SECURITIES AND EXCHANGE COMMISSION
                              Washington, D.C. 20549

                                    FORM 10-K

               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, 1995                                   No. 1-11632


                           AMERICAN ANNUITY GROUP, INC.


   Incorporated under                                  IRS Employer I.D.
   the Laws of Delaware                                No. 06-1356481

                  250 East Fifth Street, Cincinnati, Ohio 45202
                                  (513) 333-5300


   Securities Registered Pursuant to Section 12(b) of the Act:
                                                       Name of Each Exchange
       Title of Each Class                             on which Registered
       Common Stock, Par Value $1.00 Per Share         New York
       9-1/2% Senior Notes due August 15, 2001         New York
       11-1/8% Senior Subordinated Notes
          due February 1, 2003                         New York


   Securities Registered Pursuant to Section 12(g) of the Act:  None


       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, and (2) has been subject to such
   filing requirements for the past 90 days.  Yes  X   No    

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

       As of February 29, 1996, there were 43,074,038 shares of the
   Registrant's Common Stock outstanding.  The aggregate market value of Common
   Stock held by non-affiliates at that date was approximately $96.2 million
   based upon non-affiliate holdings of 8,014,043 shares and a market price of
   $12.00 per share.


                       Documents Incorporated by Reference:

       Proxy Statement for the 1996 Annual Meeting of Shareholders (portions of
   which are incorporated by reference into Part III hereof).


                           AMERICAN ANNUITY GROUP, INC.

                              INDEX TO ANNUAL REPORT

                                   ON FORM 10-K


   Part I
                                                                      Page
   Item 1.   Business
               Introduction                                             1 
               Great American Life Insurance Company                    1 
               Prairie States Life Insurance Company                    6 
               Loyal American Life Insurance Company                    7 
               Annuity Investors Life Insurance Company                 9 
               Other Subsidiaries                                      10 
               Investments                                             10 
               Independent Ratings                                     12 
               Competition                                             13 
               Regulation                                              13 
               Discontinued Manufacturing Operations                   15 
               Employees                                               16 
   Item 2.   Properties                                                16 
   Item 3.   Legal Proceedings                                         17 
   Item 4.   Submission of Matters to a Vote of Security Holders        * 


   Part II

   Item 5.   Market for Registrant's Common Equity and Related 
                Stockholder Matters                                    18 
   Item 6.   Selected Financial Data                                   19 
   Item 7.   Management's Discussion and Analysis of Financial 
                Condition and Results of Operations                    20 
   Item 8.   Financial Statements and Supplementary Data               25 
   Item 9.   Changes in and Disagreements with Accountants on 
                Accounting and Financial Disclosure                     * 


   Part III

   Item 10.  Directors and Executive Officers of the Registrant        26 
   Item 11.  Executive Compensation                                    26 
   Item 12.  Security Ownership of Certain Beneficial Owners
                and Management                                         26 
   Item 13.  Certain Relationships and Related Transactions            26 


   Part IV

   Item 14.  Exhibits, Financial Statement Schedules, and Reports
                on Form 8-K                                            S-1



   * The response to this item is "none".





                                      PART I

                                      ITEM 1

                                     Business

   Introduction

   American Annuity Group, Inc. ("AAG" or "the Company") was incorporated as a
   Delaware corporation in 1987.  AAG is a holding company whose primary asset
   is the capital stock of Great American Life Insurance Company ("GALIC"). 
   GALIC sells annuities primarily to employees of qualified not-for-profit
   organizations under Section 403(b) of the Internal Revenue Code.  AAG
   acquired GALIC in December 1992.

   In November 1995, AAG acquired Laurentian Capital Corporation ("LCC").  As a
   result, the Company's subsidiaries now include (i) Prairie States Life
   Insurance Company ("Prairie"), which markets individual life insurance and
   annuity policies with the sponsorship of state associations of funeral
   directors as well as individual funeral directors across the country and
   (ii) Loyal American Life Insurance Company ("Loyal"), which specializes in
   life and health insurance sold through payroll deduction plans and credit
   unions.

   AAG is an 81% owned subsidiary of American Financial Group, Inc. ("AFG").

   Great American Life Insurance Company

   GALIC, located in Cincinnati, was incorporated in New Jersey in 1959 and
   redomiciled as an Ohio corporation in 1982.  GALIC entered the tax-deferred
   annuity business in 1976; prior to that time it wrote primarily whole-life,
   term-life, and accident and health insurance policies.  GALIC is currently
   rated "A" (Excellent) by A.M. Best.  

   Annuities are long-term retirement savings plans that benefit from interest
   accruing on a tax-deferred basis.  The issuer of the annuity collects
   premiums, credits interest on the policy and pays out a benefit upon death,
   surrender or annuitization.  

   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 interest crediting
   rates in the policy.  With a variable annuity, the value of the policy is
   tied to an underlying securities portfolio.  All annuities issued by GALIC
   itself have been fixed rate annuities.  A GALIC subsidiary began marketing
   variable annuities in the fourth quarter of 1995.  See "Annuity Investors
   Life Insurance Company".

   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.


                                        1



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

                      Statutory Accounting Principles Basis

                                          1995   1994   1993    1992   1991

     Total Assets (a)                   $5,414 $5,057 $4,758  $4,377 $4,541
     Insurance Reserves:
       Annuities                        $4,974 $4,655 $4,299  $4,011 $3,756
       Life                                 22     21     22      23     21
       Accident and Health                  -       1      1       1      1
                                        $4,996 $4,677 $4,322  $4,035 $3,778

     Capital and Surplus                $  273 $  256 $  251  $  216 $  219
     Asset Valuation Reserve (b)(c)         90     80     70      71    112
     Interest Maintenance Reserve (c)       32     28     36      17     - 

     Annuity Receipts:
       Flexible Premium:
              First Year                $   42 $   39 $   47  $   48 $   67
         Renewal                           196    208    223     232    240
                                           238    247    270     280    307
       Single Premium                      219    196    130      80    153
          Total Annuity Receipts        $  457 $  443 $  400  $  360 $  460

                  Generally Accepted Accounting Principles Basis

                                          1995   1994   1993    1992   1991

     Total Assets (a)                   $5,631 $5,044 $4,883  $4,436 $4,686
     Annuity Benefits Accumulated        4,917  4,596  4,257   3,974  3,727
     Stockholder's Equity                  645    449    520     418    358
                    
     (a)  Includes $557 million for securities purchased in December 1991 and
          paid for in 1992.
     (b)  For 1991, amount represents the Mandatory Securities Valuation
          Reserve.
     (c)  Allocation of surplus.

   Single premium annuity receipts have increased each year since 1992 due
   primarily to sales of newly introduced products and, in 1995, the
   development of new distribution channels.  This increase more than offset
   the decline in flexible premium receipts.  Receipts in 1992 were lower than
   in 1991 due to (i) a reduction in annuity receipts relating to a product
   introduced in 1990 which encouraged rollovers of other retirement funds and
   (ii) unfavorable economic and market conditions, including the impact of the
   negative publicity associated with a number of highly publicized
   insolvencies in the life insurance industry.

   Annuity Products

   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 amount and timing as determined by the
   policyholder.  SPDAs are issued in exchange for a one-time lump-sum premium 
   payment.


                                        2



   Tax-qualified premiums represented the majority of GALIC's total premiums in
   1995.  Over the last several years, sales of non-qualified annuities have
   represented an increasing percentage of premiums as GALIC has developed
   products and distribution channels targeted to the non-qualified markets. 
   The following table summarizes GALIC's written premiums and insurance
   reserves on a statutory basis by product line (dollars in millions).

                               1995 Premiums Written   Insurance Reserves
                                 First          % of    December 31, 1995 
                                  Year Renewal Total       Amount    %  
     Flexible Premium:   
       Single-tier - qualified    $ 29  $ 41   15.3%       $  220   4.4%
       Single-tier - non-qual        -     -      -            17   0.3 
       Two-tier - qualified         13   155   36.6         3,131  62.7 
       Two-tier - non-qual           -     -      -             3   0.1 
           Total                    42   196   51.9         3,371  67.5 

     Single Premium:
       Single-tier - qualified      95     -   20.7           214   4.3 
       Single-tier - non-qual       36     -    7.8            76   1.5 
       Two-tier - qualified         56     -   12.2           664  13.3 
       Two-tier - non-qual          32     -    7.0           328   6.6 
           Total                   219     -   47.7         1,282  25.7 

     Annuities in Payout             -     -      -           321   6.4 
     Life, Accident & Health         -     2    0.4            22   0.4 
           Total                  $261  $198  100.0%       $4,996 100.0%

   At December 31, 1995, approximately 95% of GALIC's annuity policyholder
   benefit reserves consisted of fixed rate annuities which offered a minimum
   interest rate guarantee of 4%.  The balance of the liabilities had a minimum
   guaranteed rate of 3%.  All of GALIC's 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 profitability of its annuity
   business 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.  Tax-qualified annuity
   policyholders maintain access to their funds without incurring penalties
   through provisions in the contracts which allow policy loans.

   In addition to its use of two-tier structures explained below, GALIC imposes
   certain surrender charges and front-end fees during the first five to ten
   years after issuance of a policy to discourage policyholders from
   surrendering or withdrawing funds in those early years.  Partly due to these
   features, GALIC's annuity surrenders have averaged approximately 8% of
   statutory reserves  


                                        3



   over the past five years.  The following table illustrates GALIC's annual
   persistency rates for its major products over the past five years.

                                                Persistency Rates             
     Product Group                    1995    1994    1993    1992    1991 
     Flexible Premium                 91.0%   92.5%   92.0%   90.6%   89.3%
     Single Premium                   93.6    93.5    93.3    93.8    92.8 
     
   Management believes that the favorable persistency rate has been enhanced by
   GALIC's interest crediting policy and the high level of service offered to
   agents and policyholders.  GALIC's persistency rates, as well as the
   policyholders' higher accumulation value, have been helped by the two-tier
   design of many of GALIC's products.  Two account values are maintained for
   two-tier annuities -- the annuitization (or upper-tier) value and the
   surrender (or lower-tier) value.  With some two-tier annuities, the
   annuitization value and the surrender value accumulate interest at different
   rates.  Other two-tier annuities credit the same interest rate to both the
   surrender and the annuitization value but withhold a portion of the first-
   year premiums when calculating the surrender value, but not the
   annuitization value.

   The annuitization value is paid only if the policyholder chooses to
   annuitize (withdraw funds in a series of periodic payments for at least the
   minimum number of years specified in the policy).  If a lump sum payment is
   chosen by the policyholder, the surrender value is paid.

   GALIC's two-tier annuities are particularly attractive to policyholders who
   intend to accumulate funds to provide retirement income since the
   annuitization value is accumulated at a competitive long-term interest rate. 

   GALIC also offers single-tier products.  After the initial surrender charges
   have been reduced to zero, single-tier annuities have only one value which
   is available whether the policy is surrendered or annuitized.  In 1995,
   nearly 70% of first year FPDA premiums and SPDA premiums received were on
   single-tier policies compared to 7% in 1991.
    
   Marketing and Distribution

   Sales of annuities are affected by many factors, including (i) competitive
   rates and products, (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) alternative investment products and (viii) general economic
   conditions.

   GALIC markets its tax-deferred annuities principally to employees of
   educational institutions in the kindergarten through high school ("K-12")
   segment.  Written premiums from the K-12 segment represented approximately
   three-fourths of GALIC's total tax-qualified premiums in 1995.  Management
   believes that the K-12 segment is attractive because of its size and growth
   potential, and the persistency rate it has demonstrated.


                                        4



   GALIC distributes its annuity products through over 80 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 seeks to attract and retain agents who are experienced and highly
   motivated and who consistently sell a high volume of the types of annuities
   offered by GALIC.  Toward this end, GALIC has established a "President's
   Advisory Council" consisting of leading producers who market primarily GALIC
   products.  The President's Advisory Council serves as a major influence on
   new product design and marketing strategy.

   To extend the distribution of GALIC annuities to a broader customer base,
   GALIC  has developed a Personal Producing General Agent ("PPGA")
   distribution system.  Approximately 120 PPGAs are contracted to sell GALIC
   annuities in those territories not served by an MGA.  AAG has also developed
   two agency organizations to expand premium writings through banks, hospitals
   and certain not-for-profit organizations.  (See "Other Subsidiaries".)

   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 1995 compared to 1991:

             State           1995  1991       State           1995   1991 
             California      19.4% 20.1%      Minnesota        3.8%    *  
             Florida          7.8   9.8       Connecticut      3.4    6.2%
             Massachusetts    6.5   9.1       Illinois         2.9    3.3 
             Ohio             6.4   5.1       Iowa             2.1     *  
             Michigan         6.2   9.4       Rhode Island      *     2.8 
             Washington       5.4    *        All others, each
             North Carolina   4.8   2.9         less than 2%  22.6   20.0 
             Texas            4.6   5.0 
             New Jersey       4.1   6.3                      100.0% 100.0%
                           
             * less than 2%

   At December 31, 1995, GALIC had over 250,000 annuity policies in force,
   nearly all of which were individual contracts.


                                        5



   Prairie States Life Insurance Company

   Prairie, located in Rapid City, was incorporated in South Dakota in 1959. 
   In March 1996, Prairie will change its name to American Memorial Life
   Insurance Company.

   The following table (in millions) presents information concerning Prairie in
   accordance with statutory accounting principles.

                                          1995   1994   1993    1992   1991
     Total Assets                         $359   $325   $305    $293   $285
     Insurance Reserves:
       Life                               $248   $228   $211    $201   $193
       Annuities                            72     58     55      57     56
                                          $320   $286   $266    $258   $249

     Capital and Surplus (a)              $ 24   $ 24   $ 23    $ 22   $ 21
     Asset Valuation Reserve (b)(c)          3      2      3       2      3
     Interest Maintenance Reserve (c)        3      2      2       1     - 

     Premiums Written:
       Life                               $ 52   $ 40   $ 35    $ 32   $ 32
       Annuities                            28     13      9      11     10
          Total Premiums                  $ 80   $ 53   $ 44    $ 43   $ 42
                   
     (a)  Represents capital and surplus of consolidated Prairie group of
            companies.
     (b)  For 1991, amount represents the Mandatory Securities Valuation
            Reserve.
     (c)  Allocation of surplus.

