PIONEER FINANCIAL SERVICES INC /DE, S-3, 1996-02-21

PIONEER FINANCIAL SERVICES INC /DE
S-3, 1996-02-21
ACCIDENT & HEALTH INSURANCE

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As filed with the Securities and Exchange Commission on February 21, 1996
Registration No. 333-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

PIONEER FINANCIAL SERVICES, INC.
(Exact name of registrant as specified in its charter)

Delaware 36-2479273
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
1750 East Golf Road
Schaumburg, Illinois 60173
(847) 995-0400
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)

Peter W. Nauert, Chairman and Chief Executive Officer
1750 East Golf Road
Schaumburg, Illinois 60173
(847) 995-0400
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies to:

Stanley H. Meadows, P.C. William R. Kunkel
McDermott, Will & Emery Skadden, Arps, Slate, Meagher & Flom
227 West Monroe Street 333 West Wacker Drive, Suite 2100
Chicago, Illinois 60606-5096 Chicago, Illinois 60606
(312) 372-2000 (312) 407-0700
Approximate date of commencement of proposed sale to the public: As soon
as practicable after the effective date of this Registration Statement.

If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]

If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [ ]

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, please check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE

Proposed Proposed Amount
Maximum Maximum of
Title of each class Amount Offering Aggregate Registr
of securities to be to be Price Offering ation
registered Registered Per Note Price(1) Fee
%Convertible Subordinated $74,750,00 $74,750,00
Notes 0 100% 0 $25,776
Common Stock, $1 par
value per share (2) - - None
Rights to Acquire Series
A Junior Preferred Stock (2) - - None

(1)Estimated solely for purposes of calculating the registration fee.
(2) Such indeterminate number of shares of Common Stock and Rights to Acquire
Series A Junior Preferred Stock as may be issuable upon conversion of the
Notes, including such additional shares as may be issuable as a result of
adjustments to the conversion price. No separate fee is required.

The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.

SUBJECT TO COMPLETION
Preliminary Prospectus Dated February 21, 1996
[LOGO]
$65,000,000
Pioneer Financial Services, Inc.
% Convertible Subordinated Notes Due 2003

The _____% Convertible Subordinated Notes Due 2003 (the "Notes") will
mature on __________, 2003, unless previously redeemed. Interest on the Notes
is payable on _________ and _________ of each year, commencing ________, 1996.
The Notes are convertible into shares of Common Stock of the Company, at any
time prior to maturity, unless previously redeemed, at a conversion price of
$___________ per share, subject to adjustment in certain events as described
herein.

The Notes are subordinated in right of payment to all Senior Indebtedness
(as defined herein) of the Company. The Indenture (as defined herein) does not
restrict the incurrence of Senior Indebtedness or other indebtedness by the
Company or any of its subsidiaries. After giving effect to the expected use of
the estimated proceeds of this offering, Senior Indebtedness outstanding will be
approximately $0.3 million (Senior Indebtedness was approximately $30.2 million
at February 15, 1996). The Company is a holding company and, accordingly, the
Notes will also be subordinated to all existing and future liabilities of the
Company's subsidiaries. See "Description of Notes--Subordination." The Notes
are redeemable, in whole or in part, at the option of the Company at any time on
or after __________ __, 1999, at the redemption prices set forth herein plus
accrued and unpaid interest. No sinking fund is provided for the Notes. In
addition, subject to certain conditions, following the occurrence of a Change of
Control (as defined herein), each holder has the right to cause the Company to
purchase the Notes at 101% of the principal amount thereof, plus accrued and
unpaid interest to the date of such purchase. See "Description of Notes."

On February 20, 1996, the last reported sale price of the Common Stock on
the New York Stock Exchange ("NYSE"), where it is traded under the symbol "PFS,"
was $17 1/8 per share. See "Price Range of Common Stock and Dividend Policy."
Application will be made to list the Notes on the NYSE under the symbol "PFS03."

SEE "RISK FACTORS" BEGINNING ON PAGE 11 FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE NOTES
OFFERED HEREBY.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

PRICE TO UNDERWRITING DISCOUNTS PROCEEDS TO
PUBLIC(1) AND COMMISSIONS(2) COMPANY(1)(3)
<S> <C> <C> <C>
Per Note % % %
Total (4) $65,000,000 $ $

(1) Plus accrued interest, if any from ________________, 1996.
(2) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities
under the Securities Act of 1933, as amended. See "Underwriting."
(3) Before deducting expenses payable by the Company, estimated at
$500,000.
(4) The Company has granted to the Underwriters an option, exercisable
within 30 days of the date hereof, to purchase up to an additional
$9,750,000 aggregate principal amount of Notes, on the same terms
as set forth above, solely to cover over-allotments, if any.
If such option is exercised in full, the total Price to Public,
Underwriting Discounts and Commissions and Proceeds to Company will
be $__________, $_________ and $__________, respectively.
See "Underwriting."

</TABLE>

The Notes are being offered by the Underwriters, subject to prior sale,
when, as and if delivered to and accepted by them, subject to approval of
certain legal matters by their counsel and subject to certain other conditions.
The Underwriters reserve the right to withdraw, cancel or modify this offering
and to reject any order in whole or in part. It is expected that delivery of
the Notes will be made against payment therefor on or about _______________,
1996, at the offices of Bear, Stearns & Co. Inc., 245 Park Avenue, New York, New
York 10167.

BEAR, STEARNS & CO. INC.
EVEREN SECURITIES, INC.
OPPENHEIMER & CO., INC.

The date of this Prospectus is _____ __, 1996

Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any state in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SECURITIES
OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

For North Carolina Investors: The Commissioner of Insurance of the State
of North Carolina has not approved or disapproved this offering, nor has such
Commissioner passed upon the adequacy or accuracy of this Prospectus.

ownership of 10% or more of the voting securities of a domestic insurance
company or of any company which controls a domestic insurance company. Any
purchaser of 10% or more of the shares of Common Stock of the Company, whether
by conversion or otherwise, will be presumed to have acquired control of the
Illinois domestic insurance subsidiaries unless the Illinois Director of
Insurance, following application by such purchaser, determines otherwise.
Accordingly, any purchase, whether by conversion or otherwise, of 10% or more of
the Common Stock of the Company, would require prior action by the Illinois
Director of Insurance.

AVAILABLE INFORMATION

Pioneer Financial Services, Inc. is subject to the informational
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and in accordance therewith files reports, proxy statements and other
information with the Securities and Exchange Commission (the "Commission").
Such reports, proxy statements and other information filed by the Company can be
inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 and at the
following Regional Offices of the Commission: 7 World Trade Center, Suite 1300,
New York, New York 10048; and Suite 1400, 500 West Madison, Chicago, Illinois
60606. Copies of such material can also be obtained from the Public Reference
Section of the Commission, Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. The Common Stock is traded on the
NYSE and the Chicago Stock Exchange. Such reports, proxy statements and other
information can also be inspected at the offices of the New York Stock Exchange,
Inc., 11 Wall Street, New York, New York.

This Prospectus constitutes a part of a registration statement on Form S-3
(together with all amendments and exhibits, the "Registration Statement") filed
with the Commission under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to this offering. This Prospectus does not
contain all of the information included in the Registration Statement.
Statements contained herein concerning the provisions of documents filed with,
or incorporated by reference in, the Registration Statement are not necessarily
complete, and each such statement is hereby qualified in its entirety by
reference to the copy of the applicable documents filed with the Commission.
Reference is made to the Registration Statement for further information with
respect to the Company, the Notes offered hereby and the Common Stock.

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The following documents heretofore filed by the Company with the
Commission are incorporated herein by reference: (i) the Company's Annual Report
on Form 10-K for the year ended December 31, 1994; (ii) the Company's Quarterly
Reports on Form 10-Q, for the quarterly periods ended March 31, 1995, June 30,
1995 and September 30, 1995; (iii) the amendment to the Company's Quarterly
Report on Form 10-Q/A for the quarterly period ended September 30, 1995; and
(iv) the description of the Company's Common Stock contained in the Company's
Registration Statement on Form 8-A for such securities, including any amendments
or reports filed for the purpose of updating such description.

All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the termination of the offering of the Notes shall be deemed to be incorporated
by reference in this Prospectus and to be a part hereof from the date of filing
of such documents. Any statement contained in this Prospectus, or in a document
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes of this Prospectus to the extent that a
statement contained herein or in any subsequently filed document that also is or
is deemed to be incorporated by reference herein modifies or supersedes such
statement. Any statement so modified or superseded shall not be deemed, except
as so modified or superseded, to constitute a part of this Prospectus.

The Company will provide without charge to each person to whom a copy of
this Prospectus is delivered, upon the written or oral request of such person, a
copy of any and all of the documents incorporated by reference herein (other
than exhibits to such documents, unless such exhibits are specifically
incorporated by reference in such documents). Requests for such copies should
be directed to the Director of Investor Relations, Pioneer Financial Services,
Inc., 1750 East Golf Road, Schaumburg, Illinois 60173, telephone number (847)
995-0400.

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and financial statements,
including the notes thereto, appearing elsewhere in this Prospectus or
incorporated herein by reference. Unless otherwise indicated, all information
contained herein assumes no exercise of the Underwriters' over-allotment option.
Unless the context requires otherwise, all references herein to the "Company"
mean Pioneer Financial Services, Inc. and its subsidiaries, collectively.

THE COMPANY

The Company underwrites and markets health insurance, life insurance and
annuities and provides medical utilization management services throughout the
United States. In the nine years since it became public, the Company's total
revenue has grown from $52.3 million in 1986 to $774.2 million in 1994 ($586.0
million for the nine months ended September 30, 1995); total assets have
increased from $165.0 million at December 31, 1986 to over $1.5 billion at
September 30, 1995; and stockholders' equity has increased from $33.5 million at
December 31, 1986 to $137.8 million at September 30, 1995. The Company sells
its products and services through four marketing divisions: Senior Health and
Life Division, Group Medical Division, Life Insurance Division and Medical
Utilization Management Division.

OPERATIONS

Senior Health and Life Division. The Senior Health and Life Division
markets a wide range of specialty health insurance and life insurance and
annuities for individuals age 65 and older. Products which are underwritten by
this division include Medicare supplement, long-term care, home health care and
specialty health. In addition, this division markets cash burial life policies
and annuities which are underwritten by the Company's Life Insurance Division.
The Company's Medicare supplement policies provide coverage for many of the
expenses which the federal Medicare program does not fully cover and its long-
term care and home health care policies provide coverage, within various
prescribed benefit limits, for nursing home and in-home care. In the first nine
months of 1995, the number of senior health insurance policies issued by the
Company increased 18% over the same period in 1994, to over 35,000 policies.
Additionally, the number of senior life insurance policies issued by the Company
increased 210% in the first nine months of 1995 compared to the same period in
1994, to nearly 27,000 policies.

The Company is the fourth largest issuer of individual Medicare supplement
insurance in the nation, excluding Blue Cross and Blue Shield-related entities,
based on direct premiums earned. The Company sells products designed for senior
citizens through a distribution network which has grown from approximately
15,000 agents at the end of 1994 to nearly 22,000 agents at the end of 1995.
This growth was primarily the result of the formation, in mid-1995, of Markman
International, a 50/50 joint venture with Markman Company, which, prior to the
joint venture, had established itself as a leading independent marketer of long-
term care policies. Markman International serves as the national marketing and
distribution arm of the Senior Health and Life Division. Future revenue growth
in this division is expected to be generated in part from the increased number
of agents and increased sales of Medicare supplement, long-term care and home
health care policies.

Group Medical Division. The Group Medical Division underwrites and
markets small group and individual hospital and medical policies, primarily to
self-employed individuals and small business owners. In 1995, approximately 81%
of this division's policies were sold through a sales force of approximately
1,700 career agents and the remaining 19% were sold through a brokerage system
of 6,000 independent agents. This division uses the services provided by the
Medical Utilization Management Division, unaffiliated preferred provider
organizations ("PPOs") and other managed care operations to help control claims
costs. In 1995, approximately 70% of hospital stays covered by policies issued
by the Group Medical Division used PPO facilities, an increase from 32% in 1993
and 54% in 1994. The Group Medical Division's use of managed care services,
provided by both the Medical Utilization Management Division and unaffiliated
companies, resulted in approximately $69.0 million in claims savings for the
Company in 1995, with most of these savings being passed on to customers in the
form of more competitive premium rates.

Life Insurance Division. The Life Insurance Division underwrites and
markets traditional life (term and whole life), universal life, and interest
sensitive life insurance and annuities targeted primarily to the middle income
market. The Life Insurance Division sells its products through a nationwide
network of brokerage general agents ("BGAs") and managing general agents
("MGAs") who in turn contract with multiple brokers and general agents. This
division grew significantly when the Company acquired Connecticut National Life
Insurance Company ("CNL") in January 1995. This division also underwrites,
issues and administers the life insurance products marketed by the Senior Health
and Life Division.

Medical Utilization Management Division. The Medical Utilization
Management Division provides health care coordination services to assist in the
management of medical costs for insurance companies, government agencies,
self insured businesses, unions, health maintenance organizations ("HMOs") and
third-party administrators as well as for the Group Medical Division. Such
services include precertification of inpatient and outpatient medical care, case
management, and the development and management of provider networks. In the
first nine months of 1995, approximately 78% of this division's revenues were
derived from services provided to unaffiliated organizations.

Investment Portfolio. The Company has maintained and intends to continue
to maintain a diversified portfolio of medium-term investment-grade fixed income
securities. As of September 30, 1995, 84% of the Company's invested assets were
fixed income securities and the weighted average quality of the fixed income
portfolio was "AA."

STRATEGY

Senior Health and Life Division. The Company believes it has an
opportunity to expand its position as a leading provider of health and life
insurance products to the growing senior market. According to the U.S. Census
Bureau, the age 65 and over population group is estimated to grow by more than
13% to 35 million by the year 2000 and to over 53 million by 2020. Currently
only 10% of persons age 65 and over own long-term care insurance, while
approximately 43% of such individuals are expected to require the use of nursing
care at least once in their lives. The number of long-term care policies sold
industry-wide has increased at a rate of approximately 27% per year since 1987,
to a total of approximately 3.4 million long-term care policies sold through
December 31, 1994. As such, the Company believes the demand for long-term care
and home health care insurance will increase at a rate greater than the growth
rate of the senior population. The Company believes the growth of this senior
health insurance market could be enhanced if future government regulation
continues to move toward more personal financial responsibility, with less
reliance on government payments, possibly in the form of additional reductions
in Medicare benefits and/or the establishment of tax deductibility for long-term
care insurance premiums.

The Company intends to expand its position in the growing senior market by
increasing the number of agents who sell its senior products, and by increasing

the number of products agents sell to each customer through cross-selling.
Through Markman International, the Company has increased its agent force by
nearly 45% since the end of 1994 and expects further increases in 1996. In
1995, approximately 2.5% of the Senior Health and Life Division's Medicare
supplement policyholders owned one of the Company's long-term care or home
health care policies. Through increased training of its agents as to the full
range of products offered by the Company and the development of pre-approved
(already underwritten for issue) add-on products that can easily be coupled with
certain existing products, the Company intends to increase its cross-selling
efforts and thereby increase the number of its products owned by each customer.
Additionally, the Company believes that the market for senior managed care
products will grow as health care expenditures continue to grow. Currently,
approximately 10% of Medicare beneficiaries in the nation participate in HMOs.
There are many states with very low penetration of managed care in the senior
market, including states with a high concentration of Medicare beneficiaries.
The Company intends to take advantage of this opportunity by utilizing its
position in the senior market and its managed care capability to market managed
care products to senior citizens.

Group Medical Division. The Group Medical Division intends to focus its
efforts on increasing administrative efficiency and claims-cost containment on
its existing block of business through, among other things, increased use of the
Medical Utilization Management Division's services, continued development of
medical provider networks and continued migration of its fee-for-service
indemnity health insurance customers to managed care products. As the
regulatory environment changes, the Company will evaluate growth opportunities
in this market.

Life Insurance Division. The Life Insurance Division's strategy is to
expand its distribution channels and products and to continue to lower its
administrative unit costs. The acquisition of CNL in 1995 has given the Company
the opportunity to initiate new distribution strategies, including consumer-
direct sales over the Internet. Also, at year-end 1995, the Company entered
into an agreement with a national marketing organization to market a new term
life insurance product with an income benefit rider. With 25,000 agents
nationwide, this marketing organization gives the Company the potential to
increase significantly the sales of the Life Insurance Division.

Medical Utilization Management Division. The Medical Utilization
Management Division intends to grow through cross-selling additional managed
care services to existing clients. In addition, this division is currently
developing and intends to manage PPOs, exclusive provider organizations ("EPOs")
and HMOs in selected market areas.

Acquisitions. The Company believes that current trends in the life and
health insurance industry will provide opportunities for continued acquisitions
and consolidations. The Company further believes that its ability to integrate
acquisitions into its existing operations and its flexibility in developing and
marketing new products should enable it to capitalize on these opportunities.

The Company was organized in Delaware in 1982 as a successor to an
Illinois holding company formed in 1957. The executive offices of the Company
are located at 1750 East Golf Road, Schaumburg, Illinois 60173 and its telephone
number is (847) 995-0400.

THE OFFERING

Securities Offered . . . . . . $65,000,000 principal amount ($74,750,000
if the over-allotment option is exercised
in full) of _____% Convertible Subordinated
Notes Due 2003 to be issued under an
indenture (the "Indenture") between the
Company and ___________________, as trustee
(the "Trustee").

Maturity Date . . . . . . . . . ____________, 2003

Interest Payment Dates . . . . __________ and __________ of each year
commencing, __________, 1996
Conversion Rights . . . . . . . The Notes are convertible, at the holder's
option, into shares of Common Stock, at any
time at or prior to maturity unless
previously redeemed, at a conversion price
of $_____ per share, subject to adjustment
in certain events as described herein.
Accordingly, each $1,000 in principal
amount of Notes is convertible into ____
shares of Common Stock, subject to
adjustment.

Redemption at the Option of
the Company . . . . . . . . . . The Notes are not redeemable prior to
__________, 1999. Thereafter, the Notes
are redeemable, in whole or in part, at the
option of the Company, at the redemption
prices set forth herein, plus accrued and
unpaid interest to the date of redemption.

Redemption at the Option of
the Holders . . . . . . . . . . In the event that a Change of Control (as
defined herein) occurs, subject to certain
conditions, each holder of a Note shall
have the right, at the holder's option, to
require the Company to purchase all or any
part of such holder's Notes at 101% of the
principal amount thereof, plus accrued and
unpaid interest to the date of purchase.
Subordination . . . . . . . . . The Notes are subordinated in right of
payment to all Senior Indebtedness (as
defined herein) of the Company. After
giving effect to the expected use of the
estimated net proceeds of this offering,
Senior Indebtedness outstanding will be
approximately $0.3 million (Senior
Indebtedness was approximately $30.2
million at February 15, 1996). The Company
is a holding company and, accordingly, the
Notes will also be subordinated to all
existing and future liabilities of the
Company's subsidiaries. The Indenture will
not restrict the Company or any of its
subsidiaries from incurring additional
Senior Indebtedness or other obligations.

Use of Proceeds . . . . . . . . The net proceeds from the sale of the Notes
offered hereby are estimated to be
$62,062,500 ($71,446,875 if the
Underwriters' over-allotment option is
exercised in full). The Company intends to
use a portion of the net proceeds to redeem
its $2.125 Cumulative Exchangeable
Convertible Preferred Stock (the "$2.125
Preferred Stock"). As of September 30,
1995, approximately $22.0 million would
have been required to redeem all of the
outstanding shares of the $2.125 Preferred
Stock. Approximately $42.1 million of the
remaining net proceeds will be used to
repay borrowings under the Company's March
1995 Term Loan, August 1995 Term Loan and
Credit Facility (each as defined herein).
The balance of the net proceeds will be
used for working capital and general
corporate purposes, including, without
limitation, the contribution of capital to
the Company's insurance subsidiaries and
future acquisitions. Other than the
purchase of Universal Fidelity Life
Insurance Company ("Universal Fidelity"),
the Company has no commitments or
agreements with respect to any such
acquisitions as of the date of this
Prospectus. Pending application, the net
proceeds will be invested in short-term
interest-bearing obligations.

Listing . . . . . . . . . . . . Application will be made to list the Notes
on the NYSE under the symbol "PFS03"
Common Stock Symbol . . . . . . "PFS"

Rating . . . . . . . . . . . .
SUMMARY FINANCIAL AND OPERATING DATA
(dollars in thousands, except per share data)

<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
1990 1991 1992 1993 1994 1994 1995

<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Premiums and policy charges:
Accident and health . . . . . $508,957 $593,236 $559,894 $601,684 $659,180 $492,467 $464,888
Life and annuity . . . . . . .
30,693 33,321 35,219 39,282 44,929 33,423 42,071
Total premiums and policy
charges . . . . . . . . . 539,650 626,557 595,113 640,966 704,109 525,890 506,959
Net investment income . . . . . . 48,416 47,974 43,555 40,242 42,786 31,848 52,570
Other income . . . . . . . . . . 21,476 26,310 17,352 19,256 27,643 21,151 24,606
Realized investment gains (losses)
1,475 7,897 (47) (1,336) (383) (32) 1,879
Total revenues . . . . . . 611,017 708,738 655,973 699,128 774,155 578,857 586,014
Benefits:
Accident and health . . . . . 367,790 376,820 368,046 397,963 407,249 311,699 297,981
Life and annuity . . . . . . . 46,889 46,128 47,622 39,419 42,947 32,868 54,058
Total benefits . . . . . . 414,679 422,948 415,668 437,382 450,196 344,567 352,039
Insurance and general expense . . 141,687 173,806 162,837 162,831 192,810 133,966 158,540
Interest expense . . . . . . . . 4,365 2,916 2,189 3,276 5,054 3,782 4,316

Amortization of deferred policy
acquisition costs(1) . . . . 64,447 95,748 100,715 76,875 100,073 78,418 50,865
Total benefits and expenses
625,178 695,418 681,409 680,364 748,133 560,733 565,760

Income (loss) before income taxes (14,161) 13,320 (25,436) 18,764 26,022 18,124 20,254
Income taxes (benefit) . . . . . (4,815) 4,448 (8,477) 6,619 8,873 5,901 6,623
Net income (loss) . . . . . . . . (9,346) 8,872 (16,959) 12,145 17,149 12,223 13,631
Preferred stock dividends . . . . 2,164 2,039 2,039 2,021 1,904 1,476 1,354
Income (loss) applicable to common
stockholders . . . . . . . . . $(11,510) $ 6,833 $(18,998) $10,124 $ 15,245 $ 10,747 $12,277

Per Share Data:
Net income (loss) per common
share:
Primary . . . . . . . . . . . $ (1.72) $ 1.02 $ (2.85) $ 1.51 $ 2.36 $ 1.64 $ 1.74
Fully diluted . . . . . . . . (1.72) 1.02 (2.85) 1.26 1.58 1.12 1.25
Average common and common equivalent
shares outstanding (in thousands):
Primary . . . . . . . . . . . 6,690 6,699 6,660 6,724 6,459 6,552 7,078
Fully diluted . . . . . . . . 8,226 8,234 8,195 10,731 12,734 12,860 12,623

Ratio of earnings to fixed
charges(2) . . . . . . . . . . . - 5.0x - 5.9x 5.4x 5.1x 5.1x

(1) Includes the effect of a write-off of deferred policy acquisition costs
in 1992 and the first nine months of 1994 of approximately $30.0 million
and $16.7 million, respectively. See "Risk Factors--Recoverability of
Deferred Policy Acquisition Costs" and "Management's Discussion and
Analysis of Results of Operations and Financial Condition--Deferred
Policy Acquisition Costs." The write-offs were primarily related to
certain major medical policies.
(2) Fixed charges consist of interest expense on indebtedness, amortization
of debt issuance costs and the portion of operating leases that are
representative of the interest factor. Fixed charges do not include
interest on annuities and financial products. Earnings are computed by
adding interest expense on indebtedness, amortization of debt issuance
costs and the interest portion of rent expense to pre-tax earnings from
continuing operations. The earnings were inadequate to cover fixed
charges by $25.4 million in 1992 and $14.2 million in 1990.

</TABLE>

AT DECEMBER 31, AT SEPTEMBER 30, 1995

8% Convertible Subordinated - - - 57,477 57,427 10,150 10,150
Debentures . . . . . . . . . .
Convertible Subordinated Notes - - - - - - 65,000
Due 2003 . . . . . . . . . . .
$2.125 Preferred Stock . . . . 23,990 23,990 23,990 23,675 21,682 21,222 0
Stockholders' equity . . . . . 64,738 75,470 62,732 68,872 68,328 137,780 137,058
Book value per share . . . . . 9.77 11.39 9.21 10.86 11.55 13.76 13.69
Debt and preferred stock as a
percentage of 50.9% 40.8% 49.7% 56.1% 59.8% 31.8% 37.7%
total capitalization(2) . .
</TABLE>

<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
1990 1991 1992 1993 1994 1994 1995

<S> <C> <C> <C> <C> <C> <C> <C>
SUPPLEMENTAL DATA:
Statutory capital & surplus (3)
$56,800 $72,600 $82,432 $106,567 $124,284 $103,820 $113,736

Risk based capital ratios(3)(4)
Pioneer Life Insurance
Company of Illinois - - - 336% 342% - -
National Group Life . . . . - - - 386% 410% - -
Manhattan National Life . . - - - 566% 866% - -
Connecticut National Life . - - - 449% 984% - -

Accident & Health Ratios (5)
Major Medical:
Loss ratio . . . . . . . . 72.2% 59.9% 66.3% 67.1% 63.0% 64.1% 63.0%
Expense ratio . . . . . . 45.1 42.3 48.9 34.5 41.4 39.2 37.9%
Total Major Medical . . 117.3% 102.2% 115.2% 101.6% 104.4% 103.3% 100.9%

Senior:
Loss ratio . . . . . . . . 69.5% 67.1% 66.5% 63.5% 61.1% 64.1% 67.4%
Expense ratio . . . . . . 39.4 33.4 33.0 34.5 36.5 34.7 33.1
Total Senior . . . . . 108.9% 100.5% 99.5% 98.0% 97.6% 98.8% 100.5%

Collected Cash Premium
Major Medical . . . . . . . $235,543 $289,622 $298,015 $401,891 $ 426,117 $ 321,614 $ 298,304
Senior . . . . . . . . . . . 271,952 308,496 270,915 258,145 234,595 175,850 167,011
Life & Annuity . . . . . . . 53,736 47,305 41,679 57,411 71,310 54,779 58,375

Life Insurance in-force(3) . . 9,162,000 9,141,000 10,339,000 11,823,000 12,582,000 11,920,000 16,889,000

Pre-tax operating income
(loss)(6). . . . . . . . . . (14,366) 9,223 (25,389) 20,100 26,404 18,156 23,525

(1) Adjusted to give effect to the sale of the Notes offered hereby and the
use of the estimated net proceeds therefrom. See "Use of Proceeds."
(2) Debt represents the aggregate of long-term notes payable, short-term
notes payable and the 8% Convertible Subordinated Debentures and, as
adjusted, the Notes. Total capitalization represents debt, preferred
stock and stockholders' equity.
(3) Calculated at the end of the period shown.
(4) Risk based capital rules were adopted for annual reporting beginning
December 31, 1993. The calculated ratios are based on the authorized
control level as filed in the Company's individual insurance subsidiaries'
annual statutory financial statements.
(5) Expense amounts include principally renewal commissions, amortization of
deferred policy acquisition costs, general insurance expenses and premium
taxes. The expense and loss ratios are calculated based on earned premium
and exclude the effects of net investment income, realized investment gains
(losses), policy fees and the financial results of the Company's non-
insurance subsidiaries.
(6) Represents the Company's income or loss before income taxes calculated on a
GAAP basis excluding the effects of realized investment gains and losses.
The 1995 amount also excludes approximately $5.2 million in payments made
to converting bondholders and other expenses relating to the conversion of
the 8% Convertible Subordinated Debentures.

</TABLE>
RISK FACTORS

In addition to the information contained elsewhere in this Prospectus, a
prospective purchaser of the Notes should carefully consider, among other
things, the following risk factors before making an investment in the Notes
offered hereby.

HOLDING COMPANY STRUCTURE

The Company is an insurance holding company whose assets principally consist
of the capital stock of its operating subsidiaries. The ability of the Company
to redeem or make interest payments on the Notes, to pay dividends on its Common
Stock and $2.125 Preferred Stock and to make required debt service payments, is
dependent upon the ability of its subsidiaries to pay cash dividends or make
other cash payments to the Company. The Company's insurance subsidiaries are
subject to state laws and regulations which restrict their ability to pay
dividends and make other payments to the Company. The total amount of dividends
that could have been paid by the Company's insurance subsidiaries in 1995
without regulatory approval was approximately $7.4 million. The Company intends
to use a portion of the net proceeds of this offering to redeem all of the
outstanding shares of $2.125 Preferred Stock. See "Use of Proceeds," "Price
Range of Common Stock and Dividend Policy," "Management's Discussion and
Analysis of Results of Operations and Financial Condition," "Business --
Government Regulation" and Notes to Consolidated Financial Statements.

SUBORDINATION

The Notes will be subordinated in right of payment to all existing and future
Senior Indebtedness of the Company, including all indebtedness under the
Company's Credit Facility and other credit agreements. By reason of such
subordination, in the event of an insolvency, liquidation or other
reorganization of the Company, the Senior Indebtedness must be paid in full
before the Company may make any payments with respect to the principal of,
premium, if any, and interest on the Notes (and any other obligations ranking
pari passu with the Notes, including, without limitation, the 8% convertible
subordinated debentures due 2000 (the "8% Debentures")). After giving effect to
the use of the estimated net proceeds from this offering, Senior Indebtedness
will be approximately $0.3 million (aggregate Senior Indebtedness was
approximately $30.2 million at February 15, 1996). Because the Company's
operations are conducted through subsidiaries, claims of the creditors of the
subsidiaries (including policyholders) will have priority with respect to the
assets and earnings of such subsidiaries over the claims of the creditors of the
Company, including holders of the Notes, even though such obligations do not
constitute Senior Indebtedness. The Company's subsidiaries had indebtedness for
borrowed money of approximately $8.8 million at February 15, 1996.

The Notes will not be secured by any of the assets of the Company or its
subsidiaries. In addition, certain obligations of the Company are secured by
pledges of certain assets of the Company or its subsidiaries. The Indenture
will not restrict the ability of the Company or any of its subsidiaries to incur
additional Senior Indebtedness or to pledge their assets in the future. See
"Description of Notes" and Notes to Consolidated Financial Statements.

INSURANCE REGULATION

The Company and its insurance subsidiaries are subject to extensive
governmental regulation and supervision in each of the jurisdictions in which it
or its subsidiaries conduct business. Such regulation vests in governmental
agencies broad regulatory, supervisory and administrative power with respect to
the Company's business, including premium rate levels, premium rate increases,
policy forms, minimum loss ratios, dividend payments, claims settlement,
licensing of insurers and their agents, capital adequacy, transfer of control,
and the amount and type of investments the Company may have. Such regulations
are primarily intended to protect policyholders and not investors. Further, the
states in which the Company is licensed have the authority to change the minimum
mandated statutory loss ratios to which the Company is subject, the manner in
which these ratios are computed and the manner in which compliance with these
ratios is measured and enforced. In the event the Company is not in compliance
with minimum statutory loss ratios mandated by regulatory authorities with
respect to certain policies, the Company may be required to reduce or refund
premiums, which could have a material adverse effect upon the Company. See
"Business -- Government Regulation."

From time to time there are also significant federal and state legislative
developments with respect to group, long-term care and Medicare coverage. Most
legislative proposals at the state level are specifically directed at the small
group health care market, a significant portion of the Company's health
business. A number of states have passed or are considering legislation that
would limit the differentials in rates that insurers could charge between new
business and renewal business with respect to similar demographic groups. State
legislation also has 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, limiting the applicability of pre-existing conditions
exclusions, requiring insurers to offer a basic plan exempt from certain
mandated benefits as well as a standard plan and establishing a mechanism to
spread the risk of high risk employees to all small group insurers. Among the
proposals currently pending in the U.S. Congress are the implementation of
certain minimum consumer protection standards for inclusion in all long-term
care policies, including guaranteed renewability, protection against inflation
and limitations on waiting periods for pre-existing conditions. These proposals
would also prohibit "high pressure" sales tactics in connection with long-term
care insurance and would guarantee consumers access to information regarding
insurers, including lapse and replacement rates for policies and the percentage
of claims denied. In addition, the National Association of Insurance
Commissioners (the "NAIC") has recently adopted model long-term care policy
language providing nonforfeiture benefits and has proposed a rate stabilization
standard for long-term care policies. The Company cannot predict with certainty
the effect any proposals, if adopted, or legislative developments could have on
its business and operations. Health care reform may require the Company to make
significant changes to the way it conducts its health insurance business and
could impose limitations on the profitability of certain of the Company's
insurance products, which could have a material adverse effect on the Company.
See "Business -- Health Care Reform."

