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, 1997 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.
7% FELINE PRIDES Stock Purchase Contracts          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.  [X]

    Aggregate market value of common stock held by nonaffiliates (computed as of
March 13, 1998): $9,615,452,117

    Shares of common stock outstanding as of March 13, 1998: 185,805,838

    DOCUMENTS INCORPORATED BY REFERENCE: Portions of the Registrant's definitive
proxy  statement for the annual meeting of  shareholders to be held May 14, 1998
are incorporated by reference into Part III of this Report.

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

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                                     PART I
ITEM 1. BUSINESS OF CONSECO.

       Conseco, Inc. is a financial services holding company.  Conseco develops,
markets and administers supplemental health insurance,  annuity, life insurance,
individual and group major medical  insurance and other insurance  products.  As
used in this  report,  the  terms  "We,"  "Conseco"  or the  "Company"  refer to
Conseco,  Inc. and its  consolidated  subsidiaries,  unless the context requires
otherwise.  Since 1982, Conseco has acquired 19 insurance groups. See "Insurance
Subsidiaries  and  Recent  Acquisitions"  for a  description  of  our  insurance
subsidiaries  and recent  acquisitions.  Our  operating  strategy is to grow the
insurance  business  within our  subsidiaries  by focusing our  resources on the
development  and  expansion  of  profitable  products  and  strong  distribution
channels.  We have  supplemented  such growth by acquiring  companies  that have
profitable niche products and strong  distribution  systems.  Once a company has
been acquired,  our operating  strategy has been to  consolidate  and streamline
management and administrative  functions where appropriate,  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.

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

       MARKETING AND DISTRIBUTION

       Conseco  seeks to retain the  loyalty of its  agency  force by  providing
marketing and sales  support;  electronic  and  automated  access to account and
commission  information;   and  marketing  and  training  tools.  We  also  have
introduced new products like equity-indexed  annuities (1996), indexed universal
life (1997) and  multi-year-guarantee  annuities (1998). We are also looking for
ways to lighten our agents'  administrative  burden,  increase their  productive
sales time and get them the information  they need faster and more reliably.  In
1997, we introduced  the Conseco  Online  Information  System  ("COINS"),  which
enables agents to track policy and commission information and order materials at
their convenience.  Many of our marketing companies and agents are already using
COINS; we expect it to be available to all agents by 1999.

       In 1997,  Conseco  launched a comprehensive  effort to transform its name
into a recognized  brand.  We believe  that in a  competitive  marketplace  like
financial  services,  companies  that can  differentiate  themselves  through  a
familiar brand can obtain full value for their products;  sell more  efficiently
and command  greater  customer  loyalty;  recruit and retain talent more easily;
better withstand and weather inevitable  business crises; and have better access
to the  financial  markets and the capital they need in order to grow.  In 1998,
our  advertising  campaign  is designed to  introduce  consumers  to the Conseco
brand, to our product line and to the benefits of doing business with Conseco.

       Our  insurance  subsidiaries  are  collectively  licensed  to market  our
insurance  products in all fifty states,  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 our 1997  collected  premiums:  Florida (9.4
percent), Illinois (9.0 percent), California (8.4 percent) , Texas (8.1 percent)
and Michigan (5.0 percent).

       We believe that people  purchase most types of life  insurance,  accident
and health  insurance  and  annuity  products  only after  being  contacted  and
solicited by an insurance  agent.  Accordingly,  the success of our distribution
system is largely  dependent on our 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 our  subsidiaries,  we offer  commission  rate
bonuses and  compensation  awards which increase with the volume of new business
written.  We formed a subsidiary to focus on the  coordination of the marketing,
distribution and cross marketing activities of our products.

       A description of our primary distribution channels follows:

       Career Agents.  This agency force of  approximately  4,100 agents working
from  185  branch   offices,   permits   one-on-one   contacts  with   potential
policyholders   and  promotes  strong  personal   relationships   with  existing
policyholders.   The  career  agents  sell  primarily  Medicare  supplement  and
long-term care insurance policies. This distribution channel also includes group
major medical business marketed through a small field force of  representatives.
Since December 1, 1997, this segment includes the career agents of WNIC who sell
specialty health insurance  products for educators.  In 1997, this  distribution
channel  accounted for $1,593.2 million,  or 32 percent,  of our 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 83 percent on Medicare  supplement  policies
sold through this channel.

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       Professional Independent Producers. This distribution channel consists of
a general  agency and  insurance  brokerage  distribution  system  comprised  of
approximately  190,000  independent  licensed agents doing business in all fifty
states. In 1997, this channel accounted for $3,433.7 million,  or 68 percent, of
our total collected premiums.

       Professional  independent  producers are a diverse network of independent
agents,  insurance  brokers and  marketing  organizations.  Marketing  companies
typically  recruit agents for Conseco by advertising our products and commission
structure  through  direct mail  advertising  or through  seminars for insurance
agents and  brokers.  These  organizations  bear most of the costs  incurred  in
marketing our products. We compensate 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  flexible-premium  annuities  for
educators.

       A portion  of our  business  is  distributed  through a "Client  Company"
marketing system, whereby agents and other insurance companies have entered into
agreements to market Conseco's products through their  professional  independent
producer distribution systems. Under the agreements, such groups assume up to 50
percent of the business each writes (through agent owned  reinsurance  companies
or existing life insurance companies). We retain assets equal to the reserves of
each Client Company and provide substantially all administrative  services for a
fee. Of the premiums  collected by professional  independent  producers in 1997,
3.2  percent  were  collected  by groups  participating  in the  Client  Company
program.

       Direct marketing.  This  distribution  channel was added on September 30,
1997 with the  acquisition  of Colonial Penn Life Insurance  Company  ("Colonial
Penn"),  which  is  engaged  primarily  in the  sale of  "graded  benefit  life"
insurance  policies through direct marketing.  We intend to market other Conseco
products through this distribution  channel. In 1997, this channel accounted for
$28.8 million, or less than 1 percent, of our total collected premiums.

       OPERATING SEGMENTS

       We conduct and manage our business through five segments,  reflecting our
major lines of insurance  business and target markets:  (i) supplemental  health
insurance; (ii) annuities; (iii) life insurance; (iv) individual and group major
medical insurance; and (v) other.

       Supplemental Health

       This  segment   includes   Medicare   supplement,   long-term   care  and
specified-disease  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.  For periods after January 1, 1997,
this segment includes the specified-disease  products of the former subsidiaries
of Transport  Holdings Inc. ("THI") and Capitol American  Financial  Corporation
("CAF") and the long-term care products of the former  subsidiaries of ATC which
are distributed through professional  independent  producers.  For periods after
April 1, 1997, this segment also includes various  supplemental  health products
of Pioneer  Financial  Services,  Inc.  ("PFS")  which are  distributed  through
professional   independent   producers.   During  1997,  we  collected  Medicare
supplement  premiums of $796.4  million and  long-term  care  premiums of $663.9
million,  up 29 percent and 244 percent,  respectively,  over 1996. We collected
specified-disease premiums of $383.4 million in 1997.

       The following describes the major products of this segment:

       Medicare  supplement.  Medicare  supplement products accounted for $796.4
million,  or 16 percent,  of our total collected premiums in 1997. 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,
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. Our Medicare supplement plans automatically adjust coverage to reflect
changes in Medicare  benefits.  In marketing these  products,  we concentrate on
individuals  who have recently  become eligible for Medicare by reaching the age
of 65. We offer 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.


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       Long-term care.  Long-term care products accounted for $663.9 million, or
13 percent,  of our total  collected  premiums in 1997.  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
healthcare 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. We monitor the loss experience on our long-term care products and, when
necessary,  apply  for rate  increases  in the  states  in  which  we sell  such
products.

       Specified-disease  products.  Beginning in 1997, the supplemental  health
segment  includes  specified-disease  products  such as cancer and  heart/stroke
insurance.  Specified-disease  products  accounted  for $383.4  million,  or 7.6
percent,  of our total  collected  premiums in 1997.  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.  Heart/stroke  policies provide for payments directly to
the  policyholder  for  treatment of a covered  heart  disease,  heart attack or
stroke.  The  benefits  provided  under the  specified-disease  policies  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.

       Approximately  65  percent  of our  specified-disease  policies  in force
(based on a count of  policies)  are sold with  return of  premium or cash value
riders.  The return of premium rider generally  provides that after a policy has
been in force for a specified number of years or upon the policyholder  reaching
a specified  age, the Company  will pay to the  policyholder,  or a  beneficiary
under the policy,  the  aggregate  amount of all premiums paid under the policy,
without  interest,  less the aggregate  amount of all claims  incurred under the
policy.

       Annuities

       This segment includes  traditional  fixed rate annuity  products,  market
value-adjusted  annuity products,  equity-indexed annuity products, and variable
annuity  products sold through both career agents and  professional  independent
producers.  During  1997,  this  segment  collected  total  premiums of $1,689.6
million, up 1.2 percent from 1996.

       The following describes the major products of this segment:

       Traditional   fixed  rate  annuity   products.   These  products  include
single-premium deferred annuities ("SPDAs"), flexible-premium deferred annuities
("FPDAs") and single-premium immediate annuities ("SPIAs"). SPDAs (excluding the
equity-indexed and market value-adjusted products described below) accounted for
$366.8 million, or 7.3 percent, of our total collected premiums in 1997. 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.  Our SPDAs typically
have an interest rate (the  "crediting  rate") that is guaranteed by the Company
for the first policy year,  after which,  we have the  discretionary  ability to
change the crediting  rate to any rate not below a guaranteed  minimum rate. The
guaranteed  rate recently  written on annuities is 3.0 percent,  and the rate on
all  policies  in force  ranges  from 3.0  percent to 5.5  percent.  The initial
crediting  rate is largely a function of: (i) the  interest  rate we can earn on
invested assets acquired with the new annuity fund deposits;  and (ii) the rates
offered on similar  products by our competitors.  For subsequent  adjustments to
crediting  rates,  we take into account the yield on our  investment  portfolio,
annuity surrender  assumptions,  competitive  industry pricing and the crediting
rate  history  for   particular   groups  of  annuity   policies   with  similar
characteristics.

       Approximately  80 percent  of our 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, 1997,
crediting  rates on our 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 5.0 percent,
and the average rate excluding bonuses was 4.8 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 our
SPDAs  provide  for  penalty-free  withdrawals  of  up  to  10  percent  of  the
accumulation value each year,

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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 is 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  duration of policy  liabilities and enables the Company
to maintain profitability on such policies.

       FPDAs (excluding the  equity-indexed and market  value-adjusted  products
described  below)  accounted for $362.3  million,  or 7.2 percent,  of our total
collected premiums in 1997. FPDAs are similar to SPDAs in many respects,  except
that FPDAs allow more than one premium payment.  Our FPDAs have a crediting rate
that is guaranteed by the Company for the first year.  After the first year, the
crediting  rate may be changed at least  annually,  subject to a minimum  annual
guaranteed  rate. 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 22 percent of the  first-year  premium and  decline  over the penalty
period.  Interest rates credited on our outstanding  FPDAs at December 31, 1997,
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 5.0 percent, and the average rate excluding bonuses was 4.8
percent.

       SPIAs  accounted  for  $208.1  million,  or 4.1  percent,  of  our  total
collected  premiums in 1997.  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, 1997, averaged 6.0 percent.

       Market  value-adjusted  annuity  products.  In September  1995,  we 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 1997, we collected premiums of $41.4 million from SPDAs
with this feature. We also offer FPDAs with a "market value adjustment" feature.
In 1997, we collected  premiums of $138.1  million from sales of FPDAs with this
feature.

       Equity-indexed  annuity  products.  In response to consumers'  desire for
alternative  investment  products with returns linked to those of common stocks,
we introduced an equity-indexed  SPDA product in June 1996 and an equity-indexed
FPDA product in January 1997.  These products  accounted for $387.7 million,  or
7.7 percent,  of our total premiums  collected in 1997.  The annuity's  contract
value is equal to the premium paid increased for returns based upon a percentage
(the  "participation  rate") of the change in the S&P 500 Index during each year
of its  term,  subject  to a  minimum  guaranteed  value.  The  Company  has the
discretionary ability to annually change the participation rate (which currently
ranges from 70 percent to 75 percent plus a first-year  "bonus",  similar to the
bonus previously described, of 25 percent), generally subject to a minimum of 50
percent.  The minimum guaranteed values are equal to: (i) 90 percent of premiums
collected  for SPDAs (75  percent  of first  year and 87.5  percent  of  renewal
premiums collected for FPDAs);  plus (ii) interest credited at an annual rate of
3 percent. The annuity provides for penalty-free withdrawals of up to 10 percent
of  premium  in each year  after the first  year of the  annuity's  term.  Other
withdrawals  from SPDA  products are subject to a surrender  charge of 9 percent
over the eight year  contract term at which time the contract must be renewed or
withdrawn.  Other  withdrawals  from FPDA  products  are  subject to a surrender
charge of 12 percent to 20 percent in the first year,  declining  1.2 percent to
1.3 percent each year,  to zero over a 10 to 15 year period,  depending on issue
age. We  purchase  Standard & Poor's 500 Index Call  Options  (the "S&P 500 Call
Options") to hedge potential  increases to policyholder  benefits resulting from
increases in the S&P 500 Index to which the product's return is linked.

       Variable  annuity  products.  Variable  annuities  accounted  for  $185.2
million,  or 3.7 percent,  of our total  premiums  collected  in 1997.  Variable
annuities, sold on a single-premium 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 or variable
rate of return based upon the specific investment portfolios into which premiums
may be directed.

       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 Life Partners Group,
Inc. ("LPG"). This segment's

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products are currently  sold through  career  agents,  professional  independent
producers and direct response  marketing.  During 1997,  this segment  collected
total premiums of $709.0 million, up 76 percent,  over premiums collected during
1996.

       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 $450.9  million,  or 8.9
percent,  of our  total  collected  premiums  in 1997 and are  marketed  through
professional  independent  producers and to a lesser extent,  career agents. 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,  and 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.

       Traditional  life.  These products  accounted for $258.1 million,  or 5.1
percent,  of our total collected  premiums in 1997.  Traditional  life policies,
including whole life,  graded benefit life and term life products,  are marketed
through professional  independent  producers,  career agents and direct response
marketing.  Under whole life policies,  the policyholder  generally pays a level
premium over the policyholder's 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
the premium for  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 5, 10 or 20 years.

       Beginning October 1, 1997, the life insurance segment includes the graded
benefit life insurance  products of Colonial Penn.  Graded benefit life products
accounted  for $28.8  million or .6 percent of our total  collected  premiums in
1997. Graded benefit life insurance  products are offered on an individual basis
primarily  to  persons  age 50 to 80,  principally  in face  amounts  of $350 to
$10,000,  without medical examination or evidence of insurability.  Premiums are
paid as  frequently  as monthly.  Benefits paid are less than the face amount of
the  policy  during the first two years,  except in cases of  accidental  death.
Graded  benefit  life  policies are marketed  using  direct  response  marketing
techniques.  New policyholder leads are generated  primarily from television and
print advertisements.

       Individual and Group Major Medical Insurance

       This segment includes individual and group major medical health insurance
products.  The size of this segment  increased  significantly as a result of the
acquisition  of PFS. This segment  underwrites  and markets group and individual
comprehensive   major  medical  products  targeted  primarily  to  self-employed
individuals,  small business owners and early retirees.  Several  deductible and
coinsurance options are available, and most policies require certain utilization
review  procedures.  The  profitability  of this business depends largely on the
overall  persistency  of the  business in force,  claim  experience  and expense
management.  During  1997,  this  segment  collected  total  premiums  of $744.2
million, up 118 percent over premiums collected during 1996.

       Insurance  premium  rates on these  products  may be adjusted  subject to
applicable  regulation  by class,  policy  form and state in which the policy is
issued.  We monitor the loss experience on these  products,  and when necessary,
apply for rate increases in the states in which we sell such products.

       Other

       This segment  includes  various  other  health  insurance  products.  The
profitability of this business depends largely on the overall persistency of the
business in force,  claim experience and expense  management.  During 1997, this
segment  collected  total premium of $69.2 million,  up 27 percent over premiums
collected during 1996.

       After December 1, 1997, the other segment  includes the specialty  health
insurance  products for educators  sold by a subsidiary of WNIC.  These products
are sold by career agents and accounted for $9.1 million of Conseco's  collected
premiums since the acquisition of WNIC.

       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 and  commissions  from  Conseco's  consolidated
subsidiaries  are excluded  from segment  results.  CCM had  approximately  $5.1
billion of assets (at fair value) under  management  at December  31, 1997,  for
unaffiliated  parties.  Total fees  earned from  nonaffiliates  during 1997 were
$65.8 million, up 32 percent over 1996.

                                        6

<PAGE>

       INSURANCE SUBSIDIARIES AND RECENT ACQUISITIONS

       Conseco  owned the  following  life  insurance  companies at December 31,
1997:

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

       -  Great American Reserve Insurance  Company ("Great American  Reserve"),
          Beneficial Standard Life Insurance Company ("Beneficial Standard") and
          Jefferson     National    Life    Insurance     Company    of    Texas
          ("Jefferson-Texas"),  in which  Conseco has had an ownership  interest
          since 1990 and which became wholly owned subsidiaries in August 1995;

       -  the subsidiaries of American Life Holdings,  Inc. ("ALH", formerly The
          Statesman Group, Inc.), including American Life and Casualty Insurance
          Company and Vulcan Life Insurance Company;

       -  the  subsidiaries  of  LPG,  including   Philadelphia  Life  Insurance
          Company,   Conseco  Life  Insurance  Company  (formerly  Massachusetts
          General  Life  Insurance  Company  prior to its name  change in 1997),
          Lamar Life Insurance Company and Wabash Life Insurance Company;

       -  the former  subsidiaries of ATC,  including  American  Travellers Life
          Insurance  Company  ("American   Travellers"),   United  General  Life
          Insurance  Company  and  Conseco  Life  Insurance  Company of New York
          (formerly American  Travellers  Insurance Company of New York prior to
          its name change in 1997);

       -  the former  subsidiaries of THI, including TLIC Life Insurance Company
          (which  was  merged  into  Jefferson-Texas  in 1997),  Transport  Life
          Insurance Company (which was merged into American Travellers in 1997),
          and Continental Life Insurance Company;

       -  the  former  subsidiaries  of CAF,  including  Capitol  American  Life
          Insurance  Company,   Capitol  National  Life  Insurance  Company  and
          Frontier National Life Insurance Company;

       -  the  subsidiaries  of PFS,  including  Continental  Life and  Accident
          Insurance Company, Connecticut National Life Insurance Company, Health
          and  Life  Insurance  Company  of  America,  Manhattan  National  Life
          Insurance  Company,  Pioneer Life Insurance Company and National Group
          Life Insurance Company;

       -  certain  former   subsidiaries   of  Leucadia   National   Corporation
          ("Leucadia"),  including Colonial Penn and Providential Life Insurance
          Company;

       -  the  subsidiaries  of  Washington   National   Corporation   ("WNIC"),
          including   Washington   National   Insurance   Company   and   United
          Presidential Life Insurance Company; and

       -  Bankers  National  Life  Insurance  Company,  National  Fidelity  Life
          Insurance Company and Lincoln American Life Insurance Company.

       Since  1982,  Conseco  has  acquired  19  insurance  groups  and  related
businesses.  We continue to regularly investigate  acquisition  opportunities in
the insurance  industry and other  industries  in which we operate.  We evaluate
potential  acquisitions  based on a variety of factors,  including the operating
results and  financial  condition  of the  business to be  acquired,  its growth
potential, management and personnel and the potential return on such acquisition
in relation to other acquisition  opportunities and the internal  development of
our existing business  operations.  No assurances can be given as to when, if at
all, or upon what terms Conseco will make any such acquisition.

       Our  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"), our second acquisition  partnership,  was liquidated in 1996
after Conseco  purchased from the other partners all of the common shares of ALH
not already owned by Conseco.  We terminated  its  partnership  activity in 1996
because  changes  in the  regulatory  and  rating  agency  environment  made  it
difficult to structure leveraged acquisitions of life insurance companies.

       On August 31, 1995, we purchased  (the "CCP Merger") all of the shares of
common stock of CCP Insurance,  Inc. ("CCP") not previously owned  (representing
51 percent of CCP's outstanding shares). In the transaction, CCP was merged into
Conseco,  with Conseco being the surviving  corporation.  As a result of the CCP
Merger, CCP's subsidiaries, Great American Reserve and Beneficial

                                        7

<PAGE>

Standard,  became wholly owned  subsidiaries  of Conseco.  The accounts of CCP's
subsidiaries are consolidated with Conseco's accounts effective January 1, 1995.

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

       On September 30, 1996, we acquired the remaining 62 percent of the common
shares of ALH (the "ALH Stock  Purchase")  not  already  owned by Conseco or its
affiliates  for  approximately  $166  million  in  cash.  ALH is a  provider  of
retirement  savings  annuities.  ALH  has  been  included  in  our  consolidated
financial  statements  since ALH's  acquisition  by  Partnership II in September
1994.

       On December 17, 1996, we acquired ATC (the "ATC Merger").  ATC was merged
with and into Conseco, with Conseco being the surviving corporation.  In the ATC
Merger,  we issued a total of 21.0  million  shares of Conseco  common stock (or
common  stock  equivalents)  with a value of $630.9  million.  In  addition,  we
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, we acquired THI (the "THI Merger").  THI was merged
with and into Conseco, with Conseco being the surviving corporation.  In the THI
Merger,  we issued a total of 4.9  million  shares of Conseco  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.

       On December 31, 1996, we acquired the 9.6 percent of the common shares of
BLH (the "BLH Merger") not already owned by Conseco or its  affiliates.  BLH was
merged into a wholly owned subsidiary of Conseco. In the BLH Merger, we 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 our consolidated  financial statements since November 1992,
when BLH was acquired by Partnership I.

       On March 4, 1997, we acquired CAF (the "CAF Merger"). CAF became a wholly
owned subsidiary of Conseco.  In the CAF Merger,  we paid $552.8 million in cash
and  issued  3.0  million  shares  of  Conseco  common  stock (or  common  stock
equivalents)  with a value of $117.4  million.  In addition,  we assumed a $31.0
million note payable of CAF, which was repaid on the merger date.  CAF,  through
its insurance subsidiaries,  underwrites, markets and distributes individual and
group supplemental health and accident insurance.

       On May 30, 1997, we acquired PFS (the "PFS Merger").  PFS became a wholly
owned subsidiary of Conseco.  In the PFS Merger, we issued 9.0 million shares of
Conseco  common  stock  (or  common  stock  equivalents)  with a value of $354.1
million.  In addition,  we assumed PFS's convertible  subordinated  notes, which
became convertible into 3.1 million shares of Conseco common stock, with a value
of $130.6  million.  We also assumed a $21.3 million note payable of PFS,  which
was  repaid  on the  merger  date.  PFS,  through  its  insurance  subsidiaries,
underwrites,  markets  and  distributes  life  insurance,  annuities  and health
insurance in selected niche markets throughout the United States.

       On September 30, 1997,  we acquired  Colonial  Penn (the  "Colonial  Penn
Purchase")  and certain  other  assets  (collectively  referred to as  "Colonial
Penn") from Leucadia. Colonial Penn became a wholly owned subsidiary of Conseco.
In the Colonial Penn  Purchase,  we paid $60.0 million in cash and issued $400.0
million of notes payable to Leucadia.  Colonial Penn is  principally  engaged in
the  underwriting  and sale of "graded benefit life" insurance  policies through
direct marketing and Medicare supplement insurance through independent agents.

       On December 5, 1997, we acquired WNIC (the "WNIC Merger").  WNIC became a
wholly owned subsidiary of Conseco.  In the WNIC Merger,  we paid $400.6 million
in cash,  of which $73.7  million was funded  through a dividend to Conseco from
WNIC. WNIC is principally  engaged in marketing and underwriting  life insurance
and annuities for individuals and specialty health insurance for educators.


                                        8

<PAGE>

       ADMINISTRATION

       We minimize  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 our individual and group health insurance products
involves higher volumes of claims,  contacts with  policyholders and operational
costs,  compared to the administration of life insurance or annuity policies. We
have  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 our policyholders,  with special emphasis on the prompt
payment of claims.  In many cases,  we mail a check within a week of receiving a
claim from a policyholder.

       INVESTMENTS

       CCM, a registered investment adviser wholly owned by Conseco, manages the
investment  portfolios of Conseco's  subsidiaries.  CCM had approximately  $32.1
billion of assets (at fair value) under  management  at December  31,  1997,  of
which $27.0 billion were assets of Conseco's  subsidiaries and $5.1 billion were
assets of unaffiliated  parties.  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 our business;  investment
income is a significant  component of our total revenues.  Profitability of many
of our 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 our ability to adjust or to maintain  crediting rates at levels  necessary
to avoid  narrowing of spreads under certain market  conditions.  As of December
31,  1997,  the  average  yield,  computed  on the cost basis of our  investment
portfolio,  was 7.5 percent,  and the average interest rate credited or accruing
to our total insurance  liabilities,  excluding  interest bonuses guaranteed for
the first year of the annuity contract only, was 5.2 percent.

       We seek to balance the duration of our invested  assets with the expected
duration of benefit payments arising from our insurance liabilities. At December
31, 1997,  the adjusted  modified  duration of fixed  maturities  and short-term
investments  was  approximately  5.8 years  and the  duration  of our  insurance
liabilities was approximately 6.7 years.

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

       COMPETITION

       Our businesses operate in a highly competitive environment. The financial
services  industry  consists of a large number of  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.  We also  compete  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.

       Marketing  companies,   agents  who  market  insurance  products,  school
districts,  financial  institutions 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. Substantially all of
our primary life  insurance  companies  have  received:  (i) an "A"  (Excellent)
insurance  company  rating by A.M.  Best Company  ("A.M.  Best");  (ii) an "AA-"
claims-paying  ability rating from Duff & Phelps' Credit Rating Company ("Duff &
Phelps");  and (iii) an "A+" claims-paying ability rating from Standard & Poor's
Corporation ("Standard & Poor's").

       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

                                        9

<PAGE>

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 reinsurance programs, quality and diversification
of  assets,  adequacy  of policy or loss  reserves,  management  experience  and
objectives, market presence and policyholders' confidence.

       In recent  years,  A.M.  Best  upgraded  the  ratings  of  several of our
subsidiaries to "A" (Excellent)  from "A-"  (Excellent).  Among the reasons A.M.
Best cited for the ratings upgrades and reaffirmations were the benefits Conseco
will derive as a result of recent  acquisitions  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  diversified  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 our target ratio of debt to total  capital of
not more than 35 percent.

       Duff & Phelps'  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." A plus or minus sign
attached to a Duff & Phelps claims paying rating shows relative  standing within
a ratings category.

       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.  According to Standard & Poor's,  a
plus or 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 our business and
the  increasing  focus  placed on the  aforementioned  ratings,  we  manage  our
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 our ratings were  downgraded  from their  current
levels, sales of our products and the persistency of our 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  "Governmental  Regulation."  In addition to the products of
other insurance  companies,  our 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.

       We  believe  that we are  able to  compete  effectively  because:  (i) we
emphasize a number of specialized  distribution  channels,  where the ability to
respond  rapidly to changing  customer needs yields a competitive  edge; (ii) we
are experienced in establishing  and cultivating  relationships  with the unique
distribution networks and the independent marketing companies operating in these
specialized  markets;  (iii) we can offer  competitive  rates as a result of our
lower-than-average  operating costs and  higher-than-average  investment  yields
achieved by applying active investment portfolio management techniques; and (iv)
we 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, we are prohibited from underwriting
our 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.  Some states  prohibit  underwriting of all
Medicare  supplement   policies.   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.


                                       10

<PAGE>

       Before issuing long-term care or comprehensive  major medical products to
individuals  and groups,  we generally  apply detailed  underwriting  procedures
designed  to assess  and  quantify  the  insurance  risks.  We  require  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.  We also rely on
medical records and the potential policyholder's written application.  In recent
years,   there  has  been  significant   regulatory   changes  with  respect  to
underwriting  individual and group major medical plans. An increasing  number of
states  prohibit  underwriting  and/or  charging higher premiums for substandard
risks.  We monitor  changes in state  regulation  that affect our products,  and
consider  these  regulatory  developments in  determining  where we  market  our
products.

       Most  of our  life  insurance  policies  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.
We underwrite group insurance policies based on the characteristics of the group
and its past claim experience. Graded benefit life insurance policies are issued
without  medical  examination  or  evidence  of  insurability.  There is minimal
underwriting on annuities.

       REINSURANCE

       Consistent with the general practice of the life insurance industry,  our
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 our 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.  We believe the  assuming
companies are able to honor all contractual  commitments,  based on our periodic
review of their financial  statements,  insurance  industry  reports and reports
filed with state insurance departments.

       As of December 31, 1997, the policy risk retention  limit was $.8 million
or less on all of the policies of our subsidiaries. Reinsurance ceded by Conseco
represented 27 percent of gross combined life insurance in force and reinsurance
assumed  represented  4.0 percent of net combined  life  insurance in force.  At
December  31,1997,  the total ceded business in force of $36.7 billion included:
(i) $5.3 billion  ceded to Client  Companies for which we retain assets equal to
the reserves on the business  ceded;  and (ii) $25.8  billion ceded to insurance
companies  rated  "A-  (Excellent)"  or  better  by  A.M.  Best.  Our  principal
reinsurers  at December 31, 1997 (which assume  approximately  65 percent of the
total ceded business in force, excluding business ceded to the Client Companies)
were  American  Equity   Investment  Life  Insurance   Company,   Cologne  Life,
Connecticut  General Life  Insurance  Company,  Employers  Re, Life  Reassurance
Corporation of America, Lincoln National Life Insurance Company, RGA Reinsurance
Company,  Security Life of Denver and Swiss Re Life and Health America. No other
single  reinsurer  assumes greater than 5 percent of the total ceded business in
force.

       EMPLOYEES

       At  December  31,  1997,  Conseco  had  approximately   6,800  employees,
including: (i) 3,000 home office employees;  (ii) 1,400 employees in our Chicago
office (primarily involved with our supplemental health operations); (iii) 1,900
employees  in  various  locations  serving  as  administrative  centers  for its
insurance  operations;  and (iv) 500  employees  in  branch  offices  (primarily
supporting  our career  agency  force).  None of our  employees  is covered by a
collective  bargaining  agreement.  We believe that we have excellent  relations
with our employees.

       GOVERNMENTAL REGULATION

       General

       Our 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;  (x) perform
financial,  market  conduct  and  other  examinations;  (xi)  define  acceptable
accounting  principles;   (xii)  regulate  the  type  and  amount  of  permitted
investments;  and (xiii)  limit the amount of  dividends  and surplus  debenture
payments that can be paid without obtaining regulatory  approval.  Our insurance
subsidiaries   are  subject  to  periodic   examinations  by  state   regulatory
authorities.  We do not expect the results of any ongoing examinations to have a
material effect on the Company's financial condition.

                                       11

<PAGE>

       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,  Arizona,  Arkansas,
California, Illinois, Indiana, Kentucky, Mississippi,  Missouri, New York, Ohio,
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  12  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,  securities regulation and federal taxation, do affect the insurance
business.  In recent years,  the Office of the  Comptroller  of the currency has
issued a number of rulings  which  have  expanded  the  ability of banks to sell
certain  insurance  products.  The United  States  House of  Representatives  is
currently  considering the Financial  Services Act (H.R.10),  which would (among
other things) eliminate existing  restrictions on affiliations between insurance
companies,  banks and securities firms. This proposed legislation in its current
form would allow insurance  companies and securities firms to directly own banks
and each other while banks could own insurance  companies and  securities  firms
indirectly  through a holding company.  Other provisions of the act would define
insurance products and retain  jurisdiction over their regulation in the states.
Such legislation,  if enacted, could result in increased competition, as well as
new opportunities, for the Company. 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.

       The  Securities  and Exchange  Commission  has  requested  comments as to
whether equity-indexed  annuities,  such as those sold by the Company, should be
treated as securities under the Federal securities laws rather than as insurance
products.  Treatment  of these  products  as  securities  would  likely  require
additional  registration  and licensing of these products and the agents selling
them, as well as cause the Company to seek  additional  marketing  relationships
for these products.

       The  Risk-Based  Capital for Life and/or Health  Insurers  Model Act (the
"Model Act")  adopted by the NAIC  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 our 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, 1997, the average ratio of
total adjusted  capital to RBC for our insurance  subsidiaries  was greater than
twice the levels at which regulatory attention is triggered.

       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  described  in  the  previous  paragraph)  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  also  meets  RBC   requirements  if  its  admitted  assets  exceed  its
liabilities  by at  least 6  percent.  Five of our  insurance  subsidiaries  are
domiciled  in  Texas  and  all  of  them  were  in  compliance  with  Texas  RBC
requirements at December 31, 1997.

       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

                                       12

<PAGE>

of 10  percent  or  more  of the  outstanding  shares  of an  insurance  company
domiciled  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
domiciled  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 eleven 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 our insurance  subsidiaries  have resulted in inquiries from insurance
departments  to  which we have  responded.  Such  inquiries  did not lead to any
restrictions affecting our operations.

