UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    Form 10-K

[X]        Annual report pursuant to Section 13 or 15(d) of the Securities
           Exchange Act of 1934 

           For the fiscal year ended December 31, 1996 or

[ ]        Transition report pursuant to Section 13 or 15(d) of
           the Securities  Exchange Act of 1934 [No Fee Required]

                  For the transition period from ____ to ____

                         Commission file number: 1-9250

                                  Conseco, Inc.

            Indiana No.                              35-1468632
      ----------------------                ------------------------------
      State of Incorporation                IRS Employer Identification No.

         11825 N. Pennsylvania Street
           Carmel, Indiana  46032                     (317) 817-6100
    -------------------------------------              -------------
   Address of principal executive offices                Telephone

           Securities registered pursuant to Section 12(b) of the Act:

                                                  Name of each exchange
         Title of each class                       on which registered
         -------------------                       -------------------
      Common Stock, No Par Value               New York Stock Exchange, Inc.
     8-1/8% Senior Notes due 2003              New York Stock Exchange, Inc.
     10-1/2% Senior Notes due 2004             New York Stock Exchange, Inc.
 7% PRIDES Convertible Preferred Stock         New York Stock Exchange, Inc.
9.16%Trust Originated Preferred Securities     New York Stock Exchange, Inc.

     Securities registered pursuant to Section 12(g) of the Act:

                           Common Stock, No Par Value

    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. [ ]

     Aggregate market value of common stock held by  nonaffiliates  (computed as
of March 14, 1997): $7,326,991,680

    Shares of common stock outstanding as of March 14, 1997: 183,174,792

    DOCUMENTS INCORPORATED BY REFERENCE: Portions of the Registrant's definitive
proxy  statement for the annual meeting of  shareholders to be held May 13, 1997
are incorporated by reference into Part III of this Report.

<PAGE>

                                     PART I

ITEM 1. BUSINESS OF CONSECO.

       Background

       Conseco, Inc. is a financial services holding company.  Conseco develops,
markets and administers annuity, individual health insurance and individual life
insurance products. As used in this report, the terms "Conseco" or the "Company"
refer to Conseco,  Inc. and its  consolidated  subsidiaries,  unless the context
requires  otherwise.  Conseco's  operating  strategy  is to grow  the  insurance
business  within its  subsidiaries  by focusing its resources on the development
and expansion of profitable products and strong distribution  channels.  Conseco
has supplemented  such growth by acquiring  companies that have profitable niche
products,  strong distribution systems and progressive  management teams who can
work with Conseco to implement Conseco's operating and growth strategies. Once a
company has been acquired,  Conseco's operating strategy has been to consolidate
and streamline  management and  administrative  functions,  to realize  superior
investment  returns through active asset management,  to eliminate  unprofitable
products and  distribution  channels,  and to expand and develop the  profitable
distribution channels and products.

       Since  1982,  Conseco  has  acquired  15  insurance  groups  and  related
businesses;  10 as wholly owned  subsidiaries  and five through its  acquisition
partnerships. Conseco's first acquisition partnership, Conseco Capital Partners,
L.P. ("Partnership I"), was dissolved in 1993 after distributing to its partners
the securities of the companies it had acquired.  Conseco  Capital  Partners II,
L.P.   ("Partnership  II"),  Conseco's  second  acquisition   partnership,   was
liquidated in 1996 after Conseco  purchased  from the other  partners all of the
common shares of American Life  Holdings,  Inc.  ("ALH",  formerly The Statesman
Group,  Inc.) not already owned by Conseco.  Conseco  terminated its partnership
activity in 1996 because changes in the regulatory and rating agency environment
had made it difficult  to structure  leveraged  acquisitions  of life  insurance
companies.

       On August 31,  1995,  the Company  purchased  all of the shares of common
stock of CCP Insurance,  Inc. ("CCP") it did not previously own (representing 51
percent of CCP's outstanding  shares).  In the transaction,  CCP was merged into
Conseco,  with  Conseco  being the  surviving  corporation.  The  merger and the
related  transactions are referred to herein as the "CCP Merger". As a result of
the CCP Merger,  CCP's  subsidiaries -- Great American Reserve Insurance Company
("Great  American  Reserve")  and  Beneficial  Standard Life  Insurance  Company
("Beneficial  Standard") -- became  wholly owned  subsidiaries  of Conseco.  The
accounts of CCP's subsidiaries are consolidated with Conseco's effective January
1, 1995.

       On August 2, 1996,  Conseco  acquired  (the "LPG  Merger")  Life Partners
Group, Inc. ("LPG"). LPG became a wholly owned subsidiary of Conseco. In the LPG
Merger,  Conseco  issued a total of 32.6 million  shares of its common stock (or
common stock  equivalents) with a value of $586.8 million.  Conseco also assumed
LPG notes payable of $253.1 million. LPG's subsidiaries sell a diverse portfolio
of  universal  life  insurance  and,  to a lesser  extent,  annuity  products to
individuals.

       On September 30, 1996,  Conseco  acquired the remaining 62 percent of the
common  shares  of ALH not  already  owned  by  Conseco  or its  affiliates  for
approximately  $165  million in cash.  ALH is a provider of  retirement  savings
annuities.  ALH has been included in Conseco's consolidated financial statements
since ALH's acquisition by Partnership II in September 1994.

       On December  17,  1996,  Conseco  acquired  (the "ATC  Merger")  American
Travellers  Corporation  ("ATC").  ATC was merged  with and into  Conseco,  with
Conseco being the surviving  corporation.  In the ATC Merger,  Conseco  issued a
total of 21.0 million  shares of its common stock (or common stock  equivalents)
with a value of $630.9 million.  In addition,  Conseco assumed $102.8 million of
ATC's convertible  subordinated  debentures,  which became  convertible into 7.9
million shares of Conseco common stock with a value of $248.3 million.  ATC is a
leading  marketer and underwriter of long-term care insurance.  ATC also markets
and underwrites other supplemental  accident and health insurance  policies,  as
well as life insurance.

       On December 23,  1996,  Conseco  acquired  (the "THI  Merger")  Transport
Holdings Inc. ("THI"). THI was merged with and into Conseco,  with Conseco being
the  surviving  corporation.  In the THI Merger,  Conseco  issued a total of 4.9
million shares of its common stock (or common stock equivalents) with a value of
$121.7  million.  In  addition,  pursuant  to an  exchange  offer,  all of THI's
Subordinated  Convertible Notes were exchanged for 4.2 million shares of Conseco
common  stock  with a value of  $106.2  million,  plus a cash  premium  of $11.9
million.  THI is principally  engaged in the  underwriting  and  distribution of
supplemental health insurance.



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<PAGE>

       On December 31, 1996, Conseco acquired (the "BLH Merger") the 9.6 percent
of the common  shares of Bankers  Life Holding  Corporation  ("BLH") not already
owned  by  Conseco  or its  affiliates.  BLH  was  merged  into a  wholly  owned
subsidiary of Conseco. In the BLH Merger,  Conseco issued a total of 3.9 million
shares of Conseco  common  stock (or common stock  equivalents)  with a value of
$123.0 million.  BLH is one of the nation's largest writers of individual health
insurance products,  based on collected premiums.  BLH also markets a variety of
annuity,  life and group insurance products.  BLH has been included in Conseco's
consolidated  financial statements since November 1992, when BLH was acquired by
Partnership I.

       Conseco  owned the  following  life  insurance  companies at December 31,
1996:

       -  Bankers  Life  and  Casualty  Company  ("Bankers Life"),  Bankers Life
          Insurance Company of  Illinois  and Certified  Life Insurance Company,
          formerly subsidiaries of  BLH;

       -  Great American  Reserve,  Beneficial  Standard and Jefferson  National
          Life Insurance Company of Texas, in which Conseco has had an ownership
          interest  since their  acquisition  by Partnership I in 1990 and 1991,
          respectively,  and which became  wholly owned  subsidiaries  in August
          1995;

       -  the  subsidiaries  of ALH,  which are also  subsidiaries  of  Conseco,
          including  American  Life and Casualty  Insurance Company  ("ALC") and
          Vulcan Life Insurance Company;

       -  the  subsidiaries  of LPG,  which  are now  subsidiaries  of  Conseco,
          including  Philadelphia Life Insurance Company  ("Philadelphia Life"),
          Massachusetts   General   Life   Insurance   Company   ("Massachusetts
          General"), Lamar Life Insurance Company ("Lamar Life") and Wabash Life
          Insurance Company;

       -  the former subsidiaries of ATC, which are now subsidiaries of Conseco,
          including  American   Travellers  Life  Insurance  Company  ("American
          Travellers"), United General Life Insurance Company ("United General")
          and American Travellers Insurance Company of New York;

       -  the former subsidiaries of THI, which are now subsidiaries of Conseco,
          including  TLIC Life Insurance  Company ("TLIC Life"),  Transport Life
          Insurance  Company  ("Transport  Life") and Continental Life Insurance
          Company ("Continental Life"); and

       -  Bankers  National  Life  Insurance  Company,  National  Fidelity  Life
          Insurance Company and Lincoln American Life Insurance  Company,  which
          have  profitable  blocks  of  in-force  business,  although  they  are
          currently not pursuing new sales.

       On March 4, 1997,  Conseco  acquired (the "CAF Merger")  Capitol American
Financial  Corporation  ("CAF").  CAF was merged with and became a wholly  owned
subsidiary of Conseco. In the CAF Merger, each of the approximately 17.7 million
shares of CAF common stock and common stock  equivalents were converted into the
right to receive  $30.75 in cash plus 0.1647 of a share of Conseco common stock.
Conseco  paid $545  million  in cash and issued  2.9  million  shares of Conseco
common  stock with a value of  approximately  $115.7  million to acquire the CAF
common  stock.  In  addition,  Conseco  assumed a note  payable  of CAF of $31.0
million.  CAF,  through its  insurance  subsidiaries,  underwrites,  markets and
distributes  individual and group  supplemental  health and accident  insurance.
CAF's principal insurance  subsidiary is an Arizona-domiciled  company,  Capitol
American  Life  Insurance  Company  ("CALI"),  which  accounted for more than 97
percent of CAF's earned  premiums over the last five years.  CALI is licensed to
sell its products in 47 states,  the  District of Columbia,  Puerto Rico and the
U.S. Virgin Islands,  and markets its products  through a sales force consisting
of independent agents,  agent organizations and brokers. CAF had total assets of
$1.1 billion at December 31, 1996.

       Western National  Corporation  ("WNC"), an NYSE-listed  company,  and its
wholly owned subsidiary,  Western National Life Insurance  Company,  were wholly
owned subsidiaries until February 15, 1994, when WNC completed an initial public
offering  ("IPO").  Conseco sold a 60 percent interest in WNC in connection with
the IPO and sold its remaining 40 percent interest in a separate  transaction on
December 23, 1994.

       Conseco was  organized in 1979 as an Indiana  corporation  and  commenced
operations in 1982. Its executive  offices are located at 11825 N.  Pennsylvania
Street, Carmel, Indiana 46032, and its telephone number is (317) 817-6100.

       Pending Acquisition

       On  December  15,  1996,  Conseco and Pioneer  Financial  Services,  Inc.
("PFS")  entered  into  an  Agreement  and  Plan  of  Merger  (the  "PFS  Merger
Agreement")  pursuant to which PFS would  become a wholly  owned  subsidiary  of
Conseco  (the  "PFS  Merger").  Under  the  PFS  Merger  Agreement,  each of the
approximately 16.9 million shares of PFS common stock and common stock

                                        3
<PAGE>


equivalents  would be converted  into the right to receive a fraction of a share
of Conseco common stock (rounded to the nearest ten- thousandth)  having a value
between $25.00 and $28.00,  calculated as follows:  (i) if the Conseco/PFS Share
Price (as defined  below) is greater  than or equal to $28.00 per share and less
than or equal to $31.36 per share,  .8928 of a share of  Conseco  common  stock;
(ii) if the Conseco/PFS  Share Price is less than $28.00 per share, the fraction
of a share  of  Conseco  common  stock  determined  by  dividing  $25.00  by the
Conseco/PFS Share Price; or (iii) if the Conseco/PFS Share Price is greater than
$31.36 per share,  the fraction of a share of Conseco common stock determined by
dividing $28.00 by the Conseco/PFS  Share Price. The  "Conseco/PFS  Share Price"
shall be equal to the average of the closing  prices of the Conseco common stock
on the NYSE  Composite  Transactions  Reporting  System for the 10 trading  days
immediately  preceding  the  second  trading  day  prior  to the date of the PFS
Merger.  Based on a Conseco/PFS Share Price which exceeds $28.00 per share (such
price being  exceeded on March 14, 1997),  Conseco will issue 8.7 million shares
of Conseco common stock with a value of approximately  $352.4 million to acquire
the PFS common  stock.  In addition,  Conseco  will assume PFS notes  payable of
$27.8 million and the PFS 6 1/2% Convertible  Subordinated Notes due 2003, which
will be  convertible  into an assumed 3.0 million shares of Conseco common stock
with a value of approximately $120.7 million.

       PFS,  through its insurance  subsidiaries,  underwrites  life  insurance,
annuities and health  insurance in selected niche markets  throughout the United
States. PFS had total assets of approximately $1.8 billion at December 31, 1996.
PFS collected $794.2 million of life,  annuity and health insurance  premiums in
1996.

       OPERATING SEGMENTS

       Conseco   conducts  and  manages  its  business  through  four  segments,
reflecting the Company's  major lines of insurance  business and target markets:
(i) annuities;  (ii) supplemental  health insurance;  (iii) life insurance;  and
(iv) other.

       Annuities

       This  segment  includes   single-premium  deferred  annuities  ("SPDAs"),
flexible-premium   deferred  annuities  ("FPDAs"),   single-  premium  immediate
annuities  ("SPIAs") and variable  annuities sold through both career agents and
professional  independent  producers.  During 1996, this segment collected total
premiums of $1,542.4  million,  down 7.1 percent from 1995.  When all  currently
consolidated companies are included for all periods,  including periods prior to
their  acquisition,  this segment  collected total premiums of $1,612.7 million,
down 8.7 percent from 1995.

       The following describes the major products of this segment:

       Single-premium deferred annuities. SPDAs accounted for $755.4 million, or
23 percent,  of the  Company's  total  collected  premiums in 1996. An SPDA is a
savings vehicle in which the policyholder,  or annuitant, makes a single-premium
payment to the  insurance  company;  the insurer  guarantees  the  principal and
accrues a stated rate of interest.  After a number of years, as specified in the
annuity  contract,  the  annuitant may elect to take the proceeds of the annuity
either in a single  payment  or in a series of  payments  for life,  for a fixed
number of years, or for a combination thereof. Conseco's SPDAs typically have an
interest rate (the  "crediting  rate") that is guaranteed by the Company for the
first  policy  year,  after which the Company has the  discretionary  ability to
change the crediting rate to any rate not below a guaranteed minimum rate, which
generally ranges from 3.0 percent to 5.5 percent.  The initial crediting rate is
largely a function  of: (i) the  interest  rate the Company can earn on invested
assets  acquired with the new annuity fund deposits;  and (ii) the rates offered
on similar products by the Company's competitors.  For subsequent adjustments to
crediting  rates,  the Company  takes into  account the yield on its  investment
portfolio,  annuity surrender assumptions,  competitive industry pricing and the
crediting  rate history for particular  groups of annuity  policies with similar
characteristics.  Since 1992,  more than 80 percent of the Company's new annuity
sales have been "bonus"  products.  The initial crediting rate on these products
specifies  a bonus  crediting  rate  ranging  from 1 percent to 8 percent of the
annuity deposit for the first policy year only.  After the first year, the bonus
interest portion of the initial crediting rate is automatically discontinued and
the renewal  crediting rate is established.  Commissions to agents are generally
reduced by an amount  comparable to the bonus  interest to partially  compensate
the Company  for the higher  initial  crediting  rate on these  products.  As of
December 31, 1996, crediting rates on the Company's  outstanding SPDAs generally
ranged from 4.0 percent to 5.5 percent,  excluding  bonuses  guaranteed  for the
first  year of the  annuity  contract.  The  average  crediting  rate  including
interest bonuses was 5.2 percent and the average rate excluding  bonuses was 5.0
percent.

       The  policyholder  is typically  permitted to withdraw all or part of the
premium  paid  plus  the  accumulated  interest  credited  to his  account  (the
"accumulation  value"),  subject in virtually  all cases to the  assessment of a
surrender  charge for  withdrawals  in excess of specified  limits.  Most of the
Company's SPDAs provide for penalty-free  withdrawals of up to 10 percent of the
accumulation value each year,  subject to limitations.  Withdrawals in excess of
allowable  penalty-free amounts are assessed a surrender charge during a penalty
period which generally  ranges from five to 12 years after the date a policy was
issued.  The  surrender  charge is  initially  6 percent  to 12  percent  of the
accumulation  value and generally  decreases by  approximately 1 to 2 percentage
points per year during the penalty period.  Surrender  charges are set at levels
to  protect  the  Company  from loss on early  terminations  and to  reduce  the
likelihood  of  policyholders  terminating  their  policies  during  periods  of
increasing interest rates. This practice lengthens the effective

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<PAGE>
duration of policy liabilities and enables the Company to maintain profitability
on such  policies.  In September  1995,  the Company  began  offering a deferred
annuity  product  with a "market  value  adjustment"  feature.  This  feature is
designed  to  provide  the  Company  with   additional   protection  from  early
terminations  during a period of rising interest rates by reducing the surrender
value  payable  upon a full or partial  surrender of the policy in excess of the
allowable  penalty-free  withdrawal  amount.  Conversely,  during  a  period  of
declining interest rates, the feature would increase the surrender value payable
to the policyholder.  In 1996, the Company collected  premiums of $257.7 million
from sales of SPDAs with this feature.

       In response to consumers' desire for alternative investment products with
returns   linked  to  those  of  common  stocks,   the  Company   introduced  an
equity-linked  SPDA in June 1996.  This product  accounted  for $87.1 million of
SPDA  premiums  collected  during  1996.  The  annuity's  accumulation  value is
credited with interest at an annual minimum  guaranteed  rate of 3 percent,  but
the  annuity   provides  for  higher   returns   based  on  a  percentage   (the
"participation rate") of the change in the S&P 500 Index during each year of its
term. The Company has the discretionary ability to change the participation rate
(which is  currently  100  percent),  subject  to a minimum of 50  percent.  The
annuity  provides  for  penalty-free  withdrawals  of up to 10  percent  of  the
accumulation value in each year after the first year of the annuity's term. Most
other withdrawals during the first eight years of the annuity's term are subject
to a 9 percent  surrender  charge.  The Company purchases S&P 500 Index Options,
the values of which change as benefits  accrue to these annuities as a result of
the equity-linked return feature.

       Single-premium  immediate annuities.  SPIAs accounted for $111.2 million,
or 3.5 percent,  of the Company's  total collected  premiums in 1996.  SPIAs are
designed to provide a series of periodic  payments for a fixed period of time or
for life, according to the policyholder's  choice at the time of issue. Once the
payments  begin,  the  amount,  frequency  and length of time for which they are
payable are fixed.  SPIAs often are  purchased by persons at or near  retirement
age who desire a steady stream of payments  over a future  period of years.  The
single  premium is often the payout  from a  terminated  annuity  contract.  The
implicit interest rate on SPIAs is based on market conditions when the policy is
issued.  The  implicit  interest  rate on the  Company's  outstanding  SPIAs  at
December 31, 1996, averaged 6.2 percent.

       Flexible-premium deferred annuities. FPDAs accounted for $594.3 million ,
or 18 percent,  of the Company's  total  collected  premiums in 1996.  FPDAs are
similar to SPDAs in many respects, except that FPDAs allow more than one premium
payment. FPDAs are marketed through professional independent producers.

       The Company's  FPDAs  typically have a guaranteed  crediting rate for the
first policy year that exceeds the minimum annual  guaranteed rate of at least 3
percent.  After the first  year,  the  crediting  rate may be  changed  at least
annually.  The  policyholder  is  permitted  to  withdraw  all  or  part  of the
accumulation  value,  less a surrender charge for withdrawals  during an initial
penalty  period of up to 15 years.  The initial  surrender  charges range from 5
percent to 19 percent of the  first-year  premium and  decline  over the penalty
period.  Interest rates credited on the Company's  outstanding FPDAs at December
31, 1996,  generally ranged from 4.5 percent to 5.5 percent,  excluding  bonuses
guaranteed  for the first year of the annuity  contract.  The average  crediting
rate including  interest  bonuses was 5.2 percent and the average rate excluding
bonuses was 5.0 percent.

       Variable  annuities.  Variable annuities  accounted for $81.5 million, or
2.5  percent,  of the  Company's  total  premiums  collected  in 1996.  Variable
annuities,  sold on a single-  or  flexible-premium  basis,  differ  from  fixed
annuities in that the original  principal value may fluctuate,  depending on the
performance of assets allocated pursuant to various investment options chosen by
the contract  owner.  Variable  annuities offer contract owners a fixed interest
option  or a  variable  rate  of  return  based  upon  the  specific  investment
portfolios into which premiums may be directed.

       Supplemental health

       This segment includes  Medicare  supplement and long-term care insurance.
For  periods  prior to January  1, 1997,  this  segment  consists  solely of the
Medicare  supplement  and long-term care products  distributed  through a career
agency force.  During 1996, this segment collected Medicare  supplement premiums
of $630.9 million and long-term care premiums of $194.2 million,  up 5.7 percent
and 22  percent,  respectively,  over  1995.  When  all  currently  consolidated
companies  are  included  for all  periods  (including  periods  prior  to their
acquisition),  this segment  collected  Medicare  supplement  premiums of $651.6
million,  long-term  care  premiums  of $541.3  million  and  specified  disease
premiums of $90.6 million,  up 5.2 percent,  up 37 percent and down 2.3 percent,
respectively, from premiums collected during 1995.

       Beginning  in 1997,  this  segment  will  include the  specified  disease
products  of the  former  subsidiaries  of THI and CAF  and the  long-term  care
products  of the  former  subsidiaries  of ATC  which  are  distributed  through
professional  independent  producers.  Upon  completion of the PFS Merger,  this
segment will also include  various  supplemental  health  products of PFS. These
products are also distributed through professional independent producers.
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<PAGE>

       The following describes the major products of this segment:

       Medicare  supplement.  Medicare  supplement products accounted for $630.9
million,  or 20 percent,  of the  Company's  total  collected  premiums in 1996.
Medicare is a two-part federal health insurance program for disabled persons and
senior citizens (age 65 and older).  Part A of the program  provides  protection
against the costs of  hospitalization  and related  hospital and skilled nursing
home care, subject to an initial  deductible,  related  coinsurance  amounts and
specified  maximum  benefit levels.  The deductible and coinsurance  amounts are
subject to change each year by the federal government. Part B of Medicare covers
doctors bills and a number of other medical costs not covered by Part A, subject
to deductible and coinsurance amounts for "approved" charges.

       Medicare  supplement  policies  provide  coverage for many of the medical
expenses  which the Medicare  program does not cover,  such as  deductibles  and
coinsurance  costs (in which the insured and Medicare share the costs of medical
expenses)  and  specified  losses  which  exceed the federal  program's  maximum
benefits.  Conseco's Medicare supplement plans automatically  adjust coverage to
reflect  changes in Medicare  benefits.  In marketing  these  products,  Conseco
concentrates  on individuals  who have recently  become eligible for Medicare by
reaching the age of 65. Conseco offers a higher first-year  commission for sales
to these policyholders and competitive premium pricing.  Approximately  one-half
of new sales of Medicare supplement policies are to individuals who are 65 years
old.

       Long-term care.  Long-term care products accounted for $194.2 million, or
6.0 percent,  of the Company's total collected premiums in 1996.  Long-term care
products provide  coverage,  within  prescribed  limits,  for nursing home, home
healthcare, or a combination of both nursing home and home health care expenses.
The long-term care plans are sold primarily to retirees, and to a lesser degree,
to older self-employed individuals and others in middle-income levels.

       Current nursing home care policies cover incurred and daily  fixed-dollar
benefits available with an elimination  period (which,  similar to a deductible,
requires  the insured to pay for a certain  number of days of nursing  home care
before the insurance coverage begins), subject to a maximum benefit. Home health
care policies  cover the usual and customary  charges after a deductible and are
subject to a daily or weekly  maximum  dollar  amount,  and an  overall  benefit
maximum.  Conseco  monitors the loss  experience on its long-term  care products
and, when necessary,  applies for rate increases in the states in which it sells
such products.

       Specified  disease products.  Beginning in 1997, the supplemental  health
segment  will include the  specified  disease  products of THI and CAF,  such as
cancer and heart/stroke  insurance.  These policies  generally  provide fixed or
limited  benefits.  Cancer  insurance and  heart/stroke  products are guaranteed
renewable  individual  accident and health  insurance  policies.  Payments under
cancer  insurance  policies are generally  made directly to, or at the direction
of, the policyholder following diagnosis of, or treatment for, a covered type of
cancer. The benefits provided under the cancer insurance policies of THI and CAF
do not  necessarily  reflect the actual cost incurred by the insured as a result
of the illness; benefits are not reduced by any other medical insurance payments
made to or on behalf of the insured.  Heart/stroke policies provide for payments
directly to the  policyholder  for treatment of a covered heart  disease,  heart
attack or stroke.

       Life

       This  segment  includes  traditional,   universal  life  and  other  life
insurance products. Beginning with the third quarter of 1996, the largest single
component of this segment is the universal  life business of LPG. This segment's
products  are  currently  sold  through  both  career  agents  and  professional
independent producers.

       During 1996, this segment collected total premiums of $453.7 million,  up
64 percent, over premiums collected during 1995. When all currently consolidated
companies  are  included  for all  periods,  including  periods  prior  to their
acquisition,  this segment  collected total premiums of $665.6  million,  up 1.1
percent from 1995.

       Interest-sensitive  life products.  These products include universal life
products  that provide  whole life  insurance  with  adjustable  rates of return
related to current  interest rates.  They accounted for $271.5  million,  or 8.4
percent,  of the  Company's  total  collected  premiums in 1996 and are marketed
primarily through professional  independent producers. The principal differences
between  universal  life products and other  interest-sensitive  life  insurance
products  are  policy  provisions  affecting  the  amount  and timing of premium
payments.  Universal life policyholders may vary the frequency and size of their
premium payments,  although policy benefits may also fluctuate according to such
payments.  Premium payments under other  interest-sensitive  policies may not be
varied  by the  policyholders  and,  as a result,  are  designed  to reduce  the
administrative costs typically associated with monitoring universal life premium
payments and policy benefits.


                                        6

<PAGE>

       Traditional  life.  These products  accounted for $182.2 million , or 5.7
percent,  of the Company's total collected  premiums in 1996.  Traditional  life
policies,  including whole life and term life products,  are primarily  marketed
through  professional  independent  producers.  Under whole life  policies,  the
policyholder  generally  pays a level premium over the  policyholders'  expected
lifetime. The annual premium in a whole life policy is generally higher than the
premium  for  comparable  term  insurance  coverage  in the  early  years of the
policy's life, but is generally lower than comparable term insurance coverage in
the later years of the  policy's  life.  These  policies,  which  continue to be
marketed by the Company on a limited basis,  combine insurance protection with a
savings  component  that  increases  in  amount  gradually  over the life of the
policy. The policyholder may borrow against the savings,  generally at a rate of
interest lower than that available from other lending sources.  The policyholder
may also choose to surrender the policy and receive the  accumulated  cash value
rather than continuing the insurance  protection.  Term life products offer pure
insurance  protection for a specified  period of time -- typically one, five, 10
or 20 years.

       Other

       This segment includes  miscellaneous  health products,  including Bankers
Life's  comprehensive  and  group  products.  Bankers  Life  markets  its  group
insurance  products  through  a  small  field  force  of   representatives   and
independent  insurance  brokerage  firms. In recent years,  Bankers Life has not
emphasized group insurance sales, but does write new business when the potential
new  contract  carries  a  high  likelihood  of   profitability   and  long-term
persistency.  During 1996,  this segment  collected  premiums of $389.2 million.
When  all  currently  consolidated  companies  are  included  for  all  periods,
including periods prior to their acquisition, this segment collected premiums of
$420.6 million, down 21 percent from 1995.

       This segment also  includes  fee revenue  generated by Conseco's  nonlife
subsidiaries,  including the investment  advisory fees earned by Conseco Capital
Management,  Inc. ("CCM") and commissions earned for insurance product marketing
and  distribution.  Fee revenues from Conseco's  consolidated  subsidiaries  are
excluded.  Total fees earned from nonaffiliates  during 1996 were $49.8 million,
up 14 percent over 1995.

       MARKETING AND DISTRIBUTION

       Conseco's insurance  subsidiaries are collectively licensed to market the
Company's insurance products in all states and in the District of Columbia,  and
certain  protectorates of the United States. Sales to residents of the following
states  accounted  for at  least  5  percent  of the  Company's  1996  collected
premiums: Illinois (10 percent), Florida (9.1 percent), California (8.7 percent)
, Texas (7.6 percent) and Michigan (6.6 percent).

       Conseco believes that people generally purchase life, accident and health
insurance and annuity  products  only after being  contacted and solicited by an
insurance agent.  Accordingly,  the success of the Company's distribution system
is dependent on its ability to attract and retain agents who are experienced and
highly motivated.

       In order to encourage agents to place a high volume of life, accident and
health  and  annuity  business  with  Conseco's  subsidiaries,   Conseco  offers
commission rate bonuses and  compensation  awards which increase with the volume
of new business written. Conseco has formed a marketing subsidiary to coordinate
the marketing  and  distribution  of its  insurance  companies and promote cross
selling of their products.

       A description of the Company's primary distribution channels follows:

       Career Agents.  This agency force of  approximately  2,800 agents working
from  200  branch   offices,   permits   one-on-one   contacts  with   potential
policyholders   and  promotes  strong  personal   relationships   with  existing
policyholders.  In 1996,  career agents  accounted for $1,263.0  million,  or 39
percent,  of the Company's total collected  premiums.  Most of these agents sell
only Conseco policies and typically visit the prospective policyholder's home to
conduct personalized  "kitchen-table" sales presentations.  After the sale of an
insurance  policy,  the  agent  serves  as a  contact  person  for  policyholder
questions,  claims  assistance and additional  insurance needs. The personalized
marketing  and service  efforts of the career  field  agents,  supported by home
office  persistency  programs,   have  contributed  to  a  persistency  rate  of
approximately  86 percent on Medicare  supplement  policies  sold  through  this
channel. Although independent statistics are not available, the Company believes
its  persistency  rate is one of the  highest  among the major  writers  of such
policies.

       Professional Independent Producers. This distribution channel consists of
a general  agency and  insurance  brokerage  distribution  system  comprised  of
approximately  125,000 independent licensed agents doing business in all states.
In 1996,  this channel  accounted for $1,947.4  million,  or 61 percent,  of the
Company's total collected premiums.

                                        7

<PAGE>

       Professional  independent  producers are a diverse network of independent
agents,  insurance  brokers and  marketing  organizations.  Marketing  companies
typically  recruit agents for Conseco by advertising the Company's  products and
its commission  structure through direct mail  advertising,  or through seminars
for insurance  agents and brokers.  These  organizations  bear most of the costs
incurred in marketing the Company's products.  Conseco compensates the marketing
organizations by paying them a percentage of the commissions earned on new sales
generated  by the  agents  recruited  by such  organizations.  Certain  of these
marketing  organizations  are  specialty  organizations  that  have a  marketing
expertise or a distribution  system  relating to a particular  product,  such as
sales of flexible-premium annuities to educators.

       A portion of the  Company's  business  is  distributed  through a "Client
Company"  marketing  system,  whereby agents and other insurance  companies have
entered  into  agreements  to  market  the  Company's   products  through  their
professional  independent producer distribution  systems.  Under the agreements,
such groups  assume up to 50 percent of the business each write  (through  agent
owned  reinsurance  companies or existing  life  insurance  companies).  Conseco
retains  assets  equal to the  reserves  of each  Client  Company  and  provides
substantially all  administrative  services for a fee. Of the Company's $3,210.4
million of  collected  premiums in 1996,  3.1 percent  were  collected by groups
participating in the Client Company program.

       ADMINISTRATION

       Conseco minimizes  operating expenses by centralizing,  standardizing and
more  efficiently  performing  many  functions  common  to most  life  insurance
companies.  These  functions  include  underwriting  and policy  administration,
accounting and financial reporting, marketing, regulatory compliance,  actuarial
services and asset management.

       The administration of the Company's  individual health insurance products
involves higher volumes of claims,  contacts with  policyholders and operational
costs,  compared to the administration of life insurance or annuity policies. In
1996, the Company  processed more than 6.5 million  individual  health insurance
policyholder  claims.  Conseco has developed an efficient  and highly  automated
policyholder administration operation to minimize the costs of such large volume
processing  and  deliver a high  level of  service  to its  policyholders,  with
special emphasis on the prompt payment of claims. In most cases, Conseco mails a
check within a week of receiving a claim from a policyholder.  Conseco  believes
that its promptness in processing  policyholder claims is a major reason for its
strong reputation for service and the above-average  persistency of its Medicare
supplement products.

       INVESTMENTS

       CCM, a registered investment adviser wholly owned by Conseco, manages the
investment  portfolios of Conseco's  subsidiaries.  CCM had approximately $31.1
billion of assets (at fair value) under  management  at December  31,  1996,  of
which $18.5 billion were assets of Conseco's subsidiaries and $12.6 billion were
assets of unaffiliated  companies.  CCM's investment philosophy is to maintain a
largely investment-grade  fixed-income portfolio, provide adequate liquidity for
expected  liability  durations and other  requirements and maximize total return
through active investment management.

       Investment  activities  are an integral part of the  Company's  business;
investment  income is a significant  component of the Company's  total revenues.
Profitability  of many of the Company's  products is  significantly  affected by
spreads  between  interest yields on investments and rates credited on insurance
liabilities. Although substantially all credited rates on SPDAs and FPDAs may be
changed  annually,  changes in crediting rates may not be sufficient to maintain
targeted  investment  spreads  in  all  economic  and  market  environments.  In
addition,  competition  and other factors,  including the impact of the level of
surrenders  and  withdrawals,  may limit the  Company's  ability to adjust or to
maintain crediting rates at levels necessary to avoid narrowing of spreads under
certain market conditions.  As of December 31, 1996, the average yield, computed
on the cost basis of the Company's investment portfolio, was 7.8 percent and the
average  interest rate credited on the Company's  interest  sensitive  products,
excluding interest bonuses guaranteed for the first year of the annuity contract
only, was 5.1 percent.

       The Company seeks to balance the duration of its invested assets with the
expected duration of benefit payments arising from its insurance liabilities. At
December  31, 1996,  the  adjusted  modified  duration of fixed  maturities  and
short-term  investments  was  approximately  six years and the  duration  of the
Company's insurance liabilities was approximately seven years.

       For  information  regarding the composition  and  diversification  of the
investment portfolio of Conseco's subsidiaries, see "Management's Discussion and
Analysis  of  Consolidated  Financial  Condition  and  Results of  Operations  -
Investments" and note 3 to the consolidated financial statements.

                                        8
<PAGE>

       COMPETITION

       Conseco's  businesses  operate in a highly competitive  environment.  The
life insurance industry consists of a large number of insurance companies,  some
of which are larger  and have  greater  financial  resources,  broader  and more
diversified  product lines and larger staffs than those of Conseco. An expanding
number of banks,  securities brokerage firms and other financial  intermediaries
also market insurance products or offer competing products,  such as mutual fund
products,  traditional  bank  investments  and other  investment  and retirement
funding  alternatives.  Conseco also competes  with many of these  companies and
others in providing services for fees. In most areas,  competition is based on a
number of factors,  including  pricing,  service  provided to  distributors  and
policyholders,  and ratings. Conseco's subsidiaries must also compete with other
insurers to attract and retain the allegiance of agents.


       Financial institutions, school districts, marketing companies, agents who
market insurance  products and policyholders use the financial  strength ratings
assigned  to an  insurer  by  independent  rating  agencies  as  one  factor  in
determining which insurer's products to market or purchase.  The following table
summarizes the ratings of the Company's primary life insurance companies:
<TABLE>
<CAPTION>

                                                                                   Duffs & Phelps        Standard &
                                                                     A.M. Best      Credit Rating          Poor's
Company                                                               rating           Company           Corporation
-------                                                               ------           -------           -----------
<S>                                                                     <C>              <C>                 <C>
ALC.............................................................        A -                                  A -
American Travellers.............................................        A -                                  BBB +
Bankers Life....................................................        A                AA -                BBBq
Beneficial Standard.............................................        A                A +                 BBBq
Great American Reserve..........................................        A                A +                 BBBq
Lamar Life......................................................        A                A +                 BBBq
Massachusetts General...........................................        A                A +                 BBq
Philadelphia Life...............................................        A                A +                 Aq
Transport Life..................................................        A -                                  BBBq
</TABLE>


       A.M.  Best  Company  ("A.M.  Best")  insurance  company  ratings  for the
industry  currently  range  from  "A++  (Superior)"  to  "F  (In  Liquidation)".
Publications of A.M. Best indicate that the "A" and "A-" ratings are assigned to
those  companies  that, in A.M.  Best's  opinion,  have  demonstrated  excellent
overall performance when compared to the standards  established by A.M. Best and
have  demonstrated a strong ability to meet their  obligations to  policyholders
over a long period of time. A.M. Best's rating procedure  includes  quantitative
and  qualitative  evaluations of a company's  financial  condition and operating
performance.  Its quantitative evaluation is based on an analysis of a company's
financial performance in the areas of profitability, leverage/capitalization and
liquidity.  A.M.  Best's  review also  includes a  qualitative  evaluation  of a
company's  spread  of  risk,  quality  and  appropriateness  of the  reinsurance
program,  quality  and  diversification  of assets,  adequacy  of policy or loss
reserves,   management   experience   and   objectives,   market   presence  and
policyholders' confidence.

       After the LPG Merger in August 1996,  A.M.  Best  upgraded the ratings of
Bankers Life, Great American Reserve and Beneficial  Standard to "A" (Excellent)
from "A-"  (Excellent).  In addition,  A.M.  Best  affirmed the "A"  (Excellent)
ratings of Philadelphia Life,  Massachusetts General and Lamar Life and affirmed
the "A-"  (Excellent)  rating of ALC.  Among the reasons A.M. Best cited for the
ratings upgrades and  reaffirmations  were the benefits Conseco will derive as a
result of the LPG Merger  including:  (i) improved  unit costs  arising from the
integration of administrative, financial, investment, marketing and underwriting
functions;  (ii)  expanded  distribution  capacity and  increased  cross-selling
opportunities;  and  (iii)  a more  diversifed  product  portfolio  that  should
generate more balanced and predictable  revenue and earnings sources.  A.M. Best
also views favorably the continuing  improvement in Conseco's financial leverage
and Conseco's commitment to maintain debt/total capital at or below 35 percent.

       Duff & Phelps' Credit Rating Company  claims-paying ability ratings range
from "AAA (Highest claims-paying  ability)" to "DD (Company is under an order of
liquidation)."  An "AA-" rating  represents  "Very high claims paying  ability."
Publications  of Duff & Phelps  indicate that the "A+" rating  represents  "High
claims-paying  ability". A plus or minus sign attached to a Duff & Phelps claims
paying rating shows relative standing within a ratings category.

                                        9

<PAGE>

       Standard & Poor's Corporation ("Standard & Poor's") claims-paying ability
ratings  range  from "AAA  (Superior)"  to "R  (Regulatory  Action)".  An "A" is
assigned by Standard & Poor's to those companies  which, in its opinion,  have a
secure  claims-paying  ability and whose financial capacity to meet policyholder
obligations  is viewed on  balance  as sound,  but their  capacity  to meet such
policyholder  obligations  is somewhat more  susceptible  to adverse  changes in
economic or underwriting  conditions than more highly rated insurers. A "BBB" is
assigned by Standard & Poor's to those  companies  which,  in its opinion,  have
adequate financial security, but their capacity to meet policyholder obligations
is  susceptible  to adverse  economic  and  underwriting  conditions.  A "BB" is
assigned by Standard & Poor's to those  companies  which,  in its opinion,  have
adequate   financial   security,   but  their  capacity  to  meet   policyholder
obligations,  particularly with respect to long-term or "long-tail" policies, is
vulnerable  to  adverse  economic  and  underwriting  conditions.  According  to
Standard & Poor's,  a minus sign  attached to a Standard & Poor's  claims-paying
rating  shows  relative  standing  within a ratings  category.  A "q"  subscript
indicates that the rating is based solely on  quantitative  analysis of publicly
available financial data.

       Generally,  rating agencies base their ratings upon information furnished
to  them  by  the  insurer  and  upon  their  own  investigations,  studies  and
assumptions.  A.M.  Best's  ratings,  Duff & Phelps'  claims-paying  ratings and
Standard & Poor's  claims-paying  ratings are principally  based upon factors of
concern to policyholders,  agents and intermediaries and are not directed toward
the  protection  of  investors.  Given the  competitive  nature of the Company's
business and the  increasing  focus placed on the  aforementioned  ratings,  the
Company manages its business with the objective of preserving  existing  ratings
and, where possible, achieving more favorable ratings. There can be no assurance
that any  particular  rating will continue for any given period of time, or that
it will not be changed or withdrawn  entirely if, in the judgement of the rating
agency,  circumstances so warrant. If the Company's ratings were downgraded from
their current levels,  sales of its products and the persistency of its in-force
policies could be adversely affected in a material way.

       In the individual health insurance business,  insurance companies compete
primarily on the basis of marketing,  service and price.  The  provisions of the
Omnibus  Budget  Reconciliation  Act of  1984  and  the  work  of  the  National
Association  of  Insurance  Commissioners  ("NAIC")  (an  association  of  state
regulators and their staffs) have resulted in  standardized  policy features for
Medicare supplement products.  This increases the comparability of such policies
and may intensify competition based on factors other than product features.  See
"Underwriting" and "Government Regulation." In addition to the products of other
insurance companies, the Company's health insurance products compete with health
maintenance  organizations,  preferred provider organizations,  and other health
care-related  institutions  which provide medical  benefits based on contractual
agreements.

       The Company  believes  that its  insurance  companies are able to compete
effectively because: (i) they emphasize specialized distribution channels, where
the ability to respond  rapidly to changing  customer needs yields a competitive
edge; (ii) they are experienced in  establishing  and cultivating  relationships
with the unique  distribution  networks and the independent  marketing companies
operating in these specialized  markets;  (iii) they can offer competitive rates
as a result of their lower-than-average  operating costs and higher-than-average
investment  yields achieved by applying active investment  portfolio  management
techniques;  and (iv) they have reliable policyholder  administrative  services,
supported by customized information technology systems.

       UNDERWRITING

       Under regulations  promulgated by the NAIC and adopted as a result of the
Omnibus  Budget  Reconciliation  Act of 1990,  the  Company is  prohibited  from
underwriting its Medicare supplement policies for certain first-time purchasers.
If a person applies for insurance  within six months after becoming  eligible by
reason of age, or disability in certain limited  circumstances,  the application
may not be rejected due to medical  conditions.  For other prospective  Medicare
supplement  policyholders,  such as  senior  citizens  who are  transferring  to
Conseco's products, the underwriting  procedures are relatively limited,  except
for policies providing prescription drug coverage.

       Before issuing long-term care or comprehensive  major medical products to
individuals  and  groups,   Conseco  generally  applies  detailed   underwriting
procedures designed to assess and quantify the insurance risks. Conseco requires
medical  examinations  of  applicants  (including  blood and urine tests,  where
permitted) for certain health insurance products and for life insurance products
which  exceed  prescribed  policy  amounts.  These  requirements  are  graduated
according  to the  applicant's  age and may vary by type of policy  or  product.
Conseco also relies on medical records and the potential  policyholder's written
application.

       Substantially  all the life  insurance  policies  issued by  Conseco  are
underwritten  individually,  although standardized  underwriting procedures have
been adopted for certain low face-amount life insurance coverages. After initial
processing,  insurance  underwriters review each file and obtain the information
needed to make an underwriting decision (such as medical examinations,  doctors'
statements  and special  medical  tests).  After  collecting  and  reviewing the
information,  the underwriter either: (i) approves the policy as applied for, or
with an extra premium charge because of unfavorable factors; or (ii) rejects the
application.   Conseco   underwrites  group  insurance  policies  based  on  the
characteristics  of the group and its past  claim  experience.  There is minimal
underwriting on SPDAs and FPDAs.

                                       10

<PAGE>
       REINSURANCE

       Consistent with the general practice of the life insurance industry,  the
Company's  subsidiaries  enter into both  facultative  and treaty  agreements of
indemnity  reinsurance  with  other  insurance  companies  in order to  reinsure
portions  of the  coverage  provided  by  their  insurance  products.  Indemnity
reinsurance  agreements are intended to limit a life insurer's maximum loss on a
large  or  unusually  hazardous  risk  or  to  diversify  its  risk.   Indemnity
reinsurance does not discharge the original  insurer's  primary liability to the
insured. The Company's reinsured business is ceded to numerous  reinsurers.  The
Company  believes  the  assuming  companies  are able to honor  all  contractual
commitments,  based  on  the  Company's  periodic  reviews  of  their  financial
statements,  insurance  industry  reports and reports filed with state insurance
departments.

       As of December 31, 1996, the policy risk retention  limit was $.8 million
or less on all of the policies of the Company's subsidiaries.  Reinsurance ceded
by Conseco  represented 23 percent of gross combined life insurance in force and
reinsurance  assumed  represented  4.6 percent of net combined life insurance in
force. At December  31,1996,  the total ceded business  inforce of $22.3 billion
included:  (i) $5.5 billion ceded to Client  Companies for which Conseco retains
assets equal to the reserves on the business ceded;  (ii) $13.0 billion ceded to
insurance companies rated "A (Excellent)" or better by A.M. Best, and (iii) $2.9
billion ceded to American Equity Investment Life Insurance Company, which is not
rated  because,  according to A.M.  Best, it did not have  sufficient  operating
history to evaluate its  performance.  The  Company's  principal  reinsurers  at
December  31, 1996  (which  assume  approximately  60 percent of the total ceded
business  inforce,  excluding  business  ceded  to the  Client  Companies)  were
American Equity  Investment  Life Insurance  Company,  Connecticut  General Life
Insurance  Company,  Life Reassurance  Corporation of America,  Lincoln National
Life Insurance Company,  Reliance Standard Life Insurance Company and Mercantile
and General Life Reassurance  Company. No other single reinsurer assumes greater
than 5 percent of the total ceded business inforce.

       EMPLOYEES

       At  December  31,  1996,  Conseco  had  approximately   3,700  employees,
including: (i) 1,850 home office employees;  (ii) 1,250 employees in the Chicago
office (primarily  involved with the Company's  supplemental health operations);
and (iii) 600 employees in branch  offices  (primarily  supporting the Company's
career  agency  force).  None  of  the  Company's  employees  are  covered  by a
collective  bargaining  agreement.   Conseco  believes  that  it  has  excellent
relations with its employees.

       GOVERNMENTAL REGULATION

       General

       Conseco's   insurance   subsidiaries   are  subject  to  regulation   and
supervision by the states in which they transact business.  State laws generally
establish  supervisory agencies with broad regulatory  authority,  including the
power to: (i) grant and revoke  business  licenses;  (ii) regulate and supervise
trade practices and market conduct; (iii) establish guaranty associations;  (iv)
license  agents;  (v) approve policy forms;  (vi) approve premium rates for some
lines of business;  (vii) establish reserve  requirements;  (viii) prescribe the
form and content of required  financial  statements and reports;  (ix) determine
the  reasonableness  and  adequacy of  statutory  capital and  surplus;  and (x)
regulate the type and amount of permitted  investments.  The Company's insurance
subsidiaries   are  subject  to  periodic   examinations  by  state   regulatory
authorities. Management does not expect the results of any on-going examinations
to have a material effect on the financial condition of the Company.

       Most states have also enacted  regulations on the activities of insurance
holding company systems,  including acquisitions,  extraordinary  dividends, the
terms of surplus  debentures,  the terms of  affiliate  transactions,  and other
related  matters.  Currently,  the Company and its insurance  subsidiaries  have
registered  as holding  company  systems  pursuant  to such  legislation  in the
domiciliary states of the insurance subsidiaries (Alabama, California, Illinois,
Iowa, Kentucky, Massachusetts,  Missouri, New York, Pennsylvania,  Tennessee and
Texas) and they routinely report to other  jurisdictions.  Recently, a number of
state  legislatures have considered or have enacted  legislative  proposals that
alter,  and in many cases increase,  the authority of state agencies to regulate
insurance  companies and holding  company  systems.  For further  information on
state  laws   regulating   the  payment  of  dividends   by  insurance   company
subsidiaries,   see  "Management's   Discussion  and  Analysis  of  Consolidated
Financial Position and Results of Operations - Consolidated Financial Condition"
and note 13 to Conseco's consolidated financial statements.

