<PAGE>   1

                       SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C.  20549

                                   FORM 10-Q

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

         For the quarterly period ended June 30, 1997


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

         For the transition period from _______________ to ________________

                      Commission file number  0-24872    

                        Physician Reliance Network, Inc.
          ------------------------------------------------------------
             (Exact Name of Registrant as Specified in Its Charter)

                       Texas                              75-2495107
 --------------------------------------------------   -------------------- 
  (State or Other Jurisdiction of Incorporation or     (I.R.S. Employer
                   Organization)                      Identification No.)

            5420 LBJ Freeway, Suite 900
                   Dallas, Texas                             75240
 --------------------------------------------------   --------------------
      (Address of Principal Executive Offices)             (Zip Code)


Registrant's Telephone Number, Including Area Code:   (972) 392-8700  


         Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.  Yes  X    No
                                               ---      ---
         As of August 15, 1997, approximately 48,430,048 shares of Common Stock
were issued and outstanding.
<PAGE>   2
                         PART I - FINANCIAL INFORMATION


ITEM 1.  FINANCIAL STATEMENTS.

         The condensed consolidated financial statements include the accounts
of Physician Reliance Network, Inc. and its subsidiaries (collectively, the
"Company") and have been prepared by the Company, without audit, pursuant to
the rules and regulations of the Securities and Exchange Commission.  Certain
information and footnote disclosures normally included in annual financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations.  It is
suggested that these condensed consolidated financial statements be read in
conjunction with the audited consolidated financial statements and notes
thereto included in the Company's Annual Report on Form 10-K for the period
ended December 31, 1996, as filed with the Securities and Exchange Commission.
In the opinion of the Company, all adjustments necessary to present fairly the
information in the following consolidated financial statements of the Company
have been included.  Please be advised that the results of operations for
interim periods are not indicative of the results of the full year.



                                      2
<PAGE>   3
               PHYSICIAN RELIANCE NETWORK INC.  AND SUBSIDIARIES

                     CONDENSED CONSOLIDATED BALANCE SHEETS
                                 (IN THOUSANDS)
                                   UNAUDITED

                                     ASSETS

<TABLE>
<CAPTION>
                                                                       June 30,                     December 31,
                                                                         1997                           1996
                                                                    --------------                 -------------
<S>                                                                 <C>                           <C>       <C>
Current assets:
         Cash and cash equivalents                                   $         651                 $       7,679
         Accounts receivable, net of allowances of $52,173
           and $19,797 at June 30, 1997 and at December 31,
           1996, respectively                                               81,318                        94,599
         Due from related parties                                           11,841                         8,589
         Other receivables                                                   1,325                         1,238
         Inventories                                                         6,185                         4,481
         Prepaid expenses and other                                          2,295                         1,067
         Income tax receivable                                              15,216                           657
         Deferred income tax                                                   644                           507
                                                                     -------------                 -------------
                 Total current assets                                      119,475                       118,817
                                                                     -------------                 -------------
                                                                     
Property and equipment:                                              
         Land                                                               14,640                        12,493
         Buildings                                                          59,996                        51,511
         Furniture and equipment                                           114,127                        99,162
         Construction-in-progress                                            2,952                         7,898
                                                                     -------------                 -------------
                                                                           191,715                       171,064
         Less- accumulated depreciation                                    (37,719)                      (29,394)
                                                                     -------------                 -------------
                 Net property and equipment                                153,996                       141,670 
                                                                                                                 
                                                                     
Investments                                                                    134                         1,734
Service agreements, net                                                    102,738                        86,216
Other assets, net                                                            6,263                         6,904
                                                                     -------------                 -------------
         Total assets                                                $     382,606                 $     355,341 
                                                                     =============                 =============
                                                                                                                 
</TABLE>


The accompanying notes are an integral part of these condensed consolidated 
financial statements.




    
                                      3
<PAGE>   4
               PHYSICIAN RELIANCE NETWORK INC.  AND SUBSIDIARIES

                     CONDENSED CONSOLIDATED BALANCE SHEETS
                      (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
                                   UNAUDITED

                      LIABILITIES AND STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                                         June 30,                      December 31,
                                                                           1997                           1996
                                                                        ----------                     -----------
<S>                                                                     <C>                            <C>    
Current liabilities:
         Accounts payable                                               $   20,702                      $  21,400
         Accrued liabilities
                 Salaries and benefits                                       5,657                          4,739
                 Property taxes                                                646                          1,283
                 Other                                                       3,538                          1,870
                                                                        ----------                      ---------
                                                                             9,841                          7,892

         Due to related parties                                              4,290                          6,060
         Current maturities of long-term debt                                7,734                          4,696
                                                                        ----------                      ---------
                 Total current liabilities                                  42,567                         40,048

Long-term debt, net of current maturities                                   44,131                         14,121
Construction and retainage payable                                             275                            540
Deferred liabilities                                                           502                             --
Deferred income taxes                                                        6,869                          5,856
                                                                        ----------                      ---------
                 Total liabilities                                          94,344                         60,565
                                                                        ----------                      ---------

Subordinated convertible promissory notes payable                            8,500                             --

Stockholders' equity:
         Common stock                                                          483                            476
         Additional paid-in capital                                        233,948                        230,024
         Common stock to be issued, 1,719,004 shares                        25,268                         26,962
         Retained earnings                                                  20,063                         37,314
                                                                        ----------                      ---------
                 Total stockholders' equity                                279,762                        294,776

                                                                        ----------                      ---------
                 Total liabilities and stockholders' equity             $  382,606                      $ 355,341
                                                                        ==========                      =========
</TABLE>

The accompanying notes are an integral part of these condensed consolidated 
financial statements.





