SECURITIES AND EXCHANGE COMMISSION
                      Washington, D.C. 20549

                             FORM 10-K/A
                         
                         Amendment No. 2 to
       Annual Report Pursuant to Section 13 or 15(d) of the
                  Securities Exchange Act of 1934


For the Fiscal Year Ended                           Commission File
December 31, 1996                                   No. 1-11453


                  AMERICAN FINANCIAL GROUP, INC.


Incorporated under                                  IRS Employer I.D.
the Laws of Ohio                                    No. 31-1422526

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




<PAGE>
                                PART I

                                ITEM 1

                               Business

Introduction

   American Financial Group, Inc. ("AFG") was incorporated as an Ohio 
corporation in 1994.  Its address is One East Fourth Street, Cincinnati, Ohio 
45202; its phone number is (513) 579-2121.  AFG is a holding company which, 
through its subsidiaries, is engaged primarily in specialty and multi-line 
property and casualty insurance businesses and in the sale of tax-deferred 
annuities.  AFG's property and casualty operations originated in 1872 and are
the seventeenth largest property and casualty group in the United States based
on 1995 statutory net premiums written of $3.1 billion.  AFG was formed for 
the purpose of acquiring American Financial Corporation ("AFC") and American 
Premier Underwriters, Inc. ("APU" or "American Premier") in merger transactions
completed in April 1995 (the "Mergers").

   For financial reporting purposes, because the former shareholders of AFC 
owned more than 50% of AFG following the Mergers, the financial statements of 
AFG for periods prior to the Mergers are those of AFC.  The operations of APU 
are included in AFG's financial statements from the effective date of the 
Mergers. 

   At December 31, 1996, Carl H. Lindner, members of his immediate family and 
trusts for their benefit (collectively the "Lindner Family") beneficially 
owned approximately 43% of AFG's outstanding voting common stock.

General

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

                                      Voting Ownership at December 31,
                                         1996  1995  1994  1993   1992

  American Financial Corporation          76%   79%   n/a   n/a    n/a
  American Premier Underwriters          100%  100%   42%   41%    51%
  Great American Insurance Group         100%  100%  100%  100%   100%
  American Annuity Group                  81%   81%   80%   80%    82%
  American Financial Enterprises          83%   83%   83%   83%    83%
  Chiquita Brands International           43%   44%   46%   46%    46%
  Citicasters                             (a)   38%   37%   20%    40%
  General Cable                             -     -   (b)   45%    45%

  (a) Sold in September 1996.
  (b) Sold in June 1994.
<PAGE>
   The following summarizes the more significant changes in
ownership percentages shown in the above table.

   American Financial Corporation  For financial reporting purposes, AFC is 
the predecessor to AFG.  In April 1995, AFC became a subsidiary of AFG as a 
result of the Mergers.  Holders of AFC Series F and G Preferred Stock were 
granted voting rights equal to approximately 21% of the total voting power of 
AFC shareholders immediately prior to the Mergers.

   American Premier Underwriters  In 1993, American Financial Enterprises, Inc.
("AFEI") sold 4.5 million shares of American Premier common stock in a 
secondary public offering.  In April 1995, APU became a subsidiary of AFG as a 
result of the Mergers.
                                1
<PAGE>
   Citicasters  In December 1993, Great American Communications Company 
("GACC") completed a prepackaged plan of reorganization.  In the restructuring,
AFC's previous holdings of GACC stock and debt were exchanged for 20% of the 
new common stock.  GACC changed its name to Citicasters to reflect the nature 
of its business.  In June 1994, AFEI purchased approximately 10% of Citicasters
common stock.  In the second half of 1994, Citicasters repurchased and retired
approximately 21% of its common stock.  In September 1996, the investments in 
Citicasters were sold to an unaffiliated company. 

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

Property and Casualty Insurance Operations

   AFG manages and operates its property and casualty business in three major 
business segments: Nonstandard Automobile Insurance, Specialty Lines and 
Commercial and Personal Lines.  Each segment is comprised of multiple 
business units which operate autonomously but with strong central financial 
controls and full accountability.  Decentralized control allows each unit the
autonomy necessary to respond to local and specialty market conditions while 
capitalizing on the efficiencies of centralized investment, actuarial, 
financial and legal support functions.  AFG's property and casualty insurance 
operations employ approximately 7,800 persons.

   Unless indicated otherwise, the financial information presented for the 
property and casualty insurance operations is presented based on generally 
accepted accounting principles ("GAAP") and includes the insurance operations 
of AFC and American Premier for all periods.

   The following table shows the size (in millions), segment and A.M. Best 
rating of AFG's major property and casualty insurance subsidiaries.

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

  Great American                         $660        $636   $   -       A

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

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

   The primary objective of the property and casualty insurance operations is 
to achieve underwriting profitability.  Underwriting profitability is measured
by the combined ratio which is a sum of the ratios of underwriting losses, loss
adjustment expenses ("LAE"), underwriting expenses and policyholder dividends 
to premiums.  When the combined ratio is under 100%, underwriting results are 
generally considered profitable; when the ratio is over 100%, underwriting 
results are generally considered unprofitable.  The combined ratio does not 
reflect investment income, other income or federal income taxes.
                                2
<PAGE>
   Management's focus on underwriting performance has resulted in a statutory 
combined ratio averaging 101.2% for the period 1992 to 1996, as compared to 
108.8% for the property and casualty industry over the same period 
(Source: "Best's Review - Property/Casualty" - January 1997 Edition).  
Management's philosophy is to refrain from writing business that is not 
expected to produce an underwriting profit even if it is necessary to limit 
premium growth to do so.

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

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

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

  GAAP Basis
  Premiums Earned                $2,845    $3,031    $2,945
  Total Assets                    8,623     9,002     8,617
  Unearned Premiums               1,248     1,294     1,213
  Loss and LAE Reserves           4,124     4,097     4,021
  Shareholder's Equity            2,695     2,893     2,615










                                3
<PAGE>
   The following table shows the performance of AFG's property and
casualty insurance operations in various categories (dollars in millions):
                                             1996       1995      1994
  Net written premiums                     $2,788     $3,092    $3,124

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

  GAAP ratios:
    Loss and LAE ratio                       75.0%      74.8%     70.5%
    Underwriting expense ratio               27.4       26.1      26.1
    Policyholder dividend ratio                .5         .3       2.8
    Combined ratio (a)                      102.9%     101.2%     99.4%

  Statutory ratios:
    Loss and LAE ratio                       74.8%      74.8%     71.0%
    Underwriting expense ratio               27.2       25.9      26.3
    Policyholder dividend ratio                .4        1.7       3.6
    Combined ratio (a)                      102.4%     102.4%    100.9%

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

  (a) The 1996 combined ratios include an increase of 2.8 percentage points 
      attributable to the strengthening of insurance reserves relating to 
      asbestos and other environmental matters ("A&E").

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

Nonstandard Automobile Insurance

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

   The NSA Group's implementation of significant rate increases during the last
couple years and competitive pressures in the nonstandard automobile insurance 
industry served to curtail the trend of annual premium growth it had 
experienced previously.  These rate increases contributed to an improvement, 
however, in underwriting profitability for 1996.
                                4
<PAGE>
   The NSA Group writes business in 42 states and holds licenses to write 
policies in 48 states and the District of Columbia.  The U.S. geographic 
distribution of the NSA Group's statutory direct written premiums in 1996 
compared to 1992, was as follows: 

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

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

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

                                            1996      1995      1994

  Net written premiums                    $1,135    $1,277    $1,186

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

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

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

  Industry statutory combined ratio (a)    101.0%    101.3%    101.3%

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

  
                                5
<PAGE>
   Marketing.   Each of the principal units in the NSA Group is responsible 
for its own marketing, sales, underwriting and claims processing.  Sales 
efforts are directed primarily toward independent agents.  These units each 
write policies through several thousand independent agents.

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

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

Specialty Lines

   General.   The Specialty Lines segment emphasizes the writing of 
specialized insurance coverage where AFG personnel are experts in particular 
lines of business or customer groups.  Examples include California workers' 
compensation, executive liability, ocean and inland marine, 
agricultural-related coverages (allied lines), non-profit liability, 
umbrella and excess and surplus lines.  The Specialty Lines workers' 
compensation operations write coverage for prescribed benefits payable to 
employees (principally in California) who are injured on the job.  The 
executive and professional liability divisions market liability coverage for
corporate directors and officers and attorneys.  Ocean and inland marine 
businesses provide coverage primarily for marine cargo, boat dealers, marina 
operators/dealers, excursion vessels, builder's risk, contractor's equipment, 
excess property and transportation cargo.  The agricultural-related 
businesses provide multi-peril crop insurance covering weather and disease 
perils as well as coverage for full-time operating farms/ranches and
agribusiness operations on a nationwide basis through independent agents who 
specialize in the rural market.  The non-profit liability business provides 
property, general/professional liability, automobile, trustee liability, 
umbrella and crime coverage for a wide range of non-profit organizations.  
These operations also provide excess and surplus commercial property and
casualty insurance in a variety of industries.
<PAGE>
   Specialization is the key element to the underwriting success of these 
business units.  Each unit has independent management with significant 
operating autonomy to oversee the important operational functions of its 
business such as underwriting, pricing, marketing, policy processing and 
claims service.  These specialty lines are opportunistic and their premium 
volume will vary based on current market conditions.  AFG continually
evaluates expansion in existing markets and opportunities in new
specialty markets.

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

                  1996    1992                      1996     1992
  California      30.4%   47.4%     Florida          3.5%      *
  Texas            7.3     2.7      New Jersey       2.8      2.6%
  New York         5.2     5.7      Ohio             2.1      2.1
  Massachusetts    5.1     2.8      Pennsylvania     2.0      2.1
  Illinois         4.0     3.4      Other           33.9     25.3
  Oklahoma         3.7     5.9                     100.0%   100.0%
  _____________
  * less than 2%

                                6
<PAGE>
   The following table sets forth a distribution of statutory net written 
premiums for AFG's Specialty Lines by NAIC annual statement line for 
1996 compared to 1992:
                                     1996     1992
  Workers' compensation              26.0%    47.2%
  Other liability                    23.4     15.7
  Commercial multi-peril             10.1      3.1
  Inland marine                       9.2      5.8
  Auto liability                      8.3      8.7
  Allied lines                        5.7      4.2
  Ocean marine                        4.6      4.6
  Surety                              3.8      3.0
  Auto physical damage                2.5      2.2
  Other                               6.4      5.5
                                    100.0%   100.0%

   The following table shows the performance of AFG's Specialty Lines 
insurance operations in various categories (dollars in millions):

                                            1996      1995      1994

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

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

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

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

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

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

  (b) Represents the commercial industry statutory combined ratio derived      
      from "Best's Review - Property/Casualty" (January 1997 Edition).
<PAGE>
   Marketing.   The Specialty Lines operations direct their sales efforts 
primarily toward independent property and casualty insurance agents and 
brokers.  These businesses write insurance through several thousand agents 
and brokers and have nearly 275,000 policies in force.

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

                                7
<PAGE>
Commercial and Personal Lines

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

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

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

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

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

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

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





                                8
<PAGE>
The following table shows the performance of AFG's Commercial and
Personal Lines insurance operations in various categories (dollars
in millions):

                                            1996     1995     1994

  Net written premiums                     $ 660    $ 717    $ 683

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

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

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

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

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

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

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

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

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




                                9
<PAGE>
   Reinsurance is provided on one of two bases, facultative or
treaty. Facultative reinsurance is generally provided on a risk by
risk basis.  Individual risks are ceded and assumed based on an
offer and acceptance of risk by each party to the transaction.
Treaty reinsurance provides for risks meeting prescribed criteria
to be automatically ceded and assumed according to contract
provisions.

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

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

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

   AFG purchases facultative reinsurance providing coverage on a risk by 
risk basis, both pro rata and excess of loss, depending on the risk and 
available reinsurance markets.  Due in part to the limited exposure on 
individual policies, the NSA Group is not materially involved in 
reinsuring risks with third party insurance companies.
   
   Included in the balance sheet caption "recoverables from reinsurers and 
prepaid reinsurance premiums" were $79 million on paid losses and LAE and 
$720 million on unpaid losses and LAE at December 31, 1996.  The 
collectibility of a reinsurance balance is based upon the financial condition 
of a reinsurer as well as individual claim considerations.  Market conditions 
over the past few years have forced many reinsurers into financial 
difficulties or liquidation proceedings.  At December 31, 1996, AFG's 
insurance subsidiaries had allowances of approximately $79 million for 
doubtful collection of reinsurance recoverables, substantially all related 
to unpaid losses.  AFG regularly monitors the financial strength of its 
reinsurers.  This process periodically results in the transfer of risks to 
more financially secure reinsurers.  Substantially all reinsurance is ceded 
to reinsurers having more than $100 million in capital and A.M. Best ratings 
of A- or better.  AFG's major reinsurers include American Re-Insurance 
Company, Employers Reinsurance Corporation, NAC Reinsurance Corporation, 
Mitsui Marine and Fire Insurance Company and General Reinsurance Corporation.
These five companies assume approximately one-third of AFG's ceded reinsurance.
    
