SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


                                    FORM 10-K


(Mark One)
    [X]          ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                 SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
                 For the fiscal year ended December 31, 1998

                                       OR

    [ ]          TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                 SECURITIES EXCHANGE ACT OF 1934
                 For the transition period from _____________ to _____________

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

                  Commission file number _____________

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

                             PRIME SUCCESSION, INC.
             (Exact name of registrant as specified in its charter)


                  DELAWARE                                       13-3904211
            (State or Other Jurisdiction of                   (I.R.S. Employer
            Incorporation or Organization)                   Identification No.)

            3940 Olympic Blvd., Suite 500                          41018
              Erlanger, Kentucky, U.S.A.                       (Postal Code)
        (Address of principal executive offices)

                                 (606) 746-6800
              (Registrant's telephone number, including area code)


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

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

     The aggregate market value of shares of Common Stock held by non-affiliates
of the registrant was approximately U.S. $0 as of March 10, 1999.

     The number of outstanding  shares of Common Stock as of March 10, 1999, was
100.

                       DOCUMENTS INCORPORATED BY REFERENCE

None                                                                 

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                                 TABLE OF CONTENTS

<TABLE>
<CAPTION>

<S>            <C>                                                                                           <C>

                                     PART I
Item
Number                                                                                                         Page

1.             BUSINESS                                                                                           1

2.             PROPERTIES                                                                                         7

3.             LEGAL PROCEEDINGS                                                                                  8

4.             SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS                                                8

                                     PART II

5.             MARKET FOR COMMON STOCK AND RELATED STOCKHOLDER MATTERS                                            9

6.             SELECTED FINANCIAL DATA                                                                            9

7.             MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS             12

7a.            QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                        17

8.             FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                                       19

9.             CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE              43

                                     PART III

10.            DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT                                                44

11.            EXECUTIVE COMPENSATION                                                                            46

12.            SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT                                    47

13.            CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                                                    48

                                     PART IV

14.            EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K                                  51
 
</TABLE>
<PAGE>


                                 CAUTIONARY NOTE


     This Annual Report of Prime  Succession,  Inc. (the "Company") on Form 10-K
contains forward-looking  statements in which the Company's management discusses
factors it believes may affect the  Company's  performance  in the future.  Such
statements  typically are identified by terms expressing future  expectations or
projections of revenues, earnings, capital expenditures, gross profit margin and
other financial items.  All  forward-looking  statements,  although made in good
faith, are based on assumptions about future events and are therefore inherently
uncertain,  and actual  results  may differ  materially  from those  expected or
projected.  Important factors that may cause the Company's actual results in the
future to differ materially from expectations or projections in  forward-looking
statements include those described under the heading "Cautionary  Statements" in
Item 7. Forward-looking statements speak only as of the date of this report, and
the Company  undertakes  no  obligation  to update or revise such  statements to
reflect new circumstances or unanticipated events as they occur.


                                       PART I



ITEM 1.  BUSINESS.

General

     Prime  Succession,  Inc.  is the fifth  largest  provider  of  funeral  and
cemetery  products  and  services  in the death care  industry,  on the basis of
revenues, in the United States.  Through its subsidiaries,  the Company owns and
operates  143 funeral  homes and 20  cemeteries  in 20 states  within the United
States.
 
     The Company  provides a complete  range of death care products and services
both  at and  prior  to the  time of  need.  The  Company's  funeral  homes  and
cemeteries are located  primarily in non-urban areas and generally are organized
in "clusters",  which are integrated groups of funeral homes and cemeteries that
share certain assets,  personnel and services.  Many of these  facilities are in
the Company's key markets,  including among others, Fort Lauderdale,  Birmingham
and Memphis.
 
     The Company was  incorporated in Delaware as Prime  Succession  Acquisition
Corp. in May 1996 as a precursor to the acquisition (the "Acquisition") of Prime
Succession  Holdings,  Inc.  (formerly  known as Prime  Succession,  Inc.) ("Old
Prime") by  Blackstone  Capital  Partners II Merchant  Banking Fund L.P. and its
affiliates  (collectively,  "Blackstone") and Loewen Group  International,  Inc.
("Loewen"),  a  subsidiary  of  The  Loewen  Group  Inc.  ("Loewen  Group").  In
connection with the  Acquisition,  which was consummated on August 26, 1996 (the
"Acquisition  Closing  Date"),  the Company (i)  received  all of the assets and
liabilities of, and became a wholly-owned subsidiary of, Old Prime, (ii) entered
into credit  facilities  (collectively,  the "Bank  Credit  Facilities")  with a
syndicate of financial institutions  consisting of a senior secured amortization
extended term loan facility in an aggregate principal amount of $90 million (the
"Bank Term  Facility")  and a senior  secured  revolving  credit  facility in an
aggregate  principal amount of up to $25 million and (iii) privately placed $100
million aggregate principal amount of 10 3/4% Senior Subordinated Notes due 2004
(the "Notes"),  which  subsequently  were  exchanged for $100 million  aggregate
principal amount of publicly-registered notes with identical material terms (the
"Exchange Notes").

     The  Company's  principal  executive  offices are  located at 3940  Olympic
Boulevard, Suite 500, Erlanger, Kentucky 41018 and its telephone number is (606)
746-6800.

The Death Care Industry

     The Company's  management believes that the death care industry has several
attractive  fundamental  characteristics.  The  industry is  relatively  stable,
business  failures are uncommon and the market served by death care providers is
expanding.  According to the United States  Bureau of the Census,  the number of
deaths in the United States is expected to increase by approximately 1% per year
from 2.38 million in 1998 to 2.64 million in 2010. In addition, industry studies
indicate that while the death rate is declining slightly, the average age of the
population  in the United  States is  increasing.  The aging of the  population,
particularly  the  "baby  boomers"  who  have  only  recently  begun to turn 50,
represents  a  significant  opportunity  for firms such as the Company to expand
their  customer  base and  secure a  portion  of their  future  market  share by
actively marketing prearranged property,  merchandise and services. According to
the Bureau of the Census, the United States population over 50 years of age will
increase  from 72.7  million  in 1998 to 96.4  million  in 2010.  The  Company's
principal target market for sales of prearranged cemetery property,  merchandise
and services is customers who are age 50 and above.

     Traditionally,  death  care  businesses  in the  United  States  have  been
relatively small,  family-owned  enterprises that have passed through successive
generations within the family.  Currently,  however,  the industry  undergoing a
transition  in  which   family-owned   firms  are   consolidating   with  larger
organizations  such as the Company.  Management  believes  this trend  primarily
results from the desire; of owners to address  management  succession and estate
planning  issues as well as to achieve  liquidity and  diversification  of their
investments.

     Management  believes  it  can  be  difficult  for  new  competitors  to  be
successful opening new funeral homes and cemeteries in existing markets. Several
factors make it difficult for new facilities to compete successfully,  including
the  importance  to families of  reputation  and goodwill  developed  over time,
regulatory  complexities,  zoning  restrictions and the existence of an adequate
number of facilities serving mature markets.


Operations
 
     Clustering.  The Company  operates most of its funeral homes and cemeteries
in "clusters". Clusters are groups of funeral homes and cemeteries located close
enough  to each  other  that  their  operations  can be  integrated  to  achieve
economies of scale.  Clustered  facilities share vehicles,  employees,  computer
systems and some general and  administrative  functions,  centralized  embalming
services and inventory  management allowing the Company to decrease its costs to
operate  each  location.  Clustered  facilities  create  opportunities  for more
efficient and effective management of operations.

     Funeral Operations. Funeral operations accounted for approximately 75.9% of
the  Company's  revenues  for the  fiscal  year ended  December  31,  1998.  The
Company's  funeral homes offer a complete range of funeral services and products
at the  time of need or on a  prearranged  basis.  The  Company's  services  and
products include family  consultation,  removal and preparation of remains,  the
use of funeral home  facilities for  visitation,  worship and funeral  services,
transportation services, flowers and caskets. In addition to traditional funeral
services,  all of the  Company's  funeral  homes offer  cremation  products  and
services.  Most of the Company's funeral homes have a non-denominational  chapel
on the premises,  which permits family visitation and religious services to take
place at the same location.  As of December 31, 1998,  the Company  operated 143
funeral homes, 30 of which were leased.

     Cemetery Operations.  Cemetery operations accounted for approximately 24.1%
of the  Company's  revenues for the fiscal year ended  December  31,  1998.  The
Company's cemetery  operations involve the sale of cemetery property and related
merchandise,  including lots,  lawn crypts,  mausoleums,  monuments,  memorials,
burial  vaults and  caskets,  along with the sale of burial  site  openings  and
closings.  Cemetery  property and merchandise sales are made at the time of need
or on a prearranged  basis.  Prearranged sales represented  approximately 85% of
cemetery  revenue  during the fiscal year ended  December 31, 1998.  The Company
also maintains cemetery grounds under perpetual care contracts and local laws.

     The Company  believes  that it's  cemetery  properties  help it to maintain
market  share,  as  families  often  return to a cemetery  location  where their
ancestors  are buried.  In  addition,  the  Company's  clustering  and  combined
operations  strategies help to improve the profitability of individual  cemetery
locations.  As  of  December  31,  1998,  the  Company  owned  and  operated  20
cemeteries.

     Combined Funeral Home and Cemetery  Operations.  A combined  operation is a
funeral  home  located on a cemetery  site  where  both are  operated  together.
Combined  operations  help to increase  market  share by allowing the Company to
offer families the  convenience of complete  funeral home and cemetery  planning
and services from a single  location at a competitive  price at the time of need
or  on a  prearranged  basis.  In  addition,  combined  operations  enhance  the
Company's purchasing power, enabling it to employ more sophisticated  management
systems,  and  allowing  it to  share  facilities,  equipment,  personnel  and a
prearrangement  sales force,  resulting in lower average operating costs as well
as  expanded  marketing  and  sales  opportunities.  Approximately  40.0% of the
Company's cemeteries have a funeral home on site that is operated in conjunction
with the cemetery.  Many of these  facilities  are in the Company's key markets,
including,  Fort Lauderdale,  Birmingham and Memphis.

     Cremation.  In fiscal year 1998,  27% of the funeral  services  the Company
performed were cremations. While cremations in the United States often result in
lower average revenue than traditional funeral services,  they generally produce
higher gross profit margins.

     The  cremation  rate in the United States has been  increasing,  and by the
year 2000,  cremations are expected to represent 25% of the United States burial
market,  according to industry  estimates.  The company has been addressing this
trend by providing  cremation products and services at all of its funeral homes,
including traditional funeral services and memorialization  options for families
choosing cremation.

     Prearrangements.  The Company markets death care products and services on a
prearranged  basis  through  a staff of  approximately  280  commissioned  sales
counselors. Prearranged funeral planning allows families to establish in advance
and prepay for the type of services to be performed and the products to be used.
The cost of such  products and services is set at prices  prevailing at the time
the  agreement  is  signed,  rather  than when the  products  and  services  are
delivered.  Prearranged  plans also permit  families to eliminate  the emotional
strain of making death care decisions at the time of need. The Company  believes
that extensive marketing of prearranged products and services produces a backlog
of future business and builds current and future market share.

     Trust Funds.  Prearranged  funeral plans are funded  through trust funds or
insurance,   depending   on  the   regulatory   requirements   of  the  relevant
jurisdiction. When trust funding is used, the Company places into a trust fund a
percentage (which varies by jurisdiction) of the sale price, which is often paid
in  installments.  It retains the  remainder  of the sale price to defray  costs
related to the sale.  The Company  withdraws the amount placed in the trust fund
when the  service  is  performed  to cover  the cost of  providing  the  funeral
service.  Generally,  principal and earnings (including interest,  dividends and
net realized capital gains) on the trust funds, and insurance proceeds, are paid
to the  Company  only when the  funeral  service is  performed.  When  insurance
funding is used, the Company applies the customers'  payments to pay premiums on
insurance  policies  designed to cover the cost of providing the funeral service
in the future.  Approximately  60% of all prearranged  funeral plans sold by the
Company are funded through insurance with the balance being funded through trust
funds.  As of December 31, 1998, the Company's  backlog of prearranged  funerals
totaled approximately $151 million with approximately $90 million funded by life
insurance contracts.

     The Company  also  establishes  trust funds to fund the cost of  delivering
prearranged cemetery merchandise. Generally, the Company withdraws the principal
and  earnings  from  these  funds  only when the  merchandise  is  delivered  or
contracts  are  canceled.  As of  December  31,  1998,  the  Company's  cemetery
merchandise trust funds totaled approximately $5.4 million.

     The Company funds its obligation to maintain  cemetery grounds by placing a
portion,  generally  10%, of the  proceeds  from  cemetery  property  sales into
perpetual  care trust funds.  Income from these funds is withdrawn  and used for
maintenance of the cemeteries,  but principal,  including in some  jurisdictions
net realized capital gains, generally must be held in perpetuity. As of December
31, 1998, the Company's  perpetual care trust funds totaled  approximately  $9.1
million.

     The accounting methods used to reflect the Company's  prearranged  funeral,
merchandise  and perpetual care trust funds are complex and are described in the
notes to the Company's consolidated financial statements.

     Management  believes that balances in the Company's trust funds, along with
insurance  proceeds  and  installment  payments  due  under  contracts,  will be
sufficient  to cover its  estimated  cost of providing  the related  prearranged
services and products in the future.

     Management. The Company has an experienced team of managers. The management
structure  is  designed to allow  local  funeral  home  directors  and  cemetery
managers substantial  flexibility in deciding how their firms will be managed as
well as how their products and services will be priced and merchandised.  At the
same time,  financial goals are established by management at the corporate level
and the Company maintains centralized supervisory controls. Finally, the Company
provides centralized management, information systems support, and accounting and
payroll functions through its corporate office.

     Currently,  the  Company is  divided  into a funeral  division,  a cemetery
division,  and a pre-need sales division with six Directors of Operations in the
funeral division and one Director of Operations in the cemetery division. All of
the  Directors of  Operations  report  directly to the Senior Vice  President of
Operations.  The pre-need  sales  division has two Regional  Vice  Presidents of
Sales that report to the Vice President of Sales.


Growth Strategy

General

     Management  has  identified,  and  the  Company  has  taken,  a  number  of
initiatives that resulted in improvements in both revenues and  profitability by
capitalizing  on the  location and  concentration  of its  properties,  improved
merchandising,  enhanced  pre-need  marketing,  and  management  structure  that
encourages an entrepreneurial business culture.

Internal Growth

     Prearranged Services.  The Company markets death care products and services
on a prearranged basis through a staff of approximately  280 commissioned  sales
counselors.  The  Company  believes  that  extensive  marketing  of  prearranged
merchandise  and  services  will  produce a backlog of future  business and will
enhance  current  as well as future  market  share.  The  Company's  backlog  of
prearranged funeral services has grown from $147 million at December 31, 1997 to
$151 million at December 31, 1998.

     Improved  Merchandising.  The  Company  frequently  expands its product and
service  offerings,  adjusts  the  mix  of  products  and  services  offered  in
individual  markets,  takes  advantage of enhanced  pricing  opportunities,  and
implements  selective  marketing programs to increase revenue and improve profit
margins.

     Alternative  Service Firms.  During fiscal year 1998, the Company  expanded
its existing Aaron Cremation Services to Aaron Nationwide  ("Aaron") which owned
and  operated  two low cost  funeral  stores  offering  cremations  and  related
products  and  services  to seven  outlets at March 10,  1999.  Because  Aaron's
offices  generally  operate from leased locations with a small staff,  they have
lower overhead than traditional  funeral homes. The cost to the family for death
care  arrangements  at an Aaron  location  generally  is less than the cost at a
traditional funeral home.

     The expansion of the Aaron model is an example of the  Company's  effort to
address the growing cremation market, and it offers a cost-saving alternative to
the  construction  of a  traditional  funeral  home.  The Company  plans to open
additional  funeral  stores  similar  to the Aaron  model,  although  management
expects this  expansion to occur slowly while it further  develops and tests the
concept in new  markets.  Results  from the funeral  stores  opened have met the
Company's initial expectations.

     Cost Control.  In addition to its strategies for increasing  revenues,  the
Company  plans to  continue  to  improve  its  operating  margins  by  achieving
economies of scale,  improving  efficiencies  and  controlling  costs  through a
variety of measures including the following:


-      Obtaining volume discounts from suppliers

-      Leveraging operating costs through clustering and the development
       of combined operations

-      Improving the utilization of its sales force

     The  Company  is a party  to a  supply  agreement  with  Batesville  Casket
Company,  Inc.  ("BCC"),  The Forethought  Group and Forethought  Life Insurance
Company   ("FLIC"),   pursuant  to  which  the  Company  must  purchase  caskets
exclusively  from BCC and,  in  connection  with its  pre-need  sales of funeral
services  funded by  insurance,  the  Company  must  offer to its  customers  in
specified markets exclusively FLIC insurance products.  The agreement expires on
December 31, 2004,  subject to earlier  termination by any party thereto upon 30
days  notice  following  a  material,  uncured  breach of the  agreement  or the
occurrence of certain insolvency events. Management of the Company believes that
the terms of such supply agreement are favorable to the Company.



External Growth

     Acquisitions.  The Company had no funeral homes when it began operations in
1992 and grew to 146  funeral  homes in 1996.  In order to  achieve  this  rapid
growth,  former management was primarily focused on identifying funeral homes to
be  acquired  and  consummating  acquisitions  of  such  homes  rather  than  on
maximizing  profitability  of the  funeral  homes  and  cemeteries  which it had
acquired.  As a result,  former  management  did not take  advantage  of certain
opportunities  to improve the  efficiency  and  performance of the funeral homes
acquired. New Management has substantially  eliminated the Company's acquisition
program. The Company's future results of operations will depend in large part on
the ability of Management to successfully maintain its business strategy.

     Competition.  The Company's funeral home and cemetery operations  generally
face intense  competition in local markets that typically are served by numerous
funeral home and cemetery firms.  To a lesser degree,  the Company also competes
with monument dealers,  casket retailers and other non-traditional  providers of
limited  services or  products.  Because  the market for death care  services is
relatively  stable,  competition  usually focuses on increasing market share and
selling prearranged products and services. Market share is largely a function of
goodwill and tradition,  although competitive pricing,  professional service and
attractive, well-maintained, conveniently located facilities are also important.
Because of the significant  role played by goodwill and tradition,  market share
increases  are usually  gained over a long period of time.  Extensive  marketing
through  media  advertising,  direct  mailings  and  personal  sales  calls  has
increased in recent years,  especially  with respect to the sale of  prearranged
funeral services.

