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

FORM 10-K

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

FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995 COMMISSION FILE NUMBER 1-6732

or

[ ] Transition Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934

DANIELSON HOLDING CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

Delaware 95-6021257
(State of incorporation) (I.R.S. Employer Identification No.)

767 Third Avenue, New York, New York 10017-2023
(Address of principal executive offices) (Zip Code)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 888-0347

SECURITIES REGISTERED PURSUANT TO SECTION 12 (B) OF THE ACT: None

SECURITIES REGISTERED PURSUANT TO SECTION 12 (G) OF THE ACT:

NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
------------------- ----------------
Common Stock, $0.10 par value . . . . . . American Stock Exchange

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

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

At March 13, 1996, the aggregate market value of the registrant's voting stock
held by non-affiliates was $91,072,428.

Indicate the number of shares outstanding of each of the registrant's classes
of common stock, as of the latest practicable date.


CLASS OUTSTANDING AT MARCH 13, 1996
----- -----------------------------
Common Stock, $0.10 par value 15,360,255 shares


The following documents have been incorporated by reference herein:

1995 Annual Report to Stockholders, as indicated herein (Parts I and II)


[COVER PAGE 1 OF 101 PAGES / EXHIBIT INDEX ON PAGES 34-36]
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PART I

ITEM 1. BUSINESS.


INTRODUCTION

Danielson Holding Corporation ("DHC" or "Registrant") is a holding
company incorporated in Delaware. DHC is continuing to grow by acquisition, as
a corporation having separate subsidiaries (collectively with DHC, the
"Company") offering a variety of insurance, trust and investment management and
other financial service products. The largest subsidiary of DHC is its
indirectly wholly-owned California insurance company, National American
Insurance Company of California ("NAICC"). NAICC writes workers' compensation,
non-standard private passenger and commercial automobile insurance in the
western United States, primarily California.

DHC also owns a California trust company subsidiary, Danielson Trust
Company ("Danielson Trust"), which formerly was known, prior to November 13,
1993, as HomeFed Trust. In February 1994, Danielson Trust acquired the assets
of the Western Trust Services ("WTS") division of Grossmont Bank. See Note 2 of
the Notes to Consolidated Financial Statements.

As part of DHC's ongoing corporate strategy, DHC has continued to seek
ways to acquire or start-up profitable businesses and/or to expand into the
financial services business in a manner that will both complement its existing
operations and enable DHC to earn an attractive return on investment. Most
recently, DHC has entered into an agreement to acquire, by merger, Midland
Financial Group, Inc. ("Midland"). See Note 15 of the Notes to Consolidated
Financial Statements. DHC retains cash and investments at the holding company
of $11 million.

The Company has reported, as of the beginning of its 1995 tax year,
aggregate consolidated net operating tax loss carryforwards ("NOLs") for Federal
income tax purposes of approximately $1.4 billion. These losses will start to
expire in 1998 unless utilized prior thereto. See Note 8 of the Notes to
Consolidated Financial Statements.


DESCRIPTION OF BUSINESSES

Set forth below is a description of the business operations of each
industry segment for which financial information, as at December 31, 1995, is
presented in the Company's Consolidated Financial Statements incorporated by
reference in this Report. Such industry segments are Insurance and Trust
Services.

INSURANCE BUSINESS

DHC's wholly-owned subsidiary, NAICC, is a California corporation engaged
in writing workers' compensation, non-standard and commercial automobile
insurance. NAICC is an indirect wholly-owned subsidiary of DHC. NAICC's
immediate parent corporation is KCP Holding Company ("KCP"). NAICC is the
immediate parent of Danielson National Insurance Company ("DNIC") and Danielson
Insurance Company ("DIC"). KCP is wholly-owned by Mission American Insurance
Company ("MAIC") which, in turn, is wholly-owned by DHC.

-2-


NAICC's lines of business are described below.

Workers' Compensation Insurance

Workers' compensation insurance policies provide coverage for workers'
compensation and employers' liability. The workers' compensation portion of the
coverage provides for statutory benefits that employers are required to pay to
employees who are injured in the course of employment including, among other
things, temporary or permanent disability benefits, death benefits, medical and
hospital expenses and expenses of vocational rehabilitation. The benefits
payable and the duration of such benefits are prescribed by statute, and vary
with the nature and severity of the injury or disease and the wages, occupation
and age of the employee. The employers' liability portion of the coverage
provides protection to an employer for its liability for losses suffered by its
employees which are not included within the statutorily prescribed workers'
compensation coverage. NAICC issues policies having a maximum term of one year.

Net written premiums for workers' compensation were $38.2 million, $77.2
million and $79.3 million in 1995, 1994 and 1993, respectively. NAICC writes
workers' compensation business primarily in the states of California, Oregon,
Arizona and Idaho through approximately 650 independent property and casualty
insurance agents and brokers. NAICC does not write workers' compensation
business through managing general agents and no independent agent produces more
than 4.5 percent of the total premium. At December 31, 1995, NAICC had 3,871
workers' compensation policies in force with an average estimated annual premium
size of $10,200, compared to 7,253 and 7,161 such policies in force at December
31, 1994 and 1993, respectively, with an average estimated annual premium size
of $11,300 and $12,000 in each respective year. The 1995 decrease of
approximately 50.5 percent in the net written premium from 1994 is attributable
to significantly increased price competition in California. In 1995, 87 percent
of NAICC's workers' compensation business was in the state of California.

In July 1993, the California legislature passed several bills reforming
the State's workers' compensation system. In connection with this reform, cost
savings from favorable loss experience resulting from reform legislation,
stabilization of the California economy, and highly-publicized anti-fraud
activity were passed along to employers in the form of minimum rate decreases.
Thus, at the direction of the California Department of Insurance (the "Insurance
Department"), the minimum rate was decreased by seven percent, 12.7 percent and
16 percent effective in July 1993, January 1994 and October 1994, respectively.

In addition, effective January 1, 1995, a new "open rating" law replaced
the old workers' compensation "minimum rate" law. The new open rating law
provides for a significant change in the way insurance companies price workers'
compensation insurance in California. Although the Workers' Compensation
Insurance Rating Bureau of California (the "Bureau") is still the designated
statistical agent for the Insurance Department and will continue to accumulate
statewide loss and remuneration data, under the new law the Bureau now only
promulgates advisory pure premium rates instead of final rates. Pure premium
rate is the loss and loss adjustment expense ("LAE") portion of the final rate
charged. Non-loss related expenses constitute the other portion of the final
rate charged.

An insurer establishes its own final rates prospectively based on pure
premium rates promulgated by the Bureau and/or from its own experience. An
insurer may establish the pure premium portion of its rates below the Bureau's
advisory pure premium rates. The pure premium rates are then increased to
provide for non-loss related expenses, which are based solely upon that
company's experience and expectation. Non-loss related expenses include items
such as commissions to agents, general and administrative expenses and premium
taxes. To obtain approval to use any workers' compensation rates in California,
an insurer is required to file its proposed rates with the Insurance Department.
The Insurance Department may disapprove a rate filing only if it finds that the
rates are unfairly discriminatory, could threaten the solvency of the insurer,
or could cause a single insurer, other than the California State Compensation
Insurance Fund (the "State Fund"), to control more than 20 percent of the
market.

-3-


The favorable loss experience of the 1992, 1993 and 1994 loss years, and
the elimination of the minimum rate law have created a new and highly
competitive environment in the California workers' compensation market. NAICC
has filed premium rates with the Insurance Department which are based on the
pure premium rates promulgated by the Bureau. NAICC's management believes that
the pure premium rates promulgated by the Bureau will best reflect NAICC's
actual loss costs and LAE. NAICC continues its policy to underwrite policies at
prices which are expected to achieve an underwriting profit. Consequently,
management of NAICC believes that its premium volume has decreased because
competitors are willing to price policies using pure premium rates which are
below the average pure premium rates promulgated by the Bureau. However, it is
the view of NAICC's management that NAICC will continue to partially offset its
decline in workers' compensation premium by increasing its participation in
other markets.

NAICC competes with both the State Fund and more than 300 other companies
writing workers' compensation insurance in California. In 1994, the most recent
year for which information is available, the State Fund wrote approximately $1.4
billion in premiums, which represented approximately 18.1 percent of the insured
California workers' compensation market. No single company wrote in excess of
$500 million in workers' compensation premiums in California in 1994. NAICC,
which has a market share of approximately one percent of the insured market,
does not believe that it is a dominant writer of workers' compensation insurance
in California.

Because of the existence of the State Fund, California does not require
licensed insurers to participate in any involuntary pools or assigned risk plans
for workers' compensation insurance. California, like other states, has a post
insolvency guarantee fund, the California Insurance Guarantee Association, to
protect policyholders of insolvent insurance companies. Under current law, the
maximum amount that can be assessed against any insurer for this purpose in any
one year is one percent of its net direct premiums written in the preceding
year. These assessments are passed through to all policyholders. There were no
such assessments for the 1994 policy year.

Non-Standard Private Passenger Automobile Insurance

NAICC began writing non-standard private passenger automobile insurance
in California in July 1993. NAICC writes this business through a general agent
which utilizes over 600 sub-agents to obtain applications for policies. The
selection of policyholders is governed by underwriting guidelines established by
NAICC. Non-standard risks are those segments of the driving public which
generally are not considered to be "preferred" business, such as drivers with a
record of prior accidents or driving violations, drivers involved in particular
occupations or driving certain types of vehicles, or those who have been non-
renewed or declined by another insurance company.

Generally, non-standard premium rates are higher than standard premium
rates and policy limits are lower than typical policy limits. NAICC's private
passenger automobile policies provide maximum coverage up to $15,000 per person,
$30,000 per accident for liability for bodily injury and $10,000 per accident
for liability for property damage. NAICC also writes physical damage coverage
for up to $33,000 per vehicle. NAICC's management believes that it may enhance
its underwriting as a result of refinement of various risk profiles, thereby
dividing the non-standard insurance market into more defined segments which can
be adequately priced.

For the 1995 calendar year, NAICC billed $28.8 million in direct written
premiums and, at December 31, 1995, NAICC had 29,000 private passenger
automobile policies in force, compared to 20,000 and 15,419 policies in force in
1994 and 1993, respectively. In 1995, NAICC's non-standard private passenger
automobile business represented approximately 40.6 percent of its total direct
premiums written and 27.2 percent of total net premiums written, respectively.
NAICC cedes 50 percent of its non-standard private passenger automobile direct
written premium, direct losses and allocated LAE to a major reinsurance company
under a quota share reinsurance agreement.

-4-


The California Automobile Assigned Risk Plan (the "Assigned Risk Plan")
provides state mandated minimum levels of automobile liability coverage to
drivers whose driving records, or other relevant characteristics, make it
difficult for them to obtain insurance in the voluntary market. The Assigned
Risk Plan allocates risks to private passenger automobile insurers in the
voluntary market based on each insurer's proportionate share of the private
passenger automobile direct written premiums. Premium rates for assigned risk
business are established by the Insurance Department and, by law, these rates
must be actuarially sound. To be eligible for the Assigned Risk Plan, an
applicant must first be denied coverage by three admitted insurance carriers.
The Assigned Risk Plan rates were increased by 8.5 percent on October 1, 1990
and by 5.2 percent on June 1, 1995. The combination of these events have caused
the number of drivers applying for insurance to the Assigned Risk Plan to
decline as well as to reduce the underwriting losses from assigned risk
business. The population of drivers in the Assigned Risk Plan has declined by
approximately 90 percent in the period from 1988 to 1995 and continued declines
are anticipated. NAICC does not expect assignments which will be material nor
should they have a material adverse effect upon the profitability of this line
of business.

Prior to 1989, California automobile insurance rates, other than assigned
risk rates discussed above, were not subject to approval by any governmental
agency. In November 1988, Proposition 103, a California ballot initiative, was
passed into law by the California voters. Among other things, Proposition 103
requires insurance companies to obtain prior regulatory approval of any new
rates prior to use. Proposition 103 does not apply to workers' compensation.
Proposition 103 also requires automobile insurers to renew policies of good
drivers as defined in Proposition 103.

The rates for NAICC's California non-standard private passenger
automobile policies are subject to Proposition 103. NAICC filed for and
received approval to adjust its rates effective December 1, 1994. The average
overall effect was to increase liability premium rates by 7.7 percent and to
decrease physical damage premium rates by 8.5 percent, for an overall weighted
average increase of five percent. Rating factors also were adjusted to reflect
NAICC's experience in each classification of driver in each territory in
California. In December 1995, NAICC filed to decrease liability premium rates
by 0.1 percent, and to increase physical damage premium rates by 21.8 percent as
well as certain other minor plan changes. Such rate filing was approved in
February 1996. Management of NAICC believes that the new rates will continue to
be competitive and yield a profit for NAICC.

Commercial Automobile Insurance

In March 1995, NAICC commenced a non-standard commercial automobile
program in Arizona, Idaho, Nevada and Oregon. In August 1995, NAICC began
writing non-standard commercial automobile insurance in California. Direct
written premiums for commercial automobile insurance were $2.3 million in each
of 1995 and 1994. NAICC intends to continue to market this program in
California, as well as Arizona, Idaho, Nevada and Oregon to independent agents
through its field marketing staff in those states.

Commercial Property-Casualty Insurance

The commercial property and casualty market has been highly competitive
and has offered limited profit potential since 1987. As a result, NAICC ceased
writing this business in 1994.

Combined Ratio

NAICC had a combined ratio of 113.4 percent, 106.2 percent and 110.9
percent for 1995, 1994 and 1993, respectively. These ratios compare to an
overall national industry average for workers' compensation insurers of 101.4
percent for the 1994 year, the most recent year for which such information is
available. For additional information regarding the foregoing statistics, see
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS, 2. RESULTS OF NAICC'S OPERATIONS."