                                      4
<PAGE>   5
               PHYSICIAN RELIANCE NETWORK INC.  AND SUBSIDIARIES

                  CONDENSED CONSOLIDATED STATEMENTS OF INCOME
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
                                   UNAUDITED

<TABLE>
<CAPTION>
                                                       Three Months Ended                   Six Months Ended
                                                             June 30,                           June 30,
                                                  -----------------------------         ---------------------------
                                                     1997                1996             1997               1996
                                                  ----------           --------         --------           --------
<S>                                                <C>                 <C>              <C>                <C>
Revenues:

         Medical practice revenues, net            $  93,706           $ 71,125         183,675            134,565
         Amounts retained by physicians              (26,807)           (17,989)        (49,210)           (33,898)
                                                   ---------           --------         -------           --------
         Management fees                              66,899             53,136         134,465            100,667
         Other revenues                                5,815              3,434          11,022              5,613
                                                   ---------           --------        --------           --------
                   Total revenues                     72,714             56,570         145,487            106,280
                                                   ---------           --------        --------           --------

Costs and expenses:

         Salaries and benefits                        20,504             16,182          40,227             30,262
         Pharmaceuticals and supplies                 23,212             15,717          46,962             28,388
         General and administrative                   15,885              8,306          27,898             16,897
         Provision for uncollectible accounts         41,172              2,892          44,483              4,898
         Depreciation and amortization                 5,210              3,411          10,077              6,643
         Interest expense                                960                259           1,643                838
                                                   ---------           --------        --------           --------
                   Total costs and expenses          106,943             46,767         171,290             87,926

                                                   ---------           --------        --------           --------
Income (loss) before taxes                           (34,229)             9,803         (25,803)            18,354
                                                   ---------           --------        --------           --------

Provision (benefit) for income taxes:
         Current                                     (12,323)             3,107          (9,394)             5,893
         Deferred                                        477                720             876              1,312
                                                   ---------           --------        --------           --------
                   Total provision (benefit)                 
                   for income taxes                  (11,846)             3,827          (8,518)             7,205
                                                   ---------           --------        --------           --------

Net income (loss)                                  $ (22,383)          $  5,976        $(17,285)          $ 11,149
                                                   =========           ========        ========           ========
                                                                               

Net income (loss) per share
         (primary and fully diluted)               $   (0.43)          $   0.13        $  (0.33)          $   0.25

Weighted average shares outstanding                   52,378             47,748          51,608             45,141
                                                   =========           ========        ========           ========
</TABLE>

The accompanying notes are an integral part of these condensed consolidated
financial statements.





                                      5
<PAGE>   6
              PHYSICIAN RELIANCE NETWORK INC.  AND SUBSIDIARIES

               CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                (IN THOUSANDS)
                                  UNAUDITED

<TABLE>
<CAPTION>
                                                                                       Six Months Ended
                                                                                           June 30,
                                                                             -------------------------------------
                                                                               1997                         1996
                                                                             --------                     --------
<S>                                                                          <C>                           <C>
Cash flows from operating activities:
         Net income (loss)                                                   $(17,285)                    $ 11,149
         Adjustments to reconcile net income to net cash
              used in operating activities
                 Depreciation and amortization                                 10,077                        6,643
                 Deferred income tax, net                                         876                        1,312
                 Provision for uncollectible accounts                          44,483                        4,898
                 Gain on sale of the ambulatory surgery center                   (511)                          --
                 Changes in operating assets and liabilities:
                      Increase in receivables, net                            (34,541)                     (44,199)
                      Increase in income tax receivable                       (15,216)                          --
                      (Increase) decrease in inventories and prepaids          (2,275)                       1,997
                      (Increase) decrease in other assets                        340                        (2,674)
                      Increase in accounts payable
                           and accrued liabilities                              1,251                        3,160
                      Increase in deferred liabilities                            502                           --
                      Decrease in due to related party                         (1,770)                      (1,105)
                                                                             --------                     --------
                           Net cash used in operating activities              (14,069)                     (18,819)
                                                                             --------                     --------

Cash flows from investing activities:
         Capital expenditures                                                 (20,470)                     (37,873)
         Construction and retainage                                              (265)                      (6,650)
         Service agreements                                                    (5,603)                      (4,468)
         Sale of the ambulatory surgery center                                  1,950                           --
                                                                             --------                     --------
                 Net cash used in investing activities                        (24,388)                     (48,991)
                                                                             --------                     --------

Cash flows from financing activities:
         Proceeds from long-term borrowings                                    33,000                       43,000
         Payments on long-term borrowings                                      (1,761)                     (64,137)
         Issuance of common stock                                                 190                      102,320
                                                                             --------                     --------
                 Net cash provided by financing activities                     31,429                       81,183
                                                                             --------                     --------
Net increase (decrease) in cash and cash equivalents                           (7,028)                      13,373
Cash and cash equivalents, beginning of period                                  7,679                       12,405
                                                                             --------                     --------
Cash and cash equivalents, end of period                                     $    651                     $ 25,778
                                                                             ========                     ========
</TABLE>


The accompanying notes are an integral part of these condensed consolidated 
financial statements.





                                      6
<PAGE>   7
               PHYSICIAN RELIANCE NETWORK, INC. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)


1.  BASIS OF PRESENTATION:

         The condensed consolidated financial statements include the accounts
of Physician Reliance Network, Inc. and its subsidiaries for the six months
ended June 30, 1997, and 1996, respectively.  All significant intercompany
transactions have been eliminated.  Certain reclassifications of prior year
amounts have been made to conform to the current year presentation.


2. SUPPLEMENTAL CASH FLOW INFORMATION:

         Supplemental schedule of noncash investing and financing activities
are as follows:

         During the six months ended June 30, 1997, the Company acquired assets
in exchange for $10,309 of notes payable, $8,500 of subordinated convertible
promissory notes, and has issued or agreed to issue approximately $2,081 of
common stock in connection with the execution of certain Service Agreements.

         During the six months ended June 30, 1996, the Company acquired assets
in exchange for $2,125 of common stock and a commitment to issue approximately
$7,643 of common stock in connection with the execution of certain Service
Agreements.

<TABLE>
<CAPTION>
                                                 Six Months ended June 30,
                                                 -------------------------
                                                   1997            1996
                                                 --------         --------
<S>                                              <C>              <C>
Cash paid during the period:                
    Interest, net of amount capitalized          $  1,232         $    504
    Income taxes                                 $  5,335         $  5,300
</TABLE>


3. COMMITMENTS:

         The service agreement with the Minnesota physician group provides for
a reduction of the Company's management fee under certain circumstances.  For
the six months ended June 30, 1997, the Company's management fee was reduced by
$341.  The Company's fee was not reduced for the quarter ended June 30, 1997.