   Premiums written for reinsurance ceded and assumed are presented in the 
following table (in millions):
                                        1996   1995  1994
  Reinsurance ceded                     $518   $482  $422
  Reinsurance assumed - including
   involuntary pools and associations     58     98   119
                               10
<PAGE>
Loss and Loss Adjustment Expense Reserves

   The consolidated financial statements include the estimated liability for 
unpaid losses and LAE of AFG's insurance subsidiaries.  This liability 
represents estimates of the ultimate net cost of all unpaid losses and LAE and
is determined by using case-basis evaluations and actuarial projections.  These
estimates are subject to the effects of changes in claim amounts and frequency 
and are periodically reviewed and adjusted as additional information becomes 
known.  In accordance with industry practices, such adjustments are reflected 
in current year operations. 
   
   Future costs of claims are projected based on historical trends adjusted for
changes in underwriting standards, policy provisions, product mix and other 
factors.  Estimating the liability for unpaid losses and LAE is inherently 
judgmental and is influenced by factors which are subject to significant
variation.  Through the use of analytical reserve development techniques, 
management monitors items such as the effect of inflation on medical, 
hospitalization, material, repair and replacement costs, general economic 
trends and the legal environment.  Although management believes that the
reserves currently established reflect a reasonable and sufficient estimate of
the ultimate cost of all losses and claims, actual development may vary
materially.
    
   
   AFG recognizes underwriting profit only when realization is reasonably 
determinable and assured.  In certain specialty lines, where experience is 
limited or where there is potential for volatile results, AFG holds reasonable
"incurred but not reported" reserves and does not recognize underwriting
profit until the accident years mature.
    
   Generally, reserves for reinsurance and involuntary pools and associations 
are reflected in AFG's results at the amounts reported by those entities.

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

                                  1986    1987    1988    1989    1990

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

Liability re-estimated (*):
 One year later                  102.7%  102.5%   99.8%  100.4%   98.6%
 Two years later                 107.3%  103.6%  100.0%   99.3%   97.7%
 Three years later               109.7%  103.1%   99.7%   98.4%   97.4%
 Four years later                110.8%  102.5%   98.7%   98.2%   99.2%
 Five years later                111.8%  102.6%   99.1%  101.1%   98.4%
 Six years later                 112.7%  103.5%  103.0%  101.1%  106.7%
 Seven years later               115.3%  109.4%  103.0%  109.6%  
 Eight years later               122.1%  109.8%  111.9%
 Nine years later                122.5%  119.7%
 Ten years later                 133.4%
 Cumulative deficiency
 (redundancy)                     33.4%   19.7%   11.9%    9.6%    6.7%

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

<PAGE>
                                  1991    1992    1993    1994    1995    1996

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

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

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

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


(*)  Reflects significant A&E charges and reallocations in 1994 and 1996 
     for prior years losses.
   
   The following is a reconciliation of the net liability to the gross 
liability for unpaid losses and LAE.
                                                  1993    1994    1995    1996
  As originally estimated:
    Net liability shown above                   $2,113  $2,187  $3,393  $3,404
    Add reinsurance recoverables                   611     730     704     720
    Gross liability                             $2,724  $2,917  $4,097  $4,124
  As re-estimated at
  December 31, 1996:
    Net liability shown above                   $2,058  $2,170  $3,345
    Add reinsurance recoverables                   553     637     726
    Gross liability                             $2,611  $2,807  $4,071     N/A
    
  Gross cumulative deficiency
    (redundancy)                                  (4.1%)  (3.8%)   (.6%)   N/A
   
    
                                11
<PAGE>
   
   The following table presents certain data from the table above,
adjusted to include reserves of American Premier's subsidiaries
for periods subsequent to their entry into the insurance business
in 1989 and prior to the Mergers in 1995.
    
   
<TABLE>
<CAPTION>
<S>                             <C>      <C>      <C>      <C>      <C>      <C>
                                  1989     1990     1991     1992     1993     1994
Liability for unpaid losses
and loss adjustment expenses:
 As originally estimated        $2,616   $2,739   $2,793   $2,886   $3,029   $3,267
 As re-estimated at
  December 31, 1996              2,776    2,818    2,801    2,779    2,835    3,146

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

Reconciliation of gross
liability to net liability:
  As originally estimated:  
    Net liability shown above                                       $3,029   $3,267
    Add reinsurance recoverables                                       656      781
    Gross liability                                                 $3,685   $4,048
  As re-estimated at
  December 31, 1996:
    Net liability shown above                                       $2,835   $3,146
    Add reinsurance recoverables                                       574      691
    Gross liability                                                 $3,409   $3,837
    
  Gross cumulative deficiency
    (redundancy)                                                      (7.5%)   (5.2%)
    
</TABLE>
      
   These tables do not present accident or policy year development data.  
Furthermore, in evaluating the re-estimated liability and cumulative 
deficiency (redundancy), it should be noted that each percentage includes 
the effects of changes in amounts for prior periods.  For example, AFG's 
$80 million charge for asbestos and environmental claims related to losses 
recorded in 1996, but incurred before 1986 is included in the re-estimated 
liability and cumulative deficiency (redundancy) percentage for each of the 
years shown.  Conditions and trends that have affected development of the
liability in the past may not necessarily exist in the future.  Accordingly, 
it may not be appropriate to extrapolate future redundancies or deficiencies 
based on this table.
    
   
   The adverse development in the tables is due primarily to asbestos and 
environmental exposures for which AFC has been held liable under general  
liability policies written years ago where environmental coverage was not  
intended.  Other factors affecting development included higher than projected 
inflation on medical, hospitalization, material, repair and replacement costs.
Additionally, changes in the legal environment have influenced the development 
patterns over the past ten years.  Two significant changes in the early to 
mid-1980s were the trend towards an adverse litigious climate and the change 
from contributory to comparative negligence.
    
   The adverse litigious climate was evidenced by an increase in lawsuits 
and damage awards, changes in judicial interpretation of legal liability 
and of the scope of policy coverage, and a lengthening of time it takes to 
settle cases.  Under comparative negligence rules, a plaintiff's negligence 
is no longer a bar to recovery.  Instead, if the plaintiff's negligence is 
50% or less of the cause of the injury, the plaintiff can recover damages, 
but in an amount reduced by the portion of damage attributable to the
plaintiff's own negligence.  Recent years have seen a moderation of 
inflation and the enactment of legislation intended to limit the patterns 
of the previous years.
<PAGE>
   The differences between the liability for losses and LAE
reported in the annual statements filed with the state insurance
departments in accordance with statutory accounting principles
("SAP") and that reported in the accompanying consolidated
financial statements in accordance with GAAP at December 31, 1996,
are as follows (in millions):

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








                                12
<PAGE>
   Asbestos and Environmental Reserves ("A&E").  The insurance industry 
typically includes only claims relating to polluted waste sites and asbestos 
in defining environmental exposures.  AFG extends this definition to include 
claims relating to breast implants, repetitive stress on keyboards, DES 
(a drug used in pregnancies years ago alleged to cause cancer and birth 
defects) and other latent injuries.

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

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

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

                                           December 31,
    Survival Ratio:                 1996      1995      1994
       AFG                          10.5       6.5       7.0
       Industry(a)                   8.2       9.4       7.9

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

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

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

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

                                13
<PAGE>
Annuity and Life Operations

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

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

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

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

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

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

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

  (a) Allocation of surplus.

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

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

   In the third quarter of 1996, GALIC began marketing a new type of annuity 
that offers the traditional features of a fixed annuity (guaranteed minimum 
annual interest rate on a portion of the premium received and a guaranteed 
minimum surrender value) with the opportunity to participate, in part, in

                                14
<PAGE>
increases in the S&P 500 Index over a selected term (generally a
minimum of six years).

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

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

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

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

   GALIC distributes its annuity products through over 75 managing general 
agents ("MGAs") who, in turn, direct approximately 1,000 actively producing 
independent agents.  GALIC has developed its business on the basis of its 
relationships with MGAs and independent agents primarily through a consistent 
marketing approach and responsive service.

   GALIC is licensed to sell its products in all states (except New York) and 
in the District of Columbia.  The following table reflects the geographical 
distribution of GALIC's annuity premiums in 1996 compared to 1992.

                  1996    1992                         1996    1992
  California      29.8%   20.2%       North Carolina    3.0%    3.2%
  Washington       7.0      *         Minnesota         2.8      *
  Texas            6.6     2.8        Connecticut       2.7     6.3
  Florida          5.1    10.2        Indiana           2.3      *
  Massachusetts    4.8     8.1        Arizona           2.1      *
  Ohio             4.8     5.1        Illinois           *      3.8
  Michigan         3.5     9.9        Rhode Island       *      2.6
  Iowa             3.4      *         New Hampshire      *      2.3
  New Jersey       3.1     6.2        Other            19.0    19.3
                                                      100.0%  100.0%
  _____________
  * less than 2%
<PAGE>
   Sales of annuities are affected by many factors, including:
(i) competitive annuity products and rates; (ii) the general level
of interest rates; (iii) the favorable tax treatment of annuities;
(iv) commissions paid to agents; (v) services offered; (vi)
ratings from independent insurance rating agencies; (vii) other
alternative investments; and (viii) general economic conditions.
At December 31, 1996, GALIC had approximately 250,000 annuity
policies in force, nearly all of which were individual contracts.

                                15
<PAGE>
   American Memorial Life Insurance.  Acquired in November 1995,
American Memorial (formerly Prairie States Life Insurance Company)
offers a variety of life insurance and annuity products to finance
pre-arranged funerals.  American Memorial markets its products
through funeral home operators in addition to a captive general
agency force.  At year-end 1996, American Memorial had relationships
with approximately 2,200 funeral homes nationwide.  In 1996,
American Memorial collected $97 million in life and annuity
premiums.  At December 31, 1996, American Memorial had total
statutory assets of approximately $412 million, reserves for future
policy benefits of approximately $371 million, and capital and
surplus of approximately $27 million.

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

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

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

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

   AAG believes that a rating in the "A" category by at least one rating 
agency is necessary for GALIC to successfully market tax-deferred annuities to
public education employees and other not-for-profit groups.

   American Memorial and Loyal compete in markets other than the sale of 
tax-deferred annuities.  While ratings are an important competitive factor in 
their markets, AAG believes that American Memorial and Loyal can successfully 
compete in these markets with their respective ratings.

   Although management of AAG believes that its insurance companies'
ratings are very stable, those companies' operations could be materially 
adversely affected by a downgrade in ratings.
<PAGE>
   Competition.   AAG's insurance companies operate in highly competitive 
markets. They compete with other insurers and financial institutions based 
on many factors, including: (i) ratings; (ii) financial strength; (iii) 
reputation; (iv) service to policyholders; (v) product design (including 
interest rates credited); (vi) commissions; and (vii) service to agents.  
Since policies are marketed and distributed primarily through independent 
agents, the insurance companies must also compete for agents.  Management
believes that consistently targeting the same market and emphasizing
service to agents and policyholders provides a competitive advantage.

   More than 150 insurance companies offer tax-deferred annuities.  No single 
insurer dominates the marketplace.  Competitors include (i) individual 
insurers and insurance groups, (ii) mutual funds and (iii) other financial 
institutions of varying sizes.  In a broader sense, AAG's insurance companies
compete for retirement savings with a variety of financial institutions 
offering a full range of financial services.  Financial institutions have 
demonstrated a growing interest in marketing investment and savings products

                                16
<PAGE>
other than traditional deposit accounts.  In addition, recent judicial and 
regulatory decisions have expanded powers of financial institutions in this 
regard.  It is too early to predict what impact, if any, these developments 
will have on AAG's insurance companies.

Other Companies

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

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

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

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

Investment Portfolio

   General.  A breakdown of AFG's December 31, 1996, investment
portfolio by business segment follows (excluding investment in
equity securities of investee corporations) (in millions).
                                                                       Total
                                             Carrying Value           Market
                                      P&C  Annuity  Other    Total     Value

Cash and short-term investments    $  190   $   84   $174  $   448   $   448
Bonds and redeemable preferred
  stocks                            4,165    5,689    132    9,986    10,023
Other stocks, options and
  warrants                            196       51     81      328       328
Loans receivable                      122      436     11      569       569(a)
Real estate and other investments     140       40     28      208       208(a)
                                   $4,813   $6,300   $426  $11,539   $11,576

(a)  Carrying value used since market values are not readily available.




                                17
<PAGE>
   The following tables present the percentage distribution and yields
of AFG's investment portfolio (excluding investment in equity
securities of investee corporations) as reflected in its financial
statements.

