SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C.   20549
                                    Form 10-K

(Mark One)
[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

[ ] 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 1-10522

                        PIONEER FINANCIAL SERVICES, INC.
             (Exact name of registrant as specified in its charter)

                 Delaware                             36-2479273
      (State or other jurisdiction of              (I.R.S. Employer
      incorporation or organization)             Identification No.)

 1750 East Golf Road, Schaumburg, Illinois              60173
 (Address of principal executive offices)             (Zip Code)

    Registrant's telephone number, including area code (847) 995-0400

    Securities registered pursuant to Section 12(b) of the Act:
                                                Name on Each Exchange
            Title of Each Class                  on Which Registered
       Common Stock, $1.00 par value         New York Stock Exchange and
                                                Midwest Stock Exchange

6 1/2% Convertible Subordinated Notes due 2003 New York Stock Exchange

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

     Indicate by a 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     

     While it is difficult to determine the number of shares owned by non-
affiliates (within the meaning of the term under the applicable regulations of
the Securities and Exchange Commission), the registrant estimates that the
aggregate market value of the registrant's common stock held by non-affiliates
on March 18, 1997 (based upon an estimate that  88% of the shares are so owned
by non-affiliates and upon the closing price of the common stock on the New York
Stock Exchange) was $270,241,000.

     The number of shares of the registrant's common stock, $1.00 par value per
share, outstanding as of March 18, 1997 was  11,805,267.

     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of the 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.  [  ]




ITEM 1.  BUSINESS

       Pioneer Financial Services, Inc. (the Company) underwrites and markets
health insurance, life insurance and annuities throughout the United States.  In
the ten years since it became public, the Company's total revenue has grown from
$52 million in 1986 to $888 million in 1996; total assets have increased from
$165 million at December 31, 1986 to over $1.8 billion at December 31, 1996; and
stockholders' equity has increased from $34 million at December 31, 1986 to $189
million at December 31, 1996.  The Company sells its products and services
through three marketing divisions:  Senior Health Division, Group Medical
Division and Life Insurance Division.

PENDING MERGER WITH CONSECO, INC.

  On December 15, 1996, the Company and Conseco, Inc. ("Conseco"), a financial
services holding company engaged primarily in the development, marketing and
administration of annuity, individual health insurance and individual life
insurance products, entered into a merger agreement whereby the Company will be
acquired by Conseco.  In the merger, each of the issued and outstanding shares 
of the Company's common stock would be converted into the right to receive a 
fraction of a share of Conseco common stock having a value between $25.00 and 
$28.00, depending on the average closing price of Conseco common stock in the 
ten trading days immediately preceding the second trading day prior to 
closing.  The Company's outstanding convertible subordinated notes would 
become convertible into shares of Conseco common stock on an equivalent 
basis.  The total value of the transaction would be approximately $477 
million, including $417 million to purchase the Company's 16.9 million 
common shares and equivalents, and $60 million to retire bank debt and pay 
other costs.  Based on a Conseco common stock share value which exceeds $28.00 
per share (said price being exceeded on the date hereof), Conseco will issue 
8.7 million shares of Conseco common stock with a value of approximately 
$352.4 million to acquire the Company's common stock.  In addition, Conseco 
will assume Company notes payable of $27.8 million and the Company's 6 1/2% 
of Convertible Subordinated Notes due 2003, which will be convertible into an 
assumed 3.0 million shares of Conseco common stock with a value of 
approximately $120.7 million.  The merger is subject to customary terms and
conditions, including approval by the Company's stockholders and regulatory
approvals.

OPERATIONS

       Senior Health Division.  The Senior Health Division markets a wide range
of specialty health insurance and life insurance and annuities for individuals
age 65 and older.  Products which are underwritten by this division include
Medicare supplement, long-term care, home health care and specialty health.  In
addition, this division markets cash burial life policies and annuities which
are underwritten by the Company's Life Insurance Division.  The Company's
Medicare supplement policies provide coverage for many of the expenses which the
federal Medicare program does not fully cover and its long-term care and home
health care policies provide coverage, within various prescribed benefit limits,
for nursing home and in-home care.

       The Company is the fifth largest issuer of individual Medicare supplement
insurance in the nation, excluding Blue Cross and Blue Shield-related entities,
based on direct premiums earned.  The Company sells products designed for senior
citizens through a distribution network which has grown from approximately
15,000 agents at the end of 1994 to nearly 25,000 agents at the end of 1996. 
Future revenue growth in this division is expected to be generated in part from
the increased number of agents and increased sales of Medicare supplement, long-
term care and home health care policies.

       Group Medical Division.  The Group Medical Division underwrites and
markets hospital and medical policies, primarily to self-employed individuals
and small business owners.  In 1996, approximately 73% of this division's
business was sold through a sales force of approximately 1,200 career agents,
15% was sold through a brokerage system of 14,000 independent agents and the
remaining 12% was sold through 40,000 independent brokers in a distribution
system related to the block of business acquired in August 1996 from Washington
National Insurance Company.  This division uses the services provided by the
preferred provider organizations ("PPOs") and other managed care operations to
help control claims costs.  The Company believes that the Group Medical
Division's use of managed care services resulted in significant claims savings
for the Company in 1996, with most of these savings being passed on to customers
in the form of more competitive premium rates.  

       Life Insurance Division.  The Life Insurance Division underwrites and
markets traditional life (term and whole life), universal life, and interest
sensitive life insurance and annuities targeted primarily to the middle income
market.  The Life Insurance Division sells its products through a nationwide
network of brokerage general agents ("BGAs") and managing general agents
("MGAs") who in turn contract with multiple brokers and general agents.  This
division grew significantly when the Company acquired Connecticut National Life
Insurance Company ("CNL") in January 1995.  In addition, the Company acquired
Secura Life Insurance Company ("SLIC") in December 1996.  This division also
underwrites, issues and administers the life insurance products marketed by the
Senior Health Division.

       Investment Portfolio.  The Company has maintained and intends to continue
to maintain a diversified portfolio of medium-term investment-grade fixed income
securities.  As of December 31, 1996, 86% of the Company's invested assets were
fixed income securities and the weighted average quality of the fixed income
portfolio was "AA."

PRODUCTS AND SERVICES

     The Company markets and underwrites health insurance, life insurance and
annuities throughout the United States.  The Company sells products and provides
its services through three marketing divisions:  Senior Health Division, Group
Medical Division and  Life Insurance Division.  The Company's distribution
systems for its products have increased from approximately 12,000 agents in 1986
to nearly 90,000 agents at the end of 1996.

Senior Health Division

     The products marketed by the Senior Health Division include Medicare
supplement, long-term care, home health care, various specialty health
coverages, life insurance and annuities.  In addition, this division markets
cash burial life policies and annuities which are underwritten by the Company's
Life Insurance Division.  This division markets these products to individuals
age 65 and older and underwrites and issues all such products except the life
insurance and annuity products which are underwritten and issued by the Life
Insurance Division.

     In the Senior Health Division, the Company may adjust health insurance
premium rates generally by class, policy form and state in which the policy is
issued, subject to applicable regulation, in order to maintain anticipated loss
ratios.  Since premium rate increases can increase policy lapses, conservation
and customer service activities are emphasized.  The Senior Health Division
follows a proactive approach involving the examination of health premium rates
on a monthly basis, including comparisons of pricing structure to actual claims
experience by product line and state.  This ongoing analysis provides lead time
for the  orderly adjustment of premiums.

     Medicare Supplement.  Since the inception of the federal Medicare program
in 1966, the Company has offered policies designed to supplement Medicare
benefits and is now the fifth largest issuer of individual Medicare supplement
insurance in the nation, excluding Blue Cross and Blue Shield-related entities,
based on direct premiums earned.  Medicare supplement policies provide coverage
for many of the medical expenses which the Medicare program does not cover, such
as deductible and coinsurance costs and specified losses which exceed the
Federal program's maximum benefits.

     In 1991, the National Association of Insurance Commissioners (the "NAIC")
defined ten model Medicare supplement policies.  In states which have adopted
the NAIC model, only those ten policies can be sold.  In most states, the
Company markets eight of the ten model policies  those which the Company
believes are most applicable to its target market.  All states have adopted
either the NAIC model or similar legislation which specifically defines policy
models. 

     Medicare Select policies combine the cost advantages of a preferred
provider organization with a Medicare supplement policy to provide a reduced
premium cost for policyholders.  Utilization of specified hospitals, which waive
certain deductibles covered by the Medicare supplement policy, allows the
Company to reduce the premium charged.  The federal government recently expanded
the Medicare Select program to all states. Although the market for this product
is just developing, the Company sells Medicare Select policies in a number of
states and has plans to expand sales nationally. 

     Long-Term Care and Home Health Care.  The Senior Health Division also
offers long-term care and home health care products designed principally for
senior citizens.  Long-term care policies generally provide specified per day
benefits for nursing home confinements, within prescribed limits.  Home health
care policies provide specified per day benefits for required health services
received in the home and comprehensive coverages which provide benefits for all
levels of nursing home care, home health care and adult day care.  In 1995, the
Company developed and introduced a new series of "Independent Choice" long-term
care and home health care plans which provide greater flexibility of benefit use
and include care coordination features to help lower benefit costs.  The
Company's strategy is to cross-sell these products to customers who have already
purchased the Company's Medicare supplement product.

     The Company believes that the market for long-term care and home health
care insurance could increase due to federal tax legislation to provide tax
deductibility for long-term care insurance premiums.  See "--Health Care
Reform".

     Specialty Health and Other.  The Senior Health Division offers various
specialty health products which typically are sold in conjunction with the
Company's principal health products.  These policies include hospital indemnity,
private duty nursing and cancer plans.  Additionally, the Company intends to
develop and market managed care organizations for seniors as the demand for such
products expands.  The Company believes that the market for senior managed care
products will grow as health care costs continue to grow.  It is estimated that
approximately 10% of Medicare beneficiaries in the nation participate in HMOs. 
There are many states with very low penetration of managed care in the senior
market, including states with a high concentration of Medicare beneficiaries. 
The Company intends to take advantage of this opportunity by utilizing its
position in the senior market and its managed care experience to market managed
care products to senior citizens.

     Life Insurance and Annuities.  The Senior Health Division markets life
insurance and annuities which are issued by the Life Insurance Division to
individuals age 65 and over.  In 1994, the Company began selling smaller face-
amount whole life insurance policies specifically designed to cover final
expenses for senior citizens, including funeral expenses and other expenses that
otherwise would be paid by the insured's family.  As part of its cross-selling
strategy, the Company automatically offers a pre-approved (already underwritten
for issue) cash burial life insurance policy with all Medicare supplement
policies issued to customers age 66-79.  The Company also offers annuity
products specifically designed for seniors.  These products provide an
attractive investment alternative to seniors, offering higher interest rates
than bank savings accounts and certificates of deposit and the ability to
receive monthly payouts during retirement years.

     Marketing.  The Senior Health Division markets its products and services
primarily to individuals age 65 and older through a distribution system of
nearly 25,000 agents.  The Company intends to enhance the Company's
cross-selling capabilities through increased agent training and packaging of
products.  The agents receive extensive product and marketing information from
the Company.  They also have access, through the Company, to lists of
prospective customers turning age 65 in their respective geographic areas and to
a direct-mail lead-generation system.  By providing its agents with training,
sales materials, lead-generation programs and a full range of health and life
insurance products designed for senior citizens, the Company intends to increase
both sales to new customers and cross-sales to existing policyholders.  The
agents receive commissions on each sale based on the type of product sold.

Group Medical Division

     The Group Medical Division underwrites and markets small group and
individual hospital and medical products, including major hospital and specialty
health insurance policies, individually underwritten and issued.  This
division's products and services are targeted primarily to individuals and small
business owners.  The insureds in this division also become prospects for the
Senior Health Division -- when they reach age 65, the Company automatically
provides for conversion to a Medicare supplement policy.

     As in the Senior Health Division, the Company may, in the Group Medical
Division, adjust health insurance premium rates by class, policy form and state
in which the policy is issued, subject to applicable regulation, in order to
maintain anticipated loss ratios.  Since premium rate adjustments can have the
tendency to increase policy lapses, conservation and customer service activities
are emphasized.  As with the Senior Health Division, the Group Medical Division
follows a proactive approach involving the examination of health premium rates
on a monthly basis.  The matching of pricing structure with actual claims
experience varies by product line and state.  This ongoing analysis provides
lead time for the orderly adjustment of premiums.

     The Group Medical Division intends to focus its efforts on increasing
administrative efficiency and claims-cost containment on its existing block of
business through, among other things, continued development of medical provider
networks and continued migration of its fee-for-service indemnity health
insurance customers to managed care products.  As the regulatory environment
evolves, the Company will evaluate growth opportunities in this market.

     Major Hospital.  The Company offers major hospital insurance plans on an
individual basis and on a group trust (multiple employer trust) and association
basis and has issued master policies for such plans to several trusts and
associations.  These plans are designed to cover in-hospital expenses for self-
employed individuals, small business owners, employees and their families. 
Hospital, surgical and other medical expenses are covered on an expense incurred
basis with certain benefit limits after a prescribed deductible.  The Company
provides products with alternatives such as increased deductibles and different
benefit structures designed to enable policyholders to maintain insurance
protection without increased premium rates.  The Company also has introduced a
product which combines HMO-type wellness features within a specific provider
network along with in-network and out-of-network indemnity benefits.

     Marketing.  The Group Medical Division markets its products and services
primarily to self-employed individuals and small business owners.  In 1996,
approximately 73% of this division's business was sold through a sales force of
approximately 1,200 career agents, 15% was sold through a brokerage system of
14,000 independent agents and the remaining 12% was sold through 40,000
independent brokers in a distribution system related to the block of business
acquired in August 1996 from Washington National Insurance Company. 

Life Insurance Division

     The Life Insurance Division's products include traditional life (term and
whole life), universal life and interest sensitive insurance and annuities. 
Substantially all of the Company's life insurance policies are individually
underwritten and issued.  This division's products and services are targeted
primarily to the middle income market.  In addition, this division underwrites,
issues and administers the life insurance and annuity products marketed by the
Senior Health and Life Division.  This division grew significantly when the
Company acquired Connecticut National Life (CNL) in January 1995.

     The following table sets forth the breakdown of collected premiums
(computed on a statutory basis) among traditional life policies, interest
sensitive and universal life policies and annuities for the years shown:

<TABLE>
<CAPTION>
                                              Year Ended December 31,


                             1996                  1995             1994
                                           (dollars in thousands)
<S>                        <C>                 <C>               <C>     
Traditional                $ 53,439            $ 44,276          $ 32,238
Interest Sensitive and
  Universal Life Policies    34,949              21,215            17,590
Annuities                    12,837              19,639            22,807  
Total                      $101,225            $ 85,130          $ 72,635

</TABLE>

For the fiscal year 1994, premiums collected from the Company's life insurance
products were approximately 28% first year and 72% renewal, the fiscal year 1995
premiums were approximately 32% first year and 68% renewal, and for fiscal year
1996 premiums collected were approximately 35% first year and  65% renewal.

     The Company's gross life insurance in force was as follows at the dates
shown:

<TABLE>
<CAPTION>
                                             December 31,

                         1996                   1995                 1994 
                                         (dollars in millions)

<S>                           <C>            <C>                 <C>
Traditional                $ 19,303           $  14,863          $  10,803
Interest Sensitive and
  Universal Life Policies     2,467               2,880              1,779 
Total                      $ 21,770           $  17,743          $  12,582

</TABLE>

     Traditional Life.  The largest portion of the Life Insurance Division's
business is in term life insurance.  The Company specializes in face amounts of
$100,000 to $500,000, sold to middle income families.  Marketed under the name
"Super Saver Term," this series features low cost 5-, 10- and 15-year term life
insurance products.

     For a number of years, the Company has offered individually underwritten
insurance on lives of persons who, to varying degrees, do not meet the
requirements of standard insurability.  Higher premiums are charged for these
"impaired" or "substandard" lives, and, where the amount of insurance is large
or the risk is significant, a portion of the risk is reinsured.  Approximately
10% of the Company's in-force life insurance could be categorized as "impaired
risk."

     Interest Sensitive Life and Universal Life.  The Company's interest
sensitive and universal life insurance products provide life insurance with
rates of return which are adjusted in relation to prevailing interest rates. 
The policies permit the Company to change the rate of interest credited to the
policy from time to time subject to certain minimum guaranteed rates.  Universal
life insurance products credit current interest rates to cash value
accumulations, permit adjustments in benefits and premiums at the policyholder's
option, and deduct mortality and expense charges monthly.  Under other interest
sensitive policies, premiums are flexible, allowing the policyholders to vary
the frequency and amount of premium payments, but typically death benefit
changes are not made by the policyholders.  Some universal life products offer
lower premiums for non-smokers in good health.  For both universal life and
other interest sensitive policies, surrender charges, if any, are deducted from
the policyholder's account value at the time of surrender.  No surrender charges
are deducted if death benefits are paid or if the policy remains in-force for a
specified period.

     The Company's "Interest Sensitive Series" includes whole life policies
ideally suited for the impaired risk market.  This product series provides
permanent protection with a fixed, guaranteed level premium and an interest rate
persistency bonus.  The "Financial Lifestyle II" is a highly flexible back-load
universal life policy providing low-cost protection with tax-deferred cash
accumulation.

     Annuities.  The Company offers single and flexible premium deferred
annuities.  An annuity contract generally involves the accumulation of premiums
at a compound interest rate until the maturity date, at which time the
policyholder can choose one of the various payment options.  Options include
periodic payments during the annuitant's lifetime or the lifetime of the
annuitant and spouse, with or without a guaranteed minimum period; periodic
payments for a fixed period regardless of the survival of the annuitant; or lump
sum cash payment of the accumulated value.  The Company's annuities typically
provide for the crediting of interest at rates set from time to time by the
Company, subject to certain minimum guaranteed rates.

     Marketing.  The Life Insurance Division markets its products primarily to
individuals in middle income levels through a nationwide network of BGAs and
MGAs who in turn contract with approximately 15,000 brokers and general agents. 
The Company's BGAs, MGAs and agents receive compensation through sales
commissions.                                                         
                                                                                
         PREMIUM DISTRIBUTION

     The Company's insurance subsidiaries collectively are licensed to sell
insurance in 49 states and the District of Columbia.  The importance to the
Company of particular states may vary over time as the composition of its agency
network changes.  The geographic distribution of collected premiums (before
reinsurance) of the Company's subsidiaries in 1996 was as follows:

<TABLE>
<CAPTION>

                              TOTAL         PERCENT
                              (Dollars in thousands)

         <S>               <C>              <C>  
         Texas             $ 79,445         10.0%
         Florida             67,715         8.5  
         California          49,302         6.2  
         Illinois            48,212         6.1  
         New Jersey          33,109         4.2  
         North Carolina      31,312         3.9  
         Georgia             28,904         3.6  
         Oklahoma            27,733         3.5  
         Mississippi         27,595         3.5  
         Pennyslvania        26,179         3.3  
         Tennessee           25,364         3.2  
         Missouri            24,377         3.1  
         Other (1)          326,706        40.9  
                   Total   $795,953       100.0% 

(1)  Includes 37 other states, the District of Columbia, and certain U.S.
     territories and foreign countries, each of which accounts for less than 3%
     of collected premiums.

</TABLE>

UNDERWRITING

   A major portion of the Company's insurance coverages are individually
underwritten to assure that policies are issued by the Company's insurance
subsidiaries based upon the underwriting standards and practices established by
the Company.  Applications for insurance are reviewed to determine if any
additional information is required to make an underwriting decision, which
depends on the amount of insurance applied for and the applicant's age and
medical history.  Such additional information may include medical examinations,
statements from doctors who have treated the applicant in the past and, where
indicated, special medical tests.  If deemed necessary, the Company uses
investigative services to supplement and substantiate information.  For certain
coverages, the Company may verify information with the applicant by telephone. 
After reviewing the information collected, the Company either issues the policy
as applied for, issues the policy with an extra premium charge due to
unfavorable factors, issues the policy excluding benefits for certain conditions
for a period of time or rejects the application.  For certain of its coverages,
the Company has adopted simplified policy issue procedures in which the
applicant submits a simple application for coverage typically containing only a
few health related questions instead of a complete medical history.

   In common with other life and health insurance companies, the Company may be
exposed to the risk of claims based on AIDS.  The Company's AIDS claims to date
have been insignificant.  Because of its emphasis on policies written for the
senior citizen market and its underwriting procedures and selection processes,
the Company believes its risk of AIDS claims is less than the risk to the
industry in general.

REINSURANCE

   The Company's insurance subsidiaries reinsure portions of the coverages
provided by their insurance products with other insurance companies on both an
excess of loss and co-insurance basis.  Co-insurance generally transfers a fixed
percentage of the Company's risk on specified coverages to the reinsurer. 
Excess of loss insurance generally transfers the Company's risk on coverages
above a specified retained amount.  Under its excess of loss reinsurance
agreements, the maximum risk retained by the Company on one individual in the
case of life insurance and accident and health insurance is $250,000.

   The Company acquired CNL in January 1995 which had an existing modified
coinsurance arrangement with Reassurance Company of Hannover (RCH) ceding 90% of
all its retained business issued prior to December 31, 1994.  CNL received an
initial ceding allowance of $15 million which was included in an experience
refund account.  The experience refund account will be reduced by profits from
the reinsured business.  The Company will share profits on the reinsured
business thereafter on a 50-50 basis with RCH.  CNL is indemnified for losses on
the business reinsured.

   Reinsurance agreements are intended to limit an insurer's maximum loss on the
specified coverages.  The ceding of reinsurance does not discharge the primary
liability of the original insurer to the insured, but it is the practice of
insurers (subject to certain limitations of state insurance statutes) to account
for risks which have been reinsured with other approved companies, to the extent
of the reinsurance, as though they are not risks for which the original insurer
is liable.  At December 31, 1996 approximately 28% of reinsurance receivables
and amounts on deposit with reinsurers were due from RCH, 23% from Lincoln 
National Life Insurance Company, and 16% from Employers Reinsurance 
Corporation.  Amounts due from any one other reinsurer were immaterial.  
See Note 7 of Notes to Consolidated Financial Statements.

   The Company has occasionally used assumption reinsurance to acquire blocks of
business from other insurers.  In addition, the Company has from time to time
entered into agreements to assume certain insurance business from companies for
which it is marketing insurance products.  The Company intends to continue these
programs if they assist in expanding product lines and marketing territories and
contribute to profitability.  In August 1996, the Company assumed the individual
and small group health business of Washington National Insurance Company (WNIC).
The total premiums assumed were approximately $100 million for the five months
ended Decemer 31, 1996.  As of December 31, 1996, policy liabilities were
increased as a result of the treaty by $66.3 million.  The Company entered into
a 50% quota share treaty with RCH on the business assumed from WNIC.

ACQUISITIONS

   The Company believes that current trends in the life and health insurance
industry will provide opportunities for continued acquisitions and
consolidations.  Larger companies are reducing administrative costs by divesting
divisions and blocks of life and health insurance business which do not fit
their overall strategies and are focusing on two or three core product lines to
improve efficiency and gain competitive advantage.  Additionally, smaller, less
efficient companies with less capital at their disposal are experiencing
increasing difficulty in remaining competitive; regulatory requirements add
significant costs which may not be able to be absorbed by smaller companies;
capital requirements have increased due to the imposition of risk-based capital
ratios by regulatory agencies; state healthcare reform programs are reducing
health insurance profit margins; the costs of necessary information processing
systems have increased; and smaller companies cannot access capital markets to
finance additional growth.



The following table summarizes the recent significant acquisitions made by the
Company:

<TABLE>
<CAPTION>
 ACQUISITIONS          DATE OF          TYPE OF BUSINESS
                       ACQUISITION

 <S>                   <C>              <C>
 Continental Life &    August 1993      Small group medical
 Accident Company                       insurance; became part
 (CLAC)                                 of the Group Medical
                                        Division. 

 Connecticut National  January 1995     Interest sensitive and
 Life Insurance                         universal life
 Company (CNL)                          insurance; became part
                                        of the Life Insurance
                                        Division.

 Western Fidelity      July 1995        Major medical products;
 Insurance Company                      became part of the Group
 (block of business)                    Medical Division.

 Universal Fidelity    March 1996       Medicare supplement
 Life                                   carrier; to become part
 Insurance Company                      of the Senior Health and
 (UFLIC)                                Life Division.

 Washington National   August 1996      Major medical products;
 Insurance                              became part of the Group
 Company (block of                      Medical Division.
 business)

 SECURA Life           December 1996    Term life insurance and
 Insurance                              cash burial policies and
 Company (SLIC)                         annuities; became part
                                        of the Life Insurance
                                        Division.                
                                          
</TABLE>

   In August 1993, the Company acquired, and added to the Group Medical
Division, CLAC, a small group medical insurer.  In 1994 and 1995, the
administration of this subsidiary was consolidated with the Company's other
health insurance operations.  In addition to CLAC, this acquisition included the
purchase of Continental Marketing Corporation which added an efficient broker-
to-broker telemarketing distribution system to the Group Medical Division.

   In January 1995, the Company acquired, and added to the Life Insurance
Division, CNL, a $350 million asset company, which had issued primarily interest
sensitive and universal life insurance products.  This acquisition increased the
distribution system of the Life Insurance Division.

   In July 1995, the Company acquired, and consolidated into the Group Medical
Division's administrative facility in Dallas, Western Fidelity Insurance
Company's $42 million block of major medical policies.  The Company was able to
integrate substantially all of this business into its operations within one
month.

   In March 1996, the Company acquired Universal Fidelity, a company which
markets and underwrites primarily Medicare supplement products to senior
citizens in Oklahoma and Texas.  Universal Fidelity generated approximately $33
million of annualized premium. The approximately 30,000 Universal Fidelity
Medicare supplement policyholders also provide potential for increased
profitability through cross-selling of long-term care, home health care and
other products.

   In August 1996, the Company acquired,and added to the Group Medical Division,
a block of individual and small group health insurance business from Washington
National Insurance Company (WNIC).

   In December 1996, the Company acquired, and added to the Life Insurance
Division, SLIC, a $119 million asset company which had issued primarily term
life insurance products.

INVESTMENTS

        The Company's investment policy is to balance its portfolio between
long-term and short-term investments so as to achieve investment returns
consistent with preservation of capital and maintenance of liquidity adequate to
meet payment of policy benefits and claims.  Current policy is to invest
primarily in fixed income securities of the U.S. government and its agencies and
authorities, and in fixed income corporate securities with investment grade
ratings of Baa3 and/or BBB- or better.  At December 31, 1996, less than 2.9% of
the Company's total investment portfolio and less than 2.6% of its statutory
admitted assets were below-investment grade or unrated.  The Company has a
policy to invest no more than 4% of its statutory admitted assets in fixed
income securities below-investment grade or unrated.  At December 31, 1996, the
Company had invested assets of $1,195.5 million, compared to $1,042.6 million at
December 31, 1995.  The Company manages all of its investments internally with
resource and evaluation assistance provided by independent investment
consultants.  