4. STOCK BASED COMPENSATION:

         Effective December 31, 1996, the Company adopted Statement of
Financial Accounting Standard ("SFAS") No. 123, "Accounting for Stock Based
Compensation;" however, the Company continues to account for stock based
compensation under Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," as allowed by SFAS No. 123.  Had compensation cost
for the Company's stock option plans been determined consistent with SFAS No.
123, the Company's net income and earnings per share would have been reduced to
the following pro forma amounts:





                                      7
<PAGE>   8
<TABLE>
<CAPTION>                             
                                           Three Months Ended                  Six Months Ended
                                                June 30,                          June 30,
                                      ----------------------------         --------------------------
                                        1997               1996              1997              1996
                                      ---------         ----------         --------          --------
<S>                                   <C>               <C>                <C>               <C>
Net income (loss):                    
         As reported                  $ (22,383)        $    5,976         $(17,285)         $ 11,149
         Pro forma                    $ (22,683)        $    5,701         $(17,982)         $ 10,635
                                      
Earnings (loss) per common share:     
         As reported                   $  (0.43)        $     0.13         $  (0.33)         $   0.25
         Pro forma                     $  (0.43)        $     0.12         $  (0.35)         $   0.24
</TABLE>


5. EARNINGS PER SHARE:

         Net income (loss) per share (primary and fully diluted) were
calculated using the weighted average number of common shares outstanding
during the period plus the net additional number of shares which would be
issuable upon the exercise of stock options, assuming the Company used the
proceeds received to purchase additional shares at market value.  The Company
will adopt Statement of Financial Accounting Standards No. 128, Earnings per
Share (SFAS 128), effective December 15, 1997.  SFAS 128, requires the
calculation of basic earnings per share which is computed by dividing net
income by the weighted average number of shares of common stock outstanding
during the period and diluted earnings per common share which is computed using
the weighted average number of shares of common stock and common stock
equivalents.  As required, the Company will report earnings per share in
accordance with SFAS 128.

         Proforma basic earnings per share and diluted earnings per share would
have been as follows:

<TABLE>
<CAPTION>
                                     Three Months Ended                 Six Months Ended
                                          June 30,                          June 30,
                                  -----------------------          -------------------------
                                   1997              1996            1997               1996
                                  -------           -----          -------             -----
<S>                               <C>               <C>            <C>                 <C>
Basic earnings per share          $(0.46)           $0.13          $(0.36)             $0.26
Diluted earnings per share        $(0.43)           $0.13          $(0.33)             $0.25
</TABLE>


6. NEW ACCOUNTING STANDARDS:


         In February 1997, the Financial Accounting Standards Board also issued
Statement of Financial Accounting Standards No. 129 ("SFAS 129"), "Disclosure
of Information about Capital Structure."  SFAS 129 requires the disclosure of
the pertinent rights and privileges of the various securities outstanding as
well as the number of shares issued upon conversion, exercise, or satisfaction
of required conditions during the most recent fiscal period and any subsequent
interim period presented.  SFAS 129 is effective for periods ending after
December 15, 1997.  The Company does not believe that this statement will have
a material effect on the financial statements.





                                      8
<PAGE>   9
ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
         RESULTS OF OPERATIONS


         The following discussion of the results of operations and financial
condition of the Company should be read in conjunction with the Company's
Consolidated Financial Statements and Notes thereto included in its Annual
Report on Form 10-K for the year ended December 31, 1996, and with the
Condensed Consolidated Financial Statements included in this Form 10-Q.

OVERVIEW

         The Company provides the management, facilities, administrative and
technical support, and certain other services necessary to establish and
maintain a fully-integrated network of outpatient oncology care.  The Company's
affiliated physician groups ("Affiliated Physician Groups") provide care
related to the diagnosis and treatment of cancer on an outpatient basis,
including medical oncology, radiation oncology, gynecological oncology, and
diagnostic radiology.  The Company earns its revenues for services provided
under its service agreements ("Service Agreements") with the Affiliated
Physician Groups. Under the Service Agreements, the Company receives a
management fee ("Management Fees") for services rendered, and the method of
determining the fee varies based upon the agreement entered into with the
physician groups.  The Company's most significant service agreement is with
Texas Oncology, P.A. ("TOPA").  The Company's management fee under this Service
Agreement is calculated based upon a percentage of the earnings before interest
and taxes ("Earnings") plus certain nonphysician expenses of the related
practice locations.  The TOPA Service Agreement represented approximately 74.4%
and 76.6% of the Company's Management Fee revenue for the three months and six
months ended June 30, 1997, respectively.  Approximately 88.8% and 89.7% of the
Company's Management Fees earned for the three and six months ended June 30,
1997, respectively, were derived from Service Agreements in which the
Management Fee is calculated based on Earnings and approximately 11.2% and
10.3%, respectively, were derived from Service Agreements in which the
Management Fee is calculated based on a percentage of medical practice
revenues.



         The following table sets forth the percentages of total revenues
represented by certain items reflected in the income statement.  The
information that follows should be read in conjunction with the Condensed
Consolidated Financial Statements and Notes thereto included elsewhere herein.





                                      9
<PAGE>   10
<TABLE>
<CAPTION>
                                              Three Months Ended                      Six Months Ended
                                                   June 30,                                June 30,
                                            ---------------------                  ----------------------
                                             1997            1996                    1997            1996
                                            -----           -----                   -----           ----- 
<S>                                         <C>              <C>                  <C>                 <C>
Revenues:                                  
Management fees                              92.0    %       93.9    %               92.4   %        94.7  %
Other revenues                                8.0             6.1                     7.6             5.3
                                            -----           -----                   -----           ----- 
          Total revenues                    100.0           100.0                   100.0           100.0
                                           
Costs and expenses:                        
                                                            
Salaries and benefits                        28.2            28.6                    27.7            28.5
Pharmaceutical and supplies                  31.9            27.8                    32.3            26.7
General and administrative                   21.8            14.7                    19.2            15.9
Provision for uncollectible accounts         56.7             5.1                    30.6             4.6
Depreciation and amortization                 7.2             6.0                     6.9             6.3
                                            -----           -----                   -----           ----- 
  Income before interest expense and taxes  (45.8)           17.8                   (16.7)           18.0
Interest expense                              1.3             0.5                     1.1             0.7
                                            -----           -----                   -----           ----- 
  Income before income taxes                (47.1)           17.3                   (17.8)           17.3
Income taxes                                (16.3)            6.7                    (5.9)            6.8
                                            -----           -----                   -----           ----- 
                                                            
          Net income                        (30.8)   %       10.6    %              (11.9)  %        10.5  %
                                            =====           =====                   =====           ===== 
</TABLE>

THREE MONTHS ENDED JUNE 30, 1997, COMPARED TO THE THREE MONTHS ENDED JUNE 30,
1996

         MANAGEMENT FEES.  Management Fees were $66,899,000 for the three
months ended June 30, 1997, compared to $53,136,000 for the three months ended
June 30, 1996, representing an increase of $13,763,000 or 25.9%.  The growth in
Management Fees is attributable to a $22,581,000 increase in Medical Practice
Revenues (gross billings less contractual discounts) generated by the
Affiliated Physician Groups offset by an increase in amounts retained by
physicians pursuant to the Service Agreements ("Amounts Retained by
Physicians") of $8,818,000.  The growth in Medical Practice Revenues during the
three months ended June 30, 1997, is due to an increase in the number of
physicians by 78 at June 30, 1997, compared to June 30, 1996; an increase in
the number of service locations from 90 to 111; and growth of the revenue base
from expansion of services provided at existing locations.  The increase over
the prior period in the number of physicians is comprised of 56 medical
oncologists, eight radiation oncologists, and 14 other physicians.  Through
June 30, 1997, the Company had entered into Service Agreements with physicians
in Texas, Iowa, Oregon, Missouri, Washington, Maryland, Arkansas, New York,
Minnesota, and Illinois.