                                          1996   1995   1994   1993   1992
Cash and Short-term Investments            3.9%   4.9%   2.2%   2.3%   9.3%
Bonds and Redeemable Preferred Stocks:
 U.S. Government and Agencies              4.1    3.7    4.0    2.8    5.7
 State and Municipal                       1.0     .7     .8     .8     .6
 Public Utilities                          8.2    9.7    9.1    9.3    8.5
 Mortgage-Backed Securities               22.2   20.7   21.8   24.7   22.9
 Corporate and Other                      49.3   46.8   48.6   42.0   33.9
 Redeemable Preferred Stocks               0.5    1.0    1.4    1.3     .8
                                          85.3   82.6   85.7   80.9   72.4
 Net Unrealized Gains (Losses) on Bonds
   and Redeemable Preferred Stocks held
   Available for Sale                      1.1    2.7   (1.0)   1.8     .8
                                          86.4   85.3   84.7   82.7   73.2
Other Stocks, Options and Warrants         2.8    2.3    2.7    4.6    2.6
Loans Receivable                           4.9    5.6    8.4    8.5   12.9
Real Estate and Other Investments          2.0    1.9    2.0    1.9    2.0
                                         100.0% 100.0% 100.0% 100.0% 100.0%

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

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

Yield on Investments (*):
 Excluding realized gains and losses       7.8%   7.9%   8.1%   7.9%   8.7%
 Including realized gains and losses       7.8%   8.8%   8.8%   9.0%  10.0%

(*)Excludes "Real Estate and Other Investments".
<PAGE>
   Fixed Maturity Investments.  Unlike many insurance groups which
have portfolios that are invested heavily in tax-exempt bonds,
AFG's bond portfolio is invested primarily in taxable bonds.  The
NAIC assigns quality ratings which range from Class 1 (highest
quality) to Class 6 (lowest quality).  The following table shows
AFG's bonds and redeemable preferred stocks, by NAIC designation
(and comparable Standard & Poor's Corporation rating) as of
December 31, 1996 (dollars in millions):

 NAIC                                 Amortized      Market Value
Rating Comparable S&P Rating               Cost        Amount   %

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

_______________
(*) Less than 1%

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


                                18
<PAGE>
   AFG's primary investment objective for bonds and redeemable preferred stocks
is to earn interest and dividend income rather than to realize capital gains.  
AFG invests in bonds and redeemable preferred stocks that have primarily 
short-term and intermediate-term maturities.  This practice allows flexibility 
in reacting to fluctuations of interest rates.

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

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

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

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

Regulation

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

   Prior to 1995, minimum premium rates for California workers' compensation 
insurance were determined by the California Commissioner based in part upon 
recommendations of the Workers' Compensation Insurance Rating Bureau of

                               19
<PAGE>
California.  In July 1993, California enacted legislation (the "Reform 
Legislation") effecting an immediate overall 7% reduction in workers' 
compensation insurance premium rates and replaced the workers' compensation 
insurance minimum rate law, effective January 1, 1995, with a procedure 
permitting insurers to use any rate within 30 days after its filing with the 
California Commissioner unless the rate is disapproved by the California
Commissioner.  Between December 1, 1993 and January 1, 1995, when the 
"open rating" policy went into effect, the California Commissioner ordered 
additional rate decreases totaling more than 25%.

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

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

   The NAIC model law for Risk Based Capital applies to both life and property 
and casualty companies.  The risk-based capital formulas determine the amount 
of capital that an insurance company needs to ensure that it has an acceptably 
low expectation of becoming financially impaired.  The model law provides for 
increasing levels of regulatory intervention as the ratio of an insurer's 
total adjusted capital and surplus decreases relative to its risk-based 
capital, culminating with mandatory control of the operations of the insurer 
by the domiciliary insurance department at the so-called "mandatory control 
level".  The risk-based capital formulas became effective in 1993 for life 
companies and in 1995 for property and casualty companies. At 
December 31, 1996, the capital ratios of all AFG insurance companies 
substantially exceeded the risk-based capital requirements.

   In September 1996, the NAIC adopted a model investment law.  The law will 
not be a requirement of the NAIC accreditation standards.  However, each state
may adopt all, any part, or none of the model investment law to regulate the 
investment policies of their insurance companies.  At this time, it is not
possible to determine the impact, if any, this will have on AFG's insurance 
subsidiaries. 

                                20
<PAGE>
                              ITEM 7

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

GENERAL

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

   As discussed in Note A to the financial statements, financial statements 
for periods prior to the Mergers are those of AFC.  The operations of 
American Premier are included in AFG's financial statements from the date 
of acquisition.

LIQUIDITY AND CAPITAL RESOURCES

Ratios  From the date of the Mergers to the end of 1996, approximately 
$1.1 billion of AFC and American Premier debt was retired or replaced with 
lower cost debt, resulting in a net reduction of aggregate debt by 
approximately 75%. Consequently, AFG's debt to total capital ratio at the 
parent holding company level improved from nearly 60% at the date of the 
Mergers to approximately 15% at December 31, 1996.  These debt reductions and
replacements will also reduce AFG's interest expense by over $100 million 
annually. 

   AFG's ratio of earnings to fixed charges on a total enterprise basis was 
4.22, 2.60 and 1.69 for the years ended December 31, 1996, 1995 and 1994, 
respectively.  Assuming the Mergers and related transactions occurred at the 
beginning of each period, these ratios would have been 2.93 for 1995 and
2.07 for 1994.
   
   The National Association of Insurance Commissioners' model law for risk 
based capital ("RBC") applies to both life and property and casualty companies.
RBC formulas determine the amount of capital that an insurance company needs 
to ensure that it has an acceptable expectation of not becoming financially 
impaired.  At December 31, 1996, the capital ratios of all AFG insurance 
companies substantially exceeded the RBC requirements (the lowest capital 
ratio of any AFG subsidiary was 2.8 times its authorized control level RBC;
weighted average of all AFG subsidiaries was 5.0 times).
    
   Sources of Funds  AFG and its subsidiaries, AFC and American Premier, are 
organized as holding companies with almost all of their operations being 
conducted by subsidiaries.  These parent corporations, however, have 
continuing cash needs for administrative expenses, the payment of principal 
and interest on borrowings, and shareholder dividends.  AFG, AFC and
American Premier rely primarily on dividends and tax payments from their 
subsidiaries for funds to meet their obligations. 
<PAGE>
   Management believes AFG has sufficient resources to meet the liquidity 
requirements of AFG, AFC and American Premier through operations in the 
short-term and long-term future.  If funds generated from operations, 
including dividends from subsidiaries, are insufficient to meet fixed charges
in any period, these companies would be required to generate cash through 
borrowings, sales of securities or other assets, or similar transactions.

   Prior to the Mergers, American Premier had substantial cash and short-term 
investments at the parent company level.  Subsequent to the Mergers, AFC and
two of its subsidiaries entered into separate credit agreements with American 
Premier.  Funds borrowed from American Premier under these agreements were 
used for debt retirements, capital contributions to subsidiaries, and other 
corporate purposes.  In addition, AFG and American Premier entered into a 
reciprocal credit agreement under which these companies make funds available 
to each other for general corporate purposes.




                                25
<PAGE>
In December 1996, American Premier paid a dividend to AFG in the form of a 
$675 million note receivable from AFC under its credit agreement plus 
$18.7 million of related accrued interest.  AFG then contributed 
$450 million of the note (without accrued interest) to the capital of AFC. 
At the close of business on December 31, 1996, AFG contributed to AFC 81% of 
the common stock of American Premier.

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

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

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

   In October 1996, a wholly-owned trust subsidiary of AFG issued four million 
units of 9-1/8% Trust Originated Preferred Securities ("TOPrS") for 
$100 million in cash.  The Trust then purchased $100 million of newly issued 
AFG 9-1/8% Subordinated Debentures due 2026, which, along with related interest
and principal payments received, will be the only assets of the Trust.  AFG 
used the proceeds to retire outstanding debt and preferred stock of 
subsidiaries and for general corporate purposes.  In addition, in 
November 1996, a wholly-owned trust subsidiary of AAG issued $75 million of 
similar TOPrS.  AAG used $50 million of the proceeds to retire bank debt and 
the remainder for general corporate purposes.  Two nationally recognized 
rating agencies gave both TOPrS investment grade ratings.  In March 1997, AAG 
raised an additional $75 million from a private offering of preferred 
securities similar to the TOPrS.
<PAGE>
   In February 1997, AFG filed a shelf registration statement for the future 
issuance of up to an aggregate of $500 million in common stock, debt or trust 
securities, with no more than $200 million of any one security being issued.  
The filing provides AFG with greater flexibility to access the capital markets
from time to time as market and other conditions permit.

   Dividend payments from subsidiaries have been very important to the 
liquidity and cash flow of the individual holding companies in the past.  
However, the reliance on such dividend payments has been lessened by the 
combination of (i) strong capital at AFG's insurance subsidiaries (and the 
related decreased likelihood of a need for investment in those companies), 
(ii) the reductions of debt at the holding companies (and the related 
decrease in ongoing cash needs for interest and principal payments),
(iii) AFG's ability to obtain financing in capital markets, as well as
(iv) the sales of Citicasters and Buckeye Management Company ("Buckeye").






                                26
<PAGE>
   For statutory accounting purposes, equity securities are generally 
carried at market value.  At December 31, 1996, AFG's insurance companies 
owned publicly traded equity securities with a market value of $1.3 billion, 
including equity securities of AFG affiliates (including subsidiaries) of 
$1.0 billion.  Since significant amounts of these are concentrated in a 
relatively small number of companies, decreases in the market prices could 
adversely affect the insurance group's capital, potentially impacting the 
amount of dividends available or necessitating a capital contribution.  
Conversely, increases in the market prices could have a favorable impact on
the group's dividend-paying capability.

   AFC and American Premier have each filed consolidated tax returns.  Under 
tax allocation agreements with AFC, its 80%-owned U.S. subsidiaries generally 
compute tax provisions as if filing separate returns based on book taxable 
income computed in accordance with generally accepted accounting principles.
American Premier has tax allocation agreements with its U.S. insurance 
subsidiaries whereby such subsidiaries compute tax provisions based on 
taxable income in accordance with statutory accounting principles. In each 
case, the resulting provision (or credit) is currently payable to (or 
receivable from) AFC or American Premier.  American Premier's federal income 
tax loss carryforward was available to offset taxable income and, as a
result, American Premier's obligation to pay federal income tax for 1996 was 
substantially eliminated.  Beginning with the 1997 federal tax return, 
American Premier will join AFC's consolidated return.

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

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

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

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

                                27
<PAGE>
Investments   Approximately 70% of AFG's consolidated assets are invested in 
marketable securities.  A diverse portfolio of bonds and redeemable preferred 
stocks accounts for 95% of these securities.  AFG attempts to optimize 
investment income while building the value of its portfolio, placing emphasis 
upon long-term performance.  AFG's goal is to maximize return on an ongoing 
basis rather than focusing on short-term performance.

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

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

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

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

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

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




                                28
<PAGE>
RESULTS OF OPERATIONS - THREE YEARS ENDED DECEMBER 31, 1996

General  As previously noted, financial statements for periods prior to the 
April 1995 Mergers are those of AFC.  The operations of American Premier are 
included in AFG's financial statements from the date of acquisition.  AFC had 
accounted for American Premier as an investee from the second quarter of 1993
through the first quarter of 1995.  Accordingly, current year income statement 
components are not comparable to prior years. 

   Pretax earnings before extraordinary items were $353 million in 1996, 
$247 million in 1995 and $44 million in 1994.

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

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

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

Property and Casualty Insurance - Underwriting  AFG manages and operates its 
property and casualty business as three major sectors.  The nonstandard 
automobile insurance companies (the "NSA Group") insure risks not typically 
accepted for standard automobile coverage because of the applicant's driving 
record, type of vehicle, age or other criteria.  The specialty lines
are a diversified group of over twenty-five business lines that offer a wide 
variety of specialty insurance products.  Some of the more significant areas 
are California workers' compensation, executive liability, inland and ocean 
marine, U.S.-based operations of Japanese companies, agricultural-related 
coverages, excess and surplus lines and fidelity and surety bonds.  The 
commercial and personal lines provide coverages in commercial multi-peril, 
workers' compensation, umbrella and commercial automobile, standard private 
passenger automobile and homeowners insurance.
<PAGE>
   To understand the overall profitability of particular lines, timing of 
claims payments and the related impact of investment income must be 
considered.  Certain "short-tail" lines of business (primarily property 
coverages) have quick loss payouts which reduce the time funds are held, 
thereby limiting investment income earned thereon.  On the other hand, 
"long-tail" lines of business (primarily liability coverages and workers' 
compensation) have payouts that are either structured over many years or take 
many years to settle, thereby significantly increasing investment income 
earned on related premiums received.

   Underwriting profitability is measured by the combined ratio which is a sum 
of the ratios of underwriting losses, loss adjustment expenses, underwriting 
expenses and policyholder dividends to premiums.  When the combined ratio is 
under 100%, underwriting results are generally considered profitable; when
the ratio is over 100%, underwriting results are generally considered 
unprofitable.  The combined ratio does not reflect investment income, other 
income or federal income taxes. 
   
   For certain lines of business and products where the credibility of the 
range of loss projections is less certain (primarily the various specialty
lines listed above), management believes that it is prudent and appropriate
to use conservative assumptions until such time as the data, experience and
projections have more credibility, as evidenced by data volume, consistency
and maturity of the data.  While this practice mitigates the risk of adverse
development on this business, it does not eliminate it.
    

   While AFG desires and seeks to earn an underwriting profit on all of its 
business, it is not always possible to do so.  As a result, AFG attempts to 
expand in the most profitable areas and control growth or even reduce its 
involvement in the least profitable ones.




                                29
<PAGE>
   Comparisons made in the following discussion of AFG's
insurance operations include American Premier's insurance
operations even though they were not consolidated in the
financial statements prior to the Mergers.

