SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

              [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

      For the quarterly period ended     September 30, 1996
                                     -------------------------    
                                       
                                       OR
              [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                 For the transition period from ______ to ______

                         Commission file number 0-27736


                             DIGNITY PARTNERS, INC.
             (Exact name of registrant as specified in its charter)

               Delaware                                   94-3165263
    (State or other jurisdiction of                     (I.R.S. Employer
     incorporation or organization)                  Identification Number)

    1700 Montgomery Street, Suite 250
        San Francisco, California                            94111
 (Address of principal executive offices)                  (Zip Code)

                                 (415) 394-9467
              (Registrant's telephone number, including area code)



     Indicate  by check mark  whether the  registrant  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]


     At October 31, 1996, there were 4,291,824 shares of the registrant's Common
Stock outstanding.

<PAGE>

                             DIGNITY PARTNERS, INC.


                                      INDEX

<TABLE>
<CAPTION>


                                                                 Page #
                                                                 ------
<S>                                                              <C>

Part I
------

Item 1.  Financial Statements:

            Consolidated Balance Sheets
                September 30, 1996 and December 31, 1995            1

            Consolidated Statements of Operations for the
                Three Months and Nine Months Ended 
                September 30, 1996 and 1995                         2

            Consolidated Statements of Cash Flows for the
                Nine Months Ended September 30, 1996 and 1995       3

            Condensed Notes to Consolidated 
                Financial Statements                              4 - 9



Item 2.  Management's Discussion and Analysis of Financial
            Condition and Results of Operations                  10 - 14


Part II
-------

Item 6.  Exhibits and Reports on Form 8-K                           15


Signatures                                                          16
----------
</TABLE>

                                       (i)

<PAGE>
                             DIGNITY PARTNERS, INC.

                           CONSOLIDATED BALANCE SHEETS
                    September 30, 1996 and December 31, 1995

<TABLE>
<CAPTION>
                                             September 30,        December 31,
               ASSETS                           1996                 1995
                                         -----------------    -----------------
<S>                                      <C>                  <C>    
Cash and cash equivalents                 $      5,902,318     $     1,056,611
Restricted cash (note 7)                         4,760,644           4,566,845
Marketable securities (note 11)                  2,090,871                  --
Other receivable (note 3)                        1,097,519                  --
Matured policies receivable (note 7)             1,468,947           1,652,921
Assets held for sale (note 4)                   11,887,598                  --
Purchased life insurance policies, 
     net of reserve (note 2 and 5)              35,561,473          48,938,098
Furniture and equipment, net of 
     accumulated depreciation of
     $0 and $61,349, respectively 
     (note 4)                                           --             130,532
Deferred financing costs, net of 
     accumulated amortization of 
     $323,411 and $451,961, 
     respectively (note 5 and 8)                   740,189           1,043,541
IPO financing costs (note 2)                            --             750,000
Other assets                                       140,284              87,079
                                          -----------------    -----------------

     Total assets                         $     63,649,843     $    58,225,627
                                          =================    =================

  LIABILITIES AND STOCKHOLDERS' EQUITY

Accrued expenses                          $        208,271     $       329,827
Accounts payable                                   242,577             377,204
IPO financing costs payable  (note 2)                   --             306,900
Payable to related party (note 2)                       --           1,482,170
Accrued compensation payable (note 2)              164,200             849,148
Unearned income (note 6)                                --             715,883
Payable for policies purchased                      39,774             376,020
Other short term debt (note 2)                          --           1,162,170
Long term notes payable  (note 7)               42,396,219          39,105,138
Other long term debt (note 2 and 8)                     --           1,444,270
Deferred income taxes  (note 9)                      6,000             531,711
                                          -----------------    -----------------

     Total liabilities                          43,057,041          46,680,441
                                          -----------------    -----------------

Minority interest of limited partners 
     in investment partnership
     (note 10)                                          --           6,679,582
                                          -----------------    -----------------
Stockholders' equity:
     Preferred stock, $0.01 par value; 
       2,000,000 authorized shares:
       Convertible Preferred Stock, 
       135,000 authorized shares,
       0 and 34,880 shares, 
       respectively, issued and 
       outstanding (note 2)                             --           3,488,013
     Common stock, $0.01 par value; 
       15,000,000 authorized shares, 
       4,291,824 and 1,589,324 shares, 
       respectively, issued and 
       outstanding (note 2)                         42,918              15,893
     Additional paid-in-capital                 29,404,550             669,594
     Retained earnings (deficit)                (8,854,666)            692,104
                                          -----------------   -----------------

     Total stockholders' equity                 20,592,802           4,865,604
                                          -----------------   -----------------

     Total liabilities and 
       stockholders' equity               $     63,649,843    $     58,225,627
                                          =================   =================
<FN>
     See accompanying condensed notes to consolidated financial statements.

                                       1
</FN>
</TABLE>
<PAGE>
      
                             DIGNITY PARTNERS, INC.