        The following table provides information on the Company's investments as
of the dates indicated:

<TABLE>
<CAPTION>


                                                                               December 31,                       
                                                                          (Dollars in thousands)
                                                                     1996                          1995          

 TYPE OF INVESTMENT:                                        Amount            Percent       Amount        Percent
 <S>                                                        <C>                 <C>          <C>             <C>  
 Fixed maturities to be held to maturity:
    U.S. Treasury  . . . . . . . . . . . . . . . . .         $ 29,719            2%         $ 26,897         3%
    States and political subdivisions  . . . . . . .            5,475            1             4,669         1 
    Corporate securities . . . . . . . . . . . . . .           59,068            5            51,608         5 
    Mortgage-backed securities . . . . . . . . . . .          171,787           14           162,867        15 
     Total fixed maturities held to maturity. .               266,049           22           246,041        24 

 Fixed maturities available for sale:
    U.S. Treasury  . . . . . . . . . . . . . . . . .           27,358            2            34,084         3 
    States and political subdivisions  . . . . . . .           37,361            3            26,976         3 
    Foreign governments  . . . . . . . . . . . . . .            2,420            *             3,018         * 
    Corporate securities . . . . . . . . . . . . . .          462,598           39           313,501        30 
    Mortgage-backed securities . . . . . . . . . . .          228,501           20           245,087        23 
     Total fixed maturities available for sale . . .          758,238           64           622,666        59 

            Total fixed maturities . . . . . . . . .        1,024,287           86           868,707        83 

 Equity securities . . . . . . . . . . . . . . . . .           28,630            2            15,570         1 
 Real estate . . . . . . . . . . . . . . . . . . . .           14,989            1            18,250         2 
 Mortgage loans  . . . . . . . . . . . . . . . . . .            9,890            1             9,253         1 
 Policy loans  . . . . . . . . . . . . . . . . . . .           83,054            7            79,122         8 
 Short-term investments  . . . . . . . . . . . . . .           34,659            3            51,690          5

                 Total Investments . . . . . . . . .     $  1,195,509          100%       $1,042,592       100%
______________________

*   less than one percent

</TABLE>

      The following table provides information on the credit quality and
average lives of the Company's fixed maturity portfolio as of December 31, 1996.

<TABLE>
<CAPTION>
                                                                       FIXED MATURITY PORTFOLIO
                                                                         (dollars in thousands)

                                                                   Carrying
                                                                     Value               Percent
<S>                                                                <C>                    <C>   
Credit Quality - S&P (or equivalent) rating:

  AAA                                                             $ 416,407               41%
  AA+, AA, AA-                                                      124,068               12   
  A+, A, A-                                                         336,959               33   
  BBB+, BBB, BBB-                                                   112,621               11   
  Below-investment grade                                             33,432                3   
  In default                                                            800                *   
      Total                                                      $1,024,287              100%

Average Lives

  One year or less                                                 $ 21,697                2%
  Over one year through five years                                  276,863               27   
  Over five years through ten years                                 297,392               29   
  Over ten years                                                    428,335               42   
      Total                                                      $1,024,287              100%

*    Less than one percent.

</TABLE>

     Fixed Maturity Investments.  With the adoption of risk-based capital rules
and consumer concerns over insurance company solvency and financial stability,
the asset quality of insurance companies' investment portfolios has become of
greater concern to policyholders and has come under closer scrutiny by insurance
regulators and investors.  The investment objectives of the Company are to
maximize investment yield without sacrificing high investment quality and
matched liquidity.

     Investments in below-investment grade fixed maturity securities generally
have greater risks (and potentially greater returns) than other corporate fixed
maturity investments.  Risk of loss upon default by the issuer is significantly
greater for these securities because they are often unsecured and are often
subordinated to other creditors of the issuer, and because these issuers usually
have high levels of indebtedness and are more sensitive to adverse economic
conditions, such as recession or increasing interest rates, than are investment
grade issuers.  Also, the market for below-investment grade securities is less
liquid and not as actively traded as the market for investment grade securities.

     The Company continually evaluates the creditworthiness of each issuer of
securities held in its portfolio.  When the fair value of an individual security
declines materially, or when the Company's ongoing evaluation indicates that it
may be likely that the Company will be unable to realize the carrying value of
its investment, a determination is made as to the extent to which such declines
are attributable to changing market expectations regarding general interest
rates and inflation and other factors, such as a perceived increase in the
credit risk of the issuer, a general decrease in a particular industry sector or
an overall economic decline.  If the decline in value is other than temporary,
and the carrying amount of the investment is reduced to its fair value based
principally on available market prices, the amount of the reduction is reported
as a realized loss on investments and the net fair value becomes the new cost
basis of the investment.  In addition, the Company reverses any accrued interest
income previously recorded for the investment and records future interest income
only when cash is received.

     Yields recognized in future periods on such investments may be less than
yields recognized on other investments and will be less than the yield expected
when the fixed maturity security was originally purchased.  The effect on net
income from declines in interest income and portfolio yield from impaired
securities in future periods will depend on many factors, including, for life
insurance business, the level of interest rates credited to policyholder account
balances.  Inasmuch as interest rates credited to the Company's policyholders
are typically guaranteed only for one year, the Company does not expect any
material adverse effect on net income in future periods from declines in yields
from impaired securities.

     Mortgage-Related Securities.  At December 31, 1996, the Company had $400.3
million (or 39% of its fixed maturities portfolio) in mortgage-related
securities compared to $408.0 million at December 31, 1995 (or 47% of its fixed
maturities portfolio).  The mortgage-related securities are invested primarily
in U.S. government agency and non-agency pass-through certificates and various
components of U.S. government agency and non-agency collateralized mortgage
obligations ("CMOs").  CMOs are bonds that are collateralized by U.S. government
agency or non-agency whole loan mortgages and mortgage pass-through securities. 
The yield characteristics of mortgage-related securities differ from those of
traditional fixed income securities.  The major differences typically include
more frequent interest and principal payments, usually monthly, and the
possibility that prepayments of principal may be made at any time. Prepayment
rates are influenced by changes in current interest rates and a variety of
economic, geographic, social and other factors and cannot be predicted with
certainty.  The yields to maturity of the mortgage-related securities will be
affected by the actual rate of payment (including prepayments) of principal of
the underlying mortgage loans.  In general, prepayments on the underlying
mortgage loans, and subsequently the mortgage-related securities backed by these
loans, increase when the level of prevailing interest rates declines
significantly below the interest rates on such loans.  When declines in interest
rates occur, the proceeds from the prepayment of such securities may be
reinvested at lower rates than the Company was earning on such securities.  

     The Company's mortgage-related securities portfolio is well diversified as
to collateral, maturity, duration and other characteristics.  The majority of
the mortgage-related securities portfolio has the guarantee or backing of
agencies of the United States government.  Generally, the mortgage-related
securities consist of pools of single-family, residential mortgages.  At
December 31, 1996, the Company's mortgage-related securities portfolio included
$143.3 million of CMOs and pass-through certificates issued by non-government
agencies (35.8% of total mortgage-backed securities) compared to $136.9 million
at December 31, 1995 (33.6% of total mortgage-backed securities).  The majority
of these holdings are senior securities in the CMO structures which are
collateralized by first mortgage liens on single-family residences and which
have investment grade ratings of Baa3 and/or BBB- or higher.  The
creditworthiness of these securities is based solely on the underlying mortgage
loan collateral and credit enhancements in the form of senior/subordinated
structures, letters of credit, mortgage insurance or surety bonds.  The
underlying mortgage loan collateral principally consists of whole loan mortgages
that exceed the maximum imposed by both the Federal National Mortgage
Association and the Federal Home Loan Mortgage Corporation.   Therefore, the
collateral tends to be concentrated in states with the greatest number of higher
priced single family residences, including California, New York, New Jersey,
Maryland, Virginia and Illinois.

     At December 31, 1996, the Company held $10.5 million carrying value of
inverse floater and interest-only tranches of CMOs.  These derivative securities
were acquired to protect the Company in the event of adverse interest rate
fluctuations.  The yields and fair values of these securities are generally more
sensitive to changes in interest rates and prepayments than other mortgage-
related securities.

     The following table summarizes the components of the Company's mortgage-
related securities portfolio at December 31, 1996, and December 31, 1995:

<TABLE>
<CAPTION>
                                                          At December 31, 1996           At December 31, 1995   
                                                        Carrying         Fair          Carrying         Fair
                                                          Value          Value           Value          Value   
                                                                            (IN THOUSANDS)
 <S>                                                   <C>           <C>             <C>            <C>
 Inverse floaters and interest-only 
   CMO tranches  . . . . . . . . . . . . . . . . .     $    10,499   $      10,499   $     10,258   $     10,258
 Other CMOs:
   U.S. government agency  . . . . . . . . . . . .         199,694         199,502        207,637        211,507
   Non-agency  . . . . . . . . . . . . . . . . . .         140,625         140,625         73,784         73,793
          Total other CMOs . . . . . . . . . . . .         340,319         340,127        281,421        285,300
 U.S. government agency pass-through . . . . . . .          46,844          46,672         53,136         53,664
 Non-agency pass-through . . . . . . . . . . . . .           2,626           2,626         63,139         63,139
           Total mortgage-backed securities. . . .     $   400,288   $     399,924   $    407,954   $    412,361

</TABLE>

     Since investment income is an important component of revenue and
profitability for the Company; significant focus is placed on the analysis of
both asset and liability characteristics in the investment process. 
Profitability is impacted by spreads between yields earned on investments and
rates credited on annuities, interest sensitive and life insurance liabilities. 
Although substantially all credited rates on these liabilities can be changed
annually, changes in interest rates credited may not be sufficient to maintain
targeted investment spreads in all economic and market environments.  In
addition, other factors including competition, the impact of the level of
surrenders and withdrawals may limit the Company's ability to adjust or to
maintain crediting rates at levels necessary to avoid narrowing of spreads under
certain market conditions.

     The Company, in recognizing this importance of interest rate managment,
seeks to balance the duration of its invested assets with the expected duration
of benefit payments arising from insurance liabilities.  At December 31, 1996,
the duration of the Company's fixed maturity portfolio is 4.5 years and the
duration of the Company's insurance liabilities is 4.1 years.  The Company meets
at least monthly to review the asset and liability position in order to make
necessary adjustments including adjustments to investment activity or crediting
rates or both.

     The Company's investment portfolio used to support this asset and liability
management is comprised of fixed maturity investments.  These fixed maturity
investments are comprised primarily in investment grade debt securities of the
United States government, public utilities and other corporations, and mortgage-
backed securities (MBS).

     Mortgage-backed securities included collateralized mortgage obligations
(CMOs) and mortgage-backed pass-through securities.  CMOs are securities backed
by pools of pass-through securities and/or mortgages that are segregated into
sections or "tranches" which provide for sequential retirement of principal
rather than the pro rata share of principal return which occurs through regular
monthly principal payments on pass-through securities.  Interest and principal
payments occur more frequently than those of traditional fixed income
securities.  Almost all mortgage-backed securities are subject to risks
associated with variable prepayments.

     Prepayment rates are influenced by a number of factors which cannot be
predicted with certainty including the relative sensitivity of the underlying
mortgages backing the assets to changes in interest rates; a variety of
economic, geographic and other factors; and the repayment priority of the
securities in the overall securitization structures.

     In general, prepayments on the underlying mortgage loans, and the
securities backed by these loans, increase when the level of prevailing interest
rates declines significantly below the interest rates on such loans.  MBS
purchased at a discount to par will experience an increase in yield when the
underlying mortgages prepay faster than expected.  Those securities purchased at
a premium that prepay faster than expected will incur a reduction in yield.

     The degree to which a MBS is susceptible to income fluctuations is
influenced by (i) the difference between its cost and par; (ii) the relative
sensitivity of the underlying mortgages backing the security to prepayment in a
changing interest environment; and (iii) the repayment priority of hte security
in the overall securitization structure.  The Company limits the extent of these
risks and the impact they may have on asset/liability management by: (I)
generally purchasing securities which are backed by collateral with lower
prepayments sensitivity (such as seasoned mortgages or MBS priced at a discount
to par); (ii) avoiding securities whose values are heavily influenced by changes
in prepayments (such as interest-only and principal-only securities); and (iii)
investing in securities structured to reduce prepayment risk.

POLICY LIABILITIES

     The Company records reserves for future policy benefits to meet future
obligations under outstanding policies.  These reserves are amounts which are
calculated to be sufficient to meet policy and contract obligations as they
mature.  The amount of reserves for insurance policies is calculated using
assumptions for interest, mortality and morbidity, expenses and withdrawals. 
Reserves are established at the time the policy is issued and adjusted
periodically based on reported and unreported claims or other information.  See
Note 2 of Notes to Consolidated Financial Statements.

COMPETITION

     The insurance business is highly competitive and includes a large number of
insurance companies, many of which have substantially greater financial
resources and larger and more experienced staffs than the Company.  The Company
competes with other insurers to attract and retain the allegiance of its
independent agents and marketing organizations who at this time are responsible
for a significant portion of the Company's premiums.  Methods of competition
include the Company's ability to offer competitive products and to service these
programs efficiently.  Other competitive factors applicable to the Company's
business include policy benefits, service to policyholders and premium rates.

GOVERNMENT REGULATION

     The Company and its insurance subsidiaries are subject to extensive
governmental regulation and supervision in each of the jurisdictions in which it
or its subsidiaries conduct business.  Such regulation vests in governmental
agencies broad regulatory, supervisory and administrative power with respect to
the Company's business, including premium rate levels, premium rate increases,
policy forms, minimum loss ratios, dividend payments, claims settlement,
licensing of insurers and their agents, capital adequacy, transfer of control,
the amount and type of investments the Company may have, reserve requirements,
solvency standards, trade practices and periodic examinations.  Such regulations
are primarily intended to protect policyholders and not investors.  The
Company's accident and health coverages generally are subject to rate regulation
by state insurance departments which in certain cases require that certain
minimum loss ratios be maintained.

     The states in which the Company is licensed have the authority to change
the minimum mandated statutory loss ratios to which the Company is subject, the
manner in which these ratios are computed and the manner in which compliance
with these ratios is measured and enforced.  Loss ratios are commonly defined as
incurred claims and increases in policy reserves divided by earned premiums. 
Most states in which the Company writes insurance have adopted the loss ratios
recommended by the National Association of Insurance Commissioners (NAIC).  The
Company is unable to predict the impact of (i) any changes in the mandatory
statutory loss ratios for individual or group policies to which the Company may
become subject, (ii) any changes in the minimum loss ratios for individual,
group or Medicare supplement policies, or (iii) any change in the manner in
which these minimums are computed or enforced in the future.  The Company has
not been informed by any state that it does not meet mandated minimum ratios,
and the Company believes that it is in compliance with all such minimum ratios. 
In the event the Company is not in compliance with minimum statutory loss ratios
mandated by regulatory authorities with respect to certain policies, the Company
may be required to reduce or refund premiums, which could have a material
adverse effect upon the Company.  

     Certain states also have insurance holding company laws which require
registration and periodic reporting by insurance companies controlled by other
corporations licensed to transact business within their respective
jurisdictions.  The Company's insurance subsidiaries are subject to such laws
and are registered as controlled insurers in those jurisdictions in which such
registration is required.  Such laws vary from state to state but typically
require periodic disclosure concerning the corporation which controls the
registered insurers and all subsidiaries of such corporation, and prior notice
to, or approval by, the state insurance department of intercorporate transfers
of assets and other transactions (including payments of dividends in excess of
specified amounts by the insurance subsidiary) within the holding company
system.

     The federal government does not directly regulate the insurance business. 
However, federal legislation and administrative policies in several areas,
including pension regulation, age and sex discrimination, financial services
regulation and federal taxation, do affect the insurance business.  Recently, a
number of state legislatures have considered or have enacted legislative
proposals that alter, and in many cases increase, the authority of state
agencies to regulate insurance companies and holding company systems.  In
addition, legislation has been introduced from time to time in recent years
which, If enacted, could result in the federal government assuming a more direct
role in the regulation of the insurance industry.

     State insurance regulators and the NAIC periodically re-examine existing
laws and regulations and their application to insurance companies.  In recent
years, the NAIC has approved, the recommended to the states for adoption and
implementation, several regulatory initiatives designed to decrease the risk of
insolvency of insurance companies.  These initiatives include risk based capital
("RBC") requirements for determining the levels of capital and surplus an
insurer must maintain in relation to its insurance and investment risks.  Other
NAIC regulatory initiatives impose restrictions on an insurance company's
ability to pay dividends to its stockholders.  These initiatives may be adopted
by the various states in which the Company's subsidiaries are licensed; the
ultimate content and timing of any statutes and regulations adopted by the
states cannot be determined at this time.  It is not possible to predict the
future impact of changing state and federal regulation on the Company's
operations, and there can be no assurance that existing insurance related laws
and regulations will not become more restrictive in the future or that laws and
regulations enacted in the future will not be more restrictive.

     The NAIC's RBC requirements are intended to be used as an early warning
tool to help insurance regulators identify deteriorating or weakly capitalized
companies in order to initiate regulatory action.  Such requirements are not
intended as a mechanism for ranking adequately capitalized companies.  The
formula defines a new minimum capital standard which supplements the low, fixed
minimum capital and surplus requirements previously implemented on a state-by-
state basis.

     The NAIC's RBC requirements provide for four levels of regulatory
attention, varying with the ratio of the company's total adjusted capital
(defined as the total of its statutory capital, surplus, asset valuation reserve
and certain other adjustements) to its RBC.  If a company's total adjusted
capital is less than 100 percent but greater than or equal to 75 percent of its
RBC, or if a negative trend (as defined by the regulators) has occurred and
total adjusted capital is less than 125 percent of RBC (the "Company Action
Level"), the company must submit a comprehensive plan to the regulatory
authority proposing corrective actions aimed at improving its capital position. 
If a company's total adjusted capital is less than 75 percent but greater than
or equal to 50 percent of its RBC (the "Regulatory Action Level"), the
regulatory authority will perform a special examination of the company and issue
an order specifying corrective actions that must be followed.  If a company's
total adjusted capital is less than 50 percent but greater than or equal to 35
percent of its RBC (the "Authorized Control Level"), the regulatory may take any
action it deems necessary, including placing the company under regulatory
control.  If a company's total adjusted capital is less than 35 percent of its
RBC (the "Mandatory Control Level") the regulatory authority must place the
company under its control.  At December 31, 1996 the total RBC based on company
action level were as follows for the company's significant insurance
subsidiaries:

            Pioneer Life Insurance Company          138%
            Manhattan National Life                 217
            Connecticut National Life               583
            SECURA Life                             274
            National Group Life                     175
            Continental Life & Accident             200
            Universal Fidelity                      435

     Under statutory accounting, insurance companies are required to establish
an asset valuation reserve ("AVR") consisting of two components: a "default
component" which provides for future credit-related losses on fixed maturity
investments and an "equity component" which provides for losses on all types of
equity investments, including real estate.  Insurers are also required to
establish an interest maintenance reserve ("IMR") for fixed maturity realized
capital gains and losses, net of tax, related to changes in interest rates.  The
IMR must be amortized into earnings on a basis reflecting the remaining period
to maturity of the fixed maturity securities sold.  State regulatory authorities
require that these reserves be established as a liability on a life insurer's
statutory financial statements.  These reserves do not affect financial
statements of the Company prepared in accordance with generally accepted
accounting principles ("GAAP").

     Under the solvency or guaranty laws of most states in which they do
business, the Company's insurance subsidiaries may be required to pay guaranty
fund assessments (up to certain prescribed limits).  Guaranty funds are
established by various states to fund policyholder losses or the liabilities of
insolvent or rehabilitated insurance companies.  These assessments may be
deferred or forgiven under most guaranty laws if they would threaten an
insurer's financial strength.  In certain instances, the assessments may be
offset against future premium taxes.  The amount of such assessments has
increased in recent years, however, and may increase in future years.  The
likelihood and amount of any other future assessments in addition to estimated
amounts accrued at December 31, 1996, cannot be estimated.  Such assessments are
beyond the control of the Company.

     Approximately once every three years, as part of their routine regulatory
oversight process, insurance departments conduct detailed examinations of the
books, records and accounts of insurance companies domiciled in their states. 
Such examinations are generally conducted in cooperation with the departments of
two or three other states, under guidelines promulgated by the NAIC.  Several
examinations of the Company's life insurance subsidiaries have been recently
completed.  The preliminary conclusions reached do not have a material adverse
effect on the Company or its business and operations.

     Federal and state regulations have had, and are expected to continue to
have, the effect of increasing the regulation of Medicare supplement plans in
all states.  In July 1991, the NAIC implemented regulations creating 10 model
Medicare supplement plans (Plans A throught J).  Plan A provides the least
extensive coverage, while Plan J provides the most extensive coverage.  Under
NAIC regulations, Medicare insurers must offer Plan A, but may offer any of the
other plans at their option.  The Company currently offers eight of the model
plans.  

     The NAIC model regulation concerning Medicare supplement policies also
regulates the profits that insurance companies may earn in respect of any such
policies by providing that Medicare supplement policies may not be issued unless
it can be expected, as estimated for the period for which the prescribed rate
thereunder is to provide coverage, to return to policyholders aggregate benefits
equal to at least: (I) 75 percent of the aggregate amount of premiums earned on
group policies; and (ii) 65 percent of the aggregate amount of premiums earned
on individual policies.  Technical corrections to OBRA mandate compliance with
these calculations for policies issued prior to the original OBRA regulations. 
Under this regulation, the Company must file a Medicare Supplement Refund
Calculation Form each year.  If the Company's actual loss ratio falls below
ratios prescribed by the Form by more than a de minimis amount, the Company must
make a refund to policyholders.  The Company has reviewed the loss ratios on
business subject to the NAIC model regulations and currently believes that no
significant refunds will be required.

HEALTH CARE REFORM

     Many proposals have been introduced in Congress and various state
legislatures to reform the present health care system.  Most of these proposals
are specifically directed at the small group health care market, a significant
portion of the Company's health business.  A number of states have passed or are
considering legislation that would limit the differentials in rates that
insurers could charge between new business and renewal business with respect to
similar demographic groups.  State legislation also has been adopted or is being
considered that would make health insurance available to all small groups by
requiring coverage of all employees and their dependents, by limiting the
applicability of pre-existing conditions exclusions, by requiring insurers to
offer a basic plan exempt from certain mandated benefits as well as a standard
plan and by establishing a mechanism to spread the risk of high risk employees
to all small group insurers.

     At the federal level, the Health Insurance Portability and Accountability
Act of 1996 includes provisions which permit premiums paid for long-term care
insurance to be treated as tax-deductible medical expenses, with the amount of
the deduction increasing with the age of the taxpayer.  The Company has
responded to this legislation by developing new tax-qualified long-term care
policies which are being introduced in 1997.

     The Health Insurance Portability and Accountability Act of 1996 also
includes provisions affecting group and individual health insurance products,
including requirements for guaranteed portability, specifications of coverage
for pre-existing conditions and a test program for medical savings accounts. 
The Company has developed a medical savings account plan to be marketed in
conjunction with one of its high-deductible major medical policies which is
expected to be introduced in the second quarter of 1997.  Other provisions of
this Act will require modifications of existing products and marketing in the
Company's Group Medical Division.  The Company cannot predict with certainty the
effect legislative developments could have on its business and operations.  It
is likely that health care reform at the federal and state levels will require
the Company to make significant changes to the way it conducts its health
insurance business.  The Company has already initiated activity to prepare for
expected legislation.

EMPLOYEES

     As of December 31, 1996, the Company employed approximately 1,700 persons
on a full-time basis.  The Company considers its employee relations to be good.



                        DIRECTORS AND EXECUTIVE OFFICERS

     The executive officers and directors of the Company are as follows:

<TABLE>
<CAPTION>

<S>                                                  <C>       <C>
Peter W. Nauert . . . . . . . . . . . . . . . .      53        Chairman, Chief Executive Officer and Director
Charles R. Scheper  . . . . . . . . . . . . . .      44        President - Life Insurance Operations
Thomas J. Brophy  . . . . . . . . . . . . . . .      61        President - Health Insurance Operations
Mark S. Fischer.  . . . . . . . . . . . . . .        40        Executive Vice President and Chief Operating Officer
Billy B. Hill, Jr.  . . . . . . . . . . . . . .      45        Executive Vice President and General Counsel
David I. Vickers  . . . . . . . . . . . . . . .      35        Senior Vice President, Treasurer and Chief Financial Officer
Philip J. Fiskow  . . . . . . . . . . . . . . .      40        Senior Vice President and Chief Investment Officer
Michael A. Cavataio . . . . . . . . . . . . . .      53        Director and Vice Chairman 
William B. Van Vleet  . . . . . . . . . . . . .      72        Director
R. Richard Bastian, III . . . . . . . . . . . .      50        Director
Karl Heinz Klaeser  . . . . . . . . . . . . . .      65        Director
Michael K. Keefe  . . . . . . . . . . . . . . .      52        Director
Robert F. Nauert  . . . . . . . . . . . . . . .      72        Director
Carl A. Hulbert . . . . . . . . . . . . . . . .      74        Director
John W. Gardiner  . . . . . . . . . . . . . . .      66        Director

</TABLE>

     All executive officers are elected annually and serve at the pleasure of
the Board of Directors.  Certain of the executive officers have employment
agreements with the Company.  The Company's Board of Directors is divided into
three classes, each of which serves for a three year term.

     Peter W. Nauert has been Chief Executive Officer and a director of the
Company since its incorporation in 1982.  He was President of the Company from
1982 to 1988 and 1991 to 1995, and became Chairman of the Company in 1988. 
Since 1968, Mr. Nauert has been employed in an executive capacity by one or more
of the Company's insurance subsidiaries.   

     Charles R. Scheper was elected President--Life Insurance Operations of the
Company in March 1995.  He was Vice President of the Company from 1991 to March
1995 and was Chief Financial Officer from May 1993 to December 1993.  In March
1992, he was elected Executive Vice President.  Since February 1992, he has been
President and Vice Chairman of the Board of Manhattan National Life, a
subsidiary of the Company.  Prior to the Company's acquisition of Manhattan
National Life, Mr. Scheper was Manhattan National Life's Senior Vice President
and Chief Financial Officer, a position which he held from May 1987 until the
acquisition.  Prior to joining Manhattan National Life, Mr. Scheper was with
Union Central Life Insurance Company from 1979, having served as Vice President
and Controller since 1985.

