SECURITIES AND EXCHANGE COMMISSION
                        Washington, D.C. 20549

                              FORM 10-K/A

                           Amendment No. 2 to 
         Annual Report Pursuant to Section 13 or 15(d) of the
                   Securities Exchange Act of 1934


For the Fiscal Year Ended                                Commission File
December 31, 1996                                        No. 1-7361


                    AMERICAN FINANCIAL CORPORATION


Incorporated under                                       IRS Employer I.D.
the Laws of Ohio                                         No. 31-0624874

            One East Fourth Street, Cincinnati, Ohio 45202
                            (513) 579-2121

                            ________________
 

<PAGE>
                                PART I

                                ITEM 1

                               Business

Introduction

    American Financial Corporation ("AFC") was incorporated as an
Ohio Corporation in 1955.  Its address is One East Fourth Street,
Cincinnati, Ohio, 45202; its phone number is (513) 579-2121.  At
December 31, 1996, American Financial Group, Inc. ("AFG") owned all
of the outstanding Common Stock of AFC (See "Mergers" below).

    AFC is a holding company which, through its subsidiaries, is
engaged primarily in specialty and multi-line property and casualty
insurance businesses and in the sale of tax-deferred annuities.
AFC's property and casualty operations originated in 1872 and are
the seventeenth largest property and casualty group in the United
States based on 1995 statutory net premiums written of $3.1 billion.

Mergers/Capital Contribution

    On April 3, 1995, AFC merged with a subsidiary of AFG a new
company formed to own 100% of the common stock of both AFC and
American Premier Underwriters, Inc. ("American Premier").  In the
transaction, Carl H. Lindner and members of his family, who owned
100% of the Common Stock of AFC, exchanged their AFC Common Stock
for approximately 55% of AFG voting common stock.  Former
shareholders of American Premier, including AFC and its
subsidiaries, received shares of AFG stock on a one-for-one basis.
AFC receives dividends paid on AFG common stock; however, its shares
generally will not be eligible to be voted as long as AFC is owned
by AFG.  No gain or loss was recorded on the exchange of shares.

    AFC continues to be a separate SEC reporting company with
publicly traded debentures and preferred stock.  Holders of AFC
Series F and G Preferred Stock were granted voting rights equal to
approximately 21% of the total voting power of AFC shareholders
immediately prior to the Mergers.

    At the close of business on December 31, 1996, AFG contributed
to AFC 81% of the common stock of American Premier.  Since AFC and
American Premier were under the common control of AFG, the
acquisition of American Premier has been recorded by AFC at AFG's
historical cost in a manner similar to a pooling of interests.
Accordingly, the historical consolidated financial statements of AFC
for periods subsequent to the April 1995 Mergers have been restated
to include the accounts of American Premier.

                                1
<PAGE>
General

    Generally, companies have been included in AFC's consolidated
financial statements when AFC's ownership of voting securities has
exceeded 50%; for investments below that level but above 20%, AFC
has accounted for the investments as investees.  (See Note F to
AFC's financial statements.)  The following table shows AFC's
percentage ownership of voting securities of its significant
affiliates over the past several years:

                                       Ownership at December 31,
                                     1996  1995  1994   1993  1992

  Great American Insurance Group     100%  100%  100%   100%  100%
  American Annuity Group              81%   81%   80%    80%   82%
  American Financial Enterprises      83%   83%   83%    83%   83%
  American Premier Underwriters       81%   (a)   42%    41%   51%
  Chiquita Brands International       43%   44%   46%    46%   46%
  Citicasters                         (b)   38%   37%    20%   40%
  General Cable                        -     -    (c)    45%   45%

  (a) Exchanged for shares of American Financial Group in April 1995.
  (b) Sold in September 1996.
  (c) Sold in June 1994.

    The following summarizes the more significant changes in
ownership percentages shown in the above table.

    American Premier Underwriters  In 1993, American Financial
Enterprises, Inc. ("AFEI") sold 4.5 million shares of American
Premier common stock in a secondary public offering.  At the close
of business on December 31, 1996, AFG contributed to AFC 81% of the
common stock of American Premier.

    Citicasters  In December 1993, Great American Communications
Company ("GACC") completed a prepackaged plan of reorganization.  In
the restructuring, AFC's previous holdings of GACC stock and debt
were exchanged for 20% of the new common stock.  GACC changed its
name to Citicasters to reflect the nature of its business.  In June
1994, AFEI purchased approximately 10% of Citicasters common stock.
In the second half of 1994, Citicasters repurchased and retired
approximately 21% of its common stock.  In September 1996, the
investments in Citicasters were sold to an unaffiliated company.

    General Cable  In 1994, AFC sold its investment in General Cable
to an unaffiliated company.

Property and Casualty Insurance Operations

   AFC manages and operates its property and casualty business in
three major business segments: Nonstandard Automobile Insurance,
Specialty Lines and Commercial and Personal Lines.  Each segment is
comprised of multiple business units which operate autonomously but
with strong central financial controls and full accountability.
Decentralized control allows each unit the autonomy necessary to
respond to local and specialty market conditions while capitalizing
on the efficiencies of centralized investment, actuarial, financial
and legal support functions.  AFC's property and casualty insurance
operations employ approximately 7,800 persons.
<PAGE>
   Unless indicated otherwise, the financial information presented
for the property and casualty insurance operations is presented
based on generally accepted accounting principles ("GAAP") and
includes the insurance operations of AFC and American Premier for
all periods.
                                2
<PAGE>
   The following table shows the size (in millions), segment and
A.M. Best rating of AFC's major property and casualty insurance
subsidiaries.

                                   1996 Net Written Premiums
                                  Commercial              NSA   A.M. Best
                                and Personal  Specialty  Group     Rating

  Great American                        $660     $636   $   -       A

  Republic Indemnity                      -       222       -       A
  Mid-Continent                           -        90       -       A
  American Empire Surplus Lines           -        28       -       A+

  Atlanta Casualty                        -        -       391      A
  Windsor                                 -        -       323      A
  Infinity                                -        -       232      A
  Leader National                         -        -        63      A-
  Transport                               -        -       106      A
  Other                                   -        17       20
                                        $660     $993   $1,135

   The primary objective of the property and casualty insurance
operations is to achieve underwriting profitability.  Underwriting
profitability is measured by the combined ratio which is a sum of
the ratios of underwriting losses, loss adjustment expenses ("LAE"),
underwriting expenses and policyholder dividends to premiums.  When
the combined ratio is under 100%, underwriting results are generally
considered profitable; when the ratio is over 100%, underwriting
results are generally considered unprofitable.  The combined ratio
does not reflect investment income, other income or federal income
taxes.

   Management's focus on underwriting performance has resulted in a
statutory combined ratio averaging 101.2% for the period 1992 to
1996, as compared to 108.8% for the property and casualty industry
over the same period (Source: "Best's Review - Property/Casualty" -
January 1997 Edition).  Management's philosophy is to refrain from
writing business that is not expected to produce an underwriting
profit even if it is necessary to limit premium growth to do so.

   For 1996, net written premiums were nearly $2.8 billion compared
to $3.1 billion in 1995.  The decrease reflects the effect of
significant rate increases initiated by the nonstandard auto group,
the continuing competitive pricing environment in the California
workers' compensation market as well as the casualty markets,
withdrawal from an unprofitable pool at the end of 1995 and reduced
writings of homeowners' insurance in certain states.

                                3
<PAGE>
   The following table shows (in millions) certain information of
AFC's property and casualty insurance operations.  While financial
data is reported on a statutory basis for insurance regulatory
purposes, it is reported in accordance with GAAP for shareholder and
other investment purposes.  In general, statutory accounting results
in lower capital surplus and net earnings than result from
application of GAAP.  Major differences include charging policy
acquisition costs to expense as incurred rather than spreading the
costs over the periods covered by the policies; recording bonds and
redeemable preferred stocks primarily at amortized cost; netting of
reinsurance recoverables and prepaid reinsurance premiums against
the corresponding liability; requiring additional loss reserves; and
charging to surplus certain assets, such as furniture and fixtures
and agents' balances over 90 days old.

                                   1996      1995       1994
  Statutory Basis
  Premiums Earned                $2,821    $3,006     $2,915
  Admitted Assets                 6,603     6,753      6,398
  Unearned Premiums               1,104     1,160      1,093
  Loss and LAE Reserves           3,397     3,394      3,275
  Capital and Surplus             1,659     1,595      1,586

  GAAP Basis
  Premiums Earned                $2,845    $3,031     $2,945
  Total Assets                    8,623     9,002      8,617
  Unearned Premiums               1,248     1,294      1,213
  Loss and LAE Reserves           4,124     4,097      4,021
  Shareholder's Equity            2,695     2,893      2,615
<PAGE>
   The following table shows the performance of AFC's property and
casualty insurance operations in various categories (dollars in
millions):
                                           1996      1995      1994

  Net written premiums                   $2,788    $3,092    $3,124

  Net earned premiums                    $2,845    $3,031    $2,945
  Loss and LAE                            2,132     2,265     2,077
  Underwriting expenses                     780       792       770
  Policyholder dividends                     14         8        84
  Underwriting profit (loss)            ($   81)  ($   34)   $   14

  GAAP ratios:
    Loss and LAE ratio                     75.0%     74.8%    70.5%
    Underwriting expense ratio             27.4      26.1     26.1
    Policyholder dividend ratio              .5        .3      2.8
    Combined ratio (a)                    102.9%    101.2%    99.4%
                                                               
  Statutory ratios:
    Loss and LAE ratio                     74.8%     74.8%    71.0%
    Underwriting expense ratio             27.2      25.9     26.3
    Policyholder dividend ratio              .4       1.7      3.6
    Combined ratio (a)                    102.4%    102.4%   100.9%

  Industry statutory combined ratio (b)   107.0%    106.5%   108.5%

  (a) The 1996 combined ratios include an increase of 2.8 percentage
      points attributable to the strengthening of insurance reserves 
      relating to asbestos and other environmental matters ("A&E").
    
  (b) Ratios are derived from "Best's Review - Property/Casualty"
      (January 1997 Edition).

                                4
<PAGE>
Nonstandard Automobile Insurance

      General.   The Nonstandard Automobile Insurance segment ("NSA Group") 
underwrites private passenger automobile liability and physical damage 
insurance policies for "nonstandard" risks.  Nonstandard insureds are 
those individuals who are unable to obtain insurance through standard 
market carriers due to factors such as age, record of prior accidents, 
driving violations, particular occupation or type of vehicle.  Premium 
rates for nonstandard risks are generally higher than for standard risks.  
Total private passenger automobile insurance premiums written by insurance
carriers in the United States in 1996 have been estimated by A.M. Best 
to be approximately $110 billion.  Because it can be viewed as a residual 
market, the size of the nonstandard private passenger automobile insurance 
market changes with the insurance environment and grows when standard 
coverage becomes more restrictive.  When this occurs, the criteria which 
differentiate standard from nonstandard insurance risks change.  The size 
of the voluntary nonstandard market is also affected by rate levels adopted 
by state administered involuntary plans.  According to A.M. Best, the
voluntary nonstandard market has accounted for about 15% of total private 
passenger automobile insurance premiums written in recent years.

   The NSA Group's implementation of significant rate increases during the 
last couple years and competitive pressures in the nonstandard automobile 
insurance industry served to curtail the trend of annual premium growth 
it had experienced previously.  These rate increases contributed to an 
improvement, however, in underwriting profitability for 1996.

   The NSA Group writes business in 42 states and holds licenses to
write policies in 48 states and the District of Columbia.  The U.S.
geographic distribution of the NSA Group's statutory direct written
premiums in 1996 compared to 1992, was as follows:

                 1996     1992                    1996     1992
  Florida        12.1%    20.1%     Mississippi    3.2%     3.3%
  Pennsylvania   10.1       *       Oklahoma       3.1      2.9
  Texas           9.4      2.2      Missouri       3.0      2.2
  Georgia         8.9     13.7      New York       3.0       *
  California      8.0      8.4      Arizona        2.5      5.9
  Connecticut     5.8      3.5      Washington     2.4       *
  Indiana         3.3      3.6      Alabama        2.1      4.2
  Tennessee       3.2      4.7      Other         19.9     25.3
                                                100.0%   100.0%
  _____________
  * less than 2%

   In addition, the NSA Group writes approximately 4% of its net
premiums annually in the United Kingdom.

   Management believes that the NSA Group's underwriting success has
been due, in part, to the refinement of various risk profiles,
thereby dividing the consumer market into more defined segments
which can be underwritten or priced properly.  The NSA Group also
generally writes policies of short duration which allow more
frequent rating evaluations of individual risks, providing
management greater flexibility in the ongoing assessment of the
business.  In addition, the NSA Group has implemented cost control
measures both in the underwriting and claims handling areas.
                             5
<PAGE>
   The following table shows the performance of AFC's NSA Group
insurance operations in various categories (dollars in millions):

                                         1996       1995      1994

  Net written premiums                 $1,135     $1,277    $1,186
                                     
  Net earned premiums                  $1,183     $1,246    $1,097
  Loss and LAE                            904      1,036       833
  Underwriting expenses                   278        273       265
  Underwriting profit (loss)           $    1    ($   63)  ($    1)

  GAAP ratios:
    Loss and LAE ratio                   76.4%      83.2%     75.9%
    Underwriting expense ratio           23.5       22.0      24.1
    Combined ratio                       99.9%     105.2%    100.0%

  Statutory ratios:
    Loss and LAE ratio                    75.8%      83.1%     76.0%
    Underwriting expense ratio            22.5       21.6      23.9
    Combined ratio                        98.3%     104.7%     99.9%

  Industry statutory combined ratio (a)  101.0%     101.3%    101.3%
  
  (a)  Represents the private passenger automobile industry statutory 
       combined ratio derived from "Best's Review - Property/Casualty" 
       (January 1997 Edition).  Although AFC believes that there is no
       reliable regularly published combined ratio data for the 
       nonstandard automobile insurance industry, AFC believes that 
       such a combined ratio would be lower than the private passenger
       automobile industry average shown above.

   Marketing.   Each of the principal units in the NSA Group is
responsible for its own marketing, sales, underwriting and claims
processing.  Sales efforts are directed primarily toward independent
agents.  These units each write policies through several thousand
independent agents.

   The NSA Group had approximately 900,000 policies in force at
December 31, 1996, just under 90% of which had policy limits of
$50,000 or less per occurrence.  Most NSA Group policies are written
for policy periods of six months or less, with some as short as one
month.

   Competition.   A large number of national, regional and local
insurers write nonstandard private passenger automobile insurance
coverage.  Insurers in this market generally compete on the basis of
price (including differentiation on liability limits, variety of
coverages offered and deductibles), geographic availability and ease
of enrollment and, to a lesser extent, reputation for claims
handling, financial stability and customer service.  NSA Group
management believes that sophisticated data analysis for refinement
of risk profiles has helped the NSA Group to compete successfully.
The NSA Group attempts to provide selected pricing for a wider
spectrum of risks and with a greater variety of payment options,
deductibles and limits of liability than are offered by many of its
competitors.
                                6
<PAGE>
Specialty Lines

   General.   The Specialty Lines segment emphasizes the writing of
specialized insurance coverage where AFC personnel are experts in
particular lines of business or customer groups.  Examples include
California workers' compensation, executive liability, ocean and
inland marine, agricultural-related coverages (allied lines), non-
profit liability, umbrella and excess and surplus lines.  The
Specialty Lines workers' compensation operations write coverage for
prescribed benefits payable to employees (principally in California)
who are injured on the job.  The executive and professional
liability divisions market liability coverage for corporate
directors and officers and attorneys.  Ocean and inland marine
businesses provide coverage primarily for marine cargo, boat
dealers, marina operators/dealers, excursion vessels, builder's
risk, contractor's equipment, excess property and transportation
cargo.  The agricultural-related businesses provide multi-peril crop
insurance covering weather and disease perils as well as coverage
for full-time operating farms/ranches and agribusiness operations on
a nationwide basis through independent agents who specialize in the
rural market.  The non-profit liability business provides property,
general/professional liability, automobile, trustee liability,
umbrella and crime coverage for a wide range of non-profit
organizations.  These operations also provide excess and surplus
commercial property and casualty insurance in a variety of
industries.

   Specialization is the key element to the underwriting success of
these business units.  Each unit has independent management with
significant operating autonomy to oversee the important operational
functions of its business such as underwriting, pricing, marketing,
policy processing and claims service.  These specialty lines are
opportunistic and their premium volume will vary based on current
market conditions.  AFC continually evaluates expansion in existing
markets and opportunities in new specialty markets.

   The U.S. geographic distribution of the Specialty Lines statutory
direct written premiums in 1996 compared to 1992, was as follows:

                   1996    1992                      1996    1992
  California       30.4%   47.4%      Florida         3.5%      *
  Texas             7.3     2.7       New Jersey      2.8     2.6%
  New York          5.2     5.7       Ohio            2.1     2.1
  Massachusetts     5.1     2.8       Pennsylvania    2.0     2.1
  Illinois          4.0     3.4       Other          33.9    25.3
  Oklahoma          3.7     5.9                     100.0%  100.0%
  _____________
  * less than 2%
<PAGE>
   The following table sets forth a distribution of statutory net
written premiums for AFC's Specialty Lines by NAIC annual statement
line for 1996 compared to 1992:
                                     1996     1992
  Workers' compensation              26.0%    47.2%
  Other liability                    23.4     15.7
  Commercial multi-peril             10.1      3.1
  Inland marine                       9.2      5.8
  Auto liability                      8.3      8.7
  Allied lines                        5.7      4.2
  Ocean marine                        4.6      4.6
  Surety                              3.8      3.0
  Auto physical damage                2.5      2.2
  Other                               6.4      5.5
                                    100.0%   100.0%
                                7
<PAGE>
   The following table shows the performance of AFC's Specialty
Lines insurance operations in various categories (dollars in
millions):                                                     
                                           1996       1995       1994

  Net written premiums                     $993     $1,097     $1,250

  Net earned premiums                      $976     $1,085     $1,185
  Loss and LAE                              527        730        785
  Underwriting expenses                     295        302        291
  Policyholder dividends                    -           (3)        76
  Underwriting profit                      $154     $   56     $   33

  GAAP ratios:
   Loss and LAE ratio                      53.9%      67.2%      66.2%
   Underwriting expense ratio              30.2       27.9       24.6
   Policyholder dividend ratio               -         (.3)       6.4
   Combined ratio (a)                      84.1%      94.8%      97.2%

  Statutory ratios:
   Loss and LAE ratio                      54.1%      67.5%      66.7%
   Underwriting expense ratio              30.3       28.1       25.2
   Policyholder dividend ratio               .5        4.2        8.5
   Combined ratio (a)                      84.9%      99.8%     100.4%

  Industry statutory combined ratio (b)   111.0%     109.9%     107.9%

  (a)  The 1996 combined ratios reflect a reduction of 4.1 percentage
       points attributable to a reallocation of loss reserves in
       connection with the strengthening of A&E reserves.

  (b)  Represents the commercial industry statutory combined ratio
       derived from "Best's Review - Property/Casualty" (January 1997  
       Edition).

   Marketing.   The Specialty Lines operations direct their sales
efforts primarily toward independent property and casualty insurance
agents and brokers.  These businesses write insurance through
several thousand agents and brokers and have nearly 275,000 policies
in force.

