SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K

            [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                 SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
                   For the fiscal year ended December 31, 1996
                                       OR
              [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
            OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
                 For the transition period from ______ to ______

                                                Commission file number 0-27736


                             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) 394-9469
              (Registrant's telephone number, including area code)

        Securities registered pursuant to Section 12(b) of the Act: None

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

                          Common Stock, $.01 par value
                                (Title of Class)

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

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

The aggregate  market value of the  registrant's  common stock,  $.01 par value,
held  by   nonaffiliates   of  the  registrant  as  of  February  28,  1997  was
approximately $6,072,500.

The number of shares of the registrant's common stock, $.01 par value,
outstanding as of February 28,  1997 was 4,018,324.

                      Documents Incorporated by Reference:
The  registrant's  proxy  statement  (to be filed)  related  to its 1997  annual
meeting of stockholders is incorporated by reference in Part III.

<PAGE>
                             DIGNITY PARTNERS, INC.

                             Form 10-K Annual Report
                   For the Fiscal Year Ended December 31, 1996

                                Table of Contents

<TABLE>
<CAPTION>

                                                                         Page
<S>                                                                      <C>
PART I                                                                                                  Page
    Item 1.  Business...................................................  1
    Item 2.  Properties.................................................  8
    Item 3.  Legal Proceedings..........................................  9
    Item 4.  Submission of Matters to a Vote of Security Holders........  9

PART II
    Item 5.  Market for the Registrant's Common Equity
               and Related Stockholder Matters..........................  10
    Item 6.  Selected Financial Data....................................  11
    Item 7.  Management's Discussion and Analysis of Financial Condition
               and Results of Operations................................  12
    Item 8.  Financial Statements and Supplementary Data................  21
    Item 9.  Changes in and Disagreements with Accountants on Accounting
               and Financial Disclosure.................................  21

PART III
    Item 10. Directors and Executive Officers of the Registrant.........  44
    Item 11. Executive Compensation.....................................  44
    Item 12. Security Ownership of Certain Beneficial Owners
               and Management...........................................  44
    Item 13. Certain Relationships and Related Transactions.............  44

PART IV
    Item 14. Exhibits, Financial Statement Schedules and Reports
               on Form 8-K..............................................  44

Signatures..............................................................  48

</TABLE>
                                       i

<PAGE>

Unless indicated otherwise, all information contained herein gives effect to the
Reorganization and the Reverse Stock Split (each as defined herein).  Unless the
context  otherwise  requires,  all  references  to  the  "Company"  or  "Dignity
Partners" refer to Dignity Partners, Inc. and its consolidated entities.


                                     PART I
                                     ------

ITEM 1--BUSINESS
----------------

General
-------

         Dignity  Partners  is a specialty  financial  services  company.  Until
February  1997, the Company  provided  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 face  value  of, a life  insurance
policy. In connection with a viatical  settlement,  the policyholder assigns his
or her policy to the Company,  which  becomes the holder,  owner or  certificate
holder of the  policy  and the  beneficiary  thereunder  and  receives  from the
insurance company the face value payable under the policy following the death of
the insured.  The amount paid by the Company for a policy was  determined by the
Company  based on  various  factors,  including  the  Company's  estimated  life
expectancy of the insured,  the estimated  premiums payable by the Company under
the policy over the expected  life of the insured and certain other costs of the
viatical  settlement.  Through  December 31, 1996, the Company  purchased  1,527
policies with an aggregate face value of $113.9 million,  of which $36.6 million
had been  collected  on 522  policies  upon death of the  insured.  In addition,
through December 31, 1996, the Company had received  proceeds of $6.5 million on
106 policies sold to third parties  (representing $8.5 million in aggregate face
value).

         On July 16,  1996,  in response to  accounts  of the  research  results
reported  at the  International  AIDS  Conference  held  in  Vancouver,  British
Columbia in July 1996 (the "AIDS Conference"), 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 on its business of such research results.  In excess of 95%
of the Company's  purchases  involved policies insuring the lives of individuals
diagnosed  with HIV and AIDS.  Results  from a number of studies  were  reported
which appear to indicate that the treatments  involving a combination of various
drugs were reducing  substantially,  and perhaps eradicating,  the levels of HIV
detectable  in the  blood of  persons  previously  diagnosed  with HIV and AIDS.
Subsequent reports appear to confirm the reports from the AIDS Conference.

         Further analysis resulted in the Company's concluding that the efficacy
of the  treatments  reported at the AIDS  Conference and  subsequently  reported
treatments have increased the risks of purchasing and holding policies  insuring
the  lives  of  individuals   diagnosed  with  HIV  or  AIDS,  especially  those
individuals with longer life  expectancies.  As a result, the Company decided in
the third quarter of 1996 to sell all or substantially  all of its assets.  Such
decision had many material accounting implications. See "Management's Discussion
and  Analysis of  Financial  Condition  and Results of  Operations  -- Method of
Accounting."  The  Company  sought and  obtained in  December  1996  stockholder
approval  to sell all or  substantially  all of its  assets.  See  "Management's
Discussion  and Analysis of Financial  Condition  and Results of  Operations  --
Cessation of Viatical Settlement Business; Sale of Assets."

         The  Company  believes  that it is not viable to  continue to operate a
viatical  settlement  business  solely for non-AIDS  policies while a market for
non-AIDS  policies  develops,  if it develops at all. As a result,  the Board of
Directors in February 1997 decided to cease  immediately the Company's  viatical
settlement  business and


                                       1

<PAGE>

approved the sale of the Company's  non-AIDS  policies, consisting of
approximately 31 policies with a face value of $2.9 million.

         To date  the  Company  has  sold or  entered  into  agreements  to sell
approximately  373 policies with an aggregate face value of $29.2  million.  See
"Asset  Sales -- Terms of Sale  Agreements."  If the  ownership  of the policies
subject to such agreements are successfully transferred pursuant to the terms of
such agreements,  the only remaining  policies held by the Company will be those
held by DPFC and pledged as security for the Securitized  Notes as defined under
"The Company -- DPFC."

The Company
-----------

   General
   -------

          Dignity  Partners  was  incorporated  in  Delaware in  September 1992,
commenced operations on January 2, 1993 and commenced  purchasing  activities in
April  1993.  The  Company's  principal  executive  offices  are located at 1700
Montgomery Street, Suite 250, San Francisco, California 94111, and its telephone
number is (415)  394-9469.  The Company  purchased life insurance  policies both
directly and  indirectly  through  Dignity  Partners  Funding  Corp. I ("DPFC"),
Dignity Viatical Settlement  Partners,  L.P. ("Dignity  Viatical") and Dignified
One, L.P. ("Dignified One").

    DPFC
    ----

         DPFC is a  wholly-owned  subsidiary  formed for the limited  purpose of
issuing Senior Viatical Settlement Notes,  Series 1995-A,  Stated Maturity March
10, 2005 (the  "Securitized  Notes") and purchasing  (with funds provided by the
Securitized  Notes) and holding  beneficial  ownership of the policies  that are
pledged as collateral for the Securitized Notes.  DPFC is deemed a bankruptcy
remote entity.  See  "Management's  Discussion and Analysis of Financial
Condition  and Results of Operations -- Liquidity and Capital  Resources"  and
" -- Method of  Consolidation."  DPFC has purchased 902 policies with an
aggregate face value of $67.1 million and will not purchase any more policies.
At December 31, 1996,  DPFC owned 627 policies with an aggregate
face value of $47.6  million.  The ownership  interest in policies  purchased by
DPFC  is  nominally  held by an  unaffiliated  third  party  trustee  under  the
indenture  pursuant to which the Securitized Notes were issued (the "Indenture")
but the policies are  beneficially  owned by DPFC. The Company accounts for
this securitization  as a debt  financing  and not as a sale of assets, which
is in accordance with the accounting literature in effect for bankruptcy remote
entities with non-recourse debt.  The assets, liabilities
and  operations  of DPFC are  consolidated  with  those of  Dignity
Partners in the Company's consolidated  financial statements.  See "Management's
Discussion  and Analysis of Financial  Condition  and Results of  Operations  --
Liquidity and Capital  Resources" and " -- Description of Securitized Notes" and
Note 9 of Notes to Consolidated Financial Statements.

    Dignity Viatical and Dignified One
    ----------------------------------

         Dignity  Viatical is a limited  partnership  formed during 1993 to fund
purchases of life insurance policies. Through June 1996, Dignity Partners served
as the sole general  partner,  and persons not affiliated  with the Company were
limited  partners.  The assets,  liabilities and operations of Dignity  Viatical
were  consolidated  with  those of the  Company  in the  Company's  consolidated
financial  statements.  On June 25, 1996, Dignity Partners purchased the limited
partnership  interests  in Dignity  Viatical and became the sole owner of all of
the partnership  interests therein.  On August 2, 1996, Dignity Partners entered
into an agreement to sell to an  unaffiliated  third party  virtually all of the
policies owned by Dignity Viatical (representing $5.9 million in face value). As
of  December  31,  1996,  the cash  proceeds  of such sale  (approximately  $4.7
million) had all been collected by the


                                       2
<PAGE>

Company. See "Management's Discussion and Analysis  of  Financial  Condition
and  Results  of  Operations  --  Method  of Consolidation" and Notes 3 and 7
of Notes to Consolidated Financial Statements.

         Dignified One is a limited partnership formed in 1994 to fund purchases
of life  insurance  policies.  Dignified One has purchased 26 policies,  with an
aggregate  face value of $1.8 million and will not  purchase any more  policies.
Due  to its  immateriality,  Dignified  One  is  treated  as an  investment  for
accounting purposes.  Therefore, the policies purchased by Dignified One are not
reflected in the Company's consolidated financial statements or in the Company's
operating or consolidated  financial data presented herein.  All of the policies
owned by Dignified One have been sold pursuant to a sale agreement substantially
similar to the September Sale Agreement (as defined herein).

    The Reorganization and the Reverse Stock Split
    ----------------------------------------------

         On September 30, 1995, the Company and its then sole  stockholder,  The
Echelon  Group  Inc.   ("Echelon")   entered  into  a  series  of   transactions
(collectively,  the  "Reorganization")  to  separate  the  business  of  Dignity
Partners from Echelon's other business  interests.  Echelon,  which was owned by
Bradley N.  Rotter,  Alan B.  Perper and John Ward  Rotter,  the only  executive
officers of the Company (collectively,  the "Executive  Officers"),  conducted a
number of financial services businesses in addition to the business conducted by
Dignity Partners. As part of the Reorganization,  the Executive Officers created
a newly formed limited liability  company,  The Echelon Group of Companies,  LLC
("New Echelon  LLC"),  and  contributed  to New Echelon LLC the shares of common
stock of Echelon  owned by them in return for equity  interests  in New  Echelon
LLC. Echelon then sold to New Echelon LLC, at fair market value as determined in
part by an  independent  third party  appraiser and in part by the face value or
depreciated  book  value,  substantially  all of its assets  (including  amounts
previously owed by Dignity Partners to Echelon for expenses  incurred by Echelon
on behalf of Dignity  Partners  and interest on loans made by Echelon to Dignity
Partners prior to the Reorganization)  other than the then outstanding shares of
common stock of Dignity Partners (the "Echelon Asset Sale").  The  consideration
for the Echelon Asset Sale, which equaled approximately $3.54 million, consisted
of (i) $700,000 in cash, (ii) the  cancellation  of outstanding  debt of Echelon
owed to New Echelon LLC  (representing  funds  advanced by Bradley and John Ward
Rotter  to  Echelon,  the  right  to  receive  payment  thereunder  having  been
previously  assigned  by them  to New  Echelon  LLC),  in an  aggregate  amount,
including accrued  interest,  of $2.7 million,  and (iii) a $144,000  promissory
note which New Echelon LLC subsequently  paid in full. In addition,  New Echelon
LLC assumed the liabilities of Echelon unrelated to Dignity Partners.

         Following  the  Echelon  Asset  Sale,  Echelon was merged with and into
Dignity  Partners  (the  "Merger").  Pursuant  to  the  Merger,  the  authorized
capitalization  of Dignity  Partners was  increased  from 1,000 shares of common
stock to 17 million shares,  consisting of 15 million shares of Common Stock and
two million shares of Preferred Stock (the "Serial Preferred Stock") issuable in
series. Of the authorized Serial Preferred Stock, 135,000 shares were designated
as Convertible  Cumulative  Pay-in-Kind Preferred Stock ("Convertible  Preferred
Stock").  Pursuant  to the Merger,  each  outstanding  share of common  stock of
Dignity Partners was canceled,  each  outstanding  share of Echelon common stock
was converted  into 15,893 shares of Common Stock of Dignity  Partners,  and the
outstanding  shares of  preferred  stock of Echelon  (all of which were owned by
Bradley  Rotter,  Chairman  of the Board and a  director  of the  Company)  were
converted into an aggregate of 34,880.13 shares of Convertible  Preferred Stock.
On December 1, 1995, a dividend,  consisting of 379.8059  shares of  Convertible
Preferred  Stock,  was paid on the outstanding  shares of Convertible  Preferred
Stock.  Each  outstanding  share of Convertible  Preferred  Stock (and shares of
Convertible  Preferred Stock issuable in respect of accrued and unpaid dividends
thereon)  were  converted  into Common  Stock and sold by Bradley  Rotter in the
Company's  initial public offering in February 1996. See " -- The Initial Public
Offering." The Merger had no material impact on the Company's operations.


                                       3

<PAGE>

         On  January  12,  1996,  the  Company  effected a reverse  stock  split
pursuant to which each  outstanding  share of Common  Stock was  converted  into
 .7175 of a share of Common Stock (the "Reverse Stock Split").

    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.  The Company did not receive any  proceeds  from the sale of
shares by Bradley Rotter. The net proceeds to the Company from the offering were
approximately  $25.3 million  after  deducting  the  underwriters'  discount and
estimated  offering  expenses.  Approximately $7.4 million of such proceeds were
used to repay  indebtedness  of the Company  and amounts  owed by the Company to
affiliates  with respect to prior  operating  expenses  and debt.  See Note 2 of
Notes to Consolidated Financial Statements.

Asset Sales
-----------

    Introduction and Reasons for Asset Sale
    ---------------------------------------

         The Company  believes that the efficacy of the  treatments  reported at
the AIDS  Conference and  subsequently  reported  treatments  have increased the
risks of holding policies  insuring the lives of individuals  diagnosed with HIV
or AIDS,  especially  those  individuals with longer life  expectancies.  If the
experimental  treatments are proven effective and become widely  available,  the
actual life expectancies of a significant number of insureds could substantially
exceed the Company's original estimates of their life  expectancies,  thereby
materially adversely affecting the Company's results of operations,  cash flows
and yields.  In  light of the  uncertainties  attendant  to the  continued
ownership  of the Company's  portfolio,  the Board of Directors  believed  that
it was in the best interests  of the  Company to attempt to  minimize  risk and
to provide  working capital while the Company evaluates its strategic options.

         The holders of Common Stock have  authorized  the Board of Directors to
sell all or substantially all of the assets of the Company on terms that the
Board of Directors deems expedient and in the best interests of the Company. The
Board of Directors has  authorized the sale of all or  substantially  all of the
Company's  policies.  However,  the sale of policies held through  DPFC,  all of
which are  pledged as  security  for the  Securitized  Notes,  will  require the
consent  of all of the  holders  of the  Securitized  Notes and the Company.
See  "Management's Discussion  and Analysis of Financial  Condition  and Results
of  Operations -- Description  of  Securitized  Notes." 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 holders of the Securitized
Notes;  however,  it is too early to determine  whether the holders of the
Securitized Notes and the Company will decide to sell such policies or whether
such a sale is feasible.

Terms of Sale Agreements
------------------------

         Through March 1997 the Company has entered into several  agreements to
sell portions of its  portfolio of policies.  None of the  purchasers
thereunder is affiliated  with the Company or any of its directors or officers.
The following is a summary of the material terms and provisions of the
agreements.


                                       4

<PAGE>

         Sale agreement dated as of September 27, 1996
         ("September Sale Agreement")

                  The Company entered into the September Sale  Agreement,  which
         provided for the sale of 197 HIV/AIDS policies having an aggregate face
         value  of  approximately  $14.2  million.   Under  the  September  Sale
         Agreement,  a policy will not be sold if the insured  dies prior to the
         issuing insurance company's  acknowledgment of transfer of ownership of
         the policy.

                  The purchase price of each policy was 61.86% of its face value
         plus 100% of  prepaid  premiums  ($8.7  million in  aggregate  purchase
         price).  The estimated  aggregate  purchase  price was placed in escrow
         prior to the time that change in  ownership  and/or  beneficiary  forms
         were sent to the insurance  companies  that issued the policies.  Under
         the September Sale Agreement,  the purchase price for each policy is to
         be  delivered  to the  Company  after  the  issuing  insurance  company
         acknowledges  in writing the transfer of ownership of the policy to the
         purchaser.  If such  acknowledgment for a policy is not received within
         90 days after the date the  documents  are  delivered to the  insurance
         company, the sale of such policy may be rescinded.

                  The agreement contained cross indemnity provisions pursuant to
         which the  Company and the  purchaser  agreed to  indemnify  each other
         against  losses,  liabilities or damages  arising in connection  with a
         claim  under any  policy or with any  breach of any  representation  or
         warranty made by the breaching party in the agreement.