       Under  the  solvency  or  guaranty  laws of most  states  in  which we do
business,  our  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.  We  establish  a reserve to  provide  for  assessments  related to known
insolvencies.  This  reserve  is  based  upon  our  current  expectation  of the
availability  of the 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 our results of operations.
Our insurance  subsidiaries'  statutory financial  statements for the year ended
December  31,  1997,  include  $7.2  million  of  expenses  as a result  of such
assessments.

       Health Care

       Most  states  mandate  minimum  benefit  standards  and loss  ratios  for
accident and health insurance  policies.  We are generally required to maintain,
with respect to our individual long-term care policies, minimum anticipated loss
ratios over the entire  period of  coverage  of not less than 60  percent.  With
respect to our Medicare supplement policies, we are generally required to attain
and  maintain  an actual  loss ratio,  after  three  years,  of not less than 65
percent.  We provide,  to the  insurance  departments  of all states in which we
conduct 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 we have  failed to  maintain  minimum  mandated  loss
ratios, our insurance  subsidiaries  could be required to provide  retrospective
refunds  and/or  prospective  rate  reductions.  We believe  that our  insurance
subsidiaries currently comply with all applicable mandated minimum loss ratios.

       NAIC model regulations,  adopted in substantially 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.  We have declined to offer Plan J, due in part to its high benefit levels
and, consequently, high costs to the consumer.

       The Health Insurance Portability and Accountability Act of 1996 ("HIPAA")
was enacted in 1996.  HIPAA sets forth minimum  federal  standards for group and
individual   health   insurance,   including   requirements   relating   to  the
availability, portability and renewability of health coverage.

       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  our  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,

                                       13

<PAGE>

protection against inflation and limitations on waiting periods for pre-existing
conditions.  Other  recently  adopted  legislation  permits  premiums  paid  for
qualified  long-term  care  insurance  to be treated as  tax-deductible  medical
expenses and for benefits  received on such policies to be excluded from taxable
income.

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

       FEDERAL INCOME TAXATION

       The  annuity  and life  insurance  products  marketed  and  issued by our
insurance  subsidiaries  generally  provide the policyholder  with an income tax
advantage,  as compared to other savings  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.

       In February of 1998, President Clinton released various revenue proposals
and tax changes to be considered in the current federal  budget.  Such proposals
contained  numerous tax increases directed at the insurance  industry,  of which
the more significant  ones were as follows:  taxing asset  reallocations  within
variable annuities and exchanges of variable  annuities,  reducing the tax basis
of insurance  and annuity  contracts  for  mortality  charges and  modifying tax
reserving rules for annuity contracts. We have joined the insurance industry and
other  groups  opposing  these  taxes  upon  savings,  and we expect  that these
proposed changes will not be enacted into legislation.

       Our 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, 1997, the cumulative
taxes paid by our  insurance  subsidiaries  as a result of this  provision  were
$327.8 million.

       The  Company  had  tax  loss  carryforwards  at  December  31,  1997,  of
approximately $737.1 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.  We,  however,  believe we will be able to utilize  all  current  loss
carryforwards before they expire.

       ITEM 2. PROPERTIES.

       Our principal  operations are located on a 170-acre  corporate  campus in
Carmel,  Indiana,  immediately  north of  Indianapolis.  The 11 buildings on the
campus (all but one of which are owned)  contain  approximately  810,000  square
feet of space and house Conseco's  executive offices and certain  administrative
operations  of its  subsidiaries.  The  campus  has  ample  room for  additional
buildings to support future growth.

       Our supplemental health products are primarily administered from a single
facility of 300,000 square feet in downtown Chicago,  Illinois,  leased under an
agreement  having a  remaining  life of 10 years.  We also  lease  approximately
130,000 square feet of warehouse space in a second Chicago facility;  this lease
has a remaining life of five years.  Conseco owns an office  building in Kokomo,
Indiana (100,000 square feet),  and two office  buildings in Rockford,  Illinois
(total of 169,000  square  feet),  which  serve as  administrative  centers  for
portions  of our  insurance  operations.  Conseco  owns one office  building  in
Philadelphia,   Pennsylvania   (127,000  square  feet),   which  serves  as  the
administrative  center  for  our  direct  response  life  insurance  operations;
approximately  60 percent of this space is  occupied  by the  Company,  with the
remainder  leased to tenants.  Conseco leases 24,000 square feet of office space
in  Bensalem,  Pennsylvania,  and 4,000 square feet of office space in Sarasota,
Florida,  for use by our long-term care insurance  marketing  operations;  these
leases expire in 2000 and 1998, respectively.  Conseco leases 22,000 square feet
of office space in Schaumburg,  Illinois, for use by our major medical marketing
and certain information technology operations. Conseco also leases

                                       14

<PAGE>

210 sales offices in various states totaling  approximately 363,000 square feet;
these 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.  None of the  lawsuits  currently
pending, either individually or in the aggregate, is expected to have a material
adverse  effect on  Conseco's  consolidated  financial  condition  or results of
operations.

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

       None.




                                       15

<PAGE>


<TABLE>
<CAPTION>

       OPTIONAL ITEM.  EXECUTIVE OFFICERS OF THE REGISTRANT.

      Officer                                                       Positions with Conseco, principal
    name and age (a)                  Since                      occupation and business experience (b)
    ------------                      -----                      ----------------------------------
   <S>                               <C>            <C>

    Stephen C. Hilbert, 52.........   1979           Since 1979, Chairman of the Board and Chief Executive Officer and, since
                                                     1988, President of Conseco.

    Ngaire E. Cuneo, 47 ...........   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, 66.............   1986           Since 1986, Executive Vice President, Chief  Financial  Officer and Director of
                                                     Conseco.

    Donald F. Gongaware, 62........   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.   Mr. Gongaware is resigning from these  positions  (other than
                                                     as director of Conseco) effective March 31, 1998.

    John J. Sabl, 46...............   1997           Since  1997,  Executive  Vice  President,  General  Counsel  and  Secretary  of
                                                     Conseco; from 1983 to 1997 Partner in the law firm of Sidley & Austin.

    James S. Adams, 38.............   1997           Since 1997, Senior Vice President, Chief Accounting  Officer  and  Treasurer of
                                                     Conseco; from 1989 to present, Senior Vice President  and  Treasurer of various
                                                     Conseco subsidiaries.

    Thomas J. Kilian, 47...........   1998           Effective March 31, 1998, Executive Vice President and Chief Operations Officer
                                                     of  Conseco and  President of Conseco Marketing, LLC; from   1996  to March 31,
                                                     1998, President of Conseco Services, LLC (responsible for insurance operations,
                                                     data processing,  human  resources  and  administrative  services   for various
                                                     Conseco subsidiaries); from   1989  to 1996, Senior  Vice  President  of   data
                                                     processing for various Conseco subsidiaries.
-------------------
<FN>

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

    (b) Business experience is given for at least the last five years.
</FN>
</TABLE>
                                       16


<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>

                                                                   Market price
                      Period                                       ------------           Dividend
                      ------                                   High           Low            paid
                                                               ----           ---            ----
                      1996:
          <S>                                                <C>           <C>             <C>
         First Quarter..................................     $18-5/32      $14-15/16        $.00500
         Second Quarter.................................      20-3/8        17-3/8           .01000
         Third Quarter..................................      24-11/16      17-5/8           .01000
         Fourth Quarter.................................      33-1/8        24-7/16          .03125

                      1997:
         First Quarter..................................     $43-7/8       $30-3/4          $.03125
         Second Quarter.................................      42-7/8        34-1/4           .03125
         Third Quarter..................................      50            35-1/8           .03125
         Fourth Quarter.................................      50-1/16       39-7/8           .12500
</TABLE>

       As of March 13,  1998,  there were  approximately  74,000  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 our Board of
Directors.  Our  general  policy is to  retain  most of our  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; (iv) to repurchase common stock
on those occasions when we have  determined that our shares were  undervalued in
the market and that the use of funds for stock  repurchases  would not interfere
with other cash needs; and (v) to pay dividends on common stock.

       We  have  paid  all  cumulative  dividends  on our  preferred  stock  and
distributions  on  our   Company-obligated   mandatorily   redeemable  preferred
securities of subsidiary  trusts when due. We are prohibited  from paying common
stock  dividends if such  payments are not current.  Certain  Conseco  financing
agreements  require the Company to maintain  financial  ratios  which could also
limit its ability to pay dividends.

       Our ability to pay  dividends  depends  primarily  on the receipt of cash
dividends and other cash payments from our 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.  See "Management's  Discussion and Analysis of Consolidated Financial
Condition and Results of Operations -- Liquidity of Conseco (Parent Company)."

                                       17

<PAGE>
<TABLE>
<CAPTION>

       ITEM 6.  SELECTED CONSOLIDATED FINANCIAL DATA (a).

                                                                                 Years ended December 31,
                                                               ----------------------------------------------------------
                                                                1997          1996         1995         1994         1993
                                                                ----          ----         ----         ----         ----
                                                                      (Amounts in millions, except per share data)
<S>                                                           <C>          <C>          <C>          <C>          <C>
STATEMENT OF OPERATIONS DATA
Insurance policy income.....................................   $3,410.8     $1,654.2     $1,465.0    $1,285.6      $1,293.8
Net investment income.......................................    1,825.3      1,302.5      1,142.6       385.7         896.2
Net investment gains (losses) ..............................      266.5         60.8        204.1       (30.5)        242.6
Total revenues..............................................    5,568.4      3,067.3      2,855.3     1,862.0       2,636.0
Interest expense on notes payable...........................      109.4        108.1        119.4        59.3          58.0
Total benefits and expenses.................................    4,565.3      2,573.7      2,436.8     1,537.6       2,025.8
Income before income taxes, minority interest and
  extraordinary charge......................................    1,003.1        493.6        418.5       324.4         610.2
Extraordinary charge on extinguishment of debt, net of tax..        6.9         26.5          2.1         4.0          11.9
Net income..................................................      567.3        252.4        220.4       150.4         297.0
Preferred stock dividends and charge related to induced
  conversions of convertible preferred stock................       21.9         27.4         18.4        18.6          20.6
Net income applicable to common stock.......................      545.4        225.0        202.0       131.8         276.4

PER SHARE DATA (b)
Net income, basic...........................................      $2.94        $2.15       $ 2.48      $ 1.31        $ 2.74
Net income, diluted.........................................       2.64         1.82         2.12        1.22          2.20
Dividends declared per common share.........................       .313         .083         .046        .125          .075
Book value per common share outstanding.....................      20.22        16.86        10.22        5.22          8.45
Shares outstanding at year-end..............................      186.7        167.1         81.0        88.7         101.2
Weighted average shares outstanding for diluted earnings....      210.2        138.9        103.9       123.4         133.8

BALANCE SHEET DATA - PERIOD END
Total assets................................................  $35,914.8    $25,612.7    $17,297.5   $10,811.9     $13,749.3
Notes payable for which Conseco is directly liable..........    1,906.7      1,094.9        871.4       191.8         413.0
Notes payable of affiliates, not direct
  obligations of Conseco....................................        -            -          584.7       611.1         290.3
Commercial paper............................................      448.2          -            -            -            -
Total liabilities...........................................   30,640.1     21,829.7     15,782.5     9,743.2      12,382.9
Minority interests in consolidated subsidiaries:
  Company-obligated mandatorily redeemable
     preferred securities of subsidiary trusts..............    1,383.9        600.0          -            -            -
  Preferred stock...........................................        -           97.0        110.7       130.1           -
  Common stock..............................................         .7           .7        292.6       191.6         223.8
Shareholders' equity .......................................    3,890.1      3,085.3      1,111.7       747.0       1,142.6

OTHER FINANCIAL DATA (b) (c)
Premiums collected (d)......................................   $5,055.7     $3,280.2     $3,106.5    $1,879.1      $2,140.1
Operating earnings (e)......................................      574.9        267.7        131.3       151.7         162.0
Operating earnings per diluted common share (e).............       2.74         1.93         1.26        1.23          1.20
Shareholders' equity excluding unrealized appreciation
  (depreciation) of fixed maturity securities (f)...........    3,712.9      3,045.5        999.1       884.7       1,055.2
Book value per common share outstanding, excluding
  unrealized appreciation (depreciation) of fixed
  maturity securities (f)...................................      19.27        16.62         8.83        6.77          7.58

<FN>

  (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 Western  National Life
       Insurance  Company  ("Western  National") in 1994; (iii) the transactions
       affecting Conseco's ownership interest in BLH and CCP during 1993 through
       1996; (iv) the LPG Merger (completed effective July 1, 1996); (v) the ATC
       Merger  (December  31,  1996);  (vi) the THI Merger  (December 31, 1996);
       (vii) the CAF Merger  (January 1, 1997);  (viii) the PFS Merger (April 1,
       1997); (ix) the Colonial Penn Purchase  (September 30, 1997); and (x) the
       WNIC  Merger  (December  1,  1997).  For  periods  beginning  with  their
       acquisitions by

                                       18

<PAGE>

       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 CCP
       Merger, the financial  statements of CCP's subsidiaries were consolidated
       with the  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 Western
       National  were  consolidated  with the  financial  statements of Conseco.
       Following  the  completion  of the  initial  public  offering  of Western
       National in early 1994 (and subsequent disposition of Conseco's remaining
       equity interest in Western National), the financial statements of Western
       National 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.  Business
       combinations  completed  in 1997  and  1996  are  included  in  Conseco's
       financial  statements on the effective  date of the  acquisition  and 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  February  11, 1997 and April 1, 1996.
       Prior period earnings per share amounts have been restated to comply with
       the new  reporting  standards as described in note 1 to the  consolidated
       financial statements.

  (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 products and products
       without  mortality or morbidity  risk.  Such premiums are not reported as
       revenues under GAAP and were $2,099.4  million in 1997;  $1,881.3 million
       in 1996;  $1,757.5  million in 1995;  $634.6  million in 1994; and $891.9
       million in 1993.

  (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  (losses))  and  nonrecurring
       charges (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  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.
</FN>
</TABLE>


       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, 1997 and 1996, the consolidated  results of
operations for the three years ended  December 31, 1997, 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 consolidated financial data.

       All statements,  trend analyses and other  information  contained in this
report  and  elsewhere  (such  as in  other  filings  by the  Company  with  the
Securities and Exchange Commission, press releases, presentations by the Company
or its  management  or oral  statements)  relative to markets for the  Company's
products and trends in the Company's operations or financial results, as well as
other  statements  including  words  such as  "anticipate,"  "believe,"  "plan,"
"estimate,"  "expect,"  "intend,"  and  other  similar  expressions,  constitute
forward-looking statements under the Private Securities Litigation Reform Act of
1995. These  forward-looking  statements are subject to known and unknown risks,
uncertainties  and other factors that may cause actual  results to be materially
different  from  those  contemplated  by the  forward-looking  statements.  Such
factors include,  among other things: (i) general economic  conditions and other
factors, including prevailing interest rate levels, stock market performance and
health care  inflation,  which may affect the ability of the Company to sell its
products,  the market value of the Company's  investments and the lapse rate and
profitability of the Company's  policies;  (ii) the Company's ability to achieve
anticipated levels of operational  efficiencies at recently acquired  companies,
as well as through other cost-saving initiatives; (iii) customer response to new
products,  distribution  channels and  marketing  initiatives;  (iv)  mortality,
morbidity,  use of health care  services  and other  factors that may affect the
profitability of the Company's  insurance  products;  (v) changes in the federal
income tax laws and  regulations  that may affect the relative tax advantages of
some of the Company's products;  (vi) increasing  competition in the sale of the
Company's  products;  (vii)  regulatory  changes  or  actions,  including  those
relating to regulation of financial services affecting (among other things) bank
sales  and  underwriting  of  insurance   products,   regulation  of  the  sale,
underwriting  and pricing of  insurance  products,  and health  care  regulation
affecting the Company's health insurance products; (viii)

                                       19

<PAGE>

the availability and terms of future acquisitions;  and (ix) the risk factors or
uncertainties  listed from time to time in the Company's  other filings with the
Securities and Exchange Commission.

       Consolidated results and analysis

       Our 1997  operating  earnings were $574.9  million,  or $2.74 per diluted
share,  up 115  percent  and 42  percent,  respectively,  over  1996.  Operating
earnings  increased as a result of the LPG Merger  (completed  effective July 1,
1996), the ALH Stock Purchase (September 30, 1996), the ATC Merger (December 31,
1996),  the THI Merger  (December 31, 1996), the BLH Merger (December 31, 1996),
the CAF Merger (January 1, 1997),  the PFS Merger (April 1, 1997),  the Colonial
Penn Purchase (September 30, 1997) and the WNIC Merger (December 1, 1997) and as
a result of the  increased  business in force of these  acquired  companies  and
companies  previously owned. The percentage  increase in operating  earnings was
greater than the  percentage  increase in operating  earnings per diluted  share
primarily  because of the 51 percent increase in weighted average diluted common
shares or equivalents  outstanding during 1997. The increase in weighted average
diluted shares resulted from shares issued in certain 1997 and 1996 acquisitions
(the LPG Merger,  the ATC Merger, the THI Merger, the BLH Merger, the CAF Merger
and the PFS Merger), partially offset by repurchases of Conseco common stock.

       Our 1996  operating  earnings were $267.7  million,  or $1.93 per diluted
share,  up 104  percent  and 53  percent,  respectively,  over  1995.  Operating
earnings  increased as a result of the LPG Merger,  the ALH Stock Purchase,  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 our  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 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 Preferred  Redeemable  Increased
Dividend Equity Securities,  7% PRIDES  Convertible  Preferred Stock ("PRIDES"),
which are mandatorily convertible into shares of Conseco common stock.

       Net  income of  $567.3  million  in 1997,  or $2.64  per  diluted  share,
included:  (i) net  investment  gains (net of related  costs,  amortization  and
taxes) of $44.1 million,  or 21 cents per diluted share;  (ii) an  extraordinary
charge of $6.9  million,  or 3 cents per share,  related to early  retirement of
debt;  (iii) a charge of 7 cents per share related to the induced  conversion of
preferred stock (treated as a preferred stock dividend);  and (iv)  nonrecurring
charges  totaling $44.8  million,  or 21 cents per share.  Nonrecurring  charges
include:  (i) $40.5  million  related to our  Medicare  supplement  business  in
Massachusetts;  and (ii)  $4.3  million  related  to the  death of an  executive
officer.  Regulators in  Massachusetts  have not allowed  premium  increases for
Medicare supplement  products necessary to avoid losses on the business.  We are
currently  seeking  rate  increases.  We  are no  longer  writing  new  Medicare
supplement  business in Massachusetts.  We have written off the cost of policies
purchased  and produced and accrued  additional  claim  reserves  related to our
in-force Massachusetts Medicare supplement business due to the estimated premium
deficiencies.

       Net  income of  $252.4  million  in 1996,  or $1.82  per  diluted  share,
included:  (i) net  investment  gains (net of related  costs,  amortization  and
taxes) of $11.2 million, or 8 cents per diluted share; and (ii) 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 $2.12  per  diluted  share,
included:  (i) net  investment  gains (net of related  costs,  amortization  and
taxes) of $16.3 million,  or 16 cents per share;  (ii)  restructuring  income of
$74.9  million,  or 72 cents per share,  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's  ownership of these companies exceeded
80 percent);  and (iii) an extraordinary  charge of $2.1 million, or 2 cents per
share, related to early retirement of debt.

       Total revenues  include net  investment  gains of $266.5 million in 1997,
$60.8  million in 1996 and  $204.1  million in 1995.  Excluding  net  investment
gains, total revenues were $5.3 billion in 1997, up 76 percent from $3.0 billion
in 1996. Total revenues in 1997 include a full year of activity for acquisitions
completed in 1996 and the revenues of CAF,  PFS,  Colonial  Penn and WNIC in the
periods  subsequent to their  acquisitions.  Total  revenues in 1996 include LPG
revenues after July 1, 1996.  Total  revenues,  excluding net investment  gains,
were up 13 percent in 1996 from $2.7 billion in 1995.

                                       20

<PAGE>


       Results of operations  by segment for the three years ended  December 31,
       1997:

       The  following  tables  and  narratives  summarize  the  results  of  our
operations by business  segment.  All amounts reported in these summaries relate
solely  to  periods  after  the  companies  were  included  in our  consolidated
financial statements.
<TABLE>
<CAPTION>

                                                                                  1997             1996              1995
                                                                                  ----             ----              ----
                                                                                           (Dollars in millions)
<S>                                                                             <C>              <C>              <C>
Income  before  income  taxes,   minority  interest  and  extraordinary  charge:
   Supplemental health:
     Operating income...........................................................$   408.0         $  136.6         $   96.0
     Net investment gains, net of related costs.................................     26.3               .1              1.1
     Nonrecurring charges.......................................................    (62.4)              -                -
                                                                                ---------         ---------        --------

         Income before income taxes, minority interest and extraordinary charge     371.9            136.7             97.1
                                                                                ---------         --------         --------

   Annuities:
     Operating income ..........................................................    305.1            255.0            244.1
     Net investment gains (losses), net of related costs and amortization ......     53.2              (.7)            72.0
                                                                                ---------         --------         --------

         Income before income taxes, minority interest and extraordinary charge     358.3            254.3            316.1
                                                                                ---------         --------         --------

   Life insurance:
     Operating income...........................................................    304.7            126.8             74.8
     Net investment gains (losses), net of related costs and amortization.......      2.4             (2.0)            (4.6)
                                                                                ---------         --------         ---------

         Income before income taxes, minority interest and extraordinary charge     307.1            124.8             70.2
                                                                                ---------         --------         --------

   Individual and group major medical:
     Operating income...........................................................     40.2             32.1             35.1
     Net investment gains, net of related costs.................................       .1               -                .1
                                                                                ---------         --------         --------

         Income before income taxes, minority interest and extraordinary charge      40.3             32.1             35.2
                                                                                ---------         --------        ---------

   Other:
     Operating income...........................................................     58.3             30.7             31.5
     Net investment gains (losses), net of related costs........................      3.3             27.4             (6.3)
                                                                                ---------         --------         --------

         Income before income taxes, minority interest and extraordinary charge      61.6             58.1             25.2
                                                                                ---------         --------         --------

   Corporate:
     Interest and other corporate expenses......................................   (126.8)          (112.4)          (140.5)
     Nonrecurring charges.......................................................     (9.3)              -                -
     Net investment gains, net of related costs.................................       -                -              15.2
                                                                                ---------         --------         --------

         Net corporate expenses.................................................   (136.1)          (112.4)          (125.3)
                                                                                ---------         --------         --------

   Consolidated:
     Operating income...........................................................    989.5            468.8            341.0
     Net investment gains, net of related costs and amortization ...............     85.3             24.8             77.5
     Nonrecurring charges.......................................................    (71.7)              -                -
                                                                                ---------         --------         --------

         Income before income taxes, minority interest and extraordinary charge   1,003.1            493.6            418.5

Income tax expense..............................................................    376.6            179.8             87.0
                                                                                ---------         --------         --------

         Income before minority interest and extraordinary charge...............    626.5            313.8            331.5

Minority interest in consolidated subsidiaries:
   Distributions on Company-obligated mandatorily redeemable preferred
     securities of subsidiary trusts............................................     49.0              3.6               -
   Dividends on preferred stock of subsidiaries.................................      3.3              8.9             11.9
   Equity in earnings of subsidiaries...........................................       -              22.4             97.1
                                                                                ---------         --------         --------

         Income before extraordinary charge....................................     574.2            278.9            222.5

Extraordinary charge on extinguishment of debt, net of taxes and
   minority interest............................................................      6.9             26.5              2.1
                                                                                ---------         --------         --------

         Net income.............................................................$   567.3         $  252.4         $  220.4
                                                                                =========         ========         ========

</TABLE>
                                       21

<PAGE>


Supplemental health:
<TABLE>
<CAPTION>
                                                                         1997              1996             1995
                                                                         ----              ----             ----
                                                                                   (Dollars in millions)
<S>                                                                  <C>              <C>                 <C>
Premiums collected:
   Medicare supplement (first-year).............................     $   101.9           $  72.5          $  81.1
   Medicare supplement (renewal)................................         694.5             545.4            515.6
                                                                     ---------           -------          -------

       Subtotal - Medicare supplement...........................         796.4             617.9            596.7
                                                                     ---------           -------          -------

   Long-term care (first-year)..................................         143.4              51.6             44.4
   Long-term care (renewal).....................................         520.5             141.3             97.7
                                                                     ---------           -------          -------

       Subtotal - long-term care................................         663.9             192.9            142.1
                                                                     ---------           -------          -------

   Specified-disease (first-year)...............................          44.7                -                -
   Specified-disease (renewal)..................................         338.7                -                -
                                                                     ---------           -------         --------

       Subtotal - specified-disease.............................         383.4                -                -
                                                                     ---------           -------          -------

       Total supplemental health premiums collected.............      $1,843.7           $ 810.8           $738.8
                                                                      ========           =======           ======

Insurance policy income.........................................      $1,858.1           $ 805.9           $756.9
Net investment income...........................................         273.8              66.6             66.9
                                                                      --------           -------          -------

     Total revenues (a).........................................       2,131.9             872.5            823.8
                                                                     ---------           -------          -------

Insurance policy benefits and change in future policy benefits..       1,217.5             531.8            525.6
Amortization related to operations..............................         232.1              87.8             81.6
Interest expense on investment borrowings.......................           6.3               1.1              1.4
Other operating costs and expenses..............................         268.0             115.2            119.2
                                                                     ---------           -------          -------

     Total benefits and expenses................................       1,723.9             735.9            727.8
                                                                     ---------           -------          -------

     Operating income before income taxes,
       minority interest and extraordinary
       charge...................................................         408.0             136.6             96.0

Net investment gains, net of related costs......................          26.3                .1              1.1
Nonrecurring charges............................................         (62.4)               -                -
                                                                     ---------           -------          -------
       Income before income taxes, minority
         interest and extraordinary charge......................     $   371.9            $136.7            $97.1
                                                                     =========            ======            =====

Loss ratios:
   Medicare supplement products.................................          69.1%             68.2%            71.7%
   Long-term care products......................................          63.6              58.7             60.5
   Specified-disease products...................................          61.6                -                -
<FN>

(a)    Revenues exclude net investment gains.
</FN>
</TABLE>

       General:  This segment  includes  Medicare  supplement and long-term care
insurance products,  primarily sold to senior citizens, and effective January 1,
1997  (as a  result  of the  acquisitions  of CAF  and  THI),  specified-disease
products.  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.  The  segment's  1997  results  of
operations are significantly  affected by recent acquisitions (ATC, THI and CAF,
effective  January 1, 1997;  PFS,  effective  April 1, 1997;  and Colonial Penn,
effective  September 30, 1997).  The  supplemental  health products of THI, CAF,
ATC, PFS and Colonial Penn are all distributed through professional  independent
producers.  The  profitability  of this segment  largely  depends on the overall
level of sales,  persistency of in-force business,  claim experience and expense
management.
                                       22
<PAGE>


       Premiums collected by this segment in 1997 were $1,843.7 million,  up 127
percent from 1996.  Premiums  collected in 1996 increased to $810.8 million,  up
9.7 percent.

       Medicare  supplement  policies accounted for 43 percent of this segment's
collected premiums in 1997, compared with more than 75 percent of this segment's
collected premiums in 1996 and 1995. The change in the mix of premiums collected
reflects the more diverse  supplemental health lines sold by Conseco as a result
of the recent  acquisitions.  Collected premiums on Medicare supplement policies
increased 29 percent in 1997,  to $796.4  million,  and increased 3.6 percent in
1996,  to  $617.9  million.   Such  increases   primarily   reflect  the  recent
acquisitions  and a larger base of premiums due to rate increases.  The sales of
Medicare  supplement  policies have been affected by: (i) steps taken to improve
profitability  by  increasing  premium  rates and changing  both the  commission
structure and the underwriting  criteria for these policies;  and (ii) increased
competition from alternative providers, including HMOs.

       Premiums  collected on long-term  care policies  increased 244 percent in
1997, to $663.9 million,  and 36 percent in 1996, to $192.9 million.  First-year
collected premiums in 1997, 1996 and 1995 were $143.4 million, $51.6 million and
$44.4 million,  respectively.  The increase in long-term care premiums collected
primarily reflects the acquisition of recently acquired companies.

       Premiums collected on  specified-disease  policies were $383.4 million in
1997, substantially all of which were collected by recently acquired companies.

       Insurance  policy  income  comprises  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  increased 311 percent in 1997, to $273.8 million,
and did not change materially in 1996 compared with 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 1997, the segment's  average invested assets increased  approximately 278
percent, to $3.4 billion,  and the net yield on invested assets increased to 8.0
percent from 7.6 percent.  During 1996, the segment's  average  invested  assets
increased  approximately  5.0  percent,  to $.9  billion,  and the net  yield on
invested assets decreased from 8.0 percent to 7.6 percent.  Invested assets grew
as a result of the growth in  insurance  liabilities  related  to the  segment's
business.

       Insurance policy benefits and change in future policy benefits  increased
in 1997, reflecting recent acquisitions,  the larger amount of business in force
on which benefits are incurred,  and a higher incidence of claims.  This account
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. In 1997, the ratio
of policy  benefits  to  insurance  policy  income for the  Medicare  supplement
policies  increased to 69.1 percent from 68.2 percent,  reflecting the different
characteristics  of such  policies in  recently  acquired  companies  as well as
fluctuations  in claim  experience.  In 1996,  the ratio of policy  benefits  to
insurance  policy income for Medicare  supplement  policies fell 3.5  percentage
points to 68.2 percent,  reflecting  the premium rate  increases  implemented in
1996 and 1995.

       Changes in the ratio of policy  benefits to insurance  policy  income for
long-term care policies reflect  different  characteristics  of such policies in
recently  acquired  companies as well as  fluctuations  in claim  experience and
reserve  development.  In 1997, the long-term  care loss ratio  increased by 4.9
percentage points, to 63.6 percent.  In 1996, the long-term care loss ratio fell
by 1.8 percentage points, to 58.7 percent.

       The  ratio  of  policy   benefits   to   insurance   policy   income  for
specified-disease policies was 61.6 percent in 1997. Such products were not sold
by Conseco prior to the acquisitions of THI and CAF.

       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  increased
primarily  because of the  increase in  balances  subject to  amortization  as a
result of recent acquisitions.

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

       Other operating  costs and expenses  increased in 1997 from the increased
business of recently acquired companies. Such expenses did not change materially
in 1996 compared with 1995.


                                       23

<PAGE>

       Net investment  gains, net of related costs,  often fluctuate from period
to period.

       Nonrecurring  charges for 1997 represent an increase to claim reserves of
$41.5  million  and the  write-off  of cost of  policies  produced  and  cost of
policies purchased of $20.9 million related to Medicare  supplement  business in
the state of  Massachusetts.  Regulators in that state have not allowed  premium
increases  for  Medicare  supplement  products  necessary to avoid losses on the
business. We are currently seeking rate increases.  We are no longer writing new
Medicare supplement business in Massachusetts.

                                       24

<PAGE>


<TABLE>
<CAPTION>

Annuities:
                                                                        1997               1996             1995
                                                                        ----               ----             ----

                                                                                   (Dollars in millions)
<S>                                                                 <C>                 <C>               <C>
Annuity premiums collected:
   Traditional fixed (first-year)................................   $   857.8            $1,148.6         $1,536.4
   Traditional fixed (renewal)...................................        79.4                92.7             62.8
                                                                    ---------            --------         --------

       Subtotal - traditional fixed..............................       937.2             1,241.3          1,599.2
                                                                    ---------            --------         --------

   Market value - adjusted (first-year)..........................       165.7               237.2             27.7
   Market value - adjusted (renewal).............................        13.8                20.5              3.1
                                                                    ---------            --------         --------

       Subtotal - market value - adjusted........................       179.5               257.7             30.8
                                                                    ---------            --------         --------

   Equity-indexed (all first-year)...............................       387.7                80.4               -
                                                                    ---------            --------         --------

   Variable annuities (first-year)...............................       127.4                37.9             17.2
   Variable annuities (renewal)..................................        57.8                53.0             46.7
                                                                    ---------            --------         --------

       Subtotal - variable annuities.............................       185.2                90.9             63.9
                                                                    ---------            --------         --------

       Total annuity premiums collected..........................    $1,689.6            $1,670.3         $1,693.9
                                                                     ========            ========         ========

Insurance policy income..........................................   $    96.8            $   77.6         $   68.4
Net investment income:
   General account invested assets...............................       960.9               891.2            851.5
   Change in fair value of S&P 500 Call Options..................        39.4                  -                -
   Separate account assets.......................................        70.3                48.4             28.8
                                                                    ---------            --------         --------

         Total revenues (a)......................................     1,167.4             1,017.2            948.7
                                                                    ---------            --------         --------

Insurance policy benefits and change in future policy benefits...        74.1                67.3             61.8
Amounts added to policyholder account balances:
   Annuity products other than those listed below................       542.2               523.2            505.0
   Equity-indexed products based on S&P 500 Index................        39.3                  -                -
   Variable annuity products.....................................        70.3                48.4             28.8
Amortization related to operations...............................        84.8                76.9             64.9
Interest expense on investment borrowings........................        23.2                14.3             16.9
Other operating costs and expenses...............................        28.4                32.1             27.2
                                                                    ---------            --------         --------

         Total benefits and expenses (a).........................       862.3               762.2            704.6
                                                                    ---------            --------         --------

         Operating income before income taxes, minority
           interest and extraordinary charge.....................       305.1               255.0            244.1

Net investment gains (losses), net of related costs and
   amortization..................................................        53.2                 (.7)            72.0
                                                                    ---------            --------         --------

         Income before income taxes, minority interest
           and extraordinary charge..............................   $   358.3           $   254.3        $  316.1
                                                                    =========           =========        ========

Weighted average gross interest spread on annuity products (b)...         2.8%                2.9%            3.1%
                                                                          ===                 ===             ===

Total traditional fixed and market value-adjusted annuity
   product insurance liabilities at end of period................   $13,007.4           $11,998.6       $10,169.1
                                                                    =========           =========       =========

Total annuity product insurance liabilities at end of period.....   $14,150.8           $12,421.8       $10,396.1
                                                                    =========           =========       =========
<FN>

(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.