-5-


Losses and Loss Adjustment Expenses

NAICC's unpaid losses and loss adjustment expenses ("LAE") represent the
estimated indemnity cost and LAE necessary to cover the ultimate net cost of
investigating and settling claims. Such estimates are based upon estimates for
reported losses, NAICC's historical experience of losses reported by reinsured
companies for insurance assumed, and actuarial estimates based upon historical
NAICC and industry experience for development of reported and unreported
(incurred but not reported) claims. Any changes in estimates of ultimate
liability are reflected in current operating results. Inflation is assumed,
along with other factors, in estimating future claim costs and related
liabilities. NAICC does not discount any of its loss reserves.

The ultimate cost of claims is difficult to predict for several reasons.
Claims may not be reported until many years after they are incurred. Changes in
the rate of inflation and the legal environment have created forecasting
complications. Court decisions in the time between the dates on which a claim
is reported and its resolution may dramatically increase liability. Punitive
damages awards have grown in frequency and magnitude. The courts have imposed
increasing obligations on insurance companies to defend policyholders. As a
result, the frequency and severity of claims have grown rapidly and
unpredictably.

NAICC has claims relating to environmental cleanup against policies
issued prior to 1980 which are currently in run-off. The principal exposure
arises from excess and primary policies of business in run-off, the obligations
of which were assumed by NAICC. These excess and primary claims are relatively
few in number and have policy limits of between $50,000 and $1,000,000, with
reinsurance generally above $500,000. NAICC also has environmental claims
primarily associated with participation in excess of loss reinsurance contracts
assumed by NAICC. These reinsurance contracts have relatively low limits,
generally less than $25,000, and estimates of unpaid losses are based on
information provided by the primary insurance company.

The unpaid losses and LAE related to environmental cleanup are
established based upon facts currently known and the current state of the law
and coverage litigation. Liabilities are estimated for known claims (including
the cost of related litigation) when sufficient information has been developed
to indicate the involvement of a specific contract of insurance or reinsurance
and management can reasonably estimate its liability. Liabilities for unknown
claims and development of reported claims are included in NAICC's bulk unpaid
losses. The liability for unknown or unreported claims is not estimated to be
material based on historical reporting experience. The liability for the
development of reported claims is based on estimates of the range of potential
losses for reported claims in the aggregate as well as currently established
case estimates and industry development factors for reported claims. Estimates
of liabilities are reviewed and updated continually and exposure exists in
excess of amounts which are currently recorded which could be material.
However, management does not expect that liabilities associated with these types
of claims will result in a material adverse effect on future liquidity or
financial position. Liabilities such as these are based upon estimates and
there can be no assurance that the ultimate liability will not exceed such
estimates. Additionally, significant uncertainty exists about the outcome of
coverage litigation which can impact current estimates. As of December 31,
1995, NAICC's net unpaid losses and LAE relating to environmental claims were
$4.1 million.

Due to these factors, among others, the process used in estimating unpaid
losses and LAE cannot provide an exact result. Management of NAICC believes
that the provisions for unpaid losses and LAE are adequate to cover the net cost
of losses and loss expenses incurred to date; however, such liability
necessarily is based on estimates and there can be no assurance that the
ultimate liability will not exceed such estimates.


(continued on following page)

-6-


Analysis of Losses and Loss Adjustment Expenses

The following table provides a reconciliation of NAICC's net
unpaid losses and LAE (dollars in thousands):



Years Ended December 31,
-------------------------------

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

Net unpaid losses and LAE at January 1 $128,625 $119,223 $104,825
-------- -------- --------
Losses and LAE:

Provision for losses and LAE for
claims occurring in current year....... 45,592 67,131 65,157

Increase (decrease) in estimated
losses and LAE for claims
occurring in prior years............... 3,123 384 743
-------- -------- --------

Total incurred 48,715 67,515 65,900
-------- -------- --------
Losses and LAE payments for
claims occurring during:

Current year (14,464) (15,849) (11,852)

Prior years............................ (46,582) (42,264) (39,650)
-------- -------- --------

Total paid (61,046) (58,113) (51,502)
-------- -------- --------
Net unpaid losses and LAE at
December 31 $116,294 $128,625 $119,223
Plus: reinsurance recoverables........ 21,112 17,705 18,256
-------- -------- --------
Gross unpaid losses and LAE at
December 31 $137,406 $146,330 $137,479
======== ======== ========


The losses and LAE incurred in 1995 relating to prior years are primarily
attributable to claims from business which is in run-off. Two claims from
business in run-off comprise substantially all of the losses and LAE incurred
related to prior years: one being a claim for asbestosis exposure, which was
settled in 1995 in the form of a policy buy back; the other, a construction
defect claim in which a court decision was contrary to previously established
case law.

The following table indicates the manner in which unpaid losses and LAE at
the end of a particular year change as time passes. The first line reflects the
liability as originally reported, net of reinsurance, at the end of the stated
year. Each calendar year-end liability includes the estimated liability for
that accident year and all prior accident years relating to that liability. The
second section shows the original recorded net liability as of the end of
successive years adjusted to reflect facts and circumstances which are later
discovered. The next line, cumulative (deficiency) or redundancy, compares the
adjusted net liability amount to the net liability amount as originally
established and reflects whether the net liability as originally recorded was
adequate to cover the estimated cost of claims. The third section reflects the
cumulative amounts related to that liability which were paid, net of
reinsurance, as of the end of successive years.

-7-


Analysis of Net Losses and Loss Adjustment Expense ("LAE") Development (dollars
in thousands):



Years Ended December 31,
-----------------------------------------------------------------------------------------

1988 1989 1990 1991 1992 1993 1994 1995

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


Net unpaid losses and LAE at end of year $115,858 $ 95,272 $ 91,870 $ 97,810 $104,825 $119,223 $128,625 $116,294


Net unpaid losses and LAE re-estimated
as of:
One year later 120,527 100,599 92,632 94,364 105,568 119,607 131,748
Two years later 124,167 100,143 87,504 99,875 111,063 123,039
Three years later 121,081 94,954 89,844 107,945 117,756
Four years later 116,384 96,948 95,576 116,018
Five years later 118,175 101,537 102,081
Six years later 122,784 107,344
Seven years later 128,589

Cumulative (deficiency) redundancy (12,731) (12,072) (10,211) (18,208) (12,931) (3,816) (3,123)

Cumulative net amounts paid as of:
One year later 41,767 38,165 31,162 39,131 39,650 42,264 46,582
Two years later 72,735 56,876 53,424 63,483 68,025 71,702
Three years later 86,142 71,543 66,198 81,485 88,038
Four years later 96,352 78,991 75,963 94,238
Five years later 102,385 84,980 83,704
Six years later 107,661 90,458
Seven years later 112,555

Gross unpaid losses and LAE at end of
year 137,479 146,330 137,406

Reinsurance recoverable 18,256 17,705 21,112

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

Net unpaid losses and LAE at end of year 119,223 128,625 116,294


Gross unpaid losses and LAE
re-estimated - latest 141,737 149,815

Re-estimated reinsurance recoverable -
latest 18,698 18,067
-------- --------
Net unpaid losses and LAE re-estimated 123,039 131,748
- latest

Gross cumulative (deficiency) redundancy (4,258) (3,485)


-8-


The table above ordinarily would present a ten year development of unpaid
losses and LAE, however, the loss and LAE data of NAICC relating to periods
prior to 1988 are not comparable to such data for periods subsequent to 1988.
In 1988, NAICC assumed the unpaid policyholder liabilities of MAIC for accident
years 1985, 1986 and 1987. The data subsequent to 1987 necessary to update the
unpaid losses and LAE of NAICC as of December 31, 1987 and earlier includes loss
and LAE data relating to MAIC which is not reflected in the December 31, 1987
unpaid losses and LAE of NAICC, and such data cannot be segregated because of
the assumption of those 1985, 1986 and 1987 accident year liabilities in 1988.
The 1988 assumption of the policyholder liabilities of MAIC was the last of a
series of significant events and transactions which resulted in, among other
things, the acquisition by DHC of a majority ownership interest in NAICC, a
change in the management of NAICC, and a material change in the business and
operations of NAICC. As a result of these material changes affecting NAICC, the
table above, reflecting information commencing in 1988, provides the most
meaningful and relevant historical analysis possible of unpaid losses and LAE of
NAICC. Although NAICC continues to receive claims related to 1988 and earlier,
the liability recorded represents the best estimate by NAICC's management of the
liability for currently foreseeable claims.

The net cumulative deficiency as of December 31, 1995 of $10.2 million,
$18.2 million and $12.9 million for 1990, 1991 and 1992 unpaid losses and LAE,
respectively, is primarily attributable to adverse development subsequent to
1991 of the workers' compensation loss experience in the 1990 and 1991 loss
years. The California workers' compensation industry, including NAICC,
experienced adverse development of those loss years, primarily in Southern
California, largely as a result of a significant increase in the number of
workers' compensation post-termination stress claims primarily due to a downturn
in the California economy and an increase in unemployment. Workers'
compensation reform legislation passed in July 1993, which effectively reduced
the number of successful post-termination stress claims, as well as a decrease
in unemployment in California and highly-publicized anti-fraud activity, have
contributed to significantly more favorable loss experience in the 1992, 1993
and 1994 loss years. In 1995, favorable development of approximately $4.9
million in the 1992 and 1993 loss years for workers' compensation was offset by
$2.6 million of adverse development of other ongoing business lines and loss
years as well as $5.4 million of adverse development of the businesses in run-
off. As stated above, the losses and LAE reflected in the tables above are
reduced both for amounts ceded to other insurers and other recoveries.

Conditions and trends that have affected the development of these
liabilities in the past may not necessarily recur or have similar effects in the
future. It would not be appropriate to use this cumulative history in the
projection of future performance.

Ceded Reinsurance and Reinsurance with Affiliates

In its normal course of business in accordance with industry practice,
NAICC reinsures a portion of its exposure with other insurance companies to
limit effectively its maximum loss arising out of any one occurrence. Contracts
of reinsurance do not legally discharge the original insurer from its primary
liability. In accordance with generally accepted accounting principles,
estimated reinsurance receivables arising from these contracts of reinsurance
are reported separately as assets. NAICC retains the first $400,000 of each
workers' compensation loss and has purchased reinsurance for up to $99.6 million
in excess of its retention, of which the first $9.6 million is placed with two
major reinsurance companies and the remaining $90 million is provided by 18
other companies. NAICC cedes 50 percent of its non-standard private passenger
automobile direct written premium, direct losses and LAE to a major reinsurance
company under a quota share reinsurance agreement. Premiums for reinsurance
ceded by NAICC in 1995 were 22 percent of written premiums for the period.

As of December 31, 1995, General Reinsurance Corporation ("GRC") and Munich
American Reinsurance Company ("MARC") were the only reinsurers that comprised
more than ten percent of NAICC's reinsurance recoverables on paid and unpaid
claims. NAICC monitors all reinsurers by reviewing A.M. Best and Company ("A.M.
Best") reports and rating information from reinsurance intermediaries and
analyzing financial statements. At December 31, 1995, NAICC had reinsurance
recoverables on paid and unpaid claims of $10 million from GRC and $9.8 million
from MARC. Both GRC and MARC had an A.M. Best rating of "A++." See Note 3 of
the Notes to Consolidated Financial Statements for further information on
reinsurance.

-9-


NAICC and its subsidiaries participate in an intercompany pooling and
reinsurance agreement under which DIC and DNIC cede 100 percent of their net
liability, defined to include premiums, losses and allocated LAE, to NAICC to be
combined with the net liability for policies of NAICC in formation of a "pool."
NAICC simultaneously cedes to DIC and DNIC ten percent of the net liability of
the pool. DNIC and DIC commenced participation in the pool in July 1993 and
January 1994, respectively. DIC and DNIC further reimburse NAICC for executive
and professional services and administrative expenses based on designated
percentages of net premiums written for each line of business. This
intercompany pooling and reinsurance agreement has been approved by the
California Department of Insurance (the "Insurance Department").

Regulation

Insurance companies are subject to insurance laws and regulations
established by the states in which they transact business. The agencies
established pursuant to these state laws have broad administrative and
supervisory powers relating to the granting and revocation of licenses to
transact insurance business, regulation of trade practices, establishment of
guaranty associations, licensing of agents, approval of policy forms, premium
rate filing requirements, reserve requirements, the form and content of required
regulatory financial statements, periodic examinations of insurers' records,
capital and surplus requirements and the maximum concentrations of certain
classes of investments. Most states also have enacted legislation regulating
insurance holding company systems, including with respect to acquisitions,
extraordinary dividends, affiliate transactions and other related matters. DHC
and its insurance subsidiaries have registered as a holding company system
pursuant to such legislation in California and routinely report to other
jurisdictions. The National Association of Insurance Commissioners (the
"Association") has formed committees and appointed advisory groups to study and
continue to formulate regulatory promulgations on such diverse issues as the use
of surplus debentures, accounting for reinsurance transactions and the adoption
of risk based capital ("RBC") requirements. It is not possible to predict the
impact of future state and federal regulation on the operations of DHC or its
insurance subsidiaries.

NAICC is an insurance company domiciled in the State of California and is
regulated by the Insurance Department for the benefit of policyholders. The
Insurance Department is currently conducting a routine examination of the
statutory basis financial statements of NAICC, DNIC and DIC as of December 31,
1995 and has disclosed no findings to date. The California Insurance Code
prohibits the payment, from other than accumulated earned surplus, of
shareholder dividends which exceed the greater of net income or ten percent of
statutory surplus, without prior approval of the Insurance Department. As a
result of NAICC's negative unassigned surplus, NAICC is not permitted to pay
dividends in 1996 without prior regulatory approval.

Capital Adequacy and Risk Based Capital

Several measures of capital adequacy are common in the property-casualty
industry. The two most often used are (a) premiums-to-surplus (which measures
pressure on capital from inadequate pricing), and (b) reserves-to-surplus (which
measures pressure on capital from inadequate loss and LAE reserves). A commonly
accepted maximum premiums-to-surplus ratio is 3 to 1; commonly accepted maximum
reserves-to-surplus ratio is 5 to 1.