                      CONSOLIDATED STATEMENTS OF OPERATIONS
     For the Three Months and Nine Months Ended September 30, 1996 and 1995
<TABLE>
<CAPTION>
                                  Three Months Ended        Nine Months Ended
                                     September 30,            September 30,
                                    1996        1995        1996         1995
                                ----------- -----------  ----------- -----------
<S>                             <C>         <C>          <C>         <C>     
Income:
  Earned discounts on life 
    insurance policies 
    (note 6)                    $        -- $ 1,780,301  $ 3,697,032 $ 5,117,645
  Earned discounts on prior 
    maturities (note 6)             802,471          --      802,471          --
  Earned discounts on matured 
    policies (note 6)               355,519          --      355,519          -- 
  Interest income                   181,670      85,769      638,583     196,291
  Other                             115,078      64,966      281,728     142,515
                                ----------- -----------  ----------- -----------
    Total income                  1,454,738   1,931,036    5,775,333   5,456,451

Expenses:
  Interest expense                1,065,486     910,387    3,040,424   2,385,291
  Compensation and benefits         318,976     199,168      943,629     544,698
  Other general and 
    administrative expenses         231,244     212,434      898,037     519,331
  Amortization (note 8)             211,786      81,930      391,352     207,321
  Depreciation (note 4)                  --       9,460       19,967      25,257
  Consulting fees                        --          --           --       9,622
  Realized loss on sale of 
    assets (note 3)                 299,718          --      299,718          --
  Provision for loss on sale 
    of assets (note 4)            3,314,498          --    3,314,498          --
  Valuation provision for 
    purchased life insurance 
    policies (note 5)             6,940,189          --    6,940,189          --
                                ----------- -----------  ----------- -----------
    Total expenses               12,381,897   1,413,379   15,847,814   3,691,520
                                ----------- -----------  ----------- -----------

    Income (loss) before 
      income taxes and 
      minority interest         (10,927,159)    517,657  (10,072,481)   1,764,931

Income tax benefit (expense)  
  (note 9)                          893,223   (186,044)      525,711   (466,570)

Minority interest of limited
  partners in earnings of
  investment partnership 
  (note 10)                              --    (84,997)           --   (704,524)
                                ----------- -----------  ----------- -----------

    Net income (loss)         $(10,033,936) $  246,616  $(9,546,770) $   593,837
                                =========== ===========  =========== ===========


Net income (loss) per share
  (note 1)                           (2.34)        0.13       (2.49)        0.31

Weighted average number of 
  shares of common stock and
  common stock equivalents 
  outstanding (note 1)            4,291,824   1,901,870    3,838,548   1,930,283

<FN>
     See accompanying condensed notes to consolidated financial statements.

                                       2

</FN>
</TABLE>

<PAGE>

                             DIGNITY PARTNERS, INC.

                  CONSOLIDATED STATEMENTS OF CASH FLOWS For the
                  Nine Months Ended September 30, 1996 and 1995
<TABLE>
<CAPTION>
                                                      Nine Months Ended
                                                        September 30,
                                                    1996            1995
                                               ---------------  ---------------
<S>                                            <C>              <C>   
Cash flows for operating activities:
  Net income                                   $   (9,546,770)  $      593,837
  Adjustments to reconcile net income to net 
    cash provided by operating activities:
      Depreciation and amortization                   411,319          232,578
      Write-off of furniture and equipment             12,303               --
      Provisions for loss on sale of assets         3,614,217               --
      Valuation provision for purchased life 
        insurance policies                          6,940,189               --
      Earned discounts on insurance policies       (4,855,023)      (5,117,645)
      Purchase of life insurance policies         (23,914,937)     (17,684,027)
      Collections on life insurance policies       13,478,494       10,568,726
      Increase (decrease) in unearned income         (715,883)         193,318
      Increase in other assets                        (53,205)          (4,640)
      Increase (decrease) in deferred taxes          (525,711)         465,752
      Increase (decrease) in accrued expenses        (121,556)         142,084
      Increase (decrease) in accounts payable        (134,627)          69,692
      Increase (decrease) in IPO financing 
        costs payable                                (306,900)         262,579
      Increase (decrease) in payable to 
        related party                              (1,482,170)         402,383
      Increase (decrease) in accrued 
        compensation payable                         (684,948)         258,750
      Income applicable to minority interest               --          704,524
                                               ---------------  ---------------

            Net cash used by operating
              activities                          (17,885,208)      (8,912,089)
                                               ---------------  ---------------

Cash flows from investing activities:
    Proceeds from sale of assets                    4,266,249               --
    Purchase of furniture and equipment                (6,776)         (30,893)
    Additions to restricted cash                     (193,799)      (3,848,555)
    Purchase of marketable securities              (2,090,871)              --
                                               ---------------  ---------------

            Net cash (used for) provided 
              by investing activities               1,974,803       (3,879,448)
                                               ---------------  ---------------


Cash flows from financing activities:
    Proceeds from long term notes payable           6,375,000       35,000,000
    Principal payments on long term notes
      payable                                      (3,083,919)              --
    Proceeds from other long term debt              5,540,132       18,311,070
    Principal payments on other long term 
      debt                                         (6,984,402)     (35,479,288)
    Distribution to limited partners                 (783,313)      (2,720,906)
    Purchase of limited partners' interest 
      in investment partnership                    (5,081,184)              --
    Principal payment on loan from 
      stockholder                                  (1,162,170)              --
    Net proceeds from issuances of 
      common stock                                 25,273,968               --
    Increase in financing costs                       (88,000)        (567,439)
    Increase in IPO financing costs                      --           (322,579)
    Reimbursement of IPO financing costs              750,000               --
                                               ---------------  ---------------


            Net cash provided by financing 
              activities                           20,756,112       14,220,858
                                               ---------------  ---------------


            Net increase in cash and cash 
              equivalents                           4,845,707       1,429,321

Cash and cash equivalents, beginning of 
              period                                1,056,611          30,561
                                               ---------------  ---------------


Cash and cash equivalents, end of period       $    5,902,318   $    1,459,882
                                               ===============  ===============

Supplemental disclosure of cash flow 
    information:

    State taxes paid                           $        6,066   $           --
                                               ===============  ===============

    Cash paid for interest                     $    3,161,981   $       856,359
                                               ===============  ===============

<FN>

     See accompanying condensed notes to consolidated financial statements.

                                       3

</FN>
</TABLE>

<PAGE>

                             DIGNITY PARTNERS, INC.

              CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.   Basis of Presentation

     The unaudited consolidated  financial statements of Dignity Partners,  Inc.
and its  consolidated  entities  ("Dignity  Partners"  or the  "Company")  as of
September 30, 1996 and for the three and nine month periods ended  September 30,
1996  and  1995  have  been  prepared  in  accordance  with  generally  accepted
accounting principles for interim financial information, in accordance with Rule
10-01 of Regulation S-X. Accordingly,  such statements do not include all of the
information  and notes  thereto  that are  included  in the annual  consolidated
financial statements.  In the opinion of management,  all adjustments considered
necessary for a fair presentation have been included.  Operating results for the
nine month period ended  September  30, 1996 are not  indicative  of the results
that may be expected  for the entire 1996 fiscal  year.  See Note 4. The balance
sheet as of  December  31,  1995 has been  derived  from the  audited  financial
statements  of the Company.  The  statements  included  herein should be read in
conjunction with the audited financial  statements and notes thereto included in
the Company's  Annual  Report on Form 10-K for the year ended  December 31, 1995
(the "Form 10-K").

     Net income per share is  calculated  on the primary basis using the average
number of Common Stock and Common Stock  equivalents  outstanding.  Common Stock
equivalents  include  employee  stock  options  and  shares  issuable  upon  the
conversion into Common Stock of outstanding shares of the Company's  Convertible
Cumulative  Pay-in-Kind Preferred Stock (the "Convertible Preferred Stock"). The
outstanding  shares of Convertible  Preferred Stock were not actually  converted
into Common Stock until February 1996. See Note 2.

2.   The Initial Public Offering

     In February  1996, the Company  completed an initial public  offering of an
aggregate of 2,702,500  shares of its Common Stock at the public  offering price
of $12.00 per share.  Of such shares,  2,381,356  shares were issued and sold by
the Company and 321,144  shares  (representing  all shares  issuable  and issued
pursuant to the conversion in full of the Convertible Preferred Stock) were sold
by Bradley  Rotter,  a director  and  Chairman of the Board of  Directors of the
Company.  The Company did not receive any proceeds of the shares sold by Bradley
Rotter.  

                                       4

<PAGE>

     The Company received the following  proceeds from the offering and, through
September  1996,  such  proceeds  had been applied for the  following  purposes:

<TABLE>
<S>                                                     <C>          <C>
Proceeds:
    Proceeds net of underwriters' discount              $26,575,933
    Less offering expenses (a)                            1,301,965
                                                        -----------
  Net proceeds                                                       $25,273,968
                                                                     ===========     
Uses:
    Policy purchases                                    $17,832,821
    Payments to related party (b)                         2,191,007
    Accrued compensation payable (c)                        833,750
    Taxes on accrued and unpaid salaries                     20,187
    Other short term debt (b)                             1,162,170
    Other long term debt                                  3,234,033
                                                        -----------
  Total uses                                                         $25,273,968
                                                                     ===========
                                    
<FN>

(a) Offering expenses include the payoff of IPO financing costs outstanding as 
    of December 31, 1995 and additional expenses incurred through February 1996.
(b) The proceeds were used to eliminate these liabilities outstanding as of
    December 31, 1995 and additional  liabilities incurred through February 
    1996.
(c) Represents  accrued and unpaid  salaries owed to executive  officers of the
    Company for services rendered during 1993, 1994 and the first nine months of
    1995. See the Form 10-K for further information.
</FN>
</TABLE>

     Changes in stockholders' equity during the first nine months of 1996, which
(with the exception of the net loss) are due in large part to the initial public
offering, reflected the following:

<TABLE>                                                 
               <S>                                            <C>
               Stockholders' equity, beginning of period      $   4,865,604
                      Conversion of preferred stock              (3,488,013) (a)
                      Issuance of common stock                       27,025
                      Additional paid-in-capital                 28,734,956
                      Net loss                                   (9,546,770)
                                                                 -----------
                  Stockholders' equity, end of period          $ 20,592,802
                                                                 ===========
<FN>
(a)      As a result of the conversion,  the amount  previously  attributable to
         Convertible  Preferred  Stock  was  transferred  to  common  stock  and
         additional-paid-in capital.
</FN>
</TABLE>

3.   Sale Transaction - August, 1996

     On August 2, 1996,  the Company sold 59 policies  held by Dignity  Viatical
Settlement  Partners,  L.P.  (Dignity  Viatical)  and  2  other  policies  to an
unaffiliated  third  party.  This  transaction  resulted  in a  pre-tax  loss as
follows:

<TABLE>
         <S>                                                  <C>
         Capitalized costs                                    $  4,757,583
         Earned discounts                                        1,641,573
         Unearned discount relating to the purchase of
           Dignity Viatical minority interest (note 10)           (735,670)
                                                              -------------
         Carrying value                                          5,663,486
         Sale proceeds                                           5,363,768
                                                              -------------
         Realized loss on sale of asset                       $   (299,718)
                                                              =============
</TABLE>

                                       5

<PAGE>
       
     Cash collected from this transaction was used for working capital purposes,
including prepaying debt outstanding under the TransAmerica Facility (as defined
herein).  See Note 8. At September  30, 1996,  the Company has recorded an Other
Receivable of  $1,097,519  related to  outstanding  proceeds due from this sale.
Payment of such  receivable  is  expected  during the fourth  quarter of 1996 as
acknowledgments of change in ownership are received from the insurance companies
that issued the sold policies.