   Competition.   These businesses compete with other insurers as
well as the California State Fund in the California workers'
compensation insurance market.  Because of the specialty nature of
these coverages, competition is based primarily on service to
policyholders and agents, specific characteristics of products
offered and reputation for claims handling.  Price, commissions and
profit sharing terms are also important factors.  Competitors
include individual insurers and insurance groups of varying sizes,
some of which are mutual insurance companies possessing competitive
advantages in that all their profits inure to their policyholders.
Management believes that sophisticated data analysis for refinement
of risk profiles, extensive specialized knowledge and loss
prevention service have helped AFC's specialty lines compete
successfully.

                                8
<PAGE>
Commercial and Personal Lines

   General.   Major commercial lines of business are workers'
compensation, commercial multi-peril, umbrella (including primary
and excess layers) and general liability insurance.  The workers'
compensation business has experienced solid growth and profitability
due to improved rate structures and favorable trends in medical care
costs and the success of its Drug-Free Workplace program.

   AFC's Drug-Free Workplace program for workers' compensation
customers assists insureds in setting up drug testing programs (as
permitted by law), drug and alcohol education programs and work
safety programs.  At December 31, 1996, there were more than 850
insureds in 20 states with such programs producing approximately $67
million in annual net written premiums.

   Commercial business is written in 26 states where management
believes adequate rates can be obtained and where assigned risk
costs are not excessive.  AFC's approach focuses on specific
customer groups, such as fine restaurants, light manufacturers,
hotels/motels, workers' compensation safety groups and insureds with
large umbrella coverages.  The approach also emphasizes site visits
at prospective customers to ensure underwriter familiarity with risk
factors relating to each insured and to avoid those risks which have
unacceptable frequency or severity exposures.

   Personal lines business consists primarily of standard private
passenger automobile and homeowners' insurance and is currently
being marketed in 25 states. AFC's approach is to develop tailored
rates for its personal automobile customers based on a variety of
factors, including the driving record of the insureds.  The approach
to homeowners business is to limit exposure in locations which are
likely to be unprofitable and those which have significant
catastrophic potential (such as windstorms, earthquakes and
hurricanes).

   The U.S. geographic distribution of the Commercial and Personal Lines
statutory direct written premiums in 1996 compared to 1992, was as
follows:

                    1996     1992                     1996     1992
  Connecticut      13.6%     12.1%     Ohio            3.6%     4.5%
  New York         12.0       8.1      Florida         2.9      3.9
  New Jersey       11.5       7.4      Massachusetts   2.8       *
  North Carolina   11.0      10.3      Illinois        2.2      2.9
  Pennsylvania      7.0       4.5      California       *       7.1
  Texas             3.9       2.7      Oregon           *       2.5
  Michigan          3.8       2.9      Washington       *       2.4
  Maryland          3.7       3.5      Other          22.0     25.2
                                                     100.0%   100.0%
  _____________
  * less than 2%
<PAGE>
   The following table sets forth a distribution of statutory net
written premiums for AFC's Commercial and Personal Lines by NAIC
annual statement line for 1996 compared to 1992:

                                1996      1992
  Auto liability                26.5%     28.2%
  Workers' compensation         21.1      12.7
  Commercial multi-peril        17.2      20.8
  Auto physical damage          12.9      13.4
  Homeowners                     9.9      11.0
  Other liability                7.6       8.9
  Other                          4.8       5.0
                               100.0%    100.0%

                                9
<PAGE>
   The following table shows the performance of AFC's Commercial and
Personal Lines insurance operations in various categories (dollars
in millions):

                                          1996      1995      1994

  Net written premiums                   $ 660     $ 717     $ 683

  Net earned premiums                    $ 685     $ 698     $ 656
  Loss and LAE                             538       468       430
  Underwriting expenses                    206       214       211
  Policyholder dividends                    14        11         8
  Underwriting profit (loss)            ($  73)    $   5     $   7

  GAAP ratios:
   Loss and LAE ratio                     78.5%     66.9%     65.5%
   Underwriting expense ratio             30.0      30.6      32.2
   Policyholder dividend ratio             2.1       1.6       1.2
   Combined ratio (a)                    110.6%     99.1%     98.9%

  Statutory ratios:
   Loss and LAE ratio                     78.8%     67.2%     67.0%
   Underwriting expense ratio             30.4      29.9      32.4
   Policyholder dividend ratio             1.0        .6       1.0
   Combined ratio (a)                    110.2%     97.7%    100.4%

  Industry statutory combined ratio (b)  107.0%    106.5%    108.5%

  (a)  The 1996 combined ratios include 3.9 percentage points (GAAP) and 
       3.8 percentage points (statutory) due to losses from Hurricane Fran.

  (b)  Ratios are derived from "Best's Review - Property/Casualty"
       (January 1997 Edition).

   Marketing.   The Commercial and Personal Lines business units
direct their sales efforts primarily toward independent agents and
brokers.  These businesses write insurance through more than 5,000
agents and have approximately 425,000 policies in force.

   Competition.   These businesses compete with other insurers,
primarily on the basis of price (including differentiation on policy
limits, coverages offered and deductibles), agent commissions and
profit sharing terms.  Customer service, loss prevention and
reputation for claims handling are also important factors.
Competitors include individual insurers and insurance groups of
varying sizes, some of which are mutual insurance companies
possessing competitive advantages in that all their profits inure to
their policyholders.  Management believes that sophisticated data
analysis for refinement of risk profiles, disciplined underwriting
practices and aggressive loss prevention procedures have enabled
these businesses to compete successfully on the basis of price
without negatively affecting underwriting profitability.
<PAGE>
Reinsurance

   Consistent with standard practice of most insurance companies,
AFC reinsures a portion of its business with other reinsurance
companies and assumes a relatively small amount of business from
other insurers.  Ceding reinsurance permits diversification of risks
and limits the maximum loss arising from large or unusually
hazardous risks or catastrophic events.  AFC's insurance companies
enter into separate reinsurance programs due to their differing
exposures.  The availability and cost of reinsurance are subject to
prevailing market conditions which may affect the volume and
profitability of business that is written.  AFC is subject to credit
risk with respect to its reinsurers, as the ceding of risk to
reinsurers does not relieve AFC of its liability to its insureds.

                                10
<PAGE>
   Reinsurance is provided on one of two bases, facultative or
treaty. Facultative reinsurance is generally provided on a risk by
risk basis.  Individual risks are ceded and assumed based on an
offer and acceptance of risk by each party to the transaction.
Treaty reinsurance provides for risks meeting prescribed criteria to
be automatically ceded and assumed according to contract provisions.

   In order to limit the maximum loss arising out of any one
occurrence, AFC's insurance companies reinsure a portion of their
exposure under treaty and facultative reinsurance programs.  The
following table presents (by type of coverage) the amount of each
loss above the specified retention maximum generally covered by
treaty reinsurance programs (in millions):

                                    Retention    Reinsurance
   Coverage                           Maximum    Coverage(a)
   California Workers' Compensation     $ 1.5         $148.5
   Other Workers' Compensation            1.0           49.0
   Commercial Umbrella                    1.0           49.0
   Other Casualty                         5.0           15.0
   Property - General                     5.0           25.0(b)
   Property - Catastrophe                20.0          130.0

   (a)  Reinsurance covers substantial portions of losses in excess of
        retention.
   (b)  Beginning in 1997, AFC will cede 80% of its homeowners insurance
        coverage through a reinsurance agreement.

   AFC purchases facultative reinsurance providing coverage on a
risk by risk basis, both pro rata and excess of loss, depending on
the risk and available reinsurance markets. Due in part to the
limited exposure on individual policies, the NSA Group is not
materially involved in reinsuring risks with third party insurance
companies.

   
   Included in the balance sheet caption "recoverables from
reinsurers and prepaid reinsurance premiums" were $79 million on
paid losses and LAE and $720 million on unpaid losses and LAE at
December 31, 1996.  The collectibility of a reinsurance balance is
based upon the financial condition of a reinsurer as well as
individual claim considerations.  Market conditions over the past
few years have forced many reinsurers into financial difficulties or
liquidation proceedings.  At December 31, 1996, AFC's insurance
subsidiaries had allowances of approximately $79 million for
doubtful collection of reinsurance recoverables, substantially all 
related to unpaid losses.  AFC regularly monitors the financial 
strength of its reinsurers.  This process periodically results in the
transfer of risks to more financially secure reinsurers.  Substantially 
all reinsurance is ceded to reinsurers having more than $100 million 
in capital and A.M. Best ratings of A- or better.  AFC's major 
reinsurers include American Re-Insurance Company, Employers 
Reinsurance Corporation, NAC Reinsurance Corporation, Mitsui Marine 
and Fire Insurance Company and General Reinsurance Corporation. These
five companies assume approximately one-third of AFC's ceded reinsurance.
    
<PAGE>
   Premiums written for reinsurance ceded and assumed are presented
in the following table (in millions):
                                           1996   1995   1994
  Reinsurance ceded                        $518   $482   $422
  Reinsurance assumed - including
    involuntary pools and associations       58     98    119

                                11
<PAGE>
Loss and Loss Adjustment Expense Reserves

   The consolidated financial statements include the estimated
liability for unpaid losses and LAE of AFC's insurance subsidiaries.
This liability represents estimates of the ultimate net cost of all
unpaid losses and LAE and is determined by using case-basis
evaluations and actuarial projections.  These estimates are subject
to the effects of changes in claim amounts and frequency and are
periodically reviewed and adjusted as additional information becomes
known.  In accordance with industry practices, such adjustments are
reflected in current year operations.

   
   Future costs of claims are projected based on historical trends
adjusted for changes in underwriting standards, policy provisions,
product mix and other factors.  Estimating the liability for unpaid
losses and LAE is inherently judgmental and is influenced by factors
which are subject to significant variation.  Through the use of 
analytical reserve development techniques, management monitors items
such as the effect of inflation on medical, hospitalization, material,
repair and replacement costs, general economic trends and the legal
environment.  Although management believes that the reserves currently
established reflect a reasonable and sufficent estimate of the ultimate
cost of all losses and claims, actual development may vary materially.
    

   
   AFC recognizes underwriting profit only when realization is 
reasonably determinable and assured.  In certain specialty lines, 
where experience is limited or where there is potential for volatile 
results, AFC holds "incurred but not reported" reserves and does not 
recognize underwriting profit until the accident years mature.
    

   Generally, reserves for reinsurance and involuntary pools and
associations are reflected in AFC's results at the amounts reported
by those entities.

   Unless otherwise indicated, the following discussion of insurance
reserves includes the reserves of American Premier's subsidiaries
for only those periods following the Mergers.  See Note P to the
Financial Statements for an analysis of changes in AFC's estimated
liability for losses and LAE, net of reinsurance (and grossed up),
over the past three years on a GAAP basis.
<PAGE>
   The following table presents the development of AFC's liability
for losses and LAE, net of reinsurance, on a GAAP basis for the last
ten years, excluding reserves of American Premier subsidiaries prior
to the Mergers.  The top line of the table shows the estimated
liability (in millions) for unpaid losses and LAE recorded at the
balance sheet date for the indicated years.  The second line shows
the re-estimated liability as of December 31, 1996.  The remainder
of the table presents development as percentages of the estimated
liability.  The development results from additional information and
experience in subsequent years.  The middle line shows a cumulative
deficiency (redundancy) which represents the aggregate percentage
increase (decrease) in the liability initially estimated.  The lower
portion of the table indicates the cumulative amounts paid as of
successive periods as a percentage of the original loss reserve
liability.

                                1986    1987    1988    1989    1990
Liability for unpaid losses
and loss adjustment expenses:   
  As originally estimated     $1,843  $2,024  $2,209  $2,246  $2,137
  As re-estimated at
    December 31, 1996          2,459   2,423   2,472   2,462   2,280

Liability re-estimated (*):
  One year later               102.7%  102.5%   99.8%  100.4%   98.6%
  Two years later              107.3%  103.6%  100.0%   99.3%   97.7%
  Three years later            109.7%  103.1%   99.7%   98.4%   97.4%
  Four years later             110.8%  102.5%   98.7%   98.2%   99.2%
  Five years later             111.8%  102.6%   99.1%  101.1%   98.4%
  Six years later              112.7%  103.5%  103.0%  101.1%  106.7%
  Seven years later            115.3%  109.4%  103.0%  109.6%
  Eight years later            122.1%  109.8%  111.9%
  Nine years later             122.5%  119.7%
  Ten years later              133.4%

Cumulative deficiency
 (redundancy)                   33.4%   19.7%   11.9%    9.6%    6.7%

Cumulative paid as of:
 One year later                 33.0%   29.2%   29.4%   32.3%   26.1%
 Two years later                52.5%   49.0%   48.6%   48.2%   43.2%
 Three years later              67.7%   63.5%   59.8%   59.2%   55.3%
 Four years later               79.3%   72.2%   67.9%   67.6%   64.8%
 Five years later               86.4%   78.5%   74.0%   74.3%   70.4%
 Six years later                91.9%   83.6%   79.5%   78.1%   74.9%
 Seven years later              96.1%   87.7%   82.4%   81.7%
 Eight years later             100.0%   90.3%   85.7%
 Nine years later              102.7%   93.3%
 Ten years later               105.7%

<PAGE>
                                1991    1992    1993    1994    1995    1996
Liability for unpaid losses
and loss adjustment expenses:
  As originally estimated     $2,129  $2,123  $2,113  $2,187  $3,393  $3,404
  As re-estimated at
    December 31, 1996          2,199   2,134   2,058   2,170   3,345     N/A


Liability re-estimated (*):
  One year later                99.3%  100.0%   98.1%   95.1%   98.6%
  Two years later               98.8%   98.2%   92.7%   99.2%
  Three years later             98.0%   93.5%   97.4%
  Four years later              95.8%  100.5%
  Five years later             103.3%
  Six years later   
  Seven years later 
  Eight years later   
  Nine years later
  Ten years later

Cumulative deficiency
 (redundancy)                    3.3%     .5%   (2.6%)   (.8%)  (1.4%)   N/A

Cumulative paid as of:
 One year later                 26.4%   26.7%   25.2%   26.5%   33.0%
 Two years later                43.0%   43.7%   40.1%   42.4%
 Three years later              55.4%   53.6%   50.8%
 Four years later               62.6%   61.0%
 Five years later               68.1%
 Six years later
 Seven years later
 Eight years later
 Nine years later
 Ten years later

(*)  Reflects significant A&E charges and reallocations in 1994 and
     1996 for prior years losses.
<PAGE>
   
   The following is a reconciliation of the net liability to the gross
liability for unpaid losses and LAE.
                                                
                                                1993    1994    1995    1996
  As originally estimated:
    Net liability shown above                 $2,113  $2,187  $3,393  $3,404
    Add reinsurance recoverables                 611     730     704     720
    Gross liability                           $2,724  $2,917  $4,097  $4,124
  As re-estimated at
  December 31, 1996:
    Net liability shown above                 $2,058  $2,170  $3,345  
    Add reinsurance recoverables                 553     637     726
    Gross liability                           $2,611  $2,807  $4,071     N/A
   
  Gross cumulative deficiency
    (redundancy)                                (4.1%)  (3.8%)   (.6%)   N/A
    
                                12

<PAGE>
   
   The following table presents certain data from the table above,
adjusted to include reserves of American Premier's subsidiaries for
periods subsequent to their entry into the insurance business in 1989 
and prior to the Mergers in 1995.
    
   
<TABLE>
<CAPTION>                                                                                                                  
                                 1989     1990     1991     1992      1993     1994                            
                               <C>      <C>      <C>      <C>      <C>       <C>      
Liability for unpaid losses            
and loss adjustment expenses:
 As originally estimated       $2,616   $2,739   $2,793   $2,886    $3,029   $3,267
 As re-estimated at
  December 31, 1996             2,776    2,818    2,801    2,779     2,835    3,146


Cumulative deficiency                                                                                             
  (redundancy)                    6.1%     2.9%      .3%    (3.7%)    (6.4%)   (3.7%)

Reconciliation of net
liability to gross liability:
 As originally estimated:
  Net liability shown above                                         $3,029   $3,267
  Add reinsurance recoverables                                         656      781
  Gross liability                                                   $3,685   $4,048
 As re-estimated at
 December 31, 1996:
  Net liability shown above                                         $2,835   $3,146
  Add reinsurance recoverables                                         574      691
  Gross liability                                                   $3,409   $3,837
                                                                     
Gross cumulative deficiency
 (redundancy)                                                         (7.5%)   (5.2%)

</TABLE>
    
   
   These tables do not present accident or policy year development
data.  Furthermore, in evaluating the re-estimated liability and
cumulative deficiency (redundancy), it should be noted that each
percentage includes the effects of changes in amounts for prior
periods.  For example, AFC's $80 million charge for asbestos and 
environmental claims related to losses recorded in 1996 but incurred 
before 1986 is included in the re-estimated liability and cumulative
deficiency (redundancy) percentage for each of the years shown.
Conditions and trends that have affected development of the
liability in the past may not necessarily exist in the future.
Accordingly, it may not be appropriate to extrapolate future
redundancies or deficiencies based on this table.
    
<PAGE>
   
   The adverse development in the tables is due primarily to 
asbestos and environmental exposures for which AFC has been held
liable under general liability policies written years ago where
environmental coverage was not intended.  Other factors affecting
development included higher than projected inflation on medical, 
hospitalization, material, repair and replacement costs.
Additionally, changes in the legal environment have influenced the
development patterns over the past ten years.  Two significant
changes in the early to mid-1980s were the trend towards an adverse
litigious climate and the change from contributory to comparative
negligence.
    
   The adverse litigious climate was evidenced by an increase in
lawsuits and damage awards, changes in judicial interpretation of
legal liability and of the scope of policy coverage, and a
lengthening of time it takes to settle cases.  Under comparative
negligence rules, a plaintiff's negligence is no longer a bar to
recovery.  Instead, if the plaintiff's negligence is 50% or less of
the cause of the injury, the plaintiff can recover damages, but in
an amount reduced by the portion of damage attributable to the
plaintiff's own negligence.  Recent years have seen a moderation of
inflation and the enactment of legislation intended to limit the
patterns of the previous years.

   The differences between the liability for losses and LAE reported
in the annual statements filed with the state insurance departments
in accordance with statutory accounting principles ("SAP") and that
reported in the accompanying consolidated financial statements in
accordance with GAAP at December 31, 1996, are as follows (in
millions):

  Liability reported on a SAP basis                      $3,397
   Additional discounting of GAAP reserves in excess
     of the statutory limitation for SAP reserves           (23)
   Reserves of foreign operations                            31
   Estimated salvage and subrogation recoveries
     based on a cash basis for SAP and on an accrual
     basis for GAAP                                          (1)
   Reinsurance recoverables                                 720
  Liability reported on a GAAP basis                     $4,124

                                13
<PAGE>
   Asbestos and Environmental Reserves ("A&E").  The insurance
industry typically includes only claims relating to polluted waste
sites and asbestos in defining environmental exposures.  AFC extends
this definition to include claims relating to breast implants,
repetitive stress on keyboards, DES (a drug used in pregnancies
years ago alleged to cause cancer and birth defects) and other
latent injuries.

