AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 7, 2003


                                                     REGISTRATION NO. 333-107100
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                             ---------------------

                               AMENDMENT NO. 3 TO


                                    FORM S-4
            REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
                         AMERICAN FINANCIAL GROUP, INC.
             (Exact name of registrant as specified in its charter)


                                                          
             OHIO                            6331                         31-1544320
(State or other jurisdiction of  (Primary Standard Industrial   (I.R.S. Employer Identification
incorporation or organization)    Classification Code Number)               Number)


                             ---------------------
                             ONE EAST FOURTH STREET
                             CINCINNATI, OHIO 45202
                                 (513) 579-2121
  (Address, including zip code, and telephone number, including area code, of
                   registrant's principal executive offices)
                             ---------------------

                             JAMES C. KENNEDY, ESQ.
              VICE PRESIDENT, SECRETARY AND DEPUTY GENERAL COUNSEL
                         AMERICAN FINANCIAL GROUP, INC.
                             ONE EAST FOURTH STREET
                             CINCINNATI, OHIO 45202
                                 (513) 579-2538
 (Name, address, including zip code, and telephone number, including area code,
                             of agent for service)
                             ---------------------

                                   COPIES TO:


                                            
             MARK A. WEISS, ESQ.                          TIMOTHY E. HOBERG, ESQ.
     KEATING, MUETHING & KLEKAMP, P.L.L.              TAFT, STETTINIUS & HOLLISTER LLP
             1400 PROVIDENT TOWER                                SUITE 1800
            ONE EAST FOURTH STREET                           425 WALNUT STREET
            CINCINNATI, OHIO 45202                         CINCINNATI, OHIO 45202
        (513) 579-6599 (513) 357-9308


     APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:  As soon
as practicable after this Registration Statement becomes effective and all other
conditions to the reorganization described in the enclosed proxy
statement/prospectus have been satisfied or waived.

     If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]

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

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

     THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.


                         AMERICAN FINANCIAL CORPORATION
                             ONE EAST FOURTH STREET
                             CINCINNATI, OHIO 45202
                                 (513) 579-2121


                                October   , 2003


Dear Shareholder:


     You are invited to attend a special meeting of shareholders of American
Financial Corporation to be held at the offices of the company at One East
Fourth Street, Ninth Floor, Cincinnati, Ohio 45202 on Thursday, November 20,
2003 at 10:30 a.m., Eastern Time. The purposes of the special meeting are:



     - To consider and act upon a proposal to approve an Amended and Restated
       Agreement and Plan of Reorganization and Merger, which we refer to as the
       merger agreement, pursuant to which American Financial Corporation and
       AFC Holding Company, American Financial Corporation's parent corporation,
       will each merge into American Financial Group, Inc., AFC Holding
       Company's parent corporation;


     - To grant authority to American Financial Corporation to adjourn or
       postpone the special meeting; and

     - To transact such other business as may properly come before the special
       meeting or any adjournment.


     Holders of American Financial Corporation voting securities of record at
the close of business on September 30, 2003 are entitled to receive notice of
and to vote at the meeting or any adjournment thereof.


     Ohio law requires the approval of the merger of American Financial
Corporation into American Financial Group by the affirmative vote of both the
holders of a majority of the total voting power of American Financial
Corporation's stock and the affirmative vote of the holders of a majority of the
2,886,161 outstanding shares of American Financial Corporation's Series J
Preferred Stock. Because American Financial Group holds approximately 79% of
American Financial Corporation's voting power, the approval of a majority of the
total voting power is assured but the approval of the holders of a majority of
the Series J Preferred Stock is not assured.

     In addition to the shareholder approvals required by Ohio law, the merger
agreement also requires the additional approval by the holders of a majority of
the outstanding Series J Preferred Stock voting at the special meeting,
excluding those shares beneficially owned by AFG, AFG's directors, executive
officers, Carl H. Lindner and certain of their respective affiliates.


     This proxy statement/prospectus is being sent to holders of Series J
Preferred Stock to provide them with information concerning American Financial
Group, which we refer to as AFG, American Financial Corporation, which we refer
to as AFC, AFC Holding Company, which we refer to as AFC Holding, and the
proposed reorganization. The companies urge you to read the entire document,
including the section entitled, "Risk Factors" beginning on page 12.


     Whether or not you plan to attend the special meeting, please complete,
sign and date the accompanying proxy form and return it in the enclosed
envelope. If you attend the special meeting, you may vote in person, even if you
have previously returned your proxy form. We would appreciate your prompt
consideration.

                                          By Order of the Board of Directors,

                                          James C. Kennedy
                                          Vice President, Deputy General Counsel
                                          and Secretary


Date: October   , 2003



     This proxy statement/prospectus and proxy card are dated October   , 2003
and were mailed to shareholders of American Financial Corporation beginning on
or about October   , 2003.


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

Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
proxy statement/prospectus is truthful or complete. Any representation to the
contrary is a criminal offense.


                               TABLE OF CONTENTS




                                                               PAGE
                                                               ----
                                                            
QUESTIONS AND ANSWERS ABOUT THE REORGANIZATION..............      4
SUMMARY.....................................................      7
RISK FACTORS................................................     12
FORWARD LOOKING STATEMENTS..................................     17
AMERICAN FINANCIAL CORPORATION SELECTED CONSOLIDATED
  HISTORICAL FINANCIAL DATA.................................     19
AMERICAN FINANCIAL GROUP SELECTED CONSOLIDATED HISTORICAL
  FINANCIAL DATA............................................     20
UNAUDITED PRO FORMA FINANCIAL INFORMATION...................     22
STOCK PRICE AND DIVIDEND INFORMATION........................     26
THE SPECIAL MEETING.........................................     27
  Introduction..............................................     27
  Matters to be Considered; Special Committee
     Recommendation.........................................     27
  Record Date and Voting....................................     27
  Vote Required.............................................     27
  Voting Agreement..........................................     28
  Revocability of Proxies...................................     29
  Solicitation of Proxies...................................     29
  Adjournment of the Special Meeting........................     29
  Dissenters' Rights........................................     29
THE REORGANIZATION..........................................     29
  Form of the Reorganization................................     29
  AFG's Reasons for the Reorganization......................     30
  Material U.S. Federal Income Tax Consequences.............     30
  U.S. Federal Income Tax Implications to Holders of AFC
     Series J Preferred Stock...............................     31
  Federal Securities Law Consequences.......................     32
  Conduct of Business if Reorganization Not Consummated.....     33
SPECIAL FACTORS.............................................     33
  Appointment of the Special Committee......................     33
  Meetings of the Special Committee.........................     33
  Recommendations of the Special Committee and the Board of
     Directors of AFC; Recommendation of the Board of
     Directors of AFG; Reasons for Recommendations..........     40
  Opinion of Special Committee's Financial Advisor..........     43
  Valuation Methodologies...................................     43
THE MERGER AGREEMENT........................................     49
  Terms of the Reorganization...............................     49
  Exchange of Certificates..................................     50
  Dissenter's Rights........................................     51
  Representations and Warranties............................     51
  Voting of AFC Common Stock................................     51



                                        2





                                                               PAGE
                                                               ----
                                                            
  Conditions to the Reorganization..........................     51
RIGHTS OF DISSENTING SHAREHOLDERS...........................     53
AMERICAN FINANCIAL GROUP, INC...............................     54
AMERICAN FINANCIAL CORPORATION..............................     55
AFC HOLDING COMPANY.........................................     55
DESCRIPTION OF AFG CAPITAL STOCK............................     55
COMPARISON OF SHAREHOLDER RIGHTS............................     56
SECURITY OWNERSHIP OF BENEFICIAL OWNERS AND MANAGEMENT......     57
LEGAL MATTERS...............................................     58
EXPERTS.....................................................     58
SHAREHOLDER PROPOSALS FOR 2004 ANNUAL MEETING...............     58
WHERE YOU CAN FIND MORE INFORMATION.........................     59
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
  AND RESULTS OF OPERATIONS AND FINANCIAL STATEMENTS OF
  AMERICAN FINANCIAL CORPORATION............................    F-1





        
ANNEX A -  Amended and Restated Agreement and Plan of Reorganization
           Among American Financial Group, Inc., AFC Holding Company
           and American Financial Corporation
ANNEX B -  Opinion of Duff & Phelps, LLC dated October 1, 2003
ANNEX C -  Section 1701.84 and 1701.85 of the Ohio Revised Code



                                        3


                 QUESTIONS AND ANSWERS ABOUT THE REORGANIZATION


Q:   WHAT WILL OCCUR IN THE REORGANIZATION?


A:   In the reorganization, AFC will merge into AFG. We refer to this merger as
     the AFC merger. In addition, immediately before the merger of AFC into AFG,
     AFC Holding will merge into AFG. We refer to this merger as the AFC Holding
     merger. We refer to the AFC merger and the AFC Holding merger collectively
     as the reorganization.


Q:   WHO IS ENTITLED TO VOTE ON THE REORGANIZATION?


A:   Holders of common stock and Series J Preferred Stock of AFC are entitled to
     vote on the AFC merger. Because AFC Holding is a wholly-owed subsidiary of
     AFG, no shareholder vote is required to effect the AFC Holding merger.


Q:   WHAT WILL I RECEIVE FOR MY SHARES OF SERIES J PREFERRED STOCK?



A:   $26.00 in value of AFG common stock for each share of Series J Preferred
     Stock you own. We will pay cash instead of a fractional share. The November
     1, 2003 dividend on the Series J Preferred Stock will be paid in cash to
     holders of record on October 15, 2003. Accrued dividends from November 1,
     2003 to the date of the merger will be paid in cash. The number of AFG
     shares you will receive in exchange for each share of Series J Preferred
     Stock will be equal to the result obtained by dividing $26.00 by the lesser
     of (i) the average of the mean of the daily high sales price and daily low
     sales price of the AFG common stock on the New York Stock Exchange for the
     20 consecutive days in which such shares are trading or (ii) $27.00, as
     more fully described on page 50 of this document.



Q:   WHAT WILL YOUR VOTING RIGHTS BE IN AFG?


A:   Subsequent to the reorganization and assuming an average price for AFG
     common stock of $23.00, you and the other former Series J holders will own
     approximately 4.5% of the issued and outstanding common stock of AFG.
     Non-affiliates of AFG currently hold approximately 2,704,031 shares (93.7%)
     of the Series J Preferred Stock. Based on the same price assumption,
     approximately 4% of AFG's common stock outstanding subsequent to the
     reorganization will have been issued as a result of the reorganization to
     the Series J holders who are not affiliated with AFG.


Q:   WHY DID AFC APPOINT A SPECIAL COMMITTEE OF ITS BOARD OF DIRECTORS?


A:   AFG owns all outstanding shares of common stock of AFC Holding which owns
     all outstanding shares of common stock of AFC. Also, the boards of
     directors and senior executive officers of AFG, AFC Holding and AFC were
     identical until three members of the AFC board resigned and three new
     members, none of whom was employed or affiliated with any of AFG, AFC, AFC
     Holding or any of their respective subsidiaries, were elected to the board,
     after which the negotiation of the merger agreement began. These three
     newly-elected members of AFC's board of directors serve as the special
     committee. This special committee was appointed to evaluate and negotiate
     the terms of the AFC merger on behalf of the public holders of the Series J
     Preferred Stock before recommending to AFC's full board of directors
     whether to proceed with the proposed AFC merger.


Q:   WHEN DO YOU EXPECT THE REORGANIZATION TO BE COMPLETED?



A:   We hope to complete the reorganization as quickly as possible after the
     special meeting. In order to complete the reorganization, we need approval
     of the AFC merger by AFC's Series J Preferred shareholders.



Q:   WHEN AND WHERE WILL THE SPECIAL MEETING TAKE PLACE?



A:   AFC will hold the special meeting at 10:30 a.m. Eastern Time on Thursday,
     November 20, 2003 at AFC's offices, One East Fourth Street, Ninth Floor,
     Cincinnati, Ohio.


                                        4



Q:   WHAT IS THE VOTE REQUIRED AT THE SPECIAL MEETING?


A:   Ohio law requires that AFC's shareholders must approve the merger by a vote
     of a majority of AFC's total outstanding voting power and a majority of
     AFC's outstanding shares of Series J Preferred Stock. AFG, which owns 79%
     of AFC's total outstanding voting power, has indicated that it will vote in
     favor of the AFC merger, assuring the approval of a majority of AFC's total
     voting power. For the approval of the AFC merger by a majority of the
     Series J Holders, 1,443,081 shares of the 2,886,161 Series J Preferred
     Stock must vote in favor of the merger.


     In addition to the shareholder approvals required by Ohio law, the merger
     agreement also requires the approval of a majority of the outstanding
     Series J Preferred Stock voting on the AFC merger, excluding those shares
     beneficially owned by AFG, AFG's directors, executive officers, Carl H.
     Lindner and certain of their respective affiliates. The number of shares of
     Series J Preferred Stock held by non-affiliates required to approve the
     merger depends on the number of shares held by non-affiliates that are
     voted at the special meeting.



Q:   WHAT DO I NEED TO DO NOW?


A:   After reviewing this proxy statement/prospectus, mail your completed,
     signed and dated proxy card in the enclosed return envelope as soon as
     possible so that your shares will be represented at the special meeting.


Q:   IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE MY
     SHARES FOR ME?


A:   Your broker will vote your shares only if you provide instructions on how
     to vote. You should follow the directions provided by your brokerage firm
     regarding how to instruct them to vote your shares.


Q:   MAY I CHANGE MY VOTE AFTER I HAVE MAILED MY SIGNED PROXY CARD?


A:   Yes. You can change your vote at any time before your proxy is voted at the
     special meeting. You can do this in three ways. First, you can send AFC a
     written statement that you would like to revoke your proxy. Second, you can
     send AFC a new signed and later-dated proxy card. Third, you can attend
     AFC's special meeting and vote in person. However, your attendance at the
     special meeting alone will not revoke your proxy.


Q:   HOW WILL MY SHARES BE VOTED IF I RETURN A BLANK PROXY CARD?


A:   If you sign and send in your proxy and do not indicate how you want to
     vote, your proxy will be counted as a vote in favor of the reorganization.


Q:   WHAT WILL BE THE EFFECT IF I DO NOT VOTE?


A:   Of the three voting requirements to approve the AFC merger, the approval of
     a majority of AFC's total voting power is assured. With respect to the
     requirement that the AFC merger be approved by a majority of AFC's
     outstanding shares of Series J Preferred Stock, not voting will have the
     same effect as voting against the reorganization. With respect to the
     requirement that the AFC merger be approved by a majority of shares of
     Series J Preferred Stock (other than shares owned by certain affiliates)
     actually voting, not voting will have no effect. As a result, shareholders
     wishing to reject the AFC merger should vote against the proposition, and
     shareholders wishing to approve the AFC merger should vote for the
     proposition.


Q:   SHOULD I SEND IN MY SERIES J PREFERRED STOCK CERTIFICATE NOW?


A:   No. If the reorganization is completed, you will receive written
     instructions for exchanging your stock certificates.


Q:   WHO CAN ANSWER MY QUESTIONS ABOUT THE REORGANIZATION?


A:   If you have more questions about the reorganization, please call Karl J.
     Grafe, Assistant General Counsel and Assistant Secretary, at (513)
     579-2540.

                                        5



     In addition, the firm of Morrow & Co. will be assisting AFC in soliciting
     proxies from holders of Series J Preferred Stock for the special meeting.
     You can also call Morrow & Co. toll free at (800) 607-0088 with questions
     regarding voting.


                                        6


                                    SUMMARY

                                 THE COMPANIES

AMERICAN FINANCIAL GROUP, INC.
One East Fourth Street
Cincinnati, Ohio 45202
(513) 579-2121

     AFG is a holding company which, through AFC Holding, AFC and their
subsidiaries, is engaged primarily in property and casualty insurance, focusing
on specialized commercial products for businesses, and in the sale of retirement
annuities, life, and supplemental health insurance products. AFG was
incorporated as an Ohio corporation in 1997 for the purpose of merging
predecessor holding companies, one of which was AFC, which was originally
incorporated in 1955. Our insurance subsidiaries have been operating as far back
as the 1800s.

AFC HOLDING COMPANY
One East Fourth Street
Cincinnati, Ohio 45202
(513) 579-2121

     AFC Holding Company is a wholly-owned, intermediate-level holding company
of AFG. AFC Holding directly owns all outstanding shares of common stock of AFC.

AMERICAN FINANCIAL CORPORATION
One East Fourth Street
Cincinnati, Ohio 45202
(513) 579-2121

     AFC is a holding company, majority-owned subsidiary of AFG. All of the
outstanding shares of common stock, representing approximately 79% of the voting
power of AFC, is owned by AFC Holding. The Series J Preferred Stock of AFC is
publicly traded through the Archipelago system on the Pacific Stock Exchange and
represents the remaining 21% of the voting power of AFC.

                               THE REORGANIZATION


     In the AFC merger, AFC will merge into AFG. The holders of Series J
Preferred Stock will receive $26.00 in value of AFG common stock plus an amount
in cash representing accrued dividends for each share of preferred stock owned
calculated as provided in the Amended and Restated Agreement and Plan of
Reorganization, and all shares of common stock of AFC will be canceled.
Immediately before the merger of AFC into AFG, AFC Holding, a wholly-owned
subsidiary of AFG, will merge into AFG. The reorganization will be effected
through the Amended and Restated Agreement and Plan of Reorganization among AFC,
AFC Holding and AFG, which we refer to as the merger agreement.


                         REASONS FOR THE REORGANIZATION

     The reorganization will simplify AFG's corporate structure in a manner that
provides the following benefits:

     - Improve AFG's leverage ratios and cash flow;

     - Facilitate future capital raising;

     - Simplify AFG's tax structure; and

     - Eliminate AFC as a reporting company.

                                        7


MATERIAL ADVANTAGES AND DISADVANTAGES OF THE AFC MERGER TO THE AFC SERIES J
PREFERRED SHAREHOLDERS

     The following are material advantages of the AFC merger to the AFC Series J
Preferred shareholders that were considered by the special committee as
discussed in this document.

     - The lack of liquidity for the shares of Series J Preferred Stock makes it
       difficult for shareholders to sell their shares for cash and diversify
       their holdings without affecting adversely the trading price of the
       shares of Series J Preferred Stock;

     - Because the trading volume of the shares of AFG common stock is
       substantially greater than that of the Series J Preferred Stock, current
       holders of shares of Series J Preferred Stock will have the option of
       either holding the shares of AFG common stock which they receive in the
       AFC merger, or selling them if they wish to receive cash;

     - The terms of the AFC merger permit holders of Series J Preferred Stock to
       receive shares of AFG common stock in a tax-free transaction;

     - Holders of shares of Series J Preferred Stock will be entitled to
       exercise "dissenters' rights" under Ohio law;


     - The value of the AFC merger consideration of $26.00 plus accrued
       dividends per share of Series J Preferred Stock, along with the $1.00 per
       share dividend to be paid in cash on November 1, 2003: (i) exceeds the
       estimated present value (including future dividends as of September 19,
       2003) of the price in cash at which the Series J Preferred Stock may be
       called in 2005, based on a range of current yields for comparable
       preferred securities with a Standard & Poor's credit rating of BB; (ii)
       exceeds the cash liquidation preference of the shares of Series J
       Preferred Stock; and (iii) exceeds the price at which the Series J
       Preferred Stock may be "cashed out" now in a merger transaction; and



     - The exchange value of $26.00 plus accrued dividends is higher than the
       average reported closing price of the Series J Preferred Stock of $20.67
       over the past three years, exceeds the closing price of $19.00 on March
       12, 2003, the last day on which the Series J Preferred Stock traded prior
       to April 17, 2003, the day of the announcement of the proposed AFC
       merger, and exceeds $24.00, the highest reported per share closing price
       at which the Series J Preferred Stock traded during the past three years
       preceding April 17, 2003.


     The following is the material disadvantage of the AFC Merger to the AFC
shareholders that was considered by the special committee.

     - As holders of preferred securities of AFC, holders of shares of Series J
       Preferred Stock have a superior credit position to holders of common
       stock of AFC and are structurally favored over creditors and common stock
       holders of AFG, which advantages will be lost in the AFC merger.

                                STOCK OWNERSHIP


     As of September 30, 2003, Carl H. Lindner, S. Craig Lindner, Carl H.
Lindner III, Keith E. Lindner and trusts for their benefit (collectively, the
"Lindner Family") were the beneficial owners of approximately 44% of the AFG
common stock. The Lindner Family may be deemed to be controlling persons of AFG.
AFG beneficially owns all outstanding shares of AFC common stock, representing
approximately 79% of the outstanding total voting power of AFC.



     In addition to the shareholder approvals required by Ohio law, the merger
agreement also requires the additional approval of a majority of outstanding
Series J Preferred Stock voting on the AFC merger, excluding those shares
beneficially owned by AFG, AFG's directors, executive officers, Carl H. Lindner,
and certain related persons. At September 30, 2003, the persons described in the
preceding sentence collectively beneficially owned 182,130 shares, or 6.3%, of
the outstanding Series J Preferred Stock.


                                        8


                           SPECIAL COMMITTEE OF AFC'S
                               BOARD OF DIRECTORS

     The AFC board of directors appointed a special committee of the board of
directors, consisting of three newly-elected members of the board who are not
employees of, or otherwise affiliated with, either AFG or AFC. This special
committee was appointed to evaluate and negotiate the terms of the AFC merger on
behalf of the public holders of the Series J Preferred Stock and make a
recommendation to the public shareholders with respect to the AFC merger.

                         RECOMMENDATION TO SHAREHOLDERS

     The board of directors of AFC, based on the unanimous recommendation of the
special committee, unanimously recommends that holders of AFC Series J Preferred
Stock adopt the merger agreement at the special meeting so that the
reorganization may be completed.

                                 VOTE REQUIRED

     Ohio law requires that AFC's shareholders must approve the AFC merger by a
vote of a majority of AFC's outstanding total voting power and a majority of
AFC's outstanding shares of Series J Preferred Stock. In addition to the
shareholder approvals required by Ohio law, the merger agreement also requires
the additional approval of a majority of outstanding Series J Preferred Stock
voting on the AFC merger, excluding those shares beneficially owned by AFG,
AFG's directors, executive officers, Carl H. Lindner, and certain of their
respective affiliates. AFG, which owns 79% of AFC's outstanding voting power,
has indicated that it will vote in favor of the AFC merger, assuring the
approval of a majority of AFC's total voting power. Because AFC Holding is a
wholly-owned subsidiary of AFG, no shareholder approval is required for the AFC
Holding merger.


                                VOTING AGREEMENT



     AFG has entered into a voting agreement with subsidiaries of The Commerce
Group, Inc., collectively the beneficial holders of a total of approximately
287,000 shares (10%) of Series J Preferred Stock, providing that such beneficial
holders will vote their shares of Series J Preferred Stock in favor of the AFC
merger. AFG has also come to an understanding with ALLETE, Inc., the beneficial
owner of approximately 75,000 shares (2.6%) of the Series J Preferred Stock,
that such shares will be voted in favor of the AFC merger. AFG and the
shareholders entered into these arrangements in connection with the amendment
and restatement of the merger agreement which resulted in an increase in the
merger consideration to be paid to holders of Series J Preferred Stock as
discussed under, "The Special Meeting -- Voting Agreement" on page 28.


                  CONDITIONS TO COMPLETING THE REORGANIZATION

     To complete the AFC merger, AFG and AFC must satisfy a number of conditions
including:

     - No legal impediment;

     - Effectiveness of registration statement, of which this proxy
       statement/prospectus is a part;

     - Approval by AFC shareholders;

     - Approval by holders of Series J Preferred Stock excluding certain
       affiliates; and

     - Receipt of a tax opinion.

     AFC's obligation to complete the AFC merger also requires compliance with a
number of additional conditions including:

     - Receipt of the fairness opinion;

     - Representations of AFG remain true;

                                        9


     - Compliance by AFG with agreements;

     - Receipt of regulatory approvals; and

     - Listing of AFG common stock to be issued.

     AFG's obligation to complete the AFC merger also requires compliance with a
number of additional conditions including:

     - Representations of AFC remain true;

     - Compliance by AFC with agreements;

     - Receipt of required documents; and

     - Receipt of regulatory approvals.

     AFG and AFC have received the tax opinion described above. AFC or AFG could
decide to complete the AFC merger even though one or more of these other
conditions has not been met, except that AFC will not be able to complete the
AFC merger if the fairness opinion of Duff & Phelps is withdrawn for any reason
before the merger occurs. Neither AFC nor AFG can be certain when or if the
conditions to the AFC merger will be satisfied or waived, or that the AFC merger
will be completed.

                      TERMINATION OF THE MERGER AGREEMENT

     The merger agreement may be terminated by AFG or AFC (acting through the
special committee) under certain circumstances including:

     - by mutual agreement;


     - if the closing date is later than December 31, 2003;


     - if a court issues a permanent, non-appealable ruling permanently
       prohibiting the reorganization;

     - if the merger agreement is not approved by the required votes;

     - upon the breach of a representation or warranty of the other;

     - by AFC if any events, changes or developments have occurred which,
       individually or in the aggregate, have materially adversely affected, or
       are reasonably likely to materially adversely affect, the financial
       condition of AFG and its subsidiaries, taken as a whole;

     - by AFC if the special committee determines, after consultation with and
       based on the written legal advice of its legal counsel, that as a result
       of an event or condition which existed before the date of the merger
       agreement and should have been disclosed by AFG in its filings under the
       Securities Exchange Act of 1934 but was not so disclosed or which occurs
       after the date of the merger agreement, the special committee would
       violate its fiduciary duties in accordance with applicable law if AFC did
       not terminate the merger agreement; or

     - by AFG if the average closing price of the AFG common stock is less than
       $19.00 per share during a specified period prior to the special meeting.

                       FEDERAL INCOME TAX CONSIDERATIONS

     AFC has received an opinion of tax counsel, which is an annex to the merger
agreement, stating that the merger will constitute a reorganization and holders
of Series J Preferred Stock will not recognize any gain or loss for U.S. federal
income tax purposes, except to the extent they receive cash for a fractional
share or because they exercise dissenters' rights. AFG, AFC and holders of AFG
common stock, will not recognize gain or loss as a result of the merger.
Nonetheless, because tax matters are complicated, and tax results may vary among
shareholders, AFG urges you to contact your own advisor to understand fully how
the reorganization will affect you.

                                        10


                       TERMS OF SERIES J PREFERRED STOCK

     Each share of Series J Preferred Stock receives an annual dividend of $2.00
per share. On liquidation, the holder of each share of Series J Preferred Stock
is entitled to $25.00, plus accrued dividends. The Series J Preferred Stock
votes on all matters voted upon by shareholders, with this series possessing
approximately 21% of the voting power of AFC. AFC may, at its option, call for
redemption all or part of the Series J Preferred Stock at specified times
(beginning in 2005) and on specified terms. In addition, the terms of the Series
J Preferred Stock permit AFC, at any time the statutory voting requirements are
met, to engage in a merger with another party, including an affiliate of AFC,
pursuant to which each share of Series J Preferred Stock would receive $25.00
plus accrued dividends.

                           TERMS OF AFG COMMON STOCK

     Holders of AFG common stock are entitled to share in the dividends that the
board of directors validly declares from legally available funds. Currently, AFG
pays an annual dividend of $0.50 per share. If AFG liquidates, holders of AFG
common stock also are entitled to participate ratably in the assets remaining
after AFG pays its liabilities and any preferred stock liquidation preferences
(currently, AFG has no preferred stock outstanding). Holders of AFG common stock
are entitled to one vote for each share held of record on all matters submitted
to a vote of shareholders. AFG common stock has no redemption provisions.

                            COMPARATIVE STOCK PRICES


     AFG common stock is traded on the New York Stock Exchange under the symbol
"AFG". AFC's Series J Preferred Stock is traded through the Archipelago system
on the Pacific Stock Exchange under the symbol "AFI-J". On October   , 2003, the
day before the date of this document, the last reported sales price for a share
of AFG common stock was $     and for a share of Series J Preferred Stock was
$     .


                          OPINION OF FINANCIAL ADVISOR


     In deciding to recommend the AFC merger to the holders of Series J
Preferred Stock, the special committee of AFC's board of directors considered
the opinion of its financial advisor, Duff & Phelps, that the consideration to
be received by holders of shares of Series J Preferred Stock in the AFC merger
is fair, from a financial point of view, to the holders of Series J Preferred
Stock. The written opinion of Duff & Phelps dated October 1, 2003, is attached
as Annex B to this document. AFG encourages holders of Series J Preferred Stock
to read this opinion.


                               DISSENTERS' RIGHTS


     Under Ohio law, holders of Series J Preferred Stock may dissent from the
AFC merger and have the fair cash value of their shares paid to them. To
exercise this right, holders must follow a number of procedures. These
procedures include filing a demand for payment of the fair cash value of their
shares and not voting in favor of the reorganization. For more information on
how to exercise these rights, see "Rights of Dissenting Shareholders" on page 53
and Annex C.


                                        11


                                  RISK FACTORS

     Preferred shareholders of AFC have been subject to nearly all of the
following risks related to AFG as a result of their ownership of preferred stock
of AFC, a subsidiary of AFG. Following the completion of the AFC merger,
however, holders of Series J Preferred Stock would become holders of AFG common
stock. If the AFC merger is not completed, holders of Series J Preferred Stock
would have a preference as to the liquidation value of their shares upon a
liquidation of AFC over holders of AFG common stock. Holders of Series J
Preferred Stock who receive AFG common stock in the AFC merger will therefore
have more exposure to the risk factors set forth below than they had prior to
the merger.

     In considering whether to approve the reorganization, you should also
consider, in addition to the other information contained in this document, the
following matters.


HOLDERS OF SERIES J PREFERRED STOCK MAY EXPERIENCE DECREASED LIQUIDITY IF THE
REORGANIZATION IS NOT COMPLETED


     If the reorganization is not completed, AFG may seek alternatives to
achieve some of the goals of the reorganization. Although AFG has no plans to do
so, AFG may attempt to acquire sufficient shares of Series J Preferred Stock so
that it owns 80% of the total voting power of AFC and AFC will become part of
its consolidated tax group. Such acquisition of Series J Preferred Stock would
further decrease the trading volume of the Series J Preferred Stock and make it
difficult for you to sell shares when you want or at a price you find
attractive.


INTENSE COMPETITION COULD ADVERSELY AFFECT AFG'S PROFITABILITY.


     The specialty insurance business is highly competitive and, except for
regulatory considerations, there are relatively few barriers to entry. AFG
competes with other individual insurers, state funds and insurance groups of
varying sizes, some of which are mutual insurance companies possessing
competitive advantages in that all their profits inure to their policyholders.
AFG also competes with self-insurance plans, captive programs and risk retention
groups. In some or all of AFG's specialty lines, AFG competes with American
International Group Inc., Chubb Corp., W.R. Berkley Corp., CNA Financial Corp.,
Philadelphia Consolidated Holdings Corp., Markel Corp. and St. Paul Companies,
Inc. Because of the specialty nature of these coverages, competition is based
primarily on service to policyholders and agents, specific characteristics of
products offered and reputation for claims handling. Price, commissions and
profit sharing terms are also important factors. Some of AFG's competitors have
more capital and greater resources than it has, and may offer a broader range of
products and lower prices than AFG offers.


AFG'S RESULTS MAY FLUCTUATE AS A RESULT OF CYCLICAL CHANGES IN THE SPECIALTY
INSURANCE INDUSTRY.


     The underwriting profitability of the property and casualty insurance
industry has been historically cyclical in nature. During periods when excess
capital has been available, there has generally been increased price competition
among insurers, often resulting in inadequately priced products and underwriting
losses. Prolonged periods of underwriting losses tend to force some insurers to
withdraw from the markets, decreasing available capital.

     Excess capital and intense premium rate competition caused a cyclical
downturn which began in the late 1980's and continued into 2000. Inadequate
pricing during much of this period led to a significant inadequacy in carried
loss reserves. In addition, the rise in asbestos and environmental liabilities,
loss-cost inflation, catastrophe losses, unpredictable jury awards, losses
related to September 11, declining equity markets and lower interest rates have
all contributed toward capital shortages which exist in many sectors today,
including many of the specialty lines. This decrease in capital has allowed
insurers to increase premium rates over the last couple of years to more
appropriate levels.

                                        12


     The trend of AFG's underwriting results typically follows that of the
industry. The statutory combined ratios of AFG's property and casualty business
were as follows:



 2002    2001     2000     1999     1998
 ----   ------   ------   ------   ------
                       
101.6%  109.7%   108.8%   103.7%   111.1%


     Other major factors contributing to fluctuations in AFG's results include
losses related to asbestos liabilities (1998, 2001 and 2002) and losses related
to the terrorist attack on September 11, 2001. The improvement in underwriting
results beginning in 2002 reflects the rise or hardening of prices in what is
believed to be an upturn in the underwriting cycle for AFG and the industry.
However, should capacity increase and price competition intensify, the cycle
would reverse and negatively impact AFG's revenues and operating results.


AFG RELIES UPON INDEPENDENT AGENTS TO WRITE ITS INSURANCE POLICIES, AND IF AFG
IS NOT ABLE TO ATTRACT AND RETAIN INDEPENDENT AGENTS, ITS RESULTS COULD BE
NEGATIVELY AFFECTED.


     AFG's reliance on the independent agency market makes it vulnerable to a
reduction in the amount of business written by agents. Many of AFG's
competitors, like AFG, rely significantly on the independent agency market.
Accordingly, AFG must compete with other insurance carriers for independent
agents' business. Some of AFG's competitors offer a wider variety of products,
lower price for insurance coverage or higher commissions to agents. While AFG
believes that the products, pricing, commissions and services it offers are
competitive, AFG may not be able to continue to attract and retain independent
agents to sell its products, in which case, its revenues and earnings could be
negatively affected.


AFG IS SUBJECT TO COMPREHENSIVE REGULATION, AND ITS ABILITY TO EARN PROFITS MAY
BE RESTRICTED BY THESE REGULATIONS.


     AFG is subject to comprehensive regulation by government agencies in the
states where its insurance company subsidiaries are domiciled and where these
subsidiaries issue policies and handle claims, and AFG must obtain prior
approval for certain corporate actions. The regulations may have the effect of
limiting AFG's liquidity and may adversely affect AFG's results of operations.
AFG must comply with regulations involving:

     - transferring cash to the parent company through the payment of dividends;

     - the acquisition or disposition of an insurance company or of any company
       controlling an insurance company;

     - approval or filing of premium rates and policy forms;

     - involuntary assignments of high-risk policies, participation in
       reinsurance facilities and underwriting associations, assessments and
       other governmental charges;

     - minimum amounts of capital and surplus that must be maintained;

     - limitations on types and amounts of investments;

     - limitation of the right to cancel or non-renew policies;

     - regulation of the right to withdraw from markets or terminate involvement
       with agencies;

     - licensing of insurers and agents;

     - reporting with respect to financial condition; and

     - transactions between an insurance company and any of its affiliates.

     In addition, state insurance department examiners perform periodic
financial and market conduct examinations of insurance companies. Such
regulation is generally intended for the protection of policyholders rather than
securityholders.

                                        13


     There can be no assurance that existing insurance-related laws and
regulations will not become more restrictive in the future or that new
restrictive laws will not be enacted and, therefore, it is not possible to
predict the potential effects of these laws and regulations on AFG. The costs of
compliance or the failure to comply with existing or future regulations could
harm AFG's financial results.


AS A HOLDING COMPANY, AFG IS DEPENDENT ON THE RESULTS OF OPERATIONS OF ITS
INSURANCE COMPANY SUBSIDIARIES TO MEET ITS OBLIGATIONS AND PAY FUTURE DIVIDENDS.


     AFG is a holding company and a legal entity separate and distinct from its
insurance company subsidiaries. As a holding company without significant
operations of its own, AFG's principal sources of funds are dividends and other
distributions from its insurance company subsidiaries. State insurance laws
limit the ability of its insurance companies to pay dividends and require its
insurance companies to maintain specified levels of statutory capital and
surplus. Some states require that AFG give notice to the relevant state
insurance commissioner prior to its insurance subsidiaries declaring any
dividends and distributions payable to AFG. During the notice period, the state
insurance commissioner may disallow all or part of the proposed dividend if it
determines that the insurer's surplus as regards policyholders is not reasonable
in relation to the insurer's liabilities and adequate to meet its financial
needs. In addition, for competitive reasons, AFG's insurance companies need to
maintain financial strength ratings which requires it to sustain capital levels
in those subsidiaries. These restrictions affect the ability of AFG's insurance
company subsidiaries to pay dividends and use their capital in other ways. AFG's
rights to participate in any distribution of assets of its insurance company
subsidiaries are subject to prior claims of policyholders and creditors (except
to the extent that AFG's rights, if any, as a creditor are recognized).
Consequently, AFG's ability to pay debts, expenses and cash dividends to AFG's
shareholders may be limited.


AFG'S FAILURE TO MAINTAIN A COMMERCIALLY ACCEPTABLE FINANCIAL STRENGTH RATING
WOULD SIGNIFICANTLY AND NEGATIVELY AFFECT ITS ABILITY TO COMPETE SUCCESSFULLY.


     Financial strength ratings are an important factor in establishing the
competitive position of insurance companies and may be expected to have an
effect on an insurance company's sales. A.M. Best has currently assigned AFG's
insurance company subsidiaries ratings of "A (Excellent)" and "A- (Excellent)".
According to A.M. Best, "A" and "A-" ratings are assigned to insurers which
have, on balance, excellent balance sheet strength, operating performance and
business profile when compared to the standards established by A.M. Best and, in
A.M. Best's opinion, have a strong ability to meet their ongoing obligations to
policyholders. A.M. Best bases its ratings on factors that concern policyholders
and not upon factors concerning investor protection. Such ratings are subject to
change and are not recommendations to buy, sell or hold securities. There can be
no assurance that AFG's rating or future changes to its rating will not affect
its competitive position.


AFG MAY BE ADVERSELY IMPACTED BY A CHANGE IN ITS STANDARD & POOR'S OR MOODY'S
RATINGS.



     On May 27, 2003, AFG was notified by Moody's Investors Service that its
ratings were being placed under review for possible downgrade. On July 2, 2003,
Moody's confirmed AFG's senior debt ratings at their current level but stated
that the outlook for all of the ratings remains negative. Moody's has stated
that its review for a possible downgrade was initiated due to Moody's continued
concerns about AFG's holding company liquidity profile.



