SCHEDULE 14A
(RULE 14A-101)

INFORMATION REQUIRED IN PROXY STATEMENT

SCHEDULE 14A INFORMATION

PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF
1934

Filed by the Registrant [X]

Filed by a Party other than the Registrant [_]

Check the appropriate box:

[_] CONFIDENTIAL, FOR USE OF THE
[_] Preliminary Proxy Statement COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))

[X] Definitive Proxy Statement

[_] Definitive Additional Materials

[_] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12

DIGNITY PARTNERS, INC.
(Name of Registrant as Specified In Its Charter)

N/A
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (check the appropriate box):

[_] No fee required.

[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.

(1) Title of each class of securities to which transaction applies:

(2) Aggregate number of securities to which transaction applies:

(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):

(4) Proposed maximum aggregate value of transaction: $49,639,104 (estimated
solely for purposes of calculating the applicable fee)

(5) Total fee paid: $9,928.00

[X] Fee paid previously with preliminary materials.

[_] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.

(1) Amount previously paid:

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(4) Date Filed:

DIGNITY PARTNERS, INC.
1700 MONTGOMERY STREET, SUITE 250
SAN FRANCISCO, CALIFORNIA 94111

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

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

DECEMBER 16, 1996

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

To the Stockholders of Dignity Partners, Inc. (the "Company"):

You are hereby notified of and invited to attend a special meeting of
stockholders of the Company (the "Meeting") to be held at 8:00 a.m. on
December 16, 1996 at Business Wire, 44 Montgomery Street, San Francisco,
California 94104. The purpose of the meeting is to take action with respect to
a proposal to authorize the Board of Directors to sell all or substantially
all of the Company's assets. The Board of Directors has fixed the close of
business on November 8, 1996 as the record date for determining the
stockholders entitled to receive notice of and to vote at the meeting.

All stockholders are urged to attend the Meeting or to vote by proxy.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE PROPOSAL TO AUTHORIZE THE
BOARD OF DIRECTORS TO SELL ALL OR SUBSTANTIALLY ALL OF THE COMPANY'S ASSETS.

IT IS IMPORTANT THAT YOUR PROXY BE RETURNED PROMPTLY. THEREFORE, WHETHER OR
NOT YOU PLAN TO ATTEND THE MEETING, PLEASE SIGN, DATE AND MAIL THE ENCLOSED
PROXY CARD IN THE ENCLOSED, POSTAGE PAID ENVELOPE. YOU MAY, IF YOU WISH,
REVOKE YOUR PROXY AT ANY TIME PRIOR TO THE TIME IT IS VOTED, INCLUDING BY
VOTING IN PERSON AT THE MEETING.

November 20, 1996 By Order of the Board of Directors

John Ward Rotter

TABLE OF CONTENTS

PAGE
----

GENERAL................................................................... 1
THE ASSET SALE............................................................ 2
THE COMPANY............................................................... 6
COMMON STOCK MARKET PRICES AND DIVIDENDS.................................. 23
FINANCIAL INFORMATION..................................................... 24
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS............................................................... 30
1997 ANNUAL MEETING....................................................... 37
AVAILABLE INFORMATION..................................................... 37
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE......................... 37
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS................................ F-1

Unless the context otherwise requires, references herein to "Dignity
Partners" or the "Company" are to Dignity Partners, Inc. and its consolidated
entities.

DIGNITY PARTNERS, INC.

PROXY STATEMENT

GENERAL

This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Dignity Partners, Inc., a Delaware
corporation ("Dignity Partners" or the "Company"), from the holders of the
Company's common stock, $.01 par value (the "Common Stock"), in connection
with the special meeting of the Company's stockholders to be held at 8:00 a.m.
on December 16, 1996 at Business Wire, 44 Montgomery Street, San Francisco,
California (the "Meeting"), and all postponements or adjournments thereof.
Only stockholders of record at the close of business on November 8, 1996 (the
"Record Date") are entitled to receive notice of the Meeting and to vote the
shares of Common Stock held of record by them on the Record Date at the
Meeting or any postponements or adjournments thereof. This Proxy Statement and
the accompanying proxy card are first being mailed to stockholders on or about
November 20, 1996, for the purpose set forth herein.

The Board of Directors is requesting that the holders of Common Stock
approve the proposal (the "Proposal") to authorize the Board of Directors to
sell all or substantially all of the assets of the Company (the "Asset Sale")
on terms that the Board of Directors deems expedient and in the best interests
of the Company. No other matter may be presented at the meeting. Although the
Board of Directors has not yet determined the exact extent to which the
Company's assets should be sold, the Board believes it should be given the
authority to sell the Company's assets as contemplated by the Proposal in
light of uncertainties attendant to the continued ownership of the Company's
current portfolio of life insurance policies. See "The Asset Sale--
Introduction and Reasons for Asset Sale." In furtherance of the Asset Sale,
the Company has entered into a Master Agreement for Purchase of Insurance
Policies dated as of September 27, 1996, as amended (the "Sale Agreement"),
among the Company, an unaffiliated viatical settlement company (the
"Purchaser") and an escrow agent, pursuant to which the Company has agreed to
sell 197 life insurance policies for approximately $8.7 million. Such policies
constituted approximately 20.2% of the number of policies and 19.6% of the
face value of policies held in the Company's portfolio as of September 30,
1996. Each such policy insures the life of an individual diagnosed with the
Human Immuno-deficiency Virus ("HIV") or Acquired Immuno-deficiency Syndrome
("AIDS"). The consummation of the Sale Agreement is conditioned upon
stockholder approval of the Asset Sale. If stockholder approval of the Asset
Sale is not obtained before December 26, 1996, the Sale Agreement will be null
and void. See "The Asset Sale."

There can be no assurance that the Sale Agreement or any other sale of the
Company's assets will actually be consummated or that the terms of the Sale
Agreement will not be changed substantially prior to its consummation. See
"The Asset Sale--Terms of the Sale Agreement" and "--Negotiations between the
Company and the Purchaser." Even if the Sale Agreement is not consummated, if
the Proposal is approved by the requisite vote of the stockholders as
described herein, the Board will be authorized to proceed with the Asset Sale
on such terms as it deems expedient and in the best interests of the Company.
The Board of Directors may abandon the Asset Sale without further action by
the stockholders subject to the rights, if any, of third parties under any
contract (including the Sale Agreement) entered into in furtherance of the
Asset Sale.

If the accompanying proxy is properly signed and returned to the Company and
is not revoked, it will be voted in accordance with the instructions contained
therein. UNLESS CONTRARY INSTRUCTIONS ARE GIVEN, THE PERSONS DESIGNATED AS
PROXY HOLDERS IN THE PROXY WILL VOTE THE SHARES OF COMMON STOCK REPRESENTED
THEREBY FOR THE PROPOSAL TO AUTHORIZE THE BOARD OF DIRECTORS TO SELL ALL OR
SUBSTANTIALLY ALL OF THE COMPANY'S ASSETS. Each stockholder may revoke a
previously granted proxy at any time before it is voted by filing with the
Secretary of the Company a revoking instruction or a duly executed proxy
bearing a later date. The powers of the proxy holders will also be suspended
if the person executing the proxy attends the Meeting and requests to vote in
person. Attendance at the Meeting will not, in itself, constitute revocation
of a previously granted proxy.

The cost of soliciting proxies in the enclosed form will be borne by the
Company. The Company will also request brokerage firms, banks, nominees,
custodians and fiduciaries to forward proxy materials to the beneficial

owners of shares of Common Stock as of the Record Date and will reimburse the
cost of forwarding the proxy materials in accordance with customary practice.

The presence at the Meeting, in person or by proxy, of the holders of a
majority of the shares of Common Stock outstanding as of the close of business
on the Record Date will constitute a quorum. Broker non-votes and abstentions
will be counted as present at the Meeting for purposes of determining whether
a quorum exists. The approval of a majority of the shares of Common Stock
outstanding as of the Record Date is required to pass the Proposal. As of the
Record Date, 4,291,824 shares of Common Stock were outstanding. Each
outstanding share entitles its holder to cast one vote on the Proposal.
Abstentions and broker non-votes will have the same effect as a vote against
the Proposal. Proxies and ballots will be received and tabulated by the
transfer agent for the Common Stock. A list of stockholders of record as of
the Record Date will be available at the Company's executive offices for 10
days prior to the Meeting and will also be available at the Meeting. Such list
may be examined during ordinary business hours by any stockholder of record
for any purpose germane to the meeting.

IN DETERMINING WHETHER TO AUTHORIZE THE BOARD OF DIRECTORS TO SELL ALL OR
SUBSTANTIALLY ALL OF THE COMPANY'S ASSETS, STOCKHOLDERS SHOULD CONSIDER ALL OF
THE INFORMATION INCLUDED OR INCORPORATED BY REFERENCE IN THIS PROXY STATEMENT.

THE BOARD BELIEVES THAT THE ASSET SALE IS IN THE BEST INTERESTS OF THE
COMPANY AND ITS STOCKHOLDERS. THE BOARD UNANIMOUSLY RECOMMENDS THAT THE
STOCKHOLDERS VOTE "FOR" THE PROPOSAL TO AUTHORIZE THE BOARD OF DIRECTORS TO
SELL ALL OR SUBSTANTIALLY ALL OF THE COMPANY'S ASSETS.

THE ASSET SALE

INTRODUCTION AND REASONS FOR ASSET SALE

The Company is a specialty financial services company that provides viatical
settlements for terminally ill persons. A viatical settlement is the payment
of cash in return for an ownership interest in, and the right to receive the
death benefit ("face value") of, a life insurance policy. As of September 30,
1996, policies insuring the lives of individuals diagnosed with HIV or AIDS
comprised approximately 97% in number and 96% in face value of the Company's
portfolio. At the International AIDS Conference held in Vancouver, British
Columbia in July 1996 (the "AIDS Conference"), the results from a number of
studies were reported which appear to indicate that treatments involving a
combination of various drugs were reducing substantially, and perhaps
eradicating, the levels of HIV detectable in the blood of persons previously
diagnosed with HIV or AIDS. Subsequent reports appear to confirm the reports
from the AIDS Conference. On July 16, 1996, in response to accounts of the
research results reported at the AIDS Conference, the Company announced that
it was temporarily ceasing the processing of new applications to purchase
policies insuring the lives of individuals diagnosed with HIV and AIDS while
it further analyzed the effects on its business of such research results. The
Company continues to analyze the effects of such research results on its
business and to evaluate its strategic options.

The Company believes that the treatments reported at the AIDS Conference
have increased the risks of holding policies insuring the lives of individuals
diagnosed with HIV or AIDS, especially those individuals with longer life
expectancies. If the experimental treatments are proven effective and become
widely available, the actual life expectancies of a significant number of
insureds could substantially exceed the Company's estimates of their life
expectancies, thereby materially adversely affecting the Company's earnings,
cash flows and yields. In light of the uncertainties attendant to the
continued ownership of the Company's portfolio, the Board of Directors
believes that it is in the best interests of the Company at this time to
attempt to minimize risk and to provide working capital while the Company
evaluates its strategic options.

The Board of Directors considered several potentially negative factors in
its deliberations concerning the Asset Sale. The main negative factor
considered was the fact that the Company's HIV/AIDS policies may have

to be sold at prices resulting in a net loss to the Company. Other negative
factors include: a potential loss of competitive position in the viatical
settlement market as it pertains to HIV/AIDS sufferers and the possibility
that subsequent scientific studies will indicate that the risks of holding
HIV/AIDS policies is not as great as the Company currently believes. After
considering these factors, the Board of Directors concluded that the positive
factors of minimizing risk and obtaining liquidity outweighed the negative
factors.

The Board of Directors is therefore recommending that the holders of Common
Stock authorize the Board of Directors to sell all or substantially all of the
assets of the Company on terms that the Board of Directors deems expedient and
in the best interests of the Company. The Board of Directors has not yet
determined the precise amount or percentage of the Company's assets to be
sold, in part because such a decision is necessarily based upon the proposed
terms and conditions of any such sale. The Board of Directors currently
intends to pursue the sale of all of the Company's policies which insure the
lives of individuals diagnosed with HIV or AIDS. However, the sale of policies
held through Dignity Partners Funding Corp. I ("DPFC"), all of which are
pledged under the indenture pursuant to which the Securitized Notes (as
defined herein) were issued (the "Indenture"), will require the consent of all
of the holders of the Securitized Notes. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Description of
Securitized Notes." No assurance can be given that the Company will be able to
obtain such consent. The Company has discussed potential sales of DPFC
policies with the holders of the Securitized Notes; however, it is too early
to determine whether the holders of the Securitized Notes and the Company will
decide to sell such policies or whether such a sale is feasible. There can be
no assurance that the Company will be able to sell any of its assets. The
Board of Directors may abandon the Asset Sale in whole or in part
notwithstanding the stockholders' approval of the Asset Sale at the Meeting
without any further action by the stockholders subject to the rights, if any,
of third parties under any contract (including the Sale Agreement) entered
into in furtherance of the Asset Sale.

The Company has thus far entered into the Sale Agreement, pursuant to which
the Company has agreed to sell 197 HIV/AIDS policies with a face value of
approximately $14.2 million, for approximately $8.7 million. The Company
initially paid an aggregate of $9.4 million for the policies covered by the
Sale Agreement and the carrying value of such policies as of September 30,
1996 was $9.6 million before any provision for loss. Therefore, the Company
will realize a pre-tax loss on the sale. See "The Asset Sale--Certain Federal
Income Tax Consequences." The policies to be sold represent approximately
61.8% of the number of policies and 61.3% of the face value of policies held
in the Company's portfolio, excluding policies owned by DPFC. The Purchaser is
not affiliated with the Company or any of its directors or officers. The
consummation of the Sale Agreement is conditioned upon stockholder approval of
the Asset Sale. If stockholder approval of the Asset Sale is not received by
December 26, 1996, the Sale Agreement will be null and void. See "--Terms of
Sale Agreement" below.

Between the date hereof and the Meeting, the Company may enter into
additional sale agreements, subject to stockholder approval of the Asset Sale.

TERMS OF SALE AGREEMENT

The following summary of the material terms and provisions of the Sale
Agreement is not necessarily complete. Reference is made to the copy of the
Sale Agreement filed with the Securities and Exchange Commission (the "SEC")
and such summary is qualified in all respects by such reference. There can be
no assurance that the Sale Agreement will be consummated or if it is
consummated, that it will be on the same terms that are summarized herein.

The Company and the Purchaser have entered into the Sale Agreement, which is
subject to stockholder approval of the Asset Sale. If stockholder approval of
the Asset Sale is not received by December 26, 1996, the Sale Agreement will
be null and void. The Sale Agreement provides for the sale by the Company of
approximately 197 HIV/AIDS policies having an aggregate face value of
approximately $14.2 million. A policy will not be sold if the insured dies
prior to the issuing insurance company's acknowledgment of transfer of
ownership of the policy. The Sale Agreement provides that additional policies
may be sold pursuant thereto by mutual agreement of the Company and the
Purchaser.

The purchase price of each policy equals 61.86% of its face value (less any
fees owed to sourcing brokers upon collection of the policy) plus 100% of
prepaid premiums. The Purchaser has agreed to pay any sourcing broker fees
owed by the Company upon collection of a policy sold under the Sale Agreement.
The estimated aggregate purchase price is required to be placed in escrow
prior to the time that change in ownership forms are sent to the insurance
companies that issued the policies. The purchase price for each policy will be
delivered to the Company after the issuing insurance company acknowledges in
writing the transfer of ownership of the policy to the Purchaser. If such
acknowledgment for a policy is not received within 90 days after the purchase
price is placed in escrow, the sale of such policy will be rescinded.

The Sale Agreement contains cross indemnity provisions pursuant to which the
Company and the Purchaser have agreed to indemnify each other against losses,
liabilities or damages arising in connection with a claim under any policy or
with any breach of any representation or warranty made by the breaching party
in the Sale Agreement. Both the Company and the Purchaser have agreed to
indemnify the escrow agent against losses, liabilities or damages arising in
connection with the Sale Agreement except when such losses, liabilities or
damages are related to the escrow agent's negligence, intentional misconduct
or breach of the Sale Agreement.

No third party appraisal or fairness opinion was obtained by the Company in
connection with the Sale Agreement. The viatical settlement industry is
relatively new, there are relatively few prospective purchasers and the
Company does not believe any outside parties are better qualified than the
Company's officers to assess the fair value of the Company's policies. See
also "The Asset Sale--Negotiations Between the Company and the Purchaser."

ACCOUNTING CONSEQUENCES ARISING FROM DECISION TO SELL ASSETS

As a result of the Company's decision to sell all or substantially all of
its assets and to seek stockholder approval of the Asset Sale, the Company has
reclassified all of its assets (other than the policies held by DPFC) to a
"held-for-sale" category. Accordingly, all assets other than policies held by
DPFC are accounted for on the lower of carrying value or fair value less cost
to sell. Such fair value less cost to sell has been determined by management
of the Company based upon various factors, including the negotiated terms of
the Sale Agreement and management's assessment of the current market for
policies of the type comprising the Company's portfolio and of the likely time
period within which the sale of the portfolio would occur. In connection
therewith, the Company established a provision for loss on sale of assets
during the quarter ended September 30, 1996. The Company also established a
valuation provision for purchased life insurance policies during the quarter
ended September 30, 1996 because of the uncertainties created by the data
presented at the AIDS Conference and subsequent reports of scientific studies
that may confirm such data. In addition, beginning in such quarter, the
Company generally began recognizing income upon receipt of proceeds on
policies (either pursuant to a sale or the death of the insured). Such income
is equal to the difference between such proceeds (less any back-end sourcing
fees) and the carrying value of such policies after giving effect to any
provision for loss on the sale of such policies and any valuation provision
for purchased life insurance policies. See "Financial Information--Pro Forma
Financial Information" and "Management's Discussion and Analysis of Financial
Condition and Results of Operation."

CERTAIN FEDERAL INCOME TAX CONSEQUENCES

To the extent the Company sells a policy, it will realize ordinary income or
loss equal to the difference between the tax basis of such policy and the
consideration received in such sale. Assuming an aggregate purchase price
which is equal to management's estimate of the aggregate fair value of the
Company's assets (less estimated sales costs), the Company estimates an
aggregate pre-tax loss to be incurred as a result of the Asset Sale of
approximately $10.3 million, including an aggregate loss of approximately $1.8
million related to the policies covered by the Sale Agreement.

REQUIRED APPROVALS

The Company is not required to obtain any federal or state regulatory
approval of the Asset Sale. The Company believes that, other than stockholder
approval and the consent of all of the holders of the Securitized Notes to any
sale of policies, no further approvals are necessary for the Asset Sale.

APPRAISAL RIGHTS INAPPLICABLE

Under Delaware law, the holders of Common Stock do not possess any appraisal
rights in relation to the Asset Sale.

NEGOTIATIONS BETWEEN THE COMPANY AND THE PURCHASER

On July 16, 1996, following reports at the AIDS Conference of beneficial
effects of new combination therapies for treating HIV and AIDS, the Company
announced it was temporarily ceasing to process new applications for policies
insuring individuals diagnosed with HIV and AIDS until it could further
analyze the implications of such reports on its business. The Company was
concerned that, if such treatments prolonged substantially the life
expectancies of insureds, the Company's cash flows, earnings and yields would
be materially adversely affected and that the value of the Company's portfolio
of life insurance policies would decrease over time.

On July 18, 1996, in order to better evaluate strategic options, the Company
contacted two unaffiliated viatical settlement companies (one of which was the
Purchaser) to discuss their interest in purchasing approximately 200 policies
insuring individuals afflicted with HIV and AIDS with a face value of
approximately $14.2 million and approximately ten policies owned by Dignified
One (as defined herein). See "The Company--Corporate Structure." On July 19,
1996, after receiving preliminary indications of interest, the Company
forwarded further information to the potential purchasers to facilitate
further negotiations for the purchase of policies.

During the next two weeks the Purchaser offered to purchase the policies for
approximately 57% of their face value. While discussions continued, the
Company investigated the Purchaser and its principals to determine whether the
Purchaser had the financial resources to consummate the transaction. On August
2, 1996 the Company received a letter from the Purchaser outlining a proposed
purchase structure and indicating that an escrow agent was holding funds in
excess of $15 million for the purchase of life insurance policies.

Following further negotiations, the Company received from the Purchaser a
revised bid for the policies of 61.86% of their face value (the "Revised
Offer"). On August 5, 1996, the Company sent a nonbinding letter indicating
its general agreement with the proposed terms as outlined in the Revised
Offer. On August 14, 1996, the Company circulated a draft purchase agreement.

The Board of Directors of the Company met on August 20, 1996 and discussed,
among other things, their concerns regarding the potential decline in value of
the Company's portfolio if the combination therapies reported at the AIDS
Conference significantly extended the life expectancies of HIV/AIDS patients.
Thereafter, several revised draft purchase agreements were circulated and
negotiations continued.

The second potential purchaser delivered a preliminary bid on August 30,
1996 which was an offer to purchase 95 policies with a face value of
approximately $5.3 million for an average of approximately 49% of their face
value. The bid did not include an offer with respect to the remainder of the
policies, which had an aggregate face value of approximately $8.9 million.

The Board of Directors of the Company met on September 9, 1996 and discussed
the proposed sale of policies, the two bids for the policies and the benefits
to the Company of entering into a sale transaction. Based on such bids, the
Board approved the sale of the policies at a price equal to approximately 60%
of their face value. On September 11, 1996, the second potential purchaser
delivered a revised bid that did not differ substantially from its preliminary
bid which it had delivered to the Company on August 30, 1996. The Sale
Agreement was executed as of September 27, 1996.

On November 11, 1996, the escrow agent advised the Company that
approximately 40% of the purchase price had been deposited with the escrow
agent, rather than 100% as required by the Sale Agreement. Following further
negotiations between the Company and the Purchaser, the Sale Agreement was
amended to extend to December 6, 1996 the deadline for the deposit with the
escrow agent of the remaining purchase price.

The Company cannot predict whether the Purchaser will deposit the remaining
purchase price, whether the Sale Agreement will be further amended by
agreement of the parties or whether the sale of policies pursuant to the Sale
Agreement will be consummated. EVEN IF THE SALE AGREEMENT IS NOT CONSUMMATED
OR IS CONSUMMATED ON DIFFERENT TERMS (WHICH COULD BE MATERIALLY DIFFERENT FROM
THOSE DESCRIBED), IF THE PROPOSAL IS APPROVED BY THE REQUISITE VOTE OF THE
STOCKHOLDERS AS DESCRIBED HEREIN, THE BOARD WILL BE AUTHORIZED TO PROCEED WITH
THE ASSET SALE ON SUCH TERMS AS IT DEEMS EXPEDIENT AND IN THE BEST INTERESTS
OF THE COMPANY.

OTHER POTENTIAL STRATEGIC OPTIONS

The Company continues to analyze the effects on its business of the research
results reported at the AIDS Conference and subsequent press reports of
further scientific studies and to evaluate its strategic options. See "The
Company--AIDS Conference." Such options include a resumption of purchasing
activities with respect to HIV/AIDS policies, a concentration on purchasing
non-HIV/AIDS policies, expansion of services provided, strategic investments
or liquidation. The Company recently made a strategic equity investment of $3
million in convertible preferred stock of a privately-held company. The Board
of Directors has not fully evaluated all options and has not determined which
option is in the best interests of the Company and its stockholders. There can
be no assurance that a feasible option other than liquidation will be found,
that any feasible option will relate to viatical settlements or that any
option, if selected and pursued, will be profitable. Although the Board of
Directors has not finished analyzing its strategic options, the Board of
Directors has decided that disposition of assets in the circumstances is
prudent and a proper means to reduce risk of further deterioration in the
value of the Company's portfolio. See "The Company--AIDS Conference."

The Company continues to pursue the purchase of policies insuring the lives
of individuals suffering from terminal illnesses other than AIDS. To date,
however, the Company has had limited experience with purchases of non-AIDS
policies and is uncertain of the level of acceptance of viatical settlements
outside the AIDS community. A market for viatical settlements for non-AIDS
policies may not develop. Finally, if such a market does develop, the Company
may not be able to obtain sufficient capital to enter such market efficiently.
For this and other reasons, there can be no assurance that the Company will be
able to access or compete effectively in any such market that does develop.
See "The Company--Policy and Portfolio Information--Terminal Illnesses and
Life Expectancy" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."

THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE PROPOSAL TO AUTHORIZE THE
BOARD OF DIRECTORS TO SELL ALL OR SUBSTANTIALLY ALL OF THE COMPANY'S ASSETS.