</FN>
</TABLE>

       General:  This segment includes  traditional  fixed rate annuity products
(SPDAs, FPDAs and SPIAs), market value-adjusted annuity products, equity-indexed
annuity  products and  variable  annuities  sold through both career  agents and
professional  independent  producers.  The profitability of this segment largely
depends on the investment spread earned (i.e., the excess of investment earnings

                                       25


<PAGE>



over  interest  credited  on annuity  deposits),  the  persistency  of  in-force
business, and expense management. In addition,  comparability between periods is
affected by: (i) the LPG Merger,  effective July 1, 1996; and (ii) the ALH Stock
Purchase, effective September 30, 1996.

       Premiums collected by this segment in 1997 were $1,689.6 million,  up 1.2
percent over 1996.  Premiums  collected in 1996 were $1,670.3 million,  down 1.4
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 modest increase
in annuity  premiums  collected,  despite the full-year impact of the former LPG
subsidiaries.

       Traditional  fixed rate annuity products include SPDAs,  FPDAs and SPIAs,
which are credited with a guaranteed rate. SPDA and FPDA policies (which make up
78 percent, 84 percent and 90 percent of traditional fixed rate annuity premiums
collected in 1997, 1996 and 1995,  respectively) typically have an interest rate
that is  guaranteed  for  the  first  policy  year,  after  which  we  have  the
discretionary  ability  to  change  the  crediting  rate to any rate not below a
guaranteed  minimum rate. The interest rate credited on SPIAs is based on market
conditions  existing when a policy is issued and remains unchanged over the life
of the SPIA.  The  demand  for  traditional  fixed rate  annuity  contracts  has
decreased in recent  years,  as  relatively  low interest  rates have made other
investment  products  more  attractive.   Annuity  premiums  on  these  products
decreased 24 percent in 1997,  to $937.2  million,  and  decreased 22 percent in
1996, to $1,241.3 million.

       We offer  deferred  annuity  products  with a "market  value  adjustment"
feature designed to provide additional protection from early terminations during
a period of rising interest rates by reducing the surrender value payable upon a
full surrender of the policy in excess of the allowable penalty-free  withdrawal
amount.  Conversely,  during a period of declining  interest  rates,  the market
value  adjustment  feature  would  increase the  surrender  value payable to the
policyholder.  Annuity premiums collected with this feature represent 11 percent
and 16  percent  of total  annuity  premiums  collected  during  1997 and  1996,
respectively.

       In response to consumers' desire for alternative investment products with
returns linked to equities,  we introduced an equity- indexed annuity product in
June 1996. 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.  We purchase S&P 500 Call Options in an effort to hedge
potential increases to policyholder benefits resulting from increases in the S&P
500 Index to which the product's return is linked.  Total collected premiums for
this product were $387.7 million in 1997 compared with $80.4 million in 1996.

       Variable  annuities offer contract  holders a rate of return based on 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, we began to offer
more  investment  options for  variable  annuity  deposits,  and we expanded our
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.  Variable annuity collected premiums increased
104 percent in 1997,  to $185.2  million,  and  increased 42 percent in 1996, to
$90.9 million.

       Insurance policy income includes:  (i) premiums received on SPIA 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 1997 and 1996  primarily  because of increased  surrender  charges
collected  (changes in premiums received on policies with mortality features and
cost  of  insurance   and  expenses   charged  to  annuity   policies  were  not
significant).  Surrender  charges were $64.0  million in 1997,  $41.2 million in
1996 and $28.6 million in 1995.  Annuity policy withdrawals were $1.8 billion in
1997,  compared with $1.7 billion in 1996 and $1.5 billion in 1995. The increase
in policy  withdrawals and surrender charges generally  corresponds to the aging
and the growth of our annuity business in force. In addition,  policyholders are
using the  systematic  withdrawal  features  available in several of our annuity
policies,  and  more  policyholders  are  surrendering  in order  to  invest  in
alternative  investments.  Total withdrawals and surrenders were 15 percent,  16
percent  and 16  percent  of  insurance  liabilities  related  to  surrenderable
policies in 1997, 1996 and 1995, respectively.

       Net  investment  income on general  account  invested  assets  (excluding
income on separate  account assets related to variable  annuities and the change
in the fair value of S&P 500 Call Options  related to  equity-indexed  products)
increased 7.8 percent in 1997, to $960.9  million,  and increased 4.7 percent in
1996,  to $891.2  million.  These  increases  primarily  reflect the increase in
general  account  invested  assets  acquired  in  conjunction  with  the  recent
acquisitions.  The segment's  average  invested  assets  increased 11 percent to
$12.8 billion in 1997,  compared with 1996, and the  annualized  yield earned on
average  invested assets  decreased from 7.9 percent to 7.5 percent in 1997. The
segment's average invested assets increased 10 percent to $11.2 billion in 1996,
and the annualized  yield earned on average  invested assets  decreased from 8.4
percent  to 7.9  percent  in 1996.  Cash  flows  received  during  1997 and 1996
(including  cash flows from the sales of  investments)  were  invested  in lower
yielding securities due to a general decline in interest rates.


                                       26

<PAGE>

       Net  investment  income  from the  change  in fair  value of S&P 500 Call
Options is  substantially  offset by a corresponding  charge to amounts added to
policyholder  account  balances  for  equity-indexed  products.  Such income and
related charge  fluctuate based on the performance of the S&P 500 Index to which
the returns on such products are linked.

       Net  investment  income  on  separate  account  assets  is  offset  by  a
corresponding  charge to amounts  added to  policyholder  account  balances  for
variable  annuity  products.   Such  income  and  related  charge  fluctuate  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.

       Amounts added to policyholder  account  balances for interest  expense on
annuity  products  increased  3.6  percent  in 1997  and 3.6  percent  in  1996,
primarily due to a larger block of annuity business in force in 1997,  partially
offset by a reduction in crediting rates.  The weighted average  crediting rates
for these annuity  liabilities were 4.8 percent in 1997, 5.0 percent in 1996 and
5.3 percent in 1995.

       Amortization  related to  operations  increased 10 percent in 1997 and 18
percent in 1996.  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
increased  primarily because of the increase in balances subject to amortization
as a result of recent acquisitions.

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

       Other  operating  costs and  expenses  decreased  12  percent in 1997 and
increased 18 percent in 1996.  Other operating costs and expenses were favorably
affected in 1997 by the  consolidation  of all annuity  operations  in Conseco's
Carmel, Indiana facilities. The increase in 1996 corresponds to the increases in
the total  business  in force  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.  Selling  securities  at a gain  and
reinvesting  the proceeds at lower yields may, absent other  management  action,
tend to  decrease  future  investment  yields.  We  believe,  however,  that the
following  factors  mitigate the adverse effect of such decreases on net income:
(i) we 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) we 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 $132.0 million in 1997, $31.6 million in 1996 and
$117.3 million in 1995.



                                       27

<PAGE>



Life insurance:
<TABLE>
<CAPTION>
                                                                         1997              1996             1995
                                                                         ----              ----             ----
                                                                                   (Dollars in millions)
<S>                                                                  <C>                <C>              <C>
Premiums collected:
   Universal life (first-year).......................................$     96.6          $  62.2         $    15.7
   Universal life (renewal)..........................................     354.3            208.9              97.4
                                                                     ----------          -------         ---------

       Subtotal - universal life.....................................     450.9            271.1             113.1
                                                                     ----------          -------         ---------

   Traditional life (first-year).....................................      49.0             17.0              16.1
   Traditional life (renewal)........................................     209.1            115.5             124.4
                                                                     ----------          -------         ---------

       Subtotal - traditional life...................................     258.1            132.5             140.5
                                                                     ----------          -------         ---------

           Total life premiums collected.............................$    709.0          $ 403.6         $   253.6
                                                                     ==========          =======         =========
Insurance policy income:
   Premiums earned on traditional life products......................$    258.6          $ 141.1         $   143.5
   Mortality charges and administrative fees.........................     357.8            211.2              73.8
   Surrender charges.................................................      14.1              8.2               5.1
                                                                     ----------          -------         ---------

     Total insurance policy income...................................     630.5            360.5             222.4

Net investment income................................................     448.2            279.7             176.9
                                                                     ----------          -------         ---------

           Total revenues (a)........................................   1,078.7            640.2             399.3
                                                                     ----------          -------         ---------

Insurance policy benefits and change in future policy benefits.......     456.9            270.5             182.5
Interest added to financial product policyholder account balances....     154.9             97.0              51.6
Amortization related to operations...................................      61.3             48.1              33.4
Interest expense on investment borrowings............................      11.6              6.3               3.5
Other operating costs and expenses...................................      89.3             91.5              53.5
                                                                     ----------          -------         ---------

           Total benefits and expenses (a)...........................     774.0            513.4             324.5
                                                                     ----------          -------         ---------

           Operating income before income taxes,
              minority interest and extraordinary
              charge.................................................     304.7            126.8              74.8

Net investment gains (losses), net of related costs
   and amortization..................................................       2.4             (2.0)             (4.6)
                                                                     ----------          -------         ---------
           Income before income taxes, minority
              interest and extraordinary charge......................$    307.1          $ 124.8         $    70.2
                                                                     ==========          =======         =========

Total life product insurance liabilities.............................$  7,075.0         $4,992.7         $ 2,102.2
                                                                     ==========         ========         =========

Life insurance in force..............................................$104,144.5        $80,149.5         $33,783.2
                                                                     ==========        =========         =========
<FN>
(a)    Revenues  exclude net investment  gains  (losses);  benefits and expenses
       exclude amortization related to net investment gains (losses).
</FN>
</TABLE>
       General:  This  segment  includes  traditional  life and  universal  life
products sold through  career  agents,  professional  independent  producers and
direct  response   distribution   channels.   This  segment's   operations  were
significantly  affected by recent  acquisitions (LPG effective July 1, 1996; PFS
effective  April 1, 1997;  Colonial Penn effective  September 30, 1997; and WNIC
effective  December 1, 1997). The  profitability of this segment largely depends
on the  investment  spread  earned (for  universal  life),  the  persistency  of
in-force business, claim experience and expense management.


                                       28

<PAGE>

       Premiums  collected by this segment were up 76 percent in 1997, to $709.0
million.  Premiums  collected  in 1996  were up 59  percent  in 1996,  to $403.6
million.  Such  increases  relate  primarily  to premiums  collected by recently
acquired companies in periods after their acquisition.

       Universal life product collected  premiums  increased 66 percent in 1997,
to $450.9 million, and increased 140 percent in 1996, to $271.1 million.

       Traditional life product collected premiums increased 95 percent in 1997,
to $258.1 million, and decreased 5.7 percent in 1996, to $132.5 million.

       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
policyholders' account balances.

       All three  components of insurance  policy income have increased over the
last three years primarily as a result of the acquisition transactions described
above under "General."

       Net investment  income  increased 60 percent in 1997, to $448.2  million,
and 58 percent in 1996, to $279.7  million.  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  1997,  the
segment's average invested assets increased 71 percent, to $6.0 billion, and the
net yield on invested assets  decreased from 7.9 percent to 7.5 percent.  During
1996,  the  segment's  average  invested  assets  increased 66 percent,  to $3.5
billion,  and the net yield on invested assets decreased from 8.4 percent to 7.9
percent.  Invested  assets grew primarily 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 1997 and 1996,  reflecting  the larger  amount of  business in force on which
benefits  are  incurred as a result of the  acquisition  transactions  described
above under  "General."  There were no unusual  fluctuations in claim experience
during the periods.

       Interest  added  to  financial  product   policyholder  account  balances
increased  60 percent in 1997,  to $154.9  million,  and 88 percent in 1996,  to
$97.0  million.  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 1997, such average  liabilities  increased 66
percent,  to $3.3 billion,  and the rate credited  decreased from 5.0 percent to
4.8 percent. During 1996, such average liabilities increased 98 percent, to $2.0
billion,  and the rate  credited  decreased  from 5.2  percent  to 5.0  percent.
Universal  life  product  liabilities  increased  primarily  as a result  of the
acquisition transactions described above under "General."

       Amortization related to operations increased 27 percent in 1997, to $61.3
million,  and 44  percent in 1996,  to $48.1  million.  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 the increases in
balances subject to amortization as a result of the recent acquisitions,  net of
the effect of reductions  in the balances of the cost of policies  purchased and
cost of policies produced  resulting from net investment gains recognized during
1997 and 1996 (see "Net investment gains (losses)" below).

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

       Other  operating  costs and expenses  decreased  2.4 percent in 1997,  to
$89.3  million,  and  increased  71  percent  in  1996,  to $91.5  million.  The
fluctuations  correspond to the increases in this segment's business as a result
of recent  acquisitions,  offset in 1997 by  expense  reductions  realized  as a
result of the consolidation of certain operations.

       Net investment  gains  (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 $49.2 million in 1997, $4.4 million in 1996
and $9.3 million in 1995.




                                       29

<PAGE>



Individual and group major medical:
<TABLE>
<CAPTION>

                                                                           1997               1996            1995
                                                                           ----               ----            ----
                                                                                      (Dollars in millions)
<S>                                                                      <C>                <C>             <C>


Premiums collected:
   Individual (first-year)...............................................$  70.3            $    6.0        $    8.4
   Individual (renewal)..................................................  147.4                44.9            56.1
                                                                         -------            --------        --------

       Subtotal - individual.............................................  217.7                50.9            64.5
                                                                         -------            --------        --------

   Group (first-year)....................................................   63.6                  -               -
   Group (renewal).......................................................  462.9               290.1           289.1
                                                                         -------            --------        --------

       Subtotal - group..................................................  526.5               290.1           289.1
                                                                         -------            --------        --------

       Total individual and group major medical premiums collected.......$ 744.2            $  341.0        $  353.6
                                                                         =======            ========        ========

Insurance policy income..................................................$ 758.1            $  357.0        $  352.0
Net investment income....................................................   17.3                 8.8             9.5
                                                                         -------            --------        --------

       Total revenues (a)................................................  775.4               365.8           361.5
                                                                         -------            --------        --------

Insurance policy benefits and changes in future policy benefits..........  579.5               300.3           300.8
Amortization related to operations.......................................   21.2                16.0            13.6
Interest expense on investment borrowings................................     .6                  .1              .2
Other operating costs and expenses.......................................  133.9                17.3            11.8
                                                                         -------            --------        --------

       Total benefits and expenses.......................................  735.2               333.7           326.4
                                                                         -------            --------        --------

       Operating income before income taxes, minority interest and
         extraordinary charge............................................   40.2                32.1            35.1

Net investment gains, net of related costs...............................     .1                  -               .1
                                                                         -------            --------        --------

       Income before income taxes, minority interest and extraordinary
         charge..........................................................$  40.3            $   32.1        $   35.2
                                                                         =======            ========        ========

Benefit ratio ...........................................................   78.0%               85.7%           85.4%
<FN>

(a)  Revenues exclude net investment gains.
</FN>
</TABLE>
       General:  This segment includes individual and group major medical health
insurance products.  The segment's operations were significantly affected by the
PFS Merger,  effective April 1, 1997, and to a lesser extent, by the LPG Merger,
effective July 1, 1996. The  profitability  of this business  depends largely on
the overall  persistency of the business in force,  as well as claim  experience
and expense management.

       Premiums  collected by this  segment  increased  118 percent in 1997,  to
$744.2 million, and decreased 3.6 percent in 1996, to $341.0 million. Individual
health premiums increased 328 percent in 1997, to $217.7 million,  and decreased
21 percent in 1996, to $50.9  million.  Group  premiums  increased 81 percent in
1997, to $526.5 million,  and did not change  materially  between 1995 and 1996.
The recently acquired companies accounted for all of the 1997 increases.

       Insurance  policy  income  comprises  premiums  earned  on the  segment's
policies  and fee income  earned for group  medical  risk  management  services.
Fluctuations in premiums  earned have been  consistent with the  fluctuations in
premiums collected  described above. Fee income (which is earned by a subsidiary
acquired in the LPG Merger) was $15.0 million in 1997 and $7.0 million in 1996.

       Net investment income increased 97 percent in 1997, to $17.3 million, and
decreased  7.4 percent in 1996, to $8.8 million.  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
1997, the segment's average invested assets increased approximately 111 percent,
to $244.0  million,  and the net yield on  invested  assets  decreased  from 7.6
percent to 7.1 percent. During 1996, the segment's average

                                       30

<PAGE>

invested  assets  did not  change  significantly  and the net yield on  invested
assets  decreased  from 7.9  percent to 7.6  percent.  Average  invested  assets
increased in 1997 as a result of the PFS Merger.

       Insurance policy benefits and change in future policy benefits  increased
in 1997,  primarily  as a result of the  larger  amount of segment  business  in
force.  In 1997,  the  ratio of  policy  benefits  to  insurance  policy  income
decreased 7.7 percentage  points, to 78.0 percent.  In 1996, the ratio of policy
benefits to insurance policy income increased from 85.4 percent to 85.7 percent.
The lower  benefit  ratio in 1997  reflects:  (i) the lower  incidence of claims
experienced  on business  written by the acquired  companies  compared  with the
business of other Conseco subsidiaries; and (ii) favorable claim developments.

       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. Amortization expense increased 33 percent in
1997, to $21.2 million,  and 18 percent in 1996, to $16.0 million. The amount of
amortization  was  primarily  affected by the  increase  in balances  subject to
amortization as a result of the recent acquisitions.

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

       Other  operating  costs and expenses  increased  674 percent in 1997,  to
$133.9  million,  and 47  percent  in 1996,  to $17.3  million.  Such  increases
correspond to the increases in the total business in force related  primarily to
the recently acquired companies.

       Net investment gains, net of related costs, realized by this segment were
not material in 1997, 1996 or 1995.



                                       31

<PAGE>

Other:
<TABLE>
<CAPTION>

                                                                           1997               1996            1995
                                                                           ----               ----            ----
                                                                                      (Dollars in millions)
<S>                                                                    <C>                <C>             <C>
Premiums collected:
   Other (first-year)................................................   $    3.9           $    2.2        $     2.6
   Other (renewal)...................................................       65.3               52.3             64.0
                                                                        --------           --------        ---------

       Total other premiums collected................................   $   69.2           $   54.5        $    66.6
                                                                        ========           ========        =========

Insurance policy income..............................................   $   67.3           $   53.2        $    65.3
Net investment income................................................       15.4                7.8              9.0
Fee revenue and other income.........................................       65.8               49.8             43.6
                                                                        --------           --------        ---------

       Total revenues (a)............................................      148.5              110.8            117.9
                                                                        --------           --------        ---------

Insurance policy benefits and changes in future policy benefits......       40.3               25.1             36.8
Amortization related to operations...................................        9.4               11.2             10.1
Interest expense on investment borrowings............................         .3                 .2               .2
Other operating costs and expenses...................................       40.2               43.6             39.3
                                                                        --------           --------        ---------

       Total benefits and expenses ..................................       90.2               80.1             86.4
                                                                        --------           --------        ---------
       Operating income before income taxes,
         minority interest and extraordinary
         charge......................................................       58.3               30.7             31.5

Net investment gains (losses), net of related costs and amortization.        3.3               27.4             (6.3)
                                                                        --------           --------         --------
       Income before income taxes, minority
         interest and extraordinary charge...........................   $   61.6           $   58.1        $    25.2
                                                                        ========           ========        =========
<FN>

(a)    Revenues exclude net investment gains (losses).
</FN>
</TABLE>

       General:  This  segment  includes:  (i) various  other  health  insurance
products that are not currently  being  actively  marketed;  and (ii)  beginning
December 1, 1997, the specialty  health  insurance  products of WNIC marketed to
educators  through career agents.  The segment's  operations were  significantly
affected  by recent  acquisitions  (THI,  effective  January 1, 1997,  and WNIC,
effective  December 1, 1997). The profitability of this business depends largely
on the overall  persistency  of the  business  in force,  claim  experience  and
expense management.

       This  segment  also  includes  the fee revenue  generated by our non-life
subsidiaries,   including  the  investment  advisory  fees  earned  by  CCM  and
commissions   earned  for  insurance  and  investment   product   marketing  and
distribution.  Such amounts  exclude the fees and  commissions  we charge to our
consolidated  subsidiaries.  The profitability of the fee-based business depends
on the total fees generated and on expense management.

       Premiums collected by this segment increased 27 percent in 1997, to $69.2
million,  and  decreased 18 percent in 1996, to $54.5  million.  The increase in
premiums collected in 1997 primarily relates to recent acquisitions.

       We do not  emphasize  the sale of many of the  products in this  segment,
andcollected  premiums are expected to decrease in future  years.  However,  the
in-force business continues to be profitable.

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

       Net investment income increased 97 percent in 1997, to $15.4 million, and
decreased 13 percent in 1996, to $7.8 million. Such investment income fluctuated
primarily in  relationship to the amount of average  invested assets  supporting
this  segment's  insurance  liabilities.  During  1997,  the  segment's  average
invested assets  increased 96 percent,  to $199.5 million,  and the net yield on
invested assets did not change  materially.  During 1996, the segment's  average
invested assets decreased  approximately 8.6 percent, to $101.6 million, and the
net yield on invested assets decreased from 8.1 percent to 7.7 percent.

                                       32

<PAGE>
       Fee revenue and other income includes: (i) fees for investment management
and for mortgage  origination  and servicing;  and (ii)  commissions  earned for
insurance  and  investment  product  marketing  and  distribution.  Such amounts
exclude the fees and commissions we charge our  consolidated  subsidiaries.  Fee
revenue  and other  income  increased  32  percent  in 1997,  to $65.8  million,
primarily due to increased  investment  management  fees.  Fee revenue and other
income increased 14 percent in 1996, to $49.8 million,  primarily as a result of
the acquisition of certain property and casualty insurance brokerage businesses.

       Insurance policy benefits and change in future policy benefits  fluctuate
in relationship to the amount of segment  business in force and the incidence of
claims.

       Amortization  related to operations decreased 16 percent in 1997, to $9.4
million,  and  increased  11 percent  in 1996,  to $11.2  million.  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 decrease in amortization in 1997 is consistent with
the  declining  balance  of cost of  policies  purchased  and  cost of  policies
produced associated with the business included in this segment.  The increase in
1996 was  primarily  due to the  increases  in such  balances as a result of our
purchase  of  additional  shares  of BLH  common  stock  in 1995 and  1996.  The
acquisitions of THI and WNIC did not materially increase the balance of goodwill
and cost of policies  purchased  of this  segment  (valuations  of the  acquired
blocks indicated that such amounts were insignificant).

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

       In addition to the income of the five operating  segments,  income before
income taxes, minority interest and extraordinary charge is affected by interest
and other corporate expenses,  nonrecurring charges and net investment gains not
attributable to the operating segments.

       Interest and other corporate expenses were $126.8 million in 1997, $112.4
million in 1996, and $140.5 million in 1995.  Interest  expense included therein
was $109.4 million in 1997,  $108.1 million in 1996, and $119.4 million in 1995.
Such expense  fluctuates in relationship to the average debt outstanding  during
each period and the interest rate thereon.

       Nonrecurring  charges of $9.3 million in 1997 represent expenses incurred
related to the death of an executive officer.

       Net  investment  gains,  net of related  costs,  of $15.2 million in 1995
primarily  arose from the gain  realized on the sale of Conseco's  investment in
Eagle Credit (a finance subsidiary of Harley-Davidson).

       SALES

       In  accordance   with  GAAP,   insurance   policy  income  shown  in  our
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 assessed to the policy.








                                       33

<PAGE>

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

                                                                                        1997          1996        1995
                                                                                        ----          ----        ----
                                                                                              (Dollars in millions)
<S>                                                                                   <C>         <C>           <C>
Supplemental health:
   First-year.......................................................................  $   290.0    $   124.1    $   125.5
   Renewal..........................................................................    1,553.7        686.7        613.3
                                                                                      ---------    ---------    ---------

       Total supplemental health....................................................    1,843.7        810.8        738.8
                                                                                      ---------    ---------    ---------
Annuities:
   First-year ......................................................................    1,538.6      1,504.1      1,581.3
   Renewal..........................................................................      151.0        166.2        112.6
                                                                                      ---------    ---------    ---------

       Total annuities..............................................................    1,689.6      1,670.3      1,693.9
                                                                                      ---------    ---------    ---------

Life insurance:
   First-year.......................................................................      145.6         79.2         31.8
   Renewal..........................................................................      563.4        324.4        221.8
                                                                                      ---------    ---------    ---------

       Total life insurance.........................................................      709.0        403.6        253.6
                                                                                      ---------    ---------    ---------

Individual and group major medical:
   First-year.......................................................................      133.9          6.0          8.4
   Renewal..........................................................................      610.3        335.0        345.2
                                                                                      ---------    ---------    ---------

       Total individual and group major medical.....................................      744.2        341.0        353.6
                                                                                      ---------    ---------    ---------

Other:
   First-year.......................................................................        3.9          2.2          2.6
   Renewal..........................................................................       65.3         52.3         64.0
                                                                                      ---------    ---------    ---------

       Total other..................................................................       69.2         54.5         66.6
                                                                                      ---------    ---------    ---------

Total:
   First-year.......................................................................    2,112.0      1,715.6      1,749.6
   Renewal..........................................................................    2,943.7      1,564.6      1,356.9
                                                                                      ---------    ---------    ---------

      Total collected premiums......................................................  $ 5,055.7    $ 3,280.2    $ 3,106.5
                                                                                      =========    =========    =========

</TABLE>


                                       34

<PAGE>

       Fluctuations in premiums  collected are discussed above under "Results of
operations  by segment for the three years ended  December 31, 1997." Our recent
acquisitions will have a significant effect on future premiums collected.  Total
premiums collected for all currently consolidated companies (except subsidiaries
of WNIC,  which were  acquired on  December 1, 1997) for all periods  (including
periods prior to ownership by Conseco) are provided below:

<TABLE>
<CAPTION>
                                                                                        1997          1996         1995
                                                                                        ----          ----         ----
                                                                                              (Dollars in millions)
<S>                                                                                   <C>          <C>          <C>
Supplemental health:
   First-year.......................................................................  $   303.7    $   306.0    $   296.6
   Renewal..........................................................................    1,631.7      1,521.1      1,417.3
                                                                                      ---------    ---------    ---------

       Total supplemental health....................................................    1,935.4      1,827.1      1,713.9
                                                                                      ---------    ---------    ---------

Annuities:
   First-year.......................................................................    1,540.9      1,549.1      1,613.1
   Renewal..........................................................................      138.8        182.9        177.3
                                                                                      ---------    ---------    ---------

       Total annuities..............................................................    1,679.7      1,732.0      1,790.4
                                                                                      ---------    ---------    ---------

Life insurance:
   First-year.......................................................................      165.1        185.9        136.0
   Renewal..........................................................................      647.3        620.9        681.5
                                                                                      ---------    ---------    ---------

       Total life insurance.........................................................      812.4        806.8        817.5
                                                                                      ---------    ---------    ---------

Individual and group major medical:
   First-year.......................................................................      172.4        145.6        137.0
   Renewal..........................................................................      691.4        630.8        652.3
                                                                                      ---------    ---------    ---------

       Total individual and group major medical.....................................      863.8        776.4        789.3
                                                                                      ---------    ---------    ---------

Other:
   First-year.......................................................................        1.7          2.3          2.6
   Renewal..........................................................................       89.9        112.5        144.1
                                                                                      ---------    ---------    ---------

       Total other..................................................................       91.6        114.8        146.7
                                                                                      ---------    ---------    ---------

Total:
   First-year.......................................................................    2,183.8      2,188.9      2,185.3
   Renewal..........................................................................    3,199.1      3,068.2      3,072.5
                                                                                      ---------    ---------    ---------

       Total collected premiums.....................................................  $ 5,382.9    $ 5,257.1    $ 5,257.8
                                                                                      =========    =========    =========
</TABLE>

       INVESTMENTS

       Our   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, separate accounts
and short-term  investments  made up 97 percent of our $27.0 billion  investment
portfolio at December 31, 1997. The remainder of the invested assets were equity
securities and other invested assets.

       Our  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 our 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.


                                       35

<PAGE>

       The following  table  summarizes  investment  yields earned over the past
three years:

<TABLE>
<CAPTION>
                                                                                        1997          1996        1995
                                                                                        ----          ----        ----
                                                                                              (Dollars in millions)
<S>                                                                                   <C>          <C>          <C>
Weighted average invested assets:
       As reported .................................................................  $23,288.8    $16,356.3    $13,769.3
       Excluding unrealized appreciation (depreciation) (a).........................   23,177.7     16,278.8     13,690.6
Net investment income...............................................................    1,825.3      1,302.5      1,142.6

Yields earned:
       As reported..................................................................        7.8%         8.0%         8.3%
       Excluding unrealized appreciation (depreciation) (a) ........................        7.9%         8.0%         8.3%

<FN>

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

       Although investment income is a significant  component of total revenues,
the profitability of a portion of our insurance products is determined primarily
by spreads  between  interest rates earned and rates credited or accruing to our
insurance liabilities.  At December 31, 1997, the average yield, computed on the
cost  basis  of our  investment  portfolio,  was 7.5  percent,  and the  average
interest rate credited or accruing to our total  insurance  liabilities  was 5.2
percent,  excluding  interest bonuses  guaranteed only for the first year of the
contract.

       Actively managed fixed maturities

       Our  actively  managed  fixed  maturity  portfolio  at December 31, 1997,
included  primarily  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, 1997,  our fixed  maturity  portfolio had net  unrealized
gains of $484.4 million (equal to  approximately  2.1 percent of the portfolio's
carrying  value),  consisting of $611.5  million of unrealized  gains and $127.1
million  of  unrealized  losses.   Estimated  fair  values  for  fixed  maturity
investments were determined  based on: (i) estimates from nationally  recognized
pricing services (82 percent of the portfolio); (ii) broker-dealer market makers
(8 percent of the portfolio); and (iii) internally developed methods (10 percent
of the portfolio).

       As discussed in the notes to the consolidated financial statements,  when
we adjust  carrying  values of actively  managed fixed  maturity  securities for
changes in fair value,  we also adjust the cost of policies  purchased,  cost of
policies  produced  and  liabilities.  These  adjustments  are  made in order to
reflect the change in amortization  and liability  accruals 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, 1997,  approximately  5.5 percent of our invested  assets
and 6.6 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).  We plan 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.  We are aware of these risks and monitor our
below-investment-grade  securities  closely.  At December 31,  1997,  our below-
investment-grade  fixed maturity  investments  had an amortized cost of $1,525.1
million and an estimated fair value of $1,496.2 million.

       We  periodically  evaluate  the  creditworthiness  of each  issuer  whose
securities  the Company  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.  We  consider  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 its other
responsibilities,  this staff is  charged  with  compiling  and  reviewing  such
information.  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, we reduce 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.  We  recognize  any recovery of such
reductions in the cost basis of an investment  only upon the sale,  repayment or
other  disposition of the investment.  We recorded  writedowns of fixed maturity
investments and other invested assets totaling $1.2 million

                                       36

<PAGE>



in 1997,  primarily as a result of: (i) changes in the financial  condition of a
private company in which we had an indirect equity investment;  and (ii) changes
in the value of the underlying  collateral  associated with certain notes. These
changes caused us to conclude that the decline in fair value of such investments
was other than  temporary.  Our investment  portfolio is subject to the risks of
further declines in realizable value.  However, we attempt to mitigate this risk
through the diversification and active management of our portfolio.

       As of December  31,  1997,  fixed  maturity  investments  in  substantive
default  (i.e.,  in default due to nonpayment  of interest or principal)  had an
amortized   cost  and  carrying   value  of  $2.1  million  and  $1.2   million,
respectively.  Fixed maturity  investments  in technical  (but not  substantive)
default (i.e.,  in default,  but not as to the payment of interest or principal)
had an  amortized  cost and carrying  value of $.3 million.  There were no other
fixed maturity  investments  about which we had serious doubts as to the ability
of the  issuer  to  comply  on a timely  basis  with the  material  terms of the
instruments.

       Our 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 $.2 million in 1997,  $3.8 million in 1996 and
$1.6 million in 1995.

       At December 31, 1997, fixed maturity investments included $6.9 billion of
mortgage-backed securities (or 30 percent of all fixed maturity securities). 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.