     AFG is rated by Standard & Poor's and Moody's, both independent corporate
credit rating agencies. AFG's senior indebtedness is currently rated BBB by
Standard & Poors and Baa3 by Moody's. Securities ratings are subject to revision
or withdrawal at any time by the assigning rating organization. A security
rating is not a recommendation to buy, sell or hold securities. An unfavorable
change in either of these ratings could make it more expensive for AFG to access
capital markets and may increase the interest rate charged to AFG under its
current multi-bank credit line. AFG can give no assurance that it will maintain
its current Standard & Poor's or Moody's ratings.


                                        14



AFG IS A PARTY TO LITIGATION WHICH, IF DECIDED ADVERSELY TO IT, COULD IMPACT
AFG'S FINANCIAL RESULTS.


     AFG and its subsidiaries are named as defendants in a number of lawsuits.
Litigation, by its very nature, is unpredictable and the outcome of these cases
is uncertain. Further, AFG is unable to predict the precise nature of the relief
that may be sought or granted in any lawsuits or the effect that pending or
future cases may have on its business, operations, profitability or financial
condition.


LEGAL PRECEDENTS REGARDING POTENTIAL ASBESTOS LIABILITIES CONTINUE TO EVOLVE,
AND ADVERSE DEVELOPMENTS COULD IMPACT AFG'S FINANCIAL RESULTS.


     AFG, its insurance company subsidiaries and its subsidiary, American
Premier Underwriters, Inc., which we refer to as American Premier, are parties
to litigation and receive claims asserting alleged injuries and damages from
asbestos and other hazardous and toxic substances and workplace hazards and have
established loss accruals for such potential liabilities. The ultimate loss for
these claims may vary materially from amounts currently recorded as the
conditions surrounding resolution of these claims continue to change. AFG is
unable to predict the precise nature of the relief that may be granted in any
lawsuits or the effect that future cases may have on AFG's business, operations,
profitability or financial condition. In 2002 and 2001, AFG increased reserves
relating to prior year's asbestos and environmental claims by $49 million and
$108 million, respectively. As of June 30, 2003, the aggregate net reserves held
by AFG's insurance company subsidiaries for asbestos claims was $290 million and
for other environmental and mass tort claims was $155 million.


AFG IS SUBJECT TO ENVIRONMENTAL CLAIMS THAT MAY IMPACT ITS FINANCIAL RESULTS.


     American Premier is a party or named as a potentially responsible party in
a number of proceedings and claims by regulatory agencies and private parties
under various environmental protection laws, including the Comprehensive
Environmental Response, Compensation and Liability Act (CERCLA), seeking to
impose responsibility on American Premier for hazardous waste remediation costs
at certain railroad and manufacturing sites formerly owned by it or its
predecessor, Penn Central Transportation Company, and at certain other sites
where hazardous waste allegedly generated by Penn Central's railroad operations
and American Premier's former manufacturing operations is present. As of June
30, 2003 American Premier had $24 million reserved for environmental claims. It
is difficult to estimate American Premier's liability for remediation costs at
these sites for a number of reasons, including the number and financial
resources of other potentially responsible parties involved at a given site, the
varying availability of evidence by which to allocate responsibility among such
parties, the wide range of costs for possible remediation alternatives, changing
technology and the period of time over which these matters develop.


AFG'S PROPERTY AND CASUALTY RESERVES MAY BE INADEQUATE, WHICH COULD
SIGNIFICANTLY AFFECT ITS FINANCIAL RESULTS.


     AFG records reserve liabilities for the estimated payment of losses and
loss adjustment expenses for both reported and unreported claims. Due to the
inherent uncertainty of estimating reserves, it has been necessary in the past,
and may continue to be necessary in the future, to revise estimated liabilities
as reflected in AFG's reserves for claims and related expenses. For example, in
2002, 2001 and 1998 AFG recorded charges of $171 million, $163 million and $156
million, respectively, to increase reserves relating to prior accident years and
in 2000 and 1999 AFG recorded reductions of $60 million and $74 million,
respectively, to reserves of prior accident years. To the extent that reserves
are inadequate and are strengthened, the amount of such increase is treated as a
charge to earnings in the period in which the deficiency is recognized. The
historic development of reserves for losses and loss adjustment expense may not
necessarily reflect future trends in the development of these amounts.
Accordingly, it is not appropriate to extrapolate redundancies or deficiencies
based on historical information.

                                        15



VARIATIONS FROM THE ACTUARIAL ASSUMPTIONS USED TO ESTABLISH CERTAIN ASSETS AND
LIABILITIES IN AFG'S ANNUITY, LIFE, ACCIDENT AND HEALTH BUSINESS COULD
NEGATIVELY IMPACT AFG'S RESULTS.



     The earnings on certain products offered by AFG's annuity, life, accident
and health business depend significantly upon the extent to which actual
experience is consistent with the assumptions used in setting reserves and
establishing and amortizing deferred policy acquisition costs ("DPAC"). These
assumptions relate to investment yields (and spreads over fixed annuity
crediting rates), mortality, surrenders and, on some policies, morbidity.
Developing such assumptions is complex and involves information obtained from
company-specific and industry-wide data, as well as general economic
information. These assumptions, and therefore AFG's results of operations, could
be negatively impacted by changes in any of the factors listed above. For
example, AFG recorded a pretax charge of $12.5 million in the second quarter of
2003 due to the negative effect of lower interest rates on AFG's fixed annuity
operations.



ADVERSE SECURITIES MARKET CONDITIONS CAN HAVE SIGNIFICANT AND NEGATIVE EFFECTS
ON AFG'S INVESTMENT PORTFOLIO.


     AFG's results of operations depend in part on the performance of its
invested assets. As of June 30, 2003, 92% of AFG's investment portfolio was
invested in fixed maturity securities and 4% in equity securities. Certain risks
are inherent in connection with fixed maturity securities, including loss upon
default and price volatility in reaction to changes in interest rates and
general market factors. An increase in interest rates lowers prices on fixed
maturity securities, and any sales made during a period of increasing interest
rates may result in losses. Conversely, investment income earned from future
investments in fixed maturity securities will decrease if interest rates
decrease.

     AFG cannot predict at this time whether and the extent to which industry
sectors in which it maintains investments may suffer losses as a result of
potential decreased commercial and economic activity, or how any such decrease
might impact the ability of companies within the affected industry sectors to
pay interest or principal on their securities, or how the value of any
underlying collateral might be affected.


THE CONTINUED THREAT OF TERRORISM AND ONGOING MILITARY AND OTHER ACTIONS MAY
ADVERSELY AFFECT AFG'S FINANCIAL RESULTS.


     AFG incurred a loss of $25 million related to the terrorist attack on the
World Trade Center in 2001. The continued threat of terrorism, both within the
United States and abroad, and the ongoing military and other actions and
heightened security measures taken in response to these types of threats, may
cause significant volatility and declines in the equity markets in the United
States, Europe and elsewhere, loss of life, property damage, additional
disruptions to commerce and reduced economic activity. Actual terrorist attacks
could cause losses from insurance claims related to AFG's property and casualty
and life insurance operations with adverse financial consequences. The Terrorism
Risk Insurance Act of 2002 requires that some coverage for terrorist acts be
offered by primary property insurers such as AFG's insurance subsidiaries and
provides Federal assistance for recovery of some large claims through 2005. In
addition, some of the assets in its insurance subsidiaries' investment
portfolios may be adversely affected by declines in the capital markets and
economic activity caused by the continued threat of terrorism, ongoing military
and other actions and heightened security measures.

     AFG can offer no assurances that the threats of future terrorist-like
events in the United States and abroad or military actions by the United States
will not have a material adverse effect on AFG's business, financial condition
or results of operations.


THE INABILITY TO OBTAIN REINSURANCE COULD ADVERSELY IMPACT AFG'S RESULTS.


     AFG relies on the use of reinsurance to limit the amount of risk it
retains. The following amounts of gross property and casualty premiums have been
ceded to other insurers: 2002 -- $1.5 billion (39%); 2001 -- $938 million (27%);
2000 -- $593 million (18%). The availability and cost of reinsurance are subject
to prevailing market conditions which are beyond AFG's control and which may
affect its level of business and

                                        16


profitability. AFG is also subject to credit risk with respect to its
reinsurers, as the ceding of risk to reinsurers does not relieve AFG of its
liability to insureds.


CERTAIN SHAREHOLDERS EXERCISE SUBSTANTIAL CONTROL OVER AFG'S AFFAIRS AND MAY
HAVE INTERESTS THAT DIFFER FROM YOUR INTERESTS.



     As of September 30, 2003, Carl H. Lindner, S. Craig Lindner, Carl H.
Lindner III, Keith E. Lindner and trusts for their benefit, which we refer to
collectively as the Lindner family, were the beneficial owners of approximately
44% of AFG's outstanding common stock. As a result, the Lindner family exercises
substantial control over the election of AFG's board of directors and
significantly influences its corporate actions. In addition, the American
Financial Group, Inc. Retirement and Savings Plan owns approximately 11% of
AFG's outstanding common stock. The board of directors of AFG appoints an
Administrative Plan Committee of the Retirement And Savings Plan which directs
the voting of shares held by the Retirement And Savings Plan. The Administrative
Plan Committee is currently comprised solely of executive officers of AFG and
AFC. The interests of the Lindner family, as well as the interests of the
Retirement and Savings Plan, may differ from those of AFG's other shareholders
and they may take actions that advance their respective interests to the
detriment of other shareholders.



THE PRICE OF AFG'S COMMON STOCK MAY FLUCTUATE SIGNIFICANTLY WHICH MAY MAKE IT
DIFFICULT FOR YOU TO SELL COMMON STOCK ISSUABLE IN THE AFC MERGER WHEN YOU WANT
AT A PRICE YOU FIND ATTRACTIVE.


     The price of AFG common stock as listed on the New York Stock Exchange,
constantly changes. Since January 1, 2002, our common stock has traded at prices
ranging between $17.90 and $30.30. AFG expects that the market price of its
stock will continue to fluctuate. Holders of Series J Preferred Stock who
receive AFG common stock in the AFC merger will also be subject to the risk of
volatility and depressed prices of the AFG common stock.

     AFG's common stock price can fluctuate as a result of a variety of factors,
many of which are beyond its control. These factors include:

     - actual or anticipated variations in AFG's quarterly operating results;

     - actual or anticipated changes in the dividends AFG pays on its common
       stock;

     - recommendations by securities analysts;

     - significant acquisitions or business combinations, strategic
       partnerships, joint ventures or capital commitments by or involving AFG
       or its competitors;

     - operating and stock price performance of other companies that investors
       deem comparable to AFG;

     - news reports relating to trends, concerns and other issues in AFG's
       industry; and

     - geopolitical conditions such as acts or threats of terrorism or military
       conflicts.

General market fluctuations, industry factors and general economic and political
conditions and events, such as terrorist attacks, war, economic slowdowns or
recessions, interest rate changes, credit loss trends or currency fluctuations,
could also cause AFG's stock price to decrease regardless of its operating
results.

     In addition, the stock market in general has experienced extreme volatility
that has often been unrelated to the operating performance of a particular
company. These broad market fluctuations also may adversely affect the market
price of AFG's common stock.

                           FORWARD LOOKING STATEMENTS

     This proxy statement/prospectus and the documents incorporated by reference
contain certain forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934. Forward-looking statements are subject to numerous assumptions, risks or
uncertainties. The Private Securities Litigation Reform Act of 1995 provides a
safe harbor for forward-looking
                                        17


statements. Some of the forward-looking statements can be identified by the use
of forward-looking words such as "anticipates", "believes", "expects",
"estimates", "intends", "plans", "seeks", "could", "may", "should", "will" or
the negative version of those words or other comparable terminology. Examples of
such forward-looking statements include statements relating to: expectations
concerning market and other conditions and their effect on future premiums,
revenues, earnings and investment activities; expected losses and the adequacy
of reserves for asbestos, environmental pollution and mass tort claims, rate
increases, improved loss experience and expected expense savings resulting from
recent initiatives.

     Actual results could differ materially from those contained in or implied
by such forward-looking statements for a variety of factors including:

     - changes in economic conditions, including interest rates, performance of
       securities markets and the availability of capital;

     - regulatory actions;

     - changes in legal environment;

     - tax law changes;

     - levels of natural catastrophes, terrorist events, incidents of war and
       other major losses;

     - the ultimate amount of liabilities associated with certain asbestos and
       environmental-related claims;

     - the unpredictability of possible future litigation if certain settlements
       do not become effective;

     - adequacy of insurance reserves;

     - trends in mortality and morbidity;

     - availability of reinsurance and ability of reinsurers to pay their
       obligations;

     - competitive pressures, including the ability to obtain rate increases;
       and

     - changes in debt and claims paying ratings.

     All forward-looking statements address matters that involve risks and
uncertainties. Accordingly, there are or will be important factors that could
cause actual results to differ materially from those indicated in these
statements. AFG and AFC believe that these factors include but are not limited
to those described under "Risk Factors." Neither AFG nor AFC undertakes any
obligation to publicly update or review any forward-looking statement.

     AFG and AFC caution you that these risk factors may not be exhaustive. AFG
and AFC operate in a continually changing business environment, and new risk
factors emerge from time to time. AFG and AFC cannot predict such new risk
factors, nor can AFG or AFC assess the impact, if any, of such new risk factors
on our businesses or the extent to which any factor or combination of factors
may cause actual results to differ materially from those expressed or implied by
any forward-looking statements. In light of these risks, uncertainties and
assumptions, the forward-looking events discussed in this prospectus might not
occur.

     You should carefully read this prospectus and the documents incorporated by
reference in their entirety. They contain information that you should consider
when making your investment decision.

                                        18


                         AMERICAN FINANCIAL CORPORATION
                SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA

     The following is a summary of selected financial data for AFC and its
subsidiaries for the six-month periods ended June 30, 2003 and June 30, 2002 and
the five years ended December 31, 2002. This summary should be read in
conjunction with the financial statements and their notes which are included in
this document.



                                      SIX MONTHS ENDED
                                          JUNE 30,                    YEAR ENDED DECEMBER 31,
                                      -----------------   -----------------------------------------------
                                       2003      2002      2002      2001      2000      1999      1998
                                      -------   -------   -------   -------   -------   -------   -------
                                                                             
EARNINGS STATEMENT DATA:
Total Revenues......................  $ 1,622   $ 1,846   $ 3,745   $ 3,929   $ 3,820   $ 3,359   $ 4,084
Operating Earnings Before Income
  Taxes.............................      104        87       195        70       120       310       269
Earnings (Loss) Before Extraordinary
  Items and Accounting Changes......       70        62       134        13       (23)      153       130
Extraordinary Items.................       --        --        --        --        --        (4)       (1)
Cumulative Effect of Accounting
  Changes(a)........................       --       (40)      (40)      (10)       (9)       (4)       --
Net Earnings (Loss).................       70        22        94         3       (32)      145       129
Ratio of Earnings to Fixed
  Charges(b):
  Including Annuity Benefits........     1.51      1.44      1.48      1.14      1.26      1.81      1.69
  Excluding Annuity Benefits........     3.81      3.14      3.36      1.56      2.02      4.01      3.44
Ratio of Earnings to Fixed Charges
  and Preferred Dividends(b):
  Including Annuity Benefits........     1.48      1.41      1.46      1.12      1.23      1.76      1.65
  Excluding Annuity Benefits........     3.42      2.90      3.09      1.45      1.87      3.67      3.15
BALANCE SHEET DATA:
Total Assets........................  $19,111   $18,509   $19,502   $17,398   $16,407   $16,024   $15,848
Long-term Debt:
  Holding Companies.................       20       242       268       228       204       113       315
  Subsidiaries......................      252       270       297       271       195       240       177
Minority Interest...................      550       476       494       461       510       490       524
Shareholders' Equity................    1,904     1,612     1,730     1,478     1,454     1,324     1,531


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

(a)  Reflects the implementation in the following years of accounting changes
     mandated by recently enacted accounting standards:


             
        2002 -  SFAS #142 (Goodwill and Other Intangibles)
        2001 -  EITF 99-20 (Asset-backed Securities)
        2000 -  SFAS #133 (Derivatives)
        1999 -  SOP 98-5 (Start-up Costs)


(b)  Fixed charges are computed on a "total enterprise" basis. For purposes of
     calculating the ratios, "earnings" have been computed by adding to pretax
     earnings the fixed charges and the minority interest in earnings of
     subsidiaries having fixed charges and the undistributed equity in losses of
     investees. Fixed charges include interest (including or excluding interest
     credited to annuity policyholders' accounts as indicated), amortization of
     debt premium/discount and expense, preferred dividend and distribution
     requirements of subsidiaries and a portion of rental expense deemed to be
     representative of the interest factor. Although the ratio of earnings to
     fixed charges excluding interest on annuities is not required or encouraged
     to be disclosed under Securities and Exchange Commission rules, it is
     presented because interest credited to annuity policyholders' accounts is
     not always considered a borrowing cost for an insurance company.

                                        19


                            AMERICAN FINANCIAL GROUP
                SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA

     The following is a summary of selected financial data for AFG and its
subsidiaries for the six-month periods ended June 30, 2003 and June 30, 2002 and
the five years ended December 31, 2002. This summary should be read in
conjunction with the financial statements and their notes which are incorporated
by reference to this document.



                                         SIX MONTHS
                                       ENDED JUNE 30,                 YEAR ENDED DECEMBER 31,
                                      -----------------   -----------------------------------------------
                                       2003      2002      2002      2001      2000      1999      1998
                                      -------   -------   -------   -------   -------   -------   -------
                                                                             
EARNINGS STATEMENT DATA:
Total Revenues......................  $ 1,620   $ 1,844   $ 3,750   $ 3,924   $ 3,817   $ 3,360   $ 4,082
Operating Earnings Before Income
  Taxes.............................       89        75       178        56       110       302       274
Earnings (Loss) Before Extraordinary
  Items and Accounting Changes......       56        54       125        (5)      (47)      147       125
Extraordinary Items.................       --        --        --        --        --        (2)       (1)
Cumulative Effect of Accounting
  Changes(a)........................       --       (40)      (40)      (10)       (9)       (4)       --
Net Earnings (Loss).................       56        14        85       (15)      (56)      141       124
Basic Earnings (Loss) Per Common
  Share:
  Earnings (Loss) Before
    Extraordinary Items and
    Accounting Changes..............  $  0.80   $  0.79   $  1.82   $  (.07)  $  (.80)  $  2.46   $  2.04
  Net Earnings (Loss) Available to
    Common Shares...................     0.80      0.20      1.23      (.22)     (.95)     2.37      2.03
Diluted Earnings (Loss) Per Common
  Share:
  Earnings (Loss) Before
    Extraordinary Items and
    Accounting Changes..............  $  0.80   $  0.78   $  1.81   $  (.07)  $  (.80)  $  2.44   $  2.01
  Net Earnings (Loss) Available to
    Common Shares...................     0.80      0.19      1.22      (.22)     (.95)     2.35      2.00
Cash Dividends Paid Per Share of
  Common Stock......................  $ 0.125   $ 0.125   $   .50   $  1.00   $  1.00   $  1.00   $  1.00
Ratio of Earnings to Fixed
  Charges(b):
  Including Annuity Benefits........     1.35      1.31      1.37      1.06      1.18      1.71      1.65
  Excluding Annuity Benefits........     2.42      2.18      2.42      1.21      1.63      3.36      3.22
BALANCE SHEET DATA:
Total Assets........................  $19,141   $18,514   $19,505   $17,402   $16,416   $16,054   $15,845
Long-term Debt:
  Holding Companies.................      591       623       648       609       585       493       415
  Subsidiaries......................      252       270       297       271       195       240       177
Minority Interest...................      528       464       471       455       508       489       522
Shareholders' Equity................    1,874     1,615     1,726     1,498     1,549     1,340     1,716


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

(a)  Reflects the implementation in the following years of accounting changes
     mandated by recently enacted accounting standards:


             
        2002 -  SFAS #142 (Goodwill and Other Intangibles)
        2001 -  EITF 99-20 (Asset-backed Securities)
        2000 -  SFAS #133 (Derivatives)
        1999 -  SOP 98-5 (Start-up Costs)


(b)  Fixed charges are computed on a "total enterprise" basis. For purposes of
     calculating the ratios, "earnings" have been computed by adding to pretax
     earnings the fixed charges and the minority interest in earnings of
     subsidiaries having fixed charges and the undistributed equity in losses of
     investees. Fixed

                                        20


     charges include interest (including or excluding interest credited to
     annuity policyholders' accounts as indicated), amortization of debt
     premium/discount and expense, preferred dividend and distribution
     requirements of subsidiaries and a portion of rental expense deemed to be
     representative of the interest factor. Although the ratio of earnings to
     fixed charges excluding interest on annuities is not required or encouraged
     to be disclosed under Securities and Exchange Commission rules, it is
     presented because interest credited to annuity policyholders' accounts is
     not always considered a borrowing cost for an insurance company.

                                        21


                   UNAUDITED PRO FORMA FINANCIAL INFORMATION

     The following pro forma financial information is intended to provide
information about how the reorganization might have affected AFG's historical
financial statements if it had been consummated as of the beginning of the
periods shown. The financial information is based upon and should be read in
conjunction with the audited financial statements of AFG and related notes
thereto and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" incorporated by reference in this prospectus. The results
for interim periods are not necessarily indicative of results for the entire
year.

     We have prepared the Pro Forma Balance Sheet assuming that:


          (i)  AFG issued 3,450,123 shares of its Common Stock in exchange for
               the 2,886,161 shares of AFC Series J Preferred Stock outstanding,
               and


          (ii) Costs of the reorganization amount to $600,000.


     The shares assumed issued are based upon a closing price of $21.75 per AFG
Common Share (on September 30, 2003) and an exchange price of $26.00 per AFC
Preferred Share. The Pro Forma Balance Sheet has not been adjusted to reflect
the dividends to be paid subsequent to June 30, 2003.


     The Pro Forma Statements of Earnings are based upon the same data and are
further adjusted to reflect the February 2003 sale of 61% of Infinity Property
and Casualty Corporation as of the beginning of the periods shown.

                         AMERICAN FINANCIAL GROUP, INC.
            UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
                                 JUNE 30, 2003



                                                             AFG                           AFG
                                                          HISTORICAL    ADJUSTMENTS     PRO FORMA
                                                          ----------    -----------     ---------
                                                                       (IN MILLIONS)
                                                                               
ASSETS:
  Cash and investments..................................  $13,655.9       $  (0.6)(5)   $13,655.3
  Recoverables from reinsurers and prepaid reinsurance
     premiums...........................................    2,873.1            --         2,873.1
  Agents' balances and premiums receivable..............      563.2            --           563.2
  Deferred acquisition costs............................      807.6            --           807.6
  Prepaid expenses, deferred charges and other assets...    1,072.1            --         1,072.1
  Goodwill..............................................      169.3            --           169.3
                                                          ---------       -------       ---------
                                                          $19,141.2       $  (0.6)      $19,140.6
                                                          =========       =======       =========
LIABILITIES AND CAPITAL:
  Unpaid losses and loss adjustment expenses............  $ 4,639.3       $    --       $ 4,639.3
  Unearned premiums.....................................    1,587.8            --         1,587.8
  Annuity benefits accumulated..........................    6,778.3            --         6,778.3
  Long-term debt........................................      842.4            --           842.4
  Accounts payable, accrued expenses and other
     liabilities........................................    2,891.6        (170.0)(4)     2,721.6
                                                          ---------       -------       ---------
     Total liabilities..................................   16,739.4        (170.0)       16,569.4
  Minority Interest.....................................      527.6         (72.2)(3)       455.4
  Shareholders' Equity..................................    1,874.2         170.0(4)
                                                                             71.6(3)(5)   2,115.8
                                                          ---------       -------       ---------
                                                          $19,141.2       $  (0.6)      $19,140.6
                                                          =========       =======       =========


                                        22


                         AMERICAN FINANCIAL GROUP, INC.
        UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
                         SIX MONTHS ENDED JUNE 30, 2003




                                                                 ELIMINATE
                                                   ELIMINATE      LOSS ON
                                        AFG       INFINITY'S      SALE OF       AFG        MERGER         AFG
                                     HISTORICAL   ACCOUNTS(1)   INFINITY(2)   ADJUSTED   ADJUSTMENTS   PRO FORMA
                                     ----------   -----------   -----------   --------   -----------   ---------
                                                                    (IN MILLIONS)
                                                                                     
INCOME:
  Property and casualty insurance
     premiums......................   $ 955.3       $(78.7)        $  --       $876.6      $   --       $ 876.6
  Investment income................     389.0         (8.1)           --        380.9          --         380.9
  Realized gains (losses)..........     (11.5)        (0.5)         39.4         27.4          --          27.4
  Other income.....................     286.8         (0.5)           --        286.3          --         286.3
                                      -------       ------         -----       ------      ------       -------
                                      1,619.6        (87.8)         39.4      1,571.2          --       1,571.2
COSTS AND EXPENSES:
  Property and casualty insurance:
     Losses and loss adjustment
       expenses....................     689.8        (64.3)           --        625.5          --         625.5
     Commissions and other
       underwriting expenses.......     280.3         (9.3)           --        271.0          --         271.0
  Annuity benefits.................     155.7           --            --        155.7          --         155.7
  Interest charges on borrowed
     money.........................      28.0         (2.1)           --         25.9          --          25.9
  Other operating and general
     expenses......................     377.3         (3.2)           --        374.1          --         374.1
                                      -------       ------         -----       ------      ------       -------
                                      1,531.1        (78.9)           --      1,452.2          --       1,452.2
                                      -------       ------         -----       ------      ------       -------
  Operating earnings before income
     taxes.........................      88.5         (8.9)         39.4        119.0          --         119.0
  Provision (credit) for income
     taxes.........................      19.8         (3.0)         13.8         30.6          --(4)       30.6
                                      -------       ------         -----       ------      ------       -------
  Net operating earnings...........      68.7         (5.9)         25.6         88.4          --          88.4
  Minority interest expense, net of
     tax...........................     (16.1)         0.1            --        (16.0)        2.9(6)      (13.1)
  Equity in net earnings (losses)
     of investees, net of tax......       3.0          1.5            --          4.5          --           4.5
                                      -------       ------         -----       ------      ------       -------
  EARNINGS BEFORE CUMULATIVE EFFECT
     OF ACCOUNTING CHANGE..........   $  55.6       $ (4.3)        $25.6       $ 76.9      $  2.9       $  79.8
                                      =======       ======         =====       ======      ======       =======
  EARNINGS PER COMMON SHARE BEFORE
     CUMULATIVE EFFECT OF AN
     ACCOUNTING CHANGE
     Basic.........................   $  0.80                                  $ 1.11                   $  1.09(7)
                                      =======                                  ======                   =======
     Diluted.......................   $  0.80                                  $ 1.10                   $  1.09(7)
                                      =======                                  ======                   =======
  Average number of Common Shares:
     Basic.........................    69,435                                               3,450(3)     72,885
     Diluted.......................    69,665                                               3,450(3)     73,115



                                        23


                         AMERICAN FINANCIAL GROUP, INC.
        UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
                          YEAR ENDED DECEMBER 31, 2002




                                                       ELIMINATE
                                            AFG       INFINITY'S      AFG        MERGER         AFG
                                         HISTORICAL   ACCOUNTS(1)   ADJUSTED   ADJUSTMENTS   PRO FORMA
                                         ----------   -----------   --------   -----------   ---------
                                                                 (IN MILLIONS)
                                                                              
INCOME:
  Property and casualty insurance
     premiums..........................   $2,402.6      $(753.1)    $1,649.5     $   --      $1,649.5
  Investment income....................      862.7        (78.3)       784.4         --         784.4
  Realized losses......................      (80.6)        (4.8)       (85.4)        --         (85.4)
  Other income.........................      564.9         (4.2)       560.7         --         560.7
                                          --------      -------     --------     ------      --------
                                           3,749.6       (840.4)     2,909.2         --       2,909.2
COSTS AND EXPENSES:
  Property and casualty insurance:
     Losses and loss adjustment
       expenses........................    1,814.7       (618.8)     1,195.9         --       1,195.9
     Commissions and other underwriting
       expenses........................      614.2       (105.2)       509.0         --         509.0
  Annuity benefits.....................      301.0           --        301.0         --         301.0
  Interest charges on borrowed money...       60.4        (12.0)        48.4         --          48.4
  Other operating and general
     expenses..........................      781.3        (29.4)       751.9         --         751.9
                                          --------      -------     --------     ------      --------
                                           3,571.6       (765.4)     2,806.2         --       2,806.2
                                          --------      -------     --------     ------      --------
  Operating earnings before income
     taxes.............................      178.0        (75.0)       103.0         --         103.0
  Provision (credit) for income
     taxes.............................       17.9        (26.6)        (8.7)        --(4)       (8.7)
                                          --------      -------     --------     ------      --------
  Net operating earnings...............      160.1        (48.4)       111.7         --         111.7
  Minority interest expense, net of
     tax...............................      (26.1)        (0.1)       (26.2)       5.8(6)      (20.4)
  Equity in net earnings (losses) of
     investees, net of tax.............       (9.0)        10.8          1.8         --           1.8
                                          --------      -------     --------     ------      --------
  EARNINGS BEFORE CUMULATIVE EFFECT OF
     ACCOUNTING CHANGE.................   $  125.0      $ (37.7)    $   87.3     $  5.8      $   93.1
                                          ========      =======     ========     ======      ========
  EARNINGS PER COMMON SHARE BEFORE
     CUMULATIVE EFFECT OF AN ACCOUNTING
     CHANGE
     Basic.............................   $   1.82                  $   1.27                 $   1.29(7)
                                          ========                  ========                 ========
     Diluted...........................   $   1.81                  $   1.26                 $   1.28(7)
                                          ========                  ========                 ========
  Average number of Common Shares:
     Basic.............................     68,800                                3,450(3)     72,250
     Diluted...........................     69,203                                3,450(3)     72,653



               NOTES TO UNAUDITED PRO FORMA FINANCIAL INFORMATION

(1) Reflects the elimination of: (i) Infinity Property and Casualty Corporation
    for the periods it was consolidated with AFG prior to the sale of 61% of
    Infinity in February 2003, (ii) the personal lines business written through
    agents by AFG's principal property and casualty subsidiary which was assumed
    by Infinity beginning in 2003, and (iii) inter-company losses and basis
    differences on securities sold by Infinity. Certain reclassifications have
    been made to conform to AFG's presentation.

                                        24


(2) Reflects the elimination of AFG's $39.4 million loss on the sale of 61% of
    Infinity in February 2003.


(3) Reflects the issuance of 3,450,123 shares of AFG Common Stock in exchange
    for all of the AFC Series J Preferred Stock as of the first day of the
    periods shown. The exchange will be accounted for as a capital transaction.


(4) Reflects the elimination of a $170 million deferred tax liability associated
    with shares of AFG Common Stock held by AFC and a subsidiary. AFC accounted
    for this investment (and its predecessor) under the equity method as an
    investee since 1982. AFC recorded deferred income taxes on its equity in
    investee earnings (aggregating approximately $130 million). Because AFG and
    AFC were in different tax groups, AFC also recorded approximately $40
    million in deferred taxes related to AFG dividends received. If the AFC
    Merger is approved, the $170 million liability will be eliminated (Balance
    Sheet only*).

(5) Reflects $600,000 in estimated costs of the reorganization (Balance Sheet
    only*).

(6) Reflects the elimination of AFC Series J dividends of $2.9 million in the
    six months ended June 30, 2003, and $5.8 million in 2002. AFC paid annual
    dividends of $2.00 per share on 2,886,161 outstanding shares.


(7) Any excess consideration paid over the carrying value of the Series J
    Preferred will be deducted in arriving at earnings available to common
    shareholders. Pro forma earnings per share have not been adjusted to reflect
    the assumed deduction of the $2.9 million reflected in note (3) above(*).

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

(*) In accordance with SEC guidelines, adjustments for nonrecurring charges or
    credits (such as these) that are directly attributable to the transaction
    are not reflected in the Pro Forma Statements of Earnings.

                                        25


                      STOCK PRICE AND DIVIDEND INFORMATION

     AFG common stock is traded on the NYSE under the symbol "AFG." The Series J
Preferred Stock of AFC is traded on the Pacific Stock Exchange under the symbol
"AFI-J." All outstanding shares of AFC common stock are beneficially owned by
AFG.

     The following table sets forth, for the calendar quarters indicated, the
high and low sales prices per share of AFG common stock and Series J Preferred
Stock and the dividends per share declared during such quarter.




                                               AFG COMMON STOCK         SERIES J PREFERRED STOCK
                                          --------------------------   --------------------------
                                           HIGH     LOW     DIVIDEND    HIGH     LOW     DIVIDEND
                                          ------   ------   --------   ------   ------   --------
                                                                       
2001
  First Quarter.........................  $29.00   $21.80    $ 0.25    $21.00   $20.00    $  --
  Second Quarter........................   30.30    23.30      0.25     22.00    19.00     1.00
  Third Quarter.........................   30.75    18.35      0.25     22.50    19.50       --
  Fourth Quarter........................   25.33    20.20      0.25     21.95    21.00     1.00
2002
  First Quarter.........................  $28.81   $22.85    $0.125    $23.00   $21.25    $  --
  Second Quarter........................   30.30    22.51     0.125     24.00    15.30     1.00
  Third Quarter.........................   26.30    17.90     0.125     21.00    18.50       --
  Fourth Quarter........................   24.80    20.82     0.125     23.50    16.75     1.00
2003
  First Quarter.........................  $24.21   $18.00    $0.125    $21.11   $16.50    $  --
  Second Quarter........................   23.90    19.27     0.125     20.00    19.00     1.00
  Third Quarter.........................   23.77    21.27     0.125     25.50    19.25       --




     On October   , 2003 the last reported sales prices for the AFG common stock
on the NYSE was $     and the last reported sales price for the Series J
Preferred Stock on the Pacific Stock Exchange was $     . As of October 1, 2003
there were approximately 13,000 holders of record of AFG common stock and 900
holders of record of Series J Preferred Stock.


                                        26


                              THE SPECIAL MEETING

INTRODUCTION


     This document is being furnished to the shareholders of AFC in connection
with the solicitation of proxies by the board of directors of AFC for use at the
special meeting of AFC shareholders to be held on Thursday, November 20, 2003 at
10:30 a.m., Eastern Time, at the offices of AFC at One East Fourth Street, Ninth
Floor, Cincinnati, Ohio, and at any adjournments or postponements thereof. Each
copy of this document mailed to AFC shareholders is accompanied by a proxy card
furnished in connection with the solicitation of proxies by the AFC board of
directors for use at the special meeting.


MATTERS TO BE CONSIDERED; SPECIAL COMMITTEE RECOMMENDATION

     At the special meeting, AFC shareholders will be asked to adopt the merger
agreement and vote upon such other business as may properly come before the
special meeting or any adjournments or postponements thereof (including, without
limitation, adjournment or postponement of the special meeting in order to allow
for additional solicitation of shareholder votes in order to obtain a quorum or
in order to obtain more votes in favor of the merger agreement). The board of
directors knows of no business that will be presented for consideration at the
special meeting other than the merger agreement.

     THE BOARD OF DIRECTORS OF AFC, BASED ON THE UNANIMOUS RECOMMENDATION OF THE
SPECIAL COMMITTEE, UNANIMOUSLY RECOMMENDS THAT AFC SHAREHOLDERS ADOPT THE MERGER
AGREEMENT AT THE SPECIAL MEETING SO THAT THE REORGANIZATION MAY BE COMPLETED.
ACCORDINGLY, THE BOARD RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" ADOPTION OF THE
MERGER AGREEMENT.

     SHAREHOLDERS ARE REQUESTED PROMPTLY TO COMPLETE, DATE, SIGN AND RETURN THE
ACCOMPANYING PROXY CARD IN THE ENCLOSED POSTAGE-PAID ENVELOPE.

RECORD DATE AND VOTING


     Only the holders of record of AFC common stock and Series J Preferred Stock
as of the close of business on September 30, 2003 are entitled to notice of and
to vote at the special meeting. At the close of business on September 30, 2003,
there were 2,886,161 shares of Series J Preferred Stock outstanding and entitled
to vote, held by approximately 900 shareholders of record and beneficially by
approximately 850 shareholders. Affiliates of AFC and certain members of their
families hold 182,130 shares of the Series J Preferred Stock. Other persons hold
2,704,031 shares of the Series J Preferred Stock. On September 30, 2003, there
were 10,593,000 shares of AFC common stock outstanding, each of which was
beneficially owned by AFG and entitled to one vote per share on any matter voted
on at the special meeting.



     The presence, either in person or by proxy, of the holders of a majority of
the outstanding voting power of AFC as of September 30, 2003 is necessary to
constitute a quorum at the special meeting. Broker non-votes and abstentions
count for the purpose of determining a quorum at the special meeting.



     HOLDERS OF SERIES J PREFERRED STOCK SHOULD NOT FORWARD ANY STOCK
CERTIFICATES WITH THEIR PROXY CARDS. HOLDERS OF SERIES J PREFERRED STOCK WILL BE
SENT INFORMATION REGARDING THE EXCHANGE OF THEIR STOCK CERTIFICATES AS SOON AS
PRACTICABLE AFTER THE COMPLETION OF THE AFG MERGER IF THE MERGER AGREEMENT IS
ADOPTED.


VOTE REQUIRED


     Ohio law requires the approval of the merger of AFC into AFG by the
affirmative vote of both the holders of a majority of the voting power of AFC's
stock and the affirmative vote of the holders of a majority of the outstanding
shares of AFC's Series J Preferred Stock at the special meeting. BECAUSE AFG
HOLDS APPROXIMATELY 79% OF AFC VOTING POWER, THE APPROVAL OF A MAJORITY OF THE
VOTING POWER IS ASSURED BUT THE APPROVAL OF THE HOLDERS OF A MAJORITY OF THE
SERIES J PREFERRED STOCK IS NOT ASSURED. THE AFFIRMATIVE VOTE OF THE HOLDERS OF
1,443,081 OUTSTANDING SHARES OF AFC'S SERIES J PREFERRED STOCK IS REQUIRED TO
APPROVE THE MERGER.

                                        27


     In addition to the shareholder approvals required by Ohio law, the merger
agreement also requires the approval by the holders of a majority of outstanding
Series J Preferred Stock voting at the special meeting, excluding those shares
beneficially owned by AFG, AFG's directors, executive officers, Carl H. Lindner,
Jr. and certain of their respective affiliates. The number of Series J Preferred
Shares held by non-affiliates required to approve the merger depends on the
number of shares held by non-affiliates that are voted at the special meeting.