       The federal government does not directly regulate the insurance business.
However,  federal  legislation  and  administrative  policies in several  areas,
including pension  regulation,  age and sex  discrimination,  financial services
regulation and federal taxation,  do affect the insurance business. In addition,
legislation  has been  introduced  from time to time in recent years  which,  if
enacted,  could result in the federal government  assuming a more direct role in
the regulation of the insurance industry.
                                       11

<PAGE>
       In December 1992, the NAIC adopted the Risk-Based Capital for Life and/or
Health  Insurers Model Act (the "Model Act").  The Model Act provides a tool for
insurance  regulators  to determine the levels of capital and surplus an insurer
must  maintain in relation to its  insurance  and  investment  risks and whether
there is a need for  possible  regulatory  attention.  The Model Act (or similar
legislation  or  regulation)  has been  adopted  in states  where the  Company's
insurance subsidiaries are domiciled.

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

       The Texas Insurance Department has adopted its own RBC requirements,  the
stated  purpose of which is to require a minimum level of capital and surplus to
absorb the financial,  underwriting, and investment risks assumed by an insurer.
Texas' RBC  requirements  differ from those adopted by the NAIC in two principal
respects:  (i) they use  different  elements to determine  minimum RBC levels in
their calculation formulas; and (ii) they do not stipulate "Action Levels" (like
those adopted by the NAIC) where corrective actions are required.  However,  the
Commissioner  of the  Texas  Insurance  Department  does  have the power to take
similar  corrective  actions if a company does not maintain the required minimum
level of capital and surplus.  Under the Texas  Regulations,  an insurer has met
RBC  requirements  if its admitted  assets exceed its  liabilities by at least 3
percent.  Bankers National,  Great American Reserve,  United General, TLIC Life,
Transport Life and Continental  Life are domiciled in Texas and must comply with
Texas RBC  requirements.  At December  31, 1996,  the  admitted  assets of these
companies exceeded liabilities by more than twice the required 3 percent level.

       Most states have either  enacted  legislation  or adopted  administrative
regulations  which affect the  acquisition of control of insurance  companies as
well as transactions  between insurance  companies and persons controlling them.
The nature and extent of such  legislation  and  regulations  vary from state to
state.  Most  states,  however,  require  administrative  approval  of:  (i) the
acquisition  of 10 percent  or more of the  outstanding  shares of an  insurance
company incorporated in the state; or (ii) the acquisition of 10 percent or more
of the  outstanding  stock  of an  insurance  holding  company  whose  insurance
subsidiary is incorporated  in the state.  The acquisition of 10 percent of such
shares is generally  deemed to be the  acquisition of control for the purpose of
the holding company  statutes.  These  regulations  require the acquirer to file
detailed   information   concerning  the  acquiring  parties  and  the  plan  of
acquisition,  and to obtain administrative approval prior to the acquisition. In
many states, however, an insurance authority may determine that control does not
exist,  even in circumstances in which a person owns or controls 10 percent or a
greater amount of securities.

       On  the  basis  of  statutory  statements  filed  with  state  regulators
annually, the NAIC calculates twelve financial ratios to assist state regulators
in monitoring the financial condition of insurance companies. A "usual range" of
results for each ratio is used as a benchmark. In the past, variances in certain
ratios of the Company's  insurance  subsidiaries have resulted in inquiries from
insurance departments to which the Company has responded. Such inquiries did not
lead to any restrictions affecting the Company's operations.

       Under the  solvency  or  guaranty  laws of most  states in which  they do
business,  Conseco's insurance subsidiaries may be required to pay guaranty fund
assessments (up to certain prescribed limits). Guaranty funds are established by
various states to fund  policyholder  losses or the  liabilities of insolvent or
rehabilitated insurance companies. These assessments may be deferred or forgiven
under most guaranty laws if they would threaten an insurer's financial strength.
In certain  instances,  the  assessments  may be offset  against  future premium
taxes. The Company believes that the liability established at December 31, 1996,
is sufficient to provide for  assessments  related to known  insolvencies.  This
reserve is based upon  management's  current  expectation of the availability of
this right of offset and state guaranty fund assessment bases. However,  changes
in the basis whereby assessments are charged to individual  companies or changes
to the  availability  of the right to offset  assessments  against  premium  tax
payments could materially affect the Company's results.  The Company's insurance
subsidiaries  statutory  financial  statements  for the year ended  December 31,
1996, include $11.3 million of expenses as a result of such assessments.

                                       12

<PAGE>

       Health Care

       Most  states  mandate  minimum  benefit  standards  and loss  ratios  for
accident and health  insurance  policies.  The Company is generally  required to
maintain,  with  respect  to its  individual  long term care  policies,  minimum
anticipated  loss ratios over the entire  period of coverage of not less than 60
percent.  With  respect to its  Medicare  supplement  policies,  the  Company is
generally  required to attain and  maintain  an actual  loss ratio,  after three
years,  of not less than 65 percent.  The  Company  provides,  to the  insurance
departments  of all states in which it conducts  business,  annual  calculations
that demonstrate compliance with required minimum loss ratios for both long term
care  and  Medicare  supplement  insurance.   These  calculations  are  prepared
utilizing  statutory  lapse  and  interest  rate  assumptions.  In the event the
Company  has  failed to  maintain  minimum  mandated  loss  ratios,  it could be
required to provide  retrospective  refunds and/or  prospective rate reductions.
The Company  believes that it currently  complies with all  applicable  mandated
minimum loss ratios.

       NAIC model  regulations,  adopted  by all  states,  created  10  standard
Medicare  supplement  plans  (Plans A  through  J).  Plan A  provides  the least
extensive  coverage,  while Plan J provides the most extensive  coverage.  Under
NAIC regulations,  Medicare insurers must offer Plan A, but may offer any of the
other plans at their option.  Conseco  currently offers nine of the model plans.
Conseco has declined to offer Plan J, due in part to its high benefit levels and
consequently high costs to the consumer.

       Numerous  proposals  to reform the  current  health care system have been
introduced  in Congress and the state  legislatures.  Proposals  have  included,
among other  things,  modifications  to the  existing  employer-based  insurance
system, a quasi-regulated  system of "managed  competition"  among health plans,
and a  single-payer,  public  program.  Changes  in  health  care  policy  could
significantly affect Conseco's business.  Federal comprehensive major medical or
long-term care programs,  if proposed and implemented,  could partially or fully
replace some of Conseco's current products, for example.

       A number of states have passed or are considering  legislation that would
limit the  differentials  in rates that  insurers  could  charge for health care
coverages  between new  business and renewal  business  for similar  demographic
groups.  State  legislation  has also been adopted or is being  considered  that
would make health insurance  available to all small groups by requiring coverage
of all  employees  and  their  dependents,  by  limiting  the  applicability  of
pre-existing conditions exclusions,  by requiring insurers to offer a basic plan
exempt from certain  benefits as well as a standard  plan, or by  establishing a
mechanism to spread the risk of high risk employees to all small group insurers.

       The NAIC recently adopted model long-term care policy language  providing
nonforfeiture  benefits  and has  proposed  a rate  stabilization  standard  for
long-term  care  policies.  Various bills  proposed in the U.S.  Congress  would
provide for the implementation of certain minimum consumer protection  standards
for inclusion in all long-term care policies, including guaranteed renewability,
protection against inflation and limitations on waiting periods for pre-existing
conditions.  Other  recently  adopted  legislation  permits  premiums  paid  for
long-term care insurance to be treated as tax-deductible medical expenses.

       The Company  cannot predict with certainty the effect that any proposals,
if  adopted,  or  legislative  developments  could  have  on  its  business  and
operations.

       FEDERAL INCOME TAXATION

       The annuity and life insurance  products marketed and issued by Conseco's
subsidiaries generally provide the policyholder with an income tax advantage, as
compared to other saving  investments such as certificates of deposit and bonds,
in that  income  taxation  on the  increase  in value of the product is deferred
until it is received by the policyholder.  With other savings  investments,  the
increase  in value is taxed as  earned.  Annuity  benefits,  and life  insurance
benefits which accrue prior to the death of the policyholder,  are generally not
taxable until paid.  Life  insurance  death  benefits are generally  exempt from
income  tax.  Also,   benefits  received  on  immediate  annuities  (other  than
structured  settlements) are recognized as taxable income ratably, as opposed to
the methods used for some other  investments  which tend to  accelerate  taxable
income into earlier years. The tax advantage for annuities and life insurance is
provided in the Internal Revenue Code (the "Code"), and is generally followed in
all states and other United States taxing  jurisdictions.  Accordingly,  the tax
advantage  is  subject  to change by  Congress  and by the  legislatures  of the
respective taxing jurisdictions.

                                       13

<PAGE>

       Conseco's  insurance  company  subsidiaries  are  taxed  under  the  life
insurance  company  provisions  of the Code.  Provisions  in the Code  require a
portion of the expenses  incurred in selling  insurance  products to be deducted
over a period of years, as opposed to immediate  deduction in the year incurred.
This  provision  increases  the tax for  statutory  accounting  purposes,  which
reduces  statutory  surplus  and,  accordingly,  decreases  the  amount  of cash
dividends  that may be paid by the life insurance  subsidiaries.  As of December
31, 1996,  the  cumulative  taxes paid as a result of this provision were $175.2
million.

       The  Company  had  tax  loss  carryforwards  at  December  31,  1996,  of
approximately $441.1 million, portions of which begin expiring in 1999. However,
the amount of such loss that may be offset  against  current  taxable  income is
subject to the following limitations: (i) losses may be offset against income of
other  corporate  entities  only if  such  entities  are  included  in the  same
consolidated  tax return  (insurance  companies  are  currently not eligible for
inclusion in Conseco's  consolidated  tax return until five years after they are
acquired);  (ii) losses incurred in non-life  companies  (which comprise most of
the loss  carryforwards) may offset only a portion of income from life companies
in the same consolidated tax return;  and (iii) some loss  carryforwards may not
be used to  offset  taxable  income  of  entities  acquired  after  the loss was
incurred. The Company,  however, believes it will be able to utilize all current
loss carryforwards before they expire.

       ITEM 2. PROPERTIES.

       The Company's  principal  operations are located on a 170-acre  corporate
campus in Carmel, Indiana,  immediately north of Indianapolis.  These facilities
contain  approximately  525,000  square feet of space in eight  buildings  which
contain Conseco's executive offices and certain administrative operations of its
subsidiaries. These facilities include sufficient capacity for future growth.

       Conseco's  supplemental health products are primarily administered from a
single  facility  of  300,000  square  feet in  downtown  Chicago  leased  under
agreement with a remaining life of 11 years.  Conseco also leases  approximately
130,000  square feet of  warehouse  space in a second  Chicago  facility  with a
remaining  life  of  six  years.  Conseco  leases  210  sales  offices  totaling
approximately 363,000 square feet. All of the sales office leases are short-term
in length, with remaining lease terms ranging from one to five years.

       ITEM 3. LEGAL PROCEEDINGS.

       Conseco and its subsidiaries are involved in lawsuits  primarily  related
to their  operations.  Most of these  lawsuits  involve  claims under  insurance
policies  or  other  contracts  of  the  Company.  Even  though  Conseco  may be
contesting the validity or extent of its liability in response to such lawsuits,
the Company has established  reserves in its consolidated  financial  statements
for its estimated potential liability and cost of defense.  Accordingly, none of
the lawsuits  currently  pending,  either  individually or in the aggregate,  is
expected  to  have a  material  adverse  effect  on the  Company's  consolidated
financial condition or results of operations.

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

       On November 26, 1996,  Conseco held a special  meeting of shareholders to
approve and adopt an  Agreement  and Plan of Merger  dated as of August 25, 1996
between  Conseco  and  American   Travellers   Corporation.   Shareholders  cast
52,395,561  votes for and 77,148  votes  against the ATC Merger,  and there were
345,620 abstentions.


                                       14

<PAGE>




        OPTIONAL ITEM.  EXECUTIVE OFFICERS OF THE REGISTRANT.
<TABLE>
<CAPTION>

         Officer                                                    Positions with Conseco, principal
    name and age (a)                  Since                      occupation and business experience (b)
    ----------------                  -----                      --------------------------------------
    <S>                               <C>            <C>    
    Stephen C. Hilbert, 51.........   1979           Since 1979, Chairman of the Board and Chief Executive Officer and, since
                                                     1988, President of Conseco.

    Ngaire E. Cuneo, 46 ...........   1992           Since 1992, Executive Vice President, Corporate Development and, since
                                                     1994, Director of Conseco; from 1986 to 1992, Senior Vice President and
                                                     Corporate Officer of General Electric Capital Corporation.

    Rollin M. Dick, 65.............   1986           Since 1986, Executive Vice President, Chief Financial Officer and Director of
                                                     Conseco.

    Donald F. Gongaware, 61........   1985           Since 1985, Executive Vice President and Director of Conseco; since 1989,
                                                     Chief Operations Officer of Conseco; and, since 1996, President of Conseco
                                                     Marketing, LLC.

    Lawrence W. Inlow, 46..........   1986           Since 1986, Executive Vice President and General Counsel of Conseco.


-------------------
<FN>

    (a)   The executive officers serve as such at the discretion of the Board of
          Directors and are elected at the annual meeting of the Board.

    (b)   Business experience is given for at least the last five years.
</FN>
</TABLE>

                                       15

<PAGE>



                                     PART II

       ITEM 5.  MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
                MATTERS.

       MARKET INFORMATION

       The common stock of Conseco  (trading  symbol  "CNC") has been listed for
trading on the New York Stock  Exchange (the "NYSE")  since 1986.  The following
table sets forth the quarterly  dividends  paid per share and the ranges of high
and low sales prices per share on the NYSE for the last two fiscal years,  based
upon  information  supplied by the NYSE. All applicable per share data have been
adjusted  for the  two-for-one  stock  splits  distributed  April 1,  1996,  and
February 11, 1997.
<TABLE>
<CAPTION>

                      Period                                       Market price                  
                      ------                                       ------------                  Dividend
                                                               High           Low                   paid
                                                               ----           ---                   ----
          <S>                                                <C>            <C>                    <C>

                      1995:
         First Quarter...................................... $12-5/32       $ 8-1/8                $.03125
         Second Quarter.....................................  11-21/32        9-25/32               .03125
         Third Quarter......................................  13-5/16         11-3/8                  .005
         Fourth Quarter.....................................  15-25/32        12-23/32                .005

                      1996:
         First Quarter...................................... $18-5/32        $14-15/16               $.005
         Second Quarter.....................................  20-3/8          17-3/8                   .01
         Third Quarter......................................  24-11/16        17-5/8                   .01
         Fourth Quarter.....................................  33-1/8          24-7/16               .03125
</TABLE>

       As of March 14,  1997,  there were  approximately  72,000  holders of the
outstanding  shares  of  common  stock,  including  individual  participants  in
securities position listings.

       DIVIDENDS

       Cash dividends are paid quarterly,  at an amount  determined by Conseco's
Board of  Directors.  The  Company's  general  policy is to  retain  most of its
earnings.  Retained  earnings  have been  used:  (i) to  finance  the growth and
development of the Company's business through acquisitions or otherwise; (ii) to
pay   preferred   stock   dividends;   (iii)   to  pay   distributions   on  the
Company-obligated  mandatorily  redeemable preferred stock of subsidiary trusts;
and (iv) to  repurchase  common  stock on those  occasions  when the Company has
determined  that its shares were  undervalued  in the market and that the use of
funds for stock repurchases would not interfere with other cash needs.

       Conseco has paid all  cumulative  dividends  on its  preferred  stock and
distributions  on  its   Company-obligated   mandatorily   redeemable  preferred
securities of subsidiary  trusts when due. The Company is prohibited from paying
common stock dividends if such payments are not current.

       Conseco's  ability to pay dividends  depends  primarily on the receipt of
cash  dividends  and other cash payments  from its  subsidiaries.  The principal
operating  subsidiaries of Conseco are life insurance  companies organized under
state laws and subject to regulation by state insurance departments.  These laws
and  regulations  limit  the  ability  of  insurance  subsidiaries  to make cash
dividends,  loans or advances  to a holding  company  such as Conseco.  However,
these laws  generally  permit the payment,  without  prior  approval,  of annual
dividends  which in the  aggregate  do not  exceed  the  greater of (or in a few
states,  the  lesser  of):  (i)  the  subsidiary's  prior  year  net  gain  from
operations;  or (ii) 10 percent of surplus  attributable to policyholders at the
prior year-end,  both computed on the statutory  basis of accounting  prescribed
for insurance  companies.  Certain  Conseco notes payable require the Company to
maintain  financial  ratios which could also limit its ability to pay dividends.
See "Management's Discussion and Analysis of Results of Operations and Financial
Condition -- Liquidity and Capital Resources."

                                       16

<PAGE>
<TABLE>
<CAPTION>



       ITEM 6.  SELECTED CONSOLIDATED FINANCIAL DATA (a).

                                                                                 Years ended December 31,
                                                                                 ------------------------
                                                                1996          1995         1994         1993         1992
                                                                ----          ----         ----         ----         ----
                                                                       (Amounts in millions, except per share data)
<S>                                                            <C>          <C>         <C>           <C>            <C>   
STATEMENT OF OPERATIONS DATA
Insurance policy income.....................................   $1,654.2     $1,465.0    $1,285.6      $1,293.8       $378.7
Net investment income.......................................    1,302.5      1,142.6       385.7         896.2        888.6
Net investment gains (losses) ..............................       30.4        188.9       (30.5)        242.6        160.2
Total revenues..............................................    3,067.3      2,855.3     1,862.0       2,636.0      1,523.9
Interest expense on notes payable...........................      108.1        119.4        59.3          58.0         46.2
Total benefits and expenses.................................    2,573.7      2,436.8     1,537.6       2,025.8      1,193.9
Income before income taxes, minority interest and
  extraordinary charge......................................      493.6        418.5       324.4         610.2        330.0
Extraordinary charge on extinguishment of debt, net of tax..       26.5          2.1         4.0          11.9          5.3
Net income..................................................      252.4        220.4       150.4         297.0        169.5
Preferred dividends.........................................       27.4         18.4        18.6          20.6          5.5
Net income applicable to common stock.......................      225.0        202.0       131.8         276.4        164.0

PER SHARE DATA (b)
Net income, primary.........................................      $1.91       $ 2.35      $ 1.25        $ 2.36       $ 1.36
Net income, fully diluted...................................       1.77         2.11        1.22          2.19         1.35
Dividends declared per common share.........................       .083         .046        .125          .075         .021
Book value per common share outstanding.....................      16.86        10.22        5.22          8.45         5.46
Shares outstanding at year-end..............................      167.1         81.0        88.7         101.2         99.6
Average fully diluted shares outstanding....................      142.5        104.5       123.4         134.0        118.4

BALANCE SHEET DATA - PERIOD END
Total assets................................................  $25,612.7    $17,297.5   $10,811.9     $13,749.3    $11,772.7
Notes payable for which Conseco is directly liable..........    1,094.9        871.4       191.8         413.0        163.2
Notes payable of affiliates, not direct
   obligations of Conseco...................................       -           584.7       611.1         290.3        392.0
Total liabilities...........................................   21,829.7     15,782.5     9,743.2      12,382.9     11,154.4
Minority interests in consolidated subsidiaries:
  Company-obligated mandatorily redeemable
     preferred securities of subsidiary trusts..............      600.0          -            -            -            -
  Preferred stock...........................................       97.0        110.7       130.1           -            -
  Common stock..............................................         .7        292.6       191.6         223.8         24.0
Shareholders' equity .......................................    3,085.3      1,111.7       747.0       1,142.6        594.3

OTHER FINANCIAL DATA (b) (c)
Premiums collected (d)......................................   $3,210.4     $3,106.4    $1,879.1      $2,140.1     $1,464.9
Operating earnings (e)......................................      267.7        131.3       151.7         162.0        114.8
Operating earnings per fully diluted common share (e).......       1.89         1.26        1.23          1.19          .90
Shareholders' equity excluding unrealized appreciation
  (depreciation) of fixed maturity securities (f)...........    3,045.5        999.1       884.7       1,055.2        560.3
Book value per common share outstanding, excluding
  unrealized appreciation (depreciation) of fixed
  maturity securities (f)...................................      16.62         8.83        6.77          7.58         5.12
</TABLE>

(a)  Comparison of selected consolidated financial data in  the table  above  is
    significantly affected by: (i) the acquisitions consummated by Partnership I
    and Partnership II; (ii) the sale of WNC; (iii) the  transactions  affecting
    Conseco's  ownership  interest in BLH and CCP; (iv) the LPG Merger;  (v) the
    ATC  Merger;  and (vi) the THI  Merger.  For  periods  beginning  with their
    acquisitions  by  Partnership I and ending June 30, 1992,  Partnership I and
    its subsidiaries were consolidated with the financial statements of Conseco.
    Following the completion of the initial public offering by CCP in July 1992,
    Conseco did not have  unilateral  control to direct all of CCP's  activities
    and, therefore, did not consolidate the financial statements of CCP with the
    financial  statements of Conseco.  As a result of the purchase by Conseco of
    all the shares of common  stock of CCP it did not  already own on August 31,
    1995 (the "CCP Merger"),  the financial statements of CCP's subsidiaries are
    consolidated with the

                                       17

<PAGE>

    financial  statements  of Conseco,  effective  January 1, 1995.  Conseco has
    included BLH in its financial  statements  since  November 1, 1992.  Through
    December 31, 1993, the financial  statements of WNC were  consolidated  with
    the financial statements of Conseco. Following the completion of the initial
    public  offering  of  WNC in  early  1994  (and  subsequent  disposition  of
    Conseco's remaining equity interest in WNC), the financial statements of WNC
    were no longer consolidated with the financial  statements of Conseco. As of
    September 29, 1994, Conseco began to include in its financial statements the
    newly  acquired  Partnership  II  subsidiary,  ALH. On  September  30, 1996,
    Conseco  acquired  all of the  common  stock of ALH  which  Conseco  did not
    already  own from  Partnership  II.  As of July 1,  1996,  Conseco  began to
    include in its financial  statements  its newly  acquired  subsidiary,  LPG.
    Effective  December 31, 1996,  Conseco began to include in its balance sheet
    the  subsidiaries  acquired  in the ATC  Merger  and the  THI  Merger.  Such
    business  combinations  are  described  in the  notes  to  the  consolidated
    financial statements.
 
(b)  All share and  per-share  amounts   have  been  restated  to  reflect  the
     two-for-one stock splits paid on April 1, 1996 and February 11, 1997.

(c) Amounts  under this  heading are  included to assist the reader in analyzing
    the Company's financial position and results of operations. Such amounts are
    not intended to, and do not, represent  insurance policy income, net income,
    net income per share,  shareholders' equity or book value per share prepared
    in accordance with generally accepted accounting principles ("GAAP").

(d) Includes   premiums  received  from  universal  life  and  products  without
    mortality  or  morbidity  risk.  Such  premiums are not reported as revenues
    under  GAAP and were  $1,811.5  million in 1996;  $1,757.4  million in 1995;
    $634.6  million in 1994;  $891.9  million in 1993;  and $1,131.8  million in
    1992.

(e) Represents  income before  extraordinary  charge,  excluding net  investment
    gains  (losses)  (less  that  portion of change in future  policy  benefits,
    amortization of cost of policies purchased and cost of policies produced and
    income taxes relating to such gains) and  restructuring  activities  (net of
    income taxes).

(f) Excludes  the  effects  of  reporting  fixed  maturities  at fair  value and
    recording the unrealized  gain or loss on such  securities as a component of
    shareholders'  equity, net of tax and other  adjustments.  Such adjustments,
    which the Company began to do in 1992,  are in accordance  with Statement of
    Financial  Accounting  Standards No. 115 "Accounting for Certain Investments
    in Debt and Equity  Securities"  ("SFAS 115"), as described in note 1 to the
    consolidated financial statements.
   
    ITEM 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL
              CONDITION  AND RESULTS OF OPERATIONS.

       Management's  discussion and analysis reviews the consolidated  financial
condition of Conseco at December 31, 1996 and 1995, the consolidated  results of
operations for the three years ended December 31, 1996, and, where  appropriate,
factors that may affect future financial performance.  This discussion should be
read in conjunction with the  accompanying  consolidated  financial  statements,
notes thereto and selected financial data.

       The Company cautions readers regarding certain forward-looking statements
contained in the  following  discussion  and elsewhere in this report and in any
other statements made by, or on behalf of, the Company, whether or not in future
filings with the Securities  and Exchange  Commission  ("SEC").  Forward-looking
statements are statements  not based on historical  information.  They relate to
future  operations,  strategies,  financial  results or other  developments.  In
particular,  statements using verbs such as "expect," "anticipate," "believe" or
similar words  generally  involve  forward-looking  statements.  Forward-looking
statements  include  statements that represent the Company's beliefs  concerning
future  or  projected  levels  of sales of the  Company's  products,  investment
spreads or yields, or the earnings or profitability of the Company's activities.

       Forward-looking  statements are based upon estimates and assumptions that
are subject to significant  business,  economic and  competitive  uncertainties,
many of which are beyond the Company's control and are subject to change.  These
uncertainties can affect actual results and could cause actual results to differ
materially from those expressed in any forward-looking statements made by, or on
behalf of, the Company.  Whether or not actual  results differ  materially  from
forward-looking  statements may depend on numerous foreseeable and unforeseeable
events or developments,  some of which may be national in scope, such as general
economic  conditions and interest rates.  Some of these events may be related to
the  insurance  industry  generally,  such as  pricing  competition,  regulatory
developments   and  industry   consolidation.   Others  may  relate  to  Conseco
specifically,  such as credit,  volatility and other risks  associated  with the
Company's investment portfolio,  and other factors.  Investors are also directed
to consider other risks and uncertainties  discussed in documents filed with the
SEC. Conseco disclaims any obligation to update forward-looking information.

                                       18

<PAGE>

       Consolidated Results and Analysis

       Conseco's 1996 operating earnings were $267.7 million, or $1.89 per fully
diluted share, up 104 percent and 50 percent, respectively, over 1995. Operating
earnings  increased as a result of the LPG Merger,  the ALH Stock Purchase,  the
full-year effect of the CCP Merger, the effect of increased  ownership of BLH as
a result of  purchases  of BLH common  stock  during  1995 and 1996,  and profit
improvements in each of the Company's segments. Operating earnings for 1996 were
not affected by the ATC Merger,  the THI Merger or the BLH Merger,  all of which
were  recorded as of December 31,  1996.  The  percentage  increase in operating
earnings was greater than the increase in operating  earnings per fully  diluted
share  primarily   because  of  the  additional  common  shares  or  equivalents
outstanding in 1996 resulting  from: (i) the LPG Merger;  and (ii) the Company's
January 1996 offering of PRIDES,  which are mandatorily  convertible into shares
of Conseco common stock.

       Conseco's 1995 operating earnings were $131.3 million, or $1.26 per fully
diluted  share,  down 13  percent  and up 2  percent,  respectively,  from 1994.
Operating  earnings  decreased  primarily because capital was used to repurchase
shares of common stock during 1994 and 1995 (Conseco repurchased 21.6 million of
its shares at a cost of $267  million  from March 31, 1994 to February 1, 1995).
This decrease was partially offset by increased earnings from the CCP Merger and
the  increased  ownership  of BLH as a result of  purchases  of BLH common stock
during 1995.  Operating  earnings per fully diluted share increased  despite the
decline in operating  earnings because of the smaller number of weighted average
common shares outstanding in 1995.

       Net income of $252.4  million in 1996, or $1.77 per fully diluted  share,
included:  (i) net  investment  losses (net of related costs,  amortization  and
taxes) of $6.2 million,  or 5 cents per fully diluted share; (ii)  restructuring
income totaling $17.4 million, or 12 cents per share, primarily arising from the
sale of  Conseco's  investment  in Noble  Broadcast  Group,  Inc.;  and (iii) an
extraordinary  charge of $26.5 million, or 19 cents per share,  related to early
retirement  of debt.  Net income of $220.4  million in 1995,  or $2.11 per fully
diluted  share,  included:  (i) net  investment  gains  (net of  related  costs,
amortization  and  taxes)  of  $4.1  million,   or  4  cents  per  share;   (ii)
restructuring income of $87.1 million, or 83 cents per share,  primarily arising
from the release of deferred income taxes  previously  accrued on income related
to CCP and BLH (such deferred tax was no longer required when Conseco reached 80
percent  ownership of these  companies) and the sale of Conseco's  investment in
Eagle  Credit  (a  finance   subsidiary  of   Harley-Davidson);   and  (iii)  an
extraordinary  charge of $2.1  million,  or 2 cents per share,  related to early
retirement  of debt.  Net income of $150.4  million in 1994,  or $1.22 per fully
diluted  share,  included:  (i) net  investment  losses  (net of related  costs,
amortization  and  taxes)  of  $20.5  million,  or  17  cents  per  share;  (ii)
restructuring income of $23.2 million, or 19 cents per share, resulting from the
sale of WNC, net of expenses  incurred in conjunction with a terminated  merger;
and (iii) an extraordinary charge of $4.0 million, or 3 cents per share, related
to early retirement of debt.

       Total revenues  include net investment gains (losses) of $30.4 million in
1996,  $188.9  million  in 1995  and  ($30.5)  million  in 1994.  Excluding  net
investment  gains  (losses),  total  revenues  were $3.0 billion in 1996,  up 11
percent  from $2.7  billion in 1995.  Total  revenues in 1996  include:  (i) LPG
revenues  after July 1, 1996,  the  effective  date of the LPG Merger;  and (ii)
restructuring  income of  $30.4 million,  primarily  arising  from  the  sale of
Conseco's investment in Noble Broadcast Group, Inc. Total revenues excluding net
investment gains (losses) were up 42 percent in 1995, from $1.9 billion in 1994.
Total revenues in 1995 include:  (i) a full year of revenues from ALH, which was
acquired  on  September  29,  1994;  (ii) a full year of the  revenues  of CCP's
subsidiaries,  which Conseco began to consolidate effective January 1, 1995; and
(iii)  restructuring  income of $15.2  million.  Total  revenues in 1994 include
restructuring  income of $80.8  million and equity in earnings of WNC and CCP of
$64.9 million.

                                       19

<PAGE>

       Results of Operations  by Segment for the Three Years ended  December 31,
1996:

       The following  tables and narratives  summarize the Company's  results of
operations by business segment.
<TABLE>
<CAPTION>

                                                                                  1996             1995              1994
                                                                                  ----             ----              ----
                                                                                           (Dollars in millions)
<S>                                                                              <C>               <C>              <C>    
Income before income taxes, minority interest and extraordinary charge:
   Annuities:
     Operating income .......................................................... $ 255.0           $ 244.1          $  67.1
     Net investment gains (losses), net of related costs and amortization ......     (.7)             72.0             (7.3)
                                                                                 -------           -------          -------

         Income before income taxes, minority interest and extraordinary charge    254.3             316.1             59.8
                                                                                 -------           -------          -------

   Supplemental health:
     Operating income...........................................................   136.7              96.1            107.8
     Net investment gains, net of related costs and amortization................      .2               1.1               -
                                                                                 -------           -------          -------

         Income before income taxes, minority interest and extraordinary charge    136.9              97.2            107.8
                                                                                 -------           -------          -------

   Life insurance:
     Operating income...........................................................   131.2              81.9             52.2
     Net investment losses, net of related costs and amortization...............    (1.9)             (4.8)           (13.1)
                                                                                 -------           -------          -------

         Income before income taxes, minority interest and extraordinary charge    129.3              77.1             39.1
                                                                                 -------           -------          -------

   Other:
     Operating income...........................................................    58.3              59.4            100.6
     Net investment losses, net of related costs and amortization...............    (3.2)             (6.0)            (4.8)
                                                                                 -------           -------          -------

         Income before income taxes, minority interest and extraordinary charge     55.1              53.4             95.8
                                                                                 -------           -------          -------

   Interest and other corporate expenses........................................  (112.4)           (140.5)           (88.0)
                                                                                 -------           -------          -------

   Equity in earnings of CCP and WNC............................................      -                  -             64.9
                                                                                 -------           -------          -------

   Restructuring income.........................................................    30.4              15.2             45.0
                                                                                 -------           -------          -------

   Consolidated earnings:
     Operating income...........................................................   468.8             341.0            239.7
     Net investment gains (losses), net of related costs and amortization ......    (5.6)             62.3            (25.2)
     Equity in earnings of CCP and WNC..........................................     -                 -               64.9
     Restructuring activities...................................................    30.4              15.2             45.0
                                                                                 -------           -------          -------

         Income before income taxes, minority interest and extraordinary charge    493.6             418.5            324.4

Income tax expense..............................................................   179.8              87.0            111.0
                                                                                 -------           -------          -------

         Income before minority interest and extraordinary charge...............   313.8             331.5            213.4

Minority interest in consolidated subsidiaries:
   Distributions on Company-obligated mandatorily redeemable preferred
     securities of subsidiary trusts............................................     3.6                -               -
   Dividends on preferred stock.................................................     8.9              11.9              3.3
   Equity in earnings...........................................................    22.4              97.1             55.7
                                                                                 -------           -------          -------

         Income before extraordinary charge.....................................   278.9             222.5            154.4

Extraordinary charge on extinguishment of debt, net of taxes and
   minority interest............................................................    26.5               2.1              4.0
                                                                                 -------           -------          -------

         Net income............................................................. $ 252.4           $ 220.4           $150.4
                                                                                 =======           =======           ======
</TABLE>
                                                             20

<PAGE>
<TABLE>
<CAPTION>


Annuities:
                                                                       1996               1995             1994
                                                                       ----               ----             ----
                                                                                   (Dollars in millions)
<S>                                                                  <C>                <C>               <C>    
Premiums collected:
   Single-premium immediate annuities...........................     $  111.2           $   145.0         $  10.5
   Single-premium deferred annuities............................        755.4             1,004.5           444.5
                                                                     --------            --------         -------

       Subtotal - single-premium annuities......................        866.6             1,149.5           455.0
                                                                     --------            --------         -------

   Flexible-premium deferred annuities (first-year).............        500.5               386.8           103.9
   Flexible-premium deferred annuities (renewal)................         93.8                65.9            12.9
                                                                     --------            --------         -------

       Subtotal - flexible-premium deferred annuities...........        594.3               452.7           116.8
                                                                     --------            --------         -------

   Variable annuities (first-year)..............................         37.9                17.2              -
   Variable annuities (renewal).................................         43.6                40.1              -
                                                                     --------            --------         -------

       Subtotal - variable annuities............................         81.5                57.3              -
                                                                     --------            --------         -------

         Total annuity premiums collected.......................     $1,542.4            $1,659.5         $ 571.8
                                                                     ========            ========         =======

Insurance policy income.........................................     $   77.6            $   68.4         $  31.0
Net investment income:
   General account invested assets..............................        891.2               851.2           220.4
   Separate account assets......................................         48.4                28.7             2.6
                                                                     --------            --------         -------

         Total revenues (a).....................................      1,017.2               948.3           254.0
                                                                     --------            --------         -------

Insurance policy benefits and change in future policy benefits..         67.3                61.6            45.5
Interest expense on:
   All annuity products, except variable annuities..............        523.2               505.1           116.8
   Variable annuity products....................................         48.4                28.7             2.6

Amortization related to operations..............................         76.9                64.8            11.1
Interest expense on investment borrowings.......................         14.3                16.9             4.4
Other operating costs and expenses..............................         32.1                27.1             6.5
                                                                     --------            --------         -------

         Total benefits and expenses (a)........................        762.2               704.2           186.9
                                                                     --------            --------         -------

         Operating income before income taxes, minority
           interest and extraordinary charge....................        255.0               244.1            67.1

Net investment gains (losses), net of related costs and
   amortization.................................................          (.7)               72.0            (7.3)
                                                                     --------            --------         -------

         Income before income taxes, minority interest
           and extraordinary charge.............................     $  254.3            $  316.1         $  59.8
                                                                     ========            ========         =======

Weighted average gross interest spread on annuity products (b)..          2.9%                3.0%            2.8%
                                                                          ===                 ===             ===
</TABLE>
(a)  Revenues  exclude net  investment  gains  (losses);  benefits  and expenses
exclude amortization related to net investment gains (losses).

(b) Excludes  variable  annuity  products where the credited  amount is based on
investment income from segregated investments.

       General: This segment includes SPDAs, FPDAs, SPIAs and variable annuities
sold through both career  agents and  professional  independent  producers.  For
periods prior to September 30, 1994, this segment consists solely of the annuity
operations of: (i) BLH, whose  products are primarily  marketed to seniors;  and
(ii)  various  Conseco  subsidiaries  whose  products  are not  currently  being
actively marketed.  The segment's operations were significantly affected by: (i)
the  acquisition  of ALH by  Partnership  II on  September  30,  1994;  (ii) the
consolidation of the CCP subsidiaries  effective January 1, 1995, as a result of
the CCP Merger; and (iii) the LPG Merger,

                                       21

<PAGE>
effective July 1, 1996. The profitability of this segment largely depends on the
investment spread earned (i.e., the excess of investment  earnings over interest
credited on annuity  deposits),  persistency  of inforce  business,  and expense
control.

       Premiums  collected by this segment in 1996 were $1,542.4  million,  down
7.1 percent from 1995. Increased competition from products such as mutual funds,
traditional  bank  investments,  variable  annuities  and other  investment  and
retirement  funding  alternatives  was a  significant  factor  in the  decrease.
Premiums collected in 1995 were $1,659.5 million,  up 190 percent over 1994, due
to the acquisition transactions described above under "General."

       SPDA collected premiums decreased 25 percent to $755.4 million,  in 1996.
The demand for SPDA products offered by all insurance companies decreased during
1996,  when  relatively low interest rates made other  investment  products more
attractive.  The Company introduced an equity-linked SPDA in June 1996 to appeal
to consumers' desire for alternative  investment products with returns linked to
equities. The accumulation value of these annuities is credited with interest at
an annual minimum  guaranteed rate of 3 percent,  but the annuities  provide for
higher  returns  based on a percentage of the change in the S&P 500 Index during
each year of their term. The Company purchases S&P 500 Index Options, the values
of which  change as the  benefits  accrue to these  annuities as a result of the
equity-linked  return feature.  Total  collected  premiums for this product were
$87.1 million in 1996.

       FPDA collected premiums increased 31 percent to $594.3 million,  in 1996.
FPDA premiums  collected by LPG after the LPG Merger accounted for $30.4 million
of such  premiums  collected  during  1996.  FPDAs are  similar to SPDAs in many
respects, except FPDAs allow more than one premium payment.

       Variable  annuity  collected  premiums  increased  42  percent  to  $81.5
million,  in 1996.  Variable  annuities offer contract  holders a rate of return
based  upon the  specific  investment  portfolios  into  which  premiums  may be
directed. The popularity of such annuities has increased recently as a result of
the desire of investors to invest in common stocks. In addition, in 1996 Conseco
began to offer  more  investment  options  for  variable  annuity  deposits  and
expanded its marketing efforts,  which resulted in increased collected premiums.
Profits on  variable  annuities  are derived  from the fees  charged to contract
holders, rather than from the investment spread.

       Insurance  policy  income  includes:  (i)  premiums  received  on annuity
policies that incorporate significant mortality features; (ii) cost of insurance
and expenses charged to annuity policies;  and (iii) surrender charges earned on
annuity  policy  withdrawals.  In  accordance  with  GAAP,  premiums  on annuity
contracts  without mortality  features are not reported as revenues,  but rather
are  reported as deposits to  insurance  liabilities.  Insurance  policy  income
increased in 1996 primarily  because of increased  surrender charges (changes in
premiums and other policy charges were not significant).  Surrender charges were
$41.2 million in 1996 and $28.6 million in 1995. Annuity policy withdrawals were
$1.7 billion in 1996, compared with $1.5 billion in 1995. The increase in policy
withdrawals  and surrender  charges  generally  corresponds to the aging and the
growth of the Company's  annuity  business in force. In addition,  policyholders
are using  the  systematic  withdrawal  features  available  in  several  of the
Company's annuity policies,  and more policyholders are surrendering in order to
invest in alternative  investments.  Total  withdrawals  and surrenders  were 16
percent of insurance  liabilities related to surrenderable  policies in 1996 and
1995.

       Insurance  policy  income  increased  in 1995 over 1994,  primarily  as a
result of the acquisition transactions described above under "General."

       Net  investment  income on general  account  invested  assets  (excluding
income on separate account assets related to variable  annuities)  increased 4.7
percent in 1996, to $891.2 million, and increased 286 percent in 1995, to $851.2
million.  The yield earned on average invested assets declined to 7.9 percent in
1996  from 8.4  percent  in  1995.  Cash  flows  received  during  1995 and 1996
(including  cash flows from the sales of  investments)  were  invested  in lower
yielding securities due to a general decline in interest rates.

       Net  investment  income  on  separate  account  assets  is  offset  by  a
corresponding  charge to interest  credited on variable annuity  products.  Such
income  fluctuates in  relationship  to total  separate  account  assets and the
return earned on such assets.

       Insurance  policy  benefits and change in future policy  benefits  relate
solely to annuity policies that incorporate  significant mortality features. The
increase corresponds to the increase in the in-force block of such policies.

       Interest  expense on all  annuity  products,  except  variable  annuities
increased  3.6  percent  in 1996,  primarily  due to a larger  block of  annuity
business  inforce in 1996,  partially  offset by a reduction in crediting rates.
The weighted  average  crediting  rates for these annuity  liabilities  were 5.0
percent in 1996 and 5.3 percent in 1995.  The  increase  in interest  expense on
annuities  in 1995 was  primarily  the  result of the  acquisition  transactions
described above under "General."
                                       22

<PAGE>

       Interest  expense  on  variable  annuity  products  is  equal  to the net
investment income on separate account assets.

       Amortization  related to operations  increased 19 percent in 1996 and 484
percent in 1995. Such increases reflect a larger balance subject to amortization
as a result of the acquisition transactions described above under "General."

       Interest  expense on  investment  borrowings  is  affected  by changes in
investment  borrowing  activities  during  the last  three  years and the higher
interest rates paid on such borrowings during 1996 and 1995.

       Other operating  costs and expenses  increased 18 percent in 1996 and 317
percent  in 1995.  Such  increases  correspond  to the  increases  in the  total
business inforce primarily related to acquisition  transactions  described above
under "General."

       Net  investment  gains  (losses),  net of related costs and  amortization
often fluctuate from period to period. In 1995, this segment's level of sales of
securities  (principally  fixed  maturities) in a recently  acquired  subsidiary
increased to accomplish  planned  changes in that  subsidiary's  fixed  maturity
investment  portfolio  in order to reduce  its  duration  and  exposure  to more
volatile  CMO  investments.  Net  investment  gains  (net of  related  costs and
amortization) were $72.0 million in 1995.

       Selling securities at a gain and reinvesting the proceeds at lower yields
may, absent other management action,  tend to decrease future investment yields.
The Company believes,  however,  that the following factors mitigate the adverse
effect of such decreases on net income:  (i) the Company  recognized  additional
amortization  of cost of policies  purchased  and cost of  policies  produced in
order to reflect  reduced future yields (thereby  reducing such  amortization in
future  periods);  (ii) the Company can reduce  interest  rates credited to some
products, thereby diminishing the effect of the yield decrease on the investment
spread; and (iii) the investment  portfolio grows as a result of reinvesting the
realized  gains.  As a result of the sales of fixed  maturity  investments,  the
amortization of the cost of policies produced and the cost of policies purchased
increased $30.9 million in 1996,  increased $114.8 million in 1995 and decreased
$3.0 million in 1994.

                                       23

<PAGE>
<TABLE>
<CAPTION>


Supplemental health:

                                                                         1996              1995             1994
                                                                         ----              ----             ----
                                                                                   (Dollars in millions)
<S>                                                                     <C>              <C>               <C>  
Premiums collected:
   Medicare supplement (first year).............................        $ 74.3           $  81.2           $ 99.1
   Medicare supplement (renewal)................................         556.6             515.8            492.7
                                                                        ------            ------           ------

       Subtotal - Medicare supplement...........................         630.9             597.0            591.8
                                                                        ------            ------           ------

   Long-term care (first year)..................................          51.9              44.3             32.4
   Long-term care (renewal).....................................         142.3             114.5             99.5
                                                                        ------            ------           ------

       Subtotal - long-term care................................         194.2             158.8            131.9
                                                                        ------            ------           ------

       Total supplemental health premiums collected.............        $825.1            $755.8           $723.7
                                                                        ======            ======           ======

Insurance policy income.........................................        $805.9            $757.0           $716.7
Net investment income...........................................          66.6              67.0             59.0
                                                                        ------            ------           ------

     Total revenues (a).........................................         872.5             824.0            775.7
                                                                        ------            ------           ------

Insurance policy benefits and change in future policy benefits..         531.7             525.5            471.9
Amortization related to operations..............................          87.8              81.7             82.7
Interest expense on investment borrowings.......................           1.1               1.4              1.2
Other operating costs and expenses..............................         115.2             119.3            112.1
                                                                        ------            ------           ------

     Total benefits and expenses (a)............................         735.8             727.9            667.9
                                                                        ------            ------           ------

     Operating income before income taxes,
       minority interest and extraordinary
       charge...................................................         136.7              96.1            107.8

Net investment gains, net of related costs and amortization.....            .2               1.1               -
                                                                        ------            ------           ------

       Income before income taxes, minority
         interest and extraordinary charge......................        $136.9             $97.2           $107.8
                                                                        ======             =====           ======

Loss ratios:
   Medicare supplement products.................................          68.2%             71.7%            66.3%
   Long-term care products......................................          58.7              60.5             63.5
</TABLE>

(a)  Revenues  exclude net  investment  gains;  benefits  and  expenses  exclude
amortization related to net investment gains.

       General:  This segment  includes  Medicare  supplement and long-term care
insurance  products,  primarily sold to senior  citizens.  Through  December 31,
1996,  the  supplemental  health  operations  consist  solely of Bankers  Life's
Medicare  supplement and long-term care products,  distributed  through a career
agency force. Beginning in 1997, this segment will include the specified disease
products of THI and CAF and the long-term  care products of ATC;  these products
are distributed through professional independent producers. After the completion
of the PFS Merger,  the segment will also include  various  supplemental  health
products of PFS, which are also  distributed  through  professional  independent
producers.  The  profitability  of this segment  largely  depends on the overall
level of sales,  persistency of inforce  business,  claim experience and expense
control.

     Premiums  collected  by this  segment in 1996 were $825.1  million,  up 9.2
percent  over 1995.  Premiums  collected  in 1995 were  $755.8  million,  up 4.4
percent over 1994.


                                       24

<PAGE>
       Medicare  supplement  policies have accounted for more than 75 percent of
this  segment's  collected  premiums in each of the last three years.  Collected
premiums on  Medicare  supplement  policies  increased  5.7 percent in 1996,  to
$630.9  million,  and  increased  .9 percent in 1995,  to $597.0  million.  Such
increases primarily reflect a larger base of premiums due to rate increases. The
number of new  Medicare  supplement  policies  sold in 1996,  1995 and 1994 were
43,800,  62,800 and 89,700,  respectively,  and annualized new business premiums
were $43.2 million,  $56.3 million and $76.3 million,  respectively.  New policy
sales have been affected by steps taken to improve  profitability  by increasing
premium rates and changing the commission  structure and  underwriting  criteria
for these  policies and by increased  competition  from  alternative  providers,
including HMOs.

       Premiums  collected on long-term  care  policies  increased 22 percent in
1996, to $194.2 million,  and 20 percent in 1995, to $158.8 million.  Annualized
new business  premiums in 1996, 1995 and 1994 were $44.8 million,  $40.9 million
and $27.9  million,  respectively.  The  continued  growth in this  product line
reflects  new  product  introductions,  the  competitiveness  of  the  Company's
products,  the success of agent  cross-selling  activities,  increased  consumer
awareness  and  demand,  and  improved  persistency  on a larger base of renewal
premiums.

       Insurance  policy income is comprised of premiums earned on the segment's
policies,  and has  increased  over the last  three  years  consistent  with the
explanations provided above for premiums collected.

       Net investment  income did not change materially in 1996 and increased 14
percent in 1995.  Such investment  income  fluctuates when changes occur in: (i)
the amount of average invested assets supporting insurance liabilities; and (ii)
the yield earned on invested assets. During 1996, the segment's average invested
assets increased  approximately 5.0 percent, to $880 million,  and the net yield
on invested assets  decreased by .4 percentage  points,  to 7.6 percent.  During
1995, the segment's average invested assets increased approximately 4.0 percent,
to $840 million, and the net yield on invested assets increased by .7 percentage
points,  to 8.0  percent.  Invested  assets  grew as a result  of the  growth in
insurance   liabilities  related  to  Medicare  supplement  and  long-term  care
business.

       Insurance policy benefits and change in future policy benefits  increased
in 1996 as a result of the larger amount of business in force on which  benefits
are incurred,  net of the lower incidence of claims.  This account  increased in
1995 as a  result  of the  larger  amount  of  business  in  force  and a higher
incidence of Medicare  supplement  claims. In 1996, the ratio of policy benefits
to insurance  policy  income for the Medicare  supplement  policies  fell by 3.5
percentage  points,  to 68.2  percent,  reflecting  the premium  rate  increases
implemented in 1995 and 1996. In 1995, the ratio of policy benefits to insurance
policy  income for Medicare  supplement  policies  increased  by 5.4  percentage
points to 71.7 percent,  reflecting a higher incidence of claims incurred during
that year.

       Changes in the ratio of policy  benefits to insurance  policy  income for
long-term care policies  reflect  fluctuations  in claim  experience and reserve
development.

       Amortization related to operations includes amortization of: (i) the cost
of policies produced;  (ii) the cost of policies  purchased;  and (iii) goodwill
related to this segment's  business.  The amount of  amortization  was primarily
affected  by:  (i) the  increase  in the  amount of  business  in force on which
amortization  is  recognized;  and (ii) the effects of  Conseco's  purchases  of
additional shares of BLH common stock in September 1993 and in 1995 and 1996.