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

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

  Combined Ratios (GAAP)
  NSA Group                                   99.9%  105.2%  100.0%
  Specialty Operations                        84.1    94.8    97.2
  Commercial and Personal Operations         110.6    99.1    98.9
  Aggregate (including A&E and other lines)  102.9   101.2    99.4
   
   Operating results for 1996 were adversely impacted by two unusual items: 
(i) higher than normal catastrophe losses including approximately $30 million 
in losses due to Hurricane Fran and (ii) the strengthening of A&E reserves 
(exposures for which AFG may be liable under general liability policies
written years ago).  A standard insurance measure used in analyzing the   
adequacy of A&E reserves is the "survival ratio" (reserves divided by
three-year average annual paid losses).  Due in part to the greater 
uncertainties inherent in estimating A&E claims, management evaluates its  
survival ratio in relation to those published for the industry.  Based 
primarily on industry survival ratios published in mid-1996, AFG increased 
A&E reserves of its discontinued insurance lines by $120 million by recording 
a third quarter, non-cash pretax charge of $80 million and reallocating 
$40 million or approximately 2% of reserves from its Specialty Operations.  
Reserves for unpaid losses and loss adjustment expenses of the Specialty 
Lines were approximately $2.1 billion, $2.2 billion and $1.5 billion at 
December 31, 1996, 1995 and 1994, respectively.  Following a detailed analysis 
of overall reserves, the reallocation was made based on available data, 
experience and projections.  A&E reserves at December 31, 1996, were 
approximately $343 million, an amount equal to approximately 10.5 times the 
preceding three years' average claim payments.
    
   In 1996, underwriting results of AFG's insurance operations
significantly outperformed the industry average for the
eleventh consecutive year.  AFG's insurance operations have
been able to exceed the industry's results by focusing on
highly specialized niche products, supplemented by commercial
lines coverages and personal automobile products.

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

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



                                30
<PAGE>
   The improvement in the combined ratio of the Specialty Lines
for 1996 includes 4.1 percentage points attributable to a
reallocation of loss reserves in connection with the
strengthening of A&E reserves.  Further improvement is
attributable to (i) improved results in certain niche
businesses, (ii) reductions in loss, loss adjustment expense
and policyholder dividend reserves prompted by the fundamental
changes in the California workers' compensation market and
actuarial evaluations, and
(iii) losses in 1995 from participation in the voluntary pool.

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

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

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

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

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

   1995 compared to 1994  AFC's investment income increased $50
million (9%) from 1994 due to an increase in the average amount
of investments held. For the period following the Mergers,
investment income includes $117 million attributable to
American Premier.

Investee Corporations  Equity in net earnings of investee
corporations (companies in which AFG owns a significant portion of
the voting stock) represents AFG's proportionate share of the
investees' earnings and losses.
<PAGE>
   1996 compared to 1995  AFG's equity in net earnings of
investee corporations decreased $32 million compared to 1995.
Chiquita reported a decrease in operating income in 1996 of
$92 million.  Chiquita recorded writedowns and costs of
$70 million resulting from (i) industry-wide flooding in Costa
Rica, Guatemala and Honduras, (ii) certain strategic
undertakings designed to achieve further long-term reductions
in the delivered product cost of Chiquita bananas and (iii)
certain claims relating to prior European Union quota
restructuring actions.  Aside from the effects described above,
operating income from remaining core operations improved in
1996 primarily as a result of lower delivered product cost for
bananas.  This improvement in core operating results
substantially offset the elimination of earnings from
Chiquita's Costa Rican edible oils operations which were sold
in December 1995.

   1995 compared to 1994  AFG's equity in net earnings of investee
corporations increased $32 million in 1995.  Chiquita reported a
$105 million improvement in operating income primarily due to net
gains from the sale of non-core assets, higher banana prices
outside the European Union, the favorable effect of foreign
exchange rates on European sales, and earnings improvements from
other food products.
                                31
<PAGE>
Gains on Sales of Investees  The gains on sales of investees in
1996 represent pretax gains, before $6.5 million of minority
interest, on the sale of Citicasters common stock.  The gains
on sales of investees in 1994 represent pretax gains on the
sale of General Cable common stock.

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

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

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

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

Interest on Borrowed Money  Changes in interest expense result
from fluctuations in market rates as well as changes in
borrowings.  AFG has generally financed its borrowings on a
long-term basis which has resulted in higher current costs.
<PAGE>
   1996 compared to 1995  Interest expense for 1996 was $76.1 million and 
interest expense for 1995, adjusted to reflect the effect of the Mergers 
retroactively to January 1, 1995, was $116.3 million.  The $40 million (35%) 
decrease reflects significant debt retirements during both 1995 and 1996.

   1995 compared to 1994  Excluding $29 million attributable to
American Premier, interest expense decreased by $22 million (19%) due 
primarily to repayments of borrowings by AFC and certain subsidiaries and 
the AFC debt exchange in 1994.
   
Other Operating and General Expenses  Operating and general expenses in 1994 
included a charge of $18 million for allowance for bad debts and a charge
of $19 million for a California insurance reform measure.
    
Income Taxes  See Note K to the Financial Statements for an analysis 
of items affecting AFG's effective tax rate.










                                32
<PAGE>
                              ITEM 8
                                 
            Financial Statements and Supplementary Data


                                                         Page
                                                         
Report of Independent Auditors                            F-1

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

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

Consolidated Statement of Cash Flows:
   Years ended December 31, 1996, 1995 and 1994           F-4

Notes to Consolidated Financial Statements                F-5


"Selected Quarterly Financial Data" has been included in Note N
 to the Consolidated Financial Statements.


                                33
<PAGE>

                  REPORT OF INDEPENDENT AUDITORS


Board of Directors
American Financial Group, Inc.

We have audited the accompanying consolidated balance sheets of
American Financial Group, Inc. and subsidiaries as of December 31, 1996
and 1995, and the related consolidated statements of earnings 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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial
position of American Financial Group, 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 basic financial
statements taken as a whole, present fairly in all material respects
the information set forth therein.




                                   ERNST & YOUNG LLP


Cincinnati, Ohio
March 25, 1997
          




                               F-1
<PAGE>
         AMERICAN FINANCIAL GROUP, INC. AND SUBSIDIARIES
                    CONSOLIDATED BALANCE SHEET
                      (Dollars In Thousands)

                                                               December 31,
                                                             1996          1995
             Assets
Cash and short-term investments                       $   448,296   $   544,408
Investments:
 Bonds and redeemable preferred stocks:
   Held to maturity - at amortized cost
    (market - $3,528,100 and $3,729,300)                3,491,126     3,588,943
   Available for sale - at market
    (amortized cost - $6,362,597 and $5,648,060)        6,494,597     5,949,260
 Other stocks - principally at market
   (cost - $142,364 and $136,944)                         327,664       252,244
 Investment in investee corporations                      199,651       306,545
 Loans receivable                                         568,765       631,408
 Real estate and other investments                        208,765       220,135
     Total investments                                 11,290,568    10,948,535

Recoverables from reinsurers and prepaid
 reinsurance premiums                                     942,450       923,080
Agents' balances and premiums receivable                  609,403       703,274
Deferred acquisition costs                                452,041       419,919
Other receivables                                         272,595       270,263
Deferred tax asset                                        137,284       200,392
Assets held in separate accounts                          247,579       238,524
Prepaid expenses, deferred charges and other assets       372,321       391,339
Cost in excess of net assets acquired                     278,581       314,136

                                                      $15,051,118   $14,953,870
<PAGE>
    Liabilities and Capital
Unpaid losses and loss adjustment expenses            $ 4,123,701   $ 4,096,703
Unearned premiums                                       1,247,806     1,294,054
Annuity benefits accumulated                            5,365,612     5,051,959
Life, accident and health reserves                        575,380       538,274
Long-term debt:
 Direct obligations of AFG Parent Company                    -             -
 Obligations of AFG subsidiaries:
   American Financial Corporation (parent only)           172,809       311,202
   American Premier Underwriters (parent only)            166,695       337,334
   American Annuity Group                                 114,900       167,734
   Other subsidiaries                                      63,515        65,793
Liabilities related to separate accounts                  247,579       238,524
Accounts payable, accrued expenses and other
 liabilities                                              924,244     1,097,766
     Total liabilities                                 13,002,241    13,199,343

Minority interest                                         494,440       314,390

Shareholders' Equity:
 Common Stock, $1 par value
   - 200,000,000 shares authorized
   - 61,071,626 and 60,139,303 shares outstanding          61,072        60,139
 Capital surplus                                          745,649       741,355
 Retained earnings                                        559,716       387,143
 Net unrealized gain on marketable securities,
   net of deferred income taxes                           188,000       251,500
     Total shareholders' equity                         1,554,437     1,440,137
                                                      $15,051,118   $14,953,870


See notes to consolidated financial statements.

                               F-2
<PAGE>
           AMERICAN FINANCIAL GROUP, INC. AND SUBSIDIARIES
                  CONSOLIDATED STATEMENT OF EARNINGS
                (In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
                                                       Year ended December 31,
                                                    1996         1995         1994
<S>                                           <C>          <C>         <C>
Income:
  Property and casualty insurance premiums    $2,844,512   $2,648,703   $1,378,628
  Life, accident and health premiums             103,552       15,691        2,231
  Investment income                              846,428      750,640      582,931
  Realized gains (losses) on sales 
    of securities                                 (3,470)      84,028       48,342
  Equity in net earnings (losses) of         
  investee corporations                          (16,955)      15,237      (16,573)
  Gains on sales of investee corporations        169,138          335        1,694
  Gains on sales of subsidiaries                  36,837         -            -
  Other income                                   135,355      114,975      107,051
                                               4,115,397    3,629,609    2,104,304

Costs and Expenses:
  Property and casualty insurance:
    Losses and loss adjustment expense         2,131,421    1,977,395      986,996
    Commissions and other underwriting
      expenses                                   793,800      707,340      428,590
  Annuity benefits                               271,821      254,650      241,811
  Life, accident and health benefits              92,315       13,202        1,524
  Interest charges on borrowed money              76,052      122,568      115,162
  Minority interest expense                       47,821       33,264        8,903
  Book Value Incentive Plan                         -            -          34,740
  Other operating and general expenses           348,923      274,271      243,010
                                               3,762,153    3,382,690    2,060,736
Earnings before income taxes and
  extraordinary items                            353,244      246,919       43,568
Provision for income taxes                        91,277       56,489       24,650

Earnings before extraordinary items              261,967      190,430       18,918

Extraordinary items - gain (loss) on
  prepayment of debt                             (28,667)         817      (16,818)

Net Earnings                                  $  233,300   $  191,247   $    2,100

Preferred dividend requirement of 
  predecessor company                               -           6,349       25,709

Net earnings (loss) available to 
  Common Shares                               $  233,300   $  184,898  ($   23,609)

Earnings (loss) per Common Share:
  Before extraordinary items                       $4.31        $3.87        ($.24)
  Extraordinary items                               (.47)         .01         (.59)
  Net earnings (loss)                              $3.84        $3.88        ($.83)

Average number of Common Shares                   60,801       47,620       28,324
</TABLE>
See notes to consolidated financial statements.

                               F-3
<PAGE>
              AMERICAN FINANCIAL GROUP, INC. AND SUBSIDIARIES
                    CONSOLIDATED STATEMENT OF CASH FLOWS
                               (In Thousands)
<TABLE>
<CAPTION>
                                                              Year ended December 31,
                                                           1996         1995         1994
<S>                                                  <C>          <C>          <C>
Operating Activities:                                    
  Net earnings                                       $  233,300   $  191,247   $    2,100
  Adjustments:
    Extraordinary items                                  28,667         (817)      16,818
    Depreciation and amortization                        79,425       47,760       30,729
    Annuity benefits                                    271,821      254,650      241,811
    Equity in net (earnings) losses of investee
      corporations                                       16,955      (15,237)      16,573
    Changes in reserves on assets                         5,656        2,302       17,094
    Realized gains on investing activities             (198,676)     (84,995)     (59,609)
    Decrease (increase) in reinsurance and other
      receivables                                        96,387       23,192     (223,113)
    Decrease (increase) in other assets                  23,541      (11,503)     (96,596)
    Increase in insurance claims and reserves             9,171      137,180      345,542
    Increase (decrease) in other liabilities           (212,720)    (247,938)      67,799
    Increase in minority interest                        18,206        7,877        6,773
    Dividends from investees                              4,799        9,568       21,567
    Other, net                                           (3,552)        (673)      (1,488)
                                                        372,980      312,613      386,000
Investing Activities:
  Purchases of and additional investments in:
    Fixed maturity investments                       (2,128,553)  (2,378,427)  (1,726,318)
    Equity securities                                   (10,528)      (1,034)      (7,315)
    Investees and subsidiaries                             -         (68,591)     (29,306)
    Real estate, property and equipment                 (38,035)     (42,579)     (27,185)
  Maturities and redemptions of fixed maturity
    investments                                         617,272      309,581      420,945
  Sales of:
    Fixed maturity investments                          881,114    2,310,837      694,947
    Equity securities                                    53,195       17,379      127,181
    Investees and subsidiaries                          284,277         -          27,621
    Real estate, property and equipment                   7,981       27,759        6,151
  Cash and short-term investments of acquired
    (former) subsidiaries                                (4,589)     392,100         -
  Decrease (increase) in other investments                  315      (11,466)      (5,571)
                                                       (337,551)     555,559     (518,850)
<PAGE>
Financing Activities:
  Annuity receipts                                      573,741      457,525      442,703
  Annuity payments                                     (517,881)    (412,854)    (321,038)
  Additional long-term borrowings                       288,775      337,076      244,311
  Reductions of long-term debt                         (582,288)  (1,061,187)    (193,481)
  Issuances of common stock                              26,296      211,557         -
  Repurchases of common stock                            (8,563)         (17)        -
  Issuances of trust originated preferred securities    168,876         -            -
  Issuance of subsidiary preferred stock                 16,800         -            -
  Repurchases of subsidiary preferred stock             (36,912)        -          (6,738)
  Cash dividends paid                                   (60,385)     (27,199)     (29,522)
                                                       (131,541)    (495,099)     136,235
Net Increase (Decrease) in Cash and Short-term
  Investments                                           (96,112)     373,073        3,385
Cash and short-term investments at beginning of
  period                                                544,408      171,335      167,950

Cash and short-term investments at end of period     $  448,296   $  544,408   $  171,335
</TABLE>


See notes to consolidated financial statements.