     THE FAILURE TO SUBMIT A PROXY CARD OR VOTE IN PERSON, ABSTENTIONS AND
BROKER NON-VOTES WILL HAVE THE FOLLOWING EFFECTS. OF THE THREE VOTING
REQUIREMENTS TO APPROVE THE AFC MERGER, THE APPROVAL OF A MAJORITY OF AFC'S
TOTAL VOTING POWER IS ASSURED. WITH RESPECT TO THE REQUIREMENT THAT THE AFC
MERGER BE APPROVED BY A MAJORITY OF AFC'S OUTSTANDING SHARES OF SERIES J
PREFERRED STOCK, NOT VOTING WILL HAVE THE SAME EFFECT AS VOTING AGAINST THE
REORGANIZATION. WITH RESPECT TO THE REQUIREMENT THAT THE AFC MERGER BE APPROVED
BY A MAJORITY OF SHARES OF SERIES J PREFERRED STOCK (OTHER THAN SHARES OWNED BY
CERTAIN AFFILIATES, AS DEFINED IN THE MERGER AGREEMENT) ACTUALLY VOTING, NOT
VOTING WILL HAVE NO EFFECT. AS A RESULT, SHAREHOLDERS WISHING TO REJECT THE AFC
MERGER SHOULD VOTE AGAINST THE PROPOSITION, AND SHAREHOLDERS WISHING TO APPROVE
THE AFC MERGER SHOULD VOTE FOR THE PROPOSITION. BROKERS WHO HOLD SHARES OF
SERIES J PREFERRED STOCK AS NOMINEES WILL NOT HAVE DISCRETIONARY AUTHORITY TO
VOTE SHARES WITH RESPECT TO THE MERGER AGREEMENT ABSENT INSTRUCTIONS FROM THE
BENEFICIAL OWNER.

     The proxy holders named in the enclosed proxy card will vote all of the AFC
shares represented by proxy cards that are properly signed and returned by
shareholders in accordance with the instructions contained therein. Specify your
voting choices by marking the appropriate boxes on the proxy card.

     IF YOU PROPERLY SIGN AND RETURN THE PROXY CARD SENT TO YOU BY AFC, BUT DO
NOT SPECIFY YOUR VOTING CHOICES, YOUR SHARES WILL BE VOTED "FOR" THE ADOPTION OF
THE MERGER AGREEMENT AS RECOMMENDED BY THE BOARD OF DIRECTORS.

     The AFC board of directors is not aware of any matters other than the
reorganization that may be brought before the special meeting. If any other
matters properly come before the special meeting the persons named in the
accompanying proxy will vote the shares represented by all properly executed
proxies on such matters in their discretion.


VOTING AGREEMENT



     AFG received a letter dated September 18, 2003, from The Commerce Group,
Inc. related to the AFC merger. The letter stated that Commerce beneficially
owned approximately 287,000 shares of Series J Preferred Stock and contained a
specific proposal that the merger consideration to be paid to holders of Series
J Preferred Stock be increased. Representatives from AFG and AFC held
discussions with representatives from Commerce regarding the letter beginning on
September 19, 2003. AFG had also received a letter from ALLETE, Inc., beneficial
owner of approximately 75,000 shares, communicating its opposition to the merger
terms as originally proposed. On September 19, 2003, AFG contacted both parties
and asked if they would consider entering into a voting agreement if the terms
of the AFC merger were revised.



     Based on these discussions, AFG suggested to Commerce and ALLETE, Inc. that
AFG increase the merger consideration, which was originally proposed to be
$25.00 plus accrued dividends all paid in shares of AFG common stock, for each
share of Series J Preferred Stock, to the merger consideration discussed in this
document. AFG requested that Commerce and ALLETE, Inc., in consideration for an
increase in the merger consideration, execute voting agreements in which they
agreed to vote their shares of Series J Preferred Stock in favor of the AFC
merger. As a result, AFG has entered into a voting agreement with Commerce's
subsidiaries, Commerce Insurance Company, American Commerce Insurance Company
and Commerce West Insurance Company, and has come to an understanding with
ALLETE, Inc., collectively the beneficial holders of a total of approximately
362,000 shares (12.6%) of Series J Preferred Stock, providing that they will
vote their shares of Series J Preferred Stock in favor of the AFC merger.


                                        28


REVOCABILITY OF PROXIES

     A shareholder may revoke a proxy at any time prior to its exercise by (1)
delivering to AFC a written notice of revocation prior to the special meeting;
(2) delivering, before the special meeting, a duly executed proxy bearing a
later date; or (3) attending the special meeting and voting in person. The
presence of a shareholder at the special meeting will not in and of itself
automatically revoke such shareholder's proxy.

SOLICITATION OF PROXIES

     All expenses of AFC's solicitation of proxies, including the cost of
mailing this document to you, will be paid by AFC. AFC has retained Morrow &
Co., a proxy solicitation firm, to assist AFC in soliciting holders of Series J
Preferred Stock. AFC will pay Morrow & Co. a fee of $5,000, plus out-of-pocket
expenses, in connection with its proxy solicitation services. In addition to
solicitation by use of the mails and by Morrow & Co., proxies may be solicited
from shareholders by directors, officers and employees in person or by
telephone, facsimile or other means of communication. These directors, officers
and employees will not receive additional compensation, but may be reimbursed
for their reasonable out-of-pocket expenses in connection with such
solicitation. AFC will make arrangements with brokerage houses, custodians,
nominees and fiduciaries for the forwarding of proxy solicitation materials to
beneficial owners of shares held of record by such brokerage houses, custodians,
nominees and fiduciaries, and AFC will reimburse such brokerage houses,
custodians, nominees and fiduciaries for their reasonable expenses incurred in
connection with such solicitation.

ADJOURNMENT OF THE SPECIAL MEETING

     A vote in person by a shareholder for adjournment of the special meeting,
or for the proposal on the proxy card authorizing the named proxies to vote the
shares covered by such proxy in their discretion with respect to adjourning or
postponing the special meeting, would allow such named proxies in their
discretion to vote to adjourn or postpone the special meeting. An adjournment or
postponement would allow for additional solicitation of shareholder votes in
order to obtain a quorum or in order to obtain more votes in favor of the merger
agreement.

DISSENTERS' RIGHTS


     Under Ohio law, holders of Series J Preferred Stock may dissent from the
AFC merger and be paid the fair cash value of their shares. To exercise this
right, you must follow a number of procedures. These procedures include filing a
demand with AFC and not voting in favor of the reorganization. For more
information on how to exercise these rights, see "Rights of Dissenting
Shareholders' on page 53 and Ohio Revised Code Sections 1701.84 and 1701.85 set
forth in Annex C.


                               THE REORGANIZATION

     This section should be read in conjunction with "Special Factors" below
which contains a discussion of the background and reasons for the AFC merger.

FORM OF THE REORGANIZATION

     In the reorganization, AFC will merge into AFG. The holders of Series J
Preferred Stock will receive common stock of AFG in exchange for their preferred
stock, calculated as provided below under "The Merger Agreement -- Terms of the
Reorganization -- Conversion of Series J Preferred Stock in the AFC Merger." All
shares of AFC common stock will be canceled. In addition, immediately before the
merger of AFC into AFG, AFC Holding Company, a wholly-owned subsidiary of AFG,
will first merge into AFG.

                                        29


AFG'S REASONS FOR THE REORGANIZATION

     AFG proposed the reorganization primarily to simplify its corporate
structure in a manner that provides the following benefits:

     IMPROVEMENT OF AFG'S LEVERAGE RATIOS AND CASH FLOW

     The reorganization would increase AFG's shareholders' equity. Converting
the minority interest represented by the Series J Preferred Stock in AFC to AFG
common stock will improve AFG's leverage ratios and improve AFG's cash flow by
approximately $4 million per year. The Series J Preferred Stock, which has
historically been included in AFG's financial statements as $72.2 million of
minority interest, will be eliminated in the reorganization and the AFG common
stock issued in exchange for the Series J Preferred Stock will increase AFG's
equity by approximately $72.2 million.

     AFG's equity will increase by approximately $170 million due to the
elimination of a deferred tax liability associated with shares of AFG common
stock held by members of the AFC tax group. This deferred tax liability is
attributable to the difference in book basis and tax basis in the shares of AFG
common stock owned by members of the AFC consolidated tax group.

     The improvement in AFG's cash flow is due primarily to the difference
between the current divided rates on the AFG common stock and Series J Preferred
Stock.

     FACILITATE FUTURE CAPITAL RAISING

     AFG believes that simplifying the corporate structure will facilitate the
raising of capital by AFG in the future. Rating agencies have indicated that, in
their view, because AFC is the borrower under AFG's bank credit facilities but
AFG is the borrower for AFG's outstanding public debt, the obligations under the
bank credit facilities may be structurally senior to the AFG public debt, a view
which may lead the rating agencies to downgrade AFG's public debt. A downgrade
for AFG's public debt would make it more expensive for AFG to incur additional
public debt.

     SIMPLIFICATION OF TAX STRUCTURE

     Despite the fact that AFG's financial statements consolidate AFC's results,
each of AFG and AFC are in separate tax groups. The AFC consolidated tax group
is not part of the AFG consolidated tax group because more than 20% of AFC's
voting power is held by holders of Series J Preferred Stock. The AFC merger
would permit one consolidated tax group because all of the equity of AFC would
be owned by AFG. Being part of the same tax group would eliminate some
administrative duplication and would facilitate future acquisitions by allowing
AFG stock to be used in tax-free acquisitions by any member of the tax group;
transfers of assets, including subsidiaries, within AFG; and capitalization of
selected insurance company subsidiaries, because any of these actions could
generally be taken without the current payment of tax.

     ELIMINATION OF AFC AS A REPORTING COMPANY

     The AFC merger would eliminate AFC as a public company required to file
reports and other information under the Securities Exchange Act of 1934. The
elimination of burdens associated with public reporting and other tasks
resulting from AFC's public company status, including, for example, the
dedication of time and resources of management and of the board to meet the
various requirements of being a public company will increase management's focus
on the operations of the business. In addition, AFC's expenses will decrease as
a result of the elimination of costs associated with the filing of quarterly,
annual or other periodic reports with the SEC or publish and distribute to its
shareholders financial information and proxy statements.

MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES

     This tax discussion summarizes the material U.S. federal income tax
consequences of the merger to the holders of AFC Series J Preferred Stock that
exchange AFC Series J Preferred Stock solely for AFG common
                                        30


stock pursuant to the merger. This discussion is based upon current provisions
of the Internal Revenue Code of 1986, as amended (the "Code"), existing
regulations promulgated thereunder and current rulings and court decisions, all
of which are subject to change, possibly with retroactive effect. Tax
consequences under state, local and foreign laws are not addressed. In addition,
this discussion assumes that holders of AFC Series J Preferred Stock hold their
shares of AFC Series J Preferred Stock as capital assets within the meaning of
Section 1221 of the Internal Revenue Code.

     The tax treatment described herein may vary depending upon each
shareholder's particular circumstances and tax position. This discussion does
not address all aspects of federal income taxation that may be important to
shareholders who are subject to special rules, such as:

     - financial institutions;

     - tax-exempt organizations;

     - insurance companies;

     - dealers in securities;

     - traders in securities who elect to apply a mark-to-market method of
       accounting;

     - foreign holders;

     - persons that hold shares as a hedge or as a part of a straddle,
       constructive sale or conversion transaction;

     - holders that acquired their shares upon the exercise of employee stock
       options or otherwise as compensation; or

     - holders that do not hold their shares as capital assets.

     The obligations of the parties to consummate the merger are conditioned
upon the receipt, by each of AFG and AFC, of an opinion from tax counsel, in
form and substance reasonably satisfactory to AFG and AFC as to certain tax
matters. Akin Gump Strauss Hauer & Feld LLP has rendered an opinion in
satisfaction of this condition that the merger will not result in the
recognition of gain or loss by AFG and that the merger will be treated as a
reorganization as described in Section 368(a)(1)(A) of the Code.

     In rendering its opinion that the merger will qualify for federal income
tax purposes as a reorganization within the meaning of Section 368(a) of the
Code, Akin Gump Strauss Hauer & Feld LLP, special tax counsel to AFG and AFC has
relied upon the representations contained in certificates provided by AFG and
AFC and certain facts and customary assumptions set forth in the opinion.
Shareholders should be aware that neither the tax opinion nor this discussion is
binding upon the Internal Revenue Service and that the Internal Revenue Service
is not precluded from asserting a contrary position. The parties have not
requested and will not request a ruling from the Internal Revenue Service as to
the federal income tax consequences of the merger.

     As a "reorganization" within the meaning of Section 368(a) of the Code, the
tax implications of the merger will be as follows:

U.S. FEDERAL INCOME TAX IMPLICATIONS TO HOLDERS OF AFC SERIES J PREFERRED STOCK


     No gain or loss will be recognized for U.S. federal income tax purposes by
holders of AFC Series J Preferred Stock who exchange their AFC Series J
Preferred Stock solely for AFG common stock pursuant to the merger, except gain
or loss will be recognized by a holder of AFC Series J Preferred Stock on
receipt of cash in lieu of a fractional share of AFG common stock. The aggregate
tax basis of the AFG common stock to be received by a holder of AFC Series J
Preferred Stock in the merger will be the same as such shareholder's aggregate
tax basis in the AFC Series J Preferred Stock surrendered in the exchange,
reduced by the amount of basis allocable to fractional shares of AFG common
stock, as discussed below. The holding period of the AFG common stock to be
received by a holder of AFC Series J Preferred Stock as a result of


                                        31


the merger will include the period during which such shareholder held the AFC
Series J Preferred Stock exchanged.

     Cash received by a holder of AFC Series J Preferred Stock instead of a
fractional share of AFG common stock will be treated as received in exchange for
such fractional share interest, and gain or loss generally will be recognized
for U.S. federal income tax purposes, measured by the difference between the
amount of cash received and the portion of the tax basis of the AFC Series J
Preferred Stock allocable to the fractional share interest. Such gain or loss
generally will be capital gain or loss and generally will be long term capital
gain or loss if the AFC Series J Preferred Stock has been held for more than one
year at the time of the merger.


     Any cash received by a holder of AFC Series J Preferred Stock as dividends
in arrears on the AFC Series J Preferred Stock surrendered in the merger will be
treated as dividend income to the holder of AFC Series J Preferred Stock and
will be taxed as ordinary income.


     In addition, any cash payment to a holder of AFC Series J Preferred Stock
who exercises and perfects dissenters' rights will be a taxable transaction.
Such cash payment received in exchange for such shareholder's AFC Series J
Preferred Stock will be treated as having been received as a distribution in
redemption of such shareholder's AFC Series J Preferred Stock, the consequences
of which will be determined in accordance with Section 302 of the Code.
Generally, such shareholders will have a taxable capital gain (or capital loss),
measured by the difference between the cash payment received and their tax basis
in the shares as to which the appraisal rights are exercised, assuming that
those shares are held as capital assets when the appraisal rights are elected.
In general, such shareholders should also be able to reduce that capital gain
(or increase that capital loss) by the amount of any expenses they incur in
pursuing or perfecting their appraisal rights. Dissenting shareholders should
consult their own tax advisors regarding the application of Section 302.

BACKUP WITHHOLDING

     Under the Code, a holder of AFC Series J Preferred Stock may be subject to
backup withholding with respect to the amount of cash, if any, received, unless
the holder provides proof of an applicable exemption or a correct taxpayer
identification number, and otherwise complies with applicable requirements of
the backup withholding rules. Any amounts withheld under the backup withholding
rules are not an additional tax and may be refunded or credited against the
holder's federal income tax liability, provided the required information is
furnished to the Internal Revenue Service.

     The U.S. federal income tax discussion set forth above does not address tax
consequences which may vary with, or are contingent on, individual
circumstances. Moreover, this discussion does not address any tax consequences
of the disposition of AFC Series J Preferred Stock before the merger or the
disposition of AFG common shares after the merger. This discussion is directed
to holders of AFC Series J Preferred Stock who are citizens of the United States
or residents or domestic corporations. No attempt has been made to address the
tax consequences to a shareholder under the laws of the country, state or
jurisdiction in which the holder resides, is citizen or is organized other than
the material U.S. federal income tax consequences discussed herein. Holders of
AFC Series J Preferred Stock are advised to consult their own tax advisors
regarding the U.S. federal income tax consequences in light of their personal
circumstances and the consequences under applicable state, local and foreign tax
laws.

FEDERAL SECURITIES LAW CONSEQUENCES

     All shares of AFG common stock received by AFC shareholders in the AFC
merger will be freely transferable, except for shares of AFG common stock
received by any person who is deemed to be an "affiliate" (as such term is
defined under the Securities Act of 1933) of AFC prior to the reorganization or
of AFG after the reorganization. Affiliates may sell their AFG common stock only
in compliance with the volume and manner-of-sale requirements of Rules 144 and
145 under the Securities Act. Affiliates of AFG generally include individuals or
entities that control, are controlled by, or are under common control with, AFG
and may include officers and directors of AFG as well as principal shareholders
of AFG.
                                        32


CONDUCT OF BUSINESS IF REORGANIZATION NOT CONSUMMATED

     If the reorganization is not completed, AFC will continue its current
operations. AFG, however, may merge with AFC Holding.

                                SPECIAL FACTORS

APPOINTMENT OF THE SPECIAL COMMITTEE

     AFC convened a meeting of its board of directors on April 14, 2003. At the
meeting, Messrs. Theodore H. Emmerich, William W. Verity and William R. Martin
resigned as directors, and Messrs. Joseph P. Tomain, Michael R. Barrett and
Timothy J. Fogarty were elected to the board to replace them.

     Joseph P. Tomain has served as the Dean of the University of Cincinnati
College of Law for over thirteen years. For over ten years prior thereto, he
served on the faculty of Drake University College of Law and then the University
of Cincinnati College of Law. From 2000 to 2003, Dean Tomain served as the
Chairman of the Board of Trustees of KnowledgeWorks Foundation, a charitable
organization which promotes access to post-secondary education. He currently
serves on the Board of Trustees of a number of civic and charitable
organizations.

     Michael R. Barrett has been an attorney in private practice, concentrating
in general litigation, for almost twenty years. For over five years prior
thereto, he served as an assistant county prosecuting attorney. He serves on the
Board of Trustees of a number of civic and charitable organizations.

     Timothy J. Fogarty has served as co-chief executive officer of West Chester
Holdings, Inc., a private company which distributes protective clothing, for the
past three years. For over ten years prior, he was an Executive Vice President
and member of the management committee of Firstar Corporation (now known as US
Bancorp), a regional bank holding company. Mr. Fogarty is a certified public
accountant and worked for over six years as an auditor for a national public
accounting firm.

     None of Messrs. Tomain, Barrett and Fogarty have any business or financial
relationship with AFG. The members of AFC's board of directors, other than
Messrs. Tomain, Barrett and Fogarty, are also members of AFG's board of
directors and beneficial owners of significant amounts of AFG common stock. As a
result, the members of AFC's board other than Messrs. Tomain, Barrett and
Fogarty may be deemed to have an interest in the AFC merger adverse to the
interests of holders of shares of Series J Preferred Stock. In order to protect
the interests of the holders of shares of Series J Preferred Stock with respect
to the AFC merger, the board of directors of AFC appointed these three new
directors to the special committee, whose members then elected Mr. Tomain as
Chairman. The special committee was charged with negotiating the terms and
evaluating the fairness of the AFC merger on behalf of the holders of shares of
Series J Preferred Stock. The special committee was authorized to engage, at
AFC's expense, independent legal counsel and financial advisors. Between April
14, 2003 and July 2, 2003, the special committee held a total of eleven
meetings. At these meetings, the special committee engaged legal and financial
advisors and negotiated, reviewed and evaluated the proposed terms of the AFC
merger. Each meeting of the special committee was attended by all of its
members.

MEETINGS OF THE SPECIAL COMMITTEE

     The first two meetings of the special committee were held on April 16 and
April 17, 2003. At these meetings, the members of the special committee
considered the engagement of independent legal counsel. Three law firms with
recognized experience in advising special committees of directors were
interviewed by the special committee. After deliberation, the special committee
selected the firm of Taft, Stettinius & Hollister LLP of Cincinnati, Ohio, as
its legal counsel. The special committee was advised that, from time to time,
Taft, Stettinius & Hollister performs specialized legal services for AFG and
certain of its affiliates. The special committee was advised that fees charged
by such counsel to AFG and its affiliates during the most recent fiscal years
constituted less than 1% of such counsel's total billings. The special committee
was also
                                        33


advised that such counsel has in the past acted as counsel to the underwriters
in connection with a limited number of securities offerings by AFG (the most
recent such representation having been four years ago) and had advised other
committees of outside directors of entities related to AFG. The special
committee considered these matters, and decided that, since they were specific
and limited in nature and duration rather than involving general representation
of AFG, and because recent billings constituted such a small percentage of such
counsel's billings, they would not inhibit Taft, Stettinius & Hollister LLP from
providing independent advice to the special committee.

     The special committee next met on April 28, 2003. The special committee
reviewed its specific duties and responsibilities as charged by the board of
directors of AFC. Legal counsel to the special committee advised the special
committee regarding fiduciary duties. The special committee discussed the
engagement of an independent financial advisor and determined to seek proposals
from a number of recognized firms to assist the special committee in its
negotiation of the terms of the AFC merger and its evaluation of the fairness of
the AFC Merger.

     Following the April 28, 2003 meeting of the special committee, its legal
counsel contacted five recognized financial advisory firms, inviting them to
submit written proposals for consideration as financial advisor to the special
committee. Four firms responded with written proposals, which were distributed
to the members of the special committee on May 6, 2003.

     The Committee met again on May 8, 2003. At this meeting, legal counsel
reviewed with the special committee the four proposals, along with information
obtained by counsel in conversations with certain of the financial advisory
firms to clarify their proposals. This review involved respective
qualifications, proposed methodologies, possible conflicts and other aspects of
the proposals, as well as proposed fee arrangements. After discussion and
review, the special committee determined that the proposal of Duff & Phelps, LLC
appeared to be the most favorable of those considered by the special committee.
The special committee decided, however, that its members wished to meet the Duff
& Phelps representatives in person before deciding finally on a financial
advisor. Accordingly, the special committee deferred a final decision and
instructed legal counsel to invite Duff & Phelps personnel to meet with the
special committee on Monday, May 12, for the purpose of being interviewed and,
assuming their selection, discussing further the actions to be taken by the
special committee in connection with the AFC Merger.

     On May 12, 2003, the special committee and its legal counsel met with
representatives of Duff & Phelps. The Duff & Phelps representatives discussed
with the special committee their respective individual professional
qualifications, Duff & Phelps' overall and industry experience and relevant
internal processes and the expected approach to be followed by Duff & Phelps in
serving as financial advisor to the committee in connection with the AFC merger.

     The Duff & Phelps personnel were then excused from the meeting while the
special committee met in private with its legal counsel. The special committee
expressed its satisfaction with Duff & Phelps' proposal and presentation, and
discussed certain terms contained in its proposed engagement letter. Following
these discussions, the special committee selected unanimously Duff & Phelps as
its financial advisor. The Duff & Phelps personnel then rejoined the meeting,
and the special committee, its legal counsel, and Duff & Phelps discussed timing
and procedural issues concerning the AFC merger. Legal counsel further reviewed
with the special committee issues regarding its charge in connection with the
AFC merger.

     On May 14, 2003, the special committee, together with its legal counsel and
financial advisor, attended due diligence meetings in which the financial
affairs and operations of AFG, AFC and their affiliates, as well as the
anticipated effects of the AFC merger, were considered. At this meeting, senior
management of AFG and AFC and affiliates made various presentations, consisting
generally of the following: transaction overview, existing corporate structure,
effect of the AFC merger on corporate structure, state law and federal
securities requirements of the AFC merger; description of tax groups, genesis
and past benefits of tax groups, benefits and reasons for combining tax groups
as a result of the AFC merger; pro forma balance sheet effect of the AFC merger;
description of investment portfolio, returns, composition, valuation and
decision-making; overview of property and casualty operations and challenges and
opportunities facing the property and casualty business; financial overview,
description of business unit structure and operations, discussion of
                                        34


capital structure and discussion of rating agency status; annuity and life
business, including opportunities and challenges; and general claims handling,
asbestos and environmental liability overview and asbestos litigation
settlement.

     Following these due diligence reviews, the special committee held its sixth
meeting. At this meeting, the special committee and its legal counsel met with
Mr. Emmerich, the Chair of the Audit Committee of the board of directors of AFG.
The focus of this meeting was to learn how the Audit Committee functions, what
procedures it has adopted and implemented to insure that AFG's and AFC's
financial statements and practices are in accordance with generally accepted
accounting principles and applicable law, whether there are any accounting
issues that might have a material impact on AFG or AFC and what critical
accounting policies are applicable to AFG and AFC. Mr. Emmerich described the
activities of the Audit Committee, including the number of meetings held by the
Committee, steps it has taken to comply with the Sarbanes-Oxley Act, its
interactions with management of AFG and its affiliates, including the internal
audit function, and its interactions with outside independent auditors and legal
counsel. As part of this discussion, it was noted that the Audit Committee is
not aware of any accounting practices by AFG or its affiliates that deviate from
standard industry practices.

     Following May 14, legal counsel to the special committee obtained various
documents from AFG and AFC and met with legal counsel of AFG and AFC for the
purpose of carrying out a legal due diligence review of AFG and AFC. In
addition, representatives of Duff & Phelps spoke with senior executives of AFG
to obtain information in addition to that presented at the May 14, 2003 due
diligence sessions. The special committee next met on June 4, 2003. Legal
counsel reviewed further with the special committee the nature of the fiduciary
duties owed by the members of the special committee to the holders of shares of
Series J Preferred Stock. It was noted that the special committee had been
charged with negotiating the terms of the AFC merger and evaluating the fairness
of those terms. The members of the special committee were advised that they
would best discharge their duty by seeking to negotiate the terms of the AFC
merger on an "arms length" basis with the goal of obtaining the most favorable
terms available for the holders of shares of Series J Preferred Stock. Members
of the special committee were advised further that once the most favorable terms
available had been negotiated, their duty would be to evaluate the fairness of
the terms of the proposed AFC Merger. The special committee was advised further
of the special committee's task to articulate in the proxy statement to be
circulated among the shareholders of AFC the methods and rationale utilized to
evaluate the fairness of the AFC merger.

     The special committee was advised further that, as a result of the AFC
merger, holders of shares of Series J Preferred Stock of AFC would possess
statutory dissenters' rights of appraisal with respect to their shares. Such
rights, perfected properly under Ohio law, entitle each holder of such shares to
a judicial determination of the fair cash value of their shares. According to
Ohio law, the fair cash value of shares actively traded on a public market is
the price of the shares on the day prior to the shareholders vote on the
particular transaction giving rise to dissenters' rights, minus any appreciation
or depreciation resulting from the transaction itself. In addition, the special
committee was advised by its legal counsel that, under Ohio law, the holders of
shares of Series J Preferred Stock would be entitled to vote separately as a
class on approval of the AFC merger.

     Legal counsel discussed the preliminary results of its legal due diligence
review. Legal counsel reviewed with the special committee the initial draft of
the proposed AFC merger agreement as provided by AFG and discussed with the
special committee certain legal issues arising therefrom and various changes
that counsel suggested be requested.

     Duff & Phelps then reviewed with the committee the financial aspects of the
AFC merger. In this review, Duff & Phelps reviewed the terms of the Series J
Preferred Stock and presented its preliminary evaluation of the fairness of the
$22.00 exchange price. This evaluation consisted of two parts -- analysis of the
AFG common stock and an evaluation of the Series J Preferred Stock. In its
review of the AFG common stock, Duff & Phelps presented information on such
stock and the stock of AFG's two publicly-traded affiliates -- Great American
Financial Resources, Inc. and Infinity Property and Casualty Company. Duff &
Phelps indicated that the purpose of this review was to assist the special
committee in determining whether it

                                        35


appeared that the AFG common stock was being overvalued by the marketplace,
i.e., trading at a higher price than would appear to be justified based upon
recognized criteria. This information included the trading history of the shares
of AFG common stock, the number of shares outstanding, a report on the average
daily trading volume, the public float, institutional ownership, implied stock
price volatility and analyst coverage. The trading values of the common stocks
of AFG, Great American Financial Resources and Infinity were compared to common
stocks of other comparable companies as a multiple of operating earnings per
share and as a multiple of common book value, as well as operating return on
average total equity. In each case, Duff & Phelps concluded that the common
stocks of AFG, Great American Financial Resources and Infinity appeared to be
trading at multiples below or in line with comparable companies. Based upon the
information presented by Duff & Phelps, the special committee concluded that it
did not appear that the AFG common stock was being over-valued by the
marketplace.

     The second part of Duff & Phelps' preliminary review concerned a valuation
of the Series J Preferred Stock. Duff & Phelps first provided information on
trading of the Stock, noting that the most recent reported stock price trade was
$19.50, with the 52-week high being $23.50 and the 52-week low being $16.75.
Duff & Phelps observed that the trading volume was quite limited, with 2,886,161
shares of Series J Preferred Stock being outstanding, but an average trading
volume of only 792 shares on those days upon which shares traded. Duff & Phelps
added that the Series J Preferred Stock had traded on only 19.2% of the 261
trading days during the previous 12 months. Duff & Phelps noted further that
institutional ownership appeared to be approximately 12% and that there was no
analyst coverage of the Series J Preferred Stock.

     Duff & Phelps then reviewed with the special committee a list of preferred
securities issued by seven different comparable companies with Standard & Poor's
credit ratings ranging from BB+ to BB-. The Series J Preferred Stock is rated
BB. For each, Duff & Phelps described the dividend, the dollar value of the
issuance, recent trading price, the current yield, the credit spread over
30-year U.S. treasuries, the date callable, the yield to maturity and the credit
spread to maturity over 30-year U.S. treasuries. Duff & Phelps used this
information to generate a high and low range of the spread over 30-year
treasuries for both current yield and yield to maturity for these securities.
Duff & Phelps then applied a discounted cash flow analysis to this information
in order to generate a range of per share values for the Series J Preferred
Stock. For the current yield analysis, this resulted in a range of $23.13 to
$26.56 per share of Series J Preferred Stock. For the yield to maturity
analysis, this resulted in a range of $22.96 to $26.44 per share of Series J
Preferred Stock. Applying an illiquidity premium to take into account the
limited market for the Series J Preferred Stock resulted in ranges of $21.46 to
$24.45 and $21.31 to $24.35, respectively. Duff & Phelps noted that these
analyses involved a broad range of securities, some of which had credit ratings
higher than the Series J Preferred Stock. Duff & Phelps then performed the same
analyses on a smaller, more comparable group of two securities with a Standard &
Poor's credit rating of BB, the same as that of the Series J Preferred Stock.
This resulted in a range of per share values for the current yield analysis of
$23.13 to $23.95 per share of Series J Preferred Stock, and for the yield to
maturity analysis of $22.96 to $23.47 per share of Series J Preferred Stock.
Application of the illiquidity premium resulted in ranges of $21.46 to $22.18
and $21.31 to $21.76, respectively. The Duff & Phelps report was a preliminary
version of the final report delivered to the special committee on July 2, 2003,
which is described under "Special Factors -- Valuation Methodologies."

     The special committee noted that the $22.00 exchange value proposed in the
AFC merger, while in excess of recent trading prices of shares of Series J
Preferred Stock, was below certain of the various preliminary ranges of per
share values estimated by Duff & Phelps. The special committee then discussed
with its legal counsel and Duff & Phelps the nature and possible value of the
benefits expected to be received by AFG as a result of the AFC merger. In this
context, it was noted that the holders of shares of Series J Preferred Stock
could be expected to share in these benefits since they would receive shares of
AFG common stock in the AFC merger. The special committee asked its legal
counsel and financial advisor to attempt to identify and quantify more
specifically the nature and value of the expected benefits to AFG.

     The special committee met again on June 11, 2003. At this meeting, Duff &
Phelps reported its preliminary assessment of the qualitative and quantitative
benefits of the AFC merger to AFG. With respect to the qualitative benefits, it
was noted that the AFC merger would result in a simplified corporate structure,
which would probably be viewed positively by the investment community, that AFG
common stock could be
                                        36


used as consideration in stock-for-stock acquisitions (which is not the case now
because of AFG's two tax group consolidation structure) and that the new
corporate structure would permit more efficient asset transfers between
subsidiaries. The quantitative benefits included improved cash flow resulting
from the elimination of the $5.8 million annual preferred dividend requirement
on the Series J Preferred Stock (offset by an increased dividend payment for AFG
common stock of approximately $1.4 million), a reduction in fixed charge
obligations, an improvement in fixed charge coverage ratios and a reduction in
leverage ratios. It was also noted that there would be generally accepted
accounting principle balance sheet improvements of approximately $65 million due
to elimination of the minority interest represented by the Series J Preferred
Stock and elimination of $162 million of deferred tax accruals. The special
committee recognized that these balance sheet and tax accruals were non-cash
items. In addition, there would be an elimination of duplicative costs related
to administration and accounting expenses and Securities and Exchange Commission
filing fees. The special committee noted that the Series J Preferred Stock was
callable at the option of AFC in 2005 at a cash price per share of $25.75, in
2006 at $25.375 and in 2007 at $25.00, plus in each case accrued dividends, and
that under the terms of the Series J Preferred Stock, AFC could carry out a
merger earlier in which the holders would receive cash of $25.00 per share plus
accrued dividends. Duff & Phelps advised the special committee that it estimated
the present value of the $25.75 call price in 2005 (including dividends) to be
between $25.25 to $25.75 per share of Series J Preferred Stock, calculated based
on a range of current yields for comparable preferred securities with a Standard
& Poor's credit rating of BB.

     The special committee met again on June 16, 2003. At this meeting the
Committee discussed with its legal counsel and financial advisor the course of
action to be followed in light of the various information provided to the
special committee. After this discussion, it was agreed that Messrs. Tomain and
Fogarty, along with legal counsel, would meet with representatives of AFG to
seek to negotiate more favorable terms, including a higher exchange value. It
was agreed that the special committee would request an exchange value equal to
the cash call price in 2005, namely that each share of Series J Preferred Stock
be converted into shares of AFG common stock having a value of $25.75 plus
accrued dividends to the time of Closing.

     Messrs. Tomain and Fogarty, along with legal counsel, met with
representatives of AFG on June 17, 2003, for this purpose. Messrs. Tomain and
Fogarty proposed that the exchange value be increased to $25.75 plus accrued
dividends. After discussion and private consideration, the representatives of
AFG proposed instead an exchange value equal to the cash liquidation value of
the Series J Preferred Stock, namely that each share of Series J Preferred Stock
be converted into shares of AFG common stock having a value of $25.00 plus
accrued dividends to the time of closing. AFG further proposed that it have the
right to terminate the AFC merger in the event that the market value of a share
of AFG common stock for purposes of the AFC merger would be less than $19.00.
The representatives of the special committee agreed to consider this proposal.
They then discussed various other changes which the special committee had
requested to the terms of the AFC merger agreement.

     The special committee, its legal counsel and its financial advisor met
later on June 17, 2003 to consider the discussions earlier that day with
representatives of AFG. The special committee instructed its legal counsel to
contact AFG to clarify certain points concerning the most recent AFG proposal
and to propose also that the special committee have the right to terminate the
AFC merger if the trading value of a share of AFG common stock, as determined
under the AFC merger agreement, exceeds $25.00 per share. Legal counsel updated
the special committee on the status of certain requested changes to the AFC
merger agreement, the most significant of which involved receipt of a tax
opinion as to the tax free nature of the AFC merger as a closing condition, the
right of the special committee to terminate the AFC merger up to the time of
closing in the event that it determined that such action was required in
accordance with its fiduciary duties and a requirement that the AFC merger be
approved not just by a vote of holders of a majority of the outstanding shares
of Series J Preferred Stock, but also by holders of a majority of shares of
Series J Preferred Stock actually voted on the AFC merger which are not held by
affiliates of AFG.

     On June 18, 2003, legal counsel to the special committee contacted AFG and
communicated the requests of the special committee. Between June 18, 2003 and
July 2, 2003, discussions continued between legal counsel for the special
committee and representatives of AFG concerning the financial terms of the AFC
merger and other terms of the AFC merger agreement. The special committee did
not meet formally during
                                        37


this time period, but legal counsel reviewed the progress of these discussions
with the individual members of the committee and with the committee's financial
advisor. These discussions resulted ultimately in the terms set forth in the AFC
merger agreement.

     The special committee met again on July 2, 2003. Legal counsel noted that
the members of the special committee had been provided previously with a
proposed final form of the AFC merger agreement. Counsel then reviewed with the
special committee and its financial advisor the principal changes which had been
negotiated by the special committee and its legal counsel with respect to the
terms of the AFC merger as set forth in the AFC merger agreement. These included
specifically a provision that each share of Series J Preferred Stock would be
converted into shares of AFG common stock having a value of $25.00 plus accrued
dividends to the time of Closing. AFG would have the right to terminate the AFC
merger in the event that the trading value of a share of AFG common stock, as
defined in the AFC merger agreement, was less than $19.00 per share. If AFG did
not exercise this right, the AFC merger would be carried out at the lower
trading value. AFC, acting through the special committee, would not have a
similar right to terminate the AFC merger in the event that a share of AFG
common stock had a value in excess of a set amount. However, if such value
should exceed $27.00 per share of AFG common stock, the value of $27.00 would be
used to determine the number of shares of AFG common stock to be issued in the
AFC merger. Legal counsel described other changes which had been negotiated in
the terms of the AFC merger agreement, noting specifically that the changes
discussed earlier with respect to a tax opinion, the right of the special
committee to terminate the AFC merger, and a separate vote of non-affiliated
stockholders, had all been agreed to by AFG.


     Duff & Phelps, LLC presented to and reviewed with the members of the
special committee its report dated July 2, 2003. This report was an updated
version of, and was consistent with, the preliminary report of June 4, 2003. For
the seven preferred securities, the current yield analysis resulted in a range
of $22.88 to $26.70 per share of Series J Preferred Stock. The yield to maturity
analysis resulted in a range of $22.50 to $26.95 per share of Series J Preferred
Stock. Applying an illiquidity premium to take into account the limited market
for the Series J Preferred Stock resulted in ranges of $21.24 to $24.57 and
$20.91 to $24.79, respectively. Duff & Phelps noted again that these analyses
involved a broad range of securities, some of which had credit ratings higher
than the Series J Preferred Stock. Duff & Phelps performed again the same
analyses on a smaller more comparable group of two securities with a Standard &
Poor's credit rating of BB, the same as that of the Series J Preferred Stock.
This resulted in a range of per share values for the current yield analysis of
$22.88 to $24.58 per share of Series J Preferred Stock, and for the yield to
maturity analysis of $22.50 to $23.98 per share of Series J Preferred Stock.
Application of the illiquidity premium resulted in ranges of $21.24 to $22.73
and $20.91 to $22.21, respectively. Duff & Phelps advised the special committee
that it estimated the present value of the $25.75 call price in 2005 (including
dividends) before application of an illiquidity premium to be between $25.16 to
$25.53 per share of Series J Preferred Stock, calculated based on a range of
current yields for comparable preferred securities with a Standard & Poor's
credit rating of BB, and $24.76 to $25.13 after application of an illiquidity
premium. Following this presentation and questions from the members of the
special committee, Duff & Phelps stated that it believed that the consideration
to be received by holders of shares of Series J Preferred Stock in the AFC
merger was fair to the holders of such shares from a financial point of view.
Duff & Phelps also indicated that it was prepared, subject to the non-
occurrence of unforeseen conditions, including material changes in the general
level of interest rates or significant delays in the closing of the AFC Merger,
to deliver its written fairness opinion to such effect at the time of mailing of
the Proxy Statement to AFC's shareholders.



