
     Preferred  Shares for $12.50 per share plus cash equal to all  accrued  and
     unpaid  dividends,  through  the  redemption  date,  whether  or  not  such
     dividends  have been  authorized  or  declared.  Pursuant to the  Company's
     financing  arrangements,  the payment of dividends and/or the repurchase of
     Preferred Shares is prohibited until the Company attains certain covenants.
     The  Company  may,  at its  sole  option,  pay  dividends  in the  form  of
     additional Preferred Shares. Each holder of Preferred Shares has the right,
     at their option,  to exchange any or all of their Preferred  Shares for the
     same number of shares of Voting Common Stock ("Voting Common Shares").  The
     Company must  reserve,  out of its  authorized  but unissued  Voting Common
     Shares,  the  appropriate  number of  Voting  Common  Shares to affect  the
     exchange of all  outstanding  Preferred  Shares.  Upon the  exchange of any
     Preferred Shares, such Preferred Shares are to be retired and not reissued.


7.   INCOME TAXES

     Major  components  of the Company's  income tax provision  (benefit) are as
     follows:

                                                     1997       1996       1995
     Current:
       Federal                                   $    -     $    -      $    -
       State                                          250        -           -
                                                  --------   --------   --------
          Total current                               250        -           -
                                                  --------   --------   --------
     Deferred:
       Federal                                      9,513    (10,250)    (1,437)
       State                                        1,364     (1,507)      (168)
                                                 --------   ---------   --------
          Total deferred                           10,877    (11,757)    (1,605)
                                                 --------   ---------   --------

          Provision for income taxes (benefit)   $ 11,127   $(11,757)   $(1,605)
                                                 ========   =========   ========

     Deferred income taxes reflect the net tax effects of temporary  differences
     between  the  carrying  amounts of assets  and  liabilities  for  financial
     reporting purposes and the amounts used for income tax reporting  purposes.
     The Company's  deferred income taxes result  primarily from  differences in
     loans and  accounts  receivable  purchased,  amortization  methods on other
     intangible assets and depreciation methods on fixed assets. The tax effects
     of the temporary  differences that give rise to significant portions of the
     deferred  tax assets and  liabilities  at December 31, 1997 and 1996 are as
     follows:

                                                             1997         1996  
     Deferred tax assets:
            Net operating loss carryforwards              $ 12,759     $  6,302
            Accrued liabilities                              5,882        5,957
            Other                                            2,153          747
                                                          ---------    ---------
                   Gross deferred tax assets                20,794       13,006

     Deferred tax liabilities:
            Loans and account receivable                     6,737       (4,087)
            Property and equipment                             724       (2,375)
            Intangible assets                                4,557         (764)
                                                         ----------    ---------
                   Gross deferred tax liabilities           12,018       (7,226)

     Total deferred tax assets                              32,812        5,780
     Less valuation allowance                              (32,432)        -
                                                         ==========    =========
     Net deferred tax assets                             $     380     $  5,780
                                                         ==========    =========

     During 1997, the Company  recorded a net valuation  allowance of $32,432 to
     reflect  management's  assessment,  based on the  weight  of the  available
     evidence of current and projected of future book taxable income, that there
     is significant  uncertainty  that any of the benefits from the net deferred
     tax assets will be realized.  For all federal tax years since the Company's
     formation  in September  of 1995,  the Company has  incurred net  operating
     losses.

     At December 31, 1997 for income tax purposes, the Company has the following
     net operating loss carryforwards:

                                        Amount                    Expiration
                                        ------                    ----------
                    1997               $19,600                       2012
                    1996                 3,950                       2011
                    1995                 9,200                       2010

     During 1997,  the Company has  significantly  increased its total debt from
     $247,616 at December  31, 1996 to  $324,966  at  December  31,  1997.  This
     increase in debt primarily  resulted from the  acquisitions  in 1997 of the
     net assets of NSA and ABC.  In  addition,  on January  26, 1998 and as more
     fully  described in Note 14, the Company  incurred  significant  additional
     borrowings to finance the acquisition of The Union  Corporation.  Since the
     Company  has  a  history  of  generating  net  operating   losses  and  has
     significantly   increased  its  total  interest  expense  to  be  incurred,
     management  does not expect the Company to generate  taxable  income in the
     foreseeable  future  sufficient  to  realize  tax  benefits  from  the  net
     operating loss  carryforwards  or the future reversal of the net deductible
     temporary  differences.  The amount of the deferred  tax assets  considered
     realizable,  however,  could be  increased  in future years if estimates of
     future taxable income during the carryforward period change.