     The  Company's  traditional  burial and  funeral  service  operations  face
competition from the increasing number of cremations.  Industry studies indicate
that the  percentage of cremations  has increased  throughout the 1980s and that
cremation will represent approximately 25% of the United States burial market by
the year 2000,  compared with 14% in 1986.  All of the  Company's  funeral homes
offer  cremation,  and the Company believes that it will be able to maintain its
competitive  position by marketing full service  cremations in combination  with
traditional funeral services and memorialization.  Additionally,  development of
the  Alternative  Service  Firms'  concept  by the  Company  represents  another
opportunity for the Company to serve cremation customers. Additional information
on the development of the Alternative  Service Firms' concept can be found under
the heading "Internal Growth" discussed earlier in Item 1.

     The  Company  also  faces  competition  from large  "consolidators"  in the
industry  which  seek to reap  profits  from an  acquisition  and  consolidation
strategy.  Such  competitors  include  several  large,  publicly-traded  funeral
services  companies,  including Service  Corporation  International,  Loewen and
Stewart  Enterprises,  Inc., as well as various smaller  companies which provide
competition  with the Company on a regional  basis and, on a local  level,  from
operators who have focused on acquiring  funeral home groupings in  concentrated
geographic regions of the United States.
 
Regulation

     The Company's  funeral home  operations  are regulated by the Federal Trade
Commission (the "FTC") under the FTC's Trade Regulation Rule on Funeral Industry
Practices,  16CFR Part 453 (the "Funeral Rule"), which went into effect on April
30, 1984, and was revised effective July 19, 1994.

     The Funeral Rule defines  certain acts or practices as unfair or deceptive,
and contains  certain  requirements to prevent these unfair or deceptive acts or
practices.  The preventive measures require a funeral provider to give consumers
accurate, itemized price information and various other disclosures about funeral
goods and services,  and prohibit a funeral  provider from: (i)  misrepresenting
legal,  crematory and cemetery  requirements;  (ii)  embalming for a fee without
permission;  (iii) requiring the purchase of a casket for direct cremation;  and
(iv) requiring consumers to buy certain funeral goods or services as a condition
for furnishing other funeral goods or services.

     The  Company's  operations  are  also  subject  to  extensive   regulation,
supervision  and licensing  under  numerous  federal,  state and locals laws and
regulations.  The Company believes that it is in substantial compliance with the
Funeral  Rule  and  all  such  laws  and  regulations.  State  legislatures  and
regulatory agencies frequently propose new laws and regulations,  some of which,
if enacted as proposed, could have a material effect on the Company's operations
and on the death care  industry  in  general.  The  Company  cannot  predict the
outcome of any proposed  legislation or regulation,  or the effect that any such
legislation or regulation might have on the Company.

Environmental Matters

     Although  Management is aware of some  contamination  related to the use of
underground storage tanks and embalming  materials,  Management does not believe
that any  costs  relating  to these or other  environmental  issues  will have a
material adverse effect on the Company's financial results.

Employees

     As of December 31, 1998, the Company employed approximately 1,160 people in
funeral and cemetery operations, approximately 280 commissioned sales people and
85 telemarketing staff. None of the employees of the Company or its subsidiaries
are covered by a collective bargaining  agreement.  Management believes that its
relationship with its employees is good.

<PAGE>
<TABLE>
<CAPTION>


ITEM 2.  PROPERTIES.

     Set forth in the table  below is the  number,  by state,  of the  Company's
funeral homes and cemeteries:
<S>                                                   <C>                                     <C>

                                                    NUMBER OF                               NUMBER OF
STATE                                             FUNERAL HOMES                             CEMETERIES
-----                                             -------------                             ----------

Alabama                                                23                                      8
Arizona                                                 3                                      0
Arkansas                                                3                                      0
California                                             15                                      0
Florida                                                21                                      4
Georgia                                                 6                                      2
Illinois                                               16                                      0
Indiana                                                 6                                      0
Iowa                                                    1                                      0
Kentucky                                                3                                      3
Michigan                                                8                                      0
Minnesota                                              10                                      0
Missouri                                                5                                      0
Nebraska                                                4                                      0
New York                                                2                                      0
Ohio                                                    1                                      0
Tennessee                                               7                                      3
Texas                                                   5                                      0
West Virginia                                           3                                      0
Wyoming                                                 1                                      0
                                                      ---                                    ---
            Total                                     143                                     20

</TABLE>


     As of December  31,  1998,  all but 30 of the  Company's  143 funeral  home
locations were owned by subsidiaries of the Company.  The leases with respect to
the 30 leased properties have terms ranging from 2 to 21 years.

     As of December 31, 1998,  the Company owned 20 cemeteries  covering a total
of approximately 790 acres. Approximately 62% of the total acreage is developed.
The Company also owns six crematories,  two of which are located in Illinois and
the  remaining  four of which are located in  California,  Florida,  Indiana and
Tennessee.

     The Company's  headquarters  share space with their pre-need  telemarketing
call center and together occupy approximately 20,000 square feet of office space
in a building in Erlanger,  Kentucky  under a lease  agreement  which expires in
December 2007; provided that the lease may be terminated in December 2004 by the
Company, under certain terms and conditions.


<PAGE>

ITEM 3. LEGAL PROCEEDINGS.

     Gamble Settlement.  On February 26, 1996, a lawsuit was filed (the "Alabama
Litigation")  against the Company by World  Service  Life  Insurance  Company of
America ("World Service") and Jeffrey M. Gamble ("Gamble"),  the former owner of
a business located in Alabama which was acquired by a subsidiary of the Company,
in connection  with a pre-need  funeral service  funding  agreement  between the
Company and World Service (the "Alabama  Pre-need  Agreement").  On February 29,
1996, a lawsuit (the "Texas  Litigation") was filed against the Company by South
Texas Bankers Life Insurance  Company  ("South  Texas") and Gamble in connection
with a pre-need funeral service funding  agreement between the Company and South
Texas (the  "Texas  Pre-need  Agreement"  together  with the  "Alabama  Pre-need
Agreement", the "Pre-need Agreements").

     On April 11, 1996, the Company settled the Alabama Litigation and the Texas
Litigation by entering into a Termination  of Pre-need  Funding  Agreements  and
Release  with World  Service,  Gamble  and South  Texas  (the  "Termination  and
Release").  Pursuant to the Termination and Release, (a) the Pre-need Agreements
were  immediately  terminated,  (b) each of the parties released the others from
all claims under or with respect to the Pre-need  Agreements and (c) the Alabama
Litigation  and  the  Texas   Litigation  were  dismissed  with  prejudice.   As
consideration  for such  termination,  release and  dismissal,  the Company paid
Gamble approximately  $6,300,000,  which was recorded as a charge against income
in the Company's financial statements.

     On the  Acquisition  Closing  Date,  the Company  used a portion of the net
proceeds  from the offering of the Notes and the Bank Term  Facility to fund the
remaining  obligation  provided for in the Termination  and Release.  Management
believes that the Company will recover a substantial  portion of the cost of the
settlement  over time  through  higher  commission  rates and  increased  policy
benefits with the purchase of pre-need  insurance  policies from an  alternative
insurance carrier.

     Florida Subpoena.  On February 25, 1999, the Department of Legal Affairs of
the Office of the  Attorney  General  of the State of Florida  issued a subpoena
duces tecum requiring that certain subsidiaries of the Company doing business in
that state provide  various  described  documents  and  materials  regarding the
compliance of their pre-need and at-need  policies and  procedures  with Florida
law. The Company is in the process of  collecting  the  information  required to
respond to the  subpoena.  Management  does not believe that this  investigation
will have a material adverse effect on the Company or its subsidiaries.

     Other.  The Company is a party to other legal  proceedings  in the ordinary
course of its  business but  Management  does not expect the outcome of any such
proceedings  to  have a  material  adverse  effect  on the  Company's  financial
condition.

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

None


<PAGE>
                                    PART II

ITEM 5. MARKET FOR COMMON STOCK AND RELATED STOCKHOLDER MATTERS.

     In connection with the Acquisition, the Company issued 100 shares of Common
Stock to Old Prime,  which shares represent all of the outstanding  Common Stock
of the Company.  There is no  established  public  trading market for the Common
Stock of the Company.

ITEM 6. SELECTED FINANCIAL DATA.

     The following table sets forth certain selected consolidated financial data
for the Company for and at the end of each of the years in the five-year periods
ended December 31, 1998 and 1997, the period from January 1, 1996 through August
25, 1996 and the period from August 26, 1996  through  December 31, 1996 and the
years ended  December 31, 1995 and 1994.  KPMG LLP  ("KPMG") has been  appointed
auditors of New Prime (Successor  Company).  The selected  historical  financial
data for the years  ended  December  31,  1998 and 1997 and for the period  from
January 1, 1996  through  August 25, 1996 and the period  from August 26,,  1996
through  December  31, 1996 were derived from the  financial  statements  of the
Company which have been audited by KPMG. The selected financial data for the two
fiscal years ended  December  31, 1995 and 1994 were derived from the  Company's
financial  statements  which  have been  audited  by Ernst & Young LLP  ("E&Y"),
independent  auditors of Old Prime  (Predecessor  Company)  through December 31,
1995.


<PAGE>
<TABLE>
<CAPTION>


                                            Successor                                 Predecessor
                                             Company                                    Company
                                --------------------------------------------- --------------------------------------
                                                              For the Period   For the Period
                                                                   From             From
                                                                August 26,        January 1,
                                                                   1996             1996
                                         Year Ended              Through          Through           Year Ended
                                        December 31,           December 31,      August 25,        December 31,  
                                -----------------------------                                   --------------------
                                    1998           1997            1996            1996           1995       1994
                                   (dollars in millions, except per share amounts and revenues per funeral service)
<S>                                   <C>              <C>              <C>              <C>        <C>       <C>

Income Statement Data:
Total revenue                           $98.0         $101.1           $32.7           $ 56.1       $81.5     $72.2
Net income (Loss)                       (7.0)            0.1            (2.9)            (9.5)       (0.7)     (4.3)

Other Financial Data:
EBITDA, as adjusted(1)                   30.1           37.0             9.3             13.2        19.8      15.6
Cash flows from:
   Operating activities                 (0.5)           (5.7)           (2.0)              3.3        6.0       2.7
   Investing activities                 (3.2)           (3.5)           (1.4)             (1.6)      (9.1)    (25.7)
   Financing activities                  3.4             7.8             5.0              (1.0)       0.2      22.8
 
                                               As of December                                       As of December
                                                    31,                                                   31,
                                ---------------------------------------------                    --------------------
                                     1998           1997            1996                            1995       1994
Balance Sheet Information: 
Total debt and redeemable
preferred stock (2)                    $210.3         $203.0          $195.0                -     $ 124.6    $123.5
Total assets                            391.1          395.1           398.8                -       196.1     195.3

Operating Data:
Number of funeral home locations          143            143             144              146         143       131
Number of funeral services             19,011         19,335           7,146           13,827      19,776    17,590
Total funeral service
    revenues per funeral service       $3,910         $3,896          $3,751           $3,419      $3,470    $3,460
Number of cemeteries                       20             19              16               16          16        16

</TABLE>
 
 (Footnotes on following page)

<PAGE>


     (1) EBITDA,  as adjusted,  is defined as income  (loss) before income taxes
plus interest expense, depreciation, depletion and amortization adjusted for (i)
the one-time  approximate  $3,500,000 net change in accounting  estimate for the
year ended  December  31, 1995,  and (ii) the  approximate  $6,300,000  one-time
charge for the  settlement of the Gamble  litigation for the period from January
1, 1996 through August 25, 1996. These adjustments are described below:

          --In  December  1995,   the  Company   constructed  a  cemetery  vault
          manufacturing  facility in Alabama that allows for the  production  of
          vaults at a significantly  lower cost than purchasing from independent
          manufacturers.  The  lower  cost of sales  from the new  manufacturing
          plant  allowed the Company to recognize a one-time  gain of $3,500,000
          by reducing its estimated deferred merchandise  liability for pre-need
          cemetery vault sales.

          --The Company settled certain  litigation in April 1996 and recorded a
          one-time  charge  of  $6,300,000  in the  first  half of 1996  for the
          present  value of  future  cash  payments  due  under  the  litigation
          settlement agreements.

          These two  adjustments  to EBITDA  have  been  made  because  both are
          considered infrequent and non-recurring in nature by the Company.

          EBITDA, as adjusted, is presented because (i) Management believes that
          EBITDA provides relevant and useful  information,  (ii) it is a widely
          accepted  financial  indicator  of a  company's  ability  to incur and
          service  debt and (iii) it is the basis on which  compliance  with the
          financial covenants under the Company's debt agreements is determined.
          However,  EBITDA, as adjusted,  should not be considered in isolation,
          as a  substitute  for  net  income  or  cash  flow  data  prepared  in
          accordance  with  generally  accepted  accounting  principles  or as a
          measure of a company's profitability or liquidity.  Also, this measure
          of EBITDA,  as  adjusted  may not be  comparable  to similar  measures
          reported by other companies.

     (2) Total debt and redeemable  preferred  stock as of December 31, 1995 and
1994  includes  $2.3  million  and $2.0  million,  respectively,  of  redeemable
preferred stock.


<PAGE>

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

Introduction

     Death  care  businesses  in  the  United  States  traditionally  have  been
relatively  small  family-owned  enterprises  that have been passed down through
successive  generations  within a family.  The industry in the United  States is
undergoing a  transition  in which  family-owned  firms are  consolidating  with
larger organizations, such as the Company.

     Two  other  trends  affecting  the death  care  industry  are the  expected
increase  in the  number  of  deaths  and  the  average  age of the  population.
According to the United States Bureau of the Census, the number of deaths in the
United  States is expected to  increase by  approximately  1% per year from 2.38
million in 1998 to 2.64  million in 2010.  In  addition,  the average age of the
population  in the United  States is  increasing.  The aging of the  population,
particularly  the  "baby  boomers"  who  have  only  recently  begun to turn 50,
represents  a  significant  opportunity  for firms such as the Company to expand
their  customer  base and  secure a  portion  of their  future  market  share by
actively marketing prearranged property,  merchandise and services. According to
the Bureau of the Census, the United States population over 50 years of age will
increase  from 72.7  million  in 1998 to 96.4  million  in 2010.  The  Company's
principal target market for sales of prearranged cemetery property,  merchandise
and services is customers who are age 50 and above.

     Certain  statements made herein that are not historical  facts are intended
to  be  forward-looking  statements  within  the  meaning  of  the  safe  harbor
provisions   of  the  Private   Securities   Litigation   Reform  Act  of  1995.
Forward-looking  statements  are based on  assumptions  about future  events and
therefore are inherently  uncertain;  actual results may differ  materially from
those projected.  See "Cautionary  Statements." The discussion  herein should be
read in conjunction with the Company's consolidated financial statements and the
notes thereto.

Trust Investments

     The Company's  funeral and cemetery  business  includes  prearranged  sales
funded through trust  arrangements,  as well as maintenance of cemetery  grounds
funded through perpetual care funds. The Company's investment strategy for these
funds is, among other criteria,  partially  dependent on the ability to withdraw
net realized  capital  gains from these funds.  However,  withdrawal  of capital
gains is not  permitted  for perpetual  care funds in certain  jurisdictions  in
which the Company operates.  Accordingly,  funds for which net capital gains are
permitted to be withdrawn  typically  are  invested in a  diversified  portfolio
consisting  principally of U.S. government  securities,  other  interest-bearing
securities and preferred stocks rated A or better,  "blue chip"  publicly-traded
common stock, money market funds and other short-term investments.

Results of Operations

1998 Compared with 1997

     Consolidated revenues increased to $98.0 million in 1998 from $97.3 million
in 1997 before a one time gain of $3.8 million resulting from a pre-need funeral
trust  conversion  to insurance in December of 1997.  Funeral  service  revenues
decreased  0.8% to  $74.3  million,  before  a  one-time  gain  of $3.8  million
resulting from a pre-need  funeral trust  conversion to insurance in December of
1997 and cemetery revenues increased 5.8% to $23.7 million from $22.4 million in
1997.  Consolidated operating income decreased from $20.3 million in 1997 before
a one  time  gain  of $3.8  million  resulting  from a  pre-need  funeral  trust
conversion  to insurance in December of 1997 to $17.6  million in 1998.  Funeral
revenues decreased primarily as a result of a decline in funeral call volumes in
1998  of  approximately  1.7%  or 324  funerals  from  1997.  Cemetery  revenues
increased primarily due to increased pre-need sales efforts in Alabama,  Florida
and Tennessee.

     Consolidated  contribution  margin of $32.3 million  decreased 7.2% in 1998
from $34.8 million in 1997 before a one time gain of $3.8 million resulting from
a pre-need  funeral  trust  conversion  to insurance  in December of 1997,  with
funeral  contribution margin of 32.8% in 1998 compared to 37.2% in 1997 before a
one-time gain of $3.8 million  resulting from pre-need  funeral trust conversion
to insurance in December of 1997, and cemetery  contribution  margin of 33.4% in
1998 compared to 30.9% in 1997.  Contribution  margin is defined as a percentage
of funeral revenues or cemetery revenues,  as the case may be, less related cost
of  sales  (including   direct  operating   expenses).   Corporate  general  and
administrative  expense remained constant at $3.3 million in 1998 and 1997. As a
percentage of consolidated revenue, general and administrative expense increased
to 3.3% in 1998 from 3.2% in 1997.

     Depreciation  and  amortization  expense  increased  $0.2  million to $11.4
million in 1998 from $11.2  million in 1997.  This  increase  is  primarily  the
result of increased depreciation on capital expenditures.

     Interest  expense  of  $24.2  million  in 1998  increased  by $0.4  million
compared  to  $23.8  million  in  1997,  primarily  as a  result  of  additional
borrowings to finance operating activities of the Company.
<PAGE>

1997 (Successor Company) Compared with 1996 (Successor Company/Predecessor
          Company Combined)

     Consolidated  revenues increased 9.6% to 97.3 million in 1997 before a one-
time gain of $3.8 million  resulting from a pre-need funeral trust conversion to
insurance in December of 1997 from $88.8 million in 1996,  with funeral  service
revenues  increasing  1.1% to $74.9 million,  and cemetery  revenues  increasing
52.4% to $22.4 million from $14.7 million in 1996.  Funeral  revenues  increased
primarily as a result of  restructured  pricing,  merchandising  of  merchandise
display  areas  and  from a  one-time  gain of  approximately  $3.8  million  on
converting a funeral  trust to  insurance.  Cemetery  revenues  increased due to
increased pre-need sales efforts in Alabama, Florida and Tennessee.

     Consolidated  contribution  margin of $38.6 million increased 35.9% in 1997
from $28.4 million in 1996,  with funeral  contribution  margin of 40.3% in 1997
compared  to 32.8% in 1996 and  cemetery  contribution  margin  of 30.9% in 1997
compared to 27.7% in 1996.  Contribution  margin is defined as a  percentage  of
funeral revenues or cemetery revenues,  as the case may be, less related cost of
sales (including direct operating expenses).