       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.
These  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 we were  earning  on the  prepaid  securities.  When  interest  rates
increase,  prepayments on  mortgage-backed  securities  decrease,  because 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,  we
record a charge to investment  income.  When securities  having a cost less than
par prepay faster than expected, we record 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);   (iii)
investing in securities  structured to reduce  prepayment  risk (such as planned
amortization  class ("PAC") and targeted  amortization  class ("TAC") CMOs); and
(iv) actively  managing the entire  portfolio of  mortgage-backed  securities to
dispose  of those  which  are  deemed  more  likely to be  prepaid.  PAC and TAC
instruments   represented   approximately  24  percent  of  our  mortgage-backed
securities  at December 31, 1997.  The  call-adjusted  modified  duration of our
mortgage-backed securities at December 31, 1997, was 5.2 years.


                                       37

<PAGE>



       The  following  table  sets  forth  the par  value,  amortized  cost  and
estimated  fair  value of  mortgage-backed  securities  at  December  31,  1997,
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............................................................     $2,025.5      $1,980.4     $2,014.7
7 percent - 8 percent......................................................      3,568.0       3,546.5      3,638.2
8 percent - 9 percent......................................................        712.9         716.1        730.5
9 percent and above........................................................        445.1         455.5        467.0
                                                                                --------      --------     --------

            Total mortgage-backed securities...............................     $6,751.5      $6,698.5     $6,850.4
                                                                                ========      ========     ========
</TABLE>
       The amortized cost and estimated fair value of mortgage-backed securities
at December 31, 1997, 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............     $4,599.7      $4,697.5          21%
Planned amortization classes and accretion-directed bonds..................      1,515.9       1,547.6           7
Support classes............................................................         36.0          36.9           -
Accrual (Z tranche) bonds..................................................         27.9          28.8           -
Subordinated classes.......................................................        519.0         539.6           2
                                                                                --------      --------          --

                                                                                $6,698.5      $6,850.4          30%
                                                                                ========      ========          ==
</TABLE>

       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 our 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 on 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.


                                       38

<PAGE>
       If we determine  that an  investment  held in the actively  managed fixed
maturity  category will be sold, we 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 material  transfers in 1997.  During  1997,  we sold
actively  managed  fixed  maturity  securities  with a $17.8 billion book value,
resulting in $342.6 million of investment  gains and $41.4 million of 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  10 to the  consolidated
financial statements.

       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) 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  $558.6  million at December 31, 1997, or 2.1 percent of total  invested
assets. The total estimated fair value of credit-tenant loans was $587.2 million
at December 31, 1997.

       At December 31, 1997, we held mortgage loan  investments  with a carrying
value of $516.2  million  (or 1.9 percent of total  invested  assets) and a fair
value of $551.0  million.  The  balance of  mortgage  loans  included 96 percent
commercial loans, 2 percent  residential loans and 2 percent residual  interests
in CMOs.  The residual  interests in CMOs 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 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.

       Noncurrent  mortgage  loans were  insignificant  at December 31, 1997. We
recognized  realized  losses of $.8 million on mortgage loans for the year ended
December  31, 1997.  At December  31,  1997,  we had a loan loss reserve of $9.0
million.  Approximately  20 percent  of the  mortgage  loans were on  properties
located in  California,  11 percent in Texas and 9 percent in Florida.  No other
state accounted for more than 7 percent of the mortgage loan balance.

       At December 31, 1997,  we held $64.8 million of trading  securities  that
are included in other invested assets.  Trading  securities are investments that
are held 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  securities  are carried at estimated fair value,
with the changes in fair value reflected in the statement of operations.

       Other invested assets include: (i) trading securities;  (ii) S&P 500 Call
Options; and (iii) certain nontraditional investments,  including investments in
venture  capital  funds,  limited  partnerships,  mineral  rights and promissory
notes.

       Short-term investments totaled $990.5 million, or 3.7 percent of invested
assets at December 31, 1997,  and consisted  primarily of  commercial  paper and
repurchase agreements relating to government securities.

       As part of our  investment  strategy,  we enter into  reverse  repurchase
agreements and  dollar-roll  transactions  to increase our return on investments
and improve  our  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. We enhance our  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. We are
able to engage in such transactions due to the market demand for mortgage-backed
securities to form CMOs.  Such  investment  borrowings  averaged  $719.3 million
during 1997 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 5.8 percent in 1997. The primary risk
associated with short-term  collateralized  borrowings is that the  counterparty
will be unable to  perform  under the terms of the  contract.  Our  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,
1997).  We  believe  that  the  counterparties  to our  reverse  repurchase  and
dollar-roll  agreements are financially  responsible  and that the  counterparty
risk is minimal.
                                       39

<PAGE>

       CONSOLIDATED FINANCIAL CONDITION

       Changes in the consolidated balance sheet of 1997 compared with 1996

       Our consolidated  balance sheet at December 31, 1997, compared with 1996,
reflects  growth  through  operations,  changes  in the fair  value of  actively
managed  fixed  maturity  securities,  and the  following  capital and financing
transactions  described in the notes to the consolidated  financial  statements:
(i) the CAF  Merger;  (ii) the  issuance  of $800  million of  Company-obligated
mandatorily  redeemable  preferred  securities of subsidiary  trusts;  (iii) the
repurchase  of senior  subordinated  notes and senior  notes with a par value of
$130.1 million;  (iv) the conversion of convertible  debentures  acquired in the
ATC Merger into Conseco common stock;  (v) the conversion of PRIDES into Conseco
common stock; (vi) the repurchase of mandatorily redeemable preferred stock of a
subsidiary;  (vii) the PFS Merger;  (viii) the Colonial Penn Purchase;  (ix) the
WNIC Merger; (x) common stock  repurchases;  and (xi) the issuance of commercial
paper and notes payable.

       Our total capital at December 31, 1997 and 1996, was as follows:
<TABLE>
<CAPTION>


                                                                           1997            1996
                                                                           ----            ----
                                                                            (Dollars in millions)
<S>                                                                       <C>            <C>
Notes payable......................................................       $1,906.7       $1,094.9
Commercial paper...................................................          448.2            -

Minority interest:
    Company-obligated mandatorily redeemable preferred
       securities of subsidiary trusts.............................        1,383.9          600.0
    Mandatorily redeemable preferred stock of subsidiary...........            -             97.0
    Common stock of subsidiary.....................................             .7             .7

Shareholders' equity:
    Preferred stock................................................          115.8          267.1
    Common stock and additional paid-in capital....................        2,382.0        2,029.6
    Accumulated other comprehensive income.........................          182.0           38.9
    Retained earnings..............................................        1,210.3          749.7
                                                                          --------       --------

       Total shareholders' equity..................................        3,890.1        3,085.3
                                                                         ---------       --------

       Total capital of Conseco....................................       $7,629.6       $4,877.9
                                                                          ========       ========
</TABLE>

       Notes payable  increased  during 1997  primarily as a result of: (i) debt
issued or assumed in connection with the acquisitions of CAF, PFS, Colonial Penn
and WNIC;  (ii) debt used to finance  common  stock  repurchases;  and (iii) the
redemption of mandatorily redeemable preferred stock of a subsidiary of ALH. The
increase in notes  payable was  partially  offset by the repayment of debt using
the  proceeds  from the  issuance of  Company-obligated  mandatorily  redeemable
preferred securities.

       We  instituted  a  commercial  paper  program  in April 1997 to lower our
borrowing costs and improve our liquidity. Borrowings under our commercial paper
program  averaged  approximately  $525.9  million during the period of April 24,
1997 through  December 31, 1997.  The  weighted  average  interest  rate on such
borrowings was 5.8 percent during 1997.

       Company-obligated   mandatorily   redeemable   preferred   securities  of
subsidiary  trusts are classified as minority  interest in accordance with GAAP.
During 1997,  we issued $300 million of Capital  Securities  and $500 million of
FELINE  PRIDES.  See  note  8 to the  consolidated  financial  statements  for a
description of these securities.

       Minority interest, excluding the Company-obligated mandatorily redeemable
preferred  securities,  at December 31, 1997, included a $.7 million interest in
common stock of a subsidiary  of ALH. At December  31, 1996,  minority  interest
included:  (i) $97.0  million of  mandatorily  redeemable  preferred  stock of a
subsidiary  of ALH;  and (ii) $.7  million  interest  in the  common  stock of a
subsidiary of ALH.

       During 1997, we repurchased all of the mandatorily  redeemable  preferred
stock of a subsidiary of ALH formerly held by minority  interests.  As a result,
gains of $3.7  million  were  realized  from the sale of  securities  having  an
amortized cost of $47.7 million;  such  securities had been held in a segregated
account to ensure the redemption of such preferred stock.


                                       40

<PAGE>

       Shareholders'  equity  increased  by  $804.8  million  in  1997,  to $3.9
billion.  Significant  components of the increase  included:  (i) Conseco common
stock  issued in the CAF Merger  with a value of $117.4  million;  (ii)  Conseco
common stock issued in the PFS Merger with a value of $354.1 million;  (iii) net
income of $567.3  million;  (iv) the conversion of convertible  debentures  into
Conseco common stock with a value of $150.0 million;  (v) the issuance of common
stock related to stock options and employee  benefit  plans  (including  the tax
benefit  thereon) of $276.1  million;  and (vi) the  increase in net  unrealized
appreciation  of $143.1 million.  These increases were partially  offset by: (i)
repurchases  of common stock for $711.7  million;  and (ii) common and preferred
stock dividends totaling $80.6 million.

       Book value per common share  outstanding  increased to $20.22 at December
31,  1997,  from  $16.86 at December  31,  1996.  Such  increase  was  primarily
attributable  to the factors  discussed  in the  previous  paragraph.  Excluding
unrealized  appreciation  of fixed maturity  securities in accordance  with SFAS
115,  book value per common share  outstanding  was $19.27 at December 31, 1997,
compared with $16.62 at December 31, 1996.

       Total  assets  increased  by $10.3  billion  in 1997,  to $35.9  billion,
primarily  due to the assets  acquired  in the CAF Merger,  the PFS Merger,  the
Colonial Penn Purchase and the WNIC Merger.

       In accordance with SFAS 115,  Conseco records its actively  managed fixed
maturity  investments  at estimated  fair value.  At December 31, 1997 and 1996,
such   investments   were  increased  by  $484.4  million  and  $103.8  million,
respectively, as a result of the SFAS 115 adjustment.

       Financial ratios
<TABLE>
<CAPTION>
                                                                         1997       1996       1995       1994       1993
                                                                         ----       ----       ----       ----       ----
<S>                                                                     <C>         <C>        <C>       <C>        <C>
Ratio of earnings to fixed charges:
    As reported........................................................  2.04X      1.61X      1.57X      2.26X     2.19X
    Excluding interest on annuities and financial products(a)..........  7.21X      4.55X      3.80X      4.55X     8.85X

Ratio of earnings to fixed charges and preferred dividends:
    As reported........................................................  1.95X      1.50X      1.50X      1.95X     2.04X
    Excluding interest on annuities and financial products(a)..........  5.77X      3.14X      3.06X      3.14X     6.00X

Ratio of earnings to fixed charges,  preferred  dividends and
    distributions on Company-obligated  mandatorily redeemable
    preferred securities of subsidiary trusts:
       As reported.....................................................  1.82X      1.49X      1.50X      1.95X     2.04X
       Excluding interest on annuities and financial products(a).......  4.20X      3.06X      3.06X      3.14X     6.00X

Ratio of debt to total capital: (b)
    As reported........................................................   .31X       .22X       .49X       .43X      .34X
    Excluding unrealized appreciation (depreciation)(c)................   .32X       .23X       .53X       .39X      .36X

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

Rating agency ratios: (c) (e) (f) (g)
    Debt to total capital..............................................   .28X       .17X       .37X       .02X      .20X
    Debt and preferred stock to total capital (h)......................   .47X       .30X       .37X       .02X      .20X

<FN>

(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 in which 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;  and the
     ratio of earnings to fixed charges,  preferred  dividends and distributions
     on  Company-obligated   mandatorily   redeemable  preferred  securities  of
     subsidiary trusts.

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

(c)  Excludes the effect of reporting fixed maturities at fair value.

                                       41

<PAGE>
(d)  Represents  the  ratio  of  debt  and  the  Company-obligated   mandatorily
     redeemable  preferred  securities  of  subsidiary  trusts  to  the  sum  of
     shareholders'  equity,  debt,  minority interest and the  Company-obligated
     mandatorily redeemable preferred securities of subsidiary trusts.

(e)  Consistent  with our  discussions  with  rating  agencies,  the Company has
     targeted:  (i) the  ratio  of debt to  total  capital  to be at or below 35
     percent; and (ii) the ratio of debt and preferred stock to total capital to
     be at or  below  49  percent.  These  ratios  are  calculated  in a  manner
     discussed with rating agencies.

(f)  Debt is reduced by cash and  investments  held by  non-life  companies  and
     excludes,  for periods prior to 1996, obligations for which Conseco was not
     directly liable.

(g)  Assumes conversion of all convertible debentures.

(h)  Assumes purchase of common shares under purchase contracts.
</FN>
</TABLE>
       Liquidity for insurance operations

       Our 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.  We seek to balance the duration
of our invested assets with the estimated  duration of benefit  payments arising
from contract liabilities.

       Of our total insurance liabilities at December 31, 1997, approximately 17
percent  could  be   surrendered   by  the   policyholder   without  a  penalty.
Approximately  59 percent could be  surrendered by the  policyholder  subject to
penalty or the release of an insurance liability in excess of surrender benefits
paid.   The  remaining  24  percent  are  not  subject  to  surrender.   Payment
characteristics  of the  insurance  liabilities  at December 31,  1997,  were as
follows (dollars in millions):
<TABLE>
<S>                                                                                       <C>
             Payments under contracts containing fixed payment dates:
                   Due in one year or less..............................................  $   339.6
                   Due after one year through five years................................      819.0
                   Due after five years through ten years...............................      415.9
                   Due after ten years..................................................      852.4
                                                                                          ---------

                        Total gross payments whose payment dates are fixed by contract..    2,426.9
                   Less amounts representing future interest on such contracts..........      879.0
                                                                                          ---------

                        Insurance liabilities whose payment dates are fixed by contract     1,547.9
             Insurance liabilities whose payment dates are not fixed by contract.......    24,352.2
                                                                                          ---------

                        Total insurance liabilities.....................................  $25,900.1
                                                                                          =========
</TABLE>
       Of the above  insurance  liabilities  under  contracts  containing  fixed
payment dates, approximately 59 percent relate to payments that will be made for
the  lifetime  of  the  contract  holder.  We  consider  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 30 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 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, 1997 (dollars in millions):
<TABLE>
       <S>                                                                               <C>
       Below 4.75 percent.........................................................       $ 2,627.0
       4.75 percent - 5.00 percent................................................         2,533.0
       5.00 percent - 5.25 percent................................................         3,588.0
       5.25 percent - 5.50 percent................................................         1,703.0
       5.50 percent - 5.75 percent................................................           676.0
       5.75 percent and above.....................................................         1,597.0
                                                                                         ---------
             Total insurance liabilities on investment contracts..................       $12,724.0
                                                                                         =========
</TABLE>
                                       42

<PAGE>



       We  believe  that  the  diversity  of our  investment  portfolio  and the
concentration  of  investments  in  high  quality  liquid   securities   provide
sufficient  liquidity to meet  foreseeable  cash  requirements.  Our  investment
portfolio at December 31, 1997, included $1.0 billion of short-term  investments
and $19.2  billion of publicly  traded  investment  grade bonds,  including  $.6
billion of United States government and agency securities.  Although there is no
present  need or intent  to  dispose  of such  investments,  our life  insurance
subsidiaries 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, 1997, our portfolio of
bonds and redeemable preferred stocks had an aggregate unrealized gain of $484.4
million.

       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 our life insurance  subsidiaries,  including:  (i) dividend payments;  (ii)
surplus debenture interest and principal  payments;  (iii) tax sharing payments;
and (iv) 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 7 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 1997, we also issued new shares of Conseco common stock for a portion
of the cost to acquire CAF and the entire cost to acquire PFS.


                                       43

<PAGE>



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

<TABLE>
<CAPTION>
                                                                                           1997         1996         1995
                                                                                           ----         ----         ----
                                                                                                (Dollars in millions)
     <S>                                                                               <C>             <C>         <C>
     Items relating to operations:
       Dividends and surplus debenture interest payments from life subsidiaries.....    $ 166.1        $109.9       $ 80.6
       Tax sharing payments from life subsidiaries..................................        9.3           4.6          2.7
       Fees from life subsidiaries..................................................       89.1          74.8         34.7
       Fees from unaffiliated companies.............................................       35.2          39.3         39.0
       Parent and non-life subsidiary costs.........................................      (74.1)        (39.8)       (64.5)
       Interest on debt of Conseco, including direct and indirect obligations.......     (117.4)        (71.3)       (41.6)
       Interest on amounts due to life subsidiaries.................................      (26.5)         (7.3)        (8.8)
       Income taxes.................................................................       (2.3)          2.2         (7.7)
       Other........................................................................        8.9          (4.7)          -
                                                                                        -------        ------       ------

          Total items relating to operations.......................................        88.3         107.7         34.4
                                                                                        -------        ------       ------

     Items relating to investing:
       Purchase of investments......................................................     (140.7)        (71.1)       (70.8)
       Sales and maturities of investments..........................................       70.2          45.3        125.6
       Cash held by non-life subsidiaries prior to acquisition......................        4.1          40.9         17.0
       Investment in consolidated subsidiaries......................................     (939.7)       (226.1)      (552.3)
       Surplus debenture principal payments.........................................       73.9          36.5           -
       Expense incurred in terminated merger........................................         -             -          (5.5)
                                                                                        -------        ------       ------

          Total items relating to investing.........................................     (932.2)       (174.5)      (486.0)
                                                                                        -------        ------       ------

     Items relating to financing:
       Proceeds from issuance of Company-obligated mandatorily redeemable
          preferred securities of subsidiary trusts, net of issuance costs..........      780.4         587.7           -
       Proceeds from the issuance of equity securities..............................       52.3          20.6          1.8
       Proceeds from the issuance of debt, net of issuance costs....................    2,578.8         856.0        827.2
       Commercial paper, net........................................................      448.2            -            -
       Common and preferred dividends...............................................      (76.8)        (34.3)       (24.6)
       Dividends on stock held by subsidiaries......................................      (53.8)        (38.1)       (38.7)
       Distributions on Company-obligated mandatorily redeemable preferred
          securities of subsidiary trusts...........................................      (65.7)         (2.9)          -
       Payments on debt, including prepayments and acquired debt....................   (2,218.8)     (1,467.2)      (330.0)
       Payments to retire redeemable preferred stock of a non-life subsidiary.......      (72.4)          (.3)          -
       Repurchases of Conseco common stock .........................................     (593.3)        (21.5)       (92.4)
       Proceeds from the issuance of convertible preferred stock, net of issuance
          costs.....................................................................         -          257.7           -
                                                                                        -------        ------       ------

          Total items relating to financing.........................................      778.9         157.7        343.3
                                                                                        -------        ------       ------

          Change in short-term investments of parent
              and its non-life subsidiaries.........................................      (65.0)         90.9       (108.3)
          Short-term investments, beginning of year.................................      115.1          24.2        132.5
                                                                                        -------        ------       ------

          Short-term investments, end of year.......................................    $  50.1        $115.1       $ 24.2
                                                                                        =======        ======       ======


</TABLE>

                                       44

<PAGE>

       At December 31, 1997,  the parent  company and its non-life  subsidiaries
had short-term investments of $50.1 million, of which $28.7 million was expended
in January 1998 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 $155.0  million at December 31, 1997,
which,  if  needed,   could  be  liquidated  or  contributed  to  the  insurance
subsidiaries.

       The ability of our insurance  subsidiaries to pay dividends is subject to
state insurance  department  regulations.  These  regulations  generally  permit
dividends to be paid for any 12 month period in amounts  equal to the greater of
(or in a few states,  the lesser of): (i) net gain from operations for the prior
year;  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 our insurance subsidiaries could pay to non-life parent companies
in 1998 without prior approval is approximately $165.1 million.

       Statutory   operating   results  and  statutory  surplus  are  determined
according to accounting practices prescribed or permitted 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   acquisition  costs  and  reserves  for  future
guaranteed  benefit  payments and  interest in excess of  statutory  rates to be
expensed  as the new  business is  written.  These items cause a statutory  loss
("surplus  strain")  on many  insurance  policies  in the year in which they are
issued.  We manage the effect of such statutory  surplus strain by designing our
products to minimize such  first-year  losses,  and by controlling the amount of
new premiums written.

       Note 12 to the  consolidated  financial  statements  shows the difference
between pretax income reported using statutory accounting practices and GAAP.

       Insurance departments in the states where our life insurance subsidiaries
are  domiciled  or do business  require  insurance  companies to make annual and
quarterly  filings.  The  interest  maintenance  reserve  ("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 our insurance  subsidiaries to reflect investment
gains and losses in statutory earnings and surplus.

       Our debt  agreements  require  the Company to  maintain  minimum  working
capital  and RBC ratios  and limit the  Company's  ability  to incur  additional
indebtedness.  They also  restrict  the  amount  of  retained  earnings  that is
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;
we have minimal investments in property, equipment or inventories.

       Medical cost inflation has had a significant  impact on our  supplemental
health operations.  Generally,  these costs have increased more rapidly than the
Consumer Price Index.  Medical costs will likely continue to rise. The impact of
medical  cost  inflation  on our  operations  depends on our ability to increase
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, rate changes for all
Medicare  supplement plans must be individually  approved by each state. We seek
to price our new  standardized  supplement  plans to reflect the impact of these
filings and the lengthening of the period required to implement rate increases.

       YEAR 2000 CONVERSION COSTS

       We have initiated a  corporate-wide  program  designed to ensure that our
computer  systems  will  function  properly  in the year  2000.  For some of our
operations,  the most effective  solution will be to ensure timely completion of
the previously planned  conversions of their older systems to more modern,  year
2000 - compliant systems used in other areas of the Company.  In some cases, our
most  effective  solution will be to purchase new,  more modern  systems;  these
costs will be capitalized  as assets and amortized  over their  expected  useful
lives. In other cases, we will modify existing systems,  thereby incurring costs
that will be charged to  operating  expense.  To date,  we have  incurred  $11.6
million in costs related to year 2000 projects. We expect to spend approximately
an additional $35 million on these projects over the next two years. We began to
incur  expenses  related to this program  several  years ago. We expect our year
2000 program to be completed on a timely basis.

                                       45
<PAGE>



       MARKET-SENSITIVE INSTRUMENTS AND RISK MANAGEMENT

       We seek to invest  our  available  funds in a manner  that will  maximize
shareholder  value and fund future  obligations  to  policyholders  and debtors,
subject  to  appropriate  risk  considerations.  We seek to meet this  objective
through  investments that: (i) have similar  characteristics  to the liabilities
they support;  (ii) are  diversified  among  industries,  issuers and geographic
locations;  and (iii) make up a  predominantly  investment-grade  fixed maturity
securities portfolio. Many of our products incorporate surrender charges, market
interest  rate   adjustments  or  other   features  to  encourage   persistency.
Approximately  59 percent of our total  insurance  liabilities  at December  31,
1997, had surrender penalties or other restrictions and approximately 24 percent
are not subject to surrender.

       We seek to maximize the total return on our  investments  through  active
investment management. Accordingly, we have determined that our entire portfolio
of fixed maturity securities is available to be sold in response to: (i) changes
in market  interest  rates;  (ii)  changes  in  relative  values  of  individual
securities and asset sectors; (iii) changes in prepayment risks; (iv) changes in
credit quality outlook for certain  securities;  (v) liquidity  needs;  and (vi)
other factors.  From time to time, we invest in securities for trading purposes,
although such  investments  account for a relatively  small portion of our total
portfolio.

       Profitability  of many of our products is  significantly  affected by the
spreads  between  interest yields on investments and rates credited on insurance
liabilities.  Although  substantially all credited rates on our annuity products
may be changed  annually  (subject  to  minimum  guaranteed  rates),  changes in
competition  and other factors,  including the impact of the level of surrenders
and withdrawals,  may limit our ability to adjust or to maintain crediting rates
at  levels  necessary  to  avoid  narrowing  of  spreads  under  certain  market
conditions.  As of December 31, 1997,  the average  yield,  computed on the cost
basis of our investment  portfolio,  was 7.5 percent,  and the average  interest
rate credited or accruing to our total  insurance  liabilities  was 5.2 percent,
excluding interest bonuses guaranteed for the first year of the annuity contract
only.

       We use computer models to perform simulations of the cash flows generated
from  our  existing  business  under  various  interest  rate  scenarios.  These
simulations enable us to measure the potential gain or loss in fair value of our
interest rate-sensitive  financial instruments.  With such estimates, we seek to
closely  match the  duration of our assets to the  duration of our  liabilities.
When the estimated durations of assets and liabilities are similar,  exposure to
interest  rate risk is minimized  because a change in the value of assets should
be largely offset by a change in the value of liabilities. At December 31, 1997,
the adjusted modified  duration of our fixed maturity  securities and short-term
investments  was  approximately  5.8 years  and the  duration  of our  insurance
liabilities was approximately 6.7 years.

       If interest  rates were to increase by 10 percent from their December 31,
1997 levels,  our fixed maturity  securities and short-term  investments (net of
corresponding  changes  in the  value  of cost of  policies  purchased,  cost of
policies  produced and  insurance  liabilities)  would  decline in fair value by
approximately   $545  million.   The  calculations   involved  in  our  computer
simulations incorporate numerous assumptions,  require significant estimates and
assume an  immediate  change in interest  rates  without any  management  of the
investment portfolio in reaction to such change. Consequently, potential changes
in value of our financial  instruments  indicated by the simulations will likely
be different  from the actual  changes  experienced  under given  interest  rate
scenarios,  and the differences may be material.  Because we actively manage our
investments  and  liabilities,  actual losses could be less than those estimated
above.

          We manage the  composition  of our  borrowed  capital  by  considering
factors such as the ratio of borrowed  capital to total capital,  the portion of
our  outstanding  capital  subject  to fixed and  variable  rates,  the  current
interest rate environment and other market  conditions.  Our borrowed capital at
December   31,   1997,    includes   commercial   paper,   notes   payable   and
Company-obligated  mandatorily  redeemable  preferred  securities  of subsidiary
trusts  totaling $3.7 billion  ($1.8  billion of which is at floating  rates and
$1.9 billion of which is at fixed  rates).  Based on the interest  rate exposure
and  prevalent  rates at December 31,  1997,  a relative 10 percent  decrease in
interest rates would increase the fair value of our fixed-rate  borrowed capital
by approximately  $75 million.  Our interest expense on floating-rate  debt will
fluctuate as prevailing interest rates change.

          We periodically  use options and interest rate swaps to hedge interest
rate risk associated with our investments and borrowed capital.  Although we had
no such  agreements  outstanding  at December  31,  1997,  we entered  into four
interest  rate swap  agreements  in March 1998.  The Company  entered  into such
agreements  to  create  a hedge  that  effectively  converts  a  portion  of its
fixed-rate borrowed capital into floating-rate instruments for the period during
which the agreements are outstanding. Such interest rate swap agreements have an
aggregate  notional  principal  amount of $1.0 billion,  mature in various years
through  2008,  and  have an  average  remaining  life of  seven  years.  If the
counterparties  of these  interest  rate  swaps do not meet  their  obligations,
Conseco  could  have a  loss.  Conseco  limits  its  exposure  to such a loss by
diversifying among several  counterparties  believed to be financially sound and
creditworthy.  At March 13, 1998,  all of the  counterparties  were rated "A" or
higher by Standard & Poor's Corporation.  These swap agreements, if in existence
when the assumed 10 percent decrease in interest rates occurred (see

                                       46

<PAGE>



preceding paragraph), would cause the increase in the fair value of our borrowed
capital  to be $55.0  million,  or $20.0  million  less  than  indicated  in the
preceding paragraph.

       OUTLOOK

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

       Conseco's  operations  in 1998 and in future years will be  significantly
affected  by  its  recently   completed   acquisitions.   After   completing  an
acquisition,  Conseco  generally  seeks to  improve  results  of  operations  by
centralizing,  standardizing  and more  efficiently  performing  many  functions
common  to  most  life  insurance  companies  and by  focusing  on the  sale  of
profitable products. In the case of Colonial Penn, which is engaged primarily in
the sale of life insurance through direct  marketing,  many activities remain at
its Philadelphia facility.

       Conseco  believes that a number of life  insurance  companies will become
available  for  acquisition  in the  next 10  years  as a  result  of  strategic
restructuring and industry  consolidation.  The Company may participate in those
acquisitions which fit Conseco's  strategic growth plan. We evaluate a potential
acquisition  based on a variety of factors,  including its operating results and
financial  condition,  growth  potential,  management and  personnel,  potential
return on the  acquisition  in relation to other  investment  opportunities  and
internal development of our existing business  operations.  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 with others who may attempt to acquire
available candidates. However, many acquisition targets that have been available
recently  did not appear to provide  significant  strategic  benefits  and their
asking prices were high relative to their expected value. Management believes it
is more  beneficial  to use  Conseco's  resources  to  improve  the value of its
products,  distribution  capabilities  and  operating  systems  rather  than  to
complete  acquisitions  that do not offer  comparable  potential  returns on its
investment.

       Conseco continually reviews its capital structure, including the need and
desirability of restructuring the existing debt and equity of the Company.

       As a result of its recent acquisitions,  Conseco has significant in-force
business  and  marketing  activity  in multiple  segments of the life  insurance
industry,  including  universal life, whole life, term life,  single-premium and
flexible-premium  deferred and immediate annuities (including variable,  indexed
and fixed), Medicare supplement insurance,  long-term care coverage,  specified-
disease  coverage,  and  individual  and group  health  insurance.  Conseco will
continue to concentrate on  opportunities  to improve the  effectiveness  of its
distribution systems in marketing these products.

       ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

       The information included under the caption  "Market-Sensitive Instruments
and Risk  Management"  in "Item  7.  Management's  Discussion  and  Analysis  of
Consolidated  Financial  Condition and Results of  Operations"  is  incorporated
herein by reference.


                                       47

<PAGE>

<TABLE>


ITEM 8.  CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.


                   Index to Consolidated Financial Statements



<CAPTION>
                                                                                                                    Page
                                                                                                                    ----
<S>                                                                                                                    <C>
Report of Management...................................................................................................49

Report of Independent Accountants......................................................................................50

Consolidated Balance Sheet at December 31, 1997 and 1996...............................................................51

Consolidated Statement of Operations for the years ended
    December 31, 1997, 1996 and 1995...................................................................................53

Consolidated Statement of Shareholders' Equity
    for the years ended December 31, 1997, 1996 and 1995...............................................................55

Consolidated Statement of Cash Flows for the years ended
    December 31, 1997, 1996 and 1995...................................................................................57

Notes to Consolidated Financial Statements.............................................................................59

</TABLE>



                                       48

<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


                                       49

<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,  1997 and  1996,  and the  related
consolidated statements of operations,  shareholders' equity, and cash flows for
each of the three years in the period ended December 31, 1997.  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,  1997 and 1996,  and the
consolidated  results of their  operations  and their cash flows for each of the
three years in the period ended December 31, 1997, in conformity  with generally
accepted accounting principles.