     Net deferred  tax assets are  reflected  in the  accompanying  consolidated
     financial statements as follows:

                                                         1997          1996
        Current assets:
        Deferred tax assets                           $ 11,698      $
        Less valuation allowance                       (11,698)         -
                                                      ---------     ---------
        Net current deferred tax assets                  -             2,617
                                                      ---------     ---------
        Long-term assets:
        Deferred tax assets                             21,114         3,163
        Less valuation allowance                       (20,734)         -
                                                      ---------     ---------
        Net long-term deferred tax assets                  380         3,163
                                                      ---------     ---------

        Net deferred tax assets                       $    380      $
                                                      =========     =========


     A reconciliation of the Company's reported income tax provision to the U.S.
     federal statutory rate is as follows:
<TABLE>
<CAPTION>

                                                                        1997         1996         1995

     <S>                                                             <C>          <C>          <C>
     Federal taxes at statutory rate                                 $(16,052)    $(11,272)    $ (1,388)

     State income taxes (net of federal tax benefits)                  (2,092)      (1,521)        (111)

     Nondeductible amortization                                         1,406          879           85

     Other                                                             (4,567)         157         (191)

     Deferred tax valuation allowance                                  32,432          -           -
                                                                     ---------    ---------    ---------

     Provision for income taxes (benefit)                            $ 11,127     $(11,757)    $ (1,605)
                                                                     =========    =========    =========
</TABLE>

8.   RELATED PARTY TRANSACTIONS

     The  Company  had  an  agreement  with  an  affiliate  of  certain  Company
     stockholders  to provide  management and investment  services for a monthly
     fee of $50. The Company  recorded  management  fees to this entity of $450,
     $600,  and $150 for the years ended  December 31, 1997 and 1996 and for the
     period September 21, 1995 to December 31, 1995, respectively. The agreement
     was terminated September 30, 1997.

     Subject to the agreements  executed in connection with the acquisitions and
     the private placement  discussed in Note 2, the Company has paid to certain
     Company  stockholders  transaction costs and advisory fees. Such costs were
     $1,600,  $9,100 and $1,500 for the years ended  December  31, 1997 and 1996
     and for the period September 21, 1995 to December 31, 1995, respectively.

     Under  various  financing   arrangements   associated  with  the  Company's
     acquisitions and Amended Facility, the Company incurred interest expense of
     $3,317  and  $2,900  for the  years  ended  December  31,  1997  and  1996,
     respectively,  to certain Company  stockholders of which one is a financial
     institution  and  is  co-administrative  agent  of  the  Company's  Amended
     Facility.

     During December 1997, the Company  invested $5,000 for a minority  interest
     in a limited  liability  corporation  ("LLC")  formed  for the  purpose  of
     acquiring an accounts  receivable  portfolio.  The majority interest in the
     LLC is held by an affiliate of one of the Company's  stockholders.  The LLC
     is managed by the Company and had insignificant activity for 1997.


9.   STOCK OPTION AND AWARD PLAN

     The Company has  established  the  Outsourcing  Solutions  Inc.  1995 Stock
     Option and Stock  Award Plan (the  "Plan").  The Plan is a stock  award and
     incentive  plan which permits the issuance of options,  stock  appreciation
     rights ("SARs") in tandem with such options,  restricted  stock,  and other
     stock-based awards to selected employees of and consultants to the Company.
     The Plan reserved 304,255 Voting Common Shares for grants and provides that
     the term of each  award,  not to exceed ten  years,  be  determined  by the
     Compensation  Committee of the Board of Directors (the "Committee") charged
     with  administering  the Plan.  In February  1997,  the Board of  Directors
     approved an increase to the reserve of Voting Common Shares to 500,000 with
     an additional approval to 750,000 in December 1997.

     Under the terms of the Plan, options granted may be either  nonqualified or
     incentive  stock  options and the  exercise  price may not be less than the
     fair market value of a Voting Common Share, as determined by the Committee,
     on the date of  grant.  SARs  granted  in tandem  with an  option  shall be
     exercisable only to the extent the underlying option is exercisable and the
     grant price shall be equal to the exercise price of the underlying  option.
     The awarded  stock  options  vest over  various  periods and vesting may be
     accelerated upon the satisfaction of certain performance targets and/or the
     occurrence of certain liquidity events.  The options shall expire ten years
     after date of grant.