     Corporate general and  administrative  expense decreased to $3.3 million in
1997 from  $6.7  million  in 1996.  As a  percentage  of  consolidated  revenue,
corporate general and administrative expense decreased to 3.2% in 1997 from 7.6%
in 1996. Corporate general and administrative expense decreased primarily due to
elimination of corporate  development staff as well as restructured and upgraded
more efficient information and accounting systems.

     Depreciation  and  amortization  expense  increased  $2.4  million to $11.2
million in 1997 from $8.8 million in 1996. This increase is primarily the result
of the purchase accounting treatment of the Acquisition.

     Interest  expense  of  $23.8  million  in 1997  increased  by $5.2  million
compared to $18.6 million in 1996 primarily as a result of additional borrowings
to finance the Acquisition and higher interest rates on borrowings,  principally
as a result of the issuance of the Notes referred to below.

Liquidity and Capital Resources

     The Company's  primary  sources of cash since 1996 have been funds provided
by proceeds from additional long-term debt and capital contributions. In 1998, a
long-term  debt  proceeds  provided no cash compared to $1.3 million in 1997 and
$190.6 million in 1996. In 1998, net proceeds from the revolving loan facilities
provided $7.3 million  compared to $11.2 million in 1997. In 1998,  the disposal
of assets  provided  cash of $0.4  million  compared to $0.3 million in 1997 and
$0.8 million in 1996. In 1998,  operating  activities  used $0.5 million of cash
compared  to using $5.7  million of cash in 1997 and  provided  $1.3  million in
1996.

     Contemporaneously  with the  consummation  of the  Acquisition in 1996, the
Company  entered  into  senior  secured  credit  facilities  (the  "Bank  Credit
Facilities")  with a syndicate  of financial  institutions  and The Bank of Nova
Scotia, as administrative agent.

     The Bank  Credit  Facilities  provided  the  Company  with  senior  secured
amortization  extended  term loan  facilities  (the "Bank Term  Facility") in an
aggregate  principal  amount of $90 million,  the proceeds of which were used to
finance the  Acquisition  and related  transaction  costs,  to pre-fund  certain
capital expenditures and to refinance existing  indebtedness of the Company, and
a senior secured revolving credit facility (the "Bank Revolving Facility") in an
aggregate  principal amount of up to $25 million,  the proceeds of which will be
used for general  corporate  purposes and a portion of which may be extended (as
agreed  upon) in the form of swing  line  loans or  letters  of  credit  for the
account of the  Company.  The Bank Term  Facility  will mature 7 years after the
Acquisition  Closing Date, and the Bank  Revolving  Facility will mature 5 years
after the  Acquisition  Closing  Date.  The Bank Term  Facility  is  subject  to
amortization,  subject to certain conditions, in semi-annual installments in the
amounts of $1 million in each of the first three years after the  anniversary of
the closing date of the Bank Term Facility (the "Bank  Closing");  $4 million in
the fourth year after the Bank  Closing;  $9 million in the fifth year after the
Bank  Closing;  $12.5 million in the sixth year after the Bank Closing and $61.5
million  upon the  maturity  of the Bank Term  Facility.  The  Revolving  Credit
Facility will be payable in full at maturity,  with no prior  amortization.  The
Company  also has a $0.5  million  bank credit  line,  renewable  annually,  for
general corporate purposes exclusive of the Bank Revolving Facility.

     All  obligations  under the Bank Credit  Facilities  and any interest  rate
hedging  agreements  entered  into  with  the  lenders  or their  affiliates  in
connection  therewith are  unconditionally  guaranteed  (the "Bank  Guarantees")
jointly  and  severally,  by Old Prime and each of the  Company's  existing  and
future domestic  subsidiaries  (the "Bank  Guarantors").  All obligations of the
Company and the Bank  Guarantors  under the Bank Credit  Facilities and the Bank
Guarantees are secured by first priority security  interests in all existing and
future assets (other than real property and vehicles  covered by certificates of
title) of the  Company and the Bank  Guarantors.  In  addition,  the Bank Credit
Facilities  are  secured by a first  priority  security  interest in 100% of the
capital stock of the Company and each  subsidiary  thereof and all  intercompany
receivables.

     In connection with the Acquisition, the Company also issued $100 million of
10 3/4% Senior Subordinated Notes due 2004, which were exchanged in January 1997
for $100 million of 10 3/4 % Senior  Subordinated  Notes due 2004 (the  "Notes")
that were  registered  under the  Securities  Act of 1933.  The Notes  mature on
August 15, 2004.  Interest on the Notes is payable  semi-annually on February 15
and August 15 at the annual rate of 10 3/4%. The Notes are redeemable in cash at
the option of the Company,  in whole or in part,  at any time on or after August
15, 2000, at prices ranging from 105.375% with annual reductions to 100% in 2003
plus accrued and unpaid  interest,  if any, to the redemption date. The proceeds
of the Notes were used, in part, to finance the Acquisition.

     The  Company  and its  Subsidiaries  are  subject  to  certain  restrictive
covenants contained in the Indenture relating to the Notes,  including,  but not
limited to,  covenants  imposing  limitations  on the  incurrence  of additional
indebtedness;   certain  payments,  including  dividends  and  investments;  the
creation  of liens;  sales of assets  and  preferred  stock;  transactions  with
interested persons; payment restrictions affecting subsidiaries;  sale-leaseback
transactions;  and  mergers and  consolidations.  In  addition,  the Bank Credit
Facilities contain certain restrictive covenants that, among other things, limit
the  ability of the  Company and its  subsidiaries  to dispose of assets,  incur
additional  indebtedness,  prepay  other  indebtedness,  pay  dividends  or make
certain  restricted  payments,  create  liens on  assets,  engage in  mergers or
acquisitions or enter into leased transactions with affiliates.

     As of December 31,  1998,  the Company has $210.3  million of  indebtedness
outstanding and approximately  $6.2 million of borrowing  availability under the
Revolving  Credit Facility.  The Company is currently  negotiating to expand its
revolver,  or bank term debt under its Bank  Credit  Agreement.  The Company has
also  applied to the state of  Florida to change its method of funding  pre-need
merchandise  liabilities  from trust funds to surety bonds. The Company believes
that,  based  upon  current  levels of  operations  and  anticipated  growth and
availability under the Revolving Credit Facility,  it can adequately service its
indebtedness.   If  the  Company  cannot  generate  sufficient  cash  flow  from
operations  or  borrow  under  the  Revolving   Credit  Facility  to  meet  such
obligations, then the Company may be required to take certain actions, including
reducing capital expenditures, restructuring its debt, selling assets or seeking
additional  equity  in order to avoid  an  Event  of  Default.  There  can be no
assurance  that such actions could be effected or would be effective in allowing
the Company to meet such obligations.

     The  primary  uses of cash  since  1996  have been for the  acquisition  of
funeral homes and cemeteries,  including the Acquisition,  principal payments on
long-term  debt and capital  expenditures.  In 1998,  the Company  purchased two
funeral homes and one cemetery for an aggregate  purchase  price of $1.9 million
compared to one funeral  home and three  cemeteries  for an  aggregate  purchase
price of $2.6 million in 1997.  In 1996,  the Company  purchased  three  funeral
homes for an aggregate purchase price of $0.7 million. In 1998, the Company sold
a monument  company for $0.3 compared to three funeral homes for $2.0 million in
1997.

     In 1998,  the Company used $3.1 million for capital  expenditures  and $3.2
million in 1997 and 1996.  In 1998,  the Company  paid $1.5 million in principal
payments on long-term debt,  principally relating to repayment of bank term debt
and former owner obligations, compared to $4.6 million in 1997 which principally
related to the repayment of former owner obligations  compared to $114.7 million
in 1996 which principally  related to the refinancing of the indebtedness of Old
Prime.  In 1997,  the  Company  used $1.4  million  for the  acquisition  of the
Predecessor Company compared to $196.3 million in 1996.

     Although the Company has no material commitments for capital  expenditures,
the  Company  contemplates  capital  expenditures,  excluding  acquisitions,  of
approximately  $2.0 million for the fiscal year ending December 31, 1999,  which
includes repair and improvement of existing facilities. The Company also expects
to invest approximately $0.5 million in 1999 for cemetery inventory development.

     Management  expects  that future  capital  requirements  will be  satisfied
through internally generated cash flow and amounts available under its revolving
credit facilities.

Inflation

     Inflation has not had a significant impact on the Company's operations over
the past three  years,  nor is it expected to have a  significant  impact in the
foreseeable future.

Other

Year 2000 Issues

     Overview.  As the Year 2000  approaches,  all companies  that use computers
must address "Year 2000" issues.  Year 2000 issues result from the past practice
in the  computer  industry of using two digits  rather than four to identify the
applicable year. This practice can create  breakdowns or erroneous  results when
computers perform operations involving years later than 1999.

     The Company's State of Readiness.  The Company has devised and commenced an
extensive  compliance  plan with the  objective of bringing all of the Company's
information technology (IT) systems and non-IT systems into Year 2000 compliance
by the end of the second  quarter of fiscal  year 1999.  The Company has divided
its systems  into (i)  critical  systems,  consisting  of IT  systems,  and (ii)
non-critical  systems,  consisting of a mixture of IT and non-IT  systems.  Each
system will be evaluated and brought into compliance in five phases:

o  Phase I:    Awareness - Prepare and present comprehensive report to
                    management
o  Phase II:   Assessment - Identify and evaluate all systems for Year 2000
                    compliance
o  Phase III:  Compliance - Complete necessary Year 2000 modifications
o  Phase IV:   Testing - Test all modified systems for Year 2000 compliance
o  Phase V:    Implementation - Return Year 2000 compliance systems to daily
                    operation

     The Company's systems used to maintain  financial records were either found
to be compliant or have completed Phases I through V. As a result, 100% of these
critical systems are currently  compliant.  One hundred percent of the Company's
other critical systems have completed Phase II, and ninety percent were found to
be compliant. The remaining non-compliant critical systems have completed Phases
III and IV and  commenced  Phase V, with a  scheduled  completion  of the second
quarter of fiscal year 1999.

     Ninety percent of the Company's  non-critical  systems have completed Phase
II and were either found to be compliant or made compliant by completing  Phases
III through V. The Company anticipates that the remaining  non-critical  systems
will be evaluated and brought into  compliance by the end of the second  quarter
of fiscal year 1999.

     In  addition,  the Company  has  communicated  with all of its  significant
vendors,  financial  institutions  and insurers to determine the extent to which
these third parties'  failure to resolve their Year 2000 issues could affect the
Company's operations.  The Company has indication that its significant suppliers
expect to be in compliance  with Year 2000 issues ranging between fourth quarter
of 1998 and  second  quarter  of 1999.  The  Company  expects  to  complete  its
evaluation  of third  parties'  compliance  by the end of the second  quarter of
fiscal year 1999.

     The Costs Involved. Because all of the Company's computer systems have been
replaced in the past two years as part of the Company's ongoing goal to maintain
state of the art technology,  the Company's Year 2000 compliance costs have been
relatively low. To date, the company has incurred minor expenses in implementing
its compliance plan.  Management estimates that the total cost to be incurred by
the Company to complete its compliance plan will be insignificant. This estimate
includes the use of both internal and external  resources.  All costs related to
the Year 2000 compliance plan are included in the Information Systems budget and
are based on management's best estimates.  There can be no guarantee that actual
results will not differ from those estimated.

     Risks. If the Company is not successful in its efforts to bring its systems
into Year 2000 compliance, the Company's ability procure merchandise in a timely
and  cost-effective  manner may be impaired,  daily  business  procedures may be
delayed due to the use of manual procedures, and some business procedures may be
interrupted  if no  alternative  methodology  is  available,  which could have a
material adverse effect on the Company's operations.

     The Company has no  guarantee  that the  systems of third  parties  will be
brought into compliance on a timely basis. The non-compliance of a third party's
system could have a material adverse effect on the Company's operations.

     The Company's Contingency Plan. Although the Company believes that its Year
2000  compliance  plan is adequate to achieve full system  operation on a timely
basis, the Company is in the process of developing a contingency plan to address
the possibility of the Company's and third parties' non-compliance.  The Company
anticipates  completing its contingency plan by the end of the second quarter of
fiscal year 1999.

Recent Accounting Standards

     Statements of Financial  Accounting  Standards  (SFAS) No. 130,  "Reporting
Comprehensive Income," is required to be implemented in the first quarter of the
Company's  fiscal year 1998.  SFAS No.  131,  "Disclosure  about  Segments of an
Enterprise and Related  Information,"  is required to be implemented  during the
Company's fiscal year ending December 31, 1998 and SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities," is required to be implemented in
the first  quarter  of the  Company's  fiscal  year  2000.  The  effect of these
pronouncements on the Company's  consolidated financial condition and results of
operations is not expected to be material.

Forward-Looking Statements

     Certain   statements   in  this   Annual   Report  on  Form  10-K   include
"forward-looking  statements"  as  defined  in  Section  21D of  the  Securities
Exchange Act of 1934. All statements  other than statements of historical  facts
included  herein,  including,  without  limitation,  the statements under Item 7
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations",  Item 7a  "Quantitative  and Qualitative  Disclosures  about Market
Risk", and Item 1 "Business", and Item 11 "Executive Compensation",  and located
elsewhere herein regarding the Company's financial  position,  plans to increase
revenues,  reduce  general and  administrative  expenses  and take  advantage of
synergies,  are forward-looking  statements.  Although the Company believes that
the expectations reflected in such forward-looking statements are reasonable, it
can give no assurance that such expectations will prove to be correct. Important
factors that could cause actual results to differ  materially from the Company's
expectations ("Cautionary Statements") are disclosed herein, including,  without
limitation, in conjunction with the forward-looking  statements included herein.
All subsequent written and oral forward-looking  statements  attributable to the
Company  (as  defined  herein)  or persons  acting on its  behalf are  expressly
qualified in their entirety by the Cautionary Statements.
<PAGE>
Cautionary Statements

     The Company cautions readers that the following  important  factors,  among
others,  in some  cases  have  affected,  and in the future  could  affect,  the
Company's  actual  consolidated  results  and could cause the  Company's  actual
consolidated  results  in the  future  to differ  materially  from the goals and
expectations expressed in the forward-looking  statements above and in any other
forward-looking statements made by or on behalf of the Company.


     I. Achieving the Company's revenue goals also is affected by the volume and
prices of the products and services  sold.  The annual sales  targets set by the
Company are very aggressive, and the inability of the Company to achieve planned
increases  in volume or prices  could cause the Company not to meet  anticipated
levels of  revenue.  The  ability  of the  Company  to  achieve  volume or price
increases  at any  location  depends on numerous  factors,  including  the local
economy, the local death rate and competition.

     II. Another  important  component of revenue is earnings from the Company's
trust funds which are  determined  by the size of, and  returns  (which  include
dividends,  interest and realized  capital gains) on, the funds. The performance
of the funds  depends  primarily  on market  conditions  that are not within the
Company's  control.  The size of the funds depends on the level of sales and the
amount of returns that may be reinvested.

     III.  Future revenue also is affected by the level of prearranged  sales in
prior  periods.  The level of  prearranged  sales may be  adversely  affected by
numerous  factors,   including   deterioration  in  the  economy,  which  causes
individuals to have less discretionary income.

     IV. In addition to the factors discussed above, earnings may be affected by
other important factors, including the following:


          a. The ability of the Company to achieve projected  economies of scale
     in markets where it has "clusters" or combined facilities.

          b.  Changes in interest  rates,  which can  increase  or decrease  the
     amount the Company pays on borrowings with variable rates of interest.

          c. The  ability  of the  Company  to  manage  its  growth  in terms of
     implementing  internal  controls and  information  gathering  systems,  and
     retaining or attracting key personnel, among other things.

          d.  The  amount  and  rate of  growth  in the  Company's  general  and
     administrative expenses.

          e. Changes in  government  regulation,  including  tax rates and their
     effects on corporate structure.

          f.  Changes  in  inflation  and  other  general  economic   conditions
     affecting financial markets.

          g. Unanticipated legal proceedings and unanticipated outcomes of legal
     proceedings.

          h. Changes in accounting policies and practices adopted voluntarily or
     required to be adopted by generally accepted accounting principles.

          i. The ability of the Company and its significant  vendors,  financial
     institutions  and  insurers  to achieve  Year 2000  compliance  on a timely
     basis.

     The Company also  cautions  readers that it assumes no obligation to update
or publicly release any revisions to  forward-looking  statements made herein or
any other forward-looking statements made by or on behalf of the Company.


ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     The market risk inherent in the Company's market risk sensitive instruments
and positions is the potential change arising from increases or decreases in the
prices of interest rates as discussed  below.  Generally,  the Company's  market
risk  sensitive  instruments  and  positions  are  characterized  as "other than
trading".  The  Company's  exposure to market risk as discussed  below  includes
"forward-looking  statements" and represents an estimate of possible  changes in
fair value or future  earnings  that would occur  assuming  hypothetical  future
movements  in  interest  rates.  The  Company's  views  on  market  risk are not
necessarily indicative of actual results that may occur and do not represent the
maximum possible gains and losses that may occur,  since actual gains and losses
will differ from those  estimated,  based upon actual  fluctuations  in interest
rates and the timing of transactions.


Interest

     The  company  has  entered  into  various  fixed  and  variable  rate  debt
obligations,  which  are  detailed  in  Note  6 to  the  Company's  consolidated
financial statements included in Item 8.

     As of December 31,  1998,  the carrying  value of the  Company's  long-term
fixed-rate  debt was  approximately  $103.8  million,  compared to fair value of
$101.7  million.  Fair value was determined  using quoted market  prices,  where
applicable,  or  discounted  future  cash flows based on the  Company's  current
incremental  borrowing  rates for similar  types of borrowing  arrangements.  If
these  instruments  are  held to  maturity,  no  change  in fair  value  will be
realized.

     As of December 31, 1998,  the Company had $106.5  million in  variable-rate
debt. Each 0.5% change in average  interest rates  applicable to such debt would
result  in a change of  approximately  $0.5  million  in the  Company's  pre-tax
earnings.

     The Company monitors its mix of fixed and variable rate debt obligations in
light of changing market conditions and from time to time may alter that mix by,
for example,  refinancing balances outstanding under its variable rate revolving
credit  facilities with fixed-rate debt, or by entering into interest rate swaps
or other interest rate hedging transactions.