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


Indianapolis, Indiana
March 23, 1998















                                       50


<PAGE>
<TABLE>
<CAPTION>


                                              CONSECO, INC. AND SUBSIDIARIES

                                                CONSOLIDATED BALANCE SHEET
                                                December 31, 1997 and 1996
                                                   (Dollars in millions)


                                                          ASSETS


                                                                                             1997              1996
                                                                                             ----              ----
<S>                                                                                       <C>               <C>
Investments:
    Actively managed fixed maturities at fair value (amortized cost:
       1997 - $22,289.3; 1996 - $17,203.3).............................................   $22,773.7         $17,307.1
    Equity securities at fair value (cost: 1997 - $227.6; 1996 - $97.6)................       228.9              99.7
    Mortgage loans.....................................................................       516.2             356.0
    Credit-tenant loans................................................................       558.6             447.1
    Policy loans.......................................................................       692.4             542.4
    Other invested assets .............................................................       518.1             259.6
    Short-term investments.............................................................       990.5             281.6
    Assets held in separate accounts...................................................       682.8             337.6
                                                                                          ---------         ---------

          Total investments............................................................    26,961.2          19,631.1

Accrued investment income..............................................................       379.3             296.9
Cost of policies purchased.............................................................     2,466.4           2,015.0
Cost of policies produced..............................................................       915.2             544.3
Reinsurance receivables................................................................       849.1             504.2
Income tax assets......................................................................        85.6               8.8
Goodwill (net of accumulated amortization:  1997 - $167.7; 1996 - $83.2)...............     3,637.3           2,200.8
Property and equipment (net of accumulated depreciation: 1997 - $83.8; 1996 - $69.7)...       171.6             110.5
Other assets...........................................................................       449.1             301.1
                                                                                          ---------         ---------

          Total assets.................................................................   $35,914.8         $25,612.7
                                                                                          =========         =========


                                                 (continued on next page)





















                     The accompanying notes are an integral
                       part of the consolidated financial
                                   statements.
</TABLE>
                                       51

<PAGE>
<TABLE>
<CAPTION>



                                              CONSECO, INC. AND SUBSIDIARIES

                                          CONSOLIDATED BALANCE SHEET (Continued)
                                                December 31, 1997 and 1996
                                                   (Dollars in millions)


                                           LIABILITIES AND SHAREHOLDERS' EQUITY


                                                                                            1997              1996
                                                                                            ----              ----
<S>                                                                                       <C>               <C>
Liabilities:
    Insurance liabilities:
       Interest sensitive products.....................................................   $17,357.6         $14,795.5
       Traditional products............................................................     5,784.8           3,251.5
       Claims payable and other policyholder funds.....................................     1,668.8             984.9
       Unearned premiums...............................................................       406.1             272.4
       Liabilities related to separate accounts .......................................       682.8             337.6
    Investment borrowings..............................................................     1,389.5             383.4
    Other liabilities..................................................................       995.6             709.5
    Commercial paper...................................................................       448.2               -
    Notes payable......................................................................     1,906.7           1,094.9
                                                                                          ---------         ---------

            Total liabilities..........................................................    30,640.1          21,829.7
                                                                                          ---------         ---------

Minority interest:
    Company-obligated mandatorily redeemable preferred securities
       of subsidiary trusts............................................................     1,383.9             600.0
    Mandatorily redeemable preferred stock of subsidiary...............................         -                97.0
    Common stock of subsidiary.........................................................          .7                .7

Shareholders' equity:
    Preferred stock....................................................................       115.8             267.1
    Common stock and additional paid-in capital (no par value, 1,000,000,000 shares
       authorized, shares issued and outstanding: 1997 - 186,665,591;
       1996 - 167,128,228).............................................................     2,382.0           2,029.6
    Accumulated other comprehensive income:
       Unrealized appreciation of fixed maturity securities (net of applicable deferred
          income taxes:  1997 - $95.5; 1996 - $21.5)...................................       177.2              39.8
       Unrealized appreciation (depreciation) of other investments (net of applicable
          deferred income taxes:  1997 - $2.6; 1996 - $(.5))...........................         4.8               (.9)
    Retained earnings..................................................................     1,210.3             749.7
                                                                                          ---------         ---------

            Total shareholders' equity.................................................     3,890.1           3,085.3
                                                                                          ---------         ---------

            Total liabilities and shareholders' equity.................................   $35,914.8         $25,612.7
                                                                                          =========         =========












                     The accompanying notes are an integral
                       part of the consolidated financial
                                   statements.
</TABLE>

                                       52

<PAGE>
<TABLE>
<CAPTION>



                                              CONSECO, INC. AND SUBSIDIARIES

                                           CONSOLIDATED STATEMENT OF OPERATIONS
                                   for the years ended December 31, 1997, 1996 and 1995
                                       (Dollars in millions, except per share data)

                                                                           1997              1996             1995
                                                                           ----              ----             ----
<S>                                                                       <C>              <C>             <C>
Revenues:
    Insurance policy income:
       Traditional products.............................................  $2,954.1         $1,384.3        $1,355.6
       Interest sensitive products......................................     456.7            269.9           109.4
    Net investment income...............................................   1,825.3          1,302.5         1,142.6
    Net investment gains................................................     266.5             60.8           204.1
    Fee revenue and other income........................................      65.8             49.8            43.6
                                                                          --------         --------        --------

            Total revenues..............................................   5,568.4          3,067.3         2,855.3
                                                                          --------         --------        --------

Benefits and expenses:
    Insurance policy benefits...........................................   2,185.7          1,173.3         1,075.5
    Change in future policy benefits....................................     182.6             21.7            32.0
    Amounts added to annuity and financial product policyholder account
       balances:
          Interest......................................................     697.1            620.2           556.6
          Other amounts added to variable and equity-indexed
             annuity products...........................................     109.6             48.4            28.8
    Interest expense on notes payable...................................     109.4            108.1           119.4
    Interest expense on short-term investment borrowings................      42.0             22.0            22.2
    Amortization related to operations..................................     408.8            240.0           203.6
    Amortization related to investment gains............................     181.2             36.0           126.6
    Nonrecurring charges................................................      71.7               -               -
    Other operating costs and expenses..................................     577.2            304.0           272.1
                                                                          --------         --------        --------

          Total benefits and expenses...................................   4,565.3          2,573.7         2,436.8
                                                                          --------         --------        --------

          Income before income taxes, minority interest
              and extraordinary charge .................................   1,003.1            493.6           418.5

Income tax expense......................................................     376.6            179.8            87.0
                                                                          --------         --------        --------

          Income before minority interest and
              extraordinary charge .....................................     626.5            313.8           331.5

Minority interest:
    Distributions on Company-obligated mandatorily redeemable
       preferred securities of subsidiary trusts, net of income taxes...      49.0              3.6              -
    Dividends on preferred stock of subsidiaries........................       3.3              8.9            11.9
    Equity in earnings of subsidiaries..................................        -              22.4            97.1
                                                                          --------         --------         -------

            Income before extraordinary charge .........................     574.2            278.9           222.5

Extraordinary charge on extinguishment of
    debt, net of taxes and minority interest............................       6.9             26.5             2.1
                                                                          --------         --------         -------

            Net income..................................................     567.3            252.4           220.4

Less amounts applicable to preferred stock:
    Charge related to induced conversions...............................      13.2               -               -
    Preferred stock dividends...........................................       8.7             27.4            18.4
                                                                          --------         --------         -------

            Net income applicable to common stock.......................  $  545.4         $  225.0         $ 202.0
                                                                          ========         ========         =======


                                                 (continued on next page)


                     The accompanying notes are an integral
                       part of the consolidated financial
                                   statements.
</TABLE>

                                       53
<PAGE>
<TABLE>
<CAPTION>



                                              CONSECO, INC. AND SUBSIDIARIES

                                    CONSOLIDATED STATEMENT OF OPERATIONS (Continued)
                                 for the years ended December 31,  1997, 1996 and 1995
                                      (Dollars in millions, except per share data)


                                                                           1997             1996            1995
                                                                           ----             ----            ----

<S>                                                                     <C>             <C>               <C>
Earnings per common share:
    Basic:
       Weighted average shares outstanding............................  185,751,000     104,584,000       81,405,000
       Net income before extraordinary charge ........................        $2.98           $2.40            $2.51
       Extraordinary charge ..........................................          .04             .25              .03
                                                                              -----           -----            -----

            Net income................................................        $2.94           $2.15            $2.48
                                                                              =====           =====            =====

    Diluted:
       Weighted average shares outstanding............................  210,179,000     138,860,000      103,881,000
       Net income before extraordinary charge ........................        $2.67           $2.01            $2.14
       Extraordinary charge...........................................          .03             .19              .02
                                                                              -----           -----            -----

            Net income................................................        $2.64           $1.82            $2.12
                                                                              =====           =====            =====























                     The accompanying notes are an integral
                       part of the consolidated financial
                                   statements.
</TABLE>
                                       54

<PAGE>
<TABLE>
<CAPTION>



                                            CONSECO, INC. AND SUBSIDIARIES

                                  CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
                                for the years ended December 31, 1997, 1996 and 1995
                                                  (Dollars in millions)

                                                                                   Common stock     Accumulated other
                                                                       Preferred  and additional      comprehensive   Retained
                                                              Total      stock    paid-in capital        income       earnings
                                                              -----      -----    ---------------        ------       --------

<S>                                                        <C>          <C>          <C>                <C>          <C>
Balance, January 1, 1995.................................. $   747.0    $ 283.5      $  165.8           $(139.7)     $   437.4

   Comprehensive income, net of tax:
     Net income...........................................     220.4         -             -                 -           220.4
     Change in unrealized appreciation (depreciation) of
       securities (net of applicable income taxes of
       $132.8 million)....................................     252.4         -             -              252.4             -
                                                           ---------

         Total comprehensive income.......................     472.8

   Issuance of shares for stock options and employee
     benefit plans........................................       6.0         -            6.0                -              -
   Tax benefit related to issuance of shares under stock
     option plans.........................................        .4         -             .4                -              -
   Cost of shares acquired................................     (92.4)        -          (15.0)               -           (77.4)
   Dividends on preferred stock...........................     (18.4)        -             -                 -           (18.4)
   Dividends on common stock..............................      (3.7)        -             -                 -            (3.7)
                                                           ----------   -------      --------           -------      ---------

Balance, December 31, 1995................................   1,111.7      283.5         157.2             112.7          558.3

   Comprehensive income, net of tax:
     Net income...........................................     252.4         -             -                 -           252.4
     Change in unrealized appreciation (depreciation) of
       securities (net of applicable income tax benefit of
       $45.9 million).....................................     (73.8)        -             -              (73.8)            -
                                                           ---------

         Total comprehensive income.......................     178.6

   Issuance of convertible preferred stock................     267.1      267.1            -                 -              -
   Conversion of preferred stock into common shares.......        -      (283.2)        283.2                -              -
   Redemption of preferred stock for cash.................       (.3)       (.3)           -                 -              -
   Issuance of shares in merger transactions..............   1,568.6         -        1,568.6                -              -
   Issuance of shares for stock options and employee
     benefit plans........................................      29.5         -           29.5                -              -
   Tax benefit related to issuance of shares under stock
     option plans.........................................      15.9         -           15.9                -              -
   Cost of issuance of preferred stock....................     (21.7)        -          (21.7)               -              -
   Cost of shares acquired................................     (26.0)        -           (3.1)               -           (22.9)
   Dividends on preferred stock...........................     (27.4)        -             -                 -           (27.4)
   Dividends on common stock..............................     (10.7)        -             -                 -           (10.7)
                                                           ---------    -------      --------           -------      ---------

Balance, December 31, 1996................................   3,085.3      267.1       2,029.6              38.9          749.7


                                                 (continued on following page)



                     The accompanying notes are an integral
                       part of the consolidated financial
                                   statements.
</TABLE>

                                       55

<PAGE>
<TABLE>
<CAPTION>



                                                 CONSECO, INC. AND SUBSIDIARIES

                                   CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY, continued
                                    for  the  years  ended December 31, 1997, 1996 and 1995
                                                         (Dollars in millions)

                                                                                   Common stock     Accumulated other
                                                                       Preferred  and additional      comprehensive   Retained
                                                              Total      stock    paid-in capital        income       earnings
                                                              -----      -----    ---------------        ------       --------
<S>                                                       <C>         <C>            <C>               <C>           <C>
Balance, December 31, 1996 (carried forward from
   prior page)............................................$3,085.3    $   267.1      $2,029.6          $   38.9      $   749.7

   Comprehensive income, net of tax:
     Net income...........................................   567.3           -             -                 -           567.3
     Change in unrealized appreciation (depreciation) of
       securities (net of applicable income taxes of
       $77.1 million).....................................   143.1           -             -              143.1             -
                                                          --------

         Total comprehensive income.......................   710.4

   Conversion of preferred stock into common shares.......      -        (151.3)        151.3                -              -
   Issuance of shares in merger transactions..............   471.5           -          471.5                -              -
   Issuance of shares for stock options and agent and
     employee benefit plans...............................   190.9           -          190.9                -              -
   Tax benefit related to issuance of shares under stock
     option plans.........................................    85.2           -           85.2                -              -
   Conversion of convertible debentures into common
     shares...............................................   150.0           -          150.0                -              -
   Cost of shares acquired................................  (711.7)          -         (685.6)               -           (26.1)
   Value of stock purchase contracts, a component of the
     FELINE PRIDES........................................    (3.4)          -           (3.4)               -              -
   Other..................................................    (7.5)          -           (7.5)               -              -
   Amounts applicable to preferred stock:
     Charge related to induced conversion of convertible
       preferred stock....................................   (13.2)          -             -                 -           (13.2)
     Dividends on preferred stock.........................    (8.7)          -             -                 -            (8.7)
   Dividends on common stock..............................   (58.7)          -             -                 -           (58.7)
                                                          --------    ---------      --------           -------       --------

Balance, December 31, 1997................................$3,890.1    $   115.8      $2,382.0           $ 182.0       $1,210.3
                                                          ========    =========      ========           =======       ========


















                     The accompanying notes are an integral
                       part of the consolidated financial
                                   statements.
</TABLE>

                                       56

<PAGE>
<TABLE>
<CAPTION>



                                              CONSECO, INC. AND SUBSIDIARIES

                                           CONSOLIDATED  STATEMENT OF CASH FLOWS
                                   for the years ended  December 31, 1997,  1996 and 1995
                                                   (Dollars in millions)

                                                                           1997            1996           1995
                                                                           ----            ----           ----
<S>                                                                      <C>            <C>             <C>
Cash flows from operating activities:
    Net income.........................................................  $   567.3      $   252.4       $  220.4
    Adjustments to reconcile net income to net
       cash provided by operating activities:
          Amortization and depreciation................................      604.1          336.3          339.4
          Income taxes.................................................      181.0           13.6          (34.7)
          Insurance liabilities........................................     (344.4)        (123.8)          (3.0)
          Amounts added to annuity and financial product policyholder
            account balances...........................................      806.7          668.6          585.4
          Fees charged to insurance liabilities........................     (456.7)        (269.9)        (109.4)
          Accrual and amortization of investment income................      (70.5)         (29.5)         (71.8)
          Deferral of cost of policies produced........................     (602.6)        (308.4)        (282.1)
          Nonrecurring charges.........................................       71.7            -              -
          Minority interest............................................       75.4           26.8           91.9
          Extraordinary charge on extinguishment of debt...............       10.6           36.9            3.7
          Net investment gains.........................................     (266.5)         (60.8)        (204.1)
          Other........................................................      (15.6)         (73.9)         (28.9)
                                                                         ---------      ---------       --------

            Net cash provided by operating activities..................      560.5          468.3          506.8
                                                                         ---------      ---------       --------

Cash flows from investing activities:
    Sales of investments...............................................   18,459.4        8,394.1        7,900.9
    Maturities and redemptions.........................................      750.7          614.3          417.1
    Purchases of investments...........................................  (20,043.8)      (9,409.7)      (9,112.3)
    Acquisition of subsidiaries, net of cash held at the date of the
       mergers.........................................................     (759.7)         (21.7)        (586.3)
    Short-term investments held by CCP Insurance, Inc. before
       consolidation at January 1, 1995................................        -              -            123.0
    Repurchase of equity securities by CCP Insurance, Inc..............        -              -            (44.5)
    Cash paid in reinsurance transactions..............................        -              -            (71.1)
    Other..............................................................        -              (.7)          (3.3)
                                                                         ---------      ---------       --------

            Net cash used by investing activities......................   (1,593.4)        (423.7)      (1,376.5)
                                                                         ---------      ---------       --------


                                                 (continued on next page)

















                     The accompanying notes are an integral
                       part of the consolidated financial
                                   statements.
</TABLE>
                                       57

<PAGE>
<TABLE>
<CAPTION>


                                                CONSECO, INC. AND SUBSIDIARIES

                                     CONSOLIDATED STATEMENT OF  CASH FLOWS (Continued)
                                   for the years ended December 31, 1997, 1996 and 1995
                                                      (Dollars in millions)

                                                                           1997            1996           1995
                                                                           ----            ----           ----

<S>                                                                     <C>              <C>            <C>
Cash flows from financing activities:
    Issuance of notes payable of Conseco, net.......................... $ 2,578.8        $  856.0       $  795.2
    Issuance of Company-obligated mandatorily redeemable
       preferred securities of subsidiary trusts.......................     780.4           587.7             -
    Issuance of commercial paper, net..................................     448.2              -              -
    Investment borrowings..............................................     962.5            30.6          298.1
    Issuance of notes payable of affiliates, net - not direct
       obligations of Conseco .........................................        -            459.4          233.4
    Payments on notes payable of Conseco...............................  (2,273.3)       (1,207.9)        (330.0)
    Payments on notes payable of affiliates - not direct
       obligations of Conseco..........................................        -           (926.4)        (269.0)
    Purchase of preferred stock of a subsidiary........................     (98.4)          (12.6)            -
    Deposits to insurance liabilities..................................   2,099.4         1,881.3        1,757.5
    Withdrawals from insurance liabilities.............................  (2,072.3)       (1,842.5)      (1,622.6)
    Issuance of shares for employee benefit plans......................      52.3            20.6            1.8
    Issuance of convertible preferred stock............................        -            257.7             -
    Issuance of equity interests in subsidiaries, net..................        -              2.2           16.8
    Payments to repurchase equity securities of Conseco ...............    (593.3)          (21.5)         (92.4)
    Payments related to the induced conversion of convertible
       preferred stock.................................................     (13.2)             -              -
    Redemption of preferred stock......................................        -              (.3)            -
    Distributions on Company-obligated mandatorily redeemable
       preferred securities of subsidiary trusts.......................     (65.7)           (2.9)            -
    Dividends paid.....................................................     (63.6)          (34.3)         (24.6)
                                                                        ---------        --------       --------

            Net cash provided by financing activities..................   1,741.8            47.1          764.2
                                                                        ---------        --------       --------

            Net increase (decrease) in short-term investments..........     708.9            91.7         (105.5)

Short-term investments, beginning of year..............................     281.6           189.9          295.4
                                                                        ---------        --------       --------

Short-term investments, end of year.................................... $   990.5        $  281.6       $  189.9
                                                                        =========        ========       ========


















                     The accompanying notes are an integral
                       part of the consolidated financial
                                   statements.
</TABLE>
                                       58

<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 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
February  11, 1997 and April 1, 1996.  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.  The Company  develops,  markets and administers  supplemental
health insurance, annuity, individual life insurance, individual and group major
medical insurance and other insurance 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 has supplemented such growth by acquiring companies that have
profitable  niche products and strong  distribution  systems.  Once a company is
acquired,  our  operating  strategy  has  been  to  consolidate  and  streamline
management and administrative  functions where appropriate,  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.

       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
Insurance Company ("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  Life  Insurance  Company  ("Beneficial
Standard") in March 1991 and Bankers Life and Casualty Company  ("Bankers Life")
in November 1992. 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. 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
accounts  of  CCP  are  consolidated  with  Conseco's  for  all  periods  in the
accompanying financial statements.

       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.

       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 and the  acquisition of additional  BLH common shares in September  1993, we
owned  56  percent  of BLH at  January  1,  1995.  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 all of the shares of BLH
common  stock 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.

       We were required to use  step-basis  accounting  when we acquired the BLH
common shares at the various  acquisition  dates.  The assets and liabilities of
BLH  included  in  our  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.

       Conseco Capital Partners II, L.P.  ("Partnership  II"),  Conseco's second
investment  partnership,  acquired  American Life Holdings,  Inc. ("ALH" and the
parent of American Life and Casualty  Insurance  Company) 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

                                       59

<PAGE>


                         CONSECO, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

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



less than 50 percent. Because of this control,  Conseco's consolidated financial
statements were required to include the accounts of ALH.

       On January 1, 1995,  Conseco had 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 $166.0 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.  On March 4, 1997, we completed the acquisition  (the "CAF Merger")
of Capitol American Financial  Corporation ("CAF") and CAF became a wholly owned
subsidiary of Conseco.  On May 30, 1997, we completed the acquisition  (the "PFS
Merger") of Pioneer  Financial  Services,  Inc.  ("PFS") and PFS became a wholly
owned subsidiary of Conseco. On September 30, 1997, we completed the acquisition
(the  "Colonial  Penn  Purchase")  of Colonial Penn Life  Insurance  Company and
Providential  Life  Insurance  Company and certain  other  assets  (collectively
referred to as "Colonial Penn").  Colonial Penn became a wholly owned subsidiary
of  Conseco.  On December  5, 1997,  we  completed  the  acquisition  (the "WNIC
Merger") of Washington  National  Corporation  ("WNIC") and WNIC became a wholly
owned subsidiary of Conseco.  The accounts of LPG are consolidated  with Conseco
effective July 1, 1996; the accounts of ATC and THI are  consolidated  effective
December 31, 1996;  the accounts of CAF are  consolidated  effective  January 1,
1997; the accounts of PFS are consolidated effective April 1, 1997; the accounts
of Colonial Penn are consolidated effective September 30, 1997; and the accounts
of WNIC are consolidated effective December 1, 1997.

       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  amounts  in our 1996 and 1995
consolidated   financial   statements   and  notes  to  conform  with  the  1997
presentation.



                                       60

<PAGE>


                         CONSECO, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

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



       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 - fixed maturity securities that we buy principally for the
             purpose of selling in the near term. We carry trading securities at
             estimated fair value. We include any unrealized gain or loss in net
             investment  gains  (losses).  We  held  $64.8  million  of  trading
             securities  at  December  31,  1997,  which are  included  in other
             invested assets. We did not hold any trading securities at December
             31, 1996 or 1995.

             Held to  maturity  - fixed  maturity  securities  that 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 and other
adjustments,  to shareholders' equity. The following table summarizes the effect
of these  adjustments  on the related  balance sheet accounts as of December 31,
1997:
<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....................    $22,289.3                $  484.4            $22,773.7
Other balance sheet items:
   Cost of policies purchased.................................      2,639.0                  (172.6)             2,466.4
   Cost of policies produced..................................        949.9                   (34.7)               915.2
   Other......................................................          -                      (4.4)                (4.4)
   Income tax assets..........................................        181.1                   (95.5)                85.6
                                                                                            -------

       Unrealized appreciation of fixed maturity securities,
          net.................................................                              $ 177.2
                                                                                            =======
</TABLE>

       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 1997) 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.


                                       61

<PAGE>


                         CONSECO, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

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



          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:  (i) trading  securities;  (ii) Standard &
Poor's  500  Call  Options   ("S&P  500  Call   Options");   and  (iii)  certain
non-traditional  investments.  Trading  securities are carried at estimated fair
value as described above. The S&P 500 Call Options are also carried at estimated
fair  value and are  further  described  below  under  "Financial  Instruments."
Non-traditional  investments  include  investments  in  venture  capital  funds,
limited partnerships,  mineral rights and promissory notes and 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.

       When we sell a security  (other than a trading  security),  we report the
difference  between our sale  proceeds and its  amortized  cost as an investment
gain or loss.

       We  regularly  evaluate  all  of  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.

       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 that 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.

                                       62

<PAGE>


                         CONSECO, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

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



       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.

       -  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  and  evaluate  recoverability  in the same  manner  as cost of  policies
produced as described below.

       The cost of policies purchased related to acquisitions completed prior to
November  19,  1992  (representing  8 percent of the balance of cost of policies
purchased at December 31, 1997) is amortized under a slightly  different  method
than that described above.  However,  the effect of the different method on 1997
net income was insignificant.






                                       63

<PAGE>


                         CONSECO, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

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



       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,  using  the  interest  rate  credited  to the
underlying policies, as follows:

       -  For universal life-type contracts and  investment-type  contracts,  in
          relation  to the  present  value of expected  gross  profits  from the
          contracts.

       -  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).  Cash flows  considered in such an analysis are
those of the business  acquired,  if  separately  identifiable,  or the business
segment  that  acquired  the  business  if  such  earnings  are  not  separately
identifiable.

       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 $19.2 million in 1997, $11.9 million in 1996 and $9.3 million in 1995.

       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.

                                       64

<PAGE>

                         CONSECO, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

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



       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.

       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 bases 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.


                                       65

<PAGE>

                         CONSECO, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

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


       Minority Interest

       Our  consolidated  financial  statements for 1995 and 1996 include all of
the assets,  liabilities,  revenues and expenses of BLH and ALH,  even though we
did not own all of the common stock of these  subsidiaries  until December 1996.
We make a charge  against  consolidated  income  for:  (i) the share of earnings
allocable  to  minority   interests;   (ii)  dividends  on  preferred  stock  of
subsidiaries;  and  (iii)  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 book value under minority interest.  We charge the
distributions on these securities against consolidated income.

       Earnings Per Share

       As of December 31,  1997,  we adopted  Statement of Financial  Accounting
Standards  No. 128,  "Earnings  Per  Share"("SFAS  128").  SFAS 128 provides new
accounting and reporting  standards for earnings per share. It replaces  primary
and fully diluted  earnings per share with basic and diluted earnings per share.
Basic  earnings per share excludes  dilution and is computed by dividing  income
available to common shareholders by the weighted average number of common shares
outstanding for the period.  Diluted earnings per share represents the potential
dilution  that could occur if all  convertible  securities,  warrants  and stock
options  were  exercised  and  converted  into common  stock if their  effect is
dilutive.  The diluted earnings per share calculation  assumes that the proceeds
received upon the  conversion  of all dilutive  options and warrants are used to
repurchase  the  Company's  common  shares at the average  market  price of such
shares  during the period.  Prior period  earnings  per share  amounts have been
restated.  We have  also  restated  all  share  and  per-share  amounts  for the
two-for-one stock splits distributed February 11, 1997 and April 1, 1996.

       Comprehensive Income

       As of December 31,  1997,  we adopted  Statement of Financial  Accounting
Standards No. 130,  "Reporting  Comprehensive  Income"  ("SFAS  130").  SFAS 130
establishes standards for reporting and presentation of comprehensive income and
its  components  in a full set of  financial  statements.  Comprehensive  income
includes  all  changes  in  shareholders'  equity  (except  those  arising  from
transactions with shareholders) and includes net income and net unrealized gains
(losses) on securities. The new standard requires only additional disclosures in
the consolidated financial statements; it does not affect our financial position
or results of operations.

       Comprehensive  income excludes net investment gains (losses)  included in
net income of: (i) $42.1 million  (after income taxes of $22.6 million) in 1997;
(ii) $(2.0)  million  (after  income tax benefit of $1.0  million) in 1996;  and
(iii) $48.1 million (net of income taxes of $25.9 million) in 1995.

       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  amortized value and recoverability of securities,  cost of policies
produced, cost of policies purchased, goodwill, insurance liabilities,  guaranty
fund assessment accruals, liabilities for litigation, and deferred income taxes.
Actual results could differ from reported results using those estimates.

       Financial Instruments

       In 1996, we introduced  equity-indexed annuity products,  which provide a
guaranteed  base rate of return  with a higher  potential  return  linked to the
performance  of a broad-based  equity  index.  We buy S&P 500 Call Options in an
effort to hedge  potential  increases to  policyholder  benefits  resulting from
increases  in the S&P 500 Index to which the  product's  return  is  linked.  We
include  the  cost  of  the  S&P  500  Call   Options  in  the  pricing  of  the
equity-indexed annuity products. We reflect changes in the values of the S&P 500
Call Options,  which  fluctuate in relation to changes in  policyholder  account
balances  for  these  annuities,  in net  investment  income.  Premiums  paid to
purchase these instruments are deferred and amortized over their term.

       During the year ended December 31, 1997, net investment  income increased
by  $39.4  million  as a  result  of  changes  in the  value of the S&P 500 Call
Options.  Such investment  income was  substantially  offset by amounts added to
policyholder account balances

                                       66

<PAGE>

                         CONSECO, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

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

for annuities and financial products.  The value of the S&P 500 Call Options was
$41.4  million at December  31,  1997.  We classify  such  instruments  as other
invested assets.

       If the counterparties of the aforementioned  financial instruments do not
meet their obligations, Conseco may have to recognize a loss. Conseco limits its
exposure to such a loss by diversifying among several counterparties believed to
be strong and creditworthy. At December 31, 1997, all of the counterparties were
rated "A"or higher by Standard & Poor's Corporation.

       In  conjunction  with its  investment  in a consumer  financing  company,
Conseco  has  guaranteed  up  to  $10.0  million  of  the  financing   company's
indebtedness to its primary lender through 1998. Conseco believes the likelihood
of a significant loss from the guarantee is remote.

       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  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.

       Other assets.  The portion of other assets in 1996 representing the value
       attributable  to the U.S.  Treasury  securities  held in  escrow  for the
       future  redemption  of  mandatorily   redeemable  preferred  stock  of  a
       subsidiary  of ALH are  based on  quoted  market  prices.  In  1997,  the
       redeemable preferred stock was redeemed and the securities held in escrow
       were released.

       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 features of subordinated convertible
       debentures acquired in conjunction with the ATC Merger and the PFS Merger
       are valued at estimated fair value.

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

       Mandatorily  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.
       These securities were redeemed in 1997.

                                       67

<PAGE>


                         CONSECO, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

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



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

                                                                               1997                         1996
                                                                   ------------------------      -------------------------
                                                                   Carrying           Fair       Carrying            Fair
                                                                    Amount            Value       Amount             Value
                                                                    ------            -----       ------             -----
                                                                                     (Dollars in millions)

<S>                                                               <C>             <C>            <C>             <C>
Financial assets held for purposes other than trading:
       Actively managed fixed maturities......................    $22,773.7       $22,773.7      $17,307.1       $17,307.1
       Equity securities .....................................        228.9           228.9           99.7            99.7
       Mortgage loans.........................................        516.2           551.0          356.0           356.1
       Credit-tenant loans....................................        558.6           587.2          447.1           446.3
       Policy loans...........................................        692.4           692.4          542.4           542.4
       Other invested assets..................................        453.3           453.3          259.6           259.6
       Short-term investments.................................        990.5           990.5          281.6           281.6
       Other assets...........................................          -               -             45.6            49.1

Financial liabilities held for purposes other than trading:
       Insurance liabilities for investment contracts (1).....     12,724.0        12,724.0       11,491.6        11,491.6
       Investment borrowings..................................      1,389.5         1,389.5          383.4           383.4
       Other liabilities......................................         72.6            95.1          145.5           145.5
       Commercial paper.......................................        448.2           448.2            -               -
       Notes payable..........................................      1,906.7         1,950.6        1,094.9         1,140.8
       Company-obligated mandatorily redeemable
          preferred securities of subsidiary trusts...........      1,383.9         1,491.6          600.0           604.3
       Mandatorily redeemable preferred stock of a subsidiary
          (a component of minority interest)..................          -               -             97.0            97.0
<FN>
    (1)   The estimated fair value of the liabilities  for investment  contracts
          was approximately equal to its carrying value at December 31, 1997 and
          1996. 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.
</FN>
</TABLE>

       Recently Issued Accounting Standards

       Statement of Financial  Accounting  Standards  No. 125,  "Accounting  for
Transfers and Servicing of Financial Assets and  Extinguishment  of Liabilities"
("SFAS  125") was  issued in June 1996 and  provides  accounting  and  reporting
standards for transfers of financial assets and  extinguishments of liabilities.
SFAS 125 is effective for 1997 financial statements; however, certain provisions
relating to accounting for repurchase  agreements and securities lending are not
effective until January 1, 1998.  Provisions  effective in 1997 did not have any
effect on our  financial  position  or results of  operations.  The  adoption of
provisions  effective in 1998 are not expected to have a material  effect on our
financial position or results of operations.

       Statement of Financial Accounting  Standards No. 131,  "Disclosures about
Segments of an Enterprise and Related  Information" ("SFAS 131") establishes new
standards  for  reporting  about  operating  segments and products and services,
geographic areas and major customers. Under SFAS 131, segments are to be defined
consistent with the basis  management uses internally to assess  performance and
allocate   resources.   Implementing  SFAS  131  will  have  no  impact  on  the
consolidated  amounts we report, and we do not expect any significant changes to
our  segment  disclosures.  SFAS 131 is  effective  for our  December  31,  1998
financial statements.

      Statement of  Financial   Accounting   Standards   No.  132,   "Employers'
Disclosures about Pensions and Other  Postretirement  Benefits" ("SFAS 132") was
issued  in  February  1998  and  revises  current  disclosure  requirements  for
employers' pensions and other
                                       68

<PAGE>

                         CONSECO, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

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

retiree  benefits.  SFAS 132 will have no effect on our  financial  position  or
results of operations. SFAS 132 is effective for our December 31, 1998 financial
statements.

       Statement  of  Position   97-3,   "Accounting   by  Insurance  and  Other
Enterprises for  Insurance-Related  Assessments"  ("SOP 97-3") was issued by the
American Institute of Certified Public Accountants in December 1997 and provides
guidance for determining when an insurance  company or other  enterprise  should
recognize a liability for  guaranty-fund  assessments and guidance for measuring
the  liability.  The statement is effective for 1999 financial  statements  with
early adoption permitted. The adoption of this statement is not expected to have
a material effect on our financial position or results of operations.

       2. ACQUISITIONS/DISPOSITIONS:

       CCP Insurance, Inc.

       At January 1, 1995, we owned 45 percent of the common stock of CCP, which
was acquired through several separate  transactions  beginning in 1990. 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

       At January 1, 1995, we owned 58 percent of the common stock of BLH, which
was acquired in various transactions beginning in 1992. 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 was no longer required since we were 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 90.5 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 of a
share 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.

       American Life Holdings, Inc.

       At  January  1,  1995,  we owned 27  percent  of ALH  through  our direct
investment and through our  investment in Partnership  II. 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 $166.0 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 net
investment gains. Such income of Conseco

                                       69

<PAGE>


                         CONSECO, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

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

was  offset  by $16.2  million  of  expenses  incurred  in  connection  with the
realization of the investment gains.

       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.

       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,  was  classified  as  notes  payable  and  $145.5  million,
representing the additional value  attributable to the conversion  feature,  was
classified as 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 value 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.

       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.

       The THI Merger was accounted for 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.