                  Of the  policies  subject  to the  September  Sale  Agreement,
         ownership of 145 policies  (representing  $11.9 million in face amount)
         had not yet been  transferred at December 31, 1996.  Such policies were
         carried on the balance sheet at December 31, 1996 at $6.9 million after
         giving  effect  to the  reserve  for loss on  assets  held for  sale.
         Through  December 31, 1996,  the Company had collected  $1.2 million in
         sale proceeds  under the September  Sale Agreement and had collected an
         additional $6.7 million in sales proceeds through March 17, 1997.
         See "Notes 3, 4 and 17a of Notes to Consolidated Financial
         Statements".

         Sale agreement dated as of January 16, 1997

                  The Company  entered into an agreement dated January 16, 1997,
         to  sell 18  HIV/AIDS  policies  having  an  aggregate  face  value  of
         approximately  $1.0 million.  The sale price is approximately  $710,000
         plus  interest  at the  rate of 4.5%  per  annum  from the date of such
         agreement to the date of payment for the policy.  The purchaser is also
         required to reimburse the Company for any premiums paid on or after the
         date of such  agreement.  A policy sale may be rescinded if the issuing
         insurance  company does not  acknowledge  within 60 days of the date of
         the agreement the transfer of ownership to the purchaser.

                  The agreement contains cross indemnity  provisions pursuant to
         which the Company and the purchaser have agreed to indemnify each other
         against  losses,  liabilities or damages  arising in connection  with a
         breach  of  any  covenant,  representation  or  warranty  made  by  the
         breaching party.

                  Such  policies  were carried on the balance  sheet at December
         31, 1996 at approximately $590,000 after giving effect to the reserve
         for loss on assets held for sale.  Through March 17, 1997,  the Company
         had   collected   $700,000  in  sale   proceeds   under  the  agreement
         (representing  the sale  proceeds  in excess of 95% in number  and face
         value of the policies subject to this agreement).




                                       5

<PAGE>

         Sale agreement dated February 10 , 1997

                  The Company entered into an agreement dated February 10, 1997,
         which provides for the sale of 67 HIV/AIDS policies having an aggregate
         face value of approximately $4.5 million. Under the agreement, a policy
         will not be sold if the  insured  dies prior to the  issuing  insurance
         company's acknowledgment of transfer of ownership of the policy.

                  The purchase price of each policy equals 66% of its face value
         plus 100% of  prepaid  premiums  ($3.0  million in  aggregate  purchase
         price). The estimated aggregate purchase price is required to be placed
         in escrow prior to the time that change in ownership  forms are sent to
         the insurance companies that issued the policies.  Under the agreement,
         the  purchase  price for each policy is to be  delivered to the Company
         after  the  issuing  insurance  company  acknowledges  in  writing  the
         transfer  of  ownership  of  the  policy  to  the  purchaser.  If  such
         acknowledgment  for a policy is not  received  within 30 days after the
         date the documents are delivered to the insurance company,  the sale of
         such policy may be rescinded.

                  The agreement contains cross indemnity  provisions pursuant to
         which the Company and the purchaser have agreed to indemnify each other
         against  losses,  liabilities or damages  arising in connection  with a
         claim  under any  policy or with any  breach of any  representation  or
         warranty made by the breaching party in the agreement.

                  The  policies  subject to the  agreement  were  carried on the
         balance  sheet at December 31, 1996 at $2.2 million after giving effect
         to the  reserve  for loss on assets held for sale.  Through March 17,
         1997,  the Company had collected  $800,000 in sale  proceeds  under the
         agreement (representing 22 of the number and $540,000 in carrying value
         of the policies subject to the agreement).

         Sale agreement dated March 24 , 1997

                  The Company  entered into an  agreement  dated March 24, 1997,
         which provides for the sale of 31 non-AIDS policies having an aggregate
         face value of approximately $2.9 million. Under the agreement, a policy
         will not be sold if the  insured  dies prior to the  issuing  insurance
         company's acknowledgment of transfer of ownership of the policy.

                  The purchase price of each policy equals 59% of its face value
         plus 100% of  prepaid  premiums  ($1.7  million in  aggregate  purchase
         price). The estimated aggregate purchase price is required to be placed
         in escrow prior to the time that change in ownership  forms are sent to
         the insurance companies that issued the policies.  Under the agreement,
         the  purchase  price for each policy is to be  delivered to the Company
         after  the  issuing  insurance  company  acknowledges  in  writing  the
         transfer  of  ownership  of  the  policy  to  the  purchaser.  If  such
         acknowledgment  for a policy is not  received  within 30 days after the
         date the documents are delivered to the insurance company,  the sale of
         such policy may be rescinded.

                  The agreement contains cross indemnity  provisions pursuant to
         which the Company and the purchaser have agreed to indemnify each other
         against  losses,  liabilities or damages  arising in connection  with a
         claim  under any  policy or with any  breach of any  representation  or
         warranty made by the breaching party in the agreement.

                  The  policies  subject to the  agreement  were  carried on the
         balance  sheet at December 31, 1996 at $1.5 million after giving effect
         to the reserve for loss on assets held for sale.


                                       6

<PAGE>

Consideration of Strategic Options
----------------------------------

         In  September  1996,  the  Company,  in light of the  uncertainties
facing its viatical settlement  business,  engaged Jefferies & Company,  Inc. to
assist the Company in its  evaluation of its strategic  direction.  The Board of
Directors  has not fully  evaluated  all  options and has not  determined  which
option is in the best interests of the Company and its  stockholders.  There can
be no assurance that a feasible option other than  liquidation  will be found or
that any option, if selected and pursued, will be profitable. Although the Board
of Directors  continues to consider  various  strategic  options,  the Board has
decided that disposition of assets in the  circumstances is prudent and a proper
means to reduce  risk of  further  deterioration  in the value of the  Company's
portfolio.  The Board has also  decided  that it is not  viable to  continue  to
operate a viatical  settlement  business  solely for non-AIDS  policies  while a
market for that type of policy develops, if it develops at all. As a result, the
Board of  Directors  in February  1997  approved  the  cessation of the viatical
settlement  business  and the  sale by the  Company  of its  non-AIDS  policies,
consisting of  approximately  31 policies with a face value of $2.9 million.  If
the ownership of the policies  subject to the sale  agreements  described  under
"Asset Sales -- Terms of Sale Agreements" are successfully  transferred pursuant
to the terms of such agreements,  the only remaining policies will be those held
by DPFC (with a face value of $47.6 million at December 31, 1996).

         On November 4, 1996, the Company made a strategic equity  investment of
$3.0  million in  convertible  preferred  stock and an option to buy 8.2 million
shares of common stock  (approximately  11.4% of the common stock at November 4,
1996)  of  American  Information  Company,  Inc.  ("American  Information"),   a
privately held company which, among other things,  provides information services
to individuals owning or purchasing automobiles. On March 18, 1997, the Company,
following  conversion of 8.2 million shares of convertible  preferred stock into
8.2 million  shares of shares of common stock,  sold such shares  (approximately
38% of the  Company's  30% equity  investment  in  American  Information)  to an
unaffiliated  third party for $1.83 million.  The estimated pre-tax gain on this
transaction  is $700,000  which will be recognized in the first quarter of 1997.
At March  18,  1997 the  Company  owned  approximately  14.7% of the  equity  of
American  Information  and the shares  which the Company is entitled to purchase
under  the  option  represent  approximately  9.0%  of the  equity  of  American
Information. The Company accounts for this investment using the cost method. See
"Note 6 of Notes to Consolidated Financial Statements".

Viatical Settlement Business
----------------------------

         The  Company's  viatical  settlement  business  involved the  following
principal steps: (a) origination of policy purchases through a referral network,
(b) underwriting,  which included evaluating the terms of a policy and, with the
assistance of one or more independent  physicians or other medical  consultants,
estimating  the life  expectancy  of the insured,  (c) closing the  transaction,
which included  execution of a sale agreement,  releases of beneficiaries and an
insurance  policy  assignment  as well as payment  of the  purchase  price;  (d)
monitoring the insured and the policy;  and (e)  collecting the policy  proceeds
following the insured's  death.  Each of these steps is described in more detail
in the  Company's  Form 10-K for the fiscal  year ended  December  31, 1995 (the
"1995  10-K").  The  Company  has ceased  purchasing  policies  and,  therefore,
monitoring and collection activities are the only steps that continue.

     Monitoring
     ----------

         Following  the  purchase  of a life  insurance  policy,  the insured is
regularly monitored to obtain timely information  concerning the insured so that
proceeds  may be collected  as promptly as possible  following  the death of the
insured.  In addition to tracking the medical status and location of an insured,
the Company also  monitors the  policy  to  ensure it does not lapse  because
of a failure  to timely  pay premiums.  Some  protection  against the


                                       7

<PAGE>

failure to pay  premiums is  provided by  statutory  or policy  provisions  that
require  insurance  companies to provide  written  notice  before  terminating a
policy  for  failure  to pay  premiums.  As owner of record of the  policy,  the
Company  generally  receives  such  notice  directly.  Furthermore,  the Company
monitors  the policy to ensure that premium  waivers are renewed and that,  when
required,  the  policy  is  converted  (e.g.,  from a group  term  policy  to an
individual whole life policy) in a timely manner.

     Collection
     ----------

         Once an insured has died, a request for a copy of the death certificate
is filed in the appropriate  governmental  office. Often the insured's family or
companion  also  submits a copy of the death  certificate  to the  Company.  The
Company then files the death certificate with the insurance company and requests
payment of the policy proceeds. The Company monitors the collection status until
it receives the face value of the policy.  Monitoring  of  collection  status is
assisted by the Company's  management  information  system.  Insurance companies
have an  incentive  to pay  promptly on  policies  because  most states  require
insurance  companies  to pay  interest on claims which take more than 30 days to
settle.  Actual  collections  generally occur within 30 to 55 days following the
death of the  insured.  However,  in  certain  states  (e.g.,  New York)  actual
collections  take a  longer  period  of time  due to  delays  in  processing  of
documents by state authorities.

Policy and Portfolio Information
--------------------------------

         As of December 31, 1996,  excluding  policies subject to a pending sale
agreement,  the  Company  owned 754  policies  on the  lives of 578  individuals
(including  policies  owned by DPFC).  Information  with respect to the types of
policies the Company has purchased,  the geographic  location of the individuals
insured thereunder, the obligors which issued such policies and statistical data
with  respect to the  historical  performance  of the  Company's  portfolio  was
provided in the Company's 1995 10-K.  Since the Company is no longer  purchasing
policies and has sold or entered into contracts to sell all or substantially all
of its  policies  (other that those held by DPFC),  the Company does not believe
such  information  is  meaningful or  comparable  to that  previously  provided.
However, because generally accepted accounting principles require the Company to
recognize  a loss to the extent  that the  carrying  value of the assets of DPFC
become less than the  carrying  value of its  liabilities,  notwithstanding  the
non-recourse  nature of the  Securitized  Notes,  the  Company  has  included  a
discussion   regarding   certain   information   about  DPFC's  portfolio  under
"Management's  Discussion and Analysis -- Certain  Accounting  Implications  for
DPFC."

Employees
---------

         As of December 31, 1996, the Company employed 15 individuals (including
the Executive  Officers),  two of whom (in addition to the  Executive  Officers)
also perform services on behalf of New Echelon.  None of the Company's employees
is a member of a labor  union.  The  Company  believes  that it  maintains  good
relations with its employees.

ITEM 2--PROPERTIES
------------------

         The Company currently leases  approximately 5,900 square feet of office
space in San Francisco which it shares with New Echelon LLC. The Company,  which
is the lessee  under the lease,  charges  New Echelon LLC for 35% of the rent of
the entire office space. See "Certain  Relationships and Related  Transactions."
The Company  believes  that its current  office  space will be adequate  for its
purposes through the expiration of the lease in 1999. The Company also maintains
an office in Incline Village, Nevada.


                                       8

<PAGE>

ITEM 3--LEGAL PROCEEDINGS
-------------------------

         From time to time, the Company is involved in routine legal proceedings
incidental  to  its  business,  including  litigation  in  connection  with  the
collection of amounts owed by insurance company  obligors.  The Company does not
expect that these  proceedings,  individually  or in the aggregate,  will have a
material  adverse  effect on the  Company's  financial  position,  liquidity  or
results of operations.

         On  December  19,  1996,  a  complaint  was filed in the United  States
District Court,  Northern  District of California  (Docket No. C96-4558) against
Dignity Partners, Inc. and each of its directors by three individuals purporting
to act on behalf of themselves and an alleged class consisting of all purchasers
of the  Company's  common stock during the period  February 14, 1996 to July 16,
1996. The complaint  alleges that the defendants  violated  Section 10(b) of the
Securities  Exchange Act of 1934 and Rule 10b-5 thereunder and Section 11 of the
Securities  Act of 1933 and seeks,  among other  things,  compensatory  damages,
interest,   fees   and   costs.   The   allegations   are   based   on   alleged
misrepresentations  in and omissions from the Company's  registration  statement
and  prospectus  related to its initial  public  offering and certain  documents
filed by the  Company  under  the  Exchange  Act.  The  Company  and each of the
defendants intend to defend the action vigorously.

         On February 13, 1997,  a complaint  was filed in the Superior  Court of
California, City and County of San Francisco (Docket No. 984643) against Dignity
Partners,  Inc.,  and  each of its  executive  officers  and New  Echelon  by an
individual  purporting  to  act on  behalf  of  himself  and  an  alleged  class
consisting of all  purchasers  of the  Company's  common stock during the period
February 14, 1996 to July 16, 1996.  The complaint  alleges that the  defendants
violated  section 25400 of the  California  Corporate  Code and seeks to recover
damages. The allegations are based on alleged misstatements,  concealment and/or
misrepresentations and omissions of allegedly material information in connection
with the Company's  initial  public  offering and  subsequent  disclosures.  The
Company and each of the defendants intend to defend the action vigorously.

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

         At a special  stockholders'  meeting  held on December  16,  1996,  the
stockholders  of Dignity  Partners,  Inc.  approved a proposal to authorize  the
Company's Board of Directors to sell all or  substantially  all of the Company's
assets.  The voting tallies were 2,674,338  votes for,  10,885 votes against and
1,606,601 withheld/not voted.


                                       9

<PAGE>

                                     PART II

ITEM 5--MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
-------------------------------------------------------------
          STOCKHOLDERS MATTERS
          --------------------

         The  Company's  Common  Stock is listed on The  Nasdaq  Stock  Market's
National Market System under the symbol "DPNR". As of March 10, 1997, there were
approximately 15 holders of record of Common Stock,  including banks,  brokerage
firms and other nominees.  A substantial portion of the publicly-held  shares of
Common Stock are held in book-entry  form. The following  table sets forth,  for
the  fiscal  quarters  indicated,  the high and low sales  prices for the common
stock on the National  Market  System.  The Company's  initial  public  offering
occurred in February 1996.

<TABLE>
<CAPTION>

                 <S>                                    <C>         <C>
                 1996                                    High          Low
 First Quarter (beginning February 14, 1996) .........$ 14 1/2      $ 11 1/8
 Second Quarter ......................................  13 3/4         6 1/2
 Third Quarter .......................................   9             1
 Fourth Quarter ......................................   3 15/32       2 1/8

</TABLE>

         The  Company  has  never  declared  or paid any cash  dividends  on its
capital stock.  The Indenture  limits the Company's  ability to pay dividends by
restricting,  prior to repayment in full of the Securitized Notes, the Company's
access to cash generated through the collection of pledged policies. The Company
currently  intends to retain its future earnings,  if any, to finance its review
of  strategic  options and any new  business  that may result from such  review.
Therefore,  the Company does not anticipate  paying cash dividends on the Common
Stock for the foreseeable future.


                                       10

<PAGE>

ITEM 6--SELECTED FINANCIAL DATA
-------------------------------

         The  data  presented  below  should  be read in  conjunction  with  the
consolidated financial statements and notes thereto and "Management's Discussion
and  Analysis  of  Financial  Condition  and  Results  of  Operations"  included
elsewhere  herein.  For the reasons set forth in  "Management's  Discussion  and
Analysis  of  Financial  Condition  and  Results  of  Operations  --  Method  of
Accounting,"  information for 1996 and as of December 31, 1996 is not comparable
to prior  periods.  In addition,  the  expected  collection  period  information
presented  below  under  "Operating  Data"  represents  the  period   originally
established  by the  Company at the time of  purchase of each policy and has not
                                                                             ---
been adjusted to reflect the uncertainty  resulting from new treatments for AIDS
and HIV.