The following table sets forth the consolidated premiums-to-surplus and
reserves-to-surplus ratios of NAICC (on a statutory basis):



Years Ended December 31,
------------------------
1995 1994 1993
------- ------- ------

Ratio of:

Premiums-to-surplus 1.2:1 2.3:1 2.1:1

Reserves-to-surplus 2.6:1 3.2:1 2.8:1


-10-


Given the foregoing relatively conservative financial security ratios,
NAICC's management believes that existing capital is adequate to support above
average premium growth from its current premium levels for the foreseeable
future.

In December 1993, the Association adopted a model for determining the RBC
requirements for property and casualty insurance companies. Under the RBC
model, property and casualty insurance companies are required to report their
RBC ratios based on their statutory annual statements as filed with the
regulatory authorities. NAICC has calculated its RBC requirement under the
Association's model, and has capital in excess of any regulatory action or
reporting level.


TRUST BUSINESS


Danielson Trust Company ("Danielson Trust") is chartered by the California
State Banking Department to provide trust and fiduciary services. Danielson
Trust is located in San Diego, California. Prior to January 31, 1996, Danielson
Trust also maintained a branch office in Santa Barbara, California. In March
1993 (the "Acquisition Date"), DHC acquired all of the common stock of Danielson
Trust, which was known as HomeFed Trust until November 13, 1993. In February
1994, Danielson Trust acquired the assets of the Western Trust Services ("WTS")
division of Grossmont Bank. On January 31, 1996, following approval of the
California State Banking Department, Danielson Trust sold substantially all of
the fiduciary accounts administered by its Santa Barbara branch to The Bank of
Montecito. In connection with the sale, in January 1996, Danielson Trust
recognized a gain of $32,874.

The accounts and operations of Danielson Trust subsequent to and as of the
Acquisition Date are reflected in the Company's Consolidated Financial
Statements; however, comparisons of the financial results of Danielson Trust's
operations for the years ended December 31, 1995 and 1994 with the results of
its operations during the partial 1993 period have been omitted as they do not
relate to equivalent periods (nor, in some instances, to equivalent operations)
and would not provide meaningful information relating to historical trends and
financial results. The results of Danielson Trust's operations during the years
ended 1995 and 1994 are not entirely comparable in that they relate, in part, to
different assets, accounts and lines of business. See "MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, 3. RESULTS OF
DANIELSON TRUST COMPANY'S OPERATIONS."

Danielson Trust's business consists of providing trust and investment
services to individuals, not-for-profit corporations and retirement service
clients, including its affiliates. In addition, since 1994 Danielson Trust has
provided custodial services for certificates of deposit to affiliated and
unaffiliated broker-dealers, as well as other custodial services to an
affiliated mutual fund. See "Custody Services." In connection with Danielson
Trust's efforts to expand its sources of business within its primary market
areas, Danielson Trust has developed enhanced product lines for its private
trust and retirement services lines of business. See "New Business and Capital
Resources."

In January 1995, Danielson Trust announced the appointment of A. Vincent
Siciliano as its President and Chief Executive Officer. The appointment became
effective on February 6, 1995.

Danielson Trust's lines of business are described below.

-11-


Private Trust

The private trust unit of Danielson Trust primarily provides trust, custody
and investment management services for individuals and not-for-profit
corporations. In the performance of its private trust business, this unit may
serve in the capacities of executor, trustee, investment agent, conservator or
custodian. Danielson Trust has increased its marketing support of the private
trust business, including the development of an enhanced product line.
Danielson Trust plans to offer investment management services provided by
regionally and nationally known investment managers. The company also intends
to introduce customized trust, investment and financial planning, utilizing a
variety of individualized asset allocation models designed to achieve clients'
particular investment objectives. The company also intends to simplify and
clarify the performance measurement process in portfolio management reporting.
Danielson Trust anticipates that it will introduce such new services, together
with an expansion of its client calling program and increased efforts to involve
local professionals in the referral process, by the first quarter of 1996.
Danielson Trust's private trust unit generated fee income of $1.3 million and
$1.7 million for the years ended December 31, 1995 and 1994, respectively.

Retirement Services

Danielson Trust's retirement services unit (formerly known as employee
benefit trust) provides trustee, custodial, and investment management services
to corporations, typically for qualified employee benefit plans, often in the
form of defined benefit plans, 401(k) plans, or profit sharing plans.
Additionally, this unit provides cash management services to corporations
desiring short term investments in excess of $1 million. Danielson Trust is
strengthening its commitment to the retirement services business with the
development of an enhanced product line for this market which it anticipates
introducing late in the second quarter of 1996. Danielson Trust has designed a
bundled retirement services product offering prospective retirement services
clients a variety of investment management, administrative and consulting
services for employee benefit plans of every size, including third party
recordkeeping and an employee education component. Danielson Trust believes
that such diversity of investment advisory, fiduciary and consulting services
for employee benefit plans also will enhance the company's ability to satisfy
customized client service requirements. For the years ended December 31, 1995
and 1994, the retirement services unit of Danielson Trust generated fee income
of approximately $2.6 million and $2.3 million, respectively (excluding
retirement services custodial revenues). See "Business Related to Former
Parent."

Custody Services

In addition to custodial services associated with the private and
retirement services businesses, since 1994 Danielson Trust has provided
certificate of deposit (CD) custodial services to broker-dealers and other
financial institutions. Danielson Trust also provides custody services for an
affiliated mutual fund. Total fee income for all custody services provided by
Danielson Trust for the years ended December 31, 1995 and 1994 were $537,000 and
$427,000, respectively, which constituted 11.7 percent and 8.9 percent,
respectively, of Danielson Trust's total revenue for the comparable periods. Of
that amount, fee income for CD custody services for the years ended December 31,
1995 and 1994 was $401,000 and $339,000, respectively. Approximately one
percent of Danielson Trust's total revenues in 1995 and 1994 was generated by
each of mutual fund-related custody services and other retirement custody
services. Fee income for custody services are not reflected in the private
trust or retirement services revenue amounts referred to above.

Business Related to Former Parent

During the first quarter of 1994, as previously anticipated, Danielson
Trust ceased providing various trust services to HomeFed Bank (Danielson Trust's
former parent prior to DHC's acquisition of Danielson Trust) following the sale
of HomeFed Bank's branch offices by the Resolution Trust Corporation. All of
the revenues associated with such services ceased by the end of the second
quarter of 1994. For the year ended December 31, 1994, the run-off of HomeFed
Bank-related business of Danielson Trust generated non-recurring total fee
income of $310,000, or less than seven percent of Danielson Trust's 1994
revenues.

-12-


New Business and Capital Resources

Historically, Danielson Trust has generated new business from direct
marketing efforts of Danielson Trust's officers, referrals from independent
professionals, and referrals from and captive business of its former parent
company, HomeFed Bank. As noted above, the HomeFed Bank-related appointments
ceased entirely during 1994. Virtually all of Danielson Trust's new business
during 1995 and 1994 (apart from business associated with the acquisition of
WTS) resulted from client and professional referrals, as well as from Danielson
Trust's marketing efforts.

Danielson Trust has increased its marketing efforts to expand Danielson
Trust's private trust and retirement services business within its primary market
areas with the development of enhanced product lines which it anticipates will
be introduced by the second quarter of 1996. See "Private Trust" and
"Retirement Services" above. Danielson Trust also is in the process of
implementing various marketing initiatives which commenced in 1994, including
systematic calling programs to identified business sectors within the San Diego
area, a bi-monthly local radio program and a business expansion initiative
involving medical groups. During 1995, Danielson Trust was appointed to serve
as the designated trustee for PaineWebber in its west coast region. In
connection with this appointment, Danielson Trust will provide trust services to
PaineWebber investment executives and their clients throughout California, as
well as Arizona, Colorado, Montana, Nevada, Oregon, Utah, Washington and
Wyoming. Danielson Trust intends to seek out additional such established
distribution channels for its services. Management of Danielson Trust is
hopeful that its increased business development efforts will result in continued
enhancement of Danielson Trust's reputation as a quality provider of trust and
investment services with a strong commitment to the San Diego community.

In connection with the sale of its Santa Barbara branch, Danielson Trust
has entered into a servicing agreement with The Bank of Montecito pursuant to
which Danielson Trust provides investment management and operational services
with respect to the accounts that were sold. Management of Danielson Trust
believes that the fee income it anticipates to be generated by such servicing
agreement, together with fee income from retained Santa Barbara accounts, will
partially replace the amount of fee income previously generated by the former
branch office. The former Santa Barbara branch generated fee income of
approximately $200,000 for each of the years ended December 31, 1995 and 1994,
which is included in the private trust and retirement services fee income
previously noted. Danielson Trust continues to maintain a trust services
referral arrangement with San Diego National Bank, whereby each cooperates in
order to offer each company's clients access to services that are not provided
by the separate companies.

The market for Danielson Trust's business is highly competitive and
competition is based primarily upon such factors as price and service. Several
of Danielson Trust's competitors are affiliated with large financial
institutions and, accordingly, enjoy the benefits of referrals from such
institutions. Among the types of financial institutions with which Danielson
Trust competes are banks, brokerage firms, insurance companies and mutual funds.

Liquidity and Capital Resources

Danielson Trust requires liquid assets to meet the working capital needs of
its continuing business. The primary source of these liquid assets are fees
charged to Danielson Trust's trust clients. In connection with the cessation of
fee revenues derived from HomeFed Bank-related business during the first half of
1994, as well as the incurrence by Danielson Trust since 1994 of significant
costs for communications, computer equipment upgrades and unanticipated systems
conversion expenses associated with the acquisition of the assets of WTS (see
Note 2 of the Notes to Consolidated Financial Statements), DHC made a $300,000
unsecured intercompany loan to Danielson Trust in 1994 in the form of a
promissory demand note, with quarterly interest payments at the annual rate of
7.75 percent. At December 31, 1995, the entire principal amount of the
promissory demand note was outstanding. Danielson Trust is servicing such
interest payments from fee revenues generated by its operations. DHC intends to
refrain from making demand for payment of principal until such time as Danielson

-13-


Trust has sufficient capital to make such payment. As of January 1, 1996, DHC
agreed to make an additional unsecured loan to Danielson Trust in the principal
amount of $600,000, bearing interest at the rate of prime plus one percent, and
to consider making additional such loans in the aggregate amount of $600,000
upon the request of Danielson Trust. As of the date hereof, Danielson Trust has
not borrowed any amount under such loan agreement. To the extent that timing
differences exist between the collection of revenue and the actual payment of
expenses, or where revenues generated by Danielson Trust's business are
insufficient to cover its expenses, or to maintain compliance with regulatory
capital requirements, the primary sources of funds to meet those obligations
would be the sale of short term investments, additional intercompany loans,
parent company capital contributions or financing provided by a third party.

In accordance with California banking regulations, Danielson Trust has
pledged assets with a fair value of $603,000 to the State as a reserve in
connection with certain types of fiduciary appointments, which is the maximum
amount of such reserves that may be required. State banking laws also regulate
the nature of trust companies' investments of contributed capital and surplus,
and generally restrict such investments to debt type investments in which banks
also are permitted to invest. In order to satisfy such regulations, a majority
of Danielson Trust's investments are in U.S. Government obligations and, as of
December 31, 1995, Danielson Trust was in compliance with the foregoing
requirements.


HOLDING COMPANY BUSINESS


DHC is a holding company incorporated under the General Corporation Law of
the State of Delaware. As of December 31, 1995, DHC had the following material
assets and no material liabilities:

(i) ownership of its MAIC subsidiary, an insurance holding company that
owns, directly or indirectly, all of the stock of NAICC, DNIC, DIC,
and two licensed insurance subsidiaries which are expected to
commence writing insurance lines in the future;

(ii) ownership of 100 percent of the stock of Danielson Trust; and

(iii) approximately $11 million in cash and investments.

On December 21, 1994, DHC received a partial distribution in the amount of
$750,000 from an unaffiliated trust that owns certain assets and liabilities of
a former subsidiary of DHC. The partial distribution is recorded as an
extraordinary item in the Company's 1994 Consolidated Statements of Operations.
The Company has been advised that the trust is anticipated to be terminated in
the near future. DHC does not anticipate that any amount it may receive upon
termination of the trust will be material.

On December 30, 1993, following approval of the California Superior Court,
MAIC received a distribution of approximately $268,000 upon termination of an
unaffiliated trust formerly administered by the California Insurance
Commissioner as trustee. Such trust had assumed the liabilities and
substantially all of the assets of MAIC and a former subsidiary of DHC. Under
the terms of the trust agreement, the trust was required to distribute to MAIC
all amounts which remained in the trust after satisfying or otherwise resolving
all claims against MAIC and such former subsidiary. The distribution was
recorded as an extraordinary item in the Company's 1993 Consolidated Statements
of Operations. MAIC distributed such funds to DHC following approval of the
California Insurance Department (the "Insurance Department"). The termination
of the trust had the effect of finalizing a Superior Court-approved interim
distribution by such former trust to MAIC in 1992 of approximately $6.2 million,
the proceeds of which also were distributed to DHC upon approval of the
Insurance Department, as well as releasing all indemnities and pledges running
from MAIC to the trust, including a pledge of 3,526,140 shares of KCP common
stock owned by MAIC.

-14-


Also during 1993, MAIC received proceeds of $220,000 from the liquidation
of the estate of a former Texas subsidiary of DHC. The distribution was
accounted for as an extraordinary item in the Company's 1993 Consolidated
Statements of Operations.