       Capitol American Financial Corporation

       On March 4, 1997, we completed the CAF Merger.  Each outstanding share of
CAF common  stock was  exchanged  for  $30.75 in cash plus  0.1647 of a share of
Conseco common stock. We paid $552.8 million (including  acquisition expenses of
$14.2 million) in cash and issued 3.0 million shares of common stock  (including
 .1 million  common  equivalent  shares issued in exchange for CAF's  outstanding
options) with a value of $117.4 million. In addition, we assumed a $31.0 million
note payable of CAF, which we repaid on the merger date.

       The CAF Merger was accounted for under the purchase  method of accounting
effective  January 1, 1997. Under this method,  we allocated the cost to acquire
CAF to the assets and  liabilities  acquired based on fair values as of the date
of the CAF Merger, and

                                       70

<PAGE>


                         CONSECO, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

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



reported the excess of the total purchase cost over the fair value of the assets
acquired less the fair value of the liabilities assumed as goodwill.

       Pioneer Financial Services, Inc.

       On May 30, 1997, we completed the PFS Merger.  Each outstanding  share of
PFS common stock was exchanged for .7077 of a share of Conseco common stock.  We
issued  9.0  million  shares  of  common  stock  (including  .6  million  common
equivalent shares issued in exchange for PFS's outstanding options) with a value
of $354.1 million.  We also assumed PFS's convertible  subordinated notes, which
are convertible into 3.1 million shares of Conseco common stock, with a value of
$130.6  million (of which  $86.3  million,  representing  the  principal  amount
outstanding, was classified as notes payable and $44.3 million, representing the
additional value attributable to the conversion feature, was classified as other
liabilities). In addition, we assumed a $21.3 million note payable of PFS, which
we repaid on the merger date.

       The PFS Merger was accounted for under the purchase  method of accounting
effective April 1, 1997. Under this method, we allocated the cost to acquire PFS
to the assets and  liabilities  acquired  based on fair values as of the date of
the PFS Merger, and reported the excess of the total purchase cost over the fair
value of the assets acquired less the fair value of the  liabilities  assumed as
goodwill.  The PFS Merger did not qualify to be accounted  for under the pooling
of interests  method in  accordance  with APB No. 16 because an affiliate of PFS
sold a portion  of his  holdings  of PFS common  stock  after the PFS Merger was
announced.

       Colonial Penn

       On September  30, 1997,  we completed  the Colonial  Penn  Purchase  from
Leucadia National Corporation  ("Leucadia") for $460.0 million in cash and notes
payable.  The Colonial Penn Purchase was funded with:  (i) $60.0 million in cash
which was borrowed  under our bank credit  facility;  and (ii) notes  payable to
Leucadia (the "Leucadia Notes") totaling $400.0 million.

       The Colonial Penn Purchase was accounted for under the purchase method of
accounting  effective  September 30, 1997.  Under this method,  we allocated the
cost to acquire  Colonial Penn to the assets and  liabilities  acquired based on
fair values as of the date of the  Colonial  Penn  Purchase,  and  reported  the
excess of the total  purchase  cost over the fair value of the  assets  acquired
less the fair value of the liabilities assumed as goodwill.

       Washington National Corporation

       On December 5, 1997,  we completed the WNIC Merger.  In the merger,  each
share of WNIC common  stock was  converted  into the right to receive  $33.25 in
cash. We paid $400.6  million in cash, of which $73.7 million was funded through
a dividend to Conseco from WNIC.  The remaining  purchase  price was funded with
amounts borrowed under our bank credit facilities.

       We accounted for the WNIC Merger under the purchase  method of accounting
effective  December 1, 1997. Under this method, we allocated the cost to acquire
WNIC to the assets and liabilities  acquired based on fair values as of the date
of the WNIC Merger,  and reported the excess of the total purchase cost over the
fair value of the assets acquired less the fair value of the liabilities assumed
as goodwill.

       Effect of Merger Transactions on Consolidated Financial Statements

       We used purchase  accounting to account for all our  acquisitions  during
1997,  1996 and 1995.  We  allocated  the total  purchase  cost of  acquisitions
completed in 1997 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 (within one year of the acquisition date). We
don't expect any adjustment to be material, however.

       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 8);
(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

                                       71

<PAGE>


                         CONSECO, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

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



Securities,  7% PRIDES  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.  The pro forma  data are not  necessarily  indicative  of the  results  of
Conseco's operations had these transactions occurred on January 1, 1995, nor the
results of future operations.  We have not presented pro forma data for the 1997
acquisitions  because,  in accordance  with the disclosure  requirements  of the
Securities  and  Exchange  Commission,  such  acquisitions  are not  significant
individually or in the aggregate.
<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:
     Basic....................................................................................      $2.10            $1.80
     Diluted..................................................................................       1.79             1.63


<FN>
(1)    We have excluded $74.9 million from pro forma income before extraordinary
       charge and $.39 from  income  before  extraordinary  charge  per  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.
</FN>
</TABLE>


       3.   INVESTMENTS:

       At December 31, 1997,  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..................   $   541.4     $ 20.9      $   .1     $   562.2
Obligations of states and political subdivisions........................       277.1        8.3          .8         284.6
Debt securities issued by foreign governments...........................       204.3        4.4         9.6         199.1
Public utility securities...............................................     2,267.5       69.0        26.0       2,310.5
Other corporate securities..............................................    12,300.5      352.9        86.5      12,566.9
Mortgage-backed securities .............................................     6,698.5      156.0         4.1       6,850.4
                                                                           ---------     ------      ------     ---------

       Total actively managed fixed maturities..........................   $22,289.3     $611.5      $127.1     $22,773.7
                                                                           =========     ======      ======     =========

</TABLE>

       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>

                                       72

<PAGE>


                         CONSECO, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

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




       At December 31, 1997,  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............................................................   $18,272.9    $18,703.7
Broker-dealer market makers.......................................................................     1,808.9      1,831.8
Internally developed methods (calculated based  on a weighted-average
   current market yield of 7.0 percent)...........................................................     2,207.5      2,238.2
                                                                                                     ---------    ---------

       Total actively managed fixed maturities....................................................   $22,289.3    $22,773.7
                                                                                                     =========    =========

</TABLE>

       The following table sets forth fixed maturity investments at December 31,
1997,  classified  by rating  categories.  The category  assigned is the highest
rating by a nationally  recognized  statistical  rating  organization  or, as to
$651.2  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..................................       35%                          29%
                          AA...................................        8                            7
                          A....................................       24                           20
                          BBB+.................................        8                            7
                          BBB..................................       11                            9
                          BBB- ................................        7                            6
                                                                   -----                          ---

                              Investment grade.................       93                           78
                                                                   -----                          ---

                          BB+..................................        2                            2
                          BB...................................        1                            1
                          BB-..................................        1                            1
                          B+ and below.........................        3                            2
                                                                   -----                          ---

                             Below-investment grade............        7                            6
                                                                   -----                          ---

                                 Total fixed maturities........      100%                          84%
                                                                     ===                           ==
</TABLE>

       The  following  table sets forth  below-investment-grade  fixed  maturity
investments  as of December 31, 1997,  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.................................................$      9.5     $     4.7
Amortized cost exceeds fair value by 15%, but less than 30%......................................     141.3         110.0
Amortized cost exceeds fair value by 5%, but less than 15%.......................................     158.7         142.3
All others.......................................................................................   1,215.6       1,239.2
                                                                                                   --------      --------

       Total below-investment-grade fixed maturity investments...................................  $1,525.1      $1,496.2
                                                                                                   ========      ========
</TABLE>

                                       73

<PAGE>


                         CONSECO, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

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



       The  following  table sets forth the amortized  cost and  estimated  fair
value of actively  managed fixed maturities at December 31, 1997, 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.........................................................................  $   238.9      $   239.8
Due after one year through five years...........................................................    2,243.1        2,264.7
Due after five years through ten years..........................................................    5,481.4        5,539.5
Due after ten years.............................................................................    7,627.4        7,879.3
                                                                                                  ---------      ---------

     Subtotal...................................................................................   15,590.8       15,923.3
Mortgage-backed securities......................................................................    6,698.5        6,850.4
                                                                                                  ---------      ---------

        Total actively managed fixed maturities ................................................  $22,289.3      $22,773.7
                                                                                                  =========      =========
</TABLE>

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

                                                                                December 31, 1997      December 31, 1996
                                                                              --------------------     --------------------
                                                                                         Estimated               Estimated
                                                                                           fair                    fair
                                                                              Cost         value        Cost       value
                                                                              ----         -----        ----       -----
                                                                                         (Dollars in millions)

<S>                                                                          <C>           <C>           <C>       <C>
Preferred stock, non-redeemable..........................................    $149.3        $152.5        $64.7      $66.3
Common stock.............................................................      78.3          76.4         32.9       33.4
                                                                             ------        ------       ------      -----

       Total equity securities...........................................    $227.6        $228.9        $97.6      $99.7
                                                                             ======        ======        =====      =====

</TABLE>


       Net investment income consisted of the following:
<TABLE>
<CAPTION>
                                                                                          1997         1996         1995
                                                                                          ----         ----         ----
                                                                                               (Dollars in millions)

<S>                                                                                     <C>           <C>         <C>
Fixed maturities.....................................................................   $1,467.5      $1,109.5    $  988.6
Equity securities....................................................................       23.6           6.5         2.8
Mortgage loans.......................................................................       39.5          42.6        43.3
Credit-tenant loans..................................................................       44.5          28.8        19.7
Policy loans.........................................................................       38.6          25.9        19.4
Equity-indexed products..............................................................       39.4           -           -
Other invested assets................................................................       74.8          27.8        17.5
Short-term investments...............................................................       39.6          15.6        26.4
Separate accounts....................................................................       70.3          48.4        28.8
                                                                                        --------      --------    --------

      Gross investment income........................................................    1,837.8       1,305.1     1,146.5
Investment expenses..................................................................       12.5           2.6         3.9
                                                                                        --------      --------    --------

      Net investment income..........................................................   $1,825.3      $1,302.5    $1,142.6
                                                                                        ========      ========    ========
</TABLE>


       The carrying value of fixed maturity  investments  and mortgage loans not
accruing  investment income totaled $3.1 million,  $2.1 million and $1.5 million
at December 31, 1997, 1996 and 1995, respectively.



                                       74

<PAGE>


                         CONSECO, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

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

       The proceeds from sales of fixed maturity  investments were $18.1 billion
in 1997, $8.2 billion in 1996, and $7.9 billion in 1995.

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

                                                                                           1997         1996         1995
                                                                                           ----         ----         ----
                                                                                                (Dollars in millions)
<S>                                                                                       <C>          <C>          <C>
Fixed maturities:
    Gross gains.........................................................................  $342.6       $126.8       $270.8
    Gross losses........................................................................   (41.4)       (52.5)       (17.5)
    Other than temporary decline in fair value..........................................    (1.2)         (.6)       (21.9)
                                                                                          ------       ------       ------

         Net investment gains from fixed maturities before expenses.....................   300.0         73.7        231.4

Equity securities.......................................................................    13.2          2.6           .4
Mortgages...............................................................................     (.8)         (.4)        (2.1)
Other than temporary decline in fair value of other invested assets.....................      -          (8.3)        (3.0)
Other...................................................................................    (1.2)        29.9         13.9
                                                                                          ------       ------       ------

         Net investment gains before expenses...........................................   311.2         97.5        240.6
Investment gain expenses................................................................    44.7         36.7         36.5
                                                                                          ------       ------       ------

         Net investment gains...........................................................  $266.5      $  60.8       $204.1
                                                                                          ======      =======       ======
</TABLE>


      Changes in unrealized  appreciation  (depreciation) on investments were as
follows:
<TABLE>
<CAPTION>
                                                                                           1997         1996         1995
                                                                                           ----         ----         ----
                                                                                                (Dollars in millions)
<S>                                                                                       <C>          <C>           <C>
Investments carried at fair value:
    Actively managed fixed maturities ..................................................  $380.6       $(504.4)      $981.6
    Equity securities...................................................................     (.8)           .1          5.4
    Other investments...................................................................     9.6          (2.2)        (2.7)
                                                                                          ------       -------      -------

                                                                                           389.4        (506.5)       984.3
Equity in unrealized appreciation of CCP's investments..................................      -             -          46.2

Adjustment for effect on other balance sheet accounts:
    Cost of policies purchased .........................................................  (128.4)        141.6       (269.6)
    Cost of policies produced...........................................................   (36.4)         45.4        (56.7)
    Other...............................................................................    (4.4)           -            -
    Income taxes........................................................................   (77.1)        116.4       (246.5)
    Minority interest...................................................................      -          129.3       (205.3)
                                                                                          ------       -------      -------

         Change in unrealized appreciation (depreciation) of investments ...............  $143.1       $ (73.8)     $ 252.4
                                                                                          ======       =======      =======
</TABLE>

       At December 31,  1997,  net  appreciation  of equity  securities  (before
income tax) was $1.3  million,  consisting of $7.3 million of  appreciation  and
$6.0 million of depreciation.

       At December 31, 1997, the amortized cost and fair value of fixed maturity
investments in default as to the payment of principal and interest  totaled $2.4
million and $1.5 million,  respectively.  Conseco  recorded  writedowns of fixed
maturity  investments  and other invested  assets of $1.2 million in 1997,  $8.9
million in 1996 and $24.9 million in 1995.  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 $.2 million in 1997,  $3.8 million in 1996 and
$1.6 million in 1995.

                                       75

<PAGE>


                         CONSECO, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

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



       Investments in mortgage-backed  securities at December 31, 1997, included
collateralized   mortgage   obligations   ("CMOs")  of   $3,210.2   million  and
mortgage-backed pass-through securities of $3,640.2 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, 1997, 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 ....................................................................   $2,025.5      $1,980.4     $2,014.7
7 percent - 8 percent...............................................................    3,568.0       3,546.5      3,638.2
8 percent - 9 percent...............................................................      712.9         716.1        730.5
9 percent and above.................................................................      445.1         455.5        467.0
                                                                                       --------      --------     --------

                  Total mortgage-backed securities..................................   $6,751.5      $6,698.5     $6,850.4
                                                                                       ========      ========     ========
</TABLE>

       The amortized cost and estimated fair value of mortgage-backed securities
including  CMOs at December 31,  1997,  summarized  by type of security  were as
follows:
<TABLE>
<CAPTION>
                                                                                                      Estimated fair value
                                                                                                     ---------------------
                                                                                                                  Percent
                                                                                     Amortized                   of fixed
Type                                                                                   cost          Amount     maturities
----                                                                                   ----          ------     ----------
                                                                                                 (Dollars in millions)

<S>                                                                                    <C>           <C>             <C>
Pass-throughs and sequential and targeted amortization classes................         $4,599.7      $4,697.5         21%
Planned amortization classes and accretion directed bonds.....................          1,515.9       1,547.6          7
Support classes...............................................................             36.0          36.9          -
Accrual (Z tranche) bonds.....................................................             27.9          28.8          -
Subordinated classes .........................................................            519.0         539.6          2
                                                                                       --------      --------         --

                 Total mortgage-backed securities.............................         $6,698.5      $6,850.4         30%
                                                                                       ========      ========         ==
</TABLE>


       At December  31, 1997,  approximately  73 percent of the  estimated  fair
value of Conseco's  mortgage-backed  securities  was  determined  by  nationally
recognized  pricing services,  8 percent was determined by broker-dealer  market
makers,  and 19 percent was  determined by  internally  developed  methods.  The
call-adjusted modified duration of our mortgage-backed  securities was 5.2 years
at December 31, 1997.

       At December 31, 1997,  the mortgage loan balance was primarily  comprised
of commercial loans, including multifamily  residential loans.  Approximately 20
percent,  11  percent  and 9  percent  of the  mortgage  loan  balance  were  on
properties  located in  California,  Texas and Florida,  respectively.  No other
state comprised greater than 7 percent of the mortgage loan balance. Less than 2
percent of the mortgage  loan balance was  noncurrent  at December 31, 1997.  At
December 31, 1997,  the Company had an allowance  for loss on mortgage  loans of
$9.0 million.

       At December 31, 1997, we held $558.6  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

                                       76

<PAGE>

                         CONSECO, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

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

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,
with  dollar  rolls,   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  $719.3  million  during 1997  (compared with an average of $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 5.8 percent in 1997 and 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, 1997). 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:  (i) trading  securities of $64.8 million;
(ii) S&P 500 Call Options issued in conjunction  with  equity-indexed  annuities
described  in  note  1 of  $41.4  million;  and  (iii)  certain  non-traditional
investments,   including   investments  in  venture   capital   funds,   limited
partnerships,  mineral rights and  promissory  notes of $411.9  million.  During
1996, Conseco sold its non-traditional investment in Noble Broadcast Group, Inc.
and  realized  a  gain  of  $30.0  million.   During  1995,   Conseco  sold  its
non-traditional   investment   in  Eagle   Credit  (a  finance   subsidiary   of
Harley-Davidson) and realized a gain of $20.6 million.

       Life insurance  companies are required to maintain certain investments on
deposit with state regulatory authorities. Such assets had an aggregate carrying
value of $202.5 million at December 31, 1997.

       Conseco had no  investments  in any single entity in excess of 10 percent
of shareholders'  equity at December 31, 1997, other than investments  issued or
guaranteed by the United States government or a United States government agency.

       4.  INSURANCE LIABILITIES:

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

                                                                                   Interest
                                                         Withdrawal    Mortality      rate
                                                         assumption   assumption   assumption      1997              1996
                                                         ----------   ----------   ----------      ----              ----
                                                                                                     (Dollars in millions)
   <S>                                                       <C>          <C>          <C>         <C>           <C>
   Future policy benefits:
     Interest-sensitive products:
       Investment contracts............................      N/A          N/A          (c)         $12,724.0     $11,491.6
       Universal life-type contracts...................      N/A          N/A          5%            4,633.6       3,303.9
                                                                                                   ---------     ---------
         Total interest-sensitive products.............                                             17,357.6      14,795.5
                                                                                                   ---------     ---------
     Traditional products:
       Traditional life insurance contracts............    Company        (a)          4%            1,925.0       1,234.7
                                                         experience
       Limited-payment contracts.......................     None          (b)          6%              968.4         761.5

       Individual accident and health .................    Company     Company         6%            2,820.4       1,184.0
                                                         experience   experience
       Group life and health...........................      N/A          N/A          N/A              71.0          71.3
                                                                                                   ---------     ---------

         Total traditional products....................                                              5,784.8       3,251.5
                                                                                                   ---------     ---------

   Claims payable and other policyholder funds ........      N/A          N/A          N/A           1,668.8         984.9
   Unearned premiums...................................      N/A          N/A          N/A             406.1         272.4
   Liabilities related to separate accounts............      N/A          N/A          N/A             682.8         337.6
                                                                                                   ---------     ---------

       Total insurance liabilities.....................                                            $25,900.1     $19,641.9
                                                                                                   =========     =========

<FN>
   (a)  Principally modifications of the 1965 - 70 and 1975 -  80 Basic,  Select
        and Ultimate Tables.

                                       77

<PAGE>


                         CONSECO, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

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



   (b)   Principally the 1984  United  States Population Table and the NAIC 1983
         Individual Annuitant Mortality Table.

   (c)   In both 1997  and  1996: (i) approximately 95 percent of this liability
         represented account balances where future benefits are not  guaranteed;
         and (ii) 5 percent 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, 2 percent and
12 percent of total life insurance in force at December 31, 1997, 1996 and 1995,
respectively.  Participating  policies  represented  approximately 2 percent,  1
percent and 1 percent of premium  income for the years ended  December 31, 1997,
1996 and 1995,  respectively.  Dividends on participating  policies  amounted to
$13.0  million,  $13.4  million  and  $12.3  million  in 1997,  1996  and  1995,
respectively.

       5.  REINSURANCE:

       Cost of reinsurance  ceded where the reinsured policy contains  mortality
risks totaled $499.0 million, $313.8 million and $72.6 million in 1997, 1996 and
1995,  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 $587.5  million,  $281.4  million,  and $59.8 million in 1997,  1996 and
1995, 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.

       The Company's  reinsurance  receivable  at December 31, 1997,  relates to
approximately 181 reinsurers.  Two major United States insurance companies rated
"A (Excellent)" or better by A.M. Best Company,  a recognized  insurance  rating
agency,  account for approximately 19 percent of such balance. Each of our other
reinsurers (the majority of which are rated "A- (Excellent)" or better) accounts
individually for less than 4 percent of reinsurance receivables.

       6.  INCOME TAXES:

       Income tax assets (liabilities) were comprised of the following:
<TABLE>
<CAPTION>
                                                                                                      1997           1996
                                                                                                      ----           ----
                                                                                                     (Dollars in millions)
<S>                                                                                                <C>            <C>
Deferred income tax assets (liabilities):
    Investments................................................................................... $  (95.9)      $   52.2
    Cost of policies purchased and cost of policies produced......................................   (750.5)        (573.7)
    Insurance liabilities.........................................................................    898.9          474.0
    Unrealized appreciation.......................................................................    (98.1)         (21.0)
    Net operating loss carryforward...............................................................    258.0          154.4
    Other.........................................................................................   (136.6)         (87.6)
                                                                                                   --------       --------

          Deferred income tax assets (liabilities)................................................     75.8           (1.7)
Current income tax assets ........................................................................      9.8           10.5
                                                                                                   --------       --------

          Income tax assets....................................................................... $   85.6       $    8.8
                                                                                                   ========       ========
</TABLE>

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

                                                                                               1997       1996       1995
                                                                                               ----       ----       ----
                                                                                                  (Dollars in millions)

<S>                                                                                            <C>        <C>       <C>
Current tax provision......................................................................... $174.0     $110.5    $121.0
Deferred tax provision (benefit)..............................................................  202.6       69.3     (34.0)
                                                                                               ------     ------    ------

            Income tax expense................................................................ $376.6     $179.8    $ 87.0
                                                                                               ======     ======    ======
</TABLE>


                                       78

<PAGE>


                         CONSECO, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

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



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

                                                                                               1997       1996      1995
                                                                                               ----       ----      ----
                                                                                                  (Dollars in millions)

<S>                                                                                            <C>        <C>        <C>
Tax on income before income taxes at statutory rate........................................... $351.1     $172.8     $146.5
Goodwill       ...............................................................................   29.6       12.3        7.9
State taxes...................................................................................   12.4        7.3         .3
Other.........................................................................................  (16.5)     (12.6)       7.2
Reversal of deferred tax liabilities as a result of increased ownership
 in certain subsidiaries......................................................................     -          -       (74.9)
                                                                                               ------     ------    -------

            Income tax expense................................................................ $376.6     $179.8    $  87.0
                                                                                               ======     ======    =======
</TABLE>


       At December 31, 1997,  Conseco had federal income tax loss  carryforwards
of $737.1 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) $25.3 million may be used only to offset income
from the non-life  insurance  companies  and,  under  certain  circumstances,  a
portion of the income of life  insurance  companies;  and (ii) $77.5 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 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 1994 and is currently  conducting an  examination  for
years 1995 through 1996.  Certain companies acquired in the LPG Merger have been
audited  by the IRS  through  1994.  Colonial  Penn Life  Insurance  Company  is
currently being examined for the tax years 1992 and 1993.  Conseco  believes the
adjustment, if any, related to these audits will not be significant.

       7. NOTES PAYABLE AND COMMERCIAL PAPER:

       Notes  payable and  commercial  paper of the Company at December 31, 1997
and 1996, were as follows:
<TABLE>
<CAPTION>

                                                                     Interest rate         1997          1996
                                                                     -------------         ----          ----
                                                                                          (Dollars in millions)
<S>                                                                  <C>                <C>              <C>
Bank debt............................................................  6.23% (1)        $1,000.0 (2)    $  465.0
Leucadia Notes.......................................................  6.44% (1)           400.0           -
Senior notes due 2003................................................ 8.125%               168.5           170.0
Senior notes due 2004................................................  10.5%               184.9           200.0
Subordinated notes due 2004.......................................... 11.25%                10.9            98.1
Convertible subordinated notes due 2003..............................   6.5%                86.1           -
Convertible subordinated debentures due 2005.........................   6.5%                29.1           102.8
Other................................................................Various                21.3            45.2
                                                                                        --------        --------

     Total principal amount..........................................                    1,900.8         1,081.1

Unamortized net premium..............................................                        5.9            13.8
                                                                                        --------        --------

     Total...........................................................                   $1,906.7        $1,094.9
                                                                                        ========        ========

Commercial paper.....................................................   5.8% (3)        $  448.2           -
                                                                                        ========        ========
<FN>
(1)    Current rate at December 31, 1997.
(2)    See note 15  for  description  of  $248.0 million repayment in 1998 using
       proceeds from the offering of 6.4 percent notes due February 10, 2003.
(3)    Weighted average rate during 1997.
</FN>
</TABLE>

                                       79

<PAGE>


                         CONSECO, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

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



       Maturities of notes payable at December 31, 1997, were as follows:
<TABLE>
<CAPTION>

             Maturity date                                                      Amount
             -------------                                                      ------
                                                                         (Dollars in millions)
<S>                                                                         <C>
1998....................................................................... $   601.1 (1)
1999.......................................................................       1.1
2000.......................................................................       1.1
2001.......................................................................     401.1
2002.......................................................................       2.0
Thereafter.................................................................     894.4
                                                                             --------

     Total par value at December 31, 1997..................................  $1,900.8
                                                                             ========
<FN>
(1)    See note   15 for  description of $248.0  million repayment in 1998 using
       proceeds from the offering of 6.4 percent notes due February 10, 2003.
</FN>
</TABLE>

       Bank debt.  Bank debt is comprised of our revolving bank credit  facility
and various bank loans described below.

       The Company's current revolving credit agreement (the "Credit Facility"),
executed  in November  1996,  permits  borrowings  up to $1.4  billion.  Maximum
permitted  borrowings  under the Credit  Facility  are reduced by any  aggregate
outstanding  commercial  paper of Conseco.  At December  31,  1997,  outstanding
borrowings  under the Credit Facility  totaled $400.0  million.  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 .35
percent will increase by .125 percent after December 31, 1997, if Conseco's debt
to total  capitalization  ratio  exceeds 35 percent.  Borrowings at December 31,
1997,  bore  interest at a weighted  average  rate of 6.21  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.

       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 and
Company-obligated  mandatorily  redeemable  preferred  securities  of subsidiary
trusts in excess of $2.4 billion in 1997 and 1998 and $3.5  billion  thereafter;
(ii) the  interest  coverage  ratio in excess  of 2.5:1  through  December  1997
(escalating  to 2.75:1  during the period  January 1, 1998 through  December 31,
1999; and 3.0:1 thereafter); and (iii) the debt to total capital ratio less than
 .45:1.  As of December 31, 1997 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 1997.

       During 1997,  Conseco entered into various  unsecured bank loans totaling
$600 million.  The proceeds  from such bank loans were used:  (i) to finance the
WNIC Merger;  (ii) to finance a portion of the Colonial Penn Purchase;  (iii) to
redeem all of the $2.16  Redeemable  Cumulative  Preferred Stock of a subsidiary
formerly held by minority interest; and (iv) for general corporate purposes. The
interest  rates on these bank loans are based on LIBOR and averaged 6.25 percent
at December 31, 1997. These bank loans mature at various dates through September
1998.

       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.


       Leucadia Notes.  Conseco entered into these notes in conjunction with the
Colonial Penn Purchase. The notes bear interest

                                       80

<PAGE>
                         CONSECO, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

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

at the one month LIBOR rate plus a margin of .50 percent  payable  semi-annually
on March 31 and  September  30. Such rate was 6.44 percent at December 31, 1997.
The notes mature on January 2, 2003 and may be put back to Conseco by the holder
at any time after December 31, 1997, in the event that: (i) all or substantially
all of Leucadia's assets are sold; or (ii) there is an acquisition of beneficial
ownership of 20 percent or more of Leucadia's  voting  securities.  In addition,
the notes are putable (in whole or in increments of $10 million of par value) at
any time on or after September 30, 1999, at a discount to par. The discount rate
is equal to (i) 3 percent of the then outstanding  principal  balance during the
period  September 30, 1999,  through  September 29, 2000;  (ii) 2 percent of the
then outstanding principal balance during the period September 30, 2000, through
September  29,  2001;  and (iii) 1  percent  of the then  outstanding  principal
balance thereafter prior to maturity. The notes and accrued interest thereon are
secured by standby  letters of credit  totaling $420.0 million which Conseco may
use to fund redemption of the notes.  Such letters of credit expire on September
30, 1998, but may be extended in one-year  increments  through 2003. The Company
pays a fee on the letters of credit  based upon the credit  rating of  Conseco's
senior debt.  At December  31,  1997,  such fee was .20 percent per annum on the
$420.0 million of outstanding letters of credit.

       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.  We
recognized  an  extraordinary  charge of $.1 million  during 1997 as a result of
repurchasing $1.5 million par value of these notes.

       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.  We
recognized  an  extraordinary  charge of $1.2  million (net of a $.6 million tax
benefit)  during  1997 as a result of  repurchasing  $15.1  million par value of
these notes.

       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 $5.6
million  (net  of a $3.0  million  tax  benefit)  during  1997  as a  result  of
repurchasing   $87.2  million  par  value  of  these  notes.  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 notes due 2003 were acquired in conjunction
with the PFS Merger and bear interest at 6.5 percent  payable  semi-annually  on
April 1 and  October  1. The notes are  redeemable  by  Conseco,  under  certain
conditions,  at 103.3  percent  of par value  after  April  1999  under  certain
conditions.  The notes are convertible  into Conseco common stock any time prior
to maturity  at a  conversion  rate of 35.38  Conseco  common  shares per $1,000
principal amount of notes.  During 1997, $.2 million par value of the notes were
converted into 6,613 shares of Conseco  common stock.  At December 31, 1997, the
value of the remaining  debentures in excess of the principal balance (the value
attributable  to the  conversion  feature) of $34.4 million is included in other
liabilities.

       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. During
1997, we induced the  conversion  of $64.8  million par value of the  debentures
into 5.0 million  shares of Conseco  common stock.  Conseco paid $4.4 million to
induce the holders to convert.  In addition,  during 1997,  Conseco  repurchased
$7.5 million par value of the debentures for $24.8 million.  An additional  $1.4
million par value of the  debentures  was  converted  into .1 million  shares of
Conseco  common stock at the option of the holders  during 1997. At December 31,
1997, the value of the remaining  debentures in excess of the principal  balance
(the value attributable to the conversion  feature) of $38.2 million is included
in other liabilities.

       Other debt.  During the third quarter of 1997, we  repurchased  or called
for  redemption  the remaining  $23.2 million par value of 12.75 percent  senior
subordinated  notes due 2002. Such notes had been assumed in connection with the
LPG Merger.

                                       81

<PAGE>


                         CONSECO, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

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



       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 in 1996 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 related to the repayment of notes payable.

       Commercial  paper. We instituted a commercial paper program in April 1997
to lower our borrowing  costs and improve our  liquidity.  Borrowings  under our
commercial paper program averaged approximately $525.9 million during the period
April 24, 1997 through  December 31, 1997. The weighted average interest rate on
such  borrowings was 5.8 percent  during 1997.  Conseco's  commercial  paper has
maturities  ranging from 2 to 37 days.  However,  the Company has the ability to
refinance such obligations through its bank credit facility.

     8.  OTHER DISCLOSURES:

     Leases

     The Company  rents office  space,  equipment  and computer  software  under
noncancellable operating leases. Rental expense was $35.1 million in 1997, $21.3
million  in 1996 and $20.8  million  in 1995.  Future  required  minimum  rental
payments as of December 31, 1997, were as follows (dollars in millions):



                       1998..........................    $  24.3
                       1999..........................       21.1
                       2000..........................       19.2
                       2001..........................       17.7
                       2002..........................       16.3
                       Thereafter....................       55.5
                                                          ------

                             Total...................     $154.1
                                                          ======

       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  contract was modified to permit a reduction in such bonus amount for 1997.
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. In addition, 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
employees 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 $3.8
million  in  1997,  $2.0  million  in  1996,  and $2.2  million  in 1995.  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

                                       82

<PAGE>


                         CONSECO, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

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



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 $14.4
million  in 1997  ($10.3  million of which is a  nonrecurring  charge due to the
death of an executive  officer),  $3.9 million in 1996 and $3.7 million in 1995.
The market  value of Conseco  common  stock held under the program  (included in
other assets and other  liabilities)  was $158.0  million and $101.7  million at
December 31, 1997 and 1996, respectively.

       The Company has a  noncontributory,  unfunded deferred  compensation plan
for qualifying members of Bankers Life's 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 $37.3
million  and  $34.5  million  at  December  31,  1997  and  1996,  respectively.
Substantially all of this liability  represents vested benefits.  Costs incurred
on this plan,  primarily  representing  interest on unfunded benefit costs, were
$3.4  million,  $3.2  million  and $2.8  million  during  1997,  1996 and  1995,
respectively.