<TABLE>
<CAPTION>
                                                 Years Ended December 31,
                                                 ------------------------

                                           1996      1995      1994      1993(1)
                                           ----      ----      ----      ------
                                (Dollars in thousands, except per share amounts)

<S>                                       <C>       <C>       <C>       <C>
Statement of Operations Data:
-----------------------------
Earned discounts on life
  insurance policies (2) ..............   $ 3,697   $ 6,933   $ 4,240   $   420
Earned discounts on prior maturities
  and matured policies (2) ............     1,782        --        --        --
Total income ..........................     6,584     7,389     4,443       437
Interest expense ......................     3,984     3,352     1,115        52
Net loss on assets sold ...............       180        --        --        --
Provision for loss on assets held for
  sale ................................     3,140        --        --        --
Loss on investment in wholly owned
  financing subsidiary ................     6,940        --        --        --
Total expenses ........................    17,297     5,394     2,279       776
Income (loss) before income taxes,
  minority interest, equity in loss of
  unconsolidated subsidiary and net
  loss in wholly owned financing
  subsidiary charged to reserve for
  equity interest .....................   (10,713)    1,996     2,163      (339)
Income tax benefit (expense) ..........       526      (625)     (137)      229
Minority interest of limited partners
  in earnings of investment
  partnership (3) .....................        --       568     1,791       236
Net loss in wholly owned financing
  subsidiary charged to reserve for
  equity interest .....................       488        --        --        --
Net income (loss) .....................    (9,699)      803       235      (347)
Net income (loss) per common share (4).   $ (2.46)  $  0.42   $  0.19   $(10.15)
Weighted average number of common and
  common equivalent shares outstanding
  (in thousands) (4) ..................     3,942     1,902     1,211        34

Operating Data:
---------------
Number of policies purchased during
  period ..............................       475       386       469       197
Number of policies sold during
  period (5) ..........................       257        --        --        --
Number of policies outstanding,
  end of period (6) ...................       754       749       548       188
Aggregate purchase price of policies
  purchased during period (7) .........   $24,099   $21,757   $25,449   $ 9,476
Aggregate face value of policies
  purchased during period .............   $33,132   $29,688   $35,555   $15,490
Aggregate face value of policies sold
  during period (5) ...................   $20,810        --        --        --
Aggregate face value of portfolio of
  policies, end of period (6) .........   $56,792   $59,744   $43,205   $14,785
Weighted average expected collection
  period for policies purchased during
  period (8) ..........................  36.9 mos. 26.2 mos. 23.4 mos. 20.6 mos.
Weighted average remaining expected
  collection period (9) ...............  11.1 mos. 14.0 mos. 15.8 mos. 16.7 mos.


                                       11

<PAGE>

Balance Sheet Data (at period end):
------------------
Cash and cash equivalents .............   $ 6,586   $ 1,057   $    31   $ 1,073
Assets held for sale ..................    11,520        --        --        --
Purchased life insurance policies .....    41,246    48,938    32,916    11,446
Total assets ..........................    68,944    58,226    35,433    13,967
Reserve for equity interest in wholly
  owned financing subsidiary ..........     6,453        --        --        --
Long-term notes payable ...............    41,218    39,105        --        --
Other long term debt ..................        --     1,444    18,447        --
Total liabilities .....................    48,802    46,680    22,176       594
Minority interest of limited partners
  in investment partnership (3) .......        --     6,680     9,195    10,035
Total stockholders' equity ............    20,142     4,866     4,062     3,339

<FN>

(1)  The Company commenced operations on January 2, 1993 and commenced
       purchasing  life  insurance  policies  on April 4, 1993.
(2)  See "Management's Discussion and Analysis of Financial Condition and
       Results of Operations - Method of Accounting."
(3)  The minority interest  represents the interest of the former limited
       partners of Dignity Viatical in the net assets and  income of  Dignity
       Viatical.  See "The  Company - Dignity  Viatical  and  Dignified  One"
       and  "Management's Discussion and Analysis of Financial Condition and
       Results of Operations".
(4)  Reflects the  Reorganization,  the Reverse Stock Split and the conversion
       of shares of Convertible  Preferred Stock outstanding  during the periods
       presented  into  shares  of  Common  Stock  as if such  transactions  had
       occurred at the beginning of each period presented.  See Note 14 of Notes
       to Consolidated Financial Statements.
(5)  Represents  policies sold or covered by a sale agreement  executed during
       1996.  The  aggregate  sales price does not  represent  the cash actually
       received by the Company during 1996 for the sale of such policies.
(6)  Includes policies  categorized as "assets held for sale," "purchased life
       insurance policies" and "matured policies receivable."
(7)  Consists of the purchase price and additional costs  capitalized  through
       the  end of the  period.  The  aggregate  purchase  prices  shown  in the
       respective  periods do not  necessarily  represent the cash actually paid
       for  the  policies  in  such  periods  as  reflected  in  the   Company's
       consolidated  statements  of cash  flows.  The  purchase  prices  include
       amounts  paid or  payable  in a  subsequent  period  for the face  values
       acquired in the periods shown. In addition,  the aggregate purchase price
       for 1993  includes  the  purchase  price of policies  contributed  to the
       Company by Echelon in exchange for common stock.
(8)  Represents the average original  expected  collection  period weighted by
       the face value of each policy purchased during the period.
(9)  Represents the average remaining expected collection period (based on the
       original expected collection period and the time elapsed) weighted by the
       face value of each policy for  "assets  held for sale,"  "purchased  life
       insurance  policies" and "matured policies  receivable" at the end of the
       period.

</FN>
</TABLE>

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

         The  following  is  a  discussion  and  analysis  of  the  consolidated
financial  condition  and  results of  operations  for the Company for the years
ended December 31, 1996,  1995 and 1994, 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  consolidated  financial
statements and related notes  appearing  elsewhere  herein.  For the reasons set
forth below  (including  the  reclassification  into "assets held for sale" of a
substantial  portion of the  Company's  assets in the third  quarter of 1996 and
related  accounting  consequences)  the Company's results of operations and cash
flows for 1996 are not comparable to prior periods.


                                       12

<PAGE>

Overview
--------

         Dignity Partners,  Inc. is a specialty financial services company.  The
principal  business activity of the Company through February 1997 was to provide
viatical  settlements for terminally ill persons.  A viatical  settlement is the
payment of cash in return for an ownership interest in, and right to receive the
death benefit (face value) from, a life insurance policy. The Company was formed
in September 1992 as a wholly-owned subsidiary of Echelon,  commenced operations
on January 2, 1993 and commenced  purchasing  life  insurance  policies in April
1993.  Effective  September  30, 1995,  Echelon was merged with and into Dignity
Partners as part of the  Reorganization.  See "The Company -- The Reorganization
and the Reverse Stock Split." The Merger had no material impact on the Company's
financial  condition or results of operations except for the effect on per share
calculations. See Note 14 of Notes to Consolidated Financial Statements.

Cessation of Viatical Settlement Business; Sale of Assets
---------------------------------------------------------

         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 individuals afflicted with AIDS and HIV while
it further analyzed the effects of such research results on its business and its
strategic  options.  Further analysis resulted in the Company's  concluding that
the efficacy of the treatments  reported at the AIDS Conference and subsequently
reported  treatments have increased the risks of purchasing and holding policies
insuring the lives of individuals  diagnosed with HIV and AIDS, especially those
individuals  with longer  life  expectancies.  The Company  decided in the third
quarter of 1996 to sell all or substantially  all of its assets.  As a result of
such  decision,  the  Company  reclassified  all of its assets  (other  than the
policies held by DPFC) to a "held-for-sale" category during the third quarter of
1996. 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.

         The Company sought and received on December 1996 stockholder  approval
to sell all or  substantially  all of its assets.

         Based  on the  Company's  evaluation  of the  effects  of the  research
results  reported  at the AIDS  Conference  and  subsequent  reports  and  other
information,  the Company  believes  that it is  extremely  difficult to predict
accurately life expectancy of people afflicted with HIV and AIDS.  Further,  the
Company  decided  that it is not  viable  to  continue  to  operate  a  viatical
settlement  business  solely for non-AIDS  policies  while a market for non-AIDS
policies develops, if it develops at all. As a result, the Board of Directors in
February 1997 approved the cessation of the viatical settlement business and the
sale by the Company of its non-AIDS  policies,  consisting of  approximately  31
policies  with a face value of $2.9  million.  If the Company is  successful  in
selling such policies, the only remaining policies will be those held by DPFC.

        Through  March 24, 1997 the Company had sold or entered into  agreements
to sell  approximately  373 policies with an aggregate  purchase  price of $19.5
million,  representing  $29.2  million in  aggregate  face  value.  The  Company
reported a pre-tax loss of $179,548 in 1996 and expects to report a pre-tax gain
of $1.5 million in the first half of 1997 in  connection  with the policies sold
pursuant to these sale agreements. See "Year Ended December 31, 1996 Compared to
Year Ended December 31, 1995 -- Net loss on assets sold."


                                       13

<PAGE>

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 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  Consultants
(i.e.,  independent  physicians  or other medical  consultants  retained for the
purpose of estimating  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
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.

         As a result of the Company's  decision to sell all or substantially all
of its assets,  the Company  established  a reserve for loss on sale of assets
during the quarter  ended  September  30, 1996.  The Company also  established a
reserve  for loss of the  Company's  equity  interest in DPFC during the quarter
ended  September  30,  1996  because  of the  uncertainties  created by the data
presented at the AIDS  Conference and subsequent  reports of the efficacy of new
treatments  for AIDS/HIV.  As of December 31, 1996, such reserves were $2.9
million and $6.5  million,  respectively.  In  addition,  beginning in the third
quarter of 1996, the Company began generally  recognizing income upon receipt of
proceeds on policies (either pursuant to 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  reserve  for loss on the sale of such policies or any reserve for loss of
the Company's equity interest in DPFC. The calculation of the reserve for loss
on assets held for sale was  calculated  based on the life  expectancies  of the
insureds  under the  policies in  relation to prices  obtained by the Company in
connection with other sales.

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 9 of  Notes to  Consolidated
Financial  Statements.  DPFC has purchased  902 policies with an aggregate  face
value of $67.1  million and will not  purchase any more  policies.  The carrying
value of the policies  held by DPFC was $41.2  million at December 31, 1996.  In
addition,  because Dignity Partners  controlled  Dignity  Viatical,  the assets,


                                       14

<PAGE>

liabilities and operations of Dignity Viatical have been consolidated with those
of the Company in the consolidated financial statements.  Through June 30, 1996,
Dignity  Viatical had  purchased  169 policies  with an aggregate  face value of
$13.9 million.  The minority  interest of former 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."

Certain Accounting Implications for DPFC
----------------------------------------

        Under generally accepted accounting  principles,  to the extent that the
carrying  value of the  assets of DPFC are less than the  carrying  value of its
liabilities,  the Company  would be  required  to  recognize a loss equal to the
amount  of such  difference,  notwithstanding  the  non-recourse  nature  of the
Securitized  Notes.  At December 31, 1996 and  February  28, 1997,  the carrying
value of the assets of DPFC were $47.2 million and $45.2  million,  respectively
(consisting of purchased life insurance policies,  restricted cash and a portion
of matured  policies  receivables)  and its  liabilities  were $41.2 million and
$40.0 million ,  respectively  (consisting of long term notes payable,  i.e. the
Securitized Notes).

        Although the  Securitized  Notes had an expected  life of 2.1 years when
the aggregate  maximum  principal amount of the Securitized  Notes was increased
from $35 million to $50 million in September  1995, the Company does not believe
that the Securitized Notes will be retired through  collections by October 1997.
The Company  believes  that,  if the  Securitized  Notes are not retired by late
2001, the assets of DPFC will become less than its liabilities because the costs
of carrying the Securitized Notes,  including interest and servicing and trustee
fees, will deplete collections  available to repay principal.  In the event that
the collection experience for DPFC policies is substantially delayed, the assets
of DPFC may become less than its liabilities before late 2001.

        Additionally,  if the  collection  experience  for the DPFC  policies is
substantially  delayed,  the value of the assets of DPFC may erode  further  for
some of the following reasons.  First, a decision to discontinue paying premiums
on some  policies  may be made because the present  value of the expected  death
benefit on some policies may be less than expected future premiums to be paid on
such policies.  Second,  the face value of certain  policies  (especially  group
term) may begin to  decrease as the people  whose  lives are insured  thereunder
reach specified age levels (often 65). Finally, policies for which the insurance
was continued under a disability  provision may be uneconomical to convert given
the  insured's  age and life  expectancy  if such  insured  person  is no longer
considered  disabled.  The Company cannot  determine at present  which,  if any,
policies held by DPFC would be so affected.

        In light of the foregoing, the Company believes that it is possible that
the Company may, in the future under generally accepted  accounting  principles,
be required to recognize a further loss to the extent that the carrying value of
the assets of DPFC is less than its liabilities.  However,  when the Securitized
Notes are finally  discharged or mature,  the Company under  generally  accepted
accounting principles would recognize a gain in an amount equal to the aggregate
amount of any such losses recognized.  The Securitized Notes represent the
obligations solely of DPFC and were not guaranteed by the Company.  Therefore,
the Company is not required to fund any principal deficiencies.

Share Repurchase Program
------------------------

         In October 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 Common Stock at


                                       15

<PAGE>

prevailing  market prices.  Through  December 31, 1996,  145,000 shares had been
repurchased at a weighted average price of $2.69 per share.

Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
---------------------------------------------------------------------

         Earned Discounts.  The Company purchased 475 policies with an aggregate
face value of $33.1 million  during the year ended December 31, 1996 compared to
the  purchase of 386  policies  with an  aggregate  face value of $29.7  million
during  1995.  Of the 475  policies  purchased  in 1996,  133  policies  with an
aggregate  face value of $8.1 million  were  purchased in the second half of the
year.  Earned  discounts on life insurance  policies  decreased  46.4% from $6.9
million during 1995 to $3.7 million through June 30, 1996.

         Effective  June 30, 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 reserve to reflect  estimated  loss of the Company's
equity  interest  in DPFC  because  of the  uncertainties  created  by the  data
presented at the AIDS  Conference and  subsequently  reported data. As a result,
beginning  on July 1, 1996,  the  Company  began  recognizing  income  only upon
receipt  of  proceeds  on  policies  (pursuant  to the  death  of the  insured).
Consequently,  the  Company  did not  recognize  any  earned  discounts  on life
insurance  policies  during  the second  half of 1996,  but  instead  recognized
$980,000 of earned discounts on matured policies for such period. 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  reserve  for loss on the sale of such
policies and any reserve for loss of the Company's  equity interest in DPFC. See
Notes 1d,  1e, 4 and 5 to the Notes to  Consolidated  Financial  Statements.  In
addition,  in connection with the decision to sell all or  substantially  all of
the  Company's  assets,  in the third  quarter  of 1996 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 has not had earned  discounts  on prior
maturities since the third quarter of 1996 and will have none in future periods.

         Interest Income.  Interest income increased dramatically (193%) in 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  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 1996 due mainly to collections on a larger portfolio and
a $80,000 aggregate increase in face value on two policies.

         Interest  Expense.  Interest expense increased 17.6% to $4.0 million in
1996 from $3.4  million  in 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 $42.7 million in 1996 compared to
$26.7 million in 1995. The interest rate on the  Securitized  Notes decreased to
9.2% in October 1995 from 9.5%.  Borrowings under the Company's revolving credit
facility  bore a dollar  weighted  interest  rate of 12.1% and 13.6% in 1996 and
1995,  respectively.  Average  borrowings were $800,000 in 1996 compared to $4.2
million in 1995. See "Notes 8 and 9 of Notes to Consolidated  Financial
Statements",  and "Liquidity and Capital  Resources" and "Description of
Securitized  Notes" below for further information regarding the Securitized
Notes and revolving credit facility.

         Compensation and Benefits. Compensation and benefits increased 41.8% in
1996  compared to 1995 due to the hiring of  additional  personnel to handle the
administrative  tasks relating to the Company's  relatively larger


                                       16

<PAGE>

portfolio and non-broker referral business and to support the Company's relative
growth in the first six months of 1996.  Subsequent to the AIDS  Conference  and
the cessation of new  application processing,  the number of employees decreased
from 27 on July 16, 1996 to 15 at December 31, 1996.

         Other   General  and   Administrative   Expenses.   Other  general  and
administrative  expenses  increased 56.0% to $1,388,000 in 1996 from $890,000 in
1995. Expenses for legal, accounting,  insurance,  director fees and advertising
increased in 1996 an aggregate of $483,000, in part as a result of the Company's
status  as a public  company,  activities  related  to the  special  meeting  of
stockholders  of the Company held in December 1996 and new business  development
activities. Additionally, because the Company ceased processing applications for
policies  insuring  individuals  with AIDS and HIV,  approximately  $110,000  of
medical review costs associated with such policies in the  underwriting  process
were expensed in 1996. The Company also recorded in 1996, a one-time  expense of
$92,000 to recognize the fair value of warrants issued to Jefferies & Company to
purchase  up to  300,000  shares  of  Common  Stock.  See  Note 16 of  Notes  to
Consolidated Financial Statements.

         Amortization. Because the Company prepaid its revolving credit facility
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 that facility.

         Net loss on assets sold.  The total net loss recorded in 1996 on assets
sold was  $180,000.  On August 2, 1996,  the Company  sold 58  policies  held by
Dignity  Viatical and two other policies to an  unaffiliated  third party.  This
transaction resulted in a pre-tax loss in the amount of approximately  $300,000.
Also  recorded in 1996,  was a gain totaling  $120,000 on proceeds  collected in
respect to policies sold pursuant to the September Sale Agreement.  The realized
gain was  calculated  based on the  difference  between  the sale  value and the
carrying value after giving effect to the provision for loss on sale of assets.