THE COMPANY

AIDS CONFERENCE

At the AIDS Conference held in July 1996, the results from a number of
studies were reported which appeared to indicate that treatments involving a
combination of various drugs were reducing substantially, and perhaps
eradicating, the levels of HIV detectable in the blood of a person previously
diagnosed with HIV and AIDS. On July 16, 1996, the Company announced that it
was temporarily ceasing the processing of new applications to purchase
policies insuring the lives of individuals diagnosed with HIV and AIDS while
it further analyzed the effects of such research results on its business. In
excess of 95% of the Company's historical purchases have involved policies
insuring the lives of individuals diagnosed with HIV or AIDS. The Company
continues to analyze the effects of such research results on its business and,
in particular, purchases by the Company of policies, levels of expenses, the
timing of collections on policies, the estimated collection dates of policies
and its method of income recognition. In connection with its analysis, the
Company has decided to sell all or substantially all of its assets and to seek
stockholder approval of the Asset Sale. As a result, the Company has
reclassified all of its assets (other than the policies held by DPFC) to a
"held-for-sale" category. Accordingly, such assets are accounted for on the
lower of carrying value or fair value less cost to sell. In

connection therewith, the Company established a provision for loss on sale of
assets during the quarter ended September 30, 1996. The Company also
established a valuation provision for purchased life insurance policies during
the quarter ended September 30, 1996 because of the uncertainties created by
the data presented at the AIDS Conference and subsequent reports of scientific
studies that may confirm such data. In addition, beginning in such quarter,
the Company began recognizing income upon receipt of proceeds on the policy
(either pursuant to a sale or the death of the insured). Such income is equal
to the difference between such proceeds (less any back-end sourcing fees) and
the carrying value of such policies, after giving effect to any provision for
loss on the sale of such policy. Previously, the Company recognized income on
each policy purchased by accruing the "earned discounts" on that policy over
an Accrual Period (as defined herein) using the level yield interest method.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations--Method of Accounting." Until the analysis of strategic options
is completed, the Company will not purchase life insurance policies insuring
the lives of individuals with HIV or AIDS. However, the Company continues to
purchase policies insuring individuals with HIV or AIDS for which it has
contractual commitments (estimated at $620,000 at September 30, 1996). The
Company is continuing to use available funds to purchase a limited number of
policies insuring individuals with other terminal illnesses.

The Company is continuing to evaluate its strategic options and has retained
Jefferies & Co. to assist in such evaluation. Such options include a
resumption of purchasing activities with respect to HIV/AIDS policies, a
concentration on purchasing non-AIDS policies, expansion of services provided,
strategic investments or liquidation. The Company recently purchased $3.0
million of the convertible preferred stock of American Information Company,
Inc. ("AIC"). AIC is a privately-held company. Such preferred stock is
convertible into 30% of AIC's common stock, on a fully diluted basis. Doing
business nationally as Consumers Car Club, AIC offers a broad range of
electronically delivered services to individuals owning or purchasing
automobiles, including general pricing information, buying support services,
access to maintenance and warranty contracts, and access to insurance and
purchase financing. The Company is evaluating the viability of expanding its
financial products to the expanding market served by AIC. The investment will
be accounted for under the equity method. There can be no assurance that such
investment will be profitable or that such expansion of services will be
feasible.

The Board of Directors has not fully evaluated all of its options. In light
of the uncertainties surrounding the Company's primary business, the
discussion herein is a general description of the Company, its viatical
settlement business and the viatical settlement industry. Until the Company
determines its strategic direction, no assurance can be given that the Company
will continue to operate in the viatical settlement industry or, if so, in the
manner described herein.

OVERVIEW

The Company is a specialty financial services company that provides viatical
settlements for terminally ill persons. A viatical settlement is the payment
of cash in return for an ownership interest in, and the right to receive the
face value of, a life insurance policy. In connection with a viatical
settlement, the policyholder assigns his or her policy to the Company, which
becomes the holder, owner or certificate holder of the policy and the
beneficiary thereunder and receives from the insurance company the face value
payable under the policy following the death of the insured. The amount paid
by the Company for a policy is determined by the Company based on various
factors, including the Company's estimated life expectancy of the insured, the
estimated premiums payable by the Company under the policy over the expected
life of the insured and certain other costs of the viatical settlement.
Through September 30, 1996, the Company had purchased 1,512 policies with an
aggregate face value of $112.7 million, of which $33.9 million had been
collected under 478 policies.

The Company and its former sole stockholder, The Echelon Group Inc.
("Echelon") have provided viatical settlements since 1991. Prior to the
Company's commencement of policy purchases in April 1993, Echelon had
invested, to a limited extent, in viatical settlements in addition to its
other business activities. Due to the demands of its viatical settlement
business, Echelon decided to isolate such business in one entity and,
therefore, incorporated the Company in September 1992. Effective September 30,
1995, Echelon was merged with and into

the Company as part of the Reorganization (as defined herein). The Merger (as
defined herein) had no material impact on the Company's operations. See "The
Company--Corporate Structure--The Reorganization and the Reverse Stock Split."

The Company's viatical settlement business involves the following principal
steps: (a) origination of policy purchases through a referral network that
includes viatical settlement sourcing brokers and, to a lesser extent,
community groups, financial planners and professionals involved in the
treatment of and provision of services to the terminally ill; (b)
underwriting, which includes evaluating the terms of each policy and, with the
assistance of one or more independent physicians or other medical consultants
("Consultants"), estimating the life expectancy of the insured; (c) closing
the transaction, which includes execution of a sale agreement, releases of
beneficiaries and an insurance policy assignment as well as payment of the
purchase price; (d) monitoring the insured and the policy; and (e) collecting
the policy proceeds following the insured's death. On average, the entire
purchase process (from application to closing) takes from four to eight weeks.

CORPORATE STRUCTURE

The Company has purchased life insurance policies both directly and
indirectly through DPFC, Dignity Viatical Settlement Partners, L.P. ("Dignity
Viatical") and Dignified One, L.P. ("Dignified One").

DPFC

DPFC is a wholly-owned subsidiary formed for the limited purpose of issuing
Senior Viatical Settlement Notes, Series 1995-A, Stated Maturity March 10,
2005 (the "Securitized Notes") and purchasing (with funds provided by the
Securitized Notes) and holding beneficial ownership of the policies that are
pledged as collateral for the Securitized Notes. DPFC has purchased 902
policies with an aggregate face value of $67.1 million and will not purchase
any more policies. At September 30, 1996, DPFC owned 654 policies with an
aggregate face value of $49.4 million. The ownership interest in policies
purchased by DPFC is nominally held by an unaffiliated third party trustee
under the Indenture but the policies are beneficially owned by DPFC. The
Company accounts for this securitization as a debt financing and not as a sale
of assets. The assets, liabilities and operations of DPFC are consolidated
with those of the Company in the Company's consolidated financial statements.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations--Liquidity and Capital Resources," "--Description of The
Securitized Notes" and Note 5 of Notes to Consolidated Financial Statements.

Dignity Viatical and Dignified One

Dignity Viatical is a limited partnership formed during 1993 to fund
purchases of life insurance policies. Until June 1996, Dignity Partners served
as the sole general partner, and persons not affiliated with the Company were
limited partners. Through June, 1996, Dignity Viatical had purchased 169
policies with an aggregate face value of $13.9 million. The assets,
liabilities and operations of Dignity Viatical were consolidated with those of
the Company in the Company's consolidated financial statements. On June 25,
1996, Dignity Partners purchased the limited partnership interests in Dignity
Viatical and became the sole owner of all of the partnership interests
therein. On August 2, 1996, Dignity Partners entered into an agreement to sell
to an unaffiliated third party virtually all of the policies owned by Dignity
Viatical. The cash proceeds of such sale are still being collected by the
Company as acknowledgments of change in ownership are received from the
issuing insurance companies. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Method of Consolidation" and
Note 3 of Condensed Notes to Consolidated Financial Statements.

Dignified One is a limited partnership formed in 1994 to fund purchases of
life insurance policies. Dignified One has purchased 26 policies, with an
aggregate face value of $1.8 million and will not purchase any more policies.
Due to its immateriality, Dignified One is treated as an investment for
accounting purposes. Therefore, the policies purchased by Dignified One are
not reflected in the Company's consolidated financial statements or

in the Company's operating or consolidated financial data presented herein. As
sole general partner of Dignified One, the Company is liable for all
partnership liabilities which exceed amounts contributed by the limited
partners. The partnership, however, does not have indebtedness for borrowed
money or any significant liabilities. The Company does not expect the
partnership to purchase additional policies. The obligations of the Company to
the partnership involve incurrence of the administrative costs, which are not
expected to be material, of monitoring and collecting the policies held by the
partnership. All of the remaining ten policies owned by Dignified One will be
sold pursuant to an agreement with the Purchaser substantially similar to the
Sale Agreement.

The Reorganization and the Reverse Stock Split

On September 30, 1995, the Company and its then sole stockholder, Echelon,
entered into a series of transactions (collectively, the "Reorganization") to
separate the business of Dignity Partners from Echelon's other business
interests. Echelon, which was owned by Bradley N. Rotter, Alan B. Perper and
John Ward Rotter, the only executive officers of the Company (collectively,
the "Executive Officers"), conducted a number of financial services businesses
in addition to the business conducted by the Company. As part of the
Reorganization, the Executive Officers created a newly formed limited
liability company, The Echelon Group of Companies LLC ("New Echelon LLC"), and
contributed to New Echelon LLC the shares of common stock of Echelon owned by
them in return for equity interests in New Echelon LLC. Echelon then sold to
New Echelon LLC, at fair market value as determined in part by an independent
third party appraiser and in part by the face value or depreciated book value,
substantially all of its assets (including amounts previously owed by the
Company to Echelon for expenses incurred by Echelon on behalf of the Company
and interest on loans made by Echelon to the Company prior to the
Reorganization (the "Dignity Payable")) other than the then outstanding shares
of common stock of the Company (the "Echelon Asset Sale"). The consideration
for the Echelon Asset Sale, which equalled approximately $3.54 million,
consisted of (i) $700,000 in cash, (ii) the cancellation of outstanding debt
of Echelon owed to New Echelon LLC (representing funds advanced by Bradley and
John Ward Rotter to Echelon, the right to receive payment thereunder having
been previously assigned by them to New Echelon LLC), in an aggregate amount,
including accrued interest, of $2.7 million, and (iii) a $144,000 promissory
note which New Echelon LLC subsequently paid in full. In addition, New Echelon
LLC assumed the liabilities of Echelon unrelated to the Company.

Following the Echelon Asset Sale, Echelon was merged with and into the
Company (the "Merger"). Pursuant to the Merger, the authorized capitalization
of the Company was increased from 1,000 shares of common stock to 17 million
shares, consisting of 15 million shares of Common Stock and two million shares
of Preferred Stock (the "Serial Preferred Stock") issuable in series. Of the
authorized Serial Preferred Stock, 135,000 shares were designated as
Convertible Cumulative Pay-in-Kind Preferred Stock ("Convertible Preferred
Stock"). Pursuant to the Merger, each outstanding share of common stock of the
Company was cancelled, each outstanding share of Echelon common stock was
converted into 15,893 shares of Common Stock of the Company, and the
outstanding shares of preferred stock of Echelon (all of which were owned by
Bradley Rotter) were converted into an aggregate of 34,880.13 shares of
Convertible Preferred Stock. On December 1, 1995, a dividend, consisting of
379.8059 shares of Convertible Preferred Stock, was paid on the outstanding
shares of Convertible Preferred Stock. Each outstanding share of Convertible
Preferred Stock (and shares of Convertible Preferred Stock issuable in respect
of accrued and unpaid dividends thereon) were converted into Common Stock and
sold by Bradley Rotter in the Company's initial public offering in February
1996. See "--The Initial Public Offering."

On January 12, 1996, the Company effected a reverse stock split pursuant to
which each outstanding share of Common Stock was converted into .7175 of a
share of Common Stock (the "Reverse Stock Split").

The Initial Public Offering

conversion in full of the Convertible Preferred Stock) were sold by Bradley
Rotter. The Company did not receive any proceeds from the sale of shares by
Bradley Rotter. See Note 2 of Condensed Notes to Consolidated Financial
Statements.

Corporate Information

Dignity Partners was incorporated in Delaware in September 1992, commenced
operations on January 2, 1993 and commenced purchasing life insurance policies
in April 1993. The Company's principal executive offices are located at 1700
Montgomery Street, Suite 250, San Francisco, California 94111, and its
telephone number is (415) 394-9469.

INDUSTRY OVERVIEW

The Company estimates that there are approximately 50 to 60 companies
currently operating in the United States that provide viatical settlements.
The Company believes that most of those companies act as brokers and that only
a few purchase a large number of policies for their own accounts. The Company
believes that a substantial majority of viatical settlements currently occur
with people with AIDS-related illnesses and that the balance represent
settlements with persons with other terminal illnesses, such as cancer and
heart disease. The Company also believes that viatical settlement companies
typically purchase policies at 50% to 90% of face value and will purchase
policies insuring individuals with life expectancies of up to four years. In
addition, a number of life insurance companies offer accelerated death
benefits to their policyholders. Accelerated death benefits allow
policyholders to access all or a portion of the death benefits of their life
insurance policies prior to their death under circumstances defined by the
issuing insurance company. Other options to viatical settlements and
accelerated death benefits include a policy loan, if available, and personal
loans from the beneficiary, family members or friends. The Company believes
that, since the AIDS Conference, at least two other viatical settlement
companies have ceased purchasing HIV/AIDS policies and many other viatical
settlement companies have reduced the prices they are willing to pay for
HIV/AIDS policies. See "The Company--Competition."

Prior to the development of the HIV/AIDS treatments reported at the AIDS
Conference, the natural progression of AIDS was relatively predictable. The
causative virus, HIV, can be detected in the blood as soon as two to six weeks
after infection. Following infection, a period of ten years or more may elapse
before the individual shows any symptoms; during this period, however, HIV is
constantly destroying its target: the T-helper lymphocyte white blood cell.
The presence of this blood cell is critical for the normal functioning of the
immune system. If these cells are lacking, the body has no protection from a
group of pathogens collectively known as "opportunists," which cause diseases,
such as certain types of pneumonia, that directly cause illness and death in
individuals infected with HIV. The CDC's current case definition for AIDS is
met if an individual has HIV infection and (i) an opportunistic infection,
(ii) certain forms of cancer, such as Kaposi sarcoma, or (iii) less than 200
T-helper lymphocytes per cubic millimeter of blood. Prior to the AIDS
Conference, the clinical deterioration of an HIV-infected person tended to
parallel the decline in the number of T-helper lymphocytes cells in the
patient's bloodstream. Although drugs such as AZT have been developed that
appear to temporarily slow HIV reproduction. Prior to the AIDS Conference, the
usefulness of existing anti-HIV drugs had generally been limited by the virus'
early development of resistance to these medications. At the AIDS Conference,
studies were presented that indicate less development of resistance when such
drugs were used in combination with protease inhibitors. The long-term
efficacy of combination therapies reported at the AIDS Conference are not yet
known.

The development of a cure for or vaccine against diseases and other terminal
illnesses (including AIDS) or the development of new drugs or other treatments
which extend the life expectancy of individuals with such illnesses could
delay substantially the collection of the face value of policies purchased by
the Company. See "The Company--AIDS Conference." Any such delay could
materially reduce the Company's actual yield on its portfolio and materially
adversely affect the Company's cash flows. In addition, such medical
developments would likely reduce the number of individuals seeking viatical
settlements. Substantial reductions in the cost of treating terminal illnesses
(including reductions resulting from the development of less costly
treatments) may also reduce the number of individuals seeking viatical
settlements.

ORIGINATION

The Company obtains information regarding potential policy purchases from a
referral network that includes sourcing brokers and community groups and
professionals (including health care practitioners, care groups, financial
planners, attorneys and doctors) involved in the treatment of and provision of
services to the terminally ill. In addition, many former and existing clients
refer potential clients to the Company. These potential clients contact the
Company either directly or through one of the Company's referral sources. The
Company believes that non-broker referrals will generate a larger percentage
of the Company's business as competition increases within the industry. See
"The Company--Competition."

While the Company does not have formal agreements with any of its referral
sources, it has established close relationships with several referral sources
who have established market niches within the medical and terminally ill
patient communities. Many referral sources advertise their services in the
geographic area in which they operate and target such advertising to specific
patient communities. The use of referral sources allows the Company to operate
in market niches that otherwise would be cost prohibitive for it to pursue
through direct advertising. The Company pays certain of its referral sources
(typically sourcing brokers) fees based on negotiated informal fee
arrangements. Sourcing brokers are typically paid an up-front fee (typically
based on the face value of the policy) upon the funding of the policy and may
also be paid a back-end fee (also typically based on the face value of the
policy) upon receipt by the Company of the proceeds of the policy. The Company
does not pay referral fees to doctors, lawyers or other professionals to whom
the Company is prohibited by applicable law from paying a referral fee and
does not do business with referral sources which the Company does not believe
to be reputable. Sourcing brokers and certain other referral sources also
handle other administrative functions, such as collecting and processing
applications from potential clients and collecting medical and insurance
records. See "The Company--Underwriting."

During the nine months ended September 30, 1996, the Company purchased
policies referred by approximately 16 sourcing brokers and 9 other referral
sources. Approximately 67% in number and 60% in face value of such policies
were referred to the Company by five sourcing brokers. In the event that the
Company's relationship with any of these five sourcing brokers were to cease,
or the volume of referrals from any of these sourcing brokers were to decrease
substantially, the Company's operations could be adversely affected. Sourcing
brokers tend to be relatively small independent businesses with limited
capital resources. The Company has maintained good relationships with its
sourcing brokers for several years and expects such relationships to continue.
However, no assurance can be given that such relationships will continue, that
existing sourcing brokers will remain in business or that relationships with
additional sourcing brokers or other referral sources can be established. The
Company's referral network encompasses referrals of policies insuring the
lives of individuals with HIV/AIDS as well as other terminal illnesses. The
network is less effective, however, with respect to non-HIV/AIDS policies than
it is with respect to HIV/AIDS policies. In addition, while the Company
maintains relationships with its sourcing brokers, there can be no assurance
that its cessation of processing AIDS applications will not ultimately damage
such relationships.

The Company has purchased in the past, on a limited basis, portfolios (or
portions thereof) held by unaffiliated viatical settlement entities. In
January 1996, the Company agreed to purchase 58 policies (insuring the lives
of 37 individuals) which constituted a portion of the portfolio held by an
unaffiliated viatical settlement company. In connection with such purchase,
the Company evaluated each policy (and supporting documentation related to the
initial purchase thereof) in accordance with its standard underwriting
procedures. In addition, the Company obtained customary representations,
warranties and indemnities from the seller. It is anticipated that any other
portfolio purchase by the Company would be reviewed in the same manner and
that, in connection therewith, the Company would obtain similar
representations, warranties and indemnities.

UNDERWRITING

The Company's underwriting process is designed to obtain accurate
information regarding both the insured and the life insurance policy (i) to
determine whether the Company will offer to purchase the policy and, if so,

the price it will offer and (ii) to ensure that certain criteria are met to
minimize the risk of challenges by former beneficiaries or other persons to
the purchase or by an insurance company to payment of the face value of the
policy. The Company continually refines its underwriting procedures. The
following summarizes the Company's current procedures.

Once a potential client contacts the Company, an application and consent
forms permitting the Company to obtain medical and insurance coverage
information for the insured are sent to the potential client. All information
obtained by the Company in connection with policy purchases (including the
identities of the insureds) is held in confidence and access thereto is
restricted by the Company to its employees, Consultants (as defined herein)
and other representatives. Upon receipt by the Company of the completed
application, it is reviewed to determine preliminarily the insured's life
expectancy and, if the face value exceeds the applicable state guarantee fund
limit, whether the insurance company which issued the policy is of a credit
quality deemed acceptable to the Company. While the Company has historically
typically purchased policies insuring individuals with a life expectancy of 24
months or less, it has also sought to purchase policies on individuals with a
life expectancy of up to 48 months and also considers policies on individuals
with longer life expectancies. See "The Company--Policy and Portfolio
Information" and "--AIDS Conference."

If it appears from the application that the policy is one the Company would
be interested in purchasing, the Company obtains from the attending physician
medical information about the insured which usually includes several years'
worth of laboratory reports and physicians' notes, as well as the attending
physician's estimate of the insured's life expectancy and a written statement
as to whether or not the client is of sound mind. The Company forwards such
documentation to at least one (and often two) of its Consultants for review.
The Company's Consultants review the file and other information forwarded by
the Company and estimate the life expectancy of the insured. See "The
Company--Consultants." The Company does not provide its Consultants with any
life expectancy estimate provided to the Company by an insured's attending
physician.

Simultaneously, the Company obtains verification of insurance coverage and
other policy information from the insurance company, the employer or the group
administrator. The insurance documents are reviewed to determine (i) the type
of policy (e.g. whole, term or other), (ii) any provisions which may
effectively reduce the face value of the policy (e.g. loans against the
policy), (iii) the primary beneficiaries under the policy, (iv) whether the
policy is past any contestability periods (i.e. the periods during which the
insurance company may deny payment for various reasons, including suicide and
a misstatement of material facts); and (v) whether the Company is able to
obtain ownership of the policy and the associated policy proceeds. The Company
obtains waivers and releases from the primary beneficiaries under the policy.
The Company does not purchase a policy if a minor is a named beneficiary at
the time of purchase. The Company also reviews the policy premium schedule and
determines whether the policy contains a disability waiver of premium rider
which impacts future premium payments. The Company attempts to ensure that the
policy is compatible with its portfolio in terms of monthly cash flow.

If a referral source identifies a potential client, some of the
documentation gathering described above (primarily collection of necessary
medical, personal and insurance information) may be performed by such referral
source prior to submission of the application to the Company, but the
determination of the insured's life expectancy and compatibility with
investment criteria, review of insurance documents and determination of legal
and contractual issues are made by the Company.

A number of arguments may be advanced by former beneficiaries under a policy
or by the insurance company issuing a policy to deny or delay payment to the
Company of the proceeds of a policy following an insured's death, including
arguments related to lack of mental capacity of the client or applicable
periods of contestability or suicide provisions. Furthermore, the Company may
be unable to collect the face value of any insurance policy issued by an
insurance company which becomes insolvent. While virtually all states have
established guarantee funds to pay the face value of life insurance policies
issued by insolvent insurance

companies, the face value of a policy may exceed the amount provided by such
fund and, in any event, a significant delay in the receipt of payment may
occur. Although the Company's underwriting procedures are designed to minimize
the risk that any of the foregoing will result in nonpayment of proceeds to
the Company, there can be no assurance that the Company's underwriting
procedures will adequately protect against similar or other claims denying or
delaying payment of policy proceeds to the Company.

CLOSING

If the Company has determined that the policy meets its criteria (including
underwriting and investment criteria), the Company makes an offer to the
client to purchase the policy. The purchase price is based upon the face value
of the policy, the Company's estimate of the insured's life expectancy, the
premiums estimated to be paid under the policy over the insured's estimated
life expectancy, certain other costs of the policy, and the Company's desired
rate of return. In addition, competition (or the Company's perception
regarding the presence or absence of competing bidders) can affect the
purchase price of policies. See "The Company--Competition." In the past,
policies for which the insured had a life expectancy of two years or less have
been purchased at prices typically ranging between 55% and 90% of face value.
The Company generally pays less for policies for which the insured has a life
expectancy of greater than two years. The weighted average purchase price for
policies purchased during 1995 was 73% of face value (77% of face value for
policies insuring individuals with life expectancies of 24 months or less).
The weighted average purchase price for policies purchased in the first nine
months of 1996 was 73% of face value (82% of face value for policies insuring
individuals with life expectancies of 24 months or less). If the client
accepts the offer, purchase documents are prepared from forms generated by the
Company's management information system. The documents include a sale
agreement, releases from beneficiaries, a change of ownership or assignment
form and a change of beneficiary form. The Company acquires ownership in each
insurance policy by filing a change of ownership or absolute assignment form
and change of beneficiary form with the applicable insurance company, employer
or group administrator. Following receipt of appropriate acknowledgement of
the recordation of such changes, closing occurs and funds are disbursed as
directed by the client. The Company provides an "out option" through which the
client may, for any reason, return the disbursed funds (and any premium
payments made by the Company in the interim) and be unconditionally released
from the sale agreement. The "out option" period is at least 15 days from
receipt of the purchase price and is longer if required by applicable law.

MONITORING

Following the disbursement of funds, the insured is regularly monitored to
obtain timely information concerning the insured so that proceeds may be
collected as promptly as possible following the death of the insured.
Monitoring is conducted in a sensitive and professional manner and is assisted
by the Company's management information system. In addition to tracking the
medical status and location of an insured, the Company also monitors the
policy to ensure it does not lapse because of a failure to timely pay
premiums. Some protection against the failure to pay premiums is provided by
statutory or policy provisions that require insurance companies to provide
written notice before terminating a policy for failure to pay premiums. As
owner of record of the policy, the Company generally receives such notice
directly. The Company has never had a policy lapse due to nonpayment of
premium. Furthermore, the Company monitors the policy to ensure that premium
waivers are renewed and that, when required, the policy is converted (e.g.
from a group term policy to an individual whole life policy) in a timely
manner. However, in the future, the Company may permit policies to lapse and
may choose not to convert policies.