<PAGE>


ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

               INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE


PRIME SUCCESSION, INC. AND SUBSIDIARIES AS OF DECEMBER 31, 1998 AND 1997 AND FOR
THE YEARS ENDED DECEMBER 31, 1998 AND 1997, AND THE PERIODS FROM JANUARY 1, 1996
THROUGH AUGUST 25, 1996 AND FROM AUGUST 26, 1996 THROUGH DECEMBER 31, 1996:

Independent Auditors' Report..................................................20
Financial Statements:
     Consolidated Balance Sheets..............................................21
     Consolidated Statements of Operations....................................23
     Consolidated Statements of Shareholders' Equity..........................24
     Consolidated Statements of Cash Flows....................................25
     Notes to Consolidated Financial Statements...............................27


Schedule II - Valuation and Qualifying Accounts...............................55



All other schedules have been omitted as not applicable or not required.





<PAGE>


                     Independent Auditors' Report

Board of Directors
Prime Succession, Inc.:

We  have  audited  the  accompanying   consolidated   balance  sheets  of  Prime
Succession,  Inc. and subsidiaries  (Successor  Company) as of December 31, 1998
and 1997, and the related consolidated  statements of operations,  shareholders'
equity,  and cash flows for the years ended  December 31, 1998 and 1997, and for
the period from August 26, 1996  through  December 31, 1996  (Successor  Company
period), and the consolidated  statements of operations,  shareholders'  equity,
and cash flows of Prime Succession,  Inc. and subsidiaries (Predecessor Company)
for the period from January 1, 1996 through August 25, 1996 (Predecessor Company
period).  These consolidated  financial statements are the responsibility of the
Company's  management.  Our  responsibility  is to  express  an opinion on these
consolidated financial statements based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
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  aforementioned  Successor Company  consolidated  financial
statements present fairly, in all material  respects,  the financial position of
Prime  Succession,  Inc. and subsidiaries as of December 31,  1998 and 1997, and
the  results  of their  operations  and their  cash  flows  for the years  ended
December 31, 1998 and 1997 and for the Successor  Company period,  in conformity
with generally accepted  accounting  principles.  Further,  in our opinion,  the
aforementioned  Predecessor Company  consolidated  financial  statements present
fairly, in all material respects, the results of their operations and their cash
flows for the Predecessor  Company period, in conformity with generally accepted
accounting principles.  Also, in our opinion, the related consolidated financial
schedule,  when  considered  in  relation  to the basic  consolidated  financial
statements taken as a whole,  presents  fairly,  in all material  respects,  the
information  set forth therein for the years ended  December 31, 1998,  1997 and
1996.

As  discussed  in Note 1 to the  consolidated  financial  statements,  effective
August 26, 1996, all of the outstanding capital stock of the Predecessor Company
was acquired in a business combination  accounted for as a purchase. As a result
of this acquisition, the consolidated financial information for the period after
the  acquisition is presented on a different cost basis than that for the period
before the acquisition and, therefore, is not comparable.

                                                         KPMG LLP

Cincinnati, Ohio
March 10, 1999


<PAGE>
<TABLE>
<CAPTION>


                                                Prime Succession, Inc. and Subsidiaries
                                                      Consolidated Balance Sheets
                                                      December 31, 1998 and 1997

                                                                                           December 31,
                                                                                           ------------ 
                                                                                     1998                 1997
                                                                                     ----                 ----   
                                    Assets
                                    ------
<S>                                                                                 <C>                 <C>
Cash and cash equivalents                                                           $ 1,146,670         $ 1,555,415
  Receivables:
         Trade, less allowance of $2,086,520 and $2,647,693                          14,718,380          13,073,005
         Other                                                                          998,020           4,492,005
                                                                                    -----------         -----------
                  Total receivables                                                  15,716,400          17,565,010
Inventories:
         Merchandise                                                                  3,582,912           3,836,994
         Cemetery lots and mausoleum spaces                                           1,178,137           1,693,530
                                                                                    -----------         ----------- 
                  Total inventories                                                   4,761,049           5,530,524
                                                                                    -----------         -----------
Prepaids and other current assets                                                       607,407             319,000
Deferred income taxes (note 9)                                                          588,088             723,566
                                                                                    -----------         -----------
                  Total current assets                                               22,819,614          25,693,515
                                                                                    -----------         ----------- 
                                                                                     
Property and equipment:
         Land and land improvements                                                  16,447,209          16,190,801
         Buildings and improvements                                                  48,751,390          47,313,605
         Equipment, furniture and fixtures                                           10,221,223           9,051,236
         Accumulated depreciation                                                    (5,906,519)         (3,165,322)
                                                                                    -----------         -----------
                  Net property and equipment                                         69,513,303          69,390,320
                                                                                    -----------         -----------
                                                                                     
Developed cemetery properties                                                        14,660,921          12,996,135
Undeveloped cemetery properties                                                      30,992,379          31,902,345
Goodwill, less accumulated amortization of $13,222,612 and $7,482,615               218,065,917         222,086,427
Other intangible assets, less accumulated amortization of $9,953,607 and
         $5,866,178                                                                  19,263,641          23,147,315
Long-term receivables, less allowance of $6,205,730 and $3,288,268                   15,221,081           9,318,513
Other assets                                                                            585,439             571,615
                                                                                   ------------        ------------
                                                                                   $391,122,295        $395,106,185
                                                                                   ============        ============ 


                           See accompanying notes to consolidated financial statements.
</TABLE>

<PAGE>
<TABLE>
<CAPTION>

                                      Prime Succession, Inc. and Subsidiaries
                                            Consolidated Balance Sheets
                                            December 31, 1998 and 1997


                                                                                            December 31,
                                                                                            ------------
                                                                                      1998                1997
                                                                                      ----                ----
                       Liabilities and Shareholders' Equity
                      ------------------------------------
<S>                                                                                 <C>                  <C>
Accounts payable                                                                    $ 2,031,580         $ 2,679,090
Other accrued expenses                                                                9,708,454           8,441,985
Current installments of obligations under agreements with former owners (note 5)      2,732,386           2,369,684
Current installments of long-term debt (note 6)                                       1,396,074           1,389,530
Due to related party (note 4)                                                            83,333              83,333
                                                                                   ------------        ------------
                                            Total current liabilities                15,951,827          14,963,622
                                                                                   ------------        ------------  
Deferred merchandise liabilities and revenues, less trust fund deposits              14,384,071          17,600,097
Obligations under agreements with former owners, less current installments
         (note 5)                                                                    12,537,499          15,259,919
Long-term debt, less current installments (note 6)                                  208,888,446         201,580,635
Deferred income taxes (note 9)                                                       16,523,017          16,770,180
Other long-term liabilities (note 12)                                                 3,719,511           2,690,510

Shareholders' equity (note 7):
         Common stock, par value $.01 per share, 1,000 shares authorized;
                  100 issued and outstanding shares                                           1                   1
         Additional paid-in capital                                                 128,888,394         129,047,493
         Accumulated deficit                                                         (9,770,471)         (2,806,272)
                                                                                   ------------        ------------
                                            Total shareholders' equity              119,117,924         126,241,222
                                                                                   ------------        ------------
Commitments and contingencies (notes 10, 11 and 12)

                                                                                   $391,122,295        $395,106,185
                                                                                   ============        ============

                                       See accompanying notes to consolidated financial statements.

</TABLE>
                                                               
<PAGE>
<TABLE>
<CAPTION>


                                       Prime Succession, Inc. and Subsidiaries

                                        Consolidated Statements of Operations
         For the years ended December 31, 1998 and 1997, and periods from January 1, 1996 through August 25, 1996
                                 and from August 26, 1996 through December 31, 1996

                                                              Successor                        Predecessor
                                                               Company                           Company
                                            ----------------------------------------------- -----------------
                                                         Year                 August 26,       January 1,
                                                        Ended                1996 through     1996 through
                                                     December 31,            December 31,      August 25,
                                                 1998            1997            1996             1996
                                            --------------- --------------- --------------- -----------------
<S>                                               <C>             <C>             <C>               <C>
  Revenues:
         Funeral services (note 8)             $74,337,416     $78,698,491     $26,805,617       $47,281,120
         Cemetery sales                         23,667,815      22,440,769       5,845,936         8,834,774
                                            --------------- --------------- --------------- -----------------
                                                98,005,231     101,139,260      32,651,553        56,115,894
Costs and expenses:
         Funeral homes                          49,945,781      47,005,645      17,514,919        32,257,977
         Cemetery                               15,766,846      15,517,734       4,070,525         6,546,474
                                            --------------- --------------- --------------- -----------------
                                                65,712,627      62,523,379      21,585,444        38,804,451
Corporate general and administrative
         expenses                                3,327,047       3,250,451       2,089,994         4,637,919
Depreciation and amortization                   11,371,044      11,241,934       3,483,901         5,341,150
Legal settlement (note 3)                               --              --              --         6,344,313
                                            --------------- --------------- --------------- -----------------
Operating income                                17,594,513      24,123,496       5,492,214           988,061
                                            --------------- --------------- --------------- -----------------

Other expenses:
         Interest expense, including
         amortization of deferred
         loan costs of $1,753,891,
        $1,792,884, $622,473 and $360,269       24,194,753      23,843,345       8,539,585        10,059,415
         Other                                          --              --          98,015            39,315
                                            --------------- --------------- --------------- -----------------
                                                24,194,753      23,843,345       8,637,600        10,098,730
                                            --------------- --------------- --------------- -----------------
Income (loss) before income taxes               (6,600,240)        280,151      (3,145,386)       (9,110,669)
Income tax benefit (expense) (note 9)             (363,959)       (136,903)        195,866          (364,796)
                                            --------------- --------------- --------------- -----------------
Net income (loss)                               (6,964,199)        143,248      (2,949,520)       (9,475,465)

Redeemable Preferred Stock dividend
         requirements                                   --              --              --          (277,111)
                                            --------------- --------------- --------------- -----------------
Net income (loss) attributable to
         common shareholders                   $(6,964,199)      $ 143,248     $(2,949,520)      $(9,752,576)
                                            =============== =============== =============== =================



                                   See accompanying notes to consolidated financial statements.
</TABLE>

<PAGE>
<TABLE>
<CAPTION>

                                              Prime Succession, Inc. and Subsidiaries

                                           Consolidated Statements of Shareholders' Equity
            For the years ended December 31, 1998 and 1997, and periods from January 1, 1996 through August 25, 1996
                                          and from August 26, 1996 through December 31,1996

                                                   Predecessor
                                                     Company
                                                     Common            
                                                      Stock            Successor
                                             --------------------       Company    Additional                           Total
                                             Class A     Class B        Common       Paid-in        Accumulated      Shareholders'
                                                                        Stock        Capital          Deficit           Equity
                                             --------    --------     -----------  -------------   --------------    --------------
<S>                                           <C>          <C>            <C>           <C>               <C>             <C>
Predecessor Company:
         Balance as of December 31, 1995   $       1  $        9  $           -  $   31,902,729  $   (9,211,524)  $     22,691,215
         Net loss for the period
           January 1, 1996 through 
           August 25, 1996                         -           -              -               -      (9,475,465)        (9,475,465)
         Accrued dividends on redeemable
           preferred stock                         -           -              -        (277,111)              -           (277,111)
                                             --------    --------    -----------   -------------   --------------    --------------
         Balance as of  August 25, 1996    $       1  $        9  $           -  $   31,625,618  $  (18,686,989)  $     12,938,639
                                             ========    ========    ===========   =============   ==============    ==============
Successor Company:
         Acquisition of Predecessor
           Company  (note 7)               $       -  $        -  $           1  $  129,999,999  $            -   $    130,000,000
         Receivable due from parent 
           company                                 -           -              -        (445,500)              -           (445,500)
         Net loss for the period
           August 26, 1996 through
           December 31, 1996                       -           -              -               -      (2,949,520)        (2,949,520)
                                             --------    --------    -----------   -------------   --------------    --------------
         Balance as of December 31, 1996           -           -              1     129,554,499      (2,949,520)       126,604,980
         Receivable due from parent
           company (note 4)                        -           -              -        (507,006)              -           (507,006)
         Net income for the year ended
           December 31, 1997                       -           -              -               -         143,248            143,248
                                             --------    --------    -----------  --------------   --------------    --------------
         Balance as of  December 31, 1997          -           -              1     129,047,493      (2,806,272)       126,241,222
         Receivable due from parent
           company (note 4)                        -           -              -        (159,099)              -           (159,099)
         Net income for the year ended
           December 31, 1998                       -           -              -               -      (6,964,199)        (6,964,199)
                                             --------    --------    -----------   -------------   --------------    --------------
Balance as of December 31, 1998            $       -  $        -  $           1  $  128,888,394  $   (9,770,471)  $    119,117,924
                                             ========    ========    ===========   =============   ==============    ==============

                                     See accompanying notes to consolidated financial statements.

</TABLE>

<PAGE>
<TABLE>
<CAPTION>

                                                Prime Succession, Inc. and Subsidiaries

                                                 Consolidated Statements of Cash Flows
             For the years ended December 31, 1998 and 1997, and the periods from January 1, 1996 through August 25, 1996
                                          and from August 26, 1996 through December 31, 1996


                                                                                  Successor                        Predecessor
                                                                                   Company                           Company
                                                               ------------------------------------------------   --------------
                                                                                                 August 26,        January 1,
                                                                         Year ended             1996 through      1996 through
                                                                        December 31,            December 31,       August 25,

                                                                    1998            1997            1996              1996
                                                               ---------------- -------------- ----------------   --------------
<S>                                                               <C>               <C>           <C>              <C> 
Cash flows from operating activities:

   Net income (loss)                                               $(6,964,199)     $ 143,248     $ (2,949,520)    $  (9,475,465)

   Adjustments to reconcile net income (loss) to net cash
   provided by (used in) operating activities:
         Depreciation and amortization                              13,124,935     13,034,818        4,106,374         5,701,419
         Depletion of cemetery property                              1,126,378      1,664,589          527,515           509,856
         Loss on sale of assets                                          4,316             --               --                --
         Provision for deferred income taxes                          (111,683)    (1,898,968)        (141,369)          155,227
         Legal settlement                                                   --             --               --         6,344,313
         Payment on legal settlement                                        --             --       (5,344,313)       (1,100,000)
         Changes in operating assets and liabilities
         net of effects of acquisition of subsidiaries:
             Receivables (net)                                      (4,064,844)    (7,226,690)      (2,389,370)          780,149
             Inventories                                            (1,062,918)    (3,226,300)         (34,456)         (578,300)
             Accounts payable and accrued expenses                     474,116     (3,656,309)       3,037,740           887,452
             Deferred merchandise liabilities and                  
               revenue (net)                                        (3,605,570)    (2,372,626)         505,549         2,475,263
             Other long-term liabilities                             1,029,001     (1,752,945)       1,021,741          (446,222)
             Other                                                    (465,753)      (399,367)        (323,179)       (1,947,562)
                                                               ---------------- -------------- ----------------    --------------
   Net cash provided by (used in) operating activities                (516,221)    (5,690,550)      (1,983,288)        3,306,130
                                                               ---------------- -------------- ----------------    --------------
Cash flows from investing activities:
         Proceeds from the disposal of assets                          426,023        265,731          674,633           152,205
         Purchases of property and equipment                        (3,113,744)    (3,203,500)      (2,100,108)       (1,087,432)
         Net cash received for sale of business                        250,000      2,041,033               --                --
         Net cash paid for purchase of business                       (805,000)    (2,606,951)              --          (675,000)
                                                               ---------------- -------------- ----------------    --------------
   Net cash used in investing activities                            (3,242,721)    (3,503,687)      (1,425,475)       (1,610,227)
                                                               ---------------- -------------- ----------------    --------------

                                                                                                                        (Continued)
</TABLE>

<PAGE>
<TABLE>
<CAPTION>

                                                Prime Succession, Inc. and Subsidiaries

                                                 Consolidated Statements of Cash Flows
             For the years ended December 31, 1998 and 1997, and the periods from January 1, 1996 through August 25, 1996
                                          and from August 26, 1996 through December 31, 1996

                                                                           Successor                         Predecessor
                                                                            Company                            Company
                                                         -----------------------------------------------   -----------------
                                                                                          August 26,          January 1,
                                                                  Year ended             1996 through        1996 through
                                                                 December 31,            December 31,         August 25,
                                                             1998            1997            1996                1996
                                                         -------------- --------------- ----------------   -----------------
<S>                                                        <C>              <C>             <C>                <C>
Cash flows from financing activities:
   Net proceeds of bank indebtedness under
     revolving loan                                          7,300,000      11,200,000               --                  --
   Proceeds from long-term debt                                     --       1,309,782      190,000,000             618,000
   Payments on long-term debt                               (1,479,160)     (4,621,844)    (111,506,428)         (3,219,194)
   Payments on obligations under agreements
     with former owners                                     (2,470,643)     (3,160,498)      (2,346,269)         (1,444,015)
   Capital contributions                                            --              --               --           3,000,000
   Issuance of common stock                                         --              --      129,554,500                  --
   Acquisition of Predecessor Company                               --      (1,352,329)    (196,335,542)                 --
   Decrease (increase) in restricted cash                           --       4,388,837       (4,388,837)                 --
                                                         -------------- -------------- -----------------   -----------------
Net cash provided by (used in) financing activities          3,350,197       7,763,948        4,977,424          (1,045,209)
                                                         -------------- -------------- -----------------   -----------------
Net increase (decrease) in cash and cash equivalents          (408,745)     (1,430,289)       1,568,661             650,694
Cash and cash equivalents at beginning of period             1,555,415       2,985,704        1,417,043             766,349
                                                         -------------- -------------- -----------------   -----------------
Cash and cash equivalents at end of period                 $ 1,146,670     $ 1,555,415      $ 2,985,704         $ 1,417,043
                                                         ============== ============== =================   =================
Supplemental cash flow information:
         Cash paid during the year for:
                  Income taxes                             $   284,327     $   136,624      $   210,846         $   248,677
                                                         ============== ============== =================   =================
                  Interest                                 $22,404,690     $21,906,096      $ 4,644,749         $ 8,483,810
                                                         ============== ============== =================   =================


                                     See accompanying notes to consolidated financial statements.