       The  cost of  policies  produced  represents  the cost of  producing  new
business.  This cost varies with, and is primarily related to, the production of
new  business.  Costs  deferred  may  represent  amounts  paid in the period new
business is written (such as underwriting  costs and first year  commissions) or
in periods after the business is written (such as commissions paid in subsequent
years in excess of ultimate commissions paid).

       Conseco's  purchase of BLH is described in the notes to the  consolidated
financial  statements.  The cost of policies purchased represents the portion of
Conseco's cost to acquire BLH that is  attributable to the right to receive cash
flows from insurance  contracts in force at the  acquisition  dates.  Some costs
incurred  after the  purchases  on policies  issued  prior to such dates,  which
otherwise  would have been deferred had it not been for the  purchases  (because
they  vary with and are  primarily  related  to the  acquired  interests  in the
policies),  were expensed.  Such costs consist primarily of certain  commissions
paid in excess of ultimate  commissions  that have been  expensed  as  operating
expense.  Such amounts,  however,  were considered in determining the amount and
amortization  of  cost of  policies  purchased.  The  amortization  of  goodwill
increased  in 1996  and 1995 as a  result  of  additional  goodwill  related  to
Conseco's  purchases of additional  shares of BLH common stock.  Such  increased
amortization  partially offset the effect of the aforementioned  expenses on the
amortization of cost of policies purchased.

       Interest  expense on  investment  borrowings  was  affected by changes in
investment  borrowing  activities  during  the last  three  years and the higher
interest rates paid on such borrowings during 1996 and 1995.

                                       25

<PAGE>

       Other  operating  costs and  expenses  were  affected  by costs  incurred
subsequent to Conseco's  purchases of additional  shares of BLH common stock (on
September 30, 1993 and in 1995 and 1996) on policies issued prior to such dates,
which  otherwise  would have been  deferred had it not been for the purchases as
described above under amortization related to operations.

       Net  investment  gains,  net of  related  costs  and  amortization  often
fluctuate from period to period.  Net investment  gains affect the timing of the
amortization of costs of policies  purchased and the cost of policies  produced.
As  a  result  of  net  investment  gains  from  the  sales  of  fixed  maturity
investments,  amortization  of cost of policies  purchased  and cost of policies
produced  increased by $.6 million in 1996, $2.3 million in 1995 and $.2 million
in 1994.

                                       26

<PAGE>
<TABLE>
<CAPTION>


Life insurance:
                                                                         1996              1995             1994
                                                                         ----              ----             ----
                                                                                   (Dollars in millions)
<S>                                                                     <C>                <C>            <C>
Premiums collected:
   Universal life (first year).......................................   $ 68.0             $ 14.5         $ 11.0
   Universal life (renewal)..........................................    203.5               86.6           44.7
                                                                        ------             ------         ------

       Subtotal - universal life.....................................    271.5              101.1           55.7
                                                                        ------             ------         ------

   Traditional life (first year).....................................     16.5               11.7            8.5
   Traditional life (renewal)........................................    165.7              163.4          119.1
                                                                        ------             ------         ------

       Subtotal - traditional life...................................    182.2              175.1          127.6
                                                                        ------             ------         ------

           Total life premiums collected.............................   $453.7             $276.2         $183.3
                                                                        ======             ======         ======

Insurance policy income..............................................   $393.6             $254.1         $168.1
Net investment income................................................    280.8              177.9           90.4
                                                                        ------             ------         ------

           Total revenues (a)........................................    674.4              432.0          258.5
                                                                        ------             ------         ------

Insurance policy benefits and change in future policy benefits.......    300.4              208.0          140.0
Interest expense on annuities and financial products.................     97.0               51.6           15.4
Amortization related to operations...................................     48.1               33.5           20.3
Interest expense on investment borrowings............................      6.3                3.5            1.8
Other operating costs and expenses...................................     91.4               53.5           28.8
                                                                        ------             ------         ------

           Total benefits and expenses (a)...........................    543.2              350.1          206.3
                                                                        ------             ------         ------

           Operating income before income taxes,
              minority interest and extraordinary
              charge.................................................    131.2               81.9           52.2

Net investment losses, net of related costs
   and amortization..................................................     (1.9)              (4.8)         (13.1)
                                                                        ------             ------         ------

           Income before income taxes, minority
              interest and extraordinary charge......................   $129.3            $  77.1         $ 39.1
                                                                        ======             =======        ======
</TABLE>

(a) Revenues  exclude net  investment  losses;  benefits  and  expenses  exclude
amortization related to net investment losses.

       General:  This  segment  includes  traditional  life and  universal  life
products sold through both career agents and professional independent producers.
The segment's operations were significantly  affected by: (i) the acquisition of
ALH by Partnership II on September 30, 1994; (ii) the  consolidation  of the CCP
subsidiaries effective January 1, 1995, as a result of the CCP Merger; and (iii)
the LPG  Merger,  effective  July 1, 1996.  The  profitability  of this  segment
largely  depends on the  investment  spread earned for universal  life and other
investment  products,  persistency  of inforce  business,  claim  experience and
expense control.

       Premiums  collected  by this segment in 1996 were $453.7  million,  up 64
percent over 1995. Premiums collected in 1995 were $276.2 million, up 51 percent
over 1994. Such increases reflect the acquisition  transactions  described above
under "General."

       Universal life product collected premiums increased 169 percent to $271.5
million,  in 1996,  and increased 82 percent to $101.1  million,  in 1995.  Such
premiums collected in 1996 include $177.0 million collected by LPG after the LPG
Merger.  Such premiums  collected in 1995 include $30.7 million collected by CCP
after its  consolidation  and $19.8 million collected by ALH. As a result of the
LPG Merger,  Conseco  expects that universal life product  premiums will account
for an increasing percentage of this segment's collected premiums.


                                       27

<PAGE>

       Traditional  life product  collected  premiums  increased  4.1 percent to
$182.2 million,  in 1996, and increased 37 percent to $175.1  million,  in 1995.
Such premiums collected in 1996 include $19.3 million collected by LPG after the
LPG Merger.  Such premiums  collected in 1995 include $26.7 million collected by
CCP after its  consolidation,  and $24.9 million  collected by ALH. Conseco does
not currently emphasize new product sales of traditional life products, although
such inforce business continues to be profitable.

       Insurance  policy income includes:  (i) premiums  received on traditional
life  products;  (ii) the mortality  charges and  administrative  fees earned on
universal life insurance;  and (iii) surrender  charges on terminated  universal
life insurance  policies.  In accordance  with GAAP,  premiums on universal life
products are  accounted for as deposits to insurance  liabilities.  Revenues are
earned  over  time in the form of  investment  income  on  policyholder  account
balances,  surrender  charges and mortality and other charges  deducted from the
policyholders' account balances.  Insurance policy income included: (i) premiums
received  on  traditional  life  products  of $174.1  million in 1996 and $175.3
million  in 1995;  (ii)  mortality  charges  and  administrative  fees of $211.2
million in 1996 and $73.8 million in 1995; and (iii)  surrender  charges of $8.3
million in 1996 and $5.0 million in 1995.

       Insurance policy income has increased over the last three years primarily
as a result of the acquisition transactions described above under "General."

       Net  investment  income  increased  58  percent in 1996 and 97 percent in
1995.  Such  investment  income  fluctuates  with  changes in: (i) the amount of
average invested assets  supporting  insurance  liabilities;  and (ii) the yield
earned on invested  assets.  During 1996, the segment's  average invested assets
increased 66 percent,  to $3,540  million,  and the net yield on invested assets
decreased by .5 percentage  points,  to 7.9 percent.  During 1995, the segment's
average  invested assets  increased 85 percent,  to $2,130 million,  and the net
yield on invested  assets  increased by .5  percentage  points,  to 8.4 percent.
Invested  assets  primarily  grew  as  a  result  of  the  growth  in  insurance
liabilities from the acquisition transactions described above under "General."

       Insurance policy benefits and change in future policy benefits  increased
in 1996 and 1995 as a result of the larger  amount of business  inforce on which
benefits  are  incurred as a result of the  acquisition  transactions  described
above under "General."  There were no material  fluctuations in claim experience
during the periods.

       Interest expense on financial  products  increased 88 percent in 1996 and
235 percent in 1995. Such expense  fluctuates with changes in: (i) the amount of
insurance  liabilities  for universal life products;  and (ii) the interest rate
credited to such products.  During 1996, such average  liabilities  increased 98
percent,  to $1,960 million and the rate credited decreased .2 percentage points
to 5.0 percent.  During 1995, such average liabilities increased 230 percent, to
$990  million  and the rate  credited  increased  .2  percentage  points  to 5.2
percent.  Universal life product liabilities  increased primarily as a result of
the acquisition transactions described above under "General."

       Amortization  related to  operations  increased 44 percent in 1996 and 65
percent in 1995. Such increases reflect a larger balance subject to amortization
as a result of the acquisition transactions described above under "General."

       Interest  expense on  investment  borrowings  is  affected  by changes in
investment  borrowing  activities  during  the last  three  years and the higher
interest rates paid on such borrowings during 1996 and 1995.

       Other  operating  costs and expenses  increased 71 percent in 1996 and 86
percent  in 1995.  Such  increases  correspond  to the  increases  in the  total
insurance liabilities related to this segment's business.

       Net  investment  losses,  net of  related  costs and  amortization  often
fluctuate from period to period. Net investment gains (losses) affect the timing
of the  amortization  of costs of  policies  purchased  and the cost of policies
produced.  As a result of net investment  gains (losses) from the sales of fixed
maturity  investments,  amortization  of cost of policies  purchased and cost of
policies produced increased $4.4 million in 1996, increased $9.3 million in 1995
and decreased $2.6 million in 1994.


                                       28

<PAGE>
<TABLE>
<CAPTION>
Other:
                                                                           1996               1995            1994
                                                                           ----               ----            ----
                                                                                      (Dollars in millions)
<S>                                                                       <C>                 <C>           <C>    
Premiums collected:
   Group accident and health.........................................     $250.6              $252.6         $248.3
   Individual accident and health....................................      138.6               162.3          152.0
                                                                          ------              ------         ------

       Total other premiums collected................................     $389.2              $414.9         $400.3
                                                                          ======              ======         ======

Insurance policy income..............................................     $377.1              $385.5         $369.8
Net investment income................................................       15.5                17.8           13.3
Fee revenue and other income.........................................       49.8                43.6           75.5
                                                                          ------              ------         ------

       Total revenues (a)............................................      442.4               446.9          458.6
                                                                          ------              ------         ------

Insurance policy benefits and changes in future policy benefits......      295.6               312.4          300.5
Amortization related to operations...................................       27.2                23.6           19.2
Interest expense on investment borrowings............................         .3                  .4             .3
Other operating costs and expenses...................................       61.0                51.1           38.0
                                                                          ------              ------         ------

       Total benefits and expenses (a)...............................      384.1               387.5          358.0
                                                                          ------              ------         ------ 

       Operating income before income taxes,
         minority interest and extraordinary
         charge......................................................       58.3                59.4          100.6

Net investment losses, net of related costs and amortization.........       (3.2)               (6.0)          (4.8)
                                                                          ------              ------         ------

       Income before income taxes, minority
         interest and extraordinary charge...........................     $ 55.1              $ 53.4         $ 95.8
                                                                          ======              ======         ======
</TABLE>

(a) Revenues  exclude net  investment  losses;  benefits  and  expenses  exclude
amortization related to net investment losses.

       General:  The other segment includes  miscellaneous  individual and group
health  insurance  premiums  related to products  that are not  currently  being
emphasized by Conseco, although the inforce business continues to be profitable.
The profitability of this business largely depends on the overall persistency of
the business inforce, claim experience and expense control.

       The segment also includes the fee revenue generated by Conseco's non-life
subsidiaries,   including  the  investment  advisory  fees  earned  by  CCM  and
commissions  earned for  insurance  product  marketing  and  distribution.  Such
amounts  exclude  the fees  for  services  provided  to  Conseco's  consolidated
subsidiaries.  The profitability of the fee-based  business depends on the total
fees generated and expense control.

       Premiums collected by this segment in 1996 were $389.2 million,  down 6.2
percent  from 1995.  Premiums  collected  in 1995 were  $414.9  million,  up 3.6
percent from 1994. Premiums collected in 1995 included $35.1 million of premiums
collected by  subsidiaries  acquired in 1995 and in the fourth  quarter of 1994.
Over  the last  three  years,  a  number  of steps  were  taken to  improve  the
profitability  of  the  other  health  business,   including   product,   price,
underwriting and agent compensation  revisions.  These steps have had the effect
of reducing premiums collected.

       Group  accident  and  health  premiums  decreased  .8 percent in 1996 and
increased 1.7 percent in 1995. Such fluctuations  reflect premium increases as a
result of rate increases, net of premium decreases from policy lapses.

       Individual  accident and health premiums decreased 15 percent in 1996 and
increased 6.8 percent in 1995. Such fluctuations reflect rate increases,  policy
lapses and the effect of the various  acquisition  transactions that occurred in
1996,  1995 and 1994.  Such  premiums  collected  in 1996  include  $9.8 million
collected by LPG after the LPG Merger.  Such premiums  collected in 1995 include
$31.5  million  collected  by CCP  after  its  consolidation  and  $3.6  million
collected by ALH.

       Insurance  policy income is comprised of premiums earned on the segment's
policies,  and has  fluctuated  over the last three  years  consistent  with the
explanations provided above for premiums collected.

                                       29

<PAGE>

       Net  investment  income  decreased  13 percent in 1996 and  increased  34
percent in 1995. Such investment income fluctuated  primarily in relationship to
the  amount of average  invested  assets  supporting  this  segment's  insurance
liabilities.

       Fee revenue and other income include: (i) fees for investment  management
and  mortgage  origination  and  servicing;  and  (ii)  commissions  earned  for
insurance  and  investment  product  marketing  and  distribution.  Such amounts
exclude the fees for services provided to Conseco's  consolidated  subsidiaries.
Fee  revenue and other  income in 1996 were $49.8  million,  up 14 percent  from
1995,  primarily as a result of the acquisition of certain property and casualty
insurance brokerage businesses.  Fee revenue and other income in 1995 were $43.6
million,  down 42 percent from 1994, primarily as a result of: (i) the exclusion
of fees for  services  provided  to CCP in 1995  after  its  consolidation  with
Conseco on January 1, 1995; (ii) a reduction in rates charged to certain clients
for  investment  management  services;  and  (iii)  a  decrease  in  commissions
generated from marketing agreements with certain banks.

       Insurance policy benefits and change in future policy benefits  fluctuate
in relationship to the amount of segment  business  inforce and the incidence of
claims. In 1996, the ratio of policy benefits to insurance policy income fell by
3  percentage  points,  to 78 percent,  reflecting  the premium  rate  increases
implemented in 1995 and 1996. The ratio of policy  benefits to insurance  policy
income was 81 percent in both 1995 and 1994.

       Amortization  related to  operations  increased 15 percent in 1996 and 22
percent in 1995. The amount was primarily  affected by: (i) Conseco's  purchases
of  additional  shares  of BLH  common  stock  in 1995  and  1996;  and (ii) the
consolidation of the CCP subsidiaries  effective January 1, 1995, as a result of
the CCP Merger.

       Interest  expense on  investment  borrowings  was  affected by changes in
investment borrowing activities during the last three years.

       Other operating costs and expenses have fluctuated  during the last three
years,  primarily  as a result of  fluctuations  in the  expenses  of  Conseco's
subsidiaries providing fee-based services.

Other  components  of  income  before  income  taxes,   minority   interest  and
extraordinary charge:

       In addition to the income of the four operating  segments,  income before
income taxes,  minority  interest and  extraordinary  charge is affected by: (i)
interest  and  other  corporate   expenses;   (ii)  income  from   restructuring
activities; and (iii) in 1994, equity in earnings of CCP and WNC.

       Interest and other corporate expenses were $112.4 million in 1996, $140.5
million in 1995 and $88.0 million in 1994. Fluctuations are primarily due to the
interest  expense  component  of these  expenses.  Interest  expense  was $108.1
million in 1996,  $119.4 million in 1995 and $59.3 million in 1994. Such expense
fluctuates in relationship to the average debt outstanding during each period.

       Restructuring  income  includes the gains  Conseco has realized  upon the
sale of: (i) portions of acquired  companies;  and (ii) certain  venture capital
investments.  Such income was $30.4  million in 1996,  $15.2 million in 1995 and
$45.0  million  in  1994.  The  1996  income  primarily  arose  from the sale of
Conseco's  investment in Noble Broadcast  Group,  Inc. The 1995 income primarily
arose  from  the  sale of  Conseco's  investment  in  Eagle  Credit  (a  finance
subsidiary of Harley-Davidson). The 1994 income arose from the sale of Conseco's
ownership  of WNC,  net of expenses  incurred in  conjunction  with a terminated
merger.

       Equity in earnings of CCP and WNC was $64.9 million in 1994.  Such amount
relates solely to 1994 because Conseco:  (i) began to consolidate the operations
of CCP on January 1, 1995, as a result of the CCP Merger;  and (ii) Conseco sold
its remaining  interest in WNC on December 23, 1994.  After January 1, 1995, the
operations of CCP are included in the operating segments of Conseco.

       SALES

       In  accordance  with GAAP,  insurance  policy  income  shown in Conseco's
consolidated  statement of operations consists of premiums received for policies
that have life  contingencies or morbidity  features.  For annuity and universal
life  contracts  without such features,  premiums  collected are not reported as
revenues, but rather are reported as deposits to insurance liabilities. Revenues
for these products are recognized over time in the form of investment income and
surrender or other charges.


                                       30

<PAGE>




       Total premiums  collected by Conseco's  business segments during the last
three years were as follows:
<TABLE>
<CAPTION>

                                                                                        1996          1995        1994
                                                                                        ----          ----        ----
                                                                                              (Dollars in millions)

<S>                                                                                   <C>            <C>        <C>  
Annuities...........................................................................   $1,542.4     $1,659.5    $   571.8
Supplemental health.................................................................      825.1        755.8        723.7
Life insurance......................................................................      453.7        276.2        183.3
Other...............................................................................      389.2        414.9        400.3
                                                                                       --------     --------     --------

       Total premiums collected.....................................................   $3,210.4     $3,106.4     $1,879.1
                                                                                       ========     ========     ========
</TABLE>

       Fluctuations in premiums  collected are discussed above under "Results of
Operations by Segment for the Three Years Ended  December 31,  1996."  Conseco's
recent acquisitions will have a significant effect on future premiums collected.
See "Outlook" below for a discussion of recent acquisitions.

       INVESTMENTS

         The Company's  investment  strategy is to: (i) maintain a predominately
investment grade fixed income portfolio; (ii) provide adequate liquidity to meet
the cash flow  requirements of policyholders  and other  obligations;  and (iii)
maximize  current income and total investment  return through active  investment
management.  Consistent  with  this  strategy,  investments  in  fixed  maturity
securities,  mortgage loans,  credit-tenant  loans,  policy loans and short-term
investments  comprised  96 percent of the  Company's  $19.6  billion  investment
portfolio at December 31, 1996. The remainder of the invested assets were equity
securities and other investments.

         Conseco's  insurance  subsidiaries are regulated by insurance  statutes
and  regulations as to the type of  investments  that they are permitted to make
and the  amount  of funds  that may be used for any one type of  investment.  In
light  of  these  statutes  and  regulations  and  the  Company's  business  and
investment  strategy,  Conseco  generally  seeks  to  invest  in  United  States
government  and government  agency  securities  and corporate  securities  rated
investment grade by established  nationally  recognized rating organizations or,
if not rated, in securities of comparable investment quality.

         The following table summarizes  investment  yields earned over the past
three years,  including ALH and LPG from their  acquisition  dates, and CCP upon
its consolidation (effective January 1, 1995).
<TABLE>
<CAPTION>

                                                                                        1996          1995        1994
                                                                                        ----          ----        ----
                                                                                              (Dollars in millions)
<S>                                                                                   <C>          <C>           <C>    
Weighted average invested assets
   (excluding investment in unconsolidated subsidiaries):
       As reported .................................................................  $16,356.3    $13,769.3     $4,707.2
       Excluding unrealized appreciation (depreciation) (a).........................   16,278.8     13,690.6      4,899.0
Net investment income...............................................................    1,302.5      1,142.6        385.7

Yields earned:
       As reported..................................................................        8.0%         8.3%         8.2%
       Excluding unrealized appreciation (depreciation) (a) ........................        8.0%         8.3%         7.9%

</TABLE>

   (a)  Excludes  the  effect of  reporting  fixed  maturities  at fair value as
described in note 1 to the consolidated financial statements.

       Although investment income is a significant  component of total revenues,
the  profitability  of Conseco's  annuity  business is  determined  primarily by
spreads between  interest rates earned and rates credited on annuity  contracts.
At  December  31,  1996,  the average  yield,  computed on the cost basis of the
Company's  investment  portfolio,  was 7.8 percent and the average interest rate
credited on the Company's total liability  portfolio was 5.1 percent,  excluding
interest bonuses guaranteed only for the first year of the contract.



                                       31

<PAGE>

       Actively Managed Fixed Maturities

       Conseco's actively managed fixed maturity portfolio at December 31, 1996,
was comprised  primarily of debt  securities  of the United  States  government,
public  utilities  and  other  corporations  and   mortgage-backed   securities.
Mortgage-backed securities included collateralized mortgage obligations ("CMOs")
and mortgage-backed pass-through securities.

       At December 31, 1996,  the  Company's  fixed  maturity  portfolio had net
unrealized  gains of $103.8  million (equal to  approximately  .6 percent of the
portfolio's  carrying  value),  consisting of $261.7 million of unrealized gains
and  $157.9  million  of  unrealized  losses.  Estimated  fair  values for fixed
maturity  investments  were  determined  based on: (i) estimates from nationally
recognized  pricing services (85 percent of the portfolio);  (ii)  broker-dealer
market  makers (13 percent of the  portfolio);  and (iii)  internally  developed
methods (2 percent of the portfolio).

       As discussed in the notes to the consolidated financial statements,  when
Conseco adjusts  carrying values of actively  managed fixed maturity  securities
for  changes in fair  value,  the  Company  also  adjusts  the cost of  policies
purchased,   cost  of  policies  produced  and  insurance   liabilities.   These
adjustments are made in order to reflect the change in  amortization  that would
be needed if those fixed  maturity  investments  had actually been sold at their
fair values and the proceeds reinvested at current interest rates.

       At December 31,  1996,  approximately  4.5 percent of Conseco's  invested
assets and 5.1 percent of fixed maturity investments were rated below investment
grade by nationally  recognized  statistical  rating  organizations  (or, if not
rated by such firms,  with ratings below Class 2 assigned by the NAIC).  Conseco
plans to maintain  approximately  the present  level of below  investment  grade
fixed  maturities.  These  securities  generally  have greater  risks than other
corporate debt investments, including risk of loss upon default by the borrower,
and are often unsecured and  subordinated to other  creditors.  Below investment
grade issuers usually have high levels of indebtedness and are more sensitive to
adverse  economic  conditions,  such as recession or increasing  interest rates,
than are  investment  grade  issuers.  The  Company is aware of these  risks and
monitors its below investment grade  securities  closely.  At December 31, 1996,
the Company's below investment grade fixed maturity investments had an amortized
cost of $871.6 million and an estimated fair value of $879.1 million.

       Conseco periodically  evaluates the creditworthiness of each issuer whose
securities it holds.  Special attention is paid to those securities whose market
values have declined materially for reasons other than changes in interest rates
or other general market conditions.  The Company considers available information
to evaluate the realizable  value of the investment,  the specific  condition of
the issuer,  and the issuer's  ability to comply with the material  terms of the
security.  Information  reviewed may include the recent operational  results and
financial position of the issuer,  information about its industry,  recent press
releases  and  other  information.   Conseco  employs  a  staff  of  experienced
securities   analysts   in  a  variety   of   specialty   areas.   Among   other
responsibilities,  this staff  compiles and reviews such  evidence.  If evidence
does not exist to  support  a  realizable  value  equal to or  greater  than the
carrying  value of the investment and such decline in market value is determined
to be other than  temporary,  Conseco  reduces  the  carrying  amount to its net
realizable value,  which becomes the new cost basis; the amount of the reduction
is  reported  as a  realized  loss.  Conseco  recognizes  any  recovery  of such
reductions in the cost basis of an investment  only upon the sale,  repayment or
other  disposition  of the  investment.  Conseco  recorded  writedowns  of fixed
maturity  investments  and other invested  assets totaling $8.9 million in 1996,
primarily  as a result of: (i) changes in the  financial  condition of a private
company in which the Company had an indirect equity investment; and (ii) changes
in the value of the underlying  collateral  associated with certain notes. These
changes  caused the Company to  conclude  that the decline in fair value of such
investments  was other than  temporary.  The Company's  investment  portfolio is
subject to the risks of further  declines  in  realizable  value.  The  Company,
however,  attempts to mitigate this risk through the  diversification and active
management of its portfolio.

       As of December  31,  1996,  fixed  maturity  investments  in  substantive
default  (i.e.,  in default due to nonpayment  of interest or principal)  had an
amortized  cost of $.4  million and had no  carrying  value.  The Company had no
fixed maturity  investments in technical (but not substantive) default (i.e., in
default,  but not as to the  payment of interest  or  principal).  There were no
other fixed maturity investments about which management had serious doubts as to
the ability of the issuer to comply on a timely basis with the material terms of
the instruments.

       The  Company's  policy is to  discontinue  the  accrual of  interest  and
eliminate  all previous  interest  accruals for defaulted  securities,  if it is
determined that such amounts will not be ultimately realized in full. Investment
income  forgone  due to  defaulted  securities  was $3.8  million in 1996,  $1.6
million in 1995 and $3.9 million in 1994.

       At December 31, 1996, fixed maturity investments included $5.5 billion of
mortgage-backed   securities  (32  percent  of  the  fixed   maturity   security
portfolio).  The yield characteristics of mortgage-backed securities differ from
those of traditional  fixed-income  securities.  Interest and principal payments
occur more frequently, often monthly.  Mortgage-backed securities are subject to
risks associated with variable prepayments. Prepayment rates are influenced by a
number of  factors  that  cannot be  predicted  with  certainty,  including  the
relative  sensitivity of the underlying  mortgages backing the assets to changes
in interest rates; a variety of economic,  geographic and other factors; and the
repayment priority of the securities in the overall securitization structures.

                                       32

<PAGE>

       In  general,  prepayments  on the  underlying  mortgage  loans,  and  the
securities backed by these loans, increase when the level of prevailing interest
rates  declines  significantly  relative  to the  interest  rates on such loans.
Mortgage-backed  securities  purchased at a discount to par will  experience  an
increase in yield when the  underlying  mortgages  prepay faster than  expected.
Those  securities  purchased at a premium that prepay  faster than expected will
incur a reduction in yield.  When interest rates decline,  the proceeds from the
prepayment of  mortgage-backed  securities  are likely to be reinvested at lower
rates than the  Company was earning on the  prepaid  securities.  When  interest
rates  increase,  prepayments on  mortgage-backed  securities  decrease as fewer
underlying mortgages are refinanced.  When this occurs, the average maturity and
duration of the mortgage-backed  securities increase,  which decreases the yield
on  mortgage-backed  securities  purchased at a discount because the discount is
realized as income at a slower rate and increases  the yield on those  purchased
at a premium as a result of a decrease in annual amortization of the premium.

       CMOs are securities  backed by pools of  pass-through  securities  and/or
mortgages  that are  segregated  into  sections or  "tranches"  that provide for
sequential retirement of principal,  rather than the pro rata share of principal
return that occurs through  regular monthly  principal  payments on pass-through
securities.

       All  mortgage-backed  securities  are  subject to risks  associated  with
variable prepayments.  As a result, these securities may have a different actual
maturity  than planned at the time of purchase.  When  securities  having a cost
greater  than par are backed by  mortgages  that prepay  faster  than  expected,
Conseco records a charge to investment  income.  When  securities  having a cost
less than par prepay faster than expected, Conseco records investment income.

       The degree to which a  mortgage-backed  security is susceptible to income
fluctuations is influenced by: (i) the difference between its cost and par; (ii)
the relative  sensitivity  of the underlying  mortgages  backing the security to
prepayment  in a changing  interest  rate  environment;  and (iii) the repayment
priority of the security in the overall  securitization  structure.  The Company
seeks to limit the extent of these risks by: (i) purchasing  securities that are
backed by collateral with lower prepayment sensitivity (such as mortgages priced
at a discount to par value and  mortgages  that are  extremely  seasoned);  (ii)
avoiding   securities  whose  values  are  heavily   influenced  by  changes  in
prepayments (such as interest-only  and  principal-only  securities);  and (iii)
investing in securities  structured to reduce  prepayment  risk (such as planned
amortization  class ("PAC") and targeted  amortization  class ("TAC") CMOs). PAC
and TAC  instruments  represented  approximately  22  percent  of the  Company's
mortgage-backed  securities at December 31, 1996.  The call-  adjusted  modified
duration of the Company's  mortgage-backed  securities at December 31, 1996, was
5.9 years.

       The  following  table  sets  forth  the par  value,  amortized  cost  and
estimated fair value of  mortgage-backed  securities  including CMOs at December
31, 1996, summarized by interest rates on the underlying collateral:
<TABLE>
<CAPTION>

                                                                                  Par        Amortized      Estimated
                                                                                 value         cost        fair value
                                                                                 -----         ----        ----------
                                                                                       (Dollars in millions)

<S>                                                                             <C>           <C>            <C>
Below 7 percent   .........................................................     $1,808.2      $1,738.8       $1,731.9
7 percent - 8 percent......................................................      2,753.8       2,659.1        2,684.9
8 percent - 9 percent......................................................        667.3         663.3          669.7
9 percent and above........................................................        421.3         427.2          428.7
                                                                                --------      --------       --------

            Total mortgage-backed securities...............................     $5,650.6      $5,488.4       $5,515.2
                                                                                ========      ========       ========
</TABLE>

     The amortized cost and estimated fair value of  mortgage-backed  securities
including  CMOs at December 31,  1996,  summarized  by type of security  were as
follows:
<TABLE>
<CAPTION>


                                                                                                 Estimated fair value
                                                                                               -------------------------
                                                                                                               % of
                                                                                Amortized                      fixed
Type                                                                              cost         Amount       maturities
----                                                                              ----         ------       ----------
                                                                                   (Dollars in millions)

<S>                                                                            <C>            <C>               <C>     
Pass-throughs and sequential and targeted amortization  classes............    $3,885.4       $3,903.2          23%
Planned amortization classes and accretion directed bonds..................     1,023.2        1,022.1           6
Support classes............................................................       157.9          163.0           1
Accrual (Z tranche) bonds..................................................        52.9           54.3           -
Subordinated classes.......................................................       369.0          372.6           2
                                                                             ----------     ----------         ---

                                                                               $5,488.4       $5,515.2          32%
                                                                               ========       ========          ==
</TABLE>


                                       33

<PAGE>

       Pass-throughs  and  sequential  and  targeted  amortization  classes have
similar  prepayment  variability.  Pass-throughs  historically  provide the best
liquidity  in  the  mortgage-backed  securities  market  and  provide  the  best
price/performance  ratio in a highly volatile  interest rate  environment.  This
type of  security  is also  frequently  used as  collateral  in the  dollar-roll
market.  Sequential  classes pay in a strict  sequence;  all principal  payments
received by the CMO are paid to the  sequential  tranches in order of  priority.
Targeted  amortization classes provide a modest amount of prepayment  protection
when  prepayments  on the underlying  collateral  increase from those assumed at
pricing.  Thus,  they offer  slightly  better call  protection  than  sequential
classes and pass-throughs.

       Planned amortization classes and accretion directed bonds are some of the
most stable and liquid  instruments in the  mortgage-backed  securities  market.
Planned  amortization  class  bonds  adhere  to a fixed  schedule  of  principal
payments as long as the underlying mortgage collateral  experiences  prepayments
within a certain  range.  Changes  in  prepayment  rates are first  absorbed  by
support  classes.  This  insulates  the planned  amortization  classes  from the
consequences  of both faster  prepayments  (average life  shortening) and slower
prepayments (average life extension).

       Support   classes   absorb  the   prepayment   risk  from  which  planned
amortization and targeted amortization classes are protected.  As such, they are
usually  extremely  sensitive  to  prepayments.  Most of the  Company's  support
classes are higher average life  instruments that generally will not lengthen if
interest  rates rise  further  and will have a tendency  to shorten if  interest
rates  decline.  However,  since  these bonds have costs below their par values,
higher prepayments will have the effect of increasing yields.

       Accrual  bonds  are CMOs  structured  such  that the  payment  of  coupon
interest is deferred until  principal  payments begin. On each accrual date, the
principal  balance is increased  by the amount of the  interest  (based upon the
stated  coupon rate) that  otherwise  would have been  payable.  As such,  these
securities  act much the same as zero coupon  bonds until cash  payments  begin.
Cash  payments  typically  do not  commence  until  earlier  classes  in the CMO
structure  have been  retired,  which  can be  significantly  influenced  by the
prepayment  experience of the  underlying  mortgage  loan  collateral in the CMO
structure.  Because  of the zero  coupon  element  of these  securities  and the
potential uncertainty as to the timing of cash payments, their market values and
yields are more  sensitive  to  changing  interest  rates  than are other  CMOs,
pass-through securities and coupon bonds.

       Subordinated  CMO  classes  have both  prepayment  and credit  risk.  The
subordinated  classes  are used to  enhance  the  credit  quality  of the senior
securities  and  as  such,   rating  agencies  require  that  this  support  not
deteriorate  due to the prepayment of the  subordinated  securities.  The credit
risk of subordinated  classes is derived from the negative  leverage of owning a
small  percentage of the  underlying  mortgage loan  collateral  while bearing a
majority of the risk of loss due to homeowner defaults.

       If the Company  determines  that it will dispose of an investment held in
the  actively  managed  fixed  maturity  category,  Conseco will either sell the
security or transfer it to the trading  account at its fair value and  recognize
the gain or loss immediately. There were no such transfers in 1996. During 1996,
the Company sold actively managed fixed maturity securities with an $8.2 billion
book  value,  resulting  in $126.8  million  of net  investment  gains and $52.5
million of net investment losses (both before related expenses, amortization and
taxes).  Such  securities  were sold in  response  to changes in the  investment
environment  which  created  opportunities  to enhance  the total  return of the
investment portfolio without adversely affecting the quality of the portfolio or
the matching of expected  maturities of assets and liabilities.  The realization
of gains  and  losses  affects  the  timing of the  amortization  of the cost of
policies produced and the cost of policies purchased, as explained in note 11 to
the consolidated financial statements.

       During 1996,  fixed maturity  investments with par values totaling $267.8
million were redeemed prior to their  scheduled  maturity  dates. As a result of
such redemptions,  Conseco  recognized  approximately $5.6 million of additional
investment income.

       Other Investments

       Credit-tenant loans are loans on commercial properties where the lease of
the principal  tenant is assigned to the lender.  The principal  tenant,  or any
guarantor of such tenant's obligations, must have a credit rating at the time of
origination  of the loan of at least BBB- or its  equivalent.  The  underwriting
guidelines  consider such factors as: (i) the lease term of the  property;  (ii)
the mortgagee's  management  ability,  including business  experience,  property
management  capabilities  and  financial  soundness;  and (iii)  such  economic,
demographic  or other  factors  that may  affect  the  income  generated  by the
property or its value.  The  underwriting  guidelines  also generally  require a
loan-to-value  ratio of 75 percent or less.  Credit-tenant  loans are carried at
amortized  cost and totaled  $447.1 million at December 31, 1996, or 2.3 percent
of total invested assets. The total estimated fair value of credit-tenant  loans
was $446.3 million at December 31, 1996.

       At December  31, 1996,  Conseco held  mortgage  loan  investments  with a
carrying value of $356.0 million (or 1.8 percent of total invested assets) and a
fair value of $356.1 million. Substantially all of the mortgage loan investments
were commercial  loans.  Approximately 2 percent of the Company's  mortgage loan
balance consisted of investments in junior and residual interests of CMOs. These
instruments  entitle  the  Company to the excess  cash  flows  arising  from the
difference  between:  (i) the cash flows required to make principal and interest
payments on the related  senior  interests in the CMOs; and (ii) the actual cash
flows received on the mortgage loan

                                       34

<PAGE>

assets included in the CMO portfolios.  If prepayments  vary from projections on
the mortgage loan assets included in such CMO  portfolios,  the total cash flows
to the  Company  from such  junior and  residual  interests  could  change  from
projected cash flows, resulting in a gain or loss.

       Non-current  mortgage loans were  insignificant at December 31, 1996. The
Company had $.4 million in realized  losses on mortgage loans for the year ended
December 31, 1996. At December 31, 1996,  the Company had a loan loss reserve of
$2.4 million.  Approximately 30 percent of the mortgage loans were on properties
located in  California,  12 percent  in Texas and 6 percent in  Mississippi.  No
other state comprised greater than 5 percent of the mortgage loan balance.

       At December 31, 1996,  the Company  held no trading  account  securities.
Trading account securities are investments that are purchased with the intent to
be traded prior to their  maturity,  or are believed likely to be disposed of in
the  foreseeable  future as a result of market or issuer  developments.  Trading
account securities are carried at estimated fair value, with the changes in fair
value reflected in the statement of operations.

       Other  invested  assets  include  certain  non-traditional   investments,
including  investments in venture capital funds, limited  partnerships,  mineral
rights and promissory notes.

       Short-term investments totaled $281.6 million, or 1.4 percent of invested
assets at December 31, 1996,  and consisted  primarily of  commercial  paper and
repurchase agreements relating to government securities.

       As part of its  investment  strategy,  the Company  enters  into  reverse
repurchase  agreements and  dollar-roll  transactions  to increase its return on
investments and improve its liquidity.  Reverse repurchase  agreements involve a
sale of securities and an agreement to repurchase the same securities at a later
date at an agreed upon  price.  Dollar  rolls are similar to reverse  repurchase
agreements  except  that  the  repurchase  involves  securities  that  are  only
substantially  the  same  as the  securities  sold.  The  Company  enhances  its
investment  yield  by  investing  the  proceeds  from the  sales  in  short-term
securities  pending the  contractual  repurchase of the securities at discounted
prices in the forward market. The Company is able to engage in such transactions
due to the  market  demand for  mortgage-backed  securities  to form CMOs.  Such
investment   borrowings   averaged   $424.7   million   during   1996  and  were
collateralized by investment  securities with fair values approximately equal to
the loan value. The weighted average interest rate on short-term  collateralized
borrowings was 5.2 percent in 1996. The primary risk  associated with short-term
collateralized  borrowings  is that the  counterparty  will be unable to perform
under the terms of the contract. The Company's exposure is limited to the excess
of the net  replacement  cost of the securities over the value of the short-term
investments  (which was not material at December 31, 1996). The Company believes
that the counterparties to its reverse repurchase and dollar roll agreements are
financially responsible and that the counterparty risk is minimal.

       CONSOLIDATED FINANCIAL CONDITION

       Changes in the consolidated balance sheet of 1996 compared to 1995

       Conseco's  consolidated  balance sheet at December 31, 1996,  compared to
1995 was materially  affected by the following  acquisition  transactions  which
occurred during 1996: (i) the LPG Merger; (ii) the ALH Stock Purchase; (iii) the
ATC Merger; (iv) the THI Merger; and (v) the BLH Merger.


                                       35

<PAGE>


       The total  capital of  Conseco  at  December  31,  1996 and 1995,  was as
follows:
<TABLE>
<CAPTION>

                                                                           1996            1995
                                                                           ----            ----
                                                                            (Dollars in millions)
<S>                                                                       <C>            <C> 
Notes payable of Conseco...........................................       $1,094.9       $  871.4
Notes payable of affiliates, not direct obligations of Conseco.....           -             584.7
                                                                          --------       --------

       Total notes payable.........................................        1,094.9        1,456.1
                                                                          --------       --------

Minority interest:
    Company-obligated mandatorily redeemable preferred
       securities of subsidiary trusts.............................          600.0           -
    Preferred stock................................................           97.0          110.7
    Common stock...................................................             .7          292.6

Shareholders' equity:
    Preferred stock................................................          267.1          283.5
    Common stock and additional paid-in capital....................        2,029.6          157.2
    Unrealized appreciation of securities..........................           38.9          112.7
    Retained earnings..............................................          749.7          558.3
                                                                          --------       --------

       Total shareholders' equity..................................        3,085.3        1,111.7
                                                                          --------       --------

       Total capital of Conseco....................................       $4,877.9       $2,971.1
                                                                          ========       ========
</TABLE>

       Notes payable  decreased during 1996 as a result of the repayment of debt
using the proceeds from the issuance of Preferred  Redeemable Increased Dividend
Equity   Securities,   7%  Convertible   Preferred  Stock   ("PRIDES")  and  the
Company-obligated  mandatorily redeemable preferred securities.  Such repayments
included the repayment of debt acquired with LPG and THI.

       Company-obligated   mandatorily   redeemable   preferred   securities  of
subsidiary trusts totaling $600.0 million were issued during 1996. In accordance
with GAAP, such securities are not considered  shareholders'  equity of Conseco,
but are classified as minority interest.

       Minority interest, excluding the Company-obligated mandatorily redeemable
preferred  securities,  at December 31,  1996,  included:  (i) $97.0  million of
redeemable preferred stock of a subsidiary of ALH; and (ii) $.7 million interest
in the common  stock of a  subsidiary  of ALH. At December  31,  1995,  minority
interest also included the interests of the non-Conseco  shareholders in ALH and
BLH. Conseco acquired such ownership interests from the minority interest in the
ALH Stock Purchase and the BLH Merger.

       Shareholders'  equity increased by $2.0 billion in 1996, to $3.1 billion.
Significant  components of the increase included:  (i) the issuance of shares of
common  stock with a value of $1.6  billion  related to the LPG Merger,  the ATC
Merger,  the THI Merger and the BLH Merger;  (ii) the  issuance of PRIDES with a
value of $267.1 million;  (iii) net income of $252.4  million;  and (iv) amounts
related to stock options and employee  benefit plans  (including the tax benefit
related to issuance of shares  under  employee  benefit  plans)  totaling  $45.4
million.  These  increases  were  partially  offset  by: (i)  dividends  paid on
preferred  stock of $27.4 million;  (ii) dividends paid on common stock of $10.7
million; and (iii) the decline in unrealized appreciation of $73.8 million.

       Book value per common share  outstanding  increased to $16.86 at December
31,  1996,  from  $10.22 at December  31,  1995.  Such  increase  was  primarily
attributable   to  the  value  of  shares  issued  for:  (i)  Conseco's   recent
acquisitions;  and (ii) the conversion of preferred stock.  Excluding unrealized
appreciation  of fixed  maturity  securities in  accordance  with SFAS 115, book
value per common share outstanding was $16.62 at December 31, 1996,  compared to
$8.83 at December 31, 1995.

       Total  assets  increased  by $8.3  billion  in 1996,  to  $25.6  billion,
principally  due to the assets acquired in the LPG Merger,  the ATC Merger,  and
the THI Merger.

       In accordance with SFAS 115,  Conseco records its actively  managed fixed
maturity  investments  at estimated  fair value.  At December 31, 1996 and 1995,
such   investments   were  increased  by  $103.8  million  and  $608.2  million,
respectively, as a result of the SFAS 115 adjustment.

                                       36

<PAGE>
<TABLE>
<CAPTION>



       Financial Ratios
                       

                                                                         1996       1995       1994       1993       1992
                                                                         ----       ----       ----       ----       ----
<S>                                                                      <C>        <C>       <C>         <C>       <C>
Ratio of earnings to fixed charges:
    As reported........................................................  1.61X      1.57X      2.26X      2.19X     1.54X
    Excluding interest on annuities and financial products(a)..........  4.55X      3.80X      4.55X      8.85X     6.24X

Ratio of earnings to fixed charges and preferred dividends:
    As reported........................................................  1.50X      1.50X      1.95X      2.04X     1.50X
    Excluding interest on annuities and financial products(a) ........   3.14X      3.06X      3.14X      6.00X     5.09X

Ratio of earnings to fixed charges,  preferred  dividends and
    distributions  on Company-obligated  mandatorily redeemable
    preferred securities of subsidiary trusts:
       As reported....................................................   1.49X      1.50X      1.95X      2.04X     1.50X
       Excluding interest on annuities and financial products(a)......   3.06X      3.06X      3.14X      6.00X     5.09X

Ratio of adjusted statutory earnings to cash interest:(b)
    As reported.......................................................   1.50X      1.41X      2.05X      1.47X     1.24X
    Excluding interest on annuities and financial products(a).........   4.56X      3.50X      4.52X      4.94X     5.75X

Ratio of debt to total capital: (c)
    As reported.......................................................    .22X       .49X       .43X       .34X      .49X
    Excluding unrealized appreciation (depreciation)(d)...............    .23X       .53X       .39X       .36X      .50X

Ratio of debt and Company-obligated mandatorily redeemable
    preferred securities of subsidiary trusts to total capital:(c) (e)
       As reported....................................................    .35X       .49X       .43X       .34X      .49X
       Excluding unrealized appreciation (depreciation) (d)...........    .35X       .53X       .39X       .36X      .50X
</TABLE>

(a)    These ratios  are  included  to assist the reader in analyzing the impact
       of  interest  on   annuities   and  financial   products  (which  is  not
       generally required to be paid in cash  in  the  period it is recognized).
       Such  ratios are  not intended  to, and do not  represent  the  following
       ratios  prepared   in  accordance   with  GAAP:  the ratio of earnings to
       fixed  charges;  the  ratio  of  earnings to fixed  charges and preferred
       dividends;  the  ratio  of earnings to fixed charges, preferred dividends
       and   distributions  on   Company-obligated     mandatorily   redeemable
       preferred  securities of subsidiary  trusts;  or the  ratio  of  adjusted
       statutory earnings to cash interest.

(b)    Statutory  earnings  represent:  (i) gain from  operations  of  Conseco's
       consolidated  life insurance  companies before interest  (including,  for
       purposes of the "as reported"  ratio, interest on annuities and financial
       products) and income tax as reported for statutory  accounting  purposes;
       plus  (ii)  income  before interest  and  income  tax  of  all  non-life
       companies.  Cash interest includes interest  (including,  for purposes of
       the "as reported" ratio, interest on annuities and financial products) of
       Conseco's consolidated subsidiaries.

(c)    For periods prior to 1996, debt  includes obligations  for which  Conseco
       was not directly liable.

(d)    Excludes the effect of reporting fixed maturities at fair value which the
       Company began to do in 1992 as described in  note  1 to  the consolidated
       financial statements.

(e)    Represents  the   ratio of  debt  and the  Company-obligated  mandatorily
       redeemable  preferred   securities  of  subsidiary   trusts to the sum of
       shareholders'   equity,   notes  payable,    minority  interest  and  the
       Company-obligated   mandatorily   redeemable  preferred   securities   of
       subsidiary trusts.

                                       37

<PAGE>

       Liquidity for Insurance Operations

       Conseco's  insurance  operating companies generally receive adequate cash
flow from premium  collections and investment income to meet their  obligations.
Life  insurance  and  annuity  liabilities  are  generally  long term in nature.
Policyholders may, however, withdraw funds or surrender their policies,  subject
to surrender and withdrawal penalty provisions. The Company seeks to balance the
duration of its invested assets with the estimated  duration of benefit payments
arising from contract liabilities.

       Of the  Company's  total  insurance  liabilities  at December  31,  1996,
approximately  20 percent could be  surrendered  by the  policyholder  without a
penalty.  Approximately  65 percent  could be  surrendered  by the  policyholder
subject  to  penalty  or the  release  of an  insurance  liability  in excess of
surrender benefits paid. Payment characteristics of the insurance liabilities at
December 31, 1996, were as follows (dollars in millions):
<TABLE>
<CAPTION>

             <S>                                                                            <C>
             Payments under contracts containing fixed payment dates:
                   Due in one year or less..............................................    $   291.9
                   Due after one year through five years................................        708.3
                   Due after five years through ten years...............................        383.8
                   Due after ten years..................................................        783.0
                                                                                            ---------

                        Total gross payments whose payment dates are fixed by contract..      2,167.0
                   Less amounts representing future interest on such contracts..........        845.4
                                                                                            ---------

                        Insurance liabilities whose payment dates are fixed by contract.      1,321.6
             Insurance liabilities whose payment dates are not fixed by contract........     17,982.7
                                                                                            ---------

                        Total insurance liabilities.....................................    $19,304.3
                                                                                            =========
</TABLE>

       Of the above  insurance  liabilities  under  contracts  containing  fixed
payment dates,  approximately  55 percent  related to payments that will be made
for the lifetime of the contract holder. Conseco considers expected mortality in
determining the amount of this liability.  The remaining  insurance  liabilities
having fixed  payment  dates are payable  regardless  of the  contract  holder's
survival.

       Approximately 20 percent of insurance  liabilities were contracts subject
to a fixed interest rate for the life of the contract. The remaining liabilities
generally were subject to interest rates that could be reset at least annually.