   Establishing reserves for A&E claims is subject to uncertainties
that are greater than those presented by other types of claims.
Factors contributing to those uncertainties include a lack of
sufficiently detailed historical data, long reporting delays,
uncertainty as to the number and identity of insureds with potential
exposure, unresolved legal issues regarding policy coverage, and the
extent and timing of any such contractual liability.  Courts have
reached different and sometimes inconsistent conclusions as to when
a loss is deemed to have occurred, what policies provide coverage,
what claims are covered, whether there is an insured obligation to
defend, how policy limits are determined and other policy
provisions.  Management believes these issues are not likely to be
resolved in the near future.

   Prior to the fourth quarter of 1994, AFC maintained reserves only
on its reported A&E claims; reserves for claims incurred but not
reported ("IBNR") were not allocated to A&E claims.  Following
completion of a detailed analysis in that quarter, AFC allocated a
specific portion of its IBNR reserves to A&E claims.

   
   Significant industrywide information concerning A&E reserves first
became broadly available in mid-1996 following the publication of new
data relating to that subject in the 1995 Annual Statements of insurance
companies.  During 1995 and 1996, a number of insurers recorded large 
reserve increases for A&E exposures.  By the end of 1995, the industry's 
one-year survival ratio (reserves divided by average annual paid
losses) had increased from a multiple of six times in the early 
1990's to more than nine times.

                                              December 31
         Survival Ratio:                 1996    1995    1994                   
           AFC                           10.5     6.5     7.0
           Industry (a)                   8.2     9.4     7.9
   (a)  Source: "BestWeek - Property and Casualty Supplement" (September 15,
        1997 Edition.
    
   
   Industry actions and statistics in 1995 caused AFC to re-evaluate its
position in relation to its peers as part of the continuing process of
obtaining additional information and revising accounting estimates.  This
process led management to conclude that the A&E reserves should be increased
sufficiently to bring AFC's three-year survival ratio in line with those
of the top 50 companies.  In the third quarter of 1996, AFC strengthened
its A&E reserve to approximately 10.5 times average annual paid losses
based upon these revised industry standards for reserving such claims.
AFC recorded a non-cash, pretax charge of $80 million and reallocated 
$40 million in reserves from its Specialty Operations.  Based on known
facts, current law, and current industry practices, management believes
that its reserves for such claims are appropriate.
    
<PAGE>
   The following table (in millions) is a progression of reserves
for A&E exposures for which AFC has been held liable under general
liability policies written years ago where environmental coverage
was not intended and, in many cases, was specifically excluded.

                                        1996     1995(*)    1994(*)

  Reserves at beginning of year       $225.7   $224.9     $143.5
  Incurred losses and LAE              149.0     35.2      113.6
  Paid losses and LAE                  (31.3)   (34.4)     (32.2)
  Reserves at end of year, net of
   reinsurance recoverable             343.4    225.7      224.9
  Reinsurance recoverable              162.7    164.2      162.0
  Gross reserves at end of year       $506.1   $389.9     $386.9

  (*)  Amounts have been increased by $6.1 million in 1995 and
       $5.1 million in 1994 to reflect certain items previously
       classified as non-A&E.

   Since the mid-1980's, AFC has also written certain environmental
coverages (asbestos abatement and underground storage tank
liability) in which the premium charged is intended to provide
coverage for the specific environmental exposures inherent in these
policies.  The business has been profitable since its inception. To
date, approximately $180 million of premiums has been written,  
$20 million in losses and LAE has been paid and reserves for unpaid 
losses and LAE aggregated $41 million at December 31, 1996 (not 
included in the above table).

                                14
<PAGE>
Annuity and Life Operations

   General.   AFC's annuity operations are conducted through
American Annuity Group ("AAG"), a holding company whose primary
subsidiary is Great American Life Insurance Company ("GALIC") which
it acquired from GAI on December 31, 1992.  GALIC sells (i) flexible
premium and single premium annuities in the qualified (not-for-
profit) market and (ii) single premium annuities in the non-
qualified market.  AAG and its subsidiaries employ approximately
1,000 persons.

   The following table (in millions) presents financial information
concerning GALIC.

                                         1996     1995    1994
  Statutory Basis
  Total Assets                         $5,752   $5,414  $5,057

  Insurance Reserves:
   Annuities                           $5,298   $4,974  $4,655
   Life                                    22       22      21
   Accident and Health                     -        -        1
                                       $5,320   $4,996  $4,677

  Capital and Surplus                  $  285   $  273  $  256
  Asset Valuation Reserve (a)              91       90      80
  Interest Maintenance Reserve (a)         25       32      28

  Annuity Receipts:
   Flexible Premium:
     First Year                        $   35   $   42  $   39
     Renewal                              182      196     208
                                          217      238     247
   Single Premium                         319      219     196
      Total Annuity Receipts           $  536   $  457  $  443

  GAAP Basis
  Total Assets                         $5,934   $5,608  $5,044
  Annuity Benefits Accumulated          5,205    4,917   4,596
  Stockholder's Equity                    658      623     449

  (a) Allocation of surplus.

   Annuity Products.  Annuities are long-term retirement savings
plans that benefit from interest accruing on a tax-deferred basis.
Employees of qualified not-for-profit organizations are eligible to
save for retirement through contributions made on a before-tax
basis.  Contributions are made at the discretion of the participants
through payroll deductions or through tax-free "rollovers" of funds.
Federal income taxes are not payable on contributions or earnings
until amounts are withdrawn.

   GALIC's principal products are Flexible Premium Deferred
Annuities ("FPDAs") and Single Premium Deferred Annuities ("SPDAs").
FPDAs are characterized by premium payments that are flexible in
both amount and timing as determined by the policyholder.  SPDAs are
issued in exchange for a one-time lump-sum premium payment.
<PAGE>
   Annuity contracts are generally classified as either fixed rate
or variable.  With a fixed rate annuity, the interest crediting rate
is initially set by the issuer and thereafter may be changed from
time to time by the issuer based on market conditions, subject to
any guaranteed minimum interest crediting rates in the policy.  With
a variable annuity, the value of the policy is tied to an underlying
securities portfolio or underlying mutual funds.  The majority of
annuities issued by GALIC have been fixed rate annuities.

                                15
<PAGE>
   In the third quarter of 1996, GALIC began marketing a new type of
annuity that offers the traditional features of a fixed annuity
(guaranteed minimum annual interest rate on a portion of the premium
received and a guaranteed minimum surrender value) with the
opportunity to participate, in part, in increases in the S&P 500
Index over a selected term (generally a minimum of six years).

   A GALIC subsidiary began marketing variable annuities in the
fourth quarter of 1995.  With a variable annuity, the earnings
credited to the policy vary based on the investment results of the
underlying investment options chosen by the policyholder.
Policyholders may also choose to direct all or a portion of their
premiums to various fixed rate options.  For these annuity products,
all premiums directed to the variable options are placed in funds
managed by third party investment advisers.

   At December 31, 1996, substantially all of GALIC's annuity
policyholder benefit reserves consisted of fixed rate annuities
which offered a minimum interest rate guarantee of 3% or 4%.  The
majority of GALIC's fixed rate annuity policies permit GALIC to
change the crediting rate at any time (subject to the minimum
guaranteed interest rate).  In determining the frequency and extent
of changes in the crediting rate, GALIC takes into account the
economic environment and the relative competitive position of its
products.

   GALIC seeks to maintain a desired spread between the yield on its
investment portfolio and the rate it credits to its policies.  GALIC
accomplishes this by (i) offering crediting rates which it has the
option to change, (ii) designing annuity products that encourage
persistency and (iii) maintaining an appropriate matching of assets
and liabilities.  GALIC designs its products with certain surrender
charges and front-end fees to discourage policyholders from
surrendering or withdrawing funds during the first five to ten years
after issuance of a policy.  Partly due to these features, GALIC's
annuity surrenders have averaged approximately 7% of statutory
reserves over the past five years.

   Marketing.   GALIC markets its FPDAs principally to employees of
educational institutions in the kindergarten through high school
segment.  In 1996, written premiums from this market segment
represented the majority of GALIC's total tax-qualified premiums.

   GALIC distributes its annuity products through over 75 managing
general agents ("MGAs") who, in turn, direct approximately 1,000
actively producing independent agents.  GALIC has developed its
business on the basis of its relationships with MGAs and independent
agents primarily through a consistent marketing approach and
responsive service.
<PAGE>
   GALIC is licensed to sell its products in all states (except New
York) and in the District of Columbia.  The following table reflects
the geographical distribution of GALIC's annuity premiums in 1996
compared to 1992.

                  1996    1992                        1996    1992
  California      29.8%   20.2%      North Carolina    3.0%    3.2%
  Washington       7.0      *        Minnesota         2.8      *
  Texas            6.6     2.8       Connecticut       2.7     6.3
  Florida          5.1    10.2       Indiana           2.3      *
  Massachusetts    4.8     8.1       Arizona           2.1      *
  Ohio             4.8     5.1       Illinois           *      3.8
  Michigan         3.5     9.9       Rhode Island       *      2.6
  Iowa             3.4      *        New Hampshire      *      2.3
  New Jersey       3.1     6.2       Other            19.0    19.3              
                                                     100.0%  100.0%
  _____________
  * less than 2%

                                16
<PAGE>
   Sales of annuities are affected by many factors, including:
(i) competitive annuity products and rates; (ii) the general level
of interest rates; (iii) the favorable tax treatment of annuities;
(iv) commissions paid to agents; (v) services offered; (vi) ratings
from independent insurance rating agencies; (vii) other alternative
investments; and (viii) general economic conditions.  At December
31, 1996, GALIC had approximately 250,000 annuity policies in force,
nearly all of which were individual contracts.

   American Memorial Life Insurance.  Acquired in November 1995,
American Memorial (formerly Prairie States Life Insurance Company)
offers a variety of life insurance and annuity products to finance
pre-arranged funerals.  American Memorial markets its products
through funeral home operators in addition to a captive general
agency force.  At year-end 1996, American Memorial had relationships
with approximately 2,200 funeral homes nationwide.  In 1996,
American Memorial collected $97 million in life and annuity
premiums.  At December 31, 1996, American Memorial had total
statutory assets of approximately $412 million, reserves for future
policy benefits of approximately $371 million, and capital and
surplus of approximately $27 million.

   Loyal American Life Insurance.  Acquired in November 1995, Loyal
offers a variety of supplemental life and health insurance products
through payroll deduction plans and credit unions.  Loyal's products
are marketed with the endorsement or consent of the employer or the
credit union management.  In 1996, Loyal collected $41 million in
life and accident and health premiums.  At December 31, 1996, Loyal
had total statutory assets of approximately $255 million, reserves
for future policy benefits of approximately $202 million, and
capital and surplus of approximately $37 million.

   Independent Ratings.   AAG's principal insurance subsidiaries are
currently rated by A.M. Best and Duff & Phelps as follows:

                       A.M. Best         Duff & Phelps
   GALIC               A  (Excellent)    AA- (Very high claims paying ability)
   American Memorial   B+ (Very Good)    AA- (Very high claims paying ability)
   Loyal               A- (Excellent)    AA- (Very high claims paying ability)

   AAG believes that the ratings assigned by independent insurance
rating agencies are important because potential policyholders often
use a company's rating as an initial screening device in considering
annuity products.  AAG also believes that the majority of purchasers
of tax-deferred annuities would not be willing to purchase annuities
from an issuer that had a rating below certain levels.  In addition,
some school districts, hospitals and banks do not allow insurers
with a rating below certain levels to sell annuity products through
their institutions.

   AAG believes that a rating in the "A" category by at least one
rating agency is necessary for GALIC to successfully market tax-
deferred annuities to public education employees and other not-for-
profit groups.
<PAGE>
   American Memorial and Loyal compete in markets other than the
sale of tax-deferred annuities.  While ratings are an important
competitive factor in their markets, AAG believes that American
Memorial and Loyal can successfully compete in these markets with
their respective ratings.

   Although management of AAG believes that its insurance companies'
ratings are very stable, those companies' operations could be
materially adversely affected by a downgrade in ratings.

   Competition.   AAG's insurance companies operate in highly
competitive markets. They compete with other insurers and financial
institutions based on many factors, including: (i) ratings; (ii)
financial strength; (iii) reputation; (iv) service to policyholders;
(v) product design (including interest rates credited); (vi)
commissions; and (vii) service to agents.  Since policies are
marketed and distributed primarily through independent agents, the
insurance companies must also compete for agents.  Management
believes that consistently targeting the same market and emphasizing
service to agents and policyholders provides a competitive
advantage.
                                17
<PAGE>
   More than 150 insurance companies offer tax-deferred annuities.
No single insurer dominates the marketplace.  Competitors include
(i) individual insurers and insurance groups, (ii) mutual funds
and (iii) other financial institutions of varying sizes.  In a
broader sense, AAG's insurance companies compete for retirement
savings with a variety of financial institutions offering a full
range of financial services.  Financial institutions have
demonstrated a growing interest in marketing investment and
savings products other than traditional deposit accounts.  In
addition, recent judicial and regulatory decisions have expanded
powers of financial institutions in this regard.  It is too early
to predict what impact, if any, these developments will have on
AAG's insurance companies.

Other Companies

   AFEI is a holding company with assets consisting primarily of
investments in the common stock of AFG and AAG.

   Millennium Dynamics, Inc. ("MDI") was formed in 1995 by Great
American to market software tools developed internally to solve
the inability of certain of its information systems to properly
interpret dates for the year 2000 and beyond.  MDI licenses its
Vantage YR2000 conversion toolset through its own sales force in
the U.S. and through independent software distributors around the
world.  MDI also offers project management and contract
programming services to its customers.

   Through subsidiaries, AFC is engaged in a variety of other
businesses, including The Golf Center at Kings Island (golf and
tennis facility) in the Greater Cincinnati area; commercial real
estate operations in Cincinnati (office buildings and The
Cincinnatian Hotel), Louisiana (Le Pavillon Hotel), Massachusetts
(Chatham Bars Inn), Texas (Driskill Hotel) and apartments in
Florida, Kentucky, Louisiana, Minnesota, Oklahoma, Pennsylvania,
Texas and Wisconsin.  These operations employ approximately 700
full-time employees.

   In March 1996, American Premier sold its interest in an
independent pipeline common carrier of refined petroleum products
for approximately $60 million in cash, net of transaction costs.
<PAGE>
Investment Portfolio

   General.  A breakdown of AFC's December 31, 1996, investment
portfolio by business segment follows (excluding investment in
equity securities of investee corporations) (in millions).
<TABLE>
<CAPTION>
                                                                            Total
                                              Carrying Value               Market
                                        P&C  Annuity   Other    Total       Value
<S>                                 <C>      <C>     <C>     <C>        <C>
Cash and short-term investments      $  190   $   84    $131  $   405    $   405
Bonds and redeemable preferred
  stocks                              4,165    5,689     132    9,986     10,023
Other stocks, options and
 warrants                               196       51      81      328        328
Loans receivable                        122      436      10      568        568(a)
Real estate and other investments       140       40      25      205        205(a)
                                     $4,813   $6,300    $379  $11,492    $11,529
<FN>
(a)  Carrying value used since market values are not readily available.
</FN>
</TABLE>

                                18
<PAGE>
   The following tables present the percentage distribution and yields of
AFC's investment portfolio (excluding investment in equity securities of
investee corporations) as reflected in its financial statements.
<TABLE>
<CAPTION>

                                          1996    1995    1994    1993    1992
<S>                                     <C>     <C>     <C>     <C>     <C>
Cash and Short-term Investments            3.5%    4.0%    2.2%    2.3%    9.3%
Bonds and Redeemable Preferred Stocks:
 U.S. Government and Agencies              4.1     3.7     4.0     2.8     5.7
 State and Municipal                       1.0      .7      .8      .8      .6
 Public Utilities                          8.2     9.8     9.1     9.3     8.5
 Mortgage-Backed Securities               22.3    20.9    21.8    24.7    22.9
 Corporate and Other                      49.5    47.2    48.6    42.0    33.9
           Redeemable Preferred Stocks     0.5     1.0     1.4     1.3      .8
                                          85.6    83.3    85.7    80.9    72.4
 Net Unrealized Gains (Losses) on Bonds
   and Redeemable Preferred Stocks held
   Available for Sale                      1.1     2.7    (1.0)    1.8      .8
                                          86.7    86.0    84.7    82.7    73.2
Other Stocks, Options and Warrants         2.9     2.3     2.7     4.6     2.6
Loans Receivable                           4.9     5.7     8.4     8.5    12.9
Real Estate and Other Investments          2.0     2.0     2.0     1.9     2.0
                                         100.0%  100.0%  100.0%  100.0%  100.0%

Yield on Fixed Income Securities:
 Excluding realized gains and losses       7.9%    7.9%    8.1%    8.0%    8.8%
 Including realized gains and losses       7.7%    8.8%    8.1%    8.7%    9.8%

Yield on Stocks:
 Excluding realized gains and losses       5.8%    3.9%    5.1%    4.4%    6.4%
 Including realized gains and losses      15.1%    8.4%   35.4%   16.9%   15.5%

Yield on Investments (*):                                          
 Excluding realized gains and losses       7.8%    7.9%    8.1%    7.9%    8.7%
 Including realized gains and losses       7.8%    8.8%    8.8%    9.0%   10.0%
<FN>
(*)Excludes "Real Estate and Other Investments".
</FN>
</TABLE>
<PAGE>   
   Fixed Maturity Investments.  Unlike many insurance groups which
have portfolios that are invested heavily in tax-exempt bonds, AFC's
bond portfolio is invested primarily in taxable bonds.  The NAIC
assigns quality ratings which range from Class 1 (highest quality)
to Class 6 (lowest quality).  The following table shows AFC's bonds
and redeemable preferred stocks, by NAIC designation (and comparable
Standard & Poor's Corporation rating) as of December 31, 1996
(dollars in millions):

 NAIC                                    Amortized    Market Value
Rating   Comparable S&P Rating                Cost      Amount   %
  1      AAA, AA, A                       $6,844.1   $ 6,944.8   69%
  2      BBB                               2,380.2     2,423.9   24
            Total investment grade         9,224.3     9,368.7   93
  3      BB                                  341.7       344.9    4
  4      B                                   280.6       296.7    3
  5      CCC, CC, C                            7.1         9.9    *
  6      D                                    -            2.5    *
           Total non-investment grade        629.4       654.0    7
           Total                          $9,853.7   $10,022.7  100%

_______________
(*) Less than 1%

   Risks inherent in connection with fixed income securities include
loss upon default and market price volatility.  Factors which can
affect the market price of securities include: creditworthiness,
changes in interest rates, the number of market makers and investors
and defaults by major issuers of securities.

                                19
<PAGE>
   AFC's primary investment objective for bonds and redeemable
preferred stocks is to earn interest and dividend income rather than
to realize capital gains.  AFC invests in bonds and redeemable
preferred stocks that have primarily short-term and intermediate-
term maturities.  This practice allows flexibility in reacting to
fluctuations of interest rates.

   Equity Investments.  AFC's equity investment practice permits
concentration of attention on a relatively limited number of
companies.  Some of the equity investments, because of their size,
may not be as readily marketable as the typical small investment
position.  Alternatively, a large equity position may be attractive
to persons seeking to control or influence the policies of a company
and AFC's concentration in a relatively small number of companies
may permit it to identify investments with above average potential
to increase in value.