     A summary of the 1995 Stock Option and Stock Award Plan is as follows:

                                                 Number      Weighted Average
                                                   of         Exercise Price
                                                 Shares         Per Share
                                               ----------    ----------------

       Outstanding at December 31, 1995            -            $   -
       Granted                                   395,809          13.57
       Forfeited                                (149,788)         12.50
                                               ----------
       Outstanding at December 31, 1996          246,021          14.23
       Granted                                   397,500          27.99
       Forfeited                                 (75,000)         22.33
                                               ==========
       Outstanding at December 31, 1997          568,521          22.78
                                               ==========

       Reserved for future option grants         181,479
                                               ==========

     At December 31, 1997, 49,647 shares were exercisable with an exercise price
     range of $12.50 to $25.00 and the weighted  average  remaining  contractual
     life for the options outstanding was 9.0 years.

     The Company accounts for the Plan in accordance with Accounting  Principles
     Board Opinion No. 25, under which no compensation  cost has been recognized
     for stock  option  awards.  As required  by SFAS No.  123,  the Company has
     estimated the fair value of its option  grants since  January 1, 1996.  The
     fair value for these  options was  estimated at the date of the grant based
     on the following weighted average assumptions:

                                                       1997            1996

          Risk free rate                               5.44%           6.33%
          Expected dividend yield of stock                0%              0%
          Expected volatility of stock                    0%              0%
          Expected life of option (years)              10.0            10.0

     Given that the Company is not publicly  traded,  the  expected  stock price
     volatility  is  assumed to be zero.  The  weighted  fair  values of options
     granted  during  1997 and 1996 were  $12.29  and $6.67,  respectively.  The
     Company's pro forma information is as follows:

                                                      1997             1996  
          Net loss:
                As reported                        $(58,337)        $(21,397)
                Pro forma                           (59,570)         (21,758)
          -------------------------------------------------------------------

     In addition,  the Committee may grant  restricted  stock to participants of
     the Plan at no cost. Other than the  restrictions  which limit the sale and
     transfer  of these  shares,  recipients  of  restricted  stock  awards  are
     entitled  to vote shares of  restricted  stock and  dividends  paid on such
     stock. No restricted stock has been granted at December 31, 1997.


10.  COMMITMENTS AND CONTINGENCIES

     From time to time,  the  Company  enters  into  servicing  agreements  with
     companies  which  service  loans  for  others.  The  servicers  handle  the
     collection efforts on certain  nonperforming  loans and accounts receivable
     on the Company's  behalf.  Payments to the servicers  vary depending on the
     servicing  contract.  Current  contracts  expire on the anniversary date of
     such  contracts  but  are  automatically  renewable  at the  option  of the
     Company.

     The Company has a business  alliance  agreement  with a  partnership  which
     provides for the payment of fees for services  performed in connection with
     the acquisition of loan  portfolios.  Such fees include a monthly  retainer
     and commission  based on the Company's  ultimate  financial  return on each
     purchased  portfolio.  The Company recorded fee expense to this partnership
     of $170 for 1997.

     A subsidiary  of the Company has two  Portfolio  Flow  Purchase  Agreements
     whereby the subsidiary has a monthly  commitment to purchase  nonperforming
     loans  meeting  certain  criteria  for an agreed upon price  subject to due
     diligence.  The purchases under the Portfolio Flow Purchase Agreements were
     $20,661, $5,986 and $903 for the years ended December 31, 1997 and 1996 and
     for the period September 21, 1995 to December 31, 1995, respectively.

     The Company  leases  certain  office  space and  computer  equipment  under
     operating leases. These operating leases, with terms in excess of one year,
     are due in approximate amounts as follows:

                                                            Amount
                                                            ------
                1998                                       $ 8,744
                1999                                         8,019
                2000                                         5,971
                2001                                         4,322
                2002                                         2,903
                Thereafter                                   4,849
                                                            ------

                         Total lease payments              $34,808


     Rent expense  under  operating  leases was $8,100,  $3,600 and $150 for the
     years ended  December  31, 1997 and 1996 and for the period  September  21,
     1995 to December 31, 1995, respectively.


11.  LITIGATION

     At  December  31,  1997,  the  Company  was  involved  in a number of legal
     proceedings  and claims  that were in the  normal  course of  business  and
     routine to the nature of the Company's  business.  The Company has provided
     for the estimated  uninsured amounts and costs of defense for pending suits
     and management  believes that reserves  established for ultimate settlement
     are adequate at December 31, 1997.


12.  FAIR VALUE OF FINANCIAL INSTRUMENTS

     The estimated fair values and the methods and assumptions  used to estimate
     the fair values of the financial  instruments of the Company as of December
     31,  1997 and 1996 are as  follows.  The  carrying  amount of cash and cash
     equivalents and long-term debt  approximate the fair value.  The fair value
     of the long-term debt was determined  based on current market rates offered
     on notes and debt with  similar  terms and  maturities.  The fair  value of
     Receivables  was determined  based on discounted  expected cash flows.  The
     discount  rate was based on an acceptable  rate of return  adjusted for the
     risk inherent in the  Receivable  portfolios.  The estimated  fair value of
     Receivables approximated its carrying value at December 31, 1997 and 1996.