       The following summarizes  insurance  liabilities for investment contracts
by credited  rate  (excluding  interest  rate  bonuses for the first policy year
only) at December 31, 1996 (dollars in millions):
<TABLE>
<CAPTION>

       <S>                                                                              <C>
       Below 4.75 percent.........................................................      $  2,361.9
       4.75 percent - 5.00 pecent.................................................         1,054.6
       5.00 percent - 5.25 percent................................................         4,590.3
       5.25 percent - 5.50 percent................................................         1,611.5
       5.50 percent - 5.75 percent................................................         1,201.0
       5.75 percent and above.....................................................           672.3
                                                                                         ---------

             Total insurance liabilities on investment contracts..................       $11,491.6
                                                                                         =========
</TABLE>

       Conseco  believes that the diversity of its investment  portfolio and the
concentration  of  investments  in  high  quality  liquid   securities   provide
sufficient  liquidity  to meet  foreseeable  cash  requirements.  The  Company's
investment  portfolio at December 31, 1996,  included $.3 billion of  short-term
investments, $.6 billion of United States government and agency securities, $5.5
billion of  mortgage-backed  securities,  and $10.6  billion of publicly  traded
investment  grade bonds.  Although there is no present need or intent to dispose
of such  investments,  the life companies  could readily  liquidate  portions of
their investments, if such a need arose. In addition,  investments could be used
to facilitate  borrowings  under reverse  repurchase  agreements or  dollar-roll
transactions.  Such borrowings have been used by the life companies from time to
time to  increase  their  return on  investments  and to improve  liquidity.  At
December 31, 1996,  the Company's  portfolio of bonds and  redeemable  preferred
stocks had an aggregate unrealized gain of $103.8 million.

                                       38

<PAGE>

       Liquidity of Conseco (Parent Company)

       The parent  company is a legal  entity,  separate and  distinct  from its
subsidiaries, and has no business operations. The parent company needs cash for:
(i)  principal  and interest on debt;  (ii)  dividends  on preferred  and common
stock;  (iii)  distributions  on the  Company-obligated  mandatorily  redeemable
preferred  stock of  subsidiary  trusts;  (iv)  holding  company  administrative
expenses;  (v) income taxes; and (vi)  investments in subsidiaries.  The primary
sources of cash to meet these obligations include statutorily permitted payments
from Conseco's life insurance  subsidiaries  including:  (i) dividend  payments;
(ii) tax sharing  payments;  and (iii) fees for  services  provided.  The parent
company may also obtain cash by: (i)  issuing  debt or equity  securities;  (ii)
borrowing additional amounts under its revolving credit agreement,  as described
in note 8 to the consolidated  financial  statements;  or (iii) selling all or a
portion of its subsidiaries.  These sources have historically  provided adequate
cash flow to fund: (i) the needs of the parent company's normal operations; (ii)
internal  expansion,  acquisitions and investment  opportunities;  and (iii) the
retirement  of debt and equity.  In 1996,  Conseco also issued new shares of its
common stock for all or a portion of the cost to acquire LPG, ATC, THI and BLH.

       The following  table shows the cash flow  activity of the parent  company
and its wholly owned non-life subsidiaries:
<TABLE>
<CAPTION>

                                                                                           1996         1995         1994
                                                                                           ----         ----         ----
                                                                                               (Dollars in millions)
     <S>                                                                                 <C>          <C>          <C>   
     Items relating to operations:
       Dividends and surplus debenture payments......................................    $109.9       $  80.6      $  19.7
       Tax sharing payments from subsidiaries........................................       4.6           2.7         13.7
       Fees from affiliates..........................................................      74.8          34.7         45.8
       Fees from unaffiliated companies..............................................      39.3          39.0         30.1
       Parent company costs..........................................................     (39.8)        (64.5)       (67.6)
       Interest on debt of Conseco, including direct and indirect obligations........     (71.3)        (41.6)       (21.2)
       Interest on amounts due from Conseco to life subsidiaries.....................      (7.3)         (8.8)        (9.3)
       Income taxes..................................................................       2.2          (7.7)        (4.5)
       Other.........................................................................      (4.7)           -          17.3
                                                                                        -------       -------       ------

          Total items relating to operations.........................................     107.7          34.4         24.0
                                                                                        -------       -------       ------

     Items relating to investing:
       Purchase of investments.......................................................     (71.1)        (70.8)       (51.6)
       Sales and maturities of investments...........................................      45.3         125.6         22.9
       Cash held by non-life subsidiaries prior to acquisition.......................      40.9          17.0           -
       Proceeds from the sale of shares of WNC and related transactions..............        -             -         811.7
       Investment in consolidated subsidiaries.......................................    (226.1)       (552.3)       (17.0)
       Expense incurred in terminated merger.........................................        -           (5.5)       (30.3)
       Payments from subsidiaries....................................................      36.5            -            -
       Payments to affiliates........................................................        -             -         (58.8)
                                                                                        -------       -------       ------

          Total items relating to investing..........................................    (174.5)       (486.0)       676.9
                                                                                        -------       -------       ------

     Items relating to financing:
       Proceeds from the issuance of convertible preferred stock, net
        of issuance costs............................................................     257.7            -           -
       Proceeds from issuance of Company-obligated mandatorily redeemable
          preferred securities of subsidiary trusts, net of issuance costs...........     587.7            -           -
       Proceeds from the issuance of equity securities...............................      20.6           1.8          3.2
       Proceeds from the issuance of debt, net of issuance costs.....................     856.0         827.2        158.0
       Common and preferred dividends................................................     (34.3)        (24.6)       (31.3)
       Dividends on stock held by subsidiaries.......................................     (38.1)        (38.7)        (4.6)
       Distributions on Company-obligated mandatorily redeemable preferred securities
          of subsidiary trusts.......................................................      (2.9)           -            -
       Payments on debt, including prepayments and acquired debt.....................  (1,467.2)       (330.0)      (378.4)
       Repurchases of Conseco common stock ..........................................     (21.5)        (92.4)      (354.3)
       Payments to retire preferred stock ...........................................       (.3)           -          (3.3)
                                                                                       --------       -------      -------

          Total items relating to financing..........................................     157.7         343.3       (610.7)
                                                                                       --------       -------      -------

          Change in short-term investments of parent
              and its non-life subsidiaries..........................................      90.9        (108.3)        90.2
          Short-term investments, beginning of year..................................      24.2         132.5         42.3
                                                                                       --------       -------      -------

          Short-term investments, end of year........................................  $  115.1       $  24.2      $ 132.5
                                                                                       ========       =======      =======
</TABLE>
                                       39

<PAGE>


       At December 31, 1996,  the parent  company and its non-life  subsidiaries
had  short-term  investments  of $115.1  million,  of which  $12.6  million  was
expended in January 1997 for accrued interest and dividends.  The parent company
and its non-life  subsidiaries had additional  investments in fixed  maturities,
equity  securities  and other  invested  assets of $65.3 million at December 31,
1996,  which,  if needed,  could be liquidated or  contributed  to the insurance
subsidiaries.

       The ability of  Conseco's  insurance  subsidiaries  to pay  dividends  is
subject to state insurance department  regulations.  These regulations generally
permit dividends to be paid for any twelve-month  period in amounts equal to the
greater of (or in a few states, the lesser of): (i) net gain from operations; or
(ii) 10 percent of surplus as of the end of the preceding year. Any dividends in
excess of these levels require the approval of the director or  commissioner  of
the  applicable  state  insurance  department.  The amount of dividends that the
Company's  insurance  subsidiaries  could pay in 1997 without prior  approval is
approximately $151.0 million.

       Statutory   operating   results  and  statutory  surplus  are  determined
according  to  statutes  adopted  by each  state in which  the  subsidiaries  do
business. Statutory surplus bears no direct relationship to equity as determined
under GAAP. With respect to new business, statutory accounting practices require
that: (i) acquisition  costs and (ii) reserves for future  guaranteed  principal
payments  and  interest  in excess of  statutory  rates,  be expensed as the new
business is written.  These items cause a statutory loss  ("surplus  strain") on
many insurance  products in the year in which they are issued.  Conseco  manages
the  effect of such  statutory  surplus  strain by  designing  its  products  to
minimize such first-year  losses,  and by controlling the amount of new premiums
written.

       Note 13 to the  consolidated  financial  statements  shows the difference
between pretax income  reported using  statutory  accounting  practices  (before
deduction  of  expenses  paid  to  affiliates  and  transfers  to and  from  and
amortization of the interest maintenance reserve ("IMR")) and GAAP.

       Insurance  departments  in the states where the Company's  life insurance
subsidiaries  are domiciled or do business require  insurance  companies to make
annual and quarterly filings.  Portions of surplus, called the IMR and the asset
valuation  reserve  ("AVR"),  are  required to be  appropriated  and reported as
liabilities.  The IMR captures all  investment  gains and losses  resulting from
changes in interest  rates and provides  for such  amounts to be amortized  into
statutory net income on a basis  reflecting  the  remaining  lives of the assets
sold.  The AVR  captures  investment  gains and  losses  related  to  changes in
creditworthiness;  it is also adjusted  each year based on a formula  related to
the quality and loss  experience of the Company's  investment  portfolio.  These
reserves affect the ability of the Company's  insurance  subsidiaries to reflect
investment gains and losses in statutory earnings and surplus.

       Conseco's debt agreements require the Company to maintain minimum working
capital  and  RBC  and  limit  the   Company's   ability  to  incur   additional
indebtedness.  They also  restrict  the  amount of  retained  earnings  that are
available for dividends and require Conseco to maintain  certain minimum ratings
at its insurance subsidiaries.

       INFLATION

       Inflation does not have a significant  effect on Conseco's balance sheet;
the Company has minimal investments in property, equipment or inventories.

       Medical cost  inflation  has had a  significant  impact on the  Company's
supplemental health operations. In recent years, these costs have increased more
rapidly than the Consumer  Price Index.  Medical  costs will likely  continue to
rise.  The impact on Conseco's  operations  depends upon its ability to increase
its premium  rates.  Such  increases are subject to approval by state  insurance
departments.  Before Medicare supplement plans were standardized,  approximately
two-thirds of the states permitted rate plans with automatic escalation clauses.
This permitted Conseco, in periods following initial approval, to adjust premium
rates for  changes  in  Medicare  deductibles  and  increases  in  medical  cost
inflation without refiling with the regulators.  Currently, all rate changes for
standardized plans must be individually  approved by each state.  Conseco prices
its new standardized supplement plans to reflect the impact of these filings and
the lengthening of the period required to implement rate increases.

       OUTLOOK

       As indicated throughout this report,  Conseco intends to continue to grow
its life and health insurance operations.

       Conseco's  operations  in 1997 and in future years will be  significantly
affected  by several  planned and  recently  completed  acquisitions.  Operating
earnings for 1996 were not affected by the ATC Merger, the THI Merger or the BLH
Merger,  all of which were  recorded as of December 31, 1996.  On March 4, 1997,
Conseco completed the CAF Merger. On December 15, 1996,  Conseco and PFS entered
into the PFS Merger Agreement  pursuant to which PFS would become a wholly owned
subsidiary of Conseco.  The PFS Merger is expected to be completed in the second
quarter of 1997. After an acquisition is completed,  Conseco minimizes operating
expenses by centralizing,  standardizing  and more  efficiently  performing many
functions common to most life insurance companies.

                                       40

<PAGE>

These functions include underwriting and policy  administration,  accounting and
financial reporting,  marketing,  regulatory compliance,  actuarial services and
asset management.

       Conseco  believes  that  the  consolidation  of the U.S.  life  insurance
industry will  continue,  and Conseco  intends to  participate  in this process.
Conseco believes that, under appropriate circumstances,  it is more advantageous
to acquire  companies with large books of in-force life and health insurance and
annuities  and strong  distribution  channels,  than to produce new  business or
develop or enlarge  distribution  channels.  Conseco believes that the purchased
blocks of business and the acquired  distribution channels make more predictable
profit analysis possible.

       The Company  believes a number of life  insurance  companies  will become
available  for  acquisition  in the  next 10  years  as a  result  of  strategic
restructuring and consolidation within the life insurance industry.  The Company
may participate in such  acquisitions  (such as the LPG Merger,  the ATC Merger,
the  THI  Merger  and the CAF  Merger),  when  the  acquisition  fits  Conseco's
strategic growth plan and can be achieved with a capital  structure that results
in: (i) increased earnings per share and value to Conseco's  shareholders;  (ii)
favorable rating agency actions;  and (iii) an expansion of profitable marketing
activities by all Conseco companies.  Conseco's ability to complete acquisitions
that  achieve  those  objectives  depends  on  a  number  of  external  factors,
including:  (i) the attitudes of rating agencies toward Conseco's strategic plan
and capital  structure;  (ii) the  availability and cost of both debt and equity
capital;  (iii)  pressures  that motivate  companies to seek to be acquired at a
reasonable cost; and (iv)  competition  from other acquirers,  which affects the
cost of acquisitions.

       Conseco  believes it has the resources and capabilities to continue being
a successful  acquirer of life  insurance  companies.  It also believes that its
past record of  successfully  acquiring,  financing and operating life insurance
companies  will be an  advantage  compared  to others who may attempt to acquire
available candidates.  The pro forma capital structure of Conseco (giving effect
to the CAF Merger,  completed in March 1997; and the PFS Merger,  expected to be
completed in the second quarter of 1997) includes only 30 percent debt.

       As part of its program of exploring  opportunities to improve its capital
structure,  Conseco continually reviews its corporate structure and the need and
desirability of restructuring the existing debt and equity of the Company.

       As a result  of its  recent  acquisitions  and the  planned  PFS  Merger,
Conseco  will have  significant  in-force  business  and  marketing  activity in
multiple  segments of the life insurance  industry,  including  universal  life,
ordinary life, term life,  single- and  flexible-premium  deferred and immediate
annuities (including both variable and fixed),  Medicare  supplement,  long-term
care, specified disease, and individual and group health insurance.

       The following pro forma consolidated  financial information as of and for
the year ended  December 31, 1996, is provided for  informational  purposes only
and may not be indicative  of the results of  operations or financial  condition
that would have been  achieved  had the  transactions  set forth below  actually
occurred  as of the  dates  indicated  or of future  results  of  operations  or
financial condition of Conseco.  Conseco anticipates cost savings and additional
benefits  as a result of  completing  the  transactions  set forth  below.  Such
benefits and any other changes that might have  resulted from  management of the
combined  companies  have not been  included  as  adjustments  to the pro  forma
consolidated financial information.

       The pro forma  consolidated  statement of operations  information for the
year ended  December 31,  1996,  in the column  headed "Pro forma for  completed
transactions"  reflects the  following  transactions,  all of which have already
occurred,  as if such  transactions  had  occurred  on January 1, 1996:  (i) the
issuance of 4.37 million  shares of PRIDES in January  1996;  (ii) the BLH offer
for and  repurchase  of its 13 percent  senior  subordinated  notes due 2002 and
related  financing  transactions  completed in March 1996; (iii) the LPG Merger;
(iv) the call for redemption of Conseco's  Series D Convertible  Preferred Stock
completed on September 26, 1996; (v) the ALH Stock  Purchase;  (vi) the issuance
of $600 million of Company-obligated mandatorily redeemable preferred securities
of subsidiary trusts; (vii) the ATC Merger;  (viii) the THI Merger; (ix) the BLH
Merger;  and  (x) the  CAF  Merger.  The pro  forma  consolidated  statement  of
operations  information  for the year ended  December  31,  1996,  in the column
headed  "Pro  forma for  completed  transactions  and the PFS  Merger"  reflects
further  adjustments to the consolidated  operating results of Conseco as if the
PFS Merger had occurred on January 1, 1996.



                                       41

<PAGE>



       The pro forma  consolidated  balance  sheet  information  at December 31,
1996, in the column headed "Pro forma for completed  transactions"  reflects the
application  of certain  pro forma  adjustments  for the CAF  Merger,  which was
completed  March 4,  1997.  The pro forma  consolidated  balance  sheet  data at
December 31, 1996, in the column  headed "Pro forma for  completed  transactions
and the PFS Merger"  reflect  further  adjustments to the financial  position of
Conseco as if the PFS Merger had occurred on December 31, 1996.
<TABLE>
<CAPTION>

                                                                               Year ended December 31, 1996
                                                                               ----------------------------
                                                                                                        Pro forma for
                                                                                    Pro forma for         completed
                                                                                      completed     transactions and the
                                                                    As reported     transactions         PFS Merger
                                                                    -----------     ------------         ----------

                                                                         (Amounts in millions, except per share data)
<S>                                                                  <C>                <C>                 <C>    
STATEMENT OF OPERATIONS DATA
Insurance policy income...........................................   $1,654.2           $2,599.8            $3,370.7
Investment activity:
  Net investment income...........................................    1,302.5            1,598.0             1,678.5
  Net investment gains............................................       30.4               36.4                40.6
Total revenues....................................................    3,067.3            4,320.1             5,213.6
Interest expense on notes payable.................................      108.1              138.7               142.5
Total benefits and expenses.......................................    2,573.7            3,666.5             4,508.6
Income before income taxes, minority interest and
  extraordinary charge............................................      493.6              653.6               705.0
Income before extraordinary charge................................      278.9              367.1               399.1

PER SHARE DATA (a)
Income before extraordinary charge, primary.......................      $2.12              $1.90               $1.98
Income before extraordinary charge, fully diluted.................       1.96               1.80                1.86
Dividends declared per common share...............................       .083               .083                .083
Book value per common share outstanding...........................      16.86              17.26               18.39
Shares outstanding at year-end....................................      167.1              170.0               178.7
Average fully diluted shares outstanding..........................      142.5              204.3               216.0

BALANCE SHEET DATA - PERIOD END
Total assets......................................................  $25,612.7          $27,213.1           $29,304.3
Notes payable.....................................................    1,094.9            1,696.4             1,825.4
Total liabilities.................................................   21,829.7           23,314.4            25,053.2
Minority interests in consolidated subsidiaries:
  Company-obligated mandatorily redeemable
     preferred securities of subsidiary trusts....................      600.0              600.0               600.0
  Preferred stock.................................................       97.0               97.0                97.0
  Common stock....................................................         .7                 .7                  .7
Shareholders' equity .............................................    3,085.3            3,201.0             3,553.4

OTHER FINANCIAL DATA (a) (b)
Premiums collected (c)............................................   $3,210.4           $4,277.1            $5,071.3
Operating earnings (d)............................................      267.7              353.4               382.7
Operating earnings per fully diluted common share (d).............       1.89               1.74                1.78
Shareholders' equity excluding unrealized appreciation
  (depreciation) of fixed maturity securities (e).................    3,045.5            3,161.2             3,513.6
Book value per common share outstanding, excluding
  unrealized appreciation (depreciation) of fixed
  maturity securities (e).........................................      16.62              17.02               18.17
</TABLE>


  (a)  All  share and  per-share  amounts  have been  restated  to  reflect  the
       two-for-one stock splits paid on April 1, 1996, and February 11, 1997.




                                       42

<PAGE>



  (b)  Amounts under this heading are included to assist the reader in analyzing
       the Company's financial position and results of operations.  Such amounts
       are not intended to, and do not,  represent  insurance policy income, net
       income,  net  income per  share,  shareholders'  equity or book value per
       share prepared in accordance with GAAP.

  (c)  Includes  premiums  received from  annuities and universal life policies.
       Such premiums are not reported as revenues under GAAP.

  (d)  Represents income before extraordinary  charge,  excluding net investment
       gains (losses) (less  amortization of cost of policies purchased and cost
       of  policies  produced  and  income  taxes  relating  to such  gains) and
       restructuring activities (net of income taxes).

  (e)  Excludes  the effects of  reporting  fixed  maturities  at fair value and
       recording the unrealized  gain or loss on such  securities as a component
       of  shareholders'  equity,  net  of  tax  and  other  adjustments.   Such
       adjustments,  which the Company  began to do in 1992,  are in  accordance
       with SFAS  115,  as  described  in note 1 to the  consolidated  financial
       statements.



                                       43

<PAGE>
<TABLE>
<CAPTION>



  ITEM 8.  CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.


                                         Index to Consolidated Financial Statements





                                                                                                                         Page
<S>                                                                                                                      <C> 
Report of Management...............................................................................................      45

Report of Independent Accountants..................................................................................      46

Consolidated Balance Sheet at December 31, 1996 and 1995...........................................................      47

Consolidated Statement of Operations for the years ended
    December 31, 1996, 1995 and 1994...............................................................................      49

Consolidated Statement of Shareholders' Equity
    for the years ended December 31, 1996, 1995 and 1994...........................................................      51

Consolidated Statement of Cash Flows for the years ended
    December 31, 1996, 1995 and 1994...............................................................................      52

Notes to Consolidated Financial Statements.........................................................................      54



</TABLE>

                                       44

<PAGE>





                              REPORT OF MANAGEMENT




To Our Shareholders


       Management of Conseco,  Inc. is  responsible  for the  reliability of the
financial  information  in this annual  report.  The  financial  statements  are
prepared in accordance with generally accepted  accounting  principles,  and the
other financial information in this annual report is consistent with that of the
financial  statements  (except  for  such  information  described  as  being  in
accordance with regulatory or statutory accounting requirements).

       The  integrity  of the  financial  information  relies  in large  part on
maintaining a system of internal  control that is  established  by management to
provide  reasonable  assurance that assets are safeguarded and  transactions are
properly authorized,  recorded and reported.  Reasonable assurance is based upon
the premise  that the cost of controls  should not exceed the  benefits  derived
from them. The Company's internal auditors continually evaluate the adequacy and
effectiveness  of this  system of  internal  control  and  actions  are taken to
correct deficiencies as they are identified.

       Certain  financial   information   presented  depends  upon  management's
estimates and judgments regarding the ultimate outcome of transactions which are
not yet complete. Management believes these estimates and judgments are fair and
reasonable in view of present conditions and available information.

       The  Company  engages  independent  accountants  to audit  its  financial
statements  and express  their  opinion  thereon.  They have full access to each
member of management in  conducting  their audits.  Such audits are conducted in
accordance with generally  accepted  auditing  standards and include a review of
internal  controls,  tests of the  accounting  records,  and such other auditing
procedures  as they  consider  necessary to express an opinion on the  Company's
financial statements.

       The  Audit  Committee  of the  Board of  Directors,  composed  solely  of
nonmanagement directors,  meets periodically with management,  internal auditors
and the independent  accountants to review internal  accounting  control,  audit
activities  and  financial  reporting  matters.  The  internal  auditors and the
independent accountants have full and free access to the Audit Committee.




   Stephen C. Hilbert                                    Rollin M. Dick
 Chairman of the Board,                           Executive Vice President and
     President and                                  Chief Financial Officer
 Chief Executive Officer


                                       45

<PAGE>




                        REPORT OF INDEPENDENT ACCOUNTANTS





To the Board of Directors
  and Shareholders
Conseco, Inc.


       We have audited the accompanying  consolidated  balance sheet of Conseco,
Inc.  and  Subsidiaries  as of  December  31,  1996 and  1995,  and the  related
consolidated statements of operations,  shareholders' equity, and cash flows for
each of the three years in the period ended December 31, 1996.  These  financial
statements   are  the   responsibility   of  the   Company's   management.   Our
responsibility  is to express an opinion on these 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  financial  statements  referred  to above  present
fairly,  in all  material  respects,  the  consolidated  financial  position  of
Conseco,  Inc.  and  Subsidiaries  as of  December  31,  1996 and 1995,  and the
consolidated  results of their  operations  and their cash flows for each of the
three years in the period ended December 31, 1996, in conformity  with generally
accepted accounting principles.


                                        /s/ COOPERS & LYBRAND L.L.P.
                                        ----------------------------
                                        COOPERS & LYBRAND L.L.P.


Indianapolis, Indiana
March 14, 1997

                                       46


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

                                              CONSECO, INC. AND SUBSIDIARIES

                                                CONSOLIDATED BALANCE SHEET
                                                December 31, 1996 and 1995
                                                   (Dollars in millions)



                                                          ASSETS


                                                                                            1996              1995
                                                                                            ----              ----
<S>                                                                                       <C>               <C>    
Investments:
    Actively managed fixed maturities at fair value (amortized cost:
       1996 - $17,203.3; 1995 - $12,355.1).............................................   $17,307.1         $12,963.3
    Equity securities at fair value (cost: 1996 - $97.6; 1995 - $34.6).................        99.7              36.6
    Mortgage loans.....................................................................       356.0             339.9
    Credit-tenant loans................................................................       447.1             259.1
    Policy loans.......................................................................       542.4             307.6
    Other invested assets .............................................................       259.6              91.2
    Short-term investments.............................................................       281.6             189.9
    Assets held in separate accounts...................................................       337.6             227.0
                                                                                          ---------         ---------

           Total investments...........................................................    19,631.1          14,414.6

Accrued investment income..............................................................       296.9             207.8
Cost of policies purchased.............................................................     2,015.0           1,030.7
Cost of policies produced..............................................................       544.3             391.0
Reinsurance receivables................................................................       504.2              84.8
Income tax assets......................................................................         8.8               -
Goodwill (net of accumulated amortization:  1996 - $83.2; 1995 - $48.0)................     2,200.8             894.1
Property and equipment (net of accumulated depreciation: 1996 - $69.7; 1995 - $36.3)...       110.5              88.7
Securities segregated for future redemption of  redeemable preferred stock of a
  subsidiary...........................................................................        45.6              39.2
Other assets...........................................................................       255.5             146.6
                                                                                          ---------         ---------

           Total assets................................................................   $25,612.7         $17,297.5
                                                                                          =========         =========
</TABLE>















                            (continued on next page)

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

                                       47

<PAGE>
<TABLE>
<CAPTION>



                                              CONSECO, INC. AND SUBSIDIARIES

                                          CONSOLIDATED BALANCE SHEET (Continued)
                                                December 31, 1996 and 1995
                                                   (Dollars in millions)


                                           LIABILITIES AND SHAREHOLDERS' EQUITY




                                                                                            1996              1995
                                                                                            ----              ----
<S>                                                                                       <C>              <C>    
Liabilities:
    Insurance liabilities:
       Interest sensitive products.....................................................   $14,795.5        $10,637.7
       Traditional products............................................................     3,180.1          2,035.4
       Claims payable and other policyholder funds.....................................     1,056.3            517.4
       Unearned premiums...............................................................       272.4            187.9
    Income tax liabilities.............................................................         -               93.3
    Investment borrowings..............................................................       383.4            298.1
    Other liabilities..................................................................       709.5            329.6
    Liabilities related to separate accounts ..........................................       337.6            227.0
    Notes payable of Conseco...........................................................     1,094.9            871.4
    Notes payable of affiliates, not direct obligations of Conseco.....................         -              584.7
                                                                                          ---------        ---------

            Total liabilities..........................................................    21,829.7         15,782.5
                                                                                          ---------        ---------

Minority interest:
    Company-obligated mandatorily redeemable preferred securities
       of subsidiary trusts............................................................       600.0              -
    Preferred stock....................................................................        97.0            110.7
    Common stock.......................................................................          .7            292.6

Shareholders' equity:
    Preferred stock....................................................................       267.1            283.5
    Common stock and additional paid-in capital (no par value, 500,000,000 shares
       authorized, shares issued and outstanding: 1996 - 167,128,228;
       1995 - 81,031,828)..............................................................     2,029.6            157.2
    Unrealized appreciation (depreciation) of securities:
       Fixed maturity securities (net of applicable deferred income taxes:
          1996 - $21.5; 1995 - $66.8)..................................................        39.8            112.6
       Other investments (net of applicable deferred income taxes:
          1996 - $(.5); 1995 - $.1)....................................................         (.9)              .1
    Retained earnings..................................................................       749.7            558.3
                                                                                          ---------        ---------

            Total shareholders' equity.................................................     3,085.3          1,111.7
                                                                                          ---------        ---------

            Total liabilities and shareholders' equity.................................   $25,612.7        $17,297.5
                                                                                          =========        =========

</TABLE>







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

                                       48

<PAGE>
<TABLE>
<CAPTION>



                                              CONSECO, INC. AND SUBSIDIARIES

                                           CONSOLIDATED STATEMENT OF OPERATIONS
                                   for the years ended December 31, 1996, 1995 and 1994
                                       (Dollars in millions, except per share data)

                                                                             1996             1995              1994
                                                                             ----             ----              ----
<S>                                                                       <C>              <C>                 <C>  
Revenues:
    Insurance policy income:
       Traditional products.............................................  $1,384.3         $1,355.6            $1,240.6
       Interest sensitive products......................................     269.9            109.4                45.0
    Net investment income...............................................   1,302.5          1,142.6               385.7
    Net investment gains (losses).......................................      30.4            188.9               (30.5)
    Fee revenue and other income........................................      49.8             43.6                75.5
    Restructuring income................................................      30.4             15.2                80.8
    Equity in earnings of unconsolidated subsidiaries...................        -                -                 64.9
                                                                          --------         --------            --------

            Total revenues..............................................   3,067.3          2,855.3             1,862.0
                                                                          --------         --------            --------

Benefits and expenses:
    Insurance policy benefits...........................................   1,173.3          1,075.5               915.4
    Change in future policy benefits....................................      21.7             32.0                42.6
    Interest expense on annuities and financial products................     668.6            585.4               134.7
    Interest expense on notes payable...................................     108.1            119.4                59.3
    Interest expense on short-term investment borrowings................      22.0             22.2                 7.7
    Amortization related to operations..................................     240.0            203.6               133.3
    Amortization related to investment gains (losses)...................      36.0            126.6                (5.3)
    Other operating costs and expenses..................................     304.0            272.1               214.1
    Expenses incurred in conjunction with terminated merger.............        -                -                 35.8
                                                                          --------         --------            --------

            Total benefits and expenses.................................   2,573.7          2,436.8             1,537.6
                                                                          --------         --------            --------

            Income before income taxes, minority interest
                and extraordinary charge ...............................     493.6            418.5               324.4

Income tax expense......................................................     179.8             87.0               111.0
                                                                          --------         --------            --------

            Income before minority interest and
                extraordinary charge ...................................     313.8            331.5               213.4

Minority interest:
    Distributions on Company-obligated mandatorily redeemable preferred
       securities of subsidiary trusts..................................       3.6               -                   -
    Dividends on preferred stock........................................       8.9             11.9                 3.3
    Equity in earnings..................................................      22.4             97.1                55.7
                                                                          --------         --------            --------

            Income before extraordinary charge .........................     278.9            222.5               154.4

Extraordinary charge on extinguishment of
    debt, net of taxes and minority interest............................      26.5              2.1                 4.0
                                                                          --------         --------            --------

            Net income..................................................     252.4            220.4               150.4

Less preferred stock dividends..........................................      27.4             18.4                18.6
                                                                          --------         --------            --------

            Net income applicable to common stock.......................  $  225.0         $  202.0            $  131.8
                                                                          ========         ========            ========
</TABLE>

                            (continued on next page)

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

                                       49

<PAGE>
<TABLE>
 <CAPTION>



                         CONSECO, INC. AND SUBSIDIARIES

                CONSOLIDATED STATEMENT OF OPERATIONS (Continued)
             for the years ended December 31, 1996, 1995 and 1994
                  (Dollars in millions, except per share data)


                                                                             1996             1995            1994
                                                                             ----             ----            ----
<S>                                                                     <C>              <C>             <C>   
Earnings per common share and common equivalent share:
    Primary:
       Weighted average shares outstanding............................. 126,812,000      86,094,000      105,392,000
       Net income before extraordinary charge .........................       $2.12           $2.37            $1.29
       Extraordinary charge ...........................................         .21             .02              .04
                                                                              -----           -----           ------

            Net income.................................................       $1.91           $2.35            $1.25
                                                                              =====           =====            =====

    Fully diluted:
       Weighted average shares outstanding............................. 142,487,000     104,480,000      123,436,000
       Net income before extraordinary charge .........................       $1.96           $2.13            $1.25
       Extraordinary charge............................................         .19             .02              .03
                                                                              -----           -----            -----

            Net income.................................................       $1.77           $2.11            $1.22
                                                                              =====           =====            =====


</TABLE>








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


                                       50

<PAGE>
<TABLE>
<CAPTION>



                                              CONSECO, INC. AND SUBSIDIARIES

                                      CONSOLIDATED  STATEMENT  OF  SHAREHOLDERS' EQUITY
                                    for the years ended December 31, 1996, 1995 and 1994
                                                   (Dollars in millions)

                                                                                  1996           1995            1994
                                                                                  ----           ----            ----
<S>                                                                             <C>           <C>              <C>   
Preferred stock:
    Balance, beginning of year................................................  $  283.5      $   283.5        $ 287.5
       Issuance of convertible preferred stock................................     267.1            -               -
       Conversion of preferred shares into common stock.......................    (283.2)           -               -
       Preferred shares redeemed..............................................       (.3)           -             (4.0)
                                                                                --------      ---------        -------

    Balance, end of year......................................................  $  267.1      $   283.5        $ 283.5
                                                                                ========      =========        =======

Common stock and additional paid-in capital:
    Balance, beginning of year................................................  $  157.2      $   165.8        $ 102.8
       Issuance of shares in merger with Life Partners Group, Inc.............     586.8            -               -
       Issuance of shares in merger with American Travellers Corporation......     630.9            -               -
       Issuance of shares in merger with Transport Holdings Inc...............     227.9            -               -
       Issuance of shares in merger with Bankers Life Holding Corporation.....     123.0            -               -
       Issuance of shares for stock options and employee benefit plans........      29.5            6.0           19.3
       Tax benefit related to issuance of shares under employee benefit plans.      15.9             .4           69.2
       Conversion of preferred stock into common stock........................     283.2            -               -
       Cost of issuance of preferred stock....................................     (21.7)           -               -
       Cost of shares acquired charged to common stock
          and additional paid-in capital......................................      (3.1)         (15.0)         (25.5)
                                                                                --------      ---------        ------- 

    Balance, end of year......................................................  $2,029.6      $   157.2        $ 165.8
                                                                                ========      =========        =======

Unrealized appreciation (depreciation) of securities:
    Fixed maturity securities:
       Balance, beginning of year ............................................  $  112.6      $  (137.7)       $  87.4
          Change in unrealized appreciation (depreciation)....................     (72.8)         250.3         (225.1)
                                                                                --------      ---------        -------

       Balance, end of year...................................................  $   39.8      $   112.6        $(137.7)
                                                                                ========      =========        =======

    Other investments:
       Balance, beginning of year ............................................  $     .1      $    (2.0)       $  10.1
          Change in unrealized appreciation (depreciation)....................      (1.0)           2.1          (12.1)
                                                                                --------      ---------        -------

       Balance, end of year...................................................  $    (.9)     $      .1        $  (2.0)
                                                                                ========      =========        =======

Retained earnings:
    Balance, beginning of year................................................   $ 558.3      $   437.4        $ 654.8
       Net income ............................................................     252.4          220.4          150.4
       Dividends on preferred stock...........................................     (27.4)         (18.4)         (18.6)
       Dividends on common stock..............................................     (10.7)          (3.7)         (12.2)
       Cost of shares acquired charged to retained earnings...................     (22.9)         (77.4)        (337.0)
                                                                                --------      ---------        -------

    Balance, end of year......................................................  $  749.7      $   558.3        $ 437.4
                                                                                ========      =========        =======

          Total shareholders' equity..........................................  $3,085.3      $ 1,111.7        $ 747.0
                                                                                ========      =========        =======
</TABLE>


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

                                       51

<PAGE>
<TABLE>
<CAPTION>



                         CONSECO, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENT OF CASH FLOWS
              for the years ended December 31, 1996, 1995 and 1994
                              (Dollars in millions)

                                                                           1996            1995           1994
                                                                           ----            ----           ----

<S>                                                                      <C>             <C>             <C>   
Cash flows from operating activities:
    Net income.........................................................  $   252.4       $  220.4       $  150.4
    Adjustments to reconcile net income to net
       cash provided by operating activities:
          Amortization and depreciation................................      336.3          339.4          136.3
          Income taxes.................................................       15.5          (34.7)          (5.7)
          Insurance liabilities........................................      (84.4)          (4.2)          67.9
          Interest credited to insurance liabilities...................      668.6          585.4          134.7
          Fees charged to insurance liabilities .......................     (239.5)        (108.1)         (43.0)
          Accrual and amortization of investment income................      (29.5)         (71.8)         (37.6)
          Deferral of cost of policies produced  ......................     (308.4)        (282.1)        (161.8)
          Restructuring income ........................................      (30.4)         (15.2)         (80.8)
          Equity in undistributed earnings of unconsolidated
            subsidiaries...............................................        -              -            (61.1)
          Minority interest............................................       21.3           91.9           45.1
          Extraordinary charge on extinguishment of debt...............       36.9            3.7            5.0
          Net investment (gains) losses................................      (30.4)        (188.9)          30.5
          Other........................................................      (70.3)         (28.9)         (37.2)
                                                                         ---------      ---------       --------

            Net cash provided by operating activities..................      538.1          506.9          142.7
                                                                         ---------      ---------       --------

Cash flows from investing activities:
    Sales of investments...............................................    8,394.1        7,900.9        2,789.3
    Maturities and redemptions.........................................      614.3          417.1          148.2
    Purchases of investments...........................................   (9,409.7)      (9,112.3)      (3,613.3)
    Cash received (paid) in reinsurance transactions...................        -            (71.1)         158.8
    Purchase of additional shares of Bankers Life Holding Corporation..      (27.7)        (304.5)         (35.7)
    Purchase of additional shares of CCP Insurance, Inc................        -           (281.8)            -
    Repurchase of equity securities by CCP Insurance, Inc..............        -            (44.5)            -
    Purchase of American Life Holdings, Inc............................     (165.0)            -          (215.3)
    Purchase of preferred stock of American Life Holdings, Inc.........      (12.6)            -              -
    Short-term investments held by Life Partners Group, Inc.
       before consolidation............................................       79.1             -              -
    Short-term investments held by American Travellers Corporation
       before consolidation............................................       65.4             -              -
    Short-term investments held by Transport Holdings Inc. before
       consolidation...................................................       47.1             -              -
    Short-term investments held by CCP Insurance, Inc. before
       consolidation at January 1, 1995................................        -            123.0             -
    Proceeds from sale of  Western National  Corporation,
       net of cash held before deconsolidation.........................        -              -            459.2
    Other..............................................................      (21.3)          (3.3)         (31.3)
                                                                         ---------      ---------       --------

          Net cash used by investing activities........................     (436.3)      (1,376.5)        (340.1)
                                                                         ---------      ---------       --------
</TABLE>

                                                 (continued on next page)







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

                                       52

<PAGE>
<TABLE>
<CAPTION>



                         CONSECO, INC. AND SUBSIDIARIES

                CONSOLIDATED STATEMENT OF CASH FLOWS (Continued)
              for the years ended December 31, 1996, 1995 and 1994
                              (Dollars in millions)

                                                                             1996            1995           1994
                                                                             ----            ----           ----
<S>                                                                       <C>           <C>               <C>   
Cash flows from financing activities:
    Issuance of capital stock, net.....................................    $   20.6     $     1.8         $   16.9
    Issuance of convertible preferred stock............................       257.7           -                -
    Issuance of Company-obligated mandatorily redeemable
       preferred securities of subsidiary trusts.......................       587.7           -                -
    Issuance of equity interests in subsidiaries, net..................         2.2          16.8             68.0
    Issuance of notes payable of Conseco, net..........................       856.0         795.2            158.0
    Issuance of notes payable of affiliates, net - not direct
       obligations of Conseco .........................................       459.4         233.4            306.4
    Redemption of preferred stock......................................         (.3)          -                -
    Payments to repurchase equity securities of Conseco ...............       (21.5)        (92.4)          (366.5)
    Payments on notes payable of Conseco...............................    (1,207.9)       (330.0)          (378.4)
    Payments on notes payable of affiliates - not direct
       obligations of Conseco..........................................      (926.4)       (269.0)           (66.5)
    Deposits to insurance liabilities..................................     1,811.5       1,757.4            634.6
    Investment borrowings..............................................        30.6         298.1           (207.2)
    Withdrawals from insurance liabilities.............................    (1,842.5)     (1,622.6)          (307.6)
    Distributions paid on Company-obligated mandatorily redeemable
       preferred securities of subsidiary trusts.......................        (2.9)          -                -
    Dividends paid.....................................................       (34.3)        (24.6)           (31.3)
                                                                           --------     ---------         --------

            Net cash provided (used)  by financing activities..........       (10.1)        764.1           (173.6)
                                                                           --------     ---------         --------

            Net increase (decrease) in short-term investments..........        91.7        (105.5)          (371.0)

Short-term investments, beginning of year..............................       189.9         295.4            666.4
                                                                           --------     ---------         --------

Short-term investments, end of year....................................    $  281.6      $  189.9         $  295.4
                                                                           ========      ========         ========
</TABLE>











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

                                       53

<PAGE>

                         CONSECO, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

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


       1.  SIGNIFICANT ACCOUNTING POLICIES:

       Basis of Presentation

       The following  summary explains the accounting  policies we use to arrive
at some of the more  significant  numbers in our financial  statements.  We have
restated  all share and  per-share  amounts  for the  two-for-one  stock  splits
distributed  April 1, 1996,  and  February 11,  1997.  We prepare our  financial
statements in accordance with generally accepted accounting principles ("GAAP").
We follow the  accounting  standards  established  by the  Financial  Accounting
Standards Board, the American  Institute of Certified Public Accountants and the
Securities and Exchange Commission.

       Conseco,  Inc. ("We," "Conseco" or "the Company") is a financial services
holding   company   engaged   primarily  in  the   development,   marketing  and
administration  of annuity,  supplemental  health and individual  life products.
Conseco's  operating  strategy  is to grow the  insurance  business  within  its
subsidiaries  by focusing its  resources  on the  development  and  expansion of
profitable products and strong distribution  channels.  Conseco supplements such
growth by  acquiring  companies  that have  profitable  niche  products,  strong
distribution systems and progressive  management teams who can work with Conseco
to  implement  Conseco's  operating  and  growth  strategies.  Once a company is
acquired, our operating strategy is to consolidate and streamline management and
administrative  functions, to realize superior investment returns through active
asset management,  to eliminate unprofitable products and distribution channels,
and to expand and develop the profitable distribution channels and products.

       We own the following life insurance companies:  Bankers Life and Casualty
Company ("Bankers Life"), Bankers Life Insurance Company of Illinois,  Certified
Life  Insurance  Company,  Great  American  Reserve  Insurance  Company  ("Great
American  Reserve"),  Beneficial  Standard Life Insurance  Company  ("Beneficial
Standard"), Jefferson National Life Insurance Company of Texas, Bankers National
Life  Insurance  Company,  National  Fidelity Life  Insurance  Company,  Lincoln
American Life Insurance  Company,  American Life and Casualty  Insurance Company
("ALC"),  Vulcan Life Insurance  Company,  Philadelphia Life Insurance  Company,
Massachusetts  General Life Insurance  Company,  Lamar Life  Insurance  Company,
Wabash Life Insurance  Company,  American  Travellers  Life  Insurance  Company,
United General Life Insurance Company,  American Travellers Insurance Company of
New York, TLIC Life Insurance Company, Transport Life Insurance Company ("TLIC")
and Continental Life Insurance Company.

       Consolidation issues.  Conseco Capital Partners,  L.P. ("Partnership I"),
an  investment  partnership  formed by  Conseco  with other  investors,  was the
Company's vehicle for acquiring four insurance companies: Great American Reserve
in June 1990, Jefferson National Life Insurance Company in November 1990 (it was
merged with Great American Reserve in 1994),  Beneficial  Standard in March 1991
and Bankers Life in November 1992. We accounted for all of these acquisitions as
purchases,  reflecting  the  acquired  operations  in our  financial  statements
beginning with the acquisition dates. As sole general partner, Conseco exercised
unilateral  control over  Partnership I even though our  ownership  interest was
less than 50 percent.  We were  therefore  required  to include the  accounts of
Partnership I and its majority-owned  subsidiaries in our consolidated financial
statements until Partnership I was liquidated on March 31, 1993.

       CCP  Insurance,  Inc.  ("CCP"),  a newly  organized  holding  company for
Partnership I's first three  acquisitions,  completed an initial public offering
("IPO")  in July  1992.  As a result  of the IPO,  we no longer  had  unilateral
control  over  those  entities  and  stopped  including  their  accounts  in our
consolidated  financial  statements.  We carried our  investment  in CCP and its
subsidiaries  in our financial  statements on the equity basis in 1994 and 1993.
In August 1995,  we completed the purchase of all the shares of CCP common stock
we did not previously own in a transaction pursuant to which CCP was merged with
Conseco,  with Conseco being the surviving  corporation  (the merger and related
transactions  are referred to herein as the "CCP  Merger").  As a result,  CCP's
subsidiaries  (Great  American  Reserve and Beneficial  Standard)  became wholly
owned subsidiaries of the Company. The Company's consolidated statements reflect
the operations of CCP on a consolidated basis effective January 1, 1995.

       We were required to use step-basis accounting when we acquired the shares
of CCP  common  stock in  various  transactions.  As a result,  the  assets  and
liabilities  of CCP included in our  consolidated  balance  sheet  represent the
following combination of values: (i) the portion of CCP's net assets acquired by
Conseco in the initial  acquisitions of CCP's subsidiaries made by Partnership I
is valued as of those  respective  acquisition  dates;  and (ii) the  portion of
CCP's net assets acquired in the CCP Merger is valued as of August 31, 1995.

                                       54

<PAGE>


                         CONSECO, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

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



       Bankers Life Holding Corporation ("BLH"), a company formed by Partnership
I to acquire  Bankers  Life,  completed an IPO in March 1993. As a result of the
IPO,  Conseco  owned 31 percent of BLH and no longer had  unilateral  control of
BLH.  However,  after we acquired  additional  common shares of BLH in September
1993,  our ownership  position in BLH increased to 56 percent.  In June 1995, we
purchased additional common shares of BLH, increasing the Company's ownership of
BLH to 85  percent.  Conseco's  ownership  of BLH  increased  to 88  percent  at
December  31,  1995,  and 90.5  percent at March 5,  1996,  as a result of share
repurchases  by BLH. On December  31,  1996,  we  completed  the purchase of BLH
common  shares we did not  already  own in a  transaction  pursuant to which BLH
merged  with a wholly  owned  subsidiary  of  Conseco  (the "BLH  Merger").  The
accounts of BLH are consolidated with Conseco's  accounts for all periods in the
accompanying consolidated financial statements.

       The assets and liabilities of BLH included in Conseco's 1996 consolidated
balance sheet represent the following  combination of values: (i) the portion of
BLH's net assets  acquired by Conseco in the November 1992  acquisition  made by
Partnership I is valued as of that  acquisition  date; (ii) the portion of BLH's
net assets  acquired in 1993, 1995 and the first quarter of 1996 is valued as of
the dates of their purchase;  and (iii) the portion of BLH's net assets acquired
in the BLH Merger is valued as of December 31, 1996.

       Western  National  Corporation  ("WNC"),  the holding company for Western
National  Life  Insurance  Company  ("Western  National"),  completed  an IPO in
February 1994.  Prior to the IPO, WNC was a wholly owned  subsidiary of Conseco.
We sold 60  percent  of our  equity  interest  in the IPO and our  remaining  40
percent  interest in WNC on December 23, 1994.  Our equity in earnings of WNC in
1994  therefore  reflected:  (i) all of WNC's  earnings  for the period  through
February  15,  1994;  and (ii) 40 percent of WNC's  earnings for the period from
February 15, 1994, through December 23, 1994.

       Conseco Capital Partners II, L.P.  ("Partnership  II"),  Conseco's second
investment  partnership,  acquired  American Life Holdings,  Inc. ("ALH" and the
parent of ALC) on  September  29,  1994.  Because  Conseco was the sole  general
partner of Partnership II, Conseco controlled Partnership II and ALH even though
our  ownership  interest  was less than 50  percent.  Because  of this  control,
Conseco's  consolidated  financial  statements  were  required  to  include  the
accounts of ALH. Immediately after the acquisition of ALH, Conseco,  through its
direct  investment and through its equity  interests in the investments  made by
BLH, CCP and WNC, had approximately a 27 percent ownership interest in ALH.

       On November 30, 1995, ALH issued 2,142,857 shares of its common stock for
$30.0 million  (including $13.2 million paid by Conseco and its subsidiaries) in
a private placement  transaction.  Conseco's ownership interest in ALH increased
to 36 percent at December 31, 1995, as a result of this  transaction and changes
in our ownership of affiliated companies with ownership interests in ALH.

       On September  30, 1996,  we purchased  all of the common shares of ALH we
did not previously own from  Partnership II for $165.0 million in cash (the "ALH
Stock  Purchase")  and  Partnership II was  terminated.  We were required to use
step-basis accounting when we acquired the shares of ALH common stock in the ALH
Stock Purchase and for our previous  acquisitions.  As a result,  the assets and
liabilities of ALH included in the December 31, 1996, consolidated balance sheet
represent  the  following  combination  of values:  (i) the portion of ALH's net
assets acquired by Conseco in the initial acquisition of ALH made by Partnership
II is valued as of  September  29,  1994;  (ii) the  portion of ALH's net assets
acquired on November  30, 1995 is valued as of that date;  and (iii) the portion
of ALH's net assets acquired in the ALH Stock Purchase is valued as of September
30, 1996.