Tax Loss Carryforward

As of December 31, 1995, the Company had a consolidated net operating loss
carryforward of approximately $1.4 billion for Federal income tax purposes.
This number is based upon actual Federal consolidated income tax filings for the
periods through December 31, 1994 and an estimate of the 1995 taxable loss.
Some or all of the carryforward may be available to it to offset, for Federal
income tax purposes, the future taxable income, if any, of DHC and its wholly-
owned subsidiaries. The Internal Revenue Service ("IRS") may attempt to
challenge the amount of this net operating loss in the event of a future tax
audit. Management believes, based in part upon the views of its tax advisors,
that its net operating loss calculations are reasonable and that it is
reasonable to conclude that the Company's net operating losses of in excess of
$1 billion would be available for use by the Company. These tax loss attributes
are currently fully reserved, for valuation purposes, on the Company's financial
statements. The amount of the deferred asset considered realizable could be
increased in the near term if estimates of future taxable income during the
carryforward period are increased.

The Company's net operating tax loss carryforwards will expire, if not
used, in the following approximate amounts in the following years (dollars in
thousands):




Year Ending Amount of Carryforwards
December 31, Expiring
----------- -----------------------

1998 $ 32,804
1999 203,869
2000 249,488
2001 155,768
2002 169,767
2003 196,476
2004 75,933
2005 99,961
2006 129,755
2007 44,873
2008 4,626
2009 10,938
2010 6,107



The Company's ability to utilize its net operating tax loss
carryforwards would be substantially reduced if DHC were to undergo an
"ownership change" within the meaning of Section 382(g)(1) of the Internal
Revenue Code. In an effort to reduce the risk of an ownership change, DHC has
imposed restrictions on the ability of holders of five percent or more of common
stock of DHC, par value $0.10 per share ("Common Stock") to transfer the Common
Stock owned by them and to acquire additional Common Stock, as well as the
ability of others to become five percent stockholders as a result of transfers
of Common Stock. Notwithstanding such transfer restrictions, there could be
circumstances under which an issuance by DHC of a significant number of new
shares of Common Stock or other new class of equity security having certain
characteristics (for example, the right to vote or to convert into Common Stock)
might result in an ownership change under the Internal Revenue Code. See Note 7
of the Notes to the Consolidated Financial Statements for a description of
certain restrictions on the transfer of Common Stock.

-15-


DHC's Business Plan and Development

DHC's business plan is to grow by making strategic acquisitions that
are expected to contribute higher than average returns for our stockholders. On
February 26, 1996, DHC entered into a merger agreement pursuant to which DHC
will acquire all of the outstanding stock of Midland Financial Group, Inc.
("Midland") in a merger transaction. The purchase price will be 1.6 times the
1995 year-end book value of Midland. As part of the transaction, DHC will make
a $30 million capital contribution to Midland at the closing.

The consideration to be received by the Midland shareholders will be
paid 50 percent in cash, 40 percent in DHC non-convertible preferred stock
having a market dividend rate, and ten percent in Common Stock to be valued
based upon a trading average prior to the closing date. DHC expects to finance
the cash portion of the purchase price and the $30 million capital contribution
with the net proceeds of an underwritten public offering of Common Stock to
raise approximately $80 million, which is expected to close concurrently with
the acquisition. The DHC public offering will be made as soon as possible and
currently is anticipated to occur during the second quarter of 1996.

Midland is engaged primarily in non-standard automobile insurance and
related activities in 16 states located primarily in the southern and western
United States. DHC anticipates that operating management of Midland will remain
with the business following the merger.

Management of DHC believes that both Midland and DHC will benefit from
operating synergies and efficiencies between the two companies' businesses and
operations. DHC anticipates that the transaction will have many positive
effects for the acquired company, including particularly providing support for
Midland's Best's ratings at the time of closing. In addition, DHC believes that
the availability of DHC's $1.4 billion net operating tax loss carryforward will
enable Midland to enhance its results through a shift in its investment
portfolio to higher yielding instruments, as well as by offsetting Midland's
pre-tax operating income. Management of DHC currently contemplates that DHC
will recognize the book value of a portion of its approximately $1.4 billion net
operating tax loss carryforward in conjunction with the merger.

The closing of the transaction is subject to various conditions,
including approvals by the stockholders of both companies, the receipt of
regulatory approvals, and financing. No assurance can be given that the
conditions to the transaction can be satisfied or that the transaction will be
completed.

As previously described, in March 1993, DHC completed the acquisition
of the common stock of Danielson Trust from a subsidiary of the Resolution Trust
Corporation. In February 1994, DHC's trust subsidiary, Danielson Trust,
completed the acquisition of the assets of the Western Trust Services ("WTS")
division of Grossmont Bank. See Note 2 of the Notes to Consolidated Financial
Statements.


EMPLOYEES

As of December 31, 1995, the number of employees of DHC and its
consolidated subsidiaries was approximately as follows:



NAICC 156
Danielson Trust 64
DHC (holding company only) 12
---
Total 232
===


None of these employees is covered by any collective bargaining agreement. DHC
believes that the staffing levels are adequate to conduct future operations.

-16-


ITEM 2. PROPERTIES.

DHC leases a minimal amount of space for use as administrative and
executive offices. DHC's lease has a term of approximately five years which is
scheduled to expire in 1998. DHC believes that the space available to it is
adequate for DHC's current and foreseeable needs.

NAICC's headquarters are located in a leased office facility in Rancho
Dominguez, California, pursuant to a long term lease which is scheduled to
expire in 1999. In addition, NAICC has entered into short term leases in
connection with its operations in various locations on the west coast of the
United States. NAICC believes that the foregoing leased facilities are adequate
for NAICC's current and anticipated future needs.

Danielson Trust's headquarters are located in a leased office facility in
San Diego, California. This lease has a term of approximately ten years which
is scheduled to expire in 2004, with options to extend. Prior to January 31,
1996, Danielson Trust maintained a branch office in Santa Barbara, California.
On January 31, 1996, following approval of the California State Banking
Department, Danielson Trust sold its Santa Barbara branch to The Bank of
Montecito which assumed the lease of that branch office. In addition, in
connection with the acquisition of the WTS assets and during the process of
integrating such assets into Danielson Trust's operations, from February 22,
1994 through July 31, 1994, Danielson Trust also occupied office space that was
previously occupied by WTS, pursuant to a short term sublease with Grossmont
Bank. Danielson Trust believes that its existing leased premises are adequate
for Danielson Trust's current and foreseeable needs. See Note 11 of the Notes
to Consolidated Financial Statements.

ITEM 3. LEGAL PROCEEDINGS.

NAICC and Danielson Trust are parties to various legal proceedings which
are considered routine and incidental to their respective insurance and trust
businesses and are not material to the financial condition and operation of such
respective businesses. For information regarding the resolution of NAICC's
claim to recover a reinsurance receivable, see Note 3 of the Notes to
Consolidated Financial Statements. DHC is not a party to any legal proceeding
which is considered material to the financial condition and operation of its
business. See Note 12 of the Notes to Consolidated Financial Statements.

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

Not applicable.

-17-


PART II


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

"Stock Market Prices" on page 98 of DHC's 1995 Annual Report to
Stockholders (included as an exhibit hereto) is incorporated herein by
reference.

ITEM 6. SELECTED FINANCIAL DATA.

"Selected Consolidated Financial Data" on page 60 of DHC's 1995 Annual
Report to Stockholders (included as an exhibit hereto) is incorporated
herein by reference.

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

"Management's Discussion and Analysis of Financial Condition and Results
of Operations" on pages 61 through 72 of DHC's 1995 Annual Report to
Stockholders (included as an exhibit hereto) is incorporated herein by
reference.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

The Consolidated Financial Statements of DHC and its subsidiaries,
together with the Notes thereto, and "Quarterly Financial Data," included
on pages 73 through 76, 77 through 96, and 98, respectively, of DHC's
1995 Annual Report to Stockholders (included as an exhibit hereto), are
incorporated herein by reference.

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

Not applicable.

-18-


PART III


ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

DIRECTORS.

The Directors of DHC are listed on the following pages with brief
statements of their principal occupation and other information. A listing of
the Directors' and officers' beneficial ownership of Common Stock appears on
subsequent pages under the heading "Item 12. "Security Ownership of Certain
Beneficial Owners and Management." All of the Directors were elected to their
present terms of office by the stockholders at the Annual Meeting of
Stockholders of DHC held on April 25, 1995. The term of office of each Director
continues until the election of Directors to be held at the next Annual Meeting
of Stockholders or until his successor has been elected. There is no family
relationship between any Director and any other Director or executive officer of
DHC. The information set forth below concerning the Directors has been
furnished by such Directors to DHC.


DIRECTOR
DIRECTOR AGE PRINCIPAL OCCUPATION SINCE
- -------- --- -------------------- --------

Martin J. Whitman 71 Chairman of the Board and 1990
Chief Investment Officer of
DHC; Managing Director of
Whitman Heffernan Rhein &
Co., Inc.
C. Kirk Rhein, Jr. 43 Chief Executive Officer and 1990
President of DHC; Managing
Director of Whitman Heffernan
Rhein & Co., Inc.
James P. Heffernan 50 Chief Financial Officer of 1990
DHC; Managing Director of
Whitman Heffernan Rhein &
Co., Inc.
Eugene M. Isenberg 66 Chairman of the Board and 1990
Chief Executive Officer of
Nabors Industries, Inc.
Joseph F. Porrino 51 Executive Vice President of 1990
the New School for Social
Research
Frank B. Ryan 59 Professor of Mathematics and 1990
Computational and Applied
Mathematics at Rice University
William R. Story 50 President and Chief Executive 1990
Officer of KCP Holding
Company and National American
Insurance Company of
California
Wallace O. Sellers 66 Director of Enhance Financial 1995
Services Group, Inc.


-19-


Mr. Whitman, Chairman of the Board, Chief Investment Officer and a
Director of DHC, is a Managing Director of Whitman Heffernan Rhein & Co., Inc.
("WHR"), an investment and financial advisory firm which he founded with Messrs.
Heffernan and Rhein during the first quarter of 1987. Since 1974, Mr. Whitman
has been the President and controlling stockholder of M.J. Whitman & Co., Inc.
(now known as Martin J. Whitman & Co., Inc.) ("MJW&Co") which, until August
1991, was a registered broker-dealer. From August 1994 to December 1994, Mr.
Whitman served as the Managing Director of M.J. Whitman, L.P. ("MJWLP"), then a
registered broker-dealer which succeeded to the broker-dealer business of
MJW&Co. Since January 1995, Mr. Whitman has served as the Chairman and Chief
Executive Officer (and, until June 1995, as President) of M.J. Whitman, Inc.
("MJW"), which succeeded at that time to MJWLP's broker-dealer business. Also
since January 1995, Mr. Whitman has served as the Chairman and Chief Executive
Officer of M.J.Whitman Holding Corp. ("MJWHC"), the parent of MJW and other
affiliates. Since March 1990, Mr. Whitman has been the Chairman of the Board,
Chief Executive Officer and a Director (and, since January 1991, the President)
of Third Avenue Value Fund, Inc. ("TAVF"), an investment company registered
under the Investment Company Act of 1940. Until April 1994, Mr. Whitman also
served as the Chairman of the Board, Chief Executive Officer and a Director of
Equity Strategies Fund, Inc., previously a registered investment company. Since
March 1991, Mr. Whitman has served as a Director of Nabors Industries, Inc., a
publicly-traded company. Mr. Whitman also serves as a Director of DHC's
subsidiaries, including National American Insurance Company of California
("NAICC"), KCP Holding Company ("KCP") and Danielson Trust Company ("Danielson
Trust"). Mr. Whitman co-authored the book The Aggressive Conservative Investor.
------------------------------------
Mr. Whitman is a Distinguished Faculty Fellow in Finance at the Yale University
School of Management. Mr. Whitman graduated from Syracuse University magna cum
laude in 1949 with a Bachelor of Science degree and received his Masters degree
in Economics from the New School for Social Research in 1956. Mr. Whitman is a
Chartered Financial Analyst.

Mr. Rhein is President, Chief Executive Officer and a Director of DHC.
He also is a Managing Director of WHR and was, prior to April 1987, a partner in
the law firm of Anderson Kill Olick & Oshinsky, P.C. Mr. Rhein specialized in
corporate transactions and securities law during his law practice. Since March
1991, Mr. Rhein has served as a Director and, since May 1991, as Vice Chairman
of Reading & Bates Corporation, a publicly-traded company listed on the New York
Stock Exchange. Mr. Rhein also serves as a Director of DHC's subsidiaries,
including NAICC, KCP and Danielson Trust. Mr. Rhein graduated from the College
of Wooster with a Bachelor of Arts degree. In 1976, Mr. Rhein received his Juris
Doctor degree from Columbia University School of Law.

Mr. Heffernan is Chief Financial Officer and a Director of DHC. From
1990 through March 1996, Mr. Heffernan served as Chief Investment Officer of
DHC. He also is a Managing Director of WHR. Prior to April 1987, he was a
partner of Anderson Kill Olick & Oshinsky, P.C. During his law practice, Mr.
Heffernan concentrated in the area of bankruptcy law and reorganizations. Since
May 1993, Mr. Heffernan has served as a Director of The Columbia Gas System,
Inc., a publicly-traded company listed on the New York Stock Exchange.
Beginning in February 1995, Mr. Heffernan has served as Chairman of the Board of
Herman's Sporting Goods, Inc., a retail sporting goods chain. Mr. Heffernan also
serves as a Director of DHC's subsidiaries, including NAICC, KCP and Danielson
Trust. Mr. Heffernan graduated with a Bachelor of Arts degree from LeMoyne
College in 1967 and received his Juris Doctor degree from Fordham University Law
School in 1970.

Mr. Isenberg, since 1987, has been Chairman and Chief Executive Officer
of Nabors Industries, Inc., a publicly-traded oil and gas drilling company
listed on the American Stock Exchange. Mr. Isenberg is a member of the Board of
Directors of Continental Mortgage Investors (an equipment leasing and photo
finishing business) and a Managing Partner of EMI Capital Associates, Ltd. (a
manager of private investments and assets). Mr. Isenberg graduated from the
University of Massachusetts magna cum laude in 1950 with a Bachelor of Arts
degree in Economics and from Princeton University in 1952 with a Masters degree
in Economics.