     Thomas J. Brophy was elected President--Health Insurance Operations of the
Company in March 1995.  He was Senior Vice President since joining the Company
in November 1993.  Prior to joining the Company, Mr. Brophy was President and
Chief Operating Officer of Southwestern Life Insurance Company from June 1990 to
September 1993.  Mr. Brophy also held senior executive positions with various
I.C.H. Corporation (now known as Southwestern Life Corp.) subsidiaries from
March 1974 to his joining the Company in November 1993.

     Mark S. Fischer has been a Vice President of the Company since December
1994 and has been a Vice President of one of the Company's subsidiaries since
May 1993.  Prior to joining the Company, he had been a consultant to the Company
and was with the public accounting firm of Ernst & Young LLP from May 1978 to
October 1992 where he was a Senior Manager in the Insurance Division.

     Billy B. Hill, Jr. was elected Executive Vice President and General Counsel
of the Company on May 23, 1996.  Prior to that time, he acted as outside legal
counsel to the Company and others and functioned as a legal consultant to, and
Acting General Counsel of, the Company from January 1, 1996 to May 23, 1996. 
Mr. Hill has served as a director of a subsidiary of the Company since 1995.

     David I. Vickers has been with the Company since June 1992 and has been a
Vice President of the Company since December 1992, Treasurer since May 1993 and
Chief Financial Officer since January 1994.  He is also an officer and director
of several subsidiaries of the Company.  Prior to joining the Company, he was
with the public accounting firm of Ernst & Young LLP since 1983 where he was a
Senior Manager in the Insurance Division. 

     Philip J. Fiskow has been Senior Vice President since May 1993 and the
Chief Investment Officer since joining the Company in 1991.  He was Vice
President of the Company from June 1991 until May 1993.  He is also an officer
of other subsidiaries of the Company.  Mr. Fiskow was with Asset Allocation and
Management Company as an Investment Advisory Portfolio Manager from January 1989
to June 1991.  From May 1987 to December 1988 he was an Investment Advisor with
Van Kampen Merritt and a Portfolio Manager with Aon Corporation from May 1981 to
May 1987.

     Michael A. Cavataio has been a director of the Company since 1986 and Vice
Chairman since December 1995.  Mr. Cavataio is a real estate developer in
Northern Illinois and Southern Wisconsin.  His business experience also includes
25 years as an owner and manager of a regional clothing store chain.  He has
also been a member of the board of directors of Today's Bank East since 1987.

     William B. Van Vleet has been a director of the Company since 1982.  He was
Executive Vice President of the Company from 1986 to 1995 and General Counsel of
the Company from 1982 to 1988.  In June 1991, he was again elected General
Counsel and served until his retirement from that position in 1995.  Mr. Van
Vleet had served Pioneer Life Insurance Company, a subsidiary of the Company,
from 1948 until 1995 as General Counsel and a director.  Mr. Van Vleet also
serves as a director of other subsidiaries of the Company.

     R. Richard Bastian, III has been a director of the Company since December
1994.  Mr. Bastian is a management consultant, specializing in strategic
planning and organizational development.  Mr. Bastian's career includes over 28
years in the financial services industry, most recently as President and Chief
Executive Officer of Heritage Bank & Trust of Racine, Wisconsin.  Prior to
Heritage, he served as Chairman, President and Chief Executive Officer of Bank
One, Rockford and its predecessor, First Community Bancorp, an $800 million
multi bank holding company.  He has also held management positions at banks in
Tulsa and Philadelphia where his banking career began in 1966.

     Karl Heinz Klaeser has been a director of the Company since 1986.  Mr.
Klaeser has also been a director of LSW Holding Corporation and Insurance
Investors Life Insurance Company and the Chairman of the Board of Life Insurance
Company of the Southwest since 1989 and a director of Personal Assurance Company
PLC (United Kingdom) since 1991.

     Michael K. Keefe has been a director of the Company since March 1994.  Mr.
Keefe has been Chief Executive Officer and Chairman of the Board of Keefe Real
Estate, Inc., a family owned real estate brokerage operation since 1982.  Mr.
Keefe has also been Chairman of the Board of Southern Wisconsin Bankshares, Inc.
since 1988.

     Robert F. Nauert has been a director of the Company since November 1991. 
Mr. Nauert is also a director and officer of various subsidiaries of the
Company.  Mr. Nauert is the brother of Peter W. Nauert.

     Carl A. Hulbert was elected director of the Company in March 1995 and has
been a director of a subsidiary of the Company since 1990.  Mr. Hulbert is a
management consultant, specializing in the insurance industry.  Mr. Hulbert is a
past Insurance Commissioner of the state of Utah.  He has also been a director
for numerous insurance companies during his 49 year business career.

     John W. Gardiner was elected director of the Company in May 1996.  Mr.
Gardiner was a director,  President and Chief Operating Officer of Life Partners
Group and a director and Chairman and Chief Executive Officer of Massachusetts
General Life Insurance Company and Philadelphia Life Insurance Company, two
subsidiaries of Life Partners, from March 1990 to his retirement in May 1995.


ITEM 2.  PROPERTIES

     The principal executive offices of the Company are located in Schaumburg,
Illinois in a building purchased by the Company in January 1994.  The Company,
through a subsidiary, owns three buildings in Rockford, Illinois and, through
another subsidiary, also owns a building in the Dallas, Texas metropolitan area
which currently serves as the main administrative office for the Group Medical
Division.  The Company leases the offices of its other regional service centers.
The executive and administrative offices of Manhattan National Life are located
in Cincinnati, Ohio, in leased space.  The Company believes these facilities
will adequately serve its needs for the foreseeable future and could accommodate
expansion of the Company's business.  


ITEM 3.  LEGAL PROCEEDINGS

     The Company and its subsidiaries are named as defendants in various legal
actions, some claiming significant damages, arising primarily from claims under
insurance policies, disputes with agents, and other matters.  The Company's
management and its legal counsel are of the opinion that the disposition of
these actions will not have a material adverse effect on the Company's
consolidated financial condition, cash flows, or results of operations.


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

     NONE


PART II

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

     The Common Stock is traded on the NYSE and the Chicago Stock Exchange under
the symbol "PFS."  The following table sets forth for the fiscal periods
indicated the high and low last reported sale prices per share of the Common
Stock, as reported by the NYSE and the dividends paid per share of the Common
Stock.

<TABLE>
<CAPTION>
                                                                             High       Low      Dividend
 1995
         <S>                                                              <C>        <C>       <C>
         First Quarter   . . . . . . . . . . . . . . . . . . . . . . . .  $  11 1/4  $   8 7/8 $       .045
         Second Quarter  . . . . . . . . . . . . . . . . . . . . . . . .     15 1/2     10 3/4         .045
         Third Quarter   . . . . . . . . . . . . . . . . . . . . . . . .     15 3/8     13 1/8         .045
         Fourth Quarter  . . . . . . . . . . . . . . . . . . . . . . . .     18 1/2     13 7/8         .045
                                                                                      
 1996
         First Quarter   . . . . . . . . . . . . . . . . . . . . . . . .     18 3/8     15 1/8         .055
         Second Quarter  . . . . . . . . . . . . . . . . . . . . . . . .     17 1/4     15 3/8         .055
         Third Quarter   . . . . . . . . . . . . . . . . . . . . . . . .     16 5/8     14 1/8         .055
         Fourth Quarter  . . . . . . . . . . . . . . . . . . . . . . . .     25 1/8     16 1/4         .055

</TABLE>

     As of February 29, 1996, there were approximately 555 holders of record of
the Common Stock.

     On March 18, 1997 the Company's Board of Directors announced a quarterly
common stock dividend of 5.5 cents per share to be paid in April 1997 to
stockholders of record on March 31, 1997.

     The ability of the Company to pay dividends will depend primarily on the
receipt of cash dividends and other cash payments from its subsidiaries.  The
Company's insurance subsidiaries are subject to state laws and regulations which
limit their ability to pay dividends or make other payments to the Company. 
Certain of the Company's credit agreements also limit its ability to pay
dividends.  See "Management's Discussion and Analysis of Results of Operations
and Financial Condition -- Liquidity and Capital Resources."




ITEM 6.  SELECTED CONSOLIDATED FINANCIAL DATA (A)

     The following selected consolidated financial data for the five years ended
December 31, 1996, are derived from the consolidated financial statements of the
Company.  The data should be read in conjunction with the consolidated financial
statements, related notes, and other financial information included herein.

<TABLE>
<CAPTION>
                                                        (In thousands except per share amounts)
                                                        Year Ended December 31,                            

                                     1996             1995             1994           1993             1992 

<S>                               <C>              <C>              <C>             <C>              <C>
Operating Data:

Accident and health
  premiums                        $ 686,867        $ 625,951        $ 659,180       $ 601,684        $ 559,894
Life and annuity premiums
  and policy charges                 84,040           61,092           44,929          39,282           35,219
Net investment income                74,847           70,975           42,786          40,242           43,555
Other income and realized
  investment gains/losses            42,151           42,066           27,260          17,920           17,305
    Total revenues                  887,905          800,084          774,155         699,128          655,973

Accident and health benefits        466,737          398,971          407,249         397,963          368,046
Life and annuity benefits            90,672           76,846           42,947          39,419           47,622
    Total benefits                  557,409          475,817          450,196         437,382          415,668
    Total benefits and 
      expenses                      841,761          768,362          748,133         680,364          681,409

Income (loss) before
  income taxes                       46,144           31,722           26,022          18,764         (25,436)

Net income (loss)                    30,456           20,968           17,149          12,145         (16,959)

Preferred stock dividends               591            1,805            1,904           2,021            2,039

Income (loss) applicable to
  common stockholders              $ 29,865         $ 19,163         $ 15,245        $ 10,124        $(18,998)

Net income (loss) per
  common share
    Primary                          $ 2.69           $ 2.44           $ 2.36          $ 1.51          $(2.85)
    Fully diluted                      2.16             1.85             1.58            1.26            2.85 

Dividends declared per
  common share                          .22              .18              .15              -                -  

Average common and common
  equivalent shares
  outstanding
    Primary                          11,114            7,839            6,459           6,724           6,660 
    Fully diluted                    15,654           12,608           12,734          10,731           8,195 



                                                    (In thousands except per share amounts)
                                                                 December 31,                              

                                     1996             1995             1994             1993            1992 

Balance Sheet Data:

Total investments                $1,195,509       $1,042,592         $723,837         $674,206        $568,349
Deferred policy
  acquisition costs                 224,010          193,193          204,327          237,354         249,474
Total assets                      1,823,740        1,569,668        1,085,464        1,114,966         981,156
Policy liabilities                1,388,891        1,225,212          878,372          909,800         808,163
Short-term notes
  payable                             6,248           13,534           20,093            5,575          12,931
Long-term notes
  payable                            21,514           21,504            2,520            1,125          25,170
Subordinated debentures                  -             9,695           57,427           57,477              - 
Subordinated notes                   86,250               -                -                -               - 
Redeemable Preferred
  Stock                                  -            21,222           21,682           23,675          23,990
Stockholders' equity                188,830          144,574           68,328           68,872          62,732
Stockholders' equity per
  common share   $ 16.06            $ 14.35          $ 11.55          $ 10.86           $ 9.21


(a)  Comparison of selected consolidated financial data above will be
     significantly affected by the acquisition of certain insurance companies
     and blocks of business described in Item 1 - Business section.  Refer to
     the notes of the consolidated financial statements for a further
     description of business combinations and reinsurance.

     The number of primary and fully diluted shares outstanding increased
     significantly as a result of the August 1995 and 1996 conversions of the 8%
     convertible subordinated debentures, the May 1995 conversion of preferred
     stock, and the March 1996 issuance of convertible subordinated notes. 
     Refer to the notes of the consolidated financial statements.

</TABLE>


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

RESULTS OF OPERATIONS

Fiscal Year 1996 Compared to Fiscal Year 1995

     Overview

     PFS has three business segments: Group Medical, Senior Health, and Life
Insurance.  The segments are based on PFS' main Divisions.  Allocations of
investment income and certain general expenses are based on various assumptions
and estimates, and reported operating results by segment would change if
different methods were applied.  Investment income is allocated based primarily
on the policy liabilities and capital supporting the segment.  General expenses
are determined based on cost center and functional expense analysis prepared in
conjunction with the monthly budgeting process.  Assets are not individually
identifiable by segment and have been allocated based on the amount of policy
liabilities by segment and by other formulas.  Depreciation expense and capital
expenditures are not considered material.  Realized investment gains and losses
are allocated to the appropriate segment.  

General corporate expenses are not allocated to the individual segments. 
Revenues, income or loss before income taxes, and identifiable assets by
business segment are as follows:

<TABLE>
<CAPTION>
                                                                                       Year Ended December 31,  
                                                                                         1996         1995
                          Revenues                                                         (in thousands)

                          <S>                                                           <C>           <C>     
                          Group Medical (1) . . . . . . . . . . . . . . . . . . . .     $ 439,902    $ 430,885
                          Senior Health (2) . . . . . . . . . . . . . . . . . . . .       297,244      236,556
                          Life Insurance  . . . . . . . . . . . . . . . . . . . . .       135,791      115,545
                          Corporate and Other . . . . . . . . . . . . . . . . . . .        14,968       17,098
                                  TOTAL   . . . . . . . . . . . . . . . . . . . . .     $ 887,905    $ 800,084

                          Pre-tax operating Income (loss) (3)

                          Group Medical (1) . . . . . . . . . . . . . . . . . . . .     $ 20,615     $ 20,344 
                          Senior Health (2) . . . . . . . . . . . . . . . . . . . .       19,915       11,604 
                          Life Insurance  . . . . . . . . . . . . . . . . . . . . .       13,764        7,669 
                          Corporate expense, interest and other . . . . . . . . . .      (11,915)      (6,728)
                                  TOTAL   . . . . . . . . . . . . . . . . . . . . .     $ 42,379     $ 32,889 

(1)  Excludes revenues from life insurance products marketed by the Group
     Medical Division but issued by the Life Insurance Division.  For purposes
     of the discussion set forth herein, the Company has included the revenue
     and pre-tax income generated from the sale of a policy in the results of
     operation of the division which issued the policy.

(2)  Excludes revenues from life insurance products marketed by the Senior
     Health Division but issued by the Life Insurance Division.  For purposes of
     the discussion set forth herein, the Company has included the revenue and
     pre-tax income generated from the sale of a policy in the results of
     operation of the division which issued the policy.

(3)  Represents the Company's income before taxes excluding the effects of
     realized investment gains and losses.  The 1996 amount also excludes
     approximately $0.4 million in payments to redeeming stockholders relating
     to the redemption of the Company's preferred stock.  The 1995 amount also
     excludes approximately $5.2 million in payments to converting bondholders
     and other expenses relating to the conversion of the 8% Debentures.

</TABLE>

Group Medical Division

     Revenue.  Total revenue in the Group Medical Division increased $9.0
million, or 2%, from $430.9 million to $439.9 million.  The increase was due to
the assumption of the small group and individual health business of Washington
National Insurance Company (WNIC) which added net of reinsurance $50.2 million
in revenue during 1996.  The increase in revenue from the WNIC block offset the
decline in the Company's direct major medical business.  The division continued
to scale back marketing in certain states due to regulatory concerns.

     Net investment income increased $1.7 million, or 21%, from $7.7 million to
$9.4 million due to the increase in invested assets associated with the WNIC
block of business.

     Other income decreased $3.7 million, or 21%, from $18.9 million to $15.2
million due to a reduction in commission overrides at the Company's marketing
subsidiaries.

     Benefits.  The following table sets forth the earned premium, benefits, and
loss ratios for products issued by the Group Medical Division:

<TABLE>
<CAPTION>
 1996                                                                                     1995 

                                                               (Dollars in thousands)

 <S>                                                <C>                                  <C>   
 Earned premium (1)                                $ 423,714                            $ 414,160

 Benefits (1)                                        282,079                               261,336

 Loss ratio                                           66.6%                                 63.1%


(1)  In the Company's statement of consolidated income, premium represents
     premiums written, adjusted for reinsurance; the changes in unearned premium
     are reflected in benefits.

</TABLE>

     The increase in loss ratio is due to the assumed block of WNIC business
which has a higher ultimate loss ratio and a shift to a low commission and
higher benefit product structure due to small group reform.  The loss ratio on
the assumed block of WNIC business was 77.2% for 1996.

     Insurance and General Expenses.  Insurance and general expenses decreased
$11.4 million, or 10%, from $119.5 million to $108.1 million.  The expense
decreased in 1996 primarily due to lower average commission rates resulting from
non-commissionable rate increases and a marginal improvement in administration
efficiencies.  The remaining decrease was due to the reduction in new business
from historical  distribution channels.

     The amortization of DAC decreased $3.8 million, or 10%, from $38.0 million
to $34.2 million.  The decrease was due to the lower 1996 new business levels.

Senior Health Division

     Revenue.  Total revenue in the Senior Health Division increased $60.6
million, or 26%, from $236.6 million to $297.2 million.  Senior health premium
increased $50.4 million, or 23%, from $221.0 million to $271.4 million.  The
increase was due to the acquisition of Universal Fidelity in March 1996 and an
increase in new business sales. 

     Net investment income increased $5.4 million, or 61%, from $8.8 million to
$14.2 million, primarily due to the acquisition of Universal Fidelity and an
overall increase in invested assets.  The investment yields remained relatively
unchanged during 1996.  The total realized gains decreased $1.0 million from
$5.1 million to $4.1 million.

     Benefits.  The following table sets forth the earned premium, benefits, and
loss ratios for senior health products:

<TABLE>
<CAPTION>
                                            
                               1996                1995
                              (Dollars in thousands)

 <S>                        <C>                   <C>   
 Earned premium (1)         $ 260,563             $ 217,382

 Benefits (1)                 181,631               143,226

 Loss ratio                      69.7%                 65.9%

(1)  In the Company's statement of consolidated income, premium represents
     premiums written, adjusted for reinsurance; the changes in unearned premium
     are reflected in benefits.

</TABLE>

     The loss ratio on the renewal block of medicare supplement business
acquired from Universal Fidelity was 71.9% which is higher than the Company's
historical loss ratios.  The remaining increase in loss ratio in 1996 is due to
the runoff of the pre-standardized medicare supplement products which carry a
lower loss ratio than the Company's standardized forms.

     Insurance and General Expenses.  The expense ratio remained relatively
unchanged.  The decline in administrative expense levels was offset by a
continued increase in marketing expenses associated with new marketing
initiatives.                                          

     The amortization of DAC decreased $3.6 million, or 17%, from $21.6 million
to $18.0 million.  The decreased level of amortization was due to improved
persistency on the in-force Medicare supplement business.

Life Insurance Division

     Revenue.  Total revenue in the Life Insurance Division increased $20.3
million, or 18%, from $115.5 million to $135.8 million.  The increase was due
primarily to a 28% increase in new business sales.

     Net investment income decreased $3.6 million, or 7%, from $54.4 million to
$50.8 million.  This decrease was primarily due to a decrease in the investment
income allocated to the senior life product line.

     Benefits.  Total life and annuity policy benefits increased $13.9 million,
or 18%, from $76.8 million to $90.7 million due primarily to a 23% increase in
life insurance in-force and $1.6 million associated with higher than expected
claims on the Company's senior life products.  The senior life mortality
continued to exceed that which was developed in pricing and the Company has
continued to initiate rate increases and modify underwriting procedures
to improve profitability.  The mortality experience on the remaining block of
business was consistent with projected levels.

     Insurance and General Expenses.  Insurance and general expenses decreased
$4.2 million, or 19%, from $22.0 million to $17.8 million.  The decrease was due
primarily to $1.6 million associated with a reinsurance litigation settlement
included in the 1995 amount, an overall reduction in commissions associated with
the senior life products, and a 14% reduction in the maintenance unit cost per
policy.

     The amortization of DAC increased $3.8 million, or 40%, from $9.6 million
to $13.4 million with the increased life insurance in force.

Corporate Expenses

     Corporate expenses increased $3.7 million, or 132% during 1996 due to
executive officer bonuses of $1.5 million, increased outside consulting expenses
of $0.9 million, and a general increase in other corporate expenses.  Interest
expense increased $1.6 million or 34% due primarily to the March 1996 issuance
of the convertible subordinated notes.  The operations of the managed care
division included in the corporate segment did not have a material effect on
operating income in 1996 or 1995.


Consolidated Financial Condition and Results of Operations

Fiscal Year 1996 Compared to Fiscal Year 1995

     Net income.  The Company's consolidated net income increased $9.5 million,
or 45%, from $21.0 million to $30.5 million.  This increase was due primarily to
improved operating profitability in the Senior Health and Life Divisions.

     Premiums and policy charges.  Total premiums and policy charges increased
$83.9 million, or 12%, from $687.0 million to $770.9 million.  Accident and
health premiums increased $60.9 million, or 10% due to the acquisition of UFLIC
and the small group and individual health reinsurance agreement with WNIC.  Life
and annuity premiums increased $22.9 million or 38% due to the significant
growth in new business during 1996.

     Net investment income.  Net investment income increased $3.8 million, or
5%, from $71.0 million to $74.8 million.  Invested assets increased 15% to
$1,196 million and annualized investment yields decreased slightly from 7.0% to
6.9%.  

     Other revenue.  Other income and realized investment gains and losses
remained relatively unchanged.  

     Benefits.  Total benefits increased $81.6 million, or 17%, from $475.8
million to $557.4 million.  Accident and health benefits, which include the
change in unearned premiums, increased $67.8 million, or 17%, from $399.0
million to $466.7 million.  Life and annuity benefits increased $13.8 million,
or 18%. 

     Insurance and general expenses.  Insurance and general expenses (which
include non-deferred commission compensation to agents) decreased $6.1 million,
or 3%, from $218.4 million to $212.3 million.  The commission compensation is
expected to continue to decline on the Company's small group major medical
products. 

     Amortization of DAC.  Amortization of DAC decreased $3.7 million, or 5%,
from $69.2 million to $65.5 million.  The decrease was primarily due to a lower
level of group major medical new business and improved persistency on Medicare
supplement business.

     Income tax rate.  The effective federal income tax rate was 34% due to the
investment in tax-exempt securities included in the Company's portfolio.

     Other.  Investments, premiums and other receivables, amounts on deposit and
due from reinsurers, accrued investment income and other assets increased
principally due to the acquisitions of SLIC, UFLIC and the WNIC block of
business.  DAC increased as a result of the significant increase in life and
long-term care production.  The decrease in short-term notes payable resulted
from the use of proceeds from the Company's public offering in the first quarter
of 1996.  General expenses and other liabilities, and amounts due to reinsurers
increased due primarily to the acquisition of SLIC and the WNIC block of
business.  The remaining balance sheet amounts remained relatively consistent
with the amounts at December 31, 1995.

Fiscal Year 1995 Compared to Fiscal Year 1994

     Net income.  The Company's consolidated net income increased $3.9 million,
or 21%, from $17.1 million to $21.0 million.  This increase was due primarily to
improved profitability in the Group Medical Division as a result of improved
loss ratios and a lower level of DAC amortization.

     Premiums and policy charges.  Total premiums and policy charges decreased
$17.1 million, or 2%, from $704.1 million to $687.0 million.  This decrease was
due to the decrease in accident and health premiums of $33.2 million, or 5%,
which was due primarily to a decrease in premiums from major medical products of
$26.9 million, or 6%.  The decrease in premiums was primarily due to the
Company's decision to market unaffiliated companies' HMO products in states such
as California, where competitive pressures and state reforms made it difficult
to underwrite the Company's indemnity products on a profitable basis.  Total
health insurance premiums attributable to Medicare supplement and long-term care
products remained relatively constant.  Life insurance premiums increased $16.2
million, or 36%, primarily due to the acquisition of CNL and new business sales.

     Net investment income.  Net investment income increased $28.2 million, or
66%, from $42.8 million to $71.0 million.  Invested assets increased 44% to
$1,043 million and annualized investment yields increased from 6.3% to 7.0%. 
These increases were primarily due to the acquisition of CNL.

     Other revenue.  Other income and realized investment gains and losses
increased $14.8 million, or 54%, from $27.3 million to $42.1 million.  The
increase in other income was due to increased sales to unaffiliated clients by
the Company's managed care subsidiaries and the acquisition of ACMG, Inc. in
July 1995.  The remaining other income generated by the Company's non-insurance
subsidiaries remained relatively unchanged.

     Benefits.  Total benefits increased $25.6 million, or 6%, from $450.2
million to $475.8 million.  Accident and health benefits, which include the
change in unearned premiums, decreased $8.2 million, or 2%, from $407.2 million
to $399.0 million.  Life and annuity benefits increased $33.9 million, or 79%. 
This increase was due to the acquisition of CNL and increased senior life
insurance in-force.

     Insurance and general expenses.  Insurance and general expenses (which
includes non-deferred commission compensation to agents) increased $25.6
million, or 13%, from $192.8 million to $218.4 million.  Expenses for the
managed care subsidiaries increased due to the increase in sales and the
acquisition of ACMG.  Expenses in the insurance divisions increased due to the
development of new marketing and sales incentive programs, system development
costs, and the acquisition of CNL.  Corporate expenses increased $4.0 million
primarily due to $5.2 million in payments made to converting bondholders and
other expenses relating to the August 1995 conversion of the Company's 8%
Debentures.

     Amortization of DAC.  Amortization of DAC decreased $30.9 million, or 31%,
from $100.1 million to $69.2 million.  The decrease was primarily due to an
adjustment in 1994 to the DAC asset related to certain group and individual
medical business, a lower level of group major medical new business and improved
persistency on Medicare supplement business.

     Income tax rate.  The effective federal income tax rate was 34% due to the
increased investment in tax-exempt securities included in the Company's
portfolio.

     Other.  Investments, premiums and other receivables, amounts on deposit and
due from reinsurers, accrued investment income and other assets increased
principally due to the acquisition of CNL.  The decrease in short-term notes
payable and the increase in long-term notes payable resulted from the conversion
of the Company's line of credit agreement at December 31, 1994 to a term loan
during the first quarter of 1995.  General expenses and other liabilities, and
amounts due to reinsurers increased due primarily to the acquisition of CNL. 
The remaining balance sheet amounts remained relatively consistent with the
amounts at December 31, 1994.

DEFERRED POLICY ACQUISITION COSTS

     Under generally accepted accounting principles, a DAC asset is established
to match properly the costs of writing new business against the expected future
revenues or gross profits from the policies.  The costs which are capitalized
and amortized consist of first-year commissions in excess of renewal commissions
and certain home office expenses related to selling, policy issue, and
underwriting.

     The deferred acquisition costs for accident and health policies and
traditional life policies are amortized over future premium revenues of the
business to which the costs are related.  The rate of amortization depends on
the expected pattern of future premium revenues for the block of policies.  The
scheduled amortization for a block of policies is established when the policies
are issued.  However, the actual amortization of DAC will reflect the actual
persistency and profitability of the business.  For example, if actual policy
terminations are higher than expected or if future losses are anticipated, DAC
could be amortized more rapidly than originally scheduled or written-off, which
would reduce earnings in the applicable period.