       On August 2, 1996,  we completed  the  acquisition  (the "LPG Merger") of
Life Partners Group,  Inc.  ("LPG") and LPG became a wholly owned  subsidiary of
Conseco.  On December 17, 1996, we completed the acquisition  (the "ATC Merger")
of  American  Travellers  Corporation  ("ATC")  and ATC was merged with and into
Conseco, with Conseco being the surviving corporation.  On December 23, 1996, we
completed the acquisition (the "THI Merger") of Transport  Holdings Inc. ("THI")
and THI was  merged  with and into  Conseco  with  Conseco  being the  surviving
corporation.  Accordingly,  the  accounts of LPG are  consolidated  with Conseco
effective  July 1,  1996  and  the  accounts  of ATC  and  THI are  consolidated
effective December 31, 1996.




                                       55

<PAGE>


                         CONSECO, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

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



       Neither "consolidation" nor "non-consolidation" methods of accounting for
partially  owned  subsidiaries  affect our reported net income or  shareholders'
equity.  Our  consolidated  financial  statements  do not include the results of
material transactions between us and our consolidated  affiliates,  or among our
consolidated  affiliates.  We  reclassified  some  figures  in our 1995 and 1994
consolidated   financial   statements   and  notes  to  conform  with  the  1996
presentation.

       Investments

       Fixed  maturities  are  securities  that  mature more than one year after
issuance.  They  include  bonds,  notes  receivable  and  preferred  stocks with
mandatory redemption features and are classified as follows:

             Actively managed - fixed maturity securities that we may sell prior
             to maturity in response to changes in interest rates, issuer credit
             quality or our liquidity  requirements.  We carry actively  managed
             securities at estimated fair value.  We record any unrealized  gain
             or loss, net of tax and the related adjustments described below, as
             a component of shareholders' equity.

             Trading account - fixed maturity securities that we buy principally
             for the  purpose  of selling  in the near  term.  We carry  trading
             account   securities  at  estimated  fair  value.  We  include  any
             unrealized gain or loss in net investment gains (losses).   We  did
             not hold  any trading  account securities  at December 31, 1996  or
             1995.

             Held to maturity - (all other fixed maturities) securities which we
             have the ability and positive  intent to hold to maturity.  When we
             own  such  securities,  we carry  them at  amortized  cost.  We may
             dispose of these  securities  if the  credit  quality of the issuer
             deteriorates,  if  regulatory  requirements  change or under  other
             unforeseen  circumstances.  We have not  held any held to  maturity
             securities since implementing SFAS 115 in 1993.

       We consider the anticipated returns from investing policyholder balances,
including  investment  gains and losses,  in determining the amortization of the
cost of  policies  purchased  and the cost of policies  produced.  When we state
actively  managed  fixed  maturities  at fair value,  we also adjust the cost of
policies  purchased  and the cost of policies  produced to reflect the change in
cumulative  amortization  that we  would  have  recorded  if we had  sold  these
securities at their fair value and reinvested the proceeds at current yields. If
future  yields on such  securities  decline,  it may be  necessary  to  increase
certain of our insurance liabilities. We are required to adjust such liabilities
when their balances and future net cash flows (including  investment income) are
insufficient to cover future benefits and expenses.

       The  unrealized  gains and losses and the related  adjustments  described
above  have  no  effect  on  our  earnings.  We  record  them,  net of  tax,  to
shareholders'  equity.  The  following  table  summarizes  the  effect  of these
adjustments on the related balance sheet accounts as of December 31, 1996:
<TABLE>
<CAPTION>

                                                                                    Effect of fair value
                                                                                        adjustment to
                                                                    Balance           actively managed
                                                                    before             fixed maturity          Reported
                                                                  adjustment             securities             amount
                                                                  ----------             ----------             ------
                                                                                    (Dollars in millions)

<S>                                                               <C>                        <C>              <C>   
Actively managed fixed maturity securities....................    $17,203.3                  $103.8           $17,307.1
Cost of policies purchased....................................      2,059.2                   (44.2)            2,015.0
Cost of policies produced.....................................        542.6                     1.7               544.3
Income tax assets.............................................         30.3                   (21.5)                8.8
Unrealized appreciation of fixed maturity securities..........          -                      39.8                39.8

</TABLE>






                                       56

<PAGE>


                         CONSECO, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

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

       When there are  changes in  conditions  that cause us to transfer a fixed
maturity investment to a different category (i.e., actively managed,  trading or
held to maturity), we transfer it at its fair value on that date. We account for
the security's unrealized gain or loss (such amounts were immaterial in 1996) as
follows:

          For a transfer to the trading  category - we recognize the  unrealized
          gain or loss immediately in earnings.

          For a  transfer  from the  trading  category - we do not  reverse  the
          unrealized gain or loss already recognized in earnings.

          For a  transfer  to  actively  managed  from  held  to  maturity  - we
          recognize the unrealized  gain or loss  immediately  in  shareholders'
          equity.

          For a transfer to held to maturity from actively managed - we continue
          to  report  the  unrealized  gain or loss at the date of  transfer  in
          shareholders'  equity,  but we  amortize  the  gain or loss  over  the
          remaining life of the security as an adjustment of yield.

       Equity securities include investments in common stocks and non-redeemable
preferred  stock.  We treat them like  actively  managed  fixed  maturities  (as
described above).

       Credit-tenant loans ("CTLs") are loans for commercial properties. When we
make these  loans:  (i) the lease of the  principal  tenant  must be assigned to
Conseco;  (ii) the lease must produce  adequate cash flow to fund  substantially
all the  requirements  of the  loan;  and  (iii)  the  principal  tenant  or the
guarantor of such  tenant's  obligations  must have an  investment-grade  credit
rating  when the loan is made.  These loans also must be  collateralized  by the
value of the related  property.  Our  underwriting  guidelines take into account
such  factors  as:  (i) the  lease  term of the  property;  (ii) the  borrower's
management   ability,   including  business   experience,   property  management
capabilities and financial  soundness;  and (iii) such economic,  demographic or
other  factors  that may affect the income  generated  by the  property,  or its
value. The underwriting guidelines generally require a loan-to-value ratio of 75
percent or less. We carry both CTLs and traditional  mortgage loans at amortized
cost.

       As part of our investment strategy,  we may enter into reverse repurchase
agreements and dollar-roll  transactions to increase our investment return or to
improve  our  liquidity.   We  account  for  these  transactions  as  collateral
borrowings,  where  the  amount  borrowed  is  equal to the  sales  price of the
underlying securities.

       Other  invested  assets  include  certain  non-traditional   investments,
including  investments in venture capital funds, limited  partnerships,  mineral
rights and promissory notes. Such investments are accounted for using either the
cost method,  or for  investments  in  partnerships  over whose  operations  the
Company exercises significant influence, the equity method.

       Policy loans are stated at their current unpaid principal balances.

       Short-term  investments include commercial paper, invested cash and other
investments  purchased with maturities of less than three months.  We carry them
at amortized cost,  which  approximates  their estimated fair value. We consider
all short-term investments to be cash equivalents.

       We  defer  any  fees  received  or  costs   incurred  when  we  originate
investments--principally  CTLs and mortgages. We amortize fees, costs, discounts
and premiums as yield adjustments over the contractual lives of the investments.
We consider anticipated prepayments on mortgage-backed securities in determining
estimated future yields on such securities.

       We record the cost of each individual investment security. When we sell a
security,  we report the  difference  between our sale proceeds and its carrying
value (before unrealized  adjustment) as a realized gain or loss on investments.
If the proceeds  result from  prepayments  by the issuer  prior to maturity,  we
record those differences as an adjustment to investment income.




                                       57

<PAGE>


                         CONSECO, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

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


       We regularly evaluate all our CTLs,  mortgage loans and other investments
based  on  current  economic  conditions,   credit  loss  experience  and  other
investee-specific  developments.  If  there is a  decline  in a  security's  net
realizable  value that is other than  temporary,  we treat it as a realized loss
and we reduce our cost basis of the security to its estimated  fair value.  If a
loan  becomes  impaired  (i.e.,  it becomes  probable  that we will be unable to
collect all amounts due according to the contractual terms of the agreement), we
revalue the loan at the present value of expected cash flows,  discounted at the
loan's  effective  interest  rate.  We  accrue  interest  thereafter  on its net
carrying amount.

       Separate Accounts

       Separate  accounts  are  funds on which  investment  income  and gains or
losses accrue  directly to certain  policyholders.  The assets of these accounts
are legally  segregated.  They are not subject to the claims which may arise out
of any other business of Conseco.  We report  separate  account assets at market
value; the underlying  investment risks are assumed by the contract holders.  We
record the related  liabilities at amounts equal to the underlying  assets;  the
fair value of these liabilities equals their carrying amount.

       Cost of Policies Purchased

       When we acquire an insurance company,  we assign a portion of its cost to
the right to receive future cash flows from insurance  contracts existing at the
date  of the  acquisition.  This  cost  of  policies  purchased  represents  the
actuarially determined present value of the projected future cash flows from the
acquired  policies.  To determine this value, we use a method that is consistent
with methods  commonly  used to value blocks of insurance  business and with the
basic  methodology  generally  used to value  assets.  It can be  summarized  as
follows:

       -  Identify the expected future cash flows from the blocks of business.

       -  Identify the risks to realizing those cash flows (i.e., assess the 
          probability that the cash flows will be realized).

       -  Identify the rate of return that we must earn in order to accept these
          risks, based on consideration of the factors summarized below.

       -  Determine the  value  of  the  policies  purchased  by discounting the
          expected future cash flows by the discount rate we need to earn.

       The expected future cash flows we use in determining such value are based
on actuarially determined projections of future premium collections,  mortality,
surrenders,  operating expenses,  changes in insurance  liabilities,  investment
yields on the assets  held to back the  policy  liabilities  and other  factors.
These  projections  take into  account  all  factors  known or  expected  at the
valuation date, based on the collective  judgment of Conseco's  management.  Our
actual  experience  on  purchased  business  may vary  from  projections  due to
differences in renewal premiums collected,  investment spread,  investment gains
or losses, mortality and morbidity costs and other factors.

       The discount  rate we use to determine  the value of the cost of policies
purchased  is the  rate of  return  we need to earn in order  to  invest  in the
business  being  acquired.  In  determining  this  required  rate of return,  we
consider the following factors:

       -  The magnitude of  the  risks  associated  with  each  of the actuarial
          assumptions   used  in  determining  expected  future  cash  flows (as
          described above).

       -  The cost of our capital required to fund the acquisition.

       -  The likelihood of changes in projected  future  cash  flows that might
          occur if there are changes in insurance regulations and  tax laws.

       - The acquired company's compatibility with other Conseco activities that
         may favorably affect future cash flows.

       -  The complexity of the acquired company.


                                       58

<PAGE>


                         CONSECO, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

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


       -  Recent prices  (i.e.,  discount  rates used in determining valuations)
          paid by others to acquire similar blocks of business.

       After we  determine  the cost of policies  purchased,  we  amortize  that
amount based on the incidence of the expected cash flows. We amortize this asset
using the interest rate credited to the underlying policies.

       If renewal premiums  collected,  investment  spread,  investment gains or
losses,  mortality  and  morbidity  costs  or  other  factors  differ  from  our
expectations,  we adjust our amortization of the cost of policies purchased. For
example, the sale of a fixed maturity investment may result in a gain (or loss).
If the sale proceeds are reinvested at a lower (or higher)  earnings rate, there
may also be a reduction (or increase) in our future  investment  spread. We must
then increase (or decrease)  amortization to reflect the change in the incidence
of expected cash flows. We adjust amortization  consistent with the methods used
with the cost of policies produced (described below).

       Each  year,  we  evaluate  the  recoverability  of the  cost of  policies
purchased to the unamortized asset balance by line of business within each block
of purchased  insurance  business.  If our current  estimate  indicates that the
existing  insurance  liabilities,  together with the present value of future net
cash  flows from the  blocks of  business  purchased,  will be  insufficient  to
recover the cost of policies purchased,  we charge the difference to expense. We
adjust  amortization  consistent with the methods used with the cost of policies
produced (as described below).

       The cost of policies purchased related to acquisitions completed prior to
November  19, 1992  (representing  12 percent of the balance of cost of policies
purchased at December 31, 1996) is amortized under a slightly  different  method
than that described above. However,   the   effect  of  the   different   method
on  1996  net  income  was insignificant.

       Cost of Policies Produced

       The costs  that vary with and are  primarily  related  to  producing  new
business are referred to as cost of policies produced. They consist primarily of
commissions,  first-year bonus interest and certain costs of policy issuance and
underwriting,  net of fees  charged  to the  policy in excess of  ultimate  fees
charged.  To the extent that they are recoverable from future profits,  we defer
these costs and amortize them with interest as follows:

       -  For universal life-type contracts and  investment-type  contracts,  in
          relation  to the  present  value of expected  gross  profits  from the
          contracts, discounted using the interest rate credited to the policy.

       -  For  immediate annuities  with  mortality  risks,  in  relation to the
          present value of benefits to be paid.

       -  For traditional life and accident and health products,  in relation to
          future  anticipated  premium revenue,  using the same assumptions that
          are used in calculating the insurance liabilities.

       Each year, we evaluate the  recoverability of the unamortized  balance of
the  cost  of  policies  produced.   For  universal   life-type   contracts  and
investment-type  contracts, we increase or decrease the accumulated amortization
whenever there is a material change in the estimated gross profits expected over
the life of a block of  business.  We do this in order to  maintain  a  constant
relationship   between  the  cumulative   amortization  and  the  present  value
(discounted  at the rate of interest  that accrues to the  policies) of expected
gross profits. For most other contracts, we reduce the unamortized asset balance
(by a charge to income) only when the present value of future cash flows, net of
the policy liabilities, is insufficient to recover the asset balance.

       Goodwill

       Goodwill  is the excess of the  amount we paid to acquire a company  over
the fair value of its net  assets.  We amortize  goodwill  on the  straight-line
basis over a 40-year  period.  We continually  monitor the value of our goodwill
based on our  estimates of future  earnings.  We determine  whether  goodwill is
fully  recoverable  from projected  undiscounted net cash flows from earnings of
the subsidiaries over the remaining amortization period. If we were to determine
that changes in such projected cash flows no longer supported the recoverability
of goodwill over the remaining amortization period, we would reduce its carrying
value with a corresponding  charge to expense or shorten the amortization period
(no such changes have occurred).

                                       59

<PAGE>


                         CONSECO, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

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



       Property and Equipment

       We carry  property  and  equipment at  depreciated  cost.  We  depreciate
property and equipment on a straight-line  basis over the estimated useful lives
of the assets,  which average  approximately 13 years. Our depreciation  expense
was $11.9 million in 1996, $9.3 million in 1995 and $8.3 million in 1994.

       Insurance Liabilities, Recognition of Insurance Policy Income and Related
       Benefits and Expenses

       Our reserves for universal  life-type and  investment-type  contracts are
based  either on the contract  account  balance (if future  benefit  payments in
excess of the account  balance are not  guaranteed)  or on the present  value of
future benefit payments (if such payments are guaranteed).  We make additions to
insurance  liabilities  if  we  determine  that  future  cash  flows  (including
investment income) are insufficient to cover future benefits and expenses.

       For  investment  contracts  without  mortality  risk  (such  as  deferred
annuities and immediate  annuities with benefits paid for a period  certain) and
for contracts  that permit either  Conseco or the insured to make changes in the
contract terms (such as single-  premium whole life and universal  life), we are
required to record  premium  deposits  and  benefit  payments  as  increases  or
decreases in a liability account,  rather than as revenue and expense. We record
as revenue any amounts  charged  against the  liability  account for the cost of
insurance,  policy administration and surrender penalties.  We record as expense
any interest  credited to the  liability  account and any benefit  payments that
exceed the contract liability account balance.

       We calculate  our  reserves  for  traditional  and  limited-payment  life
contracts generally using the net-level-premium  method, based on assumptions as
to  investment  yields,  mortality,  withdrawals  and  dividends.  We make these
assumptions  at the  time we issue  the  contract,  or in the case of  contracts
acquired  by  purchase,  at the  purchase  date.  We base these  assumptions  on
projections from past experience,  modified as necessary to reflect  anticipated
trends and making allowance for possible unfavorable deviation.

       For traditional life insurance contracts, we recognize premiums as income
when due or, for short-duration contracts, over the period to which the premiums
relate.  We  recognize  benefits and  expenses as a level  percentage  of earned
premiums.  We accomplish  this by providing  for future  policy  benefits and by
amortizing deferred policy acquisition costs.

       For  contracts  with  mortality  risk,  but with premiums paid for only a
limited period (such as  single-premium  immediate  annuities with benefits paid
for the life of the annuitant),  we use an accounting  treatment similar to that
used for traditional contracts.  An exception is that we defer the excess of the
gross  premium over the net premium and  recognize it in relation to the present
value  of  expected  future  benefit   payments  (when  accounting  for  annuity
contracts)  or in  relation to  insurance  in force  (when  accounting  for life
insurance contracts).

       We establish  reserves for the  estimated  present value of the remaining
net cost of all reported and  unreported  claims.  We base our estimates on past
experience  and on  published  tables for  disabled  lives.  We believe that the
reserves we have established are adequate.  Final claim payments,  however,  may
differ from the established  reserves,  particularly when those payments may not
occur for several  years.  Any  adjustments we make to reserves are reflected in
the results for the year during which the adjustments are made.

       The liability for future policy benefits for accident and health policies
consists  of  active  life  reserves  and the  estimated  present  value  of the
remaining  ultimate net cost of incurred  claims.  Active life reserves  include
unearned premiums and additional reserves.  The additional reserves are computed
on the net level premium method using  assumptions for future  investment yield,
mortality and morbidity experience.  Our assumptions are based on projections of
past experience and include provisions for possible adverse deviation.

       For participating policies, we determine annually the amount of dividends
to be paid.  We include as an  insurance  liability  the portion of the earnings
allocated to participating policyholders.


                                       60

<PAGE>


                         CONSECO, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

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


       Reinsurance

       In the normal course of business,  Conseco seeks to limit its exposure to
loss on any single  insured and to recover a portion of the  benefits  paid over
such limits. We do this by ceding reinsurance to other insurance  enterprises or
reinsurers  under excess coverage and coinsurance  contracts.  We limit how much
risk per policy we will retain.  We currently retain no more than $.8 million of
risk on any one policy.

       We report assets and liabilities  related to insurance  contracts  before
the  effects of  reinsurance.  We report  reinsurance  receivables  and  prepaid
reinsurance  premiums  (including  amounts related to insurance  liabilities) as
assets. We recognize  estimated  reinsurance  receivables in a manner consistent
with the liabilities related to the underlying reinsured contracts.

       Income Taxes

       Our income tax  expense  includes  deferred  income  taxes  arising  from
temporary  differences  between the tax and financial  reporting basis of assets
and  liabilities.  This  liability  method of  accounting  for income taxes also
requires us to reflect in income the effect of a tax-rate  change on accumulated
deferred income taxes in the period in which the change is enacted.

       In assessing the realization of deferred  income tax assets,  we consider
whether it is more likely than not that the  deferred  income tax assets will be
realized.  The ultimate  realization of deferred  income tax assets depends upon
generating   future  taxable  income  during  the  periods  in  which  temporary
differences  become  deductible.  If future income is not generated as expected,
deferred income tax assets may need to be written off.

       Minority Interest

       Our  consolidated   financial  statements  include  all  of  the  assets,
liabilities,  revenues  and  expenses  of BLH,  ALH  (since its  acquisition  by
Partnership  II on September  29,  1994),  and CCP (since  January 1, 1995, as a
result  of the CCP  Merger)  even  though we did not own all of the  common  and
preferred  stock of these  subsidiaries  during  all  periods.  We make a charge
against  consolidated  income for the share of  earnings  allocable  to minority
interests,   for  dividends  on  preferred   stock  of   subsidiaries   and  for
distributions  on  the   Company-obligated   mandatorily   redeemable  preferred
securities  of  subsidiary  trusts.  We show the  shareholders'  equity  of such
entities  allocable to the minority  interests  separately  on our  consolidated
balance sheet.

       We report  Company-obligated  mandatorily redeemable preferred securities
of subsidiary  trusts at their  liquidation  value under minority  interest.  We
charge the distributions on these securities against consolidated income.

       Earnings Per Share

       We  compute  primary  net  income  per share by  dividing  earnings  less
preferred  dividend  requirements  by the weighted  average number of common and
common  equivalent  shares  outstanding for the period. We compute fully diluted
net income per share on the same basis,  except that, if more dilutive:  (i) the
number of common  equivalent  shares  related  to stock  options is based on the
period- end market value of the shares, instead of the average market value; and
(ii) convertible  preferred stock is assumed to be converted into common shares.
We have  restated  all share and  per-share  amounts for the  two-for-one  stock
splits distributed April 1, 1996 and February 11, 1997.

       Use of Estimates

       Our financial  statements  have been prepared in accordance with GAAP. As
such,  they include amounts based on our informed  estimates and judgment,  with
consideration  given to  materiality.  We use  many  estimates  and  assumptions
calculating cost of policies  produced,  cost of policies  purchased,  goodwill,
insurance  liabilities,  guaranty fund  assessment  accruals and deferred income
taxes. Actual experience may differ from those estimates.



                                       61

<PAGE>


                         CONSECO, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

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



       Derivative Financial Instruments

       The  Company's  use of  derivative  financial  instruments  is  primarily
limited  to S&P 500  Index  Options.  We buy  these  options  in order to offset
changes in policyholder  liabilities resulting from certain policy benefits tied
to the S&P 500  Index.  We buy these  options  at the time we issue the  related
annuity  contracts,  with  similar  maturity  dates and  benefit  features  that
fluctuate as the value of the options change. Accordingly,  changes in the value
of the options are offset by changes to policyholder  liabilities;  such changes
are  reflected  in the  consolidated  statement of  operations.  The credit risk
associated  with these  options is  considered  low  because  such  options  are
purchased  from strong  creditworthy  parties.  Both the carrying value and fair
value  of  these  contracts  were  $7.2  million  at  December  31,  1996.  Such
instruments are classified as other invested assets.

       Fair Values of Financial Instruments

       We use the following  methods and  assumptions to determine the estimated
fair values of financial instruments:

       Investment   securities.   For  fixed  maturity   securities   (including
       redeemable   preferred   stocks)  and  for  equity  and  trading  account
       securities,  we use  quotes  from  independent  pricing  services,  where
       available.  For  investment  securities  for which  such  quotes  are not
       available,  we use values obtained from broker-dealer market makers or by
       discounting  expected  future  cash  flows  using a current  market  rate
       appropriate  for the  yield,  credit  quality  and,  for  fixed  maturity
       securities, the maturity of the investment being priced.

       Short-term investments.  We use quoted market prices. The carrying amount
       reported  on  our  consolidated   balance  sheet  for  these  instruments
       approximates their estimated fair value.

       Mortgage loans,  credit-tenant loans and policy loans. We discount future
       expected cash flows based on interest rates  currently  being offered for
       similar  loans to borrowers  with similar  credit  ratings.  We aggregate
       loans with similar characteristics in our calculations.

       Other invested assets. We use quoted market prices, where available.  For
       other invested assets,  which are not material,  we have assumed a market
       value equal to carrying value.

       Securities  segregated for the future redemption of redeemable  preferred
       stock  of a  subsidiary.  Estimated  fair  values  of the  U.S.  Treasury
       securities  held  in  escrow  for the  future  redemption  of  redeemable
       preferred stock of a subsidiary of ALH are based on quoted market prices.

       Insurance  liabilities for investment  contracts.  We use discounted cash
       flow  calculations  based on interest rates  currently  being offered for
       similar contracts having  maturities  consistent with the contracts being
       valued.

       Investment  borrowings and notes payable.  We use either:  (i) discounted
       cash flow analyses based on our current  incremental  borrowing rates for
       similar types of borrowing  arrangements;  or (ii) current  market values
       for publicly traded debt.

       Other  liabilities.  The portion of other  liabilities  representing  the
       value attributable to the conversion feature of subordinated  convertible
       debentures  acquired  in  conjunction  with the ATC  Merger  is valued at
       estimated fair value.

       Company-obligated   mandatorily   redeemable   preferred   securities  of
       subsidiary trusts. We use quoted market prices.

       Redeemable  preferred  stock  of a  subsidiary  of  ALH (a  component  of
       minority  interest).  The estimated  fair value of  redeemable  preferred
       stock which is  publicly-traded  is based on quoted  market  prices.  The
       estimated fair value of the privately placed  redeemable  preferred stock
       is determined  by  discounting  expected  future cash flows using assumed
       incremental dividend rates for similar duration securities.


                                       62

<PAGE>


                         CONSECO, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

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


       Here are the estimated fair values of our financial instruments:
<TABLE>
<CAPTION>

                                                                                1996                        1995
                                                                    -----------------------       ------------------------
                                                                   Carrying           Fair       Carrying            Fair
                                                                    Amount            Value       Amount             Value
                                                                    ------            -----       ------             -----
                                                                                        (Dollars in millions)
<S>                                                              <C>              <C>            <C>             <C>
Financial assets issued for purposes other than trading:
   Actively managed fixed maturities..........................   $17,307.1        $17,307.1      $12,963.3       $12,963.3
   Equity securities .........................................        99.7             99.7           36.6            36.6
   Mortgage loans.............................................       356.0            356.1          339.9           363.3
   Credit-tenant loans........................................       447.1            446.3          259.1           258.6
   Policy loans...............................................       542.4            542.4          307.6           307.6
   Other invested assets......................................       259.6            259.6           91.2            91.2
   Short-term investments.....................................       281.6            281.6          189.9           189.9
   Securities segregated for future redemption of
     redeemable preferred stock of a subsidiary...............        45.6             49.1           39.2            50.1

Financial liabilities issued for purposes other than trading:
   Insurance liabilities for investment contracts (1).........    11,491.6         11,491.6        9,628.9         9,628.9
   Investment borrowings......................................       383.4            383.4          298.1           298.1
   Other liabilities..........................................       145.5            145.5            -               -
   Notes payable of Conseco...................................     1,094.9          1,140.8          871.4           890.3
   Notes payable of affiliates, not direct
     obligations of Conseco...................................         -                -            584.7           611.0
   Company-obligated mandatorily redeemable
      preferred securities of subsidiary trusts...............       600.0            604.3            -               -
   Redeemable preferred stock of a subsidiary of
      ALH (a component of minority interest)..................        97.0             97.0           99.0            94.0
</TABLE>

    (1)   The estimated fair value of the liabilities  for investment  contracts
          was approximately equal to its carrying value at December 31, 1996 and
          1995. This was because interest rates credited on the vast majority of
          account balances approximate current rates paid on similar investments
          and because these rates are not generally  guaranteed beyond one year.
          We are not required to disclose fair values for insurance liabilities,
          other  than  those for  investment  contracts.  However,  we take into
          consideration  the estimated fair values of all insurance  liabilities
          in our  overall  management  of  interest  rate  risk.  We  attempt to
          minimize  exposure to changing  interest rates by matching  investment
          maturities with amounts due under insurance contracts.

       Recently Issued Accounting Standard

       In February  1997,  the Financial  Accounting  Standards  Board  released
Statement of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS
128").  SFAS 128 changes the  computational  guidelines  for  earnings per share
information.  We will adopt the provisions of SFAS 128 in our December 31, 1997,
consolidated  financial statements.  SFAS 128 will eliminate the presentation of
primary  earnings per share and replace it with basic earnings per share.  Basic
earnings per share differs from primary  earnings per share because common stock
equivalents  are not  considered in computing  basic  earnings per share.  Fully
diluted  earnings per share will be replaced  with  diluted  earnings per share.
Diluted  earnings  per share is similar  to fully  diluted  earnings  per share,
except in determining the number of dilutive shares  outstanding for options and
warrants,  the  proceeds  that  would be  received  upon the  conversion  of all
dilutive options and warrants are assumed to be used to repurchase the Company's
common shares at the average  market price of such stock during the period.  For
fully  diluted  earnings  per share,  the higher of the average  market price or
ending market price is used. If SFAS 128 had been in effect,  Conseco would have
reported  basic  earnings  per share of $2.32 and diluted  earnings per share of
$1.82 for the year ended December 31, 1996.

                                       63

<PAGE>


                         CONSECO, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

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



       2. ACQUISITIONS/DISPOSITIONS:

       CCP Insurance, Inc.

       At January 1, 1994, we owned 40 percent of the common stock of CCP, which
was acquired through several  separate  transactions  beginning in 1992.  During
1994,  CCP  acquired  3.5  million  shares  of its  common  stock  under a stock
repurchase  program which increased our ownership  interest in CCP to 45 percent
at December 31, 1994. In early 1995,  CCP  repurchased an additional 2.2 million
shares under this program increasing our ownership interest to 49 percent.

       In August 1995,  we completed the purchase of all of the shares of common
stock of CCP that we did not previously own. A total of 11.8 million shares were
purchased for $281.8 million (including transaction costs and the cost to settle
outstanding  stock  options of CCP) in a  transaction  pursuant to which CCP was
merged with Conseco,  with Conseco being the surviving  corporation.  Income tax
expense was reduced by $8.4 million in the third  quarter of 1995 as a result of
the release of deferred  income taxes  previously  accrued on income  related to
CCP.  Such  deferred  tax is no  longer  required  because  the CCP  Merger  was
completed  without  incurring  additional  tax.  We funded the CCP  Merger  with
available cash and borrowings from our credit facility.

     Bankers Life Holding Corporation

     Effective  November 1, 1992,  Partnership  I formed BLH to acquire  Bankers
Life from I.C.H. Corporation ("ICH"). Immediately after the acquisition, Conseco
owned  approximately  44 percent of the common  equity  interest  in BLH through
direct  investments  and  investments  in  Partnership I. On March 25, 1993, BLH
completed  an IPO of 19.6  million  shares of its common stock at $22 per share.
After the IPO,  Conseco owned 31 percent of the shares of BLH common  stock.  On
September 30, 1993,  Conseco  acquired  13.3 million  shares of BLH common stock
from ICH for $287.6  million.  The shares  purchased  represented  25 percent of
BLH's  outstanding  shares.  Conseco paid for these shares by  surrendering  for
redemption  $50.0  million  stated value of ICH preferred  stock,  and by paying
$237.6 million in cash. The transaction with ICH increased  Conseco's  ownership
of BLH to 56 percent.

     During 1994,  BLH  acquired 1.8 million  shares of its common stock under a
stock repurchase program at a cost of $35.7 million. BLH's repurchases increased
Conseco's ownership interest in BLH to 58 percent. During 1995, we acquired 12.8
million  shares of BLH  common  stock for  $262.4  million  in open  market  and
negotiated  transactions,  increasing our ownership of BLH to 85 percent. Income
tax  expense  was  reduced by $66.5  million in the second  quarter of 1995 as a
result of the  release of deferred  income  taxes  previously  accrued on income
related to BLH. Such deferred tax is no longer  required  since we are permitted
to file a consolidated  tax return with BLH. In addition,  BLH  repurchased  2.2
million  shares of its  common  stock  during  1995 at a cost of $42.1  million,
increasing our ownership  interest in BLH to 88 percent as of December 31, 1995.
During the first three months of 1996, BLH repurchased 1.3 million shares of its
common  stock  at a cost of $27.7  million.  As a  result  of such  repurchases,
Conseco's ownership interest in BLH increased to 90.4 percent.

       On December 31, 1996, we completed the BLH Merger. Each outstanding share
of BLH common stock not already owned by Conseco was exchanged for 0.7966 shares
of Conseco common stock. We issued 3.9 million shares of common stock (including
 .1 million common equivalent  shares in exchange for BLH's outstanding  options)
with a value of $123.0 million.

       Western National Corporation

       In connection with the  organization of WNC and the transfer of the stock
of Western  National  to WNC by  Conseco,  WNC  issued 60 million  shares of its
common stock and a $150.0  million,  6.75 percent senior note due March 31, 1996
(the "Conseco Note") to Conseco.  On February 15, 1994, WNC completed the IPO of
37.2 million shares of its common stock.  Of these shares,  2.3 million were new
shares sold by WNC and 34.9 million were sold by Conseco.  In addition,  Conseco
sold .2  million  WNC  shares to the  president  of WNC at the IPO  price,  less
underwriting  discounts and  commissions.  On February 22, 1994, WNC completed a
public offering of $150.0 million  aggregate  principal  amount of 7.125 percent
senior notes due February 15, 2004. The net proceeds from the offering of $147.5
million  (after  original  issue  discount,  underwriting  discount and offering
expenses)  together  with some of the proceeds  from WNC's IPO of common  stock,
were used to repay the Conseco Note.



                                       64

<PAGE>

                         CONSECO, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

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

       The shares sold by Conseco  represented a 60 percent interest in WNC. Net
pre-tax  proceeds to Conseco from the repayment of the Conseco Note and the sale
of WNC shares totaled $537.3  million.  These proceeds were used to repay a $200
million senior unsecured loan and for other general corporate  purposes.  In the
first quarter of 1994,  Conseco reported  restructuring  income of approximately
$42.4 million (net of taxes of $22.9 million) as a result of these transactions.

       On December 23, 1994,  Conseco sold its remaining 40 percent  interest in
WNC to American  General  Corporation  for $274.4 million in cash, or $11.00 for
each  of  the  24,947,500  WNC  shares  owned  by  Conseco.  Conseco  recognized
restructuring  income from the sale of approximately $4.1 million,  net of taxes
of  $11.4  million.  Net cash  proceeds  from the  sale  were  used for  general
corporate purposes, including the repurchase of common stock of Conseco.

       American Life Holdings, Inc.

       On September 29, 1994,  Partnership II completed the  acquisition of ALH.
ALH's former  stockholders  received $15.25 in cash per common equivalent share.
They also received a contingent  payment right to receive up to another $2.00 in
cash per common equivalent share (the "Contingent Consideration"),  based on the
outcome of ALH's pending litigation against the U.S. Government concerning ALH's
former savings bank subsidiary (the "ALH Litigation").

       The  Acquisition  and related  transactions  were funded with:  (i) $45.9
million of cash  contributions  from  Partnership  II  (including  $7.4  million
provided by Conseco,  $1.8 million by BLH, and $1.8 million by CCP);  (ii) $57.0
million  in  cash  from  the  sale in a  private  placement  of  payment-in-kind
preferred stock (the "1994 Series PIK Preferred Stock") (including $25.9 million
purchased by BLH and $24.0  million  purchased by CCP, $3.0 million of which was
sold by CCP in December  1994);  (iii) $150.0 million in cash from the sale in a
public  offering  of 11-1/4%  Senior  Subordinated  Notes due 2004 (the  "Senior
Subordinated Notes"); and (iv) $200.0 million in cash from a senior secured loan
(the "Senior Term Loan").  The sources and uses of this financing are summarized
below (dollars in millions):
<TABLE>
<CAPTION>
             <S>                                                                                <C>
             Sources of funds:
                Senior Term Loan:
                   Borrowed upon closing of the Acquisition....................................  $170.0
                   To be borrowed upon determination of ALH Litigation ........................    30.0   (i)
                Senior Subordinated Notes......................................................   150.0
                1994 Series PIK Preferred Stock................................................    57.0
                Common equity contribution from Partnership II.................................    45.9
                                                                                                 ------

                           Total sources.......................................................  $452.9
                                                                                                 ======

             Uses of funds:
                Payment of cash consideration to acquire ALH...................................  $314.1   (ii)
                Payment upon determination of ALH Litigation...................................    30.1   (i)
                Repayment of bank indebtedness of a subsidiary of ALH..........................    55.5   (iii)
                Transaction fees and expenses..................................................    15.7
                Purchase of surplus note from American Life and
                   Casualty Insurance Company, ALH's
                   principal operating subsidiary..............................................    24.0
                Cash retained..................................................................    13.5
                                                                                                 ------

                           Total uses..........................................................  $452.9
                                                                                                 ======
</TABLE>

(i)  In the event of a  determination  of the ALH Litigation that is unfavorable
     to ALH,  $30.1  million would be paid to the holders of ALH's 1988 Series I
     and II Preferred Stock $1 Par (the "ALH 1988 Series Preferred Stock"). This
     stock is currently held by the U.S. Government. In the event of a favorable
     determination of this litigation,  the same amount,  representing a portion
     of  the  Contingent  Consideration,  would  be  paid  to the  other  former
     stockholders of ALH. On August 30, 1995, the United States Court of Appeals
     of the Federal Circuit, in banc, affirmed the summary judgment of the Court
     of Federal  Claims in favor of ALH by a decision of nine to two. On July 1,
     1996,  the Supreme  Court  affirmed  the  summary  judgment of the Court of
     Federal  Claims in ALH's  favor by a decision  of seven to two. A trial has
     been  scheduled  in May 1997,  in the Court of Federal  Claims to determine
     damages  related to the breach of contract by the United States of America.
     Since the timing of a final  determination  of the litigation is uncertain,
     we are  unable to  predict  when such  $30.1  million  amount  will  become
     payable. 
                                       65

<PAGE>


                         CONSECO, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

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




(ii)   This amount assumes conversion for redemption of all of ALH's outstanding
       6-1/4%  Convertible  Subordinated  Debentures due 2003 (the  "Convertible
       Debentures").  These  debentures  were  convertible  into an aggregate of
       4,528,125 shares of ALH common stock. At December 31, 1996, $13.0 million
       of the Convertible Debentures remained outstanding.

(iii)  A subsidiary of ALH was the borrower  under a credit  facility  having an
       outstanding  balance  (including  accrued  interest  and  fees)  of $55.5
       million at the Acquisition  date. This facility was repaid with a portion
       of the proceeds from the financing.

       In accordance with the  Partnership II agreement,  Conseco earned fees of
$2.5  million  (net of  taxes  of $1.3  million)  for  services  related  to the
financing of the Acquisition.

       On November 30, 1995, ALH issued 2,142,857 shares of its common stock for
$30.0 million  (including $13.2 million paid by Conseco and its subsidiaries) in
a private placement transaction.  Eighty percent of the shares were purchased by
Partnership  II and the  remainder  were  purchased by the other  holders of ALH
common stock. The proceeds from the sale were used to reduce the amount of ALH's
outstanding  debt.  In accordance  with the  Partnership  II agreement,  Conseco
earned  fees of $.2  million  (net of  taxes of $.1  million)  for  services  in
connection with such  transaction.  On September 30, 1996, we repurchased all of
the common  shares of ALH we did not already  own for $165.0  million in cash in
the ALH Stock Purchase.

       The  Partnership  II  agreement  provided  that an  additional  ownership
interest in ALH would be allocated to Conseco if returns to the limited partners
were in excess of prescribed  targets.  Upon termination of Partnership II, such
targets were exceeded and the additional ownership interest allocated to Conseco
was  recognized  as  follows:  (i) $10.2  million,  which  represents  Conseco's
increased   ownership  interest  in  the  previously   reported  net  income  of
Partnership  II, was recorded as a reduction of amounts that would  otherwise be
charged  to the  minority  interest;  and (ii) $16.6  million  was  recorded  as
restructuring  income. Such restructuring  income of Conseco was offset by $16.2
million  of  expenses  incurred  in  connection  with  the  realization  of  the
restructuring income.

       Acquisition of Life Partners Group, Inc.

       Effective  July 1, 1996, we completed the LPG Merger.  Each of the issued
and  outstanding  shares of LPG common stock was converted into 1.1666 shares of
Conseco common stock.  We issued 32.6 million shares of common stock  (including
 .4 million  common  equivalent  shares issued in exchange for LPG's  outstanding
options) with a value of $586.8 million.  In connection with the LPG Merger,  we
also assumed notes payable of $253.1 million.

       The LPG Merger was accounted for under the purchase method of accounting.
Under  this  method,  we  allocated  the cost to  acquire  LPG to the assets and
liabilities acquired based on their fair values as of July 1, 1996, and recorded
the excess of the total purchase cost over the fair value of the  liabilities we
assumed as goodwill.  The LPG Merger did not qualify to be  accounted  for under
the pooling of interest method in accordance with  Accounting  Principles  Board
Opinion  No.  16,  Business  Combinations ("APB No. 16"),  because  of Conseco's
significant common stock repurchases within the last two years.

       Acquisition of American Travellers Corporation

       On December 17, 1996, we completed the ATC Merger. Each outstanding share
of ATC common stock was exchanged for 1.1672 shares of Conseco common stock.  We
issued  21.0  million  shares of  common  stock  (including  .9  million  common
equivalent shares issued in exchange for ATC's outstanding options) with a value
of $630.9 million.  We also assumed ATC's convertible  subordinated  debentures,
which are  convertible  into 7.9 million  shares of Conseco  common stock with a
value of $248.3  million (of which $102.8  million,  representing  the principal
amount   outstanding,   is  included  in  notes  payable  and  $145.5   million,
representing the additional  value  attributable to the conversion  feature,  is
included in other liabilities).

       The ATC Merger was accounted for under the purchase  method of accounting
effective December 31, 1996. Under this method, we allocated the cost to acquire
ATC to the assets and  liabilities  acquired based on fair values as of the date
of the ATC Merger,  and reported the excess of the total  purchase cost over the
fair  value of the  assets  acquired  less the fair  values  of the  liabilities
assumed as goodwill.  The ATC Merger did not qualify to be  accounted  for under
the  pooling  of  interests  method in  accordance  with APB No. 16  because  an
affiliate of ATC sold a portion of the Conseco  common stock received in the ATC
Merger shortly after the consummation of the ATC Merger.


                                       66

<PAGE>


                         CONSECO, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

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



       Acquisition of Transport Holdings Inc.

       On December 23, 1996, we completed the THI Merger. Each outstanding share
of THI common stock was  exchanged for 2.8 shares of Conseco  common  stock.  We
issued  4.9  million  shares  of  common  stock  (including  .4  million  common
equivalent shares issued in exchange for THI's outstanding options and warrants)
with a value of $121.7 million. In addition,  pursuant to an exchange offer, all
of THI's  Convertible  Notes were  exchanged  for 4.2 million  shares of Conseco
common  stock  with a value  of  $106.2  million  plus a cash  premium  of $11.9
million.

       We accounted  for the THI Merger under the purchase  method of accounting
effective December 31, 1996. Under this method, we allocated the cost to acquire
THI to the assets and  liabilities  acquired based on fair values as of the date
of the THI Merger.  There was no goodwill acquired with the THI Merger.  The THI
Merger did not qualify to be accounted for under the pooling of interests method
in  accordance  with  APB  No.  16  because  THI  was a  subsidiary  of  another
corporation within two years of the transaction.

       Effect of Merger Transactions on Consolidated Financial Statements

       We used purchase  accounting to account for all our  acquisitions  during
1996,  1995 and 1994.  We  allocated  the total  purchase  cost of  acquisitions
completed in 1996 to the assets and liabilities acquired, based on a preliminary
determination of their fair values. We may adjust this allocation when we make a
final  determination  of such  values.  We don't  expect  any  adjustment  to be
material, however.

       The Company  intends to minimize the operating  expenses of the companies
acquired  during 1996 by  centralizing  many  operations with those of its other
companies.  At the dates of the mergers,  we began to assess and formulate plans
to involuntarily  terminate or relocate employees of the acquired companies.  At
December 31,  1996,  all aspects of such plans have not yet been  completed.  We
anticipate completion and communication of the plans of termination (relocation)
(including  the number of employees of the acquired  companies to be  terminated
(relocated),  their job classifications or functions, and their locations) prior
to June 30, 1997.  The following  estimated  liabilities  related to these plans
were included in the  allocation of the costs to acquire these  companies:  $8.2
million,  with respect to LPG; $3.3 million,  with respect to ALH; $5.2 million,
with respect to ATC; and $7.8  million,  with respect to THI.  During 1996,  the
following amounts were paid and charged against the estimated liabilities:  $6.0
million,  with  respect to LPG and $3.3  million,  with  respect to ALH.  If the
ultimate  costs to complete  these plans are less than the estimated  liability,
the excess  liability  will be reflected  as an  adjustment  to the  liabilities
assumed (with a corresponding  adjustment to goodwill). If the ultimate costs to
complete these plans are more than the estimated liability, an adjustment to the
liability will be made (with a  corresponding  adjustment to goodwill),  if such
adjustment  is  determined  within one year of the date of each of the  mergers.
Thereafter,  any additional amounts will be included in the determination of the
Company's net income.




                                       67

<PAGE>


                         CONSECO, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

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



       The following summarizes the effects of the transactions  described above
on the consolidated statement of cash flows and consolidated balance sheet as of
the dates of the respective transactions:
<TABLE>
<CAPTION>

                                                                                1996 Transactions
                                                       ---------------------------------------------------------------
                                                                                                               BLH
                                                                                                  ALH      Merger and
                                                          LPG          ATC           THI         Stock        share
                                                        Merger       Merger        Merger      Purchase    repurchases
                                                        ------       ------        ------      --------    -----------
                                                                           (Dollars in millions)

<S>                                                    <C>           <C>          <C>           <C>          <C>   
Fixed maturities...................................    $ 3,284.1     $  679.8     $ 483.6       $   -        $     -
Mortgage loans.....................................         99.1           .4         6.5           1.6            -
Credit-tenant loans................................         86.8          1.6         -             -              -
Policy loans.......................................        227.4          -          17.1           -              -
Short-term investments.............................         79.1         65.4        47.1           -              -
Other investments..................................        108.9         17.5         8.4           -              -
Accrued investment income..........................         54.9          7.9         6.0           -              -
Cost of policies purchased.........................        507.9        272.9        94.4          80.2           86.6
Cost of policies produced..........................          -            -           -           (96.5)         (54.7)
Goodwill...........................................        679.9        530.0         -           101.8           60.6
Income taxes.......................................         91.3        (41.6)      (40.2)         (3.5)         (10.5)
Reinsurance receivables............................        285.2          -          83.4           -              -
Insurance liabilities..............................     (4,520.4)      (608.0)     (381.5)          -            (12.4)
Investment borrowings..............................        (73.3)         -           -             -              -
Notes payable......................................       (253.1)      (102.8)      (78.5)        (13.8)           -
Minority interest..................................          -            -           -           131.2           79.2
Common stock and additional paid-in capital........       (586.8)      (630.9)     (227.9)          -           (123.0)
Other..............................................        (69.5)      (186.3)       (6.2)        (36.0)           1.9
                                                       ---------    ---------     -------       -------        -------

         Cash used.................................    $     1.5    $     5.9     $  12.2       $ 165.0        $  27.7
                                                       =========    =========     =======       =======        =======
</TABLE>


                                       68

<PAGE>
<TABLE>
<CAPTION>


                         CONSECO, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

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



                                                             1995 Transactions                  1994 Transactions
                                                        --------------------------          --------------------------
                                                             BLH
                                                            share             CCP               ALH             Sale of
                                                         repurchases        Merger          acquisition           WNC
                                                         -----------        ------          -----------           ---
                                                                                (Dollars in millions)

<S>                                                      <C>              <C>               <C>            <C>    
Fixed maturities...................................      $    -            $4,051.3          $3,906.0       $(7,125.7)
Mortgage loans.....................................           -               230.6              64.7           (97.1)
Credit-tenant loans................................           -               155.8               -            (267.8)
Policy loans.......................................           -               136.7              59.1           (71.6)
Short-term investments.............................           -               200.1               -            (811.7)
Investment in CCP..................................           -              (266.1)              -                 -
Investment in WNC..................................           -                 -                 -             760.9
Other investments..................................           -                20.0              51.9           (80.2)
Accrued investment income..........................           -                73.2               -                 -
Cost of policies purchased.........................         179.9             313.8             454.3           (61.9)
Cost of policies produced..........................        (107.5)             62.8               -             (84.9)
Goodwill...........................................         125.9             115.7             355.4               -
Income taxes.......................................         (34.9)            (80.0)            119.9           (12.1)
Reinsurance receivables............................           -                 -                 5.6           (74.9)
Cash segregated for future redemption
  of Convertible Debentures........................           -                 -                69.1               -
Securities segregated for future redemption
  of redeemable preferred stock....................           -                 -                35.5               -
Insurance liabilities..............................         (26.8)         (4,379.0)         (4,658.4)        7,379.9 
Investment borrowings..............................           -              (219.6)              -                 -
Notes payable......................................           -              (213.7)           (122.0)              -
Minority interest..................................         171.6              53.8             (99.0)              -
Other..............................................          (3.7)             26.4             (26.8)           87.9
                                                         --------          --------          --------        --------

       Cash (provided) used........................      $  304.5          $  281.8          $  215.3        $ (459.2)
                                                         ========          ========          ========        ========
</TABLE>

       The  following  unaudited  pro forma results of operations of the Company
are presented as if the  following  had occurred as of January 1, 1995:  (i) the
LPG Merger;  (ii) the call for  redemption  of  Conseco's  Series D  Convertible
Preferred Stock (the "Series D Call") completed on September 26, 1996; (iii) the
ALH Stock  Purchase;  (iv) the issuance of $600.0 million of Company - obligated
mandatorily  redeemable  preferred securities of subsidiary trusts (see note 9);
(v) the ATC Merger;  (vi) the THI Merger;  (vii) the BLH Merger;  (viii) the CCP
Merger;  (ix) the increase of Conseco's  ownership in BLH to 90.4 percent,  as a
result of purchases of BLH common  shares in 1995 and 1996;  (x) the issuance of
4.37 million shares of Preferred Redeemable Increased Dividend Equity Securities
Convertible  Preferred  Stock  ("PRIDES") in January  1996;  (xi) the BLH tender
offer for and  repurchase of its 13 percent senior  subordinated  notes due 2002
and related financing  transactions  completed in March 1996; and (xii) the debt
restructuring of ALH in the fourth quarter of 1995.
<TABLE>
<CAPTION>

                                                                                                   1996            1995 (1)
                                                                                                   ----            --------
                                                                                                     (Dollars in millions,
                                                                                                     except per share data)
<S>                                                                                              <C>              <C>    
Revenues......................................................................................   $3,967.8         $4,031.6
Income before extraordinary charge............................................................      352.7            314.1

Income before extraordinary charge per common share and common equivalent share:
  Primary.....................................................................................       $1.86            $1.70
  Fully diluted...............................................................................        1.76             1.62
</TABLE>


                                       69

<PAGE>


                         CONSECO, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

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





(1)    We have excluded $74.9 million from pro forma income before extraordinary
       charge and $.39 from income before extraordinary charge per fully diluted
       common  share.  These amounts  related to the release of deferred  income
       taxes  that are no longer  required  to be accrued as a result of the CCP
       Merger and the purchase of additional BLH common shares in 1995.