IMPORTANCE OF RATINGS

The Company's ability to expand and attract new business is affected by the
ratings assigned to its insurance subsidiaries by various independent insurance
rating agencies including A.M. Best Company, Inc. ("A.M. Best") and Duff &
Phelps Credit Rating Company ("Duff & Phelps"). A.M. Best ratings for the
industry currently range from "A++ (Superior)" to "C (Fair)" and some companies
are not rated. Four of the Company's insurance subsidiaries are currently rated
by A.M. Best: Pioneer Life Insurance Company of Illinois ("Pioneer Life") is
rated "B+ (Very Good);" Manhattan National Life Insurance Company is rated "A
(Excellent);" National Group Life Insurance Company ("National Group Life") is
rated "B (Good)"; and CNL is rated "A (Excellent)." Duff & Phelps ratings for
the industry currently range from "AAA" to "DD." Three of the Company's
insurance subsidiaries are currently rated by Duff & Phelps: Pioneer Life is
rated "A;" Manhattan National Life is rated "A+;" and CNL is rated "A+." In
evaluating a company's financial and operating performance, the rating agencies
review the company's profitability, leverage and liquidity as well as the

company's book of business, the adequacy and soundness of its reinsurance, the
quality and estimated market value of its assets, the adequacy of its reserves
and the experience and competency of its management. Such ratings are based
upon factors primarily relevant to policyholders, agents, insurance brokers and
intermediaries and are not directed to the protection of investors. If the
ratings of the Company's insurance subsidiaries were downgraded from their
current levels, sales of their products could be adversely affected.

COMPETITION

The Company operates in a highly competitive industry. The Company competes
with large national insurers, regional insurers and specialty insurers, many of
which are larger, have substantially greater financial resources or higher A.M.
Best ratings than the Company. In addition to claims paying ratings, insurers
compete on the basis of price, breadth and flexibility of coverage, ability to
attract and retain agents and brokers and the quality and level of agent and
policyholder services provided. See " -- Insurance Regulation."

RECOVERABILITY OF DEFERRED POLICY ACQUISITION COSTS

Under generally accepted accounting principles, a deferred policy acquisition
cost ("DAC") asset is established to match properly the costs of writing new
business against the expected future revenues and profits from those policies.
The amortization schedule is generally based on the expected pattern of future
revenues or gross profits and on the expected persistency of the policies. The
Company continues to monitor the profitability and persistency of its policies
on a monthly basis. In reviewing the recoverability of DAC related to medical
insurance products, the Company has made assumptions relative to future rate
increases, medical claim trends, lapse rates, expenses and investment income.
Although there is significant variability inherent in these estimates,
management believes these assumptions are reasonable. Increased lapses or
revised estimates of profitability anticipating future losses could result in an
increase in the amortization rate or a write-off of DAC, which would adversely
impact earnings. See "Management's Discussion and Analysis of Results of
Operation and Financial Condition -- Deferred Policy Acquisition Costs."

MEDICAL COST INFLATION

Inflationary trends in health care costs may cause the defined benefits
provided by the Company's policies to cover less of the actual costs of such
health care. This may require the Company to increase policy benefits under new
policies to remain competitive in marketing its products and to implement
corresponding increases in premiums. The Company's future growth may be limited
to the extent that state or federal regulations restrict premium rate increases
or increased premium rates make its policies less attractive to prospective
customers.

ADEQUACY OF LOSS RESERVES

The reserves for losses established by the Company are estimates of amounts
needed to pay reported and unreported claims based on facts and circumstances
known at the time the reserves are established. Reserves are based on
historical claims information, industry statistics and other factors. The
establishment of appropriate reserves is an inherently uncertain process, and
there can be no assurance that the ultimate liability will not materially exceed
the Company's claim reserves and have a material adverse effect on the Company's
results of operations and financial condition. Due to the inherent uncertainty
of estimating reserves, it has been necessary, and may over time continue to be
necessary, to revise estimated future liabilities as reflected in the Company's
reserves for claims.

INVESTMENT PORTFOLIO

The Company's investment portfolio primarily consists of fixed income
securities such as investment grade publicly traded debt securities and
mortgage-related securities, including collateralized mortgage obligations. At

September 30, 1995, 83% of the Company's invested assets was invested in fixed
maturity obligations and approximately 36% was invested in mortgage-related
securities. Certain risks are inherent in connection with fixed income
securities, including loss upon default and price volatility in reaction to
changes in interest rates and general market factors. Certain additional risks
are inherent with mortgage-related securities, including the risks associated
with reinvestment of proceeds due to prepayments of such obligations. See
"Business-Investments."

DEPENDENCE UPON MANAGEMENT

The success of the Company is dependent to a significant degree upon its
senior management, including Peter W. Nauert, Chairman and Chief Executive
Officer of the Company. Mr. Nauert is also the beneficial owner of 16.5% of the
outstanding Common Stock. Although the Company believes it has established its
own reputation in the industry, the loss of members of its senior management
could have a material adverse effect on the Company's business. See "Management
and Directors."

PROVISIONS LIMITING CHANGES IN CONTROL

Certain provisions in the Company's Certificate of Incorporation, By-laws and
Rights Agreement could discourage potential acquisition proposals and could
delay or prevent a change in control. See "Description of Capital Stock."

ABSENCE OF PUBLIC MARKET

There is currently no public market for the Notes and there can be no
assurance that an active public market for the Notes will develop. Application
will be made to list the Notes on the NYSE under the symbol "PFS03."

USE OF PROCEEDS

The net proceeds from the sale of the Notes offered hereby are estimated to be
$62,062,500 ($71,446,875 if the Underwriters' over-allotment option is exercised
in full). The Company intends to use a portion of the net proceeds to redeem
its $2.125 Preferred Stock. As of September 30, 1995, approximately $22.0
million would have been required to redeem all of the outstanding shares of
$2.125 Preferred Stock. The $2.125 Preferred Stock is convertible into shares
of the Company's Common Stock at a price of $155/8 per share. The remaining net
proceeds, to the extent available, will be used to repay (i) borrowings under
the Company's March 1995 Term Loan (as defined below) which were incurred
primarily in connection with the acquisition of CNL in 1995; (ii) borrowings
under the Company's August 1995 Term Loan (as defined below) which were incurred
primarily to fund payments to converting bondholders and other expenses relating
to the conversion of $46.9 million of the Company's 8% Debentures and (iii)
borrowings incurred under the Company's Credit Facility (as defined below),
including additional borrowings that may be necessary in connection with the
proposed acquisition of Universal Fidelity prior to the completion of this
offering. As of January 31, 1996 an aggregate of approximately $29.8 was
outstanding under the March 1995 Term Loan, the August 1995 Term Loan and the
Credit Facility. The Company estimates that it will borrow approximately $14.0
million under the Credit Facility to complete the Universal Fidelity
acquisition.

The Company's $15.0 million term loan, incurred in March 1995 (the "March 1995
Term Loan"): (i) currently accrues interest at five percent (5%) per annum; (ii)
requires principal payments of $0.5 million plus interest per quarter; and (iii)
matures on December 31, 1999. The Company's $11.1 million term loan, incurred
in August 1995 (the "August 1995 Term Loan"): (i) currently accrues interest per
annum at its lender's prime rate of interest (approximately 8.25% at
February 20, 1996); (ii) requires principal payments of $0.9 million plus
interest per quarter; and (iii) matures on June 30, 1998. The Company's line of
credit arrangement (the "Credit Facility") accrues interest per annum at its

lenders' prime rate of interest (approximately 8.25% at February 20, 1996) and
matures in April 1996.

Any remaining net proceeds will be used by the Company for working capital and
general corporate purposes, including, without limitation, the contribution of
capital to the Company's insurance subsidiaries and future acquisitions. Other
than the purchase of Universal Fidelity, the Company has no commitments or
agreements with respect to any such acquisitions as of the date of this
Prospectus. Pending application, the net proceeds will be invested in short-
term interest-bearing obligations.

PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY

The Common Stock is traded on the NYSE and the Chicago Stock Exchange
under the symbol "PFS." The following table sets forth for the fiscal periods
indicated the high and low last reported sale prices per share of the Common
Stock, as reported by the NYSE and the dividends paid per share of the Common
Stock.

High Low Dividend
1994
First Quarter . . . . . . . . . . . . . . . $14 3/4 $11 1/8 $ .0375
Second Quarter . . . . . . . . . . . . . . 12 10 .0375
Third Quarter . . . . . . . . . . . . . . . 10 1/2 8 3/4 .0375
Fourth Quarter . . . . . . . . . . . . . . 10 8 3/4 .0375

1995
First Quarter . . . . . . . . . . . . . . . 11 1/4 8 7/8 .045
Second Quarter . . . . . . . . . . . . . . 15 1/2 10 3/4 .045
Third Quarter . . . . . . . . . . . . . . . 15 3/8 13 1/8 .045
Fourth Quarter . . . . . . . . . . . . . . 18 1/2 13 7/8 .045

1996
First Quarter (through February 20, 1996) . 18 3/8 15 3/4 (1)

(1) Dividends for the first quarter have historically been declared by the
Board of Directors in late March.

On February 20, 1996, the last reported sale price of the Common Stock on
the NYSE was $171/8 per share. As of January 29, 1996, there were approximately
635 holders of record of the Common Stock.

All cumulative dividends on the $2.125 Preferred Stock have been paid by
the Company when due. The ability of the Company to pay dividends will depend
primarily on the receipt of cash dividends and other cash payments from its
subsidiaries. The Company's insurance subsidiaries are subject to state laws
and regulations which limit their ability to pay dividends or make other
payments to the Company. Certain of the Company's credit agreements also limit
its ability to pay dividends. Furthermore, the Company's Certificate of
Incorporation prohibits the Company from paying dividends on the Common Stock if
the Company is not current in its dividend payments on the Preferred Stock. See
"Management's Discussion and Analysis of Results of Operations and Financial
Condition -- Liquidity and Capital Resources."

CAPITALIZATION

The following table sets forth the consolidated short-term indebtedness
and capitalization of the Company at September 30, 1995 and as adjusted to give
effect to the sale of the Notes offered hereby and the use of the estimated net
proceeds therefrom. See "Use of Proceeds." The following table should be read

in conjunction with the Consolidated Financial Statements and the Notes thereto
appearing elsewhere in this Prospectus.

At September 30, 1995
Actual As Adjusted
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Short-term debt:
Short term notes payable . . . . . . . . . . . $ 9,946 $ 4,102
Long-term debt:
Long-term notes payable . . . . . . . . . . . . 23,072 3,830
8% Convertible Subordinated Debentures due 2000
10,150 10,150
% Convertible Subordinated Notes due 2003 . . . - 65,000
Total debt . . . . . . . . . . . . . . . . . 43,168 83,082

Redeemable preferred stock, without par value:
$2.125 Preferred Stock; 848,900
shares authorized, issued and outstanding . . . 21,222 -

Total debt and $2.125 Preferred Stock . . . . 64,390 83,082

Stockholders' equity:

Common stock, $1 par value;
20,000,000 shares authorized; 11,142,868
shares issued and outstanding, including 11,143 11,143
shares in treasury(1) . . . . . . . . . . . .
Additional paid-in capital . . . . . . . . . . 71,383 71,383
Unrealized appreciation of available-for-sale
securities . . . . . . . . . . . . . . . . . 5,036 5,036
Retained earnings . . . . . . . . . . . . . . . 60,438 59,716
Less treasury stock at cost (1,132,300 shares) (10,220) (10,220)
Total stockholders' equity . . . . . . . . . 137,780 137,058

Total capitalization . . . . . . . . . . . . $202,170 $ 220,140
_________________

(1) Does not include (a) 1,358,000 shares which are issuable upon conversion of
the $2.125 Preferred Stock, (b) 1,185,000 shares reserved for issuance
pursuant to outstanding options granted under the Company's stock option
plans, (c) shares reserved for issuance pursuant to future grants of
options under the Company's Omnibus Stock Incentive Program, Employee
Stock Purchase Plan and Career Agent Stock Purchase Plan and (d) shares
which are issuable upon conversion of the 8% Debentures or the Notes
offered hereby. The Company intends to use a portion of the net
proceeds of this offering to redeem all of the outstanding shares of
$2.125 Preferred Stock. See "Use of Proceeds."

</TABLE>

SELECTED FINANCIAL AND OPERATING DATA
(dollars in thousands, except per share data)

The selected operating statement and balance sheet data set forth below for
each of the years in the five-year period ended December 31, 1994 are derived
from the audited consolidated financial statements of the Company. The selected
balance sheet data at September 30, 1995 and income statement data for the nine-
month periods ended September 30, 1994 and 1995 have been derived from the
unaudited consolidated financial statements of the Company, which included all
adjustments, consisting of normal, recurring accruals, that the Company
considers necessary for a fair presentation of its financial position and
results of operations for these periods. Operating results from the nine-month
period ended September 30, 1995 are not necessarily indicative of the results
that may be expected for the entire year. The selected financial data should be
read in conjunction with the Consolidated Financial Statements and the Notes
thereto and Management's Discussion and Analysis of Results of Operations and
Financial Condition included herein.

NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
1990 1991 1992 1993 1994 1994 1995
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Premiums and policy charges:
Accident and health . . . . . $508,957 $593,236 $559,894 $601,684 $659,180 $492,467 $ 464,888
Life and annuity . . . . . . . 30,693 33,321 35,219 39,282 44,929 33,423 42,071
Total premiums and policy
charges . . . . . . . . . 539,650 626,557 595,113 640,966 704,109 525,890 506,959
Net investment income . . . . . . 48,416 47,974 43,555 40,242 42,786 31,848 52,570
Other income . . . . . . . . . . 21,476 26,310 17,352 19,256 27,643 21,151 24,606
Realized investment gains (losses)
1,475 7,897 (47) (1336) (383) (32) 1,879
Total revenues . . . . . . 611,017 708,738 655,973 699,128 774,155 578,857 586,014
Benefits:
Accident and health . . . . . 367,790 376,820 368,046 397,963 407,249 311,699 297,981
Life and annuity . . . . . . . 46,889 46,128 47,622 39,419 42,947 32,868 54,058
Total benefits . . . . . . 414.679 422,948 415,668 437,382 450,196 344,567 352,039
Insurance and general expense . . 141,687 173,806 162,837 162,831 192,810 133,966 158,540
Interest expense . . . . . . . . 4,365 2,916 2,189 3,276 5,054 3,782 4,316
Amortization of deferred policy
acquisition
costs(1) . . . . . . . . . . . 64,447 95,748 100,715 76,875 100,073 78,418 50,865
Total benefits and expenses . 625,178 695,418 681,409 680,364 748,133 560,733 565,760

Income (loss) before income taxes (14,161) 13,320 (25,436) 18,764 26,022 18,124 20,254
Income taxes (benefit) . . . . . (4,815) 4,448 (8,477) 6,619 8,873 5,901 6,623
Net income (loss) . . . . . . . . (9,346) 8,872 (16,969) 12,145 17,149 12,223 13,631
Preferred stock dividends . . . . 2,164 2,039 2,039 2,021 1,904 1,476 1,354
Income (loss) applicable to common
stockholders . . . . . . . . . $ (11,510) $ 6,833 $(18,998) $ 10,124 $ 15,245 $ 10,747 $ 12,277

Per Share Data:
Net income (loss) per common
share:
Primary . . . . . . . . . . . $ (1.72) $ 1.02 $ (2.85) $ 1.51 $ 2.36 $ 1.64 $ 1.74
Fully Diluted . . . . . . . . (1.72) 1.02 (2.85) 1.26 1.58 1.12 1.25
Average common and common
equivalent shares outstanding (in
thousands):
Primary . . . . . . . . . . . 6,690 6,699 6,660 6,724 6,459 6,552 7,078
Fully Diluted . . . . . . . . 8,226 8,234 8,195 10,731 12,734 12,860 12,623

Ratio of earnings to fixed
charges(2) - 5.0x - 5.9x 5.4x 5.1x 5.1x

</TABLE>

AT DECEMBER 31, AT SEPTEMBER 30, 1995

1990 1991 1992 1993 1994 ACTUAL AS ADJUSTED(3)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET
DATA:
Total investments . . . . . . $ 563,807 $528,725 $568,349 $674,206 $723,837 $1,016,914 $ 1,031,947
Deferred policy acquisition
costs. . . . . . . . . . . . 309,016 313,453 269,674 260,432 225,618 223,192 223,192
Total assets . . . . . . . . . 990,560 969,190 978,689 1,108,271 1,075,700 1,510,998 1,528,968
Policy liabilities . . . . . . 739,845 776,571 805,696 903,105 868,608 1,205,343 1,205,343
Short-term notes payable . . . 16,218 6,371 12,931 5,575 20,093 9,946 4,102
Long-term notes payable . . . 27,000 21,600 25,170 1,125 2,520 23,072 3,830
8% Convertible Subordinated
Debentures . . . . . . . . . - - - 57,477 57,427 10,150 10,150
Convertible Subordinated Notes
Due 2003 . . . . . . . . . . - - - - - - 65,000
$2.125 Preferred Stock . . . . 23,990 23,990 23,990 23,675 21,682 21,222 0
Stockholders' equity . . . . . 64,738 75,470 62,732 68,872 68,328 137,780 137,058
Book value per share . . . . . 9.77 11.39 9.21 10.86 11.55 13.76 13.69
Debt and preferred stock as a
percentage of total
capitalization(4) . . . . . 50.9% 40.8% 49.7% 56.1% 59.8% 31.8% 37.7%

SUPPLEMENTAL DATA:
Statutory capital &
surplus (5) $56,800 $72,600 $82,432 $106,567 $124,284 $103,820 $113,736

Risk based capital ratios(5)(6)
Pioneer Life Insurance Company
of Illinois . . . . . . . - - - 336% 342% - -
National Group Life . . . . - - - 386% 410% - -
Manhattan National Life . . - - - 566% 866% - -
Connecticut National Life . - - - 449% 984% - -

Accident & Health Ratios (7)
Major Medical:
Loss ratio . . . . . . . . 72.2% 59.9% 66.3% 67.1% 63.0% 64.1% 63.0%
Expense ratio . . . . . . 45.1 42.3 48.9 34.5 41.4 39.2 37.9%
Total Major Medical . . 117.3% 102.2% 115.2% 101.6% 104.4% 103.3% 100.9%

Collected Cash Premium
Major Medical . . . . . . . $235,543 $289,622 $298,015 $401,891 $426,117 $321,614 $ 298,304
Senior . . . . . . . . . . . 271,952 308,496 270,915 258,145 234,595 175,850 167,011
Life & Annuity . . . . . . . 53,736 47,305 41,679 57,411 71,310 54,779 58,375

Life Insurance in-force(5) . .9,162,000 9,141,000 10,339,000 11,823,000 12,582,000 11,920,000 16,889,000

Pre-tax operating income
(loss)(8). . . . . . . . . . (14,366) 9,223 (25,389) 20,100 26,404 18,156 23,525

(1) Includes the effect of a write-off of DAC in 1992 and in the first nine
months of 1994 of approximately $30.0 million $16.7 million, respectively.
See "Risk Factors -- Recoverability of Deferred Policy Acquisitions Costs"
and "Management's Discussion and Analysis of Results of Operations and
Financial Condition -- Deferred Policy Acquisition Costs." The write-offs
were primarily related to certain major medical policies.
(2) Fixed Charges consist of interest expense on indebtedness, amortization of
debt issuance costs and the portion of operating leases that are
representative of the interest factor. Fixed charges do not include
interest on annuities and financial products. Earnings are computed by
adding interest expense on indebtedness, amortization of debt issuance
costs and the interest portion of rent expense to pre-tax earnings from
continuing operations. The earnings were inadequate to cover fixed charges
by $25.4 million in 1992 and $14.2 million in 1990.
(3) Adjusted to give effect to the sale of the Notes offered hereby and the use
of the estimated net proceeds therefrom. See "Use of Proceeds."
(4) Debt represents the aggregate of long-term notes payable, short-term notes
payable and the 8% Debentures, and, as adjusted, the Notes. Total
capitalization represents debt, preferred stock and stockholders' equity.
(5) Calculated at the end of the period shown.
(6) Risk based capital rules adopted for annual reporting beginning December
31, 1993. The calculated ratios are based on the authorized control level
as filed in the Company's individual insurance subsidiaries' annual
statutory financial statements.
(7) Expense amounts include principally renewal commissions, amortization of
DAC, general insurance expenses and premium taxes. The expense and loss
ratios are calculated based on earned premium and exclude the effects of
net investment income, realized investment gains (losses), policy fees and
activity related to the Company's non-insurance subsidiaries.
(8) Represents the Company's income or loss before income taxes calculated on a
GAAP basis excluding the effect of realized investment gains and losses.
The 1995 amount also excludes approximately $5.2 million in payments to
converting bondholders and other expenses relating to the conversion of the
8% Debentures.

</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION

RESULTS OF OPERATIONS

Nine Months Ended September 30, 1995 Compared to Nine Months Ended September 30,
1994

Overview

The information set forth below is based on the Company's major product
lines.

NINE MONTHS ENDED
SEPTEMBER 30,
1994 1995
Revenues (IN THOUSANDS)

Group Medical (1) . . . . . . . . . . . $340,331 $315,633
Senior Health and Life (2) . . . . . . 177,922 177,865
Life Insurance . . . . . . . . . . . . 53,269 81,544

Medical Utilization Management . . . . 7,335 10,972
TOTAL . . . . . . . . . . . . . . $578,857 586,014

Pre-tax operating Income (loss) (3)

Group Medical (1) . . . . . . . . . . . $10,025 $17,610
Senior Health and Life(2) . . . . . . . 6,904 4,653
Life Insurance . . . . . . . . . . . . 6,969 6,240
Medical Utilization Management . . . . 1,378 1,477
Total pre-tax operating income before
corporate expense and interest . . . 25,276 29,980
Corporate expense and interest . . . . (7,120) (6,445)
TOTAL . . . . . . . . . . . . . . $18,156 $ 23,535

(1) Excludes revenues from life insurance products marketed by the Group
Medical Division but issued by the Life Insurance Division. For purposes
of the discussion set forth herein, the Company has included the revenue
and pre-tax income generated from the sale of a policy in the results of
operation of the division which issued the policy.
(2) Excludes revenues from life insurance products marketed by the Senior
Health and Life Division but issued by the Life Insurance Division. For
purposes of the discussion set forth herein, the Company has included the
revenue and pre-tax income generated from the sale of a policy in the
results of operation of the division which issued the policy.
(3) Represents the Company's income before taxes calculated on a GAAP basis
excluding the effects of realized investment gains and losses. The 1995
amount also excludes approximately $5.2 million in payments to converting
bondholders and other expenses relating to the conversion of the 8%
Debentures.

Group Medical Division

Revenue. Total revenue in the Group Medical Division decreased $24.7
million, or 7%, from $340.3 million to $315.6 million. The decrease was
primarily due to a reduction of premium revenue on the Company's major medical
products of $24.8 million, or 8%, from $320.5 million to $295.7 million. A
major portion of the decrease in major medical premium revenue was due to the
Company's decision to market unaffiliated companies' HMO products in states such
as California, where competitive pressures and state reforms made it difficult
to underwrite the Company's indemnity products on a profitable basis. In
connection with the Company's decision to cease selling new products in these
states, the Company's career agency force submitted $21.5 million of annualized
HMO premiums to unaffiliated companies during the first nine months of 1995
compared to $3.0 million in 1994. While these premiums are not received by the
Company, the Company receives marketing commission overrides from the
unaffiliated companies for this production. The remaining decrease in major
medical premium revenue was due to lower average premiums on new issues due to
the increased use of managed care products.

Net investment income decreased $1.0 million, or 14%, from $7.3 million to
$6.3 million, due to a reduction in invested assets caused by the decrease in
major medical in-force business. Total realized investment losses decreased
$0.5 million or 45% from $1.1 million to $0.6 million.

Other income increased $0.5 million, or 4%, from $13.7 million to $14.2
million, due to marketing commission overrides received from the sale of HMO
products of unaffiliated companies.

Benefits. The following table sets forth the earned premium, benefits,
and loss ratios for products issued by the Group Medical Division:

NINE MONTHS ENDED
SEPTEMBER 30,
(DOLLARS IN THOUSANDS)
1994 1995
Earned premium (1) . $333,788 $309,615
Benefits (1) . . . . 214,058 195,085
Loss ratio . . . . . 64.1% 63.0%

(1) In the Company's statement of consolidated operations, earned premiums
represent premiums written; the changes in unearned premiums are reflected
in accident and health benefits.

Improvement in the loss ratio in 1995 was due to continued increases in
PPO penetration and higher claim costs in the first half of 1994. The Company
has historically held reserve margins in its accident and health claims reserve
to provide for potential adverse deviation. The Company reduced reserve margins
in the major medical claims reserves in the third quarter of 1994 by
approximately $15.0 million. Excluding the reduction in claim reserve margins,
the 1994 major medical loss ratio was 68.6%.

Insurance and General Expenses. Insurance and general expenses increased
$5.9 million, or 9%, from $66.5 million to $72.4 million. The expense ratio
increased in the first nine months of 1995 due to system development costs,
consolidation of claim operations, and the 7% drop in earned premium.

The amortization of DAC decreased $22.1 million, or 43%, from $50.9
million to $28.8 million. The decrease was due to the $16.7 million write-off
of DAC in the third quarter of 1994, the lower 1995 new business levels, and the
decline in first-year commission rates.

Senior Health and Life Division

Revenue. Total revenue in the Senior Health and Life Division remained
relatively constant. Senior health premium decreased $2.8 million, or 2%, from
$172.0 million to $169.2 million. While the total new Medicare supplement
business and new long-term care business increased, these increases were offset
by a decrease in the total senior health premium due to lapses from the current
in-force block of business and the fact that a greater percentage of the in-
force block of business consisted of standardized Medicare supplement products
on which the average premium per policy was lower due to benefit and agent
compensation changes.

Net investment income increased $2.0 million, or 49%, from $4.1 million to
$6.1 million, primarily due to a 10-basis point improvement in yields and
increased invested assets. The total realized gains increased $2.1 million from
$1.1 million to $3.2 million.

Benefits. The following table sets forth the earned premium, benefits,
and loss ratios for senior health products:

NINE MONTHS ENDED
SEPTEMBER 30,
(DOLLARS IN THOUSANDS)
1994 1995
Earned premium (1) . $170,233 $160,782
Benefits (1) . . . . 109,195 108,404
Loss ratio . . . . . 64.1% 67.4%

(1) In the Company's statement of consolidated operations, earned premiums
represent premiums written; the changes in unearned premiums are reflected
in accident and health benefits.

The loss ratio on the Senior Health and Life Division's major products,
Medicare supplement policies, was higher during the first two quarters of 1995
due to increased utilization on the standardized Medicare supplement products.
The Medicare supplement loss ratio decreased to 65.0% in the third quarter of
1995.

Insurance and General Expenses. The expense ratio remained relatively
unchanged. The decline in administrative expense levels was offset by an
increase in marketing expenses associated with new marketing initiatives. See
"Business -- Products and Services."

The amortization of DAC decreased $6.0 million, or 28%, from $21.6 million
to $15.6 million. The decreased level of amortization was due to a decline in
the level of first-year costs deferred due to lower agent compensation levels
and improved persistency on the in-force Medicare supplement business.

Life Insurance Division

Revenue. Total revenue in the Life Insurance Division increased $28.2
million, or 53%, from $53.3 million to $81.5 million. The increase was due
primarily to the acquisition of CNL in the first quarter of 1995 which added
$2.2 million in premium and $17.3 million in investment income. The remaining
increase was due to an increase of $8.0 million resulting from higher sales of
the senior life insurance product marketed in conjunction with Medicare
supplement and long-term care policies.

Net investment income increased $19.6 million, or 96%, from $20.5 million
to $40.1 million. This increase was primarily due to the acquisition of CNL.

Benefits. Total life and annuity policy benefits increased $21.1 million,
or 64%, from $32.9 million to $54.0 million. Approximately $16.7 million of
this increase was due to the acquisition of CNL and the remaining amount was due
to increased senior life insurance in-force. The senior life mortality
experience exceeded that which was developed in pricing and the Company has
initiated rate increases and modification to underwriting procedures to improve
profitability. The mortality experience on the remaining block of business was
less than projected.

Insurance and General Expenses. Insurance and general expenses increased
$8.2 million, or 58%, from $14.1 million to $22.3 million. The increase in
general expenses and commissions was primarily due to the increase in the in-
force block of business, legal fees associated with reinsurance litigation which
was settled in 1995, and the acquisition of CNL. The unit cost of
administration per policy in-force remained relatively constant in 1995.

The amortization of DAC remained relatively unchanged, with the increase
in senior life amortization offsetting a decrease in the amortization on the
traditional term life block of business.

Medical Utilization Management Division

Pre-tax income increased $0.1 million, or 7%, from $1.4 million to $1.5
million. This increase was primarily due to an increase in this division's
revenues of $3.6 million, or 50%. The increase in revenues was primarily due to
expanded sales to unaffiliated clients and the acquisition of ACMG, Inc.
("ACMG") in the third quarter of 1995. In addition, the consolidation of the
Company's Milwaukee office in the second quarter of 1994 resulted in reduced
levels of expenses in the first and second quarters of 1995 compared to the same
periods of the prior year.

Corporate Expenses

Corporate expenses decreased $.7 million, or 10%, from $7.1 million to
$6.4 million (excluding the $5.2 million paid to holders of the Company's 8%
Debentures and other expenses in connection with the conversion of the 8%
Debentures, in the third quarter of 1995). Interest expense increased $0.5
million, or 13%, from $3.8 million to $4.3 million, primarily due to the
utilization of a portion of the Company's Credit Facility beginning in the
fourth quarter of 1994 and continuing through the second quarter of 1995, offset
in part by a decrease in interest expense for the three month period ended
September 30, 1995 due to the conversion of the Company's 8% Debentures. The
general corporate overhead was down approximately $1.0 million due to improved
operating efficiencies.

Consolidated Financial Condition and Results of Operations

Net income. The Company's consolidated net income increased $1.4 million,
or 11%, from $12.2 million to $13.6 million. This increase was due primarily to
improved profitability in the Group Medical Division as a result of improved
loss ratios and a lower level of DAC amortization.

Premiums and policy charges. Total premiums and policy charges decreased
$18.9 million, or 4%, from $525.9 million to $507.0 million. This decrease was
due primarily to the decrease in accident and health premiums of $27.6 million,
or 6%, which was due primarily to a decrease in premiums from major medical
products of $24.8 million, or 8%. The decrease in premiums was primarily due to
lower average premiums per policy sold, which resulted from the Company
initiating sales of new managed care products. Total health insurance premiums
attributable to Medicare supplement and long-term care products remained
relatively constant. Life insurance premiums increased $8.6 million, or 26%,
primarily due to the acquisition of CNL and new business sales.

Net investment income. Net investment income increased $20.7 million, or
65%, from $31.9 million to $52.6 million. Annualized investment yields
increased from 6.3% to 7.0%. These increases were primarily due to the
acquisition of CNL.

Other revenue. Other income and realized investment gains and losses
increased $5.4 million, or 25%, from $21.1 million to $26.5 million. The
increase in other income was due to increased sales to unaffiliated clients by
the Medical Utilization Management Division. The remaining other income
generated by the Company's non-insurance subsidiaries remained relatively
unchanged.

Benefits. Total benefits increased $7.4 million, or 2%, from $344.6
million to $352.0 million. Accident and health benefits, which include the
change in unearned premiums, decreased $13.7 million, or 4%, from $311.7 million
to $298.0 million. Excluding the reduction in claims reserve margins in 1994,
the accident and health loss ratio decreased to 65% from 67%. Life and annuity
benefits increased $21.1 million, or 64%. This increase was due to the
acquisition of CNL and increased senior life insurance in-force.

Insurance and general expenses. Insurance and general expenses (which
includes non-deferred commission compensation to agents) increased $24.5
million, or 18%, from $134.0 million to $158.5 million. Expenses for the
Medical Utilization Management Division increased due to the increase in sales
and the acquisition of ACMG. Expenses in the insurance divisions increased due
to the development of new marketing and sales incentive programs, system
development costs, and the acquisition of CNL. Corporate expenses increased
$4.5 million primarily due to $5.2 million in payments made to converting
bondholders and other expenses relating to the August 1995 conversion of the
Company's 8% Debentures.

Amortization of DAC. Amortization of DAC decreased $27.5 million, or 35%,
from $78.4 million to $50.9 million. The decrease was primarily due to an
adjustment in the third quarter of 1994 to the DAC asset related to certain
group and individual medical business, a lower level of group major medical new
business and improved persistency on Medicare supplement business. Future

losses were projected on these blocks of business due primarily to mandated
state healthcare reforms.

Income tax rate. The effective federal income tax rate was 33% due to the
increased investment in tax-exempt securities included in the Company's
portfolio.