                               F-4
<PAGE>
           AMERICAN FINANCIAL GROUP, INC. AND SUBSIDIARIES
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                            INDEX TO NOTES

   A. Mergers                                 I. Minority Interest
   B. Accounting Policies                     J. Capital Stock
   C. Acquisitions and Sales of Subsidiaries  K. Income Taxes
       and Investees                          L. Extraordinary Items
   D. Segments of Operations                  M. Commitments and Contingencies
   E. Investments                             N. Quarterly Operating Results
   F. Investment in Investee Corporations     O. Insurance
   G. Cost in Excess of Net Assets Acquired   P. Additional Information
   H. Long-Term Debt                          Q. Subsequent Event
   
   
A. Mergers

   American Financial Group, Inc. ("AFG") was formed in December 1994 for the 
   purpose of acquiring American Financial Corporation ("AFC") and American 
   Premier Underwriters, Inc. ("American Premier").  In Mergers completed on 
   April 3, 1995, AFG issued 71.4 million shares of its Common Stock in 
   exchange for all of the outstanding common stock of AFC and American 
   Premier. AFC received 18.7 million shares of AFG for its investment in 
   American Premier.  These shares are accounted for herein as retired.
   
   For financial reporting purposes, because the former shareholders of AFC 
   owned more than 50% of AFG following the Mergers, the Mergers were 
   accounted for as a reverse acquisition whereby AFC was deemed to have 
   acquired American Premier.  Financial statements for periods prior to the 
   Mergers are those of AFC.  The operations of American Premier are included 
   in AFG's financial statements from the date of the Mergers.
      
   The valuation of American Premier's net assets was determined based on the 
   fair market value of the AFG shares issued to shareholders other than AFC 
   and was allocated to American Premier's assets and liabilities based on 
   their fair values at the date of acquisition. The following unaudited 
   pro forma data is presented as if the Mergers occurred on January 1, 1994 
   (in millions, except per share data).
    
                                               1995       1994
       Revenues                              $4,049     $3,832
       Earnings before Extraordinary Items      216         59
       Extraordinary Items                        1        (17)
       Net Earnings                             217         42
       Earnings Per Share                    $ 4.04     $  .79

<PAGE>
B. Accounting Policies

   Basis of Presentation  The consolidated financial statements include the 
   accounts of AFG and its subsidiaries.  Mergers and changes in ownership 
   levels of subsidiaries and investees have resulted in certain differences 
   in the financial statements and have affected comparability between years.  
   Certain reclassifications have been made to prior years to conform to the
   current year's presentation.  All significant intercompany balances and 
   transactions have been eliminated.  All acquisitions have been treated as 
   purchases.  The results of operations of companies since their formation or 
   acquisition are included in the consolidated financial statements.
   
   The preparation of the financial statements in conformity with generally 
   accepted accounting principles requires management to make estimates and 
   assumptions that affect the amounts reported in the financial statements 
   and accompanying notes.  Changes in circumstances could cause actual 
   results to differ materially from those estimates.
   
                               F-5
<PAGE>
            AMERICAN FINANCIAL GROUP, INC. AND SUBSIDIARIES
         NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
  
   AFG's ownership of subsidiaries and significant investees with
   publicly traded common shares at December 31, was as follows:

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

      (a) Became a 100%-owned subsidiary on April 3, 1995.
      (b) Sold in September 1996.

   Investments  Debt securities are classified as "held to maturity" and 
   reported at amortized cost if AFG has the positive intent and ability to 
   hold them to maturity.  Debt and equity securities are classified as 
   "available for sale" and reported at fair value with unrealized gains and 
   losses reported as a separate component of shareholders' equity if the 
   securities are not classified as held to maturity or bought and held 
   principally for selling in the near term.  Only in certain limited 
   circumstances, such as significant issuer credit deterioration or if 
   required by insurance or other regulators, may a company change its intent
   to hold a certain security to maturity without calling into question its 
   intent to hold other debt securities to maturity in the future.

   Premiums and discounts on mortgage-backed securities are amortized over 
   their expected average lives using the interest method.  Gains or losses on 
   sales of securities are recognized at the time of disposition with the
   amount of gain or loss determined on the specific identification basis.  
   When a decline in the value of a specific investment is considered to be 
   other than temporary, a provision for impairment is charged to earnings and
   the carrying value of that investment is reduced.

   Short-term investments are carried at cost; loans receivable are stated 
   primarily at the aggregate unpaid balance.  
   
   Investment in Investee Corporations  Investments in securities of
   20%- to 50%-owned companies are carried at cost, adjusted for AFG's
   proportionate share of their undistributed earnings or losses.
   Investments in less than 20%-owned companies are accounted for by
   the equity method when, in the opinion of management, AFG can exercise 
   significant influence over operating and financial policies of the investee.
   
   Cost in Excess of Net Assets Acquired  The excess of cost of subsidiaries 
   and investees over AFG's equity in the underlying net assets ("goodwill") 
   is being amortized over 40 years.  The excess of AFG's equity in the net 
   assets of other subsidiaries and investees over its cost of acquiring these
   companies ("negative goodwill") is allocated to AFG's basis in these 
   companies' fixed assets, goodwill and other long-term assets and is 
   amortized on a 10- to 40-year basis.

   Insurance  As discussed under "Reinsurance" below, unpaid losses and loss
   adjustment expenses and unearned premiums have not been reduced for
   reinsurance recoverable.
<PAGE>
     Reinsurance  In the normal course of business, AFG's insurance 
   subsidiaries cede reinsurance to other companies to diversify risk and 
   limit maximum loss arising from large claims.  To the extent that any 
   reinsuring companies are unable to meet obligations under the agreements 
   covering reinsurance ceded, AFG's insurance subsidiaries would remain
   liable.  Amounts recoverable from reinsurers are estimated in a manner
   consistent with the claim liability associated with the reinsurance
   policies.  AFG's insurance subsidiaries report as assets (a) the
   

                               F-6
<PAGE>
         AMERICAN FINANCIAL GROUP, INC. AND SUBSIDIARIES

      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


   estimated reinsurance recoverable on unpaid losses, including an
   estimate for losses incurred but not reported, and (b) amounts paid
   to reinsurers applicable to the unexpired terms of policies in
   force.  AFG's insurance subsidiaries also assume reinsurance from
   other companies.  Income on reinsurance assumed is recognized based
   on reports received from ceding reinsurers.

   Deferred Acquisition Costs  Policy acquisition costs (principally
   commissions, premium taxes and other underwriting expenses) related
   to the production of new business are deferred ("DPAC").  For the
   property and casualty companies, the deferral of acquisition costs
   is limited based upon their recoverability without any consideration
   for anticipated investment income.  DPAC is charged against income
   ratably over the terms of the related policies.  For the annuity
   companies, DPAC is amortized, with interest, in relation to the
   present value of expected gross profits on the policies.

   Unpaid Losses and Loss Adjustment Expenses  The net liabilities
   stated for unpaid claims and for expenses of investigation and
   adjustment of unpaid claims are based upon (a) the accumulation of
   case estimates for losses reported prior to the close of the
   accounting period on the direct business written; (b) estimates
   received from ceding reinsurers and insurance pools and
   associations; (c) estimates of unreported losses based on past
   experience; (d) estimates based on experience of expenses for
   investigating and adjusting claims and (e) the current state of the
   law and coverage litigation.  These liabilities are subject to the
   impact of changes in claim amounts and frequency and other factors.
   In spite of the variability inherent in such estimates, management
   believes that the liabilities for unpaid losses and loss adjustment
   expenses are adequate.  Changes in estimates of the liabilities for
   losses and loss adjustment expenses are reflected in the Statement
   of Earnings in the period in which determined.

   Annuity Benefits Accumulated  Annuity receipts and benefit payments
   are recorded as increases or decreases in "annuity benefits
   accumulated" rather than as revenue and expense.  Increases in this
   liability for interest credited are charged to expense and decreases
   for surrender charges are credited to other income.
   
   Life, Accident and Health Reserves  Liabilities for future policy
   benefits under traditional ordinary life, accident and health
   policies are computed using a net level premium method.
   Computations are based on anticipated investment yield (primarily
   7%), mortality, morbidity and surrenders and include provisions for
   unfavorable deviations.  Reserves are modified as necessary to
   reflect actual experience and developing trends.
<PAGE>   
   Assets Held In and Liabilities Related to Separate Accounts
   Investment annuity deposits and related liabilities represent
   primarily deposits maintained by several banks under a previously
   offered tax-deferred annuity program.  AAG receives an annual fee
   from each bank for sponsoring the program; if depositors elect to
   purchase an annuity from AAG, funds are transferred to AAG.

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

   
   
   
                               F-7
<PAGE>
         AMERICAN FINANCIAL GROUP, INC. AND SUBSIDIARIES

      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

   Policyholder Dividends  Dividends payable to policyholders are
   included in "Accounts payable, accrued expenses and other
   liabilities" and represent estimates of amounts payable on
   participating policies which share in favorable underwriting
   results.  The estimate is accrued during the period in which the
   related premium is earned.  Changes in estimates are included in
   income in the period determined. Policyholder dividends do not
   become legal liabilities unless and until declared by the boards of
   directors of the insurance companies.

   Income Taxes  AFC and American Premier have each filed consolidated
   federal income tax returns which include all 80%-owned U.S.
   subsidiaries, except for certain life insurance subsidiaries and
   their subsidiaries.  Because voting rights aggregating 21% were
   extended to holders of AFC Series F and G Preferred Stock in
   connection with the Mergers, AFC filed a separate consolidated
   return for 1995 and will again for 1996.  AFG (parent) is included
   in American Premier's consolidated return for those years.  At the
   close of business on December 31, 1996, AFG contributed 81% of the
   common stock of American Premier to AFC.  Accordingly, AFC and
   American Premier will file a consolidated return for 1997 and AFG
   (parent) will file a separate return.

   Deferred income taxes are calculated using the liability method.
   Under this method, deferred income tax assets and liabilities are
   determined based on differences between financial reporting and tax
   bases and are measured using enacted tax rates.  Deferred tax
   assets are recognized if it is more likely than not that a benefit
   will be realized.
   
   Benefit Plans  AFG provides retirement benefits to qualified employees of 
   participating companies through contributory and noncontributory defined 
   contribution plans.  Contributions to benefit plans are charged against 
   earnings in the year for which they are declared.  Both AFC and American 
   Premier had contributory employee savings plans and noncontributory 
   Employee Stock Ownership Retirement Plans ("ESORP").  Under one of the 
   savings plans, American Premier matched a specified portion of employee
   contributions.  Under the ESORP plans, contributions are invested in 
   securities of AFG and affiliates for the benefit of their employees.  In 
   1997, these ESORP plans were combined into a new plan.
    
   AFG and many of its subsidiaries provide health care and life
   insurance benefits to eligible retirees.  AFG also provides
   postemployment benefits to former or inactive employees (primarily
   those on disability) who were not deemed retired under other
   company plans.  The projected future cost of providing these
   benefits is expensed over the period the employees qualify for such
   benefits.

   Under AFG's stock option plan, options are granted to officers,
   directors and key employees at exercise prices equal to the fair
   value of the shares at the dates of grant.  No compensation
   expense is recognized for stock option grants.
<PAGE>   
   In connection with the Mergers, full vesting was granted to holders
   of units under AFC's Book Value Incentive Plan and the plan was 
   terminated.  Cash payments, which were made in April 1995 to holders 
   of the units, were accrued at December 31, 1994.
      
   Minority Interest  For balance sheet purposes, minority interest represents
   the interests of noncontrolling shareholders in AFG subsidiaries, 
   including AFC preferred stock and trust originated preferred securities 
   ("TOPrS") issued by trust subsidiaries of AFG.  For income statement 
   purposes, minority interest expense represents those shareholders' 
   interest in the earnings of AFG subsidiaries as well as AFC preferred 
   dividends following the Mergers and accrued distributions on the TOPrS.
       