4.   Assets Held For Sale

     At the International AIDS Conference held in Vancouver, British Columbia in
July 1996,  the results from a number of studies were reported which appeared to
indicate that treatments  involving a combination of various drugs were reducing
substantially,  and perhaps  eradicating,  the levels of HIV  detectable  in the
blood of a person previously  diagnosed with HIV and AIDS. On July 16, 1996, the
Company  announced  that  it  was  temporarily  ceasing  the  processing  of new
applications to purchase  policies  insuring the lives of individuals  diagnosed
with HIV and AIDS while it further analyzed the effects of such research results
on its business.  In excess of 95% of the Company's  historical  purchases  have
involved policies insuring the lives of individuals  diagnosed with HIV or AIDS.
The  Company  continues  to analyze  the  effects of such  research  results and
subsequently  reported  data from  scientific  studies on its  business  and, in
particular, purchases by the Company of policies, levels of expenses, the timing
of collections on policies,  the estimated  collection dates of policies and its
method of income recognition.  In connection with its analysis,  the Company has
thus far  decided  to sell all or  substantially  all of its  assets and to seek
stockholder approval of such sale. As a result, the Company has reclassified all
of its assets other than the assets of Dignity Partners Funding Corp. I ("DPFC")
to a  "held-for-sale"  category.  Accordingly,  such assets are  recorded on the
balance  sheet as of September  30, 1996 at the lower of carrying  value or fair
value less cost to sell.  In  connection  therewith,  the Company  established a
provision  for loss on sale of assets  during the quarter  ended  September  30,
1996.

     On October 9, 1996, the Company announced that it had executed an agreement
("Sale  Agreement")  with an unaffiliated  viatical  settlement  company to sell
approximately  197 policies with an aggregate face value of $14.2 million for an
aggregate  consideration  of approximately  $8.7 million.  The agreement for the
sale of such  policies  will be void  if  stockholder  approval  to sell  all or
substantially  all of the Company's assets is not received by December  26,1996.
The  Company set up a pre-tax  loss  provision  in the third  quarter of 1996 of
$1,792,087 in connection with policies covered by the Sale Agreement. 

     The Company also announced that it intends to seek stockholder  approval to
sell  all or  substantially  all of its  assets  not  the  subject  of the  Sale
Agreement ("Remaining Assets").  The Company set up a pre-tax loss provision for
the  Remaining  Assets  that it  intends  to sell in the  amount  of  $1,522,411
($1,417,373   related  to  policies  and  $105,038   related  to  furniture  and
equipment).  For purposes of  calculating  such loss  provision,  furniture  and
equipment have been valued on the assumption that miscellaneous office equipment
has no sales value. 

                                       6

<PAGE>

Life insurance policies and furniture and equipment held for
sale consist of:

<TABLE>
         
                          Life Insurance Policies
                          -----------------------
                       Covered by                     Furniture &
                     Sale Agreement  Held for Sale     Equipment       Total
                     --------------  --------------  -------------  -----------  
<S>                  <C>             <C>             <C>             <C> 
Capitalized costs    $  9,272,132       5,416,912         105,038    14,794,082
Earned discount           221,298         186,716              --       408,014
Provision for loss 
  on sale              (1,792,087)     (1,417,373)       (105,038)   (3,314,498)
                     --------------  --------------   -------------  -----------
Assets held for sale $  7,701,343       4,186,255               0    11,887,598

</TABLE>

     The  calculation of provision for loss on sale of assets for life insurance
policies  was  calculated  based on the life  expectancies  of the  policies  in
relation to prices obtained by the Company in connection  with other sales.  Any
gain or loss due to the difference  between  actual  proceeds (less any back end
sourcing  fees) and the carrying  value after giving effect to the provision for
loss on sale of assets will be reported as a realized gain or loss.

5.   Purchased Life Insurance Policies

     As of September 30, 1996,  purchased life insurance policies consisted only
of those  policies held by DPFC. The sale of policies held by DPFC, all of which
are pledged  under the  indenture  pursuant to which the  Securitized  Notes (as
defined in Note 7) were  issued,  requires  the consent of all of the holders of
the  Securitized  Notes  ("Noteholders").  No  assurance  can be given  that the
Company will be able to obtain such consent. The Company has discussed potential
sales  of DPFC  policies  with  the  Noteholders;  however,  it is too  early to
determine  whether  the  Noteholders  and the  Company  will decide to sell such
policies or whether such a sale is feasible.  A pre-tax  provision for valuation
adjustment  has been recorded in the third quarter of 1996 in the amount of $6.9
million to reflect estimated impaired value of the DPFC policies.  The estimated
provision  for  valuation  adjustment  provides  for the  possible  write-off of
deferred  financing  costs and the expected  unrealized  value  associated  with
purchased life insurance policies.

     Only the net assets of DPFC are available to satisfy the Securitized Notes.
Dignity  Partners did not guarantee the  obligations  owed under the Securitized
Notes.  To the extent that the net assets of DPFC are  insufficient to repay the
Securitized  Notes,  no provision for valuation was made because the Noteholders
are  expected  to bear any such loss.  This loss is  currently  estimated  to be
approximately $900,000. See Note 11.

6.   Earned Discounts and Unearned Income

     Earned discounts on life insurance policies reflects the accretion recorded
through June 30, 1996. With the decision to sell all or substantially all of the
Company's assets, unearned income recorded on the balance sheet at June 30, 1996
relating to early maturities on or before June 30, 1996 has now been recorded as
earned  discounts on prior  maturities.  Earned  discounts for matured  policies
reflects income on policies on which the Company  collected the proceeds (either
pursuant to a sale or the death of the insured) during the third quarter. During
the third  quarter of 1996,  the Company  reclassified  all of its assets (other
than DPFC assets) to a "held-for-sale"  category. The Company also established a
valuation  provision for purchased life insurance  policies (i.e. DPFC policies)
during the quarter ended September 30, 1996 because of the uncertainties created
by the data  presented at the AIDS  Conference.  As a result,  any future income
will be recorded as earned  discounts for matured  policies only upon receipt of
proceeds of policies (either pursuant to a sale or the death of the insured).