Mr. Porrino has been Executive Vice President of the New School for
Social Research since September 1991. Prior to that time, Mr. Porrino was a
partner in the New York law firm of Putney, Twombly, Hall & Hirson,
concentrating his practice in the area of labor law. Mr. Porrino received a
Bachelor of Arts degree from Bowdoin College in 1966, and was awarded a Juris
Doctor degree from Fordham University School of Law in 1970.

-20-


Dr. Ryan, since August 1990, has been a Professor of Mathematics and
Computational and Applied Mathematics at Rice University. Since March 1996, Dr.
Ryan has served as a Director of Sequoia Systems, Inc., a computer systems
company, the capital stock of which is traded on National Association of
Securities Dealers Automated Quotation. Since March 1995, Dr. Ryan has served
as a Director of America West Airlines, Inc., a publicly-traded company listed
on the New York Stock Exchange. From August 1990 to February 1995, Dr. Ryan
also served as Vice President-External Affairs at Rice University. For two
years ending August 1990, Dr. Ryan was the President and Chief Executive Officer
of Contex Electronics Inc., a subsidiary of Buffton Corporation, the capital
stock of which is publicly traded on the American Stock Exchange. Prior to
that, and beginning in 1977, Dr. Ryan was a Lecturer in Mathematics at Yale
University, where he was also the Associate Vice President in charge of
institutional planning. Dr. Ryan obtained a Bachelor of Arts degree in Physics
in 1958 from Rice University, a Masters degree in Mathematics from Rice in 1961,
and a Doctorate in Mathematics from Rice in 1965.

Mr. Story, since September 1991, has been President and Chief Executive
Officer of NAICC and KCP. Prior to that time, Mr. Story was President and Chief
Operating Officer of NAICC, with which he has been employed since 1987. Before
that time, Mr. Story held underwriting and executive positions with Mission
American Insurance Company, Prudential Reinsurance Company, and The Hartford.
Mr. Story also serves as a Director of KCP, NAICC and Danielson Trust. Mr.
Story received a Bachelor of Arts degree in Business from the University of
Northern Iowa in 1968 and holds the designations of Chartered Property and
Casualty Underwriter, and Associate in Risk Management (IIA).

Mr. Sellers is a Director of Enhance Financial Group, Inc. ("Enhance
Group"), a financial services corporation the capital stock of which is publicly
traded on the New York Stock Exchange. Until December 31, 1994, Mr. Sellers was
the President and Chief Executive Officer of Enhance Group, from its inception
in 1986, as well as its principal subsidiaries, Enhance Reinsurance Company and
Asset Guaranty Insurance Company, from their inceptions in 1986 and 1988,
respectively. From 1987 to 1994, Mr. Sellers served as a Director, and from
1992 to 1993 as the Chairman, of the Association of Financial Guaranty Insurors
in New York. From 1990 through 1994, Mr. Sellers served on the Board of
Directors of EIC Corporation Ltd. and Exporters Insurance Company Ltd., both of
Bermuda. Mr. Sellers was a Director and, in 1990, Chairman, of the Foreign
Credit Insurance Association from 1990 through 1994. From 1990 through 1994,
Mr. Sellers was a Director of Van-American Insurance Company in Lexington,
Kentucky. From 1982 through 1991, Mr. Sellers was a member of the Board of
Directors of Financial News Network in Santa Monica, California. From 1985
through 1990, Mr. Sellers was a Director of Intex Holdings (Bermuda) Limited.
Mr. Sellers served on the Board of Directors of The Learning Channel in
Washington, DC. Mr. Sellers received a Bachelor of Arts degree in Economics,
Anthropology and Archaeology form the University of New Mexico in 1951 and a
Masters degree in Economics from New York University ("NYU") in 1956. Mr.
Sellers also is a Doctoral candidate at the NYU Graduate School of Business
Administration. Mr. Sellers attended the Advanced Management Program at Harvard
University in 1975. Mr. Sellers is a Chartered Financial Analyst.

-21-


EXECUTIVE OFFICERS.

The executive officers of DHC are as follows:



NAME AGE PRINCIPAL POSITION WITH REGISTRANT
- ---- --- ----------------------------------

Martin J. Whitman 71 Chairman of the Board, Chief
Investment Officer and a Director

C. Kirk Rhein, Jr. 43 President, Chief Executive Officer
and a Director
James P. Heffernan 50 Chief Financial Officer and a Director
Lisa D. Levey 39 General Counsel and Secretary
Claudia C. Cosenza 32 Controller


For additional information about Messrs. Whitman, Heffernan and Rhein,
see "Directors" above.

Ms. Levey has been the General Counsel and Secretary of DHC since January
1991. Ms. Levey also has served as General Counsel and Secretary of Danielson
Trust since March 1993, of NAICC since 1992, and of WHR since 1991. Prior to
January 1991, Ms. Levey was a partner with the law firm of Anderson Kill Olick &
Oshinsky, P.C. specializing in commercial transactions. Ms. Levey graduated
magna cum laude with a Bachelor of Arts degree from the University of
Pennsylvania in 1978 and received her Juris Doctor degree from New York
University School of Law in 1981.

Ms. Cosenza has been Controller of DHC since April 1992. Prior to that
time, Ms. Cosenza was a Senior Accountant with DHC. In addition, since June
1990, Ms. Cosenza has served as Controller of Martin J. Whitman & Co., Inc.
(which formerly was known as MJW&Co.) and various affiliated entities. From
June 1990 through 1993, Ms. Cosenza also served as Controller of MJWLP. Ms.
Cosenza graduated from Adelphi University in 1985 with a Bachelor of Business
Administration degree in Accounting. Ms. Cosenza is a Certified Public
Accountant.

COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934

Section 16(a) of the Securities Exchange Act of 1934 requires DHC's
Directors and executive officers, and persons who own more than ten percent of a
registered class of the DHC's equity securities, to file with the Securities and
Exchange Commission and the American Stock Exchange initial reports of ownership
and reports of changes in ownership of Common Stock and other equity securities
of DHC. Officers, Directors and greater than ten percent stockholders are
required by Federal securities regulations to furnish DHC with copies of all
Section 16(a) forms they file.

To DHC's knowledge, based solely upon review of the copies of such
reports furnished to DHC and written representations that no other reports were
required, except for one Form 3 and one Form 4 with respect to Ms. Cosenza
(involving one transaction) and one Form 3 with respect to Mr. Sellers (not
involving any transaction), all Section 16(a) filing requirements applicable to
DHC's officers, Directors and greater than ten percent beneficial owners were
complied with for the fiscal year ended December 31, 1995.

-22-


ITEM 11. EXECUTIVE COMPENSATION.

SUMMARY COMPENSATION TABLE

The following Summary Compensation Table presents certain information
relating to compensation paid by DHC for services rendered in 1995 by the Chief
Executive Officer and the three other executive officers of DHC as of the last
day of the fiscal year whose cash compensation for such year exceeded $100,000.
Only those columns which call for information applicable to DHC or the
individuals named for the periods indicated have been included in such table.



LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------------------------------------
AWARDS
-----------
SECURITIES
UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY /a/ BONUS /b/ OPTIONS
($) ($) (#)
- ---------------------------------------------------------------------------------------------------

C. Kirk Rhein, Jr. 1995 $200,000 -0- -0-
President & Chief Executive Officer 1994 $ 75,000 -0- -0-
1993 $ 75,000 $100,000 -0-
- ---------------------------------------------------------------------------------------------------
James P. Heffernan 1995 $200,000 -0- -0-
Chief Financial Officer 1994 $ 75,000 -0- -0-
1993 $ 75,000 $100,000 -0-
- ---------------------------------------------------------------------------------------------------
Martin J. Whitman 1995 $200,000 -0- -0-
Chairman of the Board & Chief 1994 $ 75,000 -0- -0-
Investment Officer 1993 $ 75,000 $100,000 -0-
- ---------------------------------------------------------------------------------------------------
Lisa D. Levey 1995 $158,675 /c/ $100,000 /c/ -0-
General Counsel & Secretary 1994 $125,175 /c/ $100,000 /c/ -0-
1993 $131,325 /c/ $100,000 /c/ -0-
- --------------------------------------------------------------------------------------------------


For information regarding compensation paid during 1995 by NAICC to Mr.
Story, who is a member of the Board of Directors, see "Item 13. Certain
Relationships and Related Transactions" below.

- ----------
/a/ Amounts shown indicate cash compensation earned and received by executive
officers in the year shown. Executive officers also participate in DHC group
health insurance.

/b/ Amounts shown indicate bonuses earned, if any, with respect to services to
DHC in the fiscal year shown whether or not paid in such fiscal year.

/c/ Amounts shown reflect portion of compensation allocated to DHC based upon
percentage of time spent in connection with DHC matters.

-23-


AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES

The following table presents certain information relating to the value of
unexercised stock options as of the end of 1995, on an aggregated basis, owned
by the Chief Executive Officer and the three other executive officers of DHC as
of the last day of the fiscal year whose cash compensation for such year
exceeded $100,000. None of such officers who owned options to purchase Common
Stock during 1995 exercised any of such options during 1995. Only those tabular
columns which call for information applicable to DHC or the named individuals
have been included in such table.



NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED IN-THE-
UNEXERCISED OPTIONS AT MONEY OPTIONS
FISCAL YEAR-END AT FISCAL YEAR-END
(#) ($)
----------------------------------------------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------------------------------------------------------------------------------

C. Kirk Rhein, Jr. 210,000 /1/ -0- $787,500 /2/ -0-
President & Chief
Executive Officer

James P. Heffernan 210,000 /1/ -0- $787,500 /2/ -0-
Chief Financial Officer

Martin J. Whitman 210,000 /1/ -0- $787,500 /2/ -0-
Chairman of the Board &
Chief Investment Officer

Lisa D. Levey -0- -0- -0- -0-
General Counsel and
Secretary


COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

During 1995, none of the persons who served as members of the
Compensation Committee of DHC's Board of Directors also was, during that year or
previously, an officer or employee of DHC or any of its subsidiaries or had any
other relationship requiring disclosure herein.


- ----------
/1/ As previously disclosed, these options were granted March 13, 1991 under the
1990 Stock Option Plan and are currently exercisable at an exercise price of
$3.00 per share (which equals the arithmetic average of the closing prices
of the Common Stock on the American Stock Exchange for the 30 days prior to
the date of grant). The options expire ten years after the date of grant.
Options to purchase 70,000 shares of Common Stock became exercisable on each
of March 13, 1992, March 13, 1993 and March 13, 1994.

/2/ The value of unexercised in-the-money options, whether or not exercisable,
equals the difference between the fair market value of such options at
fiscal year-end (i.e., the closing price of the Common Stock on the American
Stock Exchange on December 31, 1995, namely, $6-3/4) and the exercise price
of such options (i.e., the arithmetic average of the closing prices of the
Common Stock on the American Stock Exchange for the 30 days prior to the
date of grant, March 13, 1990, namely, $3.00).

-24-


BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION

The Compensation Committee of the Board of Directors of DHC's (the
"Committee"), during 1995, was comprised of three independent (i.e., non-
employee) Directors. The Committee provided the following report on executive
compensation during 1995 as required by applicable securities regulations:

"The Committee's goal continues to be to structure compensation in a way
that will attract and retain highly qualified executives who will conduct the
business of the Company in a manner that will maximize stockholder values.
Toward that end, the Committee seeks to reward effective executive performance
with reference to the Company's achievements, and each individual executive's
contribution to those successes, each year.

DHC does not require its officers to own any amount of Common Stock, nor
does DHC maintain a stock retention policy for officers. However, it is the
Committees's belief that the substantial voluntary stock ownership position of
DHC's executive officers is an extremely strong indication of the alignment of
its officers' interest with that of DHC's stockholders.

For the first time since the inception of the Company's operations in
August 1990, the annual base salary of each of C. Kirk Rhein, Jr., the Chief
Executive Officer of DHC, Martin J. Whitman, the Chairman of the Board and Chief
Investment Officer of DHC, and James P. Heffernan, the Chief Financial Officer
of DHC, was raised, from its prior level of $75,000 to $200,000. As the
Committee has noted in prior Reports, the historic reason for setting and
maintaining low cash compensation has been those executives' collective desire
not to take significant cash out of the Company in the form of executive
compensation at the very early stages of the Company's development. However, the
Committee believed it was necessary to acknowledge in a tangible manner these
executives' unstinting efforts on the Company's behalf over its first five years
of operations and, therefore, the Committee increased those individuals' base
salary.

The three executives' primary goal in 1995 was to identify a suitable
acquisition candidate for the Company. To accomplish this objective, Messrs.
Rhein, Whitman and Heffernan devoted a substantial portion of their time
evaluating numerous potential strategic opportunities -- reviewing materials,
following up introductions, meeting with candidates' management. At the time of
this writing, their efforts appear to have been worthwhile, in light of the
Company's public announcement of its February 26, 1996 agreement to acquire
Midland Financial Group, Inc. in a merger transaction. The Committee is
confident that DHC's executive management will direct all of their abilities
towards consummation of the transaction, including a public offering of DHC's
Common Stock to raise the cash portion of the purchase price, as well as the
capital contribution to be made to Midland at closing. Notwithstanding their
apparent success in achieving their 1995 corporate objective, Messrs. Rhein,
Whitman and Heffernan felt it would be premature to accept any bonus or other
compensation for 1995 beyond their base salary described above. The Committee
notes that there are no employment contracts between DHC and any of its
executive officers.