   At December 31, 1995, Prairie and its subsidiaries had approximately $800
   million of life insurance in force.

   Since 1993, Prairie's premiums have increased and expanded geographically
   due primarily to new relationships with corporate funeral homes.

   Products

   Prairie offers a variety of life insurance and annuity products to finance
   pre-arranged funerals.  In a typical arrangement, a consumer pays in advance
   for certain goods and services to be provided by a funeral director.  These
   payments may be used by the funeral director to purchase a life insurance or
   annuity contract or to invest in a trust fund.  Approximately half of the
   premiums received by Prairie are from single payment funding and half are
   from payment plans of three to ten years.  The policy values increase at a
   rate geared to offset effects of inflation and thus provide for funeral
   costs at time of death.

   Marketing and Distribution

   Prairie markets individual life insurance and annuity policies with the
   sponsorship of state associations of funeral directors as well as individual
   funeral directors in various locations.  Prairie has approximately 875
   actively producing agents and relationships with approximately 2,000 funeral
   homes nationwide.  More than two-thirds of Prairie's new sales of life
   insurance and annuities in 1995 came from sales resulting from large
   corporate accounts.  As the funeral home industry continues to consolidate,
   reliance on those corporate accounts will likely increase.



                                        6



   The following table reflects the geographical distribution of Prairie's
   premiums in 1995 compared to 1991:

             State           1995  1991       State           1995   1991 
             North Carolina  12.0%   *        Oregon           3.2%   4.4%
             Washington      11.8  19.4%      Pennsylvania     2.6     *  
             California      11.7  18.6       South Dakota      *     3.8 
             Minnesota       11.6  18.0       Montana           *     3.6 
             Tennessee        8.0    *        Oklahoma          *     3.2 
             Illinois         3.8    *        Florida           *     2.6 
             Louisiana        3.8    *        Nebraska          *     2.4 
             Wisconsin        3.7   2.3       All others, each
             Texas            3.6   7.9         less than 2%  20.7   10.0 
             Missouri         3.5   3.8                      100.0% 100.0%
                           
             * less than 2%

   Loyal American Life Insurance Company

   Loyal, located in Mobile, was incorporated in Alabama in 1955.  The
   following table (in millions) presents information concerning Loyal in
   accordance with statutory accounting principles.

                                          1995   1994   1993    1992   1991
     Total Assets                         $252   $250   $244    $238   $188
     Insurance Reserves:
       Life                               $166   $163   $158    $154   $113
       Accident and Health                  28     28     29      29     28
       Annuities                             7      8      8       9      7
                                          $201   $199   $195    $192   $148

     Capital and Surplus                  $ 35   $ 34   $ 32    $ 29   $ 27
     Asset Valuation Reserve (a)(b)          3      2      3       3      3
     Interest Maintenance Reserve (b)        1      1      1      -      - 

     Premiums Written:
       Life                               $ 21   $ 23   $ 24    $ 23   $ 22
       Accident and Health                  20     19     19      17     16
       Annuities                            -       1     -       -      - 
          Total Premiums                  $ 41   $ 43   $ 43    $ 40   $ 38
                   
     (a)  For 1991, amount represents the Mandatory Securities Valuation
            Reserve.
     (b)  Allocation of surplus.

   At December 31, 1995, Loyal had approximately $2.1 billion of life insurance
   in force.


                                        7



   Products

   Loyal offers a variety of life and supplemental health insurance products
   that are normally sold on a fixed dollar amount per pay period program.  For
   products sold through payroll deduction plans, the premiums are deducted
   from the individual's paycheck and remitted to Loyal on a monthly basis. 
   For products sold through credit unions, the premiums are normally paid on a
   monthly or quarterly basis through deductions from the member's credit union
   account.  The products currently being offered include traditional whole
   life, universal life, term life, hospital indemnity, cancer and short-term
   disability.

   In 1996, Loyal will begin marketing certain annuity products and related
   programs through payroll deduction plans and credit unions.

   Marketing and Distribution

   Loyal's marketing strategy emphasizes third party sponsorship to assist in
   its selling process.  In the payroll deduction market, with the approval of
   the employer, Loyal's products are presented to the employees at the work
   place and premiums are paid by payroll deduction with billings sent directly
   to the employer for processing and remittance.

   With credit unions, the products are offered with the endorsement of the
   credit union management.  The products are presented to the membership
   through in-home sales, job-site or lobby enrollments and direct mail
   solicitation.

   The distribution channel for payroll deduction plans is comprised of
   selective relationships with marketing companies who provide job-site
   product presentation.  The distribution channels for credit unions are
   comprised of independent agents and marketing companies who provide
   personnel for lobby sales and job-site enrollments.

   The main advantages of Loyal's current methods of distribution are the
   relatively low cost of home office administration, the ability to set up
   relatively inexpensive producing units in the field, and the endorsement or
   consent by the credit union or the employer in presenting products.


                                        8



   The following table reflects the geographical distribution of Loyal's
   premiums in 1995 compared to 1991:

             State           1995  1991       State           1995   1991 
             Alabama         12.6% 14.1%      West Virginia    3.3%   3.4%
             Tennessee       12.2  15.0       Indiana          3.2    3.2 
             Florida          8.5   9.8       Illinois         2.6    3.2 
             Mississippi      7.6   8.4       Louisiana        2.6    2.3 
             Georgia          4.2   3.9       California       2.4    2.4 
             North Carolina   4.1    *        Texas            2.4     *  
             South Carolina   4.1   3.2       All others, each
             Arkansas         3.3   3.3         less than 2%  23.6   23.9 
             Missouri         3.3   3.9                      100.0% 100.0%
                           
             * less than 2%

   Loyal has approximately 500 actively producing agents.

   Annuity Investors Life Insurance Company ("AILIC")

   AILIC (formerly Carillon Life Insurance Company), located in Cincinnati, was
   acquired by the Company in 1994 to facilitate its entrance into the variable
   annuity market.  Industry sales of variable annuities have increased
   substantially over the last ten years as investors have sought to obtain the
   returns available in the equity markets while enjoying the tax-deferred
   status of annuities.  With a variable annuity, the earnings credited to the
   policy varies 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.  Premiums
   directed to the variable options in policies issued by AILIC will be
   invested in funds managed by independent investment managers, including
   Dreyfus, Janus and Merrill Lynch.  Variable annuities can be either tax-
   qualified or non-qualified and be funded with either a single premium
   payment or flexible premiums.

   In December 1995, AILIC obtained all approvals necessary to begin offering a
   group variable annuity.  The first product is designed for sale to employees
   of school districts, hospitals and other not-for-profit organizations. 
   AILIC expects to receive approvals in 1996 to begin marketing qualified and
   non-qualified individual variable annuities.

   As of February 29, 1996, AILIC was licensed to sell fixed annuities in 41
   states and the District of Columbia and had licenses to sell variable
   annuities in 28 states and the District of Columbia.  Applications have been
   filed to obtain licenses in the majority of the remaining states.

   Under federal law and the laws of many states, variable annuities are
   considered securities.  As a result, variable annuities can be sold only by
   agents who possess the requisite securities licenses and are affiliated with
   a broker-dealer.  Accordingly, not all agents who market fixed annuities
   also market variable annuities.  AILIC intends to market its products
   through those 

                                        9



   members of the GALIC agency force who possess the requisite licenses as well
   as through new agents not currently licensed with GALIC.  AILIC also intends
   to market its products through other distribution channels including broker-
   dealers and financial institutions.  It is expected that Lifestyle Financial
   Investments, Inc. ("LFI") and Retirement Resources Group, Inc. ("RRG"),
   subsidiaries of AAG, will also market AILIC's products.

   Other Subsidiaries

   The Company owns several other insurance subsidiaries, none of which is
   currently writing new business.  AAG may utilize one or more of these
   companies in the future to take advantage of specific product or
   distribution channel opportunities.  Collectively, these insurance
   subsidiaries had statutory assets of $105 million at December 31, 1995.

   Several non-insurance subsidiaries market additional funeral products as
   well as administrative and co-operative purchasing services.  One of these
   subsidiaries, International Funeral Associates ("IFA") is a co-operative
   buying service organization with approximately 1,900 independent members at
   year-end 1995.  Including corporate members, total membership is
   approximately 3,000 funeral homes nationwide.  IFA negotiates discounts with
   organizations that service the funeral industry; members of IFA are able to
   take advantage of these discounts, thereby enhancing their profitability
   through lower cost of goods and services.  

   In addition to annuity and life insurance contracts, funeral contract funds
   may also be held in trust.  Laurentian Investment Services, Inc. ("LIS") was
   established to provide financial services to funeral directors in managing
   funds held in trust.  LIS offers a variety of services, including state
   master trusts, investment advisory services, administrative services, and
   combinations thereof.  CSW Management Services, Inc. specializes in
   providing administrative services, including accounting, tax reporting,
   commission accounting and income and expense allocations, for funeral trust
   assets in excess of $100 million.

   AAG Securities, Inc. is a broker-dealer licensed to sell stocks, bonds,
   mutual funds and variable annuities through independent agents and financial
   institutions.

   In the last two years, AAG has developed two organizations designed to
   market GALIC products to previously underserved markets.  LFI and its
   subsidiaries focus on the sale of single premium, non-qualified annuities
   through financial institutions.  These companies concentrate their efforts
   on community banks primarily in the Midwest and Southeast.  RRG was formed
   in 1995 to market annuities and investment products to employees of
   hospitals and not-for-profit organizations.  Beginning in 1996, RRG intends
   to begin marketing products through credit unions with which Loyal already
   operates.

   Collectively, these non-insurance subsidiaries had assets of $3.6 million at
   December 31, 1995.

   Investments

   Investments comprise approximately 90% of assets and are the principal
   source of income.  Fixed income securities (including policy loans, mortgage
   loans and short-term investments) comprise over 98% of the Company's
   investment portfolio.

                                        10



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

   The Company's investment strategy emphasizes high quality fixed income
   securities which management believes should produce a relatively consistent
   and predictable level of investment income.

   The insurance laws of each of AAG's life insurance subsidiaries' domiciliary
   states govern the types and amounts of investments which are permissible. 
   These rules are designed to ensure the safety and liquidity of the insurers'
   investment portfolios by placing restrictions on the quality, quantity and
   diversification of permitted investments.

   The National Association of Insurance Commissioners ("NAIC") assigns quality
   ratings to publicly traded as well as privately placed securities.  These
   ratings range from Class 1 (highest quality) to Class 6 (lowest quality). 
   The following table shows the Company's fixed maturity portfolio at market
   value by NAIC designation (and comparable Standard & Poor's Corporation
   rating) at December 31:                                                      
                   
             NAIC
             Rating Comparable S&P Rating            1995  1994 
               1    AAA, AA, A                         64%   59%
               2    BBB                                31    35 
                         Total investment grade        95    94 
               3    BB                                  3     4 
               4    B                                   2     2 
               5    CCC, CC, C                          *     * 
               6    D                                   *     - 
                         Total non-investment grade     5     6 
                         Total fixed maturities       100%  100%
                 
   * less than 1%

   AAG's primary investment objective in selecting securities for its fixed
   maturity portfolio is to optimize interest yields while maintaining an
   appropriate relationship of maturities between assets and expected
   liabilities.  The Company invests in bonds that have primarily intermediate-
   term maturities.  This practice provides flexibility to respond to
   fluctuations in the marketplace.

   At December 31, 1995, the average maturity of AAG's fixed maturity
   investments was approximately 7 years (including mortgage-backed securities,
   which had an estimated average life of approximately 7-1/2 years).  The
   table below sets forth the maturities of the Company's fixed maturity
   investments based on their carrying value.

             Maturity                                1995  1994 
             One year or less                           1%    * 
             After one year through five years         18    15%
             After five years through ten years        40    44 
             After ten years                            9    13 
                                                       68    72 
             Mortgage-backed securities                32    28 
                                                      100%  100%
                 
   * less than 1%


                                        11



   The following table shows the performance of AAG's investment portfolio,
   excluding equity investments in affiliates (dollars in millions):

                                                     1995    1994   1993 
             Average cash and investments at cost  $5,220  $4,750 $4,455 
             Gross investment income                  411     377    358 
             Realized gains                            16       -     35 

             Percentage earned:
               Excluding realized gains               7.9%    7.9%   8.0%
               Including realized gains               8.2%    7.9%   8.8%

   Independent Ratings

   The Company's principal insurance subsidiaries ("Insurance Companies") are
   rated by A.M. Best as follows:

                    GALIC     A  (Excellent)          Loyal     A- (Excellent)
                    AILIC     A  (Excellent)          Prairie   B+ (Very Good)

   In addition, GALIC is rated AA- (very high claims paying ability) by Duff &
   Phelps.

   In evaluating a company's financial and operating performance, independent
   rating agencies review the company's (i) profitability, (ii) leverage and
   liquidity, (iii) book of business, (iv) quality and estimated market value
   of assets, (v) adequacy of policy reserves and (vi) experience and
   competency of management.  Such ratings generally are based on factors of
   concern to policyholders and agents and are not directed toward the
   protection of investors.

   Management 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.  Management also believes that the majority of purchasers of
   403(b) annuities would not be willing to purchase annuities from an issuer
   that had an A.M. Best rating below certain levels.  In addition, some school
   districts, hospitals and banks do not allow insurers with an A.M. Best
   rating below certain levels to sell annuity products through their
   institutions.

   Management believes that a rating in the "A" category is necessary for GALIC
   to successfully market tax-deferred annuities to public education employees
   and other not-for-profit groups, the markets in which GALIC competes.