   Chiquita    At December 31, 1996, AFC owned 24 million shares of
Chiquita common stock representing 43% of its outstanding shares.
The carrying value and market value of AFC's investment in Chiquita
were approximately $200 million and $306 million, respectively, at
December 31, 1996.  Chiquita is a leading international marketer,
producer and distributor of bananas and other quality fresh and
processed food products.  In addition to bananas, these products
include other tropical fruit and fresh produce; fruit and vegetable
juices and beverages; processed fruits and vegetables; salads; and
edible oil-based consumer products.

   Citicasters    In September 1996, AFC sold its investment in
Citicasters to Jacor Communications for approximately $220 million
in cash plus warrants to purchase Jacor common stock.  Citicasters
owned radio and television stations in major markets throughout
the country.

   General Cable    In 1994, AFC sold its investment in General
Cable common stock to an unaffiliated company for $27.6 million in
cash.  General Cable was formed in 1992 to hold American Premier's
wire and cable and heavy equipment manufacturing businesses.

Regulation

   AFC's insurance company subsidiaries are subject to regulation
in the jurisdictions where they do business.  In general, the
insurance laws of the various states establish regulatory agencies
with broad administrative powers governing, among other things,
premium rates, solvency standards, licensing of insurers, agents
and brokers, trade practices, forms of policies, maintenance of
specified reserves and capital for the protection of
policyholders, deposits of securities for the benefit of
policyholders, investment activities and relationships between
insurance subsidiaries and their parents and affiliates. Material
transactions between insurance subsidiaries and their parents and
affiliates generally must be disclosed and prior approval of the
applicable insurance regulatory authorities generally is required
for any such transaction which may be deemed to be material or
extraordinary.  In addition, while differing from state to state,
these regulations typically restrict the maximum amount of
<PAGE>
dividends that may be paid by an insurer to its shareholders in
any twelve-month period without advance regulatory approval.  Such
limitations are generally based on net earnings or statutory
surplus.  Under applicable restrictions, the maximum amount of
dividends available to AFC in 1997 from its insurance subsidiaries
without seeking regulatory clearance is approximately
$253 million.

   Changes in state insurance laws and regulations have the
potential to materially affect the revenues and expenses of the
insurance operations.  The Company is unable to predict whether or
when laws or regulations may be adopted or enacted in such states or
what the impact of such developments would be on the future
operations and revenues of its insurance businesses in such states.

   Prior to 1995, minimum premium rates for California workers'
compensation insurance were determined by the California
Commissioner based in part upon recommendations of the Workers'
Compensation Insurance Rating Bureau of California.  In July 1993,
                           20
<PAGE>
California enacted legislation (the "Reform Legislation") effecting 
an immediate overall 7% reduction in workers' compensation insurance 
premium rates and replaced the workers' compensation insurance 
minimum rate law, effective January 1, 1995, with a procedure 
permitting insurers to use any rate within 30 days after its filing 
with the California Commissioner unless the rate is disapproved by 
the California Commissioner.  Between December 1, 1993 and January 1, 
1995, when the "open rating" policy went into effect, the California 
Commissioner ordered additional rate decreases totaling more than 25%.

   Most states have created insurance guarantee associations to
provide for the payment of claims of insurance companies that become
insolvent.  Annual assessments for AFC's insurance companies have
not been material.  In addition, many states have created "assigned
risk" plans or similar arrangements to provide state mandated
minimum levels of automobile liability coverage to drivers whose
driving records or other relevant characteristics make it difficult
for them to obtain insurance otherwise.  Automobile insurers in
those states are required to provide such coverage to a
proportionate number of those drivers applying as assigned risks.
Premium rates for assigned risk business are established by the
regulators of the particular state plan and are frequently
inadequate in relation to the risks insured, resulting in
underwriting losses.  Assigned risks accounted for approximately one-
half of one percent of AFC's net written premiums in 1996.

   The NAIC is an organization which is comprised of the chief
insurance regulator for each of the 50 states and the District of
Columbia.  In 1990, the NAIC began an accreditation program to
ensure that states have adequate procedures in place for effective
insurance regulation, especially with respect to financial solvency.
The accreditation program requires that a state meet specific
minimum standards in over 15 regulatory areas to be considered for
accreditation.  The accreditation program is an ongoing process and
once accredited, a state must enact any new or modified standards
approved by the NAIC within two years following adoption.  As of
December 31, 1996, the District of Columbia and 48 states were
accredited including states which regulate AFC's largest insurance
subsidiaries.

   The NAIC model law for Risk Based Capital applies to both life
and property and casualty companies.  The risk-based capital
formulas determine the amount of capital that an insurance company
needs to ensure that it has an acceptably low expectation of
becoming financially impaired.  The model law provides for
increasing levels of regulatory intervention as the ratio of an
insurer's total adjusted capital and surplus decreases relative to
its risk-based capital, culminating with mandatory control of the
operations of the insurer by the domiciliary insurance department
at the so-called "mandatory control level".  The risk-based capital
formulas became effective in 1993 for life companies and in 1995
for property and casualty companies.  At December 31, 1996, the
capital ratios of all AFC insurance companies substantially
exceeded the risk-based capital requirements.
<PAGE>
   In September 1996, the NAIC adopted a model investment law.  The
law will not be a requirement of the NAIC accreditation standards.
However, each state may adopt all, any part, or none of the model
investment law to regulate the investment policies of their
insurance companies.  At this time, it is not possible to determine
the impact, if any, this will have on AFC's insurance subsidiaries.

                                21
<PAGE>
                                ITEM 7

               Management's Discussion and Analysis
         of Financial Condition and Results of Operations

GENERAL

   Following is a discussion and analysis of the financial
statements and other statistical data that management believes
will enhance the understanding of AFC's financial condition and
results of operations.  This discussion should be read in
conjunction with the financial statements beginning on page F-1.

   AFC is organized as a holding company with almost all of its
operations being conducted by subsidiaries and affiliates.  The
parent corporation, however, has continuing cash needs for
administrative expenses, the payment of principal and interest
on borrowings and dividends on AFC Preferred Stock. Therefore,
certain analyses are best done on a parent only basis while
others are best done on a total enterprise basis.  In addition,
since many of its businesses are financial in nature, AFC does
not prepare its balance sheet using a current-noncurrent format.
Consequently, certain traditional ratios and financial analysis
tests are not meaningful.

   As discussed in Note A to the financial statements, at the
close of business on December 31, 1996, AFG contributed to AFC
81% of the common stock of American Premier.  Since AFC and
American Premier are under the common control of AFG, the
acquisition of American Premier has been recorded by AFC at
AFG's historical cost in a manner similar to a pooling of
interests.  Accordingly, the historical consolidated financial
statements of AFC for periods subsequent to the April 3, 1995
Mergers have been restated to include the accounts of American
Premier.

LIQUIDITY AND CAPITAL RESOURCES

Ratios  From the date of the Mergers to the end of 1996,
approximately $1.1 billion of AFC and American Premier debt was
retired or replaced with lower cost debt, resulting in a net
reduction of aggregate debt by approximately 75%.  Consequently,
AFC's debt to total capital ratio at the parent holding company
level improved from approximately 60% at the date of the Mergers
to just over 20% at December 31, 1996.  These debt reductions
and replacements will also reduce AFC's interest expense by over
$100 million annually.

   AFC's ratio of earnings to fixed charges, excluding and
including preferred dividends, on a total enterprise basis for
the three years ended December 31, 1996, are shown below.

                                              1996    1995   1994
   Earnings to fixed charges                  4.99    3.10   1.69
   Earnings to fixed charges plus preferred 
     dividends                                3.96    2.60   1.40
<PAGE>
      
   The National Association of Insurance Commissioners' model law
for risk based capital ("RBC") applies to both life and property
and casualty companies. RBC formulas determine the amount of
capital that an insurance company needs to ensure that it has an 
acceptable expectation of not becoming financially impaired.  At 
December 31, 1996, the capital ratios of all AFC insurance companies 
substantially exceeded the RBC requirements (the lowest capital 
ratio of any AFC subsidiary was 2.8 times its authorized control 
level RBC; weighted average of all AFC subsidiaries was 5.0 times).
    
                                25
<PAGE>
Sources of Funds  Management believes AFC has sufficient resources
to meet its liquidity requirements through operations in the short-
term and long-term future.  If funds generated from operations,
including dividends from subsidiaries, are insufficient to meet
fixed charges in any period, AFC would be required to generate
cash through borrowings, sales of securities or other assets, or
similar transactions.

    Prior to the Mergers, American Premier had substantial cash
and short-term investments at the parent company level.
Subsequent to the Mergers, AFC and two of its subsidiaries entered
into separate credit agreements with American Premier.  Funds
borrowed from American Premier under these agreements were used
for debt retirements, capital contributions to subsidiaries, and
other corporate purposes.  In December 1996, American Premier paid
a dividend to AFG in the form of a $675 million note receivable
from AFC under the credit agreement plus $18.7 million of related
accrued interest.  AFG then contributed $450 million of the note
(without accrued interest) to the capital of AFC.  At December 31,
1996, the remaining $225 million is included in payable to AFG on
AFC's balance sheet.

    Subsequent to the Mergers, American Premier entered into a
credit agreement with AFG under which American Premier and AFG
will make loans of up to $200 million available to each other.
Principal amounts payable to AFG under the credit agreement
totaled $175.5 million and $84.0 million at December 31, 1996 and
1995, respectively.

   In September and October of 1996, three nationally recognized
rating agencies issued or upgraded ratings on AFC, American
Premier and AAG public debentures.  All of the AFC debentures and
the AAG senior debentures are now rated investment grade; the APU
and AAG subordinated debentures are rated investment grade by two
of the agencies.  Generally, the upgrades reflect the expectation
that consolidated debt to total capital will remain conservative
and that coverage ratios will benefit from higher subsidiary
earnings and a lower level of fixed charges at AFG's subsidiaries.

   Bank credit lines at several subsidiary holding companies
provide ample liquidity and can be used to obtain funds for the
operating subsidiaries or, if necessary, for the parent company.
Agreements with the banks generally run for three to seven years
and are renewed before maturity.  While it is highly unlikely that
all such amounts would ever be borrowed at one time, a maximum of
$510 million is available under these bank facilities, $45 million
of which was borrowed at December 31, 1996.

    In the past, funds have been borrowed under certain of these
bank facilities and used for working capital, capital infusions
into subsidiaries, and to retire other issues of short-term or
high-rate debt.  Also, AFC believes it may be prudent and
advisable to borrow up to $200 million of bank debt in the normal
course in order to retire public or privately held fixed rate
obligations over the next year or two.

                                26
<PAGE>
    Funds to meet the parent company's expenditures have been
provided from a variety of sources within the holding company,
from subsidiaries and directly from outside sources, as detailed
in the following table (in millions):

Cash provided by:                                     1996    1995    1994
Operations:
    Dividends from subsidiaries                     $105.3  $165.3  $ 17.3
    Dividends from AFG                                 8.7     4.3     -
    Tax allocation payments from subsidiaries        102.5    73.9    65.9
    Interest and dividends from others                 1.4     2.8     4.4
    Federal income tax refunds                         0.1     9.5     0.3
      From operations                                218.0   255.8    87.9
  Other transactions:
    Net advances from affiliates                      45.7   162.0   135.8
    Sales of assets to non-affiliates                 59.3     3.1    15.0
    Sales of assets to affiliates                      1.7    43.7     -
    Sales of affiliates                               44.0     -       6.0
    Issuance of Preferred Stock                       16.8     -       -
    Exercise of stock options                          -       8.7     -
    Additional borrowings                              0.1    98.8     0.7
    Other                                             13.9     8.6    10.7
      Total cash provided                            399.5   580.7   256.1

  Cash utilized for:
  Operations:
    Interest payments                                 22.7    47.9    61.8
    Dividend payments                                 24.9    25.4    29.5
    Federal income tax payments                       31.0    23.0    28.6
    BVIP payments                                       -     48.9     0.7
    Other holding company costs                       30.4    29.3    35.3
      For operations                                 109.0   174.5   155.9
  Other transactions:
    Purchases of affiliates and other investments     33.6   149.4     - 
    Principal payments on debt                       177.9   252.9    89.9
    Repurchases of Preferred Stock                    36.9     2.9     6.7
    Other                                              0.7     0.8     1.4
      Total cash utilized                            358.1   580.5   253.9

  Net increase in cash and short-term investments     41.4     0.2     2.2
 Cash and short-term investments at beginning
   of period                                           5.1     4.9     2.7
 Cash and short-term investments at end
   of period                                        $ 46.5  $  5.1  $  4.9

   
    Payments of dividends by AFC's insurance subsidiaries are
subject to various laws and regulations which limit the amount
of dividends that can be paid without regulatory approval.
Under Ohio law, the maximum amount of dividends which may be
paid without (i) prior approval or (ii) expiration of a 30 day
waiting period without disapproval is the greater of statutory
net income or 10% of policyholders' surplus as of the preceding
December 31, but only to the extent of earned surplus as of the
preceding December 31.  The maximum amount of dividends payable
(without prior approval) to AFC in 1997 from its insurance
subsidiaries is approximately $225 million.
    
<PAGE>
    For statutory accounting purposes, equity securities are
generally carried at market value.  At December 31, 1996, AFC's
insurance subsidiaries owned publicly traded equity securities
with a market value of $1.3 billion, including equity securities
of AFC affiliates (including subsidiaries) of $1.0 billion.
Since significant amounts of these are concentrated in a
relatively small number of companies, decreases in the market
prices could adversely affect the insurance group's capital,
potentially impacting the amount of dividends available or
necessitating a capital contribution.  Conversely, increases in
the market prices could have a favorable impact on the group's
dividend-paying capability.
                                  27
<PAGE>
    Under tax allocation agreements with AFC, its 80%-owned U.S.
subsidiaries generally compute tax provisions as if filing
separate returns based on book taxable income computed in
accordance with generally accepted accounting principles.  The
resulting provision (or credit) is currently payable to (or
receivable from) AFC.  Beginning with the 1997 federal tax
return, American Premier and its 80%-owned U.S. subsidiaries
will join AFC's consolidated return.

Uncertainties  Two lawsuits were filed in 1994 against American
Premier by USX Corporation ("USX") and a former USX subsidiary.
The lawsuits seek contribution from American Premier for all or
a portion of a $600 million final antitrust judgment entered
against a USX subsidiary in 1994.  The lawsuits argue that USX's
liability for that judgment is attributable to the alleged
activities of American Premier's predecessor in an unlawful
antitrust conspiracy among certain railroad companies.  American
Premier and its outside counsel believe that American Premier
has substantial defenses and should not suffer a material loss
as a result of this litigation.

   Great American's liability for unpaid losses and loss
adjustment expenses includes amounts for various liability
coverages related to environmental and hazardous product claims.
The insurance industry typically includes only claims relating
to polluted waste sites and asbestos in defining environmental
exposures, whereas Great American extends this definition to
include claims relating to breast implants, repetitive stress on
keyboards, DES (a drug used in pregnancies years ago alleged to
cause cancer and birth defects), and other latent injuries.  At
December 31, 1996, Great American had recorded $343 million (net
of reinsurance recoverables of $163 million) for environmental
pollution and hazardous products claims on policies written many
years ago where, in most cases, coverage was never intended.
Due to inconsistent court decisions on many coverage issues and
the difficulty in determining standards acceptable for cleaning
up pollution sites, significant uncertainties exist which are
not likely to be resolved in the near future.

    AFC's subsidiaries are parties in a number of proceedings
relating to former operations.  See Note N to the financial
statements.

    While the results of all such uncertainties cannot be
predicted, based upon its knowledge of the facts, circumstances
and applicable laws, management believes that sufficient
reserves have been provided.

Investments  Approximately 70% of AFC's consolidated assets are
invested in marketable securities.  A diverse portfolio of bonds
and redeemable preferred stocks accounts for 95% of these
securities.  AFC attempts to optimize investment income while
building the value of its portfolio, placing emphasis upon long-
term performance.  AFC's goal is to maximize return on an
ongoing basis rather than focusing on short-term performance.

<PAGE>
    Fixed income investment funds are generally invested in
securities with short-term and intermediate-term maturities with
an objective of optimizing total return while allowing
flexibility to react to changes in market conditions.  At
December 31, 1996, the average life of AFC's bonds and
redeemable preferred stocks was just over 6 years.

    Approximately 93% of the bonds and redeemable preferred
stocks held by AFC were rated "investment grade" (credit rating
of AAA to BBB) by nationally recognized rating agencies at
December 31, 1996.  Investment grade securities generally bear
lower yields and lower degrees of risk than those that are
unrated and non-investment grade.  Management believes that the
high quality investment portfolio should generate a stable and
predictable investment return.

                                28
<PAGE>
    Investments in mortgage-backed securities ("MBSs")
represented approximately one-fourth of AFC's bonds and
redeemable preferred stocks at December 31, 1996.  AFC 
invests primarily in MBSs which have a reduced risk of 
prepayment.  Interest only (I/Os), principal only (P/Os) and 
other "high risk" MBSs represented approximately two percent 
of AFC's total mortgage-backed securities portfolio.   In 
addition, the majority of MBSs held by AFC were purchased at
a discount.  Management believes that the structure and
discounted nature of the MBSs will minimize the effect of
prepayments on earnings over the anticipated life of the MBSs
portfolio.  More than 90% of AFC's MBSs are rated "AAA" with
substantially all being of investment grade quality.  The
majority are collateralized by GNMA, FNMA and FHLMC single-
family residential pass-through certificates.  The market in
which these securities trade is highly liquid.  Aside from
interest rate risk, AFC does not believe a material risk
(relative to earnings and liquidity) is inherent in holding such
investments.

    Because most income of the property and casualty insurance
subsidiaries have been sheltered from income taxes through 1996,
non-taxable municipal bonds represent only a small portion
(approximately 1%) of the portfolio.

    AFC's equity securities are concentrated in a relatively
limited number of major positions.  This approach allows
management to more closely monitor the companies and industries
in which they operate.

    The realization of capital gains, primarily through sales of
equity securities, was an integral part of AFC's investment
program.  Individual securities are sold creating gains or
losses as market opportunities exist.  Pretax capital gains
recognized upon disposition of securities, including investees,
during the past five years have been:  1996 - $166 million;
1995 -$84 million; 1994 - $50 million; 1993 - $165 million and
1992 - $104 million. At December 31, 1996, the net unrealized
gain on AFC's bonds and redeemable preferred stocks was
$169 million; the net unrealized gain on equity securities was
$185 million.
                                29
<PAGE>
RESULTS OF OPERATIONS - THREE YEARS ENDED DECEMBER 31, 1996

General  As previously noted, financial statements for periods
subsequent to April 1995 have been restated to include the
accounts of American Premier.  AFC had accounted for American
Premier as an investee from the second quarter of 1993 through
the first quarter of 1995.  As a result of these changes,
current year income statement components are not comparable to
prior years.

    Pretax earnings before extraordinary items were $338 million
in 1996, $252 million in 1995 and $44 million in 1994.

    Results for 1996 include $203 million in pretax gains
    primarily on the sales of Citicasters and Buckeye Management
    Company, reduced by a charge of $80 million resulting from a
    decision to strengthen insurance reserves relating to asbestos
    and other environmental matters ("A&E").

    In addition to the earnings contribution resulting from the
    Mergers, results for 1995 include $84 million in pretax gains
    on the sale of securities.

    Results for 1994 include AFC's share ($28 million) of American
    Premier's loss on the sale of General Cable securities, Great
    American's $19 million charge relating to a rate rollback
    liability in California and a $35 million charge related to
    payments under AFC's Book Value Incentive Plan.