Other. Investments, premiums and other receivables, amounts on deposit
and due from reinsurers, accrued investment income and other assets increased
principally due to the acquisition of CNL. The decrease in short-term notes
payable and the increase in long-term notes payable resulted from the conversion
of the Company's line of credit agreement at December 31, 1994 to a term loan
during the first quarter of 1995. General expenses and other liabilities, and
amounts due to reinsurers increased due primarily to the acquisition of CNL.
The remaining balance sheet amounts remained relatively consistent with the
amounts at December 31, 1994.

Fiscal Year 1994 Compared to Fiscal Year 1993

Net income. The Company's net income increased $5.0 million, or 41%, from
$12.1 million to $17.1 million. The increase was due to profits from
Continental Life & Accident Company ("CLAC"), improved health loss ratios in the
Senior Health and Life Division, expense reductions and improved spreads in the
Life Insurance Division, and increased revenue and margins in the Medical
Utilization Management Division. Total revenues increased $75.0 million, or
11%. The increase in revenue was primarily due to the increase in premiums and
policy charges of $63.1 million.

Premiums and policy charges. Accident and health insurance premiums
increased $57.5 million, or 10%. Premiums from major hospital plans increased
$81.5 million, primarily due to the acquisition of CLAC completed in August
1993. Total premiums attributable to the remaining mix of Medicare supplement
and long-term care products decreased $24.0 million, or 10%.

Net investment income. Net investment income increased $2.5 million, or
6%. Annualized investment yields decreased from 6.8% to 6.3%. The decrease in
the investment yield was principally due to the shortening of the Company's
average duration and the increased emphasis on tax-exempt securities included in
the Company's portfolio.

Other revenue. Other income and realized investment gains and losses
increased $9.3 million, or 52%. The increase in other income was due to the
acquisitions of Healthcare Review Corporation ("HRC") and CLAC in August 1993.
In addition, the Company realized increased sales to unaffiliated customers by
the Medical Utilization Management Division and by its marketing subsidiaries.
Realized investment losses decreased $0.9 million, or 69%, from $1.3 million to
$0.4 million. The remaining other income generated by the Company's other non-
insurance subsidiaries remained relatively unchanged.

Benefits. Total benefits increased $12.8 million, or 3%. Life and
annuity benefits increased $3.5 million, or 9%, due to higher mortality on a
closed block of universal life and an increase in in-force business. Accident
and health benefits, which include the change in unearned premiums, increased
$9.3 million, or 2%. The increase was due primarily to the increased amount of
collected premiums. The accident and health loss ratios decreased to 62% from
66%. The improved loss ratios were due primarily to the previously discussed
reduction in the group medical claim reserve margins.

In 1994 and 1993, managed health care efforts resulted in estimated net
pre-tax savings to the Company's Group Medical Division of $67.0 million and
$41.0 million, respectively. These savings were primarily used to lower the
amount of premium increases for policyholders, which the Company believes
generally has the effect of decreasing lapse rates of these policies. The
principal efforts and their approximate relative contributions to these
estimated savings were as follows:

1993 1994

PPO networks . . . . . . . . . . . . . . . . . . 49% 40%
Precertification . . . . . . . . . . . . . . . . 5 10
Large case management . . . . . . . . . . . . . . 32 22
Usual and customary, rebundling, and prompt pay 14 28
discounts . . . . . . . . . . . . . . . . . . . .

100% 100%

The Company expects to continue to emphasize medical utilization
management procedures to control claim costs. Although the Company cannot
accurately determine the amount of savings which may be realized from such
efforts in the future, the Company believes that it will be increasingly
difficult to maintain this level of growth in cost savings due to the
efficiencies that have already been achieved.

Insurance and general expenses. General expenses as a percent of premiums
decreased due to the continued emphasis on cost reduction in the Senior Health
and Life Division, the Group Medical Division and the Life Insurance Division.
However, insurance and general expenses (which includes non-deferred commission
compensation to agents) increased $30.0 million, or 18%. The increase was
primarily caused by the increase in premium and policy charges and the
acquisitions of HRC and CLAC.

Interest expense. Interest expense increased due to the issuance of the
8% Debentures in July 1993 and the increase in other notes payable in 1994.

Amortization of DAC. Amortization of DAC increased $23.2 million, or 30%.
The increase was due primarily to the adjustment in the DAC asset on certain
group and individual medical business issued in recent years. Future losses
were projected on these blocks of business due primarily to mandated state
healthcare reforms. The Company continues to monitor the profitability of its
business. Increased lapses or unprofitability on the business could result in
an increase in the amortization rate of DAC, which would adversely impact future
earnings.

Income tax rate. The effective tax rate of the Company decreased to
approximately 34% from 35%. The decrease was due to the increased investment in
tax-exempt securities included in the Company's portfolio.

Other. The Company acquired the building containing its corporate
headquarters in Schaumburg, Illinois, in January 1994 resulting in the increase
in investment real estate. Cash decreased due to increased investment in short-
term investments. Reinsurance receivables decreased due to the timing of
payments due from reinsurers. DAC decreased as a result of the third quarter
write-down and the decrease in new business issued in 1994. General expenses
and other liabilities decreased due to the timing of payments for federal income
taxes and amounts due to reinsurers. Notes payable increased due to the
utilization of the line of credit by the Company.

Fiscal Year 1993 Compared to Fiscal Year 1992

Net income. The Company's net income increased $29.1 million, from a net
loss of $17 million to net income of $12.1 million. The net loss for 1992 was
primarily attributable to a $30 million pre-tax write-down of DAC. The
remaining increase was due to improved loss ratios on the Medicare supplement
business, expense reductions in the Life Insurance Division and increased
revenue and margins in the Group Medical Division. Total revenues increased
$43.2 million, or 7%. The increase in revenue is due to the increase in
premiums and policy charges of $45.9 million which was partially offset by
reduced levels of net investment income.

Premiums and policy charges. Accident and health insurance premiums
increased $41.8 million, or 7%. Premiums from major hospital plans increased
$56.7 million due to rate increases implemented in 1993, and approximately $11.0

million from the acquisition of CLAC. Offsetting the increase was a decline in
Medicare supplement premiums of $9.2 million due to lower than anticipated new
sales and a $3.5 million decrease in premiums of specialty health care plans.
Life and annuity premiums and policy charges increased $4.1 million due to an
increase in new life sales during 1993.

Net investment income. Net investment income decreased $3.3 million, or
8%. Annualized investment yields decreased from 7.9% to 6.8%. The decrease in
investment yield was due to the general decline in current interest rates and a
higher quality portfolio with a shortened duration.

Other revenues. Other income and realized investment gains and losses
increased $0.6 million, or 4%. Other income increased $1.9 million due to
increased sales to unaffiliated customers in both the Group Medical Division and
the Medical Utilization Management Division. Realized investment losses
increased $1.3 million due to write-downs on certain mortgage-backed derivative
securities.

Benefits. Total benefits increased $21.7 million, or 5%. Life and
annuity benefits decreased $8.2 million or 17% due to the general decline in
credited rates during 1993 and improved mortality over the higher levels
experienced during 1992. Accident and health benefits, which includes the
change in unearned premiums, increased $30.0 million or 8%. The change was
primarily due to the 7% increase in accident and health premiums. The Company's
accident and health loss ratios were unchanged over 1992 at 66%. The improved
loss ratios on the Medicare supplement business were offset by the fourth
quarter loss ratio on CLAC business of 79%. The Company is attempting to
control claim costs on this block of business by implementing additional managed
healthcare efforts.

In 1993 and 1992, managed healthcare efforts resulted in estimated net
savings to the Company's Group Medical Division of $41.0 million and $27.0
million, respectively. These savings were primarily used to lower the amount of
premium increases for policyholders, which the Company believes generally has
the effect of decreasing lapse rates on these policies. The principal efforts
and their approximate relative contributions to these estimated savings were as
follows:
1992 1993
PPO networks . . . . . . . . . . . . . . . . . . 64% 49%
Precertification . . . . . . . . . . . . . . . . 17 5
Large case management . . . . . . . . . . . . . . 11 32
Other . . . . . . . . . . . . . . . . . . . . . . 8 14
100% 100%

Amortization of DAC. Amortization of DAC decreased $23.8 million, or 24%.
The decrease was due to the $30.0 million pre tax write-down of DAC in the
fourth quarter of 1992 primarily on major medical policies sold in the self-
employed and small business owner market. The 1993 amortization rate on
Medicare supplement was higher than 1992 because of the accelerated rate
increase implementation which occurred in 1993.

Income tax rate. The Company's effective tax rate was approximately 35%
in 1993. The Company recorded a tax benefit for 1992 due to the operating loss
incurred. The effective federal income tax rate increased in 1993 due to the
Revenue Reconciliation Act of 1993.

Accounting Standards. Effective January 1, 1993, the Company adopted
Financial Accounting Standards Board (FASB) Statement No. 113 "Accounting and
Reporting for Reinsurance of Short-Duration and Long-Duration Contracts." FASB
Statement No. 113 requires that reinsurance receivables, including amounts
related to claims incurred but not reported, and prepaid insurance premiums, be
reported as assets as opposed to reductions in the related liabilities. As a
result of the adoption of FASB Statement No. 113, amounts on deposit and due
from reinsurers and policy liabilities each increased $19.5 million at December
31, 1993.

Effective January 1, 1993, the Company also changed its method of
accounting for income taxes from the deferred method to the liability method
required by FASB Statement No. 109 "Accounting For Income Taxes." The
cumulative effect of adopting FASB Statement No. 109 was not significant.

Other. Investments, equipment, policy liabilities, and general expenses
and other liabilities increased due to the acquisition of CLAC. Other assets
increased primarily due to expenses capitalized in conjunction with the public
offering of the 8% Debentures.

DEFERRED POLICY ACQUISITION COSTS

Under generally accepted accounting principles, a DAC asset is established
to match properly the costs of writing new business against the expected future
revenues or gross profits from the policies. The costs which are capitalized
and amortized consist of first-year commissions in excess of renewal commissions
and certain home office expenses related to selling, policy issue, and
underwriting.

The deferred acquisition costs for accident and health policies and
traditional life policies are amortized over future premium revenues of the
business to which the costs are related. The rate of amortization depends on
the expected pattern of future premium revenues for the block of policies. The
scheduled amortization for a block of policies is established when the policies
are issued. However, the actual amortization of DAC will reflect the actual
persistency and profitability of the business. For example, if actual policy
terminations are higher than expected or if future losses are anticipated, DAC
could be amortized more rapidly than originally scheduled or written-off, which
would reduce earnings in the applicable period.

EFFECT OF INFLATION

In pricing its insurance products, the Company gives effect to anticipated
levels of inflation; however, the Company believes that the high rate of medical
cost inflation during recent years has had an adverse impact on its major
hospital accident and health claims experience. The Company continues to
implement rate increases, as permitted by state regulations, in response to this
experience.

LIQUIDITY AND CAPITAL RESOURCES

The Company's consolidated liquidity requirements are created and met
primarily by operations of its subsidiaries. The insurance subsidiaries'
primary sources of cash are premiums, investment income, and investment sales
and maturities. The insurance subsidiaries' primary uses of cash are operating
costs, policy acquisition costs, payments to policyholders and investment
purchases. In addition, liquidity requirements of the holding company are
created by the dividend requirements of the $2.125 Preferred Stock, Common Stock
dividends, interest payments on the 8% Debentures and other debt service
requirements. The Company intends to use a portion of the net proceeds of this
offering to redeem all of the outstanding shares of $2.125 Preferred Stock.
These liquidity requirements of the holding company have historically been met
through dividends from the non-insurance subsidiaries which receive payments
primarily from fees charged for administrative and marketing services provided
to the Company's insurance subsidiaries and other unaffiliated companies.
Dividends from the insurance subsidiaries could be required in the future to
meet such liquidity requirements.

The ability of the insurance subsidiaries to pay dividends and make other
payments to the Company is subject to state insurance department regulations
which generally permit dividends and other payments to be paid for any twelve
month period in amounts equal to the greater of (i) net gain from operations in
the case of a life insurance company or net income in the case of all other
insurance companies for the preceding calendar year or (ii) 10% of surplus as of
the preceding December 31st. Any dividends in excess of these levels require
the prior approval of the Director or Commissioner of the applicable state

insurance department. The amount of dividends that the Company's insurance
subsidiaries could have paid in 1995 without prior approval was approximately
$7.4 million.

Notwithstanding the foregoing, if insurance regulators otherwise determine
that payment of a dividend or any other payment to an affiliate would be
detrimental to an insurance subsidiary's policyholders or creditors because of
the financial condition of the insurance subsidiary or otherwise, the regulators
may block dividends or other payments to affiliates that would otherwise be
permitted without prior approval.

The Company's insurance subsidiaries require capital to fund acquisition
costs incurred in the initial year of policy issuance and to maintain adequate
surplus levels for regulatory purposes. These capital requirements have been
met principally from internally generated funds, including premiums and
investment income, and capital contributions from the holding company.

The Company has offered commission advances to certain of its agents and
marketing organizations which consists primarily of annualization of first year
commissions. This means that when the first year premium is paid in
installments, the Company will advance a percentage of the commissions that the
agent would otherwise receive over the course of the first policy year. The
Company, through a subsidiary, has entered into agreements with an unaffiliated
corporation to provide financing for a portion of its agent commission advance
program through the sale of agent receivables. Proceeds from such sales for the
nine-month periods ended September 30, 1995 and 1994 were $13.9 million and
$17.2 million, respectively. The termination date of the current program is
December 31, 1997, subject to extension or termination as provided therein. The
Company has retained approximately $14.8 million of agent advances at
September 30, 1995.

In July 1993 the Company issued $57.5 million of its 8% Debentures. Net
proceeds from the offering totaled approximately $54.0 million. The 8%
Debentures are convertible into the Company's Common Stock at any time prior to
maturity, unless previously redeemed, at a conversion price of $11.75 per share.
In August 1995, the Company accepted the conversion of $46.9 million of the
outstanding 8% Debentures. The effect of the conversion was an increase in
stockholders' equity of $45.3 million and a charge of $3.5 million, net of
taxes, for payments to converting bondholders and other expenses relating to the
conversion.

In August 1993, a non-insurance subsidiary of the Company borrowed $1.5
million from a commercial bank to finance the acquisition of HRC. Interest on
the unsecured note is payable quarterly at the lending bank's prime rate of
interest. The note requires principal repayments of $0.08 million per quarter
plus interest through July 31, 1998.

In December 1994, a non-insurance subsidiary of the Company borrowed $0.4
million from a commercial bank to finance the purchase of certain equipment.
The note, which is secured by the equipment purchased, bears interest at the
lending bank's prime rate of interest and is payable quarterly, with principal
payments of $0.02 million, through December 1, 1999.

In January 1995, an insurance subsidiary of the Company issued a note in
the amount of $1.7 million as a portion of the acquisition price of CNL. The
principal balance of the note may be reduced by the amount of capital losses
incurred by the Company on mortgage loan and real estate holdings of CNL through
January 31, 1997. Interest is payable on the note at the average earnings rate
of these investments, currently eight percent. The note matures in January
1997.

Under the March 1995 Term Loan, the Company borrowed $15.0 million from a
group of banks to repay amounts borrowed under the Company's Credit Facility in
conjunction with the acquisition of CNL. Interest on the March 1995 Term Loan
is payable quarterly, currently at five percent. The note, which is unsecured,

requires principal payments of $0.5 million plus interest per quarter with a
final payment on December 31, 1999.

In June 1995, a non-insurance subsidiary of the Company borrowed $1.2
million from a commercial bank in order to fund HMO development. Interest on
this secured facility is payable monthly at a fixed rate of 8.8%, with principal
due at maturity. This facility matures in June, 1996.

In June 1995 a non-insurance subsidiary of the Company entered into a $1.0
million line of credit arrangement with a commercial bank in order to finance
the subsidiary's working capital needs. Interest on this secured facility is
payable monthly at the lending bank's prime rate of interest. This facility
matures in June 1996.

Under the August 1995 Term Loan, the Company borrowed $11.1 million from a
group of banks to repay amounts borrowed under the Company's Credit Facility to,
among other things, fund payments to converting bondholders and other expenses
relating to the conversion of the 8% Debentures. Interest on the August 1995
Term Loan is at the prime rate of the lending bank. The unsecured note requires
principal repayments of $0.9 million plus interest per quarter through August
31, 1998.

In September 1995, a non-insurance subsidiary of the Company borrowed $3.3
million from a finance company to finance the purchase of certain equipment.
The note, which is secured by the equipment purchased, bears interest at a fixed
rate of 7.81% and has principal and interest payments of $0.04 million payable
monthly through August 2005.

The Company's Credit Facility provides a line of credit arrangement for
short-term borrowings with three banks amounting to $17.0 million through April
1996, all of which was unused at September 30, 1995. In January 1996, the
amount available under the Credit Facility was increased to $27.0 million. The
line of credit arrangement can be terminated, in accordance with the agreement,
at the Company's option. The Company expects that the Credit Facility will be
extended at its maturity.

The Company's debt agreements include provisions requiring maintenance of
minimum working capital and risk based capital and limiting the Company's
ability to incur additional indebtedness. The Company's debt agreements also
restrict the amount of retained earnings which is available for dividends and
require the maintenance of certain minimum insurance company ratings at the
Company's subsidiaries.

In March, June, September and December 1995, the Company's Board of
Directors announced a quarterly Common Stock dividend of $.045 cents per share,
for a total of 18 cents per share to be paid for 1995.

Management believes that the diversity of the Company's investment
portfolio and the liquidity attributable to the large concentration of
investments in highly liquid United States government agency securities provide
sufficient liquidity to meet foreseeable cash requirements. See "Business-
Investments." Because the Company's insurance subsidiaries experience strong
positive cash flows, including monthly cash flows from mortgage-backed
securities, the Company does not expect its insurance subsidiaries to be forced
to sell the held to maturity investments prior to their maturities and realize
material losses or gains. Although the Company has the ability and intent to
hold those securities to maturity, there could occur infrequent and unusual
conditions under which it would sell certain of these securities. Those
conditions would include a significant deterioration of the issuer's
creditworthiness, significant changes in tax law affecting the taxation of
securities, a significant business acquisition or disposition, and changes in
regulatory capital requirements or permissible investments.

Life insurance and annuity liabilities are generally long-term in nature
although subject to earlier surrender as a result of the policyholder's ability
to withdraw funds or surrender the policy, subject to surrender and withdrawal

penalties. The Company believes its policyholder liabilities should be backed
by an investment portfolio that generates predictable investment returns. The
Company seeks to limit exposure to risks associated with interest rate
fluctuations by concentrating its invested assets principally in high quality,
readily marketable debt securities of intermediate duration and by attempting to
balance the duration of its invested assets with the estimated duration of
benefit payments arising from contract liabilities. See "Business-Investments."

The Company has entered into an agreement to purchase all of the
outstanding stock of Universal Fidelity for a total purchase price of
approximately $26.0 million. Closing on the acquisition is subject to the
approval of Universal Fidelity's shareholders and to regulatory approval. The
transaction is expected to close in the first quarter of 1996. Universal
Fidelity's business is primarily senior health insurance, including Medicare
supplement, long-term care and other supplemental insurance.

RECENTLY ISSUED ACCOUNTING STANDARDS

For a discussion of a new investments accounting standard, a new income
tax accounting standard and a new reinsurance accounting standard and the impact
these standards had on the financial statements of the Company, see Note 2 of
Notes to Consolidated Financial Statements.

BUSINESS

PRODUCTS AND SERVICES

The Company markets and underwrites health insurance, life insurance and
annuities and provides medical utilization management services throughout the
United States. The Company sells products and provides its services through
four marketing divisions: Senior Health and Life Division, Group Medical
Division, Life Insurance Division and Medical Utilization Management Division.
The Company's distribution systems for its products have increased from
approximately 12,000 agents in 1986 to nearly 45,000 agents at the end of 1995.

Senior Health and Life Division

The products marketed by the Senior Health and Life Division include
Medicare supplement, long-term care, home health care, various specialty health
coverages, life insurance and annuities. This division markets these products
to individuals age 65 and older and underwrites and issues all such products
except the life insurance and annuity products which are underwritten and issued
by the Life Insurance Division.

The following table sets forth the earned premiums, losses and loss
adjustment expenses incurred and loss ratios for the Company's senior health
products. Senior health premiums have been impacted by federally mandated
standardized Medicare supplement policies. This standardization began in 1992
and included fixed benefits and reductions in agent commissions, especially in
the case of replacement of an existing Medicare supplement policy. During this
same period, the Company altered its marketing emphasis, reducing the number of
products available for sale in selected states until new products were developed
and priced. The combination of these changes had the effect of decreasing new
sales revenue for these policies.

NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
1991 1992 1993 1994 1994 1995

(dollars in thousands)

Earned premiums (1) . $298,653 $264,697 $243,482 $225,604 $170,233 $160,782
Losses and loss adjustment
expenses(1) . . . . 200,446 176,149 154,561 137,853 109,195 108,404
Loss ratio . . . . . 67% 67% 63% 61% 64% 67%

- ------------
(1) In the Company's statement of consolidated operations, earned premiums
represent premiums written, adjusted for reinsurance; the changes in
unearned premiums are reflected in benefits, together with losses and loss
adjustment expenses. Losses and loss adjustment expenses include losses
incurred on insurance policies and the expenses of settling insurance
claims, including legal and other related fees and expenses.

In the Senior Health and Life Division, the Company may adjust health
insurance premium rates by class, policy form and state in which the policy is
issued, subject to applicable regulation, in order to maintain anticipated loss
ratios. Since premium rate increases can have the tendency to increase policy
lapses, conservation and customer service activities are emphasized. The Senior
Health and Life Division follows a proactive approach involving strict scrutiny
of all health premium rates on a monthly basis, including comparisons of pricing
structure to actual claims experience by product line and state. This ongoing
analysis provides the lead time necessary for the orderly adjustment of
premiums.

Medicare Supplement. Since the inception of the federal Medicare program
in 1966, the Company has offered policies designed to supplement Medicare
benefits and is now the fourth largest issuer of individual Medicare supplement
insurance in the nation, excluding Blue Cross and Blue Shield-related entities,
based on direct premiums earned. Medicare supplement policies provide coverage
for many of the medical expenses which the Medicare program does not cover, such
as deductible and coinsurance costs and specified losses which exceed the
Federal program's maximum benefits.

In 1991, the NAIC defined ten model Medicare supplement policies. In
states which have adopted the NAIC model, only those ten policies can be sold.
In most states, the Company markets eight of the ten model policies those which
the Company believes are most applicable to its target market. All states have
adopted either the NAIC model or similar legislation which specifically defines
policy models. Sales of the Company's Medicare supplement products increased
17% in the first nine months of 1995 on an annualized premium basis.

The federal government began a test program in 1992, allowing 15 specified
states to participate in a "Medicare Select" program. Medicare Select policies
combine the cost advantages of a preferred provider organization with a Medicare
supplement policy to provide a reduced premium cost for policyholders.
Utilization of specified hospitals, which waive certain deductibles covered by
the Medicare supplement policy, allows the Company to reduce the premium
charged. In 1995, the federal government expanded the Medicare Select program
to all states. Although the market for this product is just developing, the
Company sells Medicare Select policies in a number of states and has plans to
expand sales nationally.

Long-Term Care and Home Health Care. The Senior Health and Life Division
also offers long-term care and home health care products designed principally
for senior citizens. Long-term care policies generally provide specified per
day benefits for nursing home confinements, within prescribed limits. Home
health care policies provide specified per day benefits for required health
services received in the home and comprehensive coverages which provide benefits
for all levels of nursing home care, home health care and adult day care. In
1995, the Company developed and introduced a new series of "Independent Choice"
long-term care and home health care plans which provide greater flexibility of
benefit use and include care coordination features to help lower benefit costs.
In the first nine months of 1995, new annualized sales of the Company's long-
term care and home health care products increased by nearly 287% from $2.3
million to $8.9 million. The Company's strategy is to cross-sell these products

to customers who have already purchased the Company's Medicare supplement
product.

The Company believes that the market for long-term care and home health
care could increase if the federal government were to enact proposed tax
legislation to provide tax deductibility for long-term care insurance premiums.
While these changes have been proposed, the Company cannot predict if or when
they will be enacted. See "--Health Care Reform".

Specialty Health and Other. The Senior Health and Life Division offers
various specialty health products which typically are sold in conjunction with
the Company's principal health products. These policies include hospital
indemnity, private duty nursing and cancer plans. Additionally, the Company
intends to develop and market managed care organizations for seniors as the
demand for such products expands. The Company believes that the market for
senior managed care products will grow as health care costs continue to grow.
Currently approximately 10% of Medicare beneficiaries in the nation participate
in HMOs. There are many states with very low penetration of managed care in the
senior market, including states with a high concentration of Medicare
beneficiaries. The Company intends to take advantage of this opportunity by
utilizing its strong position in the senior market and its managed care
capability to market managed care products to senior citizens.

Life Insurance and Annuities. The Senior Health and Life Division markets
life insurance and annuities which are issued by the Life Insurance Division to
individuals age 65 and over. In 1994, the Company began selling smaller face-
amount whole life insurance policies specifically designed to cover final
expenses for senior citizens, including funeral expenses and other expenses that
otherwise would be paid by the insured's family. In the first nine months of
1995, sales of these products increased 174% on an annualized premium basis to
$12.6 million from $4.6 million. As part of its cross-selling strategy, the
Company automatically offers a pre-approved (already underwritten for issue)
cash burial life insurance policy with all Medicare supplement policies issued
to customers age 66-79. The Company also offers annuity products specifically
designed for seniors. These products provide an attractive investment
alternative to seniors, offering higher interest rates than bank savings
accounts and certificates of deposit and the ability to receive monthly payouts
during retirement years.

Marketing. The Senior Health and Life Division markets its products and
services primarily to individuals age 65 and older through a distribution system
which, in 1995, grew from approximately 15,000 agents to nearly 22,000 agents,
primarily as a result of the formation in mid-1995 of Markman International, a
50/50 joint venture with Markman Company, which, prior to the joint venture, had
established itself as a leading independent marketer of long-term care policies.
Markman International is the national marketing and distribution arm of the
Senior Health and Life Division. The Company intends to increase further the
number of agents used by the Senior Health and Life Division in 1996 and to
enhance the Company's cross-selling capabilities through increased agent
training and packaging of products. The agents receive extensive product and
marketing information from the Company. They also have access, through the
Company, to lists of prospective customers turning age 65 in their respective
geographic areas and to a direct-mail lead-generation system. By providing its
agents with training, sales materials, lead-generation programs and a full range
of health and life insurance products designed for senior citizens, the Company
intends to increase both sales to new customers and cross-sales to existing
policyholders. The agents receive commissions on each sale based on the type of
product sold.

Group Medical Division

The Group Medical Division underwrites and markets small group and
individual hospital and medical products, including major hospital and specialty
health insurance policies, individually underwritten and issued. For 1993, 1994
and the first nine months of 1995, this division produced health insurance
premium revenue of approximately $354.4 million, $435.9 million, and $295.7

million, respectively. This division also derives marketing commission revenue
and other fee income through marketing insurance and other products of
unaffiliated companies and associations with whom the Company has a marketing
relationship. This division's products and services are targeted primarily to
self-employed individuals and small business owners. The insureds in this
division also become prospects for the Senior Health and Life Division -- when
they reach age 65, the Company automatically provides for conversion to a
Medicare supplement policy.

Pre-tax income increased in this division in 1995, as the Company
continued to make improvements in its management of the division's block of
business through close monitoring of claims costs, increased use of medical
provider networks and case management and the implementation of premium rate
adjustments as necessary.

The following table sets forth the earned premiums, losses and loss
adjustment expenses incurred and loss ratios for the Group Medical Division's
products. The Company's loss ratios have varied over the years reflecting
changes in medical claim costs and the frequency of benefit utilization by its
insureds.

NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
1991 1992 1993 1994 1994 1995
(dollars in thousands)
Earned premium (1) . $294,431 $302,881 $375,275 $443,599 $333,788 $309,615
Losses and loss adjustment
expenses(1) . . . . 176,222 200,781 251,955 279,419 214,058 195,085
Loss ratio . . . . . 60% 66% 67% 63% 64% 63%

(1) In the Company's statement of consolidated operations, earned premiums
represent premiums written, adjusted for reinsurance; the changes in
unearned premiums are reflected in benefits, together with losses and loss
adjustment expenses. Losses and loss adjustment expenses include losses
incurred on insurance policies and the expenses of settling insurance
claims, including legal and other related fees and expenses.

As in the Senior Health and Life Division, the Company may, in the Group
Medical Division, adjust health insurance premium rates by class, policy form
and state in which the policy is issued, subject to applicable regulation, in
order to maintain anticipated loss ratios. Since premium rate adjustments can
have the tendency to increase policy lapses, conservation and customer service
activities are emphasized. As with the Senior Health and Life Division, the
Group Medical Division follows a proactive approach involving strict scrutiny of
health premium rates on a monthly basis. The matching of pricing structure with
actual claims experience varies by product line and state. This ongoing
analysis provides the lead time necessary for the orderly adjustment of
premiums.

The Group Medical Division intends to focus its efforts on increasing
administrative efficiency and claims-cost containment on its existing block of
business through, among other things, increased use of the Medical Utilization
Management Division's services, continued development of medical provider
networks and continued migration of its fee-for-service indemnity health
insurance customers to managed care products. As the regulatory environment
changes, the Company will evaluate growth opportunities in this market.

Major Hospital. The Company offers major hospital insurance plans on an
individual basis and on a group trust (multiple employer trust) and association
basis and has issued master policies for such plans to several trusts and
associations. These plans are designed to cover in-hospital expenses for self-
employed individuals, small business owners, employees and their families.
Hospital, surgical and other medical expenses are covered on an expense incurred
basis with certain benefit limits after a prescribed deductible. The Company
provides products with alternatives such as increased deductibles and different
benefit structures designed to enable policyholders to maintain insurance
protection without increased premium rates. In 1994, the Company introduced
"ChoicePlus," a product which combines HMO-type wellness features within a
specific provider network along with in-network and out-of-network indemnity
benefits.

In December 1991, the NAIC adopted the Small Employers Availability Act
(the "SEA Act"). The SEA Act affects the rating and underwriting methodology
that can be applied to insurance coverage sold to small employers, generally
categorized as those employing 25 people or less. In response to the SEA Act,
the Company has modified and continues to modify its new products for sale in
those states that have adopted or are adopting the SEA Act or other health care
reforms.

Other. The Group Medical Division also derives revenue through sales of
products of unaffiliated insurance companies and other associations with whom
the Company has a marketing relationship. These products include medical
insurance for medium-sized groups (50 or more), employer self-funded plans,
flexible premium universal life insurance, disability income protection and
annuities. The Group Medical Division also markets HMO products in areas where
these products have a significant competitive advantage over traditional
indemnity insurance products. The HMO products are sold in selected states
through marketing relationships with regional HMOs. In addition to commission
revenue, sales of these HMOs provide the sales force with opportunities to
cross-sell the Company's other products. This division also markets membership
benefit packages to various national associations. These packages include
discounts on dental services, hotels/motels, airfares, prescription drugs,
vision and hearing aid equipment and other services.

Marketing. The Group Medical Division markets its products and services
primarily to self-employed individuals and small business owners. In 1995,
approximately 81% of this division's products was sold through a sales force of
approximately 1700 career agents, and the remaining 19% was sold through a
brokerage system of 6,000 independent agents. These agents receive leads
through the Company's telemarketing subsidiary and compensation in the form of
commissions.

The Company's acquisition of Continental Marketing Corporation in
connection with the 1993 acquisition of CLAC added an efficient broker-to-broker
telemarketing distribution system to the Group Medical Division. This system
utilizes experienced sales representatives who contact brokers by phone to
promote the Company's products and provide the brokers with sales and marketing
assistance. The brokers are compensated for their sales through commissions;
the telemarketing representatives receive salaries from the Company and bonuses
based on meeting certain sales objectives.

Life Insurance Division

The Life Insurance Division's products include traditional life (term and
whole life), universal life and interest sensitive insurance and annuities.
Substantially all of the Company's life insurance policies are individually
underwritten and issued. This division's products and services are targeted
primarily to the middle income market. In addition, this division underwrites,
issues and administers the life insurance and annuity products marketed by the
Senior Health and Life Division. This division grew significantly when the
Company acquired CNL in January 1995.

The following table sets forth the breakdown of premiums collected
(including receipts not related to policy charges) among traditional life
policies, interest sensitive and universal life policies and annuities for the
periods shown:

NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
1991 1992 1993 1994 1994 1995
(in thousands)
Traditional . . $17,968 $20,300 $26,353 $32,238 $23,028 $37,946
Interest Sensitive
and Universal
Life Policies 20,676 18,399 16,300 17,590 13,835 23,721
Annuities . . . 13,479 6,212 10,004 22,807 18,805 15,651
Total . . . . . $52,123 $44,911 $52,657 $72,635 $55,668 $77,318

For the fiscal year 1993, premiums collected from the Company's life insurance
products were approximately 24% first year and 76% renewal, the fiscal year 1994
premiums were approximately 28% first year and 72% renewal, and for the first
nine months of 1995 premiums collected were approximately 24% first year and 76%
renewal.