</TABLE>



<PAGE>

                     Prime Succession, Inc. and Subsidiaries

                   Notes to Consolidated Financial Statements

                                December 31, 1998

     (1) The Company

          On  August  26,  1996  (Closing  Date),   Prime   Succession,   Inc.'s
          (Predecessor Company) capital stock was purchased (the Acquisition) by
          Blackstone   Capital  Partners  II  Merchant  Banking  Fund  L.P.  and
          affiliates (Blackstone), Loewen Group International, Inc. (Loewen) and
          PSI Management  Direct L.P.  (PSIM). A new entity,  Prime  Succession,
          Inc.  (Successor  Company),  was  formed  and  became  a  wholly-owned
          subsidiary  of  the  Predecessor   Company.  In  connection  with  the
          Acquisition,  all of the assets  and  liabilities  of the  Predecessor
          Company were transferred to the Successor Company.  Collectively,  the
          Predecessor  Company and Successor  Company are herein  referred to as
          "the Company". The total purchase price was approximately $320 million
          of which  approximately $130 million was contributed by Blackstone and
          Loewen,  and $190 million was financed through bank borrowings and the
          issuance of senior  subordinated notes. The purchase accounting method
          was used to record the  transaction.  The estimated  fair value of the
          acquired assets,  excluding  goodwill,  aggregated  approximately $173
          million and liabilities assumed aggregated  approximately $85 million.
          The excess of the purchase  price over the fair value of net assets of
          approximately  $230  million was  established  as goodwill and will be
          amortized over 40 years.

          Since purchase  accounting was reflected in the opening  balance sheet
          of the Successor Company on August 26, 1996, the financial  statements
          of  the  Successor   Company  are  not  comparable  to  the  financial
          statements of the Predecessor Company.  Accordingly,  a vertical black
          line is shown to separate Successor Company financial  statements from
          those of the Predecessor Company for periods ended prior to August 26,
          1996.

          The unaudited  pro forma  results of operations as if the  acquisition
          occurred  at the  beginning  of  1996  would  result  in  revenues  of
          approximately  $88.9  million and a net loss of $18.3  million for the
          year ended December 31, 1996.

          The unaudited pro forma results of operations  include 14 funeral home
          acquisitions  made in 1995 and 1996, as if the acquisitions  were made
          at the beginning of 1995. The effect of these  acquisitions  increased
          revenue by $100,000 in 1996. The pro forma results of operations  also
          include  adjustments  for  increased  depreciation,  amortization  and
          interest expenses, and reduced expenses resulting from the elimination
          of certain  personnel.  The effect of these adjustments  increased the
          net loss by $5,600,000 in 1996.

          The unaudited pro forma  information  presented above does not purport
          to be indicative of the results that actually would have been obtained
          if the acquisition  had been  consummated at the beginning of 1996 and
          is not intended to be a projection of future results or trends.
 
                                                                     (Continued)

<PAGE>

                    Prime Succession, Inc. and Subsidiaries

              Notes to Consolidated Financial Statements, Continued


     (1) The Company, Continued

          Prime  Succession,  Inc. (the "Company") is the fifth largest provider
          of products and services in the death care industry in North  America.
          Through  its  subsidiaries,  the  Company  offers a  complete  line of
          funeral  merchandise  and  services,  along  with  cemetery  property,
          merchandise  and services.  For the year ended  December 31, 1998, the
          funeral and cemetery  operations  contributed  approximately 75.9% and
          24.1%, respectively, of total revenues.

          As of December  31, 1998,  the Company  owned and operated 143 funeral
          homes and 20  cemeteries in 20 states  within the United  States.  The
          Company was founded in 1991, and began operations in 1992.

          In 1998, the Company  purchased two funeral homes and one cemetery for
          an  aggregate  purchase  price of $1.9  million  and  sold a  monument
          company for $0.3 million.  In 1997, the Company  purchased one funeral
          home and three  cemeteries  for an  aggregate  purchase  price of $2.6
          million  and  sold  three  funeral   homes  for  $2.0   million.   The
          acquisitions  and  dispositions  had  an  immaterial   effect  on  the
          consolidated  financial  statements  for the years ended  December 31,
          1998 and 1997.

     (2) Significant Accounting Policies

          (a) Principles of Consolidation

               The consolidated financial statements include the accounts of the
               Company and subsidiaries.  All significant  intercompany balances
               and transactions have been eliminated in consolidation.

          (b) Cash and Cash Equivalents

               All highly liquid investments, generally with original maturities
               of three months or less, are considered to be cash equivalents.

          (c) Receivables
 
               The Company's  receivables represent a combination of amounts due
               on  at-need  and  pre-need  installment  contracts.  The  Company
               frequently  extends  credit to its  customers for the purchase of
               funeral  services  or  cemetery  space.  The  customers'   credit
               worthiness is evaluated on a case by case basis and collateral is
               generally  not required on credit  sales.  Installment  contracts
               receivable, arising primarily from the sales of cemetery property
               and merchandise,  are generally due in monthly  installments over
               periods of one to six years.
 
                                                                     (Continued)


<PAGE>

                    Prime Succession, Inc. and Subsidiaries

              Notes to Consolidated Financial Statements, Continued

     (2) Significant Accounting Policies, Continued

          (c) Receivables, Continued

               The contracts  require cash down  payments and generally  include
               simple interest,  computed at rates ranging from approximately 6%
               to 18% per annum, which is recognized on the interest method over
               the contract  life.  Allowances  include  estimates  for contract
               cancellations and uncollectible accounts.

          (d) Inventories

               Inventories of mausoleum  spaces,  cemetery lots and  merchandise
               are recorded  principally at average cost, which is not in excess
               of market.

          (e) Derivative Instruments

               In September  1998  Statement of Financial  Accounting  Standards
               (FAS)  No.  133,  "Accounting  for  Derivative   Instruments  and
               Hedging"  was issued.  FAS No. 133  requires  companies to record
               derivatives  on  the  balance  sheet  as  assets  or  liabilities
               measured at fair value. Gains or Losses resulting from changes in
               the values of those  derivatives would be accounted for depending
               on the use of the derivative  and whether it qualified  under the
               standard hedge accounting. The Company is currently assessing the
               effect  of this  standard,  but does not  anticipate  a  material
               impact on the results of  operations.  This statement will become
               effective in the first quarter of Year 2000.

               The Company  enters into interest rate swap  agreements to manage
               interest  rate  exposure on certain of its  long-term  debt.  The
               difference  between the amounts  paid and received is accrued and
               accounted for as an adjustment to interest  expense over the life
               of the swap agreements.

          (f) Property and Equipment

               Property  and  equipment  are recorded at cost.  Depreciation  of
               buildings,   improvements   and   equipment   is  provided  on  a
               straight-line  basis  over  the  expected  useful  lives  of  the
               respective assets as follows:

                  Land improvements                             15 years
                  Buildings and improvements               15 - 40 years
                  Equipment, furniture and fixtures         5 - 10 years

               Expenditures  for  maintenance  and  repairs  are  expensed  when
               incurred.

                                                                     (Continued)

<PAGE>

                     Prime Succession, Inc. and Subsidiaries

              Notes to Consolidated Financial Statements, Continued


     (2) Significant Accounting Policies, Continued

          (g) Goodwill

               Goodwill,  resulting from the cost of assets  acquired  exceeding
               the  underlying  net  asset  value,   is  being  amortized  on  a
               straight-line   basis  over  a  forty-year  period.  The  Company
               periodically  evaluates the carrying  value of goodwill to assess
               its  continued   recoverability   as  required  by  Statement  of
               Financial   Accounting  Standard  No. 121,   Accounting  for  the
               Impairment of Long-Lived  Assets and for Long-Lived  Assets to be
               Disposed Of. The  determination  includes  evaluation  of factors
               such as current market value, future asset utilization,  business
               climate and future cash flows  expected to result from the use of
               related assets.  The Company's  policy is to record an impairment
               loss in the period when it is determined that the carrying amount
               of the asset may not be recoverable.

          (h) Other Intangible Assets

               Other  intangible  assets  include  deferred loan costs which are
               being amortized using the straight-line method over 5 to 8 years,
               and names and  reputations  which  represent the present value of
               amounts due under consultative and  noncompetition  agreements as
               well as prepaid amounts  related to such contracts.  Amortization
               of these  assets is  provided on a  straight-line  basis over the
               terms of the relevant agreements, typically ten years.

          (i) Revenue Recognition - Funeral Services and Merchandise

               Funeral  services  and  merchandise  sold at the time of need are
               recognized as funeral revenue when  contracted.  The Company also
               sells   pre-arranged   funeral  services  and  merchandise  under
               contracts  that  provide  for  delivery of funeral  services  and
               merchandise  at the time of death  at a price  determined  at the
               time the agreement is signed.

               The Predecessor Company recognized revenues from pre-need funeral
               services and merchandise  when the services and merchandise  were
               provided,  except for  caskets  and vaults  included  on cemetery
               contracts  in certain  states (see Note 2(j)).  Where  allowed by
               state  laws,  if the  Successor  Company  has both  cemetery  and
               funeral operations,  it recognizes revenues from pre-need funeral
               merchandise  when the  customer  contracts  are signed and a down
               payment  is  received,  with  concurrent  recognition  of related
               costs.  Where it is  prohibited  by state laws,  or the Successor
               Company has only funeral operations,  it recognizes revenues from
               pre-need  funeral  merchandise  when the merchandise is provided.
               Payments are typically  used to purchase  insurance  contracts on
               the  lives  of the  patrons  or  deposited  into  trust  funds as
               required  by state  law,  and are not  shown on the  consolidated
               balance sheet (see Note 8).

                                                                     (Continued)



<PAGE>

                                        
                     Prime Succession, Inc. and Subsidiaries

              Notes to Consolidated Financial Statements, Continued

     (2) Significant Accounting Policies, Continued

          (i) Revenue Recognition - Funeral Services and Merchandise, Continued

               For  the  Predecessor  Company,   trust  earnings  available  for
               withdrawal  prior  to  the  delivery  of  funeral  services,  and
               insurance  commissions  paid in  connection  with  the  insurance
               contracts  described above, were recognized  currently as part of
               funeral service  revenues.  Direct obtaining costs related to the
               sale of  pre-need  funeral  services  were  included  in deferred
               merchandise  liability and were being  amortized over a period of
               approximately  10 years.  For the Successor  Company,  trust fund
               investment  earnings  retained  in  trust  and  annual  insurance
               benefits,  are  deferred  until the  service  is  performed.  The
               Company estimates that trust fund investment  earnings and annual
               insurance  benefits  exceed  the  increase  in cost  over time of
               providing the related services.  Upon performance of the specific
               funeral service, the Company will recognize the accumulated trust
               earnings  and annual  insurance  benefits  as  funeral  revenues.
               Direct obtaining costs related to the sale of prearranged funeral
               services  are  included in  deferred  merchandise  liability  and
               amortized  over a period of ten years,  approximating  the period
               the benefits are expected to be realized. Direct obtaining costs,
               net of accumulated amortization,  were approximately $13,500,000,
               $9,300,000 and $4,000,000 as of December 31, 1998, 1997 and 1996,
               of which $3,900,000,  $5,300,000 and $600,000 were deferred,  net
               of  amortization,  by the  Successor  Company for the years ended
               December  31, 1998 and 1997,  and from  August 26,  1996  through
               December  31,  1996,   respectively.   Indirect  obtaining  costs
               relating to the sale of prearranged funeral services are expensed
               in the period incurred.

          (j) Revenue Recognition - Cemetery Sales

               The Company  accounts for its cemetery  sales in accordance  with
               the full accrual  method.  Pre-need sales of cemetery  internment
               rights and other related products  (caskets,  markers and vaults)
               and services are recorded as revenues when customer contracts are
               signed and a down  payment is received.  Allowances  for customer
               cancellations  and refunds are provided at the date of sale based
               on historical experience.

               In compliance with local laws, a portion of the proceeds from the
               sale of cemetery  lots may be required to be paid into  perpetual
               or endowment care trust funds. A portion of the proceeds from the
               related  pre-need sale of other cemetery  merchandise may also be
               required to be paid into merchandise  trust funds. As of December
               31, 1998 and 1997, the amount held in merchandise trust funds was
               approximately  $5,400,000 and $5,000,000.  The Company recognizes
               currently the earnings on amounts withdrawn from the perpetual or
               endowment care trusts; approximately $340,000, $400,000, $130,000
               and $70,000 for the years ended  December 31, 1998 and 1997,  and
               for the periods from January 1, 1996 through  August 25, 1996 and
               from August 26, 1996 through  December 31, 1996.  Earnings on the
               perpetual  or  endowment  care  trust  funds  are used to  defray
               cemetery  maintenance  costs.  The  principal  amount of deposits
               placed in the merchandise trusts is available to the Company when
               the merchandise is delivered. 
                                                                     (Continued)



<PAGE>

                    Prime Succession, Inc. and Subsidiaries

              Notes to Consolidated Financial Statements, Continued

     (2) Significant Accounting Policies, Continued

          (k) Income Taxes

               Income  taxes are  accounted  for  under the asset and  liability
               method.  Deferred tax assets and  liabilities  are recognized for
               the future tax consequences  attributable to differences  between
               the financial  statement  carrying amounts of existing assets and
               liabilities and their respective tax bases and net operating loss
               and tax credit carryforwards. Deferred tax assets and liabilities
               are measured using enacted tax rates expected to apply to taxable
               income  in the years in which  those  temporary  differences  are
               expected to be recovered  or settled.  The effect on deferred tax
               assets and  liabilities of a change in tax rates is recognized in
               income in the period that includes the enactment date.

          (l) Disclosures About Fair Value of Financial Instruments

               The  carrying  amounts  as of  December  31,  1998  and  1997  of
               receivables,   accounts   payable  and  other  accrued   expenses
               approximate  fair  value  due  to the  short  maturity  of  these
               instruments. See Notes 5 and 6 for disclosures regarding the fair
               value of  obligations  under  agreements  with former  owners and
               long-term debt, respectively.

          (m) Use of Estimates

               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.  Actual
               results could differ from those estimates.

          (n) Reclassifications

               Certain  reclassifications  have  been  made to the 1997 and 1996
               amounts to conform to the 1998 presentation.

     (3) Litigation Settlement

          On February 26, 1996, a lawsuit was filed  against the Company and two
          of its  officers by World  Service Life  Insurance  Company of America
          (World Service) and Jeffrey M. Gamble, the former owner of an acquired
          subsidiary, alleging, among other things, breach of a pre-need funeral
          service  funding  agreement  between the  Company  and World  Service.
          Immediately  preceding the filing of the lawsuit, the Company notified
          World Service that it had breached the pre-need  funding  agreement by
          charging  premiums to the Company in excess of those  charged to other
          World Service Customers.
 
          On April  11,  1996,  the  parties  settled  the  litigation  with the
          execution of a Termination of Pre-Need Funding Agreements and Release.
          Subsequently,  the Company paid Mr. Gamble approximately $6,300,000 in
          August of 1996 for the dismissal of the lawsuit and the termination of
          the Pre-need Funding Agreements. 

                                                                     (Continued)

<PAGE>
                     Prime Succession, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements, Continued

     (4) Related Party Transactions

          In October  1996,  the Company  entered into  agreements  with certain
          former owners and Loewen to  substitute  Loewen as the borrower and to
          release  the  Company  from  any  further  obligation  on its  debt of
          approximately  $1,650,000 to the former  owners.  In  connection  with
          these  agreements,  the  Company  paid  Loewen  cash equal to the debt
          assumed.

          On  August  26,  1996,  the  Company  entered  into an  Administrative
          Services  Agreement  (Agreement) with Loewen.  The Agreement  requires
          Loewen to provide various  administrative  services and support to the
          Company  including,  but not  limited  to,  licenses  to use  software
          packages,  legal  services,  certain  employee  training  and  support
          services,  travel  services,  etc.  The Company  pays Loewen  $250,000
          annually as a prepayment  for  services.  The term of the Agreement is
          eight years and allows for annual increases up to 2.5% on the $250,000
          base fee each August 26. The  Agreement  also  requires the Company to
          reimburse  Loewen on a timely  basis  for all out of pocket  costs and
          expenses  incurred from third parties in connection with the provision
          of services  described above. This $250,000  monitoring fee is payable
          annually  in advance  on August 26 until  such time that the  Put/Call
          Agreement is exercised (see Note 7).

          The  Company  advances  funds  to  Prime  Succession  Holdings,   Inc.
          ("Holdings"), the parent company, in order to pay an annual monitoring
          fee to Blackstone,  board of directors fees and related  expenses.  At
          December  31,  1998 the amount due from parent  totaled  approximately
          $666,000  and  consists of current and prior  years  monitoring  fees,
          income tax  payable and  directors  fees and  related  expenses.  This
          amount  is  classified  in the  shareholders'  equity  section  of the
          consolidated  balance  sheet  as a  reduction  to  additional  paid in
          capital.

          In connection with the Acquisition,  on the Acquisition  Closing Date,
          affiliates of Blackstone received fees of approximately $3,200,000 and
          the  Company  reimbursed  Blackstone  for all  out-of-pocket  expenses
          incurred in  connection  with the  Acquisition  and Loewen  received a
          consulting fee of $1,500,000  and was reimbursed for certain  expenses
          in connection with the Acquisition equal to $1,000,000.




                                                                     (Continued)

<PAGE>
<TABLE>
<CAPTION>

                     Prime Succession, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements, Continued

     (5) Obligations Under Agreements with Former Owners
<S>         <C>                                                           <C>                     <C> 

          The  Company  has  entered  into   consultative   and   noncompetition
          agreements  (generally  for ten years)  with  certain  officers of the
          Company and former owners and key  employees of  businesses  acquired.
          Obligations under these agreements are as follows:
                                                                              December 31,         December 31,
                                                                                 1998                 1997
                                                                          -----------------    -----------------
        Obligations under covenants not to compete, amounts payable
        monthly with final installments in April 1999 through December
        2010. Obligations have been discounted at 13%                          $11,824,760          $13,648,131

        Obligations under consulting agreements, amounts payable monthly
        with final installments in February 1999 through December 2014.
        Obligations have been discounted at 13%                                  3,445,125            3,981,472
                                                                          -----------------    -----------------
                                                                                15,269,885           17,629,603
        Less current installments                                                2,732,386            2,369,684
                                                                          -----------------    -----------------
                                                                               $12,537,499          $15,259,919
                                                                          =================    =================

          As of December  31, 1998 and 1997,  the fair value  obligations  under
          agreements with former owners is not practicably determined due to the
          quantity and varying terms of such agreements.

          The approximate  aggregate maturities on these agreements for the five
          years ending December 31, 2003 and thereafter are as follows:

          1999                                                $        2,732,386
          2000                                                         2,717,780
          2001                                                         2,764,612
          2002                                                         2,625,138
          2003 and thereafter                                          4,429,969
                                                               -----------------
                                                              $       15,269,885
                                                               =================

          Certain of the obligations are  collateralized by letters of credit of
          approximately $825,000 (see Note 6).

          Interest paid on obligations  under  agreements with former owners was
          approximately $2,150,000,  $2,410,000, $830,000 and $1,450,000 for the
          years ended  December 31,  1998,  1997 and the periods from August 26,
          1996 through  December 31, 1996 and January 1, 1996 through August 25,
          1996.