Property and Casualty Insurance - Underwriting  AFC manages and
operates its property and casualty business as three major
sectors.  The nonstandard automobile insurance companies (the "NSA
Group") insure risks not typically accepted for standard
automobile coverage because of the applicant's driving record,
type of vehicle, age or other criteria.  The specialty lines are a
diversified group of over twenty-five business lines that offer a
wide variety of specialty insurance products.  Some of the more
significant areas are California workers' compensation, executive
liability, inland and ocean marine, U.S.-based operations of
Japanese companies, agricultural-related coverages, excess and
surplus lines and fidelity and surety bonds.  The commercial and
personal lines provide coverages in commercial multi-peril,
workers' compensation, umbrella and commercial automobile,
standard private passenger automobile and homeowners insurance.

   To understand the overall profitability of particular lines,
timing of claims payments and the related impact of investment
income must be considered. Certain "short-tail" lines of business
(primarily property coverages) have quick loss payouts which
reduce the time funds are held, thereby limiting investment income
earned thereon.  On the other hand, "long-tail" lines of business
(primarily liability coverages and workers' compensation) have
payouts that are either structured over many years or take many
years to settle, thereby significantly increasing investment
income earned on related premiums received.
<PAGE>
   Underwriting profitability is measured by the combined ratio
which is a sum of the ratios of underwriting losses, loss
adjustment expenses, underwriting expenses and policyholder
dividends to premiums.  When the combined ratio is under 100%,
underwriting results are generally considered profitable; when the
ratio is over 100%, underwriting results are generally considered
unprofitable.  The combined ratio does not reflect investment
income, other income or federal income taxes.
   
  For certain lines of business and products where the credibility
of the range of loss projections is less certain (primarily the 
various specialty lines listed above), management believes that it
is prudent and appropriate to use conservative assumptions until
such time as the data, experience and projections have more credibility,
as evidenced by data volume, consistency and maturity of the data.
While this practice mitigates the risk of adverse development on this
business, it does not eliminate it.
    
                                30
<PAGE>
   While AFC desires and seeks to earn an underwriting profit on
all of its business, it is not always possible to do so.  As a
result, AFC attempts to expand in the most profitable areas and
control growth or even reduce its involvement in the least
profitable ones.

   Comparisons made in the following discussion of AFC's insurance
operations include American Premier's insurance operations even
though they were not consolidated in the financial statements
prior to the Mergers.

   Net written premiums and combined ratios for AFC's property and
casualty insurance subsidiaries were as follows (dollars in
millions):

                                               1996     1995     1994
  Net Written Premiums (GAAP)                    
  NSA Group                                  $1,135   $1,277   $1,186
  Specialty Operations                          993    1,097    1,250
  Commercial and Personal Operations            660      717      683
  Other Lines                                  -           1        5
                                             $2,788   $3,092   $3,124

  Combined Ratios (GAAP)
  NSA Group                                    99.9%   105.2%   100.0%
  Specialty Operations                         84.1     94.8     97.2
  Commercial and Personal Operations          110.6     99.1     98.9
  Aggregate (including A&E and other lines)   102.9    101.2     99.4

   
   Operating results for 1996 were adversely impacted by two
unusual items: (i) higher than normal catastrophe losses including
approximately $30 million in losses due to Hurricane Fran and (ii)
the strengthening of A&E reserves (exposures for which AFC may be
liable under general liability policies written years ago).  A 
standard insurance measure used in analyzing the adequacy of A&E
reserves is the "survival ratio" (reserves divided by three-year
average annual paid losses).  Due in part to the greater
uncertainties inherent in estimating A&E claims, management evaluates
its survival ratio in relation to those published for the industry.
Based primarily on industry survival ratios published in mid-1996, AFC
increased A&E reserves of its discontinued insurance lines by $120
million by recording a third quarter, non-cash pretax charge of
$80 million and reallocating $40 million or approximately 2% of 
reserves from its Specialty Operations.  Reserves for unpaid losses and  
loss adjustment expenses of the Specialty Lines were approximately 
$2.1 billion, $2.2 billion and $1.5 billion at December 31, 1996, 1995 
and 1994, respectively.  Following a detailed analysis of overall reserves,
the reallocation was made based on available data, experience and projections.
A&E reserves at December 31, 1996, were approximately $343 million, an amount 
equal to approximately 10.5 times the preceding three years' average claim 
payments.
    
<PAGE>   
   In 1996, underwriting results of AFC's insurance operations
significantly outperformed the industry average for the eleventh
consecutive year.  AFC's insurance operations have been able to
exceed the industry's results by focusing on highly specialized
niche products, supplemented by commercial lines coverages and
personal automobile products.

   NSA Group  The NSA Group has implemented premium rate increases
in various states over the last three years.  The higher rate
levels along with competitive pressures in the nonstandard
automobile insurance industry resulted in an 11% decline in net
written premiums in 1996 and adversely impacted premium growth
during 1995.  These rate increases contributed to an improvement,
however, in the combined ratio for 1996.  The increase in the
combined ratio for 1995 was due primarily to inadequate rate
levels in certain markets and weather-related losses (principally
from hailstorms in Texas) which more than offset a reduction in
underwriting expenses due largely to cost control measures.
<PAGE>
   Specialty Operations  Net written premiums for the specialty
operations declined 9% and 12% during 1996 and 1995, respectively,
due primarily to a decrease in the California workers' compensation
business in both years and withdrawal from an unprofitable pool at
the end of 1995, partially offset by increases in other specialty
niche lines.  The decline in California workers' compensation
premiums reflects (i) extremely competitive pricing in the
marketplace as a result of the repeal of the California workers'
compensation minimum rate law effective January 1, 1995 and (ii) the
impact of mandatory premium rate reductions which took effect a year
earlier.

                                31
<PAGE>
   Excluding the impact of the decreases in the California
workers' compensation business and the withdrawal from the
voluntary pool, specialty net written premiums increased
$16 million (2%) in 1996.  The increase is due in part to
increases in specialized coverages for fidelity and surety bonds,
executive liability, animal mortality and collateral protection
exposures.

   The improvement in the combined ratio of the Specialty Lines
for 1996 includes 4.1 percentage points attributable to a
reallocation of loss reserves in connection with the strengthening
of A&E reserves.  Further improvement is attributable to (i)
improved results in certain niche businesses, (ii) reductions in
loss, loss adjustment expense and policyholder dividend reserves
prompted by the fundamental changes in the California workers'
compensation market and actuarial evaluations, and (iii) losses in
1995 from participation in the voluntary pool.

   The combined ratio of the specialty operations in 1995 reflects
improved results experienced in the crop hail and farm lines as well
as coverages of U.S. operations of Japanese companies.  The 1995
combined ratio also includes losses resulting from participation in
a voluntary pool from which AFC withdrew.

   Commercial and Personal Operations  Net written premiums for
the commercial and personal operations decreased 8% in 1996.  The
decrease is due primarily to significant reductions in homeowners
coverages in certain states as well as competitive pricing
conditions in the commercial casualty market, partially offset by
increases in writings of workers' compensation coverages.  The
profitability of the commercial and personal operations declined
in 1996 due primarily to deterioration in personal lines
operations as well as weather-related losses, including losses
from Hurricane Fran.

   Net written premiums increased 5% in 1995 due primarily to
increased writing of workers' compensation and commercial umbrella
insurance.  The profitability of both of these lines improved in
1995.  These profitable results were offset by unfavorable results
in the personal lines operations from weather-related losses,
start-up costs related to a direct-to-consumer operation and
deteriorating automobile loss experience.

Investment Income  Changes in investment income reflect
fluctuations in market rates and changes in average invested
assets.

   1996 compared to 1995  Investment income increased $96 million
(13%) from 1995; adjusting for the effects of the Mergers
retroactively to January 1, 1995, investment income increased
$55 million (7%) from 1995 due primarily to an increase in the
average amount of investments held.

   1995 compared to 1994  AFC's investment income increased $50
million (9%) from 1994 due to an increase in the average amount of
investments held.  For the period following the Mergers,
investment income includes $117 million attributable to American
Premier.
<PAGE>
Investee Corporations  Equity in net earnings of investee
corporations (companies in which AFC owns a significant portion of
the voting stock) represents AFC's proportionate share of the
investees' earnings and losses.

   1996 compared to 1995  AFC's equity in net earnings of investee
corporations decreased $32 million compared to 1995.  Chiquita
reported a decrease in operating income in 1996 of $92 million.
Chiquita recorded writedowns and costs of $70 million resulting
from (i) industry-wide flooding in Costa Rica, Guatemala and
Honduras, (ii) certain strategic undertakings designed to achieve
further long-term reductions in the delivered product cost of
Chiquita bananas and (iii) certain claims relating to prior
European Union quota restructuring actions.  Aside from the
effects described above, operating income from remaining core
operations improved in 1996 primarily as a result of lower
delivered product cost for bananas.  This improvement in core
operating results substantially offset the elimination of earnings
from Chiquita's Costa Rican edible oils operations which were sold
in December 1995.
                                32
<PAGE>
   1995 compared to 1994  AFC's equity in net earnings of investee
corporations increased $32 million in 1995.  Chiquita reported a
$105 million improvement in operating income primarily due to net
gains from the sale of non-core assets, higher banana prices
outside the European Union, the favorable effect of foreign exchange 
rates on European sales, and earnings improvements from other food 
products.

Gains on Sales of Investees  The gains on sales of investees in
1996 represent pretax gains, before $6.5 million of minority
interest, on the sale of Citicasters common stock.  The gains on
sales of investees in 1994 represent pretax gains on the sale of
General Cable common stock.

Gains on Sales of Subsidiaries  The gains on sales of subsidiaries
in 1996 include a pretax gain of $33.9 million on the sale of
Buckeye and the settlement of litigation related to a subsidiary
sold in 1993.

Annuity Benefits  For GAAP financial reporting purposes, annuity
receipts are accounted for as interest-bearing deposits ("annuity
benefits accumulated") rather than as revenues.  Under these
contracts, policyholders' funds are credited with interest on a
tax-deferred basis until withdrawn by the policyholder.  Annuity
benefits represent primarily interest related to annuity
policyholders' funds held.  The rate at which GALIC credits
interest on annuity policyholders' funds is subject to change
based on management's judgment of market conditions.

   Annuity receipts totaled approximately $570 million in 1996,
$460 million in 1995 and $440 million in 1994.  Annuity receipts
have increased over the last few years due to sales of newly
introduced single premium products and, in 1995, the development
of new distribution channels.

   Annuity benefits increased $17 million (7%) in 1996 and
$13 million (5%) in 1995 primarily due to an increase in average
annuity benefits accumulated.

Interest on Borrowed Money  Changes in interest expense result
from fluctuations in market rates as well as changes in
borrowings.  AFC has generally financed its borrowings on a long-
term basis which has resulted in higher current costs.

   1996 compared to 1995  Interest expense for 1996 was
$86.1 million and interest expense for 1995, adjusted to reflect
the effect of the Mergers retroactively to January 1, 1995, was
$116.3 million.  The $30 million (26%) decrease reflects
significant debt retirements during both 1995 and 1996.

   1995 compared to 1994  Excluding $29 million attributable to
American Premier, interest expense decreased by $22 million (19%)
due primarily to repayments of borrowings by AFC and certain
subsidiaries and the AFC debt exchange in 1994.
<PAGE>
   
Other Operating and General Expenses  Operating and general
expenses in 1994 included a charge of $18 million for allowance 
for bad debts and a charge of $19 million for a California 
insurance reform measure.
    

Income Taxes  See Note L to the Financial Statements for an
analysis of items affecting AFC's effective tax rate.

                                33
<PAGE>
                                ITEM 8

             Financial Statements and Supplementary Data

                                                          Page

Report of Independent Auditors                             F-1

Consolidated Balance Sheet:
   December 31, 1996 and 1995                              F-2

Consolidated Statement of Earnings:
   Years ended December 31, 1996, 1995 and 1994            F-3

Consolidated Statement of Changes in Capital Accounts:
   Years ended December 31, 1996, 1995 and 1994            F-4

Consolidated Statement of Cash Flows:
   Years ended December 31, 1996, 1995 and 1994            F-5

Notes to Consolidated Financial Statements                 F-6


"Selected Quarterly Financial Data" has been included in Note O
to the Consolidated Financial Statements.
<PAGE>

                                   
                    REPORT OF INDEPENDENT AUDITORS
 
 
 Board of Directors
 American Financial Corporation
 
 We have audited the accompanying consolidated balance sheets of
 American Financial Corporation and subsidiaries as of December 31,
 1996 and 1995, and the related consolidated statements of earnings,
 changes in capital accounts, and cash flows for each of the three
 years in the period ended December 31, 1996.  Our audits also
 included the financial statement schedules listed in the Index at
 Item 14(a). These financial statements and schedules are the
 responsibility of the Corporation's management.  Our responsibility
 is to express an opinion on these financial statements and schedules
 based on our audits.
 
 We conducted our audits in accordance with generally accepted
 auditing standards. Those standards require that we plan and perform
 the audit to obtain reasonable assurance about whether the financial
 statements are free of material misstatement.  An audit includes
 examining, on a test basis, evidence supporting the amounts and
 disclosures in the financial statements.  An audit also includes
 assessing the accounting principles used and significant estimates
 made by management, as well as evaluating the overall financial
 statement presentation.  We believe that our audits provide a
 reasonable basis for our opinion.
 
 In our opinion, the consolidated financial statements referred to
 above present fairly, in all material respects, the consolidated
 financial position of American Financial Corporation and
 subsidiaries at December 31, 1996 and 1995, and the consolidated
 results of their operations and their cash flows for each of the
 three years in the period ended December 31, 1996, in conformity
 with generally accepted accounting principles.  Also, in our
 opinion, the related financial statement schedules, when considered
 in relation to the basic financial statements taken as a whole,
 present fairly in all material respects the information set forth
 therein.
 
 
 
 
                                    ERNST & YOUNG LLP
 
 
 Cincinnati, Ohio
 March 25, 1997


                                F-1
<PAGE>
             AMERICAN FINANCIAL CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED BALANCE SHEET
                            (In Thousands)

                                                                December 31,
                                                             1996          1995
          Assets
Cash and short-term investments                       $   404,831   $   448,201
Investments:
  Bonds and redeemable preferred stocks:
    Held to maturity - at amortized cost
     (market - $3,528,100 and $3,729,300)               3,491,126     3,588,943
    Available for sale - at market
     (amortized cost - $6,362,597 and $5,648,060)       6,494,597     5,949,260
  Other stocks - principally at market
    (cost - $142,364 and $136,944)                        327,664       252,244
  Investment in investee corporations                     199,651       306,545
  Loans receivable                                        568,055       630,084
  Real estate and other investments                       205,021       216,460
      Total investments                                11,286,114    10,943,536

Recoverables from reinsurers and prepaid
  reinsurance premiums                                    942,450       923,080
Agents' balances and premiums receivable                  609,403       703,274
Deferred acquisition costs                                452,041       419,919
Other receivables                                         272,766       269,600
Deferred tax asset                                        137,284       200,434
Assets held in separate accounts                          247,579       238,524
Prepaid expenses, deferred charges and other assets       368,114       390,750
Cost in excess of net assets acquired                     278,581       314,136

                                                      $14,999,163   $14,851,454

<PAGE>
   Liabilities and Shareholders' Equity
Unpaid losses and loss adjustment expenses            $ 4,123,701   $ 4,096,703
Unearned premiums                                       1,247,806     1,294,054
Annuity benefits accumulated                            5,365,612     5,051,959
Life, accident and health reserves                        575,380       538,274
Payable to American Financial Group, Inc.                 422,015        85,056
Other long-term debt:
  Direct obligations of AFC Parent Company                172,809       311,202
  Obligations of AFC subsidiaries:
   American Premier Underwriters (parent only)            166,695       337,334
   American Annuity Group                                 114,900       167,734
   Other subsidiaries                                      63,515        65,793
Liabilities related to separate accounts                  247,579       238,524
Accounts payable, accrued expenses and other
  liabilities                                             915,398     1,089,741
     Total liabilities                                 13,415,410    13,276,374

Minority interest                                         306,858       326,979

Shareholders' Equity:
  Preferred Stock (liquidation value
   - $258,638 and $278,719)                               162,760       168,484
  Common Stock without par value (45,000,000               
    shares outstanding)                                     9,625         9,625
  Capital Surplus                                         919,746       464,366
  Retained earnings                                         1,364       365,126
  Net unrealized gain on marketable securities,
    net of deferred income taxes                          183,400       240,500
     Total shareholders' equity                         1,276,895     1,248,101
                                                      $14,999,163   $14,851,454
                                          

See notes to consolidated financial statements.

                                F-2
<PAGE>
           AMERICAN FINANCIAL CORPORATION AND SUBSIDIARIES
                  CONSOLIDATED STATEMENT OF EARNINGS
                            (In Thousands)

                                                     Year ended December 31,
                                                  1996        1995        1994

Income:
  Property and casualty insurance premiums  $2,844,512  $2,648,703  $1,378,628
  Life, accident and health premiums           103,552      15,691       2,231
  Investment income                            845,330     749,510     582,931
  Realized gains (losses) on sales of
    securities                                  (3,470)     84,028      48,342
  Equity in net earnings (losses) of
    investee corporations                      (16,955)     15,237     (16,573)
  Gains on sales of investee corporations      169,138         335       1,694
  Gains on sales of subsidiaries                36,837        -           -
  Other income                                 134,904     114,602     107,051
                                             4,113,848   3,628,106   2,104,304

Costs and Expenses:
  Property and casualty insurance:
    Losses and loss adjustment expenses      2,131,421   1,977,395     986,996
    Commissions and other underwriting
      expenses                                 793,800     707,340     428,590
  Annuity benefits                             271,821     254,650     241,811
  Life, accident and health benefits            92,315      13,202       1,524
  Interest charges on borrowed money            86,148     122,568     115,162
  Minority interest expense                     56,309      28,165       8,903
  Book Value Incentive Plan                       -           -         34,740
  Other operating and general expenses         344,052     272,888     243,010
                                             3,775,866   3,376,208   2,060,736
  Earnings before income taxes and
  extraordinary items                          337,982     251,898      43,568
Provision for income taxes                      89,658      56,447      24,650

Earnings before extraordinary items            248,324     195,451      18,918

Extraordinary items - gain (loss) on
  prepayment of debt                           (26,328)      1,832     (16,818)

Net Earnings                                $  221,996  $  197,283  $    2,100



See notes to consolidated financial statements.