         Since June 30, 1996, the Company has opened three full-service cancer
centers that include radiation therapy services in Fort Worth, Texas (April
1997), Abilene, Texas (June 1997), and Austin, Texas (June 1997).

         Amounts Retained by Physicians were 28.6% of Medical Practice Revenues
for the three months ended June 30, 1997, compared to 25.3% of Medical Practice
Revenues for the comparable period in 1996.  The increase in the percentage is
due to improved field office operations, primarily in Texas, where Amounts
Retained by Physicians is calculated as a percentage of earnings.

         The Company's Management Fee is derived, in part, from payors who have
contracted with the Affiliated Physician Groups to provide services on a
discounted fee-for-service basis, which accounted for approximately 32% and 28%
of the Affiliated Physician Groups business during the three months ended June
30, 1997 and 1996,





                                      10
<PAGE>   11
respectively.  Approximately 47% and 50% of the Medical Practice Revenues
generated by the Affiliated Physician Groups for the three months ended June
30, 1997 and 1996, were from Medicare and Medicaid.

         OTHER REVENUES.  Other revenues for the three months ended June 30,
1997, were $5,815,000 compared to $3,434,000 for the three months ended June
30, 1996, representing an increase of $2,381,000, or 69.3%.  Other revenues are
primarily derived from retail pharmacy operations located in certain of the
Company's cancer centers and larger physician offices and from research
activities performed by the Affiliated Physician Groups that are sponsored by
pharmaceutical companies.  The Company's pharmacy locations provide convenient
oncologic and pain management pharmaceuticals to patients.  The increase in the
retail pharmacy revenues is a result of the growth in the number of locations
opened as of June 30, 1997, of 26 compared to 21 as of June 30, 1996.

         SALARIES AND BENEFITS.  Salaries and benefits for the three months
ended June 30, 1997, were $20,504,000 compared to $16,182,000 for the three
months ended June 30, 1996, representing an increase of $4,322,000 or 26.7%.
Salaries and benefits include certain costs of nonphysician clinical employee
expenses paid by the Company pursuant to the terms of the Service Agreements.
The dollar increase in the salaries and benefits was due to the addition of
clinical and nonclinical personnel required to support the increase in
Affiliated Physician Groups. The percentage of salaries and benefits to total
revenues was 28.2% for the three months ended June 30, 1997, compared to 28.6%
for the comparable period in 1996.

         PHARMACEUTICALS AND SUPPLIES.  Pharmaceuticals and supplies for the
three months ended June 30, 1997, were $23,212,000 compared to $15,717,000 for
the three months ended June 30, 1996, representing an increase of $7,495,000 or
47.7%.  The increase in pharmaceuticals and supplies is attributable to an
increase in infusion, radiation, and breast diagnostic services generated by
the Affiliated Physician Groups, both through the increased number of
physicians and the enhancement of services provided in physician offices and
cancer centers.  The percentage of pharmaceuticals and supplies to total
revenues was 31.9% for the three months ended June 30, 1997, compared to 27.8%
for the three months ended June 30, 1996.  This increase was primarily a result
of a change in the mix of specialties of the Affiliated Physician Groups
managed by the Company to a larger percentage of medical oncologists and
overall cost increases.  Approximately 63.8% of the physicians in the
Affiliated Physician Groups managed by the Company at June 30, 1997, were
medical oncologist, compared to 61.3% for the comparable period in 1996.
Revenues generated by medical oncologists have a greater percentage of
pharmaceutical expenses than revenues generated in a cancer center.

         GENERAL AND ADMINISTRATIVE.  General and administrative expenses for
the three months ended June 30, 1997, were $15,885,000 compared to $8,306,000
for the three months ended June 30, 1996, representing an increase of
$7,579,000 or 91.2%.  The percentage of general and administrative expenses to
total revenues was 21.8% for the three months ended June 30, 1997, compared to
14.7% for the three months ended June 30, 1996.  The largest increase in
general and administrative was due to the $3,133,000 nonrecurring charge
recorded in the quarter ended June 30, 1997.  The charge included costs for
legal and other expenses related to pending shareholder and other litigation
and the write-off of certain deferred costs.  The other increase in general and
administrative resulted from increased lease costs, reference laboratory
services, temporary outsourcing of billing and collection functions for two new
practice affiliations, services from consultants to assist with the
implementation of streamlined office operations, temporary clerical work to
assist in the expansion of the Company's existing and new service locations,
and contracted services in connection with the clinical research program.

         PROVISION FOR UNCOLLECTIBLE ACCOUNTS.  The provision for uncollectible
accounts for the three months ended June 30, 1997, was $41,172,000 compared to
$2,892,000 for the three months ended June 30, 1996, representing an increase
of $38,280,000.  For the quarter ended June 30, 1997, the Company provided
approximately $37,841,000 in additional provision for uncollectible accounts
receivable outstanding at June 30, 1997.  The additional provision is for
accounts receivable that the Company does not deem to be collectible as a
result of an extensive review of its outstanding accounts receivable and
collection experience utilizing reports and analyses not previously available
to





                                      11
<PAGE>   12
the Company.  The Company believes that the additional provision accurately
reflects the collectibility of accounts receivable outstanding at June 30,
1997.

         DEPRECIATION AND AMORTIZATION.  Depreciation and amortization for the
three months ended June 30, 1997, was $5,210,000 compared to $3,411,000 for the
three months ended June 30, 1996, representing an increase of $1,799,000 or
52.7%.  Depreciation increased $1,490,000 as a result of the additional office
and cancer center locations that were opened by the Company since June 30,
1996.  Amortization increased $309,000 as a result of the increase in costs
incurred for the Affiliated Physician Groups entering into Service Agreements
with the Company.

         INTEREST.  Interest expense for the three months ended June 30, 1997,
was $960,000 compared to $259,000 for the three months ended June 30, 1996,
representing an increase of $701,000 or 270.7%.  The increase in interest
expense was due to increased borrowings under the Company's revolving credit
facility (the "Revolver") and increased amounts owed to Affiliated Physician
Groups arising through Service Agreement transactions.