The Committee recommended an increase in the 1995 base salary of Lisa D.
Levey, DHC's General Counsel and Secretary, from $150,000 to $175,000.
This was the first change in Ms. Levey's base salary since she joined the
Company in 1991. The base compensation of $158,675 paid to Ms. Levey in 1995
reflects the Company's allocated portion of her total base salary amount, based
upon the percentage of Ms. Levey's time actually devoted to Company matters. In
addition to base salary, pursuant to the Committee's recommendation, the Company
paid a $100,000 cash bonus to Ms. Levey with respect to 1995. In arriving at the
bonus amount, the Committee reviewed Ms. Levey's overall performance as well as
her achievement of specific goals identified jointly by DHC's executive
management and Ms. Levey early in 1995. As part of this evaluation, the
Committee considered a variety of Ms. Levey's accomplishments in 1995, including
the development of DHC's 1995 Stock and Incentive Plan (the "1995 Plan") adopted
at the last annual meeting of stockholders, and her involvement in a variety of
legal matters relating to Danielson Trust Company,

-25-


including in connection with its integration of the Western Trust Services
assets acquired in 1994, as well as with respect to the sale of its Santa
Barbara branch to The Bank of Montecito, which closed in January 1996. Ms. Levey
was one of the recipients of stock options granted by the Committee in January
1996 pursuant to the 1995 Plan, noted below.

During 1995, the Committee did not make any stock-based compensation
grants under DHC's 1995 Plan. However, in keeping with the Committee's
view, shared by management of the Company, of the value of non-cash compensation
both to motivate performance and reward the creation of long term stockholder
value, on January 15, 1996, the Committee granted an aggregate of 158,900
options under the 1995 Plan to certain executives and employees of DHC's
(other than Messrs. Rhein, Whitman and Heffernan) and its subsidiaries, NAICC
and Danielson Trust. The exercise price of such options is $6.6875 (the mean of
the high and low prices of the Common Stock on the American Stock Exchange on
the date of grant). These awards will be described in detail in the 1996
Committee Report. The Committee also notes that, in accordance with the terms
of the 1995 Plan, Wallace O. Sellers received an automatic grant of 40,000
options upon his election as a Director of DHC at the last annual
meeting of stockholders on April 25, 1995.

The Committee does not rely upon quantitative measures or other
measurable objective indicia, such as earnings or specifically weighted factors
or compensation formulae, in reaching compensation determinations. Rather, since
DHC at the parent-company level is simply a holding company operation having
only a small group of executives responsible for numerous and diverse areas of
the Company's business and management, and given the high level of awareness
each executive has of the others' activities and contributions, the Committee
evaluates executive performance and reaches compensation decisions based, in
part, upon the recommendations of DHC's executives. The Committee also reviews
quantitative and comparative compensation data and, in some instances, analyses
provided by an independent consulting firm to assist it in reaching its
compensation determinations.

Finally, the Committee notes that Section 162(m) of the Internal Revenue
Code, in most circumstances, limits to $1 million the deductibility of
compensation, including stock-based compensation, paid to top executives by
public companies. None of the 1995 compensation paid to the executive officers
named in the Summary Compensation Table exceeded the threshold for deductibility
under Section 162(m). See "EXECUTIVE COMPENSATION -- Summary Compensation
Table" above. There were no awards under the 1995 Plan during 1995. However,
the 1995 Plan is intended to comply with Section 162(m) and, therefore, awards
under that Plan are anticipated to qualify for the corporate tax deduction."

THE COMPENSATION COMMITTEE:

Joseph F. Porrino
Frank B. Ryan
Wallace O. Sellers

-26-


PERFORMANCE GRAPH

The following graph sets forth a comparison of the semiannual percentage
change in Registrant's cumulative total stockholder return on the Common Stock
with the Standard & Poor's 500 Stock Index/*/ and the AMEX Industrial
(Financial) Index/**/. The foregoing cumulative total returns are computed
assuming (i) an initial investment of $100, and (ii) the reinvestment of
dividends at the frequency with which dividends were paid during the applicable
years. DHC has never paid any dividend on shares of Common Stock. The graph
below reflects comparative information for the five fiscal years of DHC
beginning with the close of trading on December 31, 1990 and ending December 29,
1995. The foregoing information is presented in tabular format immediately
following the graphic presentation. The stockholder return reflected below is
not necessarily indicative of future performance.


[GRAPH APPEARS HERE]



DANIELSON HOLDING AMEX FINANCIAL STANDARD & POOR'S 500
(date) CORPORATION SUB-INDEX STOCK INDEX
----------------- -------------- ---------------------

12/31/90 $100.00 $100.00 $100.00
06/30/91 137.50 122.06 112.40
12/31/91 129.17 127.19 126.31
06/30/92 95.83 131.16 123.60
12/31/92 120.83 142.51 131.95
06/30/93 220.83 146.05 136.43
12/31/93 275.00 153.14 141.25
06/30/94 220.83 150.60 134.54
12/31/94 254.17 138.73 139.08
06/30/95 262.50 158.25 164.97
12/31/95 229.17 181.26 186.52


- ---------

/*/ The Standard & Poor's 500 Stock Index is a capitalization-weighted index
of 500 stocks designed to measure performance of the broad domestic economy
through changes in the aggregate market value of 500 stocks representing all
major industries.

/**/ The AMEX Industrial (Financial) Index ("AIFI") is maintained by the
American Stock Exchange ("AMEX"). As described by the AMEX, the AIFI is one of
eight industrial subindexes of the AMEX Market Value Index, which is a
capitalization-weighted index reflecting the performance of AMEX-traded common
shares, American Depositary Receipts and warrants.

-27-


1990 STOCK OPTION PLAN

The 1990 Stock Option Plan (the "1990 Plan") of DHC is a non-qualified
stock option plan which is intended to attract, retain and provide incentives to
key employees of DHC by offering them an opportunity to acquire or increase a
proprietary interest in DHC. Options under the 1990 Plan may be granted to
existing officers or employees of DHC for, in the aggregate, the purchase of up
to 1,260,000 shares of Common Stock (all subject to adjustment in connection
with events affecting the capitalization of DHC). No options were granted under
the 1990 Plan during 1990. On March 13, 1991, options to purchase 210,000
shares were granted to each of Messrs. Whitman, Heffernan and Rhein, all of whom
are Directors and officers of DHC. The exercise price for all options granted
on March 13, 1991 is $3.00 per share, the arithmetic average of the closing
prices of the Common Stock on the American Stock Exchange for the 30 days prior
to the date of grant. The options expire ten years after the date of grant and
became exercisable in equal annual installments commencing on the first
anniversary thereof and on each of the next two anniversaries thereafter. An
additional 630,000 options were granted outside the 1990 Plan as of that date to
Junkyard Partners, L.P. ("Junkyard Partners"), upon the same terms as those
granted on that date under the 1990 Plan. After giving effect to the options
granted outside the 1990 Plan to Junkyard Partners (and excluding options
granted to non-employee Directors, described below), DHC has issued options to
purchase 1,260,000 shares of Common Stock, the total number of options which may
be granted under the 1990 Plan. In order to prevent additional dilution, the
Compensation Committee of the Board of Directors of DHC (the "Committee"), on
September 16, 1991, resolved that it intends to refrain from granting any
additional options under the 1990 Plan in excess of the 630,000 options
currently outstanding under the 1990 Plan. During 1994, Junkyard Partners
transferred 257,910 of its 630,000 options to one of its limited partners. On
December 29, 1994, DHC issued 257,910 restricted shares of Common Stock upon the
exercise of such transferred options. In connection therewith, DHC received a
total exercise price of $773,730. Effective May 19, 1995, DHC purchased 69,453
of the remaining 372,090 options to purchase Common Stock owned by Junkyard
Partners. The options were exercisable at the time of such purchase and
otherwise would have expired on March 13, 2001. The aggregate purchase price
paid by DHC for the options was approximately $286,500, which was equal to the
difference between the closing price of Common Stock on May 19, 1995 ($7.125 per
share) the effective date of such purchase, and the exercise price of such
options ($3.00 per share), or $4.125 per share. As of December 31, 1995,
Junkyard Partners continued to own 302,637 options to purchase shares of Common
Stock, and Messrs. Whitman, Heffernan and Rhein continued to own their options,
all of which are currently exercisable.

DHC also was authorized by the terms of its Plan of Reorganization to
grant to non-employee Directors of DHC, outside the 1990 Plan, options to
purchase 140,000 shares of Common Stock (subject to adjustment in events
affecting the capitalization of DHC). On September 16, 1991, DHC granted to
each of Mr. Porrino and Dr. Ryan, both of whom are unaffiliated Directors of
DHC, options to purchase 46,667 shares of Common Stock and granted to Mr.
Isenberg, also an unaffiliated Director of DHC, options to purchase 46,666
shares of Common Stock. See "Item 10. Directors and Executive Officers of the
Registrant, Compensation of Directors." The exercise price of all such options
is $3.63, the arithmetic average of the closing prices of the Common Stock on
the American Stock Exchange for the 30 days prior to the date of grant.
These options expire ten years after the date of grant and become exercisable in
three equal annual installments commencing on the first anniversary of the date
of grant and on each of the next two anniversaries thereafter. As of December
31, 1995, all of the options granted outside the 1990 Plan, all of which are
currently exercisable, remained unexercised.

1995 STOCK AND INCENTIVE PLAN

The 1995 Stock and Incentive Plan (the "1995 Plan") is a qualified plan.
The purpose of the 1995 Plan is to enable DHC to provide incentives to increase
the personal financial identification of key personnel with the long term growth
of DHC and the interests of DHC's stockholders through the ownership and
performance of DHC's Common Stock, to enhance DHC's ability to retain key
personnel, and to attract outstanding prospective employees and Directors.

-28-


The 1995 Plan provides for the grant of any or all of the following types
of awards: stock options, including incentive stock options and non-qualified
stock options; stock appreciation rights, whether in tandem with stock options
or freestanding; restricted stock; incentive awards; and performance awards.
Any stock option granted in the form of an incentive stock option must satisfy
the applicable requirements of Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code"). Awards may be made to the same person on more than one
occasion and may be granted singly, in combination, or in tandem as determined
by the Committee. The 1995 Plan is effective as of March 21, 1995. No
incentive stock options may be granted under the 1995 Plan after March 21, 2005.
The 1995 Plan will remain in effect until all awards have been satisfied or
expired.

The 1995 Plan is administered by the Committee. Other than participating
in formula awards, no member of the Committee shall be eligible to participate
in the 1995 Plan while serving on the Committee. The Board of Directors intends
that each member of the Committee shall be a "Disinterested Person" within the
meaning of Rule 16b-3 under the Securities Exchange Act of 1934, as amended (the
"Exchange Act") and an "Outside Director" within the meaning of Section 162(m)
of the Code; provided, however, that a Director who is a "Disinterested Person"
within the meaning of the Exchange Act will be treated as satisfying the
requirements of an "Outside Director" until the first meeting of stockholders at
which Directors are to be elected that occurs after July 1, 1994 or such later
date as may be permissible under the Code or regulations promulgated thereunder.
Subject to the terms of the 1995 Plan, the Committee has authority to select
personnel to receive awards, to determine the timing, form, amount or value and
terms of grants and awards, and the conditions and restrictions, if any, subject
to which grants and awards will be made and become payable under the 1995 Plan,
and to construe the 1995 Plan and to prescribe rules and regulations with
respect to the administration of the 1995 Plan, except that only executive
officers of DHC and its subsidiaries, as designated by the Committee, may be
entitled to incentive stock awards under the 1995 Plan. The selection of
participants from eligible personnel, other than members of the Committee, is
within the discretion of the Committee.

The aggregate number of shares of Common Stock which may be issued under
the 1995 Plan, or as to which stock appreciation rights or other awards may be
granted, may not exceed 1,700,000, of which a maximum of 1,500,000 shares may
relate to awards to eligible individuals (including employee Directors) and a
maximum of 200,000 shares may relate to awards to non-employee Directors (all
subject to adjustment in the event of stock dividends, stock splits,
reorganizations, mergers, and other events affecting the capitalization of DHC,
and subject to acceleration in the event of changes in control or ownership of
DHC). The maximum number of shares of Common Stock that may be subject to
options, stock appreciation rights, restricted stock awards, performance awards
or incentive awards granted under the 1995 Plan to an individual during any
calendar year cannot exceed 125,000 shares in any calendar year (subject to
adjustment in the event of stock dividends, stock splits and certain other
events). On April 25, 1995, options to purchase 40,000 shares automatically
were granted under the 1995 Plan to Mr. Sellers upon his election as a Director
of DHC. The exercise price for such options is $7.00 per share (the mean of the
high and low prices of the Common Stock on the American Stock Exchange on the
date of grant). The options expire ten years after the date of grant and become
exercisable in three equal annual installments commencing on the first
anniversary thereof and on each of the next two anniversaries thereafter. None
of the options granted to Mr. Sellers is currently exercisable; however, 13,333
such options will become exercisable within the next 60 days (on April 25,
1996). On January 15, 1996, options to purchase an aggregate of 158,900 shares
of Common Stock were granted under the 1995 Plan to certain officers and
employees of DHC and its subsidiaries, NAICC and Danielson Trust. Among the
recipients of such options were Ms. Cosenza and Ms. Levey, who are officers of
DHC, who were granted options to acquire 3,000 shares and 15,000 shares,
respectively, and Mr. Story, who is a member of the Board of Directors, who
received a grant of options to acquire 80,000 shares. The exercise price for
all of such options is $6.6875 per share (the mean of the high and low prices of
the Common Stock on the American Stock Exchange on the date of the grant). The
options expire ten years after the date of grant. The options become
exercisable at various times, depending upon the holder of the options.
Continued employment with DHC or its subsidiaries is a condition to all of the
foregoing options. For information regarding compensation paid during 1995 by
NAICC to Mr. Story, see "Item 13. Certain Relationships and Related
Transactions" below.

The Registrant has no incentive compensation plans, employment agreements
or other benefit plans, other than medical and similar plans available to all
employees.