                                F-3
<PAGE>
           AMERICAN FINANCIAL CORPORATION AND SUBSIDIARIES
        CONSOLIDATED STATEMENT OF CHANGES IN CAPITAL ACCOUNTS
                            (In Thousands)

<TABLE>
<CAPTION>
                                          Capital      Other                                            Net
                                       Subject to  Preferred    Common     Capital   Retained   Unrealized
                                       Redemption      Stock     Stock     Surplus   Earnings         Gain
<S>                                      <C>       <C>         <C>       <C>        <C>          <C>
Balance at December 31, 1993              $49,232   $168,588    $  904    $   -      $210,846     $156,900

Net earnings                                 -          -         -           -         2,100         -
Change in unrealized                         -          -         -           -          -        (153,400)
Dividends on:
  Preferred Stock                            -          -         -           -       (25,728)        -
  Common Stock                               -          -         -           -        (3,794)        -
Purchases and redemptions                  (6,625)      (104)     -           -           (56)        -
Decrease in capital subject to
  put option                               (7,225)      -         -           -         7,225         -
Transfer from capital subject
  to put option                           (32,502)      -         -           -        32,502         -
Balance at December 31, 1994                2,880    168,484       904        -       223,095        3,500

Adjustment for pooling of
  interests at April 3, 1995                 -          -         -        454,969       -           2,400
Net earnings                                 -          -         -           -       197,283         -
Change in unrealized                         -          -         -           -          -         234,600
Exercise of stock options                    -          -        8,721        -          -            -
Dividends on:
  Preferred Stock                            -          -         -           -       (25,397)        -
  Common Stock                               -          -         -           -       (29,855)        -
Purchases and redemptions                  (2,880)      -         -           -          -            -
Capital contribution from parent             -          -         -          9,333       -            -
Change in foreign currency translation       -          -         -             64       -            -
Balance at December 31, 1995                 -       168,484     9,625     464,366    365,126      240,500

Net earnings                                 -          -         -           -       221,996         -
Change in unrealized                         -          -         -           -          -         (57,100)
Dividends on:
  Preferred Stock                            -          -         -           -       (24,898)        -
  Common Stock                               -          -         -           -      (560,860)        -
Purchases and redemptions                    -       (22,524)     -        (14,388)      -            -
Sale of preferred shares to
  employee benefit plan                      -        16,800      -           -          -            -
Capital contribution from parent             -          -         -        468,666       -            -
Change in foreign currency translation       -          -         -          1,102       -            -
Balance at December 31, 1996              $  -      $162,760    $9,625    $919,746   $  1,364     $183,400
</TABLE>



See notes to consolidated financial statements.

                                F-4
<PAGE>
           AMERICAN FINANCIAL CORPORATION AND SUBSIDIARIES
                 CONSOLIDATED STATEMENT OF CASH FLOWS
                            (In Thousands)

<TABLE>
<CAPTION>
                                                          Year ended December 31,
Operating Activities:                                  1996         1995         1994
<S>                                             <C>          <C>          <C>
  Net earnings                                   $  221,996   $  197,283   $    2,100
  Adjustments:
    Extraordinary items                              26,328       (1,832)      16,818
    Depreciation and amortization                    79,425       47,760       30,729
    Annuity benefits                                271,821      254,650      241,811
    Equity in net (earnings) losses of
      investee corporations                          16,955      (15,237)      16,573
    Changes in reserves on assets                     5,656        2,302       17,094
    Realized gains on investing activities         (198,676)     (84,995)     (59,609)
    Decrease (increase) in reinsurance and
      other receivables                              95,553       25,781     (223,113)
    Decrease (increase) in other assets              23,665      (10,955)     (96,596)
    Increase in insurance claims and reserves         9,171      137,180      345,542
    Increase (decrease) in other liabilities       (211,697)    (255,404)      67,799
    Increase in minority interest                    53,894       18,989        6,773
    Dividends from investees                          4,799        9,568       21,567
    Other, net                                       (3,989)      (1,233)      (1,488)
                                                    394,901      323,857      386,000
Investing Activities:
  Purchases of and additional investments in:
    Fixed maturity investments                   (2,128,015)  (2,378,427)  (1,726,318)
    Equity securities                               (10,528)      (1,034)      (7,315)
    Investees and subsidiaries                         -         (68,591)     (29,306)
    Real estate, property and equipment             (38,035)     (42,579)     (27,185)
  Maturities and redemptions of fixed maturity 
    investments                                     615,849      308,526      420,945
  Sales of:
    Fixed maturity investments                      881,114    2,310,837      694,947
    Equity securities                                53,195       17,379      127,181
    Investees and subsidiaries                      284,277         -          27,621
    Real estate, property and equipment               7,981       27,759        6,151
  Cash and short-term investments of acquired
    (former) subsidiary                              (4,589)     392,100         -
  Decrease (increase) in other investments              594       (7,326)      (5,571)
                                                   (338,157)     558,644     (518,850)
<PAGE>
Financing Activities:
  Annuity receipts                                  573,741      457,525      442,703
  Annuity payments                                 (517,881)    (412,854)    (321,038)
  Additional long-term borrowings                   288,775      337,076      244,311
  Reductions of long-term debt                     (582,288)  (1,061,187)    (193,481)
  Borrowings from AFG                               152,471      102,202         -
  Payments to AFG                                   (61,000)     (18,174)        -
  Issuance of preferred stock                        16,800         -            -
  Repurchases of preferred stock                    (36,912)      (2,880)      (6,738)
  Exercise of stock options                            -           8,721         -
  Issuance of trust originated preferred
    securities                                       72,412         -            -
  Capital contribution                               18,666        9,333         -
  Cash dividends paid                               (24,898)     (25,397)     (29,522)
                                                   (100,114)    (605,635)     136,235

Net Increase (Decrease) in Cash and Short-term
    Investments                                     (43,370)     276,866        3,385
Cash and short-term investments at beginning
  of period                                         448,201      171,335      167,950
Cash and short-term investments at end of
  period                                         $  404,831   $  448,201   $  171,335

See notes to consolidated financial statements.
                                F-5
<PAGE>
           AMERICAN FINANCIAL CORPORATION AND SUBSIDIARIES

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


_______________________________________________________________________

                            INDEX TO NOTES

   A. Mergers                                   I. Other Long-Term Debt
   B. Accounting Policies                       J. Preferred Stock
   C. Acquisitions and Sales of Subsidiaries    K. Common Stock
        and Investees                           L. Income Taxes
   D. Segments of Operations                    M. Extraordinary Items
   E. Investments                               N. Commitments and Contingencies
   F. Investment in Investee Corporations       O. Quarterly Operating Results
   G. Cost in Excess of Net Assets Acquired     P. Insurance
   H. Payable to American Financial Group, Inc. Q. Additional Information

_______________________________________________________________________

A. Mergers  On April 3, 1995, American Financial Corporation
   ("AFC") merged with a newly formed subsidiary of American
   Financial Group, Inc. ("AFG"), a new company formed to own
   100% of the common stock of both AFC and American Premier
   Underwriters, Inc. ("American Premier").  In the transaction,
   Carl H. Lindner and members of his family, who owned 100% of
   the Common Stock of AFC, exchanged their AFC Common Stock for
   approximately 55% of American Financial Group voting common
   stock.  Former shareholders of American Premier, including
   AFC and its subsidiaries, received shares of American
   Financial Group stock on a one-for-one basis.  No gain or
   loss was recorded on the exchange of shares.

   AFC continues to be a separate SEC reporting company with
   publicly traded debentures and preferred stock.  Holders of
   AFC Series F and G Preferred Stock were granted voting rights
   equal to approximately 21% of the total voting power of AFC
   shareholders immediately prior to the Mergers.

   At the close of business on December 31, 1996, AFG
   contributed to AFC 81% of the common stock of American
   Premier.  Since AFC and American Premier are under the common
   control of AFG, the acquisition of American Premier has been
   recorded by AFC at AFG's historical cost in a manner similar
   to a pooling of interests.  Accordingly, the historical
   consolidated financial statements of AFC for periods
   subsequent to the April 3, 1995 Mergers have been restated to
   include the accounts of American Premier.  The following
<PAGE>   
   table (in millions) reconciles revenue and net earnings
   previously reported by AFC and American Premier to those
   reported in AFC's Statement of Earnings.

                                       Nine Months Ended      Year Ended
                                      September 30, 1996     December 31,
                                              (Unaudited)           1995
   Revenues as previously reported:             
       AFC                                        $2,096          $2,384
       American Premier                            1,236           1,736
                                                   3,332           4,120
    Eliminations(*)                                 (106)           (492)
    Restated revenues                             $3,226          $3,628

    Net earnings as previously reported:
       AFC                                        $  142          $  138
       American Premier                              122              62
                                                     264             200
    Eliminations(*)                                  (33)             (3)
    Restated net earnings                         $  231          $  197

    (*)  Represents adjustments to (i) eliminate intercompany
         transactions between AFC and American Premier, (ii)
         eliminate American Premier's first quarter 1995 results
         prior to the Mergers and (iii) reflect American Premier's
         results on AFG's basis.

                                F-6
<PAGE>
           AMERICAN FINANCIAL CORPORATION AND SUBSIDIARIES

        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
          
          
B. Accounting Policies

   Basis of Presentation  The consolidated financial statements
   include the accounts of AFC and its subsidiaries.  Mergers and
   changes in ownership levels of subsidiaries and affiliates
   have resulted in certain differences in the financial
   statements and have affected comparability between years.
   Certain reclassifications have been made to prior years to
   conform to the current year's presentation.  All significant
   intercompany balances and transactions have been eliminated.
   All acquisitions have been treated as purchases.  The results
   of operations of companies since their formation or
   acquisition are included in the consolidated financial
   statements.

   The preparation of the financial statements in conformity with 
   generally accepted accounting principles requires management to
   make estimates and assumptions that affect the amounts
   reported in the financial statements and accompanying notes.
   Changes in circumstances could cause actual results to differ
   materially from those estimates.

   AFC's ownership of subsidiaries and significant affiliates
   with publicly traded shares at December 31, was as follows:

                                                       1996   1995   1994
      American Annuity Group, Inc. ("AAG")               81%    81%    80%
      American Financial Enterprises, Inc. ("AFEI")      83%    83%    83%
      American Premier Underwriters, Inc.                81%    (a)    42%
      Chiquita Brands International, Inc.                43%    44%    46%
      Citicasters Inc.                                   (b)    38%    37%

      (a) Exchanged for shares of American Financial Group in April 1995.
      (b) Sold in September 1996.

   Investments  Debt securities are classified as "held to
   maturity" and reported at amortized cost if AFC has the
   positive intent and ability to hold them to maturity.  Debt
   and equity securities are classified as "available for sale"
   and reported at fair value with unrealized gains and losses
   reported as a separate component of shareholders' equity if
   the securities are not classified as held to maturity or
   bought and held principally for selling in the near term.
   Only in certain limited circumstances, such as significant
   issuer credit deterioration or if required by insurance or
   other regulators, may a company change its intent to hold a
   certain security to maturity without calling into question its
   intent to hold other debt securities to maturity in the
   future.
<PAGE>
   Premiums and discounts on mortgage-backed securities are
   amortized over their expected average lives using the interest
   method.  Gains or losses on sales of securities are recognized
   at the time of disposition with the amount of gain or loss
   determined on the specific identification basis.  When a
   decline in the value of a specific investment is considered to
   be other than temporary, a provision for impairment is charged
   to earnings and the carrying value of that investment is
   reduced.

   Short-term investments are carried at cost; loans receivable
   are stated primarily at the aggregate unpaid balance.

   Investment in Investee Corporations  Investments in securities
   of 20%- to 50%-owned companies are carried at cost, adjusted
   for AFC's proportionate share of their undistributed earnings
   or losses.  Investments in less than 20%-owned companies are
   accounted for by the equity method when, in the opinion of
   management, AFC can exercise significant influence over
   operating and financial policies of the investee.

                                F-7
<PAGE>
           AMERICAN FINANCIAL CORPORATION AND SUBSIDIARIES

      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


   Cost in Excess of Net Assets Acquired  The excess of cost of
   subsidiaries and investees over AFC's equity in the underlying
   net assets ("goodwill") is being amortized over 40 years.  The
   excess of AFC's equity in the net assets of other subsidiaries
   and investees over its cost of acquiring these companies
   ("negative goodwill") is allocated to AFC's basis in these
   companies' fixed assets, goodwill and other long-term assets
   and is amortized on a 10- to 40-year basis.

   Insurance  As discussed under "Reinsurance" below, unpaid
   losses and loss adjustment expenses and unearned premiums have
   not been reduced for reinsurance recoverable.

   Reinsurance  In the normal course of business, AFC's insurance
   subsidiaries cede reinsurance to other companies to diversify
   risk and limit maximum loss arising from large claims.  To the
   extent that any reinsuring companies are unable to meet
   obligations under the agreements covering reinsurance ceded,
   AFC's insurance subsidiaries would remain liable.  Amounts
   recoverable from reinsurers are estimated in a manner
   consistent with the claim liability associated with the
   reinsurance policies.  AFC's insurance subsidiaries report as
   assets (a) the estimated reinsurance recoverable on unpaid
   losses, including an estimate for losses incurred but not
   reported, and (b) amounts paid to reinsurers applicable to the
   unexpired terms of policies in force.  AFC's insurance
   subsidiaries also assume reinsurance from other companies.
   Income on reinsurance assumed is recognized based on reports
   received from ceding reinsurers.

   Deferred Acquisition Costs  Policy acquisition costs
   (principally commissions, premium taxes and other underwriting
   expenses) related to the production of new business are
   deferred ("DPAC").  For the property and casualty companies,
   the deferral of acquisition costs is limited based upon their
   recoverability without any consideration for anticipated
   investment income.  DPAC is charged against income ratably
   over the terms of the related policies.  For the annuity
   companies, DPAC is amortized, with interest, in relation to
   the present value of expected gross profits on the policies.
<PAGE>
   Unpaid Losses and Loss Adjustment Expenses  The net
   liabilities stated for unpaid claims and for expenses of
   investigation and adjustment of unpaid claims are based upon
   (a) the accumulation of case estimates for losses reported
   prior to the close of the accounting period on the direct
   business written; (b) estimates received from ceding
   reinsurers and insurance pools and associations; (c) estimates
   of unreported losses based on past experience; (d) estimates
   based on experience of expenses for investigating and
   adjusting claims and (e) the current state of the law and
   coverage litigation.  These liabilities are subject to the
   impact of changes in claim amounts and frequency and other
   factors.  In spite of the variability inherent in such
   estimates, management believes that the liabilities for unpaid
   losses and loss adjustment expenses are adequate. Changes in
   estimates of the liabilities for losses and loss adjustment
   expenses are reflected in the Statement of Earnings in the
   period in which determined.
                                F-8
<PAGE>
           AMERICAN FINANCIAL CORPORATION AND SUBSIDIARIES

        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


   Annuity Benefits Accumulated  Annuity receipts and benefit
   payments are recorded as increases or decreases in "annuity
   benefits accumulated" rather than as revenue and expense.
   Increases in this liability for interest credited are charged
   to expense and decreases for surrender charges are credited to
   other income.

   Life, Accident and Health Reserves  Liabilities for future
   policy benefits under traditional ordinary life, accident and
   health policies are computed using a net level premium method.
   Computations are based on anticipated investment yield
   (primarily 7%), mortality, morbidity and surrenders and
   include provisions for unfavorable deviations.  Reserves are
   modified as necessary to reflect actual experience and
   developing trends.

   Assets Held In and Liabilities Related to Separate Accounts
   Investment annuity deposits and related liabilities represent
   primarily deposits maintained by several banks under a
   previously offered tax-deferred annuity program.  AAG receives
   an annual fee from each bank for sponsoring the program; if
   depositors elect to purchase an annuity from AAG, funds are
   transferred to AAG.

   Premium Recognition  Property and casualty premiums are earned
   over the terms of the policies on a pro rata basis.  Unearned
   premiums represent that portion of premiums written which is
   applicable to the unexpired terms of policies in force.  On
   reinsurance assumed from other insurance companies or written
   through various underwriting organizations, unearned premiums
   are based on reports received from such companies and
   organizations.  For traditional life, accident and health
   products, premiums are recognized as revenue when legally
   collectible from policyholders.  For interest-sensitive life
   and universal life products, premiums are recorded in a
   policyholder account which is reflected as a liability.
   Revenue is recognized as amounts are assessed against the
   policyholder account for mortality coverage and contract
   expenses.

   Policyholder Dividends  Dividends payable to policyholders are
   included in "Accounts payable, accrued expenses and other
   liabilities" and represent estimates of amounts payable on
   participating policies which share in favorable underwriting
   results.  The estimate is accrued during the period in which
   the related premium is earned.  Changes in estimates are
   included in income in the period determined.  Policyholder
   dividends do not become legal liabilities unless and until
   declared by the boards of directors of the insurance
   companies.
<PAGE>   
   Income Taxes  AFC and American Premier have each filed
   consolidated federal income tax returns which include all
   80%-owned U.S. subsidiaries, except for certain life insurance
   subsidiaries and their subsidiaries.  Because voting rights
   aggregating 21% were extended to holders of AFC Series F and G
   Preferred Stock in connection with the Mergers, AFC filed a
   separate consolidated return for 1995 and will again for 1996.
   At the close of business on December 31, 1996, AFG contributed
   81% of the common stock of American Premier to AFC.
   Accordingly, AFC and American Premier will file a consolidated
   return for 1997.

   Deferred income taxes are calculated using the liability
   method.  Under this method, deferred income tax assets and
   liabilities are determined based on differences between
   financial reporting and tax bases and are measured using
   enacted tax rates.  Deferred tax assets are recognized if it
   is more likely than not that a benefit will be realized.
 
                                F-9
<PAGE>
           AMERICAN FINANCIAL CORPORATION AND SUBSIDIARIES

        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

   
   Benefit Plans  AFC provides retirement benefits, to qualified
   employees of participating companies through contributory and
   noncontributory defined contribution plans.  Contributions to
   benefit plans are charged against earnings in the year for
   which they are declared.  Both AFC and American Premier had
   contributory employee savings plans and noncontributory 
   Employee Stock Ownership Retirement Plans ("ESORP").  Under 
   one of the savings plans, American Premier matched a specified
   portion of employee contributions.  Under the ESORP plans, 
   contributions are invested in securities of AFG and affiliates
   for the benefit of their employees.  In 1997, these ESORP plans
   were combined into a new plan.
    

   AFC and many of its subsidiaries provide health care and life
   insurance benefits to eligible retirees.  AFC also provides
   postemployment benefits to former or inactive employees
   (primarily those on disability) who were not deemed retired
   under other company plans.  The projected future cost of
   providing these benefits is expensed over the period the
   employees qualify for such benefits.

   In connection with the Mergers, full vesting was granted to
   holders of units under AFC's Book Value Incentive Plan and the
   plan was terminated.  Cash payments, which were made in April
   1995 to holders of the units, were accrued at December 31,
   1994.

   
   Minority Interest  For balance sheet purposes, minority
   interest represents (i) the interests of noncontrolling
   shareholders in AFC subsidiaries including $75 million of
   trust originated preferred securities ("TOPrS") issued by a
   trust subsidiary of AAG and (ii) AFG's direct ownership
   interest in American Premier.  For income statement purposes,
   minority interest expense represents those shareholders' 
   interest in the earnings of AFC subsidiaries as well as accrued
   distributions on the TOPrS.
    

   Statement of Cash Flows  For cash flow purposes, "investing
   activities" are defined as making and collecting loans and
   acquiring and disposing of debt or equity instruments and
   property and equipment.  "Financing activities" include
   obtaining resources from owners and providing them with a
   return on their investments, borrowing money and repaying
   amounts borrowed.  Annuity receipts, benefits and withdrawals
   are also reflected as financing activities.  All other
   activities are considered "operating".  Short-term investments
   having original maturities of three months or less when
   purchased are considered to be cash equivalents for purposes
   of the financial statements.