         INCOME TAXES.  The income tax benefit was $11,846,000 for the three
months ended June 30, 1997, compared to an income tax provision of $3,827,000
for the three months ended June 30, 1996, representing a decrease of
$15,673,000.  The company intends to carry back the loss to prior year income
tax returns and obtain a refund.  Income taxes were provided on the taxable
income of the Company for federal and state reporting purposes using the
applicable effective rates except that the additional provision for
uncollectible accounts was provided at the applicable federal rate.


SIX MONTHS ENDED JUNE 30, 1997, COMPARED TO THE SIX MONTHS ENDED JUNE 30, 1996

         MANAGEMENT FEES.  Management Fees were $134,465,000 for the six months
ended June 30, 1997, compared to $100,667,000 for the six months ended June 30,
1996, representing an increase of $33,798,000 or 33.6%.  The growth in
Management Fees is attributable to a $49,110,000 increase in Medical Practice
Revenues generated by the Affiliated Physician Groups offset by an increase in
Amounts Retained by Physicians pursuant to the Service Agreements of
$15,312,000.  The growth in Medical Practice Revenues during the six months
ended June 30, 1997, is due to an increase in the number of physicians by 78 at
June 30, 1997, compared to June 30, 1996; an increase in the number of service
locations from 90 to 111; and growth of the revenue base from expansion of
services provided at existing locations.  The increase over the prior period in
the number of physicians is comprised of 56 medical oncologists, eight
radiation oncologists, and 14 other physicians.

         Amounts Retained by Physicians were 26.8% of Medical Practice Revenues
for the six months ended June 30, 1997, compared to 25.2% of Medical Practice
Revenues for the comparable period in 1996. The increase in the percentage is
due to improved field office operations, primarily in Texas, where Amounts
Retained by Physicians is calculated as a percentage of earnings.

         The Company's Management Fee is derived, in part, from payors who have
contracted with the Affiliated Physician Groups to provide services on a
discounted fee-for-service basis, which accounted for approximately 31% and 27%
of the Affiliated Physician Groups business during the six months ended June
30, 1997 and 1996, respectively.  Approximately 49% and 50% of the Medical
Practice Revenues generated by the Affiliated Physician Groups for the six
months ended June 30, 1997 and 1996, were from Medicare and Medicaid.

         OTHER REVENUES.  Other revenues for the six months ended June 30,
1997, were $11,022,000 compared to $5,613,000 for the six months ended June 30,
1996, representing an increase of $5,409,000, or 96.4%.  Other revenues are
primarily derived from retail pharmacy operations located in certain of the
Company's cancer centers and larger physician offices and from research
activities performed by the Affiliated Physician Groups that are sponsored by
pharmaceutical companies.  The Company's pharmacy locations provide convenient
oncologic and





                                      12
<PAGE>   13
pain management pharmaceuticals to patients.  The increase in the retail
pharmacy revenues is a result of the growth in the number of locations opened
as of June 30, 1997, of 26 compared to 21 as of June 30, 1996.

         SALARIES AND BENEFITS.  Salaries and benefits for the six months ended
June 30, 1997, were $40,227,000 compared to $30,262,000 for the six months
ended June 30, 1996, representing an increase of $9,965,000 or 32.9%. Salaries
and benefits include certain costs of nonphysician clinical employee expenses
paid by the Company pursuant to the terms of the Service Agreements.  The
dollar increase in salaries and benefits was due to the addition of clinical
and nonclinical personnel required to support the increase in Affiliated
Physician Groups.  The percentage of salaries and benefits to total revenues
was 27.7% for the six months ended June 30, 1997, compared to 28.5% for the
comparable period in 1996.  This decrease in the percentage of salaries and
benefits to total revenues was due to the expansion of services in its medical
oncology offices where the incremental personnel cost of providing services is
less than the increase in the revenues generated.  Approximately 63.8% of the
physicians in the Affiliated Physician Groups managed by the Company at June
30, 1997, were medical oncologists, compared to 61.3% for the comparable period
in 1996.  The decrease in the percentage was offset, in part, through the
increase in corporate management required to support the Company's expanded
operations.

         PHARMACEUTICALS AND SUPPLIES.  Pharmaceuticals and supplies for the
six months ended June 30, 1997, were $46,962,000 compared to $28,388,000 for
the six months ended June 30, 1996, representing an increase of $18,574,000 or
65.4%.  The increase in pharmaceuticals and supplies is attributable to an
increase in infusion, radiation, and breast diagnostic services generated by
the Affiliated Physician Groups, both through the increased number of
physicians and the enhancement of services provided in physician offices and
cancer centers.  The percentage of pharmaceuticals and supplies to total
revenues was 32.3% for the six months ended June 30, 1997, compared to 26.7%
for the six months ended June 30, 1996.  This increase was primarily a result
of a change in the mix of specialties of the Affiliated Physician Groups
managed by the Company to a larger percentage of medical oncologists and
overall cost increases.  Revenues generated by medical oncologists have a
greater percentage of pharmaceutical expenses than revenues generated in a
cancer center.

         GENERAL AND ADMINISTRATIVE.  General and administrative expenses for
the six months ended June 30, 1997, were $27,898,000 compared to $16,897,000
for the six months ended June 30, 1996, representing an increase of $11,001,000
or 65.1%.  The percentage of general and administrative expenses to total
revenues was 19.2% for the six months ended June 30, 1997, compared to 15.9%
for the six months ended June 30, 1996.  The largest increase in general and
administrative was due to a $3,133,000 nonrecurring charge recorded in the
quarter ended June 30, 1997.  The charge included costs for legal and other
expenses related to pending shareholder and other litigation and the write-off
of certain deferred costs.  The other increase in general and administrative
resulted from increased lease costs, reference laboratory services, temporary
out sourcing of billing and collection functions for two new practice
affiliations, services from consultants to assist with the implementation of
stream lined office operations, temporary clerical work to assist with the
Company's existing and new service locations, and contracted services in
connection with the clinical research program.

         PROVISION FOR UNCOLLECTIBLE ACCOUNTS.  The provision for uncollectible
accounts for the six months ended June 30, 1997, was $44,483,000 compared to
$4,898,000 for the six months ended June 30, 1996, representing an increase of
$39,585,000.  For the six months ended June 30, 1997, the Company provided
approximately $37,841,000 in additional provision for uncollectible accounts
receivable outstanding at June 30, 1997.  The additional provision is for
accounts receivable that the Company does not deem to be collectible and
resulted from a review of its outstanding accounts receivable and past
collection experience. The Company believes that the additional provision
accurately reflects the collectibility of accounts receivable outstanding at
June 30, 1997.