     In  December  1997,  the  Company  completed  an  in-depth  analysis of the
     carrying  value of the purchased  portfolios  acquired in September 1995 in
     conjunction with the Company's  acquisition of API. This analysis  included
     an evaluation of achieved  portfolio  amortization  rates,  historical  and
     estimated  future  costs to  collect,  as well as  projected  total  future
     collection  levels.  As a result of this  analysis,  the  Company  recorded
     $10,000 of additional  amortization  relating to these purchased portfolios
     to reduce their carrying value to estimated fair value.


13.  EMPLOYEE BENEFIT PLAN

     The Company has five defined  contribution  plans which provide  retirement
     benefits to the majority of all full time employees.  The Company matches a
     portion of employee  contributions to the plans.  Company  contributions to
     these  plans,  charged to  expense,  were $276 and $98 for the years  ended
     December 31, 1997 and 1996, respectively.

     Effective January 1, 1998, three of these defined  contribution  plans were
     combined into a new defined contribution plan sponsored by the Company. The
     Company also  anticipates to combine the other defined  contribution  plans
     into the new defined contribution plan during 1998.


14.  SUBSEQUENT EVENTS

     On  January  23,  1998,  the  Company  acquired  approximately  77%  of the
     outstanding  shares of The Union  Corporation's  ("Union") common stock for
     $31.50 per  share.  The  Company  agreed to  acquire  any of the  remaining
     outstanding  shares  of Union  pursuant  to a  second-step  merger in which
     holders of such shares will receive $31.50 per share.  The Company  expects
     to complete the merger by April 1998.  The aggregate  purchase price of the
     common stock will be approximately $192,000.

     Also in January  1998,  the Company  finalized an amended  $470,422  credit
     agreement   ("Agreement")   with  a  group  of  banks  to  fund  the  Union
     acquisition.  The  Agreement  consists of $412,422 of Term Loans A, B and C
     due  through  October  2004 and a $58,000  Revolving  Credit  Facility  due
     October 2001. Interest rates on borrowings under the Agreement are based on
     the Eurodollar rate or other  alternatives  plus a margin of 3.0% or lower.
     The Agreement amended the Amended Facility.

     Union  reported  revenues  of  $121,709  and net income of $8,096 for their
     fiscal  year  ended June 30,  1997.  Union also  reported  total  assets of
     $126,019 and stockholders' equity of $71,612 at June 30, 1997.



<PAGE>














INDEPENDENT AUDITORS' REPORT


Partners of Account Portfolios, L.P.:

We  have  audited  the  accompanying  consolidated  balance  sheets  of  Account
Portfolios,  L.P (a Georgia  Limited  Partnership,  the  "Partnership")  and its
subsidiaries  as of  September  20, 1995 and  December  31, 1994 and the related
consolidated statements of operations, partners' capital, and cash flows for the
period  from  January  1,  1995 to  September  20,  1995 and for the year  ended
December 31, 1994.  These  financial  statements are the  responsibility  of the
Partnership's  management.  Our responsibility is to express an opinion on these
financial statements based on our audits.

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

In our opinion,  such consolidated  financial  statements present fairly, in all
material   respects,   the  financial   position  of  the  Partnership  and  its
subsidiaries  as of September  20, 1995 and December 31, 1994 and the results of
their  operations  and their cash flows for the period  from  January 1, 1995 to
September 20, 1995 and for the year ended  December 31, 1994 in conformity  with
generally accepted accounting principles.



/s/Deloitte & Touche LLP
------------------------------
Deloitte & Touche LLP

Atlanta, Georgia

August 9, 1996

(November 26, 1996 as to Note 7)




<PAGE>


ACCOUNT PORTFOLIOS, L.P.
(A GEORGIA LIMITED PARTNERSHIP)
AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF DOLLARS)



                                                   SEPTEMBER 20,    DECEMBER 31,
ASSETS                                                 1995             1994

CURRENT ASSETS:
  Cash and cash equivalents                         $    557          $ 13,998
  Loans and accounts receivable purchased              3,788             1,672
  Accounts receivable - trade                              3                93
  Investment in partnership                                              1,833
  Other current assets                                   174                80
                                                    --------          --------
      Total current assets                             4,522            17,676

LOANS AND ACCOUNTS RECEIVABLE PURCHASED                5,667             4,589

PROPERTY AND EQUIPMENT - Net                           1,083               676
                                                    --------          --------
      Total assets                                  $ 11,272          $ 22,941
                                                    ========          ========

LIABILITIES AND PARTNERS' CAPITAL

CURRENT LIABILITIES:
  Accounts payable - trade                             $ 164          $    331
  Accrued consulting fees                                145               289
  Accrued salaries and wages                             304                51
  Accrued vacation                                        57                31
  Other current liabilities                               43                77
                                                    --------          --------
      Total current liabilities                          713               779

PARTNERS' CAPITAL                                     10,559            22,162
                                                    --------          --------
      Total liabilities and partners' capital       $ 11,272          $ 22,941
                                                    ========          ========

See notes to consolidated financial statements.