                                       7

<PAGE>

7.   Long Term Notes Payable

     The Senior Viatical Settlement Notes, Series 1995-A,  Stated Maturity March
10, 2005 (the  "Securitized  Notes") issued by DPFC, the Company's  wholly-owned
special purpose subsidiary,  initially provided for a maximum lending commitment
of $50  million.  Borrowings  under the  Securitized  Notes are  included on the
balance  sheet  as long  term  notes  payable.  Repayment  of  principal  of the
Securitized Notes was originally  scheduled to begin in September 1996. An early
amortization  event  occurred  in June 1996  because  the  Overcollateralization
Percentage (as defined in the Form 10-K) was less than 120% on four  consecutive
weekly  calculation  dates.  As a result,  the maximum  lending  commitment  was
reduced to the then  outstanding  principal amount ($45.5 million) and principal
payments  on  the  Securitized  Notes  began  in  July  1996.  Payments  on  the
Securitized  Notes are payable solely from  collections on pledged  policies and
deposited funds. Such deposited funds consist of $4.6 million of restricted cash
as of September 30, 1996,  which  Dignity  Partners is required to maintain in a
cash collateral account for the benefit of the Noteholders.  Additionally,  such
collections  include  $865,000  as of  September  30,  1996 of matured  policies
receivable for policies pledged for the benefit of the Noteholders.

8.   TransAmerica Credit Facility

     As  described  in Note 4, on July 16,  1996,  the Company  announced it was
temporarily  ceasing  processing new applications  for policies  insuring people
with AIDS and HIV, while it further  analyzed the research  results  reported at
the International  AIDS Conference in Vancouver,  British Columbia.  On July 18,
1996,  TransAmerica  Lender  Finance  ("TransAmerica"),  the  lender  under  the
Company's  former $20 million  senior  secured  revolving  credit  facility (the
"TransAmerica  Facility"),  notified  the  Company  that an event of default had
occurred  under  the  TransAmerica  Facility.  The  notification  was  based  on
TransAmerica's  assertion that the Company's action  constituted a breach of its
covenant  not to make a material  change in its  operations.  TransAmerica  also
notified the Company that TransAmerica  would not make future advances under the
TransAmerica Facility. The Company does not believe that its actions constituted
an event of default under the TransAmerica  Facility.  Although TransAmerica did
not give any notice  accelerating the due date of amounts  outstanding under the
TransAmerica  Facility,  the Company decided to repay and terminate the facility
on August 29, 1996.  The Company  repaid  principal and accrued  interest in the
amount of $3,301,328. In connection with such repayment,  Dignity Partners wrote
off $130,000 in unamortized  financing costs  associated  with the  TransAmerica
Facility.

9.   Deferred Income Taxes

     Prior to the three  months  ended  September  30,  1996,  the  Company  had
provided for deferred  income taxes related to income  accrued on purchased life
insurance  policies.  Based  on the  provision  for loss on sale of  assets  and
valuation  provision  for purchased  life  insurance  policies  recorded for the
quarter ended  September 30, 1996, the Company  believes that it will not have a
federal tax  liability  related to these assets and has  therefore  reversed all
related  liabilities.  The Company has provided for  miscellaneous  state income
taxes.  Valuation  allowance  has been  recorded  equivalent to the deferred tax
asset as it is  management's  opinion  that it is more  likely than not that the
deferred tax asset will not be realized.

                                       8

<PAGE>

10.  Minority Interest

     On June  25,  1996  Dignity  Partners  purchased  the  limited  partnership
interests of the limited  partners in Dignity  Viatical for  approximately  $5.2
million.  This purchase  resulted in the elimination of minority interest on the
balance sheet at and after June 30, 1996.

11.  Fair Value of Financial Instruments

     The following  methods and assumptions were used to estimate the fair value
of each class of financial instruments:

     Cash and cash  equivalents,  restricted  cash,  other  receivable,  matured
policies  receivable,   accrued  expenses,  accounts  payable,  financing  costs
payable,  payable to related party and payable for policies purchased are stated
at approximate  fair value because of the short  maturity of these  instruments.
All balances have maturities within 60 days of the balance sheet date.

     Marketable  securities (with maturities  greater than three months but less
than one year),  consisting of grade BBB or better commercial paper,  commercial
notes and government securities, are stated at cost on the balance sheet. Market
values of these securities approximate cost due to the short maturity periods.

     Assets held for sale  reflect  management's  estimate of fair market  value
based on the life  expectancies of these policies in relation to prices obtained
by the Company in connection with other sales.

     The  portfolio  of purchased  life  insurance  policies  reflects a pre-tax
provision  for the  estimated  impaired  value of DPFC  policies.  The estimated
provision  for  valuation  adjustment  provides  for the  possible  write-off of
deferred  financing  costs and the expected  unrealized  value  associated  with
purchased life insurance policies.

     Long term notes  payable and other long term debt are stated at fair market
value at December  31, 1995 based on the  Company's  borrowing  capability  as a
closely-held private organization and limited capital structure. The Securitized
Notes (long term notes  payable) bear an average  interest rate of 9.17% and are
equivalent to newly acquired debt at 1% over prime interest  rates. At September
30, 1996 the long term notes  payable are stated at cost which is  approximately
$900,000  greater than the  Company's  estimate of the fair market value of this
debt due to the nonrecourse  nature of such debt and the value of the collateral
securing such debt.