The Company's gross life insurance in force was as follows at the dates
shown:

AT DECEMBER 31, AT SEPTEMBER 30,
1991 1992 1993 1994 1994 1995
(in millions)
Traditional . . . $ 7,507 $ 8,757 $10,320 $ 10,803 $10,346 $14,411
Interest Sensitive
& Universal
Life Policies . 1,634 1,582 1,503 1,779 1,574 2,478
Total . . . . . . $ 9,141 $10,339 $11,823 $ 12,582 $11,920 $16,889

Traditional Life. The largest portion of the Life Insurance Division's
business is in term life insurance. The Company specializes in face amounts of
$100,000 to $500,000, sold to middle income families. Marketed under the name
"Super Saver Term," this series features low cost 5-, 10- and 15-year term life
insurance products.

For a number of years, the Company has offered individually underwritten
insurance on lives of persons who, to varying degrees, do not meet the
requirements of standard insurability. Higher premiums are charged for these
"impaired" or "substandard" lives, and, where the amount of insurance is large
or the risk is significant, a portion of the risk is reinsured. Approximately
10% of the Company's in-force life insurance could be categorized as "impaired
risk."

Interest Sensitive Life and Universal Life. The Company's interest
sensitive and universal life insurance products provide life insurance with
rates of return which are adjusted in relation to prevailing interest rates.
The policies permit the Company to change the rate of interest credited to the
policy from time to time. Universal life insurance products credit current
interest rates to cash value accumulations, permit adjustments in benefits and
premiums at the policyholder's option, and deduct mortality and expense charges
monthly. Under other interest sensitive policies, premiums are flexible,
allowing the policyholders to vary the frequency and amount of premium payments,
but typically death benefit changes are not made by the policyholders. Some
universal life products offer lower premiums for non-smokers in good health.
For both universal life and other interest sensitive policies, surrender
charges, if any, are deducted from the policyholder's account value at the time
of surrender. No surrender charges are deducted if death benefits are paid or
if the policy remains in-force for a specified period.

The Company's "Interest Sensitive Series" includes whole life policies
ideally suited for the impaired risk market. This product series provides
permanent protection with a fixed, guaranteed level premium and an interest rate
persistency bonus. The "Financial Lifestyle II" is a highly flexible back-load
universal life policy providing low-cost protection with tax-deferred cash
accumulation.

Annuities. The Company offers single and flexible premium deferred
annuities. An annuity contract generally involves the accumulation of premiums
at a compound interest rate until the maturity date, at which time the
policyholder can choose one of the various payment options. Options include
periodic payments during the annuitant's lifetime or the lifetime of the
annuitant and spouse, with or without a guaranteed minimum period; periodic
payments for a fixed period regardless of the survival of the annuitant; or lump
sum cash payment of the accumulated value. The Company's annuities typically
provide for the crediting of interest at rates set from time to time by the
Company.

Marketing. The Life Insurance Division markets its products primarily to
individuals in middle income levels through a nationwide network of
approximately 100 BGAs and MGAs who in turn contract with approximately 15,000
brokers and general agents. In addition, at the end of 1995, the Company signed
a marketing agreement with a national marketing company with approximately
25,000 agents to distribute a new term insurance product with an income benefit
rider. The Company's BGAs, MGAs and agents receive compensation through sales
commissions.

Medical Utilization Management Division

The Medical Utilization Management Division provides a number of health
care coordination services to assist in the management of medical costs for
insurance companies, government agencies, self-insured businesses, unions, HMOs
and third party administrators, as well as the Company's Group Medical Division.
The services provided by this division include precertification of inpatient and
outpatient medical care, case management, high-risk maternity review, long-term
care case management and the development and management of HMOs and PPOs. These
services are designed to provide negotiated medical provider rates along with
close review of utilization in order to impact positively total medical costs
without adversely affecting the quality of care.

The July 1995 purchase of ACMG, an Ohio-based healthcare management
company, increased revenues by $2.2 million in the first nine months of 1995 and
provided the Company with the capacity and expertise to develop and manage PPOs,
HMOs and EPOs. During 1996, the Company currently expects to have a limited
number of HMOs and EPOs operational in selected states where the Company has
significant concentrations of policyholders and the market for managed care is
undeveloped, although no assurance to that effect can be given. These HMOs and
EPOs will be marketed by the Company's Group Medical Division as part of the
Company's strategy to migrate its fee-for-service indemnity insurance customers
to managed care products. In addition, the Company will use a similar strategy
to develop PPOs and HMOs (Medicare Risk Contracts) for the Senior Health and
Life Division.

This division has also provided significant claims expense savings for the
Group Medical Division, realizing claims savings for the Company of over $22.0
million in 1995 through programs such as utilization review and case management.
These savings were primarily passed on to customers in the form of more
competitive premium rates which the Company believes generally has the effect of
increasing customer retention.

Revenues for this division increased 50% to $11.0 million in the first
nine months of 1995, compared to $7.3 million in the first nine months of 1994,
due to increased sales and the July 1995 acquisition of ACMG.

Marketing. This division markets its services to insurance companies,
self-insured employers, unions, third-party administrators, HMOs and PPOs.

Utilization management professionals conduct direct selling activities and
respond to requests for proposals from insurance companies, large employers and
consulting companies.

PREMIUM DISTRIBUTION

The Company's insurance subsidiaries collectively are licensed to sell
insurance in 49 states and the District of Columbia. The importance to the
Company of particular states may vary over time as the composition of its agency
network changes. The geographic distribution of collected premiums (before
reinsurance) of the Company's subsidiaries in the first nine months of 1995 was
as follows:

TOTAL PERCENT

(dollars in thousands)

Texas $ 53,235 9.5%
Florida 48,242 8.6
California 39,759 7.1
Illinois 38,896 7.0
North Carolina 25,344 4.5
New Jersey 18,815 3.4
Ohio 17,714 3.2
Georgia 17,419 3.1
Pennsylvania 17,235 3.1
Mississippi 17,190 3.1
Other (1) 265,307 47.4
Total $559,155 100.0%

(1) Includes 39 other states, the District of Columbia, and certain U.S.
territories and foreign countries, each of which accounts for less than 3%
of collected premiums.

UNDERWRITING

A major portion of the Company's insurance coverages are individually
underwritten to assure that policies are issued by the Company's insurance
subsidiaries based upon the underwriting standards and practices established by
the Company. Applications for insurance are reviewed to determine if any
additional information is required to make an underwriting decision, which
depends on the amount of insurance applied for and the applicant's age and
medical history. Such additional information may include medical examinations,
statements from doctors who have treated the applicant in the past and, where
indicated, special medical tests. If deemed necessary, the Company uses
investigative services to supplement and substantiate information. For certain
coverages, the Company may verify information with the applicant by telephone.
After reviewing the information collected, the Company either issues the policy
as applied for, issues the policy with an extra premium charge due to
unfavorable factors, issues the policy excluding benefits for certain conditions
for a period of time or rejects the application. For certain of its coverages,
the Company has adopted simplified policy issue procedures in which the
applicant submits a simple application for coverage typically containing only a
few health related questions instead of a complete medical history.

In common with other life and health insurance companies, the Company may be
exposed to the risk of claims based on AIDS. The Company's AIDS claims to date
have been insignificant. Because of its emphasis on policies written for the
senior citizen market and its underwriting procedures and selection processes,
the Company believes its risk of AIDS claims is less than the risk to the
industry in general.

REINSURANCE

The Company's insurance subsidiaries reinsure portions of the coverages
provided by their insurance products with other insurance companies on both an
excess of loss and co-insurance basis. Co-insurance generally transfers a fixed

percentage of the Company's risk on specified coverages to the reinsurer.
Excess of loss insurance generally transfers the Company's risk on coverages
above a specified retained amount. Under its excess of loss reinsurance
agreements, the maximum risk retained by the Company on one individual in the
case of life insurance and accident and health insurance is $250,000.

Reinsurance agreements are intended to limit an insurer's maximum loss on
the specified coverages. The ceding of reinsurance does not discharge the
primary liability of the original insurer to the insured, but it is the practice
of insurers (subject to certain limitations of state insurance statutes) to
account for risks which have been reinsured with other approved companies, to
the extent of the reinsurance, as though they are not risks for which the
original insurer is liable. See Note 6 of Notes to Consolidated Financial
Statements.

The Company has occasionally used assumption reinsurance to acquire blocks
of business from other insurers. In addition, the Company has from time to time
entered into agreements to assume certain insurance business from companies for
which it is marketing insurance products. The Company intends to continue these
programs if they assist in expanding product lines and marketing territories and
contribute to profitability.

ACQUISITIONS

The Company believes that current trends in the life and health insurance
industry will provide opportunities for continued acquisitions and
consolidations. Larger companies are reducing administrative costs by divesting
divisions and blocks of life and health insurance business which do not fit
their overall strategies and are focusing on two or three core product lines to
improve efficiency and gain competitive advantage. Additionally, smaller, less
efficient companies with less capital at their disposal are experiencing
increasing difficulty in remaining competitive; regulatory requirements add
significant costs which may not be able to be absorbed by smaller companies;
capital requirements have increased due to the imposition of risk-based capital
ratios by regulatory agencies; state healthcare reform programs are squeezing
health insurance profit margins; the costs of necessary information processing
systems have increased; and smaller companies cannot access capital markets to
finance additional growth.

The following table summarizes the recent significant acquisitions made by the
Company:

ACQUISITIONS DATE OF TYPE OF BUSINESS
ACQUISITION

Continental Life & August 1993 Small group medical
Accident Company insurance; became part of the
Group Medical Division.
Healthcare Review August 1993 Health care management
Corporation company; became part of the
Medical Utilization
Management Division.

Connecticut National January 1995 Interest sensitive and
Life Insurance Company universal life insurance;
became part of the Life
Insurance Division.

Western Fidelity July 1995 Major medical products;
Insurance Company (block became part of the Group
of business) Medical Division.
ACMG, Inc. July 1995 Health care management
company; became part of the
Medical Utilization
Management Division.

Universal Fidelity Life pending Medicare supplement carrier;
Insurance Company to become part of the Senior
Health and Life Division.

In August 1993, the Company acquired, and added to the Group Medical
Division, CLAC, a small group medical insurer. In 1994 and 1995, the
administration of this subsidiary was consolidated with the Company's other
health insurance operations. In addition to CLAC, this acquisition included the
purchase of Continental Marketing Corporation which added an efficient broker-
to-broker telemarketing distribution system to the Group Medical Division.

In August 1993, the Company also acquired, and added to the Medical
Utilization Management Division, HRC, a health care management company
headquartered in Louisville, Kentucky. HRC's largest client is the Kentucky
Medicaid program. In addition to adding to the revenue and client base of the
Medical Utilization Management Division, HRC's Louisville facility has become
the division's headquarters.

In January 1995, the Company acquired, and added to the Life Insurance
Division, CNL, a $350 million asset company, which had issued primarily interest
sensitive and universal life insurance products. Through administrative
consolidation which resulted in overall expense reduction for the Life Insurance
Division, this acquisition added $1.5 million in pre-tax income before interest
to the Life Insurance Division in the first nine months of 1995. This
acquisition also increased the distribution system of the Life Insurance
Division.

In July 1995, the Company acquired, and consolidated into the Group Medical
Division's administrative facility in Dallas, Western Fidelity Insurance
Company's $42 million block of major medical policies. The Company was able to
integrate substantially all of this business into its operations within one
month.

In July 1995, the Company also acquired, and added to the Medical
Utilization Management Division, ACMG, an Ohio-based health care management
company. This acquisition is expected to increase the annual revenue of the
Medical Utilization Management Division and to enhance the Company's capacity to
establish HMOs and EPOs. See "-- Products and Services."

In the first quarter of 1996, the Company expects to acquire Universal
Fidelity, a company which markets and underwrites primarily Medicare supplement
products to senior citizens in Oklahoma and Texas. Universal Fidelity generated
approximately $32 million in annual premium revenue in 1995 (on a statutory
basis). The approximately 30,000 Universal Fidelity Medicare supplement
policyholders also provide potential for increased profitability through
cross-selling of long-term care, home health care and other products.

INVESTMENTS

The Company's investment policy is to balance its portfolio between
long-term and short-term investments so as to achieve investment returns
consistent with preservation of capital and maintenance of liquidity adequate to
meet payment of policy benefits and claims. Current policy is to invest
primarily in fixed income securities of the U.S. government and its agencies and
authorities, and in fixed income corporate securities with investment grade
ratings of Baa3 and/or BBB- or better. At September 30, 1995, less than 1% of
the Company's total investment portfolio and less than 1% of its statutory
admitted assets were below investment grade or unrated. The Company has a
policy to invest no more than 4% of its statutory admitted assets in fixed
income securities below investment grade or unrated. At September 30, 1995, the
Company had invested assets of $1,016.7 million, compared to $723.8 million at
December 31, 1994. The Company manages all of its investments internally with
resource and evaluation assistance provided by independent investment
consultants.

The following table provides information on the Company's investments
as of September 30, 1995.

AT SEPTEMBER 30, 1995
(DOLLARS IN THOUSANDS)
Carrying Value(1) Fair Value(1)
TYPE OF INVESTMENT: Amount Percent Amount Percent
Fixed maturities to be held to
maturity:
U.S. Treasury . . . . . . . . . . . $ 8,526 1% $ 8,368 1%
States and political subdivisions . 8,858 1 8,932 1
Foreign governments . . . . . . . . 2,994 * 2,982 *
Corporate securities . . . . . . . 143,766 14 143,872 14
Mortgage-backed securities . . . . 201,704 20 198,021 20
Total fixed maturities to be 365,848 36 362,175 36
held to maturity . . . . . . . . .

Fixed maturities available for sale:
U.S. Treasury . . . . . . . . . . . 43,580 4 43,580 4
States and political subdivisions . 28,526 3 28,526 3
Foreign governments . . . . . . . . 3,822 * 3,822 *
Corporate securities . . . . . . . 233,625 23 233,625 23
Mortgage-backed securities . . . . 175,752 17 175,752 17
Total fixed maturities 485,305 47 485,305 47
available for sale . . . . . . . .

Total fixed maturities . . . 851,153 83 847,480 83

Equity securities . . . . . . . . . . 19,741 2 19,741 2
Real estate . . . . . . . . . . . . . 17,731 2 17,731 2
Mortgage loans . . . . . . . . . . . 9,408 1 9,408 1
Policy loans . . . . . . . . . . . . 79,019 8 79,019 8
Short-term investments . . . . . . . 39,862 4 39,862 4

Total Investments . . . $1,016,914 100% $1,013,241 100%

______________________

* less than one percent
(1) Carrying value for fixed maturity investments designated as available for
sale equals fair value.

The following table provides information on the credit quality and
average lives of the Company's fixed maturity portfolio as of September 30,
1995.

FIXED MATURITY PORTFOLIO
(dollars in thousands)

AT SEPTEMBER 30, 1995
CARRYING
VALUE PERCENT
Credit Quality--S&P (or
equivalent) rating:

AAA . . . . . . . . . . . . . . . $399,510 47%
AA+, AA, AA- . . . . . . . . . . 67,663 8
A+, A, A- . . . . . . . . . . . . 242,686 29
BBB+, BBB, BBB-* . . . . . . . . 137,663 16
Below investment grade . . . . . 2,850 *
In default . . . . . . . . . . . 781 *
Total . . . . . . . . . . . . . $851,153 100%

Average Lives

One year or less . . . . . . . . $ 35,766 4%
Over one year through five years 291,594 34
Over five years through ten years 416,292 49
Over ten years . . . . . . . . . 107,501 13
Total . . . . . . . . . . . . . $851,153 100%

* Less than one percent.

Fixed Maturity Investments. With the adoption of risk-based capital rules
and consumer concerns over insurance company solvency and financial stability,
the asset quality of insurance companies' investment portfolios has become of
greater concern to policyholders and has come under closer scrutiny by insurance
regulators and investors. The investment objectives of the Company are to
maximize investment yield without sacrificing high investment quality and
matched liquidity.

Investments in below-investment grade fixed maturity securities generally
have greater risks (and potentially greater returns) than other corporate fixed
maturity investments. Risk of loss upon default by the issuer is significantly
greater for these securities because they are often unsecured and are often
subordinated to other creditors of the issuer, and because these 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. Also, the market for below-investment grade securities is less
liquid and not as actively traded as the market for investment grade securities.

The Company continually evaluates the creditworthiness of each issuer of
securities held in its portfolio. When the fair value of an individual security
declines materially, or when the Company's ongoing evaluation indicates that it
may be likely that the Company will be unable to realize the carrying value of
its investment, a determination is made as to the extent to which such declines
are attributable to changing market expectations regarding general interest
rates and inflation and other factors, such as a perceived increase in the
credit risk of the issuer, a general decrease in a particular industry sector or
an overall economic decline. If the decline in value is other than temporary,
and the carrying amount of the investment is reduced to its fair value based
principally on available market prices, the amount of the reduction is reported
as a realized loss on investments and the net fair value becomes the new cost
basis of the investment. In addition, the Company reverses any accrued interest
income previously recorded for the investment and records future interest income
only when cash is received.

Yields recognized in future periods on such investments may be less than
yields recognized on other investments and will be less than the yield expected
when the fixed maturity security was originally purchased. The effect on net
income from declines in interest income and portfolio yield from impaired
securities in future periods will depend on many factors, including, for life
insurance business, the level of interest rates credited to policyholder account
balances. In as much as interest rates credited to the Company's policyholders
are typically only guaranteed for one year, the Company does not expect any
material adverse effect on net income in future periods from declines in yields
from impaired securities.

Mortgage-Related Securities. At September 30, 1995, the Company had
$373.4 million (or 45% of its fixed maturities portfolio) in mortgage-related
securities compared to $293.5 million at December 31, 1994 (or 48% of its fixed
maturities portfolio). The mortgage-related securities are invested primarily
in U.S. government agency and non-agency pass-through certificates and various
components of U.S. government agency and non-agency collateralized mortgage
obligations ("CMOs"). CMOs are bonds that are collateralized by U.S. government
agency or non-agency whole loan mortgages and mortgage pass-through securities.
The yield characteristics of mortgage-related securities differ from those of
traditional fixed income securities. The major differences typically include
more frequent interest and principal payments, usually monthly, and the
possibility that prepayments of principal may be made at any time. Prepayment
rates are influenced by changes in current interest rates and a variety of
economic, geographic, social and other factors and cannot be predicted with
certainty. The yields to maturity of the mortgage-related securities will be
affected by the actual rate of payment (including prepayments) of principal of
the underlying mortgage loans. In general, prepayments on the underlying
mortgage loans, and subsequently the mortgage-related securities backed by these
loans, increases when the level of prevailing interest rates declines
significantly below the interest rates on such loans. When declines in interest
rates occur, the proceeds from the prepayment of such securities may be
reinvested at lower rates than the Company was earning on such securities.

The Company's mortgage-related securities portfolio is well diversified as
to collateral, maturity, duration and other characteristics. The majority of
the mortgage-related securities portfolio has the guarantee or backing of
agencies of the United States government. Generally, the mortgage-related
securities consist of pools of single-family, residential mortgages. At
September 30, 1995, the Company's mortgage-related securities portfolio included
$101.9 million of CMOs and pass-through certificates issued by non-government
agencies (27.3% of total mortgage-backed securities) compared to $84.0 million
at December 31, 1994 (28.6% of total mortgage-backed securities). The majority
of these holdings are senior securities in the CMO structures which are
collateralized by first mortgage liens on single family residences and which
have investment grade ratings of Baa3 and/or BBB- or higher. The
creditworthiness of these securities is based solely on the underlying mortgage
loan collateral and credit enhancements in the form of senior/subordinated
structures, letters of credit, mortgage insurance or surety bonds. The
underlying mortgage loan collateral principally consists of whole loan mortgages
that exceed the maximum imposed by both the Federal National Mortgage
Association and the Federal Home Loan Mortgage Corporation. Therefore, the
collateral tends to be concentrated in states with the greatest number of higher
priced single family residences, including California, New York, New Jersey,
Maryland, Virginia and Illinois.

At September 30, 1995, the Company held $17.6 million carrying value
($14.9 million fair value) of inverse floater and interest-only tranches of
CMOs. These derivative securities were acquired to protect the Company in the
event of adverse interest rate fluctuations. The yields and fair values of
these securities are generally more sensitive to changes in interest rates and
prepayments than other mortgage-related securities.

The following table summarizes the components of the Company's mortgage-
related securities portfolio at December 31, 1994, and September 30, 1995:

AT DECEMBER 31, 1994 AT SEPTEMBER 30,1995
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
(IN THOUSANDS)
Inverse floaters and interest-only
CMO tranches . . . . . . . . . . $ 14,961 $ 8,940 $ 17,607 $ 14,934
Other CMOs:
U.S. government agency . . . . . 148,366 137,138 201,173 199,276
Non-agency . . . . . . . . . . . 29,299 27,404 46,177 46,631
Total other CMOs . . . . . . 177,665 164,542 247,350 245,907
U.S. government agency pass-through 41,444 39,414 56,504 56,412
Non-agency pass-through . . . . . . 54,601 50,555 55,995 56,520
Total mortgage-backed securities . $ 288,671 $ 263,451 $ 377,456 $373,773

POLICY LIABILITIES

The Company records reserves for future policy benefits to meet future
obligations under outstanding policies. These reserves are amounts which are
calculated to be sufficient to meet policy and contract obligations as they
mature. The amount of reserves for insurance policies is calculated using
assumptions for interest, mortality and morbidity, expenses and withdrawals.
Reserves are established at the time the policy is issued and adjusted
periodically based on reported and unreported claims or other information. See
Note 1 of Notes to Consolidated Financial Statements.

COMPETITION

The insurance business is highly competitive and includes a large number
of insurance companies, many of which have substantially greater financial
resources and larger and more experienced staffs than the Company. The Company
competes with other insurers to attract and retain the allegiance of its
independent agents and marketing organizations who at this time are responsible
for most of the Company's premiums. Methods of competition include the
Company's ability to offer competitive products and to service these programs
efficiently. Other competitive factors applicable to the Company's business
include policy benefits, service to policyholders and premium rates.

HEALTH CARE REFORM

Many proposals have been introduced in Congress and various state
legislatures to reform the present health care system. Most of these proposals
are specifically directed at the small group health care market, a significant
portion of the Company's health business. At present, most health care reform,
other than that related to the Medicare program, is taking place at the state
level. A number of states have passed or are considering legislation that would
limit the differentials in rates that insurers could charge between new business
and renewal business with respect to similar demographic groups. State
legislation also has 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
mandated benefits as well as a standard plan and by establishing a mechanism to
spread the risk of high risk employees to all small group insurers.

At the federal level, the current focus of healthcare reform is related to
the federal Medicare program and efforts to control expenditures. From time to
time there are significant federal legislative developments with respect to
long-term care and Medicare coverage. The Federal Omnibus Budget Reconciliation
Act of 1990 ("COBRA '90") required that Medicare supplement policies provide for
guaranteed renewability and waivers of pre-existing condition coverage
limitations under certain circumstances. In addition, the NAIC has recently
adopted model long-term care policy language providing nonforfeiture benefits
and has proposed a rate stabilization standard for long-term care policies.
Among the proposals currently pending in the U.S. Congress are the
implementation of certain minimum consumer protection standards for inclusion in
all long-term care policies, including guaranteed renewability, protection
against inflation and limitations on waiting periods for pre-existing
conditions. These proposals would also prohibit "high pressure" sales tactics
in connection with long-term care insurance and would guarantee consumers access
to information regarding insurers, including lapse and replacement rates for
policies and the percentage of claims denied. Other pending legislation would
permit premiums paid for long-term care insurance to be treated as tax-
deductible medical expenses, with the amount of the deduction increasing with
the age of the taxpayer. The Company cannot predict with certainty the effect
any such proposals, if adopted, or legislative developments could have on its
business and operations. It is likely that health care reform at the federal
and state levels will require the Company to make significant changes to the way
it conducts its health insurance business. See "Risk Factors -- Insurance

Regulation." The Company has already initiated activity to prepare for expected
legislation. For example, the Company has begun to establish HMOs for Medicare
managed care programs which are expected to be included in federal Medicare
reform programs.

GOVERNMENT REGULATION

The Company and its insurance subsidiaries are subject to extensive
governmental regulation and supervision in each of the jurisdictions in which it
or its subsidiaries conduct business. Such regulation vests in governmental
agencies broad regulatory, supervisory and administrative power with respect to
the Company's business, including premium rate levels, premium rate increases,
policy forms, minimum loss ratios, dividend payments, claims settlement,
licensing of insurers and their agents, capital adequacy, transfer of control,
the amount and type of investments the Company may have, reserve requirement,
solvency standards, trade practices and periodic examinations. Such regulations
are primarily intended to protect policyholders and not investors. The
Company's accident and health coverages generally are subject to rate regulation
by state insurance departments which in certain cases require that certain
minimum loss ratios be maintained.

The states in which the Company is licensed have the authority to change
the minimum mandated statutory loss ratios to which the Company is subject, the
manner in which these ratios are computed and the manner in which compliance
with these ratios is measured and enforced. Loss ratios are commonly defined as
incurred claims and increases in policy reserves divided by earned premiums.
Most states in which the Company writes insurance have adopted the loss ratios
recommended by the NAIC. The Company is unable to predict the impact of (i) any
changes in the mandatory statutory loss ratios for individual or group policies
to which the Company may become subject, (ii) any changes in the minimum loss
ratios for individual, group or Medicare supplement policies, or (iii) any
change in the manner in which these minimums are computed or enforced in the
future. The Company has not been informed by any state that it does not meet
mandated minimum ratios, and the Company believes that it is in compliance with
all such minimum ratios. In the event the Company is not in compliance with
minimum statutory loss ratios mandated by regulatory authorities with respect to
certain policies, the Company may be required to reduce or refund premiums,
which could have a material adverse effect upon the Company.

Certain states also have insurance holding company laws which require
registration and periodic reporting by insurance companies controlled by other
corporations licensed to transact business within their respective
jurisdictions. The Company's insurance subsidiaries are subject to such laws
and are registered as controlled insurers in those jurisdictions in which such
registration is required. Such laws vary from state to state but typically
require periodic disclosure concerning the corporation which controls the
registered insurers and all subsidiaries of such corporation, and prior notice
to, or approval by, the state insurance department of intercorporate transfers
of assets and other transactions (including payments of dividends in excess of
specified amounts by the insurance subsidiary) within the holding company
system.

EMPLOYEES

As of December 31, 1995, the Company employed approximately 1,830 persons
on a full-time basis. The Company considers its employee relations to be good.

LEGAL PROCEEDINGS

The Company and its subsidiaries are named as defendants in various legal
actions, some claiming significant damages, arising primarily from claims under
insurance policies, disputes with agents, and other matters. The Company's
management and its legal counsel are of the opinion that the disposition of
these actions will not have a material adverse effect on the Company's financial
position.

PROPERTIES

The principal executive offices of the Company are located in Schaumburg,
Illinois in a building purchased by the Company in January 1994. The Company,
through a subsidiary, owns three buildings in Rockford, Illinois and, through
another subsidiary, also owns a building in the Dallas, Texas metropolitan area
which currently serves as the main administrative office for the Group Medical
Division. The Company leases the offices of its other regional service centers.
The executive and administrative offices of Manhattan National Life are located
in Cincinnati, Ohio, in leased space. The headquarters of the Company's Medical
Utilization Management Division are located in Louisville, Kentucky in leased
space. The Company believes these facilities will adequately serve its needs
for the foreseeable future and could accommodate expansion of the Company's
business.

MANAGEMENT AND DIRECTORS

The executive officers and directors of the Company are as follows:

Peter W. Nauert . . . . . . . . . 52 Chairman, Chief Executive Officer
and Director
Charles R. Scheper . . . . . . . 43 President Life Insurance
Operations and Director
Thomas J. Brophy . . . . . . . . 60 President Health Insurance
Operations and Director
Ernest T. Giambra, Jr. . . . . . 48 Executive Vice President and Chief
Marketing Officer
William B. Van Vleet . . . . . . 71 Director and General Counsel
Emeritus
Anthony J. Pino . . . . . . . . . 48 Executive Vice President
Philip J. Fiskow . . . . . . . . 39 Senior Vice President and Chief
Investment Officer
Mark S. Fischer . . . . . . . . . 39 Vice President
David I. Vickers . . . . . . . 34 Vice President, Treasurer and Chief
Financial Officer
Michael A. Cavataio . . . . . . . 52 Director and Vice Chairman
Richard R. Haldeman . . . . . . . 53 Director
R. Richard Bastian, III . . . . . 49 Director
Karl Heinz Klaeser . . . . . . . 64 Director
Michael K. Keefe . . . . . . . . 51 Director
Robert F. Nauert . . . . . . . . 71 Director
Carl A. Hulbert . . . . . . . . . 72 Director

All executive officers are elected annually and serve at the pleasure of
the Board of Directors. Certain of the executive officers have employment
agreements with the Company. The Company's Board of Directors is divided into
three classes, each of which serves for a three year term.

Peter W. Nauert has been Chief Executive Officer and a director of the
Company since its incorporation in 1982. He was President of the Company from
1982 to 1988 and 1991 to 1995, and became Chairman of the Company in 1988.
Since 1968, Mr. Nauert has been employed in an executive capacity by one or more
of the Company's insurance subsidiaries.

Charles R. Scheper was elected President--Life Insurance Operations of the
Company in March 1995. He was Vice President of the Company from 1991 to March
1995 and was Chief Financial Officer from May 1993 to December 1993. In March
1992, he was elected Executive Vice President. Since February 1992, he has been
President and Vice Chairman of the Board of Manhattan National Life, a
subsidiary of the Company. Prior to the Company's acquisition of Manhattan
National Life, Mr. Scheper was Manhattan National Life's Senior Vice President
and Chief Financial Officer, a position which he held from May 1987 until the
acquisition. Prior to joining Manhattan National Life, Mr. Scheper was with
Union Central Life Insurance Company from 1979, having served as Vice President
and Controller since 1985.

Thomas J. Brophy was elected President--Health Insurance Operations of the
Company in March 1995. He was Senior Vice President since joining the Company
in November 1993. Prior to joining the Company, Mr. Brophy was President and
Chief Operating Officer of Southwestern Life Insurance Company from June 1990 to
September 1993. Mr. Brophy also held senior executive positions with various
I.C.H. Corporation (now known as Southwestern Life Corp.) subsidiaries from
March 1974 to his joining the Company in November 1993.

Ernest T. Giambra, Jr. was elected Executive Vice President of the Company
in May 1994. Prior to joining the Company as Chief Marketing Officer in June
1993, Mr. Giambra had been with Bankers Life Holding Corporation since 1969
where he had served as Vice President of Sales since 1988.

William B. Van Vleet has been Executive Vice President of the Company
since 1986 and a director of the Company since 1982. He was General Counsel of
the Company from 1982 to 1988. In June 1991, he was again elected General
Counsel and served until his retirement from that position in 1995. He now
serves as the Company's General Counsel Emeritus. Mr. Van Vleet had served
Pioneer Life Insurance Company, a subsidiary of the Company, from 1948 until
1995 as General Counsel and a director. Mr. Van Vleet also serves as a director
of other subsidiaries of the Company.

Anthony J. Pino was elected Executive Vice President of the Company in May
1993. He was Senior Vice President of the Company from March 1992 to May 1993
and was President of National Group Life Insurance Company, a subsidiary of the
Company, from July 1991 to June 1992. Mr. Pino has served as President of
National Health Services, a subsidiary of the Company, since 1992. Prior to
joining the Company, Mr. Pino was Chief Operating Manager of American Postal
Workers' Union Health Plan, a position which he held from October 1982.

Philip J. Fiskow has been Senior Vice President since May 1993 and the
Chief Investment Officer since joining the Company in 1991. He was Vice
President of the Company from June 1991 until May 1993. He is also an officer
of other subsidiaries of the Company. Mr. Fiskow was with Asset Allocation and
Management Company as an Investment Advisory Portfolio Manager from January 1989
to June 1991. From May 1987 to December 1988 he was an Investment Advisor with
Van Kampen Merritt and a Portfolio Manager with Aon Corporation from May 1981 to
May 1987.

Mark S. Fischer has been a Vice President of the Company since December
1994 and has been a Vice President of one of the Company's subsidiaries since
May 1993. Prior to joining the Company, he had been a consultant to the Company
and was with the public accounting firm of Ernst & Young LLP from May 1978 to
October 1992 where he was a Senior Manager in the Insurance Division.

David I. Vickers has been with the Company since June 1992 and has been a
Vice President of the Company since December 1992, Treasurer since May 1993 and
Chief Financial Officer since January 1994. He is also an officer and director
of several subsidiaries of the Company. Prior to joining the Company, he was
with the public accounting firm of Ernst & Young LLP since 1983 where he was a
Senior Manager in the Insurance Division.