COLLECTION

Once an insured has died, a request for a copy of the death certificate is
filed in the appropriate governmental office. Often the insured's family or
companion also submits a copy of the death certificate to the Company. The
Company then files the death certificate with the insurance company and
requests payment of the policy proceeds. The Company monitors the collection
status until it receives the face value of the policy. Monitoring of
collection status is assisted by the Company's management information system.
Insurance companies have an incentive to pay promptly on policies because most
states require insurance companies to

pay interest on claims which take more than 30 days to settle. Actual
collections generally occur within 30 to 55 days following the death of the
insured. However, in certain states (e.g., New York) actual collections take a
longer period of time due to delays in processing of documents by state
authorities.

CONSULTANTS

The Company's operations and financial results are highly dependent on the
ability of the Company, with the assistance of independent physicians or other
medical consultants (the "Consultants"), to predict accurately life
expectancy. Life expectancy is a significant factor in the Company's
determination of the purchase price of a policy and the Accrual Period over
which the Company recognizes income on the policy. Unanticipated delays in the
collection of policies will reduce the Company's actual yield on its portfolio
and adversely affect the Company's cash flows. The Company's Consultants are
physicians or Ph.D.s specializing in HIV/AIDS, cancer or heart disease and are
not affiliated with the Company. Each physician has at least 15 years of
medical experience. Most of the Company's Consultants have held professorships
and have published articles related to their specialty in scientific or
medical publications. The Company does not have a formal agreement with any of
its Consultants, but pays each of them a flat fee per file reviewed. The
Company believes there are many qualified Consultants the Company could
retain. There can be no assurance, however, that the Company will retain the
services of its current Consultants, that it will be able to replace or add
additional qualified Consultants or that it will, with the assistance of such
Consultants, be able to predict accurately life expectancy. See "The Company--
AIDS Conference."

POLICY AND PORTFOLIO INFORMATION

General Description of Types of Policies

As of September 30, 1996, the Company owned 973 policies on the lives of 748
individuals. The following is a brief description of various types of life
insurance policies.

Term Policies. Term policies provide life insurance protection for a limited
number of years (e.g., until age 65). Generally, term policies are less costly
(compared to whole life policies) for younger insureds, although premiums
increase over time. Such policies are usually one-year renewable policies,
although some term policies have fixed premiums for longer intervals. Term
policies do not build up any cash value or pay dividends, although many are
convertible to whole life policies.

Whole Life Policies. Whole life policies typically provide protection for
the life of the insured. Based on a fixed premium payment, these policies
build up a cash value because premiums paid in the earlier years are higher
than those required to maintain the insurance. Many whole life policies have
dividends which the insured can receive in cash or can apply to premiums
applicable to additional coverage.

Universal Life Policies. This type of policy is generally a flexible
premium, adjustable death benefit policy and allows premiums to be skipped so
long as the cash value of the policy is sufficient to pay the premiums. There
are many variations of this type of policy.

Group Life Policies. Many group policies provide term coverage, though some
provide universal life coverage. Such policies are either provided by an
employer or are provided to members of a particular group. The Company intends
to purchase more group policies, including policies insuring federal
employees.

The Company has not purchased, or has purchased on a limited basis, in the
past certain types of group policies (specifically federal employee group life
insurance ("FEGLI" policies)). The major risk associated with certain group
policies is that, upon the cancellation of the master policy under which the
group policy was issued, the death benefit receivable by the Company may be
reduced substantially as a result of limitations in the master policy on the
amount of coverage which can be converted to an individual policy. For
example, coverage to

federal employees is provided under a group contract with Metropolitan Life
Insurance Company. To the extent the contract is cancelled, the Company would
be unable to convert any coverage on any individual insured thereunder. FEGLI
policies also contain certain other characteristics which entail a higher
level of risk than policies historically purchased by the Company. The Company
has analyzed the risks associated with the purchase of FEGLI policies and has
determined that such risks can be reduced through special underwriting and
monitoring procedures.

The following table sets forth information regarding the various types of
policies held by the Company as of September 30, 1996.

TYPES OF LIFE INSURANCE POLICIES IN PORTFOLIO

GROUP (1) INDIVIDUAL
--------- ----------

Number............................................... 342 631
Percent.............................................. 35.1% 64.9%

--------
(1) Includes eight FEGLI policies.

WHOLE TERM UNIVERSAL OTHER
----- ---- --------- -----

Number........................................ 357 434 179 3
Percent....................................... 36.7% 44.6% 18.4% 0.3%

Terminal Illnesses and Life Expectancy

Through September 30, 1996, approximately 97% of the face value of policies
purchased by the Company have insured individuals with terminal illnesses
related to AIDS and 84% of such policies have insured persons with life
expectancies, as originally estimated by the Company, of 24 months or less. In
light of the data presented at the AIDS Conference and subsequent confirming
scientific studies, the ability to estimate life expectancy of persons with
HIV or AIDS has become more difficult. See "The Company--AIDS Conference." The
Company's ability to purchase non-AIDS policies and policies insuring the
lives of individuals with life expectancies in excess of 24 months has been
effectively restricted in the past by the terms of its debt arrangements which
required all or a substantial portion of the Company's purchased life
insurance policies to insure the life of a person with AIDS who has a life
expectancy no longer than 24 months (or 36 months on a restricted basis). The
Company believes policies insuring the lives of individuals with terminal
illnesses other than AIDS (including cancer and heart disease), without regard
to life expectancy, can offer attractive rates of return at acceptable levels
of risk, so long as the Company maintains its strict underwriting standards.
Prior to the AIDS Conference, the Company had begun to pursue the purchase of
policies insuring individuals with terminal illnesses (AIDS and other) and
with life expectancies longer than 24 months (whether such individuals have
AIDS or other terminal illnesses). Despite potential returns, the Company is
evaluating strategic options and has not yet concluded whether it will pursue
the purchase of non-HIV/AIDS policies in large amounts or whether it will
resume the purchase of HIV/AIDS policies.

Estimates of life expectancy may be less reliable as life expectancy
increases and after the AIDS Conference, estimates of the life expectancy of
HIV/AIDS victims appear to be even less reliable. The progression of terminal
illnesses other than AIDS may not be predictable, making estimates of life
expectancy difficult. While the Company, when determining life expectancy,
intends to continue to utilize the services of Consultants specializing in the
insured's particular illness, there can be no assurance that the Company's
estimates of life expectancy for individuals with illnesses other than AIDS or
having life expectancies longer than 24 months will be as accurate as the life
expectancies estimated by the Company to date. Furthermore, the Company has
had limited experience with purchases of non-AIDS policies and is uncertain of
the level of acceptance of viatical settlements outside the AIDS community. A
market for viatical settlements for non-AIDS

policies may not develop. However, even if a market for such viatical
settlements occurs, there can be no assurance that the Company will be able to
obtain adequate financing to efficiently enter such market. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources." In addition, the Company may not be able to
access or compete effectively in any such market that does develop.

The development of a cure for or vaccine against diseases and other terminal
illnesses (including AIDS) or the development of new drugs or other treatments
which extend the life expectancy of individuals with such illnesses could
delay substantially the collection of the face value of policies purchased by
the Company. Any such delay could materially reduce the Company's actual yield
on its portfolio and materially adversely affect the Company's cash flows. In
addition, such medical developments would likely reduce the number of
individuals seeking viatical settlements. Substantial reductions in the cost
of treating terminal illnesses (including reductions resulting from the
development of less costly treatments) may also reduce the number of
individuals seeking viatical settlements. See "The Company--AIDS Conference."

Geographic Distribution

The Company has purchased policies from individuals residing in
approximately 45 states, although the five states accounting for the highest
concentration (collectively 67% of the face value of all policies owned by the
Company as of September 30, 1996) are California, Florida, Georgia, New York
and Texas. The following table sets forth information regarding the 10 states
accounting for the largest percentage (by face value) of the Company's
portfolio of policies as of September 30, 1996.

TOP 10 STATES BY CLIENT RESIDENCE

PERCENT OF
AGGREGATE
AGGREGATE FACE VALUE
STATE FACE VALUE OF PORTFOLIO
----- ----------- ------------

California....................................... $24,773,585 34.2%
New York......................................... 8,047,439 11.1
Texas............................................ 7,789,494 10.7
Florida.......................................... 4,350,025 6.0
Georgia.......................................... 3,592,381 5.0
Arizona.......................................... 2,177,045 3.0
Washington....................................... 2,125,423 2.9
Massachusetts.................................... 1,548,894 2.1
Illinois......................................... 1,519,622 2.1
Louisiana........................................ 1,302,000 1.8
----------- ----
Total (1)...................................... $57,225,908 78.9%
=========== ====

- --------
(1) Percent total does not add to 78.9% due to rounding.

Insurers of Policies

As of September 30, 1996, the Company's portfolio consisted of policies
issued by 208 different insurance companies. Approximately 81.6% of the face
value of such policies were issued by insurance companies with a claims paying
ability rating of "A" or better by Standard & Poor's Rating Group ("S&P"). The
following table sets forth information regarding the ten insurance companies
which issued the highest percentage of policies (by face value) in the
Company's portfolio as of September 30, 1996.

TOP 10 INSURANCE COMPANIES WHICH HAVE
ISSUED POLICIES IN PORTFOLIO

PERCENT OF CLAIMS PAYING
AGGREGATE ABILITY RATING (1)
AGGREGATE FACE VALUE -------------------
INSURER FACE VALUE OF PORTFOLIO AM BEST (2) S&P (3)
- ------- ----------- ------------ ----------- -------

Metropolitan Life Insurance
Company.......................... $ 9,455,679 13.0% A++ AA+
Connecticut General Life Insurance
Company/CIGNA.................... 4,961,367 6.8 A+ AA
The Prudential Insurance Company
of America....................... 3,790,058 5.2 A AA-
New York Life Insurance Company... 3,379,945 4.7 A++ AAA
John Hancock Mutual Life Insurance
Company.......................... 2,296,238 3.2 A++ AA+
Life Investors Insurance Company
of America....................... 2,045,000 2.8 A+ AAA
Jackson National Life Insurance
Company.......................... 1,750,000 2.4 A AA
Primerica Life Insurance Company.. 1,524,000 2.1 A- AA
Aetna Life Insurance Company...... 1,413,580 1.9 A A
Hartford Life & Accident Insurance
Company.......................... 1,357,148 1.9 A++ AA
----------- ----
Total (4)....................... $31,973,015 44.1%
=========== ====

- --------
(1) Rating, as of September 30, 1996, by A.M. Best Company ("A.M. Best") and
S&P. Insurance claims paying ability ratings are an opinion of an
insurance company's capacity to meet the obligations of its insurance
policies. Such ratings do not refer to an insurer's ability to meet non-
policy obligations and are not recommendations regarding the purchase,
retention or sale of any policy or security issued by the insurance
company.
(2) A.M. Best's claims paying ability ratings range from "A++" to "F." Ratings
of "A++" to "B+" are ratings assigned to "secure" insurance companies and
other ratings are assigned to "vulnerable" insurance companies. The
ratings of (a) "A++" and "A+" and (b) "A" and "A-" are assigned to
companies which have demonstrated superior overall performance and
excellent overall performance, respectively, and have a very strong
ability and a strong ability, respectively, to meet their obligations to
policyholders over a long period of time.
(3) S&P's claims paying ability ratings range from "AAA" to "CCC," with plus
and minus signs indicating relative standing within a category. Ratings of
"AAA" to "BBB" are classified as "secure" claims paying ability ratings
and other ratings are classified as "vulnerable" claims paying ability
ratings. The ratings of "AAA" and "AA" represent an opinion of superior
financial security and excellent financial security, respectively, with an
overwhelming capacity and a strong capacity, respectively, to meet
policyholder obligations under a variety of economic and underwriting
conditions. The rating "A" represents an opinion of good financial
security with a capacity to meet policyholder's obligations that are more
susceptible than companies assigned higher ratings to adverse economic and
underwriting conditions.
(4) Percent total does not add to 44.1% due to rounding.

Portfolio Analysis

Through June 30, 1996, the Company recognized income ("earned discount") on
each purchased policy by accruing, over the period (the "Accrual Period")
between the acquisition date of the policy and the Company's estimated date of
collection (as adjusted for historical experience) of the policy's face value,
the difference between the face value (net of certain future payments) and the
carrying value of the policy (which reflects the purchase price and additional
capitalized costs of, and earned discount accrued to date on, such policy).
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations--Method of Accounting." Because the Company accounted for its
operations on an accrual rather than a cash basis, the status of the Company's
purchased policies in terms of expected versus actual collection dates
affected the Company's cash flows, the composition of the Company's balance
sheet and the recognition of income in future periods. When the Company had
knowledge of an insured's death, the policy was no longer carried on the
balance sheet

under "purchased life insurance policies" and amounts expected to be collected
were included under "matured policies receivable" until actual collection, at
which time actual amounts collected were included under "cash." The remaining
unearned discount, if any, to be accrued over the remaining Accrual Period of
the policy continued to be reflected under "unearned income." The Company does
not consider a policy to be collected until actual receipt of cash.

In response to the data reported at the AIDS Conference, the Company
announced that it was temporarily ceasing processing new applications for
policies insuring people afflicted with AIDS and HIV while it further analyzed
its strategic options in light of the research results. The Company is
continuing to analyze statistical data relating to its own portfolio as well
as the effects on its business of the AIDS Conference data and data from
subsequently reported scientific studies and cannot predict what impact the
foregoing may have on its business, prospects, results of operations or
financial position. In connection with its analysis, the Company has thus far
decided to sell all or substantially all of its assets and to seek stockholder
approval of the Asset Sale. As a result, the Company has reclassified all of
its assets (other than the policies held by DPFC) to a "held-for-sale"
category. Accordingly, such assets are accounted for on the lower of carrying
value or fair value less cost to sell. In connection therewith, the Company
established a provision for loss on sale of assets for the quarter ended
September 30, 1996. The Company also established a valuation provision for
purchased life insurance policies during the quarter ended September 30, 1996
because of the uncertainties created by the data presented at the AIDS
Conference and data from subsequently reported scientific studies. In
addition, beginning in such quarter the Company began recognizing income upon
receipt of proceeds on the policy (either pursuant to a sale or the death of
the insured). Such income is equal to the difference between such proceeds
(less any back-end sourcing fees) and the carrying value of such policies
after giving effect to any provision for loss on the sale of such policies or
any valuation provision for purchased life insurance policies. Furthermore,
the Company has not determined whether or when it will resume processing
applications for policies insuring people afflicted with HIV or AIDS or the
implications of these recent developments on the Company's strategic
direction. See "The Company--AIDS Conference."

The two following tables set forth, on a cumulative basis expressed by
number and face value, respectively, the collection status of policies as of
each indicated date. The following describes the various categories and
discusses the information in the tables as of September 30, 1996. As a result
of data presented at the AIDS Conference and data from subsequently reported
scientific studies and the Company's decision to sell all or substantially all
of its assets as a result of such data, the Company is no longer accruing
unearned discounts over Accrual Periods for periods beginning on and after
July 1, 1996. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Method of Accounting." However, the Company still
establishes an estimated date of collection upon the date of acquisition of
each policy and uses such date to analyze generally its collection experience
and yields.

. Collected Early. The Company had collected the death benefits on 354
policies (23.4% of the 1,512 policies purchased since inception) prior to
the estimated dates of collection.

. Collected Late. The Company had collected the death benefits on 124
policies (8.2% of policies since inception) after the estimated dates of
collection. The Company's actual annualized yields on such policies were
less than the original estimated yields as a result of the actual
collection dates having occurred after the estimated date of collection.

. Sold Prior to Collection. The Company had sold 61 policies (4% of
policies since inception) prior to collection thereof.

. Open Past Expected Collection Date. The Company had not collected the
death benefits on 166 policies (11% of policies since inception) prior to
the estimated dates of collection. The Company's actual annualized yields
on such policies will be less than the original estimated yields on these
policies to the extent the actual collection dates exceed the estimated
date of collection.

. Open and Not Due for Collection. For the remaining 807 policies (53.4% of
policies since inception), the estimated dates of collection had not yet
occurred.

COLLECTION STATUS BY NUMBER OF POLICIES

CUMULATIVE NUMBER OF POLICIES
-------------------------------------------------------------------------------------
DECEMBER 31, 1993 DECEMBER 31, 1994 DECEMBER 31, 1995 SEPTEMBER 30, 1996
------------------- ------------------- ------------------- --------------------
NUMBER PERCENT NUMBER PERCENT NUMBER PERCENT NUMBER PERCENT
-------- --------- -------- --------- -------- --------- --------- ---------

Collected Early......... 9 4.6% 95 14.3% 230 21.9% 354 23.4%
Collected Late.......... 0 0.0 23 3.5 73 6.9 124 8.2
Sold Prior to
Collection............. 0 0.0 0 0.0 0 0.0 61 4.0
Open Past Expected
Collection Date........ 15 7.6 28 4.8 123 11.7 166 11.0
Open and Not Due For
Collection............. 173 87.8 520 78.1 626 59.5 807 53.4
------- --------- ------- --------- -------- -------- --------- ---------
Total (1)........... 197 100.0% 666 100.0% 1,052 100.0% 1,512 100.0%
======= ========= ======= ========= ======== ======== ========= =========

- --------
(1) Percent total may not add to 100.0% due to rounding.

COLLECTION STATUS BY FACE VALUE OF POLICIES

CUMULATIVE NUMBER OF POLICIES
--------------------------------------------------------------------------------
DECEMBER 31, 1993 DECEMBER 31, 1994 DECEMBER 31, 1995 SEPTEMBER 30, 1996
------------------- ------------------- ------------------- --------------------
FACE VALUE PERCENT FACE VALUE PERCENT FACE VALUE PERCENT FACE VALUE PERCENT
----------- ------- ----------- ------- ----------- ------- ------------ -------

Collected Early......... $ 704,729 4.5% $ 6,504,395 12.8% $15,610,446 19.4% $ 25,303,072 22.4%
Collected Late.......... 0 0.0 1,336,000 2.6 5,368,214 6.7 2,570,429 7.6
Sold Prior to
Collection............. 0 0.0 0 0.0 0 0.0 6,632,392 5.9
Open Past Expected
Collection Date........ 770,000 5.0 2,475,690 4.9 10,916,428 13.5 12,868,830 11.4
Open and Not Due For
Collection............. 14,015,242 90.5 40,729,079 79.8 48,828,036 60.5 59,342,103 52.6
----------- ----- ----------- ----- ----------- ----- ------------ -----
Total (1)........... $15,489,971 100.0% $51,045,164 100.0% $80,723,124 100.0% $112,716,826 100.0%
=========== ===== =========== ===== =========== ===== ============ =====

- --------
(1) Percent total may not add to 100.0% due to rounding.

Yield Analysis

Unlike other specialty financial services companies whose performance
depends primarily on the ability to collect on a receivables portfolio, the
Company's performance depends primarily on the timing of collection on its
portfolio. To a great extent, the Company determines its purchase price for
policies based on the estimated date of collection. To the extent that the
Company collects a policy earlier than expected, the actual annualized yield
on such policy will be higher than the original estimated annual yield.
Conversely, to the extent that the Company collects on a policy later than
expected, the actual annualized yield on such policy will be lower than the
original estimated annual yield. The following discussion reflects certain
information regarding the collection of policies purchased by the Company
through September 30, 1996.

The Company's average original estimated annual yield on its policies is
based on the difference between face value (less any back-end sourcing broker
fees) and original cost on a policy and the original estimated date of
collection of such policy. The Company's actual yield on any of its policies
is determined by the difference between the proceeds of the policy (whether
from collection upon death of the insured or upon sale) and original cost on
the policy (less any additional capitalized costs on such policy) and the
length of time between the acquisition date and actual collection date of such
policy. See "The Company--Competition." The following table sets forth, as of
December 31, 1995 and September 30, 1996, the actual annualized yield of the
Company's policies which were collected early, policies which were collected
late and policies sold prior to collection, the average annualized yield on
policies open past the expected collection date (assuming the collection date
was December 31, 1995 or September 30, 1996, as applicable) and the average
estimated annual yield on open

policies for which the estimated collection date has not yet occurred. The
average estimated annual yields set forth below are forward-looking statements
which may vary materially from future actual yields based on, among other
things, actual versus assumed (or expected) collection dates, the amount of
premiums paid by the Company, and any decision to sell, or cease paying
premiums with respect to, a policy.

YIELD (1)
----------------
12/31/95 9/30/96
-------- -------

Collected Early (2)...................................... 47.0% 41.5%
Collected Late (3)....................................... 17.1% 15.8%
Sold Prior to Collection (4)............................. 0.0% 5.0%
Open Past Expected Collection Date (5)................... 15.0% 12.8%
Open and Not Due for Collection (6)...................... 16.1% 13.8%

- --------
(1) In the case of policies contributed to the Company in 1993 by Echelon in
exchange for common stock, the yield was calculated from the date of
original acquisition from the client.
(2) Represents the actual annualized yield on policies for which the Company
has collected the death benefit prior to the estimated collection date,
regardless of whether the estimated collection date was prior to or
subsequent to December 31, 1995 or September 30, 1996, as applicable.
(3) Represents the actual annualized yield on policies for which the Company
has collected the death benefit after the estimated collection date.
(4) Represents the actual average annualized yield on policies sold prior to
collection based on the actual sales price per policy.
(5) Represents the average annualized yield on policies for which the
estimated collection dates are on or prior to December 31, 1995 or
September 30, 1996, as applicable, assuming all such policies were
collected on December 31, 1995 or September 30, 1996, as applicable. The
Company's actual yield on these policies will be reduced to the extent
such policies are collected later than December 31, 1995 or September 30,
1996, as applicable, and as additional capitalized costs, if any, are
incurred.
(6) Represents the average estimated annual yield on policies for which the
estimated collection dates are after December 31, 1995 or September 30,
1996, as applicable. The actual yield of any policy will differ from the
estimated yield for the policy if (i) additional capitalized costs are
incurred in connection with the policy, or (ii) the policy is collected
earlier or later than expected.

The Company does not believe that the actual yields on policies collected by
the Company through December 31, 1993 and 1994 are meaningful because of the
relatively smaller amount of data for such periods.

COMPETITION

The Company believes potential clients distinguish among viatical settlement
companies based on three principal factors: (i) price; (ii) response time; and
(iii) sensitivity and professionalism in dealing with the client, the insured
and their friends and relatives. A viatical settlement company typically
determines the price that it is willing to pay for a life insurance policy
principally based upon its estimate of the life expectancy of the insured and,
hence, the present value of such policy discounted at a rate as determined by
such life expectancy. Response time is affected by the viatical settlement
company's internal ability to meet demand, the cooperation received from the
potential client's insurance company and the insured's doctor and, ultimately,
the viatical settlement company's access to capital to fund its purchase of a
policy.

The Company believes that approximately 50 to 60 viatical settlement
companies currently operate in the United States. See "The Company--Industry
Overview." Although lack of traditional funding sources and high financing
costs have limited the industry's growth in the past, competition has recently
increased. This increased competition has contributed to higher prices and
lower original estimated annual yields for policies purchased by the Company
in 1995 and thus far in 1996. The original estimated annual yield for policies
purchased by the Company during 1995 was 15.4% compared to 18.5% for policies
purchased during 1994. The original estimated annual yields for policies
purchased by the Company during the first nine months of 1996 was 12.1%
compared

to 14.9% for policies purchased during the first nine months of 1995. The
Company believes it is well-positioned within the viatical settlement
industry; however, due to the temporary cessation of processing HIV/AIDS
policies there can be no assurance that such position will be maintained. As
an early entrant the Company established a nationwide referral network which
includes various sourcing brokers, community groups and professionals who are
involved in treatment of and services for the terminally ill. The Company also
believes it has developed a reputation in the industry for providing viatical
settlements in a professional, efficient and responsible manner. In addition,
the Company believes its strict underwriting procedures, its pool of
experienced Consultants and its proprietary management information system
provide it with a competitive advantage. The Company has benefited from an
increasing volume of non-broker referrals and from strong relationships with
sourcing brokers. While the Company continues to maintain relationships with
its sourcing brokers or non-broker referral sources, there can be no assurance
that its cessation of processing AIDS applications will not ultimately damage
such relationships.