12.  Events Subsequent to the Balance Sheet Date

     a.  Share Repurchase Program

     On October 16, 1996, the Board of Directors of the Company approved a share
repurchase  program pursuant to which the Company is authorized to purchase from
time to time up to 1 million shares of the Company's  common stock at prevailing
market prices.

     b.  Investment

     On  November 4, 1996,  the  Company  purchased  $3,000,000  of  convertible
preferred stock of American Information Company,  Inc., a privately held company
which, among other things,  provides  information services to individuals owning
or purchasing automobiles.
                          
                                        9

<PAGE>

                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                       CONDITION AND RESULTS OF OPERATIONS

     The following is a discussion  and analysis of the  consolidated  financial
condition  of the  Company  as of  September  30,  1996  and of the  results  of
operations  for the Company for the three and nine months  ended  September  30,
1996 and 1995, and of certain factors that may affect the Company's  prospective
financial  condition and results of operations.  The following should be read in
conjunction  with the unaudited  consolidated  financial  statements and related
notes appearing elsewhere herein.

Overview

     The  Company  is a  specialty  financial  services  company  that  provides
viatical  settlements for terminally ill persons.  A viatical  settlement is the
payment of cash in return for an ownership interest in, and the right to receive
the death benefit from, a life insurance policy.  

Recent Developments

     On July 16, 1996 the Company announced that, in light of the data regarding
new treatments  involving  combinations  of various drugs  presented at the AIDS
Conference,  the Company was temporarily ceasing processing new applications for
policies  insuring people  afflicted with AIDS and HIV while it further analyzed
the effects of such research  results on its business and its strategic  options
in light of the research  results.  The Company has retained  Jefferies & Co. to
assist in such  evaluation.  The Company  continues to analyze the effect of the
research results and data from subsequently  reported  scientific studies on its
business  and, in  particular,  purchases by the Company of policies,  levels of
expenses,  the timing of collections on policies,  the estimated collection date
of  policies  and its  method  of income  recognition.  In  connection  with its
analysis,  the Company has thus far decided to sell all or substantially  all of
its assets and to seek  stockholder  approval of the Asset Sale.  As a result of
such decision,  the Company has  reclassified  all of its assets (other than the
policies held by DPFC) to a "held-for-sale" category.  Accordingly,  such assets
are  accounted  for on the lower of  carrying  value or fair  value less cost to
sell.  The Company  cannot predict what further impact the foregoing may have on
its  business,   prospects,   results  of  operations  or  financial   position.
Furthermore,  the  Company  has not  determined  whether or when it will  resume
processing  applications for policies insuring people afflicted with HIV or AIDS
or the  implications  of these recent  developments  on the Company's  strategic
direction.

Share Repurchase Program

     The Board of  Directors  of the  Company  has  approved a share  repurchase
program  pursuant to which the Company is  authorized  to purchase  from time to
time up to 1 million  shares of Common Stock at prevailing  market  prices.  The
Company had not repurchased any shares of Common Stock as of October 31, 1996.

Method of Accounting

     Through June 30, 1996, the Company recognized income ("earned discount") on
each purchased policy by accruing,  over the period between the acquisition date
of the policy and the  Company's  estimated  date of  collection of the policy's
face value (the "Accrual  Period"),  the difference  (the  "unearned  discount")
between  (a) the face  value of the  policy  less the  amount  of fees,  if any,
payable to a referral  source upon  collection  of the face  value,  and (b) the
carrying value of the policy. Through June 30, 1996, the carrying value for each
policy  was  reflected  on  the  Company's   consolidated  balance  sheet  under
"purchased life insurance  policies" and consisted of the purchase price,  other
capitalized  costs and the earned  discount on the policy accrued to the balance
sheet date. The Company capitalized as

                                       10

<PAGE>

incurred the following costs of a purchased policy:  (i) the purchase price paid
for the  policy,  (ii)  policy  premiums,  if any,  paid by the  Company,  (iii)
amounts,  if any, paid to referral  sources upon  acquisition  of the policy and
(iv) amounts paid to  Company-retained  Consultants  who estimated the insured's
life  expectancy.  The carrying  value of a policy  changed  over time,  and was
adjusted  quarterly to reflect earned discounts  accrued on the policy,  amounts
paid for any additional  future  increases in coverage,  any additional  premium
payments and any premium refunds if the policy becomes covered by premium waiver
provisions. The length of the Accrual Period was determined by the Company based
upon its  estimate  of the date on which it would  collect the face value of the
policy.  Such  estimate  was  based  upon  the  Company's  estimate  of the life
expectancy of the insured, after review of the medical records of the insured by
one or more  Consultants,  and was  also  adjusted  to  reflect  the  historical
accuracy of the life expectancies estimated by the Company's Consultants and the
typical period between the date of an insured's  death and the date on which the
Company collects the face value of the policy.

     The unearned  discount was accrued over the Accrual Period using the "level
yield" interest  method.  Under the "level yield" method,  the yield is constant
such that when the yield is  applied  to the  carrying  value of the policy on a
compounded  basis over the course of the Accrual Period,  the unearned  discount
will be fully accrued as earned discount by the end of the Accrual Period.  Such
yield may differ  from the actual  yield on a policy  depending  on whether  the
policy is collected  earlier or later than expected.  See "The Company -- Policy
and Portfolio Information - Yield Analysis."