   Prairie and Loyal compete in markets other than the sale of tax-deferred
   annuities.  While ratings are an important factor in competition between
   insurers in Prairie's and Loyal's markets, management believes that insurers
   can successfully compete in these markets with ratings of "B+" (Very Good)
   or better.

   Ratings are less of a competitive factor in the variable annuity market in
   which AILIC competes, in part because a substantial portion of the insurers'
   assets are invested in the mutual funds which underlie the variable
   annuities rather than in the insurers' general accounts.


                                        12



   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.

   Competition

   The 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 100 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.  Some of these are mutual insurance companies
   having competitive advantages in that all of their profits inure to their
   policyholders, and many of which possess financial resources substantially
   in excess of those available to AAG's Insurance Companies.  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 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 the
   Insurance Companies.

   In recent years, several proposals have been made to change the federal
   income tax system.  These proposals have included a flat tax rate and
   various types of consumption taxes.  Many of these proposals include changes
   in the method of treating investment income and tax-deferred income.  It is
   impossible to predict the effect on the Company's business of the adoption
   of one of these new tax systems.  To the extent that a new system reduces or
   eliminates the tax-deferred status of annuities, the Company's business
   could be adversely affected.

   Regulation

   The Insurance Companies are subject to comprehensive regulation under the
   insurance laws of their states of domicile and the other states in which
   they operate.  These laws, in general, require approval of the particular
   insurance regulators prior to certain actions such as the payment of
   dividends in excess of statutory limitations, continuing service
   arrangements with affiliates and certain other transactions.  Regulation and
   supervision are administered by a state insurance commissioner who has broad
   statutory powers with respect to granting and revoking licenses, approving
   forms of insurance contracts and determining types and amounts of business
   which may be conducted in light of the financial strength and size of the
   particular company.  

   State insurance departments periodically examine the business and accounts
   of the Insurance Companies and require such companies to submit detailed
   annual financial statements prepared in accordance with statutory
   requirements.  State insurance laws also regulate the character of each
   insurance company's investments, reinsurance and security deposits.


                                        13



   The Insurance Companies may be required, under the solvency or guaranty laws
   of most states in which they do business, to pay assessments (up to certain
   prescribed limits) to fund policyholder losses or liabilities of insurance
   companies that become insolvent.  These assessments may be deferred or
   forgiven under most guaranty laws if they would threaten an insurer's
   financial strength and, in certain instances, may be offset against future
   premium taxes.  The incurrence and amount of such assessments have increased
   in recent years.  In connection with the Company's 1992 purchase of GALIC
   from Great American Insurance Company ("GAI"), a subsidiary of AFG, GALIC's
   costs for state guaranty funds are set at $1 million per year for a five-
   year period with respect to insurance companies in receivership,
   rehabilitation, liquidation or similar situations at December 31, 1992.  For
   any year in which GALIC pays more than $1 million to the various states,
   with respect to such companies, GAI will reimburse GALIC for the excess
   assessments.  For any year in which GALIC pays less than $1 million, AAG
   will pay GAI the difference between $1 million and the assessed amounts. 
   GALIC paid $2.2  million and $2.0 million in assessments in 1995 and 1994,
   respectively.   Accordingly, GALIC recorded receivables from GAI of $1.2
   million for 1995 and $1.0 million for 1994.

   While the Ohio Department of Insurance is GALIC's principal regulatory
   agency, GALIC is also deemed to be "commercially domiciled" in California
   based on past premium volume written in the state.  As a result, GALIC is
   subject to certain provisions of the California Insurance Holding Company
   laws, particularly those governing the payment of stockholder dividends,
   changes in control and intercompany transactions.  An insurer's status as
   "commercially domiciled" is determined annually under a statutory formula. 
   GALIC's status may change in California in the future if its premium volume
   there decreases to below 20% of its overall premium volume over the most
   recent three years.

   The NAIC is an organization comprised of the chief insurance regulator for
   each of the 50 states and the District of Columbia.  One of its major roles
   is to develop model laws and regulations affecting insurance company
   operations and encourage uniform regulation through the adoption of such
   model laws in all states.  As part of the overall insurance regulatory
   process, the NAIC forms numerous task forces to review, analyze and
   recommend changes to a variety of areas affecting both the operating and
   financial aspects of insurance companies.  Recently, increased scrutiny has
   been placed upon the insurance regulatory framework, and a number of state
   legislatures have considered or enacted legislative proposals that alter,
   and in many cases increase, state authority to regulate insurance companies
   and their holding company systems.  In light of recent legislative
   developments, the NAIC and state insurance regulators have also become
   involved in a process of re-examining existing laws and regulations and
   their application to insurance companies.  Legislation has also been
   introduced in Congress which could result in the federal government's
   assuming some role in the insurance industry, although none has been enacted
   to date.

   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, 1995, 46 states and the District of Columbia were accredited,
   including the states of domicile of AAG's principal subsidiaries.



                                        14



   In December 1992, the NAIC adopted a model law enacting risk-based capital
   formulas which became effective in 1993.  The model law sets thresholds for
   regulatory action, and currently each of the Insurance Companies' capital
   significantly exceeds risk-based capital requirements.  If more stringent
   risk-based capital rules are adopted in the future, the Insurance Companies'
   ability to pay dividends could be adversely affected.

   The maximum amount of dividends which can be paid to stockholders by life
   insurance companies domiciled in the State of Ohio without prior approval of
   the Ohio Insurance Commissioner is the greater of 10% of policyholder
   surplus or prior year's "net income", but only to the extent of earned
   surplus as of the preceding December 31.

   Under California law, approval is required for dividends which exceed the
   greater of 10% of statutory surplus or prior year's "net gain from
   operations", but only to the extent of statutory earned surplus as of the
   preceding December 31.

   Since 1991, the NAIC and some states have adopted additional requirements
   relating to the marketing and sale of non-traditional life insurance and
   annuities.  To date, these additional requirements have not had a material
   impact on GALIC's business.  In December 1994, the NAIC adopted Actuarial
   Guideline 33 (formerly called GGG), which clarifies the minimum statutory
   reserving requirements for some annuity products.  The impact of this new
   reserving requirement is that GALIC added $17 million to its statutory
   reserves as of December 31, 1995, as part of a three year phase-in allowed
   by this guideline and approved by the Ohio Department of Insurance. 
   Management believes that these additional reserves are redundant and result
   in additional conservatism in GALIC's statutory reserves.  In connection
   with AAG's purchase of GALIC, GAI is obligated to neutralize the financial
   effects of any such guidelines on GALIC's statutory earnings and capital. 
   In satisfaction of its obligation, (i) GAI agreed to purchase, at AAG's
   option, up to $57 million of AAG Preferred Stock and (ii) terms of GALIC's
   investment management services contract with AFG were modified to reduce the
   fees owed under certain circumstances.  On December 31, 1995, GAI purchased
   $17 million of newly issued Series B Preferred Stock from AAG; the proceeds
   from this sale were contributed to GALIC.

   The NAIC has under consideration numerous proposals related to the marketing
   and sale of annuity products.  In addition, the NAIC is considering a model
   law covering insurance companies' investments.

   Many of the Company's other subsidiaries are subject to regulation by
   various state and federal regulatory authorities.  LFI and RRG are licensed
   as insurance agencies in various states, which subject them to licensing,
   record keeping and similar requirements.  AAG Securities is subject to the
   rules of the National Association of Securities Dealers, Inc. and the laws
   of the states in which it transacts business. 

   Discontinued Manufacturing Operations

   AAG is the successor to STI Group, Inc., formerly known as Sprague
   Technologies, Inc. ("STI").  STI was formed in May 1987 by American Premier
   Underwriters, Inc., formerly known as The Penn Central Corporation, for the
   purpose of divesting its electronics components businesses.  STI
   subsequently sold substantially all of its assets and retired its debt,
   netting approximately $100 million in cash and cash equivalents. 

   Certain manufacturing facilities are still owned by the Company.  See
   "Properties" below.


                                        15



   Employees

   As of December 31, 1995, AAG and its subsidiaries employed approximately 850 
   persons.  None of the employees are represented by a labor union.  AAG
   believes that its employee relations are satisfactory.


                                      ITEM 2

                                    Properties

   Location

   AAG and GALIC rent office space in Cincinnati totaling approximately 105,000
   square feet under leases expiring in 1996 through 1999.  Several of the
   Company's non-insurance subsidiaries lease marketing and administrative
   offices in locations throughout the United States.

   Loyal's home office building in Mobile, Alabama, contains approximately
   89,000 square feet, of which approximately two-thirds is utilized for
   Company purposes.  The remainder of the building is leased to unaffiliated
   tenants.

   Prairie's home office building in Rapid City, South Dakota, contains
   approximately 44,000 square feet, of which approximately three-fourths is
   utilized for Company purposes.  The remainder of the building is leased to
   unaffiliated tenants.  Prairie also leases marketing and administrative
   space in several locations throughout the United States.

   Management believes that its corporate offices are generally well maintained
   and adequate for the Company's present needs.

   The remaining material properties of the Company's former manufacturing
   operations are listed below.  
                                                                      Lease
                               Interior                            Expiration
     Location                 Square Feet           Use            (if leased)
     North Adams, MA            154,000    Manufacturing facility    Owned
     Hudson, NH                 121,400    Manufacturing facility  March 2003
     Longwood, FL                60,000    Manufacturing facility    Owned
     North Adams, MA             44,000    R & D facility            Owned

   These facilities are currently being leased to companies using them for
   manufacturing operations.  The Company is attempting to sell these
   facilities.

   Environmental Matters

   See "Item 3: Legal Proceedings" for a discussion concerning certain
   environmental claims and litigation against the Company.


                                        16



                                      ITEM 3

                                Legal Proceedings

   Federal and state laws and regulations, including the Federal Comprehensive
   Environmental Response, Compensation, and Liability Act and similar state
   laws, impose liability on the Company (as the successor to Sprague) for the
   investigation and cleanup of hazardous substances disposed of or spilled by
   its discontinued manufacturing operations, at facilities still owned by the
   Company and facilities transferred in connection with the sales of certain
   operations, as well as at disposal sites operated by third parties.  In
   addition, the Company has indemnified the purchasers of its former
   operations for the cost of such activities.  At several sites, the Company
   is conducting cleanup activities of soil and ground water contamination in
   accordance with consent agreements between the Company and state
   environmental agencies.  The Company has also conducted or is aware of
   investigations at a number of other locations of its former operations that
   have disclosed environmental contamination that could cause the Company to
   incur additional investigative, remedial and legal costs.  The Company has
   also been identified by state and federal regulators as a potentially
   responsible party at a number of other disposal sites.

   Based on the costs incurred by the Company over the past several years and
   discussions with its independent environmental consultants, management
   believes that reserves recorded are sufficient in all material respects to
   satisfy the estimated liabilities.  However, the regulatory standards for
   clean-up are continually evolving and may impose more stringent
   requirements.  In addition, many of the environmental investigations at the
   Company's former operating locations and third-party sites are still
   preliminary, and where clean-up plans have been proposed, they have not yet
   received full approval from the relevant regulatory agencies.  Further, the
   presence of Company-generated wastes at third-party disposal sites exposes
   the Company to joint and several liability for the potential additional
   costs of cleaning up wastes generated by others.  Accordingly, there can be
   no assurance that the costs of environmental clean-up for the Company may
   not be significantly higher in future years, possibly necessitating
   additional charges.

   There are certain other claims involving the Company, including claims
   relating to the generation, disposal or release into the environment of
   allegedly hazardous substances.  In management's opinion, the outcome of
   these claims will not, individually or in the aggregate, have a material
   adverse effect on the Company's financial condition or results of
   operations.

   In 1991, the Company identified possible deficiencies in procedures for
   reporting quality assurance information to the Defense Electronics Supply
   Center with respect to AAG's former manufacturing operations.  Over the last
   several years, AAG has been engaged in negotiations with the United States
   Government with respect to settlement of claims the Government might have
   arising out of these reporting deficiencies.  AAG believes it has sufficient
   reserves to cover the estimated settlement amount of these claims.  (See
   Notes I and L to Consolidated Financial Statements.)

   AAG is subject to other litigation and arbitration in the normal course of
   business.  AAG is not a party to any material pending litigation or
   arbitration.
     
                                        17



                                     PART II

                                      ITEM 5

                      Market for Registrant's Common Equity
                         and Related Stockholder Matters

   AAG's Common Stock is listed and traded principally on the New York Stock
   Exchange ("NYSE") under the symbol AAG.  On February 29, 1996, there were
   approximately 9,000 holders of record of Common Stock.  The following table
   sets forth the range of high and low sales prices for the Common Stock on
   the NYSE Composite Tape.

                                     1995                 1994      
                                 High      Low        High      Low
     First Quarter             $10.38   $ 9.38      $10.63    $8.75
     Second Quarter             10.25     9.13       10.00     8.38
     Third Quarter              11.13     9.50       10.00     8.88
     Fourth Quarter             12.00    10.63        9.63     8.88

   AAG's dividend paying capability is limited by certain customary debt
   covenants to amounts based on cumulative earnings and losses, debt
   repurchases, capital transactions and other items.  The Company paid annual
   dividends of $.07 per share in 1995 and $.06 per share in 1994.  Although no
   future dividend policy has been determined, management believes the Company
   will continue to have the capability to pay similar dividend amounts. 

   In August 1995, AAG sold 3.92 million shares of Common Stock at $9.50 per
   share under a rights offering to existing shareholders.

                                        18



                                      ITEM 6

                             Selected Financial Data

   The following financial data have been summarized from, and should be read
   in conjunction with, the Company's consolidated financial statements and
   "Management's Discussion and Analysis of Financial Condition and Results of
   Operations".  The data reflects the purchase of GALIC as of December 31,
   1992 (as indicated by the vertical line) and the acquisition of Laurentian
   as of November 13, 1995 (in millions, except per share amounts).