Most insurance companies also offer some form of accelerated death benefits
to holders of their policies with terminal illnesses, but the types of
benefits and cost thereof vary substantially among such companies. Accelerated
death benefits allow policyholders to access all or a portion of the death
benefits of their life insurance policies prior to their death under
circumstances defined by the issuing insurance company. According to a study
conducted in March 1994 by the American Council of Life Insurance and LIMRA
International, at least 215 life insurance companies (issuing approximately
70% of the life insurance in force in the United States) offered some form of
accelerated death benefit to their customers at the time of the study. The
number of insurance companies offering some form of accelerated death benefit
has likely increased since the study was conducted. During the last five
years, the number of life insurance companies offering accelerated death
benefits has increased substantially, and the number of policyholders covered
by some form of accelerated death benefit feature has increased at an even
higher rate. In addition, there have been limited instances of insurance
companies acquiring viatical settlement operations and providing viatical
settlements directly. Despite those offered alternatives, claims experience
for accelerated death benefits appears to be limited. The Company believes the
limited use of accelerated benefits is a result of the restrictive nature of
the benefits offered by insurance companies. For example, over 90% of the
products offered by insurance companies responding to the study required the
customer to have a life expectancy of 12 months or less and 30% required a
life expectancy of six months or less. In addition, many products reported in
the study specified a minimum face value for the policy and over 50% of the
products specified a maximum benefit ranging from 26% to 50% of the face
amount. The Company believes that insurance companies, on an industry-wide
basis, have not aggressively participated in the market for viatical
settlements or related products or services primarily because of the
undeveloped nature of the market and the potential for public relations
problems for the insurance industry resulting from insurance companies
redeeming policies for less than the death benefit promised to their
policyholders. Given the restrictions typically imposed on the availability of
accelerated death benefits, viatical settlements have, to date, been an
attractive alternative to accelerated death benefits for terminally ill
individuals seeking to relieve the economic stress resulting from loss of
employment and extraordinary medical expenses and the additional economic
burden relating to payments of premiums on policies. Viatical settlements can
also offer some people with terminal illnesses the opportunity to pursue
lifelong goals while they are still relatively healthy. Although the Company
believes that insurance companies may continue to be reluctant to enter the
viatical settlement market, insurance companies may reduce their restrictions
applicable to accelerated death benefits, may begin to provide viatical
settlements directly or through separate viatical settlement companies or may
offer other competing products or services on a broader basis. In addition,
more insurance companies may engage in the viatical settlement business
itself. Given the life insurance industry's financial resources and direct
access to policyholders, life insurance companies could become much stronger
and more effective competitors to viatical settlement companies in the future.

GOVERNMENT REGULATION

The Company monitors the progress of new legislation and regulation in each
state in which it purchases policies. However, given the emerging nature of
viatical settlement regulation, there may be periods in which

the Company is not in compliance, or is unable to comply, with the effective
provisions of each applicable statute and regulation. The failure to comply
with, or adverse changes in laws or regulations applicable to the Company, or
the interpretation thereof, or the adoption of additional laws and
regulations, could have a material adverse effect on the Company.

Approximately 14 states, including California, Florida, New York and Texas,
have enacted permanent statutes governing viatical settlement companies and
brokers, and several other states are considering similar legislation. These
statutes typically track the Viatical Settlements Model Act (the "Model Act")
and the Viatical Settlement Model Regulations ("Model Regulations") adopted by
the National Association of Insurance Commissioners, which are not applicable
to any viatical settlement company except to the extent adopted by a
particular state. State legislation regulating viatical settlements generally
imposes (and the Model Act and Model Regulations contemplate) various
licensing, reporting, disclosure and procedural requirements on viatical
settlement companies and brokers and authorizes state insurance commissioners
to promulgate administrative regulations to implement and enforce such
requirements. To date, only a few state insurance commissioners, including the
commissioners of Florida, New York and Texas, have adopted regulations.
However, a number of state insurance commissioners are in the process of
promulgating regulations.

Under most state regulatory schemes, viatical settlement companies must be
licensed by the state insurance commissioner in order to solicit or enter into
a viatical settlement contract in that state. Licenses are normally renewable
on an annual basis but may be revoked if the licensee fails to comply with the
provisions of the statute or regulations. Licensees typically must: file
annual operating reports with the commissioner; permit the commissioner to
examine their records; disclose alternatives to a viatical settlement to each
potential client; obtain representations as to the mental competency of the
potential client; deposit the purchase price for a policy into a trust or
escrow account in a bank; and allow the client a 15 to 30 day rescission
period. The Company either is not required to be licensed, is licensed, or is
temporarily permitted to do business without a license, in each state in which
it purchases policies. However, the Company may not be able to obtain licenses
in every state where licenses are required or to renew or prevent revocation
of a previously issued license. The Company will be precluded from doing
business in any state in which it is unable to obtain or maintain a required
license. The Company believes that it is in material compliance with the
applicable reporting, disclosure and procedural requirements in every state in
which it currently purchases policies. The Company also believes that its
operations comply with the disclosure and procedural requirements (including
rescission requirements) of the Model Act and the Model Regulations.

A limited number of states have also followed the approach of the Model
Regulations by enacting statutes, or adopting or proposing regulations, that
establish minimum purchase prices to be paid to clients according to the
insured's life expectancy. The Company has also been advised informally that
the California Insurance Commissioner is contemplating the establishment of
comparable minimum purchase prices. The Company's pricing guidelines and
practices are in compliance with such minimum pricing regulations. The Florida
statute does not currently permit price regulations. Increasingly restrictive
price regulations or the adoption of pricing regulations in certain states,
including California, Florida, Georgia, New York or Texas, could adversely
affect the Company's ability to effect viatical settlements on economic terms
acceptable to the Company.

Every state has statutes that regulate "conducting an insurance business."
Although the Company is not aware of any judicial authority interpreting
whether the viatical settlement business constitutes "conducting an insurance
business," some or all of these statutes may be interpreted in the future to
include viatical settlements and to preclude the Company, which is not an
insurance company, from operating in those states.

EMPLOYEES

As of June 30, 1996, the Company employed 25 individuals and as of September
30, 1996, the Company employed 17 individuals (for both dates, including the
Executive Officers), two of whom (in addition to the Executive Officers) also
perform services on behalf of New Echelon. None of the Company's employees is
a member of a labor union. The Company believes that it maintains good
relations with its employees.

PROPERTIES

The Company currently leases approximately 5,900 square feet of office space
in San Francisco which it shares with New Echelon LLC. The Company, which is
the lessee under the lease, charges New Echelon LLC for 35% of the rent of the
entire office space. The lease expires in 1999. The Company also maintains an
office in Incline Village, Nevada.

LEGAL PROCEEDINGS

The Company is not engaged in any legal proceedings which are expected,
individually or in the aggregate, to have a material adverse effect on the
Company's financial position, liquidity or results of operations.

COMMON STOCK MARKET PRICES AND DIVIDENDS

The Company's Common Stock is listed on The Nasdaq Stock Market's National
Market System under the symbol "DPNR." As of the Record Date, there were
approximately 17 holders of record of Common Stock, including banks, brokerage
firms and other nominees. A substantial portion of the shares of Common Stock
sold in the Company's initial public offering are held in book-entry form. The
following table sets forth, for the fiscal quarters indicated, the high and
low sales prices for the common stock on the National Market System. The
Company's initial public offering occurred in February 1996.

1996 HIGH LOW
---- ------- -------

First Quarter (beginning February 16, 1996)............... $14 1/2 $11 1/8
Second Quarter............................................ 13 3/4 6 1/2
Third Quarter............................................. 9 1
Fourth Quarter through October 31, 1996................... 3 3/8 2 1/8

The closing price of the Company's Common Stock on July 15 and July 17, 1996
(the days preceding and following the public announcement of the Company's
decision to temporarily cease processing new viatical settlement applications)
was $7.75 and $1.375, respectively. The closing price of the Company's Common
Stock on October 8, 1996 (the trading day next preceding the public
announcement by the Company of its intention to request stockholder approval
of the Asset Sale) was $3.25. On November 15, 1996, the closing price of the
Company's Common Stock was $3.34375.

The Company has never declared or paid any cash dividends on its capital
stock. The Indenture limits the Company's ability to pay dividends by
restricting, prior to repayment in full of the Securitized Notes, the
Company's access to cash generated through the collection of pledged policies.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations--Description of the Securitized Notes." The Company currently
intends to retain its future earnings, if any, to finance its business and
therefore does not anticipate paying cash dividends on the Common Stock for
the foreseeable future.

FINANCIAL INFORMATION

SELECTED FINANCIAL DATA

The data presented below should be read in conjunction with the consolidated
financial statements and notes thereto and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere
herein. See "Index to Financial Statements."

NINE MONTHS
ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------- -------------
1993(1) 1994 1995 1996
--------- --------- --------- -------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)

STATEMENT OF OPERATIONS DATA:
Earned discounts on life
insurance policies (2)....... $ 420 $ 4,240 $ 6,933 $ 3,697
Earned discounts on prior
maturities and matured
policies (2)................. -- -- -- 1,158
Total income.................. 437 4,443 7,389 5,775
Interest expense.............. 52 1,115 3,352 3,040
Realized loss on sale of
assets....................... -- -- -- 300
Provision for loss on sale of
assets....................... -- -- -- 3,314
Valuation provision for
purchased life insurance
policies..................... -- -- -- 6,940
Total expense................. 776 2,279 5,394 15,848
Income (loss) before income
taxes and minority interest.. (339) 2,163 1,996 (10,072)
Income tax benefit (expense).. 229 (137) (625) 526
Minority interest of limited
partners in earnings of
investment partnership (3)... 236 1,791 568 --
Net income (loss)............. (347) 235 803 (9,547)
Net income (loss) per common
share (4).................... $(10.15) $ 0.19 $ 0.42 $ (2.49)
Weighted average number of
common and common equivalent
shares outstanding (in
thousands) (4)............... 34 1,211 1,902 3,839
OPERATING DATA:
Number of policies purchased
during period................ 197 469 386 460
Number of policies sold during
period....................... -- -- -- 61
Number of policies
outstanding, end of period
(5).......................... 188 548 749 973
Aggregate purchase price of
policies purchased during
period (6)................... $ 9,476 $25,449 $21,757 $23,297
Aggregate face value of
policies purchased during
period....................... $15,490 $35,555 $29,688 $31,928
Aggregate face value of
policies sold during period.. -- -- -- 6,632
Aggregate face value of
portfolio of policies, end of
period (5)................... $14,785 $43,205 $59,744 $72,211
Weighted average expected
collection period for
policies purchased during
period (7)(9)................ 20.6 mos. 23.4 mos. 26.2 mos. 36.4 mos.
Weighted average remaining
expected collection period
(8)(9)....................... 16.7 mos. 15.8 mos. 14.0 mos. 18.25 mos.
BALANCE SHEET DATA (at period
end):
Assets held for sale.......... $ -- $ -- $ -- $11,888
Purchased life insurance
policies, net of reserve..... 11,446 32,916 48,938 35,561
Total assets.................. 13,967 35,433 58,226 63,650
Long-term notes payable....... -- -- 39,105 42,396
Other long term debt.......... -- 18,447 1,444 --
Total liabilities............. 594 22,176 46,680 43,057
Minority interest of limited
partners in investment
partnership (3).............. 10,035 9,195 6,680 --
Total stockholders' equity.... 3,339 4,062 4,866 20,593
Book value per share of common
stock (10)................... $ 4.34 $ 2.14 $ 2.55 $ 4.80

- -------
(1) The Company commenced operations on January 2, 1993 and commenced
purchasing life insurance policies on April 4, 1993.

(2) During the third quarter of 1996, the Company reclassified all of its
assets (other than the policies held by DPFC) to a "held-for-sale"
category. The Company also established a valuation provision for
purchased life insurance policies (i.e., DPFC policies) during the
quarter ended September 30, 1996 because of the uncertainties created by
the data presented at the AIDS Conference and subsequently reported data.
Income on all policies will be recognized as earned discounts on matured
policies upon receipt of proceeds on policies (either pursuant to a sale
or the death of the insured). See "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Method of Accounting."
(3) The minority interest represents the interest of the limited partners of
Dignity Viatical in the net assets and income of Dignity Viatical.
Dignity Viatical purchased 169 policies with an aggregate face value of
$13.9 million, primarily between August 1993 and January 1994. On June
25, 1996 the Company purchased the limited partnership interests of the
limited partners in Dignity Viatical for approximately $5.2 million. This
purchase resulted in a total reduction of minority interest on the
balance sheet at June 30, 1996, and the recording of $736,000 in
additional unearned discounts as described in Note 3 to the Condensed
Notes to Consolidated Financial Statements. This purchase had no impact
on the income statement for the third quarter of 1996. The assets,
liabilities and operations of Dignity Viatical were consolidated with
those of the Company for accounting purposes; accordingly, the Company's
"earned discounts on life insurance policies" for each period, other than
the nine months ended September 30, 1996, includes the earned discount
which is accrued during such period in respect of all policies purchased
by Dignity Viatical. See "The Company--Dignity Viatical and Dignified
One," "Management's Discussion and Analysis of Financial Condition and
Results of Operation" and Note 3 of Condensed Notes to Consolidated
Financial Statements.
(4) Reflects the Reorganization, the Reverse Stock Split and the conversion
of shares of Convertible Preferred Stock outstanding during the periods
presented into shares of Common Stock as if such transactions had
occurred during the periods presented. See Notes 10 and 12a of Notes to
Consolidated Financial Statements and Note 2 of Condensed Notes to
Consolidated Financial Statements.
(5) Reflects "assets held for sale," "purchased life insurance policies" and
"matured policies receivable."
(6) Consists of the purchase price and additional costs capitalized through
the end of the period. The aggregate purchase prices shown in the
respective periods do not necessarily represent the cash actually paid
for the policies in such periods as reflected in the Company's
consolidated statements of cash flows. The purchase prices include
amounts paid or payable in a subsequent period for the face values
acquired in the periods shown. In addition, the aggregate purchase price
for 1993 includes the purchase price of policies contributed to the
Company by Echelon in exchange for common stock.
(7) Represents the average expected collection period weighted by the face
value of each policy purchased during the period.
(8) Represents the average remaining expected collection period weighted by
the face value of each policy for "assets held for sale," "purchased life
insurance policies" and "matured policies receivable" at the end of the
period.
(9) Beginning in the third quarter of 1996, the Company no longer calculated
weighted average accrual periods because the Company began recognizing
earned discounts only upon the collection of proceeds (either pursuant to
a sale or the death of the insured) from insurance policies. See
"Management's Discussion and Analysis of Financial Condition and Results
of Operations Method of Accounting."
(10) Book value represents the amount of total tangible assets less total
liabilities of the Company less minority interest of limited partners in
investment partnership divided by the number of shares outstanding at the
end of the period (giving effect to the Reorganization, the Reverse Stock
Split and the conversion of shares of Convertible Preferred Stock).

PRO FORMA FINANCIAL INFORMATION

The following unaudited pro forma condensed financial information sets forth
the pro forma effects of the following transactions: the August 1996 sale of
policies previously held by Dignity Viatical (the "DVSP Sale"); the proposed
sale of policies covered by the Sale Agreement; and the proposed sale of all
remaining assets of the Company pursuant to the Asset Sale (the "Remaining
Asset Sale"). The unaudited pro forma condensed balance sheet reflects the
effects of each such transaction (other than the DVSP Sale) as if it had
occurred on September 30, 1996. The unaudited pro forma condensed statements
of operations for the nine months ended September 30, 1996 and for the year
ended December 31, 1995 reflect the effects of each such transaction as if it
had occurred on January 1, 1996 and 1995, respectively. The pro forma
financial information is not necessarily indicative of actual results that
would have been achieved if these transactions had actually been completed as
of the dates indicated or which may be realized in the future.

The pro forma financial information for the Asset Sale is based on
management's estimates regarding the market value of the Company's assets.
Management's estimates are based upon its evaluation of the current market for
the purchase and sale of policies of the type comprising the Company's
portfolio, the results of its negotiations for the sale of portions of the
portfolio (including the terms of the Sale Agreement and the terms of a sale
to an unaffiliated purchaser of 61 policies for 81% of the face value thereof
pursuant to the DVSP Sale) and its ongoing sale discussions with unaffiliated
third parties for other portions of the portfolio. There can be no assurance
that the Company will be able to sell any assets or, in the event of a sale,
that any asset can be sold for an amount equal to or in excess of management's
current estimated market value. Furthermore, there can be no assurance that
the Asset Sale will be effected on terms consistent with the underlying
assumptions made in connection with the preparation of the pro forma
information, that the sale of policies pursuant to the Sale Agreement will be
consummated on terms set forth in the Sale Agreement or that the Company will
be able to consummate the Remaining Asset Sale. The actual results of the
Asset Sale, even if consummated, may differ materially from the assumptions
underlying the pro forma information. See "The Asset Sale--Terms of the Sale
Agreement" and "--Negotiations between the Company and the Purchaser." The
unaudited pro forma financial information should be read in conjunction with
the Company's historical financial statements and notes thereto appearing
elsewhere in this Proxy Statement. See "Index to Financial Statements."

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 1996

POLICIES
COVERED BY REMAINING
ASSETS ACTUAL SALE AGREEMENT ASSET SALE PRO FORMA
------ ----------- -------------- ----------- ----------

Cash and cash equivalents
(1)...................... $ 5,902,318 7,701,343 2,516,940 16,120,601
Restricted cash (2)....... 4,760,644 -- (4,633,513) 127,131
Marketable securities..... 2,090,871 -- -- 2,090,871
Other receivable.......... 1,097,519 -- -- 1,097,519
Matured policies
receivable............... 1,468,947 -- -- 1,468,947
Assets held for sale (3).. 11,887,598 (7,701,343) (4,186,255) 0
Purchased life insurance
policies, net of reserve
(3)...................... 35,561,473 -- (35,561,473) 0
Deferred financing costs,
net of accumulated
amortization (4)......... 740,189 -- (740,189) 0
Other assets.............. 140,284 -- -- 140,284
----------- ---------- ----------- ----------
Total assets.......... $63,649,843 0 (42,604,490) 21,045,353
=========== ========== =========== ==========

LIABILITIES AND
STOCKHOLDERS' EQUITY
--------------------

Accrued expenses (4)...... $ 208,271 -- (208,271) 0
Accounts payable.......... 242,577 -- -- 242,577
Accrued compensation
payable.................. 164,200 -- -- 164,200
Payable for policies
purchased................ 39,774 -- -- 39,774
Long term notes payable
(4)...................... 42,396,219 -- (42,396,219) 0
Deferred income taxes..... 6,000 -- -- 6,000
----------- ---------- ----------- ----------
Total liabilities..... 43,057,041 0 (42,604,490) 452,551
Stockholders' equity:
Common stock.............. 42,918 -- -- 42,918
Additional paid-in-
capital.................. 29,404,550 -- -- 29,404,550
Retained deficit.......... (8,854,666) -- -- (8,854,666)
----------- ---------- ----------- ----------
Total stockholders'
equity................... 20,592,802 0 0 20,592,802
----------- ---------- ----------- ----------
Total liabilities and
stockholders' equity..... $63,649,843 0 (42,604,490) 21,045,353
=========== ========== =========== ==========
Book value per share of
Common Stock............. $ 4.80 $ 4.80
=========== ==========

- --------
(1) Cash and cash equivalents have been increased in an amount equal to the
estimated proceeds from sales of assets, after giving effect to the
payment of all outstanding debt related to such assets, and all restricted
cash accounts resulting from debt agreements. See footnote 2.
(2) Assuming the extinguishment of all debt, all related restrictions on cash
would be eliminated. Accordingly, all restricted cash accounts resulting
from debt agreements have been reclassified as cash and cash equivalents.
The only restricted cash account remaining relates to proceeds on a
disputed policy pending a court appeal.
(3) All carrying costs relating to the purchase of policies (purchase price,
capitalized medical review costs, sourcing broker fees, earned discounts
and premiums) have been eliminated.
(4) All debt, deferred financing costs and accrued expenses (the only
component of which is accrued interest) have been eliminated.

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996

POLICIES
COVERED BY
SALE REMAINING
ACTUAL DVSP SALE AGREEMENT ASSET SALE PRO FORMA
----------- ---------- ---------- ----------- -----------

Income:
Earned discounts on
life insurance
policies (5)......... $ 3,697,032 (80,037) (165,228) (2,490,752) 961,015
Earned discounts on
prior maturities..... 802,471 -- -- -- 802,471
Earned discounts on
matured policies..... 355,519 -- -- -- 355,519
Interest income....... 638,583 -- -- -- 638,583
Other................. 281,728 -- -- -- 281,728
----------- ---------- ---------- ----------- -----------
Total income........ 5,775,333 (80,037) (165,228) (2,490,752) 3,039,316
Expenses:
Interest expense (6).. 3,040,424 -- (189,832) (2,850,592) 0
Compensation and
benefits (7)......... 943,629 -- -- -- 943,629
Other general and
administrative
expenses (7)......... 898,037 -- -- -- 898,037
Amortization (8)...... 391,352 -- -- (391,352) 0
Depreciation (8)...... 19,967 -- -- (19,967) 0
Realized loss on sale
of assets............ 299,718 -- -- -- 299,718
Provision for loss on
sale of assets....... 3,314,498 -- -- -- 3,314,498
Valuation provision
for purchased life
insurance policies... 6,940,189 -- -- -- 6,940,189
----------- ---------- ---------- ----------- -----------
Total expenses...... 15,847,814 0 (189,832) (3,261,911) 12,396,071
Income (loss) before
income taxes and
minority interest.. (10,072,481) (80,037) 24,604 771,159 (9,356,755)
Income tax benefit...... 525,711 -- -- -- 525,711
----------- ---------- ---------- ----------- -----------
Net income (loss)... $(9,546,770) $ (80,037) $ 24,604 $ 771,159 $(8,831,044)
=========== ========== ========== =========== ===========
Net income (loss) per
share.................. $ (2.49) $ (0.02) $ 0.01 $ 0.20 $ (2.30)
Average number of shares
outstanding............ 3,838,548 3,838,548 3,838,548 3,838,548 3,838,548

- --------
(5) Earned discounts have been reduced to eliminate income related to policies
which are assumed to be sold. The remaining earned discounts shown in the
column entitled Pro Forma reflect the earned discounts on policies that
matured through September 30, 1996.
(6) Interest expense has been eliminated assuming the payment of all debt with
the application of sale proceeds at January 1, 1996.
(7) Does not reflect reduced overhead expenses (compensation and benefits and
other general and administrative expenses resulting from lower medical,
mail, delivery, advertising and telephone costs) that would result from a
sale of all assets.
(8) Unamortized costs and depreciation have been eliminated to reflect the
sale of all assets at January 1, 1996.

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995

POLICIES
COVERED BY REMAINING
ACTUAL DVSP SALE SALE AGREEMENT ASSET SALE PRO FORMA
---------- --------- -------------- ----------- -----------

Income:
Earned discounts on
life insurance
policies (9)......... $6,933,318 (590,198) (23,831) (2,933,506) 3,385,783
Interest income....... 266,979 -- -- -- 266,979
Other................. 189,079 -- -- -- 189,079
---------- --------- ----------- ----------- -----------
Total income........ 7,389,376 (590,198) (23,831) (2,933,506) 3,841,841
Expenses:
Interest expense (10). 3,352,178 -- (11,305) (3,340,873) 0
Compensation and
benefits (11)........ 843,646 -- -- -- 843,646
Other general and
administrative
expenses (11)........ 880,195 -- -- -- 880,195
Amortization (12)..... 273,543 -- -- (273,543) 0
Depreciation (12)..... 34,653 -- -- (34,653) 0
Consulting fees....... 9,621 -- -- -- 9,621
Realized loss on sale
of assets............ -- 299,718 -- -- 299,718
Provision for loss on
sale of assets (13).. -- -- 1,792,443 1,522,055 3,314,498
Valuation provision
for purchased life
insurance policies
(14)................. -- -- -- 6,940,189 6,940,189
---------- --------- ----------- ----------- -----------
Total expenses...... 5,393,836 299,718 1,781,138 4,813,175 12,287,867
Income (loss) before
income taxes and
minority interest.. 1,995,540 (889,916) (1,804,969) (7,746,681) (8,446,026)
Income tax benefit
(expense).............. (624,510) -- -- 618,510 (6,000)
Minority interest of
limited partners in
earnings of investment
partnership (15)....... (567,831) 567,831 -- -- 0
---------- --------- ----------- ----------- -----------
Net income (loss)... $ 803,199 $(322,085) $(1,804,969) $(7,128,171) $(8,452,026)
========== ========= =========== =========== ===========
Net income (loss) per
share.................. $ 0.42 $ (0.17) $ (0.95) $ (3.74) $ (4.43)
Average number of shares
outstanding............ 1,907,379 1,907,379 1,907,379 1,907,379 1,907,379

- --------
(9) During the third quarter of 1996, the Company reclassified all of its
assets (other than the policies held by DPFC) to a "held-for-sale"
category. The Company also established a valuation provision for
purchased life insurance policies (i.e., DPFC policies) during the
quarter ended September 30, 1996 because of the uncertainties created by
the data presented at the AIDS Conference and subsequently reported data.
Income on all policies will be recognized as earned discounts on matured
policies upon receipt of proceeds on policies (either pursuant to a sale
or the death of the insured). See "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Method of Accounting."
(10) Interest expense has been eliminated assuming the payment of all debt
with the application of sale proceeds at January 1, 1996.
(11) Does not reflect reduced overhead expenses (compensation and benefits and
other general and administrative expenses resulting from lower medical,
mail, delivery, advertising and telephone costs) that would result from a
sale of all assets.
(12) Unamortized costs and depreciation have been eliminated to reflect the
sale of all assets at January 1, 1996.
(13) The calculation of provision for loss on sale of assets was calculated
based on management's estimate of proceeds from the sale of policies and
equals the difference between carrying value and those estimates. The net
death valuation is based on the life expectancies of these policies in
relation to prices obtained by the Company in connection with other
sales. For purposes of calculating such loss provisions, furniture and
equipment have been valued on the assumption that miscellaneous office
equipment has no sales value.
(14) A pre-tax provision has been recorded to reflect estimated impaired value
of purchased life insurance policies (i.e. DPFC policies). The estimated
valuation provision for purchased life insurance policies provides for
the possible write-off of deferred financing costs and the expected
unrealized value associated with purchased life insurance policies.
(15) Minority interest has been eliminated to reflect a reversal of the
allocation of income to minority interest.