     As a result of the Company's  decision to sell all or substantially  all of
its assets and to seek  stockholder  approval of the Asset Sale, the Company has
reclassified  all of its  assets  (other  than the  policies  held by DPFC) to a
"held-for-sale"  category.  Accordingly,  such assets are  accounted  for on the
lower  of  carrying  value  or fair  value  less  cost to  sell.  In  connection
therewith,  the Company established a $3.3 million provision for loss on sale of
assets during the quarter ended September 30, 1996. The Company also established
a $6.9 million valuation  provision for purchased life insurance policies (i.e.,
DPFC  policies)  during the quarter  ended  September  30,  1996  because of the
uncertainties  created  by  the  data  presented  at  the  AIDS  Conference  and
subsequently reported data. In addition, beginning in such quarter, the Company
began generally  recognizing income upon receipt of proceeds on policies (either
pursuant  to a sale or the death of the  insured).  Such  income is equal to the
difference  between  such  proceeds  (less any back-end  sourcing  fees) and the
carrying value of such policies after giving effect to any provision for loss on
the  sale of  such  policies  or any  valuation  provision  for  purchased  life
insurance policies.

Method of Consolidation

     The Company's financial statements consolidate the assets,  liabilities and
operations of DPFC,  the  Company's  wholly-owned  subsidiary  through which the
Company  issued  the  Securitized  Notes.  See  Note  7 of  Condensed  Notes  to
Consolidated  Financial  Statements.  In  addition,   because  Dignity  Partners
controlled Dignity Viatical,  the assets,  liabilities and operations of Dignity
Viatical  are  consolidated  with  those  of the  Company  in  the  consolidated
financial  statements.  Through  September  30,  1996,  DPFC had  purchased  902
policies with an aggregate face value of $67.1  million.  Through June 30, 1996,
Dignity  Viatical had  purchased  169 policies  with an aggregate  face value of
$13.9  million.   The  minority  interest  of  limited  partners  in  investment
partnership  reflected  in  the  Company's   consolidated  financial  statements
represents  the  limited  partners'  interests  in the net  assets and income of
Dignity  Viatical.   On  June  25,  1996,  the  Company  purchased  the  limited
partnership  interests in Dignity  Viatical and became the sole owner of all the
partnership  interests  therein.  On August 2, 1996, the Company entered into an
agreement to sell to an  unaffiliated  third party virtually all of the policies
owned by Dignity  Viatical.  See "The Company -- Dignity  Viatical and Dignified
One."

                                       11

<PAGE>

Three and Nine Months Ended September 30, 1996 Compared to Three and Nine Months
Ended September 30, 1995

     Earned   Discounts.   During  the  third  quarter  of  1996,   the  Company
reclassified all of its assets (other than the policies held by DPFC) to a "held
for sale"  category.  The Company also  established  a valuation  provision  for
purchased life insurance policies (i.e., DPFC policies) during the quarter ended
September 30, 1996 because of the uncertainties created by the data presented at
the AIDS  Conference and  subsequently  reported data. As a result,  the Company
began  recognizing  income only upon  receipt of  proceeds  on policies  (either
pursuant to a sale or the death of the insured).  Consequently,  the Company did
not recognize any earned  discounts on life insurance  policies during the third
quarter, but instead recognized $356,000 of earned discounts on matured policies
for such quarter.  Such income is equal to the  difference  between the proceeds
the Company  received on the policies  (less any back end sourcing fees) and the
carrying value of such policies after giving effect to any provision for loss on
the  sale of such  policies  and any  valuation  provision  for  purchased  life
insurance  policies.  See Notes 4 and 5 to the Condensed  Notes to  Consolidated
Financial  Statements.  In addition, in connection with the decision to sell all
or substantially all of the Company's assets, the Company recognized $802,000 of
earned discounts on prior maturities.  Such earned discounts were carried on the
balance sheet at June 30, 1996 as unearned  income which related to policies for
which the Company had  collected the proceeds  prior to the expected  collection
date. The Company will not have any earned  discounts on prior maturities in any
other period.

     Interest  Income.  Interest income  increased  dramatically  (226%) for the
first nine months of 1996 as a result of the  investment  of the initial  public
offering proceeds in short term securities and marketable  securities.  Interest
income  has  decreased  since the  beginning  of 1996 as such funds were used to
purchase life insurance  policies and for other working  capital  purposes.  See
Note 2 of Condensed Notes to Consolidated Financial Statements.

     Other Income. Components of other income include collections on policies of
dividends,  interest,  paid-up cash  values,  increases in face value of matured
policies  and  reimbursements  of premiums  on matured  policies.  Other  income
increased  during the first nine months of 1996 due to  collections  on a larger
portfolio and a $80,000 aggregate increase in face value on two policies.

     Interest  Expense.  Interest  expense  in the  first  nine  months  of 1996
increased  27.5%  relative  to the first nine  months of 1995 as a result of the
higher level of portfolio  purchases and the increase in borrowings used to fund
those  purchases.  Average  borrowings  under the  Securitized  Notes were $43.0
million in the first nine months of 1996  compared to $23.3 million in the first
nine months of 1995.  The interest rate on the  Securitized  Notes  decreased to
9.2% in the first  nine  months of 1996  from 9.5% in the first  nine  months of
1995. Borrowings under the TransAmerica Facility bore a dollar weighted interest
rate of 10.9% and 12.1% in the first nine months of 1996 and 1995, respectively.
Average  borrowings  were $1.1 million in the first nine months of 1996 compared
to $5.1 million in the first half of 1995. See Notes 7 and 8 to Condensed  Notes
to  Consolidated   Financial  Statements  herein,  and  "Liquidity  and  Capital
Resources" and "Description of Securitized Notes" above for further  information
regarding the Securitized Notes and the TransAmerica Facility.

     Compensation and Benefits. Compensation and benefits increased 73.2% in the
first nine  months of 1996  compared to the first nine months of 1995 due to the
hiring of additional  personnel to handle the  administrative  tasks relating to
the  Company's  increased  portfolio  and  non-broker  referral  business and to
support the Company's  related  growth in the latter  period.  Subsequent to the
AIDS Conference and the cessation of new application  processing,  the number of
employees has been reduced from 27 (on July 16, 1996) to 17.