         Provision  for loss on assets held for sale.  The  Company  recorded in
1996 a  provision  for loss on sale of assets  totaling  $3.1  million  based on
management's  estimate  of proceeds  from the sale of  policies.  The  provision
equals  the  difference  between  the  carrying  value  of  policies  and  those
estimates.  The  estimates  are based on the life  expectancies  of the insureds
covered by the policies,  the estimated  sale period and the prices  obtained by
the  Company in  connection  with  other  sales of  policies.  For  purposes  of
calculating  such loss  provisions,  furniture and equipment have been valued on
the assumption that miscellaneous office equipment has no sales value.

         Loss on investment in wholly owned financing subsidiary. As of June 30,
1996,  the Company had an initial  capital  investment  recorded of $2.9 million
and,  through  consolidation,  an  additional  $3.3 million of increased  equity
attributable to the earnings of DPFC. A reserve has been recorded in 1996 in the
amount of $6.9 million to reflect the  estimated  loss of the  Company's  entire
equity  interest  in DPFC.  This  reserve  includes  the  write-off  of deferred
financing costs in an amount equal to  approximately  $740,000.  See "-- Certain
Accounting Implications for DPFC."

         Income Taxes.  Income tax expense decreased in 1996 over the comparable
period in 1995.  This decrease was a result of the loss provision on assets held
for sale and equity loss of wholly owned financing  subsidiary recorded in 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 former 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 1996  compared  to  $568,000  for  1995.  Dignity  Partners  purchased,
effective June 25, 1996, the limited partnership interests of the former limited
partners for approximately $5.2 million.


                                       17

<PAGE>

     Net loss in wholly owned financing subsidiary charged to reserve for equity
interest.  In the fourth  quarter  of 1996,  the DPFC net loss of  $488,000  was
included in the Company's net loss before  income taxes,  minority  interest and
net loss in wholly  owned  financing  subsidiary  charged to reserve  for equity
interest.  This loss was charged against the initial reserve for equity interest
in wholly owned financing  subsidiary which was recorded in the third quarter of
1996.  For a  description  of the  composition  of such  reserve,  see  "Loss on
investment in wholly owned financing subsidiary" above.

Year Ended December 31, 1995 Compared to Year Ended December 31, 1994.
----------------------------------------------------------------------

         Earned Discounts on Life Insurance Policies.  The Company purchased 386
policies  with an aggregate  face value of $29.7  million  during the year ended
December 31, 1995  compared to the  purchase of 469  policies  with an aggregate
face value of $35.5 million  during 1994.  The purchase of policies  during 1995
was adversely impacted by capital  constraints  (particularly in the latter half
of 1995 as compared to the latter half of 1994) and rising  purchase prices as a
result of increased  competition during 1995. Earned discounts on life insurance
policies  increased 63.5% from $4.2 million during 1994 to $6.9 million in 1995,
primarily as a result of the Company  recognizing income over the 1995 period on
a larger  portfolio  of policies.  The Company  began 1995 with  purchased  life
insurance  policies  of $32.9  million,  which was 188%  larger than that at the
beginning  of  1994.  To a lesser  extent,  the  increase  in  earned  discounts
reflected a decrease in the weighted  average  remaining  Accrual  Period of the
portfolio of purchased life  insurance  policies to 15.8 months at the beginning
of 1995 from 16.7  months at the  beginning  of 1994;  accordingly,  the  earned
discount  was  accrued at a faster  rate in 1995 than that in 1994.  Competition
also resulted in increased purchase prices, thereby reducing the earned discount
in 1995  relative to the earned  discount in 1994 on  policies  with  comparable
Accrual Periods.

         Interest Expense. Interest expense increased from $1.1 million for 1994
to $3.4 million for 1995. This increase was primarily  attributable to increased
debt obtained  through  advances of Securitized  Note proceeds during 1995 which
were used to fund policy purchases.  In addition,  interest rates were generally
higher in 1995,  though  this  factor was offset  somewhat  by the  issuance  in
February  1995 of the  Securitized  Notes,  which bear  interest at a fixed rate
(9.5% until, and 9.2% after, September 30, 1995) compared to a floating interest
rate ranging from 8.8% to 13.8%  applicable  to  borrowings  under the Company's
revolving credit facility during 1994.  Interest  expense  increased at a faster
rate than the  increase  in the  aggregate  cost of policies  purchased  through
December 31, 1995 due to the increased leverage in 1995.

         Compensation  and Benefits.  Compensation  and benefits  increased from
$619,000  for 1994 to  $844,000  for 1995.  This 36.2%  increase  was due to the
hiring of additional  personnel during 1995 to handle the  administrative  tasks
relating to the Company's increased portfolio and non-broker referral business.

         Other   General  and   Administrative   Expenses.   Other  general  and
administrative  expenses for 1994 were $302,000,  compared to $890,000 for 1995.
To the extent the Company  reviews a policy  which it does not  purchase,  costs
associated with the review of the policy, such as fees paid to Consultants,  are
not capitalized,  but are expensed as other general and administrative expenses.
During 1995, the Company  purchased a lower percentage of policies  reviewed due
to  competition  and to a smaller  percentage of reviewed  policies  meeting the
Company's underwriting  standards. As a result, other general and administrative
expenses increased  disproportionately to the growth in the Company's portfolio.
In addition, during 1995, the Company purchased more policies originated through
non-broker sources. Under these circumstances, certain costs traditionally borne
by the  Company's  sourcing  brokers,  such as the  costs of  obtaining  medical
records  and  insurance  information,   were  incurred  by  the  Company.  These
additional  costs were not capitalized even if the policy was purchased and were
expensed as other  general and  administrative  expenses.  Finally,  the Company
reserved  approximately  $125,000


                                       18

<PAGE>

and  incurred  an  additional  $135,000  more  (approximately)  in legal fees in
connection with two Dignity Viatical  collection disputes (one of which has been
awarded in favor of the Company and one of which is on appeal) compared to 1994.

         Income  Taxes.  Income tax expense  increased  from  $137,000  for
1994 to  $625,000  for 1995.  The  increase is primarily the result of the
Company's increased profitability in 1995 relative to 1994.

         Minority  Interest  of  Limited  Partners  in  Earnings  of  Investment
Partnership. The minority interest of limited partners in earnings of investment
partnership  (which is derived  primarily  from  earned  discounts  on  policies
acquired by Dignity  Viatical)  decreased from $1.8 million for 1994 to $568,000
for 1995.  The decrease was due to the timing of the  acquisition of policies by
Dignity Viatical and the Accrual Periods applicable to those policies (and hence
the  recognition  of earned  discounts on those  policies).  The  decrease  also
resulted from incurrence by the Company of legal expenses  described above under
"--Other General and Administrative Expenses."

Liquidity and Capital Resources
-------------------------------

         The Company does not currently  have an external  funding  source.  The
Securitized  Notes  do not  provide  funds  with  which to fund  operations.  At
December 31, 1996, cash and cash  equivalents  was $6.6 million.  The Company is
analyzing its current and future needs for financing, which will be dependent on
its  strategic  direction.  There can be no  assurance  that the Company will be
successful in obtaining  external  financing on  satisfactory  terms assuming it
determines  it  needs  additional  funds.   However,   the  Company  at  present
anticipates  having  sufficient  liquidity  to  meet  its  working  capital  and
operational needs through 1997, using the cash generated by the sale of policies
as described in "Asset Sales -- Terms of Sale Agreements" and by the partial
sale of convertible preferred shares of American Information as described in
"Condideration of Strategic Options."  Such needs may change significantly
depending on strategic options.

         As of  December  31,  1996,  the  outstanding  principal  amount of the
Securitized  Notes was $41.2 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.

Description of  Securitized Notes
---------------------------------

         The  Securitized  Notes were issued in 1995 pursuant to the  Indenture,
which provided for a maximum  lending  commitment of $50.0  million,  subject to
reduction of the commitment  amount or early  amortization  in April 1996 if the
outstanding  principal  balance  of the  Securitized  Notes was less than  $50.0
million.  Funds  advanced  under the  Securitized  Notes were used  primarily to
purchase  eligible policies which are pledged as collateral under the Indenture.
Prior to the Amortization  Date,  proceeds from collected policies pledged under
the Indenture  were  available to purchase  additional  policies.  Repayments of
principal  were  originally  scheduled  to begin  in  September  1996.  An early
amortization  event  occurred  in June 1996  with the  result  that the  maximum
lending  commitment was reduced to the then outstanding  balance ($45.5 million)
from $50.0 million,  the  Company lost the  ability  to use  proceeds  of policy
collections  to acquire  additional  policies and  principal  repayments  on the
Securitized  Notes began in July 1996. The Securitized  Notes bear interest at a
fixed annual rate of 9.2%.

         The principal amount of the Securitized Notes to be repaid in any month
is equal to proceeds  of  policies  collected  during the  preceding  month less
certain  required  monthly  payments (such as interest and servicing and trustee
fees) to be paid on such date.  The Indenture does not permit the sale of any of
the policies pledged


                                       19

<PAGE>

thereunder. An amendment of this prohibition on sales would require the consent
of all of the holders of the Securitized Notes and the Company.

         The  Indenture  also  contains   certain   covenants   restricting  the
activities of DPFC. Such covenants  include  provisions  which (i) prohibit DPFC
from incurring debt other than trade payables and expense  accruals and granting
liens unless such action would not cause S&P to downgrade or withdraw the rating
it assigned to the  Securitized  Notes,  and (ii) prohibit DPFC from engaging in
any business  other than the  acquisition,  ownership,  sale and pledging of the
Pool and the other trust estate,  the issuance and sale of the Securitized Notes
and  activities  incidental to the foregoing.  In addition,  DPFC is required to
maintain in an account under the Indenture (the  "Liquidity  Account") a balance
of 10% of the outstanding principal balance of the Securitized Notes. Subject to
certain  restrictions,  funds in the Liquidity Account may be used to pay, among
other  things,  servicing  and trustee  fees,  principal and interest and taxes.
Events of  default  under the  Indenture  include  (i) a default  in  payment of
principal or interest on the Securitized  Notes when due, (ii) a default by DPFC
in  the  performance  of  any  material  covenant  or  a  material  breach  of a
representation  or warranty of DPFC which is not cured within 30 days, and (iii)
certain events of bankruptcy, insolvency and reorganization involving DPFC.

         The  Company  acts  as  servicer  under  the  Indenture  pursuant  to a
Contribution,  Sale and Servicing  Agreement  (the  "Servicing  Agreement")  and
receives monthly,  pursuant and subject to the terms of the Indenture,  a fee of
$36,000  until the earlier to occur of  collection of the face value of the last
policy in the Pool or payment in full of the Securitized  Notes.  The Company is
required  under the Servicing  Agreement to monitor each policy and to cause the
collection and remittance to the trustee of the face value of matured  policies.
the Company pays all expenses related to its monitoring and collection services,
including  paying  premiums and back-end  fees,  and is  reimbursed  for certain
expenses.  All  amounts  owed to the  Company  pursuant  to the  monitoring  and
collecting activities are subject to availability of cash after payment of other
priority amounts as provided in the Indenture.  The Servicing Agreement contains
certain   covenants   restricting   the  Company's  activities,   including  (i)
restrictions  on mergers,  (ii)  provisions  related to respecting  the separate
legal  status of DPFC,  (iii) a  requirement  that no person  will own a greater
percentage  of the  aggregate  voting power of equity  securities of the Company
entitled to vote in the election of directors than the  percentage  collectively
beneficially  owned by the  Executive  Officers  and no  person  other  than the
Executive Officers will own more than 20% of such aggregate voting power, (iv) a
requirement  that the Executive  Officers  constitute a majority of the Board of
Directors of Dignity Partners,  and (v) a requirement that the Company employ at
least  two of  the  Executive  Officers  (or  such  other  personnel  reasonably
acceptable to the holders of the Securitized  Notes) in their respective current
capacities.  An event of default will occur under the  Servicing  Agreement  if,
among other things, (i) an event of default occurs under the Indenture,  or (ii)
certain events of bankruptcy, insolvency or reorganization occur with respect to
the Company.  If an event of default occurs under the Servicing  Agreement,  the
Company can be replaced as servicer under the Indenture. The back-up servicer is
the trustee under the Indenture.

Forward Looking Statements
--------------------------

         This report includes forward looking  statements  within the meaning of
the Private Securities Litigation Reform Act of 1995. All statements made herein
which are not based on historical  facts are forward  looking and,  accordingly,
involve  risks and  uncertainties  that  could  cause  actual  results to differ
materially from those discussed.  Such forward looking  statements include those
under  "Management's  Discussion and Analysis Of Financial Condition and Results
of  Operations"  relating to (i) expected gains to be reported in the first half
of 1997 on policies  subject to sales  agreements  (see the last paragraph under
"Cessation of Viatical Settlements Business; Sale of Assets"), (ii) expectations
regarding whether and the time at which the carrying value of the assets of DPFC
will be less than the carrying value of its liabilities (see "Certain Accounting
Implications for DPFC"),  and (iii)  sufficiency of the Company's  liquidity and
capital resources (see "Liquidity and Capital  Resources").  Such


                                       20
<PAGE>


statements are based on  management's  belief,  judgment and analysis as well as
assumptions made by and information  available to management at the date hereof.
In addition to any assumptions and cautionary  factors  referred to specifically
in this report in connection with such forward looking statements,  factors that
could cause actual  results to differ  materially  from those  contemplated  by
the  forward looking  statements  include (i) the amount and timing of actual
collections of sales  proceeds,  (ii) the  amount  and  timing  of actual
collections  of DPFC policies following the death of the insured,  (iii) the
results of the Company's consideration  of  strategic  options  and any  costs
associated  with a chosen option, and (iv) availability and cost of capital.

ITEM 8--FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
---------------------------------------------------
        See pages 22 through 43 .

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

        None other than the Change in accountants as previously reported.


                                       21

<PAGE>

KPMG Peat Marwick LLP
Three Embarcadero Center
San Francisco, CA 94111





                          INDEPENDENT AUDITORS' REPORT
                          ----------------------------

The Board of Directors and Stockholders of
Dignity Partners, Inc.:

We  have  audited  the  accompanying  consolidated  balance  sheets  of  Dignity
Partners,  Inc. as of December 31, 1996 and 1995,  and the related  consolidated
statements of operations,  stockholders'  equity, and cash flows for each of the
years in the  three-year  period ended  December 31,  1996.  These  consolidated
financial  statements are the  responsibility of the Company's  management.  Our
responsibility  is to express an opinion on these financial  statements based on
our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatements. 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 financial  position of Dignity Partners,
Inc. as of December  31, 1996 and 1995 and the results of their  operations  and
their cash flows for each of the years in the  three-year  period ended December
31, 1996, in conformity with generally accepted accounting principles.

                                             KPMG PEAT MARWICK LLP

March 26, 1997



                                       22

<PAGE>



                             DIGNITY PARTNERS, INC.

                           CONSOLIDATED BALANCE SHEETS
                           December 31, 1996 and 1995

<TABLE>
<CAPTION>

                                                December 31,       December 31,
                          ASSETS                    1996               1995
                                              ----------------   ---------------

<S>                                         <C>                <C>
Cash and cash equivalents                   $       6,586,447  $      1,056,611
Restricted cash  (note 9)                           4,625,663         4,566,845
Matured policies receivable (note 1m)               1,181,513         1,652,921
Assets held for sale (note  1d and 4)              11,520,103                --
Purchased life insurance policies (note 1e)        41,246,239        48,938,098
Investment in convertible preferred shares
     (note 6)                                       3,000,000                --
Furniture and equipment, net of accumulated
     depreciation of $0 and $61,349,
     respectively (note 1f and 4)                          --           130,532
Deferred financing costs, net of
     accumulated amortization of $381,690
     and $451,961, respectively (note 9)              681,910         1,043,541
IPO financing costs (note 2)                               --           750,000
Other assets                                          102,598            87,079
                                              ----------------   ---------------

     Total assets                           $      68,944,473  $     58,225,627
                                              ================   ===============

           LIABILITIES AND STOCKHOLDERS' EQUITY

Accrued expenses                            $         190,894  $        329,827
Accounts payable                                      320,577           377,204
IPO financing costs payable  (note 2)                      --           306,900
Payable to related party (note 2)                          --         1,482,170
Accrued compensation payable (note 2)                 186,390           849,148
Unearned income (note 1m and 5)                            --           715,883
Payable for policies purchased (note 1m)              427,553           376,020
Other short term debt (note 2)                             --         1,162,170
Reserve for equity interest in wholly owned
     financing subsidiary (note 1e)                 6,452,589                --
Long term notes payable  (note 9)                  41,218,205        39,105,138
Other long term debt (note 2 and 8)                        --         1,444,270
Deferred income taxes  (note 10)                        6,000           531,711
                                              ----------------   ---------------

     Total liabilities                             48,802,208        46,680,441
                                              ----------------   ---------------

Minority interest of limited partners
     in investment partnership (note 7)                    --         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                    29,496,720           669,594
     Retained earnings (deficit)                   (9,007,373)          692,104
     Treasury stock, 145,000 and 0 shares,
       respectively (note 2)                         (390,000)               --
                                              ----------------   ---------------
     Total stockholders' equity                    20,142,265         4,865,604
                                              ----------------   ---------------

     Total liabilities and
       stockholders' equity                 $      68,944,473  $     58,225,627
                                              ================   ===============

</TABLE>


          See accompanying notes to consolidated financial statements.