<PAGE>
   Fair Value of Financial Instruments  Methods and assumptions
   used in estimating fair values are described in Note Q to the
   financial statements.  These fair values represent point-in-
   time estimates of value that might not be particularly
   relevant in predicting AFC's future earnings or cash flows.
                                F-10
<PAGE>
           AMERICAN FINANCIAL CORPORATION AND SUBSIDIARIES

        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


C. Acquisitions and Sales of Subsidiaries and Investees

   Citicasters  In September 1996, AFC sold its investment in
   Citicasters to Jacor Communications for approximately
   $220 million in cash plus warrants to purchase Jacor common
   stock.  AFC realized a pretax gain of approximately
   $169 million, before minority interest of $6.5 million, on
   the sale.  In 1994, AFEI purchased approximately 10% of
   Citicasters common stock from an unaffiliated company for
   $23.9 million in cash.

   Buckeye  In March 1996, American Premier sold Buckeye
   Management Company to Buckeye's management (including an AFG
   director who resigned in March 1996) and employees for $60
   million in cash, net of transaction costs.  AFC recognized a
   $33.9 million pretax gain on the sale.

   General Cable  In 1994, AFC sold its investment in General
   Cable common stock to an unaffiliated company for
   $27.6 million in cash.  AFC realized a $1.7 million pretax
   gain on the sale (excluding its share of American Premier's
   loss on its sale of General Cable securities).

D. Segments of Operations  AFC operates its property and
   casualty insurance business in three major segments:
   nonstandard automobile, specialty lines, and commercial and
   personal lines.  AFC's annuity and life business primarily
   sells tax-deferred annuities to employees of primary and
   secondary educational institutions and hospitals.  These
   insurance businesses operate throughout the United States.
   In addition, AFC has owned significant portions of the voting
   equity securities of certain companies (investee corporations
   - see Note F).
                                F-11
<PAGE>
           AMERICAN FINANCIAL CORPORATION AND SUBSIDIARIES

        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


   The following tables (in thousands) show AFC's assets, revenues
   and operating profit (loss) by significant business segment.
   Capital expenditures, depreciation and amortization are not
   significant.  Operating profit (loss) represents total revenues
   less operating expenses.  Goodwill and its amortization have
   been allocated to the various segments to which they apply.
   General corporate assets and expenses have not been identified
   or allocated by segment.
                                              1996          1995          1994
   Assets
   Property and casualty insurance (a) $ 7,116,088   $ 7,443,115   $ 4,576,591
   Annuities and life                    7,009,127     6,600,377     5,078,928
   Other                                   674,297       501,417       104,495
                                        14,799,512    14,544,909     9,760,014
   Investment in investee corporations     199,651       306,545       832,637

                                       $14,999,163   $14,851,454   $10,592,651

   Revenues (b)
   Property and casualty insurance:
     Premiums earned:
       Nonstandard automobile          $ 1,183,098   $   954,210   $    24,974
       Specialty lines                     976,150       995,528       698,365
       Commercial and personal lines       684,776       697,512       648,222
       Other lines                             488         1,453         7,067
                                         2,844,512     2,648,703     1,378,628
     Investment and other income           500,897       465,998       314,731
                                         3,345,409     3,114,701     1,693,359
   Annuities and life (c)                  585,079       444,082       379,534
   Other                                   200,315        54,086        47,984
                                         4,130,803     3,612,869     2,120,877
   Equity in net earnings (losses)
     of investee corporations              (16,955)       15,237       (16,573)

                                       $ 4,113,848   $ 3,628,106   $ 2,104,304
<PAGE>
   Operating Profit (Loss)
   Property and casualty insurance:
     Underwriting:
       Nonstandard automobile          $     1,015  ($    60,316) ($     3,080)
       Specialty lines                     154,329        50,690       (12,598)
       Commercial and personal lines       (72,513)        5,315         7,087
       Other lines (d)                    (163,540)      (31,721)      (24,914)
                                           (80,709)      (36,032)      (33,505)
     Investment and other income           359,002       357,617       199,292
                                           278,293       321,585       165,787
   Annuities and life                       77,119        79,579        58,748
   Other (e)                                  (475)     (164,503)     (164,394)
                                           354,937       236,661        60,141
   Equity in net earnings (losses) of
     investee corporations                 (16,955)       15,237       (16,573)

                                       $   337,982   $   251,898   $    43,568

   (a)  Not allocable to segments.
   (b)  Revenues include sales of products and services as well as other income
        earned by the respective segments.
   (c)  Represents primarily investment income.
   (d)  Represents primarily losses related to asbestos and
        other environmental matters ("A&E").
   (e)  Includes holding company expenses.
                                F-12
<PAGE>

           AMERICAN FINANCIAL CORPORATION AND SUBSIDIARIES

        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


E. Investments  Bonds, redeemable preferred stocks and other stocks
   at December 31, consisted of the following (in millions):

                                                     1996
                                               Held to Maturity
                                   Amortized     Market      Gross Unrealized
                                        Cost      Value      Gains     Losses

   Bonds and redeemable
    preferred stocks:
     United States Government
      and government agencies
      and authorities               $     -    $     -       $  -       $  -
     States, municipalities and
      political subdivisions            80.0       79.9        1.1       (1.2)
     Foreign government                  8.5        9.0         .5         -
                                                   
                                                     
                                                     
     Public utilities                  501.4      501.4        6.4       (6.4)
     Mortgage-backed securities        935.9      949.0       18.8       (5.7)
     All other corporate             1,965.3    1,988.8       34.8      (11.3)
     Redeemable preferred stocks        -          -            -          -
                                    $3,491.1   $3,528.1      $61.6     ($24.6)

   Other stocks

                                                     1996
                                               Available for Sale
                                   Amortized     Market      Gross Unrealized
                                        Cost      Value      Gains     Losses
   Bonds and redeemable
    preferred stocks:
     United States Government
      and government agencies
      and authorities               $  472.2   $  475.7     $  7.3     ($ 3.8)
     States, municipalities and
      political subdivisions            39.6       39.7         .5        (.4)
     Foreign government                 94.5       94.3         .8       (1.0)
     Public utilities                  443.8      453.6       13.1       (3.3)
     Mortgage-backed securities      1,626.3    1,637.9       28.1      (16.5)
     All other corporate             3,624.4    3,733.0      122.2      (13.6)
     Redeemable preferred stocks        61.8       60.4        1.5       (2.9)
                                    $6,362.6   $6,494.6     $173.5     ($41.5)

   Other stocks                     $  142.4   $  327.7     $191.6     ($ 6.3)

<PAGE>                    
                                                     1995
                                                 Held to Maturity
                                   Amortized     Market      Gross Unrealized
                                        Cost      Value      Gains     Losses
   Bonds and redeemable
    preferred stocks:
     United States Government
       and government agencies
       and authorities              $     -    $     -      $   -        $  -
     States, municipalities and
       political subdivisions           55.0       56.6        1.7         (.1)
     Foreign government                 13.1       12.8        1.0        (1.3)
     Public utilities                  528.8      545.3       17.7        (1.2)
     Mortgage-backed securities        945.7      980.3       35.3         (.7)
     All other corporate             2,042.1    2,129.8       87.8         (.1)
     Redeemable preferred stocks         4.2        4.5         .3          -
                                    $3,588.9   $3,729.3     $143.8      ($ 3.4)

   Other stocks

                                                     1995
                                               Available for Sale
                                   Amortized     Market      Gross Unrealized
                                        Cost      Value      Gains     Losses
   Bonds and redeemable
    preferred stocks:
     United States Government
       and government agencies
       and authorities              $  413.9   $  431.3     $ 17.5      ($  .1)
     States, municipalities and
       political subdivisions           20.6       20.3         .3         (.6)
     Foreign government                 87.5       89.9        2.4          -
     Public utilities                  561.3      591.0       32.3        (2.6)
     Mortgage-backed securities      1,373.2    1,407.8       40.7        (6.1)
     All other corporate             3,087.1    3,304.3      219.8        (2.6)
     Redeemable preferred stocks       104.5      104.7        1.9        (1.7)
                                    $5,648.1   $5,949.3     $314.9      ($13.7)

   Other stocks                     $  136.9   $  252.2     $115.9      ($  .6)
<PAGE>

   The table below sets forth the scheduled maturities of bonds and
   redeemable preferred stocks based on carrying value as of
   December 31, 1996.  Data based on market value is generally the
   same.  Mortgage-backed securities had an average life of
   approximately 7.5 years at December 31, 1996.

                                                  Held to   Available
            Maturity                             Maturity    for Sale
          One year or less                             6%          2%
          After one year through five years           27          17
          After five years through ten years          36          41
          After ten years                              4          15
                                                      73          75
          Mortgage-backed securities                  27          25
                                                     100%        100%

   Certain risks are inherent in connection with fixed maturity
   securities, including loss upon default, price volatility in
   reaction to changes in interest rates, and general market
   factors and risks associated with reinvestment of proceeds
   due to prepayments or redemptions in a period of declining
   interest rates.

                                 F-13
<PAGE>
           AMERICAN FINANCIAL CORPORATION AND SUBSIDIARIES

        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


   Realized gains (losses) and changes in unrealized appreciation
   (depreciation) on fixed maturity and equity security investments
   are summarized as follows (in thousands):

                                 Fixed      Equity        Tax    
                            Maturities  Securities    Effects       Total
     1996
     Realized                ($ 16,545)    $13,075   $  8,199    $  4,729
     Change in Unrealized     (272,583)     70,000     70,904    (131,679)

     1995
     Realized                   77,963       6,065    (13,915)     70,113
     Change in Unrealized      810,690      43,700   (288,001)    566,389

     1994
     Realized                   (1,107)     49,449         30      48,372
     Change in Unrealized     (673,001)    (60,500)   256,725    (476,776)

   Transactions in fixed maturity investments included in the
   Statement of Cash Flows consisted of the following (in millions):

                                    Maturities
                                           and              Gross    Gross
                        Purchases  Redemptions      Sales   Gains   Losses
     1996
     Held to Maturity    $  202.2       $331.0   $    9.3   $ 2.4   ($ 1.2)
     Available for Sale   1,925.8        284.8      871.8    29.6    (47.3)
          Total          $2,128.0       $615.8   $  881.1   $32.0   ($48.5)

     1995
     Held to Maturity    $  774.8       $175.2   $   12.9   $ 1.9   ($ 2.3)
     Available for Sale   1,603.6        133.3    2,297.9    88.0     (9.6)
          Total          $2,378.4       $308.5   $2,310.8   $89.9   ($11.9)

     1994
     Held to Maturity    $1,090.0       $216.0   $    8.0   $ 3.3   ($ 2.5)
     Available for Sale     636.3        204.9      686.9     9.4    (11.3)
          Total          $1,726.3       $420.9   $  694.9   $12.7   ($13.8)

   Securities classified as "held to maturity" having an amortized cost of
   $9.5 million, $14.7 million and $8.7 million were sold for a loss of
   $159,000, $1.8 million and $712,000 in 1996, 1995 and 1994,
   respectively, due to significant deterioration in the issuers'
   creditworthiness.

                                F-14
<PAGE>
           AMERICAN FINANCIAL CORPORATION AND SUBSIDIARIES

        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


F. Investment in Investee Corporations  The companies in the
   following table are subject to the rules and regulations of the
   SEC.  The market value of the investments was approximately
   $306 million and $509 million at December 31, 1996 and 1995,
   respectively.  AFC's investment (and common stock ownership
   percentage) and equity in net earnings and losses of investees
   are stated below (dollars in thousands):

</TABLE>
<TABLE>
<CAPTION>
                            Investment (Ownership %)       Equity in Net Earnings (Losses)
                         12/31/96         12/31/95             1996       1995        1994
   <S>                  <C>              <C>               <C>        <C>         <C>
   Chiquita (a)          $199,651 (43%)   $232,466 (44%)   ($18,415)   $ 3,628    ($26,670)
   Citicasters (b)           -              74,079 (38%)      1,460      4,702       8,950
   American Premier(c)       -                -                -         6,907       1,147

                         $199,651         $306,545         ($16,955)   $15,237    ($16,573)
<FN>
   (a) Equity in net earnings (losses) excludes AFC's share of
       extraordinary losses.
   (b) Sold in September 1996.
   (c) Accounted for as an 81% subsidiary beginning on April 3, 1995.
</FN>
</TABLE>
   Chiquita is a leading international marketer, producer and
   distributor of bananas and other quality fresh and processed
   food products.  Citicasters owned and operated radio and
   television stations in major markets throughout the country.
<PAGE>
   Summarized financial information for Chiquita at December 31, is
   shown below (in millions).  See "Investee Corporations" in
   Management's Discussion and Analysis.

                                         Chiquita Brands International, Inc.
                                                   1996     1995     1994
                                           
     Current Assets                              $  844   $  877
     Non-current Assets                           1,623    1,747
     Current Liabilities                            464      510
     Non-current Liabilities                      1,279    1,442
     Shareholders' Equity                           724      672

     Net Sales of Continuing Operations          $2,435   $2,566   $2,506
     Operating Income                                84      176       71
     Income (Loss) from Continuing Operations       (28)      28      (84)
     Discontinued Operations                        -        (11)      35
     Extraordinary Loss from Debt Refinancings      (23)      (8)     (23)
     Net Income (Loss)                              (51)       9      (72)

G. Cost in Excess of Net Assets Acquired  At December 31, 1996 and
   1995, accumulated amortization of the excess of cost over net
   assets of purchased subsidiaries amounted to approximately
   $121 million and $110 million, respectively.  Amortization
   expense was $10.8 million in 1996, $9.2 million in 1995 and
   $6.1 million in 1994.

H. Payable to American Financial Group, Inc.  Following the
   Mergers, American Premier agreed to lend up to $675 million to
   AFC under a line of credit.  Borrowings under the credit line
   bear interest at 11-5/8%.  On December 27, 1996, American
   Premier paid a dividend to AFG which consisted of the
   $675 million note receivable plus accrued interest.
   Subsequently, AFG contributed $450 million of the note to AFC.
   At December 31, 1996, AFC had outstanding borrowings under the
   note of $225.0 million, plus accrued interest of $19.1 million.
                                F-15
<PAGE>  
             AMERICAN FINANCIAL CORPORATION AND SUBSIDIARIES

        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


   Also subsequent to the Mergers, American Premier entered into
   a credit agreement with AFG under which American Premier and
   AFG may make loans of up to $200 million available to each
   other.  The balance outstanding under the credit line bears
   interest at a variable rate of one percent over LIBOR and is
   payable on December 31, 2010.  At December 31, 1996, American
   Premier had outstanding borrowings under the credit agreement
   of $175.5 million, plus accrued interest of $2.5 million.

I. Other Long-Term Debt  Long-term debt consisted of the following at
   December 31, (in thousands):
                                                              
                                                               1996       1995
   American Financial Corporation (Parent Company):
     9-3/4% Debentures due April 2004, less discount of
       $1,146 and $1,249(imputed rate - 9.8%)              $164,368   $302,510
     Other                                                    8,441      8,692

                                                           $172,809   $311,202
                                                           
   American Premier Underwriters, Inc. (Parent Company):
     9-3/4% Subordinated Notes due August 1999,
       including premium of $1,912 and $4,403
       (imputed rate - 8.8%)                               $ 93,604   $161,531
     10-5/8% Subordinated Notes due April 2000,
       including premium of $2,629 and $7,210
       (imputed rate - 8.8%)                                 54,595    120,222
     10-7/8% Subordinated Notes due May 2011,
       including premium of $1,642 and $5,082
       (imputed rate - 9.6%)                                 18,496     55,581
                                                    
                                                           $166,695   $337,334

   
   American Annuity Group, Inc.:
     Notes payable under bank line due September 1999      $ 44,700   $ 20,500
     9-1/2% Senior Notes due August 2001                     40,845     41,490
     11-1/8% Senior Subordinated Notes due February 2003     24,080    101,443
     Other                                                    5,275      4,301

                                                           $114,900   $167,734
    

   Other Subsidiaries:
     Notes payable secured by real estate                  $ 52,543   $ 53,066
     Other                                                   10,972     12,727

                                                           $ 63,515   $ 65,793

                                F-16
<PAGE>
             AMERICAN FINANCIAL CORPORATION AND SUBSIDIARIES

          NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED






   At December 31, 1996, sinking fund and other scheduled
   principal payments on debt for the subsequent five years were
   as follows (in thousands):

                          American
                 Parent    Premier           Other
                Company    (Parent)   Subsidiaries        Total
      1997       $5,616    $  -            $ 2,533     $  8,149
      1998         -          -              2,846        2,846
      1999         -        91,692          47,137      138,829
      2000         -        51,966           8,735       60,701
      2001         -          -             42,304       42,304

   Debentures purchased in excess of scheduled payments may be
   applied to satisfy any sinking fund requirement.  The
   scheduled principal payments shown above assume that
   debentures purchased are applied to the earliest scheduled
   retirements.

   Great American Holding Company ("GAHC"), a wholly-owned
   subsidiary of AFC, and Pennsylvania Company ("Pennco"), a
   wholly-owned subsidiary of American Premier have revolving
   loan agreements with groups of banks under which they can
   borrow up to $300 million and $75 million, respectively.
   Borrowings bear interest at floating rates based on prime or
   LIBOR and are collateralized by certain stock of operating
   subsidiaries.  Each facility is guaranteed by the respective
   immediate parent company.  At December 31, 1996 and 1995,
   there were no outstanding borrowings under either of these
   credit lines.

   
   AAG and AFEI have revolving credit agreements with banks
   under which they can borrow up to $115 million and $20
   million, respectively.  Borrowings bear interest at floating
   rates based on prime or LIBOR and are collateralized.  At
   December 31, 1996 and 1995, the weighted average interest
   rate on amounts borrowed under AAG's bank credit lines was
   6.7% and 6.8%, respectively.  At December 31, 1996 and 1995, 
   there were no outstanding borrowings under the AFEI credit line.
       

   During 1995, AFC redeemed $279 million of its various
   debentures, repaid $187 million of GAHC's bank debt, and
   redeemed $200 million of GAHC's Notes using funds borrowed
   under the AFG line of credit.  Also during 1995, AFC sold an
   aggregate of $100 million of its 9-3/4% debentures due 2004
   for cash.  During 1996, AFC repurchased $138.2 million of its
   9-3/4% debentures for $147.9 million in cash.
<PAGE>
   As the result of the Mergers and a subsequent ratings
   downgrade, holders of American Premier's Notes had the right
   to "put" their Notes to American Premier at face amount.
   Approximately $44 million of the Notes were tendered under
   the put right in 1995.  In addition, American Premier
   repurchased $136 million of the Notes during 1995 for $142.7
   million in cash.

   In a December 1996 tender offer, American Premier retired
   $95.3 million of its Notes for $105.6 million.  In addition,
   American Premier repurchased $64.8 million of its Notes for
   $71.6 million in cash during 1996.

   During 1995, AAG repurchased $4.9 million of its Notes for
   $5.0 million in cash.  During 1996, AAG repurchased
   $78 million of its Notes for $84.2 million in cash.

   Cash interest payments of $83 million, $137 million and
   $115 million were made on long-term borrowings in 1996, 1995
   and 1994, respectively.