Michael A. Cavataio has been a director of the Company since 1986 and Vice
Chairman since December 1995. Mr. Cavataio is a real estate developer in
Northern Illinois and Southern Wisconsin. His business experience also includes
25 years as an owner and manager of a regional clothing store chain. He has
also been a member of the board of directors of Today's Bank East since 1987.

Richard R. Haldeman has been a director of the Company since 1986 and was
Secretary from 1988 to June 1990. Mr. Haldeman has been a partner of Haldeman &
Associates, a law firm, since June 1990. He was a partner of Williams &
McCarthy, P.C., a law firm, from 1975 to May 1990.

R. Richard Bastian, III has been a director of the Company since December
1994. Mr. Bastian is a management consultant, specializing in strategic
planning and organizational development. Mr. Bastian's career includes over 28

years in the financial services industry, most recently as President and Chief
Executive Officer of Heritage Bank & Trust of Racine, Wisconsin. Prior to
Heritage, he served as Chairman, President and Chief Executive Officer of Bank
One, Rockford and its predecessor, First Community Bancorp, an $800 million
multi bank holding company. He has also held management positions at banks in
Tulsa and Philadelphia where his banking career began in 1966.

Karl Heinz Klaeser has been a director of the Company since 1986. Mr.
Klaeser has also been a director of LSW Holding Corporation and Insurance
Investors Life Insurance Company and the Chairman of the Board of Life Insurance
Company of the Southwest since 1989 and a director of Personal Assurance Company
PLC (United Kingdom) since 1991.

Michael K. Keefe has been a director of the Company since March 1994. Mr.
Keefe has been Chief Executive Officer and Chairman of the Board of Keefe Real
Estate, Inc., a family owned real estate brokerage operation since 1982. Mr.
Keefe has also been Chairman of the Board of Southern Wisconsin Bankshares, Inc.
since 1988.

Robert F. Nauert has been a director of the Company since November 1991.
Mr. Nauert is also a director and officer of various subsidiaries of the
Company. Mr. Nauert is the brother of Peter W. Nauert.

Carl A. Hulbert was elected director of the Company in March 1995. Mr.
Hulbert is a management consultant, specializing in the insurance industry. Mr.
Hulbert is a past Insurance Commissioner of the state of Utah. He has also been
a director for numerous insurance companies during his 49 year business career.

PRINCIPAL HOLDERS OF SECURITIES

The following table sets forth, as of February 15, 1995, information with
respect to the beneficial ownership of Common Stock and $2.125 Preferred Stock
of the Company by (i) each person who is known to the Company to be the
beneficial owner of more than 5% of the outstanding shares of Common Stock, (ii)
each of the Company's directors and (iii) all of the Company's directors and
executive officers as a group. Unless otherwise indicated, the address of each
stockholder listed is at the Company's principal place of business.

<TABLE>
<CAPTION>
Amount and Nature of Beneficial
Ownership (1) Percent of Class

Name of Beneficial Owner Common Preferred Common Preferred
Stock Stock Stock Stock

<S> <C> <C> <C> <C>
Peter W. Nauert . . . . . . . . . . 1,702,635 (2) - 16.5% -
U.S. Bancorp . . . . . . . . . . . 582,510 (3) - 5.8 -
Credit Suisse . . . . . . . . . . . 110,000 (4) - 1.1 -
Charles R. Scheper . . . . . . . . 81,035 (5)(6) - * -
Thomas J. Brophy . . . . . . . . . 35,205 (5)(6)(8) 400 * *
Ernest T. Giambra, Jr. . . . . . . 19,069 (5)(6) - * -
William B. Van Vleet . . . . . . . 54,269 (5) - * -
Anthony J. Pino . . . . . . . . . . 25,907 (5)(6) - * -
Philip J. Fiskow . . . . . . . . . 5,846 (6) - * -
Mark S. Fischer . . . . . . . . . . 2,260 (6) - * -
David I. Vickers . . . . . . . . . 6,990 (5)(6) - * -
Michael A. Cavataio . . . . . . . . 216,759 (5)(7) 7,482 2.1 *
Richard R. Haldeman . . . . . . . . 17,300 (5) - * -
R. Richard Bastian, III . . . . . . 31,846 (5) - * -
Karl-Heinz Klaeser . . . . . . . . 61,271 (5) - * -
Michael K. Keefe . . . . . . . . . 37,200 (5) - * -
Robert F. Nauert . . . . . . . . . 18,212 (5)(6) - * -
Carl A. Hulbert . . . . . . . . . . 25,000 (5) - * -

All directors and executive officers 2,370,884 (5)(6)(7)(8) 7,882 21.9 *
as a group (21 persons)

________________
*Less than 1.0%

(1) Unless otherwise indicated, each person has sole voting and investment
power with respect to all such shares. Shares of Common Stock underlying
options exercisable within 60 days are deemed to be outstanding for the
purposes of calculating the percentage owned by the holder.

(2) Includes (i) 86,000 shares held by Mr. Nauert's children or by Mr. Nauert
as custodian or as trustee for his children and 2,000 shares held of
record by Mr. Nauert's wife, (ii) 215,000 shares which may be acquired
pursuant to presently outstanding stock options and (iii) shares of Common
Stock held in Employee Savings and Stock Ownership Plan accounts.

(3) The address for this stockholder is 111 S.W. Fifth Avenue, Suite 3500,
Portland, Oregon 97204. U.S. Bancorp has sole voting power with respect
to 579,210 shares, sole power to dispose of 549,816 shares and shared
power to dispose of 32,694 shares. This information is based upon a
Schedule 13G dated February 13, 1996.

(4) The address for this stockholder is Paradeplatz 8, 8070 Zurich,
Switzerland. This information is based upon a Schedule 13G dated
February 12, 1996.

(5) Includes shares of Common Stock which such directors and executive
officers have the right to acquire within 60 days upon the exercise of
stock options as follows: Mr. Scheper, 70,000 shares; Mr. Brophy, 25,000
shares; Mr. Giambra 10,000 shares; Mr. Van Vleet, 50,000 shares; Mr. Pino,
15,000 shares; Mr. Vickers, 4,000 shares; Mr. Cavataio, 116,354 shares;
Mr. Haldeman, 14,500 shares; Mr. Bastian, 27,923 shares; Mr. Keefe 33,000
shares; Mr. Klaeser, 55,500 shares; Mr. Robert Nauert, 15,000 shares;
Mr. Hulbert, 25,000 shares; executive officers other than named executive
officers, 4,000 shares.

(6) Includes shares of Common Stock held in Employee Savings and Stock
Ownership Plan accounts.

(7) Includes 11,971 shares of Common Stock issuable upon conversion of 7,482
shares of $2.125 Preferred Stock held by Mr. Cavataio and member of
Mr. Cavataio's immediate family.

(8) Includes 640 shares of Common Stock issuable upon conversion of 400 shares
of $2.125 Preferred Stock held by Mr. Brophy.

</TABLE>

CERTAIN TRANSACTIONS

In 1995, a marketing subsidiary of the Company paid rent of approximately
$78,054 to a partnership in which Mr. Peter Nauert held a 50% interest. The
lease for this property expired during 1995 and was not renewed. The Company

believes that the rates charged to the Company's subsidiary were the same as
those charged to unaffiliated third parties.

In 1995, Mr. Cavataio was engaged by the Company as an investment advisor
to help manage the Company's investment portfolio. Pursuant to this
arrangement, Mr. Cavataio received compensation of $100,000 in 1995.

In 1995, Mr. Van Vleet was engaged by the Company as a consultant.
Mr. Van Vleet is to receive compensation of $75,000 per year. The engagement
commenced on July 31, 1995 and will continue through June 30, 1997.

Any future transactions between the Company and its officers, directors,
principal stockholders or the affiliates of any of them will be on negotiated
terms no less favorable to the Company than could be obtained from unaffiliated
parties.

DESCRIPTION OF THE NOTES

The Notes will be issued under an Indenture to be dated as of
_________ __, 1996 (the "Indenture"), between the Company and
______________________________ , as Trustee (the "Trustee"), a copy of the form
of which is filed as an exhibit to the Registration Statement of which this
Prospectus is a part. The terms of the Notes include those set forth in the
Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939, as amended (the "Trust Indenture Act"). The Notes are
subject to all such terms, and holders of Notes are referred to the Indenture
and the Trust Indenture Act for a statement thereof. The following summary of
certain provisions of the Indenture does not purport to be complete and is
qualified in its entirety by reference to the Indenture, including the
definitions therein of certain capitalized terms used below and not otherwise
defined herein. As used in this Section, the "Company" refers to Pioneer
Financial Services, Inc., exclusive of its subsidiaries.

GENERAL

The Notes will be unsecured, subordinated obligations of the
Company, will be limited to $65 million aggregated principal amount ($74.75
million if the Underwriters' over-allotment option is exercised in full) and
will mature on _________ __, 2003 See "--Subordination." The Notes will bear
interest at the rate of __% per annum from the date of issuance, or from the
most recent interest payment date to which interest has been paid or provided
for, payable semi-annually on _________ __ and _________ __ of each year to the
person in whose name the Note (or any predecessor Note) is registered at the
close of business on the preceding _________ __ and _________ __, as the case
may be (each a "Record Date"). Interest will be computed on the basis of a 360-
day year of twelve 30-day months. Principal of, premium, if any, and interest
on the Notes will be payable, the Notes will be convertible and the transfer of
Notes will be registrable, at the office or agency maintained for such purpose
in the Borough of Manhattan, City of New York. In addition, payment of interest
may, at the option of the Company, be made by check mailed to the address of the
person entitled thereto as it appears in the register of Noteholders. Until
otherwise designated by the Company, the Company's office or agency in New York
will be the office of the Trustee maintained for such purpose.

The Notes will be issued only in fully registered form, without
coupons, in denominations of $1,000 and any integral multiple thereof.

CONVERSION RIGHTS

The Notes will be convertible (in denominations of $1,000 and any
integral multiple thereof) into Common Stock of the Company, at the option of
the holder, at any time on or prior to the redemption date or _________ __,
2003, at the conversion price then in effect. The conversion price is set forth
on the cover page of this Prospectus, subject to any adjustments, if any,
described below. The right to convert Notes called for redemption will terminate
at the close of business on the date prior to the date fixed for such redemp-

tion, unless the Company shall default on payment of the redemption price. For
information as to notices of redemptions, see "--Optional Redemption."

The registered holders of Notes at the close of business on a Record
Date will be entitled to receive the interest payable on the Notes on the corre-
sponding interest payment date notwithstanding the conversion of the Notes after
the Record Date or, subject to certain provisions applicable to defaulted
interest, the Company's default in payment on the interest payment date. Not-
withstanding the foregoing, Notes surrendered for conversion during the period
from the close of business on any Record Date to the opening of business on the
corresponding interest payment date (except Notes or portions thereof called for
redemption on a redemption date during such period) must be accompanied by
payment of an amount equal to the interest payable on that interest payment
date. The interest payment with respect to a Note called for redemption on a
redemption date during the period from the close of business on any Record Date
to the opening of business on any corresponding interest payment date will be
payable on that interest payment date to the registered holder at the close of
business on that Record Date (notwithstanding the conversion of such Note after
such Record Date) and the Noteholder who elects to convert need not include
funds equal to the interest paid. Noteholders on a Record Date who convert
Notes on or after the corresponding interest payment date will receive the
interest payable by the Company on that date and need not include payment in the
amount of such interest payable by the Company on that date and need not include
payment in the amount of such interest upon surrender of those Notes for conver-
sion. Except as described above, no payment or adjustment is to be made on
conversion for interest accrued on the Notes or for dividends on the Common
Stock issued on conversion.

The Company will not issue fractional shares of Common Stock upon
conversion of Notes and, in lieu thereof, will pay a cash adjustment based upon
the current market price of the Common Stock (determined as set forth in the
Indenture) on the close of business on the day prior to the date of conversion.

The conversion price is subject to adjustment upon the occurrence of
certain events, including (i) the issuance of Common Stock as a dividend or as a
distribution on any class of the capital stock of the Company, or a subdivision,
combination or reclassification of Common Stock, (ii) the issuance to all
holders of Common Stock of certain rights, warrants or other securities convert-
ible into Common Stock entitling them to subscribe for Common Stock at less than
the then current market price per share (as determined in the manner set forth
in the Indenture), (iii) the distribution to all holders of Common Stock of any
shares of capital stock or evidences of indebtedness of the Company or cash or
other assets (excluding any dividend paid out of current or retained earnings
payable solely in cash); (iv) the issuance of Common Stock to an Affiliate at
less than the current market price, other than pursuant to an employee benefit
plan approved by the Company's board of directors, and (v) the purchase of
Common Stock pursuant to a tender offer made by the Company or any of its
subsidiaries which involves an aggregate consideration that, together with (x)
any cash and the fair market value of any other consideration payable in any
other tender offer by the Company or any of its subsidiaries for Common Stock
expiring within the 12 months preceding such tender offer in respect of which no
adjustment has been made and (y) the aggregate amount of dividends paid out of
current or retained earnings referred to in clause (iii) above to all holders of
Common Stock within the 12 months preceding the expiration of such tender offer
in respect of which no adjustments have been made, exceeds 15% of the Company's
market capitalization on the expiration of such tender offer. Notwithstanding
the foregoing (i) if the rights, warrants or other securities described in
clause (ii) of the preceding paragraph are exercisable only upon the occurrence
of certain triggering events, then the conversion price will not be adjusted
until such triggering events occur, (ii) the distribution to holders of Common
Stock of separate certificates representing Rights (as described below) will not
require an adjustment in the conversion price until the Rights become
exercisable as described under "Description of Capital Stock Rights to
Purchase Series A Junior Preferred Stock," (iii) if rights or warrants expire
unexercised, the conversion price shall be readjusted to take into account only
the actual number of such rights, warrants or other securities which were

exercised, and (iv) in the event of a distribution to holders of Common Stock
generally of shares of capital stock or rights to acquire capital stock (in
either case, other than Common Stock), the Company may, instead of making any
adjustment in the conversion price, make proper provision so that each holder of
a Note who converts such Note (or any portion hereof) after the record date for
such distribution and prior to the expiration or redemption of such rights, if
applicable, shall be entitled to receive upon such conversion, in addition to
the shares of Common Stock issuable upon such conversion, the kind and amount of
such shares of capital stock or rights which the holder would have been entitled
to receive had such Note (or portion thereof) been converted immediately prior
to such record date. No adjustment in the conversion price will be required
unless such adjustment would require an increase or decrease of at least one
percent of the conversion price, but any adjustment that would otherwise be re-
quired to be made shall be carried forward and taken into account in any
subsequent adjustment.

In case of any reclassification or change of outstanding shares of
Common Stock (with certain exceptions) or the Company's consolidation with, or
merger with or into, any other entity that results in a reclassification,
change, conversion, exchange or cancellation of outstanding shares of Common
Stock (with certain exceptions) or any sale, transfer or lease of all or
substantially all the assets of the Company, the holder of any Note after such
reclassification, change, consolidation, merger, sale, transfer or lease will
have the right to convert such Notes only into the kind and amount of
securities, cash and other property which the holder would have been entitled to
receive upon such reclassification, change, consolidation, exchange, merger,
sale, transfer or lease if the holder had held the Common Stock issuable upon
the conversion of such Notes immediately before the effective date of such
transaction.

The Company from time to time may to the extent permitted by law
reduce the conversion price by any amount for any period of at least 20 days, in
which case the Company shall give at least 15 days' notice of such decrease, if
the Board of Directors has made a determination that such decrease would be in
the best interests of the Company, which determination shall be conclusive. The
Company may, at its option, make such reductions in the conversion price, in
addition to those set forth above, as the Company deems advisable to avoid or
diminish any income tax to its stockholders resulting from any dividend or
distribution of stock (or rights to acquire stock) or from any event treated as
such for income tax purposes.

SUBORDINATION

The payment of principal of, premium, if any, and interest on the
Notes will, to the extent set forth in the Indenture, be subordinated in right
of payment to the prior payment in full of all Senior Indebtedness. Upon any
distribution to creditors of the Company in a liquidation or dissolution of the
Company or in a bankruptcy, reorganization, insolvency, receivership or similar
proceeding related to the Company or its property, in an assignment for the
benefit of creditors or any marshalling of the Company's assets and liabilities,
the holders of all Senior Indebtedness will first be entitled to receive payment
in full of all amounts due or to become due thereon before the Noteholders will
be entitled to receive any payment in respect of the principal of or premium, if
any, or interest on the Notes or on account of the redemption or repurchase
provisions of the Notes (except that holders of Notes may receive securities
that are subordinated at least to the same extent as the Notes to Senior
Indebtedness and any securities issued in exchange for Senior Indebtedness).

The Company also may not make any payment upon or in respect of the
Notes (except in such subordinated securities) if (a) a default in the payment
of the principal of, premium, if any, or interest on Senior Indebtedness occurs
and is continuing beyond any applicable period of grace or (b) any other default
occurs and is continuing with respect to Senior Indebtedness that permits
holders of the Senior Indebtedness as to which such default relates to
accelerate its maturity and the Trustee receives a notice of such default (a
"Payment Blockage Notice") from the representative or representatives of holders

of at least a majority in principal amount of Senior Indebtedness then
outstanding. Payments on the Notes may and shall be resumed, (i) in the case of
a payment default, upon the date on which such default is cured or waived or
(ii) in the case of a nonpayment default, 179 days after the date on which the
applicable Payment Blockage Notice is received, unless the maturity of any
Senior Indebtedness has been accelerated. No new period of payment blockage may
be commenced within 360 days after the receipt by the Trustee of any prior Pay-
ment Blockage Notice. No nonpayment default that existed or was continuing on
the date of delivery of any Payment Blockage Notice to the Trustee shall be, or
be made, the basis for a subsequent Payment Blockage Notice unless such default
shall have been cured or waived for a period of not less than 180 days.

A significant portion of the Company's operations are conducted
through subsidiaries. The rights of the Company and its creditors, including
the holders of Notes, to participate in the assets of any such subsidiary upon
any liquidation or reorganization of such subsidiary or otherwise will be
subject to prior claims of creditors of such subsidiary, including
policyholders, except to the extent that the Company may itself be a creditor
with recognized claims against the subsidiary. At _________ __, 1996,
indebtedness of the Company's subsidiaries was approximately $__________
million. The Company's ability to pay principal and interest on the Notes will
be dependent upon the payment to it of dividends, interest and other amounts by
its subsidiaries. See "Management's Discussion and Analysis of Results of
Operations and Financial Condition" and "Risk Factors Holding Company
Structure."

Because of these subordination provisions, in the event of a
liquidation, bankruptcy or insolvency of the Company, Noteholders may recover
less, ratably, than the holders of Senior Indebtedness. On a pro forma basis,
after giving effect to this offering and the application of the proceeds
therefrom, the principal amount of Senior Indebtedness outstanding at February
15, 1996 will be approximately $0.3 million.

"Senior Indebtedness" with respect to the Notes means the principal
of, premium, if any, and interest on, and any fees, costs, expenses and any
other amounts (including indemnity payments) related to the following, whether
outstanding on the date of the Indenture or thereafter incurred or created:
(a) indebtedness, matured or unmatured, whether or not contingent, of the
Company for money borrowed, (b) any interest rate contract, interest rate swap
agreement or other similar agreement or arrangement designed to protect the
Company or any of its subsidiaries against fluctuations in interest rates, (c)
indebtedness, matured or unmatured, whether or not contingent, of the Company
evidenced by notes, debentures, bonds or similar instruments or letters of
credit (or reimbursement agreements in respect thereof), (d) obligations of the
Company as lessee under capitalized leases and under leases of property made as
part of any sale and leaseback transactions, (e) indebtedness of others of any
of the kinds described in the preceding clauses (a) through (d) assumed or
guaranteed by the Company and (f) renewals, extensions, modifications, amend-
ments and refundings of, and indebtedness and obligations of a successor person
issued in exchange for or in replacement of, indebtedness or obligations of the
kinds described in the preceding clauses (a) through (f), unless the agreement
pursuant to which any such indebtedness described in clauses (a) through (f) is
created, issued, assumed or guaranteed expressly provides that such indebtedness
is not senior or superior in right of payment to the Notes; provided, however,
that the following shall not constitute Senior Indebtedness: (i) any indebt-
edness or obligation of the Company in respect of the Notes; (ii) the 8% Deben-
tures; (iii) any indebtedness of the Company to any of its subsidiaries or other
affiliates; (iv) any indebtedness that is subordinated or junior in any respect
to any other indebtedness of the Company other than Senior Indebtedness; and (v)
any indebtedness incurred for the purchase of goods or materials in the ordinary
course of business.

The Company expects from time to time to incur indebtedness
constituting Senior Indebtedness. The Indenture does not prohibit or limit the
incurrence of additional indebtedness, including Senior Indebtedness, by the
Company or its subsidiaries.

OPTIONAL REDEMPTION

The Notes are to be redeemable, for cash, at the option of the
Company, at any time on or after _________ __, 1999, in whole or in part, upon
not less than 30 or more than 60 days' notice, at the following redemption
prices (expressed as percentages of principal amount), plus accrued and unpaid
interest to the date fixed for redemption if redeemed during the 12-month period
beginning:

Redemption
Date Price

_________ __, 1999 . . . . . . . . . . . . . . . . . _____%
_________ __, 2000 . . . . . . . . . . . . . . . . . _____%
_________ __, 2001 . . . . . . . . . . . . . . . . . _____%
_________ __, 2002 . . . . . . . . . . . . . . . . . _____%
_________ __, 2003 . . . . . . . . . . . . . . . . . _____%

If less than all of the outstanding Notes are to be redeemed, the
Trustee will select those to be redeemed pro rata or by a method the Trustee
considers fair and appropriate. Any Notes for which a notice of redemption has
been given may be converted into shares of Common Stock at any time before the
close of business on the date prior to the date fixed for redemption.

Except as set forth under " Change of Control" the Company will not
be required to make mandatory redemption payments with respect to the Notes.
There are no sinking fund payments with respect to the Notes.

CHANGE OF CONTROL

Upon the occurrence of a Change of Control, each holder of Notes
will have the right to require the Company to repurchase all or any part (equal
to $1,000 or an integral multiple thereof) of such holder's Notes pursuant to
the offer described below (the "Change of Control Offer") at an offer price in
cash equal to 101% of the aggregate principal amount thereof plus accrued and
unpaid interest, if any, to the date of purchase (the "Change of Control
Payment"). Within 10 days following any Change of Control, the Company will
issue a press release and mail a notice via first class mail, postage prepaid to
each holder stating: (1) that the Change of Control Offer is being made pursuant
to the covenant entitled "Offer to Repurchase Upon Change of Control" and that
all Notes tendered will be accepted for payment; (2) the purchase price and the
purchase date, which will be a business day no earlier than 30 days nor later
than 60 days from the date such notice is mailed (the "Change of Control Payment
Date"); (3) that any Note not tendered will continue to accrue interest;
(4) that, unless the Company defaults in the payment of the Change of Control
Payment, all Notes accepted for payment pursuant to the Change of Control Offer
will cease to accrue interest after the Change of Control Payment Date; (5) that
holders electing to have any Notes purchased pursuant to a Change of Control
Offer will be required to surrender the Notes, with the form entitled "Option of
Holder to Elect Purchase" on the reverse of the Notes completed, to the Paying
Agent at the address specified in the notice prior to the close of business on
the third Business Day preceding the Change of Control Payment Date; (6) that
holders will be entitled to withdraw their election if the Paying Agent
receives, not later than the close of business on the second Business Day
preceding the Change of Control Payment Date, a telegram, telex, facsimile
transmission or letter setting forth the name of the holder, the principal
amount of Notes delivered for purchase, and a statement that such holder is
withdrawing his election to have such Notes purchased; and (7) that holders
whose Notes are being purchased only in part will be issued new Notes equal in
principal amount to the purchased portion of the Notes surrendered, which
unpurchased portion must be equal to $1,000 in principal amount or an integral
multiple thereof. The Company will comply with the requirements of Rule 13e-4
under the Exchange Act and any other securities laws and regulations thereunder
to the extent such laws and regulations are applicable in connection with the
repurchase of the Notes in connection with a Change of Control.

On the Change of Control Payment Date, the Company will, to the
extent lawful, (1) accept for payment Notes or portions thereof tendered
pursuant to the Change of Control Offer, (2) deposit with the Paying Agent an
amount equal to the Change of Control Payment in respect of all Notes or
portions thereof so tendered and (3) deliver or cause to be delivered to the
Trustee the Notes so accepted together with an Officers' Certificate stating the
Notes or portions thereof tendered to the Company. The Paying Agent shall
promptly mail to each holder of Notes so accepted the Change of Control Payment
for such Notes, and the Trustee shall promptly authenticate and mail to each
holder a new Note equal in principal amount to any unpurchased portion of the
Notes surrendered, if any; provided, that each such new Note shall be in a
principal amount of $1,000 or an integral multiple thereof. The Company will
publicly announce the results of the Change of Control Offer on or as soon as
practicable after the Change of Control Payment Date.

Except as described above with respect to a Change of Control, the
Indenture does not contain provisions that permit the holders of the Notes to
require that the Company repurchase or redeem the Notes in the event of a
takeover, recapitalization or similar restructuring.

"Change of Control" means an event or series of events in which (i)
any "person" or "group" (as such terms are used in Sections 13(d) and 14(d) of
the Exchange Act) acquires "beneficial ownership" (as determined in accordance
with Rule 13d-3 under the Exchange Act), directly or indirectly, of more than
50% of the total Voting Stock of the Company at an Acquisition Price (each terms
as defined herein) less than 105% of the conversion price then in effect with
respect to the Notes and (ii) the holders of the Common Stock receive consid-
eration which is not all or substantially all common stock that is (or upon
consummation of or immediately following such event or events will be) listed on
a United States national securities exchange or approved for quotation on the
Nasdaq National Market or any similar United States system of automated
dissemination of quotations of securities prices; provided, however, that any
such person or group shall not be deemed to be the beneficial owner of, or to
beneficially own, any Voting Stock tendered in a tender offer until such
tendered Voting Stock is accepted for purchase under the tender offer. "Voting
Stock" means stock of the class or classes pursuant to which the holders thereof
have the general voting power under ordinary circumstances to elect at least a
majority of the board of directors, managers or trustees of a corporation
(irrespective of whether or not at the time stock of any other class or classes
shall have or might have voting power by reason of the happening of any
contingency). "Acquisition Price" means the weighted average price paid by the
person or group in acquiring the Voting Stock.

The Change of Control purchase feature of the Notes may in certain
circumstances make it more difficult or discourage a takeover of the Company,
and thus the removal of incumbent management, and may have an adverse impact on
the market value of the Common Stock. Subject to the limitations discussed
below, the Company could, in the future, enter into certain transactions,
including acquisitions, refinancings or other recapitalizations, that would not
constitute a Change of Control under the Indenture, but that could increase the
amount of debt outstanding at such time or otherwise affect the Company's
capital structure, credit ratings or Common Stock price.

The right to require the Company to repurchase Notes as a result of
the occurrence of a Change of Control could create an event of default under
Senior Indebtedness as a result of which any repurchase could, absent a waiver,
be blocked by the subordination provision of the Notes. See " Subordination."
Failure of the Company to repurchase the Notes when required would result in an
Event of Default with respect to the Notes whether or not such repurchase is
permitted by the subordination provisions. There can be no assurance that the
Company will have sufficient resources to purchase Notes upon a Change of
Control.

LIMITATION ON DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING
INSURANCE SUBSIDIARIES

The Company will not, and will not permit any of its insurance
subsidiaries to, directly or indirectly, create or otherwise cause or suffer to
exist or become effective any consensual encumbrance or restriction on the
ability of any insurance subsidiary of the Company to (i) pay dividends or make
any other distributions on its capital stock or with respect to any other inter-
est or participation in, or measured by, its profits, or pay any indebtedness
owed to, the Company or an insurance subsidiary of the Company, (ii) make loans
or advances to the Company or an insurance subsidiary of the Company or (iii)
transfer any of its properties or assets to the Company, except for such encum-
brances or restrictions existing under or by reason of (q) the Term Loan dated
August 30, 1995 between the Company and American National Bank and Trust Company
of Chicago, Firstar Bank Milwaukee, Bank One, Rockford and LaSalle National Bank
as in effect on _________ __, 1996; (r) the Term Loan dated March 22, 1995 be-
tween the Company and American National Bank and Trust Company of Chicago,
Firstar Bank Milwaukee and Bank One, Rockford as in effect on _________ __,
1996; (s) the Credit Facility dated March 22, 1995 between the Company and
American National Bank and Trust Company of Chicago, Firstar Bank Milwaukee,
Bank One, Rockford and Fleet National Bank of Connecticut; (t) any amendments,
modifications, restatements, renewals, increases, supplements, refundings,
replacements or refinancings of the agreements described in clauses (q), (r) and
(s) hereof, provided that such amendments, modifications, restatements, renew-
als, increases, supplements, refundings, replacements or refinancings are no
more restrictive with respect to such dividend and other payment restrictions
than those contained in such agreements as in effect on _________ __, 1996; (u)
bank credit facilities of any insurance subsidiary of the Company, as in effect
from time to time; (v) any instrument governing indebtedness of any insurance
subsidiary of the Company evidenced by industrial revenue bonds (provided that
such encumbrances or restrictions set forth in the agreements or instruments
described in clauses (u) and (v) hereof are no more restrictive with respect to
such dividend and other payment restrictions than those contained in the
agreements described in clauses (q),(r) and (s) hereof as in effect on _________
__, 1996; (w) customary provisions restricting the transfer of property or
assets contained in any conditional sales contract or capitalized lease of any
insurance subsidiary of the Company; (x) applicable law; (y) customary provi-
sions restricting subletting or assignment of any lease governing a leasehold
interest of the Company or an insurance subsidiary of the Company which lease
was entered into in the ordinary course of business and consistent with past
practice; or (z) any instrument governing indebtedness of a person acquired by
the Company or any insurance subsidiary of the Company at the time of such
acquisition, which encumbrance or restriction is not applicable to any person,
or the properties or assets of any person, other than the person, or the
property or assets of the person, so acquired.

MERGERS AND CONSOLIDATIONS

The Indenture will provide that the Company may not, in a single
transaction or series of transactions, consolidate with or merge with or into,
or sell, lease, convey or otherwise dispose of all or substantially all of its
assets to, another corporation, person or entity unless (i) the entity or the
person formed by or surviving any such consolidation or merger (if other than
the Company) or to which such sale, lease, conveyance or other disposition shall
have been made is a corporation organized or existing under the laws of the
United States, any state thereof or the District of Columbia; (ii) the
corporation formed by or surviving any such consolidation or merger (if other
than the Company) or to which such sale, lease, conveyance or other disposition
shall have been made assumes all the obligations of the Company pursuant to a
supplemental indenture under the Notes and the Indenture; and (iii) immediately
after such transaction no Default or Event of Default exists. The Company must
deliver to the Trustee prior to the consummation of the proposed transaction an
Officers' Certificate to the foregoing effect and an opinion of counsel stating
that the proposed transaction and such supplemental indenture, if any, comply
with the Indenture.

EVENTS OF DEFAULT

The following will be Events of Default under the Indenture:
(a) failure to pay principal of or premium, if any, on any Note when due at
maturity, upon redemption or otherwise, including failure by the Company to
purchase the Notes when required as described under "Change of Control" (whether
or not such payment shall be prohibited by the subordination provisions of the
Indenture); (b) failure to pay any interest on any Note when due, continued for
30 days (whether or not such payment shall be prohibited by the subordination
provisions of the Indenture); (c) failure to perform any other covenant or
agreement of the Company in the Notes or the Indenture for 60 days after written
notice as provided in the Notes or the Indenture; (d) certain events of
bankruptcy, insolvency or reorganization with respect to the Company and its
significant subsidiaries; (e) default under any mortgage, indenture or
instrument under which there may be issued or by which there may be secured or
evidenced any indebtedness for money borrowed by the Company or any of its
subsidiaries (or the payment of which is guaranteed by the Company or any of its
subsidiaries) whether such indebtedness or guarantee now exists, or is created
after the date of the Indenture, which default (i) is caused by a failure to pay
principal or interest on such indebtedness prior to the expiration of the grace
period provided in such indebtedness (a "Payment Default") or (ii) results in
the acceleration of such indebtedness prior to its express maturity and, in each
case, the principal amount of any such indebtedness, together with the principal
amount of any other such indebtedness under which there has been a Payment
Default or the maturity of which has been so accelerated, aggregates $10 million
or more; and (f) final judgments or decrees shall be entered against the Company
or any significant subsidiary involving liabilities of $10 million or more
(singly or in the aggregate) (after deducting the portion of such liabilities
accepted by a reputable insurance company) and such final judgments or decrees
shall not have been vacated, discharged, satisfied or stayed pending appeal
within 60 days from the entry thereof. Subject to the provisions of the Inden-
ture relating to the duties of the Trustee in case an Event of Default shall
occur and be continuing, the Trustee will be under no obligation to exercise any
of its rights or powers under the Indenture at the request or direction of any
of the Noteholders, unless such Noteholders shall have offered to the Trustee
reasonable security or indemnity. The holders of a majority in aggregate
principal amount of the outstanding Notes will have the right to direct the
time, method and place of conducting any proceeding for any remedy available to
the Trustee or exercising any trust or power conferred on the Trustee (subject
to certain exceptions).