     Legal counsel presented to, and discussed with, the special committee a
final legal due diligence report on AFG and AFC.



     The special committee then reviewed and considered various factors
concerning the fairness of the AFC merger. These factors were qualitatively the
same as those described with respect to the amended merger agreement under
"Special Factors -- Recommendations of the special committee and the Board of
Directors of AFC." At the conclusion of the meeting on July 2, 2003, the special
committee adopted unanimously resolutions finding that the AFC merger was fair
to the holders of shares of Series J Preferred Stock, recommending that the
board of directors of AFC approve the AFC merger agreement and cause it to be

                                        38


presented to the holders of shares of Series J Preferred Stock for their
consideration, and recommending that such shareholders approve the AFC merger
agreement.

     After receiving the report and recommendation from the special committee on
July 2, 2003, the board of directors of AFC, relying exclusively on the special
committee's analysis, took action stating that, in light of and subject to the
terms and conditions set forth in the AFC merger agreement, it was in the best
interests of the holder of AFC common stock and the holders of shares of the
Series J Preferred Stock for AFC to enter into the merger agreement and that the
AFC merger would be fair to, and in the best interests of, such holders. The
board, without taking any separate action to adopt formally the special
committee's analysis, also took action to recommend to such holders that the
merger agreement be approved. All of the July 2, 2003 actions taken were
approved unanimously.


     Subsequent to July 2, 2003, holders of approximately 350,000 shares of
Series J Preferred Stock contacted AFG and expressed their opposition to the
terms of the merger agreement. The special committee was advised of these
contacts by AFG through the special committee's counsel. On September 22, 2003,
AFG proposed to the special committee that the parties enter into an amended
merger agreement. This proposed amendment provided that the closing of the AFC
merger would occur no earlier than November 2, 2003, and no later than December
31, 2003. This meant that the semi-annual dividend of $1.00 per share of Series
J Preferred Stock which is payable on November 1, 2003 would be paid in cash
rather than in AFG common stock as part of the merger consideration. The
proposed amended merger agreement provided further that each share of Series J
Preferred Stock would be converted into shares of AFG common stock having a
value of $26.00 and that holders would be paid in cash accrued dividends from
November 1, 2003 to the time of the closing. Except for certain updating
information, all other terms of the merger agreement remained unchanged. AFG
informed the special committee that the holders of approximately 350,000 shares
of Series J Preferred Stock had agreed to vote in favor of the proposed amended
merger agreement. See "The Special Meeting -- Voting Agreement."



     The special committee met again on October 1, 2003. Legal counsel noted
that the members of the special committee had been provided previously with the
proposed amended merger agreement. Counsel then reviewed with the special
committee and its financial advisor the changes proposed by AFG in the proposed
amended merger agreement. Duff & Phelps, LLC presented to and reviewed with the
members of the Special committee its report dated October 1, 2003. This report
was an updated version of, and was consistent in approach with, the previous
report of July 2, 2003. The valuation methodologies contained therein are
described under "Special Factors -- Valuation Methodologies." For the seven
preferred securities, the current yield analysis resulted in a range of $23.33
to $26.66 per share of Series J Preferred Stock. The yield to maturity analysis
resulted in a range of $22.95 to $26.85 per share of Series J Preferred Stock.
Applying an illiquidity premium to take into account the limited market for the
Series J Preferred Stock resulted in ranges of $21.73 to $24.64 and $21.40 to
$24.81, respectively. Duff & Phelps noted again that these analyses involved a
broad range of securities, some of which had credit ratings higher than the
Series J Preferred Stock. Duff & Phelps performed again the same analyses on a
smaller more comparable group of two securities with a Standard & Poor's credit
rating of BB, the same as that of the Series J Preferred Stock. This resulted in
a range of per share values for the current yield analysis of $23.33 to $25.28
per share of Series J Preferred Stock, and for the yield to maturity analysis of
$22.95 to $25.20 per share of Series J Preferred Stock. Application of the
illiquidity premium resulted in ranges of $21.73 to $23.44 and $21.40 to $23.37,
respectively. Duff & Phelps advised the Special committee that it estimated the
present value of the $25.75 call price in 2005 (including dividends) before
application of an illiquidity premium to be between $25.93 to $26.30 per share
of Series J Preferred Stock, calculated based on a range of current yields for
comparable preferred securities with a Standard & Poor's credit rating of BB,
and $25.58 to $25.95 after application of an illiquidity premium. Following this
presentation and questions from the members of the special committee, Duff &
Phelps stated that it believed that the consideration to be received by holders
of shares of Series J Preferred Stock under the terms of the proposed amended
merger agreement was fair to the holders of such shares from a financial point
of view. Duff & Phelps also indicated that it was prepared, subject to the non-
occurrence of unforeseen conditions, including material changes in the general
level of interest rates or


                                        39



significant delays in the closing of the AFC merger, to deliver its written
fairness opinion (the "Opinion") to such effect at the time of mailing of the
Proxy Statement to AFC's shareholders.



     Legal counsel noted that the proposed amended merger agreement provides for
an opinion from Duff & Phelps at the time of the mailing of the proxy statement,
but does not provide for an updated opinion from Duff & Phelps at the time of
closing. However, legal counsel noted that the special committee has the right
to terminate the amended merger agreement up to the time of closing if it
determines, after consultation with legal counsel, that such action is required
in the exercise of its fiduciary duties.



     The special committee then reviewed and considered again various factors
concerning the fairness of the AFC merger, including specifically those set
forth under "Special Factors -- Recommendations of the special committee and the
board of directors of AFC." In this review, the special committee viewed the AFC
merger consideration per share of Series J Preferred Stock as, in effect, being
approximately equal to $27.10, consisting of the $1.00 per share dividend to be
paid in cash on November 1, 2003, the dividend to be paid in cash accruing after
November 1, 2003 (approximately $0.10 assuming a closing on November 20, 2003)
and the $26.00 of value of AFG common stock. At the conclusion of the meeting on
October 1, 2003, the special committee adopted unanimously resolutions finding
that the AFC merger under the terms of the amended merger agreement was fair to
the holders of shares of Series J Preferred Stock, recommending that the board
of directors of AFC approve the amended merger agreement and cause it to be
presented to the holders of shares of Series J preferred Stock for their
consideration, and recommending that such shareholders approve the amended
merger agreement.



     After receiving the report and recommendation of the special committee, the
board of directors of AFC, relying exclusively on the special committee's
analysis, adopted resolutions unanimously stating that, in light of and subject
to the terms and conditions set forth in the amended merger agreement, it was in
the best interests of the holder of AFC common stock and the holders of shares
of the Series J Preferred Stock for AFC to enter into the amended merger
agreement and that the AFC merger under the terms of the amended merger
agreement would be fair to, and in the best interests of, such holders. The
board, without taking any separate action to adopt formally the special
committee's analysis, also took action to recommend to such holders that the
amended merger agreement be approved.


RECOMMENDATIONS OF THE SPECIAL COMMITTEE AND THE BOARD OF DIRECTORS OF AFC;
RECOMMENDATION OF THE BOARD OF DIRECTORS OF AFG; REASONS FOR RECOMMENDATIONS


     As noted above, the board of directors of AFC and the special committee
have determined that the AFC merger is fair to the holders of shares of AFC
Series J Preferred Stock and recommend that such holders approve the amended
merger agreement. The board of directors of AFG did not make any independent
analysis with respect to the AFC merger Proposal, but relied upon and accepted
the conclusions, determinations and findings of the board of directors of AFC
and the special committee in stating that the AFC merger is fair to the holders
of Series J Preferred Stock and unanimously recommending adoption of the amended
merger agreement.


     In reaching its determination, the special committee considered a number of
factors. Set forth below are all the material factors which were considered by
the special committee. The following factors were considered positive in nature
and thereby to be favorable as to the fairness of the AFC merger:

     - the lack of liquidity for the shares of Series J Preferred Stock which,
       in the view of the special committee, makes it difficult for shareholders
       to sell their shares for cash and diversify their holdings without
       affecting adversely the trading price of the shares of Series J Preferred
       Stock;

     - the terms of the AFC merger permit holders of Series J Preferred Stock to
       receive shares of AFG common stock in a tax-free transaction;

     - since the trading volume of the shares of AFG common stock is
       substantially greater than that of the Series J Preferred Stock, current
       holders of shares of Series J Preferred Stock will have the option of
       either holding the shares of AFG common stock which they receive in the
       AFC merger, or selling them if they wish to receive cash;
                                        40



     - the discounted cash flow analyses presented to the Special Committee by
       Duff & Phelps which are described under "Special Factors -- Valuation
       Methodologies" and which determined the following ranges of value for the
       Series J Preferred Stock:



        for seven comparable preferred securities with a Standard & Poor's
        credit rating of BB+ to BB-, based on current yields, $23.33 to $26.66;



        for the same seven comparable preferred securities, based on yields to
        maturity, $22.95 to $26.85;



        for the two more comparable preferred securities with a Standard &
        Poor's credit rating of BB, the same as that of the Series J Preferred
        Stock, based on current yields, $23.33 to $25.28;



        for the same two more comparable preferred securities, based on yields
        to maturity, $22.95 to $25.20;



        discounting the aggregate cash flows, which includes dividends and the
        $25.75 call price from the call date of December 2005 to the present,
        $25.93 to $26.30; and



        which, taken together, derived a range of value for the Series J
        Preferred Stock of $22.95 to $26.85; and



        taking into account an illiquidity premium to reflect the limited
        trading volumes and lack of analyst coverage for the Series J Preferred
        Stock, which determined the following ranges of value for the Series J
        Preferred Stock:



        for seven comparable preferred securities with a Standard & Poor's
        credit rating of BB+ to BB-, based on current yields, $21.73 to $24.64;



        for the same seven comparable preferred securities, based on yields to
        maturity, $21.40 to $24.81;



        for the two more comparable preferred securities with a Standard &
        Poor's credit rating of BB, the same as that of the Series J Preferred
        Stock, based on current yields, $21.73 to $23.44;



        for the same two more comparable preferred securities, based on yields
        to maturity, $21.40 to $23.37;



        by discounting the aggregate cash flows, which includes dividends and
        the $25.75 call price from the call date of December 2005 to the
        present, $25.58 to $25.95; and



        which, taken together, derived a range of value for the Series J
        Preferred Stock of $21.40 to $25.95.


     - the Opinion of Duff & Phelps described below under "Special
       Factors -- Opinion of Financial Advisor" to the effect that the
       consideration to be received by holders of shares of Series J Preferred
       Stock in the AFC merger is fair from a financial point of view to the
       holders of such shares;


     - the terms of the amended merger agreement, including particularly the
       requirements that the AFC merger be approved by the vote of holders of a
       majority of the outstanding shares of Series J Preferred Stock voting as
       a class as well as by the affirmative vote of holders of a majority of
       the shares of Series J Preferred Stock actually voted on the AFC merger
       who are not affiliates of AFG, and the provision that the special
       committee can terminate the amended merger agreement up to the time of
       Closing in the event that it determines that such action is required by
       its fiduciary duties;


     - holders of shares of Series J Preferred Stock will be entitled to
       exercise "dissenters' rights" under Ohio law;


     - the value of the AFC merger consideration per share of Series J Preferred
       Stock: exceeds the estimated present value (including future dividends as
       of September 19, 2003) of the price in cash at which the Series J
       Preferred Stock may be called in 2005, based on a range of current yields
       for comparable preferred securities with a Standard & Poor's credit
       rating of BB; exceeds the cash liquidation preference of the shares of
       Series J Preferred Stock; and exceeds the price at which the Series J
       Preferred Stock may be "cashed out" now in a merger transaction;


                                        41



     - the value of the AFC merger consideration per share of Series J Preferred
       Stock is higher than the average reported closing price of the Series J
       Preferred Stock of $20.67 during the three years ended on March 12, 2003,
       the last day on which the Series J Preferred Stock traded prior to April
       17, 2003, the day of the announcement of the proposed AFC merger, exceeds
       the closing price of $19.00 on March 12, 2003 and exceeds the highest
       reported per share closing price of $24.00 at which the Series J
       Preferred Stock traded during the past three years prior to March 12,
       2003



     The following factor was considered by the special committee to be negative
in nature and thereby to be unfavorable as to the fairness of the AFC merger:


     - as holders of preferred securities of AFC, holders of shares of Series J
       Preferred Stock have a superior credit position to the holder of common
       stock of AFC and are structurally favored over creditors and common
       stockholders of AFG, which advantages will be lost in the AFC merger.


     Each of the factors cited above was considered by the special committee at
one or more of its meetings described under "Special Factors -- the Special
Committee." The consideration of these factors involved primarily discussions
among the members of the special committee and its legal counsel and financial
advisor and was based upon information and advice received by the special
committee with respect to each factor from management of AFG and AFC and the
special committee's legal counsel and financial advisor, as well as its members'
own knowledge about the matters involved in the AFC merger. The consideration of
the fourth, eighth and ninth factors involved reviews by the special committee
of factual, financial and numerical information presented to the special
committee by its financial advisor and described under "Special
Factors -- Special Committee," and "Special Factors -- Valuation Methodologies."
Taking all of the factors into consideration, the special committee concluded
that the AFC merger was fair to and in the best interests of the holders of
shares of Series J Preferred Stock. The special committee considered the effect
on the fairness of the AFC merger of the agreement of the holders of
approximately 350,000 shares of Series J Preferred Stock to vote in favor of the
AFC merger. See "The Special Meeting -- Voting Agreement." In this
consideration, the special committee noted that the 350,000 shares held by these
owners, while a significant block, still amount only to approximately 12% of the
outstanding shares of Series J Preferred Stock, which means that other holders
remain free to reject the AFC merger if they so wish. The special committee
considered also that the holders of the 350,000 shares had exercised their
independent investment discretion without coercion, and that their agreement to
vote in favor of the AFC merger indicated their belief in the fairness of the
transaction. The special committee concluded that the agreement of these holders
to vote in favor of the transaction, while increasing the likelihood that the
AFC merger would be approved, did not affect negatively the committee's view as
to the fairness of the AFC merger.


     In view of the various procedural steps taken by the special committee as
outlined above, as well as the requirement for approval of the AFC merger by a
separate vote of non-affiliated holders, the special committee believes the AFC
merger is fair to holders of Series J Preferred Stock from a procedural, as well
as a financial, point of view.


     In reaching its determination that the AFC merger is fair to the holders of
shares of Series J Preferred Stock, the special committee considered solely the
interests of such holders and did not consider the interests of other parties,
or of officers or directors of AFG or AFC. In view of the wide variety of
factors considered in connection with the review of the AFC merger, neither the
special committee nor the AFC board of directors found it practical to, and did
not, quantify or otherwise attempt to assign relative weights to the specific
factors considered in reaching its respective determinations. Because of the
appointment of the special committee and the engagement of Duff & Phelps and
special counsel by the special committee, neither the board nor the special
committee considered it necessary to retain an unaffiliated representative to
act solely on behalf of the holders of shares of Series J Preferred Stock for
the purpose of negotiating the terms of the amended merger agreement.


     The board of directors of AFG did not make any independent analysis with
respect to the AFC merger, but is relying upon and accepting the conclusions,
determinations and findings of the board of directors of AFC and the special
committee in determining that the AFC merger is fair to the holders of Series J
Preferred Stock.
                                        42


OPINION OF SPECIAL COMMITTEE'S FINANCIAL ADVISOR

     Duff & Phelps, LLC, the financial advisor to the special committee, has
delivered its written opinion that the consideration to be issued in exchange
for shares of Series J Preferred Stock is fair from a financial point of view to
holders of shares of Series J Preferred Stock.

VALUATION METHODOLOGIES


     As described above under "Special Factors -- The Special Committee," at the
meeting of the special committee held on October 1, 2003, Duff & Phelps stated
its opinion that the consideration to be received by holders of shares of Series
J Preferred Stock pursuant to the merger agreement was fair to the holders of
such shares from a financial point of view.



     The full text of the written fairness opinion of Duff & Phelps dated
October 1, 2003, which sets forth the assumptions made, procedures followed,
matters considered, limitations on and scope of review by Duff & Phelps in
rendering its opinion, is attached as Annex B to this proxy statement/prospectus
and is incorporated herein by reference. Holders of Series J Preferred Stock are
urged to read the Duff & Phelps opinion in its entirety. The following summary
of Duff & Phelps' opinion is qualified in its entirety by reference to the full
text of the opinion. Duff & Phelps' opinion is directed to the special committee
and does not constitute a recommendation to any holder of Series J Preferred
Stock as to how preferred stockholder should vote with respect to the AFC
merger. Duff & Phelps' opinion addresses the fairness of the consideration to be
received by the holders of shares of Series J Preferred Stock only from a
financial point of view and does not address the relative merits of the AFC
merger or any alternatives to the AFC merger, the underlying decision of the
board of directors to proceed with or effect the AFC merger or any other aspect
of the AFC merger. The Duff & Phelps opinion was rendered without regard to the
necessity for, or level of, any restrictions, obligations or undertakings which
may be imposed or required in the course of obtaining regulatory approvals for
the AFC merger.



     In arriving at its opinion, Duff & Phelps reviewed, among other items:
AFC's and AFG's historical financial statements and descriptive information,
including audited financial statements on SEC form 10-K for the fiscal years
ending on or about December 31, 2000 to 2002, unaudited financial statements on
SEC form 10-Q for the fiscal quarter ended June 30, 2003, and certain other
public filings and financial information prepared by AFC and AFG management; pro
forma financial statements prepared by AFG and AFC management reflecting the
effect of AFC merger on AFG's financial statements; Amended and Restated
Agreement and Plan of Reorganization dated October 1, 2003; AFC's Amended
Articles of Incorporation; historical stock prices and trading volume of the
common stock of AFG, Great American Financial Resources, and Infinity;
historical stock prices and trading volume of the Series J Preferred Stock of
AFC; historical financial performance and valuation multiples of public
companies deemed comparable to the AFG, Great American Financial Resources, and
Infinity, respectively; current trading prices and yields for comparable
publicly traded preferred stock securities based on issuer and security
attributes, including credit quality, issuance size, and issuer industry; and
other financial studies, analyses, and investigations as Duff & Phelps deemed
appropriate.


     In addition, Duff & Phelps met with the senior management of AFC and AFG on
May 14, 2003, in Cincinnati, Ohio, and conducted subsequent telephone
conversations, to discuss the history, current business operations, financial
condition, future prospects, and strategic objectives of AFC, AFG, and their
affiliates, as well as the anticipated effects of the AFC merger. Duff & Phelps
also took into account its assessment of general economic, market, and financial
conditions, as well as its experience in securities and business valuation, in
general, and with respect to similar transactions, in particular.

     In rendering its opinion, Duff & Phelps has assumed and relied upon,
without independent verification, the accuracy and completeness of all financial
and other information which was publicly available or furnished to or discussed
with Duff & Phelps by AFG and AFC. With respect to pro forma financial
information, forward-looking statements and other information and data provided
to, or otherwise reviewed by or discussed with Duff & Phelps, Duff & Phelps has
been advised by management of AFG and AFC that such pro forma information and
other information and data were reasonably prepared on a basis reflecting the
                                        43


best currently available estimates and judgments of the management of AFG and
AFC as to the future financial performance of such companies and Duff & Phelps
assumed in arriving at its opinion that AFG and AFC will perform in accordance
with such estimates. Duff & Phelps has not conducted any independent evaluation
or appraisal of the properties, assets, liabilities or reserves of AFG or AFC,
nor has Duff & Phelps conducted any independent actuarial or physical
inspections. Duff & Phelps' opinion necessarily is based upon regulatory,
economic, market, and other conditions as they exist and can be evaluated as of
the date of Duff & Phelps' opinion. Neither AFC management nor its board or the
special committee placed any limitations upon Duff & Phelps with respect to the
procedures followed or factors considered by Duff & Phelps in rendering its
opinion.

     In arriving at its opinion and making its presentation to the special
committee, Duff & Phelps performed a variety of financial and comparative
analyses, including those summarized below. The summary set forth below includes
the material financial and comparative analyses discussed by Duff & Phelps with
the special committee, but does not purport to be a complete description of the
analyses performed by Duff & Phelps in arriving at its opinion. Arriving at a
fairness opinion is a complex process that involves various determinations as to
the most appropriate and relevant methods of financial analysis and the
application of those methods to the particular circumstances, and, therefore,
such an opinion is not necessarily susceptible to partial analysis or summary
description. Duff & Phelps believes that its analyses must be considered as a
whole and that selecting portions of its analyses or portions of the factors
considered by it, without considering all analyses and factors, could create a
misleading or an incomplete view of the valuation process underlying its
opinion.

     Furthermore, in arriving at its opinion, Duff & Phelps did not attribute
any particular weight to any analysis or factor considered by it, but rather
made qualitative judgments as to the significance and relevance of each analysis
and factor. No company or security used in the analyses as a comparison is
identical to AFG, AFC, or the AFC merger. The analyses were prepared solely for
purposes of Duff & Phelps providing its opinion to the special committee as to
the fairness of the AFC merger, from a financial point of view, to the holders
of shares of Series J Preferred Stock, and do not purport to be appraisals or to
necessarily reflect the prices at which businesses or securities actually may be
sold. Analyses based upon forecasts of future results are not necessarily
indicative of actual future results, which may be significantly more or less
favorable than suggested by such analyses. Such analyses are based upon numerous
factors or events beyond the control of AFC or AFG, their advisors, or any other
person, and are inherently uncertain. Actual future results may be materially
different from those forecasts.

     Following is a summary of the analyses performed by Duff & Phelps in
connection with the portion of its opinion dealing with the Series J Preferred
Stock:

  RECENT TRADING PRICES AND TRADING VOLUME ANALYSIS

     Duff & Phelps analyzed historical daily stock prices and daily trading
volume levels for the Series J Preferred Stock for (i) the one year period from
June 27, 2002 to June 27, 2003 and (ii) the three year period from June 27, 2000
to June 27, 2003. During the time period in (i), the Series J Preferred stock
traded between its 52-week low of $16.75 on November 12, 2002 and its 52-week
high of $23.50 on November 1, 2002, with an average reported per share closing
price of $19.06. Although there are 2,886,161 shares outstanding, Duff & Phelps
noted the limited trading activity in the Series J Preferred Stock during the
previous 52 weeks. During the time period in (i), the Series J Preferred Stock
traded on only 19.4% of the 253 trading days compared to a median percentage for
the comparable preferred securities of 93.3% (High: 100% of the days; Low: 71.9%
of the days). When the Series J Preferred Stock did trade during the past year,
average daily trading volume was only 720 shares. Duff & Phelps noted further
that institutional ownership appeared to be approximately 12% as of June 27,
2003 and that there was no analyst coverage of the Series J Preferred Stock.

     During the time period in (ii), the Series J Preferred Stock traded from a
low of $15.31 on April 22, 2002 to a high of $24.00 on April 8, 2002. The
average reported per share closing price for the Series J Preferred Stock during
this three year period was $20.67.

                                        44


  COMPARABLE PREFERRED SECURITY ANALYSIS


     Duff & Phelps identified and selected seven publicly traded preferred
securities deemed comparable to the Series J Preferred Stock based on issuer and
security attributes, including credit quality, issuance size, and issuer
industry. These comparable preferred securities were grouped into two groups:
(i) preferred stock securities with a Standard & Poor's credit rating of BB+ to
BB-; and (ii) preferred stock securities with a Standard & Poor's credit rating
of BB, the same as that for the Series J Preferred Stock. Yields were then
analyzed on a current yield basis as well as various yields to maturity. Based
on closing prices on September 19, 2003, current yields for the preferred
securities in (i) ranged from 7.833% to 9.133% and current yields for the
securities in (ii) ranged from 8.333% to 9.133%. Based on closing prices on
September 19, 2003, yields to maturity for the preferred securities in (i)
ranged from 7.767% to 9.302% and yields to maturity for the securities in (ii)
ranged from 8.367% to 9.302%.


     The seven publicly traded preferred securities Duff & Phelps deemed
comparable to the Series J Preferred Stock are summarized in the table below.




                                                            S&P
                                                           CREDIT   CURRENT   YIELD TO      DATE
ISSUE                                           DIVIDEND   RATING    YIELD    MATURITY    CALLABLE
-----                                           --------   ------   -------   --------   ----------
                                                                          
Sterling Banc Capital Trust III...............   8.300%    BB+       7.833%    7.767%     2/26/2007
Provident Financial Group.....................   8.375%    BB+       8.022%    8.123%     7/15/2007
Sterling Banc Capital Trust II................   9.200%    BB+       8.364%    8.263%     3/21/2006
American Financial Capital....................   9.125%    BB+       8.929%    9.078%     6/16/2003
American Annuity Capital......................   9.250%    BB        9.133%    9.302%     6/16/2003
Corts-Provident Financial Trust I.............   8.100%    BB        8.333%    8.367%     4/30/2006
Taylor Capital Trust I........................   9.750%    BB-       8.598%    8.696%    10/21/2007



  DISCOUNTED CASH FLOW ANALYSIS

     Based on the ranges of current yields and yields to maturity from our
comparable preferred security analysis, Duff & Phelps utilized a 30 year
discounted cash flow analysis on the Series J Preferred Stock to discount, at
various discount rates, the anticipated cash flows from the Series J Preferred
Stock, including dividends and the $25.00 per share liquidation preference.


     - Based on current yields ranging from 7.833% to 9.133% as of September 19,
       2003 for comparable preferred securities with a Standard & Poor's credit
       rating of BB+ to BB-, Duff & Phelps determined a range of values for the
       Series J Preferred Stock of $23.33 to $26.66.



     - Based on yields to maturity ranging from 7.767% to 9.302% as of September
       19, 2003 for comparable preferred securities with a Standard & Poor's
       credit rating of BB+ to BB-, Duff & Phelps determined a range of values
       for the Series J Preferred Stock of $22.95 to $26.85.



     - Based on current yields ranging from 8.333% to 9.133% as of September 19,
       2003 for comparable preferred securities with a Standard & Poor's credit
       rating of BB, the same as that for the Series J Preferred Stock, Duff &
       Phelps determined a range of values for the Series J Preferred Stock of
       $23.33 to $25.28.



     - Based on yields to maturity ranging from 8.367% to 9.302% as of September
       19, 2003 for comparable preferred securities with a Standard & Poor's
       credit rating of BB, the same as that for the Series J Preferred Stock,
       Duff & Phelps determined a range of values for the Series J Preferred
       Stock of $22.95 to $25.20.



     Additionally, Duff & Phelps discounted the anticipated cash flows,
including dividends and the $25.75 call price, from the call date of December
2005 to the present based on current yields ranging from 8.333% to 9.133% as of
September 19, 2003 for comparable preferred securities with a Standard & Poor's
credit rating of BB, the same as that for the Series J Preferred Stock, to
determine a range of values of $25.93 to $26.30.


                                        45



     Taken together, these analyses derived a range of value for the Series J
Preferred Stock of $22.95 to $26.85 per share.


     Given the limited trading volume and lack of analyst coverage for the
Series J Preferred Stock compared to the comparable preferred securities
analyzed, Duff & Phelps also incorporated an illiquidity premium of 75 basis
points in its estimation of the price ranges for the Series J Preferred Stock
derived by its discounted cash flow analyses.


     - Utilizing a discount rate range of 8.583% to 9.883% (based on current
       yields as of September 19, 2003 for comparable preferred securities with
       a Standard & Poor's credit rating of BB+ to BB- and an illiquidity
       premium of 75 basis points), Duff & Phelps determined a range of values
       for the Series J Preferred Stock of $21.73 to $24.64.



     - Utilizing a discount rate range of 8.517% to 10.052% (based on yields to
       maturity as of September 19, 2003 for comparable preferred securities
       with a Standard & Poor's credit rating of BB+ to BB- and an illiquidity
       premium of 75 basis points), Duff & Phelps determined a range of values
       for the Series J Preferred Stock of $21.40 to $24.81.



     - Utilizing a discount rate range of 9.083% to 9.883% (based on current
       yields as of September 19, 2003 for comparable preferred securities with
       a Standard & Poor's credit rating of BB, the same as that for the Series
       J Preferred Stock, and an illiquidity premium of 75 basis points), Duff &
       Phelps determined a range of values for the Series J Preferred Stock of
       $21.73 to $23.44.



     - Utilizing a discount rate range of 9.117% to 10.052% (based on yields to
       maturity as of September 19, 2003 for comparable preferred securities
       with a Standard & Poor's credit rating of BB, the same as that for the
       Series J Preferred Stock, and an illiquidity premium of 75 basis points),
       Duff & Phelps determined a range of values for the Series J Preferred
       Stock of $21.40 to $23.37.



     In discounting the anticipated cash flows, including dividends and the
$25.75 call price, from the call date of December 2005 to the present utilizing
a discount rate range of 9.083% to 9.883% (based on current yields as of
September 19, 2003 for comparable preferred securities with a Standard & Poor's
credit rating of BB, the same as that for the Series J Preferred Stock, and an
illiquidity premium of 75 basis points), Duff & Phelps determined a range of
values of $25.58 to $25.95.



     Taken together and incorporating an illiquidity premium of 75 basis points,
these analyses derived a range of value for the Series J Preferred Stock of
$21.40 to $25.95 per share.


     Following is a summary of the analyses performed by Duff & Phelps in
connection with the portion of its opinion dealing with the AFG common stock,
the consideration to be received by holders of shares of Series J Preferred
Stock in the AFC merger:

  RECENT TRADING PRICES AND TRADING VOLUME ANALYSIS


     Duff & Phelps analyzed historical daily stock prices and daily trading
volume levels for the common stock of AFG, Great American Financial Resources,
and Infinity Property and Casualty ("Infinity") for the one-year period from
September 19, 2002 to September 19, 2003. During this one year time period:



     - AFG's common stock traded between its 52-week low of $18.25 on March 10,
       2003 and its 52-week high of $24.70 on October 10, 2002, with a closing
       stock price on September 19, 2003 of $22.42. Average daily trading volume
       during this time period was 186,525 shares with 69,650,288 shares
       outstanding. Four Wall Street analysts cover AFG's common stock and
       institutional ownership of AFG's common stock as of September 19, 2003
       was 45.1%.



     - Great American Financial Resource's common stock traded between its
       52-week low of $13.09 on June 30, 2003 and its 52-week high of $17.36 on
       December 23, 2002, with a closing stock price on September 19, 2003 of
       $14.02. Average daily trading volume during this time period was 7,327
       shares with 42,613,899 shares outstanding. One Wall Street analyst covers
       Great American Financial


                                        46



       Resource's common stock and institutional ownership of Great American
       Financial Resource's common stock as of September 19, 2003 was 92.5%.



     - Infinity's common stock traded between its 52-week low of $15.69 on
       February 25, 2003 and its 52-week high of $28.93 on September 19, 2003,
       with a closing stock price on September 19, 2003 of $28.93. Average daily
       trading volume during this time period was 168,235 shares with 20,481,458
       shares outstanding. Four Wall Street analysts cover Infinity's common
       stock and institutional ownership of Infinity's common stock as of
       September 19, 2003 was 90.9%.


     Given the moderate trading volume and analyst coverage for the common stock
of AFG, Great American Financial Resources, and Infinity, it appears that the
market for AFG's common stock is reasonably efficient.

  COMPARABLE COMPANY ANALYSIS.

     Duff & Phelps selected three sets of publicly traded companies based on
comparability to AFG (multi-line insurance providers), and its two publicly
traded affiliates, Great American Financial Resources (life insurance and
annuity providers) and Infinity (property and casualty insurance providers).
Although no single company chosen is identical to AFG, Great American Financial
Resources, or Infinity, these companies share many of the same operating
characteristics and are affected by many of the same economic forces.

     In the selection of comparable companies, Duff & Phelps used multiple
databases to identify domestic companies with primary Standard Industrial
Classification Codes of 6321 (insurance carriers, accident) and 6311 (insurance
carriers, life and health), and 6331 (insurance carriers: fire, marine, and
casualty). In terms of investment risks and attributes, as well as
products/services provided and markets served, Duff & Phelps ultimately
identified 7 companies that are considered to be reasonably comparable to AFG, 8
companies that are considered reasonably comparable to Great American Financial
Resources, and 7 companies that are considered reasonably comparable to
Infinity.


     Using publicly available information, Duff & Phelps analyzed the historical
financial performance of the comparable companies for the latest twelve months
("LTM"), as well as projected financial performance using regularly published
earnings estimates from securities analysts. In addition, Duff & Phelps compared
the trading values of the common stocks of AFG, Great American Financial
Resources, and Infinity to common stocks of other comparable companies as a
multiple of LTM operating earnings per share, projected fiscal year operating
earnings per share, and common book value per share. The tables below show the
comparable companies along with their respective LTM revenues and valuation
multiples as of September 19, 2003.


                                        47


AFG COMPARABLE COMPANIES




                                       LTM        PRICE AS A MULTIPLE    PRICE AS A MULTIPLE     PRICE AS A MULTIPLE
                                    REVENUES       OF LTM OPERATING     OF PROJECTED OPERATING     OF COMMON BOOK
COMPANY (TICKER)                  (IN MILLIONS)   EARNINGS PER SHARE      EARNINGS PER SHARE       VALUE PER SHARE
----------------                  -------------   -------------------   ----------------------   -------------------
                                                                                     
Allmerica Financial Corporation
  (AFC).........................    $ 3,401.0               NM                   10.3x                   0.7x
American International Group,
  Inc. (AIG)....................    $76,069.5            20.7x                   13.7x                   2.6x
Hartford Financial Services
  Group, Inc. (HIG).............    $17,158.0            10.6x                    9.7x                   1.7x
HCC Insurance Holdings, Inc.
  (HCC).........................    $   814.3            15.4x                   11.8x                   2.0x
Horace Mann Educators
  Corporation (HMN).............    $   824.2            17.0x                   10.4x                   1.4x
Loews Corporation (LTR).........    $15,962.2             9.2x                    7.4x                   0.7x
Unitrin, Inc. (UTR).............    $ 2,694.6               NM                     NA                    1.4x
Mean............................    $16,703.4            14.6x                   10.5x                   1.5x
Median..........................    $ 3,401.0             15.4                   10.4x                   1.4x
AFG.............................    $ 3,507.2            10.3x                    7.5x                   1.1x




     As of September 19, 2003, AFG's common stock was trading at 10.3x LTM
operating earnings, 7.5x projected 2003 operating earnings, and 1.1x book value,
below the AFG comparable group medians of 15.4x, 10.4x, and 1.4x, respectively.


GREAT AMERICAN FINANCIAL RESOURCES COMPARABLE COMPANIES




                                       LTM        PRICE AS A MULTIPLE    PRICE AS A MULTIPLE     PRICE AS A MULTIPLE
                                    REVENUES       OF LTM OPERATING     OF PROJECTED OPERATING     OF COMMON BOOK
COMPANY (TICKER)                  (IN MILLIONS)   EARNINGS PER SHARE      EARNINGS PER SHARE       VALUE PER SHARE
----------------                  -------------   -------------------   ----------------------   -------------------
                                                                                     
AmerUs Group Co. (AMH)..........    $1,578.5             11.4x                   8.5x                    1.1x
Delphi Financial Group, Inc.
  (DFG).........................    $  838.3             12.4x                  10.3x                    1.5x
Jefferson-Pilot Corporation
  (JP)..........................    $3,598.0             14.1x                  12.0x                    2.2x
MONY Group Inc. (MNY)...........    $2,285.1                NM                     NM                    0.8x
Protective Life Corporation
  (PL)..........................    $1,976.3             12.0x                  10.2x                    1.3x
Presidential Life Corporation
  (PLFE)........................    $  343.0             16.8x                  19.8x                    1.2x
Phoenix Companies, Inc. (PNX)...    $2,612.4                NM                  19.0x                    0.6x
Torchmark Corporation (TMK).....    $2,854.7             11.4x                   9.9x                    1.8x
Mean............................    $2,010.8             13.0x                  12.8x                    1.3x
Median..........................    $2,130.7             12.2x                  10.3x                    1.3x
GREAT AMERICAN FINANCIAL
  RESOURCES.....................    $  934.9             12.6x                     NA                    0.9x




     As of September 19, 2003, Great American Financial Resource's common stock
was trading at 12.6x LTM operating earnings and 0.9x book value, in line with
the Great American Financial Resources comparable group medians of 12.2x and
1.3x, respectively.


                                        48


INFINITY COMPARABLE COMPANIES




                                                                           PRICE AS A MULTIPLE
                                          LTM        PRICE AS A MULTIPLE      OF PROJECTED       PRICE AS A MULTIPLE
                                       REVENUES       OF LTM OPERATING          OPERATING          OF COMMON BOOK
COMPANY (TICKER)                     (IN MILLIONS)   EARNINGS PER SHARE    EARNINGS PER SHARE      VALUE PER SHARE
----------------                     -------------   -------------------   -------------------   -------------------
                                                                                     
Cincinnati Financial Corporation
  (CINF)...........................    $ 3,093.9            18.7x                 16.2x                  3.3x
Harleysville Group, Inc. (HGIC)....    $   899.6            20.0x                 12.3x                  1.3x
Ohio Casualty Corporation (OCAS)...    $ 1,635.4               NM                 10.5x                  1.1x
Progressive Corporation (PGR)......    $10,637.0            17.1x                 14.9x                  3.9x
Selective Insurance Group, Inc.
  (SIGI)...........................    $ 1,252.2            19.0x                 10.8x                  1.5x
State Auto Financial Corporation
  (STFC)...........................    $ 1,004.0            22.9x                 15.2x                  2.3x
W.R. Berkley Corporation (BER).....    $ 3,063.0             9.8x                  8.8x                  2.1x
Mean...............................    $ 3,083.6            17.9x                 12.7x                  2.2x
Median.............................    $ 1,635.4            18.9x                 12.3x                  2.1x
INFINITY...........................    $   701.5            12.5x                 10.2x                  1.5x




     As of September 19, 2003, Infinity's common stock was trading at 12.5x LTM
operating earnings, 10.2x projected 2003 operating earnings, and 1.5x book
value, below the Infinity comparable group medians of 18.9x, 12.3x, and 2.1x,
respectively.