         DEPRECIATION AND AMORTIZATION.  Depreciation and amortization for the
six months ended June 30, 1997, was $10,077,000 compared to $6,643,000 for the
six months ended June 30, 1996, representing an increase of $3,434,000 or
51.7%.  Depreciation increased $2,842,000 as a result of the additional office
and cancer center locations that were opened or assumed by the Company since
June 30, 1996.  Amortization increased $592,000 as a





                                      13
<PAGE>   14
result of the increase in costs for the Affiliated Physician Groups entering
into Service Agreements with the Company.

         INTEREST.  Interest expense for the six months ended June 30, 1997,
was $1,643,000 compared to $838,000 for the six months ended June 30, 1996,
representing an increase of $805,000 or 96.1%.  The increase in interest was
due to increased borrowings under the Revolver and increased amounts owed to
Affiliated Physician Groups arising through Service Agreement transactions.

         INCOME TAXES.  The income tax benefit was $8,518,000 for the six
months ended June 30, 1997, compared to an income provision of $7,205,000 for
the six months ended June 30, 1996, representing a decrease of $15,723,000.
The Company intends to carry back the loss to prior year income tax returns and
obtain a refund.  Income taxes were provided on the taxable income of the
Company for federal and state reporting purposes using the applicable effective
rates except that the additional provision for uncollectible accounts was
provided at the applicable federal rate.

LIQUIDITY AND CAPITAL RESOURCES

         The Company has historically generated its cash flows from operations,
bank financing, and the sale of securities.  The Company's primary cash
requirements are for construction of cancer centers, acquisition of equipment
for cancer centers and medical offices, financing receivables, and acquiring
assets from and entering into Service Agreements with Affiliated Physician
Groups.

         Net cash used in operations for the six months ended June 30, 1997,
was $14,069,000.  Net cash used in operations includes a $15,216,000 increase
in income tax receivable.  This cash will be received when the Company files
its current year tax return which will result in a refund of the taxes paid in
calendar year 1997 and the balance of the refund will be received by carrying
back the remaining loss to prior year tax returns.  The Company has advanced to
its Affiliated Physician Groups amounts needed for working capital purposes
primarily to assist with the development of new markets.  The advances
aggregated approximately $11,841,000 and bear interest at a market rate (8.5 %
at June 30, 1997).

         Net cash used in investing activities for the six months ended June
30, 1997, was $24,388,000.  During the six months ended June 30, 1997, the
Company expended $5,603,000 in partial consideration to enter into Service
Agreements.  The Company continued and completed the construction of cancer
centers in Fort Worth, Texas; Austin, Texas; and Abilene, Texas.  Construction
of a cancer center commenced in Eugene, Oregon as part of a joint venture in
which the Company is the general partner.  These expenditures were funded
primarily from borrowings under the Company's Revolver.

         Net cash flows from financing activities for the six months ended June
30, 1997, were $31,429,000.  Borrowings under the Revolver were $33,000,000 and
were used to finance the Company's ongoing construction and development
activities, the acquisition of equipment, and for working capital purposes.
During the six months ended June 30, 1997, payments of $1,761,000 were made to
Affiliated Physician Groups on Company-financed notes that were issued as part
of the consideration for entering into Service Agreements.

         In June 1997 the Company amended its loan agreement with Bank One
Texas, N.A. as agent, NationsBank of Texas, N.A. as co-agent and six additional
lenders to increase the maximum amounts available for borrowing from $90
million to $140 million; to decrease the interest rate charged on outstanding
balances; to amend certain financial covenants; and to release certain
collateral.  The Company has the option of financing borrowings under the
Revolver at either a LIBOR- based rate (LIBOR plus .70% at June 30, 1997) or at
Bank One Texas, N.A.'s prime rate.  The Revolver contains covenants that, among
other things, require the Company to maintain certain financial ratios and
impose restrictions on the Company's ability to pay cash dividends, sell
assets, and redeem or repurchase the Company's securities.  At June 30, 1997,
$33,000,000 was outstanding under the Revolver, and the entire $140





                                      14
<PAGE>   15
million was available for borrowing.  Due to the loss reported by the Company
for the quarter ended June 30, 1997, resulting from the additional provision
for uncollectible accounts, additional legal expenses, and the write-off of
certain deferred costs, the Company was not in compliance with certain
financial covenants.  The Company has obtained a waiver of these covenant
violations from the bank group as it related to these nonrecurring charges.

         The Company expects that its principal use of funds in the foreseeable
future will be for the construction of cancer centers and the acquisition of
related equipment; the acquisition of medical practice assets; payments to
Affiliated Physician Groups as consideration for entering into Service
Agreements; repayment of notes issued in connection with the acquisition of
Service Agreements; debt repayments under the Revolver; and working capital.
The Company believes that the unused borrowing capacity under the Revolver will
be sufficient to meet its needs in the near term. Recent declines in the market
price of the Common Stock make offerings of common stock to the public unlikely
in the near-term.  The Company believes it has adequate access to other forms
of financing at reasonable terms to meet the capital requirements of its
construction and network development programs through 1998, including but not
limited to increasing the amount available for borrowing under the Revolver.
However, no assurance exists that such additional financing will be available
in the future or that, if available, it will be available on terms acceptable
to the Company.  In addition, the Company will continue to construct facilities
under build-to-suit arrangements pursuant to long-term operating leases if the
implicit cost of construction is equal to or less than the cost for the Company
to construct its own facilities.

RECENT DEVELOPMENTS

         On June 30, 1997, one of the Company's subsidiaries, PRN Research,
Inc. entered into a comprehensive clinical development alliance with ILEX(TM)
Oncology, Inc. ("ILEX") a drug development company focused exclusively on
cancer.  Under the terms of the agreement, the Company will refer all contract
research business to ILEX.  ILEX has issued to the Company 312,188 shares of
ILEX common stock.  In addition, ILEX will issue 314,600 shares over the next
three years.  ILEX will also issue up to 1,255,988 shares over the next four
years contingent upon the performance of ILEX's contract clinical research
business and other conditions.