       The Company also provides certain health care and life insurance benefits
for eligible retired  employees of certain  subsidiaries  under partially funded
and  unfunded  plans in existence  at the date on which such  subsidiaries  were
acquired. Benefits under the plans are provided on a contributory basis. Some of
the benefits  provided are subject to  cost-sharing  features  determined at the
discretion of management.  Amounts related to the  postretirement  benefit plans
(which increased in 1997 as a result of acquisitions) are as follows:
<TABLE>
<CAPTION>

                                                                            1997              1996
                                                                            ----              ----
                                                                             (Dollars in millions)

   <S>                                                                       <C>             <C>
   Accumulated postretirement benefit obligations:
     Retirees, dependents and disabled participants....................      $23.1           $  1.9
     Fully eligible active plan participants...........................        2.1              4.6
     Other active participants.........................................         .5               .6
                                                                             -----             ----

       Total accumulated postretirement benefit obligations............       25.7              7.1

   Unrecognized net reduction in prior service cost....................        1.6              2.8
   Fair value of assets held for partially funded plan.................       (5.9)              -
                                                                             -----             ----

       Accrued liability included in other liabilities.................      $21.4             $9.9
                                                                             =====             ====
</TABLE>

       The  weighted   average  rate  used  in   determining   the   accumulated
postretirement  benefit  obligations  under  the  plans  was 7.25  percent.  The
weighted  average  after-tax  expected  rate of return on plan  assets  was 4.60
percent. The health care cost trend rate in 1997 was 11.1 percent for pre-age 65
and 9.3 percent for post-age 65 participants, graded evenly to 5.0 percent in 13
years.  Increasing  the trend rate by 1 percent would  increase the  accumulated
postretirement  benefit  obligation  by $1.5  million at December  31, 1997 (for
plans without employer's maximum cost sharing provisions).

     Litigation

     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.  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,
1997,  includes  accruals of $16.9  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

                                       83

<PAGE>


                         CONSECO, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

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



on premiums that have been written through  December 31, 1997; 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 was $3.7 million in
1997, $4.0 million in 1996 and $3.2 million in 1995.

     Minority Interest

     Minority  interest  represents the interest of investors other than Conseco
in its  subsidiaries.  Minority  interest at December  31, 1997,  includes:  (i)
Company-obligated  mandatorily  redeemable  preferred  securities  of subsidiary
trusts with a carrying value of $1,383.9 million;  and (ii) $.7 million interest
in the common stock of a subsidiary  of ALH.  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, 1997, were as follows :
<TABLE>
<CAPTION>

                                                                                                                Estimated
                                                                                      Amount        Carrying      fair
                                                                                    outstanding       value       value
                                                                                    -----------       -----       -----
                                                                                              (Dollars in millions)

          <S>                                                                      <C>            <C>         <C>
          9.16% Trust Originated Preferred Securities ("TOPrS").................    $  275.0      $   275.0   $   284.6
          8.70% Capital Trust Pass-through Securities ("TruPS").................       325.0          325.0       359.2
          8.796% Capital Securities.............................................       300.0          300.0       335.3
          FELINE PRIDES.........................................................       500.0          483.9       512.5
                                                                                    --------       --------    --------

                                                                                    $1,400.0       $1,383.9    $1,491.6
                                                                                    ========       ========    ========
</TABLE>

       On November 19,  1996,  Conseco  Financing  Trust I ("Trust I"), a wholly
owned subsidiary of Conseco, issued 11 million of the TOPrS at $25 per security.
Each TOPrS security pays  cumulative  cash  distributions  at the annual rate of
9.16  percent  of the  stated  $25  liquidation  amount  per  security,  payable
quarterly.  The  TOPrS  are fully and  unconditionally  guaranteed  by  Conseco.
Proceeds from the offering of $266.1 million (after  underwriting and associated
costs) were used by the trust to purchase a subordinated debenture from Conseco.
Conseco then used the net proceeds 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 account for substantially
all of the assets of Trust I.

       On November 27, 1996,  Conseco  Financing Trust II ("Trust II"), a wholly
owned subsidiary of Conseco, issued 325,000 of the TruPS at $1,000 per security.
Each TruPS security pays  cumulative  cash  distributions  at the annual rate of
8.70  percent of the stated  $1,000  liquidation  amount per  security,  payable
semi-annually.  The TruPS are fully and  unconditionally  guaranteed by Conseco.
Proceeds from the offering of $321.6 million (after  underwriting and associated
costs) were used by the trust to purchase a subordinated debenture from Conseco.
Conseco then used the net proceeds 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
account for substantially all of the assets of Trust II.

       On March 31, 1997,  Conseco  Financing  Trust III ("Trust III"), a wholly
owned  subsidiary of Conseco,  issued 300,000  Capital  Securities at $1,000 per
security. Each Capital Security pays cumulative cash distributions at the annual
rate of 8.796  percent of the stated  $1,000  liquidation  amount per  security,
payable  semi-annually.  The Capital  Securities  are fully and  unconditionally
guaranteed  by Conseco.  Proceeds  from the  offering of $296.7  million  (after
underwriting and associated costs) were used by the trust to purchase

                                       84

<PAGE>


                         CONSECO, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

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

a  subordinated  debenture  from Conseco.  Conseco then used the net proceeds 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 April 1, 2027.
The terms of the Capital Securities  parallel the terms of Conseco's  debentures
held by Trust III, which debentures  account for substantially all of the assets
of Trust III.

       On December 12, 1997,  Conseco  Financing Trust IV ("Trust IV"), a wholly
owned  subsidiary  of  Conseco,  issued  10,000,000  FELINE  PRIDES  at $50  per
security. Each FELINE PRIDES includes: (a) a stock purchase contract under which
(i) the  holder  will  purchase a number of shares of  Conseco  common  stock on
February 16, 2001 (ranging from .9363 and 1.1268 shares per FELINE PRIDES) under
the terms  specified  in the stock  purchase  contract;  and (ii) will receive a
contract  adjustment  payment equal to .25 percent of the value of the security;
and (b) a  beneficial  ownership of a 6.75 percent  trust  originated  preferred
security.  Each holder will receive aggregate  cumulative cash  distributions at
the  annual  rate of 7 percent of the $50 stated  amount per  security,  payable
quarterly.  The applicable  distribution rate on the trust originated  preferred
securities that remain  outstanding  during the period February 16, 2001 through
February  16,  2003,  will be  reset  so that  the  market  value  of the  trust
originated preferred securities will be equal to 100.5 percent of the par value.
Conseco  may limit the market  rate  reset to be no higher  than the rate on the
2-year benchmark Treasury plus 200 basis points. The trust originated  preferred
securities are fully and  unconditionally  guaranteed by Conseco.  Proceeds from
the offering of approximately  $483.7 million (after underwriting and associated
costs) were used by the trust to purchase a subordinated debenture from Conseco.
Conseco  then used the net  proceeds to repay bank debt and for other  corporate
purposes.  The trust  originated  preferred  securities are  subordinated to all
senior indebtedness of Conseco and mature on February 16, 2001. The terms of the
trust originated  preferred security parallel the terms of Conseco's  debentures
held by Trust IV, which debentures  account for  substantially all of the assets
of Trust IV.

       Common Stock

       At December  31,  1997 and 1996,  minority  interest  in common  stock of
Conseco's  subsidiaries  includes  only the $.7  million  interest in the common
stock of a subsidiary.

       Changes  in  minority   interest  in  common  and   preferred   stock  of
consolidated subsidiaries during 1997 and 1996 are summarized below:
<TABLE>
<CAPTION>

                                                                                                   1997              1996
                                                                                                   ----              ----
                                                                                                    (Dollars in millions)

<S>                                                                                                 <C>             <C>
Minority interest, beginning of year...........................................................     $ 97.7          $ 403.3
    Changes in investments held by minority interest:
       Repurchase of mandatorily redeemable preferred stock of a subsidiary....................      (93.4)              -
       Mandatorily redeemable preferred stock of a subsidiary held by PFS prior to the
          PFS Merger...........................................................................       (2.7)              -
       Transactions resulting from ALH Stock Purchase, BLH Merger and related events...........         -            (224.9)
    Equity of  minority  interest  in the change in  financial  position  of the
      Company's subsidiaries:
        Dividends...............................................................................      (3.3)           (10.0)
        Amortization of value in excess of par of mandatorily redeemable preferred stock........       (.9)              -
        Net income before extraordinary charge..................................................       3.3             31.3
        Extraordinary charge....................................................................        -              (1.7)
        Unrealized depreciation of securities ..................................................        -            (100.3)
                                                                                                    ------          -------

Minority interest, end of year ................................................................      $  .7          $  97.7
                                                                                                    ======          =======
</TABLE>

       During  1997,  we  completed  the  purchase  of all  of  the  mandatorily
redeemable preferred stock of a subsidiary formerly held by minority interests.


                                       85

<PAGE>


                         CONSECO, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

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



       9.  SHAREHOLDERS' EQUITY:

       Authorized  preferred  stock is 20 million  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 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.  In 1997, the holders of 2,374,300  shares
of PRIDES converted such shares into 8.1 million shares of common stock. We paid
$13.2  million to induce  these  conversions.  We recorded  this  payment in the
consolidated  financial  statements  as a  dividend  paid  to such  holders.  In
addition,  during 1997,  100,050  shares of PRIDES were  converted by holders of
such shares into 342,171 shares of Conseco common stock.

       Conseco issued 5.75 million 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.  Prior to January 1, 1995, Conseco had repurchased or
the holders had converted 80,275 Series D preferred shares. 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 5,666,559 Series
D shares  elected to convert  their  shares  into  17,766,864  shares of Conseco
common stock.

       Changes in the number of shares of common  stock  outstanding  during the
years ended December 31, 1997, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>

                                                                                       1997           1996          1995
                                                                                       ----           ----          ----
                                                                                              (Shares in thousands)
<S>                                                                                   <C>             <C>           <C>
Balance, beginning of year......................................................      167,128         81,032        88,739
    Stock options exercised.....................................................       12,341          4,893           366
    Shares issued in conjunction with acquired companies........................       11,264         60,560           -
    Common shares converted from convertible subordinated debentures............        5,138          4,250           -
    Common shares converted from Series D preferred shares......................          -           17,767           -
    Common shares converted from PRIDES.........................................        8,463              1           -
    Shares issued under employee and agent benefit compensation plans...........          321            282            17
    Treasury stock purchased....................................................      (17,989)        (1,657)       (8,090)
                                                                                      -------       --------        ------

Balance, end of year............................................................      186,666        167,128        81,032
                                                                                      =======       ========        ======
</TABLE>

       Dividends  declared on common stock for 1997,  1996 and 1995, were $.313,
$.083 and $.046 per common  share,  respectively.  A  liability  was accrued for
dividends declared but unpaid at December 31, 1997, totaling $23.5 million. Such
dividends were paid in January 1998.

       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.  The 1994 Stock and  Incentive
Plan  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. In 1997,
the Company adopted the 1997  Non-qualified  Stock Option Plan which  authorizes
the  granting of  non-qualified  options to employees of the Company to purchase
shares of Conseco common stock.  The aggregate  number of shares of common stock
for  which  options  may be  granted  under  the 1997  plan,  when  added to all
outstanding, unexpired options under the Company's other employee benefit

                                       86

<PAGE>


                         CONSECO, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

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



plans,  shall not  exceed  20  percent  of the  total of shares of common  stock
outstanding   plus  the  number  of  shares  issuable  upon  conversion  of  any
outstanding  convertible security on the date of grant (calculated in the manner
set forth in the 1997 plan).

       Conseco  implemented two option  exercise  programs under which its chief
executive   officer  and  four  of  its  executive  vice  presidents   exercised
outstanding options to purchase 9.1 million shares of Conseco common stock under
the 1997  program  (the "1997  Program")  and 3.1 million  shares under the 1996
program  (the "1996  Program").  The  options  exercised  would  otherwise  have
remained  exercisable  until various dates through 2006 with respect to the 1997
Program and until the years 2000 through 2002 with respect to the 1996  Program.
We  implemented  these  programs in order to  accelerate  the  recording  of tax
benefits we derived  from the  exercise of the options and to better  manage our
capital structure.  With respect to both programs,  no cash was exchanged as the
executives  paid for the exercise  price of the options by tendering  previously
owned shares. The Company withheld shares or the executives  tendered previously
held shares to cover federal and state taxes owed by the  executives as a result
of the exercise transactions. The 1997 Program resulted in the following changes
to common  stock and  additional  paid-in  capital:  (i) an  increase  for a tax
benefit of $81.9 million (net of payroll taxes incurred of $3.5  million);  (ii)
an increase for the exercise  price of $120.0  million;  and (iii) a decrease of
$229.9 million  related to shares withheld or tendered by the executives for the
exercise price and for federal and state taxes. The 1996 Program resulted in the
following  changes  to  common  stock and  additional  paid-in  capital:  (i) an
increase for a tax benefit of $15.1  million (net of payroll  taxes  incurred of
$.7 million);  (ii) an increase for the exercise  proceeds of $5.2 million;  and
(iii) a decrease of $20.8 million  related to shares withheld or tendered by the
executives for federal and state taxes. Net of shares withheld or tendered,  the
Company issued  approximately 3.3 million and 1.6 million shares of common stock
to the executives under the 1997 Program and the 1996 Program,  respectively. As
an inducement  to encourage  the exercise of options  prior to their  expiration
date,  we granted to the  executive  officers new options to purchase a total of
5.8  million  shares at an  average  price of $39.52  per share and 1.6  million
shares at $16.22 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 1997 and 1996 Programs, respectively.

       In 1997, 1996 and 1995, we repurchased  approximately  17.9 million,  1.7
million and 8.1 million  shares of our common  stock for $711.7  million,  $26.0
million and $92.4 million, respectively, in connection with our stock repurchase
programs and shares  withheld or tendered for the exercise  price of options and
for federal and state  taxes.  The cost of the common  stock we  repurchased  in
connection  with  these  programs  was  allocated  to the  shareholders'  equity
accounts in 1997, 1996 and 1995 as follows: (i) $685.6 million, $3.1 million and
$15.0  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) $26.1  million,  $22.9  million  and $77.4  million,
respectively, to retained earnings (representing the purchase price in excess of
such average).

       Conseco's Director,  Executive and Senior Officer Stock Purchase Plan was
implemented to encourage direct,  long-term  ownership of Conseco stock by Board
members,  executive  officers and certain senior officers.  Under the program, 8
million  shares of Conseco  common  stock have been  purchased in open market or
negotiated  transactions  with  independent  parties.  Purchases are financed by
personal loans to the participants from a bank. Such loans are collateralized by
the Conseco stock purchased.  Conseco has guaranteed the loans, but has recourse
to the  participants  if we incur a loss under the  guarantee.  In addition,  we
provide loans to the participants for interest  payments under the bank loans. A
total of 39  directors  and  officers of Conseco  participated  in the plan.  At
December 31, 1997, the bank loans  guaranteed by us totaled $247.4 million,  and
the loans  provided by us for interest  totaled $9.3  million.  The common stock
that collateralizes the loans had a fair value of $343.5 million on December 31,
1997.

       In December 1996, we granted options to selected key managers to purchase
1.1 million  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 will
become  fully vested  normally  only upon both:  (i) eleven years of  continuous
employment;  and (ii) the earlier  of: (a) two years  following  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.

       We apply  Accounting  Principles  Board Opinion No. 25,  "Accounting  for
Stock Issued to Employees"  and related  interpretations  in accounting  for our
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 granted after January 1, 1995, 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, 1997,  1996 and
1995 would have been as follows:


                                       87

<PAGE>


                         CONSECO, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

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

<TABLE>
<CAPTION>


                                                    1997                       1996                          1995
                                         -------------------------   -------------------------     ------------------------
                                         As reported     Pro forma   As reported     Pro forma     As reported    Pro forma
                                         -----------     ---------   -----------     ---------     -----------    ---------
                                                            (Dollars in millions, except per share amounts)

    <S>                                     <C>             <C>        <C>             <C>           <C>           <C>
    Net income........................      $567.3          $521.2     $252.4          $245.4        $220.4        $211.9
    Basic earnings per share..........        2.94            2.69       2.15            2.08          2.48          2.38
    Diluted earnings per share........        2.64            2.42       1.82            1.77          2.12          2.04
</TABLE>

       The fair  value of each  option  grant  used to  determine  the pro forma
amounts   summarized  above  is  estimated  on  the  date  of  grant  using  the
Black-Scholes  option  valuation  model  with  the  following  weighted  average
assumptions for 1997, 1996 and 1995:
<TABLE>
<CAPTION>

                                                  1997 Grants                        1996 Grants                  1995 Grants
                                             ---------------------      ------------------------------------      -----------
                                                           Option                      Option          Key
                                            Traditional   exercise      Traditional   exercise       Manager      Traditional
                                              grants       program        grants       program       Program        grants
                                              ------       -------        ------       -------       -------        ------
<S>                                         <C>           <C>            <C>          <C>          <C>             <C>
Weighted average risk-free interest rates..    6.0%          6.5%           6.1%          6.0%         6.8%           6.2%
Weighted average dividend yields...........     .9%           .9%            .1%           .1%          .1%            .2%
Volatility factors.........................    .28           .28            .28           .28          .28            .43
Weighted average expected life............. 6 years       4 years        5 years       5 years     25 years        5 years
Weighted average fair value per share......  $13.13        $11.95         $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 that 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 our  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.


                                       88

<PAGE>


                         CONSECO, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

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



       In conjunction with the CAF Merger and the PFS Merger in 1997 and the LPG
Merger, the ATC Merger,  the THI Merger and the BLH Merger in 1996,  outstanding
options to purchase  common stock of the acquired  companies were converted into
options to  purchase  Conseco  stock.  These  options,  which  were  immediately
exercisable, were for the number of shares and the price per share equal to what
holders  would have been entitled to receive at the dates of the mergers had the
former  options been  exercised at that time and exchanged for Conseco shares in
the mergers.  The fair value of these options is included in the cost to acquire
the companies (see note 2). A summary of options  issued in connection  with the
mergers and, together with related information, is presented below:
<TABLE>
<CAPTION>

                                                                                                         Weighted
                                                                                        Total value       average
                                                                                         at merger    exercise price
                                                                          Shares           date          per share
                                                                          ------           ----          ---------
                                                                        (Shares in     (Dollars in millions, except
                                                                        thousands)          per share amounts)
<S>                                                                       <C>            <C>               <C>
Options issued in 1997 in connection with the:
     CAF Merger...............................................               226          $  3.5           $23.96
     PFS Merger...............................................             1,132            22.4            19.78
                                                                           -----          ------

                                                                           1,358           $25.9            20.48
                                                                           =====           =====

Options issued in 1996 in connection with the:
     LPG Merger...............................................             1,133          $  7.7            11.18
     ATC Merger...............................................             2,049            26.9            16.87
     THI Merger...............................................               644             6.5            14.90
     BLH Merger...............................................               609             2.6            27.18
                                                                           -----           -----

                                                                           4,435           $43.7            16.54
                                                                           =====           =====

</TABLE>

                                       89

<PAGE>


                         CONSECO, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

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



       A summary of the Company's stock option activity and related  information
for the years ended December 31, 1997, 1996 and 1995, is presented below (shares
in thousands):
<TABLE>
<CAPTION>
                                                   1997                      1996                     1995
                                          -----------------------    ----------------------    ----------------------
                                                        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..    28,720         $15.38      25,487        $11.76       22,029        $11.43

Granted or assumed in connection with:
   Traditional grants.................     1,212          40.02       1,206         28.54        4,117         12.60
   Option exercise program............     5,818          39.52       1,605         16.22          -            -
   Key Manager Program................         -             -        1,100         30.41          -            -
   Mergers............................     1,358          20.48       4,435         16.54          -            -
                                         -------                     ------                     ------

         Total granted................     8,388          36.51       8,346         20.04        4,117         12.60
                                         -------                     ------                     ------

Exercised.............................   (12,341)         13.71      (4,893)         4.75         (366)         3.06

Forfeited.............................      (339)         17.58        (220)        11.62         (293)         9.98
                                         -------                     ------                     ------

Outstanding at the end of the year....    24,428          23.45      28,720         15.38       25,487         11.76
                                         =======                     ======                     ======

Options exercisable at year-end.......     9,765                      9,554                      7,352
                                         =======                     ======                     ======

Available for future grant............    17,206                      2,933                      8,399
                                         =======                    =======                    =======

</TABLE>


       The  following  table  summarizes  information  about fixed stock options
outstanding at December 31, 1997 (shares in thousands):
<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>
 $ 1.36-1.56...........................         50             .6         $  1.51           50         $  1.51
   2.61................................         35            1.6            2.61           35            2.61
   4.57-6.72...........................        190            1.6            6.01          190            6.01
   6.91-10.28..........................        109            1.9            8.20          109            8.20
  10.47-15.47..........................     13,210            5.3           14.27        1,637           13.22
  16.06-23.67..........................        995            6.5           19.53          963           19.55
  25.11-30.41..........................      1,890            5.6           29.17          903           28.62
  30.41  (Key Manager Program).........      1,100           24.0           30.41            -               -
  30.73-45.84..........................      6,822            7.5           39.91        5,878           39.36
  48.38................................         27            9.9           48.38            -               -
                                            ------                                       -----

                                            24,428                                       9,765
                                            ======                                       =====

</TABLE>

                                       90

<PAGE>


                         CONSECO, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

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



       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 at the same total cost 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.
Accordingly,  700,000 shares of common stock are reserved for issuance under the
warrants.  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).

       A total of 69.0 million  shares of common stock are reserved for issuance
under the previously  described  convertible  subordinated  debentures,  PRIDES,
FELINE PRIDES,  stock options granted and available for future grant,  warrants,
and stock bonus and deferred compensation plans.

       A reconciliation of income and shares used to calculate basic and diluted
earnings per share is as follows:
<TABLE>
<CAPTION>

                                                                                     1997          1996            1995
                                                                                     ----          ----            ----
                                                                                (Dollars in millions and shares in thousands)
<S>                                                                               <C>              <C>            <C>
Income:
   Net income before extraordinary charge..................................        $574.2          $278.9         $222.5
   Preferred stock dividends...............................................          21.9            27.4           18.4
                                                                                   ------          ------         ------

     Income before extraordinary charge applicable to common ownership
       for basic earnings per share........................................         552.3           251.5          204.1

   Effect of dilutive securities:
     Preferred stock dividends.............................................           8.7            27.4           18.4
                                                                                   ------          ------         ------

     Income before extraordinary charge applicable to common ownership
       and assumed conversions for diluted earnings per share..............        $561.0          $278.9         $222.5
                                                                                   ======          ======         ======

Shares:
   Weighted average shares outstanding for basic earnings per share........       185,751         104,584         81,405

   Effect of dilutive securities on weighted average shares:
     Stock options.........................................................         9,767           6,013          2,921
     Employee stock plans..................................................         2,268           2,172          1,768
     PRIDES................................................................         6,936          14,042           -
     Convertible preferred stock...........................................          -             12,049         17,787
     Convertible debentures................................................         5,457            -              -
                                                                                  -------         -------        -------

         Dilutive potential common shares..................................        24,428          34,276         22,476
                                                                                  -------         -------        -------

           Weighted average shares outstanding for diluted earnings
              per share....................................................       210,179         138,860        103,881
                                                                                  =======         =======        =======

</TABLE>

                                       91

<PAGE>


                         CONSECO, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

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



     10.  OTHER OPERATING STATEMENT DATA:

       Insurance policy income consisted of the following:
<TABLE>
<CAPTION>

                                                                                           1997         1996         1995
                                                                                           ----         ----         ----
                                                                                               (Dollars in millions)
<S>                                                                                     <C>           <C>         <C>
Traditional products:
    Direct premiums collected.........................................................  $5,264.4      $3,528.2    $3,173.0
    Reinsurance assumed...............................................................     290.3          65.8         6.1
    Reinsurance ceded.................................................................    (499.0)       (313.8)      (72.6)
                                                                                        --------      --------    --------

          Premiums collected, net of reinsurance......................................   5,055.7       3,280.2     3,106.5
    Change in unearned premiums.......................................................      (2.2)        (14.6)        6.6
    Less premiums on universal life and products
       without mortality and morbidity risk which are
       recorded as additions to insurance liabilities ................................   2,099.4       1,881.3     1,757.5
                                                                                        --------      --------    --------
          Premiums on traditional products with mortality or morbidity risk,
             recorded as insurance policy income......................................   2,954.1       1,384.3     1,355.6
Fees and surrender charges on interest sensitive products.............................     456.7         269.9       109.4
                                                                                        --------      --------    --------

          Insurance policy income.....................................................  $3,410.8      $1,654.2    $1,465.0
                                                                                        ========      ========    ========
</TABLE>


       The five  states with the largest  shares of premiums  collected  in 1997
were Florida (9.4 percent),  Illinois (9.0 percent),  California  (8.4 percent),
Texas (8.1 percent) and Michigan  (5.0  percent).  No other state  accounted for
more than 5 percent of total collected premiums.

       Other operating costs and expenses were as follows:
<TABLE>
<CAPTION>
                                                                                           1997         1996         1995
                                                                                           ----         ----         ----
                                                                                                (Dollars in millions)
<S>                                                                                        <C>         <C>         <C>
Commission expense....................................................................     $201.2      $  72.5     $  47.7
Other.................................................................................      376.0        231.5       224.4
                                                                                           ------       ------      ------

         Other operating costs and expenses...........................................     $577.2       $304.0      $272.1
                                                                                           ======       ======      ======
</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 for universal life-type and investment-type contracts.
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 by $151.4 million,
$31.1 million and $106.4 million in the years ended December 31, 1997,  1996 and
1995, respectively.  Amortization of the cost of policies produced was increased
by $29.8 million, $4.9 million and $20.2 million in the years ended December 31,
1997, 1996 and 1995, respectively.



                                       92

<PAGE>

                         CONSECO, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

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

       The changes in the cost of policies purchased were as follows:
<TABLE>
<CAPTION>
                                                                                           1997         1996         1995
                                                                                           ----         ----         ----
                                                                                                (Dollars in millions)
<S>                                                                                      <C>          <C>          <C>
Balance, beginning of year............................................................   $2,015.0     $1,030.7     $1,021.6
    Additional acquisition expense on acquired policies...............................       93.9          -           -
    Amortization related to operations:
       Cash flow realized.............................................................     (436.5)      (285.1)      (252.0)
       Interest added.................................................................      174.7        127.6        133.2
    Amortization related to sales of investments......................................     (151.4)       (31.1)      (106.4)
    Amounts related to fair value adjustment
       of actively managed fixed maturities...........................................     (128.4)       141.6       (395.6)
    Transferred to cost of policies produced related to
       exchanged health policies......................................................      (16.1)       (13.4)       (13.5)
    Amounts acquired in mergers and acquisitions......................................      914.2      1,042.0        643.4
    Nonrecurring charge...............................................................       (8.8)         -            -
    Reinsurance and other ............................................................        9.8          2.7          -
                                                                                         --------     --------     --------

Balance, end of year..................................................................   $2,466.4     $2,015.0     $1,030.7
                                                                                         ========     ========     ========
</TABLE>

       Based on current  conditions  and  assumptions as to future events on all
policies in force,  the Company  expects to amortize  approximately 9 percent of
the December 31, 1997,  balance of cost of policies purchased in 1998, 9 percent
in 1999,  8 percent  in 2000,  7 percent  in 2001,  and 7 percent  in 2002.  The
discount rates used to determine the cost of policies  purchased  ranged from 18
percent to 20 percent during the three-year  period ended December 31, 1997. The
discount  rates  used to  determine  the  amortization  of the cost of  policies
purchased  averaged  7 percent in 1997,  10  percent in 1996,  and 12 percent in
1995.

       The changes in the cost of policies produced were as follows:
<TABLE>
<CAPTION>

                                                                                           1997         1996         1995
                                                                                           ----         ----         ----
                                                                                                (Dollars in millions)

<S>                                                                                        <C>         <C>        <C>
Balance, beginning of year............................................................     $544.3      $391.0     $ 300.7
    Additions.........................................................................      550.7       331.5       302.9
    Amortization related to operations................................................     (110.4)      (72.9)      (62.0)
    Amortization of deferred revenue..................................................        5.4         1.4         1.3
    Amortization related to sales of investments......................................      (29.8)       (4.9)      (20.2)
    Amounts related to fair value adjustment of
       actively managed fixed maturities..............................................      (36.4)       45.4       (74.9)
    Transferred from cost of policies purchased related to
       exchanged health policies, net of related reserves.............................        3.5         4.0         1.6
    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)
    Consolidation of CCP, effective January 1, 1995...................................        -            -        111.9
    Nonrecurring charge...............................................................      (12.1)         -           -
                                                                                           ------      ------     -------

Balance, end of year..................................................................     $915.2      $544.3     $ 391.0
                                                                                           ======      ======     =======
</TABLE>

       Nonrecurring  charges in 1997  include an increase  to claim  reserves of
$41.5  million  and the  write-off  of cost of  policies  produced  and  cost of
policies  purchased  of $20.9  million  related to premium  deficiencies  on our
Medicare supplement  business in the state of Massachusetts.  Regulators in that
state have not  allowed  premium  increases  for  Medicare  supplement  products
necessary  to avoid  losses  on the  business.  We are  currently  seeking  rate
increases.  We are  no  longer  writing  new  Medicare  supplement  business  in
Massachusetts.

       Nonrecurring  charges in 1997 also include  expenses of $9.3 million (net
of proceeds from a life insurance  policy)  related to the death of an executive
officer.


                                       93

<PAGE>

                         CONSECO, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

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


       11.  CONSOLIDATED STATEMENT OF CASH FLOWS:

       The following  disclosures are provided to support and/or  supplement our
consolidated statement of cash flows:
<TABLE>
<CAPTION>

                                                                                           1997         1996         1995
                                                                                           ----         ----         ----
                                                                                                (Dollars in millions)
<S>                                                                                      <C>         <C>          <C>
Impact of acquisition transactions (described in note 2) on the consolidated statement
   of cash flows:
     Total investments................................................................   $ 4,716.6   $ 5,022.8    $ 4,528.4
     Cost of policies purchased.......................................................       914.2     1,046.4        493.7
     Goodwill.........................................................................     1,133.9     1,747.2        241.6
     Income taxes.....................................................................         6.4       134.9       (114.9)
     Insurance liabilities............................................................    (5,193.8)   (5,943.6)    (4,405.8)
     Notes payable....................................................................      (540.6)     (448.2)      (213.7)
     Minority interest................................................................         -         210.4        225.4
     Common stock and additional paid-in capital......................................      (471.5)   (1,568.6)          -
     Other............................................................................       194.5      (179.6)      (168.4)
                                                                                         ---------   ---------    ---------

       Net cash used..................................................................   $   759.7   $    21.7    $   586.3
                                                                                         =========   =========    =========

Additional  non-cash items not reflected in the  consolidated  statement of cash
flows:
   Issuance of common stock under stock option and employee benefit plans.............     $  20.2     $  12.2     $    4.2
   Tax benefit related to the issuance of common stock under employee benefit plans...        85.2        15.9           .4
   Conversion of preferred stock into common stock....................................       151.3       283.2          -
   Conversion of convertible debentures into common stock.............................       150.0         -            -
   Redemption of convertible subordinated debentures of a subsidiary using
     segregated cash..................................................................         -           -            9.2

Cash paid for:
   Interest expense on debt and commercial paper......................................       117.4       111.3        112.0
   Income taxes.......................................................................       200.0       122.5         90.3
</TABLE>

       12.  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>

                                                                                                      1997          1996
                                                                                                      ----          ----
                                                                                                     (Dollars in millions)
<S>                                                                                                  <C>          <C>
Statutory capital and surplus....................................................................    $1,662.4     $1,170.8
Asset valuation reserve..........................................................................       329.2        232.9
Interest maintenance reserve.....................................................................       414.9        272.6
Portion of surplus debenture carried as a liability .............................................        99.2         98.8
                                                                                                     --------     --------

      Total......................................................................................    $2,505.7     $1,775.1
                                                                                                     ========     ========
</TABLE>

       Combined   statutory   net  income  of  the  Company's   life   insurance
subsidiaries for the periods during which such subsidiaries were included in our
consolidated financial statements was $243.4 million,  $215.0 million and $183.8
million in 1997, 1996 and 1995, respectively,  after appropriate eliminations of
intercompany  amounts  among  such  subsidiaries,   but  before  elimination  of
intercompany   amounts  between  such   subsidiaries   and  non-life   insurance
subsidiaries and the parent company.

       The statutory capital and surplus of the insurance  subsidiaries  include
surplus  debentures  issued to the  parent  holding  companies  totaling  $793.4
million.  Payments of interest and  principal on such  debentures  are generally
subject to the approval of the insurance

                                       94

<PAGE>


                         CONSECO, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

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



department of the subsidiary's state of domicile.

       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 taxes, 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 and unrealized  investment  gains
(losses),  net of income taxes,  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.