     In each of the above analyses, Duff & Phelps observed that the common
stocks of AFG, Great American Financial Resources, and Infinity appeared to be
trading at multiples below or in line with their respective comparable
companies, and that the price of the AFG common stock does not appear to be
unreasonable.


     Pursuant to an engagement letter dated May 15, 2003, and add-on engagement
letter dated September 19, 2003, AFC has agreed to pay Duff & Phelps $225,000,
payable in full upon notification that Duff & Phelps was prepared to deliver the
opinion (whether favorable or unfavorable) to the special committee. AFC has
also agreed to reimburse Duff & Phelps for its reasonable out-of-pocket
expenses, including the fees and disbursements of its counsel, and to indemnify
Duff & Phelps and certain related entities and persons against certain
liabilities in connection with its engagement, including certain liabilities
under the federal securities laws.


     Duff & Phelps has provided limited financial advisory and investment
banking services to an affiliate of AFG in the past, for which services it
received customary fees.

                              THE MERGER AGREEMENT

     The following description of the merger agreement is only a summary of the
most important information contained in the merger agreement. For full
information, you should read the merger agreement, a copy of which is attached
to this document as Annex A.

TERMS OF THE REORGANIZATION

     The Reorganization.  In the reorganization, AFC will merge with and into
AFG. Immediately before the merger of AFC into AFG, AFC Holding will merge with
and into AFG. In the AFC merger, all shares of AFC common stock, which are owned
by AFG, will be canceled, and all shares of the Series J Preferred Stock of AFC
will be converted into AFG common stock and cash in lieu of fractional shares,
on the terms discussed below. In the AFC Holding merger, all shares of AFC
Holding common stock, which are owned by AFG, will be canceled.

     Effective Time.  As promptly as practicable after the satisfaction or
waiver of the conditions in the merger agreement, the parties will complete the
reorganization by filing Certificates of Merger with the Secretary of State of
Ohio.

                                        49



     Conversion of Series J Preferred Stock in the AFC Merger.  Each share of
Series J Preferred Stock issued and outstanding immediately prior to the AFC
merger will be converted, by virtue of the merger and without the need for any
further action on the part of the holder thereof, into the right to receive the
number of shares of AFG common stock equal to the quotient (rounded to the
nearest fourth decimal place) obtained by dividing $26.00 by the lesser of
Twenty Seven Dollars ($27.00) and the average of the mean of the daily high
sales price and daily low sales price of the AFG common stock on the New York
Stock Exchange for the 20 consecutive days in which such shares are trading
ending at the close of trading on the trading day that is three business days
preceding the date of the special meeting. We refer to this as the average
closing price. In addition, accrued dividends will be paid in cash, at a rate of
$.0055 per day, from November 1, 2003 to the effective date of the AFC merger.


     Fractional Shares.  AFC will not issue any fractional shares of AFG common
stock. Instead, AFC will pay holders of fractional shares cash in an amount
equal to the fraction of a share multiplied by the average closing price.

EXCHANGE OF CERTIFICATES

     Exchange Agent.  Securities Transfer Company will act as exchange agent for
the exchange of stock certificates pursuant to the reorganization.

     Exchange Procedures.  Within ten days after the completion of the
reorganization, AFG will instruct Securities Transfer Company to mail to each
record holder of Series J Preferred Stock at the effective date of the
reorganization a letter of transmittal and instructions for exchanging
certificates representing Series J Preferred Stock for certificates evidencing
AFG common stock. You will have to follow the instructions and surrender your
Series J Preferred Stock certificates, together with the properly executed
letter of transmittal, and any other required documents, to Securities Transfer
Company. You then will be entitled to receive:

     - certificates for that number of whole shares of AFG common stock which
       you have the right to receive in the AFC merger,

     - any dividends or other distributions on the AFG common stock declared or
       made after the completion of the reorganization to which you may be
       entitled, and

     - cash for any fractional share of AFG common stock.


     Distributions With Respect to Unexchanged Shares.  As a result of the
merger, you will not receive any dividends or other distributions on AFG common
stock until you surrender your Series J Preferred Stock certificates. When you
do surrender your certificates, AFG will pay you, without interest, any
dividends or other distributions previously paid to holders of AFG common stock
with a record date after the completion of the reorganization.


     Transfers of Ownership.  If you want AFG to issue any certificate for
shares of AFG common stock in a name other than that in which your Series J
Preferred Stock certificate is registered, your Series J Preferred Stock
certificate must be properly endorsed and otherwise in proper form for transfer.
You also must pay to AFG or its agent any resulting transfer or other tax, or
establish to the satisfaction of AFG that such tax has been paid or is not
payable.

     Escheat and Withholding.  Neither AFG nor AFC will be liable to you for any
shares of AFG common stock which were delivered to a public official pursuant to
any applicable abandoned property, escheat or similar law. Securities Transfer
Company, on behalf of AFG, will deduct from the shares of AFG common stock paid
to you any amounts that federal, state, local or foreign tax law require AFG to
withhold.

     Lost, Stolen or Destroyed Certificates.  Securities Transfer Company will
issue AFG common stock in exchange for a lost, stolen or destroyed Series J
Preferred Stock certificate upon receipt of an affidavit of that fact by the
owner of the certificate. However, AFG will require you to deliver a reasonable
indemnity bond against any claim that may be made against AFG or Securities
Transfer Company regarding a certificate alleged to have been lost, stolen or
destroyed.

                                        50


     DETAILED INSTRUCTIONS, INCLUDING A TRANSMITTAL LETTER, WILL BE MAILED TO
HOLDERS OF SERIES J PREFERRED STOCK WITHIN TEN DAYS FOLLOWING THE COMPLETION OF
THE REORGANIZATION, EXPLAINING HOW TO EXCHANGE SERIES J PREFERRED STOCK
CERTIFICATES FOR AFG CERTIFICATES. YOU SHOULD NOT SEND IN YOUR SERIES J
PREFERRED STOCK CERTIFICATES UNTIL YOU RECEIVE A LETTER OF TRANSMITTAL.

DISSENTER'S RIGHTS

     Holders of Series J Preferred Stock may dissent from the AFC merger and
have the fair value of their shares paid to them provided that the holders
comply with the provisions of Ohio law. For more information on how to exercise
these rights, see "Rights of Dissenting Shareholders" and Annex C to this proxy
statement/prospectus.

REPRESENTATIONS AND WARRANTIES

     In connection with the AFC merger, AFC and AFG have provided customary
representations and warranties relating to, among other things:

     - the corporate organization, good standing and corporate power of AFG and
       AFC, the authorization of the transactions contemplated by the merger
       agreement;

     - the compliance of the merger agreement with the articles of
       incorporation, code of regulations and similar organizational documents
       of AFG and AFC and applicable law; and

     - the absence of any undisclosed subsidiaries of AFG and AFC.

     AFG has provided additional customary representations and warranties
relating to, among other things:

     - the accuracy of certain documents filed with the SEC by AFG and financial
       statements included in those documents;

     - existence of litigation involving or affecting AFG;

     - compliance with applicable laws by AFG;

     - the capital structure of AFG;

     - timely filing of tax returns and the compliance of AFG with certain laws
       related to taxes;

     - compliance of AFG with certain environmental laws and the absence of
       environmental claims; and

     - the operation of employee benefit plans in compliance with the Employee
       Retirement Income Security Act and other employee benefit matters with
       respect to AFG.

VOTING OF AFC COMMON STOCK

     AFC Holding, as the record owner of the AFC shares beneficially owned by
AFG, has agreed to vote all of its shares of AFC common stock, representing
approximately 79% of the voting power of AFC, in favor of the AFC merger.

CONDITIONS TO THE REORGANIZATION

     Conditions to Obligations of AFC and AFG.  The obligations of AFG and AFC
to complete the AFC merger are subject to the satisfaction or waiver of the
following conditions:

     - No judgment, injunction or decree or other order issued by any court of
       competent jurisdiction or other legal restraint prohibiting or preventing
       the consummation of the reorganization or prohibiting or materially
       restricting the business of AFG after the AFC merger;

     - The registration statement, of which this proxy statement/prospectus
       forms a part, shall have been declared effective under the Securities Act
       of 1933, and no stop order suspending such effectiveness shall be in
       effect;

                                        51


     - The reorganization shall have been approved by a majority of the voting
       power of AFC, a majority of the outstanding shares of Series J Preferred
       Stock and a majority of the outstanding shares of Series J Preferred
       Stock voting on the AFC merger, excluding shares beneficially owned by
       AFG, any director or executive officer of AFG, the spouses and
       unemancipated children of any AFG director or executive officer, Carl H.
       Lindner, Jr., the siblings or children of Carl H. Lindner, Jr. or the
       spouses and unemancipated children of Carl H. Lindner, Jr. or of any of
       his siblings or children;

     - The lenders under the AFG and AFC credit facility shall have consented to
       the reorganization or shall have permitted the reorganization through a
       revision to the credit facility;

     - The AFC Holding merger shall have been completed; and

     - AFG and AFC's special committee shall have received the legal opinion of
       Akin, Gump, Strauss, Hauer & Feld LLP as to tax matters.

     Additional Conditions to Obligations of AFC.  The obligations of AFC to
complete the AFC merger shall be subject to the satisfaction or waiver of the
following additional conditions:

     - The representations and warranties made by AFG in the merger agreement
       shall be true and correct;

     - AFG shall have performed and complied in all material respects with all
       of its obligations required to be performed under the merger agreement;

     - Receipt of all documents required by the merger agreement to be received
       from AFG;

     - All necessary regulatory approvals, consents, authorizations and other
       approvals shall have been obtained;

     - AFC shall have received the opinion of Duff & Phelps, acceptable to the
       AFC special committee, as to the fairness of the reorganization, from a
       financial point of view, to the holders of Series J Preferred Stock; and

     - the shares of AFG common stock to be issued to holders of Series J
       Preferred Stock shall have been listed on the New York Stock Exchange.

     Additional Conditions to Obligations of AFG.  The obligations of AFG to
complete the AFC merger shall be subject to the satisfaction or waiver of the
following additional conditions:

     - The representations and warranties made by AFC in the merger agreement
       shall be true and correct;

     - AFC shall have performed and complied in all material respects with all
       of its obligations required to be performed under the merger agreement;

     - Receipt of all documents required by the merger agreement to be received
       from AFC;

     - All necessary regulatory approvals, consents, authorizations and other
       approvals shall have been obtained.

     Termination.  The merger agreement may be terminated:

     - by mutual agreement of AFC (acting through the special committee), AFG
       and AFC Holding;


     - if the closing date is later than December 31, 2003;


     - by either AFG or AFC (acting through the special committee) if a court
       issues a permanent, non-appealable ruling permanently prohibiting the
       reorganization;

     - by either AFG or AFC (acting through the special committee) if the merger
       agreement is not approved by the required votes;

     - by either AFG or AFC (acting through the special committee) upon the
       breach of a representation or warranty of the other; or

                                        52


     - by AFC (acting through the special committee) if any events, changes or
       developments have occurred (other than any information specifically
       provided by AFC (acting through the special committee) to be included in
       this document being or becoming false or materially misleading) which,
       individually or in the aggregate, have materially adversely affected, or
       are reasonably likely to materially adversely affect, the financial
       condition of AFG and its subsidiaries, taken as a whole;

     - By AFC if the special committee determines, after consultation with and
       based on the written legal advice of its legal counsel, that as a result
       of an event or condition which existed before the date of the merger
       agreement and should have been disclosed by AFG in its filings under the
       Securities Exchange Act of 1934 but was not so disclosed or which occurs
       after the date of the merger agreement (other than any information
       specifically provided by AFC (acting through the special committee) to be
       included in this document being or becoming false or materially
       misleading), the special committee would violate its fiduciary duties in
       accordance with applicable law if AFC (acting through the special
       committee) did not terminate the merger agreement; or

     - By AFG if the average closing price of the AFG common stock is less than
       $19.00 per share.

                       RIGHTS OF DISSENTING SHAREHOLDERS

     AFG describes below the steps which holders of Series J Preferred Stock
must take if they wish to exercise dissenters' rights with respect to the AFC
merger. The description is not complete. You should read Section 1701.85 of the
Ohio General Corporation Law. This section is attached as Annex C to this
document. FAILURE TO TAKE ANY ONE OF THE REQUIRED STEPS MAY RESULT IN
TERMINATION OF THE SHAREHOLDER'S DISSENTERS' RIGHTS UNDER THE OHIO GENERAL
CORPORATION LAW. If you are a holder of AFC Series J Preferred Stock considering
dissenting, you should consult your own legal advisor.

     To exercise dissenters' rights, you must satisfy five conditions:


     - you must be a shareholder of record on September 30, 2003;


     - you must not vote dissenting shares in favor of the AFC merger;

     - you must deliver a written demand for "fair cash value" of the dissenting
       shares within 10 days of the vote on the merger agreement;

     - if AFC (or AFG as the successor to the AFC merger) requests, you must
       send within 15 days of its request, your stock certificates so that a
       legend may be added stating that a demand for "fair cash value" has been
       made; and

     - within three months of your written demand to receive "fair cash value,"
       you must file a complaint in court for a determination of the "fair cash
       value" or you and AFC (or AFG, if after the AFC merger) must have agreed
       on the "fair cash value."

     All demands, deliveries and other correspondence should be sent to AFC (or
AFG if such correspondence follows the AFC merger) at the address on page      .

     The following is a more detailed description of the conditions you must
satisfy to perfect dissenters' rights:


     MUST BE A SHAREHOLDER OF RECORD.  To be entitled to dissenters' rights, you
must be the record holder of the dissenting shares as of September 30, 2003. If
you have a beneficial interest in shares of AFC Series J Preferred Stock that
are held of record in the name of another person, you must act promptly to cause
the shareholder of record to follow the required procedures.


     NOT VOTE IN FAVOR OF THE REORGANIZATION.  You must not vote shares as to
which you seek "fair cash value" in favor of the approval and adoption of the
merger agreement at the special meeting. This requirement will be satisfied:

     - if you submit a properly executed proxy with instructions to vote
       "against" the adoption of the merger agreement or to "abstain" from this
       vote,

                                        53



     - if you do not return a proxy and no vote is cast on your behalf at the
       special meeting in favor of the adoption of the merger agreement, or


     - if you revoke a proxy and later "abstain" from or vote "against" the
       adoption of the merger agreement.

     A VOTE FOR THE MERGER AGREEMENT IS A WAIVER OF DISSENTERS' RIGHTS.  A proxy
that is returned signed but on which no voting preference is indicated will be
voted in favor of the adoption of the merger agreement and will constitute a
waiver of dissenters' rights. Voting "against" or not voting does not constitute
a waiver of dissenters' rights.


     FILING A WRITTEN DEMAND.  You must serve a written demand for the "fair
cash value" of dissenting shares upon AFC (or AFG, if after the AFC merger) on
or before November 30, 2003, the tenth day after the shareholder vote approving
the AFC merger. Neither AFC nor AFG will inform shareholders of the expiration
of the ten-day period and each advises you to retain this document. The required
written demand must specify your name and address, the number of dissenting
shares held of record on September 30, 2003 and the amount claimed as the "fair
cash value" of the dissenting shares. Voting against the reorganization is not a
written demand as required by Section 1701.85 of the Ohio General Corporation
Law.


     DELIVERY OF CERTIFICATES FOR LEGENDING.  If requested, you must submit your
certificates for dissenting shares to AFC (or AFG, if after the AFC merger)
within fifteen days after AFG sends its request for endorsement on the
certificates of a legend that demand for fair cash value has been made. The
certificates will be returned promptly to you.


     PETITIONS TO BE FILED IN COURT.  If you and AFC (or AFG, if after the AFC
merger) cannot agree on the "fair cash value" of the dissenting shares, you
must, within three months after service of your demand for "fair cash value,"
file a complaint in the Court of Common Pleas of Hamilton County, Ohio, for a
determination of the "fair cash value" of the dissenting shares. The court, if
it determines that you are entitled to be paid the "fair cash value" of the
dissenting shares, may determine the value of those shares. The court will
determine the "fair cash value" per share. The costs of the proceeding,
including reasonable compensation to the appraisers, will be assessed as the
court considers equitable. "Fair cash value" is the amount that a willing
seller, under no compulsion to sell, would be willing to accept, and that a
willing buyer, under no compulsion to purchase, would be willing to pay. In no
event will the "fair cash value" be in excess of the amount specified in the
dissenting shareholder's demand. Fair cash value is determined as of November
19, 2003, the day before the special meeting. The amount of the "fair cash
value" excludes any appreciation or depreciation in market value of your shares
resulting from the reorganization. The "fair cash value" of your shares may be
higher, the same, or lower than the market value of the Series J Preferred Stock
on the date of the reorganization.


     Your right to be paid the "fair cash value" of the dissenting shares will
terminate if:

     - for any reason the reorganization does not become effective,

     - you fail to make a timely written demand,

     - you do not, upon request of AFC (or AFG, if after the AFC merger) timely
       surrender your Series J Preferred Stock certificates for an endorsement
       of a legend that demand for the "fair cash value" of the dissenting
       shares has been made,

     - you withdraw your demand, with the consent of AFC (or AFG, if after the
       AFC merger), or

     - AFC (or AFG, if after the AFC merger) and you have not come to an
       agreement as to the fair cash value of the dissenting shares and you have
       not filed a complaint.

                         AMERICAN FINANCIAL GROUP, INC.

     AFG is a holding company which, through subsidiaries, is engaged primarily
in property and casualty insurance, focusing on specialized commercial products
for businesses, and in the sale of retirement annuities,

                                        54


life, and supplemental health insurance products. AFG was incorporated as an
Ohio corporation in 1997 for the purpose of merging predecessor holding
companies, one of which was AFC, which was originally incorporated in 1955. Its
insurance subsidiaries have been operating as far back as the 1800's. AFG's
address is One East Fourth Street, Cincinnati, Ohio 45202; its phone number is
(513) 579-2121. SEC filings, news releases and other information may be accessed
free of charge through AFG's Internet site at: "www.amfnl.com."

     Over the years, AFG and its predecessors have owned, operated, and invested
in businesses in a variety of industries and geographic areas, culminating in
today's group of insurance companies. Generally, AFG's interests have been in
the following areas: insurance, savings and loan, leasing, banking, real estate,
communications/entertainment and food distribution. A small number of
opportunistic investments have been made in troubled and other undervalued
assets.

                         AMERICAN FINANCIAL CORPORATION

     AFC is a holding company, majority-owned subsidiary of AFG. All of the
outstanding shares of common stock, representing approximately 79% of the voting
power of AFC, is owned by AFC Holding. The Series J Preferred Stock of AFC is
publicly traded through the Archipelago system on the Pacific Stock Exchange and
represents the remaining 21% of the voting power of AFC.

                              AFC HOLDING COMPANY

     AFC Holding Company is a wholly-owned, intermediate-level company of AFG.
AFC Holding directly owns all outstanding shares of common stock of AFC. Its
address is One East Fourth Street, Cincinnati, Ohio 45202; its phone number is
(513) 579-2121.

                        DESCRIPTION OF AFG CAPITAL STOCK

     The following is a summary of the provisions of Ohio General Corporation
Law and AFG's Articles of Incorporation and Regulations which govern the terms
of AFG's common stock.

COMMON STOCK

     AFG is incorporated under the laws of the State of Ohio. The total number
of authorized shares of AFG common stock is 200,000,000. As of August 1, 2003
there were 69,650,289 shares of AFG common stock outstanding. Holders of AFG
common stock are entitled to one vote for each share held of record on all
matters submitted to a vote of shareholders. Holders of AFG common stock have
the right to cumulate their votes in the election of directors but are not
entitled to any preemptive rights.

     Subject to preferences which may be granted to holders of preferred stock,
holders of AFG common stock are entitled to the share of such dividends as board
of directors, in its discretion, may validly declare from funds legally
available. In the event of liquidation, each outstanding share of AFG common
stock entitles its holder to participate ratably in the assets remaining after
the payment of liabilities and any preferred stock liquidation preferences.

     The affirmative vote of the holders of a majority of the outstanding shares
of Common Stock is required to amend the Articles of Incorporation and to
approve mergers, reorganizations, share exchanges and similar transactions.

     AFG acts as its own transfer agent and registrar.

PREFERRED STOCK

     AFG's Articles of Incorporation authorize 12,500,000 shares of voting
preferred stock and 12,500,000 of nonvoting preferred stock which may be issued
from time to time in series that have been designated preferences, rights,
qualifications and limitations that the board of directors, in its sole
discretion, may
                                        55


determine no shares hereby issued. The board of directors can give preferred
stock both voting and conversion rights which would affect the voting power and
equity of holders of AFG common stock. Preferred stock could also have
preference to AFG common stock with respect to dividend and liquidation rights.
The preferred stock could have the effect of acting as an anti-takeover device
to prevent a change of control of AFG. AFG has no outstanding preferred stock.

                        COMPARISON OF SHAREHOLDER RIGHTS

DIVIDENDS

     Each share of Series J Preferred Stock has a fixed annual dividend rate of
$2.00 per share, payable in semi-annual installments. The right to payment of
dividends is cumulative to the extent that the dividends not paid must be paid
in full before dividends can be paid on common stock.

     Holders of AFG common stock are entitled to share in the dividends that the
board of directors validly declares from legally available funds. Currently, AFG
pays an annual dividend of $0.50, payable quarterly.

PREFERENCE

     On liquidation, the holder of each share of Series J Preferred Stock would
be entitled to $25.00 plus accrued dividends in preference to distributions to
AFG, as holder of all outstanding shares of AFC common stock.

     If AFG liquidates, holders of AFG common stock also are entitled to
participate ratably in the assets remaining after AFG pays its liabilities and
preferred stock liquidation preferences.

VOTING RIGHTS

     Each share of Series J Preferred Stock is entitled to one vote on all
matters voted upon by shareholders, and the preferred shares vote with AFC
common shareholders on all matters presented to shareholders. As a class, the
Series J Preferred Stock possess approximately 21% of the voting power of AFC,
voting one vote per share. In addition, in the event of an arrearage in the
payment of dividends for each of four or more consecutive semi-annual payments,
the number of directors of AFC shall be increased by two and the holders of the
Series J Preferred Stock shall have the right, voting as a class, to elect
directors to fill the newly created directorships. Holders of Series J Preferred
Stock have no rights to vote cumulatively in the election of directors.

     Holders of AFG common stock are entitled to one vote for each share held of
record on all matters submitted to a vote of shareholders. Shareholders may
cumulate their votes when electing directors.

OPTIONAL REDEMPTION; CASH-OUT MERGER AT AFC'S OPTION

     AFC may, at its option, call for redemption all or part of the Series J
Preferred Stock at specified times and on specified terms. In addition, the
terms of the Series J Preferred Stock contained in AFC's Articles of
Incorporation permit AFC, at any time, to engage in a merger with another party,
including an affiliate of AFC, pursuant to which each share of Series J
Preferred Stock would receive in cash $25.00 plus accrued dividends. AFG common
stock has no redemption provisions.

                                        56


                             SECURITY OWNERSHIP OF
                        BENEFICIAL OWNERS AND MANAGEMENT

     The following table sets forth, as of June 30, 2003, information with
respect to the beneficial ownership of AFG common stock by each person known by
AFG to be the beneficial owner of more than five percent of the common stock, by
each present director of AFG, by executive officers of AFG and by all directors
and executive officers of AFG as a group. Unless otherwise indicated in the
notes to this table, the shareholders listed in the table have sole voting and
investment power with respect to shares beneficially owned by them.



NAME OF BENEFICIAL OWNER                                    NO. OF SHARES   PERCENT OF CLASS
------------------------                                    -------------   ----------------
                                                                      
Carl H. Lindner(a)........................................    8,914,132(b)        13.1%
Carl H. Lindner III(a)....................................    6,462,181(c)         9.4
S. Craig Lindner(a).......................................    6,483,956(d)         9.4
Keith E. Lindner(a).......................................    6,483,956(e)         9.4
Theodore H. Emmerich......................................       32,189              *
James E. Evans............................................      430,674              *
William R. Martin.........................................       59,951              *
William W. Verity.........................................        9,008              *
William A. Shutzer........................................        5,098              *
Terry S. Jacobs...........................................        6,098              *
Keith A. Jensen...........................................      139,093              *
Thomas E. Mischell........................................      279,556              *
Fred J. Runk..............................................      427,755              *
All directors, nominees and executive officers as a group
  (13 persons)............................................   29,733,647           41.9%


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

 * Less than 1%.

(a) The shares set forth for Carl H. Lindner, Carl H. Lindner III, S.C. Lindner
    and Keith E. Lindner and all directors and officers as a group constituted
    13.1%, 9.4%, 9.4%, 9.4% and 41.9%, respectively, of the common stock
    outstanding at June 30, 2003.

(b) Includes 4,398,540 shares held by his spouse and 252,378 shares held in a
    charitable foundation over which Mr. Lindner has sole voting and dispositive
    power but no pecuniary interest. Excludes 2,407,264 shares held in a trust
    for the benefit of his family for which a third party acts as trustee with
    voting and dispositive power.

(c) Includes 19,826 shares held by his spouse individually or in a trust over
    which she has voting and dispositive power, 19,847 held by one of his
    children, 1,000,000 shares held by a limited liability company over which
    shares he holds dispositive but not voting power, and 650,633 shares which
    are held in various trusts for the benefit of his minor children for which
    Keith E. Lindner acts as trustee with voting and dispositive power.

(d) Includes 76,144 shares held by his spouse as custodian for their minor
    children or in a trust over which she has voting and dispositive power,
    26,144 shares held by two of his children, 1,000,000 shares held by a
    limited liability company over which shares he holds dispositive but not
    voting power, 1,248,730 shares held in a trust for the benefit of his
    children over which shares his spouse has dispositive but not voting power,
    and 776,910 shares which are held in various trusts for the benefit of his
    minor children for which Keith E. Lindner acts as trustee with voting and
    dispositive power.

(e) Includes 341 shares held in a trust over which his spouse shares voting and
    dispositive power with an individual not affiliated with AFG, 2,226 shares
    held in trusts over which he shares voting and dispositive power with an
    individual not affiliated with AFG, 1,500,000 shares held by a limited
    liability company over which shares he holds dispositive but not voting
    power, and 2,473,709 shares held in a trust for the benefit of his children
    over which shares his spouse has dispositive but not voting power, but
    excludes 1,427,543 shares (described in footnotes (c) and (d) above) which
    are held in various trusts for the benefit

                                        57


    of the minor children of his brothers, Carl H. Lindner III and S. Craig
    Lindner, over which Keith E. Lindner has sole voting and dispositive power
    but no pecuniary interest.

     The following table sets forth, as of June 30, 2003, information with
respect to the beneficial ownership of AFC common stock and Series J Preferred
Stock by each person known by AFC to be the beneficial owner of more than five
percent of the common stock, by each present director of AFC, by executive
officers of AFC and by all directors and executive officers of AFC as a group.
Unless otherwise indicated in the notes to this table, the shareholders listed
in the table have sole voting and investment power with respect to shares
beneficially owned by them.




NAME OF BENEFICIAL OWNER                                 NO OF SHARES(1)   PERCENT OF CLASS(1)
------------------------                                 ---------------   -------------------
                                                                     
American Financial Group, Inc.(2)......................    10,593,000              100%
William R. Martin......................................        40,126             1.39
Fred J. Runk...........................................         7,817                *
Thomas E. Mischell.....................................        15,551                *
All directors and executive officers as a group........        63,494             2.20
The Commerce Group, Inc. ..............................       287,563             9.96



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

(1) Refers to the common stock of AFC beneficially owned by American Financial
    Group, Inc. Refers to the Series J Preferred Stock beneficially owned by
    William R. Martin, Fred J. Runk, Thomas E. Mischell and all directors and
    executive officers as a group.

(2) The Lindner Family may be deemed to be the beneficial owner of these shares
    of AFC common stock.

                                 LEGAL MATTERS

     The legality of the AFG common stock offered hereby will be passed upon for
AFG by Keating, Muething & Klekamp, P.L.L., Cincinnati, Ohio. Certain tax
opinions will be delivered to AFG by Akin Gump Strauss Hauer & Feld LLP,
Washington, D.C.

                                    EXPERTS

     Ernst & Young LLP, independent auditors, have audited AFG's and AFC's
consolidated financial statements and schedules included in their respective
Annual Reports on Form 10-K for the year ended December 31, 2002, as set forth
in its reports, which are incorporated by reference or presented in this proxy
statement/prospectus. AFG's and AFC's financial statements and schedules are
incorporated by reference or presented in reliance on Ernst & Young LLP's
report, given on their authority as experts in accounting and auditing.

                 SHAREHOLDER PROPOSALS FOR 2004 ANNUAL MEETING

     In accordance with AFC's Regulations, the only candidates eligible for
election at a meeting of shareholders are candidates nominated by or at the
direction of the board of directors and candidates nominated at the meeting by a
shareholder who has complied with the procedures set forth in the Regulations.
Shareholders will be afforded a reasonable opportunity at the meeting to
nominate candidates for the office of director. However, the Regulations require
that a shareholder wishing to nominate a director candidate must have first
given the Secretary of AFC at least five and not more than thirty days prior
written notice setting forth or accompanied by (1) the name and residence of the
shareholder and of each nominee specified in the notice, (2) a representation
that the shareholder was a holder of record of AFC's voting stock and intended
to appear, in person or by proxy, at the meeting to nominate the persons
specified in the notice and (3) the consent of each such nominee to serve as
director if so elected.

     The proxy form used by AFC for its annual meeting typically grants
authority to management's proxies to vote in their discretion on any matters
that come before the meeting as to which adequate notice has not

                                        58


been received. In order for a notice to be deemed adequate for the 2004 annual
meeting, it must be received by March 16, 2004. In order for a proposal to be
considered for inclusion in AFC's proxy statement for that meeting, it must be
received by December 31, 2003.

                      WHERE YOU CAN FIND MORE INFORMATION

     AFG and AFC each file reports, proxy statements and other information with
the SEC. You may read and copy any reports, statements or other information that
AFG and AFC file at the SEC's public reference rooms in Washington, D.C., New
York, New York and Chicago, Illinois. (The address of the public reference room
in Washington, D.C. is 450 Fifth Street, N.W., Washington, D.C. 20549). Please
call the SEC at 1-800-SEC-0330 for further information on the public reference
rooms. AFG's and AFC's public filings are also available to the public from
commercial document retrieval services and at the Internet World Wide Web site
maintained by the SEC at "http://www.sec.gov." Reports, proxy statements and
other information regarding AFG may be inspected at the offices of the New York
Stock Exchange, 20 Broad Street, New York, New York 10005. Also, AFG's reports,
proxy statements and other information is available on its Internet World Wide
Web site located at www.amfnl.com.

     AFG has filed a Registration Statement with the SEC to register the shares
of AFG common stock to be issued to holders of AFC Series J Preferred Stock in
the reorganization. This document is a part of the Registration Statement and
constitutes a prospectus of AFG as well as a proxy statement of AFC for the
special meeting.

     As allowed by SEC rules, this document does not contain all information
that shareholders can find in the Registration Statement or the exhibits to the
Registration Statement.

     The SEC allows AFG and AFC to "incorporate by reference" information into
this document, which means that AFG and AFC can disclose important information
to you by referring you to another document filed separately with the SEC. The
information incorporated by reference is deemed to be part of this document,
except for any information superseded by information contained directly in the
document. This document incorporates by reference the documents set forth below
that AFG and AFC have previously filed with the SEC. These documents contain
important information about AFG and AFC and their respective financial
condition.

AFG SEC FILINGS:

     - Annual Report on Form 10-K, as amended, for the fiscal year ended
       December 31, 2002

     - Quarterly Reports on Form 10-Q for the fiscal quarters ended March 31,
       2003, as amended, and June 30, 2003

     - Current Reports on Form 8-K dated February 19, 2003, May 1, 2003, May 27,
       2003, July 7, 2003 and July 31, 2003.

     - The description of our common stock contained in the Form 8-A filed with
       the SEC on November 23, 1997

AFC SEC FILINGS:

     - Annual Report on Form 10-K, as amended, for the fiscal year ended
       December 31, 2002

     - Quarterly Reports on Form 10-Q for the fiscal quarters ended March 31,
       2003, as amended, and June 30, 2003

     - Current Report on Form 8-K dated July 7, 2003

     AFG is also incorporating by reference additional documents that it may
file with the SEC between the date of this document and the date of the special
meeting. These include periodic reports, such as an Annual

                                        59


Report on Form 10-K, Quarterly Report on Form 10-Q and Current Reports on Form
8-K, and any amendments to these reports, as well as proxy statements.

     If you are a shareholder of AFG or AFC, you can obtain any of the documents
incorporated by reference through AFG and AFC, respectively, or from the SEC or
the SEC's Internet World Wide Web site described above. Documents incorporated
by reference are available from AFG and AFC without charge, excluding all
exhibits. Shareholders may obtain documents incorporated by reference in this
document by requesting them in writing or by telephone from AFG and AFC at the
following address:

        James C. Kennedy
        Vice President, Deputy General Counsel and Secretary
        American Financial Corporation
        American Financial Group, Inc.
        One East Fourth Street
        Cincinnati, Ohio 45202
        (513) 579-2538


     If you would like to request documents from AFG or AFC, please do so by
November 13, 2003 to receive them before the special meeting. If you request any
such documents, the companies will mail them to you by first-class mail, or
other equally prompt means, within one business day of receipt of your request.


     YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY
REFERENCE IN THIS DOCUMENT TO VOTE YOUR SHARES AT THE SPECIAL MEETING. AFG AND
AFC HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT
FROM WHAT IS CONTAINED IN THIS DOCUMENT. YOU SHOULD NOT ASSUME THAT THE
INFORMATION CONTAINED IN THE DOCUMENT IS ACCURATE AS OF ANY DATE OTHER THAN THE
DATE OF THIS DOCUMENT, AND NEITHER THE MAILING OF THIS DOCUMENT TO SHAREHOLDERS
NOR THE ISSUANCE OF AFC'S SECURITIES IN THE REORGANIZATION SHALL CREATE ANY
IMPLICATION TO THE CONTRARY.

                                        60

                          FINANCIAL INFORMATION FOR AFC

The following financial information has been excerpted from AFC's June 30, 2003,
Form 10-Q and December 31, 2002, Form 10-K, as amended, which are incorporated
herein by reference.

                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                         SIX MONTHS ENDED JUNE 30, 2003

GENERAL

AFC and American Premier are organized as holding companies with almost all of
their operations being conducted by subsidiaries. These parent corporations,
however, have continuing cash needs for administrative expenses, the payment of
principal and interest on borrowings, shareholder dividends, and taxes.
Therefore, certain analyses are best done on a parent only basis while others
are best done on a total enterprise basis. In addition, since most of its
businesses are financial in nature, AFC does not prepare its consolidated
financial statements using a current-noncurrent format. Consequently, certain
traditional ratios and financial analysis tests are not meaningful.

FORWARD-LOOKING STATEMENTS The Private Securities Litigation Reform Act of 1995
provides a safe harbor for forward-looking statements. Some of the
forward-looking statements can be identified by the use of forward-looking words
such as "anticipates", "believes", "expects", "estimates", "intends", "plans",
"seeks", "could", "may", "should", "will" or the negative version of those words
or other comparable terminology. Examples of such forward-looking statements
include statements relating to: expectations concerning market and other
conditions and their effect on future premiums, revenues, earnings and
investment activities; recoverability of asset values; expected losses and the
adequacy of reserves for asbestos, environmental pollution and mass tort claims;
rate increases, improved loss experience and expected expense savings resulting
from recent initiatives.

Actual results could differ materially from those contained in or implied by
such forward-looking statements for a variety of factors including:

         o        changes in economic conditions, including interest rates,
                  performance of securities markets, and the availability of
                  capital;

         o        regulatory actions;

         o        changes in legal environment;

         o        tax law changes;

         o        levels of natural catastrophes, terrorist events, incidents of
                  war and other major losses;

         o        the ultimate amount of liabilities associated with certain
                  asbestos and environmental-related claims;

         o        the unpredictability of possible future litigation if certain
                  settlements do not become effective;

         o        adequacy of insurance reserves;

         o        trends in mortality and morbidity;

         o        availability of reinsurance and ability of reinsurers to pay
                  their obligations;

         o        competitive pressures, including the ability to obtain rate
                  increases; and

         o        changes in debt and claims paying ratings.

The forward-looking statements herein are made only as of the date of this
report. AFC assumes no obligation to publicly update any forward-looking
statements.


                                      F-1


CRITICAL ACCOUNTING POLICIES

Significant accounting policies are summarized in Note A to the financial
statements. The preparation of financial statements requires management to make
estimates and assumptions that can have a significant effect on amounts reported
in the financial statements. As more information becomes known, these estimates
and assumptions could change and thus impact amounts reported in the future.
Management believes that the establishment of insurance reserves, especially
asbestos and environmental-related reserves, and the determination of "other
than temporary" impairment on investments are the two areas where the degree of
judgment required to determine amounts recorded in the financial statements make
the accounting policies critical. For further discussion of these policies, see
"Liquidity and Capital Resources - Investments" and "Liquidity and Capital
Resources - Uncertainties."

LIQUIDITY AND CAPITAL RESOURCES

RATIOS AFC's debt to total capital ratio at the parent holding company level
(excluding amounts due AFG) was approximately 1% at June 30, 2003, and 13% at
December 31, 2002. Including amounts due AFG, the ratio was 19% at June 30,
2003, and 25% at December 31, 2002.

AFC's ratio of earnings to fixed charges including annuity benefits as a fixed
charge, excluding and including preferred dividends, was 1.51 and 1.48 for the
six months ended June 30, 2003, and 1.48 and 1.46 for the entire year of 2002,
respectively. Excluding annuity benefits, this ratio was 3.81 and 3.42 for the
six months of 2003 and 3.36 and 3.09 for the year 2002, respectively. Although
the ratio excluding interest on annuities is not required or encouraged to be
disclosed under Securities and Exchange Commission rules, it is presented
because interest credited to annuity policyholder accounts is not always
considered a borrowing cost for an insurance company.