   Earnings Per Share  Earnings per share are calculated on the basis
   of the weighted average number of shares of common stock
   outstanding during the period and the dilutive effect, if material,
   of assumed conversion of common stock options.  The weighted
   average number of shares used for periods prior to April 1995, is
   based upon the 28.3 million shares issued in exchange for AFC
   shares in the Mergers discussed in Note A.
   
                               F-8
<PAGE>
         AMERICAN FINANCIAL GROUP, INC. AND SUBSIDIARIES

      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


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

   Fair Value of Financial Instruments  Methods and assumptions used in
   estimating fair values are described in Note P to the financial
   statements.  These fair values represent point-in-time estimates of
   value that might not be particularly relevant in predicting AFG's
   future earnings or cash flows.

C. Acquisitions and Sales of Subsidiaries and Investees

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

   Buckeye  In March 1996, AFG sold Buckeye Management Company to
   Buckeye's management (including an AFG director who resigned in
   March 1996) and employees for $60 million in cash, net of
   transaction costs.  AFG recognized a $33.9 million pretax gain on
   the sale.  In connection with the sale, the AFG director converted
   his AFG convertible preferred stock into 446,799 shares of AFG
   Common Stock and sold such shares in the open market.

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

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

                               F-9
<PAGE>
         AMERICAN FINANCIAL GROUP, INC. AND SUBSIDIARIES
      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

   The following tables (in thousands) show AFG's assets, revenues and
   operating profit (loss) by significant business segment.  Capital
   expenditures, depreciation and amortization are not significant.
   Operating profit (loss) represents total revenues less operating
   expenses.  Goodwill and its amortization have been allocated to the
   various segments to which they apply. General corporate assets and
   expenses have not been identified or allocated by segment.

<TABLE>
<CAPTION>
                                                   1996          1995          1994
   <S>                                      <C>          <C>           <C>
   Assets
   Property and casualty insurance (a)      $ 7,116,088   $ 7,443,115   $ 4,576,591
   Annuities and life                         7,009,127     6,600,377     5,078,928
   Other                                        726,252       603,833       104,495
                                             14,851,467    14,647,325     9,760,014
   Investment in investee corporations          199,651       306,545       832,637

                                            $15,051,118   $14,953,870   $10,592,651
   Revenues (b)
   Property and casualty insurance:
     Premiums earned:
       Nonstandard automobile               $ 1,183,098   $   954,210   $    24,974
       Specialty lines                          976,150       995,528       698,365
       Commercial and personal lines            684,776       697,512       648,222
       Other lines                                  488         1,453         7,067
                                              2,844,512     2,648,703     1,378,628
     Investment and other income                500,897       465,998       314,731
                                              3,345,409     3,114,701     1,693,359
   Annuities and life (c)                       585,079       444,082       379,534
   Other                                        201,864        55,589        47,984
                                              4,132,352     3,614,372     2,120,877
   Equity in net earnings (losses)
     of investee corporations                   (16,955)       15,237       (16,573)

                                            $ 4,115,397   $ 3,629,609   $ 2,104,304
   Operating Profit (Loss)
   Property and casualty insurance:
     Underwriting:
       Nonstandard automobile               $     1,015  ($    60,316) ($     3,080)
       Specialty lines                          154,329        50,690       (12,598)
       Commercial and personal lines            (72,513)        5,315         7,087
       Other lines (d)                         (163,540)      (31,721)      (24,914)
                                                (80,709)      (36,032)      (33,505)
     Investment and other income                392,250       370,579       199,292
                                                311,541       334,547       165,787
   Annuities and life                            77,119        79,579        58,748
   Other (e)                                    (18,461)     (182,444)     (164,394)
                                                370,199       231,682        60,141
   Equity in net earnings (losses) of
     investee corporations                      (16,955)       15,237       (16,573)

                                            $   353,244   $   246,919   $    43,568
</TABLE>
<PAGE>
    (a)  Not allocable to segments.
    (b)  Revenues include sales of products and services as well as other
         income earned by the respective segments.
    (c)  Represents primarily investment income.
    (d)  Represents primarily losses related to asbestos and other
         environmental matters ("A&E").
    (e)  Includes holding company expenses.



                               F-10
<PAGE>
         AMERICAN FINANCIAL GROUP, INC. AND SUBSIDIARIES

      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


E. Investments    Bonds, redeemable preferred stocks and other stocks at
   December 31, consisted of the following (in millions):
<TABLE>
<CAPTION>
                                                                              1996
                                              Held to Maturity                               Available for Sale
                                   Amortized     Market      Gross Unrealized      Amortized      Market     Gross Unrealized
                                        Cost      Value      Gains     Losses           Cost       Value     Gains     Losses
   <S>                              <C>         <C>           <C>     <C>          <C>          <C>          <C>      <C>
   Bonds and redeemable
    preferred stocks:
     United States Government
      and government agencies
      and authorities               $     -     $      -      $  -    $  -         $   472.2    $  475.7     $  7.3   ($ 3.8)
     States, municipalities and
      political subdivisions            80.0         79.9       1.1    (1.2)            39.6        39.7         .5      (.4)
     Foreign government                  8.5          9.0        .5      -              94.5        94.3         .8     (1.0)
     Public utilities                  501.4        501.4       6.4    (6.4)           443.8       453.6       13.1     (3.3)
     Mortgage-backed securities        935.9        949.0      18.8    (5.7)         1,626.3     1,637.9       28.1    (16.5)
     All other corporate             1,965.3      1,988.8      34.8   (11.3)         3,624.4     3,733.0      122.2    (13.6)
     Redeemable preferred stocks          -            -         -       -              61.8        60.4        1.5     (2.9)
                                    $3,491.1     $3,528.1     $61.6  ($24.6)        $6,362.6    $6,494.6     $173.5   ($41.5)

   Other stocks                                                                     $  142.4    $  327.7     $191.6   ($ 6.3)
</TABLE>   
<TABLE>
<CAPTION>
                                                                              1995
                                              Held to Maturity                               Available for Sale
                                   Amortized     Market      Gross Unrealized      Amortized      Market     Gross Unrealized
                                        Cost      Value      Gains     Losses           Cost       Value     Gains     Losses
   <S>                              <C>         <C>          <C>     <C>            <C>          <C>          <C>     <C>
   Bonds and redeemable
    preferred stocks:
     United States Government
       and government agencies
       and authorities              $     -     $     -      $   -    $   -         $  413.9     $  431.3     $ 17.5  ($  .1)
     States, municipalities and
       political subdivisions           55.0         56.6       1.7      (.1)           20.6         20.3         .3     (.6)
     Foreign government                 13.1         12.8       1.0     (1.3)           87.5         89.9        2.4      -
     Public utilities                  528.8        545.3      17.7     (1.2)          561.3        591.0       32.3    (2.6)
     Mortgage-backed securities        945.7        980.3      35.3      (.7)        1,373.2      1,407.8       40.7    (6.1)
     All other corporate             2,042.1      2,129.8      87.8      (.1)        3,087.1      3,304.3      219.8    (2.6)
     Redeemable preferred stocks         4.2          4.5        .3       -            104.5        104.7        1.9    (1.7)
                                    $3,588.9     $3,729.3    $143.8  ($  3.4)       $5,648.1     $5,949.3     $314.9  ($13.7)

   Other stocks                                                                     $  136.9     $  252.2     $115.9  ($  .6)
</TABLE>
<PAGE>
   The table below sets forth the scheduled maturities of bonds and
   redeemable preferred stocks based on carrying value as of
   December 31, 1996.  Data based on market value is generally the
   same.  Mortgage-backed securities had an average life of
   approximately 7.5 years at December 31, 1996.

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






                               F-11
<PAGE>
           AMERICAN FINANCIAL GROUP, INC. AND SUBSIDIARIES

        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


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

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

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

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

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

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

                                    Maturities
                                           and              Gross   Gross
                         Purchases Redemptions     Sales    Gains  Losses
     1996
     Held to Maturity     $  202.8      $332.5  $    9.3    $ 2.4  ($ 1.2)
     Available for Sale    1,925.8       284.8     871.8     29.6   (47.3)
          Total           $2,128.6      $617.3  $  881.1    $32.0  ($48.5)

     1995
     Held to Maturity     $  774.8      $176.3  $   12.9    $ 1.9  ($ 2.3)
     Available for Sale    1,603.6       133.3   2,297.9     88.0    (9.6)
          Total           $2,378.4      $309.6  $2,310.8    $89.9  ($11.9)

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

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


                               F-12
<PAGE>
         AMERICAN FINANCIAL GROUP, INC. AND SUBSIDIARIES
      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
    
F. Investment in Investee Corporations  The companies in the following
   table are subject to the rules and regulations of the SEC.  The
   market value of the investments was approximately $306 million and
   $509 million at December 31, 1996 and 1995, respectively.  AFG's
   investment (and common stock ownership percentage) and equity in
   net earnings and losses of investees are stated below (dollars in
   thousands):
<TABLE>
<CAPTION>
                        Investment (Ownership %)         Equity in Net Earnings (Losses)
                        12/31/96        12/31/95             1996      1995        1994
   <S>                  <C>      <C>    <C>      <C>     <C>         <C>       <C>
   Chiquita (a)         $199,651 (43%)  $232,466 (44%)   ($18,415)   $ 3,628   ($26,670)
   Citicasters (b)          -             74,079 (38%)      1,460      4,702      8,950
   American Premier(c)      -               -                -         6,907      1,147
                                                                             
                        $199,651        $306,545         ($16,955)   $15,237   ($16,573)
</TABLE>

   (a) Equity in net earnings (losses) excludes AFG's share of extraordinary
       losses.
   (b) Sold in September 1996.
   (c) Became a 100%-owned subsidiary on April 3, 1995.

   Chiquita is a leading international marketer, producer and
   distributor of bananas and other quality fresh and processed food
   products.  Citicasters owned and operated radio and television
   stations in major markets throughout the country.

   Summarized financial information for Chiquita at December 31, is
   shown below (in millions).  See "Investee Corporations" in
   Management's Discussion and Analysis.

                                           Chiquita Brands International, Inc.
                                                   1996    1995     1994

      Current Assets                             $  844  $  877
      Non-current Assets                          1,623   1,747
      Current Liabilities                           464     510
      Non-current Liabilities                     1,279   1,442
      Shareholders' Equity                          724     672

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

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

                               F-13
<PAGE>
           AMERICAN FINANCIAL GROUP, INC. AND SUBSIDIARIES
       NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
 
H. Long-Term Debt  Long-term debt consisted of the following at
   December 31, (in thousands):

                                                              1996       1995
   American Financial Corporation (Parent Company):
     9-3/4% Debentures due April 2004, less discount
       of $1,146 and $1,249 (imputed rate - 9.8%)         $164,368   $302,510
     Other                                                   8,441      8,692

                                                          $172,809   $311,202

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

                                                          $166,695   $337,334
      
   American Annuity Group, Inc.:
     Notes payable under bank line due September 1999     $ 44,700   $ 20,500
     9-1/2% Senior Notes due August 2001                    40,845     41,490
     11-1/8% Senior Subordinated Notes due February 2003    24,080    101,443
     Other                                                   5,275      4,301
    
                                                          $114,900   $167,734

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

                                                          $ 63,515   $ 65,793

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

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

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

                               F-14
<PAGE>
         AMERICAN FINANCIAL GROUP, INC. AND SUBSIDIARIES
      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

   Great American Holding Corporation ("GAHC"), a wholly-owned
   subsidiary of AFC, and Pennsylvania Company ("Pennco"), a
   wholly-owned subsidiary of American Premier, have revolving
   loan agreements with groups of banks under which they can
   borrow up to $300 million and $75 million, respectively.
   Borrowings bear interest at floating rates based on prime or
   LIBOR and are collateralized by certain stock of operating
   subsidiaries.  Each facility is guaranteed by the respective
   immediate parent company.  At December 31, 1996 and 1995, there
   were no outstanding borrowings under either of these credit lines.
      
   AAG and AFEI have revolving credit agreements with banks under which they
   can borrow up to $115 million and $20 million, respectively.  Borrowings
   bear interest at floating rates based on prime or LIBOR and are
   collateralized.  At December 31, 1996 and 1995, the weighted average 
   interest rate on amounts borrowed under AAG's bank credit lines was 6.7% 
   and 6.8%, respectively.  At December 31, 1996 and 1995, there were no
   outstanding borrowings under the AFEI credit line.
       
   During 1995, AFC redeemed $279 million of its various debentures, repaid
   $187 million of GAHC's bank debt, and redeemed $200 million of GAHC's
   Notes. Also during 1995, AFC sold an aggregate of $100 million of its 
   9-3/4% debentures due in 2004 for cash.  During 1996, AFC repurchased
   $138.2 million of its 9-3/4% debentures for $147.9 million in cash.
   
   As the result of the Mergers and a subsequent ratings downgrade, holders of
   American Premier's Notes had the right to "put" their Notes to American
   Premier at face amount. Approximately $44 million of the Notes were tendered
   under the put right in 1995. In addition, American Premier repurchased 
   $136 million of the Notes during 1995 for $142.7 million in cash.
   