<PAGE>



ACCOUNT PORTFOLIOS, L.P.
(A GEORGIA LIMITED PARTNERSHIP)
AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS OF DOLLARS)



                                                     PERIOD FROM       
                                                   JANUARY 1, 1995   YEAR ENDED
                                                  TO SEPTEMBER 20,  DECEMBER 31,
                                                        1995            1994

REVENUES                                             $ 21,293         $ 39,292

EXPENSES:
  Amortization of loans and accounts receivable         2,308            2,667
  Service fees and other operating and
    administrative expenses                             8,595            6,131
  Professional fees                                       911            2,638
                                                     --------         -------- 

OPERATING INCOME                                        9,479           27,856

OTHER INCOME (EXPENSE):
  Interest expense                                       (955)          (2,941)
  Interest income                                         460              342
  Other expense                                                           (166)
                                                     --------         --------

NET INCOME                                           $  8,984         $ 25,091
                                                     ========         ======== 


See notes to consolidated financial statements.


<PAGE>


ACCOUNT PORTFOLIOS, L.P.
(A GEORGIA LIMITED PARTNERSHIP)
AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
(IN THOUSANDS OF DOLLARS)



                                         GENERAL      LIMITED     
                                         PARTNER      PARTNERS         TOTAL

BALANCE - January 1, 1994                $   46       $  4,536       $  4,582

  Distributions to partners                 (75)        (7,436)        (7,511)

  Net income                                251         24,840         25,091
                                         ------       --------       --------

BALANCE - December 31, 1994                 222         21,940         22,162

  Contributions by partners                   1            134            135

  Distributions to partners                (207)       (20,515)       (20,722)

  Net income                                 90          8,894          8,984
                                         ------       --------       --------

BALANCE - September 20, 1995             $  106       $ 10,453       $ 10,559
                                         ======       ========       ========


See notes to consolidated financial statements.


<PAGE>

ACCOUNT PORTFOLIOS, L.P.
(A GEORGIA LIMITED PARTNERSHIP)
AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)



                                                    PERIOD FROM     
                                                  JANUARY 1, 1995    YEAR ENDED
                                                  TO SEPTEMBER 20,  DECEMBER 31,
                                                       1995             1994
OPERATING ACTIVITIES:
  Net income                                         $ 8,984          $ 25,091
  Adjustments to reconcile net income to net cash
   provided by operating activities:
   Depreciation expense                                  167               102
   Amortization of loans and accounts receivable       2,308             2,667
   Loss on withdrawal from long-term investment                            166
   Change in assets and liabilities: 
     Accounts receivable - trade                          90               (93)
     Loans and accounts receivable purchased          (5,502)           (6,800)
     Other current assets                                (94)              (19)
     Accounts payable, accrued expenses, and 
       other current liabilities                         (66)              (40)
                                                     --------         --------
       Net cash provided by operating activities       5,887            21,074

INVESTING ACTIVITIES:
  Acquisition of fixed assets                           (574)             (463)
  Proceeds from sale of long-term investment           1,833
                                                     --------       
       Net cash provided by (used in) investing        1,259              (463)
         activities

 FINANCING ACTIVITIES:
  Payments on debt                                                      (3,544)
  Contributions from partners                            135   
  Distributions to partners                           (20,722)          (7,511)
                                                     --------         --------
       Net cash used in financing activities          (20,587)         (11,055)
                                                     --------         --------
NET INCREASE (DECREASE) IN CASH AND
  CASH EQUIVALENTS                                    (13,441)           9,556

CASH AND CASH EQUIVALENTS:
  Beginning of period                                  13,998            4,442
                                                     --------         --------
  End of period                                      $    557         $ 13,998
                                                     ========         ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
  INFORMATION:
  Cash paid during period for interest               $    967         $  2,920
                                                     ========         ========

See notes to consolidated financial statements.