                                       23

<PAGE>

                             DIGNITY PARTNERS, INC.

                  CONSOLIDATED STATEMENTS OF OPERATIONS
              For the Years Ended December 31, 1996, 1995 and 1994

<TABLE>
<CAPTION>


                                           1996          1995          1994
                                       ------------  ------------  ------------
<S>                                    <C>           <C>           <C>

Income:
  Earned discounts on life
    insurance policies (note 5)        $  3,697,032  $  6,933,318  $  4,239,995
  Earned discounts on prior
    maturities (note 5)                     802,471            --            --
  Earned discounts on matured
    policies (note 5)                       979,611            --            --
  Interest income                           783,115       266,979       118,079
  Other                                     322,141       189,079        84,579
                                       ------------  ------------  ------------
     Total income                         6,584,370     7,389,376     4,442,653

Expenses:
  Interest expense                        3,983,606     3,352,178     1,115,167
  Compensation and benefits               1,196,291       843,646       619,250
  Other general and administrative
    expenses                              1,388,338       889,816       301,984
  Amortization (note 8 and 9)               449,631       273,543       166,723
  Depreciation (note 1f)                     19,967        34,653        25,074
  Consulting fees                                --            --        50,956
  Net loss on assets sold (note 3)          179,548            --            --
  Provision for loss on assets
    held for sale (note 1d and 4)         3,139,588            --            --
  Loss on investment in wholly owned
    financing subsidiary (note 1e)        6,940,189            --            --
                                       ------------  ------------  ------------
     Total expenses                      17,297,158     5,393,836     2,279,154
                                       ------------  ------------  ------------

     Income (loss) before income
       taxes,  minority interest
       and net loss in wholly owned
       financing subsidiary
       charged to reserve for equity
       interest                         (10,712,788)    1,995,540     2,163,499

Income tax benefit (expense) (note 10)      525,711      (624,510)     (136,906)

Minority interest of limited partners
  in earnings of investment
  partnership (note 7)                           --      (567,831)   (1,791,130)

Net loss in wholly owned financing
  subsidiary charged to reserve for
  equity interest (note 1e)                 487,600            --            --
                                       ------------  ------------  ------------

     Net income (loss)                 $ (9,699,477) $   803,199   $    235,463
                                       ============  ============  ============


Net income (loss) per share
  (note 1k)                                   (2.46)        0.42           0.19

Weighted average number of shares
  of common stock and common stock
  equivalents outstanding (note 1k)       3,942,166    1,902,482      1,211,367


</TABLE>

          See accompanying notes to consolidated financial statements.


                                       24

<PAGE>


                             DIGNITY PARTNERS, INC.

                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
              For the years ended December 31, 1996, 1995 and 1994


<TABLE>
<CAPTION>
                                                                                                 Retained
                                  Preferred Stock         Common Stock           Additional      earnings     Treasury
                               ---------------------   --------------------
                                Shares     Amount        Shares      Amount    paid-in-capital   (deficit)      Stock       Total
                               --------  -----------   ----------  ----------  --------------- ------------  ----------  -----------
<S>                              <C>     <C>              <C>      <C>          <C>            <C>           <C>         <C>

January 1, 1994                  34,880  $3,488,013       457,148  $    4,571    $    192,600  $  (346,558)  $     --   $ 3,338,626
Issuances of common stock
     (April 30, 1994)                --          --       445,878       4,459         187,851           --          --      192,310
Issuances of common stock
     (September 30, 1994)            --          --       360,465       3,605         151,866           --          --      155,471
Issuances of common stock
     (October 31, 1994)              --          --       325,833       3,258         137,277           --          --      140,535
Net income                           --          --            --          --              --      235,463          --      235,463
                               --------  -----------   ----------  ----------  --------------- ------------  ----------  -----------
Balances at December 31, 1994    34,880  $3,488,013     1,589,324  $   15,893    $    669,594  $  (111,095)  $     --   $ 4,062,405
Issuance of preferred stock
     dividend 380                    --          --            --          --              --           --          --           --
Net income                           --          --            --          --              --      803,199          --      803,199
                               --------  -----------   ----------  ----------  --------------- ------------  ----------  -----------
Balances at December 31, 1995    35,260  $3,488,013     1,589,324  $   15,893    $    669,594  $   692,104   $     --   $ 4,865,604
Issuance of preferred stock
     dividend                       580          --            --          --              --           --          --           --
Issuances of common stock
     (February 1996)            (35,840) (3,488,013)    2,702,500      27,025      28,734,956           --          --   25,273,968
Purchase of treasury stock           --          --            --          --              --           --    (390,000)    (390,000)
Grant of warrants
     (September 1996)                --          --            --          --          92,170           --          --       92,170
Net loss                             --          --            --          --              --   (9,699,477)         --   (9,699,477)
                               ========  ===========   ==========  ==========  =============== ============  ==========  ===========
Balances at December 31, 1996        --  $       --     4,291,824  $   42,918    $ 29,496,720  $(9,007,373)  $(390,000) $20,142,265
                               ========  ===========   ==========  ==========  =============== ============  ==========  ===========


</TABLE>

          See accompanying notes to consolidated financial statements.



                                       25
<PAGE>

                           DIGNITY PARTNERS, INC.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
              For the Years Ended December 31, 1996, 1995 and 1994


<TABLE>
<CAPTION>


                                             1996         1995         1994
                                         ------------ ------------ ------------
<S>                                      <C>          <C>          <C>

Cash flows for operating activities:
  Net income (loss)                      $(9,699,477) $    803,199 $    235,463
  Adjustments to reconcile net
    income to net cash provided by
    operating activities:
      Depreciation and amortization          469,599       308,196      191,797
      Write-off of furniture and
        equipment                             12,303            --           --
      Net loss on assets sold                179,548            --           --
      Provision for loss on assets held
        for sale                           3,139,587            --           --
      Warrants granted to consultants         92,170            --           --
      Increase in accounts receivable             --        (6,036)          --
      Earned discounts on insurance
        policies                          (5,479,114)   (6,933,318)  (4,239,995)
      Purchase of life insurance
        policies                         (23,912,464)  (22,276,717) (25,449,110)
      Collections on matured life
        insurance policies                15,523,569    13,103,920    7,151,802
      Increase (decrease) in
        unearned income                     (715,883)       86,175      438,589
      Decrease (increase) in
        other assets                         (15,519)      (76,251)       8,686
      Increase (decrease) in
        deferred taxes                      (525,711)      623,690      136,907
      Increase (decrease) in
        accrued expenses                    (138,933)      149,827      155,510
      Increase (decrease) in
        accounts payable                     (56,627)      343,839        8,365
      Increase (decrease) in IPO
        financing costs payable             (306,900)      306,900           --
      Increase (decrease) in payable
        to related party                  (1,482,170)      769,475      470,671
      Increase (decrease) in accrued
        compensation payable                (662,758)      274,148      345,000
      Increase in reserve for equity
        interest in wholly owned
        financing subsidiary               6,452,589            --           --
     Income applicable to minority
        interest                                  --       567,329    1,791,130
                                         ------------ ------------ ------------
        Net cash used by operating
          activities                     (17,126,191)  (11,955,624) (18,755,185)
                                         ------------ ------------ ------------

Cash flows from investing activities:
  Proceeds from sale of assets
    held for sale                          6,533,523            --           --
  Purchase of furniture and equipment         (6,776)      (37,235)     (58,570)
  Additions to restricted cash               (58,818)   (4,459,832)    (104,211)
  Purchase of investment in
    convertible preferred stock           (3,000,000)           --           --
                                         ------------ ------------ ------------
        Net cash provided by (used in)
          investing activities             3,467,929    (4,497,067)    (162,781)
                                         ------------ ------------ ------------

Cash flows from financing activities:
  Proceeds from long term
    notes payable                          6,375,000    39,105,138           --
  Principal payments on long term
     notes payable                        (4,261,933)           --           --
  Proceeds from other long term debt       5,540,132    22,701,070   21,730,819
  Principal payments on other long
    term debt                             (6,984,402)  (39,703,752)  (3,283,868)
  Sale of limited partnership interests           --            --      280,473
  Distribution to limited partners          (783,313)   (3,083,171)  (2,911,000)
  Purchase of limited partners'
    interest in investment partnership    (5,081,184)           --           --
  Loan from stockholder                           --            --    1,162,170
  Principal payment on loan from
    stockholder                           (1,162,170)           --           --
  Proceeds from issuances of
    common stock                          25,273,968            --      488,316
  Purchase of treasury stock                (390,000)           --           --
  Increase in financing costs                (88,000)     (790,544)    (254,004)
  IPO financing costs                             --      (750,000)          --
  Reimbursement of IPO financing costs       750,000            --           --
                                         ------------ ------------ ------------
        Net cash provided by
          financing activities            19,188,098    17,478,741   17,212,906
                                         ------------ ------------ ------------
        Net increase in cash and
          cash equivalents                 5,529,836     1,026,050   (1,705,060)

Cash and cash equivalents,
  beginning of period                      1,056,611        30,561    1,735,621
                                         ------------ ------------ ------------

Cash and cash equivalents,
  end of period                          $ 6,586,447  $  1,056,611 $     30,561
                                         ============ ============ ============

Supplemental disclosure of cash flow information:

    State taxes paid                     $     6,389  $      3,367 $      1,821
                                         ============ ============ ============

    Cash paid for interest               $ 4,113,703  $  2,901,685 $    798,658
                                         ============ ============ ============


</TABLE>

          See accompanying notes to consolidated financial statements.


                                       26

<PAGE>
                             DIGNITY PARTNERS, INC.

                   Notes to Consolidated Financial Statements



                        December 31, 1996, 1995 and 1994


1.       Summary of Significant Accounting Policies
---------------------------------------------------
         a.  General Description

         The principal  business  activity of Dignity  Partners,  Inc.  (Dignity
Partners  or  the  Company)  through  February  1997  was  to  provide  viatical
settlements for terminally ill persons. A viatical  settlement is the payment of
cash in return for an  ownership  interest  in,  and right to receive  the death
benefit (face value) from, a life insurance policy. Upon a viatical  settlement,
the  policyholder  assigns his or her policy to the Company,  which  becomes the
holder, owner or certificate holder of the policy and the beneficiary thereunder
and receives from the insurance  company the face value payable under the policy
following the death of the insured.

         On July 16,  1996,  in response to  accounts  of the  research  results
reported  at the  International  AIDS  Conference  held  in  Vancouver,  British
Columbia in July 1996 (the "AIDS Conference"), 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 on its business of such  research  results.  Results from a
number of studies were  reported  which appear to indicate  that the  treatments
involving  a  combination  of various  drugs were  reducing  substantially,  and
perhaps  eradicating,  the  levels of HIV  detectable  in the  blood of  persons
previously diagnosed with HIV and AIDS. Subsequent reports appear to confirm the
reports from the AIDS  Conference.  On December 16, 1996,  the Company  obtained
stockholder  approval to sell all or  substantially  all of its assets.  Dignity
Partners  has sold or is  pursuing  the sale of all of its  policies  other than
those held by DPFC (as defined  herein).  Although the Company is  continuing to
analyze its strategic  direction,  the Company believes that it is not viable to
continue to operate a viatical  settlement business solely for non-AIDS policies
while a market for  non-AIDS  policies  develops,  if it  develops  at all. As a
result, the Board of Directors in February 1997 decided to cease immediately the
Company's viatical settlement business.

         Dignity Partners was incorporated in the state of Delaware on September
8, 1992.  The  Company  commenced  operations  on January 2, 1993 and  commenced
purchasing life insurance policies on April 4, 1993.

         b.  Accounting Principles

         The  consolidated  financial  statements  are  presented on the accrual
basis of accounting in conformity with generally accepted accounting principles.
The Company has not presented the viatical settlement business as a
discontinued operations since at December 31, 1996 substantially all of the
the Company's assets are related to the viatical settlement business

         The secured funding arrangement  described in Note 9 has been accounted
for as a financing.

         c.  Principles of Consolidation

         Through  June  1996,  the  Company  was the sole  general  partner of a
limited  partnership,   Dignity  Viatical  Settlement  Partners,  L.P.  (Dignity
Viatical).  The  partnership,  a separate  and  distinct  legal  entity from the
Company,  had  separate  assets,   liabilities  and  operations.   However,  for
accounting  purposes,  because the Company  controlled the partnership (see Note
7), the assets,  liabilities and operations of the partnership were consolidated
with the assets, liabilities and operations of the Company, and the interests of
the  former  limited  partners  were  reflected  as a minority  interest  in the
accompanying  financial  statements through December 31, 1995. On June 25, 1996,
Dignity Partners purchased all of the limited  partnership  interests in Dignity
Viatical for approximately  $5.2 million which


                                       27

<PAGE>
                             DIGNITY PARTNERS, INC.

                   Notes to Consolidated Financial Statements



resulted in an elimination of the minority  interest  on the balance  sheet.
The Company  also  consolidates  the assets, liabilities  and operations of its
wholly owned  financing  subsidiary, Dignity Partners Funding Corp. I (DPFC)
(see Note 9).

         d.  Assets Held For Sale

         As a result of the Company's  decision to sell all or substantially all
of its assets, the Company  reclassified during the third quarter of 1996 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 December 31, 1996 at the lower of carrying  value or fair value less
cost to sell. In connection  therewith,  the Company established a reserve for
loss  on sale of  assets  during  the  quarter  ended  September  30,  1996  and
reevaluated the reserve at December 31, 1996. (See Notes 3 and 4).

         e.  Purchased Life Insurance Policies

         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 face
value of the policy (the Accrual Period), the difference (the unearned discount)
between (a) the death  benefit  payable  (face  value) under 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.  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 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
physicians  or  other  medical  consultants   (Consultants)  who  estimated  the
insured's  life  expectancy.  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 also took into account the  historical
accuracy of the life expectancies estimated by the Company's Consultants and the
typical period  (collection  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 was
held constant  such that when the yield was applied to the carrying  value of
the policy on a compounded basis over the course of the Accrual Period, the
unearned discount was fully accrued as earned  discount by the end of the
Accrual Period.  Beginning in the third quarter of 1996, the Company began
generally  recognizing income upon  receipt of proceeds  on  policies  (either
pursuant to sale or the death of the insured).

         Effective July 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 10) were  issued,  requires the consent of all of the holders of
the  Securitized  Notes  ("Noteholders") and the Company.  The  Company  has
discussed  briefly 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 reserve
was recorded in the third quarter of 1996 in the amount of $6.9 million to
reflect the estimated  loss of the Company's  equity  interest in DPFC.  The
reserve  provides for the write-off of deferred financing costs and the
unrealized residual value associated with DPFC.


                                       28

<PAGE>
                             DIGNITY PARTNERS, INC.

                   Notes to Consolidated Financial Statements



         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.  However, to the extent that the book value of assets of DPFC
become less than the  outstanding  balance of the Securitized  Notes,  generally
accepted accounting principles  nonetheless would require a loss to be recorded.
Upon the retirement or maturity of the  Securitized  Notes, under generally
accepted accounting principles the Company would recognize a gain equal to any
such losses recognized.

         f.  Furniture and Equipment

         As of  December  31,  1995,  furniture  and  equipment  are  stated  at
purchased cost net of accumulated depreciation.  Through June 1996, depreciation
was provided on a  straight-line  basis over the  estimated  useful lives of the
assets,  which  were  generally  five  years.  As  a  result  of  the  Company's
announcement  to sell all or  substantially  all of its  assets,  furniture  and
equipment  at  December  31,  1996  have  been  valued  on the  assumption  that
miscellaneous office equipment has no sales value. See Note 4.

         g.  Deferred Financing Costs

         Costs were  incurred to obtain debt  financing for the  acquisition  of
insurance   policies.   These  costs  have  been   deferred  and  are  amortized
straight-line  over the  respective  terms of the  financing  arrangements.
At December  31, 1996 the deferred financing cost was $682,000.

         h.  Income Taxes

         The Company  accounts  for income  taxes using the asset and  liability
method.  Under  the  asset  and  liability  method,   deferred  tax  assets  and
liabilities   are   recognized  for  the  estimated   future  tax   consequences
attributable to differences  between the financial statement carrying amounts of
existing  assets  and  liabilities  and their  respective  tax basis  (temporary
differences). Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those  temporary
differences are expected to be recovered or settled.  The effect on deferred tax
assets and  liabilities  of a change in tax rates is recognized in income in the
period that includes the enactment date of the tax change.

         Deferred tax assets are recognized for deductible temporary differences
and operating loss and tax credit carryforwards,  and then a valuation allowance
is established to reduce that deferred tax asset if it is "more likely than not"
that the related tax benefits will not be realized in future years.

         Prior to  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 a reserve for the loss to
equity  interest in DPFC  recorded in the period ended  December  31, 1996,  the
Company believes that it will not have a federal tax liability  related to these
assets and has  therefore  reversed  the  related  liabilities.  The Company has
provided for  miscellaneous  state income taxes. A valuation  allowance has also
been  recorded  equivalent  to the portion of the  deferred  tax asset for which
management cannot conclude that it is more likely than not that the deferred tax
asset will be realized. See Note 10.

         i.  Cash and Cash Equivalents

         The Company considers as cash equivalents all highly liquid investments
with an original maturity of three months or less.