                                                                     (Continued)

</TABLE>

<PAGE>
<TABLE>
<CAPTION>

                     Prime Succession, Inc. and Subsidiaries

              Notes to Consolidated Financial Statements, Continued

     (6) Long-Term Debt

          Long-term debt consists of:
                                                                                December 31,         December 31,
                                                                                    1998                 1997
                                                                            --------------------- --------------------
<S>                                                                              <C>                    <C>

      Revolving credit loan payable to bank                                         $ 18,500,000         $ 11,200,000
      Senior subordinated notes, interest payable semi-annually beginning
      February 1, 1997 with maturity date of August 15, 2004. Interest is
      fixed at 10 3/4%.                                                              100,000,000          100,000,000
      Term loans, interest payable quarterly and principal payable
      semi-annually from February 1, 1997 through August 1, 2003 (7.50%,
      8.93% and 8.67% interest rate at December 31, 1998, 1997 and 1996,
      respectively).                                                                  88,000,000           89,000,000
                                                                                      
      Other                                                                            3,784,520            2,770,165
                                                                            --------------------- --------------------
                                                                                     210,284,520          202,970,165
      Less current installments                                                        1,396,074            1,389,530
                                                                            --------------------- --------------------
      Long-term debt, excluding current installments                                $208,888,446         $201,580,635
                                                                            ===================== ====================

          As of  December  31,  1998,  the Company  had  $100,000,000  in Senior
          Subordinated  Notes outstanding with various  institutional  investors
          from an August 20, 1996 private offering.  The notes,  which mature on
          August 15, 2004, require semi-annual  interest payments on February 15
          and  August 15 of each year at a rate of 10 3/4%.  The notes were used
          to partially  finance the Acquisition of the Company,  as described in
          Note 1.  In  January  1997,  the  Company  exchanged  $100,000,000  of
          publicly registered 10 3/4% Senior Subordinated Notes due 2004 for the
          $100,000,000  outstanding  Senior  Subordinated  Notes due 2004. As of
          December  31,  1998,  the fair value of these notes was  approximately
          $97,900,000.  As of December  31, 1997,  the carrying  amount of these
          notes approximated fair value.

          As of December 31,  1998,  the Company had  $88,000,000  in term loans
          outstanding under the Bank Credit Agreement dated August 26, 1996. The
          term  loans,  which  bear  interest  at the Base Rate or the  Adjusted
          Eurodollar  Rate,  as  defined  in the  Bank  Credit  Agreement  dated
          August 26,  1996 require  quarterly  interest payments and semi-annual
          principal  payments from February 1, 1997 through  August 1, 2003. The
          term loans  were used to  partially  finance  the  acquisition  of the
          Company, as described in Note 1. The Company has pledged substantially
          all of its assets,  except real property and  vehicles,  to secure the
          term loans.  As of December 31, 1998 and 1997, the carrying  amount of
          these term loans approximates fair value.

          In  October  1996,  the  Company   entered  into  interest  rate  swap
          agreements  to reduce the impact of changes in  interest  rates on its
          term loans for the period from  February  26, 1997 to August 26, 2000.
          These  agreements   effectively  limit  the  Company's  interest  rate
          exposure on $72,000,000 of its then  $90,000,000 term loans to a fixed
          7.0%  during  the term of the  agreements.  The  Company is exposed to
          credit loss in the event of nonperformance by the other parties to the
          interest  rate  swap  agreements.   However,   the  Company  does  not
          anticipate nonperformance by the counterparties.

                                                                     (Continued)
</TABLE>

<PAGE>

                    Prime Succession, Inc. and Subsidiaries

              Notes to Consolidated Financial Statements, Continued

          Under the Revolving  Loan section of the Bank Credit  Agreement  dated
          August 26, 1996, the Company may borrow up to $25,000,000  for general
          corporate  purposes  until August 26, 2001.  The Revolving  Loans bear
          interest at the Base Rate or the Adjusted  Eurodollar Rate, as defined
          in the Bank  Credit  Agreement.  As of  December  31,  1998 there is a
          commitment fee of 0.5% on the unused portion of the credit line. There
          were  outstanding  letters  of credit of  approximately  $825,000  and
          borrowings  of $18 million on the line of credit  bearing  interest at
          2.0% and 7.33%, respectively. There were outstanding letters of credit
          of approximately  $4,100,000 and borrowings of $11,200,000 on the line
          of credit as of December  31,  1997.  The Company  also has a $500,000
          bank credit line,  renewable annually,  for general corporate purposes
          which is  exclusive  of the  revolving  loan  under  the  Bank  Credit
          agreement  dated  August 26, 1996.  At December  31, 1998,  there were
          borrowings of $500,000 on the line of credit bearing interest at 7.75%
          and no  borrowings  as December 31, 1997.  As of December 31, 1998 and
          1997,  the  carrying  amount of these  instruments  approximates  fair
          value.

          The Company is subject to certain restrictive  covenants in connection
          with its Senior  Subordinated  Notes  including,  but not  limited to,
          covenants  imposing   limitations  on  the  incurrence  of  additional
          indebtedness;  certain payments,  including dividends and investments;
          the  creation  of  liens;   sales  of  assets  and  preferred   stock;
          transactions with interested persons;  payment restrictions  affecting
          subsidiaries;    sale-leaseback   transactions;    and   mergers   and
          consolidations.  In  addition,  the  Bank  Credit  Agreement  contains
          certain  restrictive  covenants  that,  among other things,  limit the
          ability  of the  Company  and its  subsidiaries  to dispose of assets,
          incur  additional   indebtedness,   prepay  other  indebtedness,   pay
          dividends or make certain restricted payments, create liens on assets,
          engage in mergers or acquisitions or enter into leases or transactions
          with affiliates.

          The Company also has approximately  $3,800,000 and $2,800,000 of other
          debt  outstanding  as of  December 31,  1998 and  1997,  respectively.
          Approximately  $1,820,000 of this other debt, as of December 31, 1998,
          is  due  to  former   owners  with  rates   ranging  from  6%  to  9%.
          Approximately  $740,000 of other debt as of December  31, 1997 was due
          to former  owners with a rate of 9%. As of December 31, 1998 and 1997,
          the fair value of other debt outstanding is not practicably determined
          due to the varying terms associated with such debt.

          In connection with the Acquisition  (see Note 1), the Company defeased
          certain of its debt due to former owners for approximately  $2,000,000
          and  recorded  a  purchase  accounting   adjustment  of  approximately
          $200,000. As of December 31, 1998 and 1997,  approximately  $1,140,000
          and  $1,700,000  of the  former  owner  notes  have been  extinguished
          through defeasance, respectively.

          The approximate  aggregate principal  maturities of long-term debt for
          the five years ending December 31, 2003 and thereafter are as follows:

              1999                                   $  1,396,074
              2000                                      4,466,717
              2001                                     20,465,750
              2002                                     20,014,016
              2003 and thereafter                     163,941,963
                                                     ------------        
                                                     $210,284,520
                                                     ============ 

                                                                     (Continued)

<PAGE>

                     Prime Succession, Inc. and Subsidiaries

              Notes to Consolidated Financial Statements, Continued

     (6) Long-Term Debt, Continued

          Interest  paid  on  long-term  debt  was  approximately   $19,800,000,
          $19,300,000,  $2,300,000  and  $6,860,000  for year ended December 31,
          1998 and 1997,  and the periods from August 26, 1996 through  December
          31,  1996  and  from   January 1,   1996  through   August  25,  1996,
          respectively.

     (7) Shareholders' Equity

          As of December  31, 1998 and 1997,  all of the  outstanding  shares of
          common  stock of the  Company are held by Prime  Succession  Holdings,
          Inc. (Holdings), the parent company.

          Pursuant to an agreement  executed by Blackstone,  Loewen and PSIM, in
          connection  with  the  Acquisition,  (i)  Loewen  has a  call  option,
          exercisable  from and after the fourth  anniversary of the Acquisition
          Closing  Date  until  but  excluding  the  sixth  anniversary  of  the
          Acquisition  Closing  Date,  to purchase the shares of common stock of
          Holdings  held by  Blackstone  and/or PSIM and (ii) each of Blackstone
          and PSIM  has a put  option,  exercisable  from and  after  the  sixth
          anniversary  of the  Acquisition  Closing Date until but excluding the
          eighth  anniversary  of the  Acquisition  Closing  Date,  to sell such
          shares of common stock of Holdings  held by Blackstone or PSIM, as the
          case may be, to Loewen.  The option price in each case is derived from
          a formula based on earnings before interest,  taxes,  depreciation and
          amortization.  In addition,  pursuant to the terms of a  stockholders'
          agreement entered into by Holdings, Blackstone, Loewen and PSIM on the
          Acquisition  Closing Date,  neither Blackstone nor Loewen may transfer
          its shares of Holdings  common stock without the prior written consent
          of the other party,  subject to certain  exceptions,  and PSIM may not
          transfer its shares of Holdings  common  stock  without the consent of
          Blackstone and Loewen.

     (8) Pre-arranged Funeral Contracts

          The Company  enters  into  contracts  with  customers  to  pre-arrange
          funeral  services  and  merchandise  at  a  fixed  price.  In  certain
          arrangements,  the Company  receives  payment on the contract from the
          customer.  In turn, the Company invests in a variety of instruments to
          fund  pre-arranged  funeral  and  cremation  services  and the related
          merchandise  sold but not  delivered.  Amounts  trusted  are  invested
          primarily in investment grade debt securities and time deposits.  Such
          investments  are subject to the risk that the current market value may
          fall  below  cost.  The  market  value of  assets  held in trust as of
          December  31,  1998  and  1997  was   approximately   $51,200,000  and
          $53,200,000.   In  the  state  of  Alabama,  which  does  not  require
          pre-arranged   funeral  trusts,   the  Company  invests  in  insurance
          contracts  to cover  the  estimated  future  costs of  fulfilling  its
          pre-arranged  funeral contracts.  As of December 31, 1998 and 1997 the
          amount invested in insurance  contracts was  approximately  $9,800,000
          and $9,100,000.

          In December  1997,  the Company  entered into an agreement to transfer
          approximately  $17,000,000 of assets held in trust to another trustee,
          that will invest the funds in life insurance. As a result, the Company
          earned a one time  commission  and fees of  approximately  $3,833,000,
          which was recorded as funeral revenue in 1997.


 
                                                                     (Continued)

<PAGE>
<TABLE>
<CAPTION>

                    Prime Succession, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements, Continued

          The Company has other  arrangements under which the customer purchases
          an insurance policy which is assigned to the Company. The Company does
          not have  control of these  policies  and is  obligated to deliver the
          service at the fixed price only if the  customer  delivers  the policy
          proceeds.

     (9) Income Taxes

          Income tax expense (benefit) consists of:
                                                                         Successor                  Predecessor
                                                                          Company                      Company    
                                                 ----------------------------------------------  -------------------
                                                                                Period from         Period from
                                                       Year ended                August 26,          January 1, 
                                                       December 31              1996 through        1996 through
                                                 -------------------------      December 31,         August 25,
                                                    1998         1997              1996                1996
                                                 ------------ ------------    -----------------  -------------------
<S>                                                <C>           <C>              <C>              <C>

         Federal:
                     Current                        $     --     $     --           $      --              $     --
                     Deferred                             --           --            (163,330)              138,887
         State:
                     Current                         363,959      136,903             (54,497)              209,569
                     Deferred                             --           --              21,961                16,340
                                                 ------------ ------------    ----------------   -------------------
                                                    $363,959     $136,903           $(195,866)             $364,796 
                                                 ============ ============    =================  ===================







                                                                     (Continued)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>



                     Prime Succession, Inc. and Subsidiaries

              Notes to Consolidated Financial Statements, Continued


     (9) Income Taxes, Continued

          The  differences  between  income taxes  provided in the  accompanying
          consolidated  statements of operations  and the amounts which would be
          computed by applying the U.S.  Federal  income tax rate of 34% to loss
          before income taxes are as follows:


                                                                         Successor                  Predecessor
                                                                          Company                     Company
                                                -----------------------------------------------   ------------------
                                                                                 Period from          Period from
                                                        Year ended                August 26,          January 1,
                                                       December 31,              1996 through        1996 through
                                                ----------------------------     December 31,         August 25,
                                                    1998          1997              1996                 1996
                                                --------------- --------------  ---------------   ------------------
<S>                                                <C>              <C>            <C>                <C> 
     Computed "expected" tax benefit              $(2,244,082)    $  95,251       $(1,069,431)        $(3,097,627)
     Increase (decrease) in taxes resulting
     from:
           Goodwill amortization                    1,012,929     1,235,793           536,610             211,146
           State taxes, net of federal income        
              taxes                                   240,214        90,356           (21,474)            149,100
           Valuation allowance                      1,374,181      (789,571)          338,094           3,197,841
           Purchase price adjustments                      --      (529,956)               --                  --
           Other                                      (19,283)       35,030            20,335             (95,664)
                                                --------------- --------------  ---------------   ------------------
               Actual income tax expense           
                 (benefit)                         $  363,959     $ 136,903         $(195,866)          $ 364,796 
                                                =============== ==============  ===============   ==================
















                                                                     (Continued)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>


                     Prime Succession, Inc. and Subsidiaries

              Notes to Consolidated Financial Statements, Continued

     (9) Income Taxes, Continued
 
          The tax effects of temporary differences that give rise to significant
          portions of the  deferred  tax assets and  liabilities  are  presented
          below:

                                                                                December 31,               December 31,
                                                                                    1998                       1997
                                                                           -----------------------    -----------------------
<S>                                                                                    <C>                       <C>
       Deferred tax assets:
       Net operating loss carryfoward                                                 $ 9,907,419                 $7,641,494
       Allowance for doubtful accounts                                                  2,271,867                  2,257,810
       Covenants not to compete and consulting agreements                               2,331,721                  1,813,013
       Deferred funeral charges                                                                --                    977,814
       Other accrued expenses                                                               1,067                    119,462
       Environmental reserve                                                              143,732                    211,720
       Other                                                                              215,525                    394,444
                                                                           -----------------------    -----------------------
                  Total gross deferred tax assets                                      14,871,331                 13,415,757
                  Less valuation allowance                                             10,993,374                  9,619,193
                                                                           -----------------------    -----------------------
                  Total deferred tax assets                                             3,877,957                  3,796,564
                                                                           -----------------------    -----------------------
       Deferred tax liabilities:
         Cemetery property, principally due to purchase accounting                     11,622,406                 11,734,089
         Property and equipment, principally due to purchase                              
           accounting and differences in depreciation                                   6,364,291                  6,413,368
         Goodwill, principally due to differences in amortization                       1,578,278                  1,695,721
         Deferred funeral revenues net of funeral charges and                
           and capitalized preneed funeral expenditures                                   247,911                         -- 
                                                                           -----------------------    -----------------------
                  Total deferred tax liabilities                                       19,812,886                 19,843,178
                                                                           -----------------------    -----------------------
                  Net deferred tax liability                                          $15,934,929                $16,046,614
                                                                           =======================    =======================
</TABLE>

          The  valuation  allowance  for  deferred tax assets as of December 31,
          1998 and 1997 was $10,993,374 and  $9,619,193,  respectively.  The net
          change in total  valuation  allowance for the year ended  December 31,
          1998  and  1997  was an  increase  of  $1,374,181  and a  decrease  of
          $789,571, respectively. In assessing the realizability of deferred tax
          assets,  management  considers whether it is more likely than not that
          some  portion or all of the  deferred tax assets will not be realized.
          The ultimate  realization of deferred tax assets is dependent upon the
          generation of future  taxable income during the periods in which these
          temporary  differences  become  deductible.  Management  considers the
          scheduled  reversal  of deferred  tax  liabilities,  projected  future
          taxable income and tax planning  strategies in making this assessment.
          Based upon these factors,  management believes the valuation allowance
          as of December 31, 1998 and 1997 is appropriate.

                                                                     (Continued)

<PAGE>
                     Prime Succession, Inc. and Subsidiaries

              Notes to Consolidated Financial Statements, Continued

     (9) Income Taxes, Continued
 
          Subsequently  recognized  tax benefits of  $1,910,905  and  $2,022,489
          relating to the  valuation  allowance  for  deferred  tax assets as of
          December 31, 1998 and 1997 will be allocated to goodwill.

          As of December 31, 1998 and 1997, the Company has a net operating loss
          carryforward of approximately  $26,100,000 and $20,100,000 for Federal
          income tax purposes.  If not used to offset future taxable income, the
          tax loss carryforward will expire in varying amounts from 2006 through
          2019.

     (10) Leases

          The Company  leases  primarily  funeral home  facilities  and vehicles
          under various noncancellable  operating lease agreements.  Approximate
          future  minimum lease payments  required  under such operating  leases
          with  initial  or  remaining  terms  in  excess  of  one  year  as  of
          December 31, 1998 are as follows:

               1999                                             $     2,835,508
               2000                                                   2,522,404
               2001                                                   2,038,940
               2002                                                   1,574,131
               2003 and thereafter                                    5,191,404
                                                                 --------------
                                                                $    14,162,387
                                                                 ==============

          The  majority  of the  operating  leases for funeral  home  facilities
          contain one of the following options: (a) purchase the property at the
          fair value at date of expiration; (b) purchase the property for a fair
          value  determined  at the inception of the lease or (c) renewal of the
          lease at the fair rental  value at the end of the primary  term of the
          lease.  In addition,  four of the leases  contain  contingent  rentals
          based upon revenues associated with the location.
 
          Rent expense paid under operating leases was approximately $3,020,000,
          $2,620,000, $1,030,000 and $1,930,000 for the years ended December 31,
          1998 and 1997,  and the periods from August 26, 1996 through  December
          31,  1996  and  from  January  1,  1996   through   August  25,  1996,
          respectively,   of  which   approximately   10%,  14%,  14%  and  15%,
          respectively,  was paid to former  owners  currently  employed  by the
          Company.






                                                                     (Continued)

<PAGE>

                    Prime Succession, Inc. and Subsidiaries

              Notes to Consolidated Financial Statements, Continued

     (11) Employee Benefit Plan

          The  Company  has  established  a 401(k)  plan for the  benefit of its
          employees. All employees who have reached the age of 21, have one year
          of service  with the  Company and have worked a minimum of 1,000 hours
          in any given year are  eligible.  Employees may defer a maximum of 15%
          of their  compensation,  subject to IRS limitations.  The Company will
          match 50% of the  employees'  contribution  up to a  maximum  of 2% of
          their salary. Total expense recognized by the Company during the years
          ended  December 31, 1998 and 1997, and the period from August 26, 1996
          through  December 31, 1996 and from January 1, 1996 through August 25,
          1996  was  approximately  $250,000,  $260,000,  $62,000  and  $95,000,
          respectively.