ACCOUNTANTS

The consolidated financial statements of the Company as of December 31, 1994
and 1995, and for the period January 2, 1993 (date of inception) to December
31, 1993 and the years ended December 31, 1994 and 1995 have been included
herein in reliance upon the report of KPMG Peat Marwick LLP, independent
certified public accountants, appearing elsewhere herein, and upon the
authority of said firm as experts in accounting and auditing. Representatives
of KPMG Peat Marwick LLP are expected to be present at the Meeting to respond
to appropriate questions and to make such statements as they desire.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

The following is a discussion and analysis of the consolidated financial
condition and results of operations for the Company for the nine months ended
September 30, 1996 and 1995 and the years ended December 31, 1995, 1994 and
1993, and of certain factors that may affect the Company's prospective
financial condition and results of operations. The following should be read in
conjunction with the consolidated financial statements and related notes
appearing elsewhere herein.

OVERVIEW

RECENT DEVELOPMENTS

On July 16, 1996 the Company announced that, in light of the data regarding
new treatments involving combinations of various drugs presented at the AIDS
Conference, the Company was temporarily ceasing processing new applications
for policies insuring individuals afflicted with AIDS and HIV while it further
analyzed the effects of such research results on its business and its
strategic options in light of the research results. The Company has retained
Jefferies & Co. to assist in such evaluation. The Company continues to analyze
the effect of the research results and data from subsequently reported
scientific studies on its business and, in particular, purchases by the
Company of policies, levels of expenses, the timing of collections on
policies, the estimated collection date of policies and its method of income
recognition. In connection with its analysis, the Company has thus far decided
to sell all or substantially all of its assets and to seek stockholder
approval of the Asset Sale. As a result of such decision, the Company has
reclassified all of its assets (other than the policies held by DPFC) to a
"held-for-sale" category. Accordingly, such assets are accounted for on the
lower of carrying value or fair value less cost to sell. The Company cannot
predict what further impact the foregoing may have on its business, prospects,
results of operations or financial position. Furthermore, the Company has not
determined whether or when it will resume processing applications for policies
insuring people afflicted with HIV or AIDS or the implications of these recent
developments on the Company's strategic direction.

SHARE REPURCHASE PROGRAM

The Board of Directors of the Company has approved a share repurchase
program pursuant to which the Company is authorized to purchase from time to
time up to 1 million shares of Common Stock at prevailing market prices. The
Company had not repurchased any shares of Common Stock as of November 15,
1996.

METHOD OF ACCOUNTING

Through June 30, 1996, the Company recognized income ("earned discount") on
each purchased policy by accruing, over the period between the acquisition
date of the policy and the Company's estimated date of collection of the
policy's face value (the "Accrual Period"), the difference (the "unearned
discount") between (a) the face value of the policy less the amount of fees,
if any, payable to a referral source upon collection of the face value, and
(b) the carrying value of the policy. Through June 30, 1996, the carrying
value for each policy was reflected on the Company's consolidated balance
sheet under "purchased life insurance policies" and consisted of the purchase
price, other capitalized costs and the earned discount on the policy accrued
to the balance sheet date. The Company capitalized as incurred the following
costs of a purchased policy: (i) the purchase price paid for the policy, (ii)
policy premiums, if any, paid by the Company, (iii) amounts, if any, paid to
referral sources upon acquisition of the policy and (iv) amounts paid to
Company-retained Consultants who estimated the insured's life expectancy. The
carrying value of a policy changed over time, and was adjusted quarterly to
reflect earned discounts accrued on the policy, amounts paid for any
additional future increases in coverage, any additional premium payments and
any premium refunds if the policy becomes covered by premium waiver
provisions. The length of the Accrual Period was determined by the Company
based upon its estimate of the date on which it would collect the face value
of the policy. Such estimate was based upon the Company's estimate of the life
expectancy of the insured, after review of the medical records of the insured
by one or more Consultants, and was also adjusted to reflect the historical
accuracy of the life expectancies estimated by the Company's Consultants and
the typical period between the date of an insured's death and the date on
which the Company collects the face value of the policy.

The unearned discount was accrued over the Accrual Period using the "level
yield" interest method. Under the "level yield" method, the yield is constant
such that when the yield is applied to the carrying value of the policy on a
compounded basis over the course of the Accrual Period, the unearned discount
will be fully accrued as earned discount by the end of the Accrual Period.
Such yield may differ from the actual yield on a policy depending on whether
the policy is collected earlier or later than expected. See "The Company--
Policy and Portfolio Information--Yield Analysis."

As a result of the Company's decision to sell all or substantially all of
its assets and to seek stockholder approval of the Asset Sale, the Company has
reclassified all of its assets (other than the policies held by DPFC) to a
"held-for-sale" category. Accordingly, such assets are accounted for on the
lower of carrying value or fair value less cost to sell. In connection
therewith, the Company established a $3.3 million provision for loss on sale
of assets during the quarter ended September 30, 1996. The Company also
established a $6.9 million valuation provision for purchased life insurance
policies (i.e., DPFC policies) during the quarter ended September 30, 1996
because of the uncertainties created by the data presented at the AIDS
Conference and subsequently reported data. In addition, beginning in such
quarter, the Company began generally recognizing income upon receipt of
proceeds on policies (either pursuant to a sale or the death of the insured).
Such income is equal to the difference between such proceeds (less any back-
end sourcing fees) and the carrying value of such policies after giving effect
to any provision for loss on the sale of such policies or any valuation
provision for purchased life insurance policies. The calculation of provision
for loss on sale of assets for life insurance policies was calculated based on
the life expectancies of the policies in relation to prices obtained by the
Company in connection with other sales.

METHOD OF CONSOLIDATION

The Company's financial statements consolidate the assets, liabilities and
operations of DPFC, the Company's wholly-owned subsidiary through which the
Company issued the Securitized Notes. See Note 7 of Condensed Notes to
Consolidated Financial Statements. In addition, because Dignity Partners
controlled Dignity Viatical, the assets, liabilities and operations of Dignity
Viatical are consolidated with those of the Company in the consolidated
financial statements. DPFC has purchased 902 policies with an aggregate face
value of $67.1 million and will not purchase any more policies. Through June
30, 1996, Dignity Viatical had purchased 169 policies with an aggregate face
value of $13.9 million. The minority interest of limited partners in
investment partnership reflected in the Company's consolidated financial
statements represents the limited partners' interests in the net assets and
income of Dignity Viatical. On June 25, 1996, the Company purchased the
limited

partnership interests in Dignity Viatical and became the sole owner of all the
partnership interests therein. On August 2, 1996, the Company entered into an
agreement to sell to an unaffiliated third party virtually all of the policies
owned by Dignity Viatical. See "The Company--Dignity Viatical and Dignified
One."

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO THREE AND NINE
MONTHS ENDED SEPTEMBER 30, 1995

Earned Discounts. During the third quarter of 1996, the Company reclassified
all of its assets (other than the policies held by DPFC) to a "held for sale"
category. The Company also established a valuation provision for purchased
life insurance policies (i.e., DPFC policies) during the quarter ended
September 30, 1996 because of the uncertainties created by the data presented
at the AIDS Conference and subsequently reported data. As a result, the
Company began recognizing income only upon receipt of proceeds on policies
(either pursuant to a sale or the death of the insured). Consequently, the
Company did not recognize any earned discounts on life insurance policies
during the third quarter, but instead recognized $356,000 of earned discounts
on matured policies for such quarter. Such income is equal to the difference
between the proceeds the Company received on the policies (less any back end
sourcing fees) and the carrying value of such policies after giving effect to
any provision for loss on the sale of such policies and any valuation
provision for purchased life insurance policies. See Notes 4 and 5 to the
Condensed Notes to Consolidated Financial Statements. In addition, in
connection with the decision to sell all or substantially all of the Company's
assets, the Company recognized $802,000 of earned discounts on prior
maturities. Such earned discounts were carried on the balance sheet at June
30, 1996 as unearned income which related to policies for which the Company
had collected the proceeds prior to the expected collection date. The Company
will not have any earned discounts on prior maturities in any other period.

Interest Income. Interest income increased dramatically (226%) for the first
nine months of 1996 as a result of the investment of the initial public
offering proceeds in short term securities and marketable securities. Interest
income has decreased since the beginning of 1996 as such funds were used to
purchase life insurance policies and for other working capital purposes. See
Note 2 of Condensed Notes to Consolidated Financial Statements.

Other Income. Components of other income include collections on policies of
dividends, interest, paid-up cash values, increases in face value of matured
policies and reimbursements of premiums on matured policies. Other income
increased during the first nine months of 1996 due to collections on a larger
portfolio and a $80,000 aggregate increase in face value on two policies.

Interest Expense. Interest expense in the first nine months of 1996
increased 27.5% relative to the first nine months of 1995 as a result of the
higher level of portfolio purchases and the increase in borrowings used to
fund those purchases. Average borrowings under the Securitized Notes were
$43.0 million in the first nine months of 1996 compared to $23.3 million in
the first nine months of 1995. The interest rate on the Securitized Notes
decreased to 9.2% in the first nine months of 1996 from 9.5% in the first nine
months of 1995. Borrowings under the Company's former $20 million senior
secured revolving credit facility (the "TransAmerica Facility") bore a dollar
weighted interest rate of 10.9% and 12.1% in the first nine months of 1996 and
1995, respectively. Average borrowings were $1.1 million in the first nine
months of 1996 compared to $5.1 million in the first half of 1995. See Notes 7
and 8 to Condensed Notes to Consolidated Financial Statements herein, and
"Liquidity and Capital Resources" and "Description of the Securitized Notes"
below for further information regarding the Securitized Notes and the
TransAmerica Facility.

Compensation and Benefits. Compensation and benefits increased 73.2% in the
first nine months of 1996 compared to the first nine months of 1995 due to the
hiring of additional personnel to handle the administrative tasks relating to
the Company's increased portfolio and non-broker referral business and to
support the Company's related growth in the latter period. Subsequent to the
AIDS Conference and the cessation of new application processing, the number of
employees has been reduced from 27 (on July 16, 1996) to 17.

Other General and Administrative Expenses. Other general and administrative
expenses increased 9.0% in the third quarter of 1996 over the third quarter of
1995, but decreased 48.2% over the second quarter of 1996.

This decrease is directly related to the cessation in processing of new
applications on HIV and AIDS policies. Other general and administrative
expenses increased 73.0% in the first nine months of 1996 over the first nine
months of 1995 primarily as a result of an increase in the number of medical
reviews for policies being analyzed for potential purchase early in 1996.
Additionally, because the Company temporarily ceased processing applications
for policies insuring individuals with AIDS and HIV, approximately $80,000 and
$30,000 of medical review costs associated with such policies in the
underwriting process were expensed in the second and third quarter of 1996,
respectively. The first nine months of 1996 also includes a $200,000 aggregate
increase in expenses for legal, accounting, insurance, director fees and
advertising, in part as a result of the Company's status as a public company.

Amortization. Because the TransAmerica Facility was terminated in August
1996, the Company incurred a charge in the third quarter of 1996 of $130,000
as a result of the Company's writing off the unamortized financing charges
related to the TransAmerica Facility.

Income Tax Expense. Income tax expense decreased in the first nine months of
1996 over the comparable period in 1995. This was a result of the estimated
loss provision recorded in the third quarter of 1996. The Company assumes
there is no future income tax benefit related to any loss carryforward.

Minority Interest of Limited Partners in Earnings of Investment Partnership.
All earned discounts attributable to the limited partners of Dignity Viatical
had been fully accrued by December 31, 1995 and, therefore, minority interest
of limited partners in earnings of investment partnership was zero for the
first nine months of 1996 compared to $705,000 for the first nine months of
1995. In February 1996, the Company entered into an agreement with the limited
partners of Dignity Viatical to use best efforts to sell on terms reasonably
acceptable to the limited partners, the policies owned by Dignity Viatical.
Requests for closed bids were sent out in late March 1996 to Dignity Partners
and two other prospective buyers. Dignity Partners was the successful bidder
purchasing, effective June 25, 1996, the limited partnership interests of the
limited partners for approximately $5.2 million.

YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994

Earned Discounts on Life Insurance Policies. The Company purchased 386
policies with an aggregate face value of $29.7 million during the year ended
December 31, 1995 compared to the purchase of 469 policies with an aggregate
face value of $35.5 million during 1994. The purchase of policies during 1995
was adversely impacted by capital constraints (particularly in the latter half
of 1995 as compared to the latter half of 1994) and rising purchase prices as
a result of increased competition during 1995. Earned discounts on life
insurance policies increased 63.5% from $4.2 million during 1994 to $6.9
million in 1995, primarily as a result of the Company recognizing income over
the 1995 period on a larger portfolio of policies. The Company began 1995 with
purchased life insurance policies of $32.9 million, which was 188% larger than
that at the beginning of 1994. To a lesser extent, the increase in earned
discounts reflected a decrease in the weighted average remaining Accrual
Period of the portfolio of purchased life insurance policies to 15.8 months at
the beginning of 1995 from 16.7 months at the beginning of 1994; accordingly,
the earned discount was accrued at a faster rate in 1995 than that in 1994.
Competition has also resulted in increased purchase prices, thereby reducing
the earned discount in 1995 relative to the earned discount in 1994 on
policies with comparable Accrual Periods.

Interest Expense. Interest expense increased from $1.1 million for 1994 to
$3.4 million for 1995. This increase was primarily attributable to increased
debt obtained through advances of Securitized Note proceeds during 1995 which
were used to fund policy purchases. In addition, interest rates were generally
higher in 1995, though this factor was offset somewhat by the issuance in
February 1995 of the Securitized Notes, which bear interest at a fixed rate
(9.5% until, and 9.2% after, September 30, 1995) compared to a floating
interest rate ranging from 8.8% to 13.8% applicable to borrowings under the
TransAmerica Facility during 1994. Interest expense increased at a faster rate
than the increase in the aggregate cost of policies purchased through December
31, 1995 due to the increased leverage in 1995.

Compensation and Benefits. Compensation and benefits increased from $619,000
for 1994 to $844,000 for 1995. This 36.2% increase was due to the hiring of
additional personnel during 1995 to handle the administrative tasks relating
to the Company's increased portfolio and non-broker referral business. The
Company hired a few additional administrative personnel in 1996 to accommodate
increased purchasing activity.

Other General and Administrative Expenses. Other general and administrative
expenses for 1994 were $302,000, compared to $880,000 for 1995. To the extent
the Company reviews a policy which it does not purchase, costs associated with
the review of the policy, such as fees paid to Consultants, are not
capitalized, but are expensed as other general and administrative expenses.
During 1995, the Company purchased a lower percentage of policies reviewed due
to competition and to a smaller percentage of reviewed policies meeting the
Company's underwriting standards. As a result, other general and
administrative expenses increased disproportionately to the growth in the
Company's portfolio. In addition, during 1995, the Company purchased more
policies originated through non-broker sources. Under these circumstances,
certain costs traditionally borne by the Company's sourcing brokers, such as
the costs of obtaining medical records and insurance information, are incurred
by the Company. These additional costs are not capitalized even if the policy
is purchased and are expensed as other general and administrative expenses.
Finally, in 1995 the Company reserved approximately $125,000 and incurred an
additional $135,000 more (approximately) in legal fees in connection with two
Dignity Viatical collection disputes (one of which is pending and one of which
is on appeal) compared to 1994.

Income Taxes. Income tax expense increased from $137,000 for 1994 to
$625,000 for 1995. The increase is primarily the result of the Company's
increased profitability in 1995.

Minority Interest of Limited Partners in Earnings of Investment Partnership.
The minority interest of limited partners in earnings of investment
partnership (which is derived primarily from earned discounts on policies
acquired by Dignity Viatical) decreased from $1.8 million for 1994 to $568,000
for 1995. The decrease was due to the timing of the acquisition of policies by
Dignity Viatical and the Accrual Periods applicable to those policies (and
hence the recognition of earned discounts on those policies). The decrease
also resulted from incurrence by the Company of legal expenses described above
under "--Other General and Administrative Expenses." There will not be any
"minority interest of limited partners in earnings of investment partnership"
for any period beginning after December 31, 1995.

YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993

The results of operations and statement of financial position as of and for
the year ended December 31, 1993 are not comparable to those as of and for the
year ended December 31, 1994. The Company did not purchase any life insurance
policies until April 4, 1993. In addition, prior to January 1, 1994, the
Company had one full-time and three part-time employees other than the
Executive Officers and purchased substantially fewer policies.

Earned Discounts on Life Insurance Policies. Earned discounts on life
insurance policies increased from $420,000 for 1993 to $4.2 million for 1994,
due to the increase in policies purchased from 197 policies with an aggregate
face value of $15.5 million in 1993 to 469 policies with an aggregate face
value of $35.5 million in 1994.

Interest Expense. Interest expense increased from $52,000 in 1993 to $1.1
million in 1994 as a result of borrowings under the TransAmerica Facility
which was entered into in December 1993. Prior to December 31, 1993, the
Company had no long-term debt. During 1994 the average monthly outstanding
debt under the TransAmerica Facility was $9.8 million.

Compensation and Benefits. Compensation and benefits increased from $338,000
in 1993 to $619,000 in 1994, representing an 83.2% increase. This increase,
which was significantly less than the 138% increase in the number of policies
purchased, was attributable to the hiring of additional personnel during 1994
to service a higher level of business activity.

Other General and Administrative Expenses. Other general and administrative
expenses for 1993 were $126,000, compared to $302,000 for 1994, an increase of
140%. This increase was consistent with the 138% increase in the number of
policies the Company purchased during 1994 compared to 1993.

Income Taxes. The provision for income taxes represented a benefit of
$229,000 in 1993 compared to an expense of $137,000 in 1994. This increase was
due to the Company's achieving profitability in 1994.

Minority Interest of Limited Partners in Earnings of Investment Partnership.
The minority interest of limited partners in earnings of investment
partnership increased from $236,000 in 1993 to $1.8 million in 1994. This
increase was due to the timing of (i) the formation of Dignity Viatical in
August 1993, (ii) the acquisition of policies by Dignity Viatical and (iii)
the Accrual Periods applicable to those policies (and hence the recognition of
earned discounts on those policies).

LIQUIDITY AND CAPITAL RESOURCES

The Company's primary need for capital has been the funding of policy
purchases. The purchase of life insurance policies requires significant
capital resources and assuming a resumption of policy purchases, the Company's
future operating results will be directly related to the availability and cost
of its capital funds. Prior to its initial public offering, the amount of
policies that the Company was able to purchase, and the timing of such
purchases, was determined primarily by the availability and cost of external
financing. The major source of funding since the initial public offering has
been the net proceeds of the initial public offering. The Company does not
currently have an external funding source. The TransAmerica Facility was
terminated in the third quarter of 1996. The Securitized Notes no longer
provide funds with which to purchase policies. At October 31, 1996, the
Company had $8.2 million in short term assets (excluding assets of DPFC), of
which $3.0 million was used in early November to purchase the equity
investment in AIC. The $8.2 million included $7.8 million in cash and cash
equivalents and $400,000 of receivables. The Company is analyzing its current
and future needs for additional financing and has been in discussions with
several lending institutions and investment banks. There can be no assurance
that the Company will be successful in obtaining additional financing on
satisfactory terms assuming it determines it needs additional funds. However,
the Company at present anticipates having sufficient liquidity to meet its
working capital and operational needs through 1996, but as the Company
continues to analyze its strategic direction such needs may change.

As of September 30, 1996, the outstanding principal amount of the
Securitized Notes was $42.4 million. Principal repayments on the Securitized
Notes began in July 1996. Principal repayments on the Securitized Notes are
made from collections on policies pledged to secure the payment thereof and do
not require the Company to expend cash or obtain financing to satisfy such
principal repayments.

DESCRIPTION OF THE SECURITIZED NOTES

The Securitized Notes were issued in 1995 pursuant to the Indenture, which
provided for a maximum lending commitment of $50.0 million, subject to
reduction of the commitment amount or early amortization in April 1996 if the
outstanding principal balance of the Securitized Notes was less than $50.0
million. Funds advanced under the Securitized Notes were used primarily to
purchase eligible policies which are pledged as collateral under the
Indenture. Prior to the Amortization Date, proceeds from collected policies
pledged under the Indenture were available to purchase additional policies. As
of September 30, 1996, the outstanding principal amount of the Securitized
Notes was $42.4 million. Repayments of principal were originally scheduled to
begin in September 1996. An early amortization event occurred in June 1996
when the Overcollateralization Percentage (which is the aggregate face value
of policies pledged as collateral for the Securitized Notes plus certain
pledged funds as a percentage of the outstanding balance of the Securitized
Notes) was less than 120% on four consecutive weekly calculation dates, with
the result that the maximum lending commitment was reduced to the then
outstanding balance ($45.5 million) from $50 million, the Company lost the
ability to use proceeds of policy collections to acquire additional policies
and principal repayments on the Securitized Notes began in July 1996. The
Securitized Notes bear interest at a fixed annual rate of 9.2%.

The principal amount of the Securitized Notes to be repaid in any month is
equal to proceeds of policies collected during the preceding month less
certain required monthly payments (such as interest and servicing and trustee
fees) to be paid on such date.

Each policy pledged under the Indenture and the pool of pledged policies
(the "Pool") must comply with certain criteria set forth in the Indenture.
Each policy, among other things, (i) must have a face value equal to or less
than the greater of 5% of the outstanding principal balance of the Securitized
Notes and $1.5 million, (ii) must generally have a face value which does not
exceed the applicable state guarantee fund limit if it is issued by an
insurance company with no claims paying ability rating, or a claims paying
ability rating of less than "A," from S&P and (iii) must insure the life of a
United States resident with AIDS or an advanced stage of HIV and with a life
expectancy of 36 months or less as certified by a physician approved by S&P.
In addition, the Pool criteria include the following: (i) the aggregate face
value of policies issued by insurance companies with no claims paying ability
rating or less than the minimum rating of "A" by S&P cannot exceed 30% of the
aggregate face value of the Pool, (ii) the aggregate cost of policies
(including the purchase price, amounts paid to referral sources upon
acquisition, fees paid to Consultants and premiums paid) insuring the lives of
individuals with life expectancies within specified ranges cannot exceed
specified percentages of the aggregate face value of such policies (e.g.,
policies insuring the lives of individuals with a life expectancy of six to
nine months cannot have an aggregate cost which exceeds 88.44% of the
aggregate face value thereof) (the "Aggregate Policy Cost Limits"), and (iii)
the Aggregate Policy Acquisition Terms must not be exceeded. The Indenture
does not permit the sale of any of the policies pledged thereunder. An
amendment of this prohibition on sales would require the consent of all of the
holders of the Securitized Notes.

The Indenture also contains certain covenants restricting the activities of
DPFC. Such covenants include provisions which (i) prohibit DPFC from incurring
debt other than trade payables and expense accruals and granting liens unless
such action would not cause S&P to downgrade or withdraw the rating it
assigned to the Securitized Notes, and (ii) prohibit DPFC from engaging in any
business other than the acquisition, ownership, sale and pledging of the Pool
and the other trust estate, the issuance and sale of the Securitized Notes and
activities incidental to the foregoing. In addition, DPFC is required to
maintain in an account under the Indenture (the "Liquidity Account") a balance
of 10% of the outstanding principal balance of the Securitized Notes. Subject
to certain restrictions, funds in the Liquidity Account may be used to pay,
among other things, servicing and trustee fees, principal and interest and
taxes. Events of default under the Indenture include (i) a default in payment
of principal or interest on the Securitized Notes when due, (ii) a default by
DPFC in the performance of any material covenant or a material breach of a
representation or warranty of DPFC (including representations regarding each
policy) which is not cured within 30 days, and (iii) certain events of
bankruptcy, insolvency and reorganization involving DPFC.

The Company acts as servicer under the Indenture pursuant to a Contribution,
Sale and Servicing Agreement (the "Servicing Agreement") and receives monthly,
pursuant and subject to the terms of the Indenture, a fee of $36,000 from the
Amortization Date until the earlier to occur of collection of the face value
of the last policy in the Pool or payment in full of the Securitized Notes.