SOURCES OF FUNDS Management believes the parent holding companies have
sufficient resources to meet their liquidity requirements, primarily through
funds generated by their subsidiaries' operations. If funds provided by
subsidiaries through dividends and tax payments are insufficient to meet fixed
charges in any period, the holding companies would be required to generate cash
through borrowings, sales of securities or other assets, or similar
transactions.

AFC may borrow up to $280 million under a bank credit line. The line consists of
two facilities: a 364-day revolving facility, extendable annually, for one-third
of the total line and a three-year revolving facility for the remaining
two-thirds. Amounts borrowed bear interest at rates ranging from 1.25% to 2.25%
over LIBOR based on AFG's credit rating. This credit agreement provides ample
liquidity and can be used to obtain funds for operating subsidiaries or, if
necessary, for the parent companies. In June 2003, borrowings from AFG under the
Master Credit Agreement were used to pay down the bank line. At June 30, 2003,
there were no borrowings under the line.

INVESTMENTS AFC's investment portfolio at June 30, 2003, contained $11.7 billion
in "Fixed maturities" and $311.4 million in "Other stocks", all carried at
market value with unrealized gains and losses reported as a separate component
of shareholders' equity on an after-tax basis. At June 30, 2003, AFC had pretax
net unrealized gains of $649.0 million on fixed maturities and $144.0 million on
other stocks. The increase in the general level of interest rates during July
caused the fixed maturity amount to decline by approximately two-thirds.


                                      F-2


Approximately 94% of the fixed maturities held by AFC at June 30, 2003, were
rated "investment grade" (credit rating of AAA to BBB) by nationally recognized
rating agencies. Investment grade securities generally bear lower yields and
lower degrees of risk than those that are unrated and noninvestment grade.
Management believes that a high quality investment portfolio is more likely to
generate a stable and predictable investment return.

Individual portfolio securities are sold creating gains or losses as market
opportunities exist. Since all of these securities are carried at market value
in the balance sheet, there is virtually no effect on liquidity or financial
condition upon the sale and ultimate realization of unrealized gains and losses.

Summarized information for the unrealized gains and losses recorded in AFC's
balance sheet at June 30, 2003, is shown in the following table (dollars in
millions). Approximately $144 million of "Fixed maturities" and $20 million of
"Other stocks" had no unrealized gains or losses at June 30, 2003.



                                                       Securities          Securities
                                                          With                With
                                                       Unrealized          Unrealized
                                                          Gains              Losses
                                                       ----------          -----------
                                                                     
   Fixed Maturities
     Market value of securities                          $10,562           $ 1,019
     Amortized cost of securities                        $ 9,868           $ 1,064
     Gross unrealized gain (loss)                        $   694           $   (45)
     Market value as % of amortized cost                     107%               96%
     Number of security positions                          1,822               183
     Number individually exceeding
       $2 million gain or loss                                38                 3
     Concentration of gains (losses) by
       type or industry (exceeding 5% of
       unrealized):
         Mortgage-backed securities                      $ 134.8             $(3.4)
         Electric services                                  61.3              (1.4)
         Banks and savings institutions                     51.1               (.2)
         U.S. government and government agencies            44.2              (1.1)
         State and municipal                                40.8              (3.9)
         Asset-backed securities                            22.2              (6.8)
         Air transportation (generally collateralized)       4.8             (14.3)
     Percentage rated investment grade                        95%               79%

   Other Stocks
     Market value of securities                          $   267           $    24
     Cost of securities                                  $   122           $    25
     Gross unrealized gain (loss)                            145           $    (1)
     Market value as % of cost                               219%               96%
     Number individually exceeding
       $2 million gain or loss                                16                 1


                                       F-3




AFC's investment in equity securities of Provident Financial Group, a
Cincinnati-based commercial banking and financial services company, represents
$115 million of the $145 million in unrealized gains on other stocks at June 30,
2003.

The table below sets forth the scheduled maturities of fixed maturity securities
at June 30, 2003, based on their market values. Asset backed securities and
other securities with sinking funds are reported at average maturity. Actual
maturities may differ from contractual maturities because certain securities may
be called or prepaid by the issuers.



                                                        Securities       Securities
                                                          With             With
                                                        Unrealized       Unrealized
                                                          Gains           Losses
                                                        ----------       ----------
                                                                   
   Maturity
     One year or less                                          3%               1%
     After one year through five years                        22               41
     After five years through ten years                       30               30
     After ten years                                          10               11
                                                         -------          -------
                                                              65               83
     Mortgage-backed securities                               35               17
                                                         -------          -------
                                                             100%             100%
                                                         =======          =======


AFC realized aggregate losses of $4 million during the first six months of 2003
on $36.1 million in sales of fixed maturity securities (7 issues/issuers) that
had individual unrealized losses greater than $500,000 at December 31, 2002.
Market values of five of the issues increased an aggregate of $4.7 million from
December 31 to date of sale. The market value of the remaining two securities
decreased $316,000 from December 31 to the sale date.

Although AFC had the ability to continue holding these investments, its intent
to hold them changed due primarily to deterioration in the issuers'
creditworthiness, decisions to lessen exposure to a particular credit or
industry, or to modify asset allocation within the portfolio.

The table below (dollars in millions) summarizes the unrealized gains and losses
on fixed maturity securities by dollar amount.



                                                                               Market
                                             Aggregate       Aggregate        Value as
                                              Market         Unrealized      % of Cost
                                              Value          Gain (Loss)       Basis
                                           ------------    ------------     ------------
                                                                   
Fixed Maturities at June 30, 2003
SECURITIES WITH UNREALIZED GAINS:
  Exceeding $500,000 (475 issues)          $      6,264    $        517            109.0%
  Less than $500,000 (1,347 issues)               4,298             177            104.3
                                           ------------    ------------
                                           $     10,562    $        694            107.0%
                                           ============    ============

SECURITIES WITH UNREALIZED LOSSES:
  Exceeding $500,000 (24 issues)           $        253    $        (30)            89.4%
  Less than $500,000 (159 issues)                   766             (15)            98.1
                                           ------------    ------------
                                           $      1,019    $        (45)            95.8%
                                           ============    ============


                                      F-4


The following table summarizes (dollars in millions) the unrealized loss for all
fixed maturity securities with unrealized losses by issuer quality and length of
time those securities have been in an unrealized loss position.



                                                                            Market
                                              Aggregate     Aggregate      Value as
                                               Market      Unrealized      % of Cost
                                               Value       Gain (Loss)      Basis
                                             ----------    ----------     ----------
                                                                 
     Fixed Maturities with Unrealized
       Losses at June 30, 2003

     INVESTMENT GRADE WITH LOSSES FOR:
       Less than 6 months (37 issues)        $      551    $       (5)          99.1%
       7 to 12 months (59 issues)                   207            (5)          97.6
       Greater than 12 months (15 issues)            51            (8)          86.4
                                             ----------    ----------
                                             $      809    $      (18)          97.8%
                                             ==========    ==========


     NON-INVESTMENT GRADE WITH LOSSES FOR:
       Less than 6 months (13 issues)        $       25    $       (2)          92.6%
       7 to 12 months (17 issues)                    27            (3)          90.0
       Greater than 12 months (42 issues)           158           (22)          87.7
                                             ----------    ----------
                                             $      210    $      (27)          88.6%
                                             ==========    ==========


When a decline in the value of a specific investment is considered to be "other
than temporary," a provision for impairment is charged to earnings (accounted
for as a realized loss) and the cost basis of that investment is reduced. The
determination of whether unrealized losses are "other than temporary" requires
judgment based on subjective as well as objective factors. A listing of factors
considered and resources used is contained in the discussion of "Investments"
under Management's Discussion and Analysis in AFC's 2002 Form 10-K.

Based on its analysis, management believes (i) AFC will recover its cost basis
in the securities with unrealized losses and (ii) that AFC has the ability and
intent to hold the securities until they mature or recover in value. Should
either of these beliefs change with regard to a particular security, a charge
for impairment would likely be required. While it is not possible to accurately
predict if or when a specific security will become impaired, charges for other
than temporary impairment could be material to results of operations in a future
period. Management believes it is not likely that future impairment charges will
have a significant effect on AFC's liquidity.

UNCERTAINTIES As more fully explained in the following paragraphs, management
believes that the areas posing the greatest risk of material loss are the
adequacy of its insurance reserves and American Premier's contingencies arising
out of its former operations.

PROPERTY AND CASUALTY INSURANCE RESERVES The liabilities for unpaid claims and
for expenses of investigation and adjustment of unpaid claims are based upon:
(a) the accumulation of case estimates for losses reported prior to the close of
the accounting periods on direct business written; (b) estimates received from
ceding reinsurers and insurance pools and associations; (c) estimates of
unreported losses based on past experience; (d) estimates based on experience of
expense for investigating and adjusting claims; and (e) the current state of law
and coverage litigation. Using these items as well as historical trends adjusted
for changes in underwriting standards, policy provisions, product mix

                                      F-5



and other factors, company actuaries determine a single or "point" estimate
which management utilizes in recording its best estimate of the liabilities.
Ranges of loss reserves are not developed by company actuaries.

Estimating the liability for unpaid losses and LAE is inherently judgmental and
is influenced by factors which are subject to significant variation. Through the
use of analytical reserve development techniques, management utilizes items such
as the effect of inflation on medical, hospitalization, material, repair and
replacement costs, general economic trends and the legal environment.

Quarterly reviews of unpaid loss and LAE reserves are prepared using standard
actuarial techniques. These may include: Case Incurred Development Method; Paid
Development Method; Bornhuetter-Ferguson Method; and Incremental Paid LAE to
Paid Loss Methods. Generally, data is segmented by major product or coverage
within product using countrywide data; however, in some situations data may be
reviewed by state for large volume states.

         ASBESTOS AND ENVIRONMENTAL-RELATED ("A&E") RESERVES Establishing
reserves for A&E claims relating to policies and participations in reinsurance
treaties and former operations is subject to uncertainties that are
significantly greater than those presented by other types of claims. For this
group of claims, traditional actuarial techniques that rely on historical loss
development trends cannot be used. Case reserves and expense reserves are
established by the claims department as specific policies are identified. In
addition to the case reserves established for known claims, management
establishes additional reserves for claims not yet known or reported and for
possible development on known claims. These additional reserves are management's
best estimate based on its review of industry trends and other industry
information about such claims, with due consideration to individual claim
situations like the A.P. Green case discussed below. Estimating ultimate
liability for asbestos claims presents a unique and difficult challenge to the
insurance industry due to, among other things, inconsistent court decisions, an
increase in bankruptcy filings as a result of asbestos-related liabilities,
novel theories of coverage, and judicial interpretations that often expand
theories of recovery and broaden the scope of coverage. The casualty insurance
industry is engaged in extensive litigation over these coverage and liability
issues as the volume and severity of claims against asbestos defendants continue
to increase.

While management believes that AFC's reserves for A&E claims are a reasonable
estimate of ultimate liability for such claims, actual results may vary
materially from the amounts currently recorded due to the difficulty in
predicting the number of future claims and the impact of recent bankruptcy
filings, and unresolved issues such as whether coverage exists, whether policies
are subject to aggregate limits on coverage, whether claims are to be allocated
among triggered policies and implicated years, and whether claimants who exhibit
no signs of illness will be successful in pursuing their claims.

In February 2003, Great American Insurance Company entered into an agreement for
the settlement of asbestos related coverage litigation under insurance polices
issued during the 1970's and 1980's to Bigelow-Liptak Corporation and related
companies, subsequently known as A.P. Green Industries, Inc. ("A.P. Green").
Management believes that this settlement will enhance financial certainty and
provides resolution to litigation that represents AFC's largest known
asbestos-related claim and the only such claim that management believes to be
material.

                                      F-6




The settlement is for $123.5 million (Great American has the option to pay in
cash or over time with 5.25% interest), all of which is covered by reserves
established prior to 2003, and anticipated reinsurance recoverables for this
matter. The agreement allows up to 10% of the settlement to be paid in AFG
common stock.

The settlement is subject to a number of contingencies, including the approval
of the bankruptcy court supervising the reorganization of A.P. Green and
subsequent confirmation of a plan of reorganization that includes an injunction
prohibiting the assertion against Great American of any present or future
asbestos personal injury claims under policies issued to A.P. Green and related
companies. This process could take a year or more and no assurance can be made
that all of these consents and approvals will be obtained; no payments are
required until completion of the process. If not obtained, the outcome of this
litigation will again be subject to the complexities and uncertainties
associated with a Chapter 11 proceeding and asbestos coverage litigation.

RESULTS OF OPERATIONS

GENERAL Results of operations as shown in the accompanying financial statements
are prepared in accordance with generally accepted accounting principles. Many
of the line items in the Statement of Earnings are not comparable due to the
sale of Infinity in mid-February 2003. Operating earnings before income taxes
increased $28.3 million in the second quarter of 2003 compared to the same
period in 2002 due primarily to a $73.1 million improvement in realized gains
which more than offset a $43.8 million charge for an arbitration decision
relating to a 1995 property claim. Property and casualty underwriting results
improved $21.4 million (excluding the arbitration charge) in the second quarter
of 2003 and AFC's annuity operations recorded a $12.5 million charge related to
the narrowing of spreads on fixed annuities.

Six-month pretax operating earnings improved $17.0 million compared to 2002
reflecting a $53.7 million increase in realized gains and $45.0 million increase
in property and casualty underwriting results (excluding the arbitration charge)
which more than offset the second quarter arbitration charge, a $43.4 million
decrease in investment income due primarily to the sale of Infinity and lower
yields on fixed maturity securities, and the second quarter charge in the
annuity operations.

PROPERTY AND CASUALTY INSURANCE - UNDERWRITING AFC's property and casualty group
has consisted of two major business groups: Specialty and Personal. See Note B,
"Acquisitions and Sales of Subsidiaries," to the Financial Statements for a
discussion of the sale of nearly all of the Personal group.

The Specialty group includes a highly diversified group of business lines. Some
of the more significant areas are inland and ocean marine, California workers'
compensation, agricultural-related coverages, executive and professional
liability, fidelity and surety bonds, collateral protection, and umbrella and
excess coverages.

The Personal group wrote nonstandard and preferred/standard private passenger
auto insurance and, to a lesser extent, homeowners' insurance. Nonstandard
automobile insurance covers risk not typically accepted for standard automobile
coverage because of an applicant's driving record, type of vehicle, age or other
criteria.

                                       F-7





Performance measures such as segment underwriting profit or loss and related
combined ratios are often used by property and casualty insurers to help users
of their financial statements better understand the company's performance. See
Note C - "Segments of Operations" for the detail of AFC's operating profit by
significant business segment.

Underwriting profitability is measured by the combined ratio which is a sum of
the ratios of underwriting losses, loss adjustment expenses, underwriting
expenses and policyholder dividends to premiums. When the combined ratio is
under 100%, underwriting results are generally considered profitable; when the
ratio is over 100%, underwriting results are generally considered unprofitable.
The combined ratio does not reflect investment income, other income or federal
income taxes.

Premiums and combined ratios for AFC's property and casualty insurance
subsidiaries were as follows (dollars in millions):



                                                   Three months ended            Six months ended
                                                        June 30,                   June 30,
                                                ------------------------    ------------------------
                                                   2003          2002         2003          2002
                                                ----------    ----------    ----------    ----------
                                                                               
          Gross Written Premiums (GAAP)
            Specialty                           $    806.4    $    648.5    $  1,483.2    $  1,211.3
            Personal (a)                              57.7         328.4         238.8         675.9
            Other lines                                 --            --            --            .3
                                                ----------    ----------    ----------    ----------
                                                $    864.1    $    976.9    $  1,722.0    $  1,887.5
                                                ==========    ==========    ==========    ==========

          Net Written Premiums (GAAP)
            Specialty                           $    450.4    $    393.8    $    889.2    $    780.5
            Personal (a)                              18.4         244.9         136.3         501.3
            Other lines                                 --            --            --            .3
                                                ----------    ----------    ----------    ----------
                                                $    468.8    $    638.7    $  1,025.5    $  1,282.1
                                                ==========    ==========    ==========    ==========

          Combined Ratios (GAAP)
            Specialty                                 95.7%         98.0%         96.8%         98.3%
            Personal                                 106.8         101.1          97.2         101.6
            Aggregate (including
              discontinued lines)(b)                 107.1         101.1         101.5         101.4


         (a)      Includes the operations of Infinity through the sale date in
                  mid-February 2003 and the direct auto business through its
                  sale at the end of April 2003. In 2003, gross written premiums
                  includes personal lines business written by Great American
                  Insurance and ceded to Infinity.

         (b)      Includes 10.6 points and 4.6 points for the second quarter and
                  six months of 2003, respectively, for the effect of an
                  arbitration decision relating to a claim arising from a
                  discontinued business.

                                       F-8




SPECIALTY The Specialty group's gross written premiums increased 24% for the
second quarter and 22% for the first six months of 2003 over the comparable 2002
periods, reflecting the impact of continuing rate increases in most of its
businesses. Specialty rate increases averaged approximately 25% during the first
six months of 2003 and should be about 20% for the remainder of 2003. Net
written premiums increased 14% for the second quarter and first six months over
the comparable 2002 periods. Strong growth in gross written premiums was offset
primarily by the impact of a reinsurance agreement put into place in the fourth
quarter of 2002.

The Specialty group reported an underwriting profit of $17.2 million for the
2003 second quarter with a combined ratio of 95.7% and $26.7 million for the
first six months with a combined ratio of 96.8%, improvements of 2.3 and 1.5
points, respectively, over the comparable 2002 periods.

PERSONAL The Personal group results represent primarily Infinity's underwriting
results through the public offering in mid-February 2003 and the
direct-to-consumer auto business, which was sold in April 2003. AFC's ongoing
personal lines business is limited to two subsidiaries that generated less than
$35 million in net written premiums in 2002 and certain direct-to-consumer
business in run-off that had approximately $28 million in net written premiums
in 2002. AFC's 38% continuing ownership interest in Infinity is accounted for as
an investee corporation. Accordingly, AFC's share of Infinity's earnings
following the mid-February public offering is included in equity in net earnings
(losses) of investees in the Statement of Earnings.

ARBITRATION SETTLEMENT The property and casualty group's overall results include
a $43.8 million pretax charge in the second quarter of 2003 for the effect of an
arbitration decision resulting from its share of a 1995 property fire and
business interruption claim.

INVESTMENT INCOME The decrease in investment income for the second quarter and
six months of 2003 compared to the 2002 periods reflects lower average
investment balances (due to the mid-February sale of Infinity) as well as lower
average yields on fixed maturity investments.

REALIZED GAINS Realized capital gains have been an important part of the return
on investments. Individual assets are sold creating gains and losses as market
opportunities exist.

GAINS (LOSSES) ON SECURITIES Realized gains (losses) on securities include
provisions for other than temporary impairment of securities still held as
follows: second quarter of 2003 and 2002 - $15.7 million and $70.1 million; six
months of 2003 and 2002 - $50.6 million and $88.4 million, respectively.
Increased impairment charges in recent years reflect a rise in corporate
defaults in the marketplace. Impairment charges in 2003 reflect primarily the
downturn in the airline industry and writedowns of certain asset-backed
securities. Impairment charges in the first six months of 2002 are primarily
related to investments in the telecommunications industry and asset-backed
security writedowns.

Realized losses on securities include gains of $701,000 in the second quarter of
2003 and net losses of $3.8 million in the first six months of 2003 compared to
gains of $3.7 million (second quarter) and $660,000 (six months) in the 2002
periods to adjust the carrying value of AFC's investment in warrants to market
value.

                                      F-9




GAINS (LOSSES) ON SALES OF SUBSIDIARIES During the first six months of 2003, AFC
recognized (i) a $4.3 million pretax gain on the sale of an inactive insurance
subsidiary in June, (ii) a $3.4 million pretax gain on the sale in April of two
subsidiaries that marketed automobile insurance directly to customers and (iii)
a $39.4 million pretax loss on the public offering of 12.5 million shares of
Infinity in February.

REAL ESTATE OPERATIONS AFC's subsidiaries are engaged in a variety of real
estate operations including hotels, apartments, office buildings and
recreational facilities; they also own several parcels of land. Revenues and
expenses of these operations, including gains and losses on disposal, are
included in AFC's Statement of Earnings as shown below (in millions).



                                                   Three months ended            Six months ended
                                                         June 30,                   June 30,
                                                ------------------------      -----------------------
                                                   2003          2002          2003          2002
                                                ----------    ----------    ----------    ----------
                                                                                    
          Other income                          $     26.4    $     29.6    $     42.4    $     44.9
          Other operating and general expenses        18.7          17.7          34.8          32.2
          Interest charges on borrowed money            .7            .7           1.3           1.3
          Minority interest expense, net                .2            .5            .2            .5


Other income includes net pretax gains on the sale of real estate assets of $4.7
million in the second quarter and the first six months of 2003 compared to $7.5
million and $7.6 million for the 2002 periods.

OTHER INCOME Other income increased $7.2 million (12%) for the second quarter
and $14.1 million (13%) for the first six months of 2003 compared to 2002 due
primarily to increased revenues earned by the Specialty group's growing warranty
business and higher fee income in certain other specialty insurance operations,
partially offset by lower income from the sale of real estate.

ANNUITY BENEFITS Annuity benefits reflect amounts accrued on annuity
policyholders' funds accumulated. Annuity benefits in the second quarter and
first six months of 2003 increased compared to the 2002 periods primarily due to
a charge recorded in the second quarter of 2003 related to the negative effect
of lower interest rates on GAFRI's fixed annuity operations.

The majority of GAFRI's fixed annuity products permit GAFRI to change the
crediting rate at any time subject to minimum interest rate guarantees (as
determined by applicable law). Approximately 45% of the annuity benefits
accumulated relate to policies that have a minimum guarantee of 3%; the balance
have a guarantee of 4%. Virtually all new sales of GAFRI's fixed annuities offer
a minimum interest rate of 3%. GAFRI has begun to seek regulatory approvals to
modify products to be issued in the future to include a 1.5% minimum crediting
rate. Historically, management has been able to react to changes in market
interest rates and maintain a desired interest rate spread. The recent interest
rate environment has resulted in spread compression which could continue at
least through the remainder of 2003.

On its owner deferred annuities (annuities in the accumulation phase), GAFRI
generally credits interest to policyholders' accounts at their current stated
interest rates. Furthermore, for "two-tier" deferred annuities (annuities under
which a higher interest amount can be earned if a policy is annuitized rather
than surrendered), GAFRI accrues an additional liability to provide for expected
deaths and annuitizations. Changes in crediting rates, actual surrender, death

                                      F-10


and annuitization experience or modifications in actuarial assumptions can
affect this accrual. Significant changes in projected investment yields could
result in charges (or credits) to earnings in the period such projections are
modified.

ANNUITY AND LIFE ACQUISITION EXPENSES Annuity and life acquisition expenses
include amortization of annuity and life, accident and health deferred policy
acquisition costs ("DPAC") as well as a portion of commissions on sales of
insurance products. Annuity and life acquisition expenses also include
amortization of the present value of future profits of businesses acquired. The
increase in annuity and life acquisition expenses in the second quarter and
first six months of 2003 compared to 2002 reflects a $6 million write-off of
GAFRI's fixed annuity DPAC balance in the second quarter of 2003 as well as
amortization costs associated with GAFRI's purchase of MNL in June 2002.

The vast majority of GAFRI's DPAC asset relates to its fixed annuity, variable
annuity and life insurance lines of business. Continued spread compression,
decreases in the stock market and adverse mortality could lead to further
write-offs of DPAC in the future. However, absent significant deterioration in
those factors, GAFRI does not anticipate any additional material write-offs in
the foreseeable future.

INTEREST ON BORROWED MONEY Changes in interest expense result from fluctuations
in market rates as well as changes in borrowings. AFC has generally financed its
borrowings on a long-term basis which has resulted in higher current costs.
Interest expense decreased in 2003 due primarily to lower average indebtedness.

OTHER OPERATING AND GENERAL EXPENSES Other operating and general expenses
decreased slightly for the second quarter of 2003 and increased $5.3 million
(3%) for the six months compared to 2002 as higher expenses in the Specialty
group's growing warranty business were more than offset in the quarter and
partially offset in the six months by the absence of expenses from Infinity
(following its sale in mid-February).

INCOME TAXES The 2003 provision for income taxes reflects $5.5 million in first
quarter tax benefits related to AFC's basis in Infinity stock. The 2002
provision for income taxes includes a $16 million first quarter tax benefit for
the reduction of previously accrued amounts due to the resolution of certain tax
matters.

INVESTEE CORPORATIONS

INFINITY PROPERTY AND CASUALTY CORPORATION Following AFC's sale of 61% of
Infinity in the mid-February offering, AFC's proportionate share of Infinity's
earnings is included in equity in net earnings (losses) of investees. In 2003,
Infinity reported net earnings for the second quarter of $12.3 million and $23.8
million for the first six months, including $17.7 million subsequent to the
offering.

START-UP MANUFACTURING BUSINESSES Equity in earnings (losses) of investees also
includes losses of two start-up manufacturing businesses (see Note D). Equity in
net earnings (losses) of investees includes $707,000 in the second quarter and
$1.6 million in the first six months of 2003 compared to $914,000 in the second
quarter and $1.8 million for the first six months of 2002 in losses of one of
these businesses. Investee losses in 2002 include $1.4 million in the second
quarter and $3.3 million in the first six months in losses of the other
manufacturing business, which sold substantially all of its assets in December
2002.

                                      F-11




CUMULATIVE EFFECT OF ACCOUNTING CHANGE Effective January 1, 2002, AFC
implemented Statement of Financial Accounting Standards ("SFAS") No. 142,
"Goodwill and Other Intangible Assets", under which goodwill is no longer
amortized, but is subject to an impairment test at least annually. The initial
impairment testing resulted in a first quarter 2002 charge of $40.4 million (net
of minority interest and taxes) for the cumulative effect of a change in
accounting principle.

RECENT ACCOUNTING STANDARDS

INTERPRETATION NO. 46 In January 2003, the Financial Accounting Standards Board
issued Interpretation No.46, Consolidation of Variable Interest Entities ("FIN
46"). This interpretation will require companies to consolidate entities without
sufficient equity based on ownership of expected gains and losses. FIN 46 is
effective immediately to variable interest entities acquired after January 31,
2003. For entities acquired before that date, the guidance becomes effective for
periods beginning after June 15, 2003.

AFC is currently assessing the application of FIN 46 as it relates to its
investments in two collateralized debt obligations ("CDOs"), for which AFC also
acts as investment manager. Under the CDOs, securities were issued in various
senior and subordinate classes and the proceeds were invested primarily in bank
loans, and to a lesser extent, high yield bonds, all of which serve as
collateral for the securities issued by the CDOs. None of the collateral was
purchased from AFC. The market value of the collateral at June 30, 2003, was
approximately $835 million.

AFC's investments in the two CDOs are subordinate to the senior classes
(approximately 92% of the total securities) issued by the CDOs. To the extent
there are defaults and unrecoverable losses on the underlying collateral
resulting in reduced cash flows, AFC's class would bear losses first. Holders of
the CDO debt securities have no recourse against AFC for the liabilities of the
CDOs; accordingly, AFC's exposure to loss on these investments is limited to its
investment. AFC's investments in the CDOs are carried at estimated market value
of $10.5 million at June 30, 2003, and are included in fixed maturities in AFC's
balance sheet.

SFAS NO. 150 SFAS No. 150, which was issued in the second quarter of 2003 and is
effective for quarters beginning after June 15, 2003, establishes new standards
for the classification of certain financial instruments with characteristics of
both liabilities and equity. Under SFAS No. 150, AFC will reclassify its
trust-issued preferred securities from minority interest to a separate line item
included in liabilities. In addition, future distributions on these securities
will be recorded as interest expense rather than minority interest expense.
Implementation of this standard will have no effect on AFC's shareholders'
equity or net earnings.

SOP 03-1 Statement of Position 03-1, "Accounting and Reporting by Insurance
Enterprises for Certain Nontraditional Long-Duration Contracts and Separate
Accounts," was issued in July 2003 and is effective for fiscal years beginning
after December 15, 2003, with earlier adoption encouraged. When adopted, SOP
03-1 will be accounted for as a cumulative effect of a change in accounting
principle. If adopted in 2003, the adjustment would be recorded as of January 1,
2003, with restatement of previously reported 2003 results. SOP 03-1 provides
additional accounting and reporting guidance for variable and fixed annuities.

                                      F-12



GAFRI's variable annuity contracts contain a guaranteed minimum death benefit
("GMDB") (which may exceed the value of the policyholder's account) to be paid
if the annuityholder dies before the annuity payout period commences.
Liabilities for any difference between the GMDB and the related account balance
is borne by GAFRI and expensed when paid. In periods of declining equity
markets, the GMDB difference increases as the variable annuity account value
decreases. At June 30, 2003, the aggregate GMDB values (assuming every
policyholder died on that date) exceeded the market value of the underlying
variable annuities by $193 million. Industry practice varies, but GAFRI does not
establish GAAP reserves for this mortality risk. Under SOP 03-1, GAFRI would be
required to record a liability for the present value of expected GMDB payments.
Initial recognition of a GAAP liability is estimated to be less than $5 million
at June 30, 2003. Death benefits paid in excess of the variable annuity account
balances were about $1.0 million in the first six months of 2003 and $1.1
million in all of 2002.

The impact of SOP 03-1 on accounting for GAFRI's fixed annuities has not yet
been determined.


                                      F-13





                 AMERICAN FINANCIAL CORPORATION AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEET
                             (DOLLARS IN THOUSANDS)



                                                            June 30,     December 31,
                                                              2003           2002
                                                          ------------   ------------
                                                                   
ASSETS:
  Cash and short-term investments                         $    894,588   $    870,797
  Investments:
    Fixed maturities - at market
      (amortized cost - $11,075,809 and $11,549,710)        11,724,809     12,006,910
    Other stocks - at market
      (cost - $167,446 and $173,933)                           311,446        299,133
    Investment in investee corporations                        222,136             --
    Policy loans                                               213,737        214,852
    Real estate and other investments                          264,667        257,731
                                                          ------------   ------------
        Total investments                                   12,736,795     12,778,626

  Recoverables from reinsurers and prepaid
    reinsurance premiums                                     2,873,095      2,866,780
  Agents' balances and premiums receivable                     563,240        708,327
  Deferred acquisition costs                                   807,642        842,070
  Other receivables                                            261,827        306,904
  Variable annuity assets (separate accounts)                  492,573        455,142
  Prepaid expenses, deferred charges and other assets          312,294        425,127
  Goodwill                                                     169,331        248,683
                                                          ------------   ------------
                                                          $ 19,111,385   $ 19,502,456
                                                          ============   ============

LIABILITIES AND CAPITAL:
  Unpaid losses and loss adjustment expenses              $  4,639,326   $  5,203,831
  Unearned premiums                                          1,587,804      1,847,924
  Annuity benefits accumulated                               6,778,284      6,453,881
  Life, accident and health reserves                           950,439        902,393
  Payable to reinsurers                                        407,135        508,718
  Payable to American Financial Group, Inc.                    441,200        310,010
  Long-term debt:
    Holding companies                                           19,758        267,512
    Subsidiaries                                               251,764        296,771
  Variable annuity liabilities (separate accounts)             492,573        455,142
  Accounts payable, accrued expenses and other
    liabilities                                              1,089,112      1,032,079
                                                          ------------   ------------
        Total liabilities                                   16,657,395     17,278,261

  Minority interest                                            549,876        494,472

  Shareholders' Equity:
    Preferred Stock - at liquidation value                      72,154         72,154
    Common Stock, no par value
      - 20,000,000 shares authorized
      - 10,593,000 shares outstanding                            9,625          9,625
    Capital surplus                                            990,056        987,539
    Retained earnings                                          411,079        343,705
    Unrealized gain on marketable securities, net              421,200        316,700
                                                          ------------   ------------
        Total shareholders' equity                           1,904,114      1,729,723
                                                          ------------   ------------
                                                          $ 19,111,385   $ 19,502,456
                                                          ============   ============



                                      F-14




                 AMERICAN FINANCIAL CORPORATION AND SUBSIDIARIES

                       CONSOLIDATED STATEMENT OF EARNINGS
                                 (IN THOUSANDS)



                                              Three months ended             Six months ended
                                                  June 30,                       June 30,
                                          -------------------------     --------------------------
                                             2003            2002          2003           2002
                                          -----------    -----------    -----------    -----------
                                                                           
INCOME:
  Property and casualty insurance
    premiums ..........................   $   412,500    $   618,935    $   955,285    $ 1,222,843
  Life, accident and health premiums ..        83,218         72,709        162,728        143,644
  Investment income ...................       188,095        213,518        391,100        434,477
  Realized gains (losses) on:
    Securities ........................        17,898        (47,490)        20,137        (65,290)
    Subsidiaries ......................         7,704             --        (31,682)            --
  Other income ........................        69,626         62,405        124,164        110,017
                                          -----------    -----------    -----------    -----------
                                              779,041        920,077      1,621,732      1,845,691
COSTS AND EXPENSES:
  Property and casualty insurance:
    Losses and loss adjustment expenses       317,839        459,037        689,809        901,950
    Commissions and other underwriting
      expenses ........................       123,871        166,689        280,308        336,955
  Annuity benefits ....................        80,860         71,016        155,707        146,541
  Life, accident and health benefits ..        59,307         59,392        122,403        115,312
  Annuity and life acquisition expenses        33,271         25,233         59,569         50,012
  Interest charges on borrowed money ..        10,194         11,554         19,340         22,648
  Other operating and general expenses         94,626         96,367        190,223        184,899
                                          -----------    -----------    -----------    -----------
                                              719,968        889,288      1,517,359      1,758,317
                                          -----------    -----------    -----------    -----------

Operating earnings before income taxes         59,073         30,789        104,373         87,374
Provision for income taxes ............        17,030          5,685         25,419          8,388
                                          -----------    -----------    -----------    -----------

Net operating earnings ................        42,043         25,104         78,954         78,986

Minority interest expense, net of tax .        (7,650)        (6,311)       (11,668)       (11,379)
Equity in net earnings (losses)/
  of investees, net of tax ............         2,417         (2,353)         2,974         (5,087)
                                          -----------    -----------    -----------    -----------
Earnings before cumulative effect
  of accounting change ................        36,810         16,440         70,260         62,520
Cumulative effect of accounting change             --             --             --        (40,360)
                                          -----------    -----------    -----------    -----------
NET EARNINGS ..........................   $    36,810    $    16,440    $    70,260    $    22,160
                                          ===========    ===========    ===========    ===========


                                      F-15




                 AMERICAN FINANCIAL CORPORATION AND SUBSIDIARIES

            CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
                             (DOLLARS IN THOUSANDS)




                                                     Common Stock                    Unrealized
                                      Preferred      and Capital       Retained       Gain on
                                        Stock          Surplus         Earnings      Securities       Total
                                     ------------   ------------    ------------    ------------   ------------
                                                                                    
BALANCE AT JANUARY 1, 2003 .......   $     72,154   $    997,164    $    343,705    $    316,700   $  1,729,723

  Net earnings ...................             --             --          70,260              --         70,260
  Change in unrealized ...........             --             --              --         104,500        104,500
                                                                                                   ------------
    Comprehensive income .........                                                                      174,760

  Capital contribution from parent             --          4,667              --              --          4,667
  Dividends on Preferred Stock ...             --             --          (2,886)             --         (2,886)
  Other ..........................             --         (2,150)             --              --         (2,150)
                                     ------------   ------------    ------------    ------------   ------------
BALANCE AT JUNE 30, 2003 .........   $     72,154   $    999,681    $    411,079    $    421,200   $  1,904,114
                                     ============   ============    ============    ============   ============




BALANCE AT JANUARY 1, 2002 .......   $     72,154   $    993,750    $    255,127    $    156,900   $  1,477,931

  Net earnings ...................             --             --          22,160              --         22,160
  Change in unrealized ...........             --             --              --          72,100         72,100
                                                                                                   ------------
    Comprehensive income .........                                                                       94,260

  Capital contribution from parent             --          3,067              --              --          3,067
  Dividends on Preferred Stock ...             --             --          (2,886)             --         (2,886)
  Other ..........................             --           (567)             --              --           (567)
                                     ------------   ------------    ------------    ------------   ------------
BALANCE AT JUNE 30, 2002 .........   $     72,154   $    996,250    $    274,401    $    229,000   $  1,571,805
                                     ============   ============    ============    ============   ============




                                      F-16



                 AMERICAN FINANCIAL CORPORATION AND SUBSIDIARIES

                      CONSOLIDATED STATEMENT OF CASH FLOWS
                                 (IN THOUSANDS)



                                                              Six months ended June 30,
                                                             --------------------------
                                                                 2003           2002
                                                             -----------    -----------
                                                                      
OPERATING ACTIVITIES:
  Net earnings                                               $    70,260    $    22,160
  Adjustments:
    Cumulative effect of accounting change                            --         40,360
    Equity in net (earnings) losses of investees                  (2,974)         5,087
    Depreciation and amortization                                 93,225         81,023
    Annuity benefits                                             155,707        146,541
    Realized losses on investing activities                        6,783         57,539
    Deferred annuity and life policy acquisition costs           (82,239)       (80,775)
    Increase in reinsurance and other receivables               (246,974)      (355,340)
    Decrease (increase) in other assets                           36,797        (29,374)
    Increase in insurance claims and reserves                    369,408        375,850
    Increase (decrease) in payable to reinsurers                 (22,781)       109,896
    Decrease in other liabilities                                (18,528)       (10,527)
    Increase in minority interest                                  6,304          7,160
    Dividends from investees                                         432             --
    Other, net                                                       825         (1,651)
                                                             -----------    -----------
                                                                 366,245        367,949
                                                             -----------    -----------

INVESTING ACTIVITIES:
  Purchases of and additional investments in:
    Fixed maturity investments                                (3,549,798)    (2,484,455)
    Equity securities                                            (24,562)       (10,562)
    Subsidiary                                                        --        (48,500)
    Real estate, property and equipment                          (14,088)       (29,689)
  Maturities and redemptions of fixed maturity
    investments                                                  949,402        827,153
  Sales of:
    Fixed maturity investments                                 2,093,884      1,168,341
    Equity securities                                             15,322         18,109
    Subsidiaries                                                 247,380             --
    Real estate, property and equipment                            7,433         10,559
  Cash and short-term investments of acquired
    (former) subsidiaries, net                                  (112,666)         4,642
  Decrease in other investments                                    4,349         12,989
                                                             -----------    -----------
                                                                (383,344)      (531,413)
                                                             -----------    -----------
FINANCING ACTIVITIES:
  Fixed annuity receipts                                         440,769        361,223
  Annuity surrenders, benefits and withdrawals                  (282,890)      (278,496)
  Net transfers from (to) variable annuity assets                  6,747         (2,855)
  Additional long-term borrowings                                 35,320         59,000
  Reductions of long-term debt                                  (328,180)       (46,434)
  Borrowings from AFG                                            169,500          7,400
  Payments to AFG                                                (36,100)       (37,500)
  Issuances of trust preferred securities                         33,943             --
  Capital contribution                                             4,667          4,667
  Cash dividends paid                                             (2,886)        (2,886)
                                                             -----------    -----------
                                                                  40,890         64,119
                                                             -----------    -----------

NET INCREASE (DECREASE) IN CASH AND SHORT-TERM INVESTMENTS        23,791        (99,345)

Cash and short-term investments at beginning
  of period                                                      870,797        543,644
                                                             -----------    -----------

Cash and short-term investments at end of period             $   894,588    $   444,299
                                                             ===========    ===========


                                      F-17






                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


A.       ACCOUNTING POLICIES

         BASIS OF PRESENTATION The accompanying consolidated financial
         statements for American Financial Corporation ("AFC") and subsidiaries
         are unaudited; however, management believes that all adjustments
         (consisting only of normal recurring accruals unless otherwise
         disclosed herein) necessary for fair presentation have been made. The
         results of operations for interim periods are not necessarily
         indicative of results to be expected for the year. The financial
         statements have been prepared in accordance with the instructions to
         Form 10-Q and therefore do not include all information and footnotes
         necessary to be in conformity with generally accepted accounting
         principles.