                                       12

<PAGE>

     Other General and Administrative Expenses. Other general and administrative
expenses  increased  9.0% in the third quarter of 1996 over the third quarter of
1995,  but  decreased  48.2% over the second  quarter of 1996.  This decrease is
directly  related to the cessation in processing of new  applications on HIV and
AIDS policies.  Other general and administrative expenses increased 73.0% in the
first nine  months of 1996 over the first  nine  months of 1995  primarily  as a
result of an  increase  in the  number of medical  reviews  for  policies  being
analyzed for potential purchase early in 1996. Additionally, because the Company
temporarily  ceased processing  applications for policies  insuring  individuals
with AIDS and HIV,  approximately  $80,000 and $30,000 of medical  review  costs
associated with such policies in the  underwriting  process were expensed in the
second and third  quarter of 1996,  respectively.  The first nine months of 1996
also includes a $200,000 aggregate  increase in expenses for legal,  accounting,
insurance,  director fees and advertising,  in part as a result of the Company's
status as a public company.

     Amortization.  Because the  TransAmerica  Facility was terminated in August
1996, the Company  incurred a charge in the third quarter of 1996 of $130,000 as
a result of the Company's writing off the unamortized  financing charges related
to the TransAmerica Facility.

     Income Tax Expense.  Income tax expense  decreased in the first nine months
of 1996 over the comparable  period in 1995.  This was a result of the estimated
loss provision  recorded in the third quarter of 1996. The Company assumes there
is no future income tax benefit related to any loss carryforward.

     Minority   Interest  of  Limited   Partners   in  Earnings  of   Investment
Partnership.  All earned  discounts  attributable  to the  limited  partners  of
Dignity  Viatical had been fully  accrued by December  31, 1995 and,  therefore,
minority interest of limited partners in earnings of investment  partnership was
zero for the first nine months of 1996  compared to $705,000  for the first nine
months of 1995. In February 1996, the Company entered into an agreement with the
limited  partners  of  Dignity  Viatical  to use best  efforts  to sell on terms
reasonably  acceptable to the limited  partners,  the policies  owned by Dignity
Viatical.  Requests  for closed bids were sent out in late March 1996 to Dignity
Partners and two other prospective  buyers.  Dignity Partners was the successful
bidder purchasing, effective June 25, 1996, the limited partnership interests of
the limited partners for approximately $5.2 million.

Liquidity and Capital Resources

     The  Company's  primary  need for  capital  has been the  funding of policy
purchases.  The purchase of life insurance policies requires significant capital
resources and assuming a resumption of policy  purchases,  the Company's  future
operating  results will be directly  related to the availability and cost of its
capital funds. Prior to its initial public offering, the amount of policies that
the  Company  was  able to  purchase,  and the  timing  of such  purchases,  was
determined  primarily by the  availability and cost of external  financing.  The
major  source of funding  since the  initial  public  offering  has been the net
proceeds of the initial public offering.  The Company does not currently have an
external funding source.  The TransAmerica  Facility was terminated in the third
quarter of 1996.  The  Securitized  Notes no longer  provide funds with which to
purchase  policies.  At October 31, 1996,  the Company had $8.2 million in short
term assets  (excluding assets of DPFC), of which $3.0 million was used in early
November to purchase the equity  investment  in AIC.  The $8.2 million  included
$7.8 million in cash and cash  equivalents and $400,000  million of receivables.
The Company is analyzing its current and future needs for  additional  financing
and has been in discussions  with several  lending  institutions  and investment
banks.  There  can be no  assurance  that  the  Company  will be  successful  in
obtaining  additional  financing on satisfactory terms assuming it determines it
needs additional funds. However, the Company at present

                                       13

<PAGE>

anticipates  having  sufficient  liquidity  to  meet  its  working  capital  and
operational  needs  through  1996,  but as the Company  continues to analyze its
strategic direction such needs may change.

     As  of  September  30,  1996,  the  outstanding  principal  amount  of  the
Securitized  Notes was $42.4 million.  Principal  repayments on the  Securitized
Notes began in July 1996. Principal repayments on the Securitized Notes are made
from  collections on policies  pledged to secure the payment  thereof and do not
require the Company to expend cash or obtain financing to satisfy such principal
repayments.

                                       14

<PAGE>


PART II.  OTHER INFORMATION

Item 6.  Exhibits and Reports on Form 8-K
-----------------------------------------
   
    (a)   Exhibits.

    Number          Description
    ------          -----------

     10             Master Agreement for Purchase of Life Insurance 
                              Policies dated September  27, 1996

     27             Financial Data Schedule


    (b)   Reports on Form 8-K.

     Date       Item Reported Matter Reported
--------------- ------------- ---------------
October 9, 1996       5       Text of Press Release dated October 9, 1996
                              regarding agreement to sell portion of  portfolio.

November 5, 1996      5       Text of Press Release dated October 18, 1996
                              regarding share repurchase program .

November 5, 1996      5       Text of Press Release dated November 4, 1996
                              regarding investment in American Information 
                              Company, Inc.

                                       15

<PAGE>

                                   SIGNATURES
                                   ----------

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



                                               DIGNITY  PARTNERS, INC.



DATED:  November 14, 1996                       S/ ALAN B. PERPER
                                                ---------------------------
                                                ALAN  B.  PERPER
                                                President
                                                (Duly Authorized Officer)


DATED:  November 14, 1996                       S/ JOHN WARD ROTTER
                                                -------------------------
                                                JOHN WARD ROTTER
                                                Executive Vice President and
                                                Chief Financial Officer
                                                (Principal Financial and
                                                Accounting Officer)

                                       16