The Company is required under the Servicing Agreement to monitor each policy
and to cause the collection and remittance to the trustee of the face value of
matured policies. The Company pays all expenses related to its monitoring and
collection services, including paying premiums and back-end fees, and is
reimbursed for certain expenses. All amounts owed to the Company pursuant to
the monitoring and collecting activities are subject to availability of cash
after payment of other priority amounts as provided in the Indenture. The
Servicing Agreement contains certain covenants restricting the Company's
activities, including (i) restrictions on mergers, (ii) provisions related to
respecting the separate legal status of DPFC, (iii) a requirement that no
person will own a greater percentage of the aggregate voting power of equity
securities of the Company entitled to vote in the election of directors than
the percentage collectively beneficially owned by the Executive Officers and
no person other than the Executive Officers will own more than 20% of such
aggregate voting power, (iv) a requirement that the Executive Officers
constitute a majority of the Board of Directors of Dignity Partners, and (v) a
requirement that the Company employ at least two of the Executive Officers (or
such other personnel reasonably

acceptable to the holders of the Securitized Notes) in their respective
current capacities. An event of default will occur under the Servicing
Agreement if, among other things, (i) an event of default occurs under the
Indenture, or (ii) certain events of bankruptcy, insolvency or reorganization
occur with respect to the Company. If an event of default occurs under the
Servicing Agreement, the Company can be replaced as servicer under the
Indenture. The back-up servicer is the trustee under the Indenture.

1997 ANNUAL MEETING

Any proposal of a stockholder intended to be presented at the Company's 1997
annual meeting of stockholders (the "1997 Meeting") must be received by the
Secretary of the Company by January 14, 1997, to be included in the Company's
proxy, notice of meeting and proxy statement relating to the 1997 Meeting.

Any stockholder wishing to submit a proposal at the 1997 Meeting must also
comply with certain provisions of the Company's Second Amended and Restated
Certificate of Incorporation and Amended and Restated By-Laws (collectively,
the "Charter Documents"). The Charter Documents require written notice of any
such proposal (and certain other information) to be delivered to the Secretary
of the Company generally not later than 60 days in advance of the date of the
meeting. The Company will provide (without charge) a copy of the Charter
Documents to any holder of record of Common Stock. Requests for copies should
be directed to: Secretary, Dignity Partners, Inc., 1700 Montgomery Street,
Suite 250, San Francisco, California 94111.

AVAILABLE INFORMATION

The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended ("1934 Act"), and in accordance therewith
files reports and other information with the SEC. Reports, proxy statements
and other information filed by the Company can be inspected and copied at the
public reference facilities maintained by the SEC at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at its Regional Offices located at Citicorp
Center, 500 West Madison Street, Chicago, IL 60661 and Seven World Trade
Center, New York, NY 10048. Copies of such material can be obtained from the
Public Reference Section of the SEC, 450 Fifth Street, N.W., Washington, D.C.
20549 at prescribed rates. The SEC maintains a Web site that contains reports,
proxy and information statements and other information regarding registrants
that file electronically with the SEC and that is located at
http://www.sec.gov. This Proxy Statement was filed electronically with the
SEC.

INCORPORATION OF CERTAIN INFORMATION BY REFERENCE

The following documents filed by the Company with the SEC (File No. 0-27736)
are incorporated in this Proxy Statement by reference and made a part hereof:

(i) The Annual Report on Form 10-K for the year ended December 31, 1995;

(ii) The Quarterly Reports on Form 10-Q for the quarters ended March 31,
1996, June 30, 1996 and September 30, 1996; and

(iii) The Current Reports on Form 8-K dated March 13, 1996; March 15,
1996; July 17, 1996, October 9, 1996 and November 5, 1996.

All documents subsequently filed by the Company pursuant to Section 13(a),
13(c), 14 or 15(d) of the 1934 Act, after the date of this Proxy Statement and
prior to the Meeting, shall be deemed to be incorporated in this Proxy
Statement by reference and to be a part hereof from the respective dates of
filing of such documents. Any statement contained in a document incorporated
or deemed to be incorporated by reference in this Proxy Statement shall be
deemed to be modified or superseded for purposes of this Proxy Statement to
the extent that a statement contained in this Proxy Statement or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference in this Proxy Statement 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 Proxy Statement.

THIS PROXY STATEMENT INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT
PRESENTED HEREIN OR DELIVERED HEREWITH. THE COMPANY WILL PROVIDE WITHOUT
CHARGE TO EACH PERSON, INCLUDING ANY BENEFICIAL OWNER, TO WHOM THIS PROXY
STATEMENT IS DELIVERED, UPON WRITTEN OR ORAL REQUEST OF SUCH PERSON, A COPY OF
ANY OR ALL OF THE DOCUMENTS THAT HAVE BEEN OR MAY BE INCORPORATED IN THIS
PROXY STATEMENT BY REFERENCE, OTHER THAN CERTAIN EXHIBITS TO SUCH DOCUMENTS,
UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY REFERENCE INTO THE
INFORMATION THAT THIS PROXY STATEMENT INCORPORATES. SUCH REQUESTS SHOULD BE
DIRECTED TO: SECRETARY, DIGNITY PARTNERS, INC., 1700 MONTGOMERY STREET, SUITE
250, SAN FRANCISCO, CALIFORNIA 94111 (TELEPHONE NUMBER (415) 394-9469). IN
ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE
BY DECEMBER 9, 1996.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

PAGE
----

AUDITED CONSOLIDATED FINANCIAL STATEMENTS:
Independent Auditors' Report............................................ F-2
Consolidated Balance Sheets as of December 31, 1994 and 1995............ F-3
Consolidated Statements of Operations for the Period January 2, 1993
(date of inception) to December 31, 1993 and for the Years Ended
December 31, 1994 and 1995............................................. F-4
Consolidated Statements of Stockholders' Equity for the Period January
2, 1993 (date of inception) to December 31, 1993 and the Years Ended
December 31, 1994 and 1995............................................. F-5
Consolidated Statements of Cash Flows for the Period January 2, 1993
(date of inception) to December 31, 1993 and for the Years Ended
December 31, 1994 and 1995............................................. F-6
Notes to Consolidated Financial Statements.............................. F-7
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS:
Unaudited Consolidated Balance Sheets as of September 30, 1996 and
December 31, 1995...................................................... F-19
Unaudited Consolidated Statements of Operations for the Three Months and
Nine Months Ended September 30, 1996 and 1995.......................... F-20
Unaudited Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 1996 and 1995...................................... F-21
Condensed Notes to Consolidated Financial Statements.................... F-22

F-1

DIGNITY PARTNERS, INC.

INDEPENDENT AUDITORS' REPORT

The Board of Directors and Stockholders of
Dignity Partners, Inc.:

We have audited the accompanying consolidated balance sheets of Dignity
Partners, Inc. as of December 31, 1994 and 1995, and the statements of
operations, stockholders' equity, and cash flows for the period January 2,
1993 (date of inception) to December 31, 1993, and for the years ended
December 31, 1994 and 1995. 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 misstatements. 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 financial position of Dignity Partners, Inc. as
of December 31, 1994 and 1995 and the results of its operations and its cash
flows for the period January 2, 1993 (date of inception) to December 31, 1993,
and for the years ended December 31, 1994 and 1995, in conformity with
generally accepted accounting principles.

KPMG Peat Marwick LLP

March 11, 1996
San Francisco, California

F-2

DIGNITY PARTNERS, INC.

CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1994 AND 1995

DECEMBER 31 DECEMBER 31
ASSETS 1994 1995
------ ----------- -----------

Cash and cash equivalents............................. $ 30,561 $ 1,056,611
Restricted cash (notes 4 and 5)....................... 107,013 4,566,845
Matured policies receivable (note 1k)................. 1,622,822 1,652,921
Purchased life insurance policies (notes 2 and 5)..... 32,915,735 48,938,098
Furniture and equipment, net of accumulated
depreciation of $26,696 and $61,349, respectively.... 127,950 130,532
Deferred financing costs, net of accumulated
amortization of $178,416 and $451,961, respectively
(notes 1f, 4 and 5).................................. 526,540 1,043,541
IPO financing costs (note 12a)........................ -- 750,000
Other assets.......................................... 10,828 87,079
Deferred income taxes (note 6)........................ 91,979 --
----------- -----------
Total assets...................................... $35,433,428 $58,225,627
=========== ===========

LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------

Accrued expenses...................................... $ 180,000 $ 329,827
Accounts payable...................................... 33,365 377,204
IPO financing costs payable (note 12a)................ -- 306,900
Payable to related party (note 7a).................... 712,695 1,482,170
Accrued compensation payable (note 7b)................ 575,000 849,148
Unearned income (note 1k)............................. 731,488 715,883
Payable for policies purchased (note 1k).............. 333,930 376,020
Other short term debt (note 7c)....................... 1,162,170 1,162,170
Long term notes payable (note 5)...................... -- 39,105,138
Other long term debt (note 4)......................... 18,446,951 1,444,270
Deferred income taxes (note 6)........................ -- 531,711
----------- -----------
Total liabilities................................. 22,175,599 46,680,441
----------- -----------
Minority interest of limited partners in investment
partnership (note 3)................................. 9,195,424 6,679,582
----------- -----------
Stockholders' equity (notes 10 and 12):
Preferred stock, $0.01 par value; 2,000,000
authorized shares:
Convertible Preferred Stock, 135,000 authorized
shares, 34,880 and 35,260 shares, respectively,
issued and outstanding............................. 3,488,013 3,488,013
Common stock, $0.01 par value; 15,000,000 authorized
shares, 1,589,324 and 1,589,324 shares,
respectively, issued and outstanding............... 15,893 15,893
Additional Paid-in-Capital.......................... 669,594 669,594
Retained earnings (deficit)......................... (111,095) 692,104
----------- -----------
Total stockholders' equity........................ 4,062,405 4,865,604
----------- -----------
Total liabilities and stockholders' equity........ $35,433,428 $58,225,627
=========== ===========

See accompanying notes to consolidated financial statements.

F-3

DIGNITY PARTNERS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE PERIOD JANUARY 2, 1993 (DATE OF INCEPTION) TO
DECEMBER 31, 1993, AND THE YEARS ENDED DECEMBER 31, 1994 AND 1995

1993 1994 1995
--------- ----------- ----------

Income:
Earned discounts on life insurance
policies (note 1d)...................... $420,145 $ 4,239,995 $6,933,318
Interest income.......................... 16,476 118,079 266,979
Other.................................... 82 84,579 189,079
--------- ----------- ----------
Total income........................... 436,703 4,442,653 7,389,376
Expenses:
Interest expense......................... 52,290 1,115,167 3,352,178
Compensation and benefits................ 338,036 619,250 843,646
Other general and administrative
expenses................................ 125,671 301,984 880,195
Amortization............................. 11,693 166,723 273,543
Depreciation............................. 1,622 25,074 34,653
Consulting fees.......................... 246,858 50,956 9,621
--------- ----------- ----------
Total expenses......................... 776,170 2,279,154 5,393,836
--------- ----------- ----------
Income (loss) before income taxes and
minority interest..................... (339,467) 2,163,499 1,995,540
Income tax benefit (expense) (note 6)...... 228,886 (136,906) (624,510)
Minority interest of limited partners in
earnings of investment partnership (note
3)........................................ (235,977) (1,791,130) (567,831)
--------- ----------- ----------
Net income (loss)...................... $(346,558) $ 235,463 $ 803,199
========= =========== ==========
Net income (loss) per share (notes 1j and
10)....................................... (10.15) 0.19 0.42
Average number of shares outstanding (note
10)....................................... 34,127 1,211,367 1,902,482

See accompanying notes to consolidated financial statements.

F-4

DIGNITY PARTNERS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE PERIOD JANUARY 2, 1993 (DATE OF INCEPTION) TO
DECEMBER 31, 1993, AND THE YEARS ENDED DECEMBER 31, 1994 AND 1995

PREFERRED STOCK COMMON STOCK ADDITIONAL
----------------- ----------------- PAID-IN- RETAINED
SHARES AMOUNT SHARES PAR CAPITAL EARNINGS TOTAL
------ ---------- --------- ------- ---------- --------- ----------

January 1, 1993......... -- $ -- -- $ -- $ -- $ -- $ --
Issuance of common stock
(April 4, 1993)........ -- -- 2,319 23 977 -- 1,000
Issuance of preferred
and common stock
(December 6, 1993)..... 34,880 3,488,013 454,829 4,548 191,623 -- 3,684,184
Net loss................ -- -- -- -- -- (346,558) (346,558)
------ ---------- --------- ------- -------- --------- ----------
Balances at December 31,
1993................... 34,880 $3,488,013 457,148 $ 4,571 $192,600 $(346,558) $3,338,626
Issuances of common
stock (April 30, 1994). -- -- 445,878 4,459 187,851 -- 192,310
Issuances of common
stock (September 30,
1994).................. -- -- 360,465 3,605 151,866 -- 155,471
Issuances of common
stock (October 31,
1994).................. -- -- 325,833 3,258 137,277 -- 140,535
Net income.............. -- -- -- -- -- 235,463 235,463
------ ---------- --------- ------- -------- --------- ----------
Balances at December 31,
1994................... 34,880 3,488,013 1,589,324 15,893 669,594 (111,095) 4,062,405
Issuance of preferred
stock dividend......... 380 -- -- -- -- -- --
Net income.............. -- -- -- -- -- 803,199 803,199
------ ---------- --------- ------- -------- --------- ----------
Balances at December 31,
1995................... 35,260 $3,488,013 1,589,324 $15,893 $669,594 $ 692,104 $4,865,604
====== ========== ========= ======= ======== ========= ==========

See accompanying notes to consolidated financial statements.

F-5

DIGNITY PARTNERS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE PERIOD JANUARY 2, 1993 (DATE OF INCEPTION) TO
DECEMBER 31, 1993, AND THE YEARS ENDED DECEMBER 31, 1994 AND 1995

1993 1994 1995
----------- ------------ ------------

Cash flows from (for) operating
activities:
Net income (loss).................... $ (346,558) $ 235,463 $ 803,199
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization........ 13,315 191,797 308,196
Increase in accounts receivable...... -- -- (6,036)
Earned discounts on insurance
policies............................ (420,145) (4,239,995) (6,933,318)
Purchase of life insurance policies.. (9,475,691) (25,449,110) (22,276,717)
Collections on life insurance
policies............................ 670,593 7,151,802 13,103,920
Increase in unearned income.......... 72,021 438,589 86,175
Decrease (increase) in other assets.. (19,514) 8,686 (76,251)
Increase (decrease) in deferred
taxes............................... (228,886) 136,907 623,690
Increase in accrued expenses......... 24,490 155,510 149,827
Increase in accounts payable......... 25,000 8,365 343,839
Increase in IPO financing cost
payable............................. -- -- 306,900
Increase in payable to related
party............................... 242,024 470,671 769,475
Increase in accrued compensation
payable............................. 230,000 345,000 274,148
Income applicable to minority
interest............................ 235,977 1,791,130 567,329
----------- ------------ ------------
Net cash used by operating
activities........................ (8,977,374) (18,755,185) (11,955,624)
----------- ------------ ------------
Cash flows used by investing
activities:
Purchase of furniture and equipment.. (16,076) (58,570) (37,235)
Additions to restricted cash......... (2,802) (104,211) (4,459,832)
----------- ------------ ------------
Net cash used by investing
activities........................ (18,878) (162,781) (4,497,067)
----------- ------------ ------------
Cash flows from financing activities:
Proceeds from long term notes
payable............................. -- -- 39,105,138
Proceeds from other long term debt... -- 21,730,819 22,701,070
Principal payments on other long term
debt................................ -- (3,283,868) (39,703,752)
Sale of limited partnership
interests........................... 10,000,001 280,473 --
Distributions to limited partners.... (201,157) (2,911,000) (3,083,171)
Loan from stockholder (note 10b)..... -- 1,162,170 --
Proceeds from issuance of common
stock (note 10b).................... 197,171 488,316 --
Proceeds from issuances of preferred
stock (note 10b).................... 1,151,810 -- --
Increase in financing costs.......... (415,952) (254,004) (790,544)
Increase in IPO financing costs...... -- -- (750,000)
----------- ------------ ------------
Net cash provided by financing
activities........................ 10,731,873 17,212,906 17,478,741
----------- ------------ ------------
Net increase (decrease) in cash and
cash equivalents.................. 1,735,621 (1,705,060) 1,026,050
Cash and cash equivalents, beginning
of year.............................. -- 1,735,621 30,561
----------- ------------ ------------
Cash and cash equivalents, end of
year................................. $ 1,735,621 $ 30,561 $ 1,056,611
=========== ============ ============
Supplemental disclosure of cash flow
information:
State income tax paid................ $ -- $ 1,821 $ 3,367
=========== ============ ============
Cash paid for interest............... $ -- $ 798,658 $ 2,901,685
=========== ============ ============
Noncash financing activities (note
10b):
Assets received from preferred stock
issuance:
Furniture and fixtures............... $ 80,000 $ -- $ --
=========== ============ ============
Financing costs...................... $ 35,000 $ -- $ --
=========== ============ ============
Purchased life insurance policies.... $ 2,221,203 $ -- $ --
=========== ============ ============

See accompanying notes to consolidated financial statements.

F-6

DIGNITY PARTNERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIOD JANUARY 2, 1993 (DATE OF INCEPTION) TO DECEMBER 31, 1993,
AND THE YEARS ENDED DECEMBER 31, 1994 AND 1995

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

a. General Description

Prior to September 30, 1995, Dignity Partners, Inc. (Dignity Partners or the
Company) was a wholly owned subsidiary of The Echelon Group Inc. (Echelon).
Effective as of such date, in connection with a series of transactions
described in Note 10, Echelon was merged with and into Dignity Partners, which
became the surviving corporation. The Company's principal business activity is
to provide viatical settlements for terminally ill persons. A viatical
settlement is the payment of cash in return for an ownership interest in, and
right to receive the death benefit (face value) from, a life insurance policy.
Upon a viatical settlement, the policyholder assigns his or her policy to the
Company, which becomes the holder, owner or certificate holder of the policy
and the beneficiary thereunder and receives from the insurance company the
face value payable under the policy following the death of the insured.

Dignity Partners was incorporated in the state of Delaware on September 8,
1992. January 2, 1993 was the date of inception of operations and the Company
commenced purchasing life insurance policies on April 4, 1993.

b. Accounting Principles

The consolidated financial statements are presented on the accrual basis of
accounting in conformity with generally accepted accounting principles.

All periods presented reflect income on the basis described in (d) of this
Note 1.

The secured funding arrangement described in Note 5 has been accounted for
as a financing.

c. Principles of Consolidation

The Company is the sole general partner of a limited partnership, Dignity
Viatical Settlement Partners, L.P. (Dignity Viatical). The partnership is a
separate and distinct legal entity from the Company and has separate assets,
liabilities and operations. However, for accounting purposes, because the
Company controls the partnership (see Note 3), the assets, liabilities and
operations of the partnership are consolidated with the assets, liabilities
and operations of the Company, and the interests of the limited partners are
reflected as a minority interest in the accompanying financial statements. All
significant intercompany balances and transactions have been eliminated. The
Company also consolidates the assets, liabilities and operations of its wholly
owned financing subsidiary, Dignity Partners Funding Corp. I (DPFC) (see Note
5).

d. Purchased Life Insurance Policies

The Company recognizes income (earned discount) on each purchased policy by
accruing, over the period between the acquisition date of the policy and the
Company's estimated date of collection of the face value of the policy (the
Accrual Period), the difference (the unearned discount) between (a) the death
benefit payable (face value) under the policy less the amount of fees, if any,
payable to a referral source upon collection of the face value, and (b) the
carrying value of the policy. The carrying value for each policy is reflected
on the Company's consolidated balance sheet under "purchased life insurance
policies" and consists of the purchase price, other capitalized costs and the
earned discount on the policy accrued to the balance sheet date. The Company
capitalizes as incurred the following costs of a purchased policy: (i) the
purchase price paid for the policy, (ii) policy premiums, if any, paid by the
Company, (iii) amounts, if any, paid to referral sources upon acquisition of

F-7

DIGNITY PARTNERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

the policy and (iv) amounts paid to Company-retained physicians or other
medical consultants ("Consultants") who estimated the insured's life
expectancy. The carrying value of a policy will change over time, and is
adjusted quarterly to reflect earned discounts accrued on the policy, amounts
paid for any additional future increases in coverage, any additional premium
payments and any premium refunds if the policy becomes covered by premium
waiver provisions. The length of the Accrual Period is determined by the
Company based upon its estimate of the date on which it will collect the face
value of the policy. Such estimate is based upon the Company's estimate of the
life expectancy of the insured, after review of the medical records of the
insured by one or more Consultants, and also takes into account the historical
accuracy of the life expectancies estimated by the Company's Consultants and
the typical period (collection period) between the date of an insured's death
and the date on which the Company collects the face value of the policy.

The unearned discount is accrued over the Accrual Period using the "level
yield" interest method. Under the "level yield" method, the yield is constant
such that when the yield is applied to the carrying value of the policy on a
compounded basis over the course of the Accrual Period, the unearned discount
will be fully accrued as earned discount by the end of the Accrual Period.

Differences will arise between the timing of estimated and actual
collections. The Company recalculates the Accrual Periods on a quarterly
basis, using actual collection experience and, if necessary, adjusts
prospectively the period over which income is recognized.

e. Furniture and Equipment

Furniture and equipment are stated at purchased cost net of accumulated
depreciation. Depreciation is provided on a straight-line basis over the
estimated useful lives of the assets, which are generally five years.

f. Deferred Financing Costs

Costs have been incurred to obtain debt financing for the acquisition of
insurance policies. These costs are deferred and amortized straight-line over
the respective terms of the financing arrangements.

g. Income Taxes

The Company accounts for income taxes in accordance with the provisions of
Statement of Financial Accounting Standards No. 109 "Accounting for Income
Taxes" (SFAS No. 109). Under the asset and liability method prescribed by SFAS
No. 109, deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
base (temporary differences). Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date of the tax
change.

Under SFAS No. 109, deferred tax assets are recognized for deductible
temporary differences and operating loss and tax credit carryforwards, and
then a valuation allowance is established to reduce that deferred tax asset if
it is "more likely than not" that the related tax benefits will not be
realized.

h. Cash and Cash Equivalents

The Company considers as cash equivalents all highly liquid investments with
an original maturity of three months or less.

F-8

DIGNITY PARTNERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

i. Concentration of Credit Risk

Financial instruments that subject the Company to concentration of credit
risk consist primarily of receivables from insurance companies which are the
obligors under insurance policies purchased by the Company. As of December 31,
1995, the aggregate face value of policies issued by any one insurer with
respect to the Company's portfolio of insurance policies did not exceed 8.6%
of total assets.

j. Net Income Per Share

Net income per share has been calculated by dividing the net income by the
weighted average number of common and common equivalent shares outstanding
during each period, which gives effect to the Reorganization and the Split
(each as defined herein) and assumes the conversion of all outstanding shares
of Convertible Preferred Stock (as defined herein). See note 10.

k. Terminology

Matured policies receivable represents policies for which the Company has
received notification that the insured has died and for which the Company is
awaiting collection of the face value.

Payable for policies purchased represents policies for which the Company has
become the holder, owner or certificate holder of the policy, and the
beneficiary thereunder, but at the request of the insured or a related party
payment is deferred for a short period.

Unearned income represents the remaining unearned discount on policies for
which the Company collected proceeds earlier than expected.

l. Cost of Policies Reviewed But Not Purchased

To the extent the Company reviews a policy which it does not purchase, costs
associated with the review of the policy, such as fees paid to Consultants,
are not capitalized, but are expensed as other general and administrative
expenses.

m. Profit Sharing Plan

The Company has a profit sharing plan (the Plan) for its employees. Each
employee hired after January 1, 1993 and who has been employed for at least
one year becomes a participant in the Plan. The Plan provides for
discretionary annual contributions by the Company for the account of each
participant. In any year in which the Plan is "top-heavy" within the meaning
of the Internal Revenue Code (the Code), the Plan requires, consistent with
the Code, that a minimum contribution be made for non-key employees. The
contribution is allocated among participants based on their compensation under
an allocation formula integrated with Social Security. Participants vest 20%
in their Plan accounts after two years of service (excluding any service prior
to 1993) and an additional 20% after each of the next four years of service.
Upon termination following permanent disability or on retirement at age 65,
all amounts credited to a participant's account are distributed, in a lump sum
or in installments, as directed by the participant. Upon death, all amounts
credited to a participant's account become fully vested and are distributed to
the participant's surviving spouse or designated beneficiary. Each year,
profit sharing contributions, if any, are determined by the Board of
Directors. The Company's Plan contribution expenses, which are included in
compensation and benefits during 1993, 1994 and 1995, were $20,190, $68,925
and $89,505, respectively.

n. Dividend Restrictions

Prior to March 1996, the revolving credit facility described in Note 4
prohibited the payment of dividends by the Company. In addition, the terms of
the Convertible Preferred Stock (as described herein) prohibited the payment
of dividends on the Common Stock without the consent of the holders of at
least two-thirds of the outstanding shares of the Convertible Preferred Stock.
See notes 10 and 12.

F-9

DIGNITY PARTNERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

o. Use of Estimates

Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results could
differ from those estimates.