         Certain reclassifications have been made to prior periods to conform to
         the current period's presentation. All significant intercompany
         balances and transactions have been eliminated. All acquisitions have
         been treated as purchases. The results of operations of companies since
         their formation or acquisition are included in the consolidated
         financial statements.

         The preparation of the financial statements requires management to make
         estimates and assumptions that affect the amounts reported in the
         financial statements and accompanying notes. Changes in circumstances
         could cause actual results to differ materially from those estimates.

         INVESTMENTS All fixed maturity securities are considered "available for
         sale" and reported at fair value with unrealized gains and losses
         reported as a separate component of shareholders' equity. Short-term
         investments are carried at cost; loans receivable are carried primarily
         at the aggregate unpaid balance. Premiums and discounts on
         mortgage-backed securities are amortized over a period based on
         estimated future principal payments, including prepayments. Prepayment
         assumptions are reviewed periodically and adjusted to reflect actual
         prepayments and changes in expectations. The most significant
         determinants of prepayments are the difference between interest rates
         on the underlying mortgages and current mortgage loan rates and the
         structure of the security. Other factors affecting prepayments include
         the size, type and age of underlying mortgages, the geographic location
         of the mortgaged properties and the credit worthiness of the borrowers.
         Variations from anticipated prepayments will affect the life and yield
         of these securities.

         Gains or losses on securities are determined on the specific
         identification basis. When a decline in the value of a specific
         investment is considered to be other than temporary, a provision for
         impairment is charged to earnings and the cost basis of that investment
         is reduced.

         Interest income on non-investment grade asset-backed investments is
         recorded at a yield based on projected cash flows. The yield is
         adjusted prospectively to reflect actual cash flows and changes in
         projected amounts. Impairment losses on these investments must be
         recognized when (i) the fair value of the security is less than its
         cost basis and (ii) there has been an adverse change in the expected
         cash flows. These impairment losses are included in realized gains and
         losses.

         INVESTMENT IN INVESTEE CORPORATIONS Investments in securities of 20%-to
         50%-owned companies are generally carried at cost, adjusted for AFC's
         proportionate share of their undistributed earnings or losses.


                                      F-18





         GOODWILL Goodwill represents the excess of cost of subsidiaries over
         AFC's equity in their underlying net assets. Effective January 1, 2002,
         AFC implemented Statement of Financial Accounting Standards ("SFAS")
         No. 142, under which goodwill is no longer amortized but is subject to
         an impairment test at least annually. As required under SFAS No. 142,
         AFC completed the transitional test for goodwill impairment (as of
         January 1, 2002) in the fourth quarter of 2002. The resulting
         write-down was reported by restating first quarter 2002 results for the
         cumulative effect of a change in accounting principle.

         INSURANCE As discussed under "Reinsurance" below, unpaid losses and
         loss adjustment expenses and unearned premiums have not been reduced
         for reinsurance recoverable.

                  REINSURANCE Amounts recoverable from reinsurers are estimated
         in a manner consistent with the claim liability associated with the
         reinsured policies. AFC's insurance subsidiaries report as assets (a)
         the estimated reinsurance recoverable on unpaid losses, including an
         estimate for losses incurred but not reported, and (b) amounts paid to
         reinsurers applicable to the unexpired terms of policies in force.
         Payable to reinsurers includes ceded premiums retained by AFC's
         insurance subsidiaries under contracts to fund ceded losses as they
         become due. AFC's insurance subsidiaries also assume reinsurance from
         other companies. Income on reinsurance assumed is recognized based on
         reports received from ceding companies.

                  DEFERRED POLICY ACQUISITION COSTS ("DPAC") Policy acquisition
         costs (principally commissions, premium taxes and other marketing and
         underwriting expenses) related to the production of new business are
         deferred. For the property and casualty companies, DPAC is limited
         based upon recoverability without any consideration for anticipated
         investment income and is charged against income ratably over the terms
         of the related policies.

         DPAC related to annuities and universal life insurance products is
         deferred to the extent deemed recoverable and amortized, with interest,
         in relation to the present value of expected gross profits on the
         policies. To the extent that realized gains and losses result in
         adjustments to the amortization of DPAC related to annuities, such
         adjustments are reflected as components of realized gains. DPAC related
         to annuities is also adjusted, net of tax, for the change in
         amortization that would have been recorded if the unrealized gains
         (losses) from securities had actually been realized. This adjustment is
         included in "Unrealized gain on marketable securities, net" in the
         shareholders' equity section of the Balance Sheet.

         DPAC related to traditional life and health insurance is amortized over
         the expected premium paying period of the related policies, in
         proportion to the ratio of annual premium revenues to total anticipated
         premium revenues.

                  ANNUITY AND LIFE ACQUISITION EXPENSES Annuity and life
         acquisition expenses on the Statement of Earnings consists primarily of
         amortization of DPAC related to the annuity and life, accident and
         health businesses. This line item also includes certain marketing and
         commission costs that are expensed as paid.

                  UNPAID LOSSES AND LOSS ADJUSTMENT EXPENSES The net liabilities
         stated for unpaid claims and for expenses of investigation and
         adjustment of unpaid claims are based upon (a) the accumulation of case
         estimates for losses reported prior to the close of the accounting
         period on direct business written; (b) estimates received from ceding
         reinsurers and insurance pools and associations;


                                      F-19



         (c) estimates of unreported losses based on past experience; (d)
         estimates based on experience of expenses for investigating and
         adjusting claims; and (e) the current state of the law and coverage
         litigation. Establishing reserves for asbestos and environmental claims
         involves considerably more judgment than other types of claims due to,
         among other things, inconsistent court decisions, an increase in
         bankruptcy filings as a result of asbestos-related liabilities, novel
         theories of coverage, and judicial interpretations that often expand
         theories of recovery and broaden the scope of coverage.

         Loss reserve liabilities are subject to the impact of changes in claim
         amounts and frequency and other factors. Changes in estimates of the
         liabilities for losses and loss adjustment expenses are reflected in
         the Statement of Earnings in the period in which determined. In spite
         of the variability inherent in such estimates, management believes that
         the liabilities for unpaid losses and loss adjustment expenses are
         adequate.

                  ANNUITY BENEFITS ACCUMULATED Annuity receipts and benefit
         payments are recorded as increases or decreases in "annuity benefits
         accumulated" rather than as revenue and expense. Increases in this
         liability for interest credited are charged to expense and decreases
         for surrender charges are credited to other income.

                  LIFE, ACCIDENT AND HEALTH RESERVES Liabilities for future
         policy benefits under traditional life, accident and health policies
         are computed using the net level premium method. Computations are based
         on the original projections of investment yields, mortality, morbidity
         and surrenders and include provisions for unfavorable deviations.
         Reserves established for accident and health claims are modified as
         necessary to reflect actual experience and developing trends.

                  VARIABLE ANNUITY ASSETS AND LIABILITIES Separate accounts
         related to variable annuities represent deposits invested in underlying
         investment funds on which Great American Financial Resources, Inc.
         ("GAFRI"), an 82%-owned subsidiary, earns a fee. Investment funds are
         selected and may be changed only by the policyholder, who retains all
         investment risk.

                  PREMIUM RECOGNITION Property and casualty premiums are earned
         over the terms of the policies on a pro rata basis. Unearned premiums
         represent that portion of premiums written which is applicable to the
         unexpired terms of policies in force. On reinsurance assumed from other
         insurance companies or written through various underwriting
         organizations, unearned premiums are based on reports received from
         such companies and organizations. For traditional life, accident and
         health products, premiums are recognized as revenue when legally
         collectible from policyholders. For interest-sensitive life and
         universal life products, premiums are recorded in a policyholder
         account which is reflected as a liability. Revenue is recognized as
         amounts are assessed against the policyholder account for mortality
         coverage and contract expenses.

                  POLICYHOLDER DIVIDENDS Dividends payable to policyholders are
         included in "Accounts payable, accrued expenses and other liabilities"
         and represent estimates of amounts payable on participating policies
         which share in favorable underwriting results. Estimates are accrued
         during the period in which premiums are earned. Changes in estimates
         are included in income in the period determined. Policyholder dividends
         do not become legal liabilities unless and until declared by the boards
         of directors of the insurance companies.


                                      F-20





         MINORITY INTEREST For balance sheet purposes, minority interest
         represents (i) the interests of noncontrolling shareholders in AFC
         subsidiaries, including preferred securities issued by trust
         subsidiaries of AFC and (ii) American Financial Group, Inc.'s ("AFG")
         direct ownership interest in American Premier Underwriters, Inc.
         ("American Premier" or "APU") and American Financial Enterprises, Inc.
         For income statement purposes, minority interest expense represents
         those shareholders' interest in the earnings of AFC subsidiaries as
         well as AFC preferred dividends and accrued distributions on the trust
         preferred securities.

         Recently issued accounting standards will require AFC's trust-issued
         preferred securities to be classified as liabilities beginning in the
         third quarter of 2003; distributions on these securities will be shown
         as interest expense.

         INCOME TAXES AFC files consolidated federal income tax returns which
         include all 80%-owned U.S. subsidiaries, except for certain life
         insurance subsidiaries and their subsidiaries. Deferred income taxes
         are calculated using the liability method. Under this method, deferred
         income tax assets and liabilities are determined based on differences
         between financial reporting and tax bases and are measured using
         enacted tax rates. Deferred tax assets are recognized if it is more
         likely than not that a benefit will be realized.

         BENEFIT PLANS AFC provides retirement benefits to qualified employees
         of participating companies through the AFG Retirement and Savings Plan,
         a defined contribution plan. AFC makes all contributions to the
         retirement fund portion of the plan and matches a percentage of
         employee contributions to the savings fund. Employees have been
         permitted to direct the investment of their contributions to
         independently managed investment funds, while Company contributions
         have been invested primarily in securities of AFG and affiliates.
         Employees may direct the investment of a portion of their vested
         retirement fund account balances (increasing from 62.5% in July 2003 to
         100% in April 2004) from securities of AFG and its affiliates to
         independently managed investment funds. As of June 30, 2003, the Plan
         owned 11% of AFG's outstanding common stock. Company contributions are
         expensed in the year for which they are declared.

         AFC and many of its subsidiaries provide health care and life insurance
         benefits to eligible retirees. AFC also provides postemployment
         benefits to former or inactive employees (primarily those on
         disability) who were not deemed retired under other company plans. The
         projected future cost of providing these benefits is expensed over the
         period employees earn such benefits.

         DERIVATIVES Derivatives included in AFC's Balance Sheet consist
         primarily of investments in common stock warrants (valued at $7.8
         million at June 30, 2003; included in other stocks), the equity-based
         component of certain annuity products (included in annuity benefits
         accumulated) and related call options (included in other investments)
         designed to be consistent with the characteristics of the liabilities
         and used to mitigate the risk embedded in those annuity products.
         Changes in the fair value of derivatives are included in current
         earnings.

         STATEMENT OF CASH FLOWS For cash flow purposes, "investing activities"
         are defined as making and collecting loans and acquiring and disposing
         of debt or equity instruments and property and equipment. "Financing
         activities" include obtaining resources from owners and providing them
         with a return on their investments, borrowing money and repaying
         amounts borrowed. Annuity receipts, benefits and withdrawals are also
         reflected as financing activities. All other


                                      F-21




         activities are considered "operating". Short-term investments having
         original maturities of three months or less when purchased are
         considered to be cash equivalents for purposes of the financial
         statements.

B.       ACQUISITIONS AND SALES OF SUBSIDIARIES

         FIDELITY EXCESS AND SURPLUS INSURANCE COMPANY In June 2003, AFC sold
         Fidelity Excess and Surplus Insurance Company, an inactive subsidiary,
         for $28.9 million, realizing a pretax gain of $4.3 million. AFC
         retained all liability for Fidelity's business related to the period
         AFC owned the company.

         DIRECT AUTOMOBILE INSURANCE BUSINESS In April 2003, AFC sold two of its
         subsidiaries that market automobile insurance directly to customers for
         $32.2 million, realizing a pretax gain of $3.4 million on the sale. The
         transaction included the transfer of Great American Insurance's right
         to renew certain of its personal automobile insurance business written
         on a direct basis in selected markets. Premiums generated by the
         businesses sold were approximately $79 million in 2002.

         INFINITY PROPERTY AND CASUALTY CORPORATION On December 31, 2002, AFC
         transferred to Infinity Property and Casualty Corporation ("Infinity",
         a newly formed subsidiary) the following subsidiaries involved
         primarily in the issuance of nonstandard auto policies: Atlanta
         Casualty Company, Infinity Insurance Company, Leader Insurance Company
         and Windsor Insurance Company. Effective January 1, 2003, Great
         American Insurance Company, an AFC subsidiary, transferred to Infinity
         its personal insurance business written through independent agents. In
         February 2003, AFC sold 61% of Infinity in a public offering for net
         proceeds of $186.3 million, realizing a pretax loss of $39.4 million on
         the sale. In addition, AFC realized a $5.5 million tax benefit related
         to its basis in Infinity stock. The businesses transferred generated
         aggregate net written premiums of approximately $690 million in 2002.

         NEW JERSEY PRIVATE PASSENGER AUTOMOBILE INSURANCE BUSINESS In September
         2002, an AFC subsidiary entered into an agreement under which Palisades
         Safety and Insurance Association and Palisades Insurance Company will
         assume the subsidiary's obligations to renew its private passenger
         automobile insurance business written in New Jersey. As of September 9,
         2002, AFC no longer accepts any new private passenger automobile
         insurance in that state.

         MANHATTAN NATIONAL LIFE INSURANCE On June 28, 2002, GAFRI acquired
         Manhattan National Life Insurance Company ("MNL") from Conseco, Inc.
         for $48.5 million in cash. At December 31, 2002, MNL reinsured 90% of
         its in-force business.

C.       SEGMENTS OF OPERATIONS AFC's property and casualty group writes
         primarily specialized commercial products for businesses through a
         highly diversified group of specialty business units. Some of the more
         significant areas are inland and ocean marine, California workers'
         compensation, agricultural-related coverages, executive and
         professional liability, fidelity and surety bonds, collateral
         protection, and umbrella and excess coverages. In February 2003, AFC
         sold a substantial portion of its Personal segment; see Note B -
         "Acquisitions and Sales of Subsidiaries." The Personal group wrote
         nonstandard and preferred/standard private passenger auto and other
         personal insurance coverage. AFC's annuity, life and health business
         markets primarily retirement products as well as life and supplemental
         health insurance.


                                      F-22




         The following table (in thousands) shows AFC's revenues and operating
         profit (loss) by significant business segment. Operating profit (loss)
         represents total revenues less operating expenses.



                                            Three months ended             Six months ended
                                         --------------------------    --------------------------
                                                  June 30,                    June 30,
                                         --------------------------    --------------------------
                                            2003           2002           2003           2002
                                         -----------    -----------    -----------    -----------
                                                                          
      REVENUES (a)
      Property and casualty insurance:
        Premiums earned:
          Specialty                      $   391,458    $   370,286    $   819,306    $   726,701
          Personal                            21,043        248,617        135,981        495,820
          Other lines                             (1)            32             (2)           322
                                         -----------    -----------    -----------    -----------
                                             412,500        618,935        955,285      1,222,843
        Investment and other income          131,897         75,678        251,947        175,937
                                         -----------    -----------    -----------    -----------
                                             544,397        694,613      1,207,232      1,398,780
      Annuities, life and health (b)         228,603        207,620        449,549        425,042
      Other (d)                                6,041         17,844        (35,049)        21,869
                                         -----------    -----------    -----------    -----------
                                         $   779,041    $   920,077    $ 1,621,732    $ 1,845,691
                                         ===========    ===========    ===========    ===========

      OPERATING PROFIT (LOSS)
      Property and casualty insurance:
        Underwriting:
          Specialty                      $    17,173    $     7,377    $    26,694    $    12,671
          Personal                            (1,432)        (2,654)         3,780         (7,893)
          Other lines (c)                    (44,951)       (11,514)       (45,306)       (20,840)
                                         -----------    -----------    -----------    -----------
                                             (29,210)        (6,791)       (14,832)       (16,062)
        Investment and other income           83,396         32,923        154,686         96,174
                                         -----------    -----------    -----------    -----------
                                              54,186         26,132        139,854         80,112
      Annuities, life and health              13,241         11,108         28,804         33,089
      Other (d)                               (8,354)        (6,451)       (64,285)       (25,827)
                                         -----------    -----------    -----------    -----------
                                         $    59,073    $    30,789    $   104,373    $    87,374
                                         ===========    ===========    ===========    ===========



         (a)      Revenues include sales of products and services as well as
                  other income earned by the respective segments.

         (b)      Investment income comprises approximately three-fifths of
                  these revenues.

         (c)      Represents development of lines in "run-off" and includes a
                  2003 second quarter pretax charge of $43.8 million for an
                  arbitration decision relating to a 1995 property claim from a
                  discontinued business; AFC has ceased underwriting new
                  business in these operations.

         (d)      Other revenues for the six months ended June 30, 2003,
                  includes the loss on the public offering of Infinity.
                  Operation profit (loss) includes holding company expenses.


D.       INVESTMENT IN INVESTEES Investment in investee corporations reflects
         AFC's ownership of 7.9 million shares (38%) of Infinity common stock
         and a $55 million 8.5% note receivable from Infinity which was repaid
         in July 2003. The market value of the investment in Infinity stock was
         $185 million at June 30, 2003, and $203 million at August 1, 2003.
         Prior to AFC's sale of 12.5 million shares of Infinity in February
         2003, AFC beneficially owned 100% of Infinity (see Note B). Infinity is
         a national provider of personal automobile insurance with an emphasis
         on the nonstandard market.


                                      F-23



         Summarized financial information for Infinity is shown below for the
         six months ended June 30, 2003 (in millions).


                                                   
                     Earned premiums                  $331.4
                     Total revenues                    361.3
                     Net earnings                       23.8



         Equity in net earnings (losses) of investees for the first six months
         of 2002 represents AFC's share of the losses from two start-up
         manufacturing businesses that were formerly subsidiaries. One of these
         businesses was sold in the fourth quarter of 2002; equity in the net
         loss of the remaining business was $707,000 for the second quarter and
         $1.6 million for the first six months of 2003.

E.       GOODWILL Effective January 1, 2002, goodwill is no longer amortized but
         is subject to annual impairment testing under a two step process. Under
         the first step, an entity's net assets are classified by reporting
         units and compared to their fair value. Fair value is estimated based
         primarily on the present value of expected future cash flows. If the
         carrying amount of a reporting unit exceeds its fair value, the second
         step of the goodwill impairment test is performed to measure the amount
         of impairment loss, if any. The second step of the initial impairment
         test, measuring the amount of impairment loss, was completed in the
         fourth quarter with a resulting $40.4 million impairment charge, net of
         tax, reported by restating first quarter 2002 results for the
         cumulative effect of a change in accounting principle. The impairment
         charge included $21.2 million (pretax) for the annuities and life
         insurance segment related to a decrease in estimated future earnings
         based upon lower forecasted new business sales over the next few years
         and $39.6 million (pretax) for the personal lines segment related
         primarily to planned future reductions in new business volume written
         through the direct channel.

         Substantially all of the $79.4 million decrease in goodwill during the
         first six months of 2003 related to the sale of subsidiaries in AFC's
         Personal segment.

         Included in deferred acquisition costs in AFC's Balance Sheet are $66.2
         million and $66.8 million at June 30, 2003, and December 31, 2002,
         respectively, representing the present value of future profits ("PVFP")
         related to acquisitions by AFC's annuity and life business. The PVFP
         amounts are net of $61.6 million and $57.3 million of accumulated
         amortization. Amortization of the PVFP was $2.1 million in the second
         quarter and $4.3 million in the first six months of 2003 and $1.9
         million in the second quarter and $3.6 million in the first six months
         of 2002. During each of the next five years, the PVFP is expected to
         decrease at a rate of approximately 13% of the balance at the beginning
         of each respective year.

F.       PAYABLE TO AMERICAN FINANCIAL GROUP Payable to AFG represents the net
         amount owed by AFC to AFG under a reciprocal Master Credit Agreement
         between various AFG holding companies under which these companies make
         funds available to each other for general corporate purposes. Amounts
         borrowed under the Master Credit Agreement generally bear interest at
         1% over LIBOR. In 2003, AFC agreed to guarantee the obligations of AFG
         with respect to $571 million of AFG senior debentures, in consideration
         of a payment of approximately $350,000 and an increase in the interest
         rate which AFG pays AFC under the Master Credit Agreement to 1.125%
         over LIBOR.


                                      F-24




G.       LONG-TERM DEBT The carrying value of long-term debt consisted of the
         following (in thousands):



                                                   June 30,      December 31,
                                                     2003            2002
                                                -------------   -------------
                                                          
HOLDING COMPANIES:
  AFC notes payable under bank line             $          --   $     248,000
  APU 10-7/8% Subordinated Notes due May 2011          11,465          11,498
  Other                                                 8,293           8,014
                                                -------------   -------------

                                                $      19,758   $     267,512
                                                =============   =============
SUBSIDIARIES:
  GAFRI 6-7/8% Senior Notes due June 2008       $     100,000   $     100,000
  GAFRI notes payable under bank line                 112,600         148,600
  Notes payable secured by real estate                 27,343          35,610
  Other                                                11,821          12,561
                                                -------------   -------------

                                                $     251,764   $     296,771
                                                =============   =============


         At June 30, 2003, scheduled principal payments on debt for the balance
         of 2003 and the subsequent five years were as follows (in millions):



             Holding
             Companies     Subsidiaries      Total
             ---------     ------------      -----
                                 
2003         $      --    $        1.0    $    1.0
2004                --           114.6       114.6
2005                --            11.2        11.2
2006                --            19.4        19.4
2007               5.4              .1         5.5
2008                --           100.1       100.1



         AFC may borrow up to $280 million under its credit agreement. The line
         consists of two facilities: a 364-day revolving facility, extendable
         annually, for one-third of the total line and a three-year revolving
         facility for the remaining two-thirds. Amounts borrowed bear interest
         at rates ranging from 1.25% to 2.25% over LIBOR based on AFG's credit
         rating. In addition, GAFRI has an unsecured credit agreement under
         which it can borrow up to $155 million at floating rates based on prime
         or Eurodollar rates through December 2004.

H.       MINORITY INTEREST Minority interest in AFC's balance sheet is comprised
         of the following (in thousands):



                                      June 30,    December 31,
                                        2003          2002
                                   ------------   ------------
                                            
Interest of AFG (parent) and
  noncontrolling shareholders in
  subsidiaries' common stock       $    371,963   $    351,559
Preferred securities issued by
  subsidiary trusts                     177,913        142,913
                                   ------------   ------------
                                   $    549,876   $    494,472
                                   ============   ============



         SUBSIDIARY PREFERRED SECURITIES See Minority Interest in Note A -
         "Accounting Policies." Wholly-owned subsidiary trusts of AFC have
         issued preferred securities and, in turn, purchased a like amount of
         subordinated debt which provides interest and principal payments to
         fund the respective trusts' obligations. The preferred securities must
         be redeemed upon maturity or redemption of the subordinated debt. AFC
         effectively provides unconditional guarantees of its trusts'
         obligations.


                                      F-25



         The preferred securities consisted of the following (in thousands):



                                                 Amount Outstanding
Date of                                          ------------------     Optional
Issuance          Issue (Maturity Date)          6/30/03    12/31/02    Redemption Dates
-------------     --------------------------     -------    --------    ----------------
                                                            
November 1996     GAFRI  9-1/4% TOPrS (2026)     $72,913    $ 72,913    Currently redeemable
March 1997        GAFRI  8-7/8% Pfd   (2027)      70,000      70,000    On or after 3/1/2007
May 2003          GAFRI   7.35% Pfd   (2033)      20,000          --    On or after 5/15/2008
May 2003          Variable Rate Pfd   (2033)      15,000          --    On or after 5/23/2008



         In May 2003, GAFRI issued $20 million liquidation value of trust
         preferred securities for proceeds of $20 million before issue costs of
         approximately $600,000. Until May 2008, these securities pay interest
         quarterly at an annual rate of 7.35%, after which the interest rate
         will reset quarterly to an annual rate of LIBOR plus 4.1%.

         In May 2003, a subsidiary of Great American Insurance issued $15
         million liquidation value of variable rate trust preferred securities
         for proceeds of $15 million before issue costs of $456,000. These
         securities pay interest quarterly at an annual rate of LIBOR plus 4.2%.

         MINORITY INTEREST EXPENSE Minority interest expense is comprised of (in
         thousands):



                                               Six months ended
                                                    June 30,
                                              -------------------
                                                2003       2002
                                              --------   --------
                                                  
Interest of AFG (parent) and noncontrolling
  shareholders in earnings of subsidiaries    $  7,337   $  7,167
Accrued distributions by subsidiaries
  on preferred securities, net of tax            4,331      4,212
                                              --------   --------
                                              $ 11,668   $ 11,379
                                              ========   ========


I.       SHAREHOLDERS' EQUITY At June 30, 2003, and December 31, 2002, American
         Financial Group beneficially owned all of the outstanding shares of
         AFC's Common Stock.

         PREFERRED STOCK See Note K - "Subsequent Event." Under provisions of
         both the Nonvoting (4.0 million shares authorized) and Voting (4.0
         million shares authorized) Cumulative Preferred Stock, the Board of
         Directors may divide the authorized stock into series and set specific
         terms and conditions of each series. At June 30, 2003, and December 31,
         2002, the outstanding voting shares of AFC's Preferred Stock consisted
         of the following:

                  SERIES J, no par value; $25.00 liquidating value per share;
                  annual dividends per share $2.00; redeemable at AFC's option
                  at $25.75 per share beginning December 2005 declining to
                  $25.00 at December 2007 and thereafter; 2,886,161 shares
                  (stated value $72.2 million) outstanding at June 30, 2003, and
                  December 31, 2002.

J.       COMMITMENTS AND CONTINGENCIES There have been no significant changes to
         the matters discussed and referred to in Note L "Commitments and
         Contingencies" of AFC's Annual Report on Form 10-K for 2002.

K.       SUBSEQUENT EVENT In July 2003, AFC entered into a merger agreement with
         its parent, AFG. This transaction is subject to approval by Series J
         preferred shareholders and certain other conditions. If approved, AFC
         Series J preferred shareholders will receive $25.00 (plus an amount
         equal to accrued dividends) in AFG common stock in exchange for each
         share of Series J Preferred Stock. In addition, the merger will
         eliminate approximately $170 million in deferred tax liabilities
         associated with AFC's holding of AFG stock. These changes are expected
         to result in a 12% to 15% increase in AFG's shareholders' equity. AFG
         and AFC hope to complete the merger in the third quarter of 2003.


                                      F-26

                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                          YEAR ENDED DECEMBER 31, 2002

GENERAL

      Following is a discussion and analysis of the financial statements and
other statistical data that management believes will enhance the understanding
of AFC's financial condition and results of operations. This discussion should
be read in conjunction with the financial statements beginning on page F-44.

CRITICAL ACCOUNTING POLICIES

      Significant accounting policies are summarized in Note A to the financial
statements. The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that can have a significant effect on amounts reported in the
financial statements. As more information becomes known, these estimates and
assumptions could change and thus impact amounts reported in the future.
Management believes that the establishment of insurance reserves, especially
asbestos and environmental-related reserves, and the determination of "other
than temporary" impairment on investments are the two areas where the degree of
judgment required to determine amounts recorded in the financial statements make
the accounting policies critical. For further discussion of these policies, see
"Liquidity and Capital Resources - Investments" and "Liquidity and Capital
Resources - Uncertainties."

LIQUIDITY AND CAPITAL RESOURCES

RATIOS AFC's debt to total capital ratio at the parent holding company level
(excluding amounts due AFG) was approximately 13% at December 31, 2002 and 2001.
Including amounts due AFG, the ratio was 25% at the end of 2002 and 28% at the
end of 2000. AFC used a portion of the proceeds from the Infinity sale in
February 2003 to repay parent debt. Adjusting to reflect this repayment reduces
the ratio to 6% excluding amounts due AFG and 20% including amounts due AFG at
December 31, 2002.

      AFC's ratio of earnings to fixed charges excluding and including preferred
dividends, on a total enterprise basis for the year ended December 31, 2002, was
3.36 and 3.09, respectively. Including annuity benefits as a fixed charge, this
ratio was 1.48 and 1.46 respectively. Although not required to be disclosed, the
ratio excluding interest on annuities is presented because interest credited to
annuity policyholder accounts is not always considered a borrowing cost for an
insurance company.

      The National Association of Insurance Commissioners' model law for risk
based capital ("RBC") applies to both life and property and casualty companies.
RBC formulas determine the amount of capital that an insurance company needs to
ensure that it has an acceptable expectation of not becoming financially
impaired. At December 31, 2002, the capital ratios of all AFC insurance
companies substantially exceeded the RBC requirements (the lowest capital ratio
of any AFC subsidiary was 2.3 times its authorized control level RBC; weighted
average of all AFC subsidiaries was 5.0 times).

SOURCES OF FUNDS AFC and American Premier are organized as holding companies
with almost all of their operations being conducted by subsidiaries. These
parent corporations, however, have continuing cash needs for administrative
expenses, the payment of principal and interest on borrowings, shareholder
dividends, and taxes. Funds to meet these obligations come primarily from
dividend and tax payments from their subsidiaries.

      Management believes these parent holding companies have sufficient
resources to meet their liquidity requirements. If funds generated from
operations, including dividends and tax payments from subsidiaries, are
insufficient to meet fixed charges in any period, these companies would be
required to generate cash through borrowings, sales of securities or other
assets, or similar transactions.

                                      F-27





AFC has a reciprocal Master Credit Agreement with various AFG holding companies
under which these companies make funds available to each other for general
corporate purposes.

      In November 2002, AFC replaced its $300 million bank credit line with a
new bank credit agreement. Currently, AFC may borrow up to $280 million under
the new agreement; the line may be expanded to $300 million through the end of
2003. The new line consists of two facilities: a 364-day revolving facility,
extendable annually, for one-third of the total line and a three-year revolving
facility for the remaining two-thirds. Amounts borrowed bear interest at rates
ranging from 1.25% to 2.25% over LIBOR based on AFG's credit rating. This credit
agreement provides ample liquidity and can be used to obtain funds for operating
subsidiaries or, if necessary, for the parent companies. At December 31, 2002,
there was $248 million borrowed under the agreement. At March 14, 2003, there
was $95 million borrowed under the line.

      In December 2000, AFC borrowed $155 million under its credit agreement
with AFG to make capital contributions to its property and casualty operations.

      For statutory accounting purposes, equity securities of non-affiliates are
generally carried at market value. At December 31, 2002, AFC's insurance
companies owned publicly traded equity securities with a market value of $297
million. In addition, Great American owns GAFRI common stock with a market value
of $603 million and a carrying value of $422 million. Since significant amounts
of these are concentrated in a relatively small number of companies, decreases
in the market prices could adversely affect the insurance group's capital,
potentially impacting the amount of dividends available or necessitating a
capital contribution. Conversely, increases in the market prices could have a
favorable impact on the group's dividend-paying capability.

      Under tax allocation agreements with AFC, its 80%-owned U.S. subsidiaries
generally compute tax provisions as if filing separate returns based on book
taxable income computed in accordance with generally accepted accounting
principles. The resulting provision (or credit) is currently payable to (or
receivable from) AFC.

INVESTMENTS Approximately two-thirds of AFC's consolidated assets are invested
in marketable securities. AFC's investment portfolio at December 31, 2002,
contained $12 billion in "Fixed maturities" and $299 million in "Other stocks",
all carried at market value with unrealized gains and losses reported as a
separate component of shareholders' equity on an after-tax basis. At December
31, 2002, AFC had pretax net unrealized gains of $457.2 million on fixed
maturities and $125.2 million on other stocks. AFC attempts to optimize
investment income while building the value of its portfolio, placing emphasis
upon long-term performance. AFC's goal is to maximize return on an ongoing basis
rather than focusing on short-term performance.

      Fixed income investment funds are generally invested in securities with
intermediate-term maturities with an objective of optimizing total return while
allowing flexibility to react to changes in market conditions. At December 31,
2002, the average life of AFC's fixed maturities was about six years.

      Approximately 93% of the fixed maturities held by AFC were rated
"investment grade" (credit rating of AAA to BBB) by nationally recognized rating
agencies at December 31, 2002. Investment grade securities generally bear lower
yields and lower degrees of risk than those that are unrated or noninvestment
grade. Management believes that the high quality investment portfolio should
generate a stable and predictable investment return.

      Investments in mortgage backed securities ("MBSs") represented
approximately one-fourth of AFC's fixed maturities at December 31, 2002. MBSs
are subject to significant prepayment risk due to the fact that, in periods of
declining interest rates, mortgages may be repaid more rapidly than scheduled as
borrowers refinance higher rate mortgages to take advantage of lower rates. Due
to the significant decline in the general level of interest rates in 2002, AFC
has experienced an increase in the level of prepayments on its MBSs; these
prepayments have not been reinvested at interest rates comparable to the rates
earned on the prepaid MBSs. Substantially all of AFC's MBSs are investment grade
quality, with over 95% rated "AAA" at December 31, 2002.

                                      F-28





      Summarized information for the unrealized gains and losses recorded in
AFC's balance sheet at December 31, 2002, is shown in the following table
(dollars in millions). Approximately $170 million of "Fixed maturities" and $21
million of "Other stocks" had no unrealized gains or losses at December 31,
2002.



                                                                                                Securities          Securities
                                                                                                   With                With
                                                                                                Unrealized          Unrealized
                                                                                                   Gains              Losses
                                                                                                ----------          ----------
                                                                                                                 
         Fixed Maturities
         ----------------
           Market value of securities                                                             $10,458              $1,379
           Amortized cost of securities                                                           $ 9,868              $1,512
           Gross unrealized gain (loss)                                                           $   590             ($  133)
           Market value as % of amortized cost                                                        106%                 91%
           Number of security positions                                                             1,725                 328
           Number individually exceeding
             $2 million gain or loss                                                                   23                  18
           Concentration of gains (losses) by
             type or industry (exceeding 5% of
             unrealized):
               Mortgage-backed securities                                                         $ 134.6             ($  9.1)
               Banks and savings institutions                                                        55.2                (1.3)
               U.S. government and government agencies                                               49.5                (1.1)
               State and municipal                                                                   36.4                (5.6)
               Electric services                                                                     31.6               (15.2)
               Asset-backed securities                                                               14.4               (10.6)
               Air transportation (generally collateralized)                                          5.3               (47.7)
           Percentage rated investment grade                                                           97%                 65%

         Other Stocks
         ------------
           Market value of securities                                                             $   260              $   18
           Cost of securities                                                                     $   130              $   23
           Gross unrealized gain (loss)                                                           $   130             ($    5)
           Market value as % of cost                                                                  200%                 78%
           Number individually exceeding
             $2 million gain or loss                                                                    3                   1


      AFC's investment in equity securities of Provident Financial Group, a
Cincinnati-based commercial banking and financial services company, represents
$117 million of the $130 million in unrealized gains on other stocks at December
31, 2002. At March 14, 2003, the unrealized gain on Provident was approximately
$86 million.

      The table below sets forth the scheduled maturities of fixed maturity
securities at December 31, 2002, based on their market values. Asset backed
securities and other securities with sinking funds are reported at average
maturity. Actual maturities may differ from contractual maturities because
certain securities may be called or prepaid by the issuers.


                                                                               Securities             Securities
                                                                                  with                   With
                                                                               Unrealized             Unrealized
           Maturity                                                               Gains                  Losses
           --------                                                            ----------             ----------
                                                                                               
             One year or less                                                       6%                     5%
             After one year through five years                                     22                     27
             After five years through ten years                                    33                     39
             After ten years                                                       10                     17
                                                                                  ---                    ---
                                                                                   71                     88
             Mortgage-backed securities                                            29                     12
                                                                                  ---                    ---
                                                                                  100%                   100%
                                                                                  ===                    ===









                                      F-29





      AFC realized aggregate losses of $11.1 million during 2002 on $72.9
million in sales of fixed maturity securities (14 issues; 12 issuers) that had
individual unrealized losses greater than $500,000 at December 31, 2001. Market
values of eleven of the securities increased an aggregate of $8 million from
year-end 2001 to date of sale. The market value of one of the securities did not
change from year-end 2001 to the date of sale. One of the securities was a
Conseco bond that decreased in value by $5 million from year-end 2001 to the
date of sale due to the continued decline in Conseco's financial condition. The
market value of the remaining security decreased $920,000 from year-end 2001 to
the sale date.

      Although AFC had the ability to continue holding these investments, its
intent to hold them changed due primarily to deterioration in the issuers'
creditworthiness, decisions to lessen exposure to a particular credit or
industry, or to modify asset allocation within the portfolio.

      The table below (dollars in millions) summarizes the length of time
securities have been in an unrealized gain or loss position at December 31,
2002.