EFFECT OF INFLATION

     In pricing its insurance products, the Company gives effect to anticipated
levels of inflation; however, the Company believes that the high rate of medical
cost inflation during recent years has had an adverse impact on its major
hospital accident and health claims experience.  The Company continues to
implement rate increases, as permitted by state regulations, in response to this
experience.

LIQUIDITY AND CAPITAL RESOURCES

     The Company's consolidated liquidity requirements are created and met
primarily by operations of its subsidiaries.  The insurance subsidiaries'
primary sources of cash are premiums, investment income, and investment sales
and maturities.  The insurance subsidiaries' primary uses of cash are operating
costs, policy acquisition costs, payments to policyholders and investment
purchases.  In addition, liquidity requirements of the holding company are
created by dividends, interest payments on the 6.5% Notes and other debt service
requirements.  

     The ability of the insurance subsidiaries to pay dividends and make other
payments to the Company is subject to state insurance department regulations
which generally permit dividends and other payments to be paid for any twelve
month period in amounts equal to the greater of (i) net gain from operations in
the case of a life insurance company or net income in the case of all other
insurance companies for the preceding calendar year or (ii) 10% of surplus as of
the preceding December 31st.  Any dividends in excess of these levels require
the prior approval of the Director or Commissioner of the applicable state
insurance department.  The amount of dividends that the Company's insurance
subsidiaries could pay in 1997 without prior approval is approximately $5.6
million.  These liquidity requirements of the holding company have historically
been met through dividends from the non-insurance subsidiaries which receive
payments primarily from fees charged for administrative and marketing services
provided to the Company's insurance subsidiaries and other unaffiliated
companies.  Dividends from the insurance subsidiaries could be required in the
future to meet such liquidity requirements.

     Notwithstanding the foregoing, if insurance regulators otherwise determine
that payment of a dividend or any other payment to an affiliate would be
detrimental to an insurance subsidiary's policyholders or creditors because of
the financial condition of the insurance subsidiary or otherwise, the regulators
may block dividends or other payments to affiliates that would otherwise be
permitted without prior approval.

     The Company's insurance subsidiaries require capital to fund acquisition
costs incurred in the initial year of policy issuance and to maintain adequate
surplus levels for regulatory purposes.  These capital requirements have been
met principally from internally generated funds, including premiums and
investment income, and capital contributions from the holding company. 

     The Company has offered commission advances to certain of its agents and
marketing organizations which consist primarily of annualization of first year
commissions.  This means that when the first year premium is paid in
installments, the Company will advance a percentage of the commissions that the
agent would otherwise receive over the course of the first policy year.  The
Company, through a subsidiary, has entered into agreements with an unaffiliated
corporation to provide financing for a portion of its agent commission advance
program through the sale of agent receivables.  Proceeds from such sales for
1996 and 1995 were $26.2 million and $20.9 million, respectively.  The
termination date of the current program is December 31, 1997, subject to
extension or termination as provided therein.  The Company has retained
approximately $14.2 million of agent advances at December 31, 1996.

     In July 1993 the Company issued $57.5 million of its 8% Debentures.  Net
proceeds from the offering totaled approximately $54.0 million.  The 8%
Debentures were convertible into the Company's Common Stock at any time prior to
maturity, unless previously redeemed, at a conversion price of $11.75 per share.
In August 1995, the Company accepted the conversion of $46.9 million of the
outstanding 8% Debentures.  The effect of the conversion was an increase in
stockholders' equity of $45.3 million and a charge to income of $3.5 million,
net of taxes, for payments to converting bondholders and other expenses relating
to the conversion.  In August 1996, the Company completed the redemption of the
remaining outstanding debentures.  The effect of the conversion was an increase
in stockholders' equity of $9.0 million.

     In January 1995, an insurance subsidiary of the Company issued a note in
the amount of $1.7 million as a portion of the acquisition price of CNL.  The
principal balance of the note may be reduced by the amount of capital losses
incurred by the Company on mortgage loan and real estate holdings of CNL through
January 31, 1997.  During 1996, a net capital loss reduced the principal balance
to $1.0 million.  Interest is payable on the note at the average earnings rate
of these investments, currently 8.7%.  The note matures in November 1997. 

     In September 1995, a non-insurance subsidiary of the Company borrowed $3.3
million from a finance company to finance the purchase of certain equipment. 
The note, which is secured by the equipment purchased, bears interest at a fixed
rate of 7.81% and has principal and interest payments of $40,000 payable
monthly through August 2005.

     In March 1996, the Company issued $86.25 million of its 6 1/2% Notes.  Net
proceeds from the offering totaled $83.0 million.  The notes are convertible
into the Company's Common Stock at any time prior to maturity, unless previously
redeemed, at a conversion price of $20 per share.

     In August 1996, the Company borrowed $25.0 million under a term loan
agreement with six banks to fund the acquisition of the WNIC block of business
and to repay the notes issued as a portion of the acquisition price of UFLIC. 
Interest is payable quarterly and is based upon either a corporate base rate,
LIBOR, or a prime rate plus a margin.  The loan bore interest at 6.875% per
annum at March 1, 1997, and requires principal payments of $1.25 million per
quarter with a final payment on July 31, 2001.

     The Company has a line of credit arrangement for short-term borrowings with
six banks amounting to $30.0 million through July 1999, all of which was unused
at December 31, 1996 (the "Credit Facility").  Amounts borrowed under the Credit
Facility accrue interest at a rate per annum based upon either a corporate base
rate, LIBOR, or a prime rate plus a margin.  The line of credit arrangement can
be terminated, in accordance with the agreement, at the Company's option.

     The Company's debt agreements include provisions requiring maintenance of
minimum working capital and risk based capital and limiting the Company's
ability to incur additional indebtedness.  The Company's debt agreements also
restrict the amount of retained earnings which is available for dividends and
require the maintenance of certain minimum insurance company ratings at the
Company's subsidiaries.

     In March, June, September and December 1996, the Company's Board of
Directors announced a quarterly Common Stock dividend of $.055 per share, for a
total of 22 cents per share in 1996.

     In March 1997 the Board of Directors announced a quarterly stock dividend
of $.055 per share to be paid in April, 1997.

     Management believes that the diversity of the Company's investment
portfolio and the liquidity attributable to the large concentration of
investments in highly liquid United States government agency securities provide
sufficient liquidity to meet foreseeable cash requirements.  See "Business-
Investments."  Because the Company's insurance subsidiaries experience strong
positive cash flows, including monthly cash flows from mortgage-backed
securities, the Company does not expect its insurance subsidiaries to be forced
to sell the held-to-maturity investments prior to their maturities and realize
material losses or gains.  Although the Company has the ability and intent to
hold those securities to maturity, there could occur infrequent and unusual
conditions under which it would sell certain of these securities.  Those
conditions would include a significant deterioration of the issuer's
creditworthiness, significant changes in tax law affecting the taxation of
securities, a significant business acquisition or disposition, and changes in
regulatory capital requirements or permissible investments.

     Life insurance and annuity liabilities are generally long-term in nature
although subject to earlier surrender as a result of the policyholder's ability
to withdraw funds or surrender the policy, subject to surrender and withdrawal
penalties.  The Company believes its policyholder liabilities should be backed
by an investment portfolio that generates predictable investment returns.  The
Company seeks to limit exposure to risks associated with interest rate
fluctuations by concentrating its invested assets principally in high quality,
readily marketable debt securities of intermediate duration and by attempting to
balance the duration of its invested assets with the estimated duration of
benefit payments arising from contract liabilities. 

     Since investment income is an important component of revenue and
profitability for the Company; significant focus is placed on the analysis of
both asset and liability characteristics in the investment process. 
Profitability is impacted by spreads between yields earned on investments and
rates credited on annuities, interest sensitive and life insurance liabilities. 
Although substantially all credited rates on these liabilities can be changed
annually, changes in interest rates credited may not be sufficient to maintain
targeted investment spreads in all economic and market environments.  In
addition, other factors including competition, the impact of the level of
surrenders and withdrawals may limit the Company's ability to adjust or to
maintain crediting rates at levels necessary to avoid narrowing of spreads under
certain market conditions.

     The Company, in recognizing this importance of interest rate management,
seeks to balance the duration of its invested assets with the expected duration
of benefit payments arising from insurance liabilities.  At December 31, 1996,
the duration of the Company's fixed maturity portfolio is 4.5 years and the
duration of the Company's insurance liabilities is 4.1 years.  The Company meets
at least monthly to review the asset and liability position in order to make
necessary adjustments including adjustments to investment activity or crediting
rates or both.  

     The majority of the Company's fixed maturity investments are classified as
"available-for-sale" for purposes of SFAS 115.  Impact on the market valuation
of securities classified in such a manner is reflected through an adjustment to
surplus, but not through income.  Since the asset valuations are adjusted in
such a manner, while accounting standards do not allow such an adjustment for
the Company's insurance liabilities; a subsequent significant move in
interest rates could result in a positive or negative impact on the Company's
shareholders' equity.  

RECENTLY ISSUED ACCOUNTING STANDARDS

     For a discussion of a new accounting standard relating to transfers and
servicing of financial assets and extinguishments of liabilities and a new
stock-based employee compensation accounting standard and the impact of these
standards on the financial statements of the Company, see Note 2 of Notes to
Consolidated Financial Statements.


ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     Consolidated Financial Statements are included in Part IV, Item 14 of this
report.


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

                 Not applicable.


                                    PART III


ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

        For information on directors and executive officers of the registrant,
reference is made to the item entitled "Directors and Executive Officers" in
Part I of this report.

             SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

        Directors and officers of the Company file periodic reports regarding
ownership of Company securities with the Securities and Exchange Commission
pursuant to section 16(a) of the Securities Exchange Act of 1934, as amended,
and the rules promulgated thereunder.  To the Company's knowledge, based solely
on a review of the copies of such reports furnished to the Company and written
representations that no other reports were required during the fiscal year ended
December 31, 1996, all of its officers, directors and greater than ten percent
beneficial owners complied with all filing requirements applicable to them
expect that Messrs. Cavataio and Klaeser were each late in filing a Form 4, each
reporting one transaction, and Mr. John Gardiner was late in filing his initial
Form 3.



ITEM 11.  EXECUTIVE COMPENSATION

                             EXECUTIVE COMPENSATION

The table below sets forth certain information concerning compensation received
for services in all capacities to the Company or its subsidiaries for the fiscal
years ended December 31, 1996, 1995 and 1994, of those persons (the "Named
Officers"), who were, at December 31, 1996 (i) the chief executive officer, and
(ii) the other four most highly compensated executive officers of the Company.

<TABLE>
<CAPTION>
                                              SUMMARY COMPENSATION TABLE
                                                Annual Compensation                        Long Term Compensation      

                                                                                          Awards         Payouts
                                                               Other
                                                               Annual     Restricted     Securities
    Name and Principal                                        Compensa-      Stock       Underlying       LTIP        All Other
         Position             Year      Salary      Bonus       tion        Awards        Options       Payouts    Compensation(1)

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

    Peter W. Nauert,          1996     $983,172   $520,000      -0-          -0-                   1     $-0-       $2,762,099
    Chairman of the Board     1995    1,000,000     75,000      -0-          -0-             550,822      -0-           33,776
    and Chief Executive       1994    1,000,000    300,000      -0-          -0-              42,657      -0-           36,372
    Officer 

    Charles R. Scheper,       1996      354,327    186,450      -0-          -0-              12,536      -0-            8,590
    President - Life          1995      300,000     22,500      -0-          -0-              77,986      -0-           33,032
    Insurance Operations      1994      275,000     82,523      -0-          -0-              65,362      -0-           35,536
    Thomas J. Brophy,         1996      306,250    142,500      -0-          -0-                 769      -0-           10,390
    President - Health        1995      300,000     22,500      -0-          -0-             109,009      -0-           33,045
    Insurance Operations      1994      243,750     33,600      -0-          -0-              45,737      -0-           87,331

    Mark S. Fischer (2)       1996      207,692    141,450      -0-          -0-              10,221     -0-           $18,086
    Executive Vice President  1995      145,000      9,063      -0-          -0-              10,268     -0-            13,649
    and Chief Operating       1994       67,916     36,000      -0-          -0-              16,213     -0-               145
      Officer

    David I. Vickers          1996      195,673    133,950      -0-          -0-              10,602     -0-             8,456
    Senior Vice President,    1995      175,000     25,742      -0-          -0-                 814     -0-             8,841
    Treasurer and Chief       1994      137,500     31,500      -0-          -0-              45,853     -0-             4,690
    Financial Officer


(1)     Amounts of All Other Compensation consist of (i) amounts contributed or
        accrued for fiscal 1996, 1995 and 1994 under the Company's Employee
        Savings and Stock Ownership Plan for Mr. Nauert ($7,390, $7,624 and
        $10,077), Mr. Scheper ($7,390, $7,624 and $10,007) and Mr. Vickers
        ($5,250, $5,120 and $4,625); and for fiscal 1996 and 1995 for Mr. Brophy
        ($7,390 and $5,537) and Mr. Fischer ($7,390 and $5,120); (ii) payments
        for group term life insurance made by the Company for fiscal 1996, 1995
        and 1994 for Mr. Nauert ($1,152, $1,152 and $1,295), Mr. Scheper ($408,
        $408 and $459); Mr. Brophy ($2,808, $2,508 and $2,025), Mr. Fischer
        ($408, $264 and $145) and Mr. Vickers ($264, $216 and $235); (iii)
        relocation expenses paid by the Company in fiscal 1994 for Mr. Brophy
        ($85,306); (iv) Directors fees paid by the Company in fiscal 1996, 1995
        and 1994 for Mr. Nauert ($25,000, $25,000 and $25,000); in fiscal 1995
        and 1994 for Mr. Scheper ($25,000 and $25,000); and in fiscal 1995 for
        Mr. Brophy ($25,000); (v) payments for automobile leases for fiscal 1996
        and 1995 for Mr. Fischer ($9,486 and $7,381), and for Mr. Vickers for
        fiscal 1995 ($965); (vi) amounts representing the difference between the
        option exercise prices and the fair market values on the date of
        exercise with respect to stock options exercised by Mr. Nauert in fiscal
        1996 ($1,976,875); (vii) interest received by Mr. Nauert with respect to
        a loan to Mr. Nauert forgiven by the Company and with respect to
        deferred compensation disbursements; (viii) taxes reimbursed by the
        Company in fiscal 1996 to Mr. Scheper ($609), Mr. Fischer ($609) and
        Mr. Vickers ($609); and (ix) stock gifts in fiscal 1996 to
        Messrs. Nauert, Scheper, Brophy, Fischer and Vickers ($156).

(2)     Mr. Fischer joined the Company in 1994.

</TABLE>

The following tables summarize option grants during the fiscal year ended
December 31, 1996, to the Named Officers and the value of the options held by
such persons at the end of such fiscal year.  Other than Mr. Nauert, none of the
Named Officers exercised any stock options during the fiscal year ended
December 31, 1996.  The Company does not maintain any pension plans or any
supplementary pension award plans.

<TABLE>
<CAPTION>

                                        OPTION GRANTS IN LAST FISCAL YEAR

                                                                                            Potential Realizable Value at Assumed
                                                                                                 Annual Rates of Stock Price    
                                    Individual Grants                                           Appreciation for Option Term    

                            Number of       Percentage of
                            Securities      Total Options
                            Underlying        Granted to       Exercise or
                             Options         Employees in       Base Price     Expiration
          Name               Granted          Fiscal Year      (per share)      Date(1)             5%                10%
 <S>                         <C>            <C>               <C>              <C>                  <C>              <C>    

 Peter W. Nauert                  1          0.00%            10.875          12/31/06                  16               40

 Charles Scheper             10,000          5.52%            16.000          03/21/06             100,600          255,000
                                482          0.27%            13.000          03/31/06               4,897           12,455
                              1,068          0.59%            14.750          06/30/06              11,171           28,302
                                658          0.36%            15.250          09/30/06               6,777           17,174
                                328          0.18%            16.750          12/31/06               5,156           13,068
 Thomas Brophy                    1          0.00%            10.375          01/18/06                  11               27
                                 88          0.05%            10.750          01/25/06               1,003            2,542
                                 87          0.05%            10.875          02/15/06                 923            2,339
                                184          0.10%            11.750          03/31/06               1,869            4,755
                                193          0.11%            13.250          06/30/06               2,019            5,115
                                117          0.06%            13.000          09/30/06               1,205            3,054
                                 97          0.05%            14.750          12/31/06               1,525            3,864

 Mark Fischer                     9          0.00%            18.125          01/25/06                 103              260
                                  9          0.00%            16.875          02/15/06                  95              242
                             10,000          5.52%            16.000          03/21/06             100,600          255,000
                                  9          0.00%            16.375          03/26/06                  93              235
                                 54          0.03%            16.313          03/31/06                 549            1,395
                                 10          0.01%            16.000          04/24/06                 101              255
                                  9          0.00%            16.750          05/20/06                  95              240
                                  9          0.00%            16.375          06/27/06                  93              235
                                 56          0.03%            16.625          06/30/06                 586            1,484
                                 10          0.01%            14.750          07/22/06                  93              235
                                  9          0.00%            15.625          08/21/06                  88              224
                                  9          0.00%            16.375          09/24/06                  93              235
                                  6          0.00%            16.375          09/30/06                  62              157
                                  9          0.00%            16.500          10/18/06                  93              237
                                  9          0.00%            17.000          11/22/06                  96              244
                                  4          0.00%            25.000          12/31/06                  63              159

 David Vickers               10,000          5.52%            16.000          03/21/06                100,600       255,000
                                166          0.09%            16.313          03/31/06                  1,687         4,289
                                176          0.10%            16.625          06/30/06                  1,841         4,664
                                122          0.07%            16.375          09/30/06                  1,257         3,184
                                138          0.08%            25.000          12/31/06                  2,169         5,498

(1)     The options terminate at the earlier of ten years from the date of grant
        or one year from date of termination of employment with the Company. 

</TABLE>

    AGGREGATE OPTION EXERCISES IN 1996 AND OPTION VALUES AT DECEMBER 31, 1996

<TABLE>
<CAPTION>
                                                    Number of Securities Underlying                  Value of Unexercised
                                                             Unexercised                            In-the-Money Options at
                                                              Options at                             December 31, 1996(1)
                                                           December 31, 1996  

                         Shares       Value
         Name          Exercised     Realized      Exercisable        Unexercisable          Exercisable            Unexercisable

 <S>                     <C>        <C>              <C>                 <C>                  <C>                    <C>     
 Peter W. Nauert        160,000     $1,976,875       155,000             393,480              $1,361,250             $2,620,610 

 Charles R. Scheper        -            -             95,000              80,884              1,180,625                907,713

 Thomas J. Brophy          -            -             75,000             105,448               775,000                1,287,418

 Mark Fischer              -            -               0                 36,702                  0                    448,625

 David Vickers             -            -             6,000               61,269               117,000                 844,991

(1)     Based on the closing price on the New York Stock Exchange-Composite
        Transactions of the Company's Common Stock on that date ($25.00).

</TABLE>

DIRECTORS' COMPENSATION

     Directors of the Company currently receive fees of $25,000 per year. 
Directors who are chairmen of the Company's Executive, Investment, Audit and
Compensation Committees receive additional fees of $25,000 per year; provided,
however, that no employee-director is entitled to receive directors fees of more
than $25,000 in any one year and no nonemployee director is entitled to receive
directors fees of more than $50,000 in any one year.  All directors are
reimbursed for travel expenses.  In addition, each Director, upon his initial
election as a director, receives options to purchase 25,000 shares of the
Company's Common Stock at an exercise price equal to fair market value on the
date of grant.  Further, each member of the Option Committee, upon his initial
election as a member, receives options to purchase 8,000 of the Company's Common
Stock at an exercise price equal to fair market value on the date of grant.

     The Company has adopted a compensation deferral plan (the "Deferral Plan")
for members of the Board of Directors.  The Deferral Plan was established in
order to encourage the attraction and retention of qualified Directors by
allowing Directors to irrevocably elect deferral of payment of a certain portion
of the compensation they receive as Directors and thereby defer taxes.  The
Deferral Plan provides benefits at retirement, disability or death for Directors
who elect to defer payments under the Deferral Plan.  The Deferral Plan permits
Directors to elect investment options at the same time deferrals are elected. 
Under the Deferral Plan, the Company makes an unsecured promise to pay deferred
amounts together with investment gains and losses, at a future time.  The
deferred amounts are not funded as with a pension or profit sharing plan. 
However, under the Deferral Plan a trust has been established with respect to
the amounts allocated to the Deferral Plan. 

EMPLOYMENT AND OTHER AGREEMENTS

     Effective September 1, 1995, Mr. Nauert entered into an employment
agreement with the Company (the "Current Agreement") which superseded the then
existing employment agreements between Mr. Nauert and the Company and two of its
subsidiaries (the "Prior Agreements") except for the loan provisions described
below.

     The Current Agreement provides for a three year term, commencing
September 1, 1995,  which continues indefinitely until terminated by the Board
of Directors upon three years notice.  Under the Current Agreement Mr. Nauert is
entitled to a minimum annual base salary of $1,000,000, which amount is equal to
the aggregate minimum annual salaries which he was entitled to receive under the
Prior Agreements and which can be increased at the discretion of the Board of
Directors, and an annual bonus determined by the Compensation Committee, based
upon the Company's achieving performance standards established by the Committee.

     In addition, under the Current Agreement, Mr. Nauert was granted options to
purchase an aggregate of 500,000 shares of the Company's Common Stock,
exercisable as follows:  100,000 on or after the date of the execution and
delivery of the Current Agreement at $15.25 per share; 100,000 on or after
September 1, 1996 at $16.75  per share; 100,000 on or after September 1, 1997 at
$18.50 per share; 100,000 on or after September 1, 1998 at $20.25 per share; and
100,000 on or after September 1, 1999 at $22.25 per share; provided, however,
that none of such options are exercisable within six months of the date of grant
and are exercisable only if Mr. Nauert is employed by the Company or one of its
subsidiaries at the time they can first be exercised.

     The Current Agreement is terminable by the Company with or without cause. 
In the event of termination with cause, the Current Agreement provides that Mr.
Nauert will receive his then current compensation through the date of
termination.  In the event of the termination by the Company without cause or
termination by Mr. Nauert for good reason, Mr. Nauert, in lieu of the
compensation that would have been paid to him during the balance of the three-
year term, will receive the present value, discounted at an annual rate of 8%,
of the salary which would have been payable during a period equal to the
remainder of the term of the agreement, commencing on the date of termination at
the rate of annual base salary  payable to Mr. Nauert at the date of
termination.  In the event Mr. Nauert's employment is terminated by the Company
without cause or by Mr. Nauert for good reason within 180 days following a
change of control of the Company, and in lieu of the termination payments
described above, the Company would pay Mr. Nauert an amount equal to three times
the average income reflected on the W-2 form or forms issued to Mr. Nauert by
the Company or its subsidiaries for services performed for them for the five
calendar years preceding the year in which such change of control occurs.    

     Pursuant to the Current Agreement, Mr. Nauert has agreed not to compete
with the Company for a period of twelve months after the termination of his
employment unless he is terminated without cause or there has been a change in
control of the Company prior to such termination.  Mr. Nauert has also agreed
that during the term of his employment he will retain, directly or indirectly,
ownership of not less than one million shares of Common Stock.  In addition, Mr.
Nauert has agreed that until his employment is terminated and so long as the
market price of the Common Stock of the Company is less than $12 per share, he
will not sell or transfer his shares of Common Stock (other than transfers to
family members) without first offering such shares to the Company.

     Prior to September 1, 1995, Mr. Nauert served as Chairman and Chief
Executive Officer of the Company and as President and Chief Executive Officer of
two of its subsidiaries under employment agreements which, unless earlier
terminated by either the Company or Mr. Nauert, would have been automatically
renewed on December 31, 1996 and every three years thereafter.

     Pursuant to the Prior Agreement with the Company, the Company extended to
Mr. Nauert a three year term loan in the amount of $1,300,000 which accrues
interest at an annual rate of 3.71%.  Up to 50% of the principal amount of this
loan may be forgiven if the following goals are achieved.  If the Company had
aggregate fully diluted net income per common share of $4.50 during the period
from January 1, 1994 to December 31, 1996, then $325,000 in principal amount of
the loan was to be forgiven.  If, during this same period, the Company has
aggregate fully diluted net income per common share in excess of $4.50, then, in
addition to the $325,000 previously forgiven, an amount of the loan equal to the
amount by which net income per common share exceeds $4.50, divided by $3.00 and
multiplied by $975,000 was to be forgiven, provided that in no event shall more
than $650,000 of the loan be forgiven.  Pursuant to such Prior Agreement,
$650,000 of the loan has been forgiven.  The remaining balance of such loan
continues in effect under the Current Agreement.

     Effective September 1, 1995, the Company entered into three-year 
employment agreements with Messrs. Brophy and Scheper which provide for minimum
annual base salaries of $300,000, which amounts can be increased at the
discretion of the Board of Directors of the Company, and such annual bonuses as
may be determined by the Compensation Committee based upon the achievement of
such Company-wide performance based standards as may be established by the
Committee.  The employment agreements are terminable by the Company with or
without cause.  In the event of termination with cause, the agreements provide
for the payment of the employee's then current base salary through the date of
termination.  In the event of termination by the Company without cause or
termination by the employee for good reason, the employee would be entitled to
receive an amount equal to the present value, discounted at an annual rate of
8%, of an amount equal to the lesser of (x) the salary which would have been
payable during a period equal to the remainder of the term of the agreement,
commencing on the date of termination at the rate of annual base salary payable
to the employee at the date of termination, or (y) two times the employee's then
current annual base salary.  The agreements also provide for the payment, under
certain circumstances, of certain health insurance benefits until the employee
reaches the age of 65 in the event that the agreement is not terminated by the
Company for cause or by the employee without good reason. 

     In addition, the agreements provide for the grant to each employee, on
terms substantially similar to those in Mr. Nauert's Current Agreement and
subject to stockholder approval of the amendment to the Company's 1994 Stock
Incentive Program referred to below, of options to purchase an aggregate of
75,000 shares of the Company's Common Stock, exercisable as follows: 25,000 on
or after the date of the execution and delivery of the agreement at $15.25 per
share; 25,000 on or after September 1, 1996 at $16.75 per share; and 25,000 on
or after September 1, 1997 at $18.50 per share.