   Income Statement Data:              1995    1994    1993     1992    1991 
   Total revenues                    $439.6  $372.7  $388.9     $3.6    $1.9 
   Income (loss) from continuing
     operations                        58.7    40.9    53.0     (9.0)   (4.7)
   Loss from discontinued operations   (3.2)   (2.6)   (9.6)   (16.8)  (47.8)
   Extraordinary items                 (0.2)   (1.7)   (3.4)      -       -  
   Changes in accounting principle       -     (0.5)     -      (3.1)     -  
   Net income (loss)                 $ 55.3  $ 36.1  $ 40.0   ($28.9) ($52.5)

   Earnings (loss) per common share:
     Continuing operations            $1.45   $1.05   $1.41   ($0.50) ($0.26)
     Discontinued operations          (0.08)   (.07)   (.27)    (.94)  (2.66)
     Extraordinary items                 -     (.05)   (.10)      -       -  
     Changes in accounting principles    -     (.01)     -      (.17)     -  
     Net income (loss)                $1.37   $0.92   $1.04   ($1.61) ($2.92)

   Cash dividends per common share    $0.07   $0.06   $0.05    $0.05   $0.05 

   Balance Sheet Data:
   Total assets                    $6,611.0$5,089.9$4,913.8 $4,480.4  $170.1 
   Notes payable                      167.7   183.3   225.9    230.9    27.9 
   Net unrealized gains (losses) 
     included in stockholders' equity  89.3   (29.0)   56.9     28.4      -  
   Total stockholders' equity         429.3   204.4   250.3    186.6   108.5 



   Selected Financial Data of GALIC Prior to its Acquisition by AAG
   (in millions)

   Income Statement Data:
   Total revenues                         *       *       *   $342.5  $402.6 
   Income from continuing operations      *       *       *     49.2   103.0 
   Net income *                           *       *    42.5     64.3 

   Balance Sheet Data:
   Total assets                           *       *       *        *$4,685.5 
   Net unrealized gains (losses)
     included in stockholders' equity     *       *       *        *    (5.5)
   Total stockholders' equity             *       *       *        *   358.2 
                 
   * Included in the AAG data above.

   On December 31, 1992, the Company purchased 100% of the capital stock of
   GALIC from GAI for $468 million.  The purchase was financed with (a) $230
   million of borrowings, (b) $156 million of new equity raised from the sale
   of common and preferred stock to GAI, and (c) available cash.  AFG, the
   parent of GAI, beneficially owned approximately 81% of AAG's Common Stock at
   February 29, 1996.


                                        19



                                      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
   the financial condition and results of operations of American Annuity Group,
   Inc. ("AAG" or "the Company").  This discussion should be read in
   conjunction with the financial statements beginning on page F-1.

   AAG is organized as a holding company with nearly all of its operations
   being conducted by its subsidiaries.  The parent corporation, however, has
   continuing expenditures for administrative expenses, corporate services,
   liabilities in connection with discontinued operations and, most
   importantly, for the payment of interest and principal on borrowings.  Since
   its continuing business is financial in nature, AAG does not prepare its
   consolidated financial statements using a current-noncurrent format. 
   Consequently, certain traditional ratios and financial analysis tests are
   not meaningful.

   Liquidity and Capital Resources

   Ratios  AAG's ratio of earnings to fixed charges was 6.0 in 1995, 4.0 in
   1994 and 4.7 in 1993.  The ratio of AAG's consolidated debt to equity
   excluding the effects of unrealized gains and losses on stockholders' equity
   was .49, .79 and 1.17 at December 31, 1995, 1994 and 1993, respectively. 
   These same ratios including the effects of unrealized gains and losses were
   .39, .90 and .90, respectively.

   The National Association of Insurance Commissioners' ("NAIC") model law for
   risk-based capital ("RBC") formulas determines 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, 1995, the capital ratios
   of each of AAG's principal insurance subsidiaries exceeded the RBC
   requirements by substantial amounts.

   Sources and Uses of Funds  On December 31, 1992, AAG acquired Great American
   Life Insurance Company ("GALIC") for $468 million.  To finance the
   acquisition, AAG used cash on hand, issued $156 million of Common and
   Preferred Stock to Great American Insurance Company ("GAI") and borrowed
   $230 million.  The Company refinanced substantially all of that indebtedness
   with the proceeds of the sale of $125 million principal amount of 11-1/8%
   Notes in February 1993 and $100 million principal amount of 9-1/2% Notes in
   August 1993.

   In 1994, management concluded that the Company's operations would benefit
   from a reduction in total indebtedness and the resulting reduction in debt
   service requirements.  The perceived benefits included (i) the ability to
   retain cash to be utilized to expand the Company's operations, and (ii) the
   prospect for better ratings for the Company's insurance subsidiaries.  As a
   result, in March 1994, AAG began to acquire its outstanding indebtedness,
   primarily through privately negotiated transactions.  In total (through
   February 1996), the Company has repurchased $104 million principal amount of
   Notes.  The total consideration paid in these transactions was 810,000
   shares of the Company's Common Stock and $98 million in cash.


                                        20



   The Company has financed a portion of the cost of its Note repurchases with
   borrowings under its line of credit with a group of commercial banks.  The
   line of credit matures in 1999; the Company has no other scheduled principal
   maturities until 2001.

   The November 1995 acquisition of Laurentian Capital Corporation ("LCC") was
   funded primarily with internal funds supplemented by bank borrowings and the
   proceeds of the August stock offering.

   In December 1995, AAG sold $17 million of newly issued 8.5% Series B
   Preferred Stock to GAI.  (See Note N to Consolidated Financial Statements.)

   AAG's ability to pay interest and principal on its debt, dividends on its
   preferred stock, obligations related to the Company's discontinued
   manufacturing operations and other holding company costs is dependent on
   payments from GALIC in the form of capital distributions and income tax
   payments.  In 1995, AAG received $41.0 million in tax allocation payments
   and $54.2 million in capital distributions from GALIC.  In 1995, AAG made
   capital contributions of $31.5 million to GALIC.

   The amount of capital distributions which can be paid by GALIC is subject to
   restrictions relating to statutory surplus and earnings.  In addition, any
   dividend or distribution paid from other than earned surplus is considered
   an extraordinary dividend and may be paid only after regulatory approval. 
   (See Note M to Consolidated Financial Statements.)  The maximum amount of
   dividends payable by GALIC in 1996 without prior regulatory approval is
   approximately $58.6 million.  In January 1996, GALIC paid a capital
   distribution of $11.0 million to AAG.

   Based upon the current level of operations and anticipated growth, AAG
   believes that it will have sufficient resources to meet its liquidity
   requirements.

   Investments  Insurance laws restrict the types and amounts of investments
   which are permissible for life insurers.  These restrictions are designed to
   ensure the safety and liquidity of insurers' investment portfolios.  The
   NAIC is still considering the formulation of a model investment law.  The
   formulation is in the preliminary stages and management believes its impact
   on AAG's operations will not be material.

   The NAIC assigns quality ratings to publicly traded as well as privately
   placed securities.  At December 31, 1995, 95% of AAG's fixed maturity
   portfolio was comprised of investment grade bonds (NAIC rating of "1" or
   "2").  Management believes that the high credit quality of AAG's investment
   portfolio should generate a stable and predictable investment return.

   AAG invests primarily in fixed income investments which, including loans and
   short-term investments, comprised over 98% of its investment portfolio at
   December 31, 1995.  AAG generally invests in securities with intermediate-
   term maturities with an objective of optimizing interest yields while
   maintaining an appropriate relationship of maturities between AAG's assets
   and expected liabilities.  At December 31, 1995, AAG had approximately $242
   million in net unrealized gains on its fixed maturity portfolio compared to
   net unrealized 

                                        21



   losses of $279 million at December 31, 1994.  This increase, representing
   approximately 10% of the carrying value of AAG's bond portfolio, resulted
   from a decrease in the general level of interest rates.

   At December 31, 1995, AAG had approximately 1.7% of total assets invested in
   mortgage loans and real estate.  The majority of these investments were
   purchased within the last three years.

   At December 31, 1995, AAG's mortgage-backed securities ("MBSs") portfolio
   represented approximately 32% of fixed maturity investments compared to 28%
   at December 31, 1994.  This increase resulted from the acquisition of LCC,
   which had a higher concentration of invested assets in MBSs.  As of December
   31, 1995, interest only (I/O), principal only (P/O) and other "high risk"
   MBSs represented less than six-tenths of one percent of total assets.  AAG
   invests primarily in MBSs which have a reduced risk of prepayment.  In
   addition, the majority of MBSs held by AAG 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.

   Approximately 90% of AAG'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, AAG does not believe a material risk (relative to earnings or
   liquidity) is inherent in holding such investments.

   Results of Operations

   General  The results of LCC and its principal subsidiaries, Prairie States
   Life Insurance Company ("Prairie") and Loyal American Life Insurance Company
   ("Loyal"), are included in the Company's income statement subsequent to
   their acquisition on November 13, 1995.

   The following table (in millions) illustrates the Company's net operating
   earnings, as analyzed by management.

      AAG (Consolidated):                           1995    1994     1993 
      Revenues per income statement               $439.6  $372.7   $388.9 
      Less realized (gains) losses                 (15.7)    0.1    (35.5)
        Operating revenues                         423.9   372.8    353.4 
      Costs and expenses per income statement     (348.9) (309.5)  (308.9)
      Less provision for GALIC relocation expenses    -       -       8.0 
        Operating expenses                        (348.9) (309.5)  (300.9)
      Operating earnings before taxes               75.0    63.3     52.5 
      Income tax expense                            26.5    22.3     17.4 
            Net operating earnings                $ 48.5  $ 41.0   $ 35.1 

   Management believes net operating earnings (or "core" earnings) is helpful
   in comparing the operating performance of AAG with that of similar
   companies.  Net operating earnings for 1995 and 1994 were up 18% and 17%,
   respectively, over the comparable prior years.  Net operating earnings
   should not be considered an alternative to net income as an indication of
   AAG's overall performance.  

                                        22



   Annuity receipts for GALIC were as follows (in millions):

     GALIC:                                       1995    1994     1993 
     Annuity receipts:
       Flexible Premium Deferred Annuities:
         First year                               $ 42    $ 39     $ 47 
         Renewal                                   196     208      223 
                                                   238     247      270 
       Single Premium Deferred Annuities           219     196      130 
            Total annuity receipts                $457    $443     $400 

   GALIC's annuity receipts have increased primarily on the strength of sales
   of newly introduced single premium products and the development of new
   single premium distribution channels.

   Life, Accident and Health Premiums and Benefits  Life, accident and health
   revenues and expenses reflect primarily premiums and benefits of Prairie and
   Loyal since their acquisition in November 1995.

   Net Investment Income  Net investment income increased 9% in 1995 and 5% in
   1994 due primarily to an increase in the Company's average invested asset
   base.  Investment income is reflected net of investment expenses of $5.4
   million in 1995, and $4.9 million in both 1994 and 1993.

   Realized Gains  Individual securities are sold from time to time as market
   opportunities appear to present optimal situations under AAG's investment
   strategies. 

   Equity in Net Earnings (Loss) of Affiliate  Equity in net earnings (loss) of
   affiliate represents AAG's proportionate share of Chiquita's earnings
   (losses).  Chiquita reported income before extraordinary items for 1995 of
   $17 million compared to losses before extraordinary items of $49 million for
   1994 and $51 million in 1993.
    
   Annuity Benefits  Annuity benefits reflects primarily interest credited to
   annuity policyholders' funds accumulated.  All of GALIC's products are fixed
   rate annuities which permit GALIC to change the crediting rate at any time
   (subject to minimum interest rate guarantees of 3% to 4% per annum).  As a
   result, management has been able to react to changes in market interest
   rates and maintain a desired interest rate spread without a substantial
   effect on persistency.  Annuity benefits increased 5% in 1995 and 6% in 1994
   primarily due to an increase in average annuity benefits accumulated.

   Amortization of Insurance Acquisition Costs  Amortization of insurance
   acquisition costs increased to $12.7 million in 1995 from $7.1 million in
   1994 due primarily to an increase in the average balance of deferred policy
   acquisition costs ("DPAC").

   DPAC amortization decreased 52% in 1994.  This decrease reflects evaluations
   during 1993 and 1994 of DPAC assumptions, which resulted in updating certain
   factors, primarily the time frame over which DPAC is amortized.  The time
   frame was extended to more accurately reflect the estimated lives of
   policies and the expected gross profits resulting from these policies.  The
   overall effect of the evaluations was to increase the estimated effective
   lives of the policies from approximately five years to approximately ten
   years.  Estimates of lives and expected gross profits were refined based on
   actual experience of the Company.

   Interest on Borrowings and Other Debt Expenses  Interest on borrowings
   decreased 18% in 1995 and 5% in 1994 due to repurchases of debt during 1995
   and 1994.  (See Note G to Consolidated Financial Statements.)

                                        23



   Other Expenses  Other expenses increased 35% in 1995, reflecting additional
   costs for Guaranty Association fees and expanded distribution networks, and
   the operating and general expenses of Prairie and Loyal.  In 1994, other
   expenses increased 13%.  Additional costs for information systems,
   communications, rent and new distribution networks were partially offset by
   lower employee costs; 1993 employee costs were unusually high due to the
   temporary staff required for the relocation of operations from Los Angeles
   to Cincinnati.

   Discontinued Operations  The Company has sold all of its former
   manufacturing operations.  Certain properties utilized in the former
   manufacturing operations continue to be held for sale, many of which are
   currently leased to companies using them for manufacturing operations.

   The Company has certain obligations related to its former business
   activities.  Among these obligations are the funding of pension plans,
   environmental costs, settlement of government claims, lease payments for a
   former plant site, certain retiree medical benefits, and certain obligations
   associated with the sales of the Company's manufacturing operations.  (See
   Notes I and L to Consolidated Financial Statements.)