       The  following  unaudited  pro forma results of operations of the Company
are presented as if the  following  had occurred as of January 1, 1994:  (i) the
CCP Merger;  (ii) the  acquisition  of additional  shares of BLH common stock in
1995;  (iii) the  acquisition of ALH by Partnership II; (iv) the IPO of WNC; and
(v) the sale by Conseco of its remaining 40 percent equity interest in WNC.
<TABLE>
<CAPTION>

                                                                                                    1994(1)
                                                                                                    -------
                                                                                             (Dollars in millions,
                                                                                            (except per share data)
<S>                                                                                                 <C>    
Revenues.....................................................................................       $2,471.7
Income before extraordinary charge...........................................................          105.4

Income before extraordinary charge per common share and common equivalent share:
       Primary...............................................................................          $1.03
       Fully diluted.........................................................................           1.03
</TABLE>

(1)    We have  excluded  $80.8  million  from pro forma total  revenues,  $46.5
       million  from  income  before  extraordinary  charge and $.46 from income
       before extraordinary charge per fully diluted common share. These amounts
       related  to the  initial  public  offering  of WNC  and  the  sale of the
       Company's remaining equity interest in WNC.

       3.   INVESTMENTS:

       At December 31, 1996,  the  amortized  cost and  estimated  fair value of
actively managed fixed maturities were as follows:
<TABLE>
<CAPTION>

                                                                                        Gross         Gross      Estimated
                                                                         Amortized   unrealized    unrealized      fair
                                                                           cost         gains        losses        value
                                                                           ----         -----        ------        -----
                                                                                         (Dollars in millions)
<S>                                                                        <C>           <C>        <C>        <C>   
United States Treasury securities and obligations of
    United States government corporations and agencies..................   $   509.9     $  5.1     $   1.2     $   513.8
Obligations of states and political subdivisions........................       103.5        2.8          .2         106.1
Debt securities issued by foreign governments...........................       144.4        1.4         2.2         143.6
Public utility securities...............................................     2,148.8       42.8        35.4       2,156.2
Other corporate securities..............................................     8,808.3      145.1        81.2       8,872.2
Mortgage-backed securities .............................................     5,488.4       64.5        37.7       5,515.2
                                                                           ---------     ------      ------     ---------

       Total actively managed fixed maturities..........................   $17,203.3     $261.7      $157.9     $17,307.1
                                                                           =========     ======      ======     =========
</TABLE>



                                       70

<PAGE>


                         CONSECO, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

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

       At December 31, 1995,  the  amortized  cost and  estimated  fair value of
actively managed fixed maturities were as follows:
<TABLE>
<CAPTION>

                                                                                        Gross         Gross      Estimated
                                                                         Amortized   unrealized    unrealized      fair
                                                                           cost         gains        losses        value
                                                                           ----         -----        ------        -----
                                                                                         (Dollars in millions)
<S>                                                                      <C>            <C>          <C>       <C>
United States Treasury securities and obligations of
    United States government corporations and agencies.................. $   241.3      $  16.5      $  -      $   257.8
Obligations of states and political subdivisions........................      47.6          2.0          .1         49.5
Debt securities issued by foreign governments...........................      75.1          2.4         1.7         75.8
Public utility securities...............................................   2,196.1        144.1        11.3      2,328.9
Other corporate securities..............................................   5,934.6        332.7        35.1      6,232.2
Mortgage-backed securities .............................................   3,860.4        165.6         6.9      4,019.1
                                                                         ---------       ------       -----    ---------

       Total actively managed fixed maturities.......................... $12,355.1       $663.3       $55.1    $12,963.3
                                                                         =========       ======       =====    =========
</TABLE>

       At December 31, 1996,  the  amortized  cost and  estimated  fair value of
actively  managed  fixed  maturities  based  upon  the  pricing  source  used to
determine estimated fair value were as follows:
<TABLE>
<CAPTION>
                                                                                                                 Estimated
                                                                                                 Amortized         fair
                                                                                                    cost           value
                                                                                                    ----           -----
                                                                                                   (Dollars in millions)

<S>                                                                                                  <C>          <C>   
Nationally recognized pricing services............................................................   $14,659.6    $14,750.2
Broker-dealer market makers.......................................................................     2,218.7      2,234.9
Internally developed methods (calculated based  on a weighted-average
   current market yield of 9.5 percent)...........................................................       325.0        322.0
                                                                                                     ---------    ---------

       Total actively managed fixed maturities....................................................   $17,203.3    $17,307.1
                                                                                                     =========    =========
</TABLE>

       The following table sets forth fixed maturity investments at December 31,
1996,  classified  by rating  categories.  The category  assigned is the highest
rating by a nationally  recognized  statistical  rating  organization  or, as to
$482.0  million  fair value of fixed  maturities  not rated by such  firms,  the
rating assigned by the National Association of Insurance Commissioners ("NAIC").
For purposes of the table, NAIC Class 1 is included in the "A" rating;  Class 2,
"BBB-"; Class 3, "BB-"; and Classes 4-6, "B+ and below."
<TABLE>
<CAPTION>

                                                                  Percent of                  Percent of
                       Investment rating                       fixed maturities            total investments
                       -----------------                       ----------------            -----------------
                          <S>                                       <C>                          <C> 

                          AAA..................................     36%                          32%
                          AA...................................      9                            8
                          A....................................     26                           22
                          BBB+.................................      9                            8
                          BBB..................................     10                            9
                          BBB- ................................      5                            5
                                                                  ----                          ---

                              Investment grade.................     95                           84
                                                                  ----                          ---

                          BB+..................................      1                            1
                          BB...................................      1                            1
                          BB-..................................      1                            1
                          B+ and below.........................      2                            1
                                                                  ----                         ----

                             Below investment grade............      5                            4
                                                                  ----                          ---

                                 Total fixed maturities........    100%                          88%
                                                                   ===                           ==
</TABLE>

                                       71

<PAGE>


                         CONSECO, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

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



       The  following  table sets forth below  investment  grade fixed  maturity
investments  as of December 31, 1996,  summarized by the amount their  amortized
cost exceeds fair value:
<TABLE>
<CAPTION>
                                                                                                                 Estimated
                                                                                                 Amortized         fair
                                                                                                   cost            value
                                                                                                   ----            -----
                                                                                                     (Dollars in millions)

<S>                                                                                                 <C>          <C> 
Amortized cost exceeds fair value by 30% or more.................................................   $  10.1      $    4.6
Amortized cost exceeds fair value by 15%, but less than 30%......................................      13.6          10.7
Amortized cost exceeds fair value by 5%, but less than 15%.......................................      52.1          47.7
All others.......................................................................................     795.8         816.1
                                                                                                     ------        ------

       Total below investment grade fixed maturity investments...................................    $871.6        $879.1
                                                                                                     ======        ======
</TABLE>

       The  following  table sets forth the amortized  cost and  estimated  fair
value of actively  managed fixed maturities at December 31, 1996, by contractual
maturity.  Actual  maturities will differ from  contractual  maturities  because
borrowers may have the right to call or prepay  obligations with or without call
or prepayment penalties and because most mortgage-backed  securities provide for
periodic payments throughout their lives.
<TABLE>
<CAPTION>
                                                                                                                 Estimated
                                                                                                 Amortized         fair
                                                                                                   cost            value
                                                                                                   ----            -----
                                                                                                     (Dollars in millions)
<S>                                                                                               <C>           <C>   
Due in one year or less.........................................................................  $    188.0    $    188.2
Due after one year through five years...........................................................     1,605.4       1,622.9
Due after five years through ten years..........................................................     4,051.9       4,080.7
Due after ten years.............................................................................     5,869.6       5,900.1
                                                                                                  ----------     ---------

     Subtotal...................................................................................    11,714.9      11,791.9
Mortgage-backed securities......................................................................     5,488.4       5,515.2
                                                                                                  ----------     ---------

        Total actively managed fixed maturities ................................................   $17,203.3     $17,307.1
                                                                                                   =========     =========
</TABLE>

        Equity securities consisted of the following:
<TABLE>
<CAPTION>

                                                                               December 31, 1996        December 31, 1995
                                                                              -------------------       -----------------
                                                                                         Estimated               Estimated
                                                                                           fair                    fair
                                                                              Cost         value        Cost       value
                                                                              ----         -----        ----       -----
                                                                                             (Dollars in millions)
<S>                                                                           <C>           <C>          <C>        <C> 
Preferred stock, non-redeemable..........................................     $64.7         $66.3        $28.4      $29.9
Common stock.............................................................      32.9          33.4          6.2        6.7
                                                                              -----         -----        -----      -----

       Total equity securities...........................................     $97.6         $99.7        $34.6      $36.6
                                                                              =====         =====        =====      =====
</TABLE>



                                       72

<PAGE>


                         CONSECO, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

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



       Net investment income consisted of the following:
<TABLE>
<CAPTION>
                                                                                          1996         1995         1994
                                                                                          ----         ----         ----
                                                                                               (Dollars in millions)
<S>                                                                                     <C>          <C>            <C>    
Fixed maturities.....................................................................   $1,109.5     $   988.6      $322.6
Equity securities....................................................................        6.5           2.8         1.7
Mortgage loans.......................................................................       42.6          43.3        17.4
Credit-tenant loans..................................................................       28.8          19.7         4.1
Policy loans.........................................................................       25.9          19.4         7.6
Other................................................................................       27.8          17.5        13.3
Short-term investments...............................................................       15.6          26.4        20.5
Separate accounts....................................................................       48.4          28.8         2.6
                                                                                        --------      --------      ------

      Gross investment income........................................................    1,305.1       1,146.5       389.8
Investment expenses..................................................................        2.6           3.9         4.1
                                                                                        --------      --------      ------

      Net investment income..........................................................   $1,302.5      $1,142.6      $385.7
                                                                                        ========      ========      ======
</TABLE>

      The carrying  value of fixed maturity  investments  and mortgage loans not
accruing investment income totaled $2.1 million,  $1.5 million and $11.2 million
at December 31, 1996, 1995 and 1994, respectively.

      The proceeds from sales of fixed maturity investments were $8.2 billion in
1996, $7.9 billion in 1995 and $2.8 billion in 1994.

      Investment gains (losses), net of investment gain expenses,  were included
in revenue as follows:
<TABLE>
<CAPTION>

                                                                                           1996         1995         1994
                                                                                           ----         ----         ----
                                                                                                (Dollars in millions)
<S>                                                                                       <C>          <C>          <C>    
Fixed maturities:
    Gross gains.........................................................................  $126.8       $270.8       $ 15.5
    Gross losses........................................................................   (52.5)       (17.5)       (26.5)
    Other than temporary decline in fair value..........................................     (.6)       (21.9)        (1.0)
                                                                                          ------       ------       ------

         Net investment gains (losses) from fixed maturities before expenses............    73.7        231.4        (12.0)

Equity securities.......................................................................     2.6           .4         (2.4)
Mortgages...............................................................................     (.4)        (2.1)          -
Other than temporary decline in fair value..............................................    (8.3)        (3.0)          -
Other...................................................................................     (.5)        (1.3)        (2.0)
                                                                                          ------       ------       ------

         Net investment gains (losses) before expenses..................................    67.1        225.4        (16.4)
Investment gain expenses................................................................    36.7         36.5         14.1
                                                                                          ------       ------       ------

         Net investment gains (losses) .................................................  $ 30.4       $188.9       $(30.5)
                                                                                          ======       ======       ======
</TABLE>




                                       73

<PAGE>


                         CONSECO, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

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



      Changes in unrealized  appreciation  (depreciation) on investments were as
follows:
<TABLE>
<CAPTION>
                                                                                           1996         1995         1994
                                                                                           ----         ----         ----
                                                                                                (Dollars in millions)
<S>                                                                                      <C>            <C>        <C>
Investments carried at fair value:
    Actively managed fixed maturities .................................................. $(504.4)       $981.6     $(668.6)
    Equity securities...................................................................      .1           5.4        (3.5)
    Other investments...................................................................    (2.2)         (2.7)      (10.9)
                                                                                         -------        ------     -------

                                                                                          (506.5)        984.3      (683.0)
Equity in unrealized appreciation (depreciation) of CCP's investments...................     -            46.2       (70.8)

Adjustment for effect on other balance sheet accounts:
    Cost of policies purchased .........................................................   141.6        (269.6)      115.9
    Cost of policies produced...........................................................    45.4         (56.7)      134.3
    Insurance liabilities...............................................................     -             -          39.1
    Income taxes........................................................................   116.4        (246.5)      151.7
    Minority interest...................................................................   129.3        (205.3)       75.6
                                                                                         -------       -------     -------

         Change in unrealized appreciation (depreciation) of investments ............... $ (73.8)      $ 252.4     $(237.2)
                                                                                         =======       =======     =======
</TABLE>

       At December 31,  1996,  net  appreciation  of equity  securities  (before
income tax) was $2.1  million,  consisting of $3.6 million of  appreciation  and
$1.5 million of depreciation.

       At December 31, 1996,  fixed  maturity  investments  in default as to the
payment of principal or interest were insignificant. Conseco recorded writedowns
of fixed maturity investments and other invested assets of $8.9 million in 1996,
$24.9 million in 1995 and $1.0 million in 1994. These writedowns were the result
of changes in conditions that caused the Company to conclude that the decline in
fair value of the investment was other than temporary. Investment income forgone
due to defaulted  securities was $3.8 million in 1996,  $1.6 million in 1995 and
$3.9 million in 1994.

       Investments in mortgage-backed  securities at December 31, 1996, included
collateralized   mortgage   obligations   ("CMOs")  of   $2,766.6   million  and
mortgage-backed pass-through securities of $2,748.6 million. CMOs are securities
backed by pools of pass-through  securities and/or mortgages that are segregated
into sections or "tranches." These securities provide for sequential  retirement
of  principal,  rather than the pro rata share of  principal  return that occurs
through regular monthly principal payments on pass-through securities.

       The  following  table  sets  forth  the par  value,  amortized  cost  and
estimated fair value of investments in mortgage-backed securities including CMOs
at December 31, 1996, summarized by interest rates on the underlying collateral:
<TABLE>
<CAPTION>

                                                                                         Par        Amortized    Estimated
                                                                                        value         cost      fair value
                                                                                        -----         ----      ----------
                                                                                              (Dollars in millions)
<S>                                                                                    <C>           <C>          <C>
Below 7 percent ....................................................................   $1,808.2      $1,738.8     $1,731.9
7 percent - 8 percent...............................................................    2,753.8       2,659.1      2,684.9
8 percent - 9 percent...............................................................      667.3         663.3        669.7
9 percent and above.................................................................      421.3         427.2        428.7
                                                                                       --------      --------     --------

                  Total mortgage-backed securities..................................   $5,650.6      $5,488.4     $5,515.2
                                                                                       ========      ========     ========

</TABLE>



                                       74

<PAGE>


                         CONSECO, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

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


       The amortized cost and estimated fair value of mortgage-backed securities
including  CMOs at December 31,  1996,  summarized  by type of security  were as
follows (dollars in millions):
<TABLE>
<CAPTION>
                                                                                                     Estimated fair value
                                                                                                     --------------------
                                                                                                                  Percent
                                                                                      Amortized                  of fixed
Type                                                                                    cost         Amount     maturities
----                                                                                    ----         ------     ----------
<S>                                                                                    <C>           <C>            <C> 
Pass-throughs and sequential and targeted amortization classes......................   $3,885.4      $3,903.2       23%
Planned amortization classes and accretion directed bonds...........................    1,023.2       1,022.1        6
Support classes.....................................................................      157.9         163.0        1
Accrual (Z tranche) bonds...........................................................       52.9          54.3        -
Subordinated classes ...............................................................      369.0         372.6        2
                                                                                       --------      --------       --

                 Total mortgage-backed securities...................................   $5,488.4      $5,515.2       32 %
                                                                                       ========      ========       ==
</TABLE>

       At December  31, 1996,  approximately  84 percent of the  estimated  fair
value of Conseco's  mortgage-backed  securities  was  determined  by  nationally
recognized pricing services,  13 percent was determined by broker-dealer  market
makers, and 3 percent was determined by internally developed methods.

       At December 31, 1996,  the mortgage loan balance was primarily  comprised
of commercial loans, including multifamily  residential loans.  Approximately 30
percent,  12  percent  and 6  percent  of the  mortgage  loan  balance  were  on
properties located in California, Texas and Mississippi,  respectively. No other
state comprised greater than 5 percent of the mortgage loan balance. Less than 1
percent of the mortgage  loan balance was  noncurrent  at December 31, 1996.  At
December 31, 1996,  the Company had an allowance  for loss on mortgage  loans of
$2.4 million.

       At December 31, 1996, we held $447.1  million of CTLs.  CTLs are mortgage
loans  for  commercial  properties  that  we  make  based  on  the  underwriting
guidelines  described  in note 1.  We  classify  CTLs  as a  separate  class  of
securities   because   they   are   principally   underwritten   based   on  the
creditworthiness of the tenant rather than the value of the underlying property.
As with commercial mortgages,  CTLs are additionally  collateralized by liens on
the underlying property.

       As part of its  investment  strategy,  the Company  enters  into  reverse
repurchase  agreements and  dollar-roll  transactions  to increase its return on
investments and improve its liquidity.  Reverse repurchase  agreements involve a
sale of securities and an agreement to repurchase the same securities at a later
date at an agreed upon  price.  Dollar  rolls are similar to reverse  repurchase
agreements  except  that  the  repurchase  involves  securities  that  are  only
substantially the same as the securities sold. These  transactions are accounted
for  as  short-term   collateralized   borrowings.   Such  borrowings   averaged
approximately  $424.7  million  during  1996  (compared  to an average of $393.7
million during 1995) and were collateralized by investment  securities with fair
values approximately equal to the loan value. The weighted average interest rate
on short-term  collateralized borrowings was 5.2 percent in 1996 and 5.6 percent
in 1995. The primary risk associated with short-term  collateralized  borrowings
is that the  counterparty  will be  unable  to  perform  under  the terms of the
contract. The Company's exposure is limited to the excess of the net replacement
cost of the securities  over the value of the short-term  invesments  (which was
not material at December 31, 1996). The Company believes that the counterparties
to its reverse repurchase and dollar roll agreements are financially responsible
and that the counterparty risk is minimal.

       Other  invested  assets  include  certain  non-traditional   investments,
including  investments in venture capital funds, limited  partnerships,  mineral
rights and promissory notes.  During 1996,  Conseco sold its investment in Noble
Broadcast  Group,  Inc.:  restructuring  income of $30.0 million was recognized.
During 1995,  Conseco sold its investment in Eagle Credit (a finance  subsidiary
of Harley-Davidson): restructuring income of $20.6 million was recognized.

       Life insurance  companies are required to maintain certain investments on
deposit with state regulatory authorities. Such assets had an aggregate carrying
value of $141.3 million at December 31, 1996.

       Conseco had no  investments  in any single entity in excess of 10 percent
of shareholders'  equity at December 31, 1996, other than investments  issued or
guaranteed by the United States government or a United States government agency.


                                       75

<PAGE>


                         CONSECO, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

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



       4.   INVESTMENTS IN UNCONSOLIDATED AFFILIATES:

       Prior to January 1, 1995,  Conseco's  investment in CCP was accounted for
under the equity  method  because  Conseco  did not  control  CCP's  operations.
Conseco's  investment  in WNC was  accounted  for under the equity method during
1994, prior to the sale of our remaining interest in WNC in December 1994.

     The following table  summarizes  selected 1994 account  balances of CCP and
WNC.
<TABLE>
<CAPTION>
                                                                                                CCP          WNC
                                                                                                ---          ---
                                                                                               (Dollars in millions)

   <S>                                                                                         <C>          <C>   
   Total revenues.........................................................................     $484.3       $615.7
     Insurance policy income..............................................................      114.5         27.4
     Net investment income................................................................      367.8        637.5
     Net investment gains (losses)........................................................        2.0        (49.2)

   Total benefits and expenses............................................................      383.9        501.6
     Interest expense on annuities and financial products.................................      208.6        344.2
     Interest expense on notes payable...................................................        10.7          9.6

   Income before income taxes and extraordinary charge....................................      100.4        114.1
   Income tax expense.....................................................................       37.4         40.8
   Income before extraordinary charge.....................................................       63.0         73.3
   Extraordinary charge on extinguishment of debt, net of tax.............................        4.9          -
   Net income.............................................................................       58.1         73.3

   Amounts recorded by Conseco:
     Equity in earnings before extraordinary charge.......................................      $24.7        $40.2
     Fees received for services provided by Conseco.......................................       12.0         16.3
     Extraordinary charge.................................................................        2.1          -
     Dividends received...................................................................         .9          3.0
</TABLE>


                                       76

<PAGE>


                         CONSECO, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

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

       5.  INSURANCE LIABILITIES:

       Insurance liabilities consisted of the following:
<TABLE>
<CAPTION>

                                                                                    Interest
                                                         Withdrawal    Mortality      rate
                                                         assumption   assumption   assumption      1996              1995
                                                         ----------   ----------   ----------      ----              ----
                                                                                                   (Dollars in millions)
   <S>                                                      <C>           <C>          <C>        <C>            <C>
   Future policy benefits:
     Interest sensitive products:
       Investment contracts............................      N/A          N/A          (c)         $11,491.6     $ 9,628.9
       Universal life-type contracts...................      N/A          N/A          5%            3,303.9       1,008.8
                                                                                                   ---------     ---------
         Total interest sensitive products.............                                             14,795.5      10,637.7
                                                                                                   ---------     ---------
     Traditional products:
       Traditional life insurance contracts............    Company        (b)          5%            1,234.7         646.0
                                                         experience
       Limited-payment contracts.......................     None          (a)          6%              761.5         695.8

       Individual accident and health .................    Company     Company         7%            1,112.6         649.5
                                                         experience   experience
       Group life and health...........................      N/A          N/A          N/A              71.3          44.1
                                                                                                   ---------     ---------

         Total traditional products....................                                              3,180.1       2,035.4
                                                                                                   ---------     ---------

   Claims payable and other policyholders' funds ......      N/A          N/A          N/A           1,056.3         517.4
   Unearned premiums...................................      N/A          N/A          N/A             272.4         187.9
                                                                                                   ---------     ---------

       Total insurance liabilities.....................                                            $19,304.3     $13,378.4
                                                                                                   =========     =========
<FN>
   (a)    Principally the 1984 United States  Population Table and the NAIC 1983
          Individual Annuitant Mortality Table.

   (b)    Principally modifications of the 1965 - 70 and 1975 - 80 Basic, Select
          and Ultimate Tables.

   (c)    In 1996 and 1995: (i)  approximately 95 percent and 96 percent of this
          liability,  respectively,  represented  account  balances where future
          benefits  are  not  guaranteed;  and  (ii) 5  percent  and 4  percent,
          respectively,  represented  the  present  value of  guaranteed  future
          benefits  determined using an average interest rate of approximately 5
          percent.
</FN>
</TABLE>

       Participating  policies  represented  approximately 2 percent, 12 percent
and 8 percent of total life  insurance in force at December  31, 1996,  1995 and
1994, respectively.  Participating policies represented approximately 1 percent,
1 percent and 2 percent of premium income for 1996, 1995 and 1994, respectively.
Dividends on participating policies amounted to $13.4 million, $12.3 million and
$12.0 million in 1996, 1995 and 1994, respectively.

       6.  REINSURANCE:

       Cost of reinsurance  ceded where the reinsured policy contains  mortality
risks totaled $313.8 million,  $72.6 million and $33.4 million in 1996, 1995 and
1994,  respectively.  This cost was deducted  from  insurance  premium  revenue.
Conseco is contingently  liable for claims  reinsured if the assuming company is
unable to pay.  Reinsurance  recoveries netted against insurance policy benefits
totaled $281.4 million,  $59.8 million and $23.7 million in 1996, 1995 and 1994,
respectively.

       The  Company  has  ceded  certain  policy  liabilities  under  assumption
reinsurance agreements. Since all of Conseco's obligations under these insurance
contracts have been ceded to another company,  insurance  liabilities related to
such  policies were not reported in the balance  sheet.  We believe the assuming
companies are able to honor all  contractual  commitments  under the  assumption
reinsurance  agreements,  based on our periodic reviews of financial statements,
insurance industry reports and reports filed with state insurance departments.

                                       77
<PAGE>

                         CONSECO, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

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



       The Company's  reinsurance  receivable  at December 31, 1996,  relates to
approximately  175  reinsurers.  Three major United States  insurance  companies
rated "A-  (Excellent)" or better by A.M. Best Company,  a recognized  insurance
rating agency,  account for  approximately 26 percent,  9 percent and 5 percent,
respectively,  of such balance. Other than these companies,  no single reinsurer
accounts for more than 4 percent.

       7.  INCOME TAXES:

       Income tax assets (liabilities) were comprised of the following:
<TABLE>
<CAPTION>
                                                                                                      1996           1995
                                                                                                      ----           ----
                                                                                                        (Dollars in millions)
<S>                                                                                                 <C>            <C> 
Deferred income tax assets (liabilities):
    Investments...................................................................................  $  52.2        $  16.8
    Cost of policies purchased and cost of policies produced......................................   (573.7)        (383.4)
    Insurance liabilities.........................................................................    474.0          345.6
    Unrealized depreciation (appreciation)........................................................    (34.8)        (138.4)
    Net operating loss carryforward...............................................................    154.4          142.9
    Other.........................................................................................    (73.8)         (53.7)
                                                                                                     ------         ------

          Deferred income tax liabilities.........................................................     (1.7)         (70.2)
Current income tax assets (liabilities)...........................................................     10.5          (23.1)
                                                                                                     ------         ------

          Income tax assets (liabilities).........................................................   $  8.8         $(93.3)
                                                                                                     ======         ======
</TABLE>

       Income tax expense was as follows:
<TABLE>
<CAPTION>

                                                                                               1996       1995      1994
                                                                                               ----       ----      ----
                                                                                                  (Dollars in millions)
<S>                                                                                            <C>        <C>      <C> 
Current tax provision......................................................................... $110.5     $121.0   $ 78.6
Deferred tax provision (benefit)..............................................................   69.3      (34.0)    32.4
                                                                                               ------    -------   ------

            Income tax expense................................................................ $179.8     $ 87.0   $111.0
                                                                                               ======     ======   ======
</TABLE>

       Income tax expense differed from that computed at the applicable  federal
statutory rate (35 percent) for the following reasons:
<TABLE>
<CAPTION>


                                                                                               1996       1995      1994
                                                                                               ----       ----      ----
                                                                                                  (Dollars in millions)
<S>                                                                                            <C>        <C>        <C>
Tax on income before income taxes
    at statutory rate......................................................................... $172.8     $146.5     $113.5
Dividend received deduction on equity
    in earnings of non-consolidated affiliates................................................    -          -        (13.7)
Tax on undistributed earnings of consolidated subsidiaries....................................    2.0        2.5        5.5
Reversal of deferred tax liabilities as a result of the ALH Stock Purchase....................   (1.3)        -          -
Reversal of deferred tax liabilities as a result of CCP Merger................................    -         (8.4)        -
Reversal of deferred tax liabilities as a result of the increase in ownership of BLH..........    -        (66.5)        -
Nondeductible items...........................................................................    2.5        8.8        4.5
State taxes...................................................................................    7.3         .3        3.1
Other.........................................................................................   (3.5)       3.8       (1.9)
                                                                                               ------    -------     ------

            Income tax expense................................................................ $179.8    $  87.0     $111.0
                                                                                               ======    =======     ======
</TABLE>

       At December 31, 1996,  Conseco had federal income tax loss  carryforwards
of $441.1 million available (subject to various statutory  restrictions) for use
on future tax returns.  Portions of these  carryforwards begin expiring in 1999.
Of the loss  carryforwards:  (i) $24.5 million may be used to offset income only
from the non-life insurance  companies;  and (ii) $67.3 million are attributable
to  acquired  companies  and may be used only to offset  the  income  from those
companies. None of the carryforwards are available to

                                       78

<PAGE>


                         CONSECO, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

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



reduce the tax  provision  for  financial  reporting  purposes.  With respect to
determining  that the Company's net operating loss  carryforwards  will be fully
utilized, the Company is relying upon its past history of earnings.

       The IRS has  completed  its  examination  of Conseco's  consolidated  tax
returns for years through 1992 and is currently  conducting an  examination  for
years 1993 through 1994.  Certain companies acquired in the LPG Merger have been
audited  by the IRS for  years  1990  and 1991 and are  appealing  the  proposed
adjustments to the IRS's Appeals Division. Certain companies acquired in the LPG
Merger are  currently  being  audited by the IRS for years 1992 through 1994. We
believe adjustments, if any, related to these audits will not be significant.

       8. NOTES PAYABLE:

       Notes  payable of the  Company at  December  31,  1996 and 1995,  were as
follows:
<TABLE>
<CAPTION>

                                                                     Interest rate         1996          1995
                                                                     -------------         ----          ----
                                                                                          (Dollars in millions)

<S>                                                                  <C>                <C>        <C>  
Borrowings under revolving credit agreements.........................   5.9% (1)        $  465.0   $   715.0
Senior notes due 2003................................................ 8.125%               170.0       195.0
Senior notes due 2004................................................  10.5%               200.0       200.0
Subordinated notes due 2004.......................................... 11.25%                98.1       150.0
Convertible subordinated debentures due 2005.........................   6.5%               102.8          -
Other................................................................  Various              45.2       195.0
                                                                                         -------     -------     

     Total principal amount..........................................                    1,081.1     1,455.0

Unamortized net premium..............................................                       13.8         1.1
                                                                                         -------    --------

     Total...........................................................                   $1,094.9    $1,456.1 (2)
                                                                                        ========    ========
</TABLE>

(1)    Current weighted average rate at December 31, 1996.

(2)    At December  31,  1995,  notes  payable  with a carrying  value of $584.7
       million  (consisting of borrowings under revolving  credit  agreements of
       $235.0 million; subordinated notes due 2004 of $150.0 million; other debt
       of $195.0 million;  and  unamortized  discount and issuance costs of $4.7
       million)  were  notes  payable  of  affiliates,  which  were  not  direct
       obligations of Conseco. As a result of the ALH Stock Purchase and the BLH
       Merger, such notes payable became direct obligations of Conseco.

       Maturities  of notes  payable  at  December  31,  1996,  were as  follows
(dollars in millions):
<TABLE>
<CAPTION>

             Maturity date                                                      Amount
             -------------                                                      ------
<S>                                                                             <C> 
1997.......................................................................     $    1.1
1998.......................................................................          1.1
1999.......................................................................          1.1
2000.......................................................................          1.1
2001.......................................................................        466.1
Thereafter.................................................................        610.6
                                                                                --------

    Total par value at December 31, 1996...................................     $1,081.1
                                                                                ========
</TABLE>

       Borrowings  under  revolving  credit  agreements.  The Company's  current
revolving credit agreement (the "Credit  Facility"),  executed in November 1996,
permits  borrowings up to $1.4 billion.  Borrowings  bear interest at the bank's
base rate, a Eurodollar  rate or a rate  determined  based on a solicitation  of
bids from lenders. Eurodollar rates are equal to the reserve-adjusted LIBOR rate
plus a margin of .225  percent to .75  percent,  based on the  credit  rating of
Conseco's senior notes. The current margin of .375 percent will increase by .125
percent after December 31, 1997, if Conseco's debt to total capitalization ratio
exceeds 35 percent. Borrowings

                                       79

<PAGE>


                         CONSECO, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

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

at December 31, 1996, bore interest at a weighted  average rate of 5.90 percent.
The Credit Facility also permits revolving  Swingline loans up to $50.0 million.
Such loans are due within 7 days and bear  interest at the bank's base rate or a
reserve  adjusted  three-month  CD rate plus the  Eurodollar  rate margin and an
assessment  rate.  Maximum  permitted  borrowings  under the Credit Facility are
reduced by any aggregate outstanding commercial paper of Conseco.

       Borrowings are due in November 2001. Mandatory prepayments,  which reduce
the maximum  permitted  borrowings,  are required under the Credit Facility upon
the sale or  disposition  of any  significant  assets other than in the ordinary
course of business.  The Credit Facility contains various restrictive  covenants
that  primarily  pertain to levels of  indebtedness,  limitations  on payment of
dividends,  limitations  on the  quality and types of  investments,  and capital
expenditures.  Additionally,  the Company  must comply  with  several  financial
covenant restrictions, including maintaining: (i) shareholders' equity in excess
of $1.75  billion at December 31,  1996,  $2.4 billion in 1997 and 1998 and $3.5
billion thereafter;  (ii) the interest coverage ratio in excess of 2.0:1 through
March 1997 (escalating to 3.0:1 after 1997); and (iii) the debt to total capital
ratio less than .45:1.  As of December 31, 1996,  the Company was in  compliance
with all covenants under its debt agreements.

       On the last day of each quarter, we pay a commitment fee that ranges from
 .08  percent  to .25  percent  per  annum  (depending  on the  credit  rating of
Conseco's  senior  debt) on the  average  daily  unused  commitments  during the
quarter. This fee was .125 percent per annum during the fourth quarter of 1996.

       We recognized an extraordinary  loss of $12.9 million during 1996 (net of
a $7.0  million  tax  benefit)  as a result of  prepaying  our prior bank credit
agreements and the bank credit agreements of BLH and ALH.

       8.125%  senior  notes due 2003 were  issued  to the  public in 1993,  are
unsecured  and rank pari  passu  with all  other  unsecured  and  unsubordinated
indebtedness of the Company. The notes are not redeemable prior to maturity.

       10.5% senior notes due 2004 were issued to the public by CCP in 1994, are
unsecured  and rank pari  passu  with all  other  unsecured  and  unsubordinated
indebtedness of Conseco. The notes are not redeemable prior to maturity.

       11.25%  senior  subordinated  notes due 2004 were issued to the public by
ALH in  conjunction  with its  acquisition  by  Partnership  II.  Such notes are
unsecured and will be  subordinated in the right of payment to the prior payment
in full of all senior  indebtedness.  The notes are  redeemable at the Company's
option,  in whole  or in part,  at any  time on or  after  September  15,  1999,
initially at 105.625 percent of their principal  amount,  plus accrued interest,
declining to 100 percent of their principal amount,  plus accrued  interest,  on
and after  September 15, 2001. We  recognized  an  extraordinary  charge of $4.2
million  (net  of a $2.3  million  tax  benefit)  during  1996  as a  result  of
repurchasing $51.9 million par value of these notes.

       6.5%  convertible  subordinated  debentures  due 2005  were  acquired  in
conjunction with the ATC Merger and are convertible into Conseco common stock at
any time prior to  maturity,  at a  conversion  ratio of 76.96 shares of Conseco
common stock for each $1,000  principal  amount of debentures.  The  convertible
debentures  may be  redeemed  at  Conseco's  option  at a price  equal to 103.25
percent  after October  1998,  declining to 100 percent after October 2001.  The
value of the  convertible  debentures in excess of the principal  balance at the
ATC Merger date (the value  attributable  to the  conversion  feature) of $145.5
million is included in other liabilities.

       Other debt.  In March  1996,  BLH  completed  a tender  offer in which it
repurchased $148.3 million principal balance of its senior  subordinated  notes.
In  addition,  Conseco  repurchased  $28.5  million of such notes  during  1996.
Conseco  recognized  an  extraordinary  charge  of $9.0  million  (net of a $4.9
million tax benefit) related to such repurchases.

       In  conjunction  with the LPG Merger and the THI Merger,  Conseco  repaid
acquired debt of $214.5  million and $78.5 million,  respectively.  Conseco also
repurchased  other debt of $65.8  million  during 1996.  Conseco  recognized  an
extraordinary  charge of $.4 million (net of $.2 million tax benefit) related to
such repurchases.

       Conseco recognized  extraordinary  charges of $2.1 million (net of a $1.5
million  tax  benefit)  in 1995  and $4.0  million  (net of a $2.2  million  tax
benefit) in 1994, related to the repayment of notes payable.



                                       80

<PAGE>

                         CONSECO, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

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



       9.  OTHER DISCLOSURES:

       Leases

       The Company rents office space,  equipment  and computer  software  under
noncancellable operating leases. Rental expense was $21.3 million in 1996, $20.8
million  in 1995 and $18.8  million  in 1994.  Future  required  minimum  rental
payments as of December 31, 1996, were as follows (dollars in millions):
<TABLE>
<CAPTION>
                                           <S>                             <C> 

                                           1997  ........................  $  22.2
                                           1998  ........................     22.1
                                           1999  ........................     20.3
                                           2000  ........................     18.6
                                           2001  ........................     16.7
                                           Thereafter....................     55.1
                                                                            ------

                                                 Total...................   $155.0
                                                                            ======
</TABLE>

       Employment Arrangements

       Some  officers of the Company are  employed  under  long-term  employment
agreements.  One of these  agreements  provides for a base salary plus an annual
bonus equal to 3 percent of the Company's  consolidated  defined pretax profits.
This  agreement  renews  annually  for a five-year  period  unless  either party
notifies the other, in which case the agreement expires five years from the last
renewal date.  Additionally,  a $1.9 million interest-free loan has been granted
to the officer.  Repayment is due two years after  termination  of the officer's
employment contract.

       The agreements  described above also include  provisions  under which the
employee may elect to receive,  in the event of a  termination  of the agreement
following a change in control of the Company (as defined), a severance allowance
equal to 60 months'  salary,  bonus and other  benefits.  The employee  also may
elect to have the Company purchase all Conseco stock and all options to purchase
Conseco stock, without deduction of the applicable exercise prices, held by such
person at a price per share equal to the highest  market price in the  preceding
six months.

       The  Company  has   qualified   defined   contribution   plans  in  which
substantially all employees are eligible to participate.  Company contributions,
which match certain voluntary  employee  contributions to the plan, totaled $2.0
million  in  1996,  $2.2  million  in 1995  and  $1.7  million  in  1994.  These
contributions may be made either in cash or in Conseco common stock.

       The Company also has a stock bonus and deferred  compensation program for
certain  officers  and  directors.  Company  contributions  vary  based  on  the
profitability of the Company. Each year's contribution, which is fully funded in
the form of Conseco  common stock,  vests five years later or upon certain other
events.  The cost of the program is charged to expense  over the vesting  period
and amounted to $3.9  million in 1996,  $3.7 million in 1995 and $1.4 million in
1994. The market value of Conseco common stock held under the program  (included
in other assets and other  liabilities)  was $101.7 million and $46.0 million at
December 31, 1996 and 1995, respectively.

       BLH  has a  noncontributory,  unfunded  deferred  compensation  plan  for
qualifying  members of its career agency  force.  Benefits are based on years of
service  and career  earnings.  The  liability  recognized  in the  consolidated
balance sheet for the agents' deferred  compensation  plan was $34.5 million and
$32.2 million at December 31, 1996 and 1995, respectively.  Substantially all of
this  liability  represents  vested  benefits.  Costs  incurred  on  this  plan,
primarily  representing  interest on unfunded benefit costs,  were $3.2 million,
$2.8 million and $2.7 million during 1996, 1995 and 1994, respectively.



                                       81

<PAGE>


                         CONSECO, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

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

       BLH also provides  certain  health care and life  insurance  benefits for
eligible retired employees.  Benefits are provided under a contributory unfunded
plan which  includes  cost-sharing  features  determined  at the  discretion  of
management.  During  1994,  several  modifications  were made to  postretirement
benefit plans that: (i) established  cost-sharing  for certain future  retirees;
(ii)  established  maximum annual costs and benefits;  and (iii) revised certain
other benefits.  Such changes made in 1994 resulted in a $9.2 million  amendment
gain and a $5.2 million  curtailment  gain. The amendment gain is amortized over
the remaining service period of active plan  participants.  The curtailment gain
is included in other income.  Amounts related to the postretirement benefit plan
consisted of the following:
<TABLE>
<CAPTION>
                                                                                                        1996        1995
                                                                                                        ----        ----
                                                                                                      (Dollars in millions)

<S>                                                                                                      <C>        <C>  
Retirees............................................................................................     $4.6        $ 5.2
Fully eligible active plan participants.............................................................      1.9          1.9
Other active plan participants......................................................................       .6           .7
                                                                                                         ----        -----
  Total accumulated postretirement benefit obligation...............................................      7.1          7.8
Unrecognized net reduction in prior service costs...................................................      2.5          6.1
Unrecognized net gain...............................................................................       .3           .8
                                                                                                         ----        -----

  Accrued liability included in other liabilities...................................................     $9.9        $14.7
                                                                                                         ====        =====
</TABLE>

       The discount rates used in  determining  the  accumulated  postretirement
benefit obligation was 7 percent at December 31, 1996 and 1995. Future increases
in salaries  and the assumed  health care cost trend rates  produce no change in
the accumulated postretirement benefit obligation at December 31, 1996 and 1995,
because of the employer's maximum cost sharing  provisions  discussed above. The
net periodic cost of providing these benefits is not significant.

       Litigation

       From time to time,  the  Company  and its  subsidiaries  are  involved in
lawsuits  related to their  operations.  In most cases,  such  lawsuits  involve
claims under insurance  policies or other contracts of the Company.  Even though
the  Company  may be  contesting  the  validity  or extent of its  liability  in
response  to  such  lawsuits,  the  Company  has  established  reserves  in  its
consolidated  financial  statements  that  approximate  its estimated  potential
liability.   Accordingly,   none  of  the  lawsuits  currently  pending,  either
individually  or in the aggregate,  is expected to have a material effect on the
Company's consolidated financial condition, cash flows or results of operations.

       Guaranty Fund Assessments

       From time to time,  mandatory  assessments  are  levied on the  Company's
insurance  subsidiaries by life and health guaranty  associations of most states
in which these subsidiaries are licensed.  These assessments are to cover losses
to  policyholders  of  insolvent  or  rehabilitated  insurance  companies.   The
associations  levy  assessments  (up to prescribed  limits) on all insurers in a
particular state in order to pay claims on the basis of the proportionate  share
of premiums  written by insurers in the lines of business in which the insolvent
or  rehabilitated  insurer is  engaged.  These  assessments  may be  deferred or
forgiven  in  certain  states if they  would  threaten  an  insurer's  financial
strength  and, in some states,  these  assessments  can be  partially  recovered
through a reduction in future premium  taxes.  The balance sheet at December 31,
1996,  includes  accruals of $17.2  million,  which  approximate  the  Company's
estimate of: (i) all known assessments that will be levied against the Company's
insurance  subsidiaries by various state guaranty associations based on premiums
that have been written  through  December 31, 1996; less (ii) amounts that would
be  recoverable  through a reduction in future premium taxes as a result of such
assessments.  Such estimate is subject to change as the  associations  determine
more  precisely  the  losses  that have  occurred  and how such  losses  will be
allocated  to  insurance  companies.  The  Company's  cost for such  assessments
incurred by its insurance  company  subsidiaries  and equity  investees was $4.0
million in 1996, $3.2 million in 1995 and $8.0 million in 1994.


                                       82

<PAGE>

                         CONSECO, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

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

       Expenses Related to Terminated Merger Agreement

       In  November  1994,  Conseco and another  company  agreed to  terminate a
merger agreement. Conseco incurred pre-tax expenses totaling approximately $35.8
million including: (i) $15.1 million of fees to banks for financing commitments;
(ii) $9.8 million loss on the decline in fair value of common stock  acquired by
Conseco in  connection  with the  proposed  merger;  and (iii) $10.9  million of
legal, accounting and actuarial fees and other expenses.

       Minority Interest

       Minority interest represents the interest of investors other than Conseco
in its  subsidiaries.  Minority  interest at December  31, 1996,  included:  (i)
$600.0 million par value of Company-obligated  mandatorily  redeemable preferred
securities of subsidiary  trusts;  (ii) $97.0 million interest in the redeemable
preferred  stock of a subsidiary  of ALH; and (iii) $.7 million  interest in the
common stock of a subsidiary of ALH.

       Company-Obligated Mandatorily Redeemable Preferred Securities of
       Subsidiary Trusts

       Company-obligated   mandatorily   redeemable   preferred   securities  of
subsidiary trusts at December 31, 1996, were as follows (dollars in millions):
<TABLE>
<CAPTION>
                                                                                                          Estimated
                                                                                            Amount          fair
                                                                                          outstanding       value
                                                                                          -----------       -----

          <S>                                                                               <C>             <C>
          9.16% Trust Originated Preferred Securities ("TOPrS")........................     $275.0          $280.5
          8.70% Capital Trust Pass-through Securities ("TruPS")........................      325.0           323.8
                                                                                            ------          ------

                                                                                            $600.0          $604.3
                                                                                            ======          ======
</TABLE>

       On November 19, 1996,  Conseco  issued 11 million of the TOPrS of Conseco
Financing  Trust ("Trust I") at $25 per security.  Each TOPrS  security will pay
cumulative cash  distributions  at the annual rate of 9.16 percent of the stated
liquidation amount per security, payable quarterly commencing December 31, 1996.
The TOPrS are fully and unconditionally guaranteed by Conseco. Proceeds from the
offering of  approximately  $266.1  million (after  underwriting  and associated
costs)  were used to repay  bank  debt.  Conseco  has the  right to  redeem  the
securities at any time,  in whole or in part, on or after  November 19, 2001, at
the  principal  amount plus  accrued and unpaid  interest.  The  securities  are
subordinated  to all senior  indebtedness  of Conseco and mature on November 30,
2026.  Conseco may extend the maturity  date by one or more  periods,  but in no
event later than November 30, 2045. The terms of the TOPrS parallel the terms of
Conseco's  debentures held by Trust I, which debentures  comprise  substantially
all of the assets of Trust I.

       On November  27,  1996,  Conseco  issued  325,000 of the TruPS of Conseco
Financing Trust II ("Trust II") at $1,000 per security. Each TruPS security will
pay  cumulative  cash  distributions  at the annual rate of 8.70  percent of the
stated $1,000 liquidation amount per security payable  semi-annually  commencing
May  15,  1997.  The  TruPS  are  fully  and  unconditionally  guaranteed  as to
distributions  and other  payments by  Conseco.  Proceeds  from the  offering of
approximately $321.6 million (after underwriting and associated costs) were used
to repay  bank  debt.  Conseco  has the right to redeem  the  securities  at the
principal  amount plus a premium equal to the excess,  if any, of the sum of the
discounted  present values of the remaining  scheduled payments of principal and
interest over the principal amount of securities to be redeemed.  The securities
are  subordinated  to all senior  indebtedness of Conseco and mature on November
15, 2026. The terms of the TruPS parallel the terms of Conseco's debentures held
by Trust II, which debentures comprise  substantially all of the assets of Trust
II.

       Preferred Stock

       At December 31, 1996, the preferred stock consists of 2,760,000 shares of
$2.16 Redeemable  Cumulative  Preferred Stock (the "$2.16 Preferred Shares") and
940,000  shares of $2.32  Redeemable  Cumulative  Preferred  Stock  (the  "$2.32
Preferred Shares") of a subsidiary of ALH.


                                       83

<PAGE>


                         CONSECO, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

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


       The $2.16  Preferred  Shares are entitled to cash  dividends of $2.16 per
share per annum payable  quarterly and may be redeemed,  in whole or in part, at
any time after  August 25,  1997,  at $26.25 per share  declining  to $25.00 per
share on or after  September 30, 2000,  plus cumulative  unpaid  dividends.  The
$2.16 Preferred Shares are mandatorily redeemable on September 30, 2007.

       The $2.32  Preferred  Shares are entitled to cash  dividends of $2.32 per
share per annum payable  quarterly and may be redeemed,  in whole or in part, at
any time after  February 2, 1998,  at $26.25 per share  declining  to $25.00 per
share on or after February 1, 2001, plus unpaid cumulative dividends.  The $2.32
Preferred Shares are mandatorily redeemable on February 15, 2008.

       Zero coupon U.S.  Government  bonds have been placed in an escrow account
to be used for the future redemption of the $2.16 Preferred Shares and the $2.32
Preferred  Shares on or before their mandatory  redemption  dates. The aggregate
redemption  values  and the  maturity  dates  of such  bonds  correspond  to the
redemption  values  (excluding  cumulative  unpaid  dividends) and the mandatory
redemption dates of the $2.16 Preferred  Shares and the $2.32 Preferred  Shares.
At December 31, 1996,  the bonds had an amortized  cost of $45.6  million and an
estimated fair value of $49.1 million.

       During 1996, the Company repurchased  preferred stock of ALH with a value
of $12.6 million and acquired 260,000 shares of the $2.32 Preferred Stock in the
LPG Merger.