     (12) Commitments and Contingencies

          The Company and Batesville  Casket Company,  Inc. (BCC) entered into a
          Casket Supply  Agreement  dated  January 1, 1992.  The  agreement,  as
          amended,  requires the Company to purchase  caskets solely from BCC at
          current market prices  through  January 2004, to the extent BCC stocks
          those caskets  required by the Company.  Amounts  purchased under this
          agreement were approximately  $6,500,000,  $8,000,000,  $2,300,000 and
          $5,100,000  for the years ended  December  31, 1998 and 1997,  and the
          periods  from  August 26,  1996  through  December  31,  1996 and from
          January 1, 1996 through August 25, 1996, respectively.
 
          The Company has accrued  $378,000 and $537,000 as of December 31, 1998
          and 1997 in other  long-term  liabilities  as their best  estimate  of
          potential  future  environmental  liabilities.  The  most  significant
          components  of this  liability are storage tanks and septic tanks into
          which  embalming  fluids  and  other   contaminants   were  discharged
          resulting  in  potential   groundwater  or  soil  contamination.   The
          Company's  current  estimated  range of costs as of December 31, 1998,
          for  clean-up  or removal  is  $250,000  to  $500,000,  with  $378,000
          representing  the most  probable  costs which the  Company  expects to
          incur within the next five years.

          The Company is a party to legal  proceedings in the ordinary course of
          its business  but does not expect the outcome of any such  proceedings
          to have a material adverse effect on the Company's financial position.

     (13) Segment Data

          Effective   January  1,  1998,  the  Company  adopted  SFAS  No.  131,
          "Disclosures about Segments of an Enterprise and Related Information".
          The  adoption  of  this   statement   did  not  impact  the  Company's
          consolidated financial position, results of operation or cash flows.



<PAGE>

                                                                  
Item  9.  Changes  in and  Disagreements  with  Accountants  on  Accounting  and
              Financial Disclosure.

     Effective  August  26,  1996,  in  connection  with the  engagement  by the
Company's  new  Management  of KPMG LLP  ("KPMG") as its auditor  following  the
Acquisition,  Ernst & Young  LLP  ("E&Y"),  Old  Prime's  auditor  prior  to the
Acquisition,  was dismissed.  The decision to appoint KPMG in replacement of E&Y
as the Company's auditor was approved by the Board of Directors of the Company.


<PAGE>
<TABLE>
<CAPTION>


                                    PART III

Item 10. Directors and Executive Officers of the Registrant.

The current executive  officers and directors of the Company,  and their ages as
of March 10, 1999, are as follows:

                  Name                              Age                          Position
                  ----                              ---                          --------    
<S>                                                 <C>       <C>
Gary L. Wright.......................................53       President and Chief Executive Officer, Director
Arthur J. Ansin......................................55       Chief Financial Officer, Secretary and Treasurer
Gregory M. Hilgendorf................................49       Senior Vice President, Operations
Joseph E. Franckewitz................................43       Vice President of Pre-Need Sales
Warren B. Rudman.....................................68       Director
Howard A. Lipson.....................................35       Director
David I. Foley.......................................31       Director
Chinh E. Chu.........................................32       Director
Peter K. Grunebaum...................................65       Director
Clifford R. Hinkle...................................50       Director
Morley G. Handford...................................61       Director

</TABLE>


     Effective March 11, 1999, Mr. Myles S. Cairns'  employment with the Company
terminated.

     The business experience of each of such executive officers and directors is
set forth  below.  References  to the  "Company"  in this Item 10 and in Item 11
below refer,  where  applicable,  to the Company from and after the  Acquisition
Closing Date and to Old Prime prior to such date.
 
     Gary L. Wright joined the Company as President and Chief Executive  Officer
in August 1996.  Prior thereto,  Mr. Wright served as Loewen's  Divisional  Vice
President for the Southeast  United  States,  overseeing  operations in Alabama,
Georgia,  Florida and Puerto Rico,  managing the  operations of over 100 funeral
home  locations,  since June 1993.  Previously,  he served as Loewen's  Regional
Manager for the Pacific Northwest, managing operations in Washington, Oregon and
Alaska,  from 1989 to 1993. Prior to joining Loewen, Mr. Wright was a partner in
the Price-Helton Funeral Chapel which was acquired by Loewen in 1988. Mr. Wright
is a past President of the Washington State Funeral Directors  Association and a
past  member  of the  Board  of  Governors  of the  National  Funeral  Directors
Association.
 
     Arthur J. Ansin joined the Company as Chief  Financial  Officer,  Secretary
and  Treasurer  in  March  1999.  Mr.  Ansin  previously  has  served  as  Chief
Administrative  Officer for Kitchens Etc.,  Vice  President and Chief  Financial
Officer for Lauriat's Inc. and Vice President, Chief Financial Officer and Chief
Information Officer for Wedlo, Inc.
 
     Gregory M. Hilgendorf is Senior Vice President,  Operations.  He has served
as Eastern  Regional  Vice  President  of the  Company  since  1992,  overseeing
operations in Illinois, Indiana, Kentucky, Michigan, Minnesota and Wisconsin. He
also  has  served  as a  member  of the  Company's  Advisory  Board  and  Senior
Management  Team.  Prior to  joining  the  Company,  Mr.  Hilgendorf  served  as
President and owner of five Olson Funeral Homes from 1982 until its  acquisition
by the Company in 1992.
 
     Joseph E.  Franckewitz  joined the  Company as Vice  President  of Pre-Need
Sales in July 1996. Mr.  Franckewitz  previously served in various capacities at
Gibraltar Mausoleum  Corporation since 1989, including Regional Sales Manager in
Brandon, Florida and Regional Sales Manager in Baltimore, Maryland.
 
<PAGE>


     Warren B.  Rudman  became a partner of Paul,  Weiss,  Rifkind,  Wharton and
Garrison in 1993 after serving two consecutive  terms as a United States Senator
from New  Hampshire,  from 1980  through  1992.  Senator  Rudman  was  appointed
Attorney General of New Hampshire in 1970 and in 1975, he was elected  president
of the National  Association  of Attorneys  General.  Senator  Rudman  currently
serves on the Board of Directors of the Chubb Corporation, Collins & Aikman, the
Raytheon Company and the Concord Coalition.
 
     Howard A. Lipson is Senior Managing  Director of The Blackstone Group L.P.,
which he joined in 1988,  and was a Vice  President  from  January 1991 to March
1994.  Prior to joining  Blackstone,  Mr. Lipson was a member of the Mergers and
Acquisitions  Group of Salomon Brothers Inc. He currently serves on the Board of
Directors of UCAR International Inc., Volume Services, Inc., AMF Group Inc., and
Ritvik Holdings, Inc.
 
     David  I.  Foley is a Vice  President  of The  Blackstone  Group  L.P.  and
currently works in Blackstone's  Principal  Investment  Group.  Prior to joining
Blackstone  in 1995,  Mr.  Foley was with AEA  Investors,  Inc.  and The Monitor
Company.

     Chinh E. Chu is a Managing  Director of The Blackstone Group L.P., which he
joined in 1990. Prior to joining Blackstone, Mr. Chu was a member of the Mergers
and Acquisitions Group of Salomon Brothers Inc. from 1988 to 1990.
 
     Peter K. Grunebaum has been a Director of Fortrend  International LLC since
February 1996. Prior thereto,  he had been a Director of ICA International since
April 1989.  He currently  serves on the Board of  Directors  of Pre-Paid  Legal
Services, Inc.
 
     Clifford R. Hinkle  served as President  and a Director of Flagler  Capital
Corporation  from its founding in 1992 and currently  serves as Chief  Executive
Officer and Chairman of the Board of Directors of Flagler  Holdings,  Inc. since
its  formation in January 1996 and as Chairman,  President  and Chief  Executive
Officer of Hinkle & Company since 1992. Prior thereto, he was Executive Director
of the State Board of  Administration  of Florida from 1987 to 1991.  Mr. Hinkle
also was a Director and President and Chief Executive Officer of MHI Group, Inc.
from 1993 until its merger with Loewen Group in 1995. He currently serves on the
Board  of  Directors  of  Commercial  Net  Lease  Realty,  Inc.  and  Integrated
Orthopaedics, Inc.
 
     Morley G.  Handford  formerly  served as Senior Vice  President  of Support
Services for Viridian Inc. (previously Sherrit Inc.). He currently serves on the
Board of  Directors  of  Thermic  Edge  Corporation  and  United Way of Canada -
Centraide  Canada.  He is also chairman of a scientific  advisory  committee for
Luscar Ltd.

     Pursuant  to the  Stockholders'  Agreement  described  in  Item  13  below,
Blackstone and Loewen  designated  five and two nominees,  respectively,  to the
Board of Directors of Old Prime. Messrs.  Wright,  Rudman, Lipson, Foley and Chu
were the  nominees  designated  by  Blackstone.  Messrs.  Grunebaum  and  Hinkle
(neither of whom is an officer or a director of Loewen  Group) were the nominees
designated  by  Loewen.  Pursuant  to the  Stockholders'  Agreement,  Loewen can
designate one additional  nominee. In 1998, Loewen designated Morley G. Handford
as its nominee  (whom is not an officer or director  of Loewen  Group).  Each of
Blackstone's  and Loewen's  nominees to the Board of Directors of Old Prime also
was nominated to the Board of Directors of the Company.
 
     Directors  of the Company  (other than  Directors  who are  employed by the
Company or  Blackstone)  will  receive  $25,000  annually  for their  service as
Directors plus the reimbursement of expenses.  Such Directors will not receive a
separate fee for service on  committees  of the Board.  Directors of the Company
who are employed by the Company or Blackstone will serve without compensation.


<PAGE>
<TABLE>
<CAPTION>


Item 11. Executive Compensation.

Summary Compensation Table
 
     The following  table sets forth for the fiscal year ended December 31, 1998
the compensation  earned by the Company to its Chief Executive Officer and each of
the other most highly compensated executive officers of the Company.

                                                         Year
                                                        Ended                                    All Other
     Name and Principal Position                     December 31,    Salary        Bonus      Compensation(2)
     ---------------------------                     ------------    ------        -----      ---------------
<S>                                                     <C>            <C>           <C>         <C>
     Gary L. Wright(1)                                   1998       $225,000      $ 50,000       $ 11,503
              President and Chief Executive              1997        225,000       199,708          9,055
              Officer, Director                          1996         82,471        50,000          2,077

     Myles S. Cairns(1)                                  1998       $225,000      $     --       $ 13,215
              Chief Financial Officer, Secretary,        1997        225,000       203,567          9,535
              Treasurer                                  1996         81,105        50,000          2,077

     Gregory M. Hilgendorf                               1998       $141,539      $ 20,000       $128,184
              Senior Vice President, Operations          1997        120,000        37,340        115,020
                                                         1996         93,462            --         96,388

     Peter D. Cooper                                     1998       $ 81,000      $  3,500       $  2,272
              Counsel                                    1997         84,000         6,644          1,855
                                                         1996        130,000            --            600

     Joseph E. Franckewitz                               1998       $181,000      $ 21,058       $ 11,036
              Vice President, Sales                      1997        156,000        52,626          9,515
                                                         1996         66,000        20,000          1,962

</TABLE>


(1)  For  information  concerning  the  compensation  of the  current  executive
     officers of the Company, see "Employment Agreements" below.
 
(2)  All  Other  Compensation  includes  amounts  paid  to the  named  executive
     officers  which may be applied to the payment of  medical,  dental and life
     insurance benefits as well as consulting agreements.
 
Employment Agreements

     The Company has  entered  into  contracts  with  Messrs.  Wright and Cairns
regarding  certain terms of their  employment  with the Company.  The agreements
provide  that  Messrs.  Wright and Cairns will be paid a base salary of $225,000
per year,  with annual  increases at the discretion of the Board of Directors of
the  Company  plus an annual  cash  bonus.  In 1996,  such  bonus will be at the
discretion of the Board, and thereafter such bonus will be equal to a percentage
of such executive's salary, which percentage will in turn be based on the extent
to which the Company  achieves a target  EBITDA.  For purposes of the employment
agreements,  EBITDA is  defined  as  Consolidated  Cash Flow (as  defined in the
Indenture  between the Company and the trustee  thereunder  with  respect to the
Notes).  EBITDA is a non-GAAP  measure of cash flow. The agreements will provide
that the target  EBITDA is $34.4  million  and $37.1  million for 1997 and 1998,
respectively. The target for the following years will be set by the Board.

     The 1997 and 1998  targeted  amounts were  derived  from the  stockholders'
review of  Management's  estimates  of  projected  cost  savings and increase in
revenues  following the Acquisition.  The target EBITDA is a performance  target
and is not a  forecast  of  actual  performance  that  will be  realized  by the
Company.  Actual  performance  during  the year may differ  materially  from the
targeted amount.

     The  agreements  further  provide  that  Messrs.  Wright and Cairns will be
entitled to a long-term incentive bonus at any time that Loewen purchases all of
the  shares of common  stock of Old Prime  owned by  Blackstone,  provided  that
certain  EBITDA  targets are  achieved.  Such bonus will equal  $500,000 if such
purchase  occurs  prior to 2002 and will be  increased  by  $100,000  each  year
thereafter up to a maximum of $900,000.
 
<PAGE>
<TABLE>
<CAPTION>

Other
 
     The  compensation of the executive  officers other than Messrs.  Wright and
Cairns will be determined by the Board of Directors of the Company.

Item 12. Security Ownership of Certain Beneficial Owners and Management.

     Upon consummation of the Acquisition on August 26, 1996, the company became
a direct,  wholly owned  subsidiary of Old Prime. The following table sets forth
certain  information  regarding the beneficial  ownership of the Common Stock of
Old Prime:

              Name And Address Of Beneficial Owner         Number Of Shares        Percentage Of Common Stock
         ----------------------------------------------- ---------------------- ----------------------------------
<S>                                                               <C>                         <C>   
         Blackstone Management Associates II L.L.C.(1)            764.70589                  76.5%
         Loewen Group International, Inc.(2)                      235.29411                  23.5%
         Gary L. Wright(8)                                           --                       --
         Warren B. Rudman(3)                                         --                       --
         Howard A. Lipson(4)                                         --                       --
         David I. Foley(4)                                           --                       --
         Chinh E. Chu(4)                                             --                       --
         Peter K. Grunebaum(5)                                       --                       --
         Clifford R. Hinkle(6)                                       --                       --
         Morley G. Handford(7)                                       --                       --
         Directors and executive officers as a                       --                       --
            group(8) (13 persons)

</TABLE>

(1)  544.59536,  158.78262  and  54.71026  shares,  respectively,  are  held  by
     Blackstone  Capital  Partners II  Merchant  Banking  Fund L.P.,  Blackstone
     Offshore  Capital  Partners  II  L.P.  and  Blackstone   Family  Investment
     Partnership  II L.P.  Blackstone  Management  Associates II L.L.C.,  as the
     general partner of each of Blackstone  Capital Partners II Merchant Banking
     Fund L.P.,  Blackstone  Offshore  Capital  Partners II L.P. and  Blackstone
     Family  Investment  Partnership II L.P.,  exercises  voting and dispositive
     power with  respect to such shares.  Blackstone  Management  Associates  II
     L.L.C. is also the sole stockholder of PSI P&S Corp. ("PSI P&S"),  which is
     the general  partner of PSI  MANAGEMENT  Direct  L.P.,  a Delaware  limited
     partnership  ("PSIM"),  the  holder of 6.61765  shares of Old Prime  Common
     Stock.  Blackstone  Management  Associates II L.L.C.  disclaims  beneficial
     ownership  of such shares of Old Prime  Common  Stock.  The address for the
     Blackstone  entities is c/o  Blackstone  Group L.P.,  345 Park Avenue,  New
     York, N.Y. 10154.

(2)  The  address  for  Loewen is 3190  Tremont  Avenue,  Trevose,  Pennsylvania
     19053-6693.
 
(3)  Mr.  Rudman's  business  address  is c/o Paul,  Weiss,  Rifkind,  Wharton &
     Garrison, 1615 L Street, N.W., Suite 1300, Washington, D.C. 20038.

(4)  Messrs.  Lipson,  Foley  and  Chu are  affiliated  with  Blackstone  in the
     capacities  described in Item 10 above. Each such person's business address
     is c/o The Blackstone Group L.P., 345 Park Avenue,  New York, NY 10154. Mr.
     Lipson  disclaims  beneficial  ownership of any such shares of Common Stock
     beneficially owned by Blackstone Management Associates II L.L.C.
 
(5)  Mr.  Grunebaum's  business address is c/o Fortrend  International  LLC, 805
     Third Avenue, Suite 2300, New York, New York 10022.
 
(6)  Mr.  Hinkle's  business  address is c/o Flagler  Holdings,  Inc., 215 South
     Monroe Street, Suite 500, Tallahassee, Florida 32301.

<PAGE>

(7)  Mr. Handford business address is 12532 28A Avenue, N.W.,  Edmonton,  AB T6J
     4C9.

(8)  None of the named  executive  officers  owns any shares of Old Prime Common
     Stock.  Each of the  executive  officers  of the  Company  holds a  limited
     partnership  interest in PSIM, the holder of 6.61765 shares  (approximately
     0.7%) of Old Prime Common Stock;  however,  such executive  officers do not
     have voting or dispositive power with respect to such shares.

Item 13. Certain Relationships and Related Transactions.

     The summaries of the Stock Purchase Agreement, the Stockholders' Agreement,
the Put/Call Agreement and the Administrative Services Agreement set forth below
do not purport to be complete and are  qualified in their  entirety by reference
to all  the  provisions  of the  Stock  Purchase  Agreement,  the  Stockholders'
Agreement,  the Put/Call  Agreement and the Administrative  Services  Agreement,
respectively.   Copies  of  the  Stock  Purchase  Agreement,  the  Stockholders'
Agreement,  the Put/Call Agreement and the Administrative Services Agreement are
filed as  exhibits  to the  Company's  Registration  Statement  on Form S-4 with
respect to the Exchange Notes, which is incorporated by reference herein.
 
Stock Purchase Agreement And Acquisition
 
     On June 14, 1996, as a precursor to the Acquisition,  a company  controlled
by Blackstone  (the  "Purchaser")  entered into a Stock Purchase  Agreement with
Loewen Group and all of the holders of capital  stock of Old Prime (the "Selling
Stockholders"), pursuant to which the Selling Stockholders agreed to sell to the
Purchaser,  and the Purchaser agreed to purchase from the Selling  Stockholders,
all of the shares of Old Prime held by the Selling Stockholders.  At the closing
of the  Acquisition,  the  Purchaser  assigned  back to Old Prime its rights and
obligations as Purchaser  under the Stock Purchase  Agreement,  such that at the
closing Old Prime repurchased from the Selling  Stockholders all of their shares
in Old Prime.
 