   Extraordinary Items  Extraordinary items reflect AAG's losses, net of tax,
   on retirements of its debt in 1995 ($150,000), 1994 ($1.0 million) and 1993
   ($3.4 million).  In addition, AAG recorded a pretax charge of $1.1 million
   ($700,000 net of tax), representing AAG's proportionate share of Chiquita's
   extraordinary loss on the retirement of certain debt in 1994.

   Accounting Change  Effective January 1, 1994, AAG implemented Statement of
   Financial Accounting Standards ("SFAS") No. 112, "Employers' Accounting for
   Postemployment Benefits", and recorded a pretax charge of $740,000
   ($481,000, net of tax) for the projected future costs of providing certain
   benefits to employees of GALIC.  

                                        24



                                      ITEM 8

                   Financial Statements and Supplementary Data

                                                                  PAGE

   Report of Independent Auditors                                  F-1

   Consolidated Balance Sheet:
     December 31, 1995 and 1994                                    F-2

   Consolidated Income Statement:
     Years Ended December 31, 1995, 1994 and 1993                  F-3

   Consolidated Statement of Changes in Stockholders' Equity:
     Years Ended December 31, 1995, 1994 and 1993                  F-4

   Consolidated Statement of Cash Flows:
     Years Ended December 31, 1995, 1994 and 1993                  F-5


   Notes to Consolidated Financial Statements                      F-6

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


                                        25



                                     PART III

   The information required by the following Items will be included in AAG's
   definitive Proxy Statement for the 1996 Annual Meeting of Stockholders which
   will be filed with the Securities and Exchange Commission within 120 days of
   the Company's fiscal year end and is herein incorporated by reference:

   ITEM 10     Directors and Executive Officers of the Registrant


   ITEM 11     Executive Compensation


   ITEM 12     Security Ownership of Certain Beneficial Owners and Management


   ITEM 13     Certain Relationships and Related Transactions


                                        26







                          REPORT OF INDEPENDENT AUDITORS

   Board of Directors
   American Annuity Group, Inc.

   We have audited the accompanying consolidated balance sheets of American
   Annuity Group, Inc. and subsidiaries as of December 31, 1995 and 1994, and
   the related consolidated statements of operations, changes in stockholders'
   equity and cash flows for each of the three years in the period ended
   December 31, 1995.  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 Annuity Group, Inc. and subsidiaries at December 31,
   1995 and 1994, and the consolidated results of their operations and their
   cash flows for each of the three years in the period ended December 31,
   1995, 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.

   As discussed in Note B to the consolidated financial statements, the Company
   made an accounting change in 1994.




                                                     Ernst & Young LLP


   Cincinnati, Ohio
   February 29, 1996


                                      F-1



                  AMERICAN ANNUITY GROUP, INC. AND SUBSIDIARIES

                            CONSOLIDATED BALANCE SHEET
                              (Dollars in millions)

                                                         December 31,    
                                                       1995      1994 
   Assets
     Investments:
       Fixed maturities:
         Held to maturity - at amortized cost 
          (market - $2,600.0 and $3,062.4)         $2,497.2  $3,273.7 
         Available for sale - at market
          (amortized cost - $2,787.6 and $1,326.4)  2,926.6   1,258.6 
       Equity securities - at market
          (cost - $14.1 and $10.7)                     32.6      21.7 
       Investment in affiliate                         20.3      20.8 
       Mortgage loans on real estate                   70.4      47.2 
       Real estate                                     39.9      28.0 
       Policy loans                                   241.4     185.5 
       Short-term investments                         140.7      26.0 
         Total investments                          5,969.1   4,861.5 

     Cash                                              28.7      36.7 
     Accrued investment income                         87.4      77.7 
     Unamortized insurance acquisition costs, net     149.8      65.1 
     Other assets                                     137.5      48.9 
     Assets held in separate accounts                 238.5        -  
         Total assets                              $6,611.0  $5,089.9 

   Liabilities and Stockholders' Equity
     Annuity benefits accumulated                  $5,052.0  $4,618.1 
     Life, accident and health benefit reserves       538.3      19.9 
     Notes payable                                    167.7     183.3 
     Payable to affiliates, net                        29.1      16.7 
     Deferred taxes (benefits) on unrealized
       gains (losses)                                  48.0     (15.5)
     Accounts payable, accrued expenses and other
       liabilities                                    108.1      63.0 
     Liabilities related to separate accounts         238.5        -  
         Total liabilities                          6,181.7   4,885.5 


     Series B Preferred Stock (at redemption value)    17.0        -  
     Common Stock, $1 par value
       -100,000,000 shares authorized
       - 43,071,882 and 39,141,080 shares outstanding  43.1      39.1 
     Capital surplus                                  361.1     330.8 
     Accumulated deficit at December 31, 1992        (212.6)   (212.6)
     Retained earnings since January 1, 1993          131.4      76.1 
     Unrealized gains (losses) on marketable
       securities, net of deferred income taxes and
       insurance adjustments                           89.3     (29.0)
         Total stockholders' equity                   429.3     204.4 
         Total liabilities and 
         stockholders' equity                      $6,611.0  $5,089.9 




   See Notes to Consolidated Financial Statements.

                                       F-2



                  AMERICAN ANNUITY GROUP, INC. AND SUBSIDIARIES

                          CONSOLIDATED INCOME STATEMENT
                     (In millions, except per share amounts)

                                              Year ended December 31,  
                                               1995     1994     1993 
   Revenues:
     Net investment income                   $405.5   $371.8   $353.3 
     Realized gains (losses) on sales
       of investments                          15.7     (0.1)    35.5 
     Life, accident and health premiums        15.7      2.2      2.4 
     Equity in net earnings (loss) of
       affiliate                                0.1     (2.8)    (2.9)
     Other income                               2.6      1.6      0.6 
                                              439.6    372.7    388.9 
   Costs and Expenses:
     Annuity benefits                         254.7    241.9    228.6 
     Life, accident and health benefits        13.2      1.5      1.7 
     Amortization of insurance acquisition
       costs                                   12.7      7.1     14.7 
     Interest on borrowings and other debt
       expenses                                17.6     21.4     22.6 
     Provision for GALIC relocation expenses     -        -       8.0 
     Other expenses                            50.7     37.6     33.3 
                                              348.9    309.5    308.9 
   Income from continuing operations before 
     income taxes                              90.7     63.2     80.0 
   Provision for income taxes                  32.0     22.3     27.0 

   Income from continuing operations           58.7     40.9     53.0 

   Discontinued operations, net of tax         (3.2)    (2.6)    (9.6)

   Income before extraordinary items and 
     cumulative effect of accounting change    55.5     38.3     43.4 

   Extraordinary items, net of tax             (0.2)    (1.7)    (3.4)
   Cumulative effect of accounting change,
     net of tax                                  -      (0.5)      -  

   Net Income                                $ 55.3   $ 36.1   $ 40.0 


     Preferred dividend requirement              -       0.9      3.6 

     Net income applicable to Common Stock   $ 55.3   $ 35.2   $ 36.4 


     Average common shares outstanding         40.5     38.1     35.1 


   Earnings (loss) per common share:
     Continuing operations                    $1.45    $1.05    $1.41 
     Discontinued operations                   (.08)    (.07)    (.27)
     Extraordinary items                         -      (.05)    (.10)
     Cumulative effect of accounting change      -      (.01)      -  
     Net income                               $1.37    $0.92    $1.04 


   Cash dividends per common share            $0.07    $0.06    $0.05 
   See Notes to Consolidated Financial Statements.
                                       F-3



                  AMERICAN ANNUITY GROUP, INC. AND SUBSIDIARIES

            CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
                                  (In millions)

                                               Year ended December 31,   
                                               1995     1994     1993 
   Preferred Stock:
     Balance at beginning of year            $   -    $ 29.9   $ 29.4 
     Exchanged for Common Stock                  -     (30.0)      -  
     Issued during the year                    17.0       -        -  
     Accretion of discount                       -       0.1      0.5 
       Balance at end of year                $ 17.0   $   -    $ 29.9 


   Common Stock:
     Balance at beginning of year            $ 39.1   $ 35.1   $ 35.1 
     Issued during the year                     4.0      4.0       -  
       Balance at end of year                $ 43.1   $ 39.1   $ 35.1 


   Capital Surplus:
     Balance at beginning of year            $330.8   $301.0   $306.3 
     Common Stock issued during the year       33.3     33.0       -  
     Common dividends declared                 (3.0)    (2.3)    (1.7)
     Preferred dividends declared                -      (0.8)    (3.1)
     Accretion of Preferred Stock discount       -      (0.1)    (0.5)
       Balance at end of year                $361.1   $330.8   $301.0 


   Accumulated Deficit at December 31, 1992 ($212.6) ($212.6) ($212.6)


   Retained Earnings Since January 1, 1993:
     Retained earnings from January 1, 1993
       to beginning of year                  $ 76.1   $ 40.0   $   -  
     Net income                                55.3     36.1     40.0 
       Balance at end of year                $131.4   $ 76.1   $ 40.0 


   Unrealized Gains (Losses), Net:
     Balance at beginning of year           ($ 29.0)  $ 56.9   $ 28.4 
     Change during year                       118.3    (85.9)    28.5 
       Balance at end of year                $ 89.3  ($ 29.0)  $ 56.9 




   See Notes to Consolidated Financial Statements.

                                       F-4



                  AMERICAN ANNUITY GROUP, INC. AND SUBSIDIARIES

                       CONSOLIDATED STATEMENT OF CASH FLOWS
                                  (In millions)
                                               Year ended December 31,    
                                               1995     1994     1993 
   Cash Flows from Operating Activities:
   Net income                               $  55.3  $  36.1   $ 40.0 
   Adjustments:
     Discontinued operations                    3.2      2.6      9.6 
     Loss on retirement of debt                 0.2      1.7      3.4 
     Cumulative effect of accounting change      -       0.5       -  
     Increase (decrease) in life, accident
       and health reserves                     17.5     (1.4)    (0.6)
     Benefits to annuity policyholders        254.7    241.9    228.6 
     Amortization of insurance acquisition
       costs                                   12.7      7.1     14.7 
     Equity in net (earnings) loss of
       affiliate                               (0.1)     2.8      2.9 
     Realized (gains) losses on
       investing activities                   (15.7)     0.1    (35.5)
     Increase in insurance acquisition costs  (34.9)   (30.5)   (28.0)
     Other, net                                (1.0)     1.5     (1.8)
                                              291.9    262.4    233.3 
   Cash Flows from Investing Activities:
     Purchases of and additional investments in:
       Fixed maturity investments          (1,107.5)(1,189.2)(2,015.1)
       Equity securities                         -      (0.7)    (5.6)
       Real estate, mortgage loans and
         other assets                         (22.6)   (27.9)   (59.3)
     Purchase of subsidiaries, net of
       cash acquired                          (55.2)   (14.0)      -  
     Maturities and redemptions of
       fixed maturity
       investments                            147.1    238.2    379.2 
     Sales of:
       Fixed maturity investments             768.5    621.9  1,202.0 
       Equity securities                        2.0      4.8     30.6 
       Real estate, mortgage loans and
         other assets                           8.2     27.2      2.5 
     Increase in policy loans                  (6.1)   (16.1)    (8.1)
     Other, net                                  -        -       2.9 
                                             (265.6)  (355.8)  (470.9)
   Cash Flows from Financing Activities:
     Annuity receipts                         457.5    442.7    400.1 
     Annuity benefits and withdrawals        (412.8)  (321.0)  (337.9)
     Additions to notes payable                33.5     34.7    225.0 
     Reductions of notes payable              (49.1)   (69.2)  (230.0)
     Issuance of Common Stock                  37.3       -        -  
     Issuance of Preferred Stock               17.0       -        -  
     Cash dividends paid                       (3.0)    (3.1)    (4.1)
                                               80.4     84.1     53.1 

   Net increase (decrease) in cash and
     short-term investments                   106.7     (9.3)  (184.5)

   Beginning cash and short-term investments   62.7     72.0    256.5 
   Ending cash and short-term investments   $ 169.4  $  62.7   $ 72.0 


   See Notes to Consolidated Financial Statements.

                                       F-5



                  AMERICAN ANNUITY GROUP, INC. AND SUBSIDIARIES

                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


   A.  DESCRIPTION OF THE COMPANY

   American Annuity Group, Inc. ("AAG" or "the Company") markets (i) individual
   and group annuities nationwide to the savings and retirement markets, (ii)
   individual life insurance and annuity policies with the sponsorship of state
   associations of funeral directors as well as individual funeral directors
   across the country and (iii) various forms of life, accident and health
   insurance and annuities through payroll deduction plans and financial
   institutions.

   AAG's parent, American Financial Corporation ("AFC"), was acquired by
   American Financial Group, Inc. ("AFG") in April 1995.  AFG and its
   subsidiaries owned 35,059,995 shares (81%) of AAG's Common Stock at December
   31, 1995.

   B.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

   Basis of Presentation  The accompanying consolidated financial statements
   include the accounts of AAG and its subsidiaries.  Intercompany transactions
   and balances are eliminated in consolidation.  Certain reclassifications
   have been made to prior periods to conform to the current year's
   presentation.

   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.

   AAG's acquisition of Laurentian Capital Corporation ("LCC") in November 1995
   was recorded as a purchase.  The results of LCC's operations have been
   included in AAG's consolidated financial statements since its acquisition.

   Investments  Debt securities are classified as "held to maturity" and
   reported at amortized cost if AAG 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 stockholders' equity if the debt
   or equity 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.

   In accordance with guidance issued by the Financial Accounting Standards
   Board in November 1995, AAG reassessed the classifications of its investment
   securities and transferred approximately $1.1 billion of its fixed maturity
   portfolio from "held to maturity" to "available for sale".  The
   reclassification resulted in an increase of $55.6 million in the carrying
   value of fixed maturity investments and an increase of $36.1 million in
   stockholders' equity.  The transfer had no effect on net earnings.