FORWARD-LOOKING STATEMENTS/RISK FACTORS

         This Form 10-Q contains certain forward-looking statements regarding
the anticipated financial and operating results of the Company.  For this
purpose, any statements contained herein that are not statements of historical
fact may be deemed to be forward-looking statements.  In connection with the
"safe harbor" provisions of the Private Securities Litigation Reform Act of
1995, the Company is including the following cautionary statements identifying
important factors that could cause the Company's actual results to differ
materially from those projected in forward- looking statements made by, or on
behalf of, the Company.  These factors, many of which are beyond the Company's
control, include the Company's dependence on fees and revenues generated by
physicians employed by the Affiliated Physician Groups, particularly TOPA; the
Company's ability to identify expansion opportunities; the Company's ability to
achieve operating efficiencies associated with integrating physician practices
and expanding the services offered by its Affiliated Physician Groups,
particularly TOPA; the Company's ability to obtain suitable financing to
support its expansion objectives; the Company's ability to effectively collect
its accounts receivable; changes in governmental regulation regarding the
relationships between the Company and the Affiliated Physician Groups, changes
in payment for medical services, including Medicare and Medicaid programs; the
Company's ability to provide services on a risk-sharing or capitated basis;
competitive pressures affecting physician practice management companies and
physician groups with whom the Company contracts; diversion of management's
attention from operations to respond to lawsuits against the Company; and
potential exposure to professional and product liability claims.  The Company
undertakes no obligation to publicly release any revisions to any
forward-looking statements contained herein to reflect events or circumstances
occurring after the date hereof or to reflect the occurrence of unanticipated
events.





                                      15
<PAGE>   16
                          PART II - OTHER INFORMATION


ITEM 1.  LEGAL PROCEEDINGS.

         In March 1996, Methodist Hospitals of Dallas ("Methodist") filed a
lawsuit in the District Court of Dallas County, Texas against the Company and
TOPA.  This lawsuit asserts various claims, including claims of monopolization,
conspiracy to monopolize, attempted monopolization, unfair competition, and
tortious interference with actual and prospective contractual relationships.
Methodist is seeking both injunctive relief and unspecified monetary and
punitive damages.  This matter is set for trial in November 1997.  The Company
has denied each of Methodist's claims, believes this lawsuit is without merit,
and intends to vigorously defend itself.  The Company is not aware of any
governmental actions to assert claims against TOPA or the Company similar to
those asserted by Methodist.

         On or about September 12, 1996, the Company was named as a defendant
in a suit styled Alan Hinerfeld On Behalf of Himself and All Others Similarly
Situated v. Physician Reliance Network, Inc., Merrick H. Reese, Joseph S.
Bailes, Randall D. Kurtz, Robert W. Daly, Robert J. Whren, Merrill Lynch,
Pierce Fenner & Smith, Inc., Smith Barney , Inc., Piper Jaffray Inc., and Cowen
& Company, in the 14th Judicial District Court, Dallas County, Texas
("Hinerfeld").  On or about September 17, 1996, the Company was named as a
defendant in a suit styled Susan Kaufman On Behalf of Herself and All Others
Similarly Situated v. Physician Reliance Network, Inc., Texas Oncology, P.A.,
Merrick H. Reese, Joseph S.  Bailes, J. Ernest Sims, Pamela Burgess, Randall D.
Kurtz, Robert W. Daly and Robert J. Whren in the United States District Court
for the Northern District of Texas, Dallas Division ("Kaufman").  On or about
October 15, 1996, the Company was named as a defendant in a suit styled Robert
N. Abendschein, On Behalf of Himself and All Others Similarly Situated v.
Physician Reliance Network, Inc., Texas Oncology, P.A., Merrick H. Reese,
Joseph S. Bailes, Randall D.  Kurtz, J. Ernest Sims, Robert J. Whren, Robert W.
Daly and Pamela Burgess, in the 134th Judicial District Court, Dallas County,
Texas ("Abendschein").  By order dated December 16, 1996, the Abendschein case
was consolidated with the Hinerfeld action.  On or about March 3, 1997, the
Abendschein state court suit was dismissed without prejudice, and on or about
March 11, 1997, plaintiff Abendschein joined the Kaufman Federal court suit.
Pamela Burgess is no longer a named defendant in the Kaufman action.  Kaufman
seeks recovery on behalf of all persons who purchased shares of the Company's
common stock on the open market from February 12, 1996, to July 11, 1996, and
alleges claims under Sections 10(b) and 20(a) of the Federal Securities
Exchange Act of 1934, and under Rule 10b-5 promulgated thereunder.  Hinerfeld
seeks recovery on behalf of persons who purchased stock between April 23, 1996,
and July 11, 1996, in the April 1996 public offering of the Company's common
stock and alleges claims under Sections 11,12(a)(2) and 15 of the Federal
Securities Act of 1933 and the Texas Revised Civil Statutes Article 581-33.  As
relief, Kaufman asserts that, if a class is certified, damages will exceed
$64,482,458.  Hinerfeld seeks unspecified monetary damages.

         On September 4, 1996, the Company was named as a defendant in a
similar suit styled Charles J. Jackson v.  Physician Reliance Network, Inc.,
Texas Oncology, P.A.; Smith Barney, Inc.; Cowen & Co., Inc.; Merrill Lynch,
Pierce, Fenner & Smith, Inc.; Piper Jaffray, Inc.; Merrick H. Reese, M.D.,
Individually; Joseph S. Bailes, M.D., Individually; and J. Ernest Sims,
Individually, in the 214th Judicial District Court, Nueces County, Texas
("Jackson").  Through an amended pleading, Jackson purports to represent a
class of all persons who purchased and presently own shares of the Company's
common stock from November 1994 through September 4, 1996.  Jackson asserts
claims under Sections 11 and 15 of the federal Securities Act and the Texas
Securities Act.  J. Ernest Sims is no longer a named defendant in the Jackson
action, but Randall D. Kurtz has been named as a defendant.  As relief, Jackson
seeks $1,380 plus interest thereon as his costs for purchasing the Company's
common stock.  Jackson seeks unspecified monetary damages on behalf of the
class.  Plaintiff Jackson joined defendants' motion to transfer venue to Dallas
County.  On or about April 15, 1997, the Nueces County court completed the
transfer.  Responsive





                                      16
<PAGE>   17
pleadings have been filed, plaintiffs have moved for class certification, and
discovery has commenced in all six suits.  Class certification briefs have been
filed by plaintiffs and defendants in Kaufman.

         In general, Jackson, Kaufman, and Hinerfeld assert that the Company
has engaged in certain improper accounting practices, that the relationship
between the Company and certain of the Affiliated Physician Groups violates
federal and state law, and that certain of the Affiliated Physician Groups have
charged the Medicare program amounts in excess of the cost of delivering
certain services.  The Company believes that the lawsuits are without merit and
intends to vigorously defend itself until these lawsuits are resolved.  The
Company is not aware of any governmental actions to assert claims against TOPA
or the Company similar to those in any of this litigation.  The Company has
reached an agreement on all material terms of a proposed settlement with the
plantiffs in Kaufman, Hinerfeld and Abendschein.  This settlement is subject
to preparation of documents evidencing the settlement by the court.