       Common Stock

       At December  31,  1996,  minority  interest in common  stock of Conseco's
subsidiaries  includes  only the $.7  million  interest  in the common  stock of
Vulcan. At December 31, 1995, such minority interest also included the interests
of the non-Conseco  shareholders in ALH and BLH. Conseco acquired such ownership
interests  from the  minority  interest  in the ALH Stock  Purchase  and the BLH
Merger.


                                       84

<PAGE>

                         CONSECO, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

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


       Changes  in  minority   interest  in  common  and   preferred   stock  of
consolidated subsidiaries during 1996 and 1995 are summarized below:
<TABLE>
<CAPTION>
                                                                                                   1996              1995
                                                                                                   ----              ----
                                                                                                     (Dollars in millions)
<S>                                                                                              <C>                <C>  
Minority interest, beginning of year...........................................................  $ 403.3            $ 321.7
    Consolidation of CCP, effective January 1, 1995............................................        -              191.2
    Changes in investments held by minority interest:
       ALH Stock Purchase......................................................................   (131.2)               -
       ALH preferred stock purchase............................................................    (12.6)               -
       Preferred stock of a subsidiary of ALH held by LPG at the date of the LPG Merger........     (6.5)               -
       BLH Merger..............................................................................    (60.5)               -
       Repurchase by BLH of its common stock ..................................................    (18.7)             (27.7)
       Purchase of BLH common stock by Conseco.................................................        -             (141.8)
       Repurchase by CCP of its common stock...................................................        -              (44.5)
       Purchase of CCP common stock in the CCP Merger..........................................        -             (241.7)
       Conseco's additional ownership interest in BLH and ALH
          as a result of the CCP Merger........................................................        -              (53.8)
       Investment in Partnership II ...........................................................        -               16.3
       Other  .................................................................................      4.6                2.1
    Equity of  minority  interest  in the change in  financial  position  of the
       Company's subsidiaries:
       Net income before extraordinary charge..................................................     31.3              109.0
       Extraordinary charge....................................................................     (1.7)              (2.8)
       Unrealized appreciation (depreciation) of securities ...................................   (100.3)             292.4
       Dividends...............................................................................    (10.0)             (17.1)
                                                                                                 -------            -------

Minority interest, end of year ................................................................  $  97.7            $ 403.3
                                                                                                 =======            =======
</TABLE>

       10.  SHAREHOLDERS' EQUITY:

       Authorized  preferred  stock is 20,000,000  shares.  On January 23, 1996,
Conseco  completed the offering of 4.37 million shares of PRIDES.  Proceeds from
the offering of $257.7 million (after  underwriting and other associated  costs)
were used to repay notes payable of Conseco. Each share of PRIDES pays quarterly
dividends at the annual rate of 7 percent of the $61.125 liquidation  preference
per share  (equivalent to an annual amount of $4.279 per share).  On February 1,
2000, unless either previously redeemed by Conseco or converted at the option of
the holder,  each share of PRIDES will  mandatorily  convert into four shares of
Conseco common stock, subject to adjustment in certain events.  Shares of PRIDES
are not  redeemable  prior to February 1, 1999.  From  February 1, 1999  through
February 1, 2000, the Company may redeem any or all of the outstanding shares of
PRIDES.  Upon such  redemption,  each holder will receive,  in exchange for each
share of PRIDES,  the number of shares of Conseco  common stock equal to (i) the
sum of (a) $62.195, declining after February 1, 1999 to $61.125, and (b) accrued
and unpaid dividends divided by (ii) the market price of Conseco common stock at
such date.  In no event will a holder  receive  less than 3.42 shares of Conseco
common  stock.  During 1996,  400 shares of PRIDES were  converted by holders of
such shares into 1,368 shares of Conseco common stock.

       Conseco  issued  5,750,000  shares  of  Series D  Cumulative  Convertible
Preferred Stock ("Series D preferred  stock") with annual dividends of $3.25 per
share and with a total stated value of $287.5 million ($50 per share) in January
1993 in a public  offering.  During  1993,  274 Series D  preferred  shares were
converted to 860 common shares. In December 1994, the Company repurchased 80,000
Series D preferred  shares in open market  transactions  in connection  with its
stock repurchase program at a total cost of $3.3 million.  Such preferred shares
would have been  convertible  into 250,980 shares of common stock.  In 1996, the
Company exercised its right to redeem all outstanding  Series D preferred stock.
A total of 6,358  Series D shares were  redeemed at $52.916 per share  including
$.641 per share of  accrued  and  unpaid  dividends.  Holders  of the  remaining
5,381,437 Series D shares elected to convert their shares into 16,882,390 shares
of Conseco common stock.


                                       85

<PAGE>


                         CONSECO, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

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

       Changes in the number of shares of common stock outstanding for the years
1996, 1995 and 1994 were as follows:
<TABLE>
<CAPTION>

                                                                                     1996          1995            1994
                                                                                     ----          ----            ----
<S>                                                                                <C>           <C>           <C>    
Balance, beginning of year......................................................   81,031,828    88,739,400    101,247,092
    Stock options exercised.....................................................    4,893,484       365,432     15,461,816
    Shares issued in conjunction with acquired companies........................   60,559,840         -              -
    Shares issued in exchange for THI Convertible Notes.........................    4,249,830         -              -
    Common shares converted from Series D preferred shares......................   17,766,864         -              -
    Common shares converted from PRIDES.........................................        1,368         -              -
    Shares issued under compensation plans......................................      281,604        16,996         17,548
    Treasury stock purchased....................................................   (1,656,590)   (8,090,000)   (27,987,056)
                                                                                  -----------    ----------    -----------

Balance, end of year............................................................  167,128,228    81,031,828     88,739,400
                                                                                  ============   ==========    ===========
</TABLE>

       Dividends  declared on common stock for 1996,  1995 and 1994, were $.083,
$.046 and $.125 per common  share,  respectively.  A  liability  was accrued for
dividends declared but unpaid at December 31, 1996, totaling $4.8 million.  Such
dividends were paid in January 1997.

       In  1996,  1995 and  1994,  the  Company  repurchased  approximately  1.7
million,  8.1  million  and 28.0  million  shares of its common  stock for $26.0
million, $92.4 million and $360.2 million,  respectively, in connection with its
stock repurchase  program.  The cost of the common stock  repurchased by Conseco
was allocated to the  shareholders'  equity  accounts in 1996,  1995 and 1994 as
follows: (i) $3.1 million,  $15.0 million, and $25.5 million,  respectively,  to
common stock and additional  paid-in  capital (such  allocation was based on the
average  common  stock and  paid-in  capital  balance  per share) and (ii) $22.9
million,  $77.4 million and $337.0 million,  respectively,  to retained earnings
(representing the purchase price in excess of such average).

       The Company was  authorized  under its 1983 employee stock option plan to
grant options to purchase up to 48 million  shares of Conseco  common stock at a
price not less than its market  value on the date the option  was  granted.  The
1983 stock  option plan  continues to govern  options  granted  thereunder,  but
expired in all other  respects in December  1993. A new plan was adopted in 1994
that  authorizes  the  granting of options to  employees  and  directors  of the
Company to purchase up to 24 million  shares of Conseco  common stock at a price
not less than its market  value on the date the option is  granted.  The options
may  become  exercisable  immediately  or over a period  of time.  The plan also
permits granting of stock appreciation rights and certain other awards.

       Conseco  implemented two option  exercise  programs under which its chief
executive   officer  and  four  of  its  executive  vice  presidents   exercised
outstanding options to purchase 3.1 million shares of Conseco common stock under
a March 1996  program  (the "1996  Program")  and 14.4  million  shares  under a
February  1994  program  (the  "1994  Program").  The  options  exercised  would
otherwise  have  remained  exercisable  until the years 2000  through  2002 with
respect to the 1996 Program and 1999 and 2000 with respect to the 1994  Program.
We implemented  these  programs in order to accelerate:  (i) the tax benefits we
derived from the  exercise of the options;  and (ii) the receipt of the exercise
price of the options. The programs resulted in the following increases to common
stock and additional paid-in capital: (i) a tax benefit of $15.1 million (net of
payroll  taxes  incurred of $.7 million)  and exercise  proceeds of $5.2 million
related to the 1996  Program;  and (ii) a tax benefit of $67.8  million  (net of
payroll taxes  incurred of $2.9 million) and exercise  proceeds of $15.4 million
related to the 1994 Program.  The Company  withheld  shares to cover federal and
state taxes owed by the executives as a result of the exercise transactions. Net
of shares withheld, the Company issued approximately 1.6 million and 7.2 million
shares of common  stock to the  executives  under the 1996  Program and the 1994
Program,  respectively.  As an  inducement  to encourage the exercise of options
prior to their  expiration  date, the Company granted to the executive  officers
new options to  purchase a total of 1.6  million  shares at $16.22 per share and
8.1 million  shares at $14.81 per share (in each case equal to the market  price
per share on the grant date) to replace the shares surrendered for taxes and the
exercise price in connection with the 1996 and 1994 Programs, respectively.

       In April 1996, Conseco approved a Director,  Executive and Senior Officer
Stock Purchase Plan to encourage direct, long-term ownership of Conseco stock by
Board  members,  executive  officers  and  certain  senior  officers.  Under the
program,  up to 4 million  shares of Conseco  common stock could be purchased in
open market or negotiated  transactions with independent  parties.  Participants
could elect to purchase up to 50 percent of their  participation  in the form of
Conseco  PRIDES.  Purchases were financed by personal loans to the  participants
from a bank.  Such loans were  collateralized  by the Conseco  stock  purchased.
Conseco  guaranteed the loans, but has recourse to the participants if it incurs
a loss under the guarantee. In addition,  Conseco has agreed to provide loans to
the

                                       86

<PAGE>

                         CONSECO, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

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

participants for interest payments under the bank loans. A total of 22 directors
and officers of Conseco  elected to  participate in the plan and purchased all 4
million  shares of Conseco  common stock offered under the Plan. At December 31,
1996, the bank loans  guaranteed by Conseco  totaled $83.4 million and the loans
provided by Conseco totaled $2.2 million.  The common stock that  collateralizes
the loans had a fair value of $144.5  million on February  6, 1997.  On February
18, 1997,  the program was  expanded,  to permit the purchase of an additional 4
million shares.

       In December 1996, the Company granted options to selected key managers to
purchase  1,100,000  shares at a price of $30.41  per  share  (the "Key  Manager
Program").  These options contain  lengthy vesting and non-compete  requirements
designed to encourage  continuity  of  employment  with these  individuals.  The
options  are fully  vested  only  upon  both:  (i)  eleven  years of  continuous
employment;  and (ii) the  earlier of: (a) two years  after the  termination  of
employment  during  which time the  individual  is not in  competition  with the
Company;  (b) the grantee  reaching  age 65; or (c) death or  disability  of the
grantee. In certain cases the options remain exercisable throughout the lifetime
of the grantee.

       The  Company  applies   Accounting   Principles  Board  Opinion  No.  25,
"Accounting  for Stock  Issued to  Employees"  and  related  interpretations  in
accounting for its stock option plans.  Accordingly,  no  compensation  cost has
been recognized for such plans. Had  compensation  cost been determined based on
the fair  value at the grant  dates for  awards in 1996 and 1995  under the plan
consistent  with the method of Statement of Financial  Accounting  Standards No.
123,  "Accounting for Stock-Based  Compensation" ("SFAS 123"), the Company's pro
forma net income and pro forma  earnings per share for the years ended  December
31, 1996 and 1995, would have been as follows:
<TABLE>
<CAPTION>

                                                                    1996                          1995
                                                         -------------------------      -------------------------
                                                         As reported     Pro forma      As reported     Pro forma
                                                         -----------     ---------      -----------     ---------
                                                              (Dollars in millions, except per share amounts)

           <S>                                              <C>            <C>             <C>            <C>   
           Net income.................................      $252.4         $245.4          $220.4         $211.9
           Primary earnings per share.................        1.91           1.86            2.35           2.25
           Fully diluted earnings per share...........        1.77           1.72            2.11           2.03
</TABLE>

       The fair value of each option grant used for purposes of  estimating  the
pro forma amounts  summarized  above is estimated on the date of grant using the
Black-Scholes option-price model with the following weighted-average assumptions
for 1996 and 1995:
<TABLE>
<CAPTION>

                                                                        1996 Grants
                                                          ---------------------------------------
                                                                           Option            Key
                                                          Traditional     exercise         Manager          1995
                                                            grants         program         Program         Grants
                                                            ------         -------         -------         ------
<S>                                                           <C>            <C>             <C>            <C>
Risk-free interest rates...............................       6.1%           6.0%            6.8%           6.2%
Dividend yields........................................        .1%            .1%             .1%            .2%
Volatility factors.....................................       .28            .28             .28            .43
Weighted average expected life.........................    5 years        5 years        25 years        5 years
Weighted average fair value per share..................    $10.17          $5.54          $24.50          $5.53
</TABLE>

     The  Black-Scholes   option  valuation  model  was  developed  for  use  in
estimating the fair value of traded  options which have no vesting  restrictions
and are fully  transferrable.  In addition,  option valuation models require the
input of highly  subjective  assumptions  including  the  expected  stock  price
volatility.   Because  our   employee   stock   options   have   characteristics
significantly  different from those of traded  options,  and because  changes in
subjective  assumptions  can  materially  affect  the fair  value  estimate,  in
management's  opinion,  the  existing  models do not  provide a reliable  single
measure of the fair value of its  employee  stock  options.  Because SFAS 123 is
effective  only  for  awards  granted  after  January  1,  1995,  the pro  forma
disclosures  provided above may not be representative of the effects on reported
net income for future years.

                                       87
<PAGE>


                         CONSECO, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

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


     In conjunction with the LPG Merger,  the ATC Merger, the THI Merger and the
BLH Merger, outstanding options to purchase common stock of LPG, ATC, THI or BLH
were  converted  into  options  that are  immediately  exercisable  for the same
consideration  payable  to  exercise  such  options  immediately  prior  to  the
respective  mergers  for the number of shares of Conseco  common  stock that the
holders  would have been entitled to receive at the dates of the mergers had the
options  been fully vested and  exercised at that time.  The fair value of these
options  is not  included  in the pro forma net income  summarized  above but is
included in the cost to acquire the companies (see note 2). A summary of options
issued in  connection  with the  mergers and related  information  is  presented
below:
<TABLE>
<CAPTION>
                                                                                                         Weighted
                                                                                        Total value       average
                                                                                         at merger    exercise price
                                                                       Shares              date          per share
                                                                       ------              ----          ---------
                                                                               (Dollars in millions, except
                                                                                      per share data)
<S>                                                                    <C>                <C>              <C>   
Options issued in connection with the:
     LPG Merger...............................................         1,132,678          $  7.7           $11.18
     ATC Merger...............................................         2,048,982            26.9            16.87
     THI Merger...............................................           643,994             6.5            14.90
     BLH Merger...............................................           609,152             2.6            27.18
                                                                      ----------          ------

                                                                       4,434,806           $43.7            16.54
                                                                      ==========           =====
</TABLE>

     A summary of the Company's  stock option  activity and related  information
for the years ended December 31, 1996, 1995 and 1994, is presented below:
<TABLE>
<CAPTION>

                                                    1996                      1995                      1994
                                          -----------------------    ----------------------    ---------------------
                                                        Weighted                  Weighted                  Weighted
                                                         average                   average                   average
                                                        exercise                  exercise                  exercise
                                           Shares         price      Shares         price      Shares         price
                                           ------         -----      ------         -----      ------         -----
<S>                                      <C>             <C>      <C>              <C>         <C>            <C>
Outstanding at the beginning of year.... 25,486,864      $11.76   22,028,624       $11.43      26,957,136      $4.05

Granted in connection with:
   Traditional grants...................  1,206,430       28.54    4,117,200        12.60       4,792,000      14.17
   Option exercise program..............  1,604,720       16.22          -                      8,064,000      14.81
   Key Manager Program..................  1,100,000       30.41          -                            -
   Mergers..............................  4,434,806       16.54          -                            -
                                         ----------               ----------                  -----------

         Total granted..................  8,345,956       20.04    4,117,200        12.60      12,856,000      14.58
                                         ----------               ----------                  -----------

Exercised............................... (4,893,484)       4.75     (365,432)        3.06     (15,461,816)      1.09

Forfeited...............................   (219,088)      11.62     (293,528)        9.98      (2,322,696)     12.04
                                         ----------               ----------                  -----------

Outstanding at the end of the year...... 28,720,248       15.38   25,486,864        11.76      22,028,624      11.43
                                         ==========               ==========                   ==========

Options exercisable at year-end.........  9,553,774                7,352,044                    3,098,176
                                         ==========               ==========                   ==========

Available for future grant..............  2,932,561                8,398,800                   12,490,000
                                         ==========               ==========                   ==========
</TABLE>




                                       88

<PAGE>


                         CONSECO, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

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

         The following table  summarizes  information  about fixed stock options
outstanding at December 31, 1996:
<TABLE>
<CAPTION>

                                                      Options outstanding                Options exercisable
                                            ----------------------------------------    ------------------------ 
                                                           Weighted        Weighted                    Weighted
                                                             average         average                     average
Range of                                      Number        remaining       exercise      Number        exercise
exercise prices                             outstanding  life (in years)      price     exercisable       price
---------------                             -----------  ---------------      -----     -----------       -----
<S>                                           <C>              <C>        <C>             <C>         <C>    
$   .72-    $  .77......................      716,840           .7        $    .73        716,840     $     .73
   1.36-      1.71......................       94,766          1.4            1.53         94,766          1.53
   2.61-      2.81......................       46,222          2.1            2.62         46,222          2.62
   4.57-      6.34......................      278,234          3.7            5.73        228,234          5.59
   6.91-     10.28......................      304,062          4.2            8.19        157,224          7.53
  10.47-     13.49......................    7,239,814          6.9           12.57      4,585,792         12.49
  14.09-     14.81......................   13,927,870          6.9           14.67        463,872         14.25
  15.47-     19.81......................    3,360,262          9.1           17.57      2,906,076         17.36
  25.11-     30.41......................    1,652,178          6.6           29.23        354,748         27.91
  30.41  (Key Manager Program)..........    1,100,000         25.0           30.41            -            -
                                           ----------                                   ---------

                                           28,720,248                                   9,553,774
                                           ==========                                   =========
</TABLE>

       In addition to  25,680,392  shares of common stock  reserved for issuance
under the  employee  stock  option  plans,  3,039,856  shares are  reserved  for
issuance  related to the recent  mergers,  3,186,782  shares of common stock are
reserved for  issuance  under stock bonus and  deferred  compensation  plans and
900,000 shares are reserved for the warrants  described  below. The common stock
and additional  paid-in  capital account was reduced by $9.0 million at December
31, 1996, for the unearned portion of amounts granted under such plans.

       In connection with the THI Merger,  the outstanding  warrants to purchase
shares of THI common  stock were  converted  into  warrants to purchase the same
number of shares of  Conseco  common  stock  that the  holders  would  have been
entitled to receive if such warrants were exercised immediately prior to the THI
Merger.  Such warrants may be exercised to buy 700,000  shares of Conseco common
stock for $13.8 million at anytime through  September 29, 2005. The value of the
warrants on the THI Merger date of $3.8 million is included in the total cost to
acquire THI (see note 2).

       11.  OTHER OPERATING STATEMENT DATA:

       Insurance policy income consisted of the following:
<TABLE>
<CAPTION>
                                                                                           1996         1995         1994
                                                                                           ----         ----         ----
                                                                                                (Dollars in millions)

<S>                                                                                     <C>           <C>         <C>
Direct premiums collected.............................................................  $3,458.4      $3,172.9    $1,907.4
Reinsurance assumed...................................................................      65.8           6.1         5.1
Reinsurance ceded.....................................................................    (313.8)        (72.6)      (33.4)
                                                                                        --------      --------    --------

          Premiums collected, net of reinsurance......................................   3,210.4       3,106.4     1,879.1
Change in unearned premiums...........................................................     (14.6)          6.6        (3.9)
Less premiums on universal life and products
    without mortality and morbidity risk which are
    recorded as additions to insurance liabilities ...................................   1,811.5       1,757.4       634.6
                                                                                       ---------     ---------    --------
          Premiums on products with mortality or morbidity risk,
             recorded as insurance policy income......................................   1,384.3       1,355.6     1,240.6
Fees and surrender charges............................................................     239.5         108.1        43.0
Amortization of deferred policy fees..................................................      30.4           1.3         2.0
                                                                                       ---------     ---------    --------

          Insurance policy income.....................................................  $1,654.2      $1,465.0    $1,285.6
                                                                                        ========      ========    ========
</TABLE>

                                       89

<PAGE>


                         CONSECO, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

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



       The five  states with the largest  shares of premiums  collected  in 1996
were Illinois (10 percent),  Florida (9.1  percent),  California  (8.7 percent),
Texas (7.6 percent) and Michigan  (6.6  percent).  No other state  accounted for
more than 5 percent of total collected premiums.

       Other operating costs and expenses were as follows:
<TABLE>
<CAPTION>
                                                                                           1996         1995         1994
                                                                                           ----         ----         ----
                                                                                                (Dollars in millions)
<S>                                                                                        <C>          <C>         <C>
Commission expense....................................................................     $ 72.5       $ 47.7      $ 27.5
Other.................................................................................      231.5        224.4       186.6
                                                                                           ------       ------      ------

         Other operating costs and expenses...........................................     $304.0       $272.1      $214.1
                                                                                           ======       ======      ======
</TABLE>

      Conseco considers  anticipated returns from the investment of policyholder
balances in determining the  amortization of the cost of policies  purchased and
cost of  policies  produced.  Sales of fixed  maturity  investments  change  the
incidence of profits on such  policies  because  gains  (losses) are  recognized
currently and, if the sale proceeds are reinvested at the current market yields,
the  expected  future  yields on the  investment  of  policyholder  balances are
reduced (increased). Accordingly, amortization of the cost of policies purchased
was increased (decreased) by $31.1 million, $106.4 million and $(3.9) million in
the years ended December 31, 1996, 1995 and 1994, respectively, and amortization
of the cost of policies  produced was  increased  (decreased)  by $4.9  million,
$20.2 million and $(1.4) million in the years ended December 31, 1996,  1995 and
1994, respectively.

         The changes in the cost of policies purchased were as follows:
<TABLE>
<CAPTION>
                                                                                           1996         1995         1994
                                                                                           ----         ----         ----
                                                                                                (Dollars in millions)

<S>                                                                                      <C>          <C>          <C>    
Balance, beginning of year............................................................   $1,030.7     $1,021.6     $   623.7
    Consolidation of CCP effective January 1, 1995....................................        -          345.2            -
    Amortization related to operations:
       Cash flow realized.............................................................     (285.1)      (252.0)       (184.8)
       Interest added.................................................................      127.6        133.2         108.6
    Amortization related to sales of investments......................................      (31.1)      (106.4)          3.9
    Amounts related to fair value adjustment
       of actively managed fixed maturities...........................................      141.6       (395.6)         94.6
    Transferred to cost of policies produced related to
       exchanged health policies......................................................      (13.4)       (13.5)        (20.2)
    Amounts related to BLH Merger and share repurchases...............................       86.6        179.9          -
    Amounts acquired in LPG Merger....................................................      507.9          -            -
    Amounts acquired in ATC Merger....................................................      272.9          -            -
    Amounts acquired in THI Merger....................................................       94.4          -            -
    Amounts related to CCP Merger.....................................................        -          118.3          -
    Amounts related to acquisitions of ALH............................................       80.2          -           454.3
    Amounts related to deconsolidation of WNC.........................................        -            -           (61.9)
    Reinsurance and other ............................................................        2.7          -             3.4
                                                                                         --------     --------      --------

Balance, end of year..................................................................   $2,015.0     $1,030.7      $1,021.6
                                                                                         ========     ========      ========
</TABLE>

       Based on current  conditions  and  assumptions as to future events on all
policies in force,  the Company expects to amortize  approximately 11 percent of
the December 31, 1996, balance of cost of policies purchased in 1997, 11 percent
in 1998,  10 percent  in 1999,  8 percent  in 2000,  and 8 percent in 2001.  The
discount  rates  used to  determine  the  amortization  of the cost of  policies
purchased  prior to  November  19,  1992,  ranged  from 15 percent to 20 percent
during the three-year period ended December 31, 1996. The discount rates used to
determine  the  amortization  of the cost of  policies  purchased  ranged from 4
percent to 8 percent and averaged 5.5 percent.

                                      90

<PAGE>


                         CONSECO, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

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


       The changes in the cost of policies produced were as follows:
<TABLE>
<CAPTION>

                                                                                           1996         1995         1994
                                                                                           ----         ----         ----
                                                                                                (Dollars in millions)
<S>                                                                                        <C>          <C>         <C> 
Balance, beginning of year............................................................     $391.0       $300.7      $238.6
    Consolidation of CCP, effective January 1, 1995...................................        -          111.9          -
    Additions.........................................................................      331.5        302.9       164.0
    Amortization related to operations................................................      (72.9)       (62.0)      (46.1)
    Amortization of deferred revenue..................................................        1.4          1.3         1.6
    Amortization related to sales of investments......................................       (4.9)       (20.2)        1.4
    Amounts related to fair value adjustment of
       actively managed fixed maturities..............................................       45.4        (74.9)       18.6
    Transferred from cost of policies purchased related to
       exchanged health policies, net of related reserves.............................        4.0          1.6         7.5
    Amounts related to BLH Merger and share repurchases...............................      (54.7)      (107.5)         -
    Amounts related to ALH Stock Purchase.............................................      (96.5)          -           -
    Amounts related to CCP Merger.....................................................        -          (62.8)         -
    Amounts related to deconsolidation of WNC.........................................        -             -        (84.9)
                                                                                           ------      -------      ------

Balance, end of year..................................................................     $544.3      $ 391.0      $300.7
                                                                                           ======      =======      ======
</TABLE>

       12.  CONSOLIDATED STATEMENT OF CASH FLOWS:

       The  following  non-cash  items were not  reflected  in the  consolidated
statement  of cash flows in 1996:  (i) the  effects of the LPG  Merger,  the ATC
Merger,  the THI  Merger,  the ALH Stock  Purchase  and the BLH Merger and share
repurchases  summarized  in note 2; (ii) the  conversion  of Series D  preferred
stock of Conseco  with a value of $283.2  million  into 16.9  million  shares of
Conseco  common  stock;  (iii) the issuance of Conseco  common stock to employee
benefit  plans of $12.2  million;  and (iv)  the tax  benefit  of $15.9  million
related to the issuance of Conseco  common stock under  employee  benefit plans;
and (v) the  acquisition  of $25.0 million par value of Conseco's  8.125% senior
notes and $6.5 million par value of preferred stock of ALH that were held by LPG
prior to the LPG Merger.  The  following  non-cash  items were not  reflected in
1995: (i) the redemption of convertible  subordinated debentures of a subsidiary
with a principal amount of $9.2 million using segregated cash; (ii) the issuance
of Conseco common stock to employee benefit plans of $4.2 million; and (iii) the
tax benefit of $.4 million related to the issuance of Conseco common stock under
employee benefit plans. The following non-cash items were not reflected in 1994:
(i)  recapture of insurance  liabilities  and invested  assets  totaling  $390.2
million  and  $371.0  million,  respectively;  (ii)  redemption  of  convertible
subordinated debentures of a subsidiary with a principal amount of $44.8 million
using  segregated  cash;  (iii) the issuance of Conseco common stock to employee
benefit plans of $2.4 million; and (iv) the tax benefit of $69.2 million related
to issuance of Conseco common stock under employee benefit plans.

       Cash  flows  from  operations  included  interest  paid on debt of $111.3
million, $112.0 million and $54.3 million in 1996, 1995 and 1994,  respectively.
Income taxes paid were $122.5 million,  $90.3 million and $99.8 million in 1996,
1995 and 1994, respectively.

                                       91

<PAGE>


                         CONSECO, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

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



       13.  STATUTORY INFORMATION:

       Statutory  accounting practices prescribed or permitted for the Company's
insurance subsidiaries by regulatory authorities differ from GAAP. The Company's
life  insurance  subsidiaries  reported  the  following  amounts  to  regulatory
agencies,  after  appropriate  eliminations of intercompany  accounts among such
subsidiaries:
<TABLE>
<CAPTION>

                                                                                                      1996          1995
                                                                                                      ----          ----
                                                                                                     (Dollars in millions)

<S>                                                                                                  <C>          <C>    
Statutory capital and surplus....................................................................    $1,170.8     $  832.2
Asset valuation reserve..........................................................................       232.9        124.1
Interest maintenance reserve.....................................................................       272.6        247.4
Portion of surplus debenture carried as a liability .............................................        98.8         95.0
                                                                                                     --------     --------

      Total......................................................................................    $1,775.1     $1,298.7
                                                                                                     ========     ========
</TABLE>

       Combined   statutory   net  income  of  the  Company's   life   insurance
subsidiaries was $215.0 million, $183.8 million and $112.5 million in 1996, 1995
and 1994,  respectively,  after appropriate eliminations of intercompany amounts
among such subsidiaries.

       The statutory capital and surplus of the insurance  subsidiaries  include
surplus  debentures of the parent holding  companies  totaling  $855.8  million.
Payments of interest and principal on such  debentures are generally  subject to
the approval of the insurance department of the subsidiary's state of domicile.

       Certain  subsidiaries follow permitted accounting  practices,  which have
been approved by the insurance department of the subsidiary's state of domicile,
but have not been specifically  prescribed in state laws,  regulations,  general
administration  rules and various NAIC publications.  Such permitted  accounting
practices do not affect statutory surplus.

       Statutory  accounting  practices  require  the  asset  valuation  reserve
("AVR") and the interest maintenance reserve ("IMR") be reported as liabilities.
The  purpose  of  these  reserves  is to  stabilize  statutory  surplus  against
fluctuations in the market value of  investments.  The IMR captures all realized
investment gains and losses,  net of income tax, on debt  instruments  resulting
from changes in interest rates and provides for subsequent  amortization of such
amounts into statutory net income on a basis  reflecting the remaining  lives of
the  assets  sold.  The AVR  captures  all  realized,  net of  income  tax,  and
unrealized  investment  gains and losses  related to equity  investments  and to
changes in creditworthiness of debt instruments.  AVR is also adjusted each year
based on a formula  related to the quality and loss  experience of the Company's
investment portfolio.


                                       92

<PAGE>


                         CONSECO, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

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

       Included in statutory  capital and surplus  shown above are the following
investments  in  affiliates,  all of which are  eliminated  in the  consolidated
financial statements prepared in accordance with GAAP:
<TABLE>
<CAPTION>

                                                                                  1996                    1995
                                                                         -------------------       --------------------
                                                                                    Admitted                   Admitted
                                                                                      asset                      asset
                                                                         Cost         value        Cost          value
                                                                         ----         -----        ----          -----

                                                                                       (Dollars in millions)
<S>                                                                     <C>           <C>           <C>         <C>
Common stock of Conseco  purchased in open market  transactions
   (1996  includes 19,510,911  shares  and  1995  includes
   18,588,952  shares  of  Conseco  and 2,314,737 shares of BLH 
   which were converted into Conseco shares in 1996 in
   the BLH Merger)..................................................... $  89.6        $  80.9      $ 89.6       $ 58.2
Notes payable of Conseco and its non-life subsidiaries.................   261.3          245.2        68.0         48.0
Common stock of ALH (614,057 shares in 1996 and 463,649
   shares in 1995) ....................................................     5.8            9.8         2.4          6.3
Preferred stock of Conseco.............................................   900.0            -         900.0          -
Investment in ALH 1994 Series PIK Preferred Stock......................    62.8           62.8        43.9         43.9
Preferred stock of American Life Holding Company.......................     6.5            6.5         -            -
</TABLE>

     The following table compares the consolidated pretax income determined on a
statutory  accounting  basis with such income reported herein in accordance with
GAAP:
<TABLE>
<CAPTION>

                                                                                           1996          1995        1994
                                                                                           ----          ----        ----
                                                                                                 (Dollars in millions)
<S>                                                                                        <C>           <C>        <C>    
Life insurance subsidiaries:
   Pretax income as reported on a statutory
     accounting basis before deduction of
     expenses paid to affiliates and
     transfers to and from and amortization
     of the IMR..........................................................................  $ 431.0      $ 463.6     $229.2

   GAAP adjustments:
     Change in difference in carrying values of investments..............................     53.6        189.3       31.7
     Eliminate financial reinsurance effects.............................................      -            -          4.4
     Changes in cost of policies purchased...............................................   (185.8)      (225.1)     (74.2)
     Changes in cost of policies produced................................................    258.0        224.4      123.3
     Changes in insurance liabilities....................................................      5.0        (46.4)     (27.1)
     Reinsurance recapture...............................................................      -            -         19.2
     Other adjustments, net..............................................................      2.4          -         13.5
                                                                                           -------      -------     ------

        GAAP pretax income of life insurance subsidiaries................................    564.2        605.8      320.0

Non-life companies:
   Interest expense......................................................................   (108.1)      (119.4)     (59.3)
   Equity in earnings of CCP ............................................................      -            -         24.7
   Equity in earnings of WNC.............................................................      -            -         40.2
   Restructuring income..................................................................     30.4         15.2       80.8
   Loss on terminated acquisition........................................................      -            -        (35.8)
   All other income and expense, net
     (excluding amounts received from affiliates)........................................      7.1        (83.1)     (46.2)
                                                                                           -------      -------     ------

        GAAP consolidated pretax income..................................................  $ 493.6      $ 418.5     $324.4
                                                                                           =======      =======     ======

</TABLE>

                                       93

<PAGE>
                         CONSECO, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

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

     State insurance laws generally restrict the ability of insurance  companies
to pay dividends or make other distributions. Net assets of the Company's wholly
owned  life  insurance   subsidiaries,   determined  in  accordance  with  GAAP,
aggregated   approximately   $5.1  billion  at  December  31,  1996,   of  which
approximately  $151.0 million is available for  distribution  to Conseco in 1997
without the permission of state regulatory authorities.

     Most states have adopted  risk-based  capital ("RBC") rules to evaluate the
adequacy  of  statutory  capital  and  surplus in  relation  to  investment  and
insurance  risks.  The RBC formula is designed as an early  warning tool to help
state regulators identify possible weakly capitalized  companies for the purpose
of  initiating  regulatory  action.  At December 31,  1996,  the ratios of total
adjusted  capital to RBC,  as defined by the rules,  for the  primary  insurance
subsidiaries  of Conseco were  greater than twice the level at which  regulatory
attention is triggered.

     14.  BUSINESS SEGMENT AND DISTRIBUTION CHANNELS:

     Conseco conducts and manages its business through four segments, reflecting
the  Company's  major  lines of  insurance  business  and  target  markets:  (i)
annuities;  (ii) supplemental health;  (iii) life insurance;  and (iv) other. In
addition, from time to time Conseco's earnings also include restructuring income
representing  the gains  realized  upon the sale of: (i)  portions  of  acquired
companies; and (ii) certain special capital investments. Summarized data for the
Company's business segments follow (dollars in millions):


                                       94

<PAGE>


                         CONSECO, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

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

<TABLE>
<CAPTION>



                                                                                             Income before
                                                                           Amortization      income taxes,
                                                                            of cost of         minority
                                                                         policies produced   interest and
                                               Premiums       Total    and cost of policies  extraordinary    Total
                                               collected    revenues       purchased (a)        charge       assets
                                               ---------    --------       -------------        ------       ------
<S>                                            <C>          <C>               <C>            <C>           <C>    
1996
   Annuities................................   $1,542.4     $1,047.4          $  95.1        $   254.3     $14,201.1
   Supplemental health......................      825.1        873.3             81.2            136.9       4,159.3
   Life insurance...........................      453.7        676.9             41.5            129.3       6,120.3 
   Other ...................................      389.2        439.3             23.0             55.1         647.5
   Interest and other corporate expense.....        -            -                -             (112.4)        484.5
   Restructuring activities.................        -           30.4              -               30.4            -
                                               --------     --------           ------        ---------     ---------

     Total..................................   $3,210.4     $3,067.3           $240.8        $   493.6     $25,612.7
                                               ========     ========           ======        =========     =========

1995
   Annuities................................   $1,659.5     $1,135.1           $169.7        $   316.1     $12,092.9
   Supplemental health......................      755.8        827.4             78.3             97.2       1,743.9
   Life insurance...........................      276.2        436.5             38.7             77.1       2,728.1
   Other ...................................      414.9        441.1             20.8             53.4         478.3
   Interest and other corporate expense.....        -            -                -             (140.5)        254.3
   Restructuring activities.................        -           15.2              -               15.2            -
                                               --------     --------           ------        ---------     ---------

     Total..................................   $3,106.4     $2,855.3           $307.5        $   418.5     $17,297.5
                                               ========     ========           ======        =========     =========

1994
   Annuities................................   $  571.8     $  243.7           $  5.7        $    59.8    $  6,948.8
   Supplemental health......................      723.7        775.9             77.4            107.8       1,450.1
   Life insurance...........................      183.3        242.8             15.4             39.1       1,722.4
   Other ...................................      400.3        453.9             18.5             95.8         406.1
   Interest and other corporate expense.....        -            -                -              (88.0)        284.5
   Equity in earnings of CCP and WNC........        -           64.9              -               64.9            -
   Restructuring activities.................        -           80.8              -               45.0            -
                                               --------     --------           ------         --------     ---------

     Total..................................   $1,879.1     $1,862.0           $117.0          $ 324.4     $10,811.9
                                               ========     ========           ======          =======     =========
<FN>
(a)  Includes additional amortization related to gains on sales of investments.
</FN>
</TABLE>



                                       95

<PAGE>


                         CONSECO, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

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


       15.  LPG, ALH AND BLH FINANCIAL INFORMATION:

       After the LPG Merger, the ALH Stock Purchase and the BLH Merger, LPG, ALH
and BLH  ceased  filing  periodic  reports  with  the  Securities  and  Exchange
Commission.  At December 31, 1996, the following notes remain  outstanding:  (i)
$23.5  million of LPG's senior  subordinated  notes;  (ii) $13.0  million of ALH
6.25%  convertible  subordinated  debentures;  and (iii)) $3.2  million of BLH's
subordinated  notes.  These notes are fully  guaranteed by Conseco.  Because the
notes remain outstanding,  summarized financial  information of LPG, ALH and BLH
is presented as follows:
<TABLE>
<CAPTION>

                                                                                                 December 31,
                                                                                                 ------------
                                                                                            1996              1995
                                                                                            ----              ----
                                                                                                     (predecessor basis (a))
LPG
---
                                                                                              (Dollars in millions)
<S>                                                                                        <C>               <C>
Financial position:
   Total assets........................................................................    $5,584.2          $4,980.9
     Total investments.................................................................     3,962.7           3,977.9
     Cost of policies purchased........................................................       444.1             306.0
     Cost of policies produced.........................................................        36.7             238.7
   Total liabilities...................................................................     4,793.3           4,580.4
     Insurance liabilities.............................................................     4,574.6           4,146.9
     Notes payable.....................................................................       101.2             246.1
   Common shareholders' equity.........................................................       790.9             400.5
</TABLE>

<TABLE>
<CAPTION>
                                                                                           Predecessor basis (a)
                                                                                -------------------------------------
                                                                                                       Years ended
                                                                Six months ended                        December 31,
                                                     ----------------------------------------      ------------------  
                                                     December 31, 1996          June 30, 1996      1995          1994
                                                     -----------------          -------------      ----          ----
                                                                  (Dollars in millions)
<S>                                                         <C>                     <C>             <C>          <C> 
Results of operations:
   Total revenues.............................              $344.4                  $306.9          $576.1       $428.2
     Insurance policy income..................               182.2                   155.7           280.1        217.9
     Net investment income....................               158.5                   146.2           277.1        225.4
     Net investment gains (losses)............                 1.8                     2.3            15.8        (19.7)
   Total benefits and expenses................               276.3                   279.4           592.8        369.7
     Insurance policy benefits and change in
         future policy benefits...............               109.4                    69.5           153.3        110.9
     Interest expense on annuities and financial
         products.............................                75.3                    88.6           165.4        136.9
     Interest expense on notes payable........                 4.1                    11.8            27.9         20.7
   Income (loss) before income taxes and
     extraordinary charge.....................                68.1                    27.5           (16.7)        58.5
   Income tax expense (benefit)...............                27.3                    11.6            (3.3)        21.3
   Income (loss) before extraordinary charge..                40.8                    15.9           (13.4)        37.2
   Extraordinary charge on extinguishment of
     debt, net of tax.........................                 -                       -               -            2.6
   Net income (loss)..........................                40.8                    15.9           (13.4)        34.6


<FN>

(a)          Amounts for periods prior to June 30, 1996,  reflect the accounting
             basis  of LPG  prior to the LPG  Merger.  Because  of the  purchase
             accounting  adjustments  made as a result  of the LPG  Merger,  the
             financial  data  for  periods  after  June  30,  1996,  may  not be
             comparable with the prior periods.
</FN>
</TABLE>


                                       96

<PAGE>


                         CONSECO, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

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

<TABLE>
<CAPTION>


                                                                                                  December 31,
                                                                                            ----------------------
                                                                                            1996              1995
                                                                                            ----              ----
                                                                                                        (prior basis (a))
ALH
---
                                                                                              (Dollars in millions)

<S>                                                                                        <C>               <C> 
Financial position:
  Total assets.........................................................................    $6,424.6          $6,208.0
     Total investments.................................................................     5,440.7           5,369.4
     Cost of policies purchased........................................................       331.9             250.1
     Cost of policies produced.........................................................        68.9              77.6
  Total liabilities....................................................................     5,812.3           5,702.8
     Insurance liabilities.............................................................     5,342.3           5,148.7
     Notes payable.....................................................................       171.1             282.5
  Minority interest, primarily redeemable stock of a subsidiary........................       104.2              99.6
  Shareholders' equity.................................................................       508.1             405.6
</TABLE>

<TABLE>
<CAPTION>
                                                                                                                       Predecessor
                                                                                        Prior basis (a)                 basis (a)
                                                                          -----------------------------------------     ---------
                                                         Three months     Nine months                  Three months      Nine
                                                             ended           ended        Year ended       ended         ended
                                                         December 31,    September 30,   December 31,  December 31,  September 30,
                                                             1996            1996            1995          1994          1994
                                                             ----            ----            ----          ----          ----
                                                                                     (Dollars in millions)
<S>                                                      <C>             <C>             <C>           <C>             <C>      
Results of operations:
   Total revenues................................        $124.8          $353.2          $629.3        $108.9          $278.5
     Insurance policy income.....................          11.2            33.0            58.1          13.6            40.2
     Net investment income.......................         102.7           306.4           415.6          92.8           250.8
     Net investment gains (losses)...............          10.4             9.9           149.3            .4           (16.8)
   Total benefits and expenses...................         100.2           292.0           495.5          96.4           259.9
     Insurance policy benefits and change in
         future policy benefits..................           6.2            17.9            33.1           9.4            26.1
     Interest expense on annuities and
         financial products......................          62.0           184.2           258.8          61.3           158.8
     Interest expense on notes payable...........           4.2            21.5            33.8           8.8             6.7
   Income before income taxes, minority interest
      and extraordinary charge...................          24.5            61.2           133.8          12.5            18.6
   Income tax expense............................          10.0            23.6            49.9           5.1             6.7
   Income before minority interest and extraordinary
     charge......................................          14.5            37.6            83.9           7.4            11.9
   Minority interest - primarily dividends on
     preferred stock of a subsidiary.............           1.7             6.6             8.8           2.2             6.7
   Income before extraordinary charge............          12.8            31.0            75.1           5.2             5.2
   Extraordinary charge on extinguishment of
     debt, net of tax............................           -                .8             4.0           -               -
   Net income....................................          12.8            30.2            71.1           5.2             5.2
   Preferred stock dividends.....................           2.4             6.3             7.7           1.9             1.1
   Net income applicable to common stock.........          10.4            23.9            63.4           3.3             4.1


<FN>
(a)  Amounts  for the nine  months  ended  September  30,  1996,  the year ended
     December 31, 1995 and the three months ended December 31, 1994, reflect the
     accounting  basis (the  "prior  basis") of ALH prior to ALH  adopting a new
     basis of accounting concurrent with the ALH Stock Purchase. Amounts for the
     nine months ended September 30, 1994, are the historical  financial data of
     ALH prior to ALH's acquisition by Partnership II (the "predecessor basis").
     Because of the  accounting  adjustments  made as a result of the changes in
     bases described above, the financial data for periods reflecting  different
     bases, may not be comparable with the other periods.
</FN>
</TABLE>

                                       97

<PAGE>


                         CONSECO, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

                      ------------------------------------
<TABLE>
<CAPTION>

                                                                                                December 31,
                                                                                                ------------
                                                                                           1996              1995
                                                                                           ----              ----
                                                                                                        (prior basis (a))
BLH                                                                                           (Dollars in millions)

<S>                                                                                        <C>               <C>
Financial position:
   Total assets........................................................................    $5,128.3          $4,785.2
     Total investments.................................................................     3,500.6           3,514.9
     Cost of policies purchased........................................................       564.8             515.6
     Cost of policies produced.........................................................       299.6             244.2
   Total liabilities...................................................................     4,008.7           3,753.3
     Insurance liabilities.............................................................     3,446.6           3,265.7
     Notes payable.....................................................................         3.4             301.5
     Notes payable to Conseco..........................................................       395.0               -
   Common shareholder's equity.........................................................     1,119.6           1,031.9
</TABLE>

<TABLE>
<CAPTION>
                                                                                               Prior basis (a)
                                                                                         ------------------------------      
                                                  Year ended                Six months ended               Year ended
                                                 December 31,      -----------------------------------      December 31,
                                                     1996          December 31, 1995     June 30, 1995        1994
                                                     ----          -----------------     -------------        ----
                                                                           (Dollars in millions)
<S>                                                <C>                   <C>                  <C>             <C>                 
Results of operations:
   Total revenues..............................    $1,570.8              $760.3              $766.9           $1,437.9
     Insurance policy income...................     1,282.5               626.3               620.9            1,214.0
     Net investment income.....................       269.3               127.2               127.9              222.1
     Net investment gains (losses).............         8.0                13.6                15.7               (6.8)
   Total benefits and expenses.................     1,345.1               653.1               673.0            1,229.5
     Insurance policy benefits and change in
       future policy benefits..................       936.5               455.5               477.8              880.3
     Interest expense on annuities and
       financial products......................        82.1                39.7                38.0               59.7
     Interest expense on notes payable.........        25.4                14.9                16.1               31.6
   Income before income taxes and
     extraordinary charge......................       225.7               107.2                93.9              208.4
   Income tax expense..........................        82.8                39.1                33.7               74.8
   Income before extraordinary charge..........       142.9                68.1                60.2              133.6
   Extraordinary charge on extinguishment of
     debt, net of tax..........................        12.2                 1.6                 -                  -
   Net income..................................       130.7                66.5                60.2              133.6


<FN>
(a)    Amounts  for the six  months  ended  June 30,  1995,  and the year  ended
       December 31, 1994,  reflect the  accounting  basis (the "prior basis") of
       BLH prior to BLH  adopting  a new  basis of  accounting  concurrent  with
       Conseco's  ownership in BLH  exceeding  80 percent.  Amounts for the year
       ended  December  31, 1996,  and the six months  ended  December 31, 1995,
       reflect  the  adoption  of a new  basis  of  accounting  concurrent  with
       Conseco's  ownership  in  BLH  exceeding  80  percent.   Because  of  the
       accounting adjustments made as a result of the changes in bases described
       above,  the financial  data for periods  after June 30, 1995,  may not be
       comparable with the prior periods.
</FN>
</TABLE>

                                       98

<PAGE>


                         CONSECO, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

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



       16.    QUARTERLY FINANCIAL DATA (UNAUDITED):

       We compute  earnings per common share for each quarter  independently  of
earnings per share for the year. The sum of the quarterly earnings per share may
not equal the  earnings  per share for the year  because  of:  (i)  transactions
affecting the weighted average number of shares outstanding in each quarter; and
(ii) the uneven distribution of earnings during the year.
<TABLE>
<CAPTION>

                                                                                                1996
                                                                            -----------------------------------------------
                                                                             1st Qtr.     2nd Qtr.     3rd Qtr.     4th Qtr.
                                                                             --------     --------     --------     --------
                                                                              (Dollars in millions, except per share data)
<S>                                                                           <C>          <C>          <C>           <C>   
Insurance policy income.....................................................  $369.8       $371.6       $451.8       $461.0
Revenues....................................................................   691.8        672.5        834.3        866.8
Income before income taxes, minority interest
    and extraordinary charge ...............................................   120.2        101.3        131.5        140.6
Net income..................................................................    46.3         50.1         78.1         77.9

Net income per common share and common equivalent share:
    Primary:
       Income before extraordinary charge ..................................    $.60         $.43         $.55         $.54
       Extraordinary charge.................................................     .18          -            .01          .05
                                                                               -----         ----         ----        -----

          Net income........................................................    $.42         $.43         $.54         $.49
                                                                                ====         ====         ====         ====

    Fully diluted:
       Income before extraordinary charge ..................................    $.54         $.41         $.50         $.54
       Extraordinary charge.................................................     .15            -          .01          .05
                                                                               -----         ----        -----         ----

          Net income........................................................    $.39         $.41         $.49         $.49
                                                                                ====         ====         ====         ====
</TABLE>
<TABLE>
<CAPTION>

                                                                                                 1995
                                                                            ----------------------------------------------
                                                                            1st Qtr.     2nd Qtr.     3rd Qtr.     4th Qtr.
                                                                            --------     --------     --------     --------
                                                                              (Dollars in millions, except per share data)

<S>                                                                           <C>          <C>          <C>          <C> 
Insurance policy income.....................................................  $367.6       $362.6       $373.1       $361.7
Revenues....................................................................   652.3        737.1        676.7        789.2
Income before income taxes, minority interest
    and extraordinary charge ...............................................    85.8        116.5         83.6        132.6
Net income..................................................................    24.4         99.9         43.5         52.6

Net income per common share and common equivalent share:
    Primary:
       Income before extraordinary charge...................................    $.23        $1.12         $.46         $.58
       Extraordinary charge  ...............................................     -            -            -            .03
                                                                                ----        -----         ----         ----

          Net income........................................................    $.23        $1.12         $.46         $.55
                                                                                ====        =====         ====         ====

    Fully diluted:
       Income before extraordinary charge...................................    $.23         $.97         $.42         $.52
       Extraordinary charge ................................................     -            -            -            .02
                                                                                ----         ----         ----        -----

          Net income........................................................    $.23         $.97         $.42         $.50
                                                                                ====         ====         ====         ====
</TABLE>


                                       99

<PAGE>


                         CONSECO, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

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


       Our  quarterly  results of  operations  are based on numerous  estimates,
principally  related  to  policy  reserves,  amortization  of cost  of  policies
purchased, amortization of cost of policies produced and income taxes. We revise
all such  estimates  each  quarter  and we  ultimately  adjust  them to year-end
amounts.  When we determine  revisions are necessary,  we report them as part of
operations of the current quarter.