                                       29

<PAGE>
                             DIGNITY PARTNERS, INC.

                   Notes to Consolidated Financial Statements



         j.  Concentration of Credit Risk

         Financial  instruments  that  subject the Company to  concentration  of
credit risk consist primarily of receivables from insurance  companies which are
the obligors under insurance policies  purchased by the Company.  As of December
31, 1996,  the aggregate  face value of policies  issued by any one insurer with
respect to the Company's portfolio of insurance policies did not exceed 12.9% of
total assets.

         k.  Net Income Per Share

         Net income  per share is  calculated  on the  primary  basis  using the
average number of Common Stock and Common Stock equivalents outstanding.
Earnings per share for 1996 do no not include stock equivalents due to the
anti-dilutive effect.  Common Stock  equivalents  include  employee  stock
options and shares issued 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 actually converted into Common Stock in February 1996.
See Note 2.

         l.  Cost of Policies Reviewed But Not Purchased

         To the extent the Company  reviewed a policy which it did not purchase,
costs  associated  with  the  review  of  the  policy,  such  as  fees  paid  to
Consultants,  were not  capitalized,  but were  expensed  as other  general  and
administrative expenses.

         m.  Terminology

         Matured policies  receivable  represents policies for which the Company
has received notification that the insured has died and for which the Company is
awaiting collection of the face value.

         Payable  for  policies  purchased  represents  policies  for  which the
Company has become the holder,  owner or certificate  holder of the policy,  and
the beneficiary thereunder, but at the request of the insured or a related party
payment is deferred for a short period.

         Unearned income represents the remaining  unearned discount on policies
for which the Company collected proceeds earlier than expected.

         n.  Profit Sharing Plan

         The Company  has a profit  sharing  plan (the Plan) for its  employees.
Each employee hired after January 1, 1993 and who has been employed for at least
one year becomes a participant in the Plan. The Plan provides for  discretionary
annual contributions by the Company for the account of each participant.  In any
year in which the Plan is "top-heavy" within the meaning of the Internal Revenue
Code (the Code),  the Plan requires,  consistent  with the Code,  that a minimum
contribution be made for non-key employees.  The contribution is allocated among
participants  based on their compensation under an allocation formula integrated
with Social  Security.  Participants  vest 20% in their Plan accounts  after two
years of service  (excluding  any service prior to 1993) and an  additional  20%
after  each of the  next  four  years of  service.  Upon  termination  following
permanent  disability  or on  retirement  at age 65, all  amounts  credited to a
participant's  account are  distributed,  in a lump sum or in  installments,  as
directed by the  participant.  Upon death,  all amounts credited to a
participant's  account become fully vested and are distributed to the
participant's surviving spouse or designated beneficiary.  Each year, profit
sharing  contributions,  if any, are  determined by the Board of Directors.  The
Company's plan


                                       30

<PAGE>
                             DIGNITY PARTNERS, INC.

                   Notes to Consolidated Financial Statements



contribution  expenses,  which are included in compensation  and
benefits  during  1996,  1995  and  1994  were  $70,190,  $89,505  and  $68,925,
respectively.

         o.  Use of Estimates

         Management   of  the  Company  has  made  a  number  of  estimates  and
assumptions  relating  to the  reporting  of  assets  and  liabilities  and  the
disclosure  of contingent  assets and  liabilities  to prepare  these  financial
statements in conformity with generally accepted accounting  principles.  Actual
results could differ from those estimates.

         p.  Stock-Based Employee Compensation

         The Company applies APB Opinion No. 25 in accounting for its two stock
compensation plans.  No compensation cost has been recognized for these plans.
See Note 16.

2.       Common Stock
---------------------

         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. (See also Note 14).

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

<TABLE>

     <S>     <C>    <C>    <C>    <C>    <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  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. (See Note 11).
(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 Note 11).

</FN>
</TABLE>

         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 Common Stock at prevailing  market
prices.  Through  December 31, 1996, the Company had purchased  145,000  shares
of Common Stock at a weighted  average price of $2.69 per share.
(See also Note 17c).


                                       31

<PAGE>
                             DIGNITY PARTNERS, INC.

                   Notes to Consolidated Financial Statements




3.       Sale Agreements
------------------------

         On August  2,  1996,  the  Company  sold 58  policies  held by  Dignity
Viatical and two other  policies  owned by the Company  (with an aggregate  face
value of $6.6 million) to an unaffiliated third party. This transaction resulted
in a pre-tax loss of $299,718.  The $5,363,768 proceeds of this transaction were
used to prepay a portion  of debt  outstanding  under  the  Company's  revolving
credit facility and for working  capital.  See Note 8. At December 31, 1996, the
Company had collected all proceeds related to this sale.

         On September 27, 1996, the Company entered into an agreement (the "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 was  conditioned  on the Company's  receipt of stockholder
approval to sell all or substantially all of the Company's assets. Such approval
was received on December 16,  1996.  The Company established a reserve in the
third quarter of 1996 of $1,792,087 in connection  with policies  covered by the
Sale  Agreement.  Pursuant to the Sale  Agreement,  6 policies with an aggregate
face  value of  $400,000  will not be sold since the  insured  died prior to the
issuing  insurance  company's  acknowledgment  of transfer of  ownership  of the
policy.  As of December 31, 1996, the Company  completed the sale of 46 policies
with an  aggregate  face value of $1.9  million and  realized a gain of $120,000
associated with these policies in the fourth  quarter.  As of December 31, 1996,
there were 145  outstanding  policies under the Sale Agreement with an aggregate
face value of $11.9  million.  As of March 17, 1997,  the Company  completed the
sale of 130  policies  under the Sale  Agreement  and  received  $6.7 million in
proceeds.  As of March 17, 1997,  14 policies  with a face value of $1.0 million
were pending acknowledgment.

4.       Assets Held For Sale
-----------------------------
         As a result of the  Company's  decision in the third quarter of 1996 to
sell all or substantially  all of its assets,  it reclassified all of its assets
other than the assets of DPFC to a "held-for-sale" category.  Accordingly,  such
assets are recorded on the balance sheet as of December 31, 1996 at the lower of
carrying value or fair value less estimated cost to sell. In connection with the
decision to sell assets, the Company established a reserve for loss on sale of
assets  during  the  quarter  ended  September  30,  1996 and  reevaluated  such
reserve at December 31, 1996. For purposes of calculating such reserve,
furniture and equipment  have been valued on the assumption  that  miscellaneous
office equipment has no sales value.

         Life insurance policies and furniture and equipment held for sale as of
December 31, 1996 consist of:

<TABLE>
<CAPTION>
                                    Life Insurance Policies
                                    -----------------------
                                       Not Covered
                        Covered by         by a       Furniture &
                       Sale Agreement  Sale Agreement  Equipment      Total
                       --------------  -------------  -----------  ------------
  <S>                    <C>             <C>             <C>        <C>
  Capitalized costs      $ 7,870,436      6,113,650      105,038    14,089,124
  Earned discounts           194,914        185,778           --       380,692
  Reserve for loss
    on sale               (1,150,064)    (1,694,611)    (105,038)   (2,949,713)
                       --------------  -------------  -----------  ------------
  Assets held for sale   $ 6,915,286      4,604,817            0    11,520,103
                       ==============  =============  ===========  ============
</TABLE>

        The  calculation  of  reserve  for  loss on sale of  assets  for life
insurance  policies held for sale 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


                                       32

<PAGE>
                             DIGNITY PARTNERS, INC.

                   Notes to Consolidated Financial Statements




carrying value after giving effect to the reserve for loss on sale of assets
will be reported as a realized gain or loss on assets sold.

5.       Earned Discounts and Unearned Income
---------------------------------------------

         Earned  discounts on life  insurance  policies  reflects the respective
amounts of  accretion  recorded in 1994,  1995 and from  January 1, 1996 through
June  30,  1996.  With the  decision  to sell  all or  substantially  all of the
Company's assets,  the amount of unearned discount recorded on the balance sheet
at June 30, 1996 relating to those  policies  collected  prior to June 30, 1996,
but expected to be collected  after June 30, 1996 was recorded in 1996 as earned
discounts on prior  maturities.  Earned discounts for matured policies  reflects
income on policies on which the Company collected the proceeds  (pursuant to the
death  of the  insured)  during  the  second  half of 1996.  As a result  of the
decision to sell all or  substantially  all of the  Company's  assets any future
income will be recorded as earned  discounts for matured  policies only and will
be recorded  upon receipt of proceeds of policies  (pursuant to the death of the
insured).

6.       Investment In Convertible Preferred Shares
-------------------------------------------------------

         On November 4, 1996, the Company purchased 21,517,100 convertible
preferred shares for $3.0 million (representing  approximately 30% of the fully
converted  common  equity  interest)  in  American  Information  Company,   Inc.
("American  Company"),  a privately  held  company  which,  among other  things,
provides information  services to individuals owning or purchasing  automobiles.
The Company has an option, through September 1997, to purchase for approximately
$1.1 million 8.2 million additional shares of common stock (which at November 4,
1996  represented  approximately  11.4%  of  the  fully  diluted  common  equity
interest) of American  Company.  The Company  accounts for this investment using
the cost method.  If the equity method had been applied  Dignity  Partners would
have recorded a loss in 1996 of $104,221 which is equivalent to a pro rata share
on an as if converted basis in American Company's fourth quarter loss.  See
Note 17b.

7.       General Partner Interests in Dignity Viatical Settlement Partners, L.P.
-------------------------------------------------------------------------------

         In 1993, the Company formed Dignity  Viatical,  a limited  partnership,
for the purpose of financing the purchase of additional life insurance policies.
The capital  contributions to Dignity Viatical  aggregated  approximately  $10.1
million.  The  Company,  as the  general  partner,  had a 1% interest in Dignity
Viatical. In addition, the Company was entitled to a preference in distributions
of $233,597 for providing  management services  (management fee) during the life
of the partnership  (estimated to be  approximately  four years from formation).
Management  fees were  allocated to the Company as follows:  For the years ended
December 31, 1996, 1995 and 1994 -- $89,753, $59,848 and $59,818,  respectively.
After the general and limited partners would have received  distributions  equal
to their initial capital  contributions and a 4% compounded  annual return,  the
Company was entitled to a 20%  participation in the  distributions.  The assets,
liabilities and operations of Dignity Viatical have been consolidated with those
of the Company for presentation in the consolidated  financial  statements.  The
Company, as the general partner of Dignity Viatical,  controls the operations of
the partnership.  The minority  interest  reflected in the financial  statements
represents the former limited partners' interest in the net assets and income of
Dignity Viatical. On June 25, 1996 Dignity Partners purchased all of 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.  Summarized
financial  information  with  respect to Dignity  Viatical  for the
years ended December 31, 1996 and


                                       33

<PAGE>
                             DIGNITY PARTNERS, INC.

                   Notes to Consolidated Financial Statements



1995, follows:

<TABLE>
<CAPTION>
                                                  December 31      December 31
                                                     1996             1995
       <S>                                        <C>              <C>


       Purchased insurance policies, face value
         of $0 and $6,886,193, respectively ...   $      --        $6,595,552
       Other assets ...........................          --           615,614
       Liabilities ............................          --          (229,772)
                                                  -----------      -----------
                     Net assets................   $      --        $6,981,394
                                                  ===========      ===========

                Total income ..................   $  269,300       $1,024,402
                 Total expense ................     (137,110)        (301,027)
                                                  -----------      -----------

                     Net income ...............   $  132,190       $  723,375
                                                  ===========      ============

</TABLE>

8.       Revolving Credit Facility
----------------------------------

         At December 31, 1995, the Company had a revolving  credit facility with
a total amount  outstanding  of $1,444,270.  Advances under the credit  facility
were collateralized by a security interest in substantially all of the Company's
assets (including policies), except those securing the Securitized Notes of DPFC
described in Note 9. Interest under the credit  facility  accrued on outstanding
advances at the lender's  governing  rate (8.50% at December 31, 1995) plus 5.25
percent for amounts not in excess of  $2,000,000  and at the lender's  governing
rate plus 2.75 percent for amounts in excess of $2,000,000. Interest was payable
monthly. The Company terminated the facility on August 29, 1996 at which time it
repaid principal and accrued interest in the amount of $3,301,328. In connection
with such  repayment,  Dignity  Partners  wrote off by  amortizing  $130,000  of
unamortized financing costs associated therewith. In the course of obtaining the
credit facility,  the Company  incurred and deferred total financing  charges of
$671,008 which were subsequently  reduced to $519,904 in February 1995, with the
issuance of the Senior  Viatical  Settlement  Notes.  Of this  deferred  amount,
$94,042, $118,617  and $165,552 has been amortized in the periods ended December
31, 1996, 1995 and 1994, respectively.

9.       Senior Viatical Settlement Notes
-----------------------------------------

         On February 1, 1995 the Company  issued $35 million of Senior  Viatical
Settlement Notes, Series 1995-A, Stated Maturity March 10, 2005 (the Securitized
Notes),  through DPFC, a wholly owned special  purpose  subsidiary,  in order to
finance the purchase of life  insurance  policies.  On September 29, 1995,  DPFC
issued amended and restated  Securitized  Notes in the principal amount of $50.0
million.  The Securitized  Notes  represent the obligations  solely of DPFC. The
Company's  consolidated  financial  statements  include assets,  liabilities and
operations  of  DPFC;  however,  the  assets  of DPFC are not  available  to pay
creditors  of  Dignity  Partners,  Inc.  The  assets of DPFC are the  beneficial
ownership  interests in the life  insurance  policies and funds which secure the
Securitized  Notes.  Dignity  Partners was the originator and is the servicer of
the policies pledged under the indenture.

         DPFC is  required  to  maintain  a  balance  of 10% of the  outstanding
principal balance of the Securitized Notes in a liquidity account held under the
indenture  for the payment of servicing  and  origination  fees,  principal  and
interest payments,  tax payments,  agents fees and premiums.  The amount held in
the  liquidity  account at December  31, 1996,  which is included in  restricted
cash, was $4,139,896.


                                       34

<PAGE>
                             DIGNITY PARTNERS, INC.

                   Notes to Consolidated Financial Statements

         Funds  advanced  under the  Securitized  Notes must be used to purchase
policies  which meet the  criteria  set forth in, and are pledged as  collateral
under, the indenture  pursuant to which the Securitized  Notes were issued.  The
policies  purchased with proceeds of the Securitized Notes are pledged to secure
obligations  under the Securitized  Notes.  Bankers Trust Company,  as agent and
trustee under the indenture  relating to the Securitized  Notes, has legal title
to those  policies.  At December  31,  1996,  the  principal  amount of advances
outstanding was  $41,218,205.  As of such date, the face value of these policies
was $47,612,356.  Repayment of principal of the Securitized Notes was originally
scheduled to begin in September  1996. An early  amortization  event occurred in
June 1996. 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 $4.5 million of  restricted  cash as of December 31,
1996,  which  Dignity  Partners is  required  to  maintain in a cash  collateral
account for the benefit of the Noteholders.

         In the course of obtaining the financing arrangement, DPFC incurred and
deferred  charges of  $88,002,  $941,651  and  $33,947  in 1996,  1995 and 1994,
respectively.  Of these deferred amounts, $225,592, $154,927 and $1,171 has been
amortized in the periods ended December 31, 1996, 1995 and 1994, respectively.

         Until  September 30, 1995, the  Securitized  Notes bore interest at the
fixed  rate of 9.54% per annum and since such date have  borne  interest  at the
fixed rate of 9.17% per annum.  The Securitized  Notes have a stated maturity of
March 10, 2005.

10.      Income Taxes
---------------------

         The  components  of  the  provision  for  income  tax  included  in the
statements of operations for the years ended December 31, are  as follows:


<TABLE>
<CAPTION>


                                          1996         1995          1994
     <S>                              <C>            <C>           <C>
      Federal:
        Deferred (benefit) expense    $  (210,113)   $  432,196     $    90,978
      State:
        Deferred (benefit) expense       (315,598)      192,314          45,928
                                      ------------   ------------   ------------
      Total tax (benefit) expense     $  (525,711)   $  624,510     $   136,906
                                      ============   ============   ============

</TABLE>


                                       35


<PAGE>
                             DIGNITY PARTNERS, INC.

                   Notes to Consolidated Financial Statements




         The tax effects of temporary  differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities as of
December 31, are presented below:

<TABLE>
<CAPTION>

                                                     1996             1995
                                                     ----             ----
  <S>                                           <C>              <C>

   Deferred tax assets:
     Revenue and expenses recognized on the
       cash basis for tax purposes ...........    $  451,718       $1,653,831
     Depreciation, amortization and other ....        22,717           22,717
     Provision for assets held for sale ......     1,260,168               --
     Provision for loss on investment
       in subsidiary .........................     2,785,653               --
     Net operating loss carryforwards ........     2,135,875          439,035
                                                  ----------       ----------
                                                   6,656,131        2,115,583
     Valuation allowance .....................    (3,431,001)              --
                                                  ----------       ----------
     Deferred tax assets net of valuation
       allowance .............................     3,225,130        2,115,583

   Deferred tax liabilities:
     Accretion recognized on a cash basis
       for tax purposes ......................     3,231,130        2,647,294
                                                  ----------       ----------
                                                   3,231,130        2,647,294
                                                  ----------       ----------
   Net deferred tax asset (liability) ........    $    6,000       $  531,711
                                                  ==========       ==========

</TABLE>

        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 the
reserve to reflect  estimated  loss of the  Company's  equity  interest  in DPFC
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.  A valuation  allowance has been recorded  equivalent to the
portion of the deferred tax asset for which  management  cannot conclude that it
is more likely than not that the deferred tax asset will be realized.