ITEM 2.  CHANGES IN SECURITIES.

         On June 2, 1977, the Board of Directors of the Company adopted a
shareholder rights plan and, in connection therewith, declared a dividend of
one Stock Purchase Right ("Right") per share of Common Stock outstanding on
June 16, 1997 ("Record Date").  A Right will also accompany each share of
Common Stock issued following the Record Date.  Each Right, when it first
becomes exercisable, entitles the holder to purchase from the Company
one-hundredth of one share of Series One Junior Preferred Stock, no par value
per share, at an initial exercise price of $60.00 per one-hundredth of one
share, subject to adjustment.  For a more detailed description of the
shareholder rights plan and the Rights, refer to the Rights Agreement, dated as
of June 2, 1997, between the Company and Harris Trust and Savings Bank, as
Rights Agent, a copy of which is filed as an exhibit to the Company's Current
Report on Form 8-K, as filed with the Securities and Exchange Commission on
June 5, 1997.

         Except as described below in response to this item, no securities of
the Company have been sold by the Company during the three-month period ended
June 30, 1997, without registration under the Securities Act of 1933.  The
issuance of securities described below have been, or will be, in reliance on
Section 4(2) of the Securities Act of 1933.

         Effective March 1, 1997, the Company entered into a Purchase Agreement
with Brady Allen, M.D., P.A. ("Allen") and agreed to issue Allen, as partial
consideration for the assets purchased, shares of Common Stock having an
aggregate value of $150,000, $50,000 of which will be issued on each of
February 15, 1998, 1999, and 2000.  On March 1, 1997, the Company issued 20,876
shares of Common Stock to Allen.

         Effective April 1, 1997, the Company entered into a Stock Purchase
Agreement with the shareholders of Northwest Cancer Center, P.S. ("Northwest")
and agreed to issue convertible promissory notes totaling $4,500,000 as partial
consideration for the acquisition of Northwest, for the formation of a new
company ("NEWCO") by the sellers of Northwest, and for entering into a Service
Agreement between the Company and NEWCO.  The promissory notes are convertible
into 825,688 shares of Common Stock at any time after April 1, 1998, at the
option of the Northwest shareholders.  The option to acquire Common Stock
expires with each of the related promissory notes representing 206,422 shares
at each of March 31, 1998, 1999, 2000, and 2001.

         Effective April 1, 1997, the Company entered into a Stock Purchase
Agreement with the shareholders of Puget Sound Cancer Center, P.C. ("Puget
Sound") and agreed to issue convertible promissory notes totaling $4,000,000 as
partial consideration for the acquisition of Puget Sound, for the formation of
NEWCO by the sellers of Puget Sound, and for entering into a Service Agreement
between the Company and NEWCO.  The promissory notes are convertible into
752,292 shares of Common Stock effective April 1, 1998, at the option of the
Puget Sound shareholders.  The option to acquire Common Stock expires with each
of the related promissory notes representing 188,073 shares at each of March
31, 1998, 1999, 2000, and 2001.





                                      17
<PAGE>   18
         Effective June 2, 1997, the Company entered into a Purchase Agreement
with Bill L. Tranum, M.D., P.A.  ("Tranum") and agreed to issue Tranum, as
partial consideration for the assets purchased and for becoming a shareholder
and employee of another Affiliated Physician Group managed by the Company,
shares of Common Stock having an aggregate value of $480,000, $132,000 of which
will be issued on June 2, 1998, $124,000 on June 2, 1999, $116,000 on June 2,
2000, and $108,000 on June 2, 2001.


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

         The Company held its Annual Meeting of Shareholders on May 21, 1997
(the "Annual Meeting").  At the Annual Meeting, the shareholders of the Company
voted to elect five directors, Merrick H. Reese, Joseph S. Bailes, Nancy G.
Brinker, Robert W. Daly, and Boone Powell, Jr., for one-year terms and until
their successors are duly elected and qualified.  The following table sets
forth the number of votes cast for and against/withheld with respect to each of
the nominees for director:

<TABLE>
<CAPTION>
        Nominee                         For                     Against/Withheld
    ------------------               ----------                 ----------------
    <S>                              <C>                              <C>
    Merrick H. Reese                 38,548,049                       164,024
    Joseph S. Bailes                 38,548,295                       163,778
    Nancy G. Brinker                 38,548,295                       163,778
    Robert W. Daly                   38,548,549                       163,524
    Boone Powell, Jr.                38,521,438                       190,635
</TABLE>


ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K.

         (a)  Exhibits.  See index to Exhibits following signatures.
         (b)  The Company filed a Current Report on Form 8-K, dated June 5,
1997, to report pursuant to Item 5 the adoption of a shareholder rights plan by
the Company's Board of Directors on June 2, 1997.





                                      18
<PAGE>   19
                                   SIGNATURES


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


                                  PHYSICIAN RELIANCE NETWORK, INC.
                          
                          
Date:  August 19, 1997    By:      /s/ Merrick H. Reese                     
                                  --------------------------------------------
                                  Merrick H. Reese, President and
                                  Chief Executive Officer
                          
                          
                          By:      /s/ Michael N. Murdock                 
                                  --------------------------------------------
                                  Michael N. Murdock, Executive Vice President
                                  and Chief Financial Officer
                             




                                      19
<PAGE>   20
                               INDEX TO EXHIBITS

<TABLE>
<CAPTION>
   EXHIBIT
   NUMBER                                DESCRIPTION
   -------                               -----------
    <S>          <C>
     10.1        --      Amended and Restated Credit Agreement dated as of June
                         30, 1997, among Physician Reliance Network, Inc., as 
                         Borrower, Bank One, Texas, N.A., NationsBank of Texas,
                         N.A., Banque Paribas, Cooperatieve Centrale 
                         Raiffeisen-Boerenteenbank B.A., The Fuji Bank Limited,
                         Mellon Bank, N.A., PNC Bank, National Association and 
                         Sun Trust Bank, Central Florida, N.A. (and the other 
                         Lenders, If any, from time to time party hereto) as
                         Lenders.

     10.2        --      Service Agreement, dated June 30, 1997, by and between
                         Ilex Oncology, Inc. and PRN Research, Inc.
                         (incorporated by reference to Exhibit 10.4 to Ilex 
                         Oncology, Inc.'s Quarterly Report on Form 10-Q for the
                         quarter ended June 30, 1997) (1)

      11         --      Statement re net income per common equivalent share.

      27         --      Financial Data Schedule
</TABLE>

         -----------------

         (1)   Confidential treatment has been requested by Ilex Oncology, Inc.
               to certain portions of the Exhibit.






                                      20