   In a December 1996 tender offer, American Premier retired $95.3 million of 
   its Notes for $105.6 million.  In addition, American Premier repurchased 
   $64.8 million of its Notes for $71.6 million in cash during 1996.
   
   During 1995, AAG repurchased $4.9 million of its Notes for $5.0 million in 
   cash.  During 1996, AAG repurchased $78 million of its Notes for 
   $84.2 million in cash.
   
   Cash interest payments of $75 million, $137 million and $115 million were 
   made on long-term debt in 1996, 1995 and 1994, respectively.
   


                               F-15
<PAGE>
         AMERICAN FINANCIAL GROUP, INC. AND SUBSIDIARIES
      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

I. Minority Interest  Included in minority interest in AFG's balance
   sheet are TOPrS and AFC's preferred stock.

   Trust Originated Preferred Securities  In October 1996, a wholly-owned 
   subsidiary trust of AFG issued 4 million units of 9-1/8% TOPrS for 
   $100 million cash. The Trust then purchased $100 million of newly issued 
   AFG 9-1/8% Subordinated Debentures due 2026, which, along with related 
   interest and principal payments received, will be the only assets of the 
   Trust. Holders of the TOPrS are entitled to quarterly cash distributions of
   $.57 per unit; payment dates and amounts for the TOPrS correspond to those
   on the Subordinated Debentures.  The TOPrS are mandatorily redeemable upon
   maturity or redemption of the Subordinated Debentures.  The Subordinated
   Debentures are redeemable by AFG on or after October 22, 2001.  AFG 
   effectively provides an unconditional guarantee of the Trust's obligations
   under the TOPrS.
   
   In November 1996, a wholly-owned subsidiary trust of AAG issued $75 million
   of similar TOPrS.  The related 9-1/4% Subordinated Debentures of the AAG 
   subsidiary are due in 2026 and are redeemable on or after November 7, 2001.
   
   AFC Preferred Stock  At December 31, 1996, AFC's Preferred Stock was voting,
   cumulative, and consisted of the following:

      Series F, $1 par value; $20.00 liquidating value per share; annual 
      dividends per share $1.80; nonredeemable after 1996; 11,900,725 
      and 13,744,754 shares (stated value $145.4 million and 
      $167.9 million) outstanding at December 31, 1996 and 1995, respectively.

      Series G, $1 par value; annual dividends per share $1.05; 
      redeemable at  $10.50 per share; 1,964,158 and 364,158 shares 
      (stated value $17.4 million and $600,000) outstanding at 
      December 31, 1996 and 1995, respectively.

   In December 1996, AFC redeemed 1.6 million shares of its Series
   F Preferred Stock for $31.9 million and, in October, AFC
   purchased 250,000 shares of Series F from AFC's ESORP for $5.0 million.
   In December 1996, AFC issued 1.6 million shares of its Series G 
   Preferred Stock to AFC's ESORP for $16.8 million.
   
   During 1995 and 1994, AFC retired issues of its mandatorily 
   redeemable preferred stock for an aggregate of $2.9 million 
   and $6.6 million, respectively.
<PAGE>
J. Capital Stock  In connection with the Mergers discussed in Note A, 
   AFG issued  51.3 million shares (net of 18.7 million shares held
   by AFC and its subsidiaries, which are shown herein as retired)
   of Common Stock on April 3, 1995.  During 1995, AFG sold 7.4 million 
   newly issued shares of its Common Stock for an aggregate of $202.8 million
   cash in connection with (i) exercises of Stock Options, 
   (ii) issuances under AFG's new Dividend Reinvestment Plan and its
   Employee Stock Purchase Plan, and (iii) sales to the AFC ESORP
   and in a public offering.
   
   At December 31, 1996, there were 61,071,626 shares of AFG Common
   Stock outstanding, including 1,371,802 shares held by American
   Premier for distribution to certain creditors and other
   claimants pursuant to a plan of reorganization relating to
   American Premier's predecessor.

   AFG is authorized to issue 12.5 million shares of Voting
   Preferred Stock and 12.5 million shares of Nonvoting Preferred
   Stock, each without par value.  At December 31, 1995, AFG had
   212,698 shares of convertible
   
   
                               F-16
<PAGE>
         AMERICAN FINANCIAL GROUP, INC. AND SUBSIDIARIES

      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


   preferred stock outstanding with a stated value of $469,000
   (included in Capital Surplus, net of related notes receivable).
   These shares were converted into 446,799 shares of AFG Common
   Stock in March 1996.
   
   A progression of AFG's Shareholders' Equity is as follows (dollars
   in thousands):
   <TABLE>
   <CAPTION>
                                                           Common Stock
                                              Common        and Capital       Retained
                                              Shares(*)         Surplus       Earnings       Unrealized
   <S>                                       <C>               <C>            <C>            <C>
   Balance at December 31, 1993              18,971,217            $904       $210,846       $156,900
   
   Net earnings                                    -               -             2,100           -
   Change in unrealized                            -               -              -          (153,400)
   Purchase of Preferred Stock                     -               -               (56)          -
   Dividends on:
    Preferred Stock                                -               -           (25,728)          -
    Common Stock                                   -               -            (3,794)          -
   Decrease in capital subject to put 
     option                                        -               -             7,225           -
   Transfer from capital subject
     to put option                                 -               -            32,502           -
   Balance at December 31, 1994              18,971,217             904        223,095          3,500
   
   Dividends on AFC Preferred Stock                -               -              (191)          -
   Exercise of AFC stock options                762,500           8,721           -              -
   Restatement of AFC equity in
     terms of AFG Common Stock                8,590,159            -              -              -
   Shares issued in Mergers to
     holders of APU Common Stock             24,376,667         588,492           -              -
   Net earnings                                    -               -           191,247           -
   Change in unrealized                            -               -              -           248,000
   Dividends on Common Stock                       -               -           (27,008)          -
   Shares issued:
     Exercise of stock options                  883,974          18,875           -              -
     Dividend reinvestment plan                 200,381           5,859           -              -
     Employee stock purchase plan                32,972             918           -              -
     Public offering                          4,600,000         127,180           -              -
     Sale to AFC ESORP                        1,703,000          50,004           -              -
     Employee gift shares                        19,050             494           -              -
   Shares repurchased                              (617)            (17)          -              -
   Change in foreign currency translation          -                 64           -              -
   Balance at December 31, 1995              60,139,303         801,494        387,143        251,500
<PAGE>
   Net earnings                                    -               -           233,300           -
   Change in unrealized                            -               -              -           (63,500)
   Dividends on Common Stock                       -               -           (60,727)          -
   Shares issued:
     Exercise of stock options                  664,639          14,837           -              -
     Dividend reinvestment plan                  10,491             342           -              -
     Employee stock purchase plan                81,041           2,551           -              -
     Employee stock bonus                         4,300             131           -              -
     Directors fees paid in common shares         1,299              46           -              -
     Conversion of Preferred Stock              446,799           8,908           -              -
   Shares repurchased                          (276,246)         (8,563)          -              -
   Retirement of AFC Preferred Stock               -            (14,388)          -              -
   Change in foreign currency translation          -              1,363           -              -
   Balance at December 31, 1996              61,071,626        $806,721       $559,716       $188,000

</TABLE>   

   (*)  Prior to the Mergers, Carl H. Lindner and certain members of the 
        Lindner family owned all of the outstanding common stock of AFC.
   
   Stock Options  At December 31, 1996, there were 5.4 million shares of AFG 
   Common Stock reserved for issuance under AFG's Stock Option Plan.  Under 
   the Stock Option Plan, the exercise price of each option equals the market 
   price of AFG Common Stock at the date of grant.  Options become exercisable
   at the rate of 20% per year commencing one year after grant; those granted 
   to non-employee directors of AFG are generally fully exercisable upon 
   grant.  All options expire ten years after the date of grant.  No 
   compensation cost has been recognized for stock option grants.  Had 
   compensation cost been determined for stock option awards based on the 
   fair values at grant dates consistent with the method prescribed by 
   Statement of Financial Accounting Standards No. 123, AFG's net income and 
   earnings per share would not have been materially different from amounts 
   reported.  For Statement No. 123 purposes, calculations were determined
   using the Black-Scholes option pricing model and the following assumptions:
   dividend yield of 2%; expected volatility of 20%; risk-free interest rate
   of 6.2%; and expected life of 7.5 years.
       
                               F-17
<PAGE>
         AMERICAN FINANCIAL GROUP, INC. AND SUBSIDIARIES

      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


   Data for AFG's Stock Option Plan is presented below:
   
                                           1996                     1995
                                                 Average                Average
                                                Exercise               Exercise
                                        Shares     Price      Shares      Price
   Outstanding at beginning of year  3,939,986    $25.72   2,931,948     $22.88
                                                         
    Granted                             75,000    $32.47   2,142,681     $27.81
    Exercised                         (664,639)   $22.33    (883,974)    $21.35
    Forfeited                          (18,400)   $30.06    (250,669)    $25.79
                                     
   Outstanding at end of year        3,331,947    $26.53   3,939,986     $25.72
   
   Options exercisable at year-end   1,379,182    $24.60   1,395,175     $22.55
   
   
   The following table summarizes information about stock options
   outstanding at December 31, 1996:
   
                     Options Outstanding                    Options Exercisable
               Average                        Average                   Average
              Exercise       Range of       Remaining                  Exercise
      Shares     Price    Exercise Prices        Life         Shares      Price
     211,419    $18.57    $17.24 - $20.00   4.0 years        211,419     $18.57
   1,368,791    $23.80    $20.01 - $25.00   6.7              720,245     $23.63
     343,637    $27.28    $25.01 - $30.00   7.0              174,218     $27.38
   1,408,100    $30.19    $30.01 - $34.31   9.0              273,300     $30.08
   
   3,331,947    $26.53                      7.5            1,379,182     $24.60
   
<PAGE>
K. Income Taxes  The following is a reconciliation of income taxes at
   the statutory rate of 35% and income taxes as shown in the
   Statement of Earnings (in thousands):
   
                                                    1996       1995      1994
    Earnings before income taxes                           
      and extraordinary items                   $353,244   $246,919   $43,568
    Extraordinary items before income taxes      (35,670)       536   (17,192)
    Adjusted earnings before income taxes       $317,574   $247,455   $26,376
    
    Income taxes at statutory rate              $111,151   $ 86,609   $ 9,232
    Effect of:
      Losses (utilized) not utilized             (43,302)   (40,292)   19,267
      Dividends received deduction                (7,450)    (7,823)   (8,528)
      Minority interest                           15,112     11,673     2,998
      Amortization of intangibles                  3,065      3,015     1,987
      Tax exempt interest                           (597)      (897)     (689)
      Foreign income taxes                         3,474        359         6
      State income taxes                           4,140         81       149
      Other                                       (1,319)     3,483      (146)
    Total provision                               84,274     56,208    24,276

    Amounts applicable to extraordinary items      7,003        281       374
    Provision for income taxes as shown
      on the Statement of Earnings              $ 91,277   $ 56,489   $24,650
    
   Adjusted earnings before income taxes consisted of the following (in
thousands):

                                                    1996       1995      1994
    Subject to tax in:
      United States                             $331,842   $250,423   $28,422
      Foreign jurisdictions                      (14,268)    (2,968)   (2,046)

                                                $317,574   $247,455   $26,376
   
   
                               F-18
<PAGE>
         AMERICAN FINANCIAL GROUP, INC. AND SUBSIDIARIES

      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


   The total income tax provision consists of (in thousands):

                                         1996      1995      1994
       Current taxes (credits):
         Federal                      $22,450   $38,512   $21,028
         Foreign                       (1,735)   (1,213)      -
         State                          6,369       124       226
       Deferred taxes:
         Federal                       56,869    18,233     3,012
         Foreign                          321       552        10

                                      $84,274   $56,208   $24,276

   For income tax purposes, certain members of the AFC consolidated
   tax group, including American Premier as of December 31, 1996, had
   the following carryforwards available at December 31, 1996 (in
   millions):

                                   Expiring       Amount
                     {            1997 - 2001     $ 20
       Operating Loss{            2002 - 2006      126
                     {            2007 - 2011       93
       Capital Loss               1997 - 1999      195
       Other - Tax Credits                          23

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

                                                1996              1995
                                                              AFC    American
                                             AFC Tax          Tax     Premier
                                           Group (*)        Group   Tax Group
       Deferred tax assets:
         Net operating loss carryforwards     $ 83.7       $ 93.8      $166.5
         Capital loss carryforwards             68.2          -         108.7
         Insurance claims and reserves         289.8        195.9       102.9
         Other, net                            142.2         41.2        91.3
                                               583.9        330.9       469.4
         Valuation allowance for deferred
           tax assets                         (131.9)       (91.9)     (214.0)
                                               452.0        239.0       255.4
       Deferred tax liabilities:
         Deferred acquisition costs           (124.9)       (89.8)      (31.2)
         Investment securities                (189.8)      (210.8)      (23.8)
                                              (314.7)      (300.6)      (55.0)
                                                      
       Net deferred tax asset (liability)     $137.3      ($ 61.6)     $200.4

       (*)  Includes American Premier
<PAGE>
   
   The gross deferred tax asset has been reduced by a valuation allowance 
   based on an analysis of the likelihood of realization.  Factors considered 
   in assessing the need for a valuation allowance include: (i) recent tax 
   returns, which show neither a history of large amounts of taxable income 
   nor cumulative losses in recent years, (ii) opportunities to generate 
   taxable income from sales of appreciated assets, and (iii) the likelihood 
   of generating larger amounts of taxable income in the future.  The 
   likelihood of realizing this asset will be reviewed periodically; any
   adjustments required to the valuation allowance will be made in the period 
   in which the developments on which they are based become known.  The
   aggregate valuation allowance decreased by $174 million in 1996 due 
   primarily to the expiration of American Premier's loss carryforwards.
    