         The difference  between the statutory income tax rate and the Company's
effective tax rate for the years ended December 31, are as follows:

<TABLE>
<CAPTION>


                                 1996              1995               1994
                                 ----              ----               ----
<S>                           <C>               <C>                 <C>
Tax expense at
  statutory rate (34%) ....   $(3,476,564)      $    678,484       $    735,590
State taxes net of
  federal benefits ........      (627,622)           126,927             30,312
Minority interest of
  limited partners ........            --           (193,063)          (608,984)
Change in valuation
  allowance ...............     3,431,001                 --                 --
Other .....................       147,474             12,162            (20,012)
     Total tax (benefit)      -----------       ------------       ------------
       expense                 $ (525,711)         $ 624,510         $ 136,906
                              ===========       ============       =============
</TABLE>

         At December  31,  1996,  the Company has an  estimated  federal tax net
operating loss  carryforward  of $5,768,141  expiring in the years 2008 to 2011,
and a California tax net operating loss carryforward of approximately $2,846,312
expiring in the years 1998 to 2001.


                                       36
<PAGE>
                             DIGNITY PARTNERS, INC.

                   Notes to Consolidated Financial Statements




11.      Related Party Transactions
-----------------------------------

         a.  Payable to related party

         Prior to the  Reorganization (as defined in Note 14), The Echelon Group
Inc. ("Echelon"), the Company's majority stockholder, paid expenses on behalf of
Dignity  Partners,  represented  by a payable to related  party,  and, until the
initial  public  offering,  Echelon  loaned funds to the Company on a short term
basis at an interest  rate ranging from 8% to 9.75% per annum (See note 14b). On
January 1, 1995, the payable to related party was $712,695.  Amounts  accrued by
the Company in 1995,  were  $285,949  for  personnel  costs,  $35,810 for office
expenses,  $12,000 for consulting  services,  $105,716 for interest and $330,000
for short term  borrowings.  Amounts accrued by the Company from January 1, 1996
through  February  13, 1996 were $8,837 for interest and $700,000 for short term
borrowings. On February 14, 1996, proceeds from the initial public offering were
used to pay the aggregate payable to related party of $2,191,007. See Note 2.

          b.  Accrued compensation payable

         Dignity Partners accrued executive officers'  compensation  (consisting
solely of salaries)  of $274,148  and  $345,000 in 1995 and 1994,  respectively.
These accrued  amounts were paid with proceeds of the initial  public  offering.
See Note 2. Accrued  compensation  payable for 1996 was $186,390  consisting  of
$70,190  for  the  profit   sharing  plan,   $80,500  for  executive   officers'
compensation,  $29,989  for  payroll  tax and $5,711 for  worker's  compensation
insurance.

         c.  Other short term debt

         Prior to February 14, 1996,  the Company  periodically  borrowed  funds
from Echelon at an interest  rate of 9%  compounded  monthly.  See Note 14b. The
outstanding  principal balance at September 30, 1995 was $1,162,170.  On October
12,  1995,  in  connection  with the  Reorganization,  the Company  replaced the
$1,162,170  loan from Echelon  with a bank  working line of credit.  The working
capital  line bore  interest at the  lender's  prime rate (8.50% at December 31,
1995) plus 1%. The facility expired on February 26, 1996.

12.      Commitments
--------------------

         At December 31, 1996, the Company was obligated to purchase $ 96,812 in
policies  which had not been  assigned to the Company at that date.  The Company
records a purchase of a life  insurance  policy at the time of assignment of the
policy.

         The Company has a lease  obligation for its California  office space of
approximately  5,900 sq. ft. The lease expires on May 31, 1999,  and the monthly
rent is $8,062,  of which the Company  pays $5,240 and New Echelon  pays $2,822.
Additionally,  the Company has a lease obligation for its Nevada office space of
600 sq. ft. The lease  expires on  September  30, 1997 and the  monthly  rent is
$905.


                                       37

<PAGE>
                             DIGNITY PARTNERS, INC.

                   Notes to Consolidated Financial Statements




         Future minimum rental payments (less amounts to be paid by New Echelon)
at December 31, 1996, under operating leases with an initial term of one year or
more, are as follows:

<TABLE>

          <S>                                         <C>
           Year ended December 31, 1997 ..........    $  71,029
           Year ended December 31, 1998 ..........       62,884
           Year ended December 31, 1999 ..........       26,202
           Year ended December 31, 2000 ..........           --
                                                     ----------
           Total .................................      160,115

</TABLE>

13.      Litigation
-------------------

         From time to time, the Company is involved in routine legal proceedings
incidental  to  its  business,  including  litigation  in  connection  with  the
collection of amounts owed by insurance company  obligors.  The Company does not
expect that these  proceedings,  individually  or in the aggregate,  will have a
material  adverse  effect on the  Company's  financial  position,  liquidity  or
results of operations.

         On  December  19,  1996,  a  complaint  was filed in the United  States
District Court,  Northern  District of California  (Docket No. C96-4558) against
Dignity Partners, Inc. and each of its directors by three individuals purporting
to act on behalf of themselves and an alleged class consisting of all purchasers
of the  Company's  common stock during the period  February 14, 1996 to July 16,
1996. The complaint  alleges that the defendants  violated  Section 10(b) of the
Securities  Exchange Act of 1934 and Rule 10b-5 thereunder and Section 11 of the
Securities  Act of 1933 and seeks,  among other  things,  compensatory  damages,
interest,   fees   and   costs.   The   allegations   are   based   on   alleged
misrepresentations  in and omissions from the Company's  registration  statement
and  prospectus  related to its initial  public  offering and certain  documents
filed by the  Company  under  the  Exchange  Act.  The  Company  and each of the
defendants intend to defend the action vigorously.

         On February  13,  1997,  a second  complaint  was filed in the Superior
Court of  California,  City and  County of San  Francisco  (Docket  No.  984643)
against  Dignity  Partners,  Inc.  and each of its  executive  officers  and New
Echelon by one individual  purporting to act on behalf of himself and an alleged
class  consisting of all  purchasers  of the  Company's  common stock during the
period  February  14, 1996 to July 16,  1996.  The  complaint  alleges  that the
defendants violated Section 25400 of the California  Corporate Code and seeks to
recover damages. The allegations are based on alleged misstatements, concealment
and/or  misrepresentations  and omissions of allegedly  material  information in
connection   with  the  Company's   initial   public   offering  and  subsequent
disclosures.  The Company and each of the defendants intend to defend the action
vigorously.

14.      Reverse Stock Split and Reorganization
-----------------------------------------------

         a.  Reverse Stock Split

         On January 12, 1996, in  contemplation of an initial public offering of
its common  stock,  the  Company  effected a reverse  stock  split (the  Split),
wherein each issued and  outstanding  share of common stock was  converted  into
0.7175 of share of common  stock.  The Company  has  restated  its common  stock
capitalization   for  all  periods  presented  in  the  accompanying   financial
statements to give effect to the Split.


                                       38

<PAGE>
                             DIGNITY PARTNERS, INC.

                   Notes to Consolidated Financial Statements



         b.  Reorganization (See note 2)

         On September 30, 1995,  Dignity Partners and its then sole stockholder,
Echelon,  entered into a series of  transactions  (the  Reorganization).  In the
Reorganization,  Echelon sold to a newly-formed  limited liability company,  The
Echelon Group of  Companies, LLC ("New Echelon  LLC"), substantially  all of its
assets and liabilities other than the outstanding  shares of the common stock of
Dignity  Partners.  These  assets were sold for a purchase  price equal to their
fair  market  value.  New  Echelon  LLC is owned by the former  shareholders  of
Echelon. Following this sale of assets, Echelon was merged with and into Dignity
Partners.

         Pursuant to the merger,  the authorized capital of Dignity Partners was
increased from 1,000 shares of common stock to 17 million shares,  consisting of
15 million shares of common stock and two million shares of preferred stock. Of
the preferred  stock 135,000 shares were  designated as  Convertible  Cumulative
Pay-in-Kind  Preferred  Stock  (Convertible  Preferred  Stock).   Further,  each
outstanding  share of  common  stock of  Dignity  Partners  was  canceled,  each
outstanding  share of Echelon  common  stock was  converted  into 15,893  (after
giving effect to the Split) shares of common stock of Dignity Partners,  and the
outstanding  shares  of  preferred  stock  of  Echelon  were  converted  into an
aggregate of 34,880 shares of Convertible Preferred Stock.

         As a result,  the  Company  has  restated  its  capitalization  for all
periods  presented  in the  accompanying  financial  statements  to reflect  the
Reorganization  and such  preferred  stock and common stock.  At the time of the
Reorganization,  the  equity of  Dignity  Partners  exceeded  that of Echelon by
$1,162,170.  This  amount  represents  the extent to which  Echelon,  the former
parent,  funded its  investment in Dignity  Partners with debt.  The Company has
restated  stockholders' equity to reflect the historic equity of Echelon related
to  Dignity   Partners,   and  the  debt  that  was  effectively   used  in  the
capitalization of Dignity Partners, for each of the periods presented.  Interest
on such debt (of  $104,107  and  $128,354  for 1995 and 1994,  respectively)  is
included  in  interest  expense in the  respective  consolidated  statements  of
operations.

         On October 12, 1995, in connection with the Reorganization, the Company
replaced the  $1,162,170  loan from Echelon with a bank working  capital line of
credit. The working capital line bore interest at the lender's prime rate (8.50%
at December 31, 1995) plus 1% and the facility expired on February 26, 1996.

         Prior to the Company's  initial  public  offering,  a director held all
outstanding   shares  of   Convertible   Preferred   Stock.   Pursuant   to  the
Reorganization,  34,880 shares of Convertible  Preferred Stock were issued.  The
holder of Convertible  Preferred  Stock  received,  beginning  October 13, 1995,
dividends  on each  share at an annual  rate of 8% of the per share  liquidation
amount of $100.  Such  dividends  are paid in additional  shares of  Convertible
Preferred Stock. On December 1, 1995, 380 shares of Convertible  Preferred Stock
were issued pursuant to the payment of dividends on the outstanding shares.

         The Company has reflected in its  calculation of earnings per share the
effect of the  Reorganization  as if it had occurred  during each of the periods
presented.  For purposes of 1994 and 1995, the Company assumed the conversion of
the  outstanding  shares of Convertible  Preferred  Stock issuable in respect of
accrued but unpaid  dividends  thereon through  December 31, 1995. The number of
shares  issuable  upon  conversion  was  calculated  by dividing  the  aggregate
liquidation value of the appropriate  number of shares of Convertible  Preferred
Stock ($100 per share) by the  difference  between the per share initial  public
offering price ($12.00) and the underwriters' discount ($0.84). On the effective
date of the  Company's  registration  statement  related to the  initial  public
offering  (February 13, 1996), the outstanding  shares of Convertible  Preferred
Stock (and shares of Convertible  Preferred Stock issuable in respect to accrued
and unpaid  dividends  thereon through such date) were  automatically  converted
into  321,144  shares  of common  stock  which  were  sold by the  holder in the
offering.


                                       39

<PAGE>
                             DIGNITY PARTNERS, INC.

                   Notes to Consolidated Financial Statements



         The  computation  of income  per  share in each  period is based on the
weighted average number of common shares outstanding, after giving effect to the
conversion of the  Convertible  Preferred  Stock in connection  with the initial
public  offering,  but  without  giving  effect to the  primary  offering by the
Company of Common Stock. See Note 2.

         As a result of the  Reorganization,  the Company has  restated  capital
contributions to reflect the underlying  capital of Echelon,  its former parent,
as follows:

<TABLE>
<CAPTION>


                        Loan from     Common     Preferred       Net Assets
                       Echelon (1)   Stock (2)     Stock (3)   Contributed (4)
                      ------------  ----------  ------------  ----------------
<S>                   <C>           <C>         <C>           <C>

April 4, 1993 ......  $         --  $    1,000  $         --  $          1,000
December 6, 1993 ...            --     196,171     3,488,013         3,684,184
April 30, 1993 .....       458,176     192,310            --           650,486
September 30, 1994 .       369,529     155,471            --           525,000
October 31, 1994 ...       334,465     140,535            --           475,000
                      ------------  ----------  ------------  ----------------
Total at
  December 31, 1995    $ 1,162,170   $ 685,487   $ 3,488,013       $ 5,335,670
                      ============  ==========  ============  ================

<FN>

         (1)  See Note 2.
         (2)  Common  stock  reflects the net value of assets  contributed
              after giving effect to the Convertible Preferred Stock and
              loans from stockholders.
         (3)  Represents amounts attributable to the Convertible Preferred Stock.
         (4)  Represents amounts contributed by Echelon for the five shares of
              common  stock of  Dignity  Partners  that were  canceled  in the
              merger.

</FN>
</TABLE>

15.      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.

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

         The portfolio of purchased life  insurance  policies net of reserve for
equity  interest in wholly owned  financing  subsidiary is stated at fair market
value based on  management's  estimates.  This reserve was recorded in the third
quarter of 1996 to reflect  estimated loss of the Company's equity interest in
DPFC.

         Other  short  term  debt  represents  bank debt and is stated at market
value  based  on the  short  term  maturity  date.  The debt was paid in full in
February, 1996.

         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 December  31, 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.


                                       40

<PAGE>
                             DIGNITY PARTNERS, INC.

                   Notes to Consolidated Financial Statements



16.      Stock-Based Compensation
---------------------------------

         The Company has two stock option plans.  Under the 1995 Employee  Stock
Option Plan  ("Employee  Plan"),  the Company may grant options to its employees
for up to  350,000  shares of common  stock.  Under  the Stock  Option  Plan For
Non-Employee  Directors  ("Director  Plan"),  the Company may grant up to 75,000
shares of common  stock.  Under both plans,  the  exercise  price of each option
equals the market  price of the  Company's  stock on the date of grant,  with an
expiration of ten years after grant date. Under the Employee Plan,  options vest
20% per year over five  years.  Under the  Director  Plan,  initially,  each new
Non-Employee  Director is granted 10,000 options that vest over 3 years and then
5,000 options are granted at each annual meeting that vest after one year.

         The fair value of each option is  estimated  on the date of grant using
the  Black-Scholes  option-pricing  model  with the  following  weighted-average
assumptions  used  for  grants  in 1996 (no grants in 1995):  expected
volatility of 20% ;  risk-free interest  rates of 6.3% for the  Employee  Plan
and  6.0% for the  Director  Plan; expected  life of 6.5 years for the  Employee
Plan and 3.5 years for the  Director Plan.

<TABLE>
<CAPTION>
                                                              Weighted-Average
                                           Shares              Exercise Price
                                         ----------          ------------------
  <S>                                     <C>                <C>

   Outstanding at beginning of year,
     January 1, 1996                             --                    --
   Granted                                  407,000                $ 8.18
   Exercised                                     --                    --
   Forfeited                                (75,000)              $ 12.18
   Canceled                                (151,000)              $ 12.01
                                           ---------
   Outstanding at end of year,
     December 31, 1996                      181,000                $ 3.33
                                           =========
   Options exercisable at year-end            6,667               $ 13.50
   Weighted-average fair value of
    options granted during the year           $ 3.11

</TABLE>

         The following table  summarizes  information  about fixed stock options
outstanding at December 31, 1996:

<TABLE>
<CAPTION>

              Number of shares
               Outstanding at                                  Remaining
              December 31, 1996        Exercise Price       Contractual Life
              -----------------        --------------       ----------------
                   <C>                     <C>                 <C>
                   151,000                 $ 1.38               9 years
                    20,000                 $13.50               9 years
                    10,000                 $12.38               9 years

</TABLE>


                                       41

<PAGE>
                             DIGNITY PARTNERS, INC.

                   Notes to Consolidated Financial Statements



         The Company applies APB Opinion No. 25 and related  Interpretations  in
accounting for its plans. Accordingly,  no compensation cost has been recognized
for its fixed stock option plan.  Had  compensation  cost for the  Company's two
stock-based  compensation  plans been determined  consistent with FASB Statement
No. 123,  the  Company's  net loss and net loss per share would have been
reduced to the pro forma amounts indicated below:

<TABLE>
<CAPTION>
                                                                    1996
                                                                    ----
      <S>                              <C>                   <C>

      Net loss                         As reported           $  (9,699,477)
                                       Pro forma             $  (9,881,226)
      Primary loss per share           As reported                $  (2.46)
                                       Pro forma                  $  (2.51)

</TABLE>

           In addition to the above  mentioned  stock option plans, on September
16, 1996 Dignity  Partners granted 300,000 warrants at a purchase price of $6.00
per  share  to  Jefferies  &  Company,   Inc.  These  warrants  are  exercisable
immediately and expire on September 16, 2001. The expense for these warrants was
determined  consistent with FASB Statement No. 123, and the Company's net income
was reduced by $92,167.  The fair value of each warrant is estimated on the date
of grant  using  the  Black-Scholes  option-pricing  model  with  the  following
weighted-average  assumptions:  expected volatility of 20%; risk-free interest
rate of 6.2%; expected life of 5 years.