   Short-term investments are carried at cost; mortgage loans on real estate
   are generally carried at amortized cost; policy loans are stated at the
   aggregate unpaid balance.

                                       F-6



                  AMERICAN ANNUITY GROUP, INC. AND SUBSIDIARIES

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

   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. 
   Premiums and discounts on mortgage-backed securities are amortized over
   their expected average lives using the interest method.

   Investment in Affiliate  AAG's investments in equity securities of companies
   that are 20% to 50% owned by AFG and its subsidiaries are carried at cost,
   adjusted for a proportionate share of their undistributed earnings or
   losses.  

   Insurance Acquisition Costs  Unamortized insurance acquisition costs consist
   primarily of deferred policy acquisition costs and the present value of
   future profits of acquired companies.

       Deferred Policy Acquisition Costs ("DPAC")  DPAC (principally
   commissions, advertising, underwriting, policy issuance and sales expenses
   that vary with and are primarily related to the production of new business)
   is deferred to the extent that such costs are deemed recoverable.

   Deferred costs related to annuities and universal life insurance products
   are amortized, with interest, in relation to the present value of expected
   gross profits on the policies.  These expected gross profits consist
   principally of estimated future net investment income and surrender,
   mortality and other policy charges, less estimated future interest on
   policyholders' funds, policy administration expenses and death benefits in
   excess of account values.  DPAC is reported net of unearned revenue relating
   to certain policy charges that represent compensation for future services. 
   These unearned revenues are recognized as income using the same assumptions
   and factors used to amortize DPAC.

   Deferred costs related to traditional life and health insurance are
   amortized over the expected premium paying period of the related policies,
   in proportion to the ratio of annual premium revenues to total anticipated
   premium revenues.  Such anticipated premium revenues were estimated using
   the same assumptions used for computing liabilities for future policy
   benefits.

   To the extent that realized gains and losses result in adjustments to the
   amortization of DPAC, such adjustments are reflected as components of
   realized gains.

   To the extent that unrealized gains (losses) from securities classified as
   "available for sale" would result in adjustments to DPAC, unearned revenues
   and policyholder liabilities had those gains (losses) actually been
   realized, such balance sheet amounts are adjusted, net of deferred taxes.

       Present Value of Future Profits  Included in Insurance Acquisition
   Costs are amounts representing the present value of future profits on
   business in force of the acquired insurance companies, which represent the
   portion of the costs to acquire such companies that is allocated to the
   value of the right to receive future cash flows from insurance contracts
   existing at the date of acquisition.  These amounts are amortized with
   interest over the estimated remaining life of the acquired policies for
   annuities and universal life products and over the expected premium paying
   period for traditional life and health insurance products.
                                       F-7



                  AMERICAN ANNUITY GROUP, INC. AND SUBSIDIARIES

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

   Annuity Benefits Accumulated  Annuity receipts and benefit payments are
   generally 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 Benefit Reserves  Liabilities for future policy
   benefits under traditional ordinary life, accident and health policies are
   computed using the net level premium method.  Computations are based on
   anticipated investment yields (primarily 7%), mortality, morbidity and
   surrenders and include provisions for unfavorable deviations.  Reserves are
   modified as necessary to reflect actual experience and developing trends.  

   The liability for future policy benefits for interest sensitive life
   policies is equal to the sum of the accumulated fund balances under such
   policies.

   Assets Held In and Liabilities Related To Separate Accounts  Investment
   annuity deposits and related liabilities represent deposits maintained by
   several banks under a previously offered tax-deferred annuity program.  The
   Company receives an annual fee from each bank for sponsoring the program; if
   depositors elect to purchase an annuity from the Company, funds are
   transferred to the Company.

   Income Taxes  AAG, Great American Life Insurance Company ("GALIC") and all
   other 80%-owned U.S. non-life subsidiaries are consolidated with AFC for
   federal income tax purposes.  The life insurance subsidiaries of LCC will
   file separate federal income tax returns through the year 2000.

   AAG and GALIC have separate tax allocation agreements with AFC which
   designate how tax payments are shared by members of the tax group.  In
   general, both companies compute taxes on a separate return basis.  GALIC is
   obligated to make payments to (or receive benefits from) AFC based on
   taxable income without regard to temporary differences.  In accordance with
   terms of AAG's indentures, AAG receives GALIC's tax allocation payments for
   the benefit of AAG's deductions arising from current operations.  If GALIC's
   taxable income (computed on a statutory accounting basis) exceeds a current
   period net operating loss of AAG, the taxes payable by GALIC associated with
   the excess are payable to AFC.  If the AFC tax group utilizes any of AAG's
   net operating losses or deductions that originated prior to AAG's entering
   AFC's consolidated tax group, AFC will pay to AAG an amount equal to the
   benefit received.

   Deferred income tax assets and liabilities are determined based on
   differences between financial reporting and tax bases and are measured using
   enacted tax rates.  The Company recognizes deferred tax assets if it is more
   likely than not that a benefit will be realized.  Current and deferred tax
   assets and liabilities of companies in AFC's consolidated tax group are
   aggregated with other amounts receivable from or payable to affiliates.

   Life, Accident and Health Premiums and Benefits  For traditional life,
   accident and health products, premiums are recognized as revenue when
   legally collectible from policyholders.  Policy reserves have been
   established in a manner which allocates policy benefits and expenses on a
   basis consistent with the recognition of related premiums and generally
   results in the recognition of profits over the premium-paying period of the
   policies.

                                       F-8



                  AMERICAN ANNUITY GROUP, INC. AND SUBSIDIARIES

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued


   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.  Surrender benefits
   reduce the account value.  Death benefits are expensed when incurred, net of
   the account value.

   Debt Issuance Costs  Debt expenses are amortized over the terms of the
   respective borrowings on the interest method.

   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 annuity receipts, benefits and withdrawals and obtaining resources
   from owners and providing them with a return on their investments.  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.

   Benefit Plans  AAG sponsors an Employee Stock Ownership Retirement Plan
   ("ESORP") covering all employees who are qualified as to age and length of
   service.  The ESORP, which invests primarily in securities of AAG, is a
   trusteed, noncontributory plan for the benefit of the employees of AAG and
   its subsidiaries.  Contributions are discretionary by the directors of AAG
   and are charged against earnings in the year for which they are declared. 
   Qualified employees having vested rights in the plan are entitled to benefit
   payments at age 60.

   AAG and certain of its subsidiaries provide certain benefits to eligible
   retirees.  Effective January 1, 1994, AAG implemented Statement of Financial
   Accounting Standards No. 112, "Employers' Accounting for Postemployment
   Benefits" which covers 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 earn such benefits.
    
   C.  ACQUISITION

   On November 13, 1995, AAG acquired all of the outstanding shares of LCC. 
   Its principal insurance subsidiaries were Prairie States Life Insurance
   Company ("Prairie") and Loyal American Life Insurance Company ("Loyal").

   AAG paid approximately $106 million for the outstanding common stock of LCC
   and repaid $45 million of LCC indebtedness concurrently with the
   acquisition.  GALIC provided approximately $90 million of the purchase price
   in exchange for Prairie and Loyal.  AAG funded the balance of the cost of
   acquiring LCC with the proceeds from a Common Stock rights offering
   completed in August 1995, borrowings under its line of credit, and cash on
   hand.

                                       F-9



                  AMERICAN ANNUITY GROUP, INC. AND SUBSIDIARIES

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued


   The following table provides certain unaudited consolidated proforma results
   of operations assuming the acquisition of LCC had occurred at the beginning
   of each period presented (in millions, except per share amounts).

                                            1995      1994
     Total revenues                       $563.6    $500.6
     Income before extraordinary items      61.6      47.5
     Net income                             61.4      45.3
     Net income per share                   1.42      1.06

   D.  INVESTMENTS

   Fixed maturity investments at December 31, consisted of the following (in
   millions):
                                                     1995
                                              Held to Maturity             
                                     Amortized    Market   Gross Unrealized
                                          Cost     Value   Gains     Losses
     U. S. Government and government
       agencies and authorities       $      -  $      - $     -       $  -
     Public utilities                    393.1     405.5    13.4       (1.0)
     Mortgage-backed securities          659.6     686.0    27.0       (0.6)
     All other corporate               1,444.5   1,508.5    64.1       (0.1)
                                      $2,497.2  $2,600.0  $104.5      ($1.7)

                                                     1995
                                               Available for Sale
                                     Amortized    Market   Gross Unrealized
                                          Cost     Value   Gains     Losses
     U. S. Government and government
       agencies and authorities       $  162.5  $  169.9  $  7.5     ($ 0.1)
     Public utilities                    227.7     239.1    12.1       (0.7)
     Mortgage-backed securities        1,045.2   1,073.8    32.2       (3.6)
     All other corporate               1,352.2   1,443.8    97.9       (6.3)
                                      $2,787.6  $2,926.6  $149.7     ($10.7)

                                                     1994
                                              Held to Maturity             
                                     Amortized    Market   Gross Unrealized 
                                          Cost     Value   Gains     Losses
     U. S. Government and government
       agencies and authorities       $      - $       -    $  -     $    -
     Public utilities                    461.2     424.0     0.8      (38.0)
     Mortgage-backed securities          721.0     657.9     0.1      (63.2)
     All other corporate               2,091.5   1,980.5     6.7     (117.7)
                                      $3,273.7  $3,062.4    $7.6    ($218.9)
   
                                                     1994
                                              Available for Sale
                                     Amortized    Market   Gross Unrealized
                                          Cost     Value   Gains     Losses
     U. S. Government and government
       agencies and authorities       $  130.3  $  125.3   $0.1      ($ 5.1)
     Public utilities                     66.2      63.7    0.2        (2.7)
     Mortgage-backed securities          604.6     564.8    0.7       (40.5)
     All other corporte                  525.3     504.8    2.2       (22.7)
                                      $1,326.4  $1,258.6   $3.2      ($71.0)

   "Investing activities" related to fixed maturity investments during 1995
   included in AAG's Consolidated Statement of Cash Flows consisted of the
   following (in millions):

                                  1995                      1994            
                     Held to  Available            Held to  Available 
                    Maturity   for sale     Total  Maturity  for Sale     Total
     Purchases      ($280.7)   ($826.8) ($1,107.5) ($713.6)  ($475.6) ($1,189.2)
     Maturities and
        paydowns       50.5       96.6      147.1     54.8     183.4      238.2 
     Sales              1.4      767.1      768.5      5.6     616.3      621.9 
     Gross gains        0.8       23.2       24.0      0.8       7.9        8.7 
     Gross losses      (0.6)      (8.3)      (8.9)    (1.0)     (9.8)     (10.8)


   Certain securities classified as "held to maturity" were sold for losses of
   $0.2 million in 1995 and $0.6 million in 1994, respectively, due to
   deterioration in the issuers' creditworthiness.

   Gross gains of $45.3 million and gross losses of $11.0 million were realized
   on sales of fixed maturity investments during 1993.


                                      F-10 



                  AMERICAN ANNUITY GROUP, INC. AND SUBSIDIARIES

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued


   The table below sets forth the scheduled maturities of AAG's fixed maturity
   investments based on carrying value as of December 31:

                                                   1995            
                                             Held to Available            1994
             Maturity                       Maturity  for Sale Total     Total
          One year or less                       1%      *        1%        * 
          After one year through five years     13       5%      18        15%
          After five years through ten years    18      22       40        44 
          After ten years                        2       7        9        13 
                                                34      34       68        72 
          Mortgage-backed securities            12      20       32        28 
                                                46%     54%     100%      100%

          * less than 1%

   Distribution based on market value is generally the same.  Mortgage-backed
   securities had an expected average life of approximately 7-1/2 years at
   December 31, 1995.

   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.

   The carrying values of investments in any entity or mortgage-backed security
   ("MBS") issuer in excess of 10% of stockholders' equity at December 31,
   1995, other than investments issued or guaranteed by the U.S. Government or
   government agencies, consisted of the following fixed maturity investments
   (in millions):

     Issuer                                                Amount
     Prudential Home MBS (18 different issues)             $118.9
     Residential Funding MBS (16 different issues)           96.3
     General Electric Capital MBS (10 different issues)      88.8
     Countrywide MBS (17 different issues)                   80.3
     Resolution Trust Corporation MBS                        58.2
     Securitized Asset Sales, Inc.                           56.1
     Georgia-Pacific Corporation                             43.6


                                       F-11



                  AMERICAN ANNUITY GROUP, INC. AND SUBSIDIARIES

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued


   At December 31, 1995 and 1994, respectively, gross unrealized gains on
   marketable equity securities were $18.5 million and $11.1 million and gross
   unrealized losses were zero and $0.1 million.  Realized gains and changes in
   unrealized appreciation on fixed maturity and equity security investments
   are summarized as follows (in millions):

                                    Fixed     Equity      Tax  
                                  MaturitiesSecurities  Effects     Total
          1995
          Realized                  $ 15.1     $ 0.6   ($  5.5)   $ 10.2 
          Change in unrealized       520.9       7.5    (184.9)    343.5 

          1994
          Realized                 ($  2.1)    $ 2.0    $  0.0   ($  0.1)
          Change in unrealized      (485.3)     (2.1)    170.6    (316.8)

          1993
          Realized                  $ 34.3     $ 1.2   ($ 12.4)   $ 23.1 
          Change in unrealized        88.6      10.9     (34.8)     64.7 

   Major categories of net investment income were as follows (in millions):

                                        1995     1994    1993 
          Fixed maturities            $405.2   $372.7  $354.8 
          Other                          5.7      4.0     3.4 
            Total investment income    410.9    376.7   358.2 
          Investment expenses           (5.4)    (4.9)   (4.9)
            Net investment income     $405.5   $371.8  $353.3 

   AAG's investment portfolio is managed by a subsidiary of AFG.  Investment
   expenses included investment management charges of $4.7 million in 1995 and
   $4.4 million in both 1994 and 1993 which represented approximately one-tenth
   of one percent of AAG's invested assets in all three years.