   Cash payments for income taxes, net of refunds, were $40.2 million, 
   $14.8 million and $30.0 million for 1996, 1995 and 1994, respectively.


                               F-19
<PAGE>
         AMERICAN FINANCIAL GROUP, INC. AND SUBSIDIARIES

      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


L. Extraordinary Items  Extraordinary items represent AFG's
   proportionate share of gains and losses related to debt
   retirements by the following companies.  Amounts shown are net of
   minority interest and income tax benefits (in thousands):

                                        1996      1995       1994
       Subsidiaries:
         AFC (parent)               ($ 9,672)  ($1,713)  ($ 6,454)
         APU (parent)                 (3,254)    6,137       -
         AAG                          (7,159)     (201)    (1,328)
         GAHC                           -         (611)      -
         Other                            57      -          -
       Investee:                                         
         Chiquita                     (8,639)   (2,795)    (9,036)
                                    ($28,667)   $  817   ($16,818)

M. Commitments and Contingencies  Loss accruals have been recorded
   for various environmental and occupational injury and disease
   claims and other contingencies arising out of the railroad
   operations disposed of by American Premier's predecessor, Penn
   Central Transportation Company ("PCTC"), prior to its bankruptcy
   reorganization in 1978.  Any ultimate liability arising therefrom
   in excess of previously established loss accruals would normally
   be attributable to pre-reorganization events and circumstances and
   accounted for as a reduction in capital surplus.  However, under
   purchase accounting in connection with the Mergers, any such excess 
   liability will be charged to earnings in AFG's financial statements.
<PAGE>
   American Premier's liability for environmental claims
   ($50.1 million at December 31, 1996) consists of a number of
   proceedings and claims seeking to impose responsibility for
   hazardous waste remediation costs at certain railroad sites
   formerly owned by PCTC and certain other sites where hazardous
   waste was allegedly generated by PCTC's railroad operation.  It is
   difficult to estimate remediation costs for a number of reasons,
   including the number and financial resources of other potentially
   responsible parties, the range of costs for remediation
   alternatives, changing technology and the time period over which
   these matters develop.  American Premier's liability is based on
   information currently available and is subject to change as
   additional information becomes available.
      
   American Premier's liability for occupational injury and disease claims of 
   $70.1 million (included in other liabilities) at December 31, 1996, 
   includes pending and expected claims by former employees of PCTC for 
   injury or disease allegedly caused by exposure to excessive noise, asbestos 
   or other substances in the railroad workplace.  Anticipated recoveries  
   of $54.1 million on these liabilities are included in other assets.
   Recorded amounts are based on the accumulation of estimates of reported 
   and unreported claims and related expenses and estimates of probable 
   recoveries from insurance carriers.
       
   AFG has accrued approximately $41 million at December 31, 1996,
   for environmental costs and certain other matters associated with
   the sales of former operations.
   
   In management's opinion, the outcome of the items discussed under
   "Uncertainties" in Management's Discussion and Analysis and the 
   above claims and contingencies will not, individually or in the 
   aggregate, have a material adverse effect on AFG's financial condition
   or results of operations.
   
   
   

                               F-20
<PAGE>
         AMERICAN FINANCIAL GROUP, INC. AND SUBSIDIARIES

      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


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

<TABLE>
<CAPTION>
                                      1st        2nd        3rd        4th       Total
                                  Quarter    Quarter    Quarter    Quarter        Year
     <S>                         <C>        <C>        <C>        <C>         <C>
     1996
     Revenues                    $1,030.9   $1,032.8   $1,163.5     $888.2    $4,115.4
     Earnings before
       extraordinary items           81.2       58.3      121.6         .9       262.0
     Extraordinary items             (7.6)      (9.9)      (8.4)      (2.8)      (28.7)
     Net earnings (loss)             73.6       48.4      113.2       (1.9)      233.3

     Earnings per common share:
       Before extraordinary
         items                      $1.35       $.96      $2.00       $.02       $4.31
       Extraordinary items           (.13)      (.16)      (.14)      (.05)       (.47)
       Net earnings (loss)           1.22        .80       1.86       (.03)       3.84

     Average number of Common
       Shares                        60.3       60.9       61.0       61.0        60.8

     1995
     Revenues                      $553.6   $1,006.6   $1,002.7   $1,066.7    $3,629.6
     Earnings before
       extraordinary items           29.8       33.0       51.0       76.6       190.4
     Extraordinary items               -          .5        2.0       (1.7)         .8
     Net earnings                    29.8       33.5       53.0       74.9       191.2

     Earnings per common share:
      Before extraordinary
       items                         $.83       $.63       $.95      $1.36       $3.87
      Extraordinary items              -         .01        .04       (.03)        .01
      Net earnings                    .83        .64        .99       1.33        3.88

     Average number of Common
       Shares                        28.3       52.7       53.4       56.1        47.6
</TABLE>
<PAGE>
   Quarterly earnings per share do not add to year-to-date amounts due
   to changes in shares outstanding.

   In the third quarter of 1996, AFG increased A&E reserves by
   recording a non-cash pretax charge of $80 million.  Realized gains 
   (losses) on sales of securities amounted to (in millions):

<TABLE>
<CAPTION>
                                      1st        2nd        3rd        4th       Total
                                  Quarter    Quarter    Quarter    Quarter        Year
       <S>                          <C>         <C>       <C>       <C>        <C>  
       1996                         $18.7       $2.7      $ 3.2     ($28.1)     ($ 3.5)
       1995                           3.5        7.9       23.6       49.0        84.0
</TABLE>

                               F-21
<PAGE>
           AMERICAN FINANCIAL GROUP, INC. AND SUBSIDIARIES
      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

O. Insurance  Securities owned by insurance subsidiaries having a
   carrying value of approximately $1.5 billion at December 31, 1996,
   were on deposit as required by regulatory authorities.

   GAI recorded a charge of $19 million (included in "Other operating
   and general expenses") in 1994 in response to the California court
   decision upholding an insurance reform measure passed by
   California voters which led to rate rollbacks for most lines of
   property and casualty insurance.
   
   Several proposals have been made in recent years to change the federal 
   income tax system.  Some proposals included changes in the method of 
   treating investment income and tax deferred income.  To the extent a new 
   tax law reduces or eliminates the tax deferred status of AFG's annuity 
   products, that segment could be materially affected.
   
   Insurance Reserves  The liability for losses and loss adjustment
   expenses for certain long-term scheduled payments under workers'
   compensation, auto liability and other liability insurance has
   been discounted at rates ranging from 4% to 8%.  As a result, the
   total liability for losses and loss adjustment expenses at
   December 31, 1996, has been reduced by $64 million.
   
   The following table provides an analysis of changes in the liability for 
   losses and loss adjustment expenses, net of reinsurance (and grossed up),
   over the past three years on a GAAP basis (in millions):
   
                                               1996      1995      1994
   
    Balance at beginning of period           $3,393    $2,187    $2,113
   
    Reserves of American Premier
      at date of the Mergers                    -       1,090       -
   
    Provision for losses and loss
      adjustment expenses occurring in
      the current year                        2,179     2,116     1,027
    Net decrease in provision for claims
      occurring in prior years                  (48)     (139)      (40)
                                              2,131     1,977       987
   
    Payments for losses and loss adjustment
      expenses occurring during:
        Current year                           (999)     (987)     (381)
        Prior years                          (1,121)     (874)     (532)
                                             (2,120)   (1,861)     (913)
   
    Balance at end of period                 $3,404    $3,393    $2,187
   
    Add back reinsurance recoverables           720       704       730
   
    Unpaid losses and loss adjustment
      expenses included in Balance Sheet,
      gross of reinsurance                   $4,124    $4,097    $2,917

                               F-22
<PAGE>
           AMERICAN FINANCIAL GROUP, INC. AND SUBSIDIARIES

        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

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

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

    (*)  Included primarily in "Other operating and general expenses" 
         in the Statement of Earnings.

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

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

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

                                              1996    1995    1994
       Reinsurance ceded to:
         Non-affiliates                       $518    $476    $402
         Affiliates                             -       33     161
       Reinsurance assumed - including
         involuntary pools and associations     58      93      83
       Reinsurance recoveries                  306     304     429
<PAGE>
P. Additional Information  Total rental expense for various leases of
   office space, data processing equipment and railroad rolling stock
   was $34 million, $35 million and $22 million for 1996, 1995 and 1994, 
   respectively.  Sublease rental income related to these leases totaled 
   $6.1 million in 1996, $6.2 million in 1995 and $6.4 million in 1994.

   Future minimum rentals, related principally to office space and
   railroad rolling stock, required under operating leases having
   initial or remaining noncancelable lease terms in excess of one
   year at December 31, 1996, were as follows:  1997 - $39 million,
   1998 - $32 million, 1999 - $24 million, 2000 - $15 million, 2001
   - $11 million, and $18 million thereafter.  At December 31, 1996,
   minimum sublease rentals to be received through the expiration of
   the leases aggregated $21 million.
      
   Other operating and general expenses included charges for possible
   losses on agents' balances, reinsurance recoverables and other
   receivables in the following amounts:  1996 - $0, 1995 - $0 and
   1994 - $18 million.  The aggregate allowance for such losses
   amounted to approximately $123 million and $127 million at
   December 31, 1996 and 1995, respectively.
       
   
                               F-23
<PAGE>
         AMERICAN FINANCIAL GROUP, INC. AND SUBSIDIARIES

      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


   Summary Financial Information of AFC and American Premier
   Summarized consolidated financial information for AFC and American
   Premier is as follows (in millions):
<TABLE>
<CAPTION>
                                       AFC                        American Premier
                                    1996      1995      1994      1996      1995      1994
     <S>                         <C>       <C>        <C>       <C>       <C>       <C>
     Cash and Investments        $11,691   $11,391              $1,947    $2,091    
     Other Assets                  3,308     3,460               1,322     1,949
     Insurance Claims and
       Reserves                   11,312    10,981               1,452     1,684
     Debt                            518       882                 169       330
     Shareholders' Equity          1,277     1,248               1,045     1,552

     Revenues                    $ 4,114   $ 3,628    $2,104    $1,674    $1,736    $1,759
     Income from Continuing
       Operations                    248       195        19       250        67         1
     Discontinued Operations         -         -         -         -         -          (1)
     Extraordinary Item - (Loss)
       Gain on Prepayment
       of Debt                       (26)        2       (17)      (12)       (5)      -
     Net Income                      222       197         2       238        62       -
</TABLE>
   American Premier's 1996 net income included $49 million in gains from the 
   sales of securities, real estate and other assets to AFC.  These gains 
   were eliminated in AFC's and AFG's consolidated financial statements.  
   American Premier's 1994 results included a $75.8 million loss on the 
   sale of securities of General Cable.
<PAGE>   
   Fair Value of Financial Instruments  The following table presents
   (in millions) the carrying value and estimated fair value of AFG's
   financial instruments at December 31.
                                  
                                   1996                 1995
                             Carrying     Fair    Carrying    Fair
                                Value    Value       Value   Value
     Assets:
     Bonds and redeemable
       preferred stocks        $9,986  $10,023      $9,538  $9,679
     Other stocks                 328      328         252     252
     Investment in investee
       corporations               200      306         307     509

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

     Minority Interest:
     TOPrS                     $  175  $   179      $  -    $  -
     AFC preferred stock          163      264         168     272

     Shareholders' Equity      $1,554  $ 2,305      $1,440  $1,842
                            
   When available, fair values are based on prices quoted in the most
   active market for each security.  If quoted prices are not
   available, fair value is estimated based on present values,
   discounted cash flows, fair value of comparable securities, or
   similar methods.  The fair value of the liability for annuities in
   the payout phase is assumed to be the present value of the
   anticipated cash flows, discounted at current interest rates.
   Fair value of annuities in the accumulation phase is assumed to be
   the policyholders' cash surrender amount.

                               F-24
<PAGE>
         AMERICAN FINANCIAL GROUP, INC. AND SUBSIDIARIES

      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


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

Q. Subsequent Event (Unaudited)  In February 1997, AFEI and AFG
   announced that they are jointly examining the feasibility of a
   transaction whereby all 2.3 million shares of AFEI common stock
   not owned by AFG would be exchanged on a one-for-one basis for AFG
   Common Stock.  AFEI and AFG intend that the transaction be
   structured so that it is tax-free to AFEI shareholders.  The
   transaction would be subject to the approval of AFEI's
   shareholders other than AFG and other customary approvals.



      

                               F-25
<PAGE>

                              


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


                                     American Financial Group, Inc.


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



    Dated:  October 29, 1997