     Upon consummation of the acquisition of the Company by Conseco, Inc., as
contemplated in the Agreement and Plan of Merger dated as of December 15, 1996
by and among the Company, Conseco, Inc. and Rock Acquisition Company, Mr.
Nauert's Current Agreement will terminate, he will be entitled to receive $4.5
million and he will enter into an employment agreement with Conseco and Messrs.
Scheper's and Brophy's employment agreements will terminate and each will be
entitled to receive amounts equal to the present value, discounted at an annual
rate of 8%, of an amount equal to the salary which would have been payable to
such officer during the period from the effective time of the merger through
August 31, 1998 based on rates of annual base salary payable to Messrs. Scheper
and Brophy of $425,000 and $325,000, respectively.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

     During 1996, the Messrs. Bastian, Gardiner, Keefe and Klaeser served as
members of the Company's Compensation Committee.  None of the Compensation
Committee members is, or formerly was, an officer or employee of the Company or
any of its subsidiaries.  Pursuant to a reinsurance agreement effective December
3, 1994, an insurance subsidiary of the Company reinsures a percentage of the
business written by Philadelphia Life and sold by a marketing subsidiary of the
Company.  As of December 3,1 996, the face amount reinsured under the agreement
by the Company's insurance subsidiary was $261.1 million.  Mr. Gardiner served
as a director and executive officer of Philadelphia Life until May 1995.


ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

    The following table sets forth, as of March 21, 1997 (unless otherwise
indicated), the number and percentage of outstanding shares of any class of
voting securities of the Company beneficially owned by each Company director,
named executive officer and all executive officers and directors as a group, and
by all persons known by the Company to own more than five percent of any class
of voting securities of the Company as of such date.

<TABLE>
<CAPTION>

                                                       AMOUNT AND
                                                       NATURE OF
TITLE               NAME AND ADDRESS                   BENEFICIAL       PERCENT 
OF CLASS            OF BENEFICIAL OWNER (1)            OWNERSHIP(2)     OF CLASS

<S>                 <C>                                <C>                 <C>
PFS Common Stock    Peter W. Nauert                    1,909,644(3)(4)(5)  15.5%
                      Director 
                         & Chief Executive Officer

PFS Common Stock    William B. Van Vleet                  31,423(4)           *
                      Director

PFS Common Stock    Michael A. Cavataio                  224,264(4)(6)      1.9%
                      Director

PFS Common Stock    John Gardiner                         32,700(4)           *
                      Director

PFS Common Stock    Michael K. Keefe                      38,674(4)           *
                      Director

PFS Common Stock    Karl-Heinz Klaeser                    64,421(4)           *
                      Director

PFS Common Stock    Robert F. Nauert                      19,998(4)           *
                      Director

PFS Common Stock    R. Richard Bastian, III               31,846              *
                      Director

PFS Common Stock    Carl Hulbert                          33,000(4)           *
                      Director

PFS Common Stock    Charles R. Scheper                   197,251(4)(5)       1.7
                      President - Life Division

PFS Common Stock    Thomas J. Brophy                     195,018(4)(5)       1.6
                      President - Health Division

PFS Common Stock    Mark S. Fischer                       43,443(4)(5)         *
                      Executive Vice President
                         & Chief Operating Officer

PFS Common Stock    David I. Vickers                      74,322(4)(5)         *
                      Senior Vice President, Treasurer
                         & Chief Financial Officer

PFS Common Stock    All directors and executive
                      officers as a group (15 persons)  2,969,262(4)(5)(6)  22.6%

PFS Common Stock    U.S. Bancorp                          717,380(7)         6.2%
                     111 S.W. Fifth Avenue
                     Portland, OR 97204

PFS Common Stock    Heyman Investment Associates, et.al.  672,200(8)         5.8%
                     333 Post Road West
                     Westport, CT 06881

PFS Common Stock    Heartland Advisors, Inc.              622,300(9)         5.4%
                     790 N.Milwaukee Street
                     Milwaukee, WI 53207
_________________________
* Less than 1.0%

(1)  Unless otherwise indicated, the address of each person is in care of
     Pioneer Financial Services, Inc. at 1750 E. Golf Road, Schaumburg, IL
     60173.

(2)  Unless otherwise indicated, each person has sole voting and investment
     power with respect to all such shares.  

(3)  Includes (i) 86,000 shares held by Mr. Nauert's children or by Mr. Nauert
     as custodian or as trustee for his children and 2,000 shares held of record
     by Mr. Nauert's wife, (ii) 155,000 shares which may be acquired pursuant to
     presently exercisable stock options, and (iii) 4,373 shares of Common Stock
     held in Employee Savings and Stock Ownership Plan accounts as of December
     31, 1996.

(4)  Includes shares of Common Stock which such directors and executive officers
     have the right to acquire upon the exercise of stock options as follows: 
     Mr. Peter Nauert, 548,480 shares; Mr. Van Vleet, 27,154 shares;
     Mr. Cavataio, 119,282 shares; Mr. Gardiner, 25,000; Mr. Keefe, 33,000
     shares; Mr. Klaeser, 40,500 shares; Mr. Scheper, 175,884 shares; Mr.
     Brophy, 180,448 shares; Mr. Hulbert, 33,000 shares; Mr. Robert Nauert,
     16,274 shares; Mr. Fischer, 36,702 shares; Mr. Fiskow, 28,725 shares; Mr.
     Hill, 25,000 shares; Mr. Vickers, 67,269 shares.  Pursuant to the terms of
     the Agreement and Plan of Merger, dated as of December 15, 1996 by and
     among the Company, Conseco, Inc. and Rock Acquisition Company, all stock
     options will vest and be exercisable upon consummation of the merger
     contemplated therein.  Accordingly, for purposes of this table, the Company
     has assumed that all stock options owed by the individuals listed herein
     will be exercisable within 60 days.

(5)  Includes shares of Common Stock held in Employee Savings and Stock
     Ownership Plan accounts as of December 31, 1996.

(6)  Includes (i) 95,729 shares of Common Stock held directly by Mr. Cavataio
     and (ii) 9,253 shares of Common Stock held of record by, or in trust for
     the benefit of members of Mr. Cavataio's immediate family.

(7)  This information is based upon a Schedule 13G dated February 12, 1997. U.S.
     Bancorp has sole voting power with respect to 716,280 share, sole power to
     dispose of 358,590 shares and shared power to dispose of 25,694 shares.

(8)  This information is based upon a Schedule 13D dated January 16, 1997
     provided to PFS by Heymen Investment Associates, et al.

(9)  This information is based upon a Schedule 13G dated February 12, 1997. 
     Heartland Advisors has sole voting power with respect to 616,600 shares and
     sole power to dispose of 622,300 shares.

</TABLE>

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     In 1996, Mr. Cavataio, a director of the Company, was engaged by the
Company as an investment advisor to assist in the management of the Company's
investment portfolio.  Pursuant to this arrangement, Mr. Cavataio received
compensation of $100,000 in 1996.

     Commencing July 1, 1995, Mr. Van Vleet, a director of the Company, was
engaged by the Company as a consultant for a two-year term pursuant to an
arrangement under which Mr. Van Vleet is to receive aggregate compensation
(including directors fees) of $100,000 per year.

     Prior to his employment with the Company in May 1996, Mr. Hill, an
executive officer of the Company, was engaged by the Company as a legal
consultant.  Pursuant to this arrangement, Mr. Hill received consulting fees of
$150,000 in 1996.  Mr. Hill is also a partner in a law firm which rendered legal
services to the Company and its subsidiaries for which the firm was paid
$114,815.76 in 1996.

     In 1996, Mr. Hulbert, a director of the Company, was engaged by the Company
as a consultant to assist in insurance related matters.  Pursuant to this
arrangement, Mr. Hulbert received compensation of $9,000 in 1996.

     On December 31, 1996, CPM Investors L.L.C. ("CPM"), an Illinois limited
liability company, purchased certain real estate related invested assets from
Pioneer Life Insurance Company ("PLI"), a subsidiary of the Company, at PLI's
best estimate of fair market value.  Mr. Cavataio, a director of the Company,
and certain officers of the Company are partners in CPM.  The assets were
purchased for a total purchase price of approximately $3.4 million.

     Pursuant to a reinsurance agreement, effective December 31, 1994, an
insurance subsidiary of the Company reinsures a percentage of the business
written by Philadelphia Life and sold by a marketing subsidiary of the Company. 
As of December 31, 1996, the face amount reinsured under the agreement by the
Company's insurance subsidiary was $261.1 million.  Mr. Gardiner, a director of
the Company, served as a director and executive officer of Philadelphia Life
until May, 1995.

     Any future transactions between the Company and its officers, directors,
principal stockholders or affiliates of any of them will be on negotiated terms
no less favorable to the Company than could be obtained from unaffiliated
parties.


                                     PART IV


ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
          FORM 8-K 
        
(a)     Documents filed as a part of this report:

        PIONEER FINANCIAL SERVICES, INC.

1.      Financial Statements 

        Report of Independent Auditors  . . . . . . . . . . . . . . . . . .  F-1
        Consolidated Financial Statements . . . . . . . . . . . . . . . . . . .
             Statements of Consolidated Income  . . . . . . . . . . . . . .  F-2
             Consolidated Balance Sheets  . . . . . . . . . . . . . . . . .  F-3
             Statements of Consolidated Stockholders' Equity  . . . . . . .  F-5
             Statements of Consolidated Cash Flows  . . . . . . . . . . . .  F-7
             Notes to Consolidated Financial Statements . . . . . . . . . .  F-8


2.      Financial Statement Schedules

          Schedule I - Consolidated Summary of Investments -
          Other Than Investments in Related Parties . . . . . . . . . . . . F-40

          Schedule II - Condensed Financial Information of
          Registrant - Condensed Balance Sheets . . . . . . . . . . . . . . F-41

          Schedule II - Condensed Financial Information of
          Registrant - Condensed Statements of Income . . . . . . . . . . . F-42

          Schedule II - Condensed Financial Information of
          Registrant - Condensed Statements of 
          Cash Flows  . . . . . . . . . . . . . . . . . . . . . . . . . . . F-43

          Schedule II - Note to Condensed Financial Statements  . . . . . . F-44
          Schedule III - Supplementary Insurance Information  . . . . . . . F-45
          Schedule IV - Reinsurance . . . . . . . . . . . . . . . . . . . . F-47

          Schedule V - Valuation and Qualifying Accounts  . . . . . . . . . F-48

All other schedules are omitted because they are not applicable, or not
required, or because the required information is included in the financial
statements or notes thereto.


  3.   Exhibits

       See Exhibit Index below.


  (b)  Reports on Form 8-K

       The Company filed a Form 8-K dated December 15, 1996 (regarding the
proposed merger with Conseco, Inc.).


  (c)  Index to Exhibits



Exhibit                                            Sequentially
Number                                             Description of Document
Numbered Page

2         Agreement and Plan of Merger dated as of
          December 15, 1996 by and among the Company,
          Conseco, Inc. and Rock Acquisition Company
          (filed as Exhibit 2.9 to the Company's Form 8-K
          dated December 15, 1996 and incorporated herein by
          reference)

3  (a)    Certificate of Incorporation
          of the Company (filed as Exhibit 3(a)
          to the Company's Registration Statement
          on Form S-1 [No. 33-7759] and incorporated
          herein by reference)

3  (b)    Amended Bylaws of the Company (filed as
          Exhibit 3(b) to Amendment No. 1 to the
          Company's Registration Statement
          on Form S-1 [No. 33-30017] and incorporated
          herein by reference)

4  (a)    Certificate of Designations with respect
          to the Company's $2.125 Cumulative 
          Convertible Exchangeable Preferred Stock
          ("Preferred Stock") (filed as Exhibit 4(a)
          to Post-Effective Amendment No. 1 to the
          Company's Registration Statement on Form S-1
          [No. 33-30017] and incorporated herein by
          reference)

4  (b)    Rights Agreement dated as of December 12,
          1990 between the Company and First Chicago 
          Trust Company of New York as Rights 
          Agent (including exhibits thereto)
          (filed as Exhibit 1 to the Company's 
          registration statement on Form 8-A
          dated December 14, 1990 and incorporated
          herein by reference)

4   (c)   Amendment to Rights Agreement dated as of
          December 13, 1996 between the Company and First
          Chicago Trust Company of New York as Rights
          Agent (filed as Exhibit 1 to the Company's
          Amendment No. 1 to Form 8-A dated January 27,
          1997 and incorporated herein by reference).

10  (a)   Form of contract with independent agents 
          (filed as Exhibit 10(f) to the Company's
          Registration Statement on Form S-1 
          [No. 33-7759] and incorporated herein by
          reference)

*10  (b)  Nonqualified Stock Option Plan (filed as 
          Exhibit 10(g) to the Company's Registration
          Statement on Form S-1 [No. 33-7759] and 
          incorporated herein by reference)

*10  (c)  Amendment to the Nonqualified Stock Option 
          Plan of the Company (filed as Exhibit 10(d)
          to the Company's Registration Statement on
          Form S-8 [No. 33-26455] and incorporated
          herein by reference)

*10  (d)  Amendment to the Nonqualified Stock Option 
          Plan of the Company (filed as Exhibit 10(c)
          to the Company's Registration Statement on
          Form S-1 [No. 33-17011] and incorporated
          herein by reference)

*10  (e)  Amendment to the Nonqualified Stock Option
          Plan of the Company (filed as Exhibit 10(e)
          to the Company's registration statement on
          Form S-8 [No. 33-37305] and incorporated 
          herein by reference)

*10  (f)  Employment Agreement dated September 
          1, 1995 by and between the Company and 
          Peter W. Nauert (filed as Exhibit 10(f) to the 
          Annual Report on Form 10-K [No. 0-14977]
          and incorporated herein by reference)

10  (g)   Administrative Service Agreement dated 
          December 23, 1991, by and between 
          Administrative Service Corporation and 
          Pioneer Life Insurance Company of Illinois 
          (filed as Exhibit 10(v) to the Company's 
          Annual Report on Form 10-K [No. 0-14977] 
          and incorporated herein by reference)

10  (h)   Administrative Service Agreement dated 
          December 23, 1991, by and between 
          Administrative Service Corporation and 
          National Group Life (filed as Exhibit 10(w) 
          to the Company's Annual Report on Form 10-K 
          [No. 0-14977] and incorporated herein 
          by reference)

*10  (i)  Employment Agreement dated September 1, 
          1995 by and between the Company and 
          Thomas J. Brophy (filed as Exhibit 10(i) to the
          Company's Annual Report on Form 10-K
              [No. 0-14977] and incorporated herein by
          reference0

*10  (j)  Employment Agreement dated September 1, 1995 by 
          and between the Company and Charles R. Scheper 
          (filed as Exhibit 10(j) to the Company's Annual 
          Report on Form 10-K [No. 0-14977] and incorporated 
          herein by reference)

10  (k)   Stock Purchase Agreement dated November 21,
          1994 among the Company, United Life 
          Holdings, Inc. and GRENEL Financial 
          Corporation (filed as Exhibit 2(a) to the 
          Company's Current Report on Form 8-K, 
          dated January 31, 1995 and incorporated 
          herein by reference)

10  (l)   Third Amended and Restated Receivables 
          Purchase Agreement dated as of November 1,
          1995 by and between Design Benefit Plans,
          Inc. (formerly National Group Marketing
          Corporation) and National Funding 
          Corporation (filed as Exhibit 10(m) to the 
          Company's Annual Report on Form 10-K
          [No. 0-14977] and incorporated herein by
          reference)

10  (m)   First Amendment to Third Amended and Restated
          Receivables Purchase Agreement dated as of 
          April 15, 1996 (filed herewith

10  (n)   Second Amendment to Third Amended and Restated
          Receivables Purchase Agreement dated as of
          August 1, 1996 (filed herewith) 

10  (o)   Consent and Agreement dated as of October
          1, 1994 among Design Benefit Plans, Inc., 
          Pioneer Financial Services, Inc., American
          National Bank and Trust Company of Chicago,
          and National Funding Corporation (filed 
          as exhibit 10(q) to the Company's Annual
          Report on Form 10-K [No. 1-10522] and
          incorporated herein by reference.

10  (p)   Pioneer Financial Services, Inc.
          Employee Stock Purchase Plan
          (filed as Exhibit 10(o) to the Company's
          Annual Report on Form 10-K 
          [No. 0-14977] and incorporated herein
          by reference)

10  (q)   Pioneer Financial Services, Inc.
          Directors Compensation Deferral
          Plan (filed as Exhibit 10(p) to the Company's
          Annual Report on Form 10-K [No. 0-14977]
          and incorporated herein by reference)

10   (r)  Pioneer Financial Services, Inc. Executive Deferred
          Compensation Program (filed as Exhibit 10(t) to the
          Company's Annual Report on Form 10-K [No. 0-14977]
          and incorporated herein by reference)

10   (s)  Credit Agreement among Pioneer Financial Services,
          Inc and the First National Bank of Chicago dated 
          July 30, 1996 (filed as Exhibit 10 to the Company's
          Form 10-Q for the quarterly period ended June 30, 1996
          and incorporated herein by reference)                

10   (t)  First Amendment to Credit Agreement among Pioneer
          Financial Services, Inc. and the First National
          Bank of Chicago dated January 23, 1997 (filed herewith)

10   (u)  Second Amendment to Credit Agreement among Pioneer
          Financial Services, Inc. and the First National
          Bank of Chicago dated March 21, 1997 (filed herewith)

*10  (v)  Agreement dated December 26, 1995 between Pioneer
          Financial Services, Inc. and Billy B. Hill, Jr.
          (filed herewith)

*10  (w)  Description of consulting agreement between 
          Pioneer Financial Services, Inc. and Michael
          A. Cavataio (filed herewith)

*10  (x)  Description of consulting agreement between 
          Pioneer Financial Services, Inc. and William 
          Van Vleet (filed herewith)

*10  (y)  Consulting agreement dated September 24, 1996
          between Pioneer Financial Services, Inc. and
          Carl Hulbert (filed herewith)

11        Statement of Computation of per share net income
          (filed herewith)

21        List of subsidiaries (filed herewith)

23        Consent of Ernst & Young LLP
           (filed herewith)

27        Financial Data Schedule (filed herewith)

*         Indicates management employment contracts or compensatory plans or
          arrangements.



                         Report of Independent Auditors



Board of Directors
Pioneer Financial Services, Inc.

We have audited the accompanying consolidated balance sheets of Pioneer
Financial Services, Inc. and subsidiaries as of December 31, 1996 and 1995, and
the related  statements of consolidated income, stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 1996.  Our
audits also included the financial statement schedules listed in the Index at
Item 14(a).  These financial statements and schedules are the responsibility of
the Company's management.  Our responsibility is to express an opinion on these
financial statements and schedules based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Pioneer Financial
Services, Inc. and subsidiaries at December 31, 1996 and 1995, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles.  Also, in our opinion, the related financial
statement schedules, when considered in relation to the consolidated financial
statements taken as a whole, present fairly in all material respects the
information set forth therein.

As discussed in Note 3 to the consolidated financial statements, in 1994, the
Company changed its method of accounting for investments in debt and equity
securities.


                                                          ERNST & YOUNG LLP
Chicago, Illinois
March 21, 1997


                Pioneer Financial Services, Inc. and Subsidiaries
                        Statements of Consolidated Income
                    (In Thousands, Except Per Share Amounts)

<TABLE>
<CAPTION>
                                        YEAR ENDED DECEMBER 31,
                                      1996      1995     1994
<S>                                   <C>       <C>       <C>
REVENUES
Premiums and policy charges (Note 7):
 Accident and health                 $ 686,867   $ 625,951   $ 659,180 
 Life and annuity                       84,040      61,092      44,929 
                                       770,907     687,043     704,109 
Net investment income (Note 5)          74,847      70,975      42,786 
Other income and realized investment
 gains and losses (Note 5)              42,151      42,066      27,260 
                                       887,905     800,084     774,155 
BENEFITS AND EXPENSES
Benefits:                                                  
 Accident and health                   466,737     398,971     407,249 
 Life and annuity                       90,672      76,846      42,947 
                                       557,409     475,817     450,196 
Insurance and general expenses         212,281     218,388     192,810 
Interest expense (Notes 10, 13 and 15)   6,526       4,958       5,054 
Amortization of deferred policy 
  acquisition costs and value of
  purchased insurance in force 
  (Note 11)                             65,545      69,199     100,073 
                                       841,761     768,362     748,133 
Income before income taxes              46,144      31,722      26,022 
Income taxes (Note 6):
 Current                                 2,220       7,407       6,570 
 Deferred                               13,468       3,347       2,303 
                                        15,688      10,754       8,873 
Net income                              30,456      20,968      17,149 

Preferred stock dividends (Note 14)        591       1,805       1,904 
Income applicable to common 
 stockholders                         $ 29,865  $   19,163   $  15,245 

Net income per common share:
 Primary                              $   2.69  $     2.44  $     2.36 
 Fully diluted                            2.16        1.85        1.58 

Dividends declared per common share        .22         .18         .15 

Average common and common equivalent
 shares outstanding:               
 Primary                                11,114       7,839       6,459 
 Fully diluted                          15,654      12,608      12,734 

See notes to consolidated financial statements.

</TABLE>

                Pioneer Financial Services, Inc. and Subsidiaries
                           Consolidated Balance Sheets
               (In Thousands, Except Share and Per Share Amounts)

<TABLE>
<CAPTION>
                                                        DECEMBER 31,
                                                    1996            1995  
<S>                                              <C>                 <C>
Assets

Investments (Note 5 and 21):
 Securities available-for-sale:
   Fixed maturities, at fair value               $ 561,654        $ 420,768
   Fixed maturities held in trust pursuant
      to reinsurance agreements, at fair value     196,584          201,898
   Equity securities, at fair value                 28,630           15,570
 Fixed maturities held-to-maturity             
  at amortized cost                                266,049          246,041
 Real estate - at cost, less accumulated              
  depreciation                                      14,989           18,250
 Mortgage loans   at unpaid balance                  9,890            9,253
 Policy loans   at unpaid balance                   83,054           79,122
 Short-term investments   at cost,                   
  which approximates fair value                     34,659           51,690
Total investments                                1,195,509        1,042,592



Cash                                                25,857          20,274
Premiums and other receivables, less allowance
 for doubtful accounts (Notes 8 and 20)             24,499          23,429
Reinsurance receivables and amounts             
  on deposit with reinsurers (Note 7)              226,632         195,466
Accrued investment income                           16,481          13,307
Deferred policy acquisition costs (Note 11)        224,010         193,193
Value of purchased insurance in force (Note 2)      42,719          26,681
Land, building, and equipment   at cost, less            
 accumulated depreciation (Note 20)                 27,051          26,433
Other                                               40,982          28,293

                                                $1,823,740       $1,569,668



                                                        DECEMBER 31,
                                                    1996            1995
LIABILITIES, REDEEMABLE PREFERRED STOCK, 
      AND STOCKHOLDERS' EQUITY
Policy liabilities:         
 Future policy benefits:
   Life                                          $661,863         $591,093
   Annuity                                        254,387          216,431 
   Accident and health                            155,903          153,603 
 Unearned premiums                                 91,374           71,150 
 Policy and contract claims (Note 9)              208,561          176,858 
 Other                                             16,803           16,077 
                                                1,388,891        1,225,212 
General liabilities:
 General expenses and other liabilities            40,924           43,400 
 Amounts due to reinsurer                          70,942           82,954 
 Deferred federal income taxes                     14,963            2,393 
 Repurchase agreement (Note 10)                     5,178            5,180 
 Short-term notes payable (Notes 10 and 23)         6,248           13,534 
 Long-term notes payable (Notes 10 and 21)         21,514           21,504 
Convertible subordinated notes(Notes 15 and 21)    86,250               - 
Convertible subordinated debentures (Notes 13 and 21)  -             9,695 
Total liabilities                               1,634,910        1,403,872 

Commitments and contingencies (Notes 6 to 12 and 18)

Redeemable Preferred Stock, no par value (Note 14):
 $2.125 cumulative convertible exchangeable preferred 
   stock:
     Authorized: 5,000,000 shares
     Issued and outstanding: (1995 - 848,900 shares)     -         21,222 

Stockholders' equity (Notes 6 and 12 to 16):
 Common Stock, $1 par value:
   Authorized: 20,000,000 shares
   Issued, including shares in treasury
     (1996 -12,893,467; 1995 - 11,207,591)         12,893          11,208 
 Additional paid-in capital                        91,622          72,198 
 Unrealized appreciation                             
     of available-for-sale securities (Notes 3 and 5) 224          4,518 
 Retained earnings                                 94,311         66,870 
 Treasury stock at cost (1,132,300 shares)        (10,220)       (10,220)
Total stockholders' equity                        188,830        144,574 
                                               $1,823,740     $1,569,668 

See notes to consolidated financial statements.

</TABLE>
                Pioneer Financial Services, Inc. and Subsidiaries
                 Statements of Consolidated Stockholders' Equity
               (In Thousands, Except Share and Per Share Amounts)

<TABLE>
<CAPTION>
                                                                  Unrealized
                                                  Additional     Appreciation                                     Total Stock-
                                     Common        Paid-In      (Depreciation)      Retained       Treasury         holders'
                                      Stock        Capital       of Securities      Earnings         Stock           Equity

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

 Balance at January 1, 1994          $  6,900      $ 28,814           $  3,285       $ 34,645        $ (4,772)       $ 68,872 
 1994 transactions:

 Net income                                 -             -                  -         17,149               -          17,149 

 Cash dividends - Preferred    
     Stock ($2.125 per share)               -             -                  -         (1,904)              -          (1,904)

 Cash dividends - Common
    Stock ($.15 per share)                  -             -                  -           (930)              -            (930)
 Stock options exercised
    (85,500 shares)                       86            409                  -              -               -             495 

 Conversion of convertible 
    subordinated debentures
    (4,255 shares)                          4            46                  -              -               -              50 

 Cummulative effect of change 
    in accounting principle
    (Note 3)                                -             -              3,605              -               -           3,605 

 Depreciation of available-
 for-                                       -             -            (14,083)             -               -         (14,083)
    sale securities

 Purchase of treasury stock
    (521,600 shares)                        -             -                  -              -          (4,962)         (4,962)

 Issuance of shares pursuant
 to
    Agent Stock Purchase Plan               6            30                  -              -               -              36 
    (6,332 shares)

 Balance at December 31, 1994        $  6,996      $ 29,299           $ (7,193)      $ 48,960        $ (9,734)        $ 68,328


See notes to consolidated financial statements.

</TABLE>

<TABLE>
<CAPTION>
                                                                   Unrealized
                                                  Additional      Appreciation                                    Total Stock-
                                     Common         Paid-In      (Depreciation)     Retained       Treasury         holders'
                                      Stock         Capital      of Securities      Earnings         Stock           Equity

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

 Balance at January 1, 1995          $  6,996                         $ (7,193)      $ 48,960        $ (9,734)       $ 68,328 
                                                     $29,299 

 1995 transactions:
 Net income                                 -              -                 -         20,968               -          20,968 

 Cash dividends - Preferred    
     Stock ($2.125 per share)               -              -                 -         (1,805)              -          (1,805)

 Cash dividends - Common
    Stock ($.18 per share)                  -              -                 -         (1,253)              -          (1,253)

 Stock options exercised                                                                                                      
    (147,000 shares)                      147          1,373                 -              -               -           1,520 
 Conversion of convertible 
    subordinated debentures
    (4,062,418 shares)                  4,063         41,517                 -              -               -          45,580 

 Appreciation of available-
 for-                                       -              -            11,711              -               -          11,711 
    sale securities

 Purchase of treasury stock
    (53,900 shares)                         -              -                 -              -            (486)           (486)

 Issuance of shares pursuant
 to
    Agent Stock Purchase Plan               2              9                 -              -               -              11 
    (2,016 shares)
 Balance at December 31, 1995        $ 11,208       $ 72,198           $ 4,518      $ 66,870         $(10,220)        $144,574



See notes to consolidated financial statements.