2. PURCHASED LIFE INSURANCE POLICIES

Purchased life insurance policies consist of:

DECEMBER DECEMBER
31, 1994 31, 1995
----------- -----------

Capitalized costs of purchased life insurance
policies....................................... $29,327,160 $42,560,147
Earned discount................................. 3,588,575 6,377,951
----------- -----------
Purchased life insurance policies............... $32,915,735 $48,938,098
=========== ===========

Purchased life insurance policies included in the above table, for which the
discount has been fully earned, but for which the Company has not yet received
notification of the insured's death, consist of:

DECEMBER
DECEMBER 31, 31,
1994 1995
------------ -----------

Capitalized costs of purchased life insurance
policies...................................... $1,870,364 $ 8,272,836
Earned discount................................ 441,279 2,498,404
---------- -----------
Included in purchased life insurance policies.. $2,311,643 $10,771,240
========== ===========

At December 31, 1995, the Company had remaining unearned discounts of
$9,410,001, to be recognized as income in future periods, on policies for
which the Accrual Periods end after December 31, 1995. Based on remaining
Accrual Periods applicable as of December 31, 1995, this income will be
recognized in future periods as follows:

INCOME TO
BE
RECOGNIZED
FROM
EARNED
DISCOUNT
IN THE
PERIOD
----------

12 month period ending 12/31/96............................... $5,614,366
12 month period ending 12/31/97............................... 2,526,732
12 month period ending 12/31/98............................... 874,649
12 month period ending 12/31/99............................... 394,254
----------
Total..................................................... $9,410,001
==========

These figures have been calculated using the method described in Note 1d,
and will change if the Accrual Periods or capitalized costs change in future
periods.

3. GENERAL PARTNER INTERESTS IN DIGNITY VIATICAL SETTLEMENT PARTNERS, L.P.
(SEE NOTE 12C)

In 1993, the Company formed Dignity Viatical, a limited partnership, for the
purpose of financing the purchase of additional life insurance policies. The
capital contributions to Dignity Viatical aggregated approximately $10.1
million. The Company, as the sole general partner, has a 1% interest in
Dignity Viatical. In addition, the Company is entitled to a preference in
distributions of $233,597 for providing management services

F-10

DIGNITY PARTNERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(management fee) during the life of the partnership (estimated to be
approximately four years from formation). Management fees have been allocated
to the Company as follows: For the years ended December 31, 1993, 1994 and
1995--$24,178, $59,818 and $59,848 respectively. After the general and limited
partners have received distributions equal to their initial capital
contributions and a 4% compounded annual return, the Company is entitled to a
20% participation in the distributions. The assets, liabilities and operations
of Dignity Viatical have been consolidated with those of the Company for
presentation in the consolidated financial statements. The Company, as the
sole general partner of Dignity Viatical, controls the operations of the
partnership. The minority interest reflected in the financial statements
represents the limited partners' interest in the net assets and income of
Dignity Viatical. The total cost of policies purchased by Dignity Viatical was
approximately $10,000,000. Dignity Viatical has not purchased any policies
since September 1994. The Company does not expect Dignity Viatical to purchase
any additional policies. Summarized financial information with respect to
Dignity Viatical for the years ended December 31, 1993, 1994 and 1995, is set
forth below.

DECEMBER
31, DECEMBER 31, DECEMBER 31,
1993 1994 1995
----------- ------------ ------------

Purchased insurance policies, face
value
of $11,344,698, $10,758,800, and
$6,886,193, respectively......... $ 8,556,690 $9,418,847 $6,592,552
Other assets...................... 1,627,238 25,959 615,614
Liabilities....................... (23,566) (72,472) (229,772)
----------- ---------- ----------
Net assets.................... $10,160,362 $9,372,334 $6,978,394
=========== ========== ==========
Total income...................... $ 306,269 $1,962,012 $1,024,402
Total expense..................... (43,370) (92,972) (301,027)
----------- ---------- ----------
Net income.................... $ 262,899 $1,869,040 $ 723,375
=========== ========== ==========

4. REVOLVING CREDIT FACILITY (SEE NOTE 12B)

Dignity Partners has a $20,000,000 revolving credit facility for the
purchase of life insurance policies. Advances under the credit facility are
limited to a percentage of the cost of eligible policies (65% for policies for
which the insured has an estimated life expectancy over 24 months but not
greater than 36 months and 85% for policies for which the insured has an
estimated life expectancy of 24 months or less). Due to equity capital
constraints and leverage limitations associated with such facility, as of
December 31, 1995, the Company would have been able to borrow, after
consideration of all borrowing restrictions and amounts outstanding, an
additional $5.6 million under the credit facility.

The first advance on the credit facility was drawn on January 14, 1994. The
credit facility expires on August 5, 1997. At December 31, 1994 and 1995, the
total amount outstanding under the credit facility was $18,446,951 and
$1,444,270, respectively. Advances under the credit facility are
collateralized by a security interest in substantially all of the assets
(including policies) of Dignity Partners, Inc. See note 5.

Prior to April 1, 1996, interest under the credit facility accrues on
outstanding advances at the lender's governing rate (8.50% at December
31,1995) plus 5.25 percent for amounts not in excess of $2,000,000 and at the
lender's governing rate plus 2.75 percent for amounts in excess of $2,000,000.
Interest is payable monthly. All proceeds received in connection with
insurance policies are required to be applied to reduce outstanding
borrowings. In the event of a prepayment and termination of the credit
facility in whole, the following prepayment premiums apply: $400,000 if
prepaid before August 5, 1996 and $200,000 if prepaid before August 5, 1997.

F-11

DIGNITY PARTNERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Dignity Partners is required under the related loan and security agreement
to comply with covenants relating to the maintenance of its business,
insurance coverage, taxes, debt service, payment of premiums on policies
owned, tangible net worth, interest coverage, and director compensation.
Additionally, Dignity Partners is required to maintain a cash collateral
account for the benefit of the lender in an amount not less than the aggregate
amount of all premium payments due for the remaining expected duration of all
policies which collateralize advances. Cash collateral amounts at December 31,
1994 and 1995, were $107,013 and $45,895, respectively. Cash collateral
amounts are included in restricted cash on the balance sheet. As of December
31, 1995, the Company was in compliance with all covenants under the loan and
security agreement, including those relating to cash collateral.

In the course of obtaining the above-described credit facility, the Company
incurred and deferred financing charges of $450,952 and $220,056 in 1993 and
1994, respectively. Of these deferred amounts, $11,693, $165,552 and $118,617
has been amortized in the periods ended December 31, 1993, 1994 and 1995,
respectively.

5. SENIOR VIATICAL SETTLEMENT NOTES

On February 1, 1995 the Company issued $35 million of Senior Viatical
Settlement Notes, Series 1995-A Stated Maturity March 10, 2005 (the
Securitized Notes), through DPFC, a wholly owned special purpose subsidiary,
in order to finance the purchase of life insurance policies. On September 29,
1995, DPFC issued amended and restated Securitized Notes in the principal
amount of $50.0 million. The Securitized Notes provide for a maximum lending
commitment of $50.0 million, subject to reduction of the commitment amount or
early amortization in April 1996 if the outstanding balance of the Securitized
Notes is less than $50.0 million. Funds advanced under the Securitized Notes
must be used to purchase policies which meet the criteria set forth in, and
are pledged as collateral under, the indenture pursuant to which the
Securitized Notes were issued. No principal will be repaid under the
Securitized Notes until the month following the month in which the the
amortization date (which is the earliest to occur of August 1996 or an early
amortization date) occurs. After amortization, monthly principal payments will
be funded by, and limited to, proceeds of collected pledged policies remaining
after payment of certain monthly payments such as interest and servicing and
trustee fees. Once principal is repaid it cannot be redrawn. The policies
purchased with proceeds of the Securitized Notes are pledged to secure
obligations under the Securitized Notes. Bankers Trust Company, as agent and
trustee under the indenture relating to the Securitized Notes, has legal title
to those policies. At December 31, 1995, the principal amount of advances
outstanding and the portion of purchased life insurance policies so pledged
were $39,105,138 and $39,452,877, respectively. As of such date, the face
value of these policies was $48,014,310. The remaining $10.9 million of
proceeds of Securitized Notes (plus proceeds of collected pledged policies)
will be available to purchase additional policies if certain covenants set
forth in the indenture as satisfied, including, without limitations, the
aggregate face value of pledged policies (plus certain pledged funds) as a
percentage of the outstanding principal of Securitized Notes is at least 110%.

Until September 30, 1995, the Securitized Notes bore interest at the fixed
rate of 9.54% per annum and since such date have borne interest at the fixed
rate of 9.17% per annum. The Securitized Notes have a stated maturity of March
10, 2005. On the date of issuance in February 1995, the average life of the
Securitized Notes was estimated to be approximately 2.5 years. Upon the
issuance of the amended and restated Securitized Notes in September 1995, the
remaining average life of the Securitized Notes was estimated to be
approximately 2.1 years.

The Securitized Notes represent the obligations solely of DPFC. The assets
of Dignity Partners, Inc. include the outstanding capital stock of DPFC;
however, the assets, liabilities and operations of DPFC are consolidated. The
assets of DPFC are the beneficial ownership interests in the life insurance
policies and funds which secure the Securitized Notes. The assets of DPFC are
not available to pay creditors of Dignity Partners, Inc. Dignity Partners is
the originator and servicer of the policies pledged under the indenture. DPFC
is required to maintain a balance of 10% of the outstanding principal balance
of the Securitized Notes in a liquidity account held under

F-12

DIGNITY PARTNERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

the indenture for the payment of servicing and origination fees, principal and
interest payments, tax payments, agent's fees and premiums. The amount held in
the liquidity account at December 31, 1995, which is included in restricted
cash on the balance sheet, was $3,952,914.

In the course of obtaining the above-described financing arrangement, DPFC
incurred and deferred charges of $33,947 and $941,651 in 1994 and 1995,
respectively. Of these deferred amounts, $1,171 and $154,927 has been
amortized in the periods ended December 31, 1994 and 1995, respectively.

6. INCOME TAXES

The components of the provision for income tax included in the statements of
operations are as follows:

YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1993 1994 1995
------------ ------------ ------------

Federal:
Deferred (benefit) expense....... $(190,799) $ 90,978 $432,196
State:
Deferred (benefit) expense....... (38,087) 45,928 192,314
--------- -------- --------
Total tax (benefit) expense........ $(228,886) $136,906 $624,510
========= ======== ========

The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December
31, 1994 and 1995, are presented below:

YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1994 1995
------------ ------------

Deferred tax assets:
Revenues and expenses recognized on the cash
basis for tax purposes...................... $1,057,153 $1,653,012
Depreciation, amortization and other......... 22,717 22,717
Net operating loss........................... 201,730 439,035
---------- ----------
1,281,600 2,114,764
Deferred tax liabilities:
Accretion recognized on a cash basis for tax
purposes.................................... 1,189,620 2,647,294
---------- ----------
1,189,620 2,647,294
---------- ----------
Net deferred tax asset (liability)............. $ 91,980 $ (532,530)
========== ==========

Management believes that it is more likely than not that the deferred tax
assets will be realized through sufficient taxable income within the
carryforward period. Accordingly, no valuation allowance has been established.

The difference between the statutory income tax rate and the Company's
effective tax rate was as follows:

YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1993 1994 1995
------------ ------------ ------------

Tax expense at statutory rate
(34%)............................ $(115,419) $735,590 $678,484
State taxes net of federal
benefits......................... (25,197) 30,312 126,927
Minority interest of limited
partners......................... (80,232) (608,984) (193,063)
Other............................. (8,038) (20,012) 12,162
--------- -------- --------
Total tax (benefit) expense... $(228,886) $136,906 $624,510
========= ======== ========

At December 31, 1995, the Company had an estimated federal tax net operating
loss carryforward of $1,192,000 expiring in the years 2008 to 2010, and a
California tax net operating loss carryforward of approximately $543,000
expiring in the years 1998 to 2000.

F-13

DIGNITY PARTNERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

7. RELATED PARTY TRANSACTIONS

a. Payable to Related Party

Echelon paid expenses on behalf of Dignity Partners, represented by payable
to related party, and loaned funds to the Company on a short term basis at an
interest rate ranging from 8% to 9.75% per annum. On January 1, 1994, the
payable to related party was $242,024. Amounts accrued by the Company in 1994
were $274,254 for personnel costs, $20,909 for office expenses, $40,000 for
consulting services and $135,508 for interest. Amounts accrued by the Company
in 1995 were $285,949 for personnel costs, $35,810 for office expenses,
$12,000 for consulting services and $105,716 for interest. Payable to related
party at December 31, 1995 also included $330,000 for short-term borrowings.
As of December 31, 1995, the aggregate payable to related party was
$1,482,170. See note 12a.

b. Accrued compensation payable

Dignity Partners accrued executive officers' compensation (consisting solely
of salaries) of $230,000, $345,000 and $274,148 in 1993, 1994 and 1995,
respectively. See note 12a.

c. Other short term debt

The Company has periodically borrowed funds from a stockholder at an
interest rate of 9% compounded monthly. The outstanding principal balance at
September 30, 1995 was $1,162,170. On October 12, 1995, in connection with the
Reorganization, the Company replaced the $1,162,170 loan from stockholder with
a bank working line of credit which had an outstanding balance of $1,162,170
at December 31, 1995. The working capital line bears interest at the lender's
prime rate (8.50% at December 31, 1995) plus 1% and the facility expires on
February 26, 1996. See notes 11 and 12.

d. Consulting

Dignity Partners paid $223,500 to a director of the Company for consulting
services in 1993.

8. COMMITMENTS

At December 31, 1995, the Company was obligated to purchase $ 913,277 in
policies which had not been assigned to the Company at that date. The Company
records a purchase of a life insurance policy at the time of assignment of the
policy and the transfer of funds to the client.

The Company has a lease obligation for its California office space of
approximately 5,900 sq. ft. The lease expires on May 31, 1999, and the monthly
rent is $8,062, of which the Company pays $5,240 and an affiliate pays $2,822.
Additionally, the Company has a lease obligation for its Nevada office space
of 600 sq. ft. The lease expires on September 30, 1996 and the monthly rent is
$870.

Future minimum rental payments (less amounts to be paid by affiliate) at
December 31, 1995, under operating leases with an initial term of one year or
more, are as follows:

Year ending December 31, 1996................................... $ 70,714
Year ending December 31, 1997................................... 62,884
Year ending December 31, 1998................................... 62,884
Year ending December 31, 1999................................... 26,202
Year ending December 31, 2000................................... --
--------
Total....................................................... $222,684
========

F-14

DIGNITY PARTNERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

9. LITIGATION

From time to time, the Company is involved in routine legal proceedings
incidental to its business, including litigation in connection with the
collection of amounts owed by insurance company obligors. The Company does not
expect that these proceedings, individually or in the aggregate, will have a
material adverse effect on the Company's financial position, liquidity or
results of operations.

10. REVERSE STOCK SPLIT AND REORGANIZATION

a. Reverse Stock Split

On January 12, 1996, in contemplation of an initial public offering of its
common stock, the Company effected a reverse stock split (the Split), wherein
each issued and outstanding share of common stock was converted into 0.7175 of
a share of common stock. The Company has restated its common stock
capitalization for all periods presented in the accompanying financial
statements to give effect to the Split.

b. Reorganization (See note 12a)

On September 30, 1995, Dignity Partners and its then sole stockholder
Echelon entered into a series of transactions (the Reorganization). In the
Reorganization, Echelon sold to a newly-formed limited liability company, The
Echelon Group of Companies LLC (New Echelon LLC), substantially all of its
assets and liabilities other than the outstanding shares of the common stock
of Dignity Partners. These assets were sold for a purchase price equal to
their fair market value. New Echelon LLC is owned by the former stockholders
of Echelon. Following this sale of assets, Echelon was merged with and into
Dignity Partners.

Pursuant to the merger, the authorized capital of Dignity Partners was
increased from 1,000 shares of common stock to 17 million shares, consisting
of 15 million shares of common stock and two million shares of preferred
stock. Of the preferred stock, 135,000 shares were designated as Convertible
Cumulative Pay-in-Kind Preferred Stock (Convertible Preferred Stock). Further,
each outstanding share of common stock of Dignity Partners was canceled, each
outstanding share of Echelon common stock was converted into 15,893 (after
giving effect to the Split) shares of common stock of Dignity Partners, and
the outstanding shares of preferred stock of Echelon were converted into an
aggregate of 34,880 shares of Convertible Preferred Stock.

As a result, the Company has restated its capitalization for all periods
presented in the accompanying financial statements to reflect the
Reorganization and such preferred stock and common stock. At the time of the
Reorganization, the equity of Dignity Partners exceeded that of Echelon by
$1,162,170. This amount represents the extent to which Echelon, the former
parent, funded its investment in Dignity Partners with debt. The Company has
restated stockholders' equity to reflect the historic equity of Echelon
related to Dignity Partners, and the debt that was effectively used in the
capitalization of Dignity Partners, for each of the periods presented.
Interest on such debt (of $20,296, $128,354 and $104,107 for the periods ended
December 31, 1993, 1994 and 1995 respectively) is included in interest expense
in the respective consolidated statements of operations.

On October 12, 1995, in connection with the Reorganization, the Company
replaced the $1,162,170 loan from stockholder with a bank working capital line
of credit. The working capital line bears interest at the lender's prime rate
(8.50% at December 31, 1995) plus 1% and the facility expires on February 26,
1996.

Prior to the Company's initial public offering, a director held all
outstanding shares of Convertible Preferred Stock. Pursuant to the
Reorganization, 34,880 shares of Convertible Preferred Stock were issued. The
holder of Convertible Preferred Stock was entitled to receive, beginning
October 13, 1995, dividends on each share at an annual rate of 8% of the per
share liquidation amount of $100. Such dividends were paid in additional
shares of Convertible Preferred Stock. On December 1, 1995, 380 shares of
Convertible Preferred Stock were issued pursuant to the payment of dividends
on the outstanding shares.

F-15

DIGNITY PARTNERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

The historical earnings per share (without giving effect to the
Reorganization) are not meaningful as there were only between one and five
shares outstanding. Therefore, the Company has reflected in its calculation of
earnings per share the effect of the Reorganization as if it had occurred
during each of the periods presented. For purposes of 1993, no effect is given
to the conversion of the shares of Convertible Preferred Stock because the
conversion would have an anti-dilutive effect. For purposes of 1994 and 1995,
the Company assumed the conversion of the outstanding shares of Convertible
Preferred Stock issuable in respect of accrued but unpaid dividends thereon
through December 31, 1995. The number of shares issuable upon conversion was
calculated by dividing the aggregate liquidation value of the appropriate
number of shares of Convertible Preferred Stock ($100 per share) by the
difference between the per share initial public offering price ($12.00) and
the underwriters' discount ($0.84). On the effective date of the Company's
registration statement related to the initial public offering (February 13,
1996), the outstanding shares of Convertible Preferred Stock (and shares of
Convertible Preferred stock issuable in respect to accrued and unpaid
dividends thereon through such date) were automatically converted into 321,144
shares of common stock which were sold by the holder in the offering.

The computation of income per share in each period is based on the weighted
average number of common shares outstanding, after giving effect to the
conversion of the Convertible Preferred Stock in connection with the initial
public offering, but without giving effect to the primary offering by the
Company of its common stock. See Note 12a.

As a result of the Reorganization, the Company has restated capital
contributions to reflect the underlying capital of Echelon, its former parent,
as follows:

LOAN FROM PREFERRED NET ASSETS
STOCKHOLDER (1) COMMON STOCK (2) STOCK (3) CONTRIBUTED (4)
--------------- ---------------- ---------- ---------------

April 4, 1993........... $ -- $ 1,000 $ -- $ 1,000
December 6, 1993........ -- 196,171 3,488,013 3,684,184
April 30, 1994.......... 458,176 192,310 -- 650,486
September 30, 1994...... 369,529 155,471 -- 525,000
October 31, 1994........ 334,465 140,535 -- 475,000
---------- -------- ---------- ----------
Total at December
31, 1995 .......... $1,162,170 $685,487 $3,488,013 $5,335,670
========== ======== ========== ==========

- --------
(1) See note 7(c).
(2) Common stock reflects the net value of assets contributed after giving
effect to the Convertible Preferred Stock and loans from stockholders.
(3) Represents amounts attributable to the Convertible Preferred Stock.
(4) Represents amounts contributed by Echelon for the five shares of common
stock of Dignity Partners that were canceled in the merger.

11. FAIR VALUE OF FINANCIAL INSTRUMENTS

The following methods and assumptions were used to estimate the fair value
of each class of financial instruments:

Cash and cash equivalents, restricted cash, matured policies receivable,
accrued expenses, accounts payable, financing costs payable, payable to
related party and payable for policies purchased are stated at approximate
fair value because of the short maturity of these instruments.

F-16

DIGNITY PARTNERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

The portfolio of purchased life insurance policies is believed to reflect
fair market value given the yield at which the Company is currently purchasing
life insurance policies.

Other short term debt represents borrowings under the bank working line of
credit which replaced a loan from stockholder. See note 7c. The line of credit
is stated at market value based on the short term maturity date.

Long term notes payable and other long term debt are believed to be stated
at fair market value based on the Company's borrowing capability as a closely-
held private organization and limited capital structure. Long term notes
payable averaging 9.17% is equivalent to newly acquired loans at 1% over prime
interest rates.

12. EVENTS SUBSEQUENT TO THE BALANCE SHEET DATE

a. Initial Public Offering

In February 1996, the Company sold in a public offering 2,381,356 shares of
its common stock which generated net proceeds of $25.7 million (after
deducting the underwriting discount of $2.0 million and estimated offering
expenses of $900,000 payable by the Company). The proceeds are primarily being
used for the acquisition of life insurance policies. In addition, (i)
$2,191,007 was used to repay related party debt of Dignity Partners to New
Echelon LLC (a portion of which is reflected as payable to related party on
the balance sheet); (ii) $833,750 was used to repay accrued and unpaid
salaries to the executive officers of the Company; (iii) $1,162,170 was used
to repay short-term debt borrowings under the bank working line of credit; and
(iv) $3,234,033 million was used to repay long-term borrowings under the
Company's revolving credit facility.

In connection with the initial public offering, all outstanding shares of
Convertible Preferred Stock (plus shares of Convertible Preferred Stock
issuable in respect of accrued and unpaid dividends thereon) were converted on
February 13, 1996 into 321,144 shares of Common Stock which were then sold by
the holder thereof in the public offering. No shares of Convertible Preferred
Stock remain outstanding.

b. Amendment to Revolving Credit Facility

Effective as of March 11, 1996, certain provisions of the Company's
revolving credit facility were amended. On and after April 1, 1996, all
outstanding borrowings will bear interest at the lender's governing rate plus
1.5%. In addition, to the extent that the average daily outstanding borrowings
is less than $4.0 million, on and after April 1, 1996, the Company will owe a
monthly fee equal to the product of 55% of the effective interest rate (less
1/4%) times the average daily unused portion of $4.0 million. The revised
credit facility does not prohibit the payment of dividends by the Company.

The Amended Loan Agreement contains certain standard covenants for a senior
secured revolving credit facility, including (i) restrictions on the
incurrence of debt, the granting of liens and transactions with affiliates,
(ii) a requirement to maintain a cash collateral account in an amount at least
equal to premium payments payable for the remaining life expectancy of each
insured, and (ii) financial covenants that require Dignity Partners (on an
unconsolidated basis) to maintain (a) a maximum debt to tangible net worth and
subordinated debt ratio of no more than 3.0 to 1.0, and (b) a minimum EBITDA
(earnings before interest and income tax expense plus depreciation and
amortization) to interest expense ratio of at least 2.0 to 1.0 (unless Dignity
Partners' cash and cash equivalents are greater than $4.0 million). In
addition, the Amended Loan Agreement requires The New Echelon LLC and Bradley
N. Rotter, Alan B. Perper and John W. Rotter (collectively "Executive
Officers") to collectively own at least 25% of the issued and outstanding
shares of Common Stock and a greater percentage than any other person of the
aggregate voting power of all issued and outstanding voting securities and
requires the Executive Officers to constitute a majority of the Board of
Directors. The Amended Loan Agreement also contains standard events of default
for a senior secured revolving credit facility. In addition, it will be an
event

F-17

DIGNITY PARTNERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)

of default under the Amended Loan Agreement if any of the Executive Officers
dies, becomes disabled or refuses to perform his current duties to the Company
and he is not replaced within 60 days by an individual with comparable
education, skills and experience.

c. Dignity Viatical

In February 1996, Dignity Partners entered into an agreement with the
limited partners of Dignity Viatical to use best efforts to sell, by May 13,
1996 on terms reasonably acceptable to the limited partners, the policies
owned by Dignity Viatical. While such sale will be conducted by auction,
Dignity Partners has retained the right to bid for such policies. The Company
does not expect that such sale will have a material adverse effect on the
Company's financial position, liquidity or results of operations.

F-18

DIGNITY PARTNERS, INC.

CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1996 AND DECEMBER 31, 1995

SEPTEMBER DECEMBER
ASSETS 30, 1996 31, 1995
------ ----------- -----------

Cash and cash equivalents............................. $ 5,902,318 $ 1,056,611
Restricted cash (note 7).............................. 4,760,644 4,566,845
Marketable securities (note 11)....................... 2,090,871 --
Other receivable (note 3)............................. 1,097,519 --
Matured policies receivable (note 7).................. 1,468,947 1,652,921
Assets held for sale (note 4)......................... 11,887,598 --
Purchased life insurance policies, net of reserve
(note 2 and 5)....................................... 35,561,473 48,938,098
Furniture and equipment, net of accumulated
depreciation of $0 and $61,349, respectively (note
4)................................................... -- 130,532
Deferred financing costs, net of accumulated
amortization of $323,411 and $451,961, respectively
(note 5 and 8)....................................... 740,189 1,043,541
IPO financing costs (note 2).......................... -- 750,000
Other assets.......................................... 140,284 87,079
----------- -----------
Total assets...................................... $63,649,843 $58,225,627
=========== ===========

LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------

Accrued expenses...................................... $ 208,271 $ 329,827
Accounts payable...................................... 242,577 377,204
IPO financing costs payable (note 2).................. -- 306,900
Payable to related party (note 2)..................... -- 1,482,170
Accrued compensation payable (note 2)................. 164,200 849,148
Unearned income (note 6).............................. -- 715,883
Payable for policies purchased........................ 39,774 376,020
Other short term debt (note 2)........................ -- 1,162,170
Long term notes payable (note 7)...................... 42,396,219 39,105,138
Other long term debt (note 2 and 8)................... -- 1,444,270
Deferred income taxes (note 9)........................ 6,000 531,711
----------- -----------
Total liabilities................................. 43,057,041 46,680,441
----------- -----------
Minority interest of limited partners in investment
partnership (note 10)................................ -- 6,679,582
----------- -----------
Stockholders' equity:
Preferred stock, $0.01 par value; 2,000,000
authorized shares:
Convertible Preferred Stock, 135,000 authorized
shares, 0 and 34,880 shares, respectively, issued
and outstanding (note 2)........................... -- 3,488,013
Common stock, $0.01 par value; 15,000,000 authorized
shares, 4,291,824 and 1,589,324 shares,
respectively, issued and outstanding (note 2)...... 42,918 15,893
Additional paid-in-capital.......................... 29,404,550 669,594
Retained earnings (deficit)......................... (8,854,666) 692,104
----------- -----------
Total stockholders' equity........................ 20,592,802 4,865,604
----------- -----------
Total liabilities and stockholders' equity........ $63,649,843 $58,225,627
=========== ===========

See accompanying condensed notes to consolidated financial statements.

F-19

DIGNITY PARTNERS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995

THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1996 1995 1996 1995
------------ ---------- ----------- ----------

Income:
Earned discounts on life
insurance policies
(note 6)................. $ -- $1,780,301 $3,697,032 $5,117,645
Earned discounts on prior
maturities (note 6)...... 802,471 -- 802,471 --
Earned discounts on
matured policies (note
6)....................... 355,519 -- 355,519 --
Interest income........... 181,670 85,769 638,583 196,291
Other..................... 115,078 64,966 281,728 142,515
------------ ---------- ----------- ----------
Total income............ 1,454,738 1,931,036 5,775,333 5,456,451
Expenses:
Interest expense.......... 1,065,486 910,387 3,040,424 2,385,291
Compensation and benefits. 318,976 199,168 943,629 544,698
Other general and
administrative expenses.. 231,244 212,434 898,037 519,331
Amortization (note 8)..... 211,786 81,930 391,352 207,321
Depreciation (note 4)..... -- 9,460 19,967 25,257
Consulting fees........... -- -- -- 9622
Realized loss on sale of
assets (note 3).......... 299,718 -- 299,718 --
Provision for loss on sale
of assets (note 4)....... 3,314,498 -- 3,314,498 --
Valuation provision for
purchased life insurance
policies (note 5)........ 6,940,189 -- 6,940,189 --
------------ ---------- ----------- ----------
Total expenses.......... 12,381,897 1,413,379 15,847,814 3,691,520
------------ ---------- ----------- ----------
Income (loss) before
income taxes and
minority interest...... (10,927,159) 517,657 (10,072,481) 1,764,931
Income tax benefit (expense)
(note 9)................... 893,223 (186,044) 525,711 (466,570)
Minority interest of limited
partners in earnings of
investment partnership
(note 10).................. -- (84,997) -- (704,524)
------------ ---------- ----------- ----------
Net income (loss)....... $(10,033,936) $ 246,616 $(9,546,770) $ 593,837
============ ========== =========== ==========
Net income (loss) per share
(note 1)................... (2.34) 0.13 (2.49) 0.31
Weighted average number of
shares of common stock and
common stock equivalents
outstanding
(note 1)................... 4,291,824 1,901,870 3,838,548 1,930,283

See accompanying condensed notes to consolidated financial statements.

F-20

DIGNITY PARTNERS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995

NINE MONTHS ENDED
SEPTEMBER 30,
1996 1995
------------ ------------

Cash flows for operating activities:
Net income....................................... $ (9,546,770) $ 593,837
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization.................. 411,319 232,578
Write-off of furniture and equipment........... 12,303 --
Provisions for loss on sale of assets.......... 3,614,217 --
Valuation provision for purchased life
insurance policies............................ 6,940,189 --
Earned discounts on insurance policies......... (4,855,023) (5,117,645)
Purchase of life insurance policies............ (23,914,937) (17,684,027)
Collections on life insurance policies......... 13,478,494 10,568,726
Increase (decrease) in unearned income......... (715,883) 193,318
Increase in other assets....................... (53,205) (4,640)
Increase (decrease) in deferred taxes.......... (525,711) 465,752
Increase (decrease) in accrued expenses........ (121,556) 142,084
Increase (decrease) in accounts payable........ (134,627) 69,692
Increase (decrease) in IPO financing costs
payable....................................... (306,900) 262,579
Increase (decrease) in payable to related
party......................................... (1,482,170) 402,383
Increase (decrease) in accrued compensation
payable....................................... (684,948) 258,750
Income applicable to minority interest......... -- 704,524
------------ ------------
Net cash used by operating activities........ (17,885,208) (8,912,089)
------------ ------------
Cash flows from investing activities:
Proceeds from sale of assets..................... 4,266,249 --
Purchase of furniture and equipment.............. (6,776) (30,893)
Additions to restricted cash..................... (193,799) (3,848,555)
Purchase of marketable securities................ (2,090,871) --
------------ ------------
Net cash (used for) provided by investing
activities.................................. 1,974,803 (3,879,448)
------------ ------------
Cash flows from financing activities:
Proceeds from long term notes payable............ 6,375,000 35,000,000
Principal payments on long term notes payable.... (3,083,919) --
Proceeds from other long term debt............... 5,540,132 18,311,070
Principal payments on other long term debt....... (6,984,402) (35,479,288)
Distribution to limited partners................. (783,313) (2,720,906)
Purchase of limited partners' interest in
investment partnership.......................... (5,081,184) --
Principal payment on loan from stockholder....... (1,162,170) --
Net proceeds from issuances of common stock...... 25,273,968 --
Increase in financing costs...................... (88,000) (567,439)
Increase in IPO financing costs.................. -- (322,579)
Reimbursement of IPO financing costs............. 750,000 --
------------ ------------
Net cash provided by financing activities.... 20,756,112 14,220,858
------------ ------------
Net increase in cash and cash equivalents.... 4,845,707 1,429,321
Cash and cash equivalents, beginning of period..... 1,056,611 30,561
------------ ------------
Cash and cash equivalents, end of period........... $ 5,902,318 $ 1,459,882
============ ============
Supplemental disclosure of cash flow information:
State taxes paid................................. $ 6,066 $ --
============ ============
Cash paid for interest........................... $ 3,161,981 $ 856,359
============ ============

See accompanying condensed notes to consolidated financial statements.

F-21

DIGNITY PARTNERS, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION

The unaudited consolidated financial statements of Dignity Partners, Inc.
and its consolidated entities ("Dignity Partners" or the "Company") as of
September 30, 1996 and for the three and nine month periods ended September
30, 1996 and 1995 have been prepared in accordance with generally accepted
accounting principles for interim financial information, in accordance with
Rule 10-01 of Regulation S-X. Accordingly, such statements do not include all
of the information and notes thereto that are included in the annual
consolidated financial statements. In the opinion of management, all
adjustments considered necessary for a fair presentation have been included.
Operating results for the nine month period ended September 30, 1996 are not
indicative of the results that may be expected for the entire 1996 fiscal
year. See Note 4. The balance sheet as of December 31, 1995 has been derived
from the audited financial statements of the Company. The statements included
herein should be read in conjunction with the audited financial statements and
notes thereto included in the Company's Annual Report on Form 10-K for the
year ended December 31, 1995 (the "Form 10-K").

Net income per share is calculated on the primary basis using the average
number of Common Stock and Common Stock equivalents outstanding. Common Stock
equivalents include employee stock options and shares issuable upon the
conversion into Common Stock of outstanding shares of the Company's
Convertible Cumulative Pay-in-Kind Preferred Stock (the "Convertible Preferred
Stock"). The outstanding shares of Convertible Preferred Stock were not
actually converted into Common Stock until February 1996. See Note 2.

2. THE INITIAL PUBLIC OFFERING

In February 1996, the Company completed an initial public offering of an
aggregate of 2,702,500 shares of its Common Stock at the public offering price
of $12.00 per share. Of such shares, 2,381,356 shares were issued and sold by
the Company and 321,144 shares (representing all shares issuable and issued
pursuant to the conversion in full of the Convertible Preferred Stock) were
sold by Bradley Rotter, a director and Chairman of the Board of Directors of
the Company. The Company did not receive any proceeds of the shares sold by
Bradley Rotter. The Company received the following proceeds from the offering
and, through September 1996, such proceeds had been applied for the following
purposes:

Proceeds:
Proceeds net of underwriters' discount......... $26,575,933
Less offering expenses (a)..................... 1,301,965
-----------
Net proceeds................................. $25,273,968
===========
Uses:
Policy purchases............................... $17,832,821
Payments to related party (b).................. 2,191,007
Accrued compensation payable (c)............... 833,750
Taxes on accrued and unpaid salaries........... 20,187
Other short term debt (b)...................... 1,162,170
Other long term debt........................... 3,234,033
-----------
Total uses................................... $25,273,968
===========

- --------
(a) Offering expenses include the payoff of IPO financing costs outstanding as
of December 31, 1995 and additional expenses incurred through February
1996.
(b) The proceeds were used to eliminate these liabilities outstanding as of
December 31, 1995 and additional liabilities incurred through February
1996.
(c) Represents accrued and unpaid salaries owed to executive officers of the
Company for services rendered during 1993, 1994 and the first nine months
of 1995. See the Form 10-K for further information.

F-22

DIGNITY PARTNERS, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Changes in stockholders' equity during the first nine months of 1996, which
(with the exception of the net loss) are due in large part to the initial
public offering, reflected the following:

Stockholders'
equity,
beginning of
period...... $ 4,865,604
Conversion
of
preferred
stock..... (3,488,013)(a)
Issuance of
common
stock..... 27,025
Additional
paid-in-
capital... 28,734,956
Net loss... (9,546,770)
-----------
Stockholders'
equity, end
of period... $20,592,802
===========

- --------
(a) As a result of the conversion, the amount previously attributable to
Convertible Preferred Stock was transferred to common stock and
additional-paid-in capital.

3. SALE TRANSACTION--AUGUST, 1996

On August 2, 1996, the Company sold 59 policies held by Dignity Viatical
Settlement Partners, L.P. (Dignity Viatical) and 2 other policies to an
unaffiliated third party. This transaction resulted in a pre-tax loss as
follows:

Capitalized costs............................................ $4,757,583
Earned discounts............................................. 1,641,573
Unearned discount relating to the purchase of Dignity
Viatical minority interest (note 10)........................ (735,670)
----------
Carrying value............................................... 5,663,486
Sale proceeds................................................ 5,363,768
----------
Realized loss on sale of asset............................... $ (299,718)
==========

Cash collected from this transaction was used for working capital purposes,
including prepaying debt outstanding under the TransAmerica Facility (as
defined herein). See Note 8. At September 30, 1996, the Company has recorded
an Other Receivable of $1,097,519 related to outstanding proceeds due from
this sale. Payment of such receivable is expected during the fourth quarter of
1996 as acknowledgments of change in ownership are received from the insurance
companies that issued the sold policies.

4. ASSETS HELD FOR SALE

At the International AIDS Conference held in Vancouver, British Columbia in
July 1996, the results from a number of studies were reported which appeared
to indicate that treatments involving a combination of various drugs were
reducing substantially, and perhaps eradicating, the levels of HIV detectable
in the blood of a person previously diagnosed with HIV and AIDS. On July 16,
1996, the Company announced that it was temporarily ceasing the processing of
new applications to purchase policies insuring the lives of individuals
diagnosed with HIV and AIDS while it further analyzed the effects of such
research results on its business. In excess of 95% of the Company's historical
purchases have involved policies insuring the lives of individuals diagnosed
with HIV or AIDS. The Company continues to analyze the effects of such
research results and subsequently reported data from scientific studies on its
business and, in particular, purchases by the Company of policies, levels of
expenses, the timing of collections on policies, the estimated collection
dates of policies and its method of income recognition. In connection with its
analysis, the Company has thus far decided to sell all or substantially all of
its assets and to seek stockholder approval of such sale. As a result, the
Company has reclassified all of its

F-23

DIGNITY PARTNERS, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

assets other than the assets of Dignity Partners Funding Corp. I ("DPFC") to a
"held-for-sale" category. Accordingly, such assets are recorded on the balance
sheet as of September 30, 1996 at the lower of carrying value or fair value
less cost to sell. In connection therewith, the Company established a
provision for loss on sale of assets during the quarter ended September 30,
1996.

On October 9, 1996, the Company announced that it had executed an agreement
("Sale Agreement") with an unaffiliated viatical settlement company to sell
approximately 197 policies with an aggregate face value of $14.2 million for
an aggregate consideration of approximately $8.7 million. The agreement for
the sale of such policies will be void if stockholder approval to sell all or
substantially all of the Company's assets is not received by December 26,1996.
The Company set up a pre-tax loss provision in the third quarter of 1996 of
$1,792,087 in connection with the policies covered by the Sale Agreement.

The Company also announced that it intends to seek stockholder approval to
sell all or substantially all of its assets not the subject of the Sale
Agreement ("Remaining Assets"). The Company set up a pre-tax loss provision
for the Remaining Assets that it intends to sell in the amount of $1,522,411
($1,417,373 related to policies and $105,038 related to furniture and
equipment). For purposes of calculating such loss provision, furniture and
equipment have been valued on the assumption that miscellaneous office
equipment has no sales value.

Life insurance policies and furniture and equipment held for sale consist
of:

LIFE INSURANCE POLICIES
----------------------------
COVERED BY FURNITURE &
SALE AGREEMENT HELD FOR SALE EQUIPMENT TOTAL
-------------- ------------- ----------- ----------

Capitalized costs......... $9,272,132 5,416,912 105,038 14,794,082
Earned discount........... 221,298 186,716 -- 408,014
Provision for loss on
sale..................... (1,792,087) (1,417,373) (105,038) (3,314,498)
---------- ---------- -------- ----------
Assets held for sale...... $7,701,343 4,186,255 0 11,887,598

The calculation of provision for loss on sale of assets for life insurance
policies was calculated based on the life expectancies of the policies in
relation to prices obtained by the Company in connection with other sales. Any
gain or loss due to the difference between actual proceeds (less any back end
sourcing fees) and the carrying value after giving effect to the provision for
loss on sale of assets will be reported as a realized gain or loss.

5. PURCHASED LIFE INSURANCE POLICIES

As of September 30, 1996, purchased life insurance policies consisted only
of those policies held by DPFC. The sale of policies held by DPFC, all of
which are pledged under the indenture pursuant to which the Securitized Notes
(as defined in Note 7) were issued, requires the consent of all of the holders
of the Securitized Notes ("Noteholders"). No assurance can be given that the
Company will be able to obtain such consent. The Company has discussed
potential sales of DPFC policies with the Noteholders; however, it is too
early to determine whether the Noteholders and the Company will decide to sell
such policies or whether such a sale is feasible. A pre-tax provision for
valuation adjustment has been recorded in the third quarter of 1996 in the
amount of $6.9 million to reflect estimated impaired value of the DPFC
policies. The estimated provision for valuation adjustment provides for the
possible write-off of deferred financing costs and the expected unrealized
value associated with purchased life insurance policies.

Only the net assets of DPFC are available to satisfy the Securitized Notes.
Dignity Partners did not guarantee the obligations owed under the Securitized
Notes. To the extent that the net assets of DPFC are insufficient to repay the
Securitized Notes, no provision for valuation was made because the Noteholders
are expected to bear any such loss. This loss is currently estimated to be
approximately $900,000. See Note 11.

F-24

DIGNITY PARTNERS, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

6. EARNED DISCOUNTS AND UNEARNED INCOME

Earned discounts on life insurance policies reflects the accretion recorded
through June 30, 1996. With the decision to sell all or substantially all of
the Company's assets, unearned income recorded on the balance sheet at June
30, 1996 relating to early maturities on or before June 30, 1996 has now been
recorded as earned discounts on prior maturities. Earned discounts for matured
policies reflects income on policies on which the Company collected the
proceeds (either pursuant to a sale or the death of the insured) during the
third quarter. During the third quarter of 1996, the Company reclassified all
of its assets (other than DPFC assets) to a "held-for-sale" category. The
Company also established a valuation provision for purchased life insurance
policies (i.e. DPFC policies) during the quarter ended September 30, 1996
because of the uncertainties created by the data presented at the AIDS
Conference. As a result, any future income will be recorded as earned
discounts for matured policies only upon receipt of proceeds of policies
(either pursuant to a sale or the death of the insured).

7. LONG TERM NOTES PAYABLE

The Senior Viatical Settlement Notes, Series 1995-A, Stated Maturity March
10, 2005 (the "Securitized Notes") issued by DPFC, the Company's wholly-owned
special purpose subsidiary, initially provided for a maximum lending
commitment of $50 million. Borrowings under the Securitized Notes are included
on the balance sheet as long term notes payable. Repayment of principal of the
Securitized Notes was originally scheduled to begin in September 1996. An
early amortization event occurred in June 1996 because the
Overcollateralization Percentage (as defined in the Form 10-K) was less than
120% on four consecutive weekly calculation dates. As a result, the maximum
lending commitment was reduced to the then outstanding principal amount ($45.5
million) and principal payments on the Securitized Notes began in July 1996.
Payments on the Securitized Notes are payable solely from the collections on
pledged policies and deposited funds. Such deposited funds consist of $4.6
million of restricted cash as of September 30, 1996, which Dignity Partners is
required to maintain in a cash collateral account for the benefit of the
Noteholders. Additionally, such collections include $865,000 as of September
30, 1996 of matured policies receivable for policies pledged for the benefit
of the Noteholders.

8. TRANSAMERICA CREDIT FACILITY

As described in Note 4, on July 16, 1996, the Company announced it was
temporarily ceasing processing new applications for policies insuring people
with AIDS and HIV, while it further analyzed the research results reported at
the International AIDS Conference in Vancouver, British Columbia. On July 18,
1996, TransAmerica Lender Finance ("TransAmerica"), the lender under the
TransAmerica Facility, notified the Company that an event of default had
occurred under the TransAmerica Facility. The notification was based on
TransAmerica's assertion that the Company's action constituted a breach of its
covenant not to make a material change in its operations. TransAmerica also
notified the Company that TransAmerica would not make future advances under
the TransAmerica Facility. The Company does not believe that its actions
constituted an event of default under the TransAmerica Facility. Although
TransAmerica did not give any notice accelerating the due date of amounts
outstanding under the TransAmerica Facility, the Company decided to repay and
terminate the facility on August 29, 1996. The Company repaid principal and
accrued interest in the amount of $3,301,328. In connection with such
repayment, Dignity Partners wrote off $130,000 in unamortized financing costs
associated with the TransAmerica Facility.

9. DEFERRED INCOME TAXES

Prior to the three months ended September 30, 1996, the Company had provided
for deferred income taxes related to income accrued on purchased life
insurance policies. Based on the provision for loss on sale of assets and
valuation provision for purchased life insurance policies recorded for the
quarter ended September 30, 1996,

F-25

DIGNITY PARTNERS, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)

the Company believes that it will not have a federal tax liability related to
these assets and has therefore reversed all related liabilities. The Company
has provided for miscellaneous state income taxes. Valuation allowance has
been recorded equivalent to the deferred tax asset as it is management's
opinion that it is more likely than not that the deferred tax asset will not
be realized.

10. MINORITY INTEREST

On June 25, 1996 Dignity Partners purchased the limited partnership
interests of the limited partners in Dignity Viatical for approximately $5.2
million. This purchase resulted in the elimination of minority interest on the
balance sheet at and after June 30, 1996.

11. FAIR VALUE OF FINANCIAL INSTRUMENTS

The following methods and assumptions were used to estimate the fair value
of each class of financial instruments:

Cash and cash equivalents, restricted cash, other receivable, matured
policies receivable, accrued expenses, accounts payable, financing costs
payable, payable to related party and payable for policies purchased are
stated at approximate fair value because of the short maturity of these
instruments. All balances have maturities within 60 days of the balance sheet
date.

Marketable securities (with maturities greater than three months but less
than one year), consisting of grade BBB or better commercial paper, commercial
notes and government securities, are stated at cost on the balance sheet.
Market values of these securities approximate cost due to the short maturity
periods.

Assets held for sale reflect management's estimate of fair market value
based on the life expectancies of these policies in relation to prices
obtained by the Company in connection with other sales.

The portfolio of purchased life insurance policies reflects a pre-tax
provision for the estimated impaired value of DPFC policies. The estimated
provision for valuation adjustment provides for the possible write-off of
deferred financing costs and the expected unrealized value associated with
purchased life insurance policies.

Long term notes payable and other long term debt are stated at fair market
value at December 31, 1995 based on the Company's borrowing capability as a
closely-held private organization and limited capital structure. The
Securitized Notes (long term notes payable) bear an average interest rate of
9.17% and are equivalent to newly acquired debt at 1% over prime interest
rates. At September 30, 1996 the long term notes payable are stated at cost
which is approximately $900,000 greater than the Company's estimate of the
fair market value of this debt due to the nonrecourse nature of such debt and
the value of the collateral securing such debt.

12. EVENTS SUBSEQUENT TO THE BALANCE SHEET DATE

a. Share Repurchase Program

On October 16, 1996, the Board of Directors of the Company approved a share
repurchase program pursuant to which the Company is authorized to purchase
from time to time up to 1 million shares of the Company's common stock at
prevailing market prices.

b. Investment

On November 4, 1996, the Company purchased $3,000,000 of convertible
preferred stock of American Information Company, Inc., a privately held
company which, among other things, provides information services to
individuals owning or purchasing automobiles.

F-26

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PROXY

THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS

DIGNITY PARTNERS, INC.
1700 MONTGOMERY STREET, SUITE 250
SAN FRANCISCO, CALIFORNIA 94111

The undersigned acknowledges receipt of the accompanying Notice of Special
Meeting of Stockholders and Proxy Statement of DIGNITY PARTNERS, INC. (the
"Company") and hereby appoints Bradley N. Rotter, Alan B. Perper and John Ward
Rotter, and each of them, attorneys and proxies, with full power of substitu-
tion and resubstitution, to vote all shares of common stock of the Company
held of record by the undersigned at the close of business on November 8,
1996, at the special meeting of stockholders of the Company to be held at 8:00
a.m. on December 16, 1996, and at any adjournment thereof, as follows:

(CONTINUED, AND TO BE MARKED, DATED AND SIGNED, ON THE OTHER SIDE)

- -------------------------------------------------------------------------------
. FOLD AND DETACH HERE .

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Please mark your votes as indicated in this example [X]

IF THIS PROXY IS PROPERLY EXECUTED, THE SHARES REPRESENTED HEREBY WILL BE VOTED
IN THE MANNER DIRECTED AND, IN THE ABSENCE OF DIRECTION AS TO THE MANNER OF
VOTING, WILL BE VOTED FOR THE PROPOSAL TO AUTHORIZE THE BOARD OF DIRECTORS OF
THE COMPANY TO SELL ALL OR SUBSTANTIALLY ALL OF THE COMPANY'S ASSETS.

Proposal to authorize the Board of Directors of the Company to sell all or
substantially all of the Company's assets.

FOR AGAINST ABSTAIN
[_] [_] [_]

Please date this proxy and sign exactly as name(s) appears below and return
signed proxy in enclosed envelope. When shares are held by joint tenants, both
should sign. When signing as attorney, executor, administrator, trustee or
guardian, please give full title as such. If a corporation, please sign in full
corporate name by president or other authorized officer. If a partnership,
please sign in partnership name by authorized person.

The foregoing is as set forth in the Notice of Special Meeting of Stockholders
and Proxy Statement relating to the meeting.

WILL ATTEND MEETING [_]

PLEASE DO NOT FOLD

Signature(s) __________________________________ Date _______________________

NOTE: Please sign as name appears hereon. Joint owners should each sign. When
signing as attorney, executor, administrator, trustee or guardian, please give
full title as such.
- --------------------------------------------------------------------------------
. FOLD AND DETACH HERE .