If an Event of Default (other than an Event of Default resulting
from bankruptcy, insolvency or reorganization with respect to the Company)
occurs and is continuing, either the Trustee or the holders of at least 25% in
aggregate principal amount of the outstanding Notes may declare the principal of
and premium, if any, on the Notes to be due and payable immediately. However,
if the Company shall cure all defaults within 30 days thereof (except the
nonpayment of interest on and premium, if any, and principal of any Notes which
have become due by acceleration) and no other Event of Default has occurred
during such 30-day period which has not been cured or waived, and certain other
conditions are met, such declaration may be cancelled and past defaults may be
waived by the holders of a majority in principal amount of the Notes then
outstanding. In case an Event of Default resulting from bankruptcy, insolvency
or reorganization of the Company shall occur, all unpaid principal of, premium,
if any, and accrued interest on the Notes then outstanding will be due and
payable immediately without any declaration or other act on the part of the
Trustee or the holders of Notes. The Indenture provides that in case an Event
of Default shall occur (which shall not be cured), the Trustee will be required,
in the exercise of its own powers, to use the degree of care of a prudent person
in the conduct of his or her own affairs.

No holder of any Note will have any right to institute any
proceeding with respect to the Indenture or for any remedy under the Indenture
unless the holder previously has given to the Trustee written notice of a
continuing Event of Default and unless also the holders of at least 25% in
aggregate principal amount of the outstanding Notes have made written request,
and offered reasonable indemnity to the Trustee to institute proceedings as
trustee, and the Trustee has not received from the holders of a majority in

aggregate principal amount of the outstanding Notes a direction inconsistent
with the request and has failed to institute such proceeding within 60 days.
However, these limitations do not apply to a suit instituted by a holder of a
Note for the enforcement of payment of the principal of and premium, if any, or
interest on such Note on or after the respective due dates expressed in such
Note or of the right to convert the Notes in accordance with the Indenture.

The Company will be required to furnish to the Trustee annually a
statement as to the performance by the Company of certain of its obligations
under the Indenture and as to any default in the performance of the obligations.

The Indenture provides that the Trustee will, within 90 days after
the occurrence of default, mail to all Noteholders notice of all defaults known
to it; but, except in the case of a default in the payment of the principal or
premium, if any, or interest on any of the Notes, the Trustee shall be protected
in withholding such notice if it in good faith determines that the withholding
of such notice is in the interests of such holders.

MODIFICATION AND WAIVER

The Indenture contains provisions permitting the Company and the
Trustee, with the consent of the holders of not less than a majority of the
aggregate principal amount of the Notes then outstanding, to execute a
supplemental indenture to add provisions to, or change in any manner or
eliminate any provisions of, the Indenture or modify in any manner the rights of
the holders of the Notes; provided that no such supplemental indenture may,
among other things, (i) extend the time for payment of principal of, premium, if
any, or interest on any Note or reduce the principal amount thereof, premium, if
any, or interest thereon or any amount payable upon the redemption or required
purchase thereof or impair the right of any holder to institute suit for payment
of the Notes after the same shall become due and payable, or make the principal
thereof or any premium or interest thereon payable in any coin or currency other
than that provided in the Indenture, or modify the subordination provisions of
the Indenture in a manner adverse to the holders of Notes or impair the right to
convert the Notes into Common Stock or to impair the obligation of the Company
to purchase the Notes upon the occurrence of a Change of Control, or (ii) reduce
the aforesaid percentage of the aggregate principal amount of Notes, the holders
of which must consent to authorize any such supplemental indenture, without the
consent of the holders of all outstanding Notes affected thereby.

The holders of a majority in aggregate principal amount of the Notes
also may, on behalf of the holders of all Notes, waive any past default under
the Indenture, except a default in the payment of the principal of, premium, if
any, or interest on any Note, a failure to convert Notes into Common Stock or in
respect of a provision under the Indenture which cannot be modified or amended
without the consent of each holder of Notes.

Notwithstanding the foregoing, without the consent of any holder of
Notes, the Company and the Trustee may amend or supplement the Indenture or the
Notes to cure any ambiguity, defect or inconsistency, to provide for
uncertificated Notes in addition to or in place of certificated Notes, to
provide for the assumption of the Company's obligations to holders of the Notes
in the case of a merger or consolidation, to make provision with respect to the
conversion rights of holders in the case of a merger or consolidation, to make
any change that would provide any additional rights or benefits to the holders
of the Notes or that does not adversely affect the legal rights under the
Indenture of any such Holder, or to comply with requirements of the Commission
in order to effect or maintain the qualification of the Indenture under the
Trust Indenture Act.

TRANSFER AND EXCHANGE

A holder may transfer or exchange the Notes in accordance with the
procedures set forth in the Indenture. No service charge will be made for any
registration of transfer or exchange of Notes, but the Company may require
payment of a sum sufficient to cover any tax or other governmental charge

payable in connection with any such transaction. The Registrar is not required
to transfer or exchange any Note selected for redemption. Also, the Registrar
is not required to transfer or exchange any Note for a period of 15 days before
a selection of the Notes to be redeemed.

SATISFACTION AND DISCHARGE

The Company may terminate its obligations under the Indenture at any
time by delivering all outstanding Notes to the Trustee for cancellation. After
all the Notes have been called for redemption or mature in one year, the Company
may terminate all of its obligations under the Indenture, other than its
obligations to pay the principal of, premium, if any, and interest on the Notes,
to convert the Notes and certain other obligations, at any time, by irrevocably
depositing with the Trustee money or noncallable U.S. Government Obligations
sufficient to pay all remaining indebtedness on the Notes, after complying with
certain other procedures set forth in the Indenture.

CONCERNING THE TRUSTEE

The Indenture contains certain limitations on the rights of the
Trustee, should it become a creditor of the Company, to obtain payment of claims
in certain cases or to realize on certain property received in respect of any
such claim as security or otherwise. Subject to the Trust Indenture Act, the
Trustee will be permitted to engage in other transactions; however, if it
acquires any conflicting interest, as described in the Trust Indenture Act, it
must eliminate such conflict or resign.

___________________________ will be the Trustee under the Indenture.
The Company may in the future maintain deposit accounts and conduct other bank-
ing transactions with the Trustee in the ordinary course of business.

DESCRIPTION OF CAPITAL STOCK

The Company's authorized capital stock consists of 20,000,000 shares of
Common Stock, par value $1 per share, and 5,000,000 shares of Preferred Stock,
no par value. The Board of Directors is authorized to determine the number and
designation of one or more series of Preferred Stock and the voting powers,
rights, preferences, qualifications, limitations or restrictions and the shares
of any such series. The Board has designated a series of $2.125 Cumulative
Convertible Exchangeable Preferred Stock, consisting of 1,000,000 shares,
848,900 of which are currently outstanding.

COMMON STOCK

The holders of Common Stock are entitled to one vote for each share held
of record on each matter submitted to a vote of stockholders and to vote on all
matters on which a vote of stockholders is taken, except as otherwise provided
by statute. The shares of Common Stock do not have cumulative voting rights.
Therefore, the holders of a majority of shares voting for the election of
directors can elect all of the directors then standing for election, if they
choose to do so. Holders of Common Stock are entitled to receive such dividends
as may be declared by the Board of Directors out of funds legally available
therefor and, in the event of liquidation, dissolution or winding up of the
Company, are entitled to share ratably in all assets remaining after payment of
liabilities. The ability of the Company to pay dividends on its Common Stock
will depend primarily on the receipt of dividends and other payments from its
subsidiaries. The Company's insurance subsidiaries are subject to state laws
and regulations which limit their ability to pay dividends or make other
payments. In addition, certain of the Company's credit agreements also limit
its ability to pay dividends. See "Management's Discussion and Analysis of
Results of Operations and Financial Condition -- Liquidity and Capital
Resources." Furthermore, the Company's Certificate of Incorporation prohibits
the Company from paying dividends on the Common Stock if the Company is not
current in its dividend payments on the Preferred Stock. The Preferred Stock
will rank prior to the Common Stock as to the payment of dividends and

distributions upon liquidation, dissolution or winding up. See "-- Preferred
Stock." The shares of Common Stock are not subject to liability for calls or
assessments and have no conversion rights, sinking fund privileges or preemptive
rights.

PREFERRED STOCK

The Board of Directors has the authority, without action by the
stockholders, to issue shares of Preferred Stock in one or more series and,
within certain limitations, to determine the dividend rights, dividend rate,
rights and terms of redemption, liquidation preferences, sinking fund terms,
conversion and voting rights of any series of Preferred Stock, the number of
shares constituting any such series, the designation thereof and the price
therefor. The Company believes that the ability of its Board of Directors to
issue one or more series of Preferred Stock will provide the Company with
flexibility in structuring possible future financings and acquisitions, and in
meeting other corporate needs which might arise. The authorized shares of
Preferred Stock, as well as Common Stock, will be available for issuance without
further action by the Company's stockholders, unless such action is required by
applicable law or the rules of any stock exchange or automated quotation system
on which the Company's securities may be listed or traded. The issuance of a
series of Preferred Stock with voting or conversion rights may adversely affect
the voting power of the holders of Common Stock. The issuance of Preferred
Stock may also have the effect of delaying, deferring or preventing a change in
control of the Company without further action by shareholders. The Company has
no present plans to issue any shares of Preferred Stock.

$2.125 Preferred Stock and Related Subordinated Debentures

Holders of the $2.125 Preferred Stock are entitled to cumulative dividends
at the rate of $2.125 per annum per share. The $2.125 Preferred Stock is
convertible into Common Stock at the option of the holder at any time, unless
previously redeemed, at the rate of 1.6 shares of Common Stock for each share of
$2.125 Preferred Stock, subject to adjustment under certain circumstances. The
$2.125 Preferred Stock is also exchangeable in whole at the sole option of the
Company on any quarterly dividend payment date for the Company's 8 1/2%
Convertible Subordinated Debentures due 2014 (the "8 1/2% Debentures") at the
rate of $25 principal amount of 8 1/2% Debentures for each share of $2.125
Preferred Stock. The $2.125 Preferred Stock is redeemable for cash at any
time, in whole or in part, at the option of the Company, at redemption prices
declining from $26.4875 on the date of this Prospectus to $25 on July 15,
1999, plus accrued and unpaid dividends to the redemption date. In addition,
the $2.125 Preferred Stock is redeemable at the option of the holder
upon certain stock acquisitions or business combinations at a redemption
price of $25 per share, plus accrued and unpaid dividends to the redemption
date.

Upon any liquidation dissolution or winding up of the Company, the holders
of the $2.125 Preferred Stock will be entitled to receive $25 per share, plus
cumulative accrued dividends. The holders of the $2.125 Preferred Stock are not
entitled to vote on any matters unless the Company shall be in arrears in an
amount equal to at least six quarterly dividends, in which case the holders of
the $2.125 Preferred Stock will be entitled to vote for the election of two
additional directors.

The Company intends to use a portion of the net proceeds of this offering
to redeem all of the outstanding shares of $2.125 Preferred Stock.

RIGHTS TO PURCHASE SERIES A JUNIOR PREFERRED STOCK

In 1990, the Company distributed one Right to Acquire Series A Junior
Preferred Stock (a "Right") to each holder of its Common Stock. In addition,
each share of Common Stock subsequently issued automatically carries with it a
Right. Subject to certain exceptions, the Rights generally become exercisable
and separately tradeable if a person or group (an "Acquiring Person") acquires
20% or more of the Common Stock. An Acquiring Person is not deemed to include
any stockholder who, on December 14, 1990, already owned 20% of the outstanding

Common Stock. Upon such an event, each holder of a Right will be entitled to
purchase one-tenth of a share of Series A Junior Preferred Stock at a purchase
price of $4.50, subject to certain adjustments. Such preferred shares, of which
2,000,000 are authorized, would be voting and would be entitled to distributions
that are ten times the distributions on the Common Stock. Subject to exercise
of the Rights, in the event of certain business combinations involving the
Company, a holder of a Right would have the right to receive Common Stock with a
value of ten times the exercise price of the Right.

The terms and conditions of the Rights are set forth in full in the Rights
Agreement between the Company and First Chicago Trust Company of New York, dated
December 12, 1990 (the "Rights Agreement"). The summary description of the
Rights set forth herein does not purport to be a complete description of the
terms and conditions of the Rights and is qualified in its entirety by reference
to the Rights Agreement, a copy of which was filed as an exhibit to the
Company's Registration Statement on Form 8-A filed with the Commission on
December 14, 1990, which is incorporated herein by reference. The Rights will
expire on December 14, 2000, and until they become exercisable, may be redeemed
by the Company for $.01 per Right.

CERTAIN CHARTER AND STATUTORY PROVISIONS

The Company's Certificate of Incorporation provides for a maximum of
fifteen directors and the division of the directors into three classes, each of
which serves for a three year term. These provisions could help to effect
perpetuation of current management.

Section 203 of the Delaware General Corporation Law contains certain
restrictions on the ability of an "interested stockholder" (defined as a
stockholder owning 15% or more of a corporation's voting stock) to engage in a
business combination with such corporation. Since the Company has not amended
its Certificate of Incorporation or Bylaws to prohibit the application of
Section 203, such Section may inhibit an interested stockholder's ability to
acquire additional shares of Common Stock or otherwise engage in a business
combination with the Company.

INSURANCE REGULATION CONCERNING CHANGE OF CONTROL

The Company owns, directly or indirectly, all of the shares of stock of
certain life and health insurance companies domiciled principally in Illinois.
Illinois insurance regulatory laws require prior approval by the Illinois
Director of Insurance of any acquisition of control of an Illinois insurance
company or of any company which controls an Illinois insurance company. Under
Illinois insurance regulatory laws, "control" is presumed to exist through the
ownership of 10% or more of the voting securities of a domestic insurance
company or of any company which controls a domestic insurance company. Any
purchaser of 10% or more of the shares of Common Stock of the Company, whether
by conversion or otherwise, will be presumed to have acquired control of the
Illinois domestic insurance subsidiaries unless the Illinois Director of
Insurance, following application by such purchaser, determines otherwise.
Accordingly, any purchase, whether by conversion or otherwise, of 10% or more of
the Common Stock of the Company, would require prior action by the Illinois
Director of Insurance. Such requirements may deter, delay or prevent certain
transactions affecting the control of or the ownership of Common Stock,
including transactions that could be advantageous to the shareholders of the
Company.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the Common Stock and the $2.125
Preferred Stock is First Chicago Trust Company of New York.

CERTAIN FEDERAL INCOME TAX CONSEQUENCES

The following summary sets forth the principal federal income tax
consequences of holding and disposing of Notes. This summary is based upon
laws, regulations, rulings and judicial decisions now in effect, all of which
are subject to change, possibly on a retroactive basis. This summary is
presented for informational purposes only and relates only to Notes or Common
Stock received upon conversion thereof that are held as "capital assets"
(generally, property held for investment within the meaning of Section 1221 of
the Internal Revenue Code of 1986, as amended (the "Code")). The summary
discusses certain federal income tax consequences to holders of Notes that are
citizens or residents of the United States. It does not discuss state, local or
foreign tax consequences, nor does it discuss tax consequences to categories of
holders of Notes that are subject to special rules, such as tax-exempt
organizations, insurance companies, financial institutions and dealers in stocks
and securities. Tax consequences may vary depending on the particular status of
an investor.

THIS SUMMARY DOES NOT PURPORT TO DEAL WITH ALL ASPECTS OF FEDERAL INCOME
TAXATION THAT MAY BE RELEVANT TO AN INVESTOR'S DECISION TO PURCHASE NOTES. EACH
INVESTOR SHOULD CONSULT HIS OR HER OWN TAX ADVISOR AS TO THE PARTICULAR TAX
CONSEQUENCES TO SUCH PERSON HOLDING AND DISPOSING OF THE NOTES, INCLUDING THE
APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS AND ANY RECENT
PROPOSED CHANGES IN APPLICABLE TAX LAWS.

STATED INTEREST

A holder of Notes using the accrual method of accounting for tax purposes
generally will be required to include interest in income as such interest
accrues, while a cash basis holder will be required to include interest in
income when cash payments are made available to such holder.

CONVERSION OF NOTES

Except as otherwise indicated below, no gain or loss will be recognized
for federal income tax purposes upon the conversion of Notes into shares of
Common Stock. Cash paid in lieu of fractional shares of Common Stock will be
taxed as if the fractional shares of Common Stock were issued and then redeemed
for cash which should result in capital gain or loss, if any, (measured by the
difference between the cash received for the fractional share and the holder's
basis therein). The tax basis of the shares of Common Stock received upon
conversion will be equal to the tax basis of the Notes converted reduced by the
portion of such basis, if any, allocable to any fractional share interest
exchanged for cash. The holding period of the shares of the Common Stock
received upon conversion will include the holding period of the Notes converted.

If at any time the Company makes a distribution of property to its
stockholders that would be taxable to such stockholders as a dividend for
federal income tax purposes (e.g. distributions of cash, evidences of
indebtedness or assets of the Company, but generally not stock dividends or
rights to subscribe for Common Stock) and, pursuant to the anti-dilution
provisions of the Indenture, the conversion price of the Notes is reduced, or if
the Company voluntarily reduces the conversion price, such reduction will be
deemed to be the payment of a stock distribution to a holder of a Note which may
be taxable as a dividend. Holders of Notes could, therefore, have taxable
income as a result of an event pursuant to which they received no cash or
property that could be used to pay the related income tax.

DISPOSITION OF NOTES OR COMMON STOCK

In general, the holder of a Note or the Common Stock into which it is
converted will recognize gain or loss upon the sale, redemption, retirement or
other taxable disposition of the Note or Common Stock in an amount equal to the
difference between the amount of cash and the fair market value of property
received (except to the extent attributable to the payment of accrued interest)
and such holder's adjusted tax basis in the Note or Common Stock. The holder's
tax basis in a Note generally will be such holder's cost, increased by the
amount of accrued market discount with respect to the Note (discussed below),

and reduced by the amount of any amortizable bond premium the holder elects to
amortize with respect to the Note. Such gain or loss will be a capital gain or
loss except to the extent of any accrued market discount (See "--Market Discount
and Bond Premium").

MARKET DISCOUNT AND BOND PREMIUM

If a Holder acquires a Note subsequent to its original issuance and the
Note's stated redemption price at maturity exceeds the Holder's initial tax
basis in the Note by more than a de minimis amount, the Holder should generally
be treated as having acquired the Note at a "market discount" equal to such
excess. In addition, if a Holder's initial tax basis in a Note exceeds the
stated redemption price at maturity of the Note, the Holder should generally be
treated as having acquired the Note with "bond premium" in an amount equal to
such excess. Holders should consult their tax advisers regarding the existence,
if any, and tax consequences of market discount and bond premium.

BACKUP WITHHOLDING

Under the "backup withholding" provisions of federal income tax law, the
Company, its agents, a broker or any paying agent, as the case may be, will be
required to withhold a tax equal to 31% of any payment of (1) principal,
premium, if any, and interest on the Notes, (2) proceeds from the sale or
redemption of the Notes, (3) dividends on the Common Stock, and (4) proceeds
form the sale or redemption of the Common Stock, unless the holder (i) is exempt
from backup withholding and, when required, demonstrates this fact to the payor
or (ii) provides a taxpayer identification number to the payor, certifies as to
no loss of exemption from backup withholding and otherwise complies with
applicable requirements of the backup withholding provisions. Certain holders
of Notes (including corporations, tax-exempt organizations, individual
retirement accounts and, to a limited extent, nonresident aliens) are not
subject to the backup withholding reporting requirements. Holders should
consult their own tax advisers to determine whether they are subject to these
backup withholding rules. A nonresident alien must submit a statement, signed
under penalties or perjury, attesting to that individual's exemption from backup
withholding. A holder of Notes or Common Stock that is otherwise required to
but does not provide the Company with a correct taxpayer identification number
may be subject to penalties imposed by the Code. Any amounts paid as backup
withholding with respect to Notes or Common Stock will be credited to the income
tax liability of the person receiving the payment from which such amount was
withheld.

UNDERWRITING

Bear, Stearns & Co. Inc., EVEREN Securities, Inc., (formerly Kemper
Securities, Inc.), and Oppenheimer & Co., Inc. (the "Underwriters") have agreed,
subject to the terms and conditions of the Underwriting Agreement (the form of
which is filed as an exhibit to the Registration Statement), to purchase from
the Company the following aggregate principal amount of Notes (assuming no
exercise of the Underwriters' over-allotment option):

UNDERWRITERS PRINCIPAL AMOUNT

Bear, Stearns & Co. Inc. . . . . . .
EVEREN Securities, Inc. . . . . . . .
Oppenheimer & Co., Inc. . . . . . . . __________

Total . . . . . . . . . . . . . $65,000,000

The Underwriting Agreement provides that the obligations of the
Underwriters to purchase Notes are subject to certain conditions, and that if
any of the Notes are purchased by the Underwriters pursuant to the Underwriting
Agreement, all of the Notes agreed to be purchased by the Underwriters must be
so purchased.

The Company has been advised that the Underwriters propose to offer the
Notes to the public at the offering price set forth on the cover page of this
Prospectus and to certain dealers at such price less a concession not in excess
of ___% of such principal amount of the Notes. The Underwriters may allow, and
such dealers may reallow, a discount not in excess of ____% of such principal
amount of the Notes on sales to certain other dealers. After the offering, the
offering price and the concession and discount to dealers may be changed.

The Company has granted to the Underwriters an option to purchase up to an
additional $9,750,000 principal amount of Notes at the offering price less
underwriting discounts and commissions. To the extent that this option to
purchase is exercised, each Underwriter will become obligated, subject to
certain conditions, to purchase approximately the same percentage of such
additional principal amount of Notes being sold to the Underwriters as the
number set forth next to such Underwriter's name in the preceding table bears to
the total aggregate principal amount of Notes in such table. Such option may be
exercised to purchase Notes solely for the purpose of covering over-allotments,
if any, incurred in the sale of Notes in this offering. Such option may be
exercised at any time and from time to time up to 30 days after the date of this
Prospectus.

The Company has agreed not to offer, issue, sell, contract to sell, grant
any option for the sale of, or otherwise dispose of ("Transfer"), directly or
indirectly, any shares of its Common Stock or any securities convertible into or
exchangeable or exercisable for its Common Stock or any rights to acquire Common
Stock for a period of 120 days after the date of this Prospectus, without the
prior written consent of Bear, Stearns & Co. Inc. ("Bear Stearns"), subject to
certain limited exceptions. In addition, each of the Company's executive
officers and directors has agreed not to Transfer, directly or indirectly, any
shares of Common Stock or any securities convertible into or exchangeable or
exercisable for Common Stock or any rights to acquire Common Stock in excess of
10% of such executive officer's holdings in the Common Stock or any securities
convertible into or exchangeable or exercisable (currently or in the future) for
Common Stock or any rights to acquire Common Stock as of the date of this
Prospectus for a period of 120 days after the date of this Prospectus, without
the prior written consent of Bear Stearns, subject to certain limited
exceptions.

The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute to
payments that the Underwriters may be required to make in respect thereof.

Bear Stearns and EVEREN Securities, Inc. ("EVEREN") each have provided,
and expect in the future to provide, investment banking and advisory services to
the Company and its affiliates. In June 1995, the Company engaged Bear Stearns
to act as its financial advisor. As compensation for such services provided by
Bear Stearns to the Company in 1995, Bear Stearns received a fee equal to
$500,000. In connection with such engagement, Bear Stearns shall be the
Company's exclusive financial advisor in connection with sale, acquisition or
financing transactions. Unless Bear Stearns terminates its engagement prior to
June 15, 1996, it will receive a fee of $500,000 in 1996 for services provided
to the Company, plus expenses. In addition, Bear Stearns will receive
additional customary fees and expenses in the event that a transaction described
above is consummated during its engagement. In 1993, EVEREN provided investment
banking and advisory services to the Company in connection with the Company's
acquisition of CLAC. As compensation therefor, EVEREN received an initial fee
of $50,000 and continues to receive a monthly fee of $2,000. Such monthly fees
are to be paid by the Company to EVEREN through August 1996. Pursuant to the
arrangement, the commissions received by EVEREN in this offering shall eliminate
the outstanding monthly fees.

LEGAL MATTERS

The validity of the issuance of the securities being offered hereby will
be passed upon by McDermott, Will & Emery, Chicago, Illinois. Certain legal

matters in connection with the Notes will be passed upon for the Underwriters by
Skadden, Arps, Slate, Meagher & Flom, Chicago, Illinois.

EXPERTS

The consolidated financial statements of Pioneer Financial Services, Inc.
appearing in or incorporated by reference (including financial statement
schedules incorporated by reference) in this Prospectus and Registration
Statement have been audited by Ernst & Young LLP, independent auditors, to the
extent indicated on their reports thereon also appearing elsewhere herein and in
the Registration Statement or incorporated by reference. Such consolidated
financial statements have been included herein or incorporated herein by
reference in reliance upon such reports given upon the authority of such firm as
experts in accounting and auditing.

PIONEER FINANCIAL SERVICES, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Page

Report of Independent Auditors . . . . . . . . . . . . . . . . . . F-2

Statements of Consolidated Operations for the
years ended December 31, 1992, 1993 and 1994 . . . . . . . . . . F-3

Consolidated Balance Sheet as of December 31, 1993 and 1994 . . . . F-4

Statements of Consolidated Stockholders Equity for the
years ended December 31, 1992, 1993 and 1994 . . . . . . . . . . F-6

Statements of Consolidated Cash Flows for the years
ended December 31, 1992, 1993 and 1994 . . . . . . . . . . . . . F-7

Notes to Consolidated Financial Statements . . . . . . . . . . . . F-8

Report of Independent Auditors

Board of Directors
Pioneer Financial Services, Inc.

We have audited the accompanying consolidated balance sheets of Pioneer
Financial Services, Inc. and subsidiaries as of December 31, 1994 and 1993, and
the related statements of consolidated operations, stockholders' equity, and
cash flows for each of the three years in the period ended December 31, 1994.
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 Pioneer Financial
Services, Inc. and subsidiaries at December 31, 1994 and 1993, and the
consolidated results of their operations and their cash flows for each of the

three years in the period ended December 31, 1994, in conformity with generally
accepted accounting principles.

As discussed in Note 2 to the consolidated financial statements, in 1994, the
Company changed its method of accounting for investments in debt and equity
securities.

ERNST & YOUNG LLP
Chicago, Illinois
March 22, 1995

PIONEER FINANCIAL SERVICES, INC. AND SUBSIDIARIES

STATEMENTS OF CONSOLIDATED OPERATIONS
(In Thousands, Except Per Share Amounts)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1992 1993 1994
<S> <C> <C> <C>
REVENUES
Premiums and policy charges (Note 6):
Accident and health . . . . . . . $ 559,894 $ 601,684 $ 659,180
Life and annuity . . . . . . . . 35,219 39,282 44,929
595,113 640,966 704,109
Net investment income (Note 4) . . 43,555 40,242 42,786
Other income and realized investment
gains and losses (Note 4) . . . . 17,305 17,920 27,260
655,973 699,128 774,155
BENEFITS AND EXPENSES
Benefits:
Accident and health . . . . . . . 368,046 397,963 407,249
Life and annuity . . . . . . . . 47,622 39,419 42,947
415,668 437,382 450,196
Insurance and general expenses . . 162,837 162,831 192,810
Interest expense (Notes 9 and 12) . 2,189 3,276 5,054
Amortization of deferred policy acquisition
costs (Note 10) . . . . . . . . . 100,715 76,875 100,073
681,409 680,364 748,133
Income (loss) before income taxes . (25,436) 18,764 26,022
Income taxes (benefit) (Note 5):
Current . . . . . . . . . . . . . 2,878 10,858 6,570
Deferred . . . . . . . . . . . . (11,355) (4,239) 2,303
(8,477) 6,619 8,873
Net income (loss) . . . . . . . . . (16,959) 12,145 17,149
Preferred stock dividends (Note 13) 2,039 2,021 1,904
Income (loss) applicable to common
stockholders . . . . . . . . . . $ (18,998) $ 10,124 $ 15,245

Net income (loss) per common share:
Primary . . . . . . . . . . . . . $ (2.85) $ 1.51 $ 2.36
Fully diluted . . . . . . . . . . (2.85) 1.26 1.58

Dividends declared per common share - - .15
Average common and common equivalent
shares outstanding:
Primary . . . . . . . . . . . . . 6,660 6,724 6,459
Fully diluted . . . . . . . . . . 8,195 10,731 12,734

See notes to consolidated financial statements.

</TABLE>

PIONEER FINANCIAL SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share and Per Share Amounts)

<TABLE>
<CAPTION>
DECEMBER 31
1993 1994

ASSETS
<S> <C> <C>
Investments (Notes 4 and 19):
Securities available-for-sale:
Fixed maturities, at fair value . . . . . - $218,748
Fixed maturities, at cost . . . . . . . . $257,717 -
Equity securities, at fair value . . . . . 17,436 15,440
Fixed maturities held-to-maturity, 326,512 378,650
principally at amortized cost . . . . . . 326,512 378,650
Real estate - at cost, less accumulated
depreciation . . . . . . . . . . . . . . - 16,959
Mortgage loans at unpaid balance . . . . . 3,201 1,806
Policy loans at unpaid balance . . . . . . 23,988 23,082
Short-term investments at cost, which approximates
fair value . . . . . . . . . . . . . . . 45,352 69,152
Total investments . . . . . . . . . . . . . . 674,206 723,837

Cash . . . . . . . . . . . . . . . . . . . . 23,379 8,612
Premiums and other receivables, less
allowance for doubtful accounts
(Notes 7 and 18) . . . . . . . . . . . . . 20,734 20,102
Reinsurance receivables and amounts
on deposit with reinsurers (Note 6) . . . . 74,366 41,426
Accrued investment income . . . . . . . . . . 8,482 8,873
Deferred policy acquisition costs (Note 10) . 260,432 225,618
Land, building, and equipment at cost, less
accumulated depreciation (Note 18) . . . . 22,248 20,314
Deferred federal income taxes (Note 5) . . . 3,922 7,262
Other . . . . . . . . . . . . . . . . . . . . 20,502 19,656

$1,108,271 $1,075,700

See notes to consolidated financial statements.

</TABLE>

PIONEER FINANCIAL SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (CONT.)
(In Thousands, Except Share and Per Share Amounts)

<TABLE>
<CAPTION>
DECEMBER 31
1993 1994
<S> <C> <C>
LIABILITIES, REDEEMABLE PREFERRED STOCK,
AND STOCKHOLDERS' EQUITY
Policy liabilities:
Future policy benefits:
Life . . . . . . . . . . . . . . . . . . . $244,249 $246,953
Annuity . . . . . . . . . . . . . . . . . . 208,155 210,132
Accident and health . . . . . . . . . . . . 158,330 163,477
Unearned premiums . . . . . . . . . . . . . 87,945 76,266
Policy and contract claims (Note 8) . . . . 189,389 155,373
Other . . . . . . . . . . . . . . . . . . . 15,037 16,407

903,105 868,608
General liabilities:
General expenses and other liabilities . . 48,442 37,042
Short-term notes payable (Notes 9, 21 and
22) . . . . . . . . . . . . . . . . . . . . 5,575 20,093
Long-term notes payable (Notes 9, 19, 21 and
22) . . . . . . . . . . . . . . . . . . . . 1,125 2,520

Convertible subordinated debentures (Notes 12
and 19) . . . . . . . . . . . . . . . . . . 57,477 57,427

Total liabilities . . . . . . . . . . . . . . 1,015,724 985,690

Commitments and contingencies (Notes 5 to 11 and 16)

Redeemable Preferred Stock, no par value (Note 13):
$2.125 cumulative convertible exchangeable preferred stock:
Authorized: 5,000,000 shares
Issued and outstanding: (1993 - 947,000 shares;
1994 - 867,300 shares) . . . . . . . . 23,675 21,682

Stockholders' equity (Notes 5 and 11 to 15):
Common Stock, $1 par value:
Authorized: 20,000,000 shares
Issued, including shares in treasury
(1993 - 6,900,000; 1994 - 6,996,157) . . 6,900 6,996
Additional paid-in capital . . . . . . . . 28,814 29,299
Unrealized appreciation (depreciation)
of available-for-sale securities (Notes 2
and 4) . . . . . . . . . . . . . . . . . 3,285 (7,193)
Retained earnings . . . . . . . . . . . . . 34,645 48,960
Treasury stock at cost (1993 - 556,800 shares;
1994 - 1,078,400 shares) . . . . . . . . (4,772) (9,734)

Total stockholders' equity . . . . . . . . . 68,872 68,328

$1,108,271 $1,075,700

See notes to consolidated financial statements.