   E.  INVESTMENT IN AFFILIATE

   Investment in affiliate (carrying value of $20.3 million at December 31,
   1995) reflects AAG's 5% ownership (2.7 million shares) of the common stock
   of Chiquita Brands International ("Chiquita") which is accounted for under
   the equity method.  AFG and its other subsidiaries owned an additional 39%
   interest in the common stock of Chiquita.  Chiquita is a leading
   international marketer, processor and producer of quality food products. 
   The market value of AAG's investment in Chiquita was approximately $36.7
   million and $36.4 million at December 31, 1995 and 1994, and $41.8 million
   at February 29, 1996.

   Included in AAG's retained earnings (deficit) at December 31, 1995, was
   approximately $5.8 million applicable to equity in undistributed net losses
   of Chiquita.

   In the first quarter of 1994, AAG recorded a pretax extraordinary charge of
   $1.1 million ($0.7 million net of tax), representing its proportionate share
   of Chiquita's loss on the retirement of debt.




                                       F-12



                  AMERICAN ANNUITY GROUP, INC. AND SUBSIDIARIES

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued


   F.  UNAMORTIZED INSURANCE ACQUISITION COSTS

   Unamortized insurance acquisition costs consisted of the following at
   December 31, (in millions):

                                                      1995       1994 
          DPAC - annuities                          $224.6     $220.8 
          DPAC - life policies                         3.6        3.1 
          Present value of future profits acquired    73.4         -  
          Unearned revenues                         (151.8)    (158.8)
                                                    $149.8     $ 65.1 

   At December 31, 1995, the expected rate of amortization of the present value
   of future profits acquired for the next five years was as follows: 10% in
   1996; 9% in 1997; 9% in 1998; 8% in 1999; and 7% in 2000.

   G.  NOTES PAYABLE

   Notes payable consisted of the following at December 31, (in millions):

                                                      1995       1994 
          Direct obligations of AAG:
             11-1/8% Senior Subordinated Notes
                due February 2003                   $101.4     $103.9 
             9-1/2% Senior Notes due August 2001      41.5       44.0 
             Bank Credit Line due September 1999      20.5       30.0 
          Subsidiary debt                              4.3        5.4 
                 Total                              $167.7     $183.3 

   AAG has a $75 million revolving credit agreement with four banks.  Loans
   under the credit agreement bear interest at floating rates based on prime or
   Eurodollar rates and are collateralized by 25% of the Common Stock of GALIC. 
   At December 31, 1995, the average rate on these borrowings was 6.83%.

   In the first two months of 1996, the Company repurchased $22.1 million
   principal amount of its 11-1/8% Senior Subordinated Notes realizing a pretax
   extraordinary loss of approximately $2.5 million.

   During 1995, AAG repurchased $2.4 million principal amount of its 11-1/8%
   Notes and $2.5 million principal amount of its 9-1/2% Notes.  As a result of
   the repurchases, AAG realized a pretax extraordinary loss of $231,000.

   During 1994, AAG repurchased $21.1 million principal amount of its 11-1/8%
   Notes (including $3 million purchased by GALIC) and $56.0 million principal
   amount of its 9-1/2% Notes (including $11 million purchased by GALIC) in
   exchange for approximately $69 million in cash and 810,000 shares of its
   Common Stock.  As a result of the repurchases, AAG realized a pretax
   extraordinary loss of $1.5 million ($1.0 million net of tax).

   In connection with the GALIC acquisition, AAG borrowed $180 million under a
   Bank Term Loan Agreement and $50 million under a Bridge Loan.  In 1993, AAG
   sold $225 million principal amount of Notes to the public and used the
   proceeds to repay the Bank and Bridge Loans.  As a result, AAG recorded an
   extraordinary loss of $5.2 million ($3.4 million net of tax) representing
   unamortized debt issue costs which were written off upon retirement of the
   bank debt.

                                       F-13



                  AMERICAN ANNUITY GROUP, INC. AND SUBSIDIARIES

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued


   AAG has no scheduled principal payments on its 9-1/2% Notes and 11-1/8%
   Notes until 2001.  Interest payments were $17.2 million in 1995, $23.2
   million in 1994 and $11.7 million in 1993.

   H.  STOCKHOLDERS' EQUITY

   The Company is authorized to issue 25,000,000 shares of Preferred Stock, par
   value $1.00 per share.

   On December 28, 1995, AAG sold 170,000 shares of newly issued Series B
   Preferred Stock to Great American Insurance Company ("GAI") for $17 million. 
   (See Note N to Consolidated Financial Statements.)  The Series B Preferred
   Stock has a redemption value of $100 per share and is redeemable at AAG's
   option.  Dividends are cumulative and payable at the rate of $8.50 per share
   per annum.

   In August 1995, AAG sold 3.92 million shares of common stock at $9.50 per
   share under a rights offering to existing shareholders.

   On March 31, 1994, AAG issued approximately 3.2 million shares of Common
   Stock to GAI in exchange for all of AAG's outstanding $7.00 Series A
   Preferred shares. 

   AAG's dividend paying capability is limited by certain customary debt
   covenants to amounts based on cumulative earnings and losses, debt
   repurchases, capital transactions and other items.

   I.  DISCONTINUED OPERATIONS

   All of the Company's former manufacturing businesses are reported as
   discontinued operations.  During 1995, the Company's last manufacturing
   unit, Electromag NV, was sold and no gain or loss was recognized on the
   sale.

   In 1995, AAG recorded a $5.0 million pretax charge for discontinued
   operations.  This charge represents primarily additional reserves related to
   possible deficiencies by AAG's predecessor in reporting quality assurance
   information in connection with certain military related sales prior to 1991.

   In 1994, AAG recorded a $4.0 million pretax charge for discontinued
   operations, primarily related to environmental liabilities.  In 1993, the
   pretax loss from discontinued operations was $14.8 million which included
   charges for employee related obligations of approximately $9.7 million
   resulting primarily from a decrease in the discount rate used to calculate
   pension obligations.  The remaining charges reflected additional write-downs
   and other estimated expenses associated with the Company's former
   manufacturing properties.

   The Company has a defined benefit pension plan covering former U.S.
   employees of its discontinued manufacturing operations.  Pension benefits
   are based upon past service with the Company and compensation levels. 
   Contributions are made by the Company in amounts necessary to satisfy
   requirements of ERISA.  At December 31, 1995, the actuarial value of the
   benefit obligations, discounted at 6.75%, exceeded the plan assets by $11.8
   million, which has been included in other liabilities in the balance sheet.


                                       F-14



                  AMERICAN ANNUITY GROUP, INC. AND SUBSIDIARIES

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued


   J.  INCOME TAXES

   Provision for income taxes consisted of (in millions):

                                              1995     1994     1993 
                       Federal:
                         Current             $31.9    $21.2    $27.4 
                         Deferred             (1.7)    (1.4)    (7.4)
                              Total          $30.2    $19.8    $20.0 

   The significant components of deferred tax assets and liabilities, excluding
   the effects of unrealized gains and losses on marketable securities,
   included in the Consolidated Balance Sheet were as follows (in millions):

                                               December 31,  
                                              1995     1994 
          Deferred tax assets:
            Net operating loss carryforwards $46.7    $47.6 
            Accrued expenses                  13.9     13.3 
            Investment securities, including
              affiliate                       36.7     31.1 
            Valuation allowance for deferred
              tax assets                     (48.4)   (50.6)

          Deferred tax liabilities:
            Unamortized insurance 
              acquisition costs              (52.4)   (20.8)
            Policyholder liabilities         (17.1)   (12.8)

   At December 31, 1995, AAG had net operating loss carryforwards for federal
   income tax purposes of approximately $131 million which are scheduled to
   expire as follows: $1 million in 1996; $130 million in 2001 through 2005.

   K.  LEASES

   Leases relate principally to certain administrative facilities and
   discontinued operations.  Future minimum lease payments, net of sublease
   revenues, under operating leases having initial or remaining non-cancelable
   lease terms in excess of one year at December 31, 1995 are payable as
   follows:  1996 - $2.0 million; 1997 - $1.8 million; 1998 - $1.2 million;
   1999 - $780,000; 2000 - $510,000; 2001 and beyond - $1.2 million.

   Rental expense for operating leases was $1.6 million in 1995, $1.7 million
   in 1994 and $900,000 in 1993.

   L.  CONTINGENCIES

   The Company is continuing its clean-up activities at certain of its former
   manufacturing operations and third-party sites, in some cases in accordance
   with consent agreements with federal and state environmental agencies. 
   Changes in regulatory standards and further investigations could affect
   estimated costs in the future.  Management believes that reserves recorded
   are sufficient to satisfy the known liabilities and that the ultimate cost
   will not, individually, or in the aggregate, have a material adverse effect
   on the financial condition or results of operations of AAG.  Based on prior
   costs and discussions with independent environmental consultants, the
   Company believes the remaining 
                                       F-15



                  AMERICAN ANNUITY GROUP, INC. AND SUBSIDIARIES

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued


   aggregate cost of environmental work at all sites for which it has
   responsibility will range from $8.8 million to $13.6 million.  The reserve
   for environmental work was $10.3 million at December 31, 1995.

   In 1991, the Company identified possible deficiencies in procedures for
   reporting quality assurance information to the Defense Electronics Supply
   Center with respect to the Company's former manufacturing operations.  Over
   the last several years, the Company has been engaged in negotiations with
   the United States Government with respect to the settlement of claims the
   Government might have arising out of the reporting deficiencies.  In March
   1995, the Company received notification of additional alleged reporting
   deficiencies and based on management's evaluations additional reserves were
   established.  The Company believes it has sufficient reserves to cover the
   estimated settlement amount.

   M.  STATUTORY INFORMATION; RESTRICTIONS ON TRANSFERS OF FUNDS AND ASSETS OF
        SUBSIDIARIES 

   Insurance companies are required to file financial statements with state
   insurance regulatory authorities prepared on an accounting basis prescribed
   or permitted by such authorities (statutory basis).  Certain statutory
   amounts for GALIC, Prairie and Loyal were as follows (in millions):

                                               1995     1994     1993
          GALIC
          Policyholders' surplus             $272.8   $255.9
          Asset valuation reserve              90.2     79.5
          Interest maintenance reserve         32.2     27.7

          Pretax earnings from operations    $ 85.8   $ 83.4    $73.1
          Net earnings from operations         60.5     53.4     51.1
          Net earnings                         71.4     54.2     44.0

          Prairie
          Policyholders' surplus             $ 24.4   $ 24.1
          Asset valuation reserve               3.0      2.5
          Interest maintenance reserve          2.6      1.8

          Pretax earnings from operations    $  5.6   $  6.0    $10.3
          Net earnings from operations          4.6      5.6     10.4
          Net earnings                          4.3      7.1      7.9

          Loyal
          Policyholders' surplus             $ 35.2   $ 33.6
          Asset valuation reserve               2.9      2.4
          Interest maintenance reserve          0.8      0.9

          Pretax earnings from operations    $  4.3   $  3.5    $ 1.3
          Net earnings from operations          2.3      3.4      1.8
          Net earnings                          2.4      5.5      1.8

                                       F-16



                  AMERICAN ANNUITY GROUP, INC. AND SUBSIDIARIES

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued


   The amount of dividends which can be paid by GALIC without prior approval of
   regulatory authorities is subject to restrictions relating to capital and
   surplus, statutory net gain from operations and statutory net income.  GALIC
   has been approved by the Ohio Department of Insurance to account for its
   investments in Prairie and Loyal on the equity method.  Accordingly, under
   Ohio insurance regulations, GALIC's dividends are not dependent upon
   dividends from Prairie and Loyal.  Based on net gain from operations at
   December 31, 1995, GALIC may pay approximately $58.6 million in dividends in
   1996 without prior approval, according to the most restrictive dividend
   requirements of GALIC's domiciliary states.

   N.  ADDITIONAL INFORMATION

   Related Party Transactions  In the fourth quarter of 1994, AAG purchased
   Annuity Investors Life Insurance Company ("AILIC", formerly Carillon Life
   Insurance Company) from GAI for $9.0 million in cash.  At December 31, 1994,
   AILIC had statutory assets of $9.0 million and statutory surplus of $6.3
   million.  AAG acquired AILIC primarily for its variable annuity licenses.

   In connection with AAG's purchase of GALIC from GAI in 1992, GAI agreed to
   neutralize the financial effects on GALIC of the adoption of an actuarial
   guideline with respect to non-traditional life insurance and annuity
   products.  In satisfaction of this obligation, (i) GAI has agreed to
   purchase, at AAG's option, up to $57 million of AAG Preferred Stock and (ii)
   terms of GALIC's investment management services contract with AFG were
   modified to reduce the fees owed under certain circumstances.  On December
   28, 1995, AAG sold $17 million of newly issued Series B Preferred Stock to
   GAI; the proceeds were contributed to GALIC.

   Net investment income includes approximately $1 million in 1995, 1994 and
   1993 of payments from a subsidiary of AFG for the rental of an office
   building owned by GALIC.

   Fair Value of Financial Instruments  The following table shows (in millions)
   the carrying value and estimated fair value of AAG's financial instruments
   at December 31.

                                                 1995             1994        
                                        Carrying Estimated Carrying  Estimated
                                          Value Fair Value   Value  Fair Value
        Assets
        Fixed maturity investments      $5,423.8  $5,526.6 $4,532.3   $4,321.0
        Equity securities                   32.6      32.6     21.7       21.7
        Investment in affiliate             20.3      36.7     20.8       36.4

        Liabilities
        Annuity benefits accumulated (a)$4,979.3  $4,887.0 $4,556.1   $4,510.0
        Notes payable (b)                  164.1     177.7    179.2      182.6
                            
              (a) Carrying values are shown net of deferred policy acquisition
                  costs of $72.7 million at December 31, 1995 and $62.0
                  million at December 31, 1994.

              (b) Carrying values are shown net of debt issue costs of $3.6 at
                  December 31, 1995 and $4.1 million at December 31, 1994.