17.      Events Subsequent to the Balance Sheet Date
----------------------------------------------------

         a. Portfolio Sales

         During the first half of 1997,  the Company is expecting to collect all
proceeds on the remaining 145 policies under the sale agreement  dated September
27, 1996. The estimated  pre-tax gain on these sale proceeds to be recognized in
the  first  half of 1997 is  $400,000 (unaudited).  Actual  gains may vary
materially  from estimated  gains  based  on among  other  things,  the
successful  transfer  of ownership of the policies and actual versus estimated
proceeds.

         On January 16, 1997 Dignity  Partners  entered into a contract  with an
unaffiliated  viatical  settlement company to sell approximately $1.0 million in
face value of policies for approximately $710,000. Such policies were carried on
the balance sheet at December 31, 1996 at  approximately  $590,000  after giving
effect to the reserve for loss on sale of assets.  The estimated  pre-tax gain
in the first quarter of 1997 is $120,000 (unaudited).  Actual gains may vary
materially from estimated  gains  based  on among  other  things,  the
successful  transfer  of ownership of the policies and actual versus estimated
proceeds.

         On February 10, 1997 Dignity  Partners  entered into a contract with an
unaffiliated  viatical  settlement company to sell approximately $4.5 million in
face value of policies for approximately $3.0 million. Such policies were
carried on the balance  sheet at December 31, 1996 at  approximately  $2.2
million after giving
effect to the reserve for loss on sale of assets.  Through March 17, 1997, the
Company  had  collected  $800,000  in sale  proceeds  under the  agreement.  The
estimated  pre-tax gain in the first half of 1997 is $770,000 (unaudited).
Actual gains may vary materially from estimated gains based on among other
things, the successful transfer of ownership of the policies and actual versus
estimated proceeds.


                                       42

<PAGE>
                             DIGNITY PARTNERS, INC.

                   Notes to Consolidated Financial Statements



         On March 24, 1997  Dignity  Partners  entered  into a contract  with an
unaffiliated  viatical  settlement company to sell approximately $2.9 million in
face value of policies for approximately $1.7 million. Such policies were
carried on the balance  sheet at December 31, 1996 at  approximately  $1.5
million after giving effect to the reserve for loss on sale of assets.  The
estimated  pre-tax gain in the first half of 1997 is $200,000 (unaudited).
Actual gains may vary materially from estimated  gains based on among other
things,  the  successful transfer of ownership of the policies and actual versus
estimated proceeds.

         Based  on the  Company's  evaluation  of the  effects  of the  research
results  reported  at the AIDS  Conference  and  subsequent  reports  and  other
information,  the Company  believes  that it is  extremely  difficult to predict
accurately life expectancy of people afflicted with HIV and AIDS.  Further,  the
Company  believes  that it is not  viable to  continue  to  operate  a  viatical
settlement  business  solely for non-AIDS  policies  while a market for non-AIDS
policies develops, if it develops at all. As a result, the Board of Directors in
February 1997 determined to cease immediately the Company's viatical  settlement
business and to sell its  non-AIDS  policies,  consisting  of  approximately  31
policies with a face value of $2.9 million.  The sale agreement  dated March 24,
1997 covers such policies.

         b. Partial Sale of Investment in Convertible Preferred Shares

         On March 18, 1997, the Company converted 8.2 million shares of
convertible preferred shares of American Company into 8.2 million shares of
common stock and sold such shares to an unaffiliated third party for $1.83
million.  An estimated  pre-tax gain of $700,000 (unaudited) resulting from
such sale will be recognized in the first quarter of 1997.

         c. Share Repurchase

         In the month of January 1997, the Company  purchased 128,500 shares of
common stock at a weighted average price of $2.63 per share.


                                       43

<PAGE>



                                    PART III

ITEM 10--DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
-----------------------------------------------------------

        Information  regarding  directors  of  the  Company  and  the  Executive
Officers  (each of whom is a  director)  will be set forth  under  the  captions
"Security  Ownership of Certain  Beneficial Owners and Management" and "Election
of Directors" in Dignity Partners' proxy statement related to the Company's 1997
annual  meeting of  stockholders  (the "Proxy  Statement")  and is  incorporated
herein by reference.  Information required by Item 405 of Regulation S-K will be
set  forth  under  caption   "Section  16(a)  Beneficial   Ownership   Reporting
Compliance" in the Proxy Statement and is incorporated herein by reference.

ITEM 11--EXECUTIVE COMPENSATION
-------------------------------

        Information  required  by this item will be set forth  under the caption
"Executive  Compensation" in the Proxy Statement and, except for the information
under the captions "Executive  Compensation -- Report on Executive Compensation"
and "Executive  Compensation -- Performance  Graph," is  incorporated  herein by
reference.

ITEM 12--SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
------------------------------------------------------------
               MANAGEMENT
               ----------

         Information  required  by this item will be set forth under the caption
"Security  Ownership of Certain  Beneficial  Owners and Management" in the Proxy
Statement and is incorporated herein by reference.

ITEM 13--CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
-------------------------------------------------------

         Information regarding certain relationships and related transactions of
directors and executive officers will be set forth under the captions "Executive
Compensation -- Compensation Committee Interlocks and Insider Participation" and
"Related  Transactions"  in the Proxy  Statement and is  incorporated  herein by
reference.

                                     PART IV


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

         (a)        1. The following  designated financial statements and
                       the report  thereon of KPMG Peat  Marwick,  LLP dated
                       March  26,  1997  are  included  herein  at  pages 22
                       through 43:
                         Independent Auditors' Report.

                         Consolidated  Balance  Sheets as of December 31, 1996
                           and 1995.

                          Consolidated  Statements of  Operations  for
                            the years ended December 31, 1996,  1995 and
                            1994.

                          Consolidated   Statements  of  Stockholders'
                             Equity  for the  years  ended  December  31,
                             1996, 1995 and 1994.


                                       44

<PAGE>

                           Consolidated  Statements  of Cash  Flows for
                              the years ended December 31, 1996,  1995 and
                              1994.

                           Notes to Consolidated Financial Statements.

                  2.       All  schedules  are  omitted   because  the  required
                           information  is not  presented  or is not  present in
                           amounts  sufficient  to  require  submission  of  the
                           schedule,  or because  the  required  information  is
                           included in the consolidated  financial statements or
                           notes thereto.

                  3.       Exhibits:

<TABLE>
<CAPTION>
         Exhibit
         Number            Description of Document

            <S>             <C>

            3.1            Second  Amended and  Restated  Certificate  of
                           Incorporation  of the Company  (Incorporated  by
                           reference to Exhibit 3.1 of the Company's
                           Registration  Statement on Form S-1 (Registration No.
                           33-98708) (the "Registration Statement")).

            3.2            Amended and  Restated  Bylaws of the Company
                           (Incorporated  by  reference to Exhibit 3.2 of the
                           Registration Statement).

            4.1            Specimen  certificate  for  the  Common  Stock,
                           $.01  par  value  per  share,  of  the  Company
                           (Incorporated by reference to Exhibit 4.1 of the
                           Registration Statement).

            4.2            Indenture,  dated as of  February 1,  1995 (the
                           "Indenture")  among the  Company,  as Servicer,
                           Dignity  Partners  Funding  Corp. I  ("DPFC") as
                           Issuer,  and Bankers  Trust Company as Indenture
                           Trustee  ("Bankers  Trust")  (Incorporated  by
                           reference to Exhibit  10.12 of the  Registration
                           Statement).

            4.3            Amendment  No.  1  to  the  Indenture  (Incorporated
                           by  reference  to  Exhibit  10.13  of  the
                           Registration Statement).

           10.1*           1995  Stock  Option  Plan  (Incorporated  by
                           reference  to  Exhibit  10.1  of the  Registration
                           Statement).

           10.2*           Stock Option Plan for Non-Employee  Directors
                          (Incorporated by reference to Exhibit 10.2 of the
                           Registration Statement).

           10.3            Office  Lease/Francisco  Bay Office Park by and
                           between  HHC  Investments,  Ltd.  and  Echelon
                           (Incorporated by reference to Exhibit 10.3 of the
                           Registration Statement).

           10.4            Assignment and Assumption  Agreement  dated
                           September 30,  1995  (Incorporated  by reference to
                           Exhibit 10.16 of the Registration Statement).

           10.5            Agreement  between  the  Company  and New Echelon LLC
                           regarding   allocation  of  costs   (Incorporated  by
                           reference  to  Exhibit   10.4  of  the   Registration
                           Statement).


                                       45

<PAGE>

           10.6            Profit Sharing Plan (Incorporated by reference to
                           Exhibit 10.5 of the Registration Statement).

           10.7            Contribution,  Sale and Servicing Agreement
                           ("Servicing Agreement") dated as of February 1, 1995
                           among the Company,  DPFC and Bankers  Trust
                           (Incorporated  by reference to Exhibit 10.14 of the
                           Registration Statement).

           10.8            Amendment  No. 1 to Servicing  Agreement
                           (Incorporated  by  reference  to Exhibit  10.15 of
                            the Registration Statement).

           10.9            Amendment No. 2 to the Servicing Agreement
                           (Incorporated by reference to Exhibit 10.10 of the
                           Company's Annual Report on Form 10-K for the fiscal
                           year ended December 31, 1995).


           10.10           Master Agreement for Purchase of Life Insurance
                           Policies dated September 27, 1996  (Incorporated by
                           reference to Exhibit 10 of the Company's Quarterly
                           Report on Form 10-Q for the quarter ended
                           September 30, 1996).

           10.11           Amendment dated as of November 12, 1996 to Master
                           Agreement for Purchase of Insurance  Policies
                           dated as of September 27, 1996.

           10.12           Purchase and Sale Agreement dated as of
                           January 16, 1997.

           10.13           Second Master Agreement for Purchase of Insurance
                           Policies dated as of February 10, 1997.

           10.14           Third Master Agreement for Purchase of Insurance
                           Policies dated as of March 24, 1997.

           10.15           Indemnification  Agreement,  dated  September 30,
                           1995,  between the Company (as  successor  to
                           Echelon) and New Echelon LLC  (Incorporated  by
                           reference to Exhibit  10.18 of the  Registration
                           Statement).

           21.1            Subsidiary of the Company

           23.1            Consent of Independent Certified Public Accountants

           24.1            Powers of Attorney

           27              Financial Data Schedule

</TABLE>

*Management contract or compensation plan or arrangement.


                                       46

<PAGE>

(b)      Reports on Form 8-K:

<TABLE>
<CAPTION>

  Date           Item Reported                Matter Reported
  ----           -------------                ---------------
<S>                   <C>         <C>
October 9, 1996        5          On September 17, 1996, the Company issued a
                                  press release announcing the retention of a
                                  financial advisor to assist in the analysis of
                                  strategic options.

                                  On October 9, 1996, the Company issued a press
                                  release announcing an agreement to sell a
                                  portion of its portfolio.

November 5, 1996       5          On October 18, 1996, the Company issued a
                                  press release announcing a share repurchase
                                  program.

                                  On November 4, 1996, the Company issued a
                                  press release announcing an investment in
                                  American Information Company, Inc.

December 16, 1996      2          The stockholders of Dignity Partners,  Inc.
                                  approved a proposal to authorize the Company's
                                  Board of Directors to sell all or
                                  substantially all of the Company's assets.

December 19, 1996      5          A complaint was filed against Dignity
                                  Partners,  Inc. and each of its  directors  by
                                  three  individuals  purporting  to act on
                                  behalf  of  themselves and  an  alleged  class
                                  consisting  of purchasers  of the Company's
                                  common  stock  during the period
                                  February 14, 1996 to July 16, 1996.

</TABLE>

                                       47

<PAGE>

                                   SIGNATURES

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

Dated March 31, 1997                            DIGNITY PARTNERS, INC.
                                                /s/Alan B. Perper
                                                ------------------------------
                                                Alan B. Perper
                                                President

         Pursuant to the  requirements  of the Securities  Exchange Act of 1934,
this  report has been  signed  below by the  following  persons on behalf of the
registrant and in the capacities indicated on March 31, 1997:


/s/ Alan B. Perper                               *
-----------------------------                   -----------------------------
Alan B. Perper                                  John Ward Rotter
President and Director                          Executive Vice President,
(Principal Executive Officer)                     Chief Financial Officer
                                                  and Director
                                                (Principal Financial and
                                                  Accounting Officer)

 *                                               *
-----------------------------                   -----------------------------
Bradley N. Rotter                               Stephen T. Bow
Chairman of the Board and Director              Director



 *
-----------------------------
Paul A. Volberding, M.D.
Director


*     The  undersigned  by signing his name  hereunto  has hereby  signed this
        report on  behalf  of the  above-named  directors,  on March  31,  1997,
        pursuant to a power of attorney executed on behalf of each such director
        and filed with the Securities and Exchange Commission as Exhibit 24.1 to
        this report.

By:  /s/ Alan B. Perper
     -----------------------------
     Alan B. Perper

                                       48

<PAGE>


                                  Exhibit Index
                                  -------------

<TABLE>
<CAPTION>
                                                                     Sequential
 <S>                <C>
  Exhibit                                                               Page
  Number            Description of Document                            Number
 ---------          -----------------------                          -----------

   3.1              Second  Amended and  Restated  Certificate  of
                    Incorporation  of the Company  (Incorporated
                    by reference to Exhibit 3.1 of the Company's
                    Registration  Statement on Form S-1
                    (Registration No. 33-98708) (the
                    "Registration Statement")).

   3.2              Amended and  Restated  Bylaws of the Company
                    (Incorporated  by  reference to Exhibit 3.2 of
                    the Registration Statement).

   4.1              Specimen  certificate  for  the  Common  Stock,
                    $.01  par  value  per  share,  of  the  Company
                    (Incorporated by reference to Exhibit 4.1 of the
                    Registration Statement).

   4.2              Indenture,  dated as of  February 1,  1995 (the
                    "Indenture")  among the  Company,  as Servicer,
                    Dignity  Partners  Funding  Corp. I ("DPFC") as
                    Issuer,  and Bankers  Trust Company as Indenture
                    Trustee  ("Bankers  Trust")  (Incorporated  by
                    reference to Exhibit  10.12 of the  Registration
                    Statement).

   4.3              Amendment  No.  1  to  the  Indenture
                    (Incorporated by  reference  to  Exhibit  10.13
                    of  the Registration Statement).

   10.1*            1995  Stock  Option  Plan  (Incorporated  by
                    reference  to  Exhibit  10.1  of the
                    Registration Statement).

   10.2*            Stock Option Plan for Non-Employee  Directors
                    (Incorporated by reference to Exhibit 10.2 of
                    the Registration Statement).

   10.3             Office  Lease/Francisco  Bay Office Park by and
                    between  HHC  Investments,  Ltd.  and  Echelon
                    (Incorporated by reference to Exhibit 10.3 of the
                    Registration Statement).

   10.4             Assignment and Assumption  Agreement  dated
                    September 30,  1995  (Incorporated  by reference
                    to Exhibit 10.16 of the Registration Statement).

   10.5             Agreement  between  the  Company  and New
                    Echelon LLC regarding   allocation  of  costs
                    (Incorporated  by reference  to  Exhibit 10.4
                    of the Registration Statement).

   10.6             Profit Sharing Plan (Incorporated by reference to
                    Exhibit 10.5 of the Registration Statement).


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<PAGE>

   10.7             Contribution,  Sale and Servicing Agreement
                    ("Servicing Agreement") dated as of February 1,
                    1995 among the Company,  DPFC and Bankers  Trust
                    (Incorporated  by reference to Exhibit 10.14 of
                    the Registration Statement).

   10.8             Amendment  No. 1 to Servicing  Agreement
                    (Incorporated  by  reference  to Exhibit  10.15
                    of the Registration Statement).

   10.9             Amendment No. 2 to the Servicing Agreement
                    (Incorporated by reference to Exhibit 10.10 of
                    the Company's Annual Report on Form 10-K for
                    the fiscal year ended December 31, 1995).

   10.10            Master Agreement for Purchase of Life Insurance
                    Policies dated September 27, 1996
                    (Incorporated by reference to Exhibit 10 of the
                    Company's Quarterly Report on Form 10-Q for the
                    quarter ended September 30, 1996).

   10.11            Amendment dated as of November 12, 1996 to Master
                    Agreement for Purchase of Insurance  Policies
                    dated as of September 27, 1996.

   10.12            Purchase and Sale Agreement dated as of
                    January 16, 1997.

   10.13            Second Master Agreement for Purchase of Insurance
                    Policies dated as of February 10, 1997.

   10.14            Third Master Agreement for Purchase of Insurance
                    Policies dated as of March 24, 1997.

   10.15            Indemnification  Agreement,  dated  September 30,
                    1995,  between the Company (as  successor  to
                    Echelon) and New Echelon LLC  (Incorporated  by
                    reference to Exhibit  10.18 of the  Registration
                    Statement).

   21.1             Subsidiary of the Company

   23.1             Consent of Independent Certified Public Accountants

   24.1             Powers of Attorney

   27               Financial Data Schedule

</TABLE>

*Management contract or compensation plan or arrangement.

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