       Included in statutory  capital and surplus  shown above are the following
investments in non-life insurance affiliates, all of which are eliminated in the
consolidated financial statements prepared in accordance with GAAP:
<TABLE>
<CAPTION>

                                                                                1997                      1996
                                                                         --------------------      --------------------
                                                                                    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  (1997 includes 39,823,149 shares and 1996
   includes 39,021,822 shares)......................................... $  99.8         $152.4     $  89.6      $  80.9
Notes payable of Conseco and its non-life subsidiaries.................   275.0          275.7       261.3        245.2
Common stock of ALH (463,649 shares in 1997 and 614,057
   shares in 1996) ....................................................     2.4            6.3         5.8          9.8
Preferred stock of a non-life subsidiary...............................   900.0            -         900.0          -
Investment in ALH 1994 Series PIK Preferred Stock......................    72.2           72.2        62.8         62.8
Preferred stock of American Life Holding Company.......................     6.5            6.5         6.5          6.5

</TABLE>

                                       95

<PAGE>


                         CONSECO, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

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



     The following table compares the consolidated pretax income determined on a
statutory accounting basis with such income reported in accordance with GAAP:
<TABLE>
<CAPTION>
                                                                                           1997          1996        1995
                                                                                           ----          ----        ----
                                                                                                 (Dollars in millions)
<S>                                                                                      <C>             <C>        <C>
Life insurance subsidiaries:
   Pretax income as reported on a statutory
     accounting basis before deduction of
     investment management fees paid to affiliates and
     transfers to and from and amortization
     of the IMR.........................................................................  $  606.3       $332.2     $370.4

   GAAP adjustments:
     Change in difference in carrying values of investments.............................     111.7         51.9      185.9
     Changes in cost of policies purchased and produced and insurance liabilities.......     256.2         70.1      (52.0)
     Other adjustments, net.............................................................      (7.9)         (.1)      (7.7)
                                                                                          --------       ------     ------

             GAAP pretax income of life insurance subsidiaries..........................     966.3        454.1      496.6

Non-life companies:
   Interest expense.....................................................................    (109.4)      (108.1)    (119.4)
   All other income and expense, net
     (excluding investment management fees received from affiliates)....................     146.2        147.6       41.3
                                                                                          --------       ------     ------

             GAAP consolidated pretax income............................................  $1,003.1       $493.6     $418.5
                                                                                          ========       ======     ======
</TABLE>

       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 $7.8 billion at December 31, 1997, of which
approximately  $165.1 million is available for  distribution  to Conseco in 1998
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, 1997,  the average ratio of
total  adjusted  capital to RBC (as  defined  by the  rules)  for our  principal
insurance  subsidiaries  was  greater  than twice the level at which  regulatory
attention is triggered.

       13.  BUSINESS SEGMENT AND DISTRIBUTION CHANNELS:

       Conseco   conducts  and  manages  its  business  through  five  segments,
reflecting the Company's  major lines of insurance  business and target markets:
(i) supplemental health; (ii) annuities;  (iii) life insurance;  (iv) individual
and group  major  medical  insurance;  and (v)  other.  Summarized  data for the
Company's business segments follows:


                                       96

<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
                                               ---------    --------       -------------        ------       ------
                                                                       (Dollars in millions)
<S>                                            <C>          <C>                <C>            <C>         <C>
1997
   Supplemental health......................   $1,843.7     $2,160.2           $194.9         $   371.9   $  7,522.5
   Annuities................................    1,689.6      1,350.5            198.9             358.3     16,535.6
   Life insurance...........................      709.0      1,130.3             87.8             307.1      9,771.1
   Individual and group major medical.......      744.2        775.5             16.8              40.3        896.8
   Other ...................................       69.2        151.9              7.3              61.6        577.4
   Corporate................................        -            -                -              (136.1)       611.4
                                               --------     --------           ------          --------    ---------

     Total..................................   $5,055.7     $5,568.4           $505.7          $1,003.1    $35,914.8
                                               ========     ========           ======          ========    =========

1996
   Supplemental health......................   $  810.8     $  873.2           $ 81.2          $  136.7    $ 3,841.1
   Annuities................................    1,670.3      1,047.4             95.1             254.3     14,186.5
   Life insurance...........................      403.6        642.6             41.5             124.8      6,512.4
   Individual and group major medical.......      341.0        365.8             15.1              32.1        418.2
   Other ...................................       54.5        138.3              7.9              58.1        170.0
   Corporate ...............................        -            -                -              (112.4)       484.5
                                               --------     --------           ------          --------    ---------

     Total..................................   $3,280.2     $3,067.3           $240.8           $ 493.6    $25,612.7
                                               ========     ========           ======           =======    =========

1995
   Supplemental health......................   $  738.8     $  827.2           $ 78.3           $  97.1    $ 1,759.6
   Annuities................................    1,693.9      1,135.5            169.9             316.1     12,152.8
   Life insurance...........................      253.6        404.0             38.6              70.2      2,667.6
   Individual and group major medical.......      353.6        361.7             13.1              35.2        269.4
   Other ...................................       66.6        111.7              7.6              25.2        193.8
   Corporate................................        -           15.2              -              (125.3)       254.3
                                               --------     --------           ------           -------    ---------

     Total..................................   $3,106.5     $2,855.3           $307.5           $ 418.5    $17,297.5
                                               ========     ========           ======           =======    =========
<FN>
(a)  Includes additional amortization related to gains on sales of investments.
</FN>
</TABLE>


                                       97

<PAGE>


                         CONSECO, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

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




       14.   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>

                                                                                               1997
                                                                            ----------------------------------------------
                                                                            1st Qtr.     2nd Qtr.     3rd Qtr.     4th Qtr.
                                                                            --------     --------     --------     --------
                                                                              (Dollars in millions, except per share data)
<S>                                                                        <C>          <C>          <C>          <C>
Insurance policy income................................................... $   670.1    $   885.0    $   885.8    $   969.9
Revenues..................................................................   1,099.0      1,360.5      1,483.5      1,625.4
Income before income taxes, minority interest
   and extraordinary charge ..............................................     195.4        231.2        275.2        301.3
Net income................................................................     111.5        130.6        153.8        171.4

Net income per common share:
   Basic:
     Income before extraordinary charge ..................................      $.57         $.68         $.81         $.91
     Extraordinary charge.................................................       .02          .01          -            .01
                                                                                ----         ----         ----         ----

       Net income.........................................................      $.55         $.67         $.81         $.90
                                                                                ====         ====         ====         ====

   Diluted:
     Income before extraordinary charge ..................................      $.51         $.62         $.73         $.81
     Extraordinary charge.................................................       .02          .01          -            -
                                                                                ----         ----         ----         ----

       Net income.........................................................      $.49         $.61         $.73         $.81
                                                                                ====         ====         ====         ====

</TABLE>

                                       98

<PAGE>


                         CONSECO, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

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

<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        868.7
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:
   Basic:
     Income before extraordinary charge ....................................    $.68         $.49         $.62         $.61
     Extraordinary charge...................................................     .21          -            .01          .06
                                                                               -----         ----         ----         ----

       Net income...........................................................    $.47         $.49         $.61         $.55
                                                                                ====         ====         ====         ====

   Diluted:
     Income before extraordinary charge ....................................    $.55         $.41         $.51         $.54
     Extraordinary charge...................................................     .15            -          .01          .05
                                                                                ----         ----         ----         ----

       Net income...........................................................    $.40         $.41         $.50         $.49
                                                                                ====         ====         ====         ====
</TABLE>

     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.

       15.   SUBSEQUENT EVENTS (UNAUDITED):

       On February 9, 1998, we completed  the offering of $250.0  million of 6.4
percent Notes (the "Notes") due February 10, 2003. Proceeds from the offering of
approximately $248.0 million (after original issue discount and other associated
costs) were used to retire bank debt. Interest is paid semi-annually on February
10 and August 10 of each year.  The Notes are  redeemable in whole or in part at
the option of Conseco at any time, at a redemption price equal to the sum of (a)
the greater of: (i) 100 percent of the principal amount; and (ii) the sum of the
present  values of the  remaining  scheduled  payments of principal and interest
thereon from the redemption  date to the maturity date,  computed by discounting
such payments,  in each case, to the redemption  date on a semi-annual  basis at
the  Treasury  rate (as  defined in the Notes)  plus 25 basis  points,  plus (b)
accrued  and unpaid  interest  on the  principal  amount  thereof to the date of
redemption. The Notes are unsecured and rank pari passu with all other unsecured
and unsubordinated obligations of Conseco.

       We  periodically  use options and interest  rate swaps to hedge  interest
rate risk associated with our investments and borrowed capital.  Although we had
no such  agreements  outstanding  at December  31,  1997,  we entered  into four
interest  rate swap  agreements  in March 1998.  The Company  entered  into such
agreements  to  create  a hedge  that  effectively  converts  a  portion  of its
fixed-rate borrowed capital into floating-rate instruments for the period during
which the agreements are outstanding. Such interest rate swap agreements have an
aggregate  notional  principal  amount of $1.0 billion,  mature in various years
through  2008  and  have  an  average   remaining  life  of  7  years.   If  the
counterparties  of these  interest  rate  swaps do not meet  their  obligations,
Conseco  could  have a  loss.  Conseco  limits  its  exposure  to such a loss by
diversifying among several  counterparties  believed to be financially sound and
creditworthy.  At March 13,  1998,  all of the  counterparties  were  rated A or
higher by Standard & Poor's Corporation.

       On March 3,  1998,  we  commenced  a new  program to  repurchase  up to 5
million  Conseco  common shares in open market or negotiated  transactions.  The
timing  and  terms  of  the  purchases  are to be  determined  based  on  market
conditions and other considerations. As of March 17, 1998, we had repurchased .5
million shares under the program for $26.4 million.

       In March 1998, we repurchased  $139 million par value of our 10.5 percent
senior  notes due 2004 for $171  million.  We will  recognize  an  extraordinary
charge of  approximately  $15.6  million  (net of an $8.3  million tax  benefit)
related to the repurchases in the quarter ended March 31, 1998.

                                       99

<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, 1997,  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  Consolidated   Financial
             Statements on page 48 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. - None



                                       100

<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 27th day of March, 1998.

                                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 27, 1998
----------------------                           President and Director
Stephen C. Hilbert                               (Principal Executive Officer)


/s/ ROLLIN M. DICK                               Executive Vice President and Director                       March 27, 1998
-------------------------                        (Principal Financial Officer)
Rollin M. Dick

/s/JAMES S. ADAMS                                Senior Vice President and Treasurer                         March 27, 1998
-------------------------                        (Principal Accounting Officer)
James S. Adams

/s/ NGAIRE CUNEO                                 Director                                                    March 27, 1998
-------------------------
 Ngaire Cuneo

/s/ DAVID R. DECATUR                             Director                                                    March 27, 1998
-------------------------
David R. Decatur

/s/ JOHN M. MUTZ                                 Director                                                    March 27, 1998
-------------------------
John M. Mutz

/s/ DONALD F. GONGAWARE                          Director                                                    March 27, 1998
-------------------------
Donald F. Gongaware

/s/ M. PHIL HATHAWAY                             Director                                                    March 27, 1998
-------------------------
M. Phil Hathaway

/s/ DENNIS E. MURRAY, SR.                        Director                                                    March 27, 1998
-------------------------
Dennis E. Murray, Sr.

/s/ JAMES D. MASSEY                              Director                                                    March 27, 1998
-------------------------
James D. Massey

</TABLE>

                                       101

<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 50 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 100 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 23, 1998



                                       102

<PAGE>



                         CONSECO, INC. AND SUBSIDIARIES

                                   SCHEDULE II

<TABLE>
<CAPTION>


         Condensed Financial Information of Registrant (Parent Company)
                                  Balance Sheet
                        as of December 31, 1997 and 1996
                              (Dollars in millions)

                                                          ASSETS
                                                                                                   1997              1996
                                                                                                   ----              ----
<S>                                                                                             <C>            <C>
Short-term investments.........................................................................   $   17.4        $   74.9
Actively managed fixed maturities .............................................................       12.9             2.1
Equity securities..............................................................................       14.0             7.9
Other invested assets..........................................................................      128.1            55.3
Investment in wholly owned subsidiaries (eliminated in consolidation)..........................    6,734.6         3,811.9
Receivable from subsidiaries (eliminated in consolidation).....................................      949.9           871.5
Income taxes...................................................................................      207.1           155.7
Other assets...................................................................................      231.9           188.6
                                                                                                  --------        --------

       Total assets............................................................................   $8,295.9        $5,167.9
                                                                                                  ========        ========

                                           LIABILITIES AND SHAREHOLDERS' EQUITY

Liabilities:
   Notes payable...............................................................................   $1,906.7        $1,094.9
   Commercial paper............................................................................      448.2             -
   Notes payable to subsidiaries (eliminated in consolidation).................................      213.1           101.6
   Other liabilities due to subsidiaries (eliminated in consolidation).........................      210.5            93.5
   Other liabilities...........................................................................      243.4           192.6
                                                                                                  --------        --------

       Total liabilities.......................................................................    3,021.9         1,482.6
                                                                                                  --------        --------

Company-obligated mandatorily redeemable preferred securities of subsidiary trusts.............    1,383.9           600.0

Shareholders' equity:
   Preferred stock.............................................................................      115.8           267.1
   Common stock and additional paid-in capital (no par value, 1,000,000,000
     shares authorized, shares issued and outstanding:  1997 - 186,665,591
     1996 - 167,128,228).......................................................................    2,382.0         2,029.6
   Accumulated other comprehensive income:
     Unrealized  appreciation  of fixed maturity  securities  (net of applicable
       deferred income taxes: 1997 - $95.5; 1996 - $21.5)......................................      177.2            39.8
     Unrealized appreciation (depreciation) of other investments (net of applicable deferred
       income taxes: 1997 - $2.6; 1996 - $(.5))................................................        4.8             (.9)
   Retained earnings...........................................................................    1,210.3           749.7
                                                                                                  --------        --------

       Total shareholders' equity..............................................................    3,890.1         3,085.3
                                                                                                  --------        --------
       Total liabilities and shareholders' equity..............................................   $8,295.9        $5,167.9
                                                                                                  ========        ========







                      The accompanying note is an integral
                         part of the condensed financial
                                  information.

</TABLE>
                                                            103

<PAGE>



                                                 CONSECO, INC. AND SUBSIDIARIES

                                                           SCHEDULE II
<TABLE>
<CAPTION>


                                 Condensed Financial Information of Registrant (Parent Company)
                                                     Statement of Operations
                                      for the years ended December 31, 1997, 1996 and 1995
                                                      (Dollars in millions)

                                                                                          1997          1996        1995
                                                                                          ----          ----        ----
<S>                                                                                      <C>         <C>          <C>
Revenues:
   Net investment income..............................................................   $  46.5     $    5.5     $    8.5
   Dividends from subsidiaries (eliminated in consolidation)..........................     185.2        146.9        106.5
   Fee and interest income from subsidiaries (eliminated in consolidation)............      93.9         30.9         12.9
   Net investment gains...............................................................       -           30.1         20.6
   Other income (losses)..............................................................       2.5          1.1         (6.4)
                                                                                          ------      -------      -------

       Total revenues.................................................................     328.1        214.5        142.1
                                                                                          ------      -------      -------

Expenses:
   Interest expense on notes payable..................................................     109.1         69.2         42.6
   Interest expense to subsidiaries (eliminated in consolidation).....................      31.2          7.2          7.5
   Operating costs and expenses.......................................................      24.7         10.2         27.8
                                                                                          ------      -------      -------

       Total expenses.................................................................     165.0         86.6         77.9
                                                                                          ------      -------      -------

       Income  before  income  taxes,   equity  in  undistributed   earnings  of
         subsidiaries, distributions on Company-obligated mandatorily redeemable
         preferred securities of subsidiary trusts
         and extraordinary charge.....................................................     163.1        127.9         64.2

Income tax expense (benefit)..........................................................      (5.5)         1.2        (93.2)
                                                                                          ------      -------      -------

       Income  before  equity  in   undistributed   earnings  of   subsidiaries,
         distributions on  Company-obligated  mandatorily  redeemable  preferred
         securities of subsidiary trusts
         and extraordinary charge.....................................................     168.6        126.7        157.4

Equity in undistributed earnings of subsidiaries (eliminated in consolidation)........     454.6        155.8         65.1
                                                                                         -------      -------      -------

       Income before distributions on Company-obligated mandatorily redeemable
         preferred securities of subsidiary trusts and extraordinary charge...........     623.2        282.5        222.5

Distributions on Company-obligated mandatorily redeemable preferred securities
   of subsidiary trusts...............................................................      49.0          3.6          -
                                                                                         -------      -------       ------

       Income before extraordinary charge.............................................     574.2        278.9        222.5

Extraordinary charge on extinguishment of debt, net of tax............................       6.9         26.5          2.1
                                                                                         -------      -------       ------

       Net income.....................................................................     567.3        252.4        220.4

Less amounts applicable to preferred stock:
   Charge related to induced conversions..............................................      13.2          -            -
   Preferred stock dividends..........................................................       8.7         27.4         18.4
                                                                                         -------      -------       ------

       Earnings applicable to common stock............................................    $545.4      $ 225.0       $202.0
                                                                                          ======      =======       ======


                           The accompanying note is an
                         integral part of the condensed
                             financial information.
</TABLE>

                                       104

<PAGE>



                                                 CONSECO, INC. AND SUBSIDIARIES

                                                           SCHEDULE II

<TABLE>
<CAPTION>


                                 Condensed Financial Information of Registrant (Parent Company)

                                                     Statement of Cash Flows
                                      for the years ended December 31, 1997, 1996 and 1995
                                                      (Dollars in millions)

                                                                                            1997          1996         1995
                                                                                            ----          ----         ----
<S>                                                                                        <C>         <C>            <C>
Cash flows from operating activities:
   Net income...........................................................................   $  567.3    $   252.4      $ 220.4
   Adjustments to reconcile net income to net cash
     provided by operating activities:
       Equity in undistributed earnings of consolidated subsidiaries....................     (454.6)      (155.8)       (65.1)
       Net investment gains.............................................................        -          (30.1)       (20.6)
       Income taxes ....................................................................      (62.0)        (3.2)      (101.3)
       Extraordinary charge on extinguishment of debt...................................       10.6         36.9          3.7
       Distributions on Company-obligated mandatorily redeemable preferred securities of
         subsidiary trusts..............................................................       75.4          5.5          -
       Other............................................................................        7.0        (21.4)        10.8
                                                                                           --------     --------      -------

         Net cash provided by operating activities......................................      143.7         84.3         47.9
                                                                                           --------     --------      -------

Cash flows from investing activities:
   Sales and maturities of investments..................................................       70.0         45.0        125.6
   Investments in consolidated subsidiaries.............................................     (983.1)      (226.1)      (556.9)
   Purchases of investments.............................................................     (143.3)       (66.0)       (70.8)
   Investment in Conseco Capital Partners II, L.P.......................................        -            -           (7.1)
   Expenses incurred in conjunction with terminated merger..............................        -            -           (5.5)
   Cash held by subsidiaries prior to acquisition.......................................        4.1         38.9         17.0
   Payments from subsidiaries...........................................................       72.9         36.5          -
                                                                                           --------     --------      -------


         Net cash used by investing activities..........................................     (979.4)      (171.7)      (497.7)
                                                                                           --------     --------      -------

Cash flows from financing activities:
   Issuance of equity securities, net...................................................       52.3         20.6          1.8
   Issuance of convertible preferred stock..............................................        -          257.7          -
   Issuance of Company-obligated mandatorily redeemable preferred securities
     of subsidiary trusts...............................................................      780.4        587.7          -
   Issuance of notes payable, net.......................................................    2,577.0        856.0        827.2
   Issuance of commercial paper.........................................................      448.2          -            -
   Payments on notes payable............................................................   (2,217.7)    (1,467.2)      (330.0)
   Payments to repurchase equity securities of Conseco..................................     (593.3)       (21.5)       (92.4)
   Dividends paid ......................................................................      (76.8)       (34.3)       (24.6)
   Dividends on stock held by subsidiaries..............................................      (53.8)       (38.1)       (38.7)
   Distributions on Company-obligated mandatorily redeemable preferred securities
     of subsidiary trusts...............................................................      (65.7)        (2.9)         -
   Payments to retire preferred stock...................................................      (72.4)         (.3)         -
                                                                                           --------     --------      -------

         Net cash provided by financing activities......................................      778.2        157.7        343.3
                                                                                           --------     --------      -------

         Net increase (decrease) in short-term investments..............................      (57.5)        70.3       (106.5)

   Short term investments, beginning of year............................................       74.9          4.6        111.1
                                                                                           --------     --------      -------

   Short term investments, end of year..................................................   $   17.4     $   74.9      $   4.6
                                                                                           ========     ========      =======



                           The accompanying note is an
                    integral part of the condensed financial
                                  information.
</TABLE>

                                                              105

<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.




                                       106

<PAGE>



                         CONSECO, INC. AND SUBSIDIARIES

                                  SCHEDULE III
<TABLE>
<CAPTION>

                       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>
1997
   Supplemental health
     operations..................    $1,527.8     $ 3,759.6      $1,858.1      $  273.8     $1,217.5          $194.9        $313.5
   Annuity operations............       828.0      14,150.8          96.8       1,070.6        725.9           198.9          67.3
   Life operations...............       921.7       7,075.0         630.5         448.2        611.8            87.8         123.6
   Individual and group
     major medical...............        44.1         577.2         758.1          17.3        579.5            16.8         139.0
   Other.........................        60.0         337.5          67.3          15.4         40.3             7.3          42.7
   Corporate.....................          -              -             -             -            -            -            126.8
                                     --------     ---------      --------      --------     --------          ------        ------

       Total.....................    $3,381.6     $25,900.1      $3,410.8      $1,825.3     $3,175.0          $505.7        $812.9
                                     ========     =========      ========      ========     ========          ======        ======

1996
   Supplemental health
     operations..................    $  990.8     $ 1,891.9      $  805.9      $   66.6     $  531.8          $ 81.2        $123.5
   Annuity operations............       858.6      12,421.8          77.6         939.6        638.9            95.1          59.1
   Life operations...............       626.5       4,992.7         360.5         279.7        367.5            41.5         108.9
   Individual and group
     major medical...............        49.4         227.4         357.0           8.8        300.3            15.1          18.3
   Other.........................        34.0         108.1          53.2           7.8         25.1             7.9          47.1
   Corporate.....................           -            -              -             -            -              -          112.4
                                     --------     ---------      --------      --------     --------          ------        ------

       Total.....................    $2,559.3     $19,641.9      $1,654.2      $1,302.5     $1,863.6          $240.8        $469.3
                                     ========     =========      ========      ========     ========          ======        ======

1995
   Supplemental health
     operations..................    $  571.9     $   842.6      $  756.9      $   66.9     $  525.6          $ 78.3        $126.2
   Annuity operations............       535.9      10,396.1          68.4         880.3        595.6           169.9          53.9
   Life operations...............       220.9       2,102.2         222.4         176.9        234.1            38.6          61.1
   Individual and group
     major medical...............        54.7         144.2         352.0           9.5        300.8            13.1          12.6
   Other.........................        38.3         120.3          65.3           9.0         36.8             7.6          42.1
   Corporate.....................           -             -             -             -            -               -         140.5
                                     --------     ---------      --------      --------     --------          ------        ------

       Total.....................    $1,421.7     $13,605.4      $1,465.0      $1,142.6     $1,692.9          $307.5        $436.4
                                     ========     =========      ========      ========     ========          ======        ======
<FN>

(1)  Includes insurance policy benefits, change in future  policy  benefits  and
     amounts   added  to  annuity  and  financial  product  policyholder account
     balances.

(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.
</FN>
</TABLE>

                                                                107

<PAGE>



                         CONSECO, INC. AND SUBSIDIARIES


                                   SCHEDULE IV
<TABLE>
<CAPTION>

                                   Reinsurance
              for the years ended December 31, 1997, 1996 and 1995
                              (Dollars in millions)


                                                                                   1997              1996             1995
                                                                                   ----              ----             ----
<S>                                                                            <C>                <C>              <C>
Life insurance in force:
   Direct............................................................          $136,711.4         $98,835.5        $36,040.7
   Assumed...........................................................             4,198.7           3,659.3            562.8
   Ceded.............................................................           (36,765.6)        (22,345.3)        (2,820.3)
                                                                                ----------       ----------        ---------

         Net insurance in force......................................          $104,144.5         $80,149.5        $33,783.2
                                                                               ==========         =========        =========

         Percentage of assumed to net................................                 4.0%              4.6%             1.7%
                                                                                      ===               ===              ===

Premiums recorded as revenue for generally accepted accounting principles:
   Direct............................................................            $3,162.8          $1,632.3         $1,422.1
   Assumed...........................................................               290.3              65.8              6.1
   Ceded.............................................................              (499.0)           (313.8)           (72.6)
                                                                                 --------          --------         --------

         Net premiums................................................            $2,954.1          $1,384.3         $1,355.6
                                                                                 ========          ========         ========

         Percentage of assumed to net................................                 9.8%              4.7%              .4%
                                                                                      ===               ===               ==


</TABLE>


                                                            108

<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.

*3.2              Amended and  Restated  By-Laws  of  the  Registrant.

 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 ("Credit Agreement"), 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.

 4.14.1           First Amendment dated as of March 10, 1997 to Credit Agreement
                  was filed  with  the   Commission  as Exhibit  4.14.1  to  the
                  Registrant's  Report  on Form 8-K  dated  April 1,  1997,  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.

 4.17.6           Third Supplemental Indenture,   dated  as  of  March 26,  1997
                  between the  Registrant  and Fleet National Bank, as Trustee,
                  was filed with  the  Commission  as  Exhibit  4.17.6  to   the
                  Registrant's  Report on Form 8-K  dated April 1, 1997,  and is
                  incorporated  herein by this reference.


 4.17.7           8.796% Subordinated Deferrable Interest Debenture due 2027 was
                  filed  with  the  Commission  as   Exhibit  4.17.7   to    the
                  Registrant's  Report  on Form 8-K  dated  April 1,  1997,  and
                  is  incorporated herein by this reference.


<PAGE>

Exhibit
  No.                                   Document


 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.

 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 was filed with the Commission  as  Exhibit 4.20.1  to the
                  Registrant's Annual Report on Form 10-K  for  the  year  ended
                  December  31, 1996,  and  is  incorporated  herein   by   this
                  reference.

 4.21.1           Amended and Restated Declaration of Trust of Conseco Financing
                  Trust III, dated as of March 26, 1997,  among the  Registrant,
                  as sponsor,  the trustees  named  therein and the holders from
                  time to time of undivided  beneficial  interests in the assets
                  of Conseco  Financing  Trust III was filed with the Commission
                  as Exhibit 4.20.1 to the Registrant's Report on Form 8-K dated
                  April 1, 1997, and is incorporated herein by this reference.

 4.21.2           Global  Certificate for Capital Security of Conseco  Financing
                  Trust III was filed with the  Commission as Exhibit  4.20.2 to
                  the  Registrant's  Report on Form 8-K dated April 1, 1997, and
                  is incorporated herein by this reference.

<PAGE>


Exhibit
  No.                                   Document


 4.21.3           Capital Securities Guarantee  Agreement,  dated as of April 1,
                  1997 between the  Registrant and Fleet National Bank was filed
                  with the  Commission  as  Exhibit  4.20.3 to the  Registrant's
                  Report on Form 8-K dated  April 1, 1997,  and is  incorporated
                  herein by this reference.

 4.22.1           Senior Indenture,  dated November 13, 1997, by and between the
                  Registrant  and LTCB Trust  Company,  as Trustee  (the "Senior
                  Indenture"),  was filed with the  Commission as Exhibit 4.1 to
                  Post-Effective   Amendment   No.   1   to   the   Registrant's
                  Registration  Statement  on Form S-3,  No.  333-27803,  and is
                  incorporated herein by this reference.

 *4.22.2          6.4% Note due  February  10,  2003  issued  under  the  Senior
                  Indenture (one of several  identical  notes  aggregating  $250
                  million).

 4.23.1           Subordinated  Indenture  between the  Registrant and The First
                  National  Bank of  Chicago,  as  Trustee,  was filed  with the
                  Commission  as Exhibit  4.2 to the  Registrant's  Registration
                  Statement  on Form S-3,  No.  333-40423,  and is  incorporated
                  herein by this reference.

 4.24.1           Amended and Restated Declaration of Trust of Conseco Financing
                  Trust IV was filed with the  Commission as Exhibit 4.12 to the
                  Registrant's   Registration   Statement   on  Form  S-3,   No.
                  333-40423, and is incorporated herein by this reference.

 4.24.2           Preferred  Securities  Guarantee  of the  Registrant  for  the
                  benefit  of the  holders  of  trust  preferred  securities  of
                  Conseco  Financing  Trust IV was filed with the  Commission as
                  Exhibit  4.13 to the  Registrant's  Registration  Statement on
                  Form  S-3,  No.  333-40423,  and  is  incorporated  herein  by
                  reference.

 4.24.3           Purchase  Contract  Agreement  between the  Registrant and The
                  First National Bank of Chicago,  as Purchase  Contract  Agent,
                  was  filed  with  the   Commission  as  Exhibit  4.20  to  the
                  Registrant's   Registration   Statement   on  Form  S-3,   No.
                  333-40423, and is incorporated herein by reference.

 4.24.4           Pledge  Agreement  among the  Registrant,  The Chase Manhattan
                  Bank,  as  Collateral  Agent,  and The First  National Bank of
                  Chicago,  as  Purchase  Contract  Agent,  was  filed  with the
                  Commission  as Exhibit 4.21 to the  Registrant's  Registration
                  Statement  on Form S-3,  No.  333-40423,  and is  incorporated
                  herein by reference.

                  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.
<PAGE>

Exhibit
  No.                                   Document


 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 was filed with the  Commission  as Exhibit
                  10.1.3(a) to the  Registrant's  Annual Report on Form 10-K for
                  the year ended December 31, 1996, and is  incorporated  herein
                  by this reference.

 10.1.3(b)        Amendment No.2 to Employment  Agreement between the Registrant
                  and  Rollin M. Dick was filed with the  Commission  as Exhibit
                  10.1.3(b)  to the  Registrant's  Report  on Form  10-Q for the
                  quarter ended September 30, 1997, and is  incorporated  herein
                  by this reference.

 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  was filed  with the  Commission  as
                  Exhibit  10.1.4(a) to the  Registrant's  Annual Report on Form
                  10-K for the year ended December 31, 1996, and is incorporated
                  herein by this reference.

 10.1.4(b)        Amendment No. 2 to Employment Agreement between the Registrant
                  and  Donald F.  Gongaware  was filed  with the  Commission  as
                  Exhibit 10.1.4(b) to the Registrant's  Report on Form 10-Q for
                  the quarter  ended  September  30, 1997,  and is  incorporated
                  herein by this reference.

 10.1.9           Unsecured  Promissory Note of Stephen C. Hilbert dated May 13,
                  1996 was filed with the  Commission  as Exhibit  10.1.9 to the
                  Registrant's  Annual Report on   Form 10-K for  the year ended
                  December  31,  1996,  and  is  incorporated   herein  by  this
                  reference.

 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.

 10.1.10(a)       Amendment No. 1 to Employment Agreement between the Registrant
                  and Ngaire E. Cuneo was filed with the  Commission  as Exhibit
                  10.1.10(a)  to the  Registrant's  Report  on Form 10-K for the
                  year ended  December 31, 1996, and is  incorporated  herein by
                  this reference.

 10.1.10(b)       Amendment No. 2 to Employment Agreement between the Registrant
                  and Ngaire E. Cuneo was filed with the  Commission  as Exhibit
                  10.1.10(b)  to the  Registrant's  Report  on Form 10-Q for the
                  quarter ended September 30, 1997, and is  incorporated  herein
                  by this reference.
<PAGE>

Exhibit
  No.                                   Document


 10.1.11          Employment  Agreement  dated  September  8, 1997  between  the
                  Registrant  and John J. Sabl  was filed with the Commission as
                  Exhibit  10.1.11 to the  Registrant's  Report on Form 10-Q for
                  the quarter  ended  September  30, 1997,  and is  incorporated
                  herein by this reference.

 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          Amended and Restated  Director,  Executive and Senior  Officer
                  Stock  Purchase Plan.

 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.

*10.8.14          Conseco,  Inc. Amended And Restated 1997  Non-qualified  Stock
                  Option Plan.

<PAGE>

Exhibit
  No.                                   Document


 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.

 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.

*12.1             Computation of Ratio of  Earnings to  Fixed Charges, Preferred
                  Dividends and Distributions  on  Company-Obligated Mandatorily
                  Redeemable Preferred Securities of Subsidiary Trusts.

*21               List of Subsidiaries.

<PAGE>

Exhibit
  No.                                   Document

*23               Consent of Independent Accountants.

*27               Financial data  schedule  for Conseco, Inc. dated December 31,
                  1997

                  *Filed herewith

Compensation Plans and Arrangements

 10.1.2           Employment  Agreement  dated  January  1,  1987,  between  the
                  Registrant and Stephen C. Hilbert and Amendment No. 1 thereto.

 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.

 10.1.3(b)        Amendment No. 2 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.

 10.1.4(b)        Amendment No. 2 to Employment Agreement between the Registrant
                  and Donald F. Gongaware.

 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.

 10.1.10(b)       Amendment No. 2 to Employment Agreement between the Registrant
                  and Ngaire E. Cuneo.

 10.11            Employment Agreement between the Registrant and John J. Sabl.

 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          Amended and Restated 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.

*10.8.14          Conseco,  Inc. Amended and Restated 1997  Non-qualified  Stock
                  Option Plan.