                                F-17
<PAGE>
           AMERICAN FINANCIAL CORPORATION AND SUBSIDIARIES

        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


J. Preferred Stock  Under provisions of both the Nonvoting
   (21.1 million shares authorized, including the Mandatory
   Redeemable Preferred Stock) and Voting (17.0 million shares
   authorized, 13.9 million shares outstanding) Cumulative
   Preferred Stock, the Board of Directors may divide the
   authorized stock into series and set specific terms and
   conditions of each series.  The outstanding shares of
   preferred stock consisted of the following:

     Series F, $1 par value - authorized 15,000,000 shares;
     $20.00 liquidating value per share; annual dividends per
     share $1.80; nonredeemable after 1996; 11,900,725 and
     13,744,754 shares (stated value $145.4 million and
     $167.9 million) outstanding at December 31, 1996 and 1995,
     respectively.
     
     Series G, $1 par value - authorized 2,000,000 shares;
     annual dividends per share $1.05; redeemable at $10.50 per
     share; 1,964,158 and 364,158 shares (stated value
     $17.4 million and $600,000) outstanding at December 31,
     1996 and 1995, respectively.

   In December 1996, AFC redeemed 1.6 million shares of its
   Series F Preferred Stock for $31.9 million and, in October,
   AFC purchased 250,000 shares of Series F from AFC's ESORP for
   $5.0 million.  In December 1996, AFC issued 1.6 million
   shares of its Series G Preferred Stock to AFC's ESORP for
   $16.8 million.
   
   During 1995 and 1994, AFC retired issues of its mandatorily
   redeemable preferred stock for an aggregate of $2.9 million
   and $6.6 million, respectively.

K. Common Stock  At December 31, 1996, American Financial Group
   owned all of the outstanding shares of AFC's Common Stock.

                                F-18
<PAGE>
           AMERICAN FINANCIAL CORPORATION AND SUBSIDIARIES

        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


L. Income Taxes  The following is a reconciliation of income
   taxes at the statutory rate of 35% and income taxes as shown
   in the Statement of Earnings (in thousands):
                                         
                                                 1996       1995       1994
    Earnings before income taxes and
      extraordinary items                    $337,982   $251,898   $ 43,568
    Extraordinary items before income taxes   (33,331)     1,551    (17,192)
    Adjusted earnings before income taxes    $304,651   $253,449   $ 26,376

    Income taxes at statutory rate           $106,628   $ 88,707   $  9,232
    Effect of:
      Losses (utilized) not utilized          (43,789)   (40,292)    19,267
      Dividends received deduction             (7,450)    (7,823)    (8,528)
      Minority interest                        18,507      9,533      2,998
      Amortization of intangibles               3,065      3,015      1,987
      Tax exempt interest                        (597)      (897)      (689)
      Foreign income taxes                      3,474        359          6
      State income taxes                        4,140         81        149
      Other                                    (1,323)     3,483       (146)
    Total provision                            82,655     56,166     24,276
    Amounts applicable to
      extraordinary items                       7,003        281        374
    Provision for income taxes as shown
      on the Statement of Earnings           $ 89,658   $ 56,447   $ 24,650


   Adjusted earnings before income taxes consisted of the following
   (in thousands):

                                                 1996       1995       1994

    Subject to tax in:
      United States                          $318,919   $256,417   $ 28,422
      Foreign jurisdictions                   (14,268)    (2,968)    (2,046)

                                             $304,651   $253,449   $ 26,376


   The total income tax provision consists of (in thousands):
                                         
                                                 1996       1995       1994
      Current taxes:
        Federal                              $ 22,450   $ 38,512   $ 21,028
        Foreign                                (1,735)    (1,213)      -
        State                                   6,369        124        226
      Deferred taxes:                                      
        Federal                                55,250     18,191      3,012
        Foreign                                   321        552         10

                                             $ 82,655   $ 56,166   $ 24,276
<PAGE>
   For income tax purposes, certain members of the AFC consolidated
   tax group, including American Premier as of December 31, 1996,
   had the following carryforwards available at December 31, 1996
   (in millions):

                                             Expiring     Amount
                     {                    1997 - 2001       $ 20
      Operating Loss {                    2002 - 2006        126
                     {                    2007 - 2011         93
      Capital Loss                        1997 - 1999        195
      Other - Tax Credits                                     23
                                F-19
<PAGE>
           AMERICAN FINANCIAL CORPORATION AND SUBSIDIARIES

        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


   Deferred income tax assets and liabilities reflect the impact
   of temporary differences between the carrying amounts of
   assets and liabilities recognized for financial reporting
   purposes and the amounts recognized for tax purposes.  The
   significant components of deferred tax assets and liabilities
   for AFC's tax group included in the Balance Sheet at
   December 31, were as follows (in millions):

                                            1996            1995
                                             AFC         AFC   American        
                                             Tax         Tax    Premier        
                                        Group(*)       Group  Tax Group
   Deferred tax assets:
       Net operating loss carryforwards   $ 83.7      $ 93.8     $166.5
       Capital loss carryforwards           68.2          -       108.7
       Insurance claims and reserves       289.8       195.9      102.9
       Other, net                          142.2        41.2       91.3
                                           583.9       330.9      469.4
       Valuation allowance for deferred
         tax assets                       (131.9)      (91.9)    (214.0)
                                           452.0       239.0      255.4
     Deferred tax liabilities:
       Deferred acquisition costs         (124.9)      (89.8)     (31.2)
       Investment securities              (189.8)     (210.8)     (23.8)
                                          (314.7)     (300.6)     (55.0)

     Net deferred tax asset (liability)   $137.3     ($ 61.6)    $200.4
   
     (*) Includes American Premier.
    
   
   The gross deferred tax asset has been reduced by a valuation
   allowance based on an analysis of the likelihood of
   realization.  Factors considered in assessing the need for a
   valuation allowance include: (i) recent tax returns, which
   show neither a history of large amounts of taxable income nor
   cumulative losses in recent years, (ii) opportunities to
   generate taxable income from sales of appreciated assets, and
   (iii) the likelihood of generating larger amounts of taxable
   income in the future.  The likelihood of realizing this asset
   will be reviewed periodically; any adjustments required to
   the valuation allowance will be made in the period in which
   the developments on which they are based become known.  The
   aggregate valuation allowance decreased by $174 million in 
   1996 due primarily to the expiration of American Premier's
   loss carryforwards.
    

   Cash payments for income taxes, net of refunds, were
   $40.2 million, $14.8 million and $30.0 million for 1996, 1995
   and 1994, respectively.
<PAGE>
M. Extraordinary Items  Extraordinary items represent AFC's
   proportionate share of gains and losses related to debt
   retirements by the following companies.  Amounts shown are
   net of minority interest and income tax benefits (in
   thousands):

                                 1996      1995       1994
      AFC (parent)           ($ 9,672)  ($1,713)  ($ 6,454)
      Subsidiaries:
        APU (Parent)           (1,075)    7,102       -
        AAG                    (7,159)     (201)    (1,328)
        GAHC                      -        (611)      -
        Other                      57      -          -
      Investee:
        Chiquita               (8,479)   (2,745)    (9,036)
                             ($26,328)   $1,832   ($16,818)

                                F-20
<PAGE>
           AMERICAN FINANCIAL CORPORATION AND SUBSIDIARIES

        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


N. Commitments and Contingencies  Loss accruals have been recorded
   for various environmental and occupational injury and disease
   claims and other contingencies arising out of the railroad
   operations disposed of by American Premier's predecessor, Penn
   Central Transportation Company ("PCTC"), prior to its bankruptcy
   reorganization in 1978.  Any ultimate liability arising
   therefrom in excess of previously established loss accruals
   would normally be attributable to pre-reorganization events and
   circumstances and accounted for as a reduction in capital
   surplus.  However, under purchase accounting in connection with
   the Mergers, any such excess liability will be charged to
   earnings in AFC's financial statements.

   American Premier's liability for environmental claims
   ($50.1 million at December 31, 1996) consists of a number of
   proceedings and claims seeking to impose responsibility for
   hazardous waste remediation costs at certain railroad sites
   formerly owned by PCTC and certain other sites where hazardous
   waste was allegedly generated by PCTC's railroad operation.  It
   is difficult to estimate remediation costs for a number of
   reasons, including the number and financial resources of other
   potentially responsible parties, the range of costs for
   remediation alternatives, changing technology and the time
   period over which these matters develop.  American Premier's
   liability is based on information currently available and is
   subject to change as additional information becomes available.
   
      
   American Premier's liability for occupational injury and disease
   claims of $70.1 million (included in other liabilities) at 
   December 31, 1996, includes pending and expected claims by former
   employees of PCTC for injury or disease allegedly caused by 
   exposure to excessive noise, asbestos or other substances in the 
   railroad workplace.  Anticipated recoveries of $54.1 million on 
   these liabilities are included in other assets.  Recorded amounts are
   based on the accumulation of estimates of reported and unreported 
   claims and related expenses and estimates of probable recoveries 
   from insurance carriers.
       

   AFC has accrued approximately $41 million at December 31, 1996,
   for environmental costs and certain other matters associated
   with the sales of former operations.
   
   In management's opinion, the outcome of the items discussed
   under "Uncertainties" in Management's Discussion and Analysis of
   this Form 10-K, and the above claims and contingencies will not,
   individually or in the aggregate, have a material adverse effect
   on AFC's financial condition or results of operations.
              
                                F-21
<PAGE>
           AMERICAN FINANCIAL CORPORATION AND SUBSIDIARIES

        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

   
O. Quarterly Operating Results (Unaudited)  The operations of
   certain of AFC's business segments are seasonal in nature.
   While insurance premiums are recognized on a relatively level
   basis, claim losses related to adverse weather (snow, hail,
   hurricanes, tornadoes, etc.) may be seasonal.  Quarterly
   results necessarily rely heavily on estimates.  These
   estimates and certain other factors, such as the nature of
   investees' operations and discretionary sales of assets,
   cause the quarterly results not to be necessarily indicative
   of results for longer periods of time.  See Notes A and C for
   changes in ownership of companies whose revenues are included
   in the consolidated operating results and for the effects of
   gains on sales of subsidiaries and investees in individual
   quarters.  The following are quarterly results of
   consolidated operations for the two years ended December 31,
   1996 (in millions).

                                 1st       2nd       3rd       4th       Total
                               Quarter   Quarter   Quarter   Quarter      Year
   
      1996
      Revenues                $1,030.2  $1,032.8  $1,163.5    $887.3  $4,113.8
      Earnings (loss) before
        extraordinary items       78.5      57.8     119.2      (7.2)    248.3
      Extraordinary items         (7.3)     (9.3)     (8.3)     (1.4)    (26.3)
      Net earnings (loss)         71.2      48.5     110.9      (8.6)    222.0


      1995
      Revenues                  $553.6  $1,006.0  $1,001.8  $1,066.7  $3,628.1
      Earnings before
        extraordinary items       29.9      34.1      53.3      78.2     195.5
      Extraordinary items           -        1.3       2.1      (1.6)      1.8
      Net earnings                29.9      35.4      55.4      76.6     197.3

   In the third quarter of 1996, AFC increased A&E reserves by
   recording a non-cash pretax charge of $80 million.  Realized
   gains (losses) on sales of securities amounted to (in
   millions):
                                 1st       2nd       3rd       4th       Total
                               Quarter   Quarter   Quarter   Quarter      Year
         
      1996                       $18.7      $2.7     $ 3.2    ($28.1)   ($ 3.5)
      1995                         3.5       7.9      23.6      49.0      84.0

P. Insurance  Securities owned by insurance subsidiaries having
   a carrying value of approximately $1.5 billion at
   December 31, 1996, were on deposit as required by regulatory
   authorities.
<PAGE>
   GAI recorded a charge of $19 million (included in "Other
   operating and general expenses") in 1994 in response to the
   California court decision upholding an insurance reform
   measure passed by California voters which led to rate
   rollbacks for most lines of property and casualty insurance.

   Several proposals have been made in recent years to change
   the federal income tax system.  Some proposals included
   changes in the method of treating investment income and tax
   deferred income.  To the extent a new tax law reduces or
   eliminates the tax deferred status of AFC's annuity products,
   that segment could be materially affected.

                                F-22
<PAGE>                          
           AMERICAN FINANCIAL CORPORATION AND SUBSIDIARIES

        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


   Insurance Reserves  The liability for losses and loss
   adjustment expenses for certain long-term scheduled payments
   under workers' compensation, auto liability and other
   liability insurance has been discounted at rates ranging from
   4% to 8%.  As a result, the total liability for losses and
   loss adjustment expenses at December 31, 1996, has been
   reduced by $64 million.

   The following table provides an analysis of changes in the
   liability for losses and loss adjustment expenses, net of
   reinsurance (and grossed up), over the past three years on a
   GAAP basis (in millions):
                                                  1996     1995     1994

     Balance at beginning of period             $3,393   $2,187   $2,113

     Reserves of American Premier at date
       of the Mergers                             -       1,090     -

     Provision for losses and loss adjustment
       expenses occurring in the current year    2,179    2,116    1,027
     Net decrease in provision for claims
       occurring in prior years                    (48)    (139)     (40)
                                                 2,131    1,977      987
     Payments for losses and loss adjustment
       expenses occurring during:
         Current year                             (999)    (987)    (381)
         Prior years                            (1,121)    (874)    (532)
                                                (2,120)  (1,861)    (913)

     Balance at end of period                   $3,404   $3,393   $2,187

     Add back reinsurance recoverables             720      704      730

     Unpaid losses and loss adjustment
       expenses included in Balance Sheet,
       gross of reinsurance                     $4,124   $4,097   $2,917

   Net Investment Income  The following table shows (in millions)
   investment income earned and investment expenses incurred by
   AFC's insurance companies.

                                                  1996     1995     1994
     Insurance group investment income:
       Fixed maturities                         $817.8   $727.3   $560.6
       Equity securities                           8.2      5.3      8.3
       Other                                      13.5      7.9      6.7
                                                 839.5    740.5    575.6
     Insurance group investment expenses (*)     (38.5)   (33.8)   (32.0)
                                                $801.0   $706.7   $543.6

        (*)Included primarily in "Other operating and general
        expenses" in the Statement of Earnings.
                                F-23
<PAGE>
           AMERICAN FINANCIAL CORPORATION AND SUBSIDIARIES

        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


   Statutory Information  AFC's insurance subsidiaries are required
   to file financial statements with state insurance regulatory
   authorities prepared on an accounting basis prescribed or
   permitted by such authorities (statutory basis).  Net earnings and
   policyholders' surplus on a statutory basis for the insurance
   subsidiaries were as follows (in millions):

                                                              Policyholders'
                                            Net Earnings          Surplus
                                      1996   1995     1994      1996    1995 
     Property and casualty companies  $276   $200      $63    $1,659  $1,595
     Life insurance companies           67     76       54       287     273

   Reinsurance  In the normal course of business, AFC's
   insurance subsidiaries assume and cede reinsurance with other
   insurance companies.  The following table shows (in millions)
   (i) amounts deducted from property and casualty premiums in
   connection with reinsurance ceded, (ii) amounts included in
   income for reinsurance assumed and (iii) reinsurance
   recoveries deducted from losses and loss adjustment expenses.

                                             1996    1995    1994
     Reinsurance ceded to:
       Non-affiliates                        $518    $476    $402
       Affiliates                              -       33     161
     Reinsurance assumed - including
       involuntary pools and associations      58      93      83
     Reinsurance recoveries                   306     304     429

Q. Additional Information  Total rental expense for various
   leases of office space, data processing equipment and
   railroad rolling stock was $34 million, $35 million and
   $22 million for 1996, 1995 and 1994, respectively.  Sublease
   rental income related to these leases totaled
   $6.1 million in 1996, $6.2 million in 1995 and $6.4 million
   in 1994.

   Future minimum rentals, related principally to office space
   and railroad rolling stock, required under operating leases
   having initial or remaining noncancelable lease terms in
   excess of one year at December 31, 1996, were as follows:
   1997 - $39 million, 1998 - $32 million, 1999 - $24 million,
   2000 - $15 million, 2001 - $11 million and $18 million
   thereafter.  At December 31, 1996, minimum sublease rentals
   to be received through the expiration of the leases aggregated     
   $21 million.
<PAGE>
   
   Other operating and general expenses included charges for
   possible losses on agents' balances, reinsurance recoverables
   and other receivables in the following amounts:  1996 - $0,
   1995 - $0 and 1994 - $18 million.  The aggregate allowance
   for such losses amounted to approximately $123 million and
   $127 million at December 31, 1996 and 1995, respectively.
    

                                F-24
<PAGE>
           AMERICAN FINANCIAL CORPORATION AND SUBSIDIARIES

        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


   Fair Value of Financial Instruments  The following table
   presents (in millions) the carrying value and estimated fair
   value of AFC's financial instruments at December 31.

                                    1996                  1995
                             Carrying     Fair     Carrying    Fair
                                Value    Value        Value   Value
     Assets:
     Bonds and redeemable
       preferred stocks       $ 9,986  $10,023       $9,538  $9,679
     Other stocks                 328      328          252     252
     Investment in investee
       corporations               200      306          307     509

     Liabilities:
     Annuity benefits
       accumulated            $ 5,366  $ 5,180       $5,052  $4,887
     Long-term debt:                   
       Parent company             173      188          311     325
       APU (parent company)       167      174          337     344
       Other subsidiaries         178      183          234     243
     TOPrS                         75       77          -       -

   When available, fair values are based on prices quoted in the
   most active market for each security.  If quoted prices are
   not available, fair value is estimated based on present
   values, discounted cash flows, fair value of comparable
   securities, or similar methods.  The fair value of the
   liability for annuities in the payout phase is assumed to be
   the present value of the anticipated cash flows, discounted
   at current interest rates.  Fair value of annuities in the
   accumulation phase is assumed to be the policyholders' cash
   surrender amount.

   Financial Instruments with Off-Balance-Sheet Risk  On
   occasion, AFC and its subsidiaries have entered into
   financial instrument transactions which may present off-
   balance-sheet risks of both credit and market risk nature.
   These transactions include commitments to fund loans, loan
   guarantees and commitments to purchase and sell securities or
   loans.  At December 31, 1996, AFC and its subsidiaries had
   commitments to fund credit facilities and contribute limited
   partnership capital totaling $16 million.
<PAGE>
      
   Restrictions on Transfer of Funds and Assets of Subsidiaries
   Payments of dividends, loans and advances by AFC's
   subsidiaries are subject to various state laws, federal
   regulations and debt covenants which limit the amount of
   dividends, loans and advances that can be paid.  Under
   applicable restrictions the maximum amount of dividends
   available to AFC in 1997 from its insurance subsidiaries
   without seeking regulatory clearance is approximately
   $225 million.  Total "restrictions" on intercompany transfers
   from AFC's subsidiaries cannot be quantified due to the
   discretionary nature of the restrictions.
    
      
   Benefit Plans  AFC expensed $16.3 million in 1996, $16.5 million
   in 1995 and $6.2 million in 1994 for contributions to its ESORP
   and employee savings plans.
    
   
   Transactions With Affiliates  In 1995, a subsidiary of AFC
   sold a house to its Chairman for its appraised value of $1.8
   million.

                                F-25

<PAGE>
                           


    Pursuant to the requirements of the Securities Exchange Act of 1934, 
    the Registrant has duly caused this Amendment to be signed on its 
    behalf by the undersigned, duly authorized.

                                     American Financial Corporation


                                     BY: FRED J. RUNK
                                         Fred J. Runk
                                         Senior Vice President and
                                           Treasurer



Dated:  October 29, 1997