-29-


ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

The following table sets forth the beneficial ownership of Common Stock
as of March 13, 1996 of (a) each Director, (b) each executive officer, and (c)
each person known by DHC to own beneficially more than five percent of the
outstanding shares of Common Stock. DHC believes that, except as otherwise
stated, the beneficial holders listed below have sole voting and investment
power regarding the shares reflected as being beneficially owned by them.



AMOUNT AND NATURE OF
BENEFICIAL OWNERSHIP PERCENT OF CLASS /1/
-------------------- --------------------

PRINCIPAL STOCKHOLDERS

Commissioner of Insurance 1,803,235 /2,3/ 11.7
of the State of California
c/o Geoffrey A. Nicholls
Deputy Trustee
Mission Insurance Companies' Trusts
3333 Wilshire Boulevard - 3rd Floor
Los Angeles, CA 90010

Martin J. Whitman 2,687,947 /2,4,5,6/ 17.3
c/o Whitman Heffernan Rhein & Co., Inc.
767 Third Avenue
New York, NY 10017-2023

Whitman Heffernan & Rhein Workout 1,054,996 /2/ 6.9
Fund, L.P.
c/o WHR Management Company, L.P.
2 Park Place
Bronxville, NY 10708

Third Avenue Value Fund, Inc. 803,669 /2/ 5.2
767 Third Avenue
New York, NY 10017-2023

OFFICERS AND DIRECTORS

Martin J. Whitman 2,687,947 /2,4,5,6/ 17.3

C. Kirk Rhein, Jr. 1,407,978 /5,6,7/ 9.0

James P. Heffernan 1,372,980 /5,6/ 8.8

Joseph F. Porrino 56,666 /8/ *

Frank B. Ryan 48,666 /8/ *

Eugene M. Isenberg 69,924 /9/ *


(continued on following page)

-30-





OFFICERS AND DIRECTORS AMOUNT AND NATURE OF
(continued) BENEFICIAL OWNERSHIP PERCENT OF CLASS /1/
- ---------------------- -------------------- --------------------

William R. Story 38,972 /10/ *

Wallace O. Sellers 23,333 /11/ *

Lisa D. Levey 12,200 /12/ *

Claudia C. Cosenza 300 /13/ *

All Officers and Directors
as a Group (11 persons) 3,608,974 /14/ 22.4



* Percentage of shares beneficially owned does not exceed one percent of the
outstanding Common Stock.

/1/ Share percentage ownership is rounded to nearest tenth of one percent and
reflects the effect of dilution as a result of outstanding options to the extent
such options are, or within 60 days will become, exercisable. As of March 13,
1996 (the date as of which this table was prepared), there were exercisable
options outstanding to purchase 1,085,970 shares of Common Stock. Shares
underlying any option which was exercisable on March 13, 1996 or becomes
exercisable within the next 60 days are deemed outstanding only for purposes of
computing the share ownership and share ownership percentage of the holder of
such option.

/2/ In accordance with provisions of DHC's Certificate of Incorporation, all
certificates representing shares of Common Stock beneficially owned by holders
of five percent or more of Common Stock are owned of record by DHC, as escrow
agent, and are physically held by DHC in that capacity.

/3/ Beneficially owned by the Commissioner of Insurance of the State of
California in his capacity as trustee for the benefit of holders of certain
deficiency claims against certain trusts which assumed liabilities of certain
present and former insurance subsidiaries of DHC.

/4/ Includes 373,397 shares of Common Stock beneficially owned by Carl Marks
Strategic Investments, L.P. ("CMSI"), an investment limited partnership; 803,669
shares beneficially owned by Third Avenue Value Fund, Inc. ("TAVF"), an
investment company registered under the Investment Company Act of 1940; 103,428
shares beneficially owned by Martin J. Whitman & Co., Inc. ("MJW&Co"), a private
investment company; and 66,167 shares beneficially owned by Mr. Whitman's wife
and three adult family members. Mr. Whitman is a minority general partner of
the partnership that is the general partner of CMSI. Mr. Whitman controls the
investment adviser of TAVF, and may be deemed to own beneficially a five percent
equity interest in TAVF. Mr. Whitman is the principal stockholder in MJW&Co,
and may be deemed to own beneficially the shares owned by MJW&Co. Mr. Whitman
disclaims beneficial ownership of the shares of Common Stock owned by CMSI,
TAVF, MJW&Co, and Mr. Whitman's family members.

/5/ Includes 1,054,996 shares of Common Stock beneficially owned by Whitman
Heffernan & Rhein Workout Fund, L.P. ("WHR Fund"), an investment limited
partnership. Each of Messrs. Whitman, Heffernan and Rhein is a general partner
of the partnership that is the general partner of WHR Fund. Each disclaims
beneficial ownership of the shares owned by the WHR Fund. Does not include
134,763 shares owned by the Employee Stock Ownership Plan and Trust of KCP
Holding Company and Subsidiaries ("ESOP"). Messrs. Heffernan and Rhein are,
with Mr. Story, the trustees of the ESOP; neither Mr. Heffernan nor Mr. Rhein is
a participant in the ESOP.

-31-


/6/ Includes shares underlying currently exercisable options to purchase an
aggregate of 210,000 shares of Common Stock at an exercise price of $3.00 per
share.

/7/ Includes 28,184 shares of Common Stock owned by a trust, of which Mr. Rhein
serves as trustee, for the benefit of Mr. Rhein's children. Mr. Rhein disclaims
beneficial ownership of the shares of Common Stock owned by the trust.

/8/ Includes shares underlying currently exercisable options to purchase an
aggregate of 46,667 shares of Common Stock at an exercise price of $3.63 per
share.

/9/ Includes 20,088 shares owned by Mentor Partnership, a partnership
controlled by Mr. Isenberg, and 28 shares owned by Mr. Isenberg's wife. Also
includes shares underlying currently exercisable options to purchase an
aggregate of 46,666 shares of Common Stock at an exercise price of $3.63 per
share.

/10/ Includes 36,500 shares of Common Stock beneficially owned by Mr. Story and
an aggregate of approximately 2,472 shares owned by the ESOP which have been
allocated to Mr. Story's account; does not include 132,291 additional shares
owned by the ESOP but not allocated to Mr. Story's account. Mr. Story is a
participant in the ESOP and is, together with Messrs. Heffernan and Rhein, a
trustee of the ESOP. Does not include shares underlying options to purchase an
aggregate of 80,000 shares of Common Stock at an exercise price of $6.6875 per
share which are not currently exercisable nor become exercisable within the next
60 days.

/11/ Includes shares underlying options to purchase an aggregate of 13,333
shares of Common Stock at an exercise price of $7.00 per share, which become
exercisable within the next 60 days. Does not include shares underlying options
to purchase an aggregate of 26,667 shares of Common Stock at an exercise price
of $7.00 per share which are not currently exercisable nor become exercisable
within the next 60 days.

/12/ Includes 100 shares of Common Stock beneficially owned by Ms. Levey's
children. Ms. Levey disclaims beneficial ownership of the shares of Common
Stock owned by her children. Does not include shares underlying options to
purchase an aggregate of 15,000 shares of Common Stock at an exercise price of
$6.6875 per share which are not currently exercisable nor become exercisable
within the next 60 days.

/13/ Does not include shares underlying options to purchase an aggregate of
3,000 shares of Common Stock at an exercise price of $6.6875 per share which are
not currently exercisable nor become exercisable within the next 60 days.

/14/ In calculating the shares owned by officers and Directors as a group, the
1,054,996 shares of Common Stock owned by WHR Fund referred to in footnote 5
above and included in the beneficial ownership amounts of each of Messrs.
Whitman, Heffernan and Rhein reflected in the table above are counted only once
in order to avoid a misleading total. In calculating the percentage of shares
owned by officers and Directors as a group, the shares of Common Stock
underlying all options which are beneficially owned by officers and Directors
and which are currently exercisable or become exercisable within the next 60
days are deemed outstanding.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

William R. Story, a Director of DHC, is the President and Chief
Executive Officer of NAICC. During 1995, Mr. Story received from NAICC cash
compensation of $250,000, as well as non-cash compensation in the approximate
aggregate amount of $14,020 (in respect of various business-related expenses
including group term life insurance). NAICC paid a $200,000 bonus to Mr. Story
in 1996 with respect to 1995 services. NAICC does not anticipate paying any
other compensation or bonus to Mr. Story or any other Director or officer of DHC
in 1996 with respect to 1995 services. In addition, NAICC in 1995 made a
contribution to a pension plan in which

-32-


Mr. Story participates. The amount of such contribution allocable to the
account of Mr. Story is approximately $7,500. Further, NAICC in 1995 made a
contribution to the 401(k) plan and ESOP account of such individual in the
aggregate amount of $4,620. As noted above, in January 1996, Mr. Story received
80,000 options to acquire Common Stock under DHC's 1995 Stock and Incentive
Plan. See "Item 11. Executive Compensation, 1995 Stock and Incentive Plan."

-33-


PART IV


ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.

(a) The following documents are filed as a part of this Report:

(1) Financial Statements -- see Index to Financial Statements and
Financial Statement Schedules appearing on Page F-1.

(2) Financial Statement Schedules -- see Index to Financial
Statements and Financial Statement Schedules appearing on Page F-1.

(3) Exhibits:


EXHIBIT NO./1/ NAME OF EXHIBIT
- ----------- ---------------


Plan of Acquisition:
-------------------

2.1 * Agreement and Plan of Merger dated as of February 26, 1996 among
Midland Financial Group, Inc., Danielson Holding Corporation and
Mission Sub E, Inc. (Filed with Report on Form 8-K dated March
1, 1996, Exhibit 2.1.)

Organizational Documents:
------------------------

3.1 * Certificate of Incorporation of Registrant.

3.2 * Bylaws of Registrant.


Material Contracts--Miscellaneous:
---------------------------------

10.1 * Stock Sale Agreement dated as of January 27, 1993 between
Nationwide Capital Corporation and Danielson Holding Corporation.
(Filed with Report on Form 10-K dated March 26, 1993, Exhibit
10.16.)

10.2 * Deposit Escrow Agreement dated as of January 19, 1993 among
Nationwide Capital Corporation, Danielson Holding Corporation and
Mission Valley Escrow. (Filed with Report on Form 10-K dated
March 26, 1993, Exhibit 10.17.)

10.3 * Guarantee Agreement dated as of March 26, 1993 between Resolution
Trust Corporation, in its capacity as conservator of HomeFed
Bank, and Danielson Holding Corporation. (Filed with Report on
Form 10-K dated March 26, 1993, Exhibit 10.18.)

10.4 * Guarantee Agreement dated as of March 26, 1993 between Resolution
Trust Corporation, in its corporate capacity, and Danielson
Holding Corporation. (Filed with Report on Form 10-K dated March
26, 1993, Exhibit 10.19.)


- ----------
/1/ Exhibit numbers are referenced to Item 601 of Regulation S-K under the
Securities Exchange Act of 1934.

* Asterisk indicates an exhibit previously filed with the Securities and
Exchange Commission and incorporated herein by reference.

-34-


EXHIBIT NO./1/ NAME OF EXHIBIT
- ----------- ---------------

10.5 * Asset Purchase Agreement dated as of December 31, 1993 by and
among Grossmont Bank, Donald A. Levi, Murray R. Steeg and
Danielson Trust Company. (Filed with Report on Form 10-K dated
March 18, 1994, Exhibit 10.20.)

10.6 * Amendment No. 1 dated as of February 16, 1994 to Asset Purchase
Agreement dated as of December 31, 1993 by and among Grossmont
Bank, Donald A. Levi, Murray R. Steeg and Danielson Trust
Company. (Filed with Report on Form 10-K dated March 18, 1994,
Exhibit 10.21.)

10.7 * Amendment No. 2 dated as of February 17, 1994 to Asset Purchase
Agreement dated as of December 31, 1993 by and among Grossmont
Bank, Donald A. Levi, Murray R. Steeg and Danielson Trust
Company. (Filed with Report on Form 10-K dated March 18, 1994,
Exhibit 10.22.)

10.8 * Consulting Services Agreement dated as of February 22, 1994
between Danielson Trust Company and Tenney-Levi Corporation.
(Filed with Report on Form 10-K dated March 18, 1994, Exhibit
10.23.)

10.9 * Consulting Services Agreement dated as of February 22, 1994
between Danielson Trust Company and Murray R. Steeg. (Filed with
Report on Form 10-K dated March 18, 1994, Exhibit 10.24.)

10.10 * Agreement dated as of February 22, 1994 between Grossmont Bank
and Danielson Trust Company. (Filed with Report on Form 10-K
dated March 18, 1994, Exhibit 10.25.)

Material Contracts--Executive Compensation Plans and
----------------------------------------------------
Arrangements:
------------

10.11 * 1990 Stock Option Plan. (Filed with Report on Form 8-K dated
September 4, 1990, Exhibit 10.8.)

10.12 * 1995 Stock and Incentive Plan. (Included as Exhibit A to Proxy
Statement filed on March 30, 1995.)

Annual Report to Security-Holders:
---------------------------------

13.1 1995 Annual Report of Danielson Holding Corporation. (To be
included herewith at page 49.)

Powers of Attorney:
------------------

24.1 Powers of Attorney executed by certain directors of Danielson
Holding Corporation. (Filed herewith at page 101.)

Financial Data Schedule:
-----------------------

27.1 Financial Data Schedule for Article 7 Registrant (Insurance
Company). (Filed electronically herewith.)

- ----------

/1/ Exhibit numbers are referenced to Item 601 of Regulation S-K under the
Securities Exchange Act of 1934.

* Asterisk indicates an exhibit previously filed with the Securities and
Exchange Commission and incorporated herein by reference.

-35-


Miscellaneous:
-------------

99.1 * Press Release dated February 27, 1996. (Filed with Report on
Form 8-K dated March 1, 1996, Exhibit 99.1.)


(b) Reports on Form 8-K filed during the quarter ended December 31, 1995:

Not applicable.