<PAGE>



ACCOUNT PORTFOLIOS, L.P.
(A GEORGIA LIMITED PARTNERSHIP)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 20, 1995 AND DECEMBER 31, 1994 AND
FOR THE PERIOD FROM JANUARY 1, 1995 TO SEPTEMBER 20, 1995
AND YEAR ENDED DECEMBER 31, 1994


1.   ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     ORGANIZATION - Account Portfolios, L.P. (a Georgia Limited Partnership, the
     "Partnership")  is a  limited  partnership  organized  for the  purpose  of
     purchasing  portfolios  of  nonperforming  loans  and  accounts  receivable
     ("Receivables").  The Receivables are purchased by the Partnership  without
     recourse to the seller. The Partnership  Agreement  ("Agreement")  provides
     that the  Partnership  shall continue in existence  until December 31, 2050
     unless  sooner  terminated,  liquidated,  or  dissolved  by law or by terms
     within the  Agreement.  The  shareholders  of the General  Partner are also
     trustees of the Limited Partners.

     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.

     Consolidation  Policy - During 1995 and 1994, the  Partnership  invested in
     various   subsidiaries   which   purchased   portfolios  of   nonperforming
     Receivables.  The consolidated financial statements include the Partnership
     and all of its  subsidiaries.  All  significant  intercompany  accounts and
     transactions have been eliminated.

     Revenue  Recognition  - Collection on  Receivables  are recorded as revenue
     when received. Revenue from loan servicing is recorded as such services are
     provided.  Fees,  paid  on the  closing  of  each  portfolio  of  purchased
     Receivables,  are  capitalized  and  included  in the  amortization  of the
     portfolio.  Effective  January 1, 1994, the Partnership began amortizing on
     an  individual  portfolio  basis the cost of the  Receivables  based on the
     ratio of current  collections  for a portfolio  to current and  anticipated
     future  collections  for  that  portfolio.  If  not  amortized  earlier,  a
     Receivable  portfolio's  loan cost  becomes  fully  amortized by the end of
     three years from date of purchase. Prior to 1994, the Partnership amortized
     purchased loan costs under the cost recovery  method.  The change in method
     was a result of the Partnership's improved historical collection experience
     for similar types of loan  portfolios and its ability to estimate  expected
     cash flow.  This  change was  accounted  for  prospectively  as a change in
     estimate and the effect was to reduce amortization expense and increase net
     income by $962,000 in 1994.

     Allocation of Net Earnings (Loss) - Income,  losses,  and the net cash from
     operations of the  Partnership  are allocated 1% to the General Partner and
     99% to the Limited  Partners.  Net cash from  operations is defined as cash
     flow from operations less amounts used to pay or establish reserves for all
     Partnership expenses,  debt payments,  capital improvements,  replacements,
     and contingencies as determined by the General Partner.

     In the event of the sale of  Partnership  property,  profits  or losses are
     allocated to the Partners as follows:

     o    First, to the Partners so as to take account of any variation  between
          the adjusted basis of the property and its initial gross asset value.

     o    Second,  to any Partner who has a negative capital account at the time
          of disposition.

     o    Third,  to all  Partners in  accordance  with their  interests  in the
          income and losses of the Partnership as set forth in the Agreement.

     Cash and Cash  Equivalents  - Cash and cash  equivalents  consist  of cash,
     money market investments, and overnight deposits. The Partnership considers
     all other highly liquid  temporary cash  investments with low interest rate
     risk to be cash  equivalents.  Cash  equivalents are valued at cost,  which
     approximates market.

     Fixed Assets - Fixed assets are recorded at cost.  Depreciation is computed
     on the  straight-line  method  based on the  estimated  useful lives of the
     related assets.

     Income  Taxes - No  provision  for  income  taxes is made in the  financial
     statements of the Partnership. Taxable income or loss of the Partnership is
     reported in the income tax returns of its partners.


2.   PROPERTY AND EQUIPMENT

     Property  and  equipment,  which  is  recorded  at  cost,  consists  of the
     following at September 20, 1995 and December 31, 1994 (in thousands):

                                                        1995        1994     

        Furniture and fixtures                        $  201      $  111
        Data processing equipment                        688         377
        Telephone equipment                              496         347
        Leasehold improvements                            30          13
        Computer software                                  7          
                                                      ------
                                                       1,422         848
        Less accumulated depreciation                   (339)       (172)
                                                      ------      ------
        Fixed assets, net                             $1,083      $  676
                                                      ======      ======


3.   INVESTMENT IN PARTNERSHIP

     At December  31,  1994,  the  investment  in  partnership  consisted of the
     Partnership's  limited partner  investment in a private  investment limited
     partnership whose emphasis is on capital  appreciation through investments.
     A $2.0 million capital  contribution  was made on December 30, 1993 and was
     recorded at cost. The Partnership  withdrew its investment  during the year
     ended  December  31,  1994  and  received  80%  of  the  total  anticipated
     distribution  in January 1995.  The remaining  20% was  distributed  to the
     Partnership in 1995 upon completion of the audit of the private  investment
     limited  partnership.  Estimated losses of $166,473 on this investment were
     included in 1994 other expense.