       17.   SUBSEQUENT EVENTS (UNAUDITED):

       Completed Acquisition

       On March 4, 1997,  Conseco  acquired (the "CAF Merger")  Capitol American
Financial  Corporation  ("CAF").  CAF was merged with and became a wholly  owned
subsidiary of Conseco. In the CAF Merger, each of the approximately 17.7 million
shares of CAF common stock and common stock  equivalents  was converted into the
right to receive  $30.75 in cash plus 0.1647 of a share of Conseco common stock.
Conseco  paid $545  million  in cash and issued  2.9  million  shares of Conseco
common  stock with a value of  approximately  $115.7  million to acquire the CAF
common  stock.  In  addition,  Conseco  assumed a note  payable  of CAF of $31.0
million.  CAF,  through its  insurance  subsidiaries,  underwrites,  markets and
distributes  individual and group  supplemental  health and accident  insurance.
CAF's principal insurance  subsidiary is Capitol American Life Insurance Company
("CALI"), an Arizona domiciled insurance company,  which accounted for more than
97 percent of CAF's earned  premiums over the last five years.  CALI is licensed
to sell its products in 47 states, the District of Columbia, Puerto Rico and the
U.S. Virgin Islands,  and markets its products  through a sales force consisting
of independent agents,  agent organizations and brokers. CAF had total assets of
$1.1 billion at December 31, 1996.

       Pending Acquisition

       On  December  15,  1996,  Conseco and Pioneer  Financial  Services,  Inc.
("PFS")  entered  into  an  Agreement  and  Plan  of  Merger  (the  "PFS  Merger
Agreement")  pursuant  to which PFS will  become a wholly  owned  subsidiary  of
Conseco  (the  "PFS  Merger").  Under  the  PFS  Merger  Agreement,  each of the
approximately  16.9  million  shares  of  PFS  common  stock  and  common  stock
equivalents  would be converted  into the right to receive a fraction of a share
of Conseco common stock having a value between $25.00 and $28.00,  calculated as
follows:  (i) if the Conseco/PFS  Share Price (as defined below) is greater than
or equal to $28.00 per share and less than or equal to $31.36 per share,  .89280
of a share of Conseco common stock;  (ii) if the Conseco/PFS Share Price is less
than $28.00 per share, the fraction (rounded to the nearest ten-thousandth) of a
share of Conseco common stock  determined by dividing  $25.00 by the Conseco/PFS
Share Price; or (iii) if the Conseco/PFS  Share Price is greater than $31.36 per
share,  the  fraction  (rounded  to the  nearest  ten-thousandth)  of a share of
Conseco  common stock  determined by dividing  $28.00 by the  Conseco/PFS  Share
Price.  The  "Conseco/PFS  Share  Price"  shall be equal to the  average  of the
closing prices of the Conseco  common stock on the NYSE  Composite  Transactions
Reporting  System for the ten  trading  days  immediately  preceding  the second
trading  day prior to the date of the PFS Merger.  Assuming  each PFS common and
common  equivalent  share is exchanged  for the right to receive a fraction of a
share of Conseco common stock determined based on a Conseco/PFS Share Price that
exceeds $28.00 per share (such price being exceeded on March 14, 1997),  Conseco
will  issue  8.7  million  shares  of  Conseco  common  stock  with a  value  of
approximately  $352.4  million to acquire  the PFS common  stock.  In  addition,
Conseco  will  assume  notes  payable  of PFS of  $27.8  million  and the 6 1/2%
Convertible  Subordinated  Notes due 2003 of PFS, which will be convertible into
an  assumed  3.0  million  shares  of  Conseco  common  stock  with a  value  of
approximately $120.7 million.

       PFS,  through its insurance  subsidiaries,  underwrites  life  insurance,
annuities and health  insurance in selected niche markets  throughout the United
States. PFS had total assets of approximately $1.8 billion at December 31, 1996.
PFS's life,  annuity and health insurance premiums collected were $794.2 million
in 1996.




                                       100

<PAGE>




       ITEM 9.   DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

       None.

                                    PART III

       The information  required by Part III is hereby incorporated by reference
from the Registrant's definitive proxy statement to be filed with the Commission
pursuant to Regulation 14A within 120 days after December 31, 1996,  except that
the  information  required by Item 10 regarding  Executive  Officers is included
herein under a separate caption at the end of Part I.

                                     PART IV

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

    (a)   1. Financial Statements.  See Index to Financial Statements on page 44
             for a list of financial statements included in this Report.

          2. Financial Statement Schedules.  The  following  financial statement
             schedules are included as part of this Report immediately following
             the signature page:

             Schedule II -- Condensed  Financial   Information   of   Registrant
             (Parent Company)

             Schedule III  -- Supplementary Insurance Information

             Schedule IV -- Reinsurance

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

          3.  Exhibits.  See Exhibit  Index  immediately  preceding the Exhibits
              filed with this report


    (b)   Reports on Form 8-K.

          A report on Form 8-K  dated  November  15,  1996,  was filed  with the
          Commission  to  report  under  Item 5,  updated  unaudited  pro  forma
          consolidated financial statements of Conseco.

          A report on Form 8-K  dated  November  19,  1996,  was filed  with the
          Commission to report under Item 5, the closing of the public  offering
          of 11,000,000, 9.16% Trust Originated Preferred Securities.

          A report on Form 8-K  dated  November  27,  1996,  was filed  with the
          Commission  to report  under Item 5, the  closing of the  offering  by
          Conseco  Financing  Trust II of 325,000,  8.70%  Capital  Pass-through
          Securities.

          A report on Form 8-K  dated  December  15,  1996,  was filed  with the
          Commission  to report under Item 5, the signing of a merger  agreement
          with Pioneer Financial Services, Inc.

          A report on Form 8-K  dated  December  17,  1996,  was filed  with the
          Commission  to  report  under  Item 2,  the  acquisition  of  American
          Travellers Corporation.

          A report on Form 8-K  dated  December  23,  1996,  was filed  with the
          Commission  to  report  under  Item 2, the  acquisition  of  Transport
          Holdings Inc.

          A report  on Form 8-K  dated  December  31,1996,  was  filed  with the
          Commission  to report  under Item 5, the  acquisition  of Bankers Life
          Holding Corporation.


                                       101

<PAGE>





                                   SIGNATURES

      Pursuant to the requirements of Section 13 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, this 25th day of March, 1997.

                                       CONSECO, INC.


                                       By: /s/ STEPHEN C. HILBERT
                                           -----------------------------
                                           Stephen C. Hilbert, President

      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:
<TABLE>
<CAPTION>

 Signature                                              Title (Capacity)                                 Date
 ---------                                              ----------------                                 ----

<S>                                              <C>                                                         <C>   
/s/ STEPHEN C. HILBERT                           Chairman of the Board,                                      March 25, 1997
----------------------                           President and Director
Stephen C. Hilbert                               (Principal Executive Officer)
                                                  

/s/ ROLLIN M. DICK                               Executive Vice President and Director                       March 25, 1997
-------------------                              (Principal Financial Officer and
Rollin M. Dick                                   Principal Accounting Officer)  


/s/ NGAIRE CUNEO                                 Director                                                    March 25, 1997
--------------------
 Ngaire Cuneo

/s/ DAVID R. DECATUR                             Director                                                    March 25, 1997
--------------------
David R. Decatur

/s/ JOHN M. MUTZ                                 Director                                                    March 25, 1997
----------------
John M. Mutz

/s/ DONALD F. GONGAWARE                          Director                                                    March 25, 1997
-----------------------
Donald F. Gongaware

/s/ M. PHIL HATHAWAY                             Director                                                    March 25, 1997
--------------------
M. Phil Hathaway

/s/ DENNIS E. MURRAY, SR.                        Director                                                    March 25, 1997
-------------------------
Dennis E. Murray, Sr.

/s/ JAMES D. MASSEY                              Director                                                    March 25, 1997
--------------------
James D. Massey

</TABLE>

                                       102

<PAGE>





                        REPORT OF INDEPENDENT ACCOUNTANTS
                        ON FINANCIAL STATEMENT SCHEDULES





To the Shareholders and
Board of Directors
Conseco, Inc.


    Our report on the  consolidated  financial  statements of Conseco,  Inc. and
Subsidiaries  is included on page 46 of this Form 10-K. In  connection  with our
audits of such financial statements,  we have also audited the related financial
statement schedules listed in the index on page 101 of this Form 10-K.

    In our opinion,  the financial  statement  schedules referred to above, when
considered  in  relation  to the basic  financial  statements  taken as a whole,
present  fairly,  in all  material  respects,  the  information  required  to be
included therein.



                                             /s/ COOPERS & LYBRAND L.L.P.
                                             ----------------------------
                                             COOPERS & LYBRAND L.L.P.


Indianapolis, Indiana
March 14, 1997



                                       103

<PAGE>
<TABLE>
<CAPTION>



                         CONSECO, INC. AND SUBSIDIARIES

                                   SCHEDULE II

         Condensed Financial Information of Registrant (Parent Company)
                                  Balance Sheet
                        as of December 31, 1996 and 1995
                              (Dollars in millions)

                                                          ASSETS
                                                                                                   1996              1995
                                                                                                   ----              ----
<S>                                                                                              <C>               <C> 
Short-term investments.........................................................................  $    74.9         $   4.6
Actively managed fixed maturities .............................................................        2.1             -
Equity securities..............................................................................        7.9              .5
Other invested assets..........................................................................       55.3            10.7
Investment in wholly owned subsidiaries (eliminated in consolidation)..........................    3,811.9           764.6
Investment in Bankers Life Holding Corporation (eliminated in consolidation)...................        -             898.5
Investment in American Life Holdings, Inc. (eliminated in consolidation).......................        -              85.5
Receivable from subsidiaries (eliminated in consolidation).....................................      871.5           174.8
Income taxes...................................................................................      155.7           166.8
Other assets...................................................................................      188.6            71.7
                                                                                                  --------        --------

          Total assets.........................................................................   $5,167.9        $2,177.7
                                                                                                  ========        ========


                                           LIABILITIES AND SHAREHOLDERS' EQUITY

Liabilities:
    Notes payable..............................................................................   $1,094.9       $   871.4
    Notes payable to subsidiaries (eliminated in consolidation)................................      101.6            63.4
    Other liabilities due subsidiaries (eliminated in consolidation)...........................       93.5            45.5
    Other liabilities..........................................................................      192.6            85.7
                                                                                                  --------        --------

          Total liabilities....................................................................    1,482.6         1,066.0
                                                                                                  --------        --------

Company-obligated mandatorily redeemable preferred securities of subsidiary trusts.............      600.0             -

Shareholders' equity:
    Preferred stock............................................................................      267.1           283.5
    Common stock and additional paid-in capital (no par value, 500,000,000
       shares authorized, shares issued and outstanding: 1996 - 167,128,228;
       1995 - 81,031,828)......................................................................    2,029.6           157.2
    Unrealized appreciation (depreciation) of securities:
       Fixed maturity securities (net of applicable deferred income taxes:
          1996 - $21.5; 1995 - $66.8)..........................................................       39.8           112.6
       Other investments (net of applicable deferred income taxes: 1996 - $(.5);
          1995 - $.1)..........................................................................        (.9)             .1
    Retained earnings..........................................................................      749.7           558.3
                                                                                                  --------        --------

          Total shareholders' equity...........................................................    3,085.3         1,111.7
                                                                                                  --------        --------

          Total liabilities and shareholders' equity...........................................   $5,167.9        $2,177.7
                                                                                                  ========        ========
</TABLE>



                      The accompanying note is an integral
                         part of the condensed financial
                                  information.

                                       104

<PAGE>
<TABLE>
<CAPTION>



                         CONSECO, INC. AND SUBSIDIARIES

                                   SCHEDULE II
         Condensed Financial Information of Registrant (Parent Company)
                             Statement of Operations
              for the years ended December 31, 1996, 1995 and 1994
                              (Dollars in millions)

                                                                                               1996         1995         1994
                                                                                               ----         ----         ----
<S>                                                                                         <C>          <C>           <C> 
Revenues:
    Net investment income.................................................................  $    5.5     $    8.5      $    2.7
    Dividends from subsidiaries (eliminated in consolidation).............................     146.9        106.5          39.6
    Equity in earnings of unconsolidated subsidiaries.....................................       -            -            64.9
    Fee and interest income from subsidiaries (eliminated in consolidation)...............      30.9         12.9           4.3
    Restructuring income..................................................................      30.1         20.6          80.8
    Other income (losses).................................................................       1.1         (6.4)          1.4
                                                                                             -------      -------       -------

            Total revenues................................................................     214.5        142.1         193.7
                                                                                             -------      -------       -------

Expenses:
    Interest expense on notes payable.....................................................      69.2         42.6          20.6
    Interest expense to subsidiaries (eliminated in consolidation)........................       7.2          7.5           7.1
    Operating costs and expenses..........................................................      10.2         27.8          29.3
    Expenses incurred in conjunction with terminated merger...............................        -           -            35.8
                                                                                             -------      -------       ------- 

            Total expenses................................................................      86.6         77.9          92.8
                                                                                             -------      -------       -------

            Income before  income  taxes,  equity in  undistributed  earnings of
             subsidiaries,   distributions  on   Company-obligated   mandatorily
             redeemable preferred securities of subsidiary trusts
             and extraordinary charge.....................................................     127.9         64.2         100.9

Income tax expense (benefit)..............................................................       1.2        (93.2)          8.5
                                                                                             -------      -------       -------

            Income before equity in undistributed earnings
               of subsidiaries, distributions on Company-obligated
             mandatorily redeemable preferred securities of subsidiary trusts
             and extraordinary charge.....................................................     126.7        157.4          92.4

Equity in undistributed earnings of subsidiaries (eliminated in consolidation)............     155.8         65.1          62.0
                                                                                             -------      -------       -------

            Income before distributions on Company-obligated mandatorily redeemable
                preferred securities of subsidiary trusts and extraordinary charge........     282.5        222.5         154.4

Company-obligated mandatorily redeemable preferred securities of subsidiary trusts........       3.6          -             -
                                                                                             -------      -------       -------

            Income before extraordinary charge............................................     278.9        222.5         154.4

Extraordinary charge on extinguishment of debt, net of tax................................      26.5          2.1           4.0
                                                                                             -------      -------       -------

            Net income....................................................................     252.4        220.4         150.4

Less preferred stock dividends............................................................      27.4         18.4          18.6
                                                                                             -------      -------       -------

            Earnings applicable to common stock...........................................    $225.0       $202.0        $131.8
                                                                                              ======       ======        ======

</TABLE>

                           The accompanying note is an
                         integral part of the condensed
                             financial information.

                                       105

<PAGE>
<TABLE>
<CAPTION>



                         CONSECO, INC. AND SUBSIDIARIES

                                   SCHEDULE II

         Condensed Financial Information of Registrant (Parent Company)

                             Statement of Cash Flows
              for the years ended December 31, 1996, 1995 and 1994
                              (Dollars in millions)

                                                                                                 1996         1995          1994
                                                                                                 ----         ----          ----
<S>                                                                                           <C>             <C>          <C>    
Cash flows from operating activities:
    Net income...............................................................................  $  252.4       $ 220.4      $ 150.4
    Adjustments to reconcile net income to net cash
       provided by operating activities:
          Equity in undistributed earnings of consolidated subsidiaries......................    (155.8)        (65.1)       (62.0)
          Equity in undistributed earnings of equity investments ............................       -             -          (61.0)
          Restructuring income...............................................................     (30.1)        (20.6)       (80.8)
          Income taxes ......................................................................      (3.2)       (101.3)        24.5
          Extraordinary charge on extinguishment of debt.....................................      36.9           3.7          5.0
          Investment related expense.........................................................       -             -           35.8
          Other..............................................................................     (15.9)         10.8         15.3
                                                                                               --------       -------      -------

             Net cash provided by operating activities.......................................      84.3          47.9         27.2
                                                                                               --------       -------      -------

Cash flows from investing activities:
    Sales and maturities of investments......................................................      45.0         125.6         22.9
    Investments in consolidated subsidiaries.................................................    (226.1)       (556.9)         -
    Payment to affiliate.....................................................................       -             -          (58.8)
    Purchases of investments.................................................................     (66.0)        (70.8)       (51.6)
    Investment in Conseco Capital Partners II, L.P...........................................       -            (7.1)       (17.0)
    Expenses incurred in conjunction with terminated merger..................................       -            (5.5)       (30.3)
    Cash held by subsidiaries prior to acquisition...........................................      38.9          17.0          -
    Payments from subsidiaries...............................................................      36.5           -            -
    Proceeds from sale of shares of Western National
       Corporation and related transactions..................................................       -             -          811.7
                                                                                               --------       -------      -------

            Net cash provided (used) by investing activities.................................    (171.7)       (497.7)       676.9
                                                                                               --------       -------      -------

Cash flows from financing activities:
    Issuance of equity securities, net.......................................................      20.6           1.8          3.2
    Issuance of convertible preferred stock..................................................     257.7           -            -
    Issuance of Company-obligated mandatorily redeemable preferred securities
       of subsidiary trusts..................................................................     587.7           -            -
    Issuance of notes payable, net...........................................................     856.0         827.2        158.0
    Payments on notes payable................................................................  (1,467.2)       (330.0)      (378.4)
    Payments to repurchase equity securities of Conseco......................................     (21.5)        (92.4)      (357.6)
    Dividends paid ..........................................................................     (34.3)        (24.6)       (31.3)
    Dividends on stock held by subsidiaries..................................................     (38.1)        (38.7)        (4.6)
    Payments to retire preferred stock.......................................................       (.3)          -            -
    Distributions paid on Company-obligated mandatorily redeemable preferred securities
       of subsidiary trusts..................................................................      (2.9)          -            -
                                                                                               --------      --------      -------

            Net cash provided (used) by financing activities.................................     157.7         343.3       (610.7)
                                                                                               --------      --------      -------

            Net increase (decrease) in short-term investments................................      70.3        (106.5)        93.4

    Short term investments, beginning of year................................................       4.6         111.1         17.7
                                                                                               --------      --------      -------

    Short term investments, end of year......................................................  $   74.9      $    4.6      $ 111.1
                                                                                               ========      ========      =======
</TABLE>

                           The accompanying note is an
                    integral part of the condensed financial
                                  information.

                                       106

<PAGE>



                         CONSECO, INC. AND SUBSIDIARIES

                                   SCHEDULE II

                     Note to Condensed Financial Information

       Basis of Presentation

       The condensed  financial  information  should be read in conjunction with
the consolidated  financial statements of Conseco,  Inc. The condensed financial
information  includes the  accounts  and activity of the Parent  Company and its
wholly-owned  non-insurance  subsidiaries which act as the holding companies for
the Company's life insurance subsidiaries.




                                       107

<PAGE>
<TABLE>
<CAPTION>



                         CONSECO, INC. AND SUBSIDIARIES

                                  SCHEDULE III

                       Supplementary Insurance Information
                              (Dollars in millions)

                                                                                                        Amortization
                                                                                                            of
                                   Cost of policies                                        Insurance    cost of policies
                                     produced and                Insurance       Net    policy benefits  produced and       Other
                                   cost of policies Insurance    policy     investment        and       cost of policies  operating
Segment                              purchased     liabilities   income       income      expenses(1)    purchased(2)    expenses(3)
-------                              ---------     -----------   ------       ------      -----------    ------------    -----------
<S>                                 <C>             <C>         <C>           <C>          <C>              <C>           <C>
1996
   Annuity operations............    $  858.6       $ 12,084.2  $   77.6      $  939.6     $  638.9         $  95.1       $  59.1
   Supplemental health
       operations................       990.8          1,792.3     805.9          66.6        531.7            81.2         123.5
   Life operations...............       626.5          5,112.4     393.6         280.8        397.4            41.5         108.7
   Other.........................        83.4            315.4     377.1          15.5        295.6            23.0          66.0
   Corporate.....................           -               -          -             -            -              -          112.0
                                     ---------       ---------  --------      --------     --------          ------        ------

        Total....................    $2,559.3        $19,304.3  $1,654.2      $1,302.5     $1,863.6          $240.8        $469.3
                                     ========        =========  ========      ========     ========          ======        ======

1995
   Annuity operations............    $  535.9        $10,169.1  $   68.4      $  879.9     $  595.4          $169.7        $ 53.9
   Supplemental health
       operations................       571.8            842.6     757.0          67.0        525.5            78.3         126.4
   Life operations...............       221.0          2,121.7     254.1         177.9        259.6            38.7          61.1
   Other.........................        93.0            245.0     385.5          17.8        312.4            20.8          54.5
   Corporate.....................           -                -         -             -            -               -         140.5
                                     --------        ---------  --------      --------     --------          ------        ------

        Total....................    $1,421.7        $13,378.4  $1,465.0      $1,142.6     $1,692.9          $307.5        $436.4
                                     ========        =========  ========      ========     ========          ======        ======

1994
   Annuity operations............    $  490.0        $ 6,120.3  $   31.0      $  223.0     $  164.9          $  5.7        $ 13.3
   Supplemental health
       operations................       519.3            787.1     716.7          59.0        471.9            77.4         118.9
   Life operations...............       223.8          1,418.0     168.1          90.4        155.4            15.4          32.9
   Other.........................        89.2            212.0     369.8          13.3        300.5            18.5          39.0
   Corporate.....................           -                -         -             -            -               -          88.0
                                     --------       ----------  --------      --------     --------          ------        ------

        Total....................    $1,322.3       $  8,537.4  $1,285.6        $385.7     $1,092.7          $117.0        $292.1
                                     ========       ==========  ========        ======     ========          ======        ======
</TABLE>

(1) Includes  insurance  policy  benefits,  change in future policy benefits and
    interest expense on annuities and financial products.

(2)  Includes additional amortization related to gains on sales of investments.

(3)  Includes interest expense on notes payable,  interest expense on short-term
     investment borrowings, change in future policy benefits related to realized
     gains, amortization of goodwill and other operating costs and expenses.

                                       108

<PAGE>

<TABLE>
<CAPTION>


                         CONSECO, INC. AND SUBSIDIARIES


                                   SCHEDULE IV

                                   Reinsurance
              for the years ended December 31, 1996, 1995 and 1994
                              (Dollars in millions)


                                                                           1996              1995             1994
                                                                           ----              ----             ----
<S>                                                                     <C>               <C>               <C>    
Life insurance in force:
    Direct...........................................................   $ 98,835.5        $36,040.7         $28,002.9
    Assumed..........................................................      3,659.3            562.8              72.7
    Ceded............................................................    (22,345.3)        (2,820.3)         (2,008.0)
                                                                        ----------        ---------         ---------

            Net insurance in force...................................   $ 80,149.5        $33,783.2         $26,067.6
                                                                        ==========        =========         =========

            Percentage of assumed to net.............................          4.6%             1.7%               .3%
                                                                               ===              ===                ==

Premiums recorded as revenue for generally accepted accounting principles:
       Direct........................................................     $1,632.3         $1,422.1          $1,268.9
       Assumed.......................................................         65.8              6.1               5.1
       Ceded.........................................................       (313.8)           (72.6)            (33.4)
                                                                         ---------       ----------         ---------

            Net premiums.............................................     $1,384.3         $1,355.6          $1,240.6
                                                                          ========         ========          ========

            Percentage of assumed to net.............................          4.7%              .4%               .4%
                                                                               ===               ==                ==

</TABLE>




                                       109

<PAGE>

                                       EXHIBIT INDEX
                                Annual Report on Form 10-K
                                     of Conseco, Inc.

Exhibit
  No.                                   Document

 2.4              Agreement and Plan of Merger dated  as of May 19, 1995, by and
                  between CCP  Insurance, Inc. and Conseco,  Inc. was filed with
                  the Commission  as Exhibit 2.4 to the  Registrant's  Report on
                  Form 8-K dated August 31, 1995, and is incorporated  herein by
                  this reference.

 2.5              Agreement and Plan of Merger  dated  as  of March 11, 1996, by
                  and among  Conseco,  Inc., LPG  Acquisition  Company  and Life
                  Partners Group,  Inc. was filed with the Commission as Exhibit
                  2.5 to the  Registrant's Report  on Form 8-K  dated  March 11,
                  1996, and is incorporated herein by this reference.

 2.6              Agreement and Plan  of  Merger dated as of August 25, 1996, by
                  and between the Registrant and American Travellers Corporation
                  was  filed   with  the   Commission   as  Exhibit 2.6 to  the
                  Registrant's Report on Form 8-K dated August 25, 1996, and is
                  incorporated herein by this reference.

 2.7              Agreement and Plan  of  Merger  dated  August 25, 1996, by and
                  among the  Registrant,  CAF  Acquisition  Company  and Capitol
                  American  Financial  Corporation was filed with the Commission
                  as Exhibit  2.7 to the  Registrant's  Report on Form 8-K dated
                  August 25, 1996, and is incorporated herein by this reference.

 2.8              Agreement and Plan  of  Merger dated as of September 25, 1996,
                  by and between the Registrant and Transport  Holdings Inc. was
                  filed with the  Commission as Exhibit 2.8 to the  Registrant's
                  Report  on  Form  8-K  dated   September  25,  1996,   and  is
                  incorporated herein by this reference.

 2.8.1            First  Amendment to  Agreement and  Plan of Merger dated as of
                  November 7, 1996, by and between the  Registrant and Transport
                  Holdings  Inc. was filed with the  Commission as Exhibit 2.8.1
                  to its  Registration  Statement on Form S-4, No. 333-14377 and
                  is incorporated herein by this reference.
                  
 2.9              Agreement and Plan of Merger dated as of December 15, 1996, by
                  and among the Registrant, Rock Acquisition Company and Pioneer
                  Financial  Services,  Inc.  was filed with the  Commission  as
                  Exhibit  2.9 to the  Registrant's  Report  on Form  8-K  dated
                  December  15,  1996,  and  is  incorporated   herein  by  this
                  reference.


 3.1              Amended  and  Restated   Articles  of   Incorporation  of  the
                  Registrant  were filed with the  Commission  as Exhibit 3.1 to
                  the Registration Statement on Form S-2, No. 33-8498;  Articles
                  of  Amendment  thereto,  as filed  September  9, 1988 with the
                  Indiana  Secretary of State, were filed with the Commission as
                  Exhibit 3.1.1 to the  Registrant's  Annual Report on Form 10-K
                  for 1988; and Articles of Amendment thereto, as filed June 13,
                  1989 with the Indiana  Secretary of State, were filed with the
                  Commission as Exhibit 3.1.2 to the Registrant's Report on Form
                  10-Q  for  the  quarter  ended  June  30,  1989,  Articles  of
                  Amendment  thereto,  as filed June 29,  1993 with the  Indiana
                  Secretary of State,  were filed with the Commission as Exhibit
                  3.1.3 to the Registrant's  Report on Form 10-Q for the quarter
                  ended  June  30,  1993,  and  Articles  of  Amendment  thereto
                  relating  to the  PRIDES  were filed  with the  Commission  as
                  Exhibit 3.(i).3 to the  Registrant's  Report on Form 8-K dated
                  January  17,  1996,  and  are  incorporated   herein  by  this
                  reference.

 3.2              Amended and  Restated  By-Laws  of  the  Registrant  effective
                  February  10, 1986 were filed with the  Commission  as Exhibit
                  3.2 to its  Registration  Statement on Form S-1, No.  33-4367,
                  and an  Amendment  thereto  was filed with the  Commission  as
                  Exhibit 3.2.1 to Amendment No. 2 to its Registration Statement
                  on Form S-1, No. 33-4367;  and are incorporated herein by this
                  reference.

 4.8              Indenture  dated   as  of  February 18,  1993,   between   the
                  Registrant and Shawmut Bank Connecticut, National Association,
                  as Trustee,  for the 8 1/8 percent  Senior Notes due 2003, was
                  filed with the  Commission as Exhibit 4.8 to the  Registrant's
                  Annual  Report  on Form  10-K for  1992,  and is  incorporated
                  herein by this reference.

<PAGE>

Exhibit
  No.                                   Document

 4.12             Indenture  dated as of September  29, 1994 between ALHC Merger
                  Corporation  and LTCB  Trust  Company  and First  Supplemental
                  Indenture dated as of September 29, 1994 between American Life
                  Holding  Company  and  the  Trustee  for  the 11  1/4%  Senior
                  Subordinated  Notes due 2004 were filed with the Commission as
                  Exhibit  4.12 to the  Registrant's  Report  on Form 8-K  dated
                  September  29,  1994,  and  are  incorporated  herein  by this
                  reference.

 4.13             Indenture   dated  as   of  December  15,  1994,  between  CCP
                  Insurance,  Inc., and LTCB Trust Company, as Trustee,  for the
                  $200,000,000  aggregate  principal  amount  of 10 1/2%  Senior
                  Notes due 2004 was filed with the  Commission  as Exhibit 4.13
                  to the  Registrant's  Annual Report on Form 10-K for 1995, and
                  is incorporated herein by this reference.


 4.13.1           First Supplemental Indenture between Conseco, Inc., as Issuer,
                  and LTCB  Trust  Company  as  Trustee,  dated as of August 31,
                  1995,  was filed with the  Commission as Exhibit 4.13.1 to the
                  Registrant's  Report  on  Form  10-Q  for  the  quarter  ended
                  September  30,  1995,  and  is  incorporated  herein  by  this
                  reference.

4.14              Credit  Agreement  among  the  Registrant,   Bank  of  America
                  National Trust and Savings  Association,  First Union National
                  Bank of North  Carolina and  Nationsbank,  N.A. dated November
                  22, 1996, was filed with the Commission as Exhibit 4.17 to the
                  Registrant's  Report on Form 8-K dated  December 17, 1996, and
                  is incorporated herein by this reference.

 4.17.1           Subordinated Indenture, dated as of November 14, 1996, between
                  the Registrant and Fleet National Bank, as Trustee,  was filed
                  with the  Commission  as  Exhibit  4.17.1 to the  Registrant's
                  Report  on  Form  8-K  dated   November  19,   1996,   and  is
                  incorporated herein by this reference.

 4.17.2           First Supplemental  Indenture,  dated as of November 14, 1996,
                  between the  Registrant  and Fleet  National Bank, as Trustee,
                  was  filed  with  the  Commission  as  Exhibit  4.17.2  to the
                  Registrant's  Report on Form 8-K dated  November 19, 1996, and
                  is incorporated herein by this reference.

 4.17.3           9.16%  Subordinated Deferrable Interest Debenture due 2006 was
                  filed   with   the  Commission  as  Exhibit  4.17.3   to   the
                  Registrant's Report on Form 8-K dated November  19,  1996, and
                  is incorporated herein by this reference.  

 4.17.4           Second Supplemental Indenture,  dated as of November 22, 1996,
                  between Conseco,  Inc. and Fleet National Bank, as Trustee was
                  filed  with  the   Commission   as   Exhibit   4.17.1  to  the
                  Registrant's  Report on Form 8-K dated  November 27, 1996, and
                  is incorporated herein by this reference.

 4.17.5           8.70% Subordinated  Deferrable Interest Debenture due 2026 was
                  filed  with  the   Commission   as   Exhibit   4.17.4  to  the
                  Registrant's  Report on Form 8-K dated  November 27, 1996, and
                  is incorporated herein by this reference.


 4.18.1           Amended and Restated Declaration of Trust of Conseco Financing
                  Trust I, dated as of November 14, 1996, among  Conseco,  Inc.,
                  as sponsor,  the  Trustees  named therein and the holders from
                  time  to  time of undivided beneficial interests in the assets
                  of Conseco Financing Trust I was  filed  with  the  Commission
                  as Exhibit 4.18.1 to the Registrant's Report on Form 8-K dated
                  November  19,  1996,  and  is  incorporated  herein  by   this
                  reference.

 4.18.2           Global Certificate for Preferred Security of Conseco Financing
                  Trust I was filed with the Commission as Exhibit 4.18.2 to the
                  Registrant's  Report  on Form 8-K dated November 19, 1996, and
                  is incorporated herein by this reference.

 4.18.3           Preferred   Securities   Guarantee   Agreement,  dated  as  of
                  November 19, 1996,  between the  Registrant and Fleet National
                  Bank was filed  with the  Commission as Exhibit  4.18.3 to the
                  Registrant's  Report on Form 8-K dated  November 19, 1996, and
                  is incorporated herein by this reference.
<PAGE>

Exhibit
  No.                                   Document

 
 4.19.1           Amended and Restated Declaration of Trust of Conseco Financing
                  Trust II, dated as of November 22, 1996, among Conseco,  Inc.,
                  as sponsor,  the Trustees  named  therein and the holders from
                  time to time of undivided  beneficial  interests in the assets
                  of Conseco Financing Trust II was filed with the Commission as
                  Exhibit  4.19.1 to the  Registrant's  Report on Form 8-K dated
                  November  27,  1996,  and  is  incorporated   herein  by  this
                  reference.

 4.19.2           Global Certificate for Preferred Security of Conseco Financing
                  Trust II was filed with the  Commission  as Exhibit  4.19.2 to
                  the  Registrant's  Report on Form 8-K dated November 27, 1996,
                  and is incorporated herein by this reference.

 4.19.3           Preferred Securities Guarantee Agreement, dated as of November
                  27, 1996,  between  Conseco,  Inc. and Fleet National Bank was
                  filed  with  the   Commission   as   Exhibit   4.19.3  to  the
                  Registrant's  Report on Form 8-K dated  November 27, 1996, and
                  is incorporated herein by this reference.

 4.20             Indenture  relating  to  the  6.5%  Convertible   Subordinated
                  Debentures due October 1, 2005 issued  by  American Travellers
                  Corporation was filed with the  Commission  as Exhibit 4(c) to
                  the  Annual  Report  on  Form  10-K  of  American   Travellers
                  Corporation for  the  year  ended  December  31,  1995, and is
                  incorporated herein by this reference.

*4.20.1           First  Supplemental  Indenture  between  the   Registrant  and
                  Firstar Bank of Minnesota, N.A. Trustee, as Trustee,  relating
                  to the 6.5% Convertible Subordinated Debentures due October 1,
                  2005.

                  The  Registrant  agrees  to  furnish  the  Commission upon its
                  request  a  copy  of  any  instrument  defining  the rights of
                  holders of long-term debt of the Company and its  consolidated
                  subsidiaries.
 
 10.1.2           Employment  Agreement  dated  January  1,  1987,  between  the
                  Registrant   and  Stephen  C.   Hilbert  was  filed  with  the
                  Commission as Exhibit 10.1.2 to the Registrant's Annual Report
                  on Form 10-K for 1986,  and Amendment No. 1 thereto were filed
                  with the  Commission  as  Exhibit  10.1.2 to the  Registrant's
                  Annual  Report  on Form 10-K for  1987;  and are  incorporated
                  herein by this reference.

 10.1.3           Employment   Agreement   dated  July  1,  1991,   between  the
                  Registrant and Rollin M. Dick was filed with the Commission as
                  Exhibit 10.1.3 to the Registrant's Report on Form 10-Q for the
                  quarter  ended June 30, 1991,  and is  incorporated  herein by
                  this reference.

*10.1.3(a)        Amendment No. 1 to Employment Agreement between the Registrant
                  and Rollin M. Dick.

 10.1.4           Employment   Agreement   dated  July  1,  1991,   between  the
                  Registrant   and  Donald  F.  Gongaware  was  filed  with  the
                  Commission  as Exhibit  10.1.4 to the  Registrant's  Report on
                  Form  10-Q  for  the  quarter  ended  June  30,  1991,  and is
                  incorporated herein by this reference.

*10.1.4(a)        Amendment No. 1 to Employment Agreement between the Registrant
                  and Donald F. Gongaware.


 10.1.5           Employment   Agreement   dated  July  1,  1991,   between  the
                  Registrant and Lawrence W. Inlow was filed with the Commission
                  as Exhibit 10.1.5 to the Registrant's  Report on Form 10-Q for
                  the quarter ended June 30, 1991, and is incorporated herein by
                  this reference.

*10.1.5(a)        Amendment No. 1 to Employment Agreement between the Registrant
                  and Lawrence W. Inlow.

*10.1.9           Unsecured Promissory Note of Stephen C. Hilbert  dated May 13,
                  1996.  

 10.1.10          Employment  Agreement  dated  August  17,  1992,  between  the
                  Registrant  and Ngaire E. Cuneo was filed with the  Commission
                  as Exhibit 10.1.10 to the Registrant's Report on Form 10-Q for
                  the quarter  ended  September  30, 1992,  and is  incorporated
                  herein by this reference.

<PAGE>

Exhibit
  No.                                   Document


*10.1.10(a)       Amendment No. 1 to Employment Agreement between the Registrant
                  and Ngaire E. Cuneo.

 10.8             The  Registrant's   Stock  Option  Plan  was  filed  with  the
                  Commission  as  Exhibit B to its  definitive  Proxy  Statement
                  dated  December  10, 1983;  Amendment  No. 1 thereto was filed
                  with the  Commission  as Exhibit  10.8.1 to its Report on Form
                  10-Q for the  quarter  ended June 30,  1985;  Amendment  No. 2
                  thereto was filed with the Commission as Exhibit 10.8.2 to its
                  Registration Statement on Form S-1, No. 33-4367; Amendment No.
                  3 thereto was filed with the  Commission as Exhibit  10.8.3 to
                  the  Registrant's   Annual  Report  on  Form  10-K  for  1986;
                  Amendment  No. 4 thereto  was  filed  with the  Commission  as
                  Exhibit 10.8 to the  Registrant's  Annual  Report on Form 10-K
                  for  1987;   Amendment  No.  5  thereto  was  filed  with  the
                  Commission as Exhibit 10.8 to the Registrant's  Report on Form
                  10-Q  for  the  quarter  ended  September  30,  1991;  and are
                  incorporated herein by this reference.

 10.8.3           The Registrant's Cash Bonus Plan was filed with the Commission
                  as Exhibit 10.8.3 to the Registrant's  Report on Form 10-Q for
                  the quarter ended March 31, 1989, and is  incorporated  herein
                  by this reference.

 10.8.4           Amended  and  Restated   Conseco   Stock  Bonus  and  Deferred
                  Compensation  Program was filed with the Commission as Exhibit
                  10.8.4  to the  Registrant's  Annual  Report  on Form 10-K for
                  1992, and is incorporated herein by this reference.

 10.8.6           Conseco  Performance  -  Based  Compensation  Bonus  Plan  for
                  Executive  Vice  Presidents  was filed with the  Commission as
                  Exhibit B to the Registrant's definitive Proxy Statement dated
                  April 29, 1994, and is incorporated herein by this reference.

 10.8.7           Conseco,  Inc. Amended and Restated Deferred Compensation Plan
                  was filed with the Commission as Exhibit A to the Registrant's
                  definitive  Proxy  Statement  dated  April  26,  1995,  and is
                  incorporated herein by this reference.

 10.8.8           Amendment to the Amended and Restated  Conseco Stock Bonus and
                  Deferred Compensation Program was filed with the Commission as
                  Exhibit 10.8.8 to the Registrant's  Annual Report on Form 10-K
                  for 1994, and is incorporated herein by this reference.

 10.8.9           Conseco 1994 Stock and  Incentive  Plan was filed as Exhibit A
                  to the Registrant's definitive Proxy Statement dated April 29,
                  1994 and is incorporated herein by this reference.

 10.8.10          Amendment  Number 2 to the  Amended and Restated Conseco Stock
                  Bonus and  Deferred  Compensation  Program  was filed with the
                  Commission  as  Exhibit  10.8.10  to the  Registrant's  Annual
                  Report  on Form  10-K for 1995 and is  incorporated  herein by
                  reference.

 10.8.11          Director, Executive and Senior Officer Stock Purchase Plan was
                  filed  with  the   Commission   as  Exhibit   10.8.11  to  the
                  Registrant's  Report on Form 10-Q for the  quarter  ended June
                  30, 1996, and is incorporated herein by this reference.

 10.8.12          Guaranty  regarding  Director,  Executive  and  Senior Officer
                  Stock  Purchase Plan was filed with the  Commission as Exhibit
                  10.8.12  to the  Registrant's  Report  on  Form  10-Q  for the
                  quarter  ended June 30, 1996,  and is  incorporated  herein by
                  this reference.

 10.8.13          Form of  Promissory Note payable to the Registrant relating to
                  the Registrant's Director,  Executive and Senior Officer Stock
                  Purchase Plan was filed with the Commission as Exhibit 10.8.13
                  to the Registrant's  Report on Form 10-Q for the quarter ended
                  September  30,  1996,  and  is  incorporated  herein  by  this
                  reference.

 10.23            Aircraft  Lease  Agreement  dated  December 22, 1988,  between
                  General Electrical Capital  Corporation and Conseco Investment
                  Holding Company was filed with the Commission as Exhibit 10.23
                  to the  Registrant's  Annual Report on Form 10-K for 1988, and
                  is incorporated herein by this reference.

<PAGE>
Exhibit
  No.                                   Document

 10.23.1          Amendment to Aircraft Lease Agreement dated December 22, 1988,
                  between  General  Electric  Capital  Corporation  and  Conseco
                  Investment  Holding  Company was filed with the  Commission as
                  Exhibit 10.23.1 to the Registrant's Annual Report on Form 10-K
                  for 1993, and is incorporated herein by this reference.

 10.24            Aircraft Lease  Agreement dated April 26, 1991 between General
                  Electric Capital  Corporation and Conseco  Investment  Holding
                  Company was filed with the  Commission as Exhibit 10.29 to the
                  Registrant's  Report  on  Form  10-Q  for  the  quarter  ended
                  September  30,  1991,  and  is  incorporated  herein  by  this
                  reference.

 10.24.1          Amendment to Aircraft  Lease  Agreement  dated April 26, 1991,
                  between  General  Electric  Capital  Corporation  and  Conseco
                  Investment  Holding  Company was filed with the  Commission as
                  Exhibit 10.24.1 to the Registrant's Annual Report on Form 10-K
                  for 1993, and is incorporated herein by this reference.

 10.25            Aircraft  Lease  Purchase  Agreement  dated December 28, 1993,
                  between  MetLife Capital  Corporation  and Conseco  Investment
                  Holding Company was filed with the Commission as Exhibit 10.25
                  to the  Registrant's  Annual Report on Form 10-K for 1993, and
                  is incorporated herein by this reference.

 10.31            Helicopter Lease Agreement dated April 9, 1992 between General
                  Electric Capital  Corporation and Conseco  Investment  Holding
                  Company was filed with the  Commission as Exhibit 10.31 to the
                  Registrant's  Report on Form 10-Q for the  quarter  ended June
                  30, 1992, and is incorporated herein by this reference.

 10.32            Aircraft  Lease  Agreement  dated  October  6,  1993,  between
                  General  Electric Capital  Corporation and Conseco  Investment
                  Holding Company and the associated  Assignment Agreement dated
                  October 25, 1993, between General Electric Capital Corporation
                  and  Nationsbanc  Leasing  Corporation  were  filed  with  the
                  Commission as Exhibit 10.32 to the Registrant's  Annual Report
                  on Form 10-K for  1993,  and are  incorporated  herein by this
                  reference.

 10.36            Lease dated as of  December 18, 1992  between LaSalle National
                  Trust,  N.A. as trustee and Bankers Life and Casualty  Company
                  relating to the lease of executive  office and  administration
                  space by BLH was filed with the Commission as Exhibit 10.17 to
                  Amendment No. 1 to BLH's  Registration  Statement on Form S-1,
                  No. 33-55026, and is incorporated herein by this reference.
 
 10.37            Lease  dated  as  of  August  20,  1993  between  REO  Holding
                  Corporation and Bankers Life and Casualty Company relating the
                  lease of warehouse  space by BLH was filed with the Commission
                  as Exhibit 10.14 to BLH's Report on Form 10-K for 1994, and is
                  incorporated herein by this reference.

 10.38            Purchase Agreement relating to Preferred  Redeemable Increased
                  Dividend Equity Securities,  7% PRIDES,  Convertible Preferred
                  Stock was filed  with the  Commission  as  Exhibit  1.1 to the
                  Registrant's Report on Form 8-K dated January 17, 1996, and is
                  incorporated herein by this reference.

 10.39            Underwriting Agreement  and  Pricing Agreement  for 11,000,000
                  Preferred  Securities  of  Conseco  Financing  Trust  I  dated
                  November  14,   1996  were   filed  with   the  Commission  as
                  Exhibits  1.1  and  1.2 to the Registrant's Report on Form 8-K
                  dated  November  19, 1996, and are incorporated herein by this
                  reference. 

 10.40            Underwriting  Agreement  and  Pricing  Agreement  for  325,000
                  Preferred  Securities  of  Conseco  Financing  Trust  II dated
                  November 22,  1996  were filed with the Commission as Exhibits
                  1.1  and  1.2  to  the  Registrant's Report  on Form 8-K dated
                  November  27,  1996,  and  are  incorporated  herein  by  this
                  reference.

*11.1             Computation of Earnings Per Share - Primary.

*11.2             Computation of Earnings Per Share - Fully Diluted.

*12.1             Computation  of   Ratio  of  Earnings  to  Fixed  Charges  and
                  Preferred Dividends.

*21               List of Subsidiaries.

<PAGE>

Exhibit
  No.                                   Document

*23               Consent of Independent Accountants.

*27               Financial data  schedule  for Conseco, Inc. dated December 31,
                  1995

                  *Filed herewith

Compensation Plans and Arrangements                  

 10.1.2           Employment  Agreement  dated  January  1,  1987,  between  the
                  Registrant and Stephen C. Hilbert.

 10.1.3           Employment  Agreement   dated  July  1,  1991,   between   the
                  Registrant and Rollin M. Dick.

 *10.1.3(a)       Amendment No. 1 to Employment Agreement between the Registrant
                  and Rollin M. Dick.

 10.1.4           Employment  Agreement   dated  July  1,  1991,   between   the
                  Registrant and Donald F. Gongaware.

*10.1.4(a)        Amendment No. 1 to Employment Agreement between the Registrant
                  and Donald F. Gongaware.

 10.1.5           Employment  Agreement   dated  July  1,  1991,   between   the
                  Registrant and Lawrence W. Inlow.

*10.1.5(a)        Amendment No. 1 to Employment Agreement between the Registrant
                  and Lawrence W. Inlow.

*10.1.9           Unsecured  Promissory  Note  of  Stephen C.  Hilbert.

 10.1.10          Employment  Agreement   dated  August 17,  1992,  between  the
                  Registrant and Ngaire E. Cuneo.

*10.1.10(a)       Amendment No. 1 to Employment Agreement between the Registrant
                  and Ngaire E. Cuneo.
 
 10.8             The Registrant's Stock  Option  Plan; Amendment No. 1 thereto;
                  Amendment No. 2 thereto;  Amendment  No. 3 thereto;  Amendment
                  No. 4 thereto; and Amendment No. 5 thereto.

 10.8.3           The Registrant's Cash Bonus Plan.

 10.8.4           Amended  and   Restated  Conseco  Stock  Bonus   and  Deferred
                  Compensation Program.

 10.8.6           Conseco  Performance -  Based  Compensation  Bonus   Plan  for
                  Executive Vice Presidents.

 10.8.7           Conseco, Inc. Amended and Restated Deferred Compensation Plan.

 10.8.8           Amendment to the Amended  and Restated Conseco Stock Bonus and
                  Deferred Compensation Program.

 10.8.9           Conseco 1994 Stock and Incentive Plan.

 10.8.10          Amendment No. 2  to  the  Amended and Restated Stock Bonus and
                  Deferred Compensation Program.

 10.8.11          Director, Executive and Senior Officer Stock Purchase Plan.

 10.8.12          Guaranty  regarding  Director,  Executive  and Senior Officer
                  Stock Purchase Plan.


 10.8.13          Form of  Promissory Note Payable to the Registrant relating to
                  the Registrant's Director,  Executive and Senior Officer Stock
                  Purchase Plan.