                                       F-17



                  AMERICAN ANNUITY GROUP, INC. AND SUBSIDIARIES

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued


   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 short-term
   investments, mortgage loans on real estate and policy loans approximate
   their carrying value.  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.

   Unrealized Gains (Losses)  The components of the Consolidated Balance Sheet
   caption "Unrealized gains (losses) on marketable securities, net" in
   stockholders' equity are summarized as follows (in millions):

                                              Unadjusted          
                                                  Asset   Effect of  Reported 
                                              (Liability) SFAS 115    Amount 
        1995
        Fixed maturities - available for sale    $2,787.6   $139.0   $2,926.6 
        Equity securities                            14.1     18.5       32.6 
        Unamortized insurance acquisition
          costs, net                                155.0     (5.2)     149.8 
        Annuity benefits accumulated             (5,037.0)   (15.0)  (5,052.0)
        Deferred income taxes on net
          unrealized gains                             -     (48.0)     (48.0)
        Unrealized gains on marketable
          securities, net                                   $ 89.3 

        1994
        Fixed maturities - available for sale    $1,326.4   ($67.8)  $1,258.6 
        Equity securities                            10.7     11.0       21.7 
        Unamortized insurance acquisition
          costs, net                                 61.9      3.2       65.1 
        Annuity benefits accumulated             (4,627.2)     9.1   (4,618.1)
        Deferred income taxes on net                               
          unrealized losses                            -      15.5       15.5 
        Unrealized losses on marketable
          securities, net                                   ($29.0)

   Other  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 law
   reduces or eliminates the tax-deferred status of annuities, the Company's
   operations could be materially affected.

                                       F-18



   O.  QUARTERLY FINANCIAL DATA (Unaudited)

   The following table represents quarterly results of operations for the years
   ended December 31, 1995 and 1994 (in millions, except per share data).

                                        First Second   Third   Fourth   Total 
               1995                   Quarter Quarter Quarter Quarter    Year 
      Realized gains                    $ 0.1 $  -    $  6.9 $  8.7    $ 15.7 

      Total revenues(a)                  98.6  101.2   109.4  130.4     439.6 

      Income from continuing operations  11.4   12.2    16.6   18.5      58.7 
      Discontinued operations              -      -       -    (3.2)     (3.2)
      Extraordinary item                   -      -       -    (0.2)     (0.2)
      Net income                         11.4   12.2    16.6   15.1      55.3 

      Earnings (loss) per common share(b)
        Continuing operations           $0.29  $0.31   $0.41  $0.43     $1.45 
        Discontinued operations            -      -       -    (.08)     (.08)
        Extraordinary item                 -      -       -      -         -  
        Net income per common share     $0.29  $0.31   $0.41  $0.35     $1.37 

      Average common shares outstanding  39.1   39.1    40.8   43.1      40.5 

               1994          
      Realized gains (losses)          $  0.6 $   -   $  0.1 ($ 0.8)  ($  0.1)
      Total revenues(a)                  93.4   94.3    92.3   92.7     372.7 

      Income from continuing operations  10.8   11.1     9.4    9.6      40.9 
      Discontinued operations              -    (2.6)     -      -       (2.6)
      Extraordinary items                (1.1)  (0.3)   (0.4)   0.1      (1.7)
      Accounting change                  (0.5)    -       -      -       (0.5)
      Net income                          9.2    8.2     9.0    9.7      36.1 

      Earnings (loss) per common share:
        Continuing operations           $0.28  $0.28   $0.24  $0.25     $1.05 
        Discontinued operations            -   (0.07)     -      -      (0.07)
        Extraordinary items             (0.03) (0.01)  (0.01)    -      (0.05)
        Accounting change               (0.01)    -       -      -      (0.01)
        Net income per common share     $0.24  $0.20   $0.23  $0.25     $0.92 

      Average common shares outstanding  35.1   39.1    39.1   39.1      38.1 

                 
   (a)        As a result of the acquisition of LCC, AAG reclassified certain
              life insurance revenues and expenses on its consolidated income
              statement.  As a result, reported revenues (and expenses)
              increased by $400,000, $700,000 and $200,000 in the first,
              second and third quarters of 1995, respectively; revenues (and
              expenses) for the first through fourth quarters of 1994
              increased by $500,000, $200,000, $600,000 and $200,000,
              respectively.

   (b)        Quarterly earnings per share do not add to year-to-date amounts
              due to issuance of shares in conjunction with the rights
              offering.

                                       F-19



                                     PART IV

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

   (a)  Documents filed as part of this Report:

        1.  Financial Statements are Included in Part II, Item 8.

        2.  Financial Statement Schedules:

            Selected Quarterly Financial Data is included in Note O to the
            Consolidated Financial Statements.

            Schedules filed herewith:

            For 1995, 1994 and 1993                             Page
              
            II - Condensed Financial Information of Registrant   S-2

            All other schedules for which provisions are made in the
            applicable regulation of the Securities and Exchange
            Commission have been omitted as they are not applicable, not
            required, or the information required thereby is set forth in
            the Financial Statements or the notes thereto.

        3.  Exhibits - See Exhibit Index on Page E-1.

   (b)  Reports on Form 8-K:

     Date of Report        Item Reported
     November 28, 1995     Acquisition of Laurentian Capital Corporation



                                       S-1



                    AMERICAN ANNUITY GROUP, INC. - PARENT ONLY
           SCHEDULE II - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
                                  (In millions)





                             Condensed Balance Sheet

                                                     December 31,   
   Assets:                                          1995     1994 
     Cash and short-term investments              $  1.4   $  1.9 
     Investment in subsidiaries(a)                 687.0    457.4 
     Other assets                                   20.0     19.4 
                                                  $708.4   $478.7 
   Liabilities and Capital:
     Accounts payable, accrued expenses and
       other liabilities                          $ 49.4   $ 41.6 
     Payables to affiliates                         52.3     40.8 
     Notes payable(b)                              177.4    191.9 
     Stockholders' equity(a)                       429.3    204.4 
                                                  $708.4   $478.7 


                            Condensed Income Statement

                                                   Year ended December 31,   
                                                    1995     1994    1993 
   Revenues:
     Equity in undistributed earnings of
       subsidiaries                               $ 64.7   $ 47.3  $ 97.2 
     Dividends from GALIC                           54.2     44.0    18.2 
     Other revenues                                  1.7      0.4     0.5 
                                                   120.6     91.7   115.9 
   Costs and Expenses:
     Interest on borrowings and other debt expenses 19.0     21.9    22.5 
     Provision for GALIC relocation expenses          -        -      8.0 
     Other expenses                                 10.9      6.6     5.4 
                                                    29.9     28.5    35.9 
   Income from continuing operations before              
     income taxes                                   90.7     63.2    80.0 
   Provision for income taxes                       32.0     22.3    27.0 
   Income from continuing operations                58.7     40.9    53.0 

   Discontinued operations, net of tax              (3.2)    (2.6)   (9.6)
   Income before extraordinary items and
     cumulative effect of accounting change         55.5     38.3    43.4 

   Extraordinary items, net of tax                  (0.2)    (1.7)   (3.4)
   Cumulative effect of accounting change,
     net of tax                                       -      (0.5)     -  
   Net Income                                     $ 55.3   $ 36.1  $ 40.0 

                 
   (a) Includes unrealized gains (losses) of $89.3 million and ($29.0) million
       in 1995 and 1994, respectively, and includes advances to subsidiaries.
x
   (b) Includes $14.0 million principal amount of notes payable owned by GALIC.



                                       S-2



                    AMERICAN ANNUITY GROUP, INC. - PARENT ONLY
           SCHEDULE II - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
                                  (In millions)





                        Condensed Statement of Cash Flows

                                                  Year Ended December 31,
                                                    1995     1994    1993 

   Operating Activities:
     Net income                                    $55.3    $36.1   $40.0 
     Adjustments:
       Discontinued operations                       3.2      2.6     9.6 
       Extraordinary items                           0.2      1.7     3.4 
       Accounting change                              -       0.5      -  
       Equity in net earnings of subsidiaries      (77.0)   (59.7)  (77.6)
       Depreciation and amortization                 0.9      0.8     1.2 
       Decrease in other assets                      0.1      2.7     0.4 
       Increase in balances with affiliates         13.5     13.1    40.0 
       Decrease (increase) in other liabilities      2.5    (12.8)  (10.7)
       Capital distributions from GALIC             54.2     44.0    18.2 
       Contributions to subsidiaries               (33.0)      -       -  
       Other, net                                     -        -     (0.1)
                                                    19.9     29.0    24.4 

   Investing Activities:
     Purchase of Laurentian Capital Corporation,
       net of cash acquired                        (63.6)      -       -  
     Additional investments in subsidiaries           -      (9.3)  (13.0)
     Sale of AILIC to GALIC                          6.5       -       -  
                                                   (57.1)    (9.3)  (13.0)

   Financing Activities:
     Additions to notes payable                     33.5     30.0   225.0 
     Reductions of notes payable                   (48.1)   (55.1) (230.0)
     Issuance of Common Stock                       37.3       -       -  
     Issuance of Preferred Stock                    17.0       -       -  
     Cash dividends paid                            (3.0)    (3.1)   (4.1)
                                                    36.7    (28.2)   (9.1)

   Net Increase (Decrease) in Cash and
     Short-term Investments                         (0.5)    (8.5)    2.3 

   Cash and short-term investments at beginning
     of period                                       1.9     10.4     8.1 

   Cash and short-term investments at end
     of period                                     $ 1.4    $ 1.9   $10.4 


                                      S-3



                           AMERICAN ANNUITY GROUP, INC.
                                INDEX TO EXHIBITS
   Number  Exhibit Description
    2.0  Agreement and Plan of Merger dated as of May 25, 1995 incorporated by
         reference to the Schedule 13D filed by American Premier Group, Inc.
         on June 2, 1995 with respect to the equity securities of Laurentian
         Capital Corporation.

    3.1  Certificate of Incorporation of Registrant

    3.2  By-laws of Registrant

    4.1  Indenture dated as of February 2, 1993, between the Registrant and
         Star Bank, National Association, as Trustee, relating to the
         Registrant's 11-1/8% Senior Subordinated Notes due 2003, incorporated
         herein by reference to Exhibit 4.2 to the Registrant's Current Report
         on Form 8-K, dated February 5, 1993.

    4.2  Indenture dated as of August 18, 1993, between the Registrant and
         NationsBank, National Association, as Trustee, relating to the
         Registrant's 9-1/2% Senior Notes due 2001, incorporated herein by
         reference to Exhibit 4.1 to the Registrant's Registration Statement
         on Form S-2 dated August 11, 1993.

   10.1  Agreement of Allocation of Payment of Federal Income Taxes ("American
         Annuity Tax Allocation Agreement"), dated December 31, 1992, between
         American Financial Corporation and the Registrant incorporated herein
         by reference to Exhibit 10.12 to the Registrant's Registration
         Statement on Form S-2 dated January 7, 1993.

   10.2  Assignment of Tax Allocation Payments dated December 31, 1992,
         between American Financial Corporation and the Registrant
         incorporated herein by reference to Exhibit 10.15 to the Registrant's
         Registration Statement on Form S-2 dated January 7, 1993.

   10.3  Agreement for the Allocation of Federal Income Taxes dated May 13,
         1974, between American Financial Corporation and Great American Life
         Insurance Company, as supplemented on January 1, 1987 incorporated
         herein by reference to Exhibit 10.16 to the Registrant's Registration
         Statement on Form S-2 dated January 7, 1993.

   10.4  Investment Services Agreement, dated December 31, 1992, between Great
         American Life Insurance Company and American Money Management
         Corporation incorporated herein by reference to Exhibit 10.17 to the
         Registrant's Registration Statement on Form S-2 dated January 7,
         1993.

   10.5  Common Stock Registration Agreement, dated December 31, 1992, between
         the Registrant and American Financial Corporation and its wholly
         owned subsidiary Great American Insurance Company incorporated herein
         by reference to Exhibit 10.22 to the Registrant's Registration
         Statement on Form S-2 dated January 7, 1993.

   10.6  Common Stock Registration Agreement, dated December 31, 1992 between
         Chiquita Brands International, Inc. and Great American Life Insurance
         Company incorporated herein by reference to Exhibit 10.24 to the
         Registrant's Registration Statement on Form S-2 dated January 7,
         1993.

   10.7  American Annuity Group's 1993 Stock Appreciation Rights Plan,
         incorporated herein by reference to Exhibit 10.8 to the Registrant's
         Form 10-K for 1993.
                                       E-1




   21.0  Subsidiaries of the Registrant.

   23.0  Consent of Independent Auditors.

   27.0  Financial Data Schedule for 1995 - included in Report filed
         electronically with the Securities and Exchange Commission.

   27.1  Financial Data Schedule for 1994 - reclassified to conform to the
         current year's presentation - included in Report filed electronically
         with the Securities and Exchange Commission.

   99.1  Credit Agreement dated as of January 31, 1994 amended and restated as
         of November 10, 1995.

                                       E-2



                                    Signatures


            Pursuant to the requirements of Section 13 of the Securities
   Exchange Act of 1934, American Annuity Group, Inc. has duly caused this
   Report to be signed on its behalf by the undersigned, duly authorized.


                                             American Annuity Group, Inc.


   Signed: March 18, 1996                    BY:s/CARL H. LINDNER              

                                                  Carl H. Lindner
                                                  Chairman of the Board and
                                                    Chief Executive Officer



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

         Signature                         Capacity                   Date



   s/CARL H. LINDNER                 Chairman of the Board      March 18, 1996
     Carl H. Lindner                   of Directors



   s/S. CRAIG LINDNER                Director                   March 18, 1996
     S. Craig Lindner



   s/ROBERT A. ADAMS                 Director                   March 18, 1996
     Robert A. Adams  



   s/WILLIAM R. MARTIN               Director                   March 18, 1996
     William R. Martin*