</TABLE>

PIONEER FINANCIAL SERVICES, INC. AND SUBSIDIARIES

STATEMENTS OF CONSOLIDATED STOCKHOLDERS' EQUITY
(In Thousands, Except Share and Per Share Amounts)
<TABLE>
<CAPTION>

Unrealized Total
Additional Appreciation Stock-
Common Paid-In (Depreciation) Retained Treasury holders
Stock Capital of Securities Earnings Stock Equity

<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1992 $6,626 $27,711 $(2,386) $43,519 $ - $75,470
1992 transactions:
Net loss . . . . . . . . . - - - (16,959) - (16,959)
Cash dividends - Preferred
Stock ($2.125 per share) . - - - (2,039) - (2,039)
Conversion of National Benefit
Plans, Inc. shares
(163,566 shares) . . . . 164 553 - - - 717
Stock options exercised
(30,000 shares) . . . . . 30 135 - - - 165
Appreciation of equity
securities . . . . . . . . - - 5,430 - - 5,430
Purchase of treasury stock
(10,600 shares) . . . . . - - - - (52) (52)

Balance at December 31, 1992 6,820 28,399 3,044 24,521 (52) 62,732

1993 transactions:
Net income . . . . . . . . - - - 12,145 - 12,145
Cash dividends - Preferred
Stock ($2.125 per share) . - - - (2,021) - (2,021)
Stock options exercised
(72,000 shares) . . . . . 72 379 - - - 451
Appreciation of equity
securities . . . . . . . . - - 241 - - 241
Purchase of treasury stock
(546,200 shares) . . . . . - - - - (4,720) (4,720)
Issuance of shares pursuant
to Agent Stock Purchase
Plan (8,057 shares) . . . 8 36 - - - 44

Balance at December 31, 1993 6,900 28,814 3,285 34,645 (4,772) 68,872

1994 transactions:
Net income . . . . . . . . - - - 17,149 - 17,149
Cash dividends - Preferred
Stock ($2.125 per share) . - - - (1,904) - (1,904)
Cash dividends - Common
Stock ($.15 per share) . . - - - (930) - (930)
Stock options exercised
(85,500 shares) . . . . . 86 409 - - - 495

Conversion of convertible
subordinated debentures
(4,255 shares) . . . . . . 4 46 - - - 50
Cumulative effect of change
in accounting principle (Note 2) - - 3,605 - - 3,605
Depreciation of available-
for-sale securities . . . - - (14,083) - - (14,083)
Purchase of treasury stock
(521,600 shares) . . . . . - - - - (4,962) (4,962)
Issuance of shares pursuant to
Agent Stock Purchase Plan
(6,332 shares) . . . . . . 6 30 - - - 36

Balance at December 31, 1994 $6,996 $29,299 $(7,193) $48,960 $(9,734) $68,328

See notes to consolidated financial statements.

</TABLE>

PIONEER FINANCIAL SERVICES, INC. AND SUBSIDIARIES

STATEMENTS OF CONSOLIDATED CASH FLOWS
(In Thousands)

YEAR ENDED DECEMBER 31
1992 1993 1994

<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) . . . . . . . . . . . . . . . . . $(16,959) $ 12,145 $ 17,149
Adjustments to reconcile net income or loss to
net cash provided by operating activities:
Decrease (increase) in premiums receivable . . . 5,673 (3,912) 4,981
Increase (decrease) in policy liabilities . . . 12,734 31,132 (34,498)
Deferral of policy acquisition costs . . . . . . (56,936) (67,633) (65,258)
Amortization of deferred policy
acquisition costs (Note 10) . . . . . . . . . 100,715 76,875 100,073
Deferred income tax expense (benefit) . . . . . (11,355) (4,239) 2,303
Change in other assets and liabilities . . . . . (10,597) (13,423) 21,392
Depreciation, amortization, and accretion . . . 10,303 9,795 (102)
Realized losses (Note 4) . . . . . . . . . . . . 47 1,336 383

Net cash provided by operating activities 33,625 42,076 46,423

INVESTING ACTIVITIES
Securities available-for-sale:
Purchases - fixed maturities . . . . . . . . . . (29,001) (120,228) (110,416)
Sales - fixed maturities . . . . . . . . . . . . 13,367 51,780 99,865
Maturities - fixed maturities . . . . . . . . . . 17,106 18,836 44,116
Purchases - equity securities . . . . . . . . . . (4,085) (5,532) (4,609)
Sales - equity securities . . . . . . . . . . . . 13,651 14,845 2,558
Securities held-to-maturity:
Purchases . . . . . . . . . . . . . . . . . . . . (587,931) (256,579) (84,010)
Sales . . . . . . . . . . . . . . . . . . . . . . 424,404 126,072 9,427
Maturities . . . . . . . . . . . . . . . . . . . 90,453 102,535 21,472
Purchase of investment real estate . . . . . . . . - - (17,442)
Net decrease (increase) in other investments . . . 22,080 26,038 (21,499)
Net purchases of property and equipment . . . . . . (4,434) (3,956) (2,957)
Purchase of subsidiaries including a cash overdraft
of $1,019 (Note 3) . . . . . . . . . . . . . . . - (9,685) -
Net cash used by investing activities . . . . . . . (44,390) (55,871) (63,495)

FINANCING ACTIVITIES
Net proceeds from issuance of convertible
subordinated debentures (Note 12) . . . . . . . . - 54,055 -
Increase in notes payable . . . . . . . . . . . . . 14,030 - 21,225
Repayment of notes payable . . . . . . . . . . . . (3,900) (31,401) (5,362)
Proceeds from sale of agent receivables (Note 7) . 20,347 25,376 24,393
Transfer of collections on previously sold agent
receivables (Note 7) . . . . . . . . . . . . . . (22,437) (22,981) (28,743)
Dividends paid - preferred . . . . . . . . . . . . (2,039) (2,021) (1,904)
Dividends paid - common . . . . . . . . . . . . . . - - (930)
Stock options exercised . . . . . . . . . . . . . . 165 451 495
Purchase of treasury stock . . . . . . . . . . . . (52) (4,720) (4,963)
Retirement of preferred stock . . . . . . . . . . . - (315) (1,993)
Other . . . . . . . . . . . . . . . . . . . . . . . 717 44 87
Net cash provided by financing activities . . . . . 6,831 18,488 2,305
Increase (decrease) in cash . . . . . . . . . . . . (3,934) 4,693 (14,767)
Cash at beginning of year . . . . . . . . . . . . . 22,620 18,686 23,379
Cash at end of year . . . . . . . . . . . . . . . . $ 18,686 $ 23,379 $ 8,612

See notes to consolidated financial statements.

</TABLE>

PIONEER FINANCIAL SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

The accompanying consolidated financial statements have been
prepared in conformity with generally accepted accounting principles
(GAAP) and include the accounts and operations, after intercompany
eliminations, of Pioneer Financial Services, Inc. (PFS) and
its subsidiaries.

INVESTMENTS

Prior to January 1, 1994, PFS' fixed maturity portfolio was
segregated into two components: fixed maturities held-to-maturity and
fixed maturities available-for-sale. Fixed maturities, where the intent was
to hold to maturity, were carried at amortized cost, adjusted for
other-than-temporary impairments. Fixed maturities that were available for
sale were carried, on an aggregate basis, at the lower of amortized cost or
fair value.

In 1993, the Financial Accounting Standards Board ("FASB") issued
Statement 115, "Accounting for Certain Investments in Debt and Equity
Securities." Statement 115 requires that fixed maturity securities are to
be classified as either held-to-maturity, available-for-sale, or trading.
PFS adopted Statement 115 as of January 1, 1994, with no effect on
net income and a $3,605,000 increase in stockholders' equity (see Note 2).

PFS believes that it has the ability and intent to hold to maturity
its fixed maturity investments that are classified as "held-to-maturity."
However, PFS also recognizes that there may be circumstances where it may
be appropriate to sell a security prior to maturity in response to unforeseen
changes in circumstances. Recognizing the need for the ability to respond to
changes in market conditions and in tax position, PFS has designated a portion
of its investment portfolio as available-for-sale. As required by Statement
115, PFS adjusted the carrying value of its fixed maturity investments
that are classified as investments available-for-sale to fair value at
January 1, 1994.

At January 1, 1994, the remainder of PFS' portfolio of fixed maturity
investments was classified as held-to-maturity. Although PFS has the
ability and intent to hold those securities to maturity, there could
occur infrequent and unusual conditions under which it would sell certain of
those securities. Those conditions would include unforeseen changes
in asset quality, significant changes in tax law affecting the taxation of
securities, a significant business acquisition or disposition, and
changes in regulatory capital requirements or permissible investments.

Sales of two held-to-maturity securities in 1994 with an amortized cost
of $9,803,000 resulted after discussions with an insurance rating agency
regarding specific investments of PFS' insurance subsidiaries and
evidence of a significant deterioration in credit worthiness. Sales
of these securities, all of which were owned at January 1, 1994, resulted
in a realized loss of $376,000.

Subsequent to January 1, 1994, all securities purchased are designated
for inclusion in either the available-for-sale or held-to-maturity categories
based on PFS' intent and the nature of the securities purchased.

Changes in fair values of available-for-sale securities, after adjustment
of deferred policy acquisition costs ("DAC"), if any, and deferred
income taxes, are reported as unrealized appreciation or depreciation
directly in stockholders' equity and, accordingly, have no effect on net
income. DAC offsets to the unrealized appreciation or depreciation
represent valuation adjustments or reinstatements of DAC that would have
been required as a change or credit to operations had such unrealized amounts
been realized.

The amortized cost of fixed maturity investments classified as available-
for-sale and as held-to-maturity is adjusted for amortization of premiums
and accretion of discounts. That amortization or accretion is included in
net investment income.

For the mortgage-backed portion of the fixed maturity securities
portfolio, PFS recognizes income using a constant effective yield based on
anticipated prepayments and the estimated economic life of the securities.
When actual prepayments differ significantly from anticipated prepayments,
the effective yield is recalculated to reflect actual payments to date and
anticipated future payments. The net investment in the security is adjusted
to the amount that would have existed had the new effective yield been
applied since the acquisition of the security. That adjustment is included
in net investment income.

As regards equity securities, changes in unrealized appreciation
or temporary depreciation, after deferred income tax effects, are reported
directly in stockholders' equity.

Realized gains and losses on the sale of investments, and declines in
value considered to be other-than-temporary, are recognized in operations
on the specific identification basis.

REVENUES

Revenues for interest-sensitive life insurance and annuities consist
of charges assessed against policy account values. For accident and health and
other life insurance, premiums are recognized as revenue when due. Accident
and health group association dues and fees, included in other revenues, are
recognized as revenue when received.

FUTURE POLICY BENEFITS

The liabilities for future policy benefits related to the annuity
and interest-sensitive life insurance policies are calculated based on
accumulated fund values. As of December 31, 1994, interest credited
during the contract accumulation period ranged from 5.0% to 8.0%.
Investment spreads and mortality gains are recognized as profits when
realized, based on the difference between actual experience and amounts
credited or charged to policies.

The liabilities for future policy benefits on other life insurance and
accident andhealth insurance policies have been computed by a net level method
based on estimated future investment yield, mortality or morbidity, and
withdrawals, including provisions for adverse deviation. Interest rate
assumptions range from 3.5% to 8.5% depending on the year of issue.
The provisions for future policy benefits and the deferral and amortization
of policy acquisition costs are intended to result in benefits and expenses
being associated with premiums proportionately over the policy periods.

UNEARNED PREMIUMS

Unearned premiums are calculated using the monthly pro-rata basis.

DEFERRED POLICY ACQUISITION COSTS

Costs that vary with, and are primarily related to, the production of new
business are deferred. Such costs are primarily related to accident and health
business and principally include the excess of new business commissions over
renewal commissions and underwriting and sales expenses.

For annuities and interest-sensitive life insurance policies, deferred
costs are amortized generally in proportion to expected gross profits
arising from the difference between investment and mortality experience
and amounts credited or charged to policies. That amortization is
adjusted retrospectively when estimates of current or future gross
profits (including the impact of realized investment gains and losses) to be
realized from a group of products are revised. For other life and accident
and health policies, costs are amortized over the premium-paying period
of the policies, using the same mortality or morbidity, interest, and
withdrawal assumptions that are used in calculating the liabilities
for future policy benefits.

The unamortized cost of purchased insurance in force is included in DAC
($23,078,000 and $21,291,000 at December 31, 1993 and 1994, respectively).
Amortization of these amounts is in relation to the present value of
estimated gross profits over the estimated remaining life of the related
insurance in force.

POLICY AND CONTRACT CLAIMS

The liabilities for policy and contract claims, principally accident and
health, are determined using case-basis evaluations and statistical analyses
based on past experience and represent estimates of the ultimate net cost of
incurred claims and the related claim adjustment expenses. Although
considerable variability is inherent in such estimates, management
believes that these liabilities are adequate. The estimates are
continually reviewed and adjusted as necessary; such adjustments are
included in current operations. PFS maintains an additional provision for
adverse deviation in its accident and health claim liability estimates.

REINSURANCE

Reinsurance premiums, commissions, expense reimbursements, and
receivables related to reinsured business are accounted for on bases
consistent with those used in accounting for the original policies issued and
the terms of the reinsurance contracts. Premiums reinsured to other
companies have been reported as reductions of premium revenues.
Amounts recoverable for reinsurance related to future policy benefits,
unearned premium reserves, and claim liabilities have been reported as
reinsurance receivables; expense allowances received in connection with
reinsurance have been accounted for as a reduction of the
related DAC and are deferred and amortized accordingly.

Acquisition costs relating to the production of new business result in a
reduction of statutory-basis net income. PFS had entered into certain
financial reinsurance agreements that had the effect of deferring this
statutory-basis reduction and amortizing costs over future periods.
The remaining effect of such reinsurance has been eliminated from the
accompanying consolidated financial statements.

FEDERAL INCOME TAXES

Federal income tax provisions are based on income or loss reported
for financial statement purposes and tax laws and rates in effect for the
years presented. For 1992, deferred federal income taxes were provided for
the differences between the recognition of income and loss determined for
financial reporting purposes and income tax purposes. Effective January
1, 1993, deferred federal income taxes have been provided using the
liability method an accordance with FASB Statement No. 109 "Accounting for
Income Taxes." Under this method deferred tax assets and liabilities
are determined based on the differences between financial reporting and
tax bases of assets and liabilities and are measured using enacted tax
rates. The cumulative effect of adopting Statement No. 109 as of
January 1, 1993, was not significant and has not been separately disclosed.

DEPRECIATION

Building, equipment and investment real estate are recorded at
cost and are depreciated using principally the straight-line method.

NET INCOME OR LOSS PER COMMON SHARE

Primary net income or loss per share of Common Stock is determined by
dividing net income or loss, less dividends on Preferred Stock, by the weighted-
average number of Common Stock and Common Stock equivalents (dilutive stock
options) outstanding. Where the effect of Common Stock equivalents on net
income or loss per share would be antidilutive, they are excluded from the
average shares outstanding. Fully diluted net income or loss per share is
computed as if the Preferred Stock and Convertible Subordinated
Debentures had been converted to Common Stock. Where the effect of the
assumed conversion on net income or loss per share would be antidilutive,
fully diluted net income or loss per share represents the primary amount.

COST IN EXCESS OF NET ASSETS OF COMPANIES ACQUIRED

The cost in excess of net assets of companies acquired (goodwill)
($5,449,000 and $5,317,000 at December 31, 1993 and 1994, respectively) is
included in other assets and is being amortized principally on a straight-
line basis over periods from seven to forty years.

TREASURY STOCK

The board of directors has authorized PFS to buy back shares of its own
common and preferred stock on the open market from time to time. During
1992, 1993 and 1994 PFS repurchased 10,600, 546,200 and 521,600 shares,
respectively, of their common stock. During 1993 and 1994, PFS repurchased
13,400 and 78,900 shares of their preferred stock. Treasury stock is
accounted for using the cost method.

CASH FLOW INFORMATION

Cash includes cash on hand and demand deposits.

RECLASSIFICATIONS

Certain amounts in the 1992 and 1993 financial statements have been
reclassified to conform to the 1994 presentation.

2. CHANGES IN ACCOUNTING PRINCIPLES

FASB Statement 115, "Accounting for Certain Investments in Debt and Equity
Securities" was adopted by PFS as of January 1, 1994. In accordance with
Statement 115, PFS' prior year financial statements have not been restated to
reflect the change in accounting principle. Under Statement 115, securities
are classified as available-for-sale, held-to-maturity, or trading. PFS
classified a portion of its fixed maturity securities portfolio as available-
for-sale with the remainder classified as held-to-maturity. Securities
classified as available-for-sale are carried at fair value and unrealized
gains and losses on such securities are reported as a separate component
of stockholders' equity. Securities classified as held-to-maturity are
carried at cost, adjusted for amortization of premium or discount.

With the classification of a portion of the portfolio as available-
for-sale, the January 1, 1994, balance of stockholders' equity was
increased by $3,605,000 (net of adjustments to deferred income taxes)
to reflect the net unrealized gains on fixed maturity securities classified
as available-for-sale that were previously carried at amortized cost.
The adoption of Statement 115 had no effect on net income or PFS'
accounting policy for equity securities.

Effective January 1, 1993, PFS changed its method of accounting for
income taxes from the deferred method to the liability method required by
FASB Statement No. 109, "Accounting for Income Taxes." As permitted under
the new rules, prior years' financial statements have not been restated.
The cumulative effect of adopting Statement No. 109 as of January 1,
1993, was not significant.

Effective January 1, 1993, PFS changed its method of accounting for
reinsurance contracts in accordance with FASB Statement No. 113,
"Accounting and Reporting for Reinsurance of Short-Duration and
Long-Duration Contracts." Under Statement No. 113, all assets and
liabilities related to reinsured insurance contracts are reported on a gross
basis rather than the previous practice of reporting such assets and
liabilities net of reinsurance. The effect of adopting Statement No.
113 was to increase both assets and liabilities by $19,453,000 at
December 31, 1993. The adoption of Statement No. 113 had no effect on net
income.

The Financial Accounting Standards Board has issued Statements No. 114
and 118 which relate to accounting by creditors for impairment of a loan.
The Statements require that impaired loans are to be valued at the present
value of expected future cash flows, at the loan's observable market price,
or at the fair value of the collateral if the loan is collateral
dependent. PFS anticipates adopting these Statements in its 1995
financial statements as required. Implementation of these Statements
is not expected to have a material effect on PFS' financial statements.

3. BUSINESS COMBINATIONS

On January 31, 1995, Pioneer acquired for a cost of $24,000,000
(purchase price $23,700,000 and $300,000 of additional costs), the
outstanding common shares of Connecticut National Life Insurance Company.

The acquisition will be accounted for by the purchase method and,
accordingly, the purchase price is allocated to assets and liabilities
acquired based on estimates of their fair values. These allocations,
summarized below, may be adjusted upon final determination of such values:

(In
Thousands)
Assets Acquired
Cash . . . . . . . . . . . . . . . . . . . . . . $ 2,900
Investments . . . . . . . . . . . . . . . . . . . 287,500
Value of insurance in force . . . . . . . . . . . 1,500
Receivables and amounts on deposit with reinsurers 87,100
Other assets . . . . . . . . . . . . . . . . . . 6,700
Liabilities Assumed
Policy liabilities . . . . . . . . . . . . . . . 353,700
Other liabilities . . . . . . . . . . . . . . . . 8,000
Total purchase price . . . . . . . . . . . . . . . . $ 24,000

The value of insurance in force will be amortized over the estimated
remaining life of the insurance in force.

The following unaudited pro-forma consolidated results of operations have
been prepared as if the acquisition had been made as of January 1, 1994:

YEAR ENDED
DECEMBER 31, 1994
(In Thousands except
per share amounts)
Revenues . . . . . . . . . . . . . . . . . . . . $809,500
Net income . . . . . . . . . . . . . . . . . . . 18,700
Net income per share
Primary . . . . . . . . . . . . . . . . . . . 2.60
Fully-diluted . . . . . . . . . . . . . . . . 1.70

The foregoing pro-forma information is not necessarily indicative of either
the results of operations that would have occurred had the acquisition
been effective on January 1, 1994, or of future results of operations of
the consolidated companies.

In August 1993, PFS purchased 80% of the outstanding common stock of
Continental Life & Accident Company and 100% of the outstanding
common stock of Continental Marketing Corporation for $7,100,000 in cash.
The total assets acquired at the purchase date were approximately $80,000,000.

Also in August 1993, PFS purchased Healthcare Review Corporation, a managed
care company, for $1,566,000 in cash. The total assets acquired at the
purchase date were approximately $2,000,000.

Revenues included in PFS' 1993 consolidated statements of operations
relating to these acquired entities were $25,671,000. The operations of
the entities did not have a material effect on PFS' 1993 net income.

4. INVESTMENTS

Realized investment gains (losses), including provisions for
other-than-temporary impairments on investments held, and the change in
unrealized appreciation (depreciation) on fixed maturities, equity
securities, and other investments during the years shown are
summarized as follows:

<TABLE>
<CAPTION>
FIXED EQUITY
MATURITIES SECURITIES OTHER TOTAL
(In Thousands)

<S> <C> <C> <C> <C>
1992
Realized $ (91) $ 44 $ - $ (47)
Unrealized (11,144) 6,998 - (4,146)

$ (11,235) $ 7,042 $ - $ (4,193)

1993
Realized $ (1,638) $ 293 $ 9 $ (1,336)
Unrealized 3,864 442 - 4,306

$ 2,226 $ 735 $ 9 $ 2,970
1994
Realized $ (94) $ 211 $ (500) $ (383)
Unrealized (44,685) (2,098) - (46,783)

$ (44,779) $ (1,887) $ (500) $(47,166)

</TABLE>

The cost of available-for-sale equity securities was $12,382,000 at
December 31, 1993, and $12,484,000 at December 31, 1994. At December 31,
1994, gross unrealized appreciation on available-for-sale equity securities
was $3,514,000 and gross unrealized depreciation was $558,000. At
December 31, 1993, gross unrealized appreciation on equity securities was
$5,067,000 and gross unrealized depreciation was $13,000.

A comparison of amortized cost to fair value of fixed maturity investments
by category is as follows:

<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
(In Thousands)

<S> <C> <C> <C> <C>
AT DECEMBER 31, 1993:
HELD TO MATURITY
U.S. Treasury $ 9,124 $ 100 $ (61) $ 9,163
States and political subdivisions 5,200 - - 5,200
Corporate securities 119,276 2,653 (312) 121,617
Mortgage-backed securities 192,912 1,908 (5,260) 189,560

$326,512 $ 4,661 $ (5,633) $325,540

AVAILABLE FOR SALE
U.S. Treasury $ 26,894 $ 570 $ (26) $ 27,438
State and political subdivisions 21,571 121 - 21,692
Foreign governments 4,056 2 (119) 3,939
Corporate securities 73,981 744 (465) 74,260
Mortgage-backed securities 131,215 5,029 (310) 135,934

$ 257,717 $ 6,466 $ (920) $263,263

AT DECEMBER 31, 1994:
HELD TO MATURITY
U.S. Treasury $ 8,891 $ 25 $ (840) $ 8,076
States and political subdivisions 8,888 - (810) 8,078
Foreign governments 2,992 - (197) 2,795
Corporate securities 147,419 90 (13,158) 134,351
Mortgage-backed securities 210,460 558 (25,778) 185,240

$378,650 $ 673 $(40,783) $338,540
AVAILABLE FOR SALE
U.S. Treasury $ 23,207 $ 2 $ (1,357) $ 21,852
States and political subdivisions 26,579 - (760) 25,819
Foreign governments 4,024 - (559) 3,465
Corporate securities 95,939 - (6,538) 89,401
Mortgage-backed securities 83,020 37 (4,846) 78,211

$232,769 $ 39 $(14,060) $218,748

</TABLE>

The amortized cost and fair value of fixed maturities at December 31, 1994,
by contractual maturity, are shown below. Expected maturities will differ
from contractual maturities because borrowers may have the right to
call or prepay obligations with or without prepayment penalties.

AMORTIZED FAIR
COST VALUE

<S> <C> <C>
HELD TO MATURITY: (In thousands)
Due in 1995 . . . . . . . . . . . . $ 510 $ 512
Due 1996-2000 . . . . . . . . . . . 51,247 47,784
Due 2001-2005 . . . . . . . . . . . 69,574 62,956
Due after 2005 . . . . . . . . . . . 46,859 42,048
Mortgage-backed securities . . . . . 210,460 185,240

$378,650 $338,540

AVAILABLE FOR SALE:
Due in 1995 . . . . . . . . . . . . $ 830 $ 831
Due 1996-2000 . . . . . . . . . . . 59,914 56,399
Due 2001-2005 . . . . . . . . . . . 62,665 57,900
Due after 2005 . . . . . . . . . . . 26,340 25,407
Mortgage-backed securities . . . . . 83,020 78,211

$232,769 $218,748
</TABLE>

Proceeds from sales of investments (principally fixed maturities) during
1992, 1993 and 1994 were $451,422,000, $192,697,000 and $111,850,000,
respectively. Gross gains of $8,073,000, $10,834,000 and $1,448,000 and
gross losses of $8,164,000, $12,472,000 and $1,542,000 were realized on
fixed maturity sales in 1992, 1993 and 1994, respectively.

Major categories of net investment income are summarized as follows:

<TABLE>
<CAPTION>
1992 1993 1994

(In thousands)
<S> <C> <C> <C>

Fixed maturities . . $39,384 $34,529 $40,172

Short-term Investments
2,083 2,691 1,549
Other . . . . . . . . 3,733 4,069 4,189

Total investment 45,200 41,289 45,910
income . . . . . . .
Investment expenses . (1,645) (1,047) (3,124)

Net investment income $43,555 $40,242 $42,786
</TABLE>

At December 31, 1993 and 1994 the net appreciation (depreciation) of
available-for-sale securities in stockholders' equity consisted of
gross appreciation (depreciation) of $5,054,000 and ($11,066,000),
respectively, net of deferred tax assets (liabilities) of ($1,769,000) and
$3,873,000, respectively.

At December 31, 1994, securities with a carrying value of $96,247,000
were on deposit with various government authorities to meet regulatory
requirements.

At December 31, 1994, the amortized cost of fixed maturity investments in
any one entity, other than the U.S. government or a U.S. government agency or
authority, which exceeded 10% of PFS' consolidated stockholders' equity were
as follows:

GE Capital Mortgage Services, Inc. $23,576,000
Prudential Home 11,131,000
Ford Capital 10,648,000
Nomura Asset Securities 10,102,000
State of Washington 9,651,000
GMAC 9,877,000
Associates Corporation 7,237,000
Citibank 6,900,000

Investment real estate (net of $483,000 of accumulated depreciation) at
December 31, 1994 consists principally of land and a building used, in part,
as PFS' corporate headquarters.

At December 31, 1994, PFS held unrated or less-than-investment-grade
securities with a carrying value of $6,269,000 and an aggregate fair
value of $5,479,000. Those holdings amounted to less than 1% of PFS'
total investments at December 31, 1994.

At December 31, 1994, fixed maturities with a carrying value of $16,400,000
had been non-income producing for the preceding 12-month period.

5. FEDERAL INCOME TAXES

PFS adopted FASB Statement No. 109 as of January 1, 1993. The cumulative
effect of the change in accounting for income taxes was not significant.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes.
Significant components of PFS' deferred tax liabilities and assets are as
follows:

December 31

1993 1994
(In thousands)
<S> <C> <C>
DEFERRED TAX LIABILITIES
Deferred policy acquisition costs $86,545 $72,306
Net unrealized appreciation on
available-for-sale securities 1,769 -
Other . . . . . . . . . . . . . 1,367 1,537

Total deferred tax liabilities . 89,681 73,843

DEFERRED TAX ASSETS
Policy liabilities . . . . . . . 77,493 69,101
Financial reinsurance . . . . . 11,150 3,788
Net unrealized depreciation on
available-for-sale securities - 3,873
Other . . . . . . . . . . . . . 8,830 8,213

Total deferred tax assets . . . 97,473 84,975
Valuation allowance for
deferred tax assets . . . . . (3,870) (3,870)

Deferred tax assets net of
valuation allowance . . . . . 93,603 81,105

Net deferred tax asset . . . . . $3,922 $7,262

</TABLE>

The nature of PFS' deferred tax assets and liabilities are such that the
reversal pattern for these temporary differences should generally result in
realization of PFS' deferred tax assets. PFS establishes a valuation
allowance for any portion of the deferred tax asset that management
believes may not be realized. In 1993 the valuation allowance increased by
$1,221,000 principally due to the acquisition of Continental Life &
Accident Company and there was no change in the valuation allowance in 1994
(See Note 3).

The deferred tax benefit for 1992 includes the effects of the following
items (in thousands):

Deferred policy acquisition costs . . . . . . . . . . . $(16,232)
Policy liabilities . . . . . . . . . . . . . . . . . . . 2,966
Decrease in operating loss carryforward . . . . . . . . 143
General expenses . . . . . . . . . . . . . . . . . . . . 1,537
Financial statement capital gains
greater than tax capital gains . . . . . . . . . . . . 148
Other . . . . . . . . . . . . . . . . . . . . . . . . .
83

Deferred federal income tax benefit . . . . . . . . . . $(11,355)

PFS' effective federal income tax rate varied from the statutory federal
income tax rate as follows:

DEFERRED METHOD LIABILITY METHOD

1992 1993 1994
AMOUNT % AMOUNT % AMOUNT %

(DOLLARS IN THOUSANDS)

<S> <C> <C> <C> <C> <C> <C>
Statutory federal income
taxes rate applied to
income or loss before $(8,648) 34.0% $6,567 35.0% $9,108 35.0%
income taxes . . . . .
Nondeductible goodwill
amortization . . . . 192 (.8) 319 1.7 109 .4

Tax exempt interest . . - - (99) (.5) (307) (1.2)

Other . . . . . . . . . (21) .1 (168) (.9) (37) (.1)
Income taxes (benefit) and
effective rate . . . $(8,477) 33.3% $6,619 35.3% $8,873 34.1%

</TABLE>

Taxes paid amounted to $8,828,000, $5,735,000, and $9,731,000 for 1992,
1993, and 1994, respectively.

Under pre-1984 life insurance company income tax laws, a portion of a
life insurance company's "gain from operations" was not subjected to
current income taxation but was accumulated, for tax purposes, in a
memorandum account designated as the "policyholders' surplus account."
The balance in this account at December 31, 1994 for PFS' life insurance
subsidiaries was $10,040,000. Should the policyholders' surplus accounts
of PFS' life insurance subsidiaries exceed their respective maximums, or
should distributions in excess of their tax-basis shareholders' surplus
account be made by the life insurance subsidiaries, such excess or
distribution would be subject to federal income taxes at rates then in
effect. Deferred taxes of $3,500,000 have not been provided on amounts
included in the policyholders' surplus accounts, since PFS contemplates
no such taxable events in the foreseeable future.

As of December 31, 1994, PFS' life insurance subsidiaries had
combined tax-basis shareholders' surplus accounts of $46,000,000.
Distributions up to that amount would result in no income tax liability.

6. REINSURANCE

PFS' insurance subsidiaries reinsure risks with other companies to permit
the recovery of a portion of the direct losses. These reinsured risks are
treated as though, to the extent of the reinsurance, they are risks for which
the subsidiaries are not liable. PFS remains liable to the extent that the
reinsuring companies do not meet their obligations under these reinsurance
treaties.

PFS' premiums were reduced for reinsurance premiums by $30,469,000,
$40,592,000 and $30,469,000 in 1992, 1993, and 1994, respectively. Under
various reinsurance arrangements, PFS' premiums were increased by
$15,403,000, $19,338,000 and $16,928,000 in 1992, 1993, and 1994,
respectively. PFS' policy benefits have been reduced for reinsurance
recoveries of $22,171,000 in 1992, $21,871,000 in 1993, and $23,319,000 in
1994. At December 31, 1994, approximately 40% of PFS' reinsurance
receivables and amounts on deposit with reinsurers were due from Employers
Reinsurance Corporation, 14% from North American Reassurance, and
12% from The Universe Life Insurance Company. The amounts due from
The Universe Life Insurance Company were held in a financial institution
trust account.

7. SALE OF AGENT RECEIVABLES

In 1992, 1993, and 1994 a subsidiary of PFS sold agent receivables to an
unaffiliated company for proceeds of $20,347,000, $25,376,000 and
$24,393,000, respectively. The outstanding balances of such agent
receivables sold that remained uncollected at December 31, 1993 and
1994 were $9,815,000 and $7,937,000, respectively. PFS remains subject to a
maximum credit exposure under this agreement amounting to 10% of agent
receivables at December 31, 1994.