</TABLE>

<TABLE>
<CAPTION>

                                                                  Unrealized
                                                  Additional     Appreciation                                   Total Stock-
                                     Common         Paid-In      (Depreciation     Retained       Treasury        holders'
                                      Stock         Capital          ) of          Earnings         Stock          Equity
                                                                  Securities

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

 Balance at January 1, 1996           $11,208         $72,198         $ 4,518        $66,870        $(10,220)       $144,574 

 1996 transactions:

 Net income                                 -              -                -         30,456               -          30,456 

 Cash dividends - Preferred    
     Stock ($.696 per share)                -              -                -           (591)              -            (591)

 Cash dividends - Common
    Stock ($.22 per share)                  -              -                -         (2,424)              -          (2,424)
 Stock options exercised                                                                                                     
    (346,789 shares)                      347          3,392                -              -               -           3,739 

 Conversion of convertible 
    subordinated debentures
    (815,312 shares)                      815          8,384                -              -               -           9,199 

 Conversion of redeemable
    preferred stock
    (522,552 shares)                      522          7,642               -               -               -           8,164 

 Depreciation of available-
 for-                                       -              -           (4,294)             -              -                  
    sale securities                                                                                                   (4,294)
 Issuance of shares pursuant
 to
    Agent Stock Purchase Plan               1              6                -              -               -               7 
    (1,223 shares)

 Balance at December 31, 1996        $ 12,893       $ 91,622          $   224      $ 94,311         $(10,220)        $188,830


See notes to consolidated financial statements.

</TABLE>


                Pioneer Financial Services, Inc. and Subsidiaries
                      Statements of Consolidated Cash Flows
                                 (In Thousands)

<TABLE>
<CAPTION>
                                                                                   YEAR ENDED DECEMBER 31,
                                                                           1996             1995             1994
<S>                                                                  <C>                 <C>             <C>    
OPERATING ACTIVITIES
Net income                                                           $    30,456         $ 20,968        $  17,149 
Adjustments to reconcile net income to 
net cash provided by operating activities:
   Decrease (increase) in premiums receivable                             (7,067)          (2,321)           4,981 
   Increase (decrease) in policy liabilities                              49,909          (51,857)         (33,034)
   Deferral of policy acquisition costs                                  (97,384)         (65,036)         (65,258)
   Amortization of deferred policy 
     acquisition costs and value of purchased insurance (Note 11)         65,545           69,199          100,073 
   Deferred income tax expense                                            13,468            3,347            2,303 
   Change in other assets and liabilities                                (37,453)          17,154           21,392 
   Depreciation, amortization, and accretion                               6,054            7,541             (102)
   Realized losses (gains) (Note 5)                                       (4,209)          (3,993)             383 
Net cash provided (used) by operating activities                          19,319           (4,998)          47,887 

INVESTING ACTIVITIES
Securities available-for-sale:          
  Purchases - fixed maturities                                          (237,352)        (247,746)        (110,416)
  Sales - fixed maturities                                               151,874          189,882           99,865 
  Maturities - fixed maturities                                           27,572           19,099           44,116 
  Purchases- equity securities                                           (21,949)         (14,854)          (4,609)
  Sales - equity securities                                               15,161           18,585            2,558 
Securities held-to-maturity:
  Purchases                                                              (30,292)         (13,369)         (84,010)
  Sales                                                                       -             4,710            9,427 
  Maturities                                                              19,625           28,865           21,472 
Sales (purchase) of investment real estate                                 2,399           (1,903)         (17,442)
Net decrease (increase) in other investments                              27,372           15,593          (21,499)
Net purchases of property and equipment                                   (3,787)          (6,650)          (2,957)
Purchase of subsidiaries (Note 4)                                        (34,303)          (8,314)               - 
Sale of subsidiaries                                                       5,078                -                - 
Net cash used by investing activities                                    (78,602)         (16,102)         (63,495)

FINANCING ACTIVITIES
Net proceeds from issuance of convertible
 subordinated notes (Note 13)                                             83,016                -                - 
Increase in notes payable                                                 23,750           14,219           21,225 
Repayment of notes payable                                               (29,226)          (1,794)          (5,362)
Proceeds from sale of agent receivables (Note 8)                          26,212           20,851           24,393 
Transfer of collections on previously sold agent 
             receivables (Note 8)                                        (24,371)         (18,978)         (28,743)
Policyholder account deposits                                             32,915           68,946           30,947 
Policyholder account withdrawals                                         (35,103)         (48,011)         (32,411)
Dividends paid - preferred                                                  (591)          (1,805)          (1,904)
Dividends paid - common                                                   (2,424)          (1,253)            (930)
Stock options exercised                                                    3,739            1,520              495 
Purchase of treasury stock                                                     -             (486)          (4,963)
Retirement of preferred stock                                            (13,058)            (460)          (1,993)
Other                                                                          7               13               87 
Net cash provided by financing activities                                 64,866           32,762              841 
Increase (decrease) in cash                                                5,583           11,662          (14,767)
Cash at beginning of year                                                 20,274            8,612           23,379 
Cash at end of year                                                     $ 25,857         $ 20,274          $ 8,612 

</TABLE>

                Pioneer Financial Services, Inc. and Subsidiaries

                   Notes to Consolidated Financial Statements


1.  NATURE OF OPERATIONS

Pioneer Financial Services, Inc. (PFS) through its subsidiaries markets and
underwrites life insurance, annuities, and health insurance in selected niche
markets throughout the United States.  PFS bases its operations on three core
businesses:  Life Insurance, Senior Health, and Group Medical.

Life Insurance products include traditional life (term and whole life),
universal life, and interest sensitive life insurance and annuities sold
primarily to the middle income market.  Senior health products include Medicare
supplement, long-term care, home health care and specialty health for
individuals age sixty-five and older.  Group medical business consists of small
group and individual hospital and medical policies marketed primarily to self-
employed individuals and small business owners.  Approximately 40% of PFS'
premiums are written in six states. 

2.  ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

The accompanying consolidated financial statements have been prepared in
conformity with generally accepted accounting principles (GAAP) and include the
accounts and operations, after intercompany eliminations, of PFS and its
subsidiaries.

USE OF ESTIMATES

The preparation of the financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the amounts reported in
the financial statements and accompanying notes.  Actual results could differ
from those estimates, and such differences may be material to the financial
statements.

INVESTMENTS

Investments in fixed maturities include bonds and mortgage-backed securities
with contractual maturities greater than one year.  Fixed maturities classified
as "available for sale" are carried at fair value and fixed maturities
classified as "held to maturity" are carried  amortized cost.

Although PFS has the ability and intent to hold held-to-maturity securities to
maturity, there could occur infrequent and unusual conditions under which it
would sell certain of those securities.  Those conditions would include
unforeseen changes in asset quality, significant changes in tax law affecting
the taxation of securities, a significant business acquisition or disposition,
and changes in regulatory capital requirements or permissable investments.

Changes in fair values of available-for-sale securities, after adjustment of
deferred policy acquisition costs ("DAC"), if any, and deferred income taxes,
are reported as unrealized appreciation or depreciation directly in
stockholders' equity and, accordingly, have no effect on net income.  DAC
offsets to the unrealized appreciation or depreciation represent valuation
adjustments or reinstatements of DAC that would have been required as a charge
or credit to operations had such unrealized amounts been realized.

The amortized cost of fixed maturity investments classified as available-for-
sale and as held-to-maturity is adjusted for amortization of premiums and
accretion of discounts.  That amortization or accretion is included in net
investment income.

For the mortgage-backed portion of the fixed maturity securities portfolio, PFS
recognizes income using a constant effective yield based on anticipated
prepayments and the estimated economic life of the securities.  When actual
prepayments differ significantly from anticipated prepayments, the effective
yield is recalculated to reflect actual payments to date and anticipated future
payments.  The net investment in the security is adjusted to the amount that
would have existed had the new effective yield been applied since the
acquisition of the security.  That adjustment is included in net investment
income.

In December 1995, as a result of guidance issued by the Financial Accounting
Standards Board ("FASB"), PFS transferred held-to-maturity fixed maturities with
an amortized cost of $222,482,000 to available-for-sale, and also transferred
$110,152,000 of available-for-sale fixed maturities to held-to-maturity.  These
transfers resulted in a $8,290,000 decrease to unrealized appreciation of
securities.

For equity securities, changes in unrealized appreciation or temporary
depreciation, after deferred income tax effects, are reported directly in
stockholders' equity.

Realized gains and losses on the sale of investments, and declines in value
considered to be other-than-temporary, are recognized in operations on the
specific identification basis.

Short term investments have maturities of three months or less and are carried
at cost which approximates fair value.

Accounting policies relating to derivative financial instruments are discussed
in Note 21.

REVENUES

Revenues for interest-sensitive life insurance and annuities consist of charges
assessed against  policy account values.  Premiums for traditional life
insurance products are recognized as revenue when due.  Accident and health
insurance premiums for long duration policies are earned when due and for 
short-duration policies are earned on a pro-rata basis over the policy term. 
Accident and health group association dues and fees, included in other revenues,
are recognized as revenue when received.

FUTURE POLICY BENEFITS

The liabilities for future policy benefits related to the annuity and interest-
sensitive life insurance policies are calculated based on accumulated fund
values.  As of December 31, 1996, interest credited during the contract
accumulation period ranged from 2.5% to 11.50%.  Investment spreads and
mortality gains are recognized as profits when realized, based on the difference
between actual experience and amounts credited or charged to policies.

The liabilities for future policy benefits on other life insurance and accident
and health insurance policies have been computed by a net level method based on
estimated future investment yield, mortality or morbidity, and withdrawals,
including provisions for adverse deviation.  Interest rate assumptions range
from 2.5% to 6.75% depending on the year of issue.  The provisions for future
policy benefits and the deferral and amortization of policy acquisition costs
are intended to result in benefits and expenses being associated with premiums
proportionately over the policy periods.

UNEARNED PREMIUMS

Unearned premiums are calculated using the monthly pro-rata basis.

DEFERRED POLICY ACQUISITION COSTS

Costs that vary with, and are primarily related to, the production of new
business are deferred.  Such costs are primarily related to accident and health
business and principally include the excess of new business commissions over
renewal commissions and underwriting and sales expenses.

For annuities and interest-sensitive life insurance policies, deferred costs are
amortized generally in proportion to expected gross profits arising from the
difference between investment and mortality experience and amounts credited or
charged to policies.  That amortization is adjusted when estimates of current or
future gross profits (including the impact of realized investment gains and
losses) to be realized from a group of products are revised.  For other life and
accident and health policies, costs are amortized over the premium-paying period
of the policies, using the same mortality or morbidity, interest, and withdrawal
assumptions that are used in calculating the liabilities for future policy
benefits.

VALUE OF PURCHASED INSURANCE IN FORCE

Amortization of the value of purchased insurance in force is in relation to the
present value of estimated gross profits over the estimated remaining life of
the related insurance in force.  Interest is credited to the unamortized balance
based on interest rates ranging between 3.9% to 7.0%.

The changes in the unamortized value of purchased insurance in force for the
years ended December 31 are as follows:

<TABLE>
<CAPTION>

                            1996        1995        1994

                                 (In thousands)                     
                                                           

 <S>                     <C>        <C>          <C>       
                                               
 Balance at beginning   $ 26,681    $ 21,291    $ 23,078   
 of year                                                   

 Additions                21,557       7,110        -         
                                      
 Interest on               1,905       1,524       1,611   
 unamortized balance                                       

 Amortization             (7,424)     (3,244)     (3,398) 
                                                           
 Balance at end of year $ 42,719    $ 26,681    $ 21,291   
                                                           


</TABLE>

The estimated percentage of the December 31, 1996 balance to be amortized over
the next five years is as follows:

                   1997     1998     1999    2000     2001

     Percent      13.98%   16.93%   15.05%  13.87%   12.51%
   Amortization

POLICY AND CONTRACT CLAIMS

The liabilities for policy and contract claims, principally accident and health,
are determined using case-basis evaluations and statistical analyses based on
past experience and represent estimates of the ultimate net cost of incurred
claims and the related claim adjustment expenses.  Although considerable
variability is inherent in such estimates, management believes that these
liabilities are adequate.  The estimates are continually reviewed and adjusted
as necessary; such adjustments are included in current operations.

PFS maintains an additional provision for adverse deviation in its accident and
health claim liability estimates.

REINSURANCE

Reinsurance premiums, commissions, expense reimbursements, and receivables
related to reinsured business are accounted for on bases consistent with those
used in accounting for the original policies issued and the terms of the
reinsurance contracts.  Premiums reinsured to other companies have been reported
as reductions of premium revenues.  Amounts recoverable for reinsurance related
to future policy benefits, unearned premium reserves, and claim liabilities have
been reported as reinsurance receivables; expense allowances received in
connection with reinsurance have been accounted for as a reduction of the
related DAC and are deferred and amortized accordingly.

FEDERAL INCOME TAXES

Federal income tax provisions are based on income or loss reported for financial
statement purposes and tax laws and rates in effect for the years presented. 
Deferred income taxes have been provided for the effects of temporary
differences between financial reporting and tax bases of assets and liabilities
and are measured using enacted tax rates.  A valuation allowance for deferred
tax assets is provided where it is more likely than not that a portion of the
asset will not be realized.

DEPRECIATION

Building, equipment and investment real estate are recorded at cost and are
depreciated using principally the straight-line method.  Capitalized internal-
use computer software costs are amortized over the estimated useful lives of the
software, principally three years.

NET INCOME PER COMMON SHARE

Primary net income per share of Common Stock is determined by dividing net
income, less dividends on Preferred Stock, by the weighted-average number of
Common Stock and Common Stock equivalents (dilutive stock options) outstanding.
Where the effect of Common Stock equivalents on net income per share would be
antidilutive, they are excluded from the average shares outstanding.  Fully
diluted net income per share is computed as if the Preferred Stock, Convertible
Subordinated Debentures and Convertible Subordinated Notes had been converted to
Common Stock.  

COST IN EXCESS OF NET ASSETS OF COMPANIES ACQUIRED

The cost in excess of net assets of companies acquired (goodwill) ($5,796,000
and $5,017,000 at December 31, 1996 and 1995, respectively) is included in other
assets and is being amortized principally on a straight-line basis over periods
from five to forty years.  Goodwill is periodically evaluated for impairment
based principally on projected undiscounted net cash flows of the acquired
companies.

TREASURY STOCK

The board of directors has authorized PFS to buy back shares of its own common
and preferred stock on the open market from time to time.  During 1996 PFS did
not repurchase shares of its common stock or preferred stock.  During 1995 and
1994 PFS repurchased 53,900 and 521,600 shares, respectively, of its common
stock.  During 1995 and 1994 PFS repurchased 18,400 and 78,900 shares of its
preferred stock.  Treasury stock is accounted for using the cost method.

CASH FLOW INFORMATION

Cash includes cash on hand and demand deposits.

IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

In 1996, PFS adopted the disclosure requirements of FASB Statement 123 which
relates to accounting for stock-based compensation.  As permitted, PFS elected
to continue to measure compensation cost for stock-based compensation under the
expense recognition provisions prescribed by Accounting Principles Board Opinion
No. 25.  Therefore, the adoption of Statement 123 did not have an effect on PFS'
financial position or results of operations.  The required pro forma and fair
value disclosures are reported in Note 17.

In 1996, the FASB issued Statement 125 which provides accounting and reporting
standards for transfers and servicing of financial assets and extinguishments of
liabilities.  Those standards are based on consistent application of a
financial-components approach that focuses on control.  Statement 125 also
establishes new rules for determining whether a transfer of financial assets
constitutes a sale and, if so, the determination of any resulting gain or loss. 
The provisions of Statement 125 were to be applied to transactions occurring
after December 31, 1996.  However, FASB Statement 127 was issued which defers
the effective date one year for those provisions of Statement 125 that deal with
securities lending, repurchase and dollar repurchase agreements, and the
recognition of collateral.  PFS is in the process of reviewing these statements.

RECLASSIFICATIONS

Certain amounts in the 1994 and 1995 financial statements have been reclassified
to conform to the 1996 presentation.

3.  CHANGES IN ACCOUNTING PRINCIPLES

In 1996 PFS adopted FASB Statement 121 which relates to accounting for
impairment of long-lived assets.  Implementation of this statement did not have
an effect on PFS' financial statements.

In 1995 PFS adopted FASB Statements 114 and 118 which relate to accounting by
creditors for impairment of a loan.  Implementation of these statements did not
have an effect on PFS' financial statements.

Effective January 1, 1994, PFS adopted FASB Statement 115, "Accounting for
Certain Investments in Debt and Equity Securities."  Under Statement 115,
securities are classified as available-for-sale, held-to-maturity, or trading. 
PFS classified a portion of its fixed maturity securities portfolio as
available-for-sale with the remainder classified as held-to-maturity.  As a
result of the adoption, PFS' stockholders' equity was increased by $3,605,000
(net of adjustments to deferred income taxes) to reflect the net unrealized
gains on fixed maturity securities classified as available-for-sale that were
previously carried at amortized cost.

4.  BUSINESS COMBINATIONS

On January 31, 1995, Pioneer acquired for a cost of $24,000,000 (purchase price
$23,700,000 and $300,000 of additional costs), the outstanding common shares of
Connecticut National Life Insurance Company (CNL).

The acquisition was accounted for by the purchase method and, accordingly, the
purchase price was allocated to assets and liabilities acquired based on
estimates of their fair values.  The value of insurance in force represents
actuarially determined present value of the projected future cash flows from the
retained portion of the acquired policies.  All assets and liabilities related
to reinsured insurance contracts are reported on a gross basis.  The liabilities
for future policy benefits related to interest-sensitive life and annuity
insurance policies are calculated based on accumulated fund values.  As of
January 1, 1995, interest credited during the contract accumulation period
ranged from 5% to 6.5%.  The liabilities for future policy benefits on other
life and accident and health insurance policies have been computed by a net
level method based on estimated future investment yield, mortality or morbidity,
and withdrawals, including provisions for adverse deviation.  Interest rate
assumptions range from 7% to 8% depending on the year of issue.  

<TABLE>
<CAPTION>
                                                                                 
                                        (IN THOUSANDS)
<S>                                          <C>      
Assets Acquired
     Cash                                    $ 16,371 
     Fixed maturities                         211,221 
     Mortgage loans                             7,983 
     Real estate                                1,900 
     Policy loans                              53,159 
     Accrued investment income                  4,366 
     Premium receivables                        2,069 
     Value of insurance in force                1,570 
     Receivables and amounts on deposit 
       with reinsurers                         87,213 
     Other assets                                 469 

Liabilities Assumed
     Policy liabilities                      (354,307)
     General expense and other liabilities     (8,014)

Total purchase price                         $ 24,000 

</TABLE>

The following unaudited pro-forma consolidated results of operations have been
prepared as if the acquisition had been made as of January 1, 1994:

<TABLE>
<CAPTION>
                                             YEAR ENDED
                                          DECEMBER 31, 1994
                                      (IN THOUSANDS, EXCEPT PER
                                            SHARE AMOUNTS)

     <S>                                     <C>      
     Revenues                                $809,500 
     Net Income                                18,700
     Net income per share
       Primary                                   2.60
       Fully-Diluted                             1.70

</TABLE>

The foregoing pro-forma information is not necessarily indicative of either the
results of operations that would have occurred had the acquisition  been
effective on Jauary 1, 1994, or of future results of operations of the
consolidated companies.

In March 1996, PFS purchased the outstanding common shares of Universal Fidelity
Life Insurance Company (UFLIC) for a cost of $26,500,000, principally cash.  The
acquisition was accounted for by the purchase method and, accordingly, the
purchase price was allocated to assets and liabilities acquired based on
estimates of their fair values.  The total assets acquired at the purchase date
were approximately $41,000,000.  Revenues and expenses of UFLIC for the nine
months after the acquisition are included in PFS' statements of consolidated
income.

In August 1996, PFS acquired a block of individual and small group health
insurance business from Washington National Insurance Company (WNIC) for a cost
of $19,000,000 in cash.  The acquisition was structured as a reinsurance
transaction between WNIC and an insurance subsidiary of PFS (see Note 7).  WNIC
retained a portion of the assets and reserves supporting the block of business
at the purchase date pursuant to the terms of the reinsurance agreement. 
Revenues and expenses for the five months after the transaction are included in
PFS' statements of consolidated net income.

In December 1996, PFS purchased SECURA Life Insurance Company for a cost of
$12,000,000, principally cash.  The acquisition was accounted for by the
purchase method and, accordingly, the purchase price was allocated to assets and
liabilities acquired based on estimates of their fair values.  The total assets
acquired at the purchase date were approximately $93,000,000.  The acquisition
had no effect on PFS' 1996 net income or revenues.



5.  INVESTMENTS

Realized investment gains (losses), including provisions for other-than-
temporary impairments on investments held, and the change in unrealized
appreciation (depreciation) on fixed maturities, equity securities, and other
investments during the years shown are summarized as follows:

<TABLE>
<CAPTION>
                         FIXED        EQUITY
                       MATURITIES     SECURITIES   OTHER   TOTAL
                                                     (IN THOUSANDS)
   <S>                 <C>            <C>          <C>     <C>
   1996
   REALIZED             $    487      $3,648       $ 74    $  4,209 
   UNREALIZED            (25,773)        229          -     (25,544)
                       $ (25,286)   $  3,877       $ 74    $(21,335)

   1995
   Realized             $ (301)     $  4,605   $   (311)   $  3,993 
   Unrealized           86,406          (719)         -      85,687 
                    $   86,105    $    3,886   $   (311)   $ 89,680 

   1994
   Realized         $     (94)      $    211   $   (500)   $   (383)
   Unrealized         (58,705)        (2,098)         -     (60,803)
                  $   (58,799)      $ (1,887)    $ (500)  $ (61,186)

</TABLE>

The cost of available-for-sale equity securities was $26,164,000 at December 31,
1996, and $13,333,000 at December 31, 1995.  At December 31, 1996, gross
unrealized appreciation on available-for-sale equity securities was $3,277,000
and gross unrealized depreciation was $811,000.  At December 31, 1995, gross
unrealized appreciation on equity securities was $2,781,000 and gross unrealized
depreciation was $544,000.

In 1995, sales of two held-to-maturity securities with an amortized cost of
$5,490,000 resulted due to a significant deterioration in creditworthiness. 
Sales of these securities resulted in a realized loss of $780,000.

Sales of two held-to-maturity securities in 1994 with an amortized cost of
$9,803,000 resulted after discussions with an insurance rating agency regarding
specific investments of PFS' insurance subsidiaries and evidence of a
significant deterioration in credit worthiness.  Sales of these securities
resulted in a realized loss of $376,000.



A comparison of amortized cost to fair value of fixed maturity investments by
category is as follows:  

<TABLE>
<CAPTION>
                                       GROSS     GROSS
                          AMORTIZED  UNREALIZED UNREALIZED  FAIR
                            COST        GAINS     LOSSES    VALUE
                                    (IN THOUSANDS)
<S>                      <C>        <C>         <C>            <C>
At December 31, 1996:
HELD TO MATURITY
U.S. Treasury            $29,719    $    84     $    (296)     $ 29,507 
States and political 
  subdivisions             5,475        103            (6)        5,572 
Corporate securities      59,068        767          (165)       59,670 
Mortgage-backed 
  securities             171,787      1,746        (2,110)      171,423 
                        $266,049     $2,700     $  (2,577)     $266,172 
AVAILABLE FOR SALE
U.S. Treasury           $ 26,135    $ 1,242     $    (19)      $ 27,358 
States and political 
  subdivisions            36,870        652         (161)        37,361 
Foreign governments        2,524          -         (104)         2,420 
Corporate securities     455,713     10,362       (3,477)       462,598 
Mortgage-backed 
  securities             230,617      4,160       (6,276)       228,501 
                        $751,859    $16,416     $(10,037)      $758,238 
At December 31, 1995:
HELD TO MATURITY                
U.S. Treasury            $ 26,897  $   319      $   (44)       $ 27,172
States and political 
  subdivisions              4,669      227            -           4,896
Corporate securities       51,608    1,797          (19)         53,386
Mortgage-backed 
  securities              162,867    4,599         (192)        167,274
                         $246,041 $  6,942      $  (255)       $252,728
AVAILABLE FOR SALE
U.S. Treasury            $ 31,781 $  2,303      $      -       $ 34,084
State and political 
  subdivisions             26,260      716             -         26,976
Foreign governments         3,072       -            (54)         3,018
Corporate securities      294,950   19,523          (972)       313,501
Mortgage-backed 
  securities              241,015    7,824        (3,752)       245,087
                         $597,078 $ 30,366      $ (4,778)      $622,666

</TABLE>

The carrying amount of PFS' available-for-sale fixed maturity investments can
increase or decrease significantly in the near term as a result of changes in
market interest rates.

Unrealized appreciation of available-for-sale securities at December 31, 1996 of
$224,000 included gross appreciation of $8,241,000 less unrealized appreciation
of $7,863,000 on investments in trust accounts that are guaranteed as to
principal value by reinsurers and net of deferred taxes of $154,000.  At
December 31, 1995, the net unrealized appreciation of available-for-sale
securities of $4,518,000 consisted of gross appreciation of $27,150,000 less
unrealized appreciation of $17,397,000 on investments in the trust accounts
guaranteed  by reinsurers and net of deferred taxes and DAC adjustments of
$5,235,000.

The amortized cost and fair value of fixed maturities at December 31, 1996, by
contractual maturity, are shown below.  Expected maturities will differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without prepayment penalties.

<TABLE>
<CAPTION>
                                      AMORTIZED  FAIR
                                        COST    VALUE
     HELD TO MATURITY:                  (IN THOUSANDS)
     <S>                            <C>       <C>      
     Due in 1997                    $ 13,401  $ 13,466 
     Due 1998-2002                    72,775    73,121 
     Due 2003-2007                     7,962     8,006 
     Due after 2007                      124       156 
     Mortgage-backed securities      171,787   171,423 
                                    $266,049  $266,172 
     AVAILABLE FOR SALE:
     Due in 1997                   $   8,263  $  8,296 
     Due 1998-2002                   194,405   197,886 
     Due 2003-2007                   228,145   229,068 
     Due after 2007                   90,429    94,487 
     Mortgage-backed securities      230,617   228,501 
                                    $751,859  $758,238 

</TABLE>

Proceeds from sales of investments (principally fixed maturities) during 1996,
1995, and 1994 were $167,035,000, $213,177,000 and $111,850,000, respectively.
Gross gains of $1,758,000, $1,537,000 and $1,448,000 and gross losses of 
$1,271,000, $1,838,000 and $1,542,000 were realized on fixed maturity sales 
in 1996, 1995, and 1994, respectively.