- ----------
/1/ Exhibit numbers are referenced to Item 601 of Regulation S-K under the
Securities Exchange Act of 1934.

* Asterisk indicates an exhibit previously filed with the Securities and
Exchange Commission and incorporated herein by reference.

-36-


SIGNATURES

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


DANIELSON HOLDING CORPORATION
(Registrant)



By /S/ C. KIRK RHEIN, JR.
------------------------------------
C. Kirk Rhein, Jr.
President and Chief Executive
Officer


Date: March 19, 1996


Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of Danielson
Holding Corporation and in the capacities and on the dates indicated.



Date: March 19, 1996 By /S/ C. KIRK RHEIN, JR.
------------------------------------
C. Kirk Rhein, Jr.
President and Chief Executive
Officer and a Director


Date: March 19, 1996 By /S/ MARTIN J. WHITMAN
------------------------------------
Martin J. Whitman
Chairman of the Board and Chief
Investment Officer and a Director


Date: March 19, 1996 By /S/ JAMES P. HEFFERNAN
------------------------------------
James P. Heffernan
Chief Financial Officer and a
Director


Date: March 19, 1996 By /S/ CLAUDIA C. COSENZA
------------------------------------
Claudia C. Cosenza
Controller


Date: March 19, 1996 By /S/ WILLIAM R. STORY
------------------------------------
William R. Story
Director

-37-


Date: March 19, 1996 By /S/ JOSEPH F. PORRINO
------------------------------------
Joseph F. Porrino
Director


Date: March 19, 1996 By /S/ FRANK B. RYAN
------------------------------------
Frank B. Ryan
Director


Date: March 19, 1996 By
------------------------------------
Eugene M. Isenberg
Director


Date: March 19, 1996 By /S/ WALLACE O. SELLERS
------------------------------------
Wallace O. Sellers
Director

-38-


DANIELSON HOLDING CORPORATION

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES


Page Number
-----------

Independent Auditors' Report......................................... F-2
Danielson Holding Corporation and Consolidated Subsidiaries:
Statements of Operations - For the years ended December 31,
1995, 1994 and 1993.............................................. *
Balance Sheets - December 31, 1995 and 1994........................ *
Statements of Stockholders' Equity - For the years ended
December 31, 1995, 1994 and 1993................................. *
Statements of Cash Flows - For the years ended December 31,
1995, 1994 and 1993.............................................. *
Schedule I - Summary of Investments - Other than Invest-
ments in Related Parties.......................... S-1
Schedule II - Condensed Financial Information of the
Registrant........................................ S-2-4
Schedule IV - Reinsurance......................................... S-5
Schedule V - Valuation and Qualifying Accounts................... S-6
Schedule III - Supplemental Information Concerning Property-Casualty
and VI Insurance Operations................................ S-7


Schedules other than those listed above are omitted because either they are
not applicable or not required or the information required is included in the
Company's Consolidated Financial Statements.

- ----------
* Incorporated by reference to DHC's 1995 Annual Report to Stockholders.



-39-


INDEPENDENT AUDITORS' REPORT


The Board of Directors and Stockholders
Danielson Holding Corporation:



Under date of February 26, 1996, we reported on the consolidated balance
sheets of Danielson Holding Corporation and subsidiaries as of December 31, 1995
and 1994, and the related consolidated statements of operations, stockholders'
equity, and cash flows for each of the years in the three-year period ended
December 31, 1995, as contained in the 1995 annual report to stockholders.
These consolidated financial statements and our report thereon are incorporated
by reference in the annual report on Form 10-K for the year 1995. In connection
with our audits of the aforementioned consolidated financial statements, we also
audited the related consolidated financial statement schedules as listed in the
accompanying index. These financial statement schedules are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statement schedules based on our audits.

In our opinion, such financial statement schedules, when considered in
relation to the basic consolidated financial statements taken as a whole,
present fairly, in all material respects, the information set forth therein.

As described in Note 1 of the Notes to Consolidated Financial Statements,
in 1995 the Company adopted the provisions of the Financial Accounting Standards
Board's Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of."



/S/ KPMG PEAT MARWICK LLP
----------------------------
KPMG Peat Marwick LLP



New York, New York
February 26, 1996



-40-


SCHEDULE I



DANIELSON HOLDING CORPORATION AND SUBSIDIARIES
SUMMARY OF INVESTMENTS - OTHER THAN INVESTMENTS IN
RELATED PARTIES

(In thousands)




DECEMBER 31, 1995
---------------------------------------------
Cost or Fair Amount Reflected on
Amortized Cost Value Balance Sheet
-------------- -------- -------------------


Fixed maturities classified as
available-for-sale:

U.S. Government/Agency $ 54,865 $ 56,715 $ 56,715
Mortgage-backed 62,342 63,606 63,606
Corporate 50,566 52,274 52,274
-------- -------- --------

Total fixed maturities 167,773 172,595 172,595
-------- -------- --------
Equity securities:

Common stocks 256 629 629
-------- -------- --------

Total equity securities 256 629 629
-------- -------- --------

Short term investments 8,570 8,570 8,570
-------- -------- --------

Total investments $176,599 $181,794 $181,794
======== ======== ========




-41-


SCHEDULE II


DANIELSON HOLDING CORPORATION
CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT
(Parent Company Only)

STATEMENTS OF OPERATIONS
(In thousands)



FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------
1995 1994 1993
----------- ---------- ----------


REVENUES:

Net investment income $ 675 $ 435 $ 597

Net realized investment losses (2) - -

Other income 26 12 -
------- ------- -------

TOTAL REVENUES 699 447 597
------- ------- -------

EXPENSES:

Employee compensation and benefits 1,442 1,118 1,182

Professional fees 221 751 429

Other general and administrative fees 657 697 625
------- ------- -------

TOTAL EXPENSES 2,320 2,566 2,236
------- ------- -------

Income (loss) before provision for
income taxes (1,621) (2,119) (1,639)

Income tax provision 36 40 54
------- ------- -------

Loss before equity in net income of
subsidiaries (1,657) (2,159) (1,693)

Equity in net income of subsidiaries 3,973 5,304 4,927
------- ------- -------

INCOME BEFORE EXTRAORDINARY ITEM 2,316 3,145 3,234

Extraordinary item - 750 -
------- ------- -------

NET INCOME $ 2,316 $ 3,895 $ 3,234
======= ======= =======




-42-


SCHEDULE II, CONTINUED

DANIELSON HOLDING CORPORATION
CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT
(Parent Company Only)

BALANCE SHEETS
(In thousands, except share and per share information)





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

ASSETS:

Cash $ 18 $ 51
Fixed maturities:
Available-for-sale at fair value
(Cost: $10,487 and $12,794) 10,530 12,736
Short term investments, at cost which approximates
fair value 466 165
------- --------

TOTAL CASH AND INVESTMENTS 11,014 12,952

Investment in subsidiaries 58,289 48,944
Accrued investment income 175 176
Other assets 626 576
------- --------

TOTAL ASSETS $70,104 $62,648
======= ========

LIABILITIES AND STOCKHOLDERS' EQUITY:

Other liabilities $ 283 $ 330
------- --------

Total liabilities 283 330
------- --------

Preferred Stock ($0.10 par value; authorized 10,000,000
shares; none issued and outstanding) - -
Common Stock ($0.10 par value; authorized 20,000,000
shares; issued 15,370,894 shares and 15,370,894 shares;
outstanding 15,360,255 shares and 15,360,270 shares) 1,537 1,537
Additional paid-in capital 46,131 46,417
Net unrealized gain (loss) on available-for-sale securities 5,195 (278)
Retained earnings 17,024 14,708
Treasury stock (Cost of 10,639 shares and 10,624 shares) (66) (66)
------- --------

TOTAL STOCKHOLDERS' EQUITY 69,821 62,318
------- --------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $70,104 $62,648
======= ========





-43-


SCHEDULE II, CONTINUED

DANIELSON HOLDING CORPORATION
CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT
(Parent Company Only)
STATEMENTS OF CASH FLOWS
(In thousands)


FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------
1995 1994 1993
----------- ---------- ----------

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,316 $ 3,895 $ 3,234
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Net realized investment losses 2 - -
Depreciation and amortization 86 125 (46)
Equity in net (income) of subsidiaries (3,973) (5,304) (4,927)
Increase (decrease) in accrued expenses (47) 56 (47)
Other, net (79) 209 (238)
-------- -------- --------
Net cash (used in) operating activities (1,695) (1,019) (2,024)
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments purchased:
Fixed income maturities available-for-sale (10,787) (12,933) -
Fixed income maturities held-to-maturity - - (8,592)
Proceeds from sales:
Fixed income maturities available-for-sale 1,837 7,026 -
Investments, matured or called
Fixed income maturities available-for-sale 11,210 - -
Fixed income maturities held-to-maturity - 8,430 -
Change in accrued investment income 1 (127) 36
-------- -------- --------
Net cash provided by (used in)
investing activities 2,261 2,396 (8,556)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Acquisition of Danielson Trust Company - - (4,611)
Acquisition of Western Trust Services - (2,505) -
Proceeds from exercise of options
to purchase Common Stock - 774 -
Retirement of stock options (286) - -
Purchase of treasury stock - (56) -
Dividend received from subsidiary - - 668
Change in receivable from subsidiary (12) (344) (137)
Return of capital from subsidiaries - (2) 133
-------- -------- --------
Net cash (used in) financing activities (298) (2,133) (3,947)
-------- -------- --------
Net increase (decrease) in cash and
short term investments 268 (756) (14,527)
Cash and short term investments at
beginning of year 216 972 15,499
-------- -------- --------
CASH AND SHORT TERM INVESTMENTS AT
END OF YEAR $ 484 $ 216 $ 972
======== ======== ========


-44-


SCHEDULE IV

DANIELSON HOLDING CORPORATION
REINSURANCE
(in thousands)




CEDED EARNED ASSUMED EARNED PERCENTAGE
GROSS EARNED TO OTHER FROM OTHER NET EARNED OF AMOUNT
AMOUNT COMPANIES COMPANIES AMOUNT ASSUMED TO NET
-------------- ------------ -------------- ---------- --------------

YEAR ENDED DECEMBER 31, 1995:

Property and liability
insurance premiums $76,688 $16,140 $ - $ 60,548 -
======= ======= ======== ======== =========


Year Ended December 31, 1994:

Property and liability
insurance premiums $106,552 $13,261 $ - $ 93,291 -
======== ======= ======== ======== =========


Year Ended December 31, 1993:

Property and liability
insurance premiums $ 91,768 $ 5,784 $ 68 $ 86,052 -
======== ======= ======== ======== =========




-45-


SCHEDULE V



DANIELSON HOLDING CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
(in thousands)




ADDITIONS
--------------------------------
BALANCE AT CHARGED TO COSTS CHARGED TO BALANCE AT
BEGINNING OF PERIOD AND EXPENSES OTHER ACCOUNTS DEDUCTIONS END OF PERIOD
------------------- ---------------- -------------- ---------- -------------

Allowance for premiums
and fees receivable $ 323 $ 117 $ - $ 283 $ 157
========== ========== ======== ======= ========

Allowance for uncollectable
reinsurance on paid losses $ 675 $ - $ - $ 287 $ 388
========== ========== ======== ======= ========

Allowance for uncollectable
reinsurance on unpaid losses $ 425 $ - $ - $ - $ 425
========== ========== ======== ======= ========




-46-


SCHEDULES III AND VI

DANIELSON HOLDING CORPORATION

SUPPLEMENTARY INSURANCE INFORMATION AND SUPPLEMENTAL INFORMATION
CONCERNING PROPERTY-CASUALTY INSURANCE OPERATIONS
(in thousands)




RESERVES DISCOUNT
FOR UNPAID FROM
CLAIMS AND RESERVES OTHER
AFFILIATION DEFERRED CLAIM FOR POLICY CLAIMS
WITH ACQUISITION ADJUSTMENT UNPAID UNEARNED AND BENEFITS NET EARNED INVESTMENT
REGISTRANT COSTS EXPENSES CLAIMS PREMIUMS PAYABLE PREMIUMS INCOME
------------ ------------- ------------ ---------- --------- ------------- ---------- -----------

Consolidated
Property-Casualty
Entities:

AS OF AND FOR THE YEAR
ENDED 12/31/95 $ 1,045 $137,406 $ - $ 8,563 $ - $60,548 $12,351
======= ======== ======== ======= ======= ======= =======
As of and for the year
ended 12/31/94 $ 2,204 $146,330 $ - $14,328 $ - $93,291 $11,287
======= ======== ======== ======= ======= ======= =======
As of and for the year
ended 12/31/93 $ 2,196 $137,479 $ - $16,502 $ - $86,052 $12,587
======= ======== ======== ======= ======= ======= =======

CLAIMS AND CLAIM
AFFILIATION ADJUSTMENT EXPENSES AMORTIZATION OTHER PAID CLAIMS
WITH INCURRED RELATED TO OF DEFERRED OPERATING AND CLAIM NET WRITTEN
REGISTRANT CURRENT YEAR PRIOR YEARS ACQUISITION COSTS EXPENSES ADJUSTMENT EXPENSES PREMIUMS
----------- ------------ ----------- ----------------- --------- ------------------- -----------

Consolidated
Property-Casualty
Entities:

AS OF AND FOR THE YEAR
ENDED 12/31/95 $ 45,592 $ 3,123 $ 9,089 $ 4,302 $ 61,046 $ 55,295
======== ======== ======== ======= ======== ========

As of and for the year
ended 12/31/94 $ 67,131 $ 384 $ 13,724 $ 4,953 $ 58,113 $ 91,069
======== ======== ======== ======= ======== ========

As of and for the year
ended 12/31/93 $ 65,157 $ 743 $ 14,812 $ 2,181 $ 51,502 $ 87,953
======== ======== ======== ======= ======== ========





-47-


EXHIBITS

-48-