8. RECONCILIATION OF LIABILITY FOR POLICY AND CONTRACT CLAIMS

The following table provides a reconciliation of the beginning and ending
policy and contract claim liability balances reported in PFS' balance sheets:

<TABLE>
<CAPTION>
Year Ended December 31

1992 1993 1994
(In thousands)

Policy and contract claim
liability beginning of year . . $151,577 $148,141 $189,389
Incurred claims . . . . . . . . . 377,063 410,607 445,794

Deduct claims paid related to:
Current year . . . . . . . . . 251,773 260,702 350,210

Prior years . . . . . . . . . . 128,726 108,657 129,600

Total claims paid . . . . . . . 380,499 369,359 479,810
Policy and contract claim
liability end of year . . . . . $ 148,141 $ 189,389 $ 155,373

</TABLE>

PFS has historically held margins in its accident and health claim
reserves to provide for potential adverse deviation. The claim reserve
estimates are continually reviewed and adjusted as necessary. Based on
payments through the first nine months of 1994, PFS determined that
claim reserves contained significantly higher margins than originally
projected. As a result, claim reserve margins of $15,000,000 were
released in the third quarter of 1994. PFS continues to hold
additional margins which it considers to be reasonable in its medical
claim reserves.

9. NOTES PAYABLE

Short-term notes payable included $18,950,000 at December 31, 1994, drawn
under a line of credit arrangement. The borrowings are due in 1995 and
bear interest at prime and payable quarterly (See Note 22). The remaining
balance under the line of credit is due in October 1995.

At December 31, 1994, a PFS subsidiary had an unsecured loan of
$1,125,000. The portion of the loan due in 1995 of $300,000 is included
in short-term notes payable. The remainder of the note is included in
long-term notes payable. The note bears interest currently at prime and
is payable quarterly with the final payment due July 1998.

At December 31, 1994, a PFS subsidiary has two unsecured loans totaling
$2,275,000. The portion of the loans due in 1995 of $580,000 are included in
short-term notes payable. The remainder of the notes are included in long-term
notes payable. The notes bear interest at prime and are payable quarterly
with the final payment due December 1999. PFS has guaranteed payment of
the notes.

At December 31, 1994, PFS had $263,000 of short-term debt liability for
which a PFS agency subsidiary's future renewal commissions were pledged as
collateral.

The weighted average interest rate on short-term notes payable at year
end was 5.6%, 5.0% and 7.7% in 1992, 1993 and 1994, respectively.

Interest paid amounted to $2,274,000, $1,023,000, and $4,950,000 for
1992, 1993, and 1994, respectively.

10. ACCIDENT AND HEALTH BUSINESS

In making the determination that policy liabilities, future premiums, and
anticipated investment income will be adequate to provide for future claims and
expenses (including the amortization of deferred policy acquisition costs),
PFS has made assumptions with regard to each of these items. Although there is
significant variability inherent in these estimates, management believes that
these assumptions are reasonable.

Pursuant to an actuarial study performed in the third quarter of 1994,
PFS revised certain of these assumptions to reflect present and anticipated
future experience. This study resulted in increased amortization of deferred
policy acquisition costs of $16,700,000 in the third quarter of 1994. A
similar actuarial study performed in 1992 resulted in increased amortization
of deferred policy acquisition costs of $30,000,000 in the fourth
quarter of 1992.

11. STATUTORY-BASIS FINANCIAL INFORMATION

The following tables compare combined net income and stockholders'
equity for PFS' insurance subsidiaries determined on the basis as
prescribed or permitted by regulatory authorities (statutory basis) with
consolidated net income (loss) and stockholders' equity reported in
accordance with GAAP. Statutory basis accounting emphasizes solvency
rather than matching revenues and expenses during an accounting
period. The significant differences between statutory basis accounting
and GAAP are as follows:

Deferred Policy Acquisition Costs. Costs of acquiring new policies are
expensed when incurred on a statutory basis rather than capitalized and
amortized over the term of the related polices in the GAAP financial
statements.

Policy Liabilities. Certain policy liabilities are calculated based on
statutorily required methods and assumptions on a statutory basis rather
than on estimated expected experience or, for annuity and interest-
sensitive life insurance, actual account balances for GAAP.

Financial Reinsurance. The effects of certain financial reinsurance
transactions are included in the statutory basis financial statements
but are eliminated from the GAAP financial statements.

Deferred Federal Income Taxes. Deferred federal income taxes are not
provided on a statutory basis for differences between financial statement
and tax return amounts.

Surplus Notes. Surplus notes are reported in capital and surplus on a
statutory basis rather than as liabilities in the GAAP financial statements.

Non-insurance Companies' Equity. Contributions by PFS to the capital and
surplus of its insurance subsidiaries increases the stockholders' equity
of those insurance subsidiaries on a statutory basis but does not effect
the consolidated stockholders' equity on a GAAP basis.

Unrealized Depreciation On Fixed Maturities Available-For-Sale.
Fixed maturity securities classified as available-for-sale are carried
principally at amortized cost on a statutory basis rather than at fair
value with unrealized gains and losses on such securities reported as a
separate component of stockholders' equity in the GAAP financial
statements.

1992 1993 1994

(In thousands)
<S> <C> <C> <C>

Combined net income on a statutory basis . . $ 3,629 $ 10,155 $ 6,986

Adjustment for:

Deferred policy acquisition costs . . . . . . (43,779) (12,842) (34,814)
Policy liabilities . . . . . . . . . . . . . (19,957) (18,494) 26,544

Financial reinsurance . . . . . . . . . . . . 33,118 34,017 17,544

Deferred federal income taxes . . . . . . . . 11,355 4,239 (2,303)
Non-insurance companies, eliminations, and
other adjustments . . . . . . . . . . . . . . (1,325) (4,930) 3,192

Consolidated net income (loss) in accordance
with GAAP . . . . . . . . . . . . . . . . . . $ (16,959) $ 12,145 $ 17,149

</TABLE>

December 31
1993 1994
<S> <C> <C>
Combined stockholders' equity on a statutory basis $ 106,567 $ 124,284
Adjustments for:
Deferred policy acquisition costs . . . . . . . . 260,432 225,618
Policy liabilities . . . . . . . . . . . . . . . . (206,966) (180,422)
Financial reinsurance . . . . . . . . . . . . . . (30,292) (12,748)
Deferred federal income taxes . . . . . . . . . . 3,922 7,262
Non-admitted assets . . . . . . . . . . . . . . . 11,743 10,813
Surplus notes . . . . . . . . . . . . . . . . . . (4,116) (4,436)
Unrealized depreciation on available-for-sale
fixed maturities . . . . . . . . . . . . . . . . . - (14,021)
Other . . . . . . . . . . . . . . . . . . . . . . (12,229) (12,296)
Combined insurance subsidiaries stockholders'
equity on a GAAP basis . . . . . . . . . . . . . . . . 129,061 144,054
Non-insurance companies equity, eliminations and
other adjustments . . . . . . . . . . . . . . . . . . (60,189) (75,726)
Consolidated stockholders' equity in accordance
with GAAP . . . . . . . . . . . . . . . . . . . . . . $ 68,872 $ 68,328

</TABLE>

Dividends from PFS' insurance subsidiaries unassigned surplus are
limited to the greater of the prior-year statutory-basis net gain from
operations or 10% of statutory-basis surplus. The total amount of
dividends that could be paid in 1995 without regulatory approval is
$7,419,000. At December 31, 1994, PFS' retained earnings was $34,460,000
in excess of the combined statutory-basis unassigned surplus of the insurance
subsidiaries.

PFS is required to maintain adequate amounts of statutory-basis capital
and surplus to satisfy regulatory requirements and provide capacity for
production of new business. Acquisition costs relating to the production
of new business result in a reduction of statutory-basis net income and
capital and surplus.

12. CONVERTIBLE SUBORDINATED DEBENTURES

In July 1993 PFS issued $57,477,000 of 8% convertible subordinated
debentures due in 2000. Interest on the debentures is payable in January
and July of each year. Net proceeds from the offering totaled approximately
$54,000,000 and were used, in part, to repay long-term notes payable. The
debentures are convertible into PFS' Common Stock at any time prior to
maturity, unless previously redeemed, at a conversion price of $11.75 per share.

The debentures are redeemable by PFS under certain conditions after July
1996.

At December 31, 1994, 4,887,404 shares of PFS' Common Stock were
reserved for conversion of the outstanding convertible subordinated debentures.

13. REDEEMABLE PREFERRED STOCK

In 1989, PFS issued 1,000,000 shares of $2.125 Cumulative Convertible
Exchangeable Preferred Stock. The proceeds of the public offering were
$23,337,000 after reduction for expenses of $1,663,000, which expenses
were charged to additional paid-in capital. The Preferred Stock is
carried on PFS' balance sheet at the redemption and liquidation value of
$25 per share.

Each share of Preferred Stock is convertible by the holders at any
time into 1.6 shares of PFS Common Stock. Annual cumulative dividends of
$2.125 per share are payable quarterly. The preferred stock is nonvoting
unless dividends are in arrears. At December 31, 1994, 1,387,680 shares
of PFS' Common Stock were reserved for conversion of the outstanding
preferred stock.

The Preferred Stock is redeemable at the option of the holders
upon certain acquisitions or other business combinations involving PFS Common
Stock.

The Preferred Stock is redeemable by PFS at redemption prices of
$26.06 per share in 1994, declining to $25 in 1999. The Preferred Stock is
exchangeable in whole at PFS' option on any dividend payment date for PFS'
8 1/2% Convertible Subordinated Debentures due in 2014 at the rate of $25
principal amount of Subordinated Debentures for each share of Preferred
Stock.

14. SHAREHOLDER RIGHTS AGREEMENT

In 1990, PFS distributed one preferred share purchase right for each
outstanding share of Common Stock. The rights are intended to cause
substantial dilution to a person or group that attempts to acquire PFS on
terms not approved by PFS' directors. The rights expire in 2000 or PFS may
redeem the rights prior to exercise for $.01 per right.

The rights are not exercisable unless a person or group acquires,
or offers to acquire, 20% or more of PFS' Common Stock under certain
circumstances. The rights, when exercisable, entitle the holder to
purchase one-tenth of a share of a new series of PFS Series A Junior
Preferred Stock at a purchase price of $45. Such preferred shares, of which
2,000,000 are authorized, would be voting and would be entitled to
distributions that are ten times the distributions to common shareholders.
Subsequent to exercise of the rights, in the event of certain business
combinations involving PFS, a holder of rights would have the right to
receive PFS Common Stock with a value of two times the exercise price of the
rights.

15. STOCK OPTIONS AND RIGHTS

PFS has a nonqualified stock option plan and certain stock
incentive programs principally for directors and key employees of PFS
and its subsidiaries. PFS' Board of Directors grants the options and
specifies the conditions of the options. The number of shares of common
stock available for benefits under the plan is equal to 15% of the average
fully diluted shares outstanding for the prior fiscal year. Options expire
ten years after grant. Information with respect to these options is as
follows:

1993 1994

NUMBER NUMBER
OF OF
SHARES EXERCISE PRICE SHARES EXERCISE PRICE
<S> <C> <C> <C> <C>

Options outstanding
at beginning of year 594,250 $5.50 - $12.00 733,250 $5.50 - $12.00

Granted . . . . . . . . 225,000 5.50 480,321 8.88 - 11.38
Exercised . . . . . . . (72,000) 5.50 - 12.00 (85,500) 5.50 - 11.00

Canceled/repurchased . (14,000) 5.50 (82,500) 5.50 - 12.00

Options outstanding at
end of year . . . . . 733,250 $5.50 - $12.00 1,045,571 $5.50 - $12.00

Options exercisable at
end of year . . . . . 573,250 561,250

Unoptioned shares
available for granting
of options . . . . . 22,900 1,535,201

</TABLE>

16. COMMITMENTS AND CONTINGENCIES

PFS and its subsidiaries are named as defendants in various legal
actions, some claiming significant damages, arising primarily from claims
under insurance policies, disputes with agents, and other matters. PFS'
management and its legal counsel are of the opinion that the disposition of
these actions will not have a material adverse effect on PFS' financial
position.

PFS leases various office facilities furniture and equipment and
computer equipment under noncancelable operating leases. Rent expense
was $3,700,000, $4,516,000, and $4,530,000 in 1992, 1993, and 1994,
respectively. Minimum future rental commitments in connection with
noncancelable operating leases are as follows:

1995 $ 3,203,000
1996 2,445,000
1997 939,000
1998 258,000
1999 106,000

PFS has entered into employment agreements with certain officers.

The number of insurance companies that are under regulatory supervision
has increased, and that increase is expected to result in an increase in
assessments by state guaranty funds to cover losses to policyholders of
insolvent or rehabilitated companies. Those mandatory assessments may be
partially recovered through a reduction in future premium taxes in some
states. For all assessment notifications received, PFS has accrued for
those assessments net of estimated future premium tax reductions.

17. BENEFIT PLAN

PFS has a defined-contribution employee benefit plan that covers
substantially all home office employees who have attained age 21 and
completed one year of service. Plan participants may contribute from 1%
to 10% of their total compensation subject to an annual maximum. The plan
also provides for PFS to match participants' contributions up to $1,000
per year and 50% of participants, contributions above $1,000 up to the
annual Internal Revenue Service limit ($9,240 in 1994). PFS makes
employer contributions to the plan in cash or in PFS Common Stock at the
discretion of PFS' Board of Directors. At December 31, 1994, the Plan's
assets included PFS Common Stock of $2,915,775, at fair value. PFS'
contributions charged to operations were $852,000 in 1992, $1,073,000
in 1993, and $1,365,000 in 1994.

A PFS subsidiary, which owns insurance and agency companies, had a stock
purchase plan that allowed certain eligible agents to purchase common stock
in the subsidiary at the subsidiary's per share book value. The plan was
terminated in November 1992. In accordance with the plan's provisions,
agents became fully vested. Eligible agents were given the option to
participate in a new agent stock purchase plan. This new plan allows
agents to purchase PFS Common Stock. Stock purchases are limited to a
specific percentage of the agent's commission as determined by PFS but in
no event to be less than 3%. Under the plan the agents are also credited
with additional shares of PFS Common Stock as determined by PFS. In 1992,
1993 and 1994, 163,566 shares, 8,057 shares and 6,332 shares, respectively,
of PFS Common Stock were issued under this plan.

18. ALLOWANCES AND ACCUMULATED DEPRECIATION

Allowances for doubtful accounts related to other receivables amounted
to $1,271,000 at December 31, 1993, and $895,000 at December 31, 1994.

Accumulated depreciation related to building and equipment amounted to
$16,891,000 at December 31, 1993, and $19,235,000 at December 31, 1994.

19. FAIR VALUE INFORMATION

The following methods and assumptions were used by PFS in estimating its
fair values for financial instruments:

Cash, short-term investments, short-term notes payable, and accrued
investment income: The carrying amounts reported in the balance sheets
for these instruments approximate their fair values.

Investment securities: Fair values for fixed maturity securities
(including redeemable preferred stocks) are based on quoted market prices,
where available. For fixed maturity securities not actively traded, fair
values are estimated using values obtained from independent pricing
services, or, in the case of private placements, are estimated by
discounting expected future cash flows using a current market
rate applicable to the yield quality, and maturity of the investments.
The fair values for equity securities are based on quoted market prices.

Mortgage loans and policy loans: The carrying amount of PFS'
mortgage loans approximates their fair values. The fair values for
policy loans are estimated using capitalization of earnings methods,
using interest rates currently being offered for similar loans to
borrowers with similar credit ratings.

Investment contracts: Fair values for PFS' liabilities under
investment-type insurance contracts are based on current cash surrender
values.

Fair values for PFS' insurance policies other than investment
contracts are not required to be disclosed. However, the fair values
of liabilities under all insurance policies are taken into
consideration in PFS' overall management of interest rate
risk, which minimizes exposure to changing interest rates through
the matching of investment maturities with amounts due under insurance
policies.

Long-term notes payable: The fair value of PFS' long-term notes payable
approximates the carrying value.

Convertible subordinated debentures: The fair value of PFS' convertible
subordinated debentures is based on quoted market prices.

The fair values of certain financial instruments along with their
corresponding carrying values of December 31, 1993 and 1994 are as follows:

1993
1994
FAIR CARRYING FAIR CARRYING
VALUE VALUE VALUE VALUE
(In thousands)
<S> <C> <C> <C> <C>
Financial Assets:
Fixed Maturities:
Available-or-sale $263,263 $257,717 $218,748 $218,748
Held-to-maturity 325,540 326,512 338,540 378,650
Equity securities 17,436 17,436 15,440 15,440
Mortgage loans 3,201 3,201 1,806 1,806
Policy loans 21,011 23,988 22,025 23,082

Financial Liabilities:
Investment contracts 191,816 200,894 194,072 203,654
Long-term notes payable 1,125 1,125 2,520 2,520
Subordinated debentures 70,122 57,477 54,843 57,427

</TABLE>

During the fourth quarter of 1994, PFS began using exchange-traded
treasury futures contracts as part of its overall interest rate risk management
strategy for a small portion of its life and annuity business. The
initial margin deposit paid for the futures represents their cost basis
which is adjusted to fair value in the financial statements. Realized and
unrealized gains and losses, which were immaterial in 1994, are recognized as
an adjustment to the carrying amount of the asset being hedged.

20. SEGMENT INFORMATION

PFS has four business segments: Group Medical, Senior Health, Life
Insurance, and Medical Utilization Management. The segments are based on PFS'
main Divisions. Allocations of investment income and certain general
expenses are based on various assumptions and estimates, and reported
operating results by segment would change if different methods were
applied. Assets are not individually identifiable by segment and have
been allocated based on the amount of policy liabilities by segment and by
other formulas. Depreciation expense and capital expenditures are not
considered material. Realized investment gains and losses are allocated to
the appropriate segment. General corporate expenses are not allocated to
the individual segments. Revenues, income or loss before income taxes,
and identifiable assets by business segment are as follows:

1992 1993 1994
(In thousands)
<S> <C> <C> <C>
REVENUES
Group Medical: . . . . . . . . . . . . .
Unaffiliated . . . . . . . . . . $ 327,033 $ 379,742 $ 457,633
Inter-segment . . . . . . . . . 26,500 30,439 35,373

Senior Health . . . . . . . . . . . . . . 258,608 247,100 235,031
Life Insurance . . . . . . . . . . . . . 68,411 67,780 71,075
Medical Utilization Management:
Unaffiliated . . . . . . . . . . 1,921 4,506 10,416
Inter-segment . . . . . . . . . 2,041 4,358 4,927
684,514 733,925 814,455

Eliminations 28,541 34,797 40,300

Total . . . . . . . . . . . . . . . . . . $ 655,973 $ 699,128 $ 774,155

INCOME (LOSS) BEFORE INCOME TAXES
Group Medical . . . . . . . . . . . . . . $ (25,235) $ 6,528 $ 10,889
Senior Health . . . . . . . . . . . . . . 1,966 12,255 13,420
Life Insurance . . . . . . . . . . . . . 340 7,623 8,537
Medical Utilization Management . . . . . 335 (1,211) 2,026
Corporate expenses . . . . . . . . . . . (2,843) (6,431) (8,850)

Total . . . . . . . . . . . . . . . . . . $ (25,437) $ 18,764 $ 26,022

IDENTIFIABLE ASSETS AT YEAR-END
Group Medical . . . . . . . . . . . . . . $ 206,194 $ 287,713 $ 245,763
Senior Health . . . . . . . . . . . . . . 292,449 301,700 291,703
Life Insurance . . . . . . . . . . . . . 478,529 514,154 533,070
Medical Utilization Management . . . . . 1,517 4,704 5,164

Total . . . . . . . . . . . . . . . . . . $ 978,689 $ 1,108,271 $ 1,075,700

</TABLE>

21. CREDIT ARRANGEMENTS

PFS has a line of credit arrangement for short-term borrowings with three
banks amounting to $20,000,000 through April 1996, of which $18,950,000 was
used at December 31, 1994. The line of credit arrangement can be
terminated, in accordance with the agreement, at PFS' option.

22. SUBSEQUENT EVENT

As discussed in Note 3, on January 31, 1995, PFS acquired all of the
outstanding common shares of Connecticut National Life Insurance Company
for a cost of $24,000,000. To fund the acquisition, PFS utilized
$15,000,000 from its available line of credit and internal
cash sources. The line of credit was replaced with a five year term
loan totaling $15,000,000 in March 1995.

23. QUARTERLY FINANCIAL DATA (UNAUDITED)

A summary of unaudited quarterly results of operations for 1994 and 1993 is
as follows (in thousands, except per share amounts):

1993
1ST 2ND 3RD 4TH
<S> <C> <C> <C> <C>
Premiums and policy charges . . . . . . . . . . . . . $155,343 154,189 154,132 $177,302
Net investment income and other . . . . . . . . . . . 14,369 13,928 15,802 14,063
Net income . . . . . . . . . . . . . . . . . . . . . 2,295 2,627 3,128 4,095
Net income per share:
Primary . . . . . . . . . . . . . . . . . . .26 .31 .40 .54
Fully diluted . . . . . . . . . . . . . . . .26 .31 .31 .37

1994
1ST 2ND 3RD 4TH
Premiums and policy charges . . . . . . . . . . . . . $172,898 $176,803 $176,190 $178,219
Net investment income and other . . . . . . . . . . . 18,367 16,926 17,674 17,079
Net income . . . . . . . . . . . . . . . . . . . . . 4,500 4,403 3,321 4,926
Net income per share:
Primary . . . . . . . . . . . . . . . . . . .60 .59 .44 .73
Fully diluted . . . . . . . . . . . . . . . .40 .40 .32 .46

</TABLE>

No dealer, salesperson or any other
person has been authorized to give
any information or to make any
representations other than those $65,000,000
contained in this Prospectus in
connection with the offer made by
this Prospectus and, if given or
made, such information or PIONEER FINANCIAL SERVICES, INC.
representations must not be relied
upon as having been authorized by
the Company or any Underwriter.
Neither the delivery of this
Prospectus nor any sale made ___% Convertible Subordinated
hereunder shall, under any Notes Due 2003
circumstances, create any
implication that there has been no
change in the affairs of the Company
since the date hereof or since the
dates as of which information is set
forth herein. This Prospectus does
not constitute an offer or a
solicitation by anyone in any
jurisdiction in which such offer or
solicitation is not authorized or in ___________
which the person making such offer
or solicitation is not qualified to PROSPECTUS
do so or to anyone to whom it is ___________
unlawful to make such offer or
solicitation.

TABLE OF CONTENTS
Page
Available Information . . . . . . 2
Incorporation of Certain
Documents by Reference . . . . 2
Prospectus Summary . . . . . . . 4 BEAR, STEARNS & CO. INC.
Risk Factors . . . . . . . . . . 11
Use of Proceeds . . . . . . . . . 15 EVEREN SECURITIES, INC.
Price Range of Common Stock
and Dividend Policy . . . . . . 16 OPPENHEIMER & CO., INC.
Capitalization . . . . . . . . . 17
Selected Financial and Operating
Data . . . . . . . . . . . . . . 18
Management's Discussion and , 1996
Analysis of Results of Operations
and Financial Condition . . . . 20
Business . . . . . . . . . . . . 31
Management and Directors . . . . 46
Principal Holders of Securities . 49
Description of Notes . . . . . . 51
Description of Capital Stock . . 61
Certain Federal Income Tax
Consequences . . . . . . . . . 64
Underwriting . . . . . . . . . . 66
Legal Matters . . . . . . . . . . 68
Experts . . . . . . . . . . . . . 68
Index to Consolidated Financial
Statements . . . . . . . . . . F-1

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following are the actual or estimated expenses in connection with the
issuance and distribution of the securities being registered:

Registration Fee . . . . . . . . . . . . . . . . . . $25,776
Printing of Registration Statement
and Prospectus . . . . . . . . . . . . . . . . . . . *
Accounting Fees and Expenses . . . . . . . . . . . . *
Legal Fees . . . . . . . . . . . . . . . . . . . . . *
Trustees fees . . . . . . . . . . . . . . . . . . . . *
NASD Filing Fee . . . . . . . . . . . . . . . . . . . 7,975
Blue Sky fees and expenses . . . . . . . . . . . . . *
Miscellaneous . . . . . . . . . . . . . . . . . . . . *
Total . . . . . . . . . . . . . . . . . . . . . $500,000

* To be filed by amendment.

ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Section 145 of the Delaware General Corporation Law contains provisions
under which corporations organized thereunder are permitted or required in
certain circumstances to indemnify directors, officers and others against
certain liabilities and permitted to maintain insurance to cover such
liabilities and liabilities against which such corporations may not
directly indemnify such persons. Article Thirteenth of the
Certificate of Incorporation and the by-laws of the Registrant grant
indemnification to such persons to the extent permitted by Delaware law
and authorize the purchase of such insurance. The Registrant has
purchased such insurance.

Reference is made to the Underwriting Agreement to be filed as
Exhibit 1 which contains indemnification provisions between the
Registrant and the Underwriters against certain civil liabilities,
including liabilities under the Securities Act of 1933.

ITEM 16. EXHIBITS.

1 Form of Underwriting Agreement*

4(a) Certificate of Designations with respect to the Company's $2.125
Cumulative Convertible Exchangeable Preferred Stock ("Preferred Stock")
(filed as Exhibit 4(a) to Post-Effective Amendment No. 1 to the
Company's Registration Statement on Form S-1
(No. 33-30017) and incorporated herein by reference)

4(b) Proposed form of Indenture with respect to the Company's 8 1/2%
Convertible Subordinated Debentures due 2014 into which the Preferred
Stock is exchangeable (filed as Exhibit 4(b) to Post-Effective
Amendment No. 1 to the Company's Registration Statement on
Form S-1 (No. 33-30017) and incorporated herein by reference)

4(c) Rights Agreement dated as of December 12, 1990 between the Company and
First Chicago Trust Company of New York as Rights Agent (including
exhibits thereto) (filed as Exhibit 1 to the Company's registration
statement on Form 8-A dated December 14, 1990 and incorporated herein
by reference)

4(d) Form of Indenture relating to the Company's 8% Convertible Subordinated
Debentures due 2000, between Pioneer Financial Services, Inc. and Harris
Trust and Savings Bank, as Trustee (filed as Exhibit 4(d) to the
Company's Registration Statement on Form S-2 (No. 33-62760) and
incorporated herein by reference)

4(e) Form of 8% Convertible Subordinated Debenture due 2000 (included in
Exhibit 4(d) to the Company's Registration Statement on Form S-2
(No. 33-62760) and incorporated herein by reference)

4(f) Form of Indenture between Pioneer Financial Services, Inc. and
___________________, as Trustee*

4(g) Form of __% Convertible Subordinated Note due 2003*

5 Opinion of McDermott, Will & Emery, counsel to the Company, as to the
legality of the securities being registered*

12 Statement regarding computation of ratio of earnings to Fixed charges.

23(a) Consent of Ernst & Young LLP

23(b) Consent of McDermott, Will & Emery (included in Exhibit 5)*

24 Power of Attorney (included on signature page)

25 Form T-1 Statement of Eligibility Under Trust Indenture Act of 1939 of
____________.*

___________________

* To be filed by amendment.

ITEM 17. UNDERTAKINGS.

The undersigned Registrant hereby undertakes:

(1) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officer and controlling
persons of the Company pursuant to the foregoing provisions described
in Item 15, or otherwise, the Company has been advised that in the
opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and
is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by
the Company of expenses incurred or paid by a director, officer or
controlling person of the Company in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered,
the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be
governed by the final adjudication of such issue.

(2) For the purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as
a part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be
deemed to be part of this registration statement as of the time
it was declared effective.

(3) For the purposes of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering thereof.

(4) For purposes of determining any liability under the Securities Act of
1933, each filing of the registrant's annual report pursuant to section
13(a) or section 15(d) of the Securities Exchange Act of 1934 (and, where
applicable, each filing of an employee benefit plan's annual report
pursuant to section 15(d) of the Securities Exchange Act of 1934)
that is incorporated by reference in the registration statement shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it
meets all of the requirements for filing on Form S-3 and has duly caused
this Registration Statement to be signed on its behalf by the Undersigned,
thereunto duly authorized, in the city of Chicago, State of Illinois, on
this 20th day of February, 1996.

PIONEER FINANCIAL SERVICES, INC.

By: /s/ Peter Nauert
Peter W. Nauert, Chairman, Chief
Executive Officer and Director

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints Peter W. Nauert and David I. Vickers,
and each of them, his true and lawful attorney-in-fact and agent, with full
power of substitution, for him and in his name, place and stead, in any and
all capacities, to sign any and all amendments (including pre-effective and
post-effective amendments) to this Registration Statement as well as any
related registration statement (or amendment thereto) filed pursuant
to Rule 462(b) promulgated under the Securities Act of 1933, and to file
the same with all exhibits thereto and other documents in connection
therewith with the Securities and Exchange Commission, hereby grants unto
said attorneys-in-fact, and each of them, and agents full power and
authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully as to all intents
and purposes as he might or could do in person, and hereby ratifies and
confirms all that said attorneys-in-fact and agents or any of them or
their or his substitute or substitutes may lawfully do or cause to be done by
virtue hereof.

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.

SIGNATURE TITLE DATE

<S> <C> <C>
/s/ Peter W. Nauert Chairman, Chief Executive Officer February 20, 1996
Peter W. Nauert and Director

/s/ David I. Vickers Vice President, Treasurer and Chief February 20, 1996
David I. Vickers Financial Officer (Chief Accounting Officer)

/s/ Charles R. Scheper President - Life Insurance Operations February 20, 1996
Charles R. Scheper and Director

/s/ Thomas J. Brophy President - Health Insurance Operations February 19, 1996
Thomas J. Brophy and Director

/s/ William B. Van Vleet Director and General February 20, 1996
William B. Van Vleet Counsel Emeritus

/s/ Robert F. Nauert Director February 17, 1996
Robert F. Nauert

/s/ Michael A. Cavataio Director February 20, 1996
Michael A. Cavataio

Director February 20, 1996
Karl-Heinz Klaeser

/s/ Richard R. Haldeman Director February 19, 1996
Richard R. Haldeman

/s/ R. Richard Bastian, III Director February 16, 1996
R. Richard Bastian, III

Director February 20, 1996
Michael K. Keefe

Director February 20, 1996
Carl A. Hulbert

INDEX TO EXHIBITS FILED
TO REGISTRATION STATEMENT ON
FORM S-3 OF PIONEER FINANCIAL SERVICES, INC.

Sequentially
Exhibit Numbered
Number Exhibit Page

1 Form of Underwriting Agreement* . . . . . . . . .

4 (f) Form of Indenture between Pioneer Financial Services, Inc. and
____________, as Trustee.* . . . . . . . . . . .

4 (g) Form of __% Convertible Subordinated Note due 2003* .

5 Opinion of McDermott, Will & Emery, counsel to the Company,
as to the legality of the securities being registered*

12 Computation of Ratios of Earnings to Fixed Charges

23(a) Consent of Ernst & Young LLP . . . . . . . . . .

23(b) Consent of McDermott, Will & Emery (included in Exhibit 5)*

25 Power of Attorney (included on signature page) .

26 Form T-1 Statement of Eligibility under Trust Indenture Act
of 1939 of __________, as Trustee* . . . . . . .

___________________

* To be filed by amendment.

</TABLE>

EXHIBIT 12

PIONEER FINANCIAL SERVICES, INC.
STATEMENT OF COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(IN THOUSANDS, EXCEPT RATIOS)
<TABLE>
<CAPTION>

Nine Month
Ended September 30 Year Ended December 31,

1994 1995 1990 1991 1992 1993 1994

<S> <C> <C> <C> <C> <C> <C> <C>
Computation of earnings:

Income (loss) before income taxes
per statement of consolidated $ 18,124 $ 20,254 $ (14,161) $ 13,320 $ (25,436) $18,764 $ 26,022
operations . . . . . . . . . . . .
Add Back Fixed Charges:

Income on Indebtedness,
Amortization of debt issue costs
and interest portion of rent 4,423 4,969 4,796 3,335 2,387 3,871 5,947
expense . . . . . . . . . . . . . .

Income (loss) (as adjusted) . . . . $ 22,547 $ 25,223 $ (9,365) $ 16,655 $ (23,049) $22,635 $ 31,969
Fixed Charges:

Total Fixed Charges (interest on
indebtedness, Amortization of debt
issue costs and interest portion of
rent expenses) . . . . . . . . . . $ 4,423 $ 4,969 $ 4,796 $ 3,335 $ 2,387 $ 3,871 $ 5,947
Ratio of Earnings to Fixed Charges 5.10 5.08 N/A 4.99 N/A 5.85 5.38

</TABLE>

EXHIBIT 23(a)

CONSENT OF INDEPENDENT AUDITORS

We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated March 22, 1995 in the Registration Statement (Form S-3)
and related Prospectus of Pioneer Financial Services, Inc. for the registration
of Convertible Subordinated Notes Due 2003.

We also consent to the incorporation by reference therein of our report dated
March 22, 1995, with respect to the consolidated financial statements and
financial statement schedules of Pioneer Financial Services, Inc. and
subsidiaries included in its Annual Report (Form 10-K) for the year ended
December 31, 1994, filed with the Securities and Exchange Commission.

ERNST & YOUNG LLP

Chicago, Illinois
February 20, 1996