4.   NOTE PAYABLE

     The Partnership  entered into a two-year Master Loan Agreement with Cargill
     Financial  Services  Corporation  ("Cargill")  on May 14,  1992  ("the Loan
     Agreement") which allowed it to borrow up to $50.0 million for the purchase
     of portfolios of nonperforming  loans and accounts  receivable  approved by
     both parties. Under the terms of the Loan Agreement,  interest accrues at a
     rate of prime plus 7% and all  borrowings  are payable in 24 months.  There
     were no  principal  amounts  outstanding  under  the Loan  Agreement  as of
     September 20, 1995 and December 31, 1994. Borrowings were collateralized by
     current and future loans purchased under the Loan Agreement.

     Under  the  terms  of the  Loan  Agreement,  after  payment  of  principal,
     noncontingent  interest,  and return of the Partnership's  investment,  the
     Partnership is required to pay an additional 20% of all future  collections
     less service fees (as defined) as  contingent  interest to the lender.  The
     Partnership  paid contingent  interest of $955,290 and $2,940,593 under the
     Loan  Agreement  for the period from January 1, 1995 to September  20, 1995
     and for the year ended December 31, 1994,  respectively,  which was charged
     to interest expense.

     The  Partnership  was obligated to pay a fee to an  investment  bank on all
     amounts  borrowed  from Cargill up to total  borrowings  of $50.0  million.
     There are no outstanding  borrowings  from Cargill as of September 20, 1995
     and December 31, 1994 and all related  consulting  fees have been paid. The
     Partnership  recorded  consulting fees relating to the Cargill borrowing of
     $198,730 for the year ended December 31, 1994. No consulting fees were paid
     during the period from January 1, 1995 to September 20, 1995.

5.   RELATED PARTY TRANSACTIONS

     On  October  1,  1992,  the  Partnership  entered  into  a  management  and
     investment  services agreement with a related party. The agreement provides
     for the payment by the  Partnership of monthly  management  fees of $75,000
     through March 1993 and monthly fees of $50,000 thereafter.  The Partnership
     recorded  management  fees to this entity of $450,000  and $600,000 for the
     period  from  January  1, 1995 to  September  20,  1995 and the year  ended
     December 31, 1994, respectively.


6.   EMPLOYEE BENEFIT PLAN

     The Partnership adopted a 401(k) profit sharing plan and trust (the "Plan")
     on March 1, 1994 which covers all full-time  employees  who have  completed
     three months of service. Employees may contribute up to 15% of their annual
     compensation and employer contributions are discretionary.  The Partnership
     did not make any  contributions  to the Plan during the period from January
     1, 1995 to  September  20, 1995 and for the year ended  December  31, 1994,
     respectively.  Effective December 22, 1995, the Partnership  terminated the
     Plan.  Participants  in the Plan were  given the  option to roll over their
     account  balance  into  another  qualified  plan or to  receive a  lump-sum
     distribution to the Plan.


7.   COMMITMENTS AND CONTINGENCIES

     From time to time, the  Partnership  enters into servicing  agreements with
     companies  which  service  loans  for  others.  The  servicers  handle  the
     collection efforts on certain  nonperforming  loans and accounts receivable
     on the  Partnership's  behalf.  Payments to the servicers vary depending on
     the  servicing   contract.   Current  contracts  expire  in  1995  but  are
     automatically renewable at the option of the Partnership.

     The  Partnership  has a  consulting  agreement  with  an  individual  which
     provides for the payment of fees for services  performed in connection with
     the  acquisition of loan  portfolios.  Such fees are based on the portfolio
     purchase price and future collections.  The Partnership recorded consulting
     expenses of $556,000 and $2,279,000  during the period from January 1, 1995
     to  September  20,  1995  and  for  the  year  ended   December  31,  1994,
     respectively.

     The  Partnership  has a three-year  employment  agreement  with an employee
     which provides for the payment of additional  compensation  based on future
     collections of loan  portfolios  identified by the employee.  No additional
     compensation was paid to this individual  during the period from January 1,
     1995 to  September  20,  1995 and for the year  ended  December  31,  1994,
     respectively.