     In  connection  with  the  Acquisition,  (i)  Blackstone,  Loewen  and PSIM
contributed $130 million and all of the common stock of the Company to Old Prime
(the "Blackstone/Loewen Contribution") in exchange for 100% of the capital stock
of Old Prime,  resulting in the Company's  becoming a wholly owned subsidiary of
Old Prime;  (ii) Old Prime  transferred  the shares of all of its directly  held
subsidiaries  and all of its other assets and liabilities to the Company,  (iii)
the Bank Credit Facilities were entered into, (iv) Old Prime (a) repurchased the
shares of its common stock owned by the Selling  Stockholders  and (b) repaid or
defeased existing indebtedness and discharged certain other existing obligations
in an aggregate amount of approximately $126.4 million using the proceeds of the
Blackstone/Loewen  Contribution and a portion of the proceeds of the offering of
the Notes and the Bank Term Facility.


Stockholders' Agreement
 
     In connection  with the  Acquisition,  Blackstone,  Loewen and PSIM entered
into an agreement with Old Prime (the  "Stockholders'  Agreement") setting forth
certain of their rights and obligations as stockholders of Old Prime.
 
     The  Stockholders'   Agreement  provides  that,  subject  to  the  Put/Call
Agreement  referred to below, (i) neither  Blackstone nor Loewen is permitted to
transfer any of its  respective  shares of common stock of Old Prime ("Old Prime
Common  Stock")  without the other's prior written  consent,  subject to certain
exceptions,  and (ii) PSIM is not permitted to transfer any of its shares of Old
Prime Common Stock without the consent of Blackstone and Loewen.
 
     Pursuant to the Stockholders'  Agreement,  Blackstone and Loewen designated
five and two nominees as directors,  respectively,  to the Board of Directors of
Old Prime  (Loewen has the right  thereunder  to  designate  a third  nominee as
well). The parties to the Stockholders'  Agreement further agreed that Old Prime
shall cause the Board of Directors of the Company at all times to consist of the
same  individuals who comprise the Board of Directors of Old Prime. In addition,
the  Certificate  of  Incorporation  and the By-Laws of Old Prime  provide  that
certain actions by or with respect to Old Prime require a supermajority  vote of
the Board of Directors  and/or the  stockholders  of Old Prime.  See  "--Certain
Matters Subject to Supermajority Vote."
 
     The Stockholders' Agreement will terminate following the exercise by either
Blackstone  or Loewen of its  option  pursuant  to the  Put/Call  Agreement  (as
defined below) or on such other date as Blackstone and Loewen may agree.
 
Put/Call Arrangement
 
     Pursuant to a separate  agreement among Blackstone,  PSIM, Loewen Group and
Loewen (the  "Put/Call  Agreement"),  (i) Loewen has a call option,  exercisable
from and after the fourth anniversary of the Acquisition  Closing Date until but
excluding the sixth anniversary of the Acquisition Closing Date, to purchase all
of  Blackstone's  or PSIM's shares of Old Prime Common Stock (the "Call Option")
and (ii) each of  Blackstone  and PSIM has a put  option,  exercisable  from and
after the sixth anniversary of the Acquisition  Closing Date until but excluding
the eighth  anniversary  of the  Acquisition  Closing Date, to require Loewen to
purchase  Blackstone's or PSIM's, as the case may be, shares of Old Prime Common
Stock  (the "Put  Option").  The  option  price in each case is  derived  from a
formula based on EBITDA.  The performance by Loewen of its obligations under the
Put/Call Agreement will be guaranteed by Loewen Group.
 
     By virtue of the  Put/Call  Agreement,  it is likely that the Company  will
eventually  become  a  wholly  owned  subsidiary  of  Loewen.  There  can  be no
assurance, however, that either the Call Option or Put Option will be exercised.
 
Certain Matters Subject To Supermajority Vote
 
     The  Certificate of  Incorporation  and/or the By-Laws of Old Prime provide
that (1) amendments to the Certificate of  Incorporation or By-Laws of Old Prime
require the approval of holders of 90% of the issued and  outstanding  Old Prime
Common Stock and (2) transactions involving the merger, consolidation or sale of
substantially  all of the assets of Old Prime require the unanimous  approval of
both the Board of Directors and the stockholders of Old Prime.

Administrative Services Agreement

     In  connection  with the  Acquisition,  the Company  has engaged  Loewen to
provide certain administrative  services and share certain resources (Loewen, in
such capacity,  being the  "Administrative  Services  Provider") pursuant to the
Administrative Services Agreement.  Such services will include the licensing of,
the maintenance of and the provision of training and other support services with
respect to, software,  hardware and other information  systems; the provision of
certain legal services,  training and support services relating to certain types
of regulatory compliance,  risk management services, travel arrangement services
and  assistance  and  support  with  respect  to  environmental  compliance  and
remediation  efforts,  and the granting of access to certain  telecommunications
equipment and services, as well as technical support therefore. In addition, the
Administrative  Services  Provider  will provide the Company with the ability to
purchase  supplies  under  certain  of  Loewen's  supply  agreements  with third
parties. Also pursuant to the Administrative Services Agreement,  Loewen and the
Company  will  contract  for,  to the  extend  feasible  and  cost-effective  in
particular markets, access to embalming facilities and automobile fleets.

     As compensation  for services  provided under the  Administrative  Services
Agreement,  the Administrative  Services Provider receives from the Company,  in
cash, a fee (the  "Administrative  Services Fee") payable monthly in arrears and
in an aggregate annual amount equal to $250,000 for the first year following the
Acquisition  Closing  Date,  which  may be  increased  by  2.5%  for  each  year
thereafter until the termination of the Administrative  Services Agreement.  The
Company is also required to reimburse the  Administrative  Services Provider for
all  out-of-pocket  costs and  expenses  incurred  by it from  third  parties in
connection  with  performing  the  administrative   services  described  in  the
Administrative Services Agreement.

     The  Administrative  Services  Agreement  is  subject  to  termination  (i)
automatically  on the eighth  anniversary of the Acquisition  Closing Date, (ii)
automatically  upon closing following the exercise of the Call Option or the Put
Option,  (iii) if required pursuant to a legally binding order of a court or any
other  governmental  agency  with  appropriate  jurisdiction,  (iv)  subject  to
applicable  grace  periods  and an  arbitration  requirement  in the  event of a
dispute,  upon notice by either the Company or Loewen in the event of a material
breach  by the  other  party of any  provision  of the  Administrative  Services
Agreement and (v) at the option of the Company.


Payment of Certain Fees and Expenses

     In  connection  with the  Acquisition,  on the  Acquisition  Closing  Date,
affiliates of Blackstone  received  fees of  approximately  $3.2 million and the
Company  reimbursed  Blackstone  for  all  out-of-pocket  expenses  incurred  in
connection  with the  Acquisition  and Loewen  received a consulting fee of $1.5
million and was reimbursed for certain expenses  incurred in connection with the
Acquisition  equal to $1.0 million.  In addition,  from the Acquisition  Closing
Date until the date on which Loewen or  Blackstone  exercises the Call Option or
the Put Option,  respectively,  pursuant to the Put/Call Agreement, an affiliate
of Blackstone will receive a monitoring fee equal to $250,000 per annum from the
Company.

Formation of PSIM; Loans to Management

     In  connection  with the  Acquisition,  on the  Acquisition  Closing  Date,
Messrs.  Wright and Cairns and certain other  officers of the Company (the "PSIM
Limited Partners")  subscribed for limited partnership  interest in PSIM and PSI
P&S subscribed for a general partnership interest in PSIM, the proceeds of which
subscriptions  PSIM used to purchase  approximately 0.7% of the Old Prime common
stock (the "PSIM-Owned Stock").

     In order to effect such  purchase,  on the  Acquisition  Closing Date,  the
Company made a loan to PSIM,  which was evidenced by a note bearing  interest at
an annual rate of 9% and secured by the PSIM-Owned  Stock, the proceeds of which
loan PSIM used to make a loan to each of the PSIM Limited Partners.  The loan to
each of  Messrs.  Wright  and Cairns  was in the  principal  amount of  $97,750,
evidenced by a note bearing  interest at an annual rate of 9% and secured by his
limited partnership interest in PSIM.

Agreements Relating to Former Owners

     In October 1996, the Company  entered into  agreements  with certain former
owners and  Loewen to  substitute  Loewen as the  borrower  and to  release  the
Company from any further  obligation on its debt of approximately  $1,650,000 to
the former owners. In connection with these agreements,  the Company paid Loewen
cash equal to the debt assumed.
<PAGE>

                                     PART IV

Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
 
(a)  Documents Filed as Part of the Report.  Consolidated  financial  statements
     and schedules of Prime Succession,  Inc. and its subsidiaries filed as part
     of this report are listed on page 19 of this report.

(b)  Reports on Form 8-K. None.

(c)  Exhibits.


Exhibit
Number                Document Description

          2*        Stock Purchase Agreement,  dated as of June 14, 1996, by and
                    among Prime  Succession,  Inc., the  individuals or entities
                    listed on the signature pages thereof, The Loewen Group Inc.
                    and Blackhawk Acquisition Corp.

          3.1*      Certificate of Incorporation of Blackhawk Acquisition Corp.

          3.2*      Certificate of Amendment of Certificate of  Incorporation of
                    Blackhawk  Acquisition  Corp.  changing  its  name to  Prime
                    Succession Acquisition Corp.

          3.3*      Certificate of Amendment of Certificate of  Incorporation of
                    Prime  Succession  Acquisition  Corp.  changing  its name to
                    Prime Succession, Inc.

          3.4*      By-Laws of Prime Succession, Inc.

          4.1*      Indenture   dated  as  of  August  15,  1996  between  Prime
                    Succession Acquisition Corp. and United States Trust Company
                    of New York, as Trustee

          4.2*      Form of 10 3/4% Senior  Subordinated Note due 2004 (included
                    in Exhibit 4.1)

          10.1(a)*  Casket  Supply  Agreement,  dated  January 1, 1993,  between
                    Batesville Casket Company, Inc. and Prime Succession, Inc.

          10.1(b)*  Amendment  Agreement,  dated August 1994, between Batesville
                    Casket  Company,  Inc.  and  Prime  Succession,  Inc.  (with
                    respect to Casket Supply Agreement)

          10.1(c)*  Amendment 2, dated May 22, 1995,  between  Batesville Casket
                    Company,  Inc. and Prime  Succession,  Inc. (with respect to
                    Casket Supply Agreement)

          10.1(d)*  Exclusive  Supply  Agreement  dated  January 1, 1998 between
                    Batesville  Casket  Company,  Inc., The  Forethought  Group,
                    Forethought  Life  Insurance  Company and Prime  Succession,
                    Inc.

          10.2*     Stockholders'  Agreement  dated as of August 26,  1996 among
                    Prime  Succession,  Inc.  (to be  renamed  Prime  Succession
                    Holdings,  Inc.),  Blackstone  Capital  Partners II Merchant
                    Banking Fund L.P.,  Blackstone  Offshore Capital Partners II
                    L.P., Blackstone Family Investment  Partnership II L.P., PSI
                    Management Direct L.P. and Loewen Group International,  Inc.
                   
          10.3*     Administrative  Services  Agreement  dated as of August  26,
                    1996  between  Prime  Succession  Acquisition  Corp.  (to be
                    renamed   Prime   Succession,   Inc.)   and   Loewen   Group
                    International, Inc.

          10.4*     Credit  Agreement  dated as of August 26,  1996 among  Prime
                    Succession,  Inc. (to be renamed Prime Succession  Holdings,
                    Inc.),  Prime  Succession  Acquisition  Corp. (to be renamed
                    Prime   Succession,   Inc.),   Goldman,   Sachs  &  Co.,  as
                    syndication   agent  and  arranging   agent,  the  financial
                    institutions  from time to time  parties  thereto as lenders
                    and The Bank of Nova  Scotia,  as  administrative  agent for
                    such lenders

          10.4(a)*  First  Amendment to Credit  Agreement  dated as of September
                    30,  1998 among Prime  Succession,  Inc.,  Prime  Succession
                    Holdings,   Inc., Goldman,   Sachs   Credit   Partners,   as
                    syndication   agent  and  arranging   agent,  the  financial
                    institutions  from time to time  parties  thereto as lenders
                    and The Bank of Nova  Scotia,  as  administrative  agent for
                    such lenders

          10.5*     Letter   Agreement   dated  August  1,  1996  between  Prime
                    Succession   Acquisition   Corp.   (to  be   renamed   Prime
                    Succession, Inc.) and Gary Wright.

          10.6*     Letter   Agreement   dated  August  1,  1996  between  Prime
                    Succession   Acquisition   Corp.   (to  be   renamed   Prime
                    Succession, Inc.) and Myles Cairns.

          10.7*     Put/Call  Agreement,  dated as of  August  26,  1996,  among
                    Blackstone  Capital  Partners II Merchant Banking Fund L.P.,
                    Blackstone  Offshore  Capital  Partners II L.P.,  Blackstone
                    Family Investment Partnership II L.P., PSI Management Direct
                    L.P., Loewen Group  International  Inc. and the Loewen Group
                    Inc.

          12        Computation of Ratio of Earnings to Fixed Charges

          16*       Letter from Ernst & Young LLP (independent auditors prior to
                    the Acquisition)  concerning change in Company's accountants
                    delivered pursuant to Item 304(a) of Regulation S-K.

          21*       Subsidiaries of Prime  Succession,  Inc.  (formerly known as
                    Prime Succession Acquisition Corp.)

          27        Financial Data Schedule

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

*  Incorporated  by  reference  to the  Exhibits to the  Company's  Registration
Statement on Form S-4  (Registration No. 333-14599) with respect to the Exchange
Notes.

<PAGE>


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

                                     PRIME SUCCESSION, INC.

                                     /s/ ARTHUR J. ANSIN
                                     ------------------------------------
                                     Arthur J. Ansin
                                     Chief Financial Officer, Secretary
March 10, 1999                       and Treasurer
-----------------------

     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.

                                     /s/ GARY L. WRIGHT
                                     ------------------------------------
                                     Gary L. Wright
March 10, 1999                       President, Chief Executive Officer
------------------------

                                     /s/ ARTHUR J. ANSIN
                                     ------------------------------------
                                     Arthur J. Ansin
                                     Chief Financial Officer, Secretary
                                     and Treasurer (principal financial
March 10, 1999                       officer; principal accounting officer)
------------------------               


                                     /s/ WARREN B. RUDMAN
                                     ------------------------------------
                                     Warren B. Rudman
March 10, 1999                       Director
-------------------------

                                     /s/ HOWARD A. LIPSON
                                     ------------------------------------
                                     Howard A. Lipson
March 10, 1999                       Director
-------------------------

                                     /s/ DAVID I. FOLEY
                                     ------------------------------------
                                     David I. Foley
March 10, 1999                       Director
-------------------------

                                     /s/ CHINH E. CHU
                                     ------------------------------------
                                     Chinh E. Chu
March 10, 1999                       Director
-------------------------

                                     /s/ PETER K. GRUNEBAUM
                                     ------------------------------------
                                     Peter K. Grunebaum
March 10, 1999                       Director
--------------------------


                                     /s/ CLIFFORD R. HINKLE
                                     ------------------------------------
                                     Clifford R. Hinkle
March 10, 1999                       Director
-------------------------

                                     /s/ MORLEY G. HANDFORD
                                     ------------------------------------ 
                                     Morley G. Handford
March 10, 1999                       Director
-------------------------

<PAGE>
<TABLE>
<CAPTION>

                     PRIME SUCCESSION, INC. AND SUBSIDIARIES
                 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS


                                         Balance at      Charged to       Charged to                           Balance at
                                         Beginning         Costs &           Other                               End of
             Description                 of Period        Expenses        Accounts(1)      Deductions(2)         Period
<S>                                        <C>             <C>                <C>              <C>                <C>
Current - Allowance for
   contract cancellations and
   doubtful accounts:
         Year ended December 31,
                  1998                     $2,647,693          578,764               --         (1,139,937)      $2,086,520
                  1997                     $2,834,438          729,762               --           (916,507)      $2,647,693
                  1996                     $2,926,331          371,846          414,900           (878,639)      $2,834,438

Due after one year - Allowance
   for contract cancellations
   and doubtful accounts:
         Year ended December 31,
                  1998                     $3,288,268        5,232,303               --         (2,314,841)      $6,205,730
                  1997                     $2,731,216        2,487,730               --         (1,930,678)      $3,288,268
                  1996                       $240,704        1,590,125        1,977,607         (1,077,220)      $2,731,216


     (1)  Revision of allowance  resulting  from purchase  accounting  and other
          adjustments.

     (2)  Write-off of doubtful accounts.

</TABLE>

<PAGE>
<TABLE>
<CAPTION>


Exhibit 12

Prime Succession, Inc. and subsidiaries
Ratio of Earnings to Fixed Charges
(Dollars in Thousands)




                                  Successor Company                       Predecessor Company

                                                   
                                                  Period from    Period from
                                                    Aug. 26         Jan. 1
                                                    through        through
                                                    Dec. 31,       Aug. 25,
                            1998         1997         1996          1996            1995          1994
                            ----         ----         ----          ----            ----          ----
<S>                         <C>          <C>          <C>           <C>             <C>           <C>

Ratio of  Earnings
    to Fixed
    Charges
Earnings:
  Income (Loss)
    before income
    taxes                     (6,600)         280       (3,145)      (9,111)         (355)        (4,656)
  Add: Fixed
    charges, net              25,194       24,716        8,884       10,691        16,224         13,128
Income before
    income taxes
    and fixed
    charges, net              18,594       24,996        5,739        1,580        15,869          8,472
Fixed Charges:
  Total interest
    expense (1)               24,195       23,843        8,540       10,059        15,401         12,422
  Interest factor
    in rents (2)                 999          873          344          632           823            706
Total fixed
    charges                   25,194       24,716        8,884       10,691        16,224         13,128
Ratio of
    earnings to
    fixed charges                0.7          1.0          0.6          0.1           1.0            0.6
Coverage
    deficiency
    (surplus) (3)              6,600         (280)       3,145        9,111           355          4,656

FN

     (1)  Total interest  expense for each period includes  amortization of loan
          costs.

     (2)  Interest factor in rents represents  one-third of rent expense,  which
          is considered representative of the interest factor.

     (3)  The Company's  earnings are  inadequate to cover fixed charges for all
          periods except 1997 indicated above.  Coverage  deficiency  represents
          the excess of fixed  charges over income before income taxes and fixed
          charges,  net. Coverage surplus represents excess income before income
          taxes and fixed charges, net over fixed charges.
</TABLE>