Major categories of net investment income are summarized as follows:

<TABLE>
<CAPTION>


                               1996     1995    1994
                                    (IN THOUSANDS)
<S>                         <C>      <C>     <C>     
Fixed maturities            $65,417  $61,076 $40,172 
Short-term investments        3,136    3,623   1,549 
Other                         9,687    9,550   4,189 
Total investment income      78,240   74,249  45,910 
Investment expenses          (3,393)  (3,274) (3,124)
Net investment income       $74,847  $70,975 $42,786 

</TABLE>

At December 31, 1996, securities with a carrying value of $32,873,000 were on
deposit with various government authorities to meet regulatory requirements,
securities with a carrying value of $196,584,000 are held in trust accounts
pursuant to reinsurance agreements (See Note 7), and securities with a carrying
value of $5,231,000 are pledged as collateral to a repurchase agreement (See
Note 10).

At December 31, 1996, the amortized cost of fixed maturity investments in any
one entity, other than the U.S. government or a U.S. government agency or
authority, which exceeded 10% of PFS' consolidated stockholders' equity were as
follows:

      GE Capital Mortgage Services, Inc.                    $34,123,000
      GMAC                                                   22,522,000

Investment real estate (net of accumulated depreciation of $1,957,000 in 1996
and $1,095,000 in 1995) at December 31, 1996 consists principally of land and a
building used, in part, as PFS' corporate headquarters.

At December 31, 1996, PFS held unrated or less-than-investment-grade available-
for-sale securities with a carrying value of $34,232,000.  Those holdings
amounted to less than 2.9% of PFS' total investments at December 31, 1996.

At December 31, 1996, fixed maturities with a carrying value of $6,312,000 had
been non- income producing for the preceding 12-month period.

6.  FEDERAL INCOME TAXES

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.  Significant components
of PFS' deferred tax liabilities and assets are as follows:

<TABLE>
<CAPTION>
                                                               DECEMBER 31
                                                          1996           1995            
                                                             (IN THOUSANDS)
    <S>                                                    <C>           <C>
    DEFERRED TAX LIABILITIES
    Deferred policy acquisition costs                      $69,390       $66,458               
    Net unrealized appreciation on
      available-for-sale securities                            154         2,625 
    Other                                                    8,579         9,075 
    Total deferred tax liabilities                          78,123        78,158 
 
    DEFERRED TAX ASSETS
    Policy liabilities                                      64,259        70,550 
    Loss carryforwards                                      11,377         9,940 
    Other                                                    4,024        11,775 
    Total deferred tax assets                               79,660        92,265 
    Valuation allowance for          
      deferred tax assets                                  (16,500)      (16,500)

    Deferred tax assets net of 
      valuation allowance                                   63,160        75,765 

    Net deferred tax liability                           $ (14,963)     $ (2,393)

</TABLE>

The nature of PFS' deferred tax assets and liabilities are such that the
reversal pattern for these temporary differences should generally result in
realization of PFS' deferred tax assets.

PFS establishes a valuation allowance for any portion of the deferred tax asset
that management believes may not be realized.  In 1995 the valuation allowance
increased $12,630,000 principally due to the acquisition of CNL (See Note 4). 
There was no change in the valuation allowance in 1996 and 1994.



PFS' effective federal income tax rate varied from the statutory federal income
tax rate as follows:

<TABLE>
<CAPTION>

                                             1996                   1995                 1994

                                      Amount         %        Amount       %        Amount       %

                                                                       (Dollars in thousands)
 <S>                                    <C>         <C>        <C>         <C>      <C>          <C> 

 Statutory federal income tax                 
  rate applied to income   
  before income taxes                 $16,150       35.0%     $11,103     35.0%    $ 9,108      35.0%

 Nontaxable investment income            (382)    (0.8)          (473)   (1.5)        (384)    (1.5) 


                                              
 Goodwill amortization                     79      0.2             60    0.2           109     0.4   
 Other                                   (159)    (0.4)            64    0.2            40     0.2   

 Income taxes and effective rate      $15,688       34.0%     $10,754     33.9%    $ 8,873      34.1%

</TABLE>

Taxes paid amounted to $8,571,000, $8,257,000, and $9,731,000 for 1996, 1995,
and 1994, respectively.

Under pre-1984 life insurance company income tax laws, a portion of a life
insurance company's "gain from operations" was not subjected to current income
taxation but was accumulated, for tax purposes, in a memorandum account
designated as the "policyholders' surplus account."  The balance in this account
at December 31, 1996 for PFS' life insurance subsidiaries was $12,010,000. 
Should the policyholders' surplus accounts of PFS' life insurance subsidiaries
exceed their respective maximums, or should distributions in  excess  of their
tax-basis shareholders' surplus account be made by the life insurance
subsidiaries, such excess or distribution would be subject to federal income
taxes at rates then in effect.  Deferred taxes of $4,200,000 have not been
provided on amounts included in the policyholders' surplus accounts, since PFS
contemplates no such taxable events in the foreseeable future.

As of December 31, 1996, PFS' life insurance subsidiaries had combined tax-basis
shareholders' surplus accounts of $112,700,000.  Distributions up to that amount
would result in no income tax liability.

Certain of PFS' life insurance subsidiaries have tax basis operations loss
carryforwards of $33,085,000 expiring in years 2003 through 2010.

7.  REINSURANCE

PFS' insurance subsidiaries reinsure risks with other companies to permit the
recovery of a portion of the direct losses.  These reinsured risks are treated
as though, to the extent of the reinsurance, they are risks for which the
subsidiaries are not liable.  PFS remains liable to the extent that the
reinsuring companies do not meet their obligations under these reinsurance
treaties.

PFS' premiums were reduced for reinsurance premiums ceded by $135,420,000,
$66,193,000, and $37,273,000 in 1996, 1995, and 1994, respectively.  Under
various reinsurance arrangements, PFS' premiums were increased for reinsurance
assumed by $117,925,000, $13,474,000, and $16,928,000 in 1996, 1995, and 1994, 
respectively.  PFS' policy benefits have been reduced for reinsurance 
recoveries of $103,156,000 in 1996, $33,739,000 in 1995, and $23,319,000 in 
1994.  At December 31, 1996 approximately 28% of PFS' reinsurance receivables 
and amounts on deposit with reinsurers were due from Reassurance Company of 
Hannover, 23% from Lincoln National Life Insurance Company, and 16% from 
Employers Reinsurance Corporation.

In August 1996, PFS assumed the individual and small group health business of
WNIC.  The total premiums assumed were approximately $100,000,000 for the five
months ended December 31, 1996.  As of December 31, 1996 policy liabilities were
increased as a result of the treaty by $66,315,000.  PFS entered into a 50%
quota share treaty with Reassurance Company of Hannover on the business assumed
from WNIC.

Prior to the acquisition by PFS in January 1995, CNL had entered into certain
reinsurance arrangements.  PFS retains the assets and related policy liabilities
associated with the reinsured business, but not the related risk associated with
the business.  In accordance with the reinsurance contracts, PFS does not
participate in the realized gains and losses on the assets held in trust under
these agreements.  Accordingly, PFS has established an amount due to reinsurer
at December 31, 1996 and 1995 and a reduction in the unrealized appreciation on
available-for-sale securities for assets held in trust pursuant to these
agreements.

8.  SALE OF AGENT RECEIVABLES

In 1996, 1995, and 1994 a subsidiary of PFS sold agent receivables to an
unaffiliated company for proceeds of $26,212,000, $20,851,000, and $24,393,000,
respectively.  The outstanding balances of such agent receivables sold that
remained uncollected at December 31, 1996 and 1995 were $12,200,000 and
$10,300,000, respectively.  PFS remains subject to a maximum credit exposure
under this agreement amounting to 10% of agent receivables at December 31, 1996.

9.  RECONCILIATION OF LIABILITY FOR POLICY AND CONTRACT CLAIMS

The following table provides a reconciliation of the beginning and ending policy
and contract claim liability balances reported in PFS' balance sheets:

<TABLE>
<CAPTION>
                                                                        YEAR ENDED DECEMBER 31,
                                                                    1996          1995          1994
                                                                             (IN THOUSANDS)

<S>                                                             <C>           <C>            <C>    
 Balance at January 1                                           $176,858      $165,137       $196,084 
                 Less reinsurance recoverables                    10,747         9,764          6,695 
Net balance at January 1                                         166,111       155,373        189,389 

Incurred claims related to:
         Current year                                            538,286       469,881        482,449 
         Prior years                                             (25,768)      (26,282)       (36,655)
         Total claims incurred                                   512,518       443,599        445,794 

Deduct claims paid related to:
         Current year                                            393,724       322,210        350,210 
         Prior years                                             108,129       110,651        129,600 
         Total claims paid                                       501,853       432,861        479,810 

Net balance at December 31                                       176,776       166,111        155,373 
         Plus reinsurance recoverables                            31,785        10,747          9,764 
Balance at December 31                                          $208,561      $176,858       $165,137 

</TABLE>

Claim reserves are estimates of amounts needed to pay reported and unreported
claims based on facts and circumstances known at the time the reserves are
established.  Reserves are based on historical claims information, industry
statistics and other factors.  The establishment of appropriate reserves is an
inherently uncertain process, and there can be no assurance that the ultimate
liability will not exceed recorded claim reserves.

PFS holds margins in its accident and health claim reserves to provide for
potential adverse deviation.  Claim reserve estimates are continually reviewed
and adjusted as necessary

10.  NOTES PAYABLE

At December 31, 1996, PFS had a loan of $23,750,000.  The portion of the loan
due in 1997 of $5,000,000 was included in short-term notes payable and the
balance was included in long-term notes payable.  The note bears interest at
7.06% and is payable quarterly with the final payment due July 2001.

At December 31, 1996, a PFS subsidiary had a secured loan totaling $3,014,000. 
The portion of the loan due in 1997 of $250,000 is included in short-term notes
payable.  The remainder of the note is included in long-term notes payable.  The
note bears interest at 7.8% and is payable monthly with the final payment due
August 2005.  PFS has guaranteed payment of the notes.

At December 31, 1995 a PFS subsidiary had a note in the amount of $1,660,000 as
a portion of the acquisition price of CNL.  The principal balance of the note
may be reduced by the former parent of CNL for capital losses incurred on
mortgage loan and real estate holdings until November 1, 1997.  During 1996, a
net capital loss reduced the principal balance to $998,000.  Interest is payable
at the average earnings rate of the investments, currently 8.7%.

The weighted average interest rate on short-term notes payable at year end was
8.7%,  8.4% and 7.7% in 1996, 1995 and 1994, respectively.

Interest paid amounted to $5,384,000, $6,629,000, and $4,950,000 for 1996, 1995,
and 1994, respectively.

PFS has an outstanding repurchase agreement at an insurance subsidiary which is
due October 1997.  The total amount due under the repurchase agreement was
$5,178,000 and $5,180,000 at December 31, 1996 and 1995, respectively.  Interest
at 5.95% is paid quarterly.

11.  ACCIDENT AND HEALTH BUSINESS

In making the determination that policy liabilities, future premiums, and
anticipated investment income will be adequate to provide for future claims and
expenses (including the amortization of deferred policy acquisition costs), PFS
has made assumptions with regard to each of these items.  Although there is
significant variability inherent in these estimates, management believes that
these assumptions are reasonable.

The amortization of deferred policy acquisition costs is generally based on the
expected pattern of future revenues or gross profits and on the expected
persistency of the policies.  PFS monitors the profitability and persistency of
its policies on a monthly basis.  In reviewing the recoverability of deferred
policy acquisition costs related to medical insurance products, PFS has made
assumptions relative to future rate increases, medical claim trends, lapse
rates, expenses and investment income.  Increased lapses or revised estimates of
profitability anticipating future losses could result in an increase in the
amortization rate or a write-off of deferred policy acquisition costs, which
would adversely impact results of operations and financial condition.

Pursuant to a 1994 actuarial study, PFS revised assumptions relative to the
ability to continue to receive regulatory approval for rate increases in excess
of medical claim trends to maintain profitability on certain issues of group
medical products.  This study resulted in increased amortization of deferred
policy acquisition costs in 1994 of $16,700,000.  The projected premium
deficiency was less than the unamortized policy acquisition costs and no
additional policy liability accrual was required.

12.  STATUTORY-BASIS FINANCIAL INFORMATION

The following tables compare combined net income and stockholders' equity for
PFS' insurance subsidiaries determined on the basis as prescribed or permitted
by regulatory authorities (statutory basis) with consolidated net income and
stockholders' equity reported in accordance with GAAP.  Statutory basis
accounting emphasizes solvency rather than matching revenues and expenses during
an accounting period.  The significant differences between statutory basis
accounting and GAAP are as follows:

   Deferred Policy Acquisition Costs.  Costs of acquiring new policies are
   expensed when incurred on a statutory basis rather than capitalized and
   amortized over the term of the related polices in the GAAP financial
   statements.

   Policy Liabilities.  Certain policy liabilities are calculated based on
   statutorily required methods and assumptions on a statutory basis rather than
   on estimated expected experience or, for annuity and interest-sensitive life
   insurance, actual account balances for GAAP.

12.  STATUTORY-BASIS FINANCIAL INFORMATION (CONTINUED)

   Financial Reinsurance.  The effects of certain financial reinsurance
   transactions are included in the statutory basis financial statements but are
   eliminated from the GAAP financial statements.

   Deferred Federal Income Taxes.  Deferred federal income taxes are not
   provided on a statutory basis for differences between financial statement and
   tax return amounts.

   Surplus Notes.  Surplus notes are reported in capital and surplus on a
   statutory basis rather than as liabilities in the GAAP financial statements.

   Non-insurance Companies' Equity.  Contributions by PFS to the capital and
   surplus of its insurance subsidiaries increases the stockholders' equity of
   those insurance subsidiaries on a statutory basis but does not effect the
   consolidated stockholders' equity on a GAAP basis.

   Unrealized Appreciation On Fixed Maturities Available-For-Sale.  Fixed
   maturity securities classified as available-for-sale are carried principally
   at amortized cost on a statutory basis rather than at fair value with
   unrealized gains and losses on such securities reported as a separate
   component of stockholders' equity in the GAAP financial statements.

<TABLE>
<CAPTION>

                                             1996           1995        1994
                                                      (IN THOUSANDS)
<S>                                         <C>            <C>      <C>
Combined net income on a statutory basis    $ 6,514        $ 9,576  $   6,986 

Adjustments for:
   Deferred policy acquisition costs         25,298        (12,579)   (34,814)
   Policy liabilities                           424         18,413     26,544 
   Financial reinsurance                         -          12,748     17,544 
   Deferred federal income taxes            (13,468)        (3,347)    (2,303)
   Non-insurance companies, eliminations, 
     and other adjustments                   11,688         (3,843)     3,192 

Consolidated net income in accordance
   with GAAP                               $ 30,456       $ 20,968   $ 17,149 


                                                  DECEMBER 31
                                              1996          1995
                                                 (IN THOUSANDS)
Combined stockholders' equity on a 
  statutory basis                         $ 164,466      $ 115,423 
Adjustments for:
   Deferred policy acquisition costs        224,010        193,193 
   Value of purchased insurance in force     42,719         26,681 
   Policy liabilities                      (157,241)      (156,141)
   Deferred federal income taxes            (14,963)        (2,393)
   Non-admitted assets                       22,835         15,354 
   Surplus notes                            (12,076)        (4,756)
   Unrealized appreciation on available-for-sale  
       fixed maturities                       6,379         25,588 
   Other                                     (1,875)       (18,710)

Combined insurance subsidiaries stockholders'
   equity on a GAAP basis                   274,254        194,239 

Non-insurance companies equity, eliminations
   and other adjustments                    (85,424)       (49,665)

Consolidated stockholders' equity in        
   accordance with GAAP                    $188,830      $ 144,574 

</TABLE>

Dividends from PFS' insurance subsidiaries unassigned surplus are limited to the
greater of the prior-year statutory-basis net gain from operations or 10% of
statutory-basis surplus.  The total amount of dividends that could be paid in
1997 without regulatory approval is $5,559,000.  At December 31, 1996, PFS' 
direct insurance subsidiaries had a combined statutory basis unassigned 
surplus of $9,922,000.

PFS is required to maintain adequate amounts of statutory-basis capital and
surplus to satisfy regulatory requirements and provide capacity for production
of new business.  Acquisition costs relating to the production of new business
result in a reduction of statutory-basis net income and capital and surplus.   

13.  CONVERTIBLE SUBORDINATED DEBENTURES

In July 1993 PFS issued $57,477,000 of 8% convertible subordinated debentures
due in 2000.  Interest on the debentures was payable in January and July of each
year.  Net proceeds from the offering totaled approximately $54,000,000 and were
used, in part, to repay long-term notes payable.  The debentures were
convertible into PFS' Common Stock at any time prior to maturity, unless
previously redeemed, at a conversion price of $11.75 per share.

In August 1995, the Company accepted the conversion of $46,906,000 of the
outstanding 8% convertible subordinated debentures pursuant to a special
conversion offer.  PFS paid a cash premium equal to $110 for each $1,000 in
principal amount of the debentures accepted for conversion.  The effect of the
conversion was an increase in stockholders' equity of $44,754,000 and a charge
to income for the cash premium of $3,457,000, net of taxes.  An additional
$826,000 of the debentures were converted in 1995 subsequent to the offer of
premium.  Had the conversions occurred at the beginning of the year, 1995
primary earnings per share would have decreased to $2.02.  In August 1996, PFS
completed the redemption of the remaining outstanding debentures.  The effect 
of the conversion was an increase in stockholders' equity of $9,199,000.  Had
the conversion occurred at the beginning of the year, 1996 primary earnings per
share would have decreased to $2.60.

14.  REDEEMABLE PREFERRED STOCK

In 1989, PFS issued 1,000,000 shares of $2.125 Cumulative Convertible
Exchangeable Preferred Stock.  The Preferred Stock was carried on PFS' balance
sheet at the redemption and liquidation value of $25 per share.  Each share of
Preferred Stock was convertible by the holders at any time into 1.6 shares of
PFS Common Stock.  Annual cumulative dividends of $2.125 per share were payable
quarterly.  The preferred stock was nonvoting unless dividends were in arrears.

In May 1996, PFS completed its offer to redeem the Preferred Stock. 
Approximately 326,000 shares of Preferred Stock were converted by shareholders
into 521,000 shares of PFS' Common Stock.  The cost to redeem the remaining
shares of Preferred Stock was $13,600,000, which included a charge to income of
$444,000.  Had the redemption occurred at the beginning of the year, 1996
primary earnings per share would have decreased to $2.62.

15.  CONVERTIBLE SUBORDINATED NOTES

In March 1996, PFS issued $86,250,000 of 6.5% convertible subordinated notes due
in 2003.  Interest on the notes is payable in April and October of each year. 
Net proceeds from the offering totaled $83,000,000 and were used, in part, to
repay borrowings and redeem the outstanding shares of PFS' Preferred Stock (see
Note 14).  The notes are convertible into PFS' Common Stock at any time prior to
maturity, unless previously redeemed, at a conversion price of $20 per share. 
The notes are redeemable by PFS under certain conditions after April 1999.  At
December 31, 1996, 4,312,500 shares of PFS' Common Stock were reserved for
conversion of the outstanding convertible subordinated notes.

16.  SHAREHOLDER RIGHTS AGREEMENT

In 1990, PFS distributed one preferred share purchase right for each outstanding
share of Common Stock.  The rights are intended to cause substantial dilution to
a person or group that attempts to acquire PFS on terms not approved by PFS'
directors.  The acquisition of PFS by Conseco, Inc. as described in Note 24 
will not result in the rights becoming exercisable.  The rights expire in 
2000 or PFS may redeem the rights prior to exercise for $.01 per right. 

The rights are not exercisable unless a person or group acquires, or offers to
acquire, 20% or more of PFS' Common Stock under certain circumstances.  The
rights, when exercisable, entitle the holder to purchase one-tenth of a share of
a new series of PFS Series A Junior Preferred Stock at a purchase price of $45. 
Such preferred shares, of which 2,000,000 are authorized, would be voting and
would be entitled to distributions that are ten times the distributions to
common shareholders.  Subsequent to exercise of the rights, in the event of
certain business combinations involving PFS, a holder of rights would have the
right to receive PFS Common Stock with a value of two times the exercise price
of the rights.

17.  STOCK OPTIONS AND RIGHTS

PFS has a nonqualified stock option plan and certain stock incentive programs
principally for directors and key employees of PFS and its subsidiaries.  PFS'
Board of Directors grants the options and specifies the conditions of the
options.  The number of shares of common stock available for benefits under the
plan is equal to 15% of the average fully diluted shares outstanding for the
prior fiscal year.  Options expire ten years after grant.

PFS accounts for stock option grants in accordance with Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees", and,
accordingly, recognizes no compensation expense for stock options granted to
employees.  FASB Statement 123, "Accounting for Stock-Based Compensation",
requires disclosure of pro forma information regarding net earnings and earnings
per share, using pricing models to estimate the fair market value of stock
option grants.  Had compensation expense for PFS' 

stock option plans been determined based on the estimated fair value at the date
of grant consistent with the methodology prescribed under Statement 123,
approximate net earnings and earnings per share would have been as follows:

<TABLE>
<CAPTION>
                                                               YEAR ENDED DECEMBER 31,
                                                              1996                1995
                                                            (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                                     <C>                    <C>   
Pro forma net income                                    $ 28,924             $ 19,320 
Pro forma net income per common share
      Primary                                         $    2.55              $    2.23 
      Fully diluted                                   $    2.07              $    1.71 

</TABLE>

For purposes of the pro forma disclosures, the estimated fair values of the
option grants are amortized to expense over the options' expected lives.  The
fair value of options at the date of grant was estimated using the Black-Scholes
option pricing model with the following weighted-average assumptions:

<TABLE>
<CAPTION>
                                                                 1996              1995
<S>                                                       <C>              <C>
Dividend yield                                           1.4%                   1.4%
Volatility                                              46.7%                  46.7%      
Expected life (years)                                    6.0                    6.0   

</TABLE>

The risk-free interest rate assumed was the rate at the date of grant.  This
rate varied from 7.01% to 5.99% in 1996 and from 7.54% to 5.95% in 1995.

The pro forma effects on income and earnings per share are not likely to be
representative of the effects on reported net income in future years as 1995 and
1996 pro forma amounts do not include pro forma compensation expense related to
grants made prior to 1995.



Transactions related to all stock options are as follows:

<TABLE>
<CAPTION>
                                                                       Years Ended December 31,

                                                       1996                      1995                       1994
                                                           Weighted                  Weighted                   Weighted
                                              Shares       Average       Shares       Average       Shares      Average
                                               Under       Exercise      Under       Exercise       Under       Exercise
                                              Option        Price        Option        Price        Option       Price

                                                          (In thousands, except exercise price data)                      

                     <S>                        <C>            <C>        <C>            <C>           <C>          <C>   
                     Beginning balance          1,893          $12.48     1,046          $ 8.22        733          $ 6.62

                     Granted                      181           15.54     1,019           16.08        480           10.40

                     Exercised                   (347)           7.99      (147)           7.40        (85)           7.33

                     Canceled                     (55)          11.74       (25)          10.75        (82)           7.61
                     Ending balance             1,672          $13.77     1,893          $12.48      1,046          $ 8.22

                     Exercisable at end                                                                    
                      of year                     763                       693                        561 
</TABLE>

Options with respect to 1,972,000 shares were available for grant at December
31, 1996.

Information regarding options outstanding and exercisable at December 31, 1996
is summarized as follows:

<TABLE>
<CAPTION>





                                         Options Outstanding                  Options Exercisable


                                               Weighted
                                               Average
                                              Remaining       Weighted                     Weighted
                                 Number      Contractual      Average        Number        Average
Range of Exercise Prices      Outstanding     Life (in       Exercise     Exercisable     Exercise   
                                                years)         Price                        Price

                              (In thousands, except exercise price data)

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

        $5.50 - $9.90              395           6.5           $7.73           245          $ 6.80

       10.375 - 15.25              655           8.5           12.75           306          13.44
       15.625 - 20.25              519           9.2           17.95           212          16.97

        22.25 - 25.00              103           9.0           22.33             -              -

                                  1,672          8.3          $13.77           763         $12.29
</TABLE>

The weighted average fair value per share of options granted was $7.82 and $5.96
in 1996 and 1995, respectively.

18.  COMMITMENTS AND CONTINGENCIES

PFS and its subsidiaries are named as defendants in various legal actions, some
claiming significant damages, arising primarily from claims under insurance
policies, disputes with agents, and other matters.  PFS' management and its
legal counsel are of the opinion that the disposition of these actions will not
have a material adverse effect on PFS' consolidated financial condition, cash
flows, or results of operations.

PFS leases various office facilities furniture and equipment and computer
equipment under noncancelable operating leases.  Rent expense was $7,428,000,
$7,140,000, and $4,530,000 in 1996, 1995, and 1994, respectively.  Minimum
future rental commitments in connection with noncancelable operating leases are
as follows:

           1997            $ 5,409,000
           1998              3,913,000
           1999              1,985,000
           2000                744,000
           2001                408,000

PFS has entered into employment agreements with certain officers. 

PFS' insurance subsidiaries are subject to extensive governmental regulation and
supervision at both federal and state level.  Such regulation includes premium
rate levels, premium rate increases, policy forms, minimum loss ratios, dividend
payments, claims settlement, licensing of insurers and their agents, capital
adequacy transfer of control, and amount and type of investments.  Additionally,
there are numerous health care reform proposals and regulatory initiatives under
consideration which, if enacted, could have significant impact on PFS' revenues
and results of operations.

The number of insurance companies that are under regulatory supervision has
increased, which is expected to result in an increase in assessments by state
guaranty funds to cover losses to policyholders of insolvent or rehabilitated
companies.  Those mandatory assessments may be partially recovered through a
reduction in future premium taxes in some states.  For all assessment
notifications received, PFS has accrued for those assessments net of estimated
future premium tax reductions.