     During August 1994, a subsidiary of the Partnership entered into a two-year
     Portfolio  Flow Purchase  Agreement  whereby the  subsidiary  has a monthly
     commitment to purchase  nonperforming loans meeting certain criteria for an
     agreed upon price up to a total  purchase  price of $1,000,000  per month .
     The purchases  under the Portfolio Flow Purchase  Agreement were $2,515,480
     and  $1,156,485  for the period from January 1, 1995 to September  20, 1995
     and for the year ended December 31, 1994, respectively. The subsidiary also
     entered into certain Participation  Agreements whereby from time to time it
     may  sell  (at  its  sole  discretion)  undivided  interests  in  the  loan
     portfolios  purchased  under the  Portfolio  Flow Purchase  Agreement.  The
     subsidiary  records the loan portfolios  purchased net of the participation
     interests sold.

     The Partnership is obligated under operating lease agreements with terms in
     excess of one year as follows (in thousands):

        1995                                     $   108
        1996                                         422
        1997                                         316
        1998                                         251
        1999 and thereafter                          349
                                                 -------
                                                 $ 1,446
                                                 =======      


     Rent  expense  under  operating  leases was  $200,680  and $118,806 for the
     period from  January 1, 1995 to  September  20, 1995 and for the year ended
     December 31, 1994, respectively.

     The Partnership is a party to certain legal matters arising in the ordinary
     course of business. In the opinion of management, none of these matters are
     expected to have a material effect on the financial  position or results of
     operations of the Partnership.


8.   SUBSEQUENT EVENTS

     Pursuant to a Purchase  Agreement  dated  September 21, 1995 (the "Purchase
     Agreement"),  OSI Holdings Corp. (the "Company"),  a Delaware  corporation,
     acquired the Class A limited  partnership  interests in Account Portfolios,
     L.P. for 933,333  shares of the Company  common stock and 266,667 shares of
     the Company 8%  Non-Voting  Cumulative  Redeemable  Exchangeable  Preferred
     Stock. The Company contributed the Class A partnership interests, valued at
     $15.0 million,  to Account  Portfolios,  Inc. ("AP, Inc."), a subsidiary of
     the Company. AP, Inc. acquired the Class B limited partnership interests in
     the Partnership for cash of approximately  $28.8 million and notes of $35.0
     million. Account Portfolios,  G.P., Inc. ("APGP, Inc."), another subsidiary
     of  the  Company,   acquired  the  general  partnership  interests  of  the
     Partnership and its subsidiaries  for cash of  approximately  $1.2 million.
     The total value of this transaction was $80.0 million.


<PAGE>






INDEPENDENT AUDITORS' REPORT

To the Stockholders of Outsourcing Solutions Inc.:

We have audited the consolidated  financial statements of Outsourcing  Solutions
Inc. and its  subsidiaries as of December 31, 1997 and 1996, and for each of the
two  years  in the  period  ended  December  31,  1997 and for the  period  from
September 21, 1995 (date of inception) to December 31, 1995, and have issued our
report  thereon dated  February 13, 1998;  such report is included  elsewhere in
this Form 10-K. Our audits also included the  consolidated  financial  statement
schedule of  Outsourcing  Solutions  Inc.  and its  subsidiaries,  listed in the
accompanying  index at Item 14(a)2.  This  financial  statement  schedule is the
responsibility of the Company's management.  Our responsibility is to express an
opinion  based  on our  audits.  In our  opinion,  such  consolidated  financial
statement  schedule,  when  considered  in  relation  to the basic  consolidated
financial statements taken as a whole,  presents fairly in all material respects
the information set forth therein.

/s/  Deloitte & Touche LLP
--------------------------
Deloitte & Touche LLP

St. Louis, Missouri
February 13, 1998


<PAGE>




Outsourcing Solutions Inc. and Subsidiaries                          Schedule II
 Valuation and Qualifying Accounts and Reserves
 For the year ended December 31, 1997 and 1996
   and the period ended December 31, 1995
 (in thousands)


<TABLE>
<CAPTION>

               Column A                Column B                  Column C                 Column D           Column E
               --------                ---------        ----------------------------      --------           --------
                                                                 Additions                  (B)
                                                        ----------------------------
                                        Balance                         Charged to        Deductions         Balance
                                       @ beg. of        Charged to         Other           (Please           @ end of
             Description                Period           Expense        Accounts (A)       explain)           Period
             -----------               ---------        ----------      ------------      ----------         --------
 <S>                                   <C>              <C>             <C>               <C>                <C>    
 Allowance for doubtful accounts:

                 1997                       641           367                 -             470                 538
                                           ====          ====               ====           ====                ====  
                 1996                        -            117                671            147                 641
                                           ====          ====               ====           ====                ====  
                 1995                        -             -                  -              -                   -
                                           ====          ====               ====           ====                ====  


<FN>
 (A) Payco balance at date of acquisition.
 (B) Accounts receivable write-offs and adjustments, net of recoveries.
</FN>
</TABLE>