19.  BENEFIT PLANS

PFS has a defined-contribution employee benefit plan that covers substantially
all home office employees who have attained age 21 and completed one year of
service.  Plan participants may contribute from 1% to 10% of their total
compensation subject to an annual maximum.  The plan also provides for PFS to
match participants' contributions up to 5% of the participants' salaries and 
50% of the remaining contributions up to the annual Internal Revenue Service 
limit ($9,500 in 1996).  PFS makes employer contributions to the plan in cash 
or in PFS Common Stock at the discretion of PFS' Board of Directors.  At 
December 31, 1996, the Plan's assets included PFS Common Stock of $11,645,000 
at fair value.  PFS' contibutions charged to operations were $1,910,000 in 
1996, $1,565,000 in 1995, and $1,365,000 in 1994.

A PFS subsidiary had a stock purchase plan that allowed certain eligible agents
to purchase common stock in the subsidiary at the subsidiary's per share book
value.  The plan was terminated in November 1992, and in accordance with the
plan's provisions, agents became fully vested.  Eligible agents were given the
option to participate in a new agent stock purchase plan which allows agents to
purchase PFS Common Stock.  Stock purchases are limited to a specific percentage
of the agent's commission as determined by PFS but in no event to be less than
3%.  Under the plan the agents are also credited with additional shares of PFS
Common Stock as determined by PFS.  In 1996, 1995 and 1994, 1,223 shares, 2,016
shares and 6,332 shares, respectively, of PFS Common Stock were issued under
this plan.

20.  ALLOWANCES AND ACCUMULATED DEPRECIATION 

Allowances for doubtful accounts related to other receivables amounted to
$4,294,000 at December 31, 1996, and $1,548,000 at December 31, 1995.
Accumulated depreciation related to building and equipment amounted to
$26,521,000 at December 31, 1996, and $23,370,000 at December 31, 1995.

21.  FAIR VALUE INFORMATION 

The following methods and assumptions were used by PFS in estimating its fair
values for financial instruments:

     Cash, short-term investments, short-term notes payable, and accrued
     investment income:  The carrying amounts reported in the balance sheets for
     these instruments approximate their fair values.

     Investment securities:  Fair values for fixed maturity securities
     (including redeemable preferred stocks) are based on quoted market prices,
     where available.  For fixed maturity securities not actively traded, fair
     values are estimated using values obtained from independent pricing
     services, or, in the case of private placements, are estimated by
     discounting expected future cash flows using a current market rate
     applicable to the yield quality, and maturity of the investments.  The fair
     values for equity securities are based on quoted market prices.

     Mortgage loans and policy loans:  The carrying amount of PFS' mortgage
     loans approximates their fair values.  The fair values for policy loans are
     estimated using capitalization of earnings methods, using interest rates
     currently being offered for similar loans to borrowers with similar credit
     ratings.  

     Investment contracts:  Fair values for PFS' liabilities under investment-
     type insurance contracts are based on current cash surrender values.

     Fair values for PFS' insurance policies other than investment contracts are
     not required to be disclosed.  However, the fair values of liabilities
     under all insurance policies are taken into consideration in PFS' overall
     management of interest rate risk, which minimizes exposure to changing
     interest rates through the matching of investment maturities with amounts
     due under insurance policies.

     Long-term notes payable:  The fair value of PFS' long-term notes payable 
     approximates the carrying value.

     Convertible subordinated debt:  The fair value of PFS' convertible
     subordinated debt is based on quoted market prices.

The fair values of certain financial instruments along with their corresponding
carrying values of December 31, 1996 and 1995 are as follows:

<TABLE>
<CAPTION>
                                  1996             1995
                           FAIR    CARRYING   FAIR    CARRYING
                           VALUE    VALUE     VALUE    VALUE
                                             (IN THOUSANDS)
<S>                      <C>       <C>      <C>      <C>
Financial Assets
  Fixed Maturities:
    Available-or-sale    $758,238  $758,238 $622,666 $622,666
    Held-to-maturity      266,172   266,049  252,728  246,041
  Equity securities        28,630    28,630   15,570   15,570
  Mortgage loans            9,890     9,890    9,253    9,253
  Policy loans             82,472    83,054   78,230   79,122

Financial Liabilities

  Investment contracts    241,384   250,946  205,160  214,573
  Long-term notes payable  21,514    21,514   21,504   21,504
  Subordinated debentures       -        -    14,833    9,695
 Subordinated notes       115,575    86,250       -        - 
  
</TABLE>

PFS uses interest rate derivative contracts, principally exchange-traded
treasury futures, as part of its overall interest rate risk management strategy
primarily for its life and annuity business.  Derivative contracts are used as a
hedge against the value of available-for-sale fixed maturity investments.  PFS
does not engage in trading derivatives.  PFS performs frequent analysis to
measure the degree of correlation associated with its derivative contracts to
verify that the derivatives qualify for hedge accounting.  Realized gains and
losses on derivative hedges, which were immaterial in 1996, 1995, and 1994, are
deferred and reported as an adjustment of the cost basis of the hedged
investment.  Deferred gains and losses are amortized into income over the life
of the hedged item.  PFS had no derivative contacts outstanding at December 31,
1996 and 1995.

22.  SEGMENT INFORMATION

PFS has three business segments:  Group Medical, Senior Health, and Life
Insurance.  The segments are based on PFS' main Divisions.   Allocations of
investment income and certain  general expenses are based on various assumptions
and estimates, and reported operating results by segment would change if
different methods were applied.  Investment income is allocated based primarily
on the policy liabilities and capital supporting the segment.  General expenses
are determined based on cost center and functional expense anaylsis prepared in
conjunction with the monthly budgeting process.  Assets are not individually
identifiable by segment and have been allocated based on the amount of policy
liabilities by segment and by other formulas.  Depreciation expense and capital
expenditures are not considered material.  Realized investment gains and losses
are allocated to the appropriate segment.  General corporate expenses are not
allocated to the 

individual segments.  Revenues, amortization of deferred policy acquisition
costs and value of purchased insurance, income or loss before income taxes, and
identifiable assets by business segment are as follows:

<TABLE>
<CAPTION>
                           1996       1995        1994
                                 (IN THOUSANDS)
REVENUES

<S>                     <C>         <C>         <C>      
Group Medical           $ 439,902   $ 430,885   $ 457,885
Senior Health             297,244     236,556     235,031
Life Insurance            135,791     115,545      71,075
Corporate and Other        14,968      17,098      10,416
Total                   $ 887,905   $ 800,084   $ 744,155

AMORTIZATION OF DEFERRED POLICY
ACQUISITION COSTS AND VALUE OF
PURCHASED INSURANCE

Group Medical          $  34,212   $  38,032   $   62,281 
Senior Health             17,955      21,601       29,807 
Life Insurance            13,378       9,566        7,985 
Total                  $  65,545   $  69,199    $ 100,073 

INCOME (LOSS) BEFORE INCOME TAXES

Group Medical           $ 20,541   $  19,729     $ 10,889 
Senior Health             24,010      16,753       13,420 
Life Insurance            13,952       7,128        8,537 
Corporate and Other      (12,359)    (11,888)      (6,824)
Total                   $ 46,144    $ 31,722     $ 26,022 

IDENTIFIABLE ASSETS AT YEAR-END

Group Medical           $ 323,653  $ 246,635    $ 247,332
Senior Health             375,329    338,794      285,058
Life Insurance          1,104,243    969,068      534,672
Corporate and Other        20,515     15,171       18,402
Total                  $1,823,740 $1,569,668   $1,085,464

</TABLE>

In September 1996, PFS sold its managed care subsidiaries for proceeds of
$7,800,000 including cash, notes receivable, and other consideration.  
Total assets of the subsidiaries at December 31, 1995 were $9,600,000.  
Operations of the subsidiaries for the first nine months of 1996
and for 1995 and 1994 did not have a material effect on PFS' net income. 
Revenues, income before income taxes, and identifiable assets of the managed
care subsidiaries are included with corporate and other.

23.  CREDIT ARRANGEMENTS

PFS has a line of credit arrangement for short-term borrowings with six banks
amounting to $30,000,000 through July 1999, all of which was unused at December
31, 1996.  The line of credit arrangement can be terminated, in accordance with
the agreement, at PFS' option.

24.  MERGER AGREEMENT

On December 15, 1996, PFS and Conseco, Inc. (Conseco)  entered into an Agreement
and Plan of Merger (the "Merger Agreement") pursuant to which PFS will become a
wholly owned subsidiary of Conseco (the "Merger").  Under the Merger Agreement,
each of the approximately 16.9 million shares of PFS common stock and common
stock equivalents would be converted into the right to receive a fraction of a
share of Conseco common stock having a value between $25 and $28, calculated as
follows: (i) if the Conseco/PFS Share Price (as defined below) is greater than
or equal to $28 per share and less than or equal to $31.36 per share, .8928 of a
share of Conseco common stock; (ii) if the Conseco/PFS Share Price is less than
$28 per share, the fraction (rounded to the nearest ten-thousandth) of a share
of Conseco common stock determined by dividing $25 by the Conseco/PFS Share
Price; or (iii) if the Conseco/PFS Share Price is greater than $31.36 per share,
the fraction (rounded to the nearest the-thousandth) of a share of Conseco
common stock determined by dividing $28 by the Conseco/PFS Share Price.  The
"Conseco/PFS Share Price" shall be equal to the average of the closing prices of
Conseco common stock on the NYSE Composite Transactions Reporting System for the
ten trading days immediately preceding the second trading day prior to the date
of the Merger.  The transaction is subject to PFS stockholder and regulatory
approval.



25.  QUARTERLY FINANCIAL DATA (UNAUDITED)

A summary of unaudited quarterly results of operations for 1996 and 1995 is as
follows (in thousands, except per share amounts):

<TABLE>
<CAPTION>

1996

                              1ST                 2ND              3RD              4TH

<S>                           <C>              <C>              <C>              <C>
Premiums and
 policy 
 charges                      $175,573         $182,151         $198,932         $214,251 

Net investment
 income and
 other                          30,605           29,291           27,397           29,705 

Net income                       6,731            6,025            7,269           10,431 

Net income
 per share:
   Primary                         .60             .55               .63              .87 
   Fully diluted                   .54             .44               .52              .70 


1995
                               1st               2nd              3rd              4th
Premiums and
 policy 
 charges                     $169,575         $162,706         $174,678          $180,084 

Net investment
 income and
 other                         24,444           27,546           27,065            33,986 

Net income                      4,955            5,360            3,316             7,337 

Net income
 per share:
   Primary                         .73              .78              .32               .60
   Fully diluted                   .47              .48              .30               .59


</TABLE>



                                   SCHEDULE I

                PIONEER FINANCIAL SERVICES, INC. AND SUBSIDIARIES

           CONSOLIDATED SUMMARY OF INVESTMENTS--OTHER THAN INVESTMENTS
                               IN RELATED PARTIES

                                December 31, 1996
<TABLE>
<CAPTION>
                                                        Amount
                                                     Shown in the
                                                     Consolidated
                             Amortized     Fair        Balance
Type of Investment              Cost       Value        Sheet    
                                      (in thousands)
<S>                          <C>         <C>           <C>    
Fixed maturities to be held
 to maturity:
 U.S. Treasury               $ 29,719    $ 29,507      $ 29,719
 States and political
   subdivisions                 5,475       5,572         5,475
 Corporate securities          59,068      59,670        59,068
 Mortgage-backed securities   171,787     171,423       171,787
    TOTAL FIXED MATURITIES
      TO BE HELD TO MATURITY  266,049     266,172       266,049

Fixed maturities available 
 for sale:
 U.S. Treasury                 26,135    $ 27,358        27,358
 States and political
   subdivisions                36,870      37,361        37,361
 Foreign governments            2,524       2,420         2,420
 Corporate securities         455,713     462,598       462,598
 Mortgage-backed securities   230,617     228,501       228,501
    TOTAL FIXED MATURITIES 
      AVAILABLE FOR SALE      751,859     758,238       758,238

Equity securities:
 Common stocks:
    Banks, trusts, and 
    insurance companies        22,647      23,626        23,626
 Nonredeemable preferred
    stocks                      3,517       5,004         5,004

    TOTAL EQUITY SECURITIES    26,164    $ 28,630        28,630

Real estate                    14,989                    14,989
Mortgage loans on real estate   9,890                     9,890
Policy loans                   83,054                    83,054
Short-term investments         34,659                    34,659

    TOTAL INVESTMENTS      $1,186,664                $1,195,509

</TABLE>


                                   SCHEDULE II

                PIONEER FINANCIAL SERVICES, INC. (Parent Company)
                  CONDENSED FINANCIAL INFORMATION OF REGISTRANT
                            CONDENSED BALANCE SHEETS
               (In thousands, except share and per share amounts)

<TABLE>
<CAPTION>
                                                                                                 December 31
                                                                                             1996             1995  
ASSETS
<S>                                                                                      <C>                <C>
Investments in subsidiaries*                                                             $236,708           $158,212 
Cash                                                                                        1,219                 58 
Note receivable from United Group Holdings (UGH)*                                          43,895             40,941 
Other notes receivable from subsidiaries*                                                   2,669              4,000 
Due from affiliates*                                                                        2,501                674 
Prepaid expenses                                                                              689                871 
Deferred debenture offering expenses                                                        3,773                442 
Other assets                                                                               13,206              4,202 
                                                                                         $304,660           $209,400 

LIABILITIES, REDEEMABLE PREFERRED STOCK, AND STOCKHOLDERS' EQUITY
Liabilities:
   General expenses and other liabilities                                                 $ 5,121            $ 5,827 
   Dividends payable                                                                          709              1,014 
   Short-term notes payable                                                                 5,000              9,343 
   Long-term notes payable                                                                 18,750             17,725 
   Convertible subordinated debentures                                                         -               9,695 
   Convertible subordinated notes                                                          86,250                 -  
                                                                                          115,830             43,604 
Redeemable Preferred Stock, no par value:
   $2.125 cumulative convertible exchangeable
   preferred stock
     Authorized:  5,000,000 shares
     Issued and outstanding: (1995-848,900 shares)                                             -              21,222 

Stockholders' equity:
   Common Stock, $1 par value:
     Authorized: 20,000,000 shares
     Issued, including shares in treasury 
        (1996 - 12,893,467; 1995 - 11,207,591)                                             12,893             11,208 
   Additional paid-in capital                                                              91,622             72,198 
   Unrealized appreciation               
     of available-for-sale securities                                                         224              4,518 
   Retained earnings                                                                       94,311             66,870 
   Less treasury stock at cost (1,132,300 shares)                                         (10,220)           (10,220)
Total stockholders' equity                                                                188,830            144,574 
                                                                                         $304,660           $209,400 

See note to condensed financial statements.

*Eliminated in consolidation.

</TABLE>

                                   SCHEDULE II

                PIONEER FINANCIAL SERVICES, INC. (Parent Company)

            CONDENSED FINANCIAL INFORMATION OF REGISTRANT--Continued

                         CONDENSED STATEMENTS OF INCOME
                                 (In thousands)

<TABLE>
<CAPTION>

                                                                                       Year Ended December 31
                                                                       1996                     1995                  1994 

<S>                                                                     <C>                     <C>                  <C>     
Revenues:
   Interest income from subsidiaries*                                  $ 2,953                  $ 2,948              $ 2,972 
   Other investment income                                                 459                       29                  109 
   Dividends from consolidated
     subsidiaries*                                                      16,129                    4,540               10,225 
                                                                        19,541                    7,517               13,306 

Expenses:
   Operating and administrative
     expenses                                                            6,978                    8,020                5,672 
   Interest expense                                                      6,223                    4,645                4,894 
                                                                        13,201                   12,665               10,566 

        Income (loss) before equity in
        undistributed net income or
        loss of subsidiaries                                             6,340                   (5,148)               2,740 

Equity in undistributed net
   income of subsidiaries*                                              24,116                   26,116               14,409 

        Net income                                                      30,456                   20,968               17,149 

Preferred stock dividends                                                  591                    1,805                1,904 

Income  applicable to 
   common stockholders                                                $ 29,865                 $ 19,163             $ 15,245 





See note to condensed financial statements.

*Eliminated in consolidation.

</TABLE>


                                   SCHEDULE II

                PIONEER FINANCIAL SERVICES, INC. (Parent Company)

            CONDENSED FINANCIAL INFORMATION OF REGISTRANT--Continued

                       CONDENSED STATEMENTS OF CASH FLOWS
                                 (In thousands)

<TABLE>
<CAPTION>

                                                                                       Year Ended December 31
                                                                            1996                1995                1994  

<S>                                                                         <C>                 <C>                 <C>      
OPERATING ACTIVITIES
   Net income                                                               $ 30,456            $ 20,968            $ 17,149 
   Adjustments to reconcile net
     income to net cash provided (used)
     by operating activities:
        Change in other assets and
           liabilities                                                       (12,253)              3,728               1,095 
        Equity in undistributed net
           income of subsidiaries*                                           (24,116)            (26,116)            (14,409)

        NET CASH PROVIDED (USED)
        BY OPERATING ACTIVITIES                                               (5,913)             (1,420)              3,835 

INVESTING ACTIVITIES
   Additional investment in
    consolidated subsidiaries*                                               (58,675)             (1,605)            (10,758)

FINANCING ACTIVITIES
   Net proceeds from issuance of
     convertible subordinated notes                                           83,016                  -                   -  
   Increase in notes receivable from UGH                                      (2,954)             (2,238)             (1,209)
   Increase in notes payable                                                  23,750               9,343              18,950 
   Repayment of notes payable                                                (27,068)             (1,225)                (50)
   Decrease (increase) in other notes 
     receivable from subsidiaries*                                             1,331                (483)             (3,114)
   Stock options exercised                                                     3,739               1,520                 495 
   Dividends paid-preferred                                                     (591)             (1,805)             (1,904)
   Dividends paid-common                                                      (2,424)             (1,253)               (930)
   Purchase of treasury stock                                                     -                 (486)             (4,963)
   Retirement of preferred stock                                             (13,058)               (460)             (1,993)
   Other                                                                           8                  13                  87 

        NET CASH PROVIDED BY
         FINANCING ACTIVITIES                                                 65,749               2,926               5,369 

INCREASE (DECREASE) IN CASH                                                    1,161                 (99)             (1,554)

CASH AT BEGINNING OF YEAR                                                         58                 157               1,711 

CASH AT END OF YEAR                                                          $ 1,219            $     58             $   157 


See note to condensed financial statements.

*Eliminated in consolidation.

</TABLE>

                                   SCHEDULE II

                PIONEER FINANCIAL SERVICES, INC. (Parent Company)

                     NOTE TO CONDENSED FINANCIAL STATEMENTS



The accompanying condensed financial statements should be read in conjunction
with the consolidated financial statements and notes thereto of Pioneer
Financial Services, Inc.

At December 31, 1996 and 1995, the notes receivable from United Group Holdings
of Delaware (UGH) represents the purchase of National Group Life Insurance
Company from the parent company.  The note bears interest at the rate of 8% and
matures on December 31, 1998.



                                  SCHEDULE III

                PIONEER FINANCIAL SERVICES, INC. AND SUBSIDIARIES

                       SUPPLEMENTARY INSURANCE INFORMATION
                                 (In thousands)

<TABLE>
<CAPTION>


                                                                       December 31,
                          
                                                                                                                             
                                   Value of          Deferred         Future Policy               
                                   Purchased         Policy            Benefits and                        
                                   Insurance       Acquisition         Policy and         Unearned      Other Policy
Segment                             In Force          Costs          Contract Claims       Premiums     Liabilities

<S>                                  <C>                <C>               <C>             <C>             <C>    
1996:

Group Medical                        $ 11,891            $63,536          $160,547        $ 27,326        $ 2,958              

Senior Health                           5,412             86,402           184,920          64,048          4,251              

Life Insurance                         25,416             74,072           935,247               -          9,594              

                                     $ 42,719           $224,010        $1,280,714        $ 91,374       $ 16,803              


1995:

Group Medical                         $ 7,951            $54,304          $128,401        $ 15,932        $ 3,122              

Senior Health                               -             88,790           188,194          55,218          3,355              

Life Insurance                         18,730             50,099           821,390               -          9,600              

                                     $ 26,681           $193,193        $1,137,985        $ 71,150       $ 16,077 


1994:

Group Medical                         $ 3,137            $65,471          $122,667        $ 16,176        $ 4,343              

Senior Health                               -             95,191           198,393          60,090          4,461              

Life Insurance                         18,154             43,665           464,639              -           7,603              

                                     $ 21,291           $204,327          $785,699        $ 76,266        $ 16,407

</TABLE>

                            SCHEDULE III (continued)

                PIONEER FINANCIAL SERVICES, INC. AND SUBSIDIARIES

                       SUPPLEMENTARY INSURANCE INFORMATION
                                 (In thousands)

<TABLE>
<CAPTION>

                                                                                     Amortization
                                                                                     of Deferred
                                                                                        Policy  
                                                         Net                          Acquisition
                                   Premiums          Investment                        Costs and
                                      and            Income and                        Value of                         Other
                                    Policy         Realized Gains                      Purchased         Other        Operating
Segment                             Charges          and Losses*         Benefits      Insurance         Income        Expenses*

<S>                                  <C>                 <C>              <C>              <C>            <C>          <C>     
1996:

Group Medical                        $415,419            $ 9,284          $276,781        $ 34,212       $ 15,199      $108,368

Senior Health                         271,448             18,288           189,956          17,955          7,508        65,323

Life Insurance                         84,040             51,026            90,672          13,378            725        17,789

Corporate and Other                         -                458                 -               -         14,510        27,327
                                     $770,907           $ 79,056          $557,409        $ 65,545       $ 37,942      $218,807


1995:

Group Medical                        $404,911            $ 7,107          $253,444        $ 38,032       $ 18,867      $119,680

Senior Health                         221,040             13,959           145,527          21,601          1,557        52,675

Life Insurance                         61,092             53,902            76,846           9,566            551        22,005

Corporate and Other                         -                  -                 -               -          17,098       28,986
                                     $687,043           $ 74,968          $475,817        $ 69,199       $ 38,073      $223,346


1994:

Group Medical                        $431,831            $ 9,184          $267,450        $ 62,281       $ 16,618      $117,013

Senior Health                         227,349              6,516           139,799          29,807          1,166        52,005

Life Insurance                         44,929             26,700            42,947           7,985           (554)       11,606

Corporate and Other                         -                  3                 -               -         10,413        17,240
                                     $704,109           $ 42,403          $450,196        $100,073       $ 27,643      $197,864


*Allocations of net investment income and other operating expenses are based on
a number of assumptions and estimates and results would change if different
methods were applied.  Interest expense has been included with other operating
expenses.  Realized investment gains and losses were allocated to the
appropriate segment.


</TABLE>

                                   SCHEDULE IV

                PIONEER FINANCIAL SERVICES, INC. AND SUBSIDIARIES

                                   REINSURANCE
                                 (In thousands)

<TABLE>
<CAPTION>
 
                                                                                      Assumed                         Percentage
                                                                 Ceded to               from                           of Amount
                                               Gross              Other                 Other           Net             Assumed
                                              Amount             Companies            Companies        Amount            to Net

<S>                                           <C>                <C>                  <C>              <C>                 <C>
Year Ended December 31, 1996:
  Life insurance in force*                   $21,256,468         $ 8,369,390         $  513,638        $13,400,716        3.8%

  Premiums and Policy Charges:

  Group Medical                              $   373,821          $    71,741         $ 113,339          $ 415,419       27.3%
  Senior Health                                  282,746               12,447             1,149            271,448        0.4   
  Life Insurance                                 131,836               51,232             3,436             84,040        4.1   
                                             $   788,402         $    135,420         $ 117,925          $ 770,907



Year Ended December 31, 1995:
  Life insurance in force*                   $17,184,344         $ 7,466,875         $  558,469       $10,275,938         5.4

  Premiums and Policy Charges:

  Group Medical                              $   404,600         $     7,484         $    7,795         $  404,911        1.9%
  Senior Health                                  228,388               9,682              2,334            221,040        1.1   
  Life Insurance                                 106,774              49,027              3,345             61,092        5.5   
                                             $   739,762          $    66,193         $  13,474          $ 687,043



Year Ended December 31, 1994:
  Life insurance in force*                   $12,334,054         $ 3,801,387         $  247,743         $8,780,410        2.8 

  Premiums and Policy Charges:

  Group Medical                              $   435,166          $    19,121        $   15,786          $ 431,831        3.6%
  Senior Health                                  227,349                   -                  -            227,349        -   
  Life Insurance                                  61,939              18,152              1,142             44,929        2.5   
                                             $   724,454          $    37,273        $   16,928          $ 704,109

*At end of year

</TABLE>

                                   SCHEDULE V

                PIONEER FINANCIAL SERVICES, INC. AND SUBSIDIARIES

                        VALUATION AND QUALIFYING ACCOUNTS
                                 (In thousands)

<TABLE>
<CAPTION>
                                                                                                Deductions-
                                                                                                 Doubtful
                                                                                                 Accounts
                                                                                                  Written
                                                         Balance at          Additions-         off During          Balance
                                                          Beginning          Charged to          the Year           at End
                                                          of Year             Expense           /Disposals         of Year 
<S>                                                          <C>                <C>                 <C>              <C>
Description

Year Ended December 31, 1996:
  Allowance for doubtful accounts                            $ 1,548            $ 2,792            $    46           $ 4,294
  Accumulated depreciation on
     building and equipment                                   23,370              5,937              2,786            26,521


Year Ended December 31, 1995:
  Allowance for doubtful accounts                                895              1,452                799             1,548
  Accumulated depreciation on
     building and equipment                                   19,325              5,172              1,127            23,370


Year Ended December 31, 1994:
  Allowance for doubtful accounts                              1,271              2,425              2,801               895
  Accumulated depreciation on
     building and equipment                                   16,891              5,532              3,098            19,325

</TABLE>

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.


                                      PIONEER FINANCIAL SERVICES, INC.

                                      BY:  /S/  Peter W. Nauert
                                          Peter W. Nauert, Chairman and 
                                          Chief Executive Officer

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

Date:   March 21, 1997


/S/  Peter W. Nauert                  /S/  Michael A. Cavataio
Peter W. Nauert, Chairman,            Michael A. Cavataio
Chief Executive Officer, and          Director and Vice Chairman
Director


/S/  William B. Van Vleet             /S/  R. Richard Bastian, III
William B. Van Vleet, Director        R. Richard Bastian, III
                                      Director

/S/  David I. Vickers                 /S/  Karl-Heinz Klaeser                  
David I. Vickers, Treasurer           Karl-Heinz Klaeser
and Chief Financial Officer           Director


/S/  Robert F. Nauert                 /S/ John W. Gardiner 
Robert F. Nauert                      John W. Gardiner       
Director                              Director


/S/  Charles R. Scheper               /S/  Michael K. Keefe
Charles R. Scheper                    Michael K. Keefe  
President - Life Division             Director


/S/  Thomas J. Brophy                 /S/  Carl A. Hulbert
Thomas J. Brophy                      Carl A. Hulbert
President - Health Division           Director


/S/ Billy B. Hill, Jr.
Billy B. Hill, Jr.
Executive Vice President and
General Counsel