                                                                                                                     Market
                                                                                Aggregate         Aggregate        Value as
                                                                                   Market        Unrealized       % of Cost
                                                                                    Value       Gain (Loss)           Basis
                                                                                ---------         ---------        --------
                                                                                                               
     Fixed Maturities
     -----------------------------------------------------

     SECURITIES WITH UNREALIZED GAINS:
       Exceeding $500,000 at 12/31/02 and for:
         Less than one year (354 issues)                                          $ 4,561              $327             108%
         More than one year (64 issues)                                               762                83             112
       Less than $500,000 at 12/31/02 (1,307 issues)                                5,135               180             104
                                                                                  -------              ----
                                                                                  $10,458              $590             106%
                                                                                  =======              ====

     SECURITIES WITH UNREALIZED LOSSES:
       Exceeding $500,000 at 12/31/02 and for:
         Less than one year (50 issues)                                           $   379             ($ 75)             84%
         More than one year (17 issues)                                               118               (35)             77
       Less than $500,000 at 12/31/02 (261 issues)                                    882               (23)             98
                                                                                  -------              ----
                                                                                  $ 1,379             ($133)             91%
                                                                                  =======              ====

     Other Stocks
     -----------------------------------------------------

     SECURITIES WITH UNREALIZED GAINS:
       Exceeding $500,000 at 12/31/02 and for:
         Less than one year (4 issues)                                            $    26              $  6             130%
         More than one year (4 issues)                                                207               121             241
       Less than $500,000 at 12/31/02 (66 issues)                                      27                 3             113
                                                                                  -------              ----
                                                                                  $   260              $130             200%
                                                                                  =======              ====
     SECURITIES WITH UNREALIZED LOSSES:
       Exceeding $500,000 at 12/31/02 and for:
         Less than one year (1 issue)                                             $     2             ($  1)             67%
         More than one year (none)                                                     -                 -               -
       Less than $500,000 at 12/31/02 (75 issues)                                      16                (4)             80
                                                                                  -------              ----
                                                                                  $    18             ($  5)             78%
                                                                                  =======              ====





















                                      F-30





      When a decline in the value of a specific investment is considered to be
"other than temporary," a provision for impairment is charged to earnings
(accounted for as a realized loss) and the cost basis of that investment is
reduced. The determination of whether unrealized losses are "other than
temporary" requires judgment based on subjective as well as objective factors.
Factors considered and resources used by management include:

a)    whether the unrealized loss is credit-driven or a result of changes in
      market interest rates,

b)    the extent to which market value is less than cost basis,

c)    historical operating, balance sheet and cash flow data contained in issuer
      SEC filings,

d)    issuer news releases,

e)    near-term prospects for improvement in the issuer and/or its industry,

f)    industry research and communications with industry specialists,

g)    third party research and credit rating reports,

h)    internally generated financial models and forecasts,

i)    discussions with issuer management, and

j)    ability and intent to hold the investment for a period of time sufficient
      to allow for any anticipated recovery in market value.

      Based on its analysis of the factors enumerated above, management believes
(i) AFC will recover its cost basis in the securities with unrealized losses and
(ii) that AFC has the ability and intent to hold the securities until they
mature or recover in value. Should either of these beliefs change with regard to
a particular security, a charge for impairment would likely be required. While
it is not possible to accurately predict if or when a specific security will
become impaired, charges for other than temporary impairment could be material
to results of operations in a future period. Management believes it is not
likely that future impairment charges will have a significant effect on AFC's
liquidity.

      Net realized gains (losses) on securities sold and charges for "other than
temporary" impairment on securities held were as follows (in millions):




                                Net Realized
                              Gains (Losses)              Charges for
                                    on Sales               Impairment               Other(a)         Total
                              --------------               ----------               -----           ------
                                                                                     
      2002                            $112.9                  ($179.4)             ($12.4)          ($78.9)
      2001                              89.8                   (125.5) (b)           11.6            (24.1)
      2000                              (1.7)                   (27.5)                2.6            (26.6)
      1999                              37.4                    (19.4)                2.1             20.1
      1998                              42.6                    (34.6)               (1.7)             6.3



(a)           Includes adjustments to carry derivatives at market and to reflect
              the impact of realized gains and losses on the amortization of
              deferred policy acquisition costs.

(b)           Does not include $16.9 million writedown of certain collateralized
              debt obligations which was recorded as the cumulative effect of an
              adoption of an accounting change at April 1, 2001.

      Increased impairment charges in recent years reflect a rise in corporate
defaults in the marketplace resulting from the weakened economy.

UNCERTAINTIES As more fully explained in the following paragraphs, management
believes that the areas posing the greatest risk of material loss are the
adequacy of its insurance reserves and American Premier's contingencies arising
out of its former operations.

      PROPERTY AND CASUALTY INSURANCE RESERVES The liability for unpaid losses
and loss adjustment expenses was as follows (in millions):


                                                                                     December 31,
                                                                               ----------------------
                                                                                 2002            2001
                                                                                 ----            ----
                                                                                         
              Specialty                                                        $3,712          $3,295
              Personal                                                            838             843
              Other lines (including asbestos
                and environmental)                                                654             640
                                                                               ------          ------
                                                                               $5,204          $4,778
                                                                               ======          ======


                                      F-31



      The liabilities for unpaid claims and for expenses of investigation and
adjustment of unpaid claims are based upon: (a) the accumulation of case
estimates for losses reported prior to the close of the accounting periods on
direct business written; (b) estimates received from ceding reinsurers and
insurance pools and associations; (c) estimates of unreported losses based on
past experience; (d) estimates based on experience of expense for investigating
and adjusting claims; and (e) the current state of law and coverage litigation.
Using these items as well as historical trends adjusted for changes in
underwriting standards, policy provisions, product mix and other factors,
company actuaries determine a single or "point" estimate which management
utilizes in recording its best estimate of the liabilities. Ranges of loss
reserves are not developed by company actuaries.


      Estimating the liability for unpaid losses and LAE is inherently
judgmental and is influenced by factors which are subject to significant
variation. Through the use of analytical reserve development techniques,
management utilizes items such as the effect of inflation on medical,
hospitalization, material, repair and replacement costs, general economic trends
and the legal environment. While current factors and reasonably likely changes
in variable factors are considered in estimating the liability for unpaid
losses, there is no method or system which can eliminate the risk of actual
ultimate results differing from such estimates. Reserve development in recent
years is quantified and discussed for major areas of AFC's property and
casualty insurance operations in the pages that follow under "Results of
Operations - Property and Casualty Insurance - Underwriting."


      Quarterly reviews of unpaid loss and LAE reserves are prepared using
standard actuarial techniques. These may include: Case Incurred Development
Method; Paid Development Method; Bornhuetter-Ferguson Method; and Incremental
Paid LAE to Paid Loss Methods. Generally, data is segmented by major product or
coverage within product using countrywide data; however, in some situations data
may be reviewed by state for large volume states.


      ASBESTOS AND ENVIRONMENTAL-RELATED ("A&E") RESERVES Establishing reserves
for A&E claims relating to policies and participations in reinsurance treaties
and former operations is subject to uncertainties that are significantly greater
than those presented by other types of claims. For this group of claims,
traditional actuarial techniques that rely on historical loss development trends
cannot be used and a meaningful range of loss cannot be estimated. Case reserves
and expense reserves are established by the claims department as specific
policies are identified. In addition to the case reserves established for known
claims, management establishes additional reserves for claims not yet known or
reported and for possible development on known claims. These additional reserves
are management's best estimate based on its review of industry trends and other
industry information about such claims, with due consideration to individual
claim situations like A.P. Green. Estimating ultimate liability for asbestos
claims presents a unique and difficult challenge to the insurance industry due
to, among other things, inconsistent court decisions, an increase in bankruptcy
filings as a result of asbestos-related liabilities, novel theories of coverage,
and judicial interpretations that often expand theories of recovery and broaden
the scope of coverage. The casualty insurance industry is engaged in extensive
litigation over these coverage and liability issues as the volume and severity
of claims against asbestos defendants continue to increase.


      While management believes that AFC's reserves for A&E claims are a
reasonable estimate of ultimate liability for such claims, actual results may
vary materially from the amounts currently recorded due to the difficulty in
predicting the number of future claims and the impact of recent bankruptcy
filings, and unresolved issues such as whether coverage exists, whether policies
are subject to aggregate limits on coverage, whether claims are to be allocated
among triggered policies and implicated years, and whether claimants who exhibit
no signs of illness will be successful in pursuing their claims.

                                      F-32

      In February 2003, Great American Insurance Company entered into an
agreement for the settlement of asbestos related coverage litigation under
insurance polices issued during the 1970's and 1980's to Bigelow-Liptak
Corporation and related companies, subsequently known as A.P. Green Industries,
Inc. ("A.P. Green"). Management believes that this settlement will enhance
financial certainty and provides resolution to litigation that represents AFC's
largest known asbestos-related claim and the only such claim that management
believes to be material.

      The settlement is for $123.5 million (Great American has the option to pay
in cash or over time with 5.25% interest), all but $30 million of which will be
covered by reserves established prior to September 30, 2002, and anticipated
reinsurance recoverables for this matter. As a result, AFC recorded a $30
million pretax charge ($19.5 million after tax) in the fourth quarter of 2002.
The agreement allows up to 10% of the settlement to be paid in AFG common stock.

      The settlement is subject to a number of contingencies, including the
approval of the bankruptcy court supervising the reorganization of A.P. Green
and subsequent confirmation of a plan of reorganization that includes an
injunction prohibiting the assertion against Great American of any present or
future asbestos personal injury claims under policies issued to A.P. Green and
related companies. This process could take a year or more and no assurance can
be made that all of these consents and approvals will be obtained; no payments
are required until completion of the process. If not obtained, the outcome of
this litigation will again be subject to the complexities and uncertainties
associated with a Chapter 11 proceeding and asbestos coverage litigation.

      The payments, reserve balances and policy count information for asbestos,
environmental and other mass torts were as follows (dollars in millions):



                                           Net              Net                             Policyholder Counts
                                       Amounts          Reserve                             (Direct and Assumed)
                                       Paid in          Balance          ----------------------------------------------------
                                          2002         12/31/02          12/31/01          New        Closed         12/31/02
                                       -------         --------          --------          ---        ------         --------
                                                                                                        
Asbestos                                 $16.8           $302.3               429           82            39              472
Environmental                              9.6            139.4               715           95           152              658
Other Mass Tort                            2.3             25.0               109           23            28              104
                                         -----           ------             -----          ---           ---            -----
Total                                    $28.7           $466.7             1,253          200           219            1,234
                                         =====           ======             =====          ===           ===            =====


      Of the open asbestos accounts, approximately 270 are holders of policies
written by AFC subsidiaries and approximately 200 represent assumed reinsurance
business. The direct policyholders with asbestos claims consist of limited
exposures, dominated by small to mid-sized commercial entities that are mostly
regional policyholders with few national target defendants. With respect to
non-products exposures, there are few accounts with potentially significant
exposure, none of which is considered to be material to the Company.

      The assumed reinsurance business includes exposures for the periods 1954
to 1983. The asbestos and environmental assumed claims are ceded by various
insurance companies under reinsurance treaties. A majority of the individual
assumed claims have exposures of less than $100,000 to AFC. Asbestos losses
assumed include some of the industry known manufacturers, distributors and
installers. Pollution losses include industry known insured names and sites.

      Other mass tort losses include Agent Orange, breast implants, DES, Dalkon
Shield, lead, silicon and various chemical exposures.

      EXPOSURE TO MARKET RISK Market risk represents the potential economic loss
arising from adverse changes in the fair value of financial instruments. AFC's
exposures to market risk relate primarily to its investment portfolio and
annuity contracts which are exposed to interest rate risk and, to a lesser
extent, equity price risk. To a much lesser extent, AFC's long-term debt is also
exposed to interest rate risk.

                                      F-33



      FIXED MATURITY PORTFOLIO The fair value of AFC's fixed maturity portfolio
is directly impacted by changes in market interest rates. AFC's fixed maturity
portfolio is comprised of substantially all fixed rate investments with
primarily intermediate-term maturities. This practice allows flexibility in
reacting to fluctuations of interest rates. The portfolios of AFC's insurance
operations are managed with an attempt to achieve an adequate risk-adjusted
return while maintaining sufficient liquidity to meet policyholder obligations.
AFC's life and annuity operations attempt to align the duration of their
invested assets to the projected cash flows of policyholder liabilities.

      The following table provides information about AFC's fixed maturity
investments at December 31, 2002 and 2001, that are sensitive to interest rate
risk. The table shows principal cash flows (in millions) and related weighted
average interest rates by expected maturity date for each of the five subsequent
years and for all years thereafter. Callable bonds and notes are included based
on call date or maturity date depending upon which date produces the most
conservative yield. Mortgage-backed securities ("MBSs") and sinking fund issues
are included based on maturity year adjusted for expected payment patterns.
Actual cash flows may differ from those expected.



                              December 31, 2002                                December 31, 2001
                              -----------------                                -----------------
                           Principal                                         Principal
                          Cash Flows       Rate                             Cash Flows      Rate
                          ----------      -----                             ----------      ----
                                                                         
         2003                $ 1,301      10.09%            2002               $   956      8.62%
         2004                    848       8.31             2003                 1,407      7.84
         2005                  1,035       7.05             2004                   860      8.56
         2006                  1,135       6.69             2005                 1,082      7.50
         2007                  1,158       6.12             2006                 1,110      6.89
         Thereafter            5,939       6.13             Thereafter           5,263      7.08
                               -----                                             -----

         Total               $11,416       6.88%                               $10,678      7.46%
                             =======                                           =======

         Fair Value          $12,007                                           $10,749
                             =======                                           =======


      EQUITY PRICE RISK Equity price risk is the potential economic loss from
adverse changes in equity security prices. Although AFC's investment in "Other
stocks" is less than 3% of total investments, two-thirds of "Other stocks" is
invested in Provident Financial Group which exposes AFC to the risk of price
declines in a single position.

      Included in "Other stocks" at December 31, 2002 were warrants (valued at
$13.8 million) to purchase common stock of various companies. Under Statement of
Financial Accounting Standards ("SFAS") No. 133, which was adopted as of October
1, 2000, these warrants are generally considered derivatives and marked to
market through current earnings as realized gains and losses.

      ANNUITY CONTRACTS Substantially all of GAFRI's fixed rate annuity
contracts permit GAFRI to change crediting rates (subject to minimum interest
rate guarantees of 3% to 4% per annum as determined by applicable law) enabling
management to react to changes in market interest rates and maintain an adequate
spread. Nonetheless, due to the sharp drop in interest rates in 2002, GAFRI's
spreads have narrowed and will likely continue to narrow through at least 2003.
Actuarial assumptions used to estimate DPAC and Annuity Benefits, as well as
GAFRI's ability to maintain spread, could be impacted if the current interest
rate environment continues for an extended period and causes policyholder
behavior to be altered.

      Projected payments (in millions) in each of the subsequent five years and
for all years thereafter on GAFRI's fixed annuity liabilities at December 31
were as follows.


                                                                                                                        Fair
                      First       Second       Third       Fourth      Fifth         Thereafter         Total          Value
                      -----       ------       -----       ------      -----         ----------        ------         ------
                                                                                           
      2002             $550         $610        $740         $810       $700             $3,044        $6,454         $6,284
      2001              750          680         650          630        610              2,512         5,832          5,659







                                      F-34



      Nearly half of GAFRI's fixed annuity liabilities at December 31, 2002,
were two-tier in nature in that policyholders can receive a higher amount if
they annuitize rather than surrender their policy, even if the surrender charge
period has expired. At December 31, 2002, the average crediting rate on GAFRI's
principal fixed annuity products was approximately 4.3% and current stated
crediting rates (excluding bonus interest) on GAFRI's active products generally
range from 3.0% to 3.6%. GAFRI estimates that its effective weighted-average
crediting rate over the next five years will approximate 4.3%. This rate
reflects actuarial assumptions as to (i) expected investment spread, (ii)
deaths, (iii) annuitizations, (iv) surrenders and (v) renewal premiums. Actual
experience and changes in actuarial assumptions may result in different
effective crediting rates than those above.

      GAFRI's equity-indexed fixed annuities provide policyholders with a
crediting rate tied, in part, to the performance of an existing stock market
index. GAFRI attempts to mitigate the risk in the equity-based component of
these products through the purchase of call options on the appropriate index.
GAFRI's strategy is designed so that an increase in the liabilities due to an
increase in the market index will be substantially offset by unrealized gains on
the call options. Under SFAS No. 133, both the equity-based component of the
annuities and the related call options are considered derivatives and marked to
market through current earnings as annuity benefits. Adjusting these derivatives
to market value had a net effect of less than 1% of annuity benefits in 2002 and
2001. In 2002, GAFRI chose to suspend new sales of equity-indexed annuities due
primarily to lack of volume.

      DEBT AND PREFERRED SECURITIES The following table shows scheduled
principal payments (in millions) on fixed-rate long-term debt of AFC and its
subsidiaries and related weighted average interest rates for each of the
subsequent five years and for all years thereafter.


                                        December 31, 2002                                              December 31, 2001
                                        -----------------                                              -----------------
                                   Scheduled                                                       Scheduled
                                   Principal                                                       Principal
                                    Payments         Rate                                           Payments        Rate
                                   ---------         ----                                          ---------        ----
                                                                                                   
         2003                            *                                 2002                       $  4.3        7.02%
         2004                            *                                 2003                          *
         2005                         $ 10.1         9.09%                 2004                          *
         2006                           18.7         6.74                  2005                         10.1        9.07
         2007                            *                                 2006                         18.7        6.73
         Thereafter                    126.5         7.19                  Thereafter                  126.8        7.17
                                      ------                                                          ------

         Total                        $157.4         7.26%                                            $161.6        7.23%
                                      ======                                                          ======

         Fair Value                   $148.5                                                          $156.5
                                      ======                                                          ======


         (*) Less than $2 million.

      At December 31, 2002 and 2001, respectively, AFC and its subsidiaries had
$406 million and $337 million in variable-rate debt maturing primarily in 2003
through 2005. The weighted average interest rate on AFC's variable-rate debt was
2.84% at December 31, 2002 compared to 2.67% at December 31, 2001. There were
$143 million of subsidiary trust preferred securities with a weighted average
interest rate of 9.07% outstanding at December 31, 2002 and 2001, none of which
is scheduled for maturity or mandatory redemption during the next five years.

                                      F-35



RESULTS OF OPERATIONS - THREE YEARS ENDED DECEMBER 31, 2002


GENERAL The following table shows AFC's net earnings as stated in the Statement
of Operations as well as the after-tax effect of other items included in these
GAAP measures that are listed below to assist investors in analyzing their
impact on the trend in operating results (in millions):




                                                            2002          2001        2000
                                                            ----          ----        ----

                                                                           
     NET EARNINGS (LOSS)                                   $94.4         $ 2.6      ($32.1)
     After tax income (expense) items included in
       net earnings:
         Asbestos litigation settlement                    (19.5)           -           -
         Tax resolution benefits                            31.0            -           -
         A&E charge and WTC losses                            -          (81.3)         -
         Net losses from investee corporations              (9.0)        (16.5)      (91.4)
         Realized investment gains (losses)                (44.0)        (12.6)        2.8
         Cumulative effect of accounting changes           (40.4)        (10.0)       (9.1)



     In addition to the effects of items shown in the table above, net earnings
increased in 2002 primarily due to significantly improved underwriting results
and income from the sale of real estate, partially offset by reduced earnings in
the annuity and life operations. Net earnings for 2001 and 2000 include goodwill
amortization expense of $13.8 million and $16.5 million, respectively.

     Aside from the asbestos charges and losses from the World Trade Center,
underwriting results improved in 2001 but were partially offset by a $15 million
charge to increase reserves for environmental costs related to certain former
operations.

PROPERTY AND CASUALTY INSURANCE - UNDERWRITING AFC's property and casualty
operations have consisted of two major business groups: Specialty and Personal.
See Note P, "Subsequent Events", to the Financial Statements for a discussion of
the sale of nearly all of the Personal group.

     The Specialty group includes a highly diversified group of business lines.
Some of the more significant areas are inland and ocean marine, California
workers' compensation, agricultural-related coverages, executive and
professional liability, fidelity and surety bonds, collateral protection, and
umbrella and excess coverages.

     The Personal group sells nonstandard and preferred/standard private
passenger auto insurance and, to a lesser extent, homeowners' insurance.
Nonstandard automobile insurance covers risks not typically accepted for
standard automobile coverage because of the applicant's driving record, type of
vehicle, age or other criteria.

     To understand the overall profitability of particular lines, the timing of
claims payments and the related impact of investment income must be considered.
Certain "short-tail" lines of business (primarily property coverages) have quick
loss payouts which reduce the time funds are held, thereby limiting investment
income earned thereon. On the other hand, "long-tail" lines of business
(primarily liability coverages and workers' compensation) have payouts that are
either structured over many years or take many years to settle, thereby
significantly increasing investment income earned on related premiums received.

                                      F-36



     Underwriting profitability is measured by the combined ratio which is a sum
of the ratios of underwriting losses, loss adjustment expenses, underwriting
expenses and policyholder dividends to premiums. When the combined ratio is
under 100%, underwriting results are generally considered profitable; when the
ratio is over 100%, underwriting results are generally considered unprofitable.
The combined ratio does not reflect investment income, other income or federal
income taxes.

     For certain lines of business and products where the credibility of the
range of loss projections is less certain (primarily many of the various
specialty businesses listed above), management believes that it is prudent and
appropriate to use conservative assumptions until such time as the data,
experience and projections have more credibility, as evidenced by data volume,
consistency and maturity of the data. While this practice mitigates the risk of
adverse development on this business, it does not eliminate it.

     While AFC desires and seeks to earn an underwriting profit on all of its
business, it is not always possible to do so. As a result, AFC attempts to
expand in the most profitable areas and control growth or even reduce its
involvement in the least profitable ones.

     Since mid-2000, AFC has been actively realigning its mix of business and
resetting its rate structure with a goal of achieving underwriting profits, even
if it entails sacrificing volume. Management believes these efforts have been
successful and expects further improvement in underwriting profitability in 2003
resulting from these strategic actions.

     AFC's combined ratio has been better than the industry average for sixteen
of the last seventeen years and, excluding AFC's special A&E charges, for all
seventeen years. AFC's insurance operations have performed better than the
industry by focusing on growth opportunities in the more profitable areas of its
specialty and nonstandard auto businesses.

     Net written premiums and combined ratios for AFC's property and casualty
insurance subsidiaries were as follows (dollars in millions):


                                               2002          2001         2000
                                               ----          ----         ----
   Gross Written Premiums (GAAP)
   ----------------------------
   Specialty                                 $2,713        $2,236       $1,889
   Personal                                   1,221         1,284        1,339
   Other Lines                                    1          -               3
                                             ------        ------       ------
                                             $3,935        $3,520       $3,231
                                             ======        ======       ======
   Net Written Premiums (GAAP)
   --------------------------
   Specialty                                 $1,577        $1,542       $1,324
   Personal                                     836 (a)     1,040 (a)    1,311
   Other Lines                                    1          -               3
                                             ------        ------       ------
                                             $2,414        $2,582       $2,638
                                             ======        ======       ======
   Combined Ratios (GAAP)
   ---------------------
   Specialty                                   98.4%        101.7%(b)    107.9%
   Personal                                    99.8         107.9        108.6
   Aggregate (including discontinued lines)   101.1%(c)     108.8%(c)    108.0%


   (a)  Reflects the ceding of $375 million and $220 million in premiums in
        2002 and 2001, respectively under a reinsurance agreement (effective
        April 1, 2001).
   (b)  Includes 1.8% for 2001 relating to the attack on the World Trade
        Center.
   (c)  Includes 1.2% for 2002 relating to the A.P. Green asbestos litigation
        charge and 4.8% for 2001 relating to the A&E charge and the attack on
        the World Trade Center.

                                      F-37



     As shown in Note N under "Insurance Reserves," AFC's property and casualty
operations recorded loss development of $171 million in 2002 and $163 million in
2001 related to prior accident years. Major areas of adverse development were as
follows (in millions):

                                                                 2002      2001
                                                                 ----      ----
         Asbestos                                                $ 49      $108
         Executive liability                                       26        26
         Other liability                                           21         *
         Personal lines                                            15         *
         Other discontinued specialty businesses                   41        32
         Other                                                     19        (3)
                                                                 ----      ----
                                                                 $171      $163
                                                                 ====      ====

         (*)  Amounts are immaterial and included in Other

     "Asbestos" development was due primarily to charges for settlement of
litigation (2002) and the special $100 million A&E charge (2001), both of which
are discussed below. See "UNCERTAINTIES - ASBESTOS AND ENVIRONMENTAL-RELATED
RESERVES" for additional information about these claims.

     "Executive liability" development resulted primarily from claim severity on
policy coverages for 1999 and 2000. Both settlement costs and defense costs
related to shareholder lawsuits have increased beyond estimates.

     "Other liability" development was the result of an unexpected shift of the
judicial climate in some previously relatively conservative states. Verdicts,
judgments, and settlements have increased and reserves were adjusted
accordingly.

     In the "Personal lines," personal injury and uninsured motorist claims have
experienced increased severity. During 2002, claims remained open longer and
settlement amounts have been higher than in previous years.

     Development in the "Other discontinued specialty businesses" related
primarily to excess casualty and homebuilders' product liability. During 2002,
both experienced higher frequency of claims, primarily related to the 1999 and
2000 accident years for the excess casualty line, and 1993 through 2001 for the
homebuilders' liability. Development in 2001, and to a lesser extent in 2002,
was affected by increased severity in excess casualty resulting from a rigorous
claims review of case reserves established by former management.

     "Other" development represents an aggregation of all other lines. While
both increases and decreases occurred in these individual lines, none
experienced development greater than the smallest listed in the table above.
Aggregate adverse development in the "Other" lines was approximately $44 million
in 2002, and $25 million in 2001. Aggregate positive development was $25 million
in 2002 and $28 million in 2001.

     ASBESTOS LITIGATION SETTLEMENT CHARGE As more fully discussed under
"UNCERTAINTIES - ASBESTOS AND ENVIRONMENTAL-RELATED RESERVES," AFC recorded a
fourth quarter 2002 pretax charge of $30 million related to the settlement of
asbestos-related coverage litigation.

     2001 SPECIAL A&E CHARGE During the third quarter of 2001, AFC recorded an
A&E charge of $100 million after experiencing an increase in the number and
severity of asbestos claims and observing the developments of adverse trends in
the property and casualty insurance industry concerning asbestos losses. This
charge, accompanied by a transfer of $36 million from excess reserves for other
environmental claims, resulted in an increase of $136 million in asbestos
reserves. FOR A DISCUSSION OF UNCERTAINTIES RELATIVE TO ASBESTOS AND
ENVIRONMENTAL CLAIMS, SEE "UNCERTAINTIES -ASBESTOS AND ENVIRONMENTAL-RELATED
RESERVES".

                                      F-38



     SPECIALTY The Specialty group's gross written premiums increased 21% in
2002 compared to 2001, reflecting the effect of rate increases and the volume
growth in certain businesses, partially offset by planned reductions in less
profitable lines of business. Specialty rate increases averaged about 27% during
2002 and are targeted to be 25% or more going into 2003. Net written premiums
increased 2% in 2002 compared to 2001. Strong growth in gross written premiums
was offset by the impact of expanding the Personal group automobile physical
damage reinsurance agreement discussed below to include several Specialty
business lines as well as increased reinsurance coverage in certain other lines.

     Excluding the effect of the attack on the World Trade Center, the Specialty
group's combined ratio improved 1.5 points for 2002. The improvement reflects
strategic changes in the mix of specialty businesses and the impact of rate
increases, partially offset by the effects of prior year loss development.

     The Specialty group's increase in gross and net written premiums in 2001
reflects the impact of rate increases implemented in 2000 and 2001 and the
realization of growth opportunities in certain commercial markets, partially
offset by the decision to discontinue certain lines of business that were not
achieving adequate returns. Specialty rate increases averaged over 20% in 2001.
The improvement in the combined ratio compared to 2000 reflects the impact of
rate increases and unusually strong results in several businesses. Due primarily
to adverse development in prior year losses, AFC recorded a $35 million pretax
charge in 2000 to strengthen loss reserves in its California workers'
compensation business (a combined ratio effect of 2.9 points). Excluding the
effect of the attack on the World Trade Center, the Specialty group reported an
underwriting profit with a combined ratio of 99.9% for 2001.

     PERSONAL The Personal group's gross written premiums for 2002 decreased
about 5% compared to 2001 due primarily to intentional reductions in new
business volume in certain non-core markets and through the direct channel,
partially offset by the effect of continuing rate increases and volume growth in
target markets. Rate increases implemented in 2002 were approximately 10%.

     Since April 2001, AFC has reinsured 90% of the automobile physical damage
business written by certain of its insurance subsidiaries. In September 2002,
AFC's use of the existing agreement was expanded to include physical damage
business written through the agency channel of Great American Insurance pool
companies. This agreement enables AFC to reallocate some of its capital to the
more profitable specialty operations. The decline in net written premiums in
2001 and 2002 reflects the impact of this reinsurance agreement.

     Due primarily to rate increases and a $12.6 million reduction in marketing
and media cost of the direct business, the Personal group's combined ratio
improved by 8.1 points compared to 2001. More than 80% of the Personal group's
business is written by the insurance operations included in the recent public
offering of Infinity Property and Casualty Corporation. Business written through
these operations achieved an underwriting profit with a combined ratio of 96.1%
for 2002.

     The Personal group's gross written premiums declined about 4% in 2001
compared to 2000 as lower business volume was partially offset by the impact of
significant rate increases in 2000 and 2001. The group implemented rate
increases of about 14% in 2001. As a result of rate increases in 2001 and 2000,
the combined ratio improved to 107.9% for 2001.

LIFE, ACCIDENT AND HEALTH PREMIUMS AND BENEFITS Life, accident and health
premiums and benefits increased in 2002 due primarily to the acquisition of
Manhattan National Life ("MNL") in June 2002 and increased in 2001 due primarily
to the acquisition of a block of supplemental health insurance business in
November 2000. In addition to these acquisitions, life, accident and health
benefits for 2002 reflect the effects of adverse mortality in GAFRI's life
insurance operations.

INVESTMENT INCOME Changes in investment income reflect fluctuations in market
rates and changes in average invested assets. Investment income increased in
2002 and 2001 due primarily to higher average investment in fixed maturity
securities, partially offset by lower average yields on those investments.

                                      F-39




GAINS (LOSSES) ON SECURITIES Realized gains (losses) on sales of securities
include provisions for other than temporary impairment of securities still held
of $179.4 million in 2002, $125.5 million in 2001 and $27.5 million in 2000. The
provision for 2001 includes $8 million for the writedown of AFC's investment in
Chiquita from $1.00 per share to $.67 per share.

     Realized gains (losses) on securities include losses of $11.9 million in
2002, and gains of $5.2 million in 2001 and $1.5 million in the fourth quarter
of 2000 to adjust the carrying value of AFC's investment in warrants to market
value under SFAS No. 133.

GAINS ON SALES OF SUBSIDIARIES See Note P, to the financial statements for a
discussion of the anticipated loss in connection with the 2003 public offering
of Infinity.

     In 2002, AFC recognized a $10.8 million pretax loss on the disposal of its
New Jersey private passenger auto business.

     In 2001, AFC recognized a $7.1 million pretax gain on the sale of a small
insurance subsidiary. In connection with the sale of the Japanese division in
2001, AFC recognized a $6.9 million pretax loss and deferred a gain of
approximately $21 million on ceded insurance which is being recognized over the
estimated settlement period (weighted average of 4 years) of the ceded claims.

     In 2000, AFC recognized (i) a $25 million pretax gain representing an
earn-out related to the 1998 sale of its Commercial lines division, (ii) a $10.3
million pretax loss on the sale of Stonewall Insurance Company and (iii) a $10.7
million estimated pretax loss related to the agreement to sell its Japanese
division (completed in 2001).

GAIN ON SALE OF OTHER INVESTMENTS In September 2000, GAFRI realized a $27.2
million pretax gain on the sale of its minority ownership in a company engaged
in the production of ethanol. GAFRI's investment was repurchased by the ethanol
company which, following the purchase, became wholly-owned by AFC's Chairman.

REAL ESTATE OPERATIONS AFC's subsidiaries are engaged in a variety of real
estate operations including hotels, apartments, office buildings and
recreational facilities; they also own several parcels of land. Revenues and
expenses of these operations, including gains and losses on disposal, are
included in AFC's statement of operations as shown below (in millions).



                                                          2002            2001           2000
                                                          ----            ----           ----
                                                                               
        Other income                                    $115.0          $102.6          $95.9
        Other operating and general expenses              71.7            64.9           65.6
        Interest charges on borrowed money                 2.6             2.3            2.6
        Minority interest expense, net                     1.2             3.9            1.9



     Other income includes net pretax gains on the sale of real estate assets of
$31.0 million in 2002, $27.2 million in 2001 and $12.4 million in 2000.

OTHER INCOME

     2002 COMPARED TO 2001 Other income increased $38.7 million (18%) in 2002
due primarily to higher income from real estate operations (including the effect
of property sales and a hotel acquired in May 2002), increased fees earned by
the Specialty group's new warranty business and higher fee income in certain
other specialty insurance operations.

     2001 COMPARED TO 2000 Other income declined in 2001 compared to 2000 due
primarily to the absence of income from the sale of lease rights, lease
residuals and other operating assets.

ANNUITY BENEFITS For GAAP financial reporting purposes, annuity receipts are
accounted for as interest-bearing deposits ("annuity benefits accumulated")
rather than as revenues. Under these contracts, policyholders' funds are
credited with interest on a tax-deferred basis until withdrawn by the
policyholder. Annuity benefits reflect

                                      F-40



amounts accrued on annuity policyholders' funds accumulated. The rate at which
GAFRI credits interest on most of its annuity policyholders' funds is subject to
change based on management's judgment of market conditions. Historically,
management has been able to react to changes in market interest rates and
maintain a desired interest rate spread. The recent interest rate environment
has resulted in spread compression which could continue at least through 2003.
In 2000, annuity benefits also includes a second quarter charge of $14.2 million
related to the settlement of a policyholder class action lawsuit.

     On its deferred annuities (annuities in the accumulation phase), GAFRI
generally credits interest to policyholders' accounts at their current stated
"surrender" interest rates. Furthermore, for "two-tier" deferred annuities
(annuities under which a higher interest amount can be earned if a policy is
annuitized rather than surrendered), GAFRI accrues an additional liability to
provide for expected deaths and annuitizations. Changes in crediting rates,
actual surrender, death and annuitization experience or modifications in
actuarial assumptions can affect this accrual. In 2002, this accrual was reduced
by approximately $2 million due to decreases in crediting rates on certain fixed
annuity products, partially offset by a modification in projected investment
yields. Significant changes in projected investment yields could result in
additional benefits or charges to earnings.

ANNUITY AND LIFE ACQUISITION EXPENSES Annuity and life acquisition expenses
include amortization of annuity and life, accident and health deferred policy
acquisition costs ("DPAC") as well as a portion of commissions on sales of
insurance products. Annuity and life acquisition expenses also include
amortization of the present value of future profits of businesses acquired.

     2002 COMPARED TO 2001 The increase in annuity and life acquisition expenses
in 2002 compared to 2001 reflects (i) a writeoff of DPAC; (ii) the amortization
costs associated with GAFRI's purchase of MNL in June 2002 and (iii) higher
commission expense due to GAFRI's growth in premiums. Included in 2002 and 2001
were DPAC writeoffs related to variable annuities of $13.5 million and $3.0
million, respectively, resulting from the actual performance of the equity
markets and a reduction of assumed future returns. Poor performance in the
equity markets could lead to additional DPAC writeoffs or a charge to earnings
in order to accrue for guaranteed minimum death benefits included in the
variable products. (See "PROPOSED ACCOUNTING STANDARD"). Included in 2002 is a
DPAC writeoff of $4 million related primarily to adverse mortality in GAFRI's
life operations. Partially offsetting the DPAC writeoffs in 2002 was a reduction
of approximately $7 million in DPAC amortization on fixed annuities relating to
decreases in crediting rates on certain fixed annuity products. Continued
adverse mortality could lead to additional DPAC writeoffs. Significant changes
in projected investment yields could result in additional benefits or charges to
earnings.

     2001 COMPARED TO 2000 The increase in annuity and life acquisition expenses
resulted primarily from (i) increased lapses and increased sales of traditional
life insurance and (ii) the effect of the equity markets on variable annuity
DPAC.

INTEREST ON BORROWED MONEY Changes in interest expense result from fluctuations
in market rates as well as changes in borrowings. AFC has generally financed its
borrowings on a long-term basis which has resulted in higher current costs.

     2002 COMPARED TO 2001 Interest expense decreased significantly in 2002 as
lower average rates on AFC's variable rate debt (including AFC's payable to AFG)
more than offset the effect of higher average indebtedness and higher average
payable to reinsurers balances.

     2001 COMPARED TO 2000 Interest expense decreased in 2001 as lower average
interest rates on AFC's variable rate debt and lower average subsidiary
indebtedness more than offset higher average borrowings under the AFC bank line.

OTHER OPERATING AND GENERAL EXPENSES

     2002 COMPARED TO 2001 Other operating and general expenses for 2001 include
goodwill amortization of $13.8 million. Under SFAS No. 142, which was
implemented January 1, 2002, goodwill is no longer amortized. Excluding 2001
goodwill


                                      F-41



amortization, other operating and general expenses increased $36.0 million (10%)
in 2002. Expenses of the Specialty group's new warranty business, higher
expenses in real estate operations (due primarily to the acquisition of a new
hotel in May 2002) and higher expenses related to growth in certain other
Specialty operations were partially offset by lower charges for environmental
reserves related to former operations and lower IT-related expenses.

     2001 COMPARED TO 2000 Excluding the 2000 litigation charges discussed
below, other operating and general expenses increased $12.0 million (3%) due
primarily to a $14.8 million increase in environmental reserves related to
former operations.

     Other operating and general expenses for 2000 include second quarter
charges of $18.3 million related to an agreement to settle a lawsuit against a
GAFRI subsidiary and $8.8 million for an adverse California Supreme Court ruling
against an AFC property and casualty subsidiary.

INCOME TAXES The 2002 provision for income taxes includes $31 million in tax
benefits for the reduction of previously accrued amounts due to the resolution
of certain tax matters. See Note J to the Financial Statements for an analysis
of items affecting AFC's effective tax rate.

INVESTEE CORPORATIONS

     START-UP MANUFACTURING BUSINESSES AFC's pretax operating earnings for 2000
include losses of $6.7 million from two start-up manufacturing businesses
acquired in 2000 from their former owners. AFC sold the equity interests in
these businesses in the fourth quarter of 2000 for a nominal cash consideration
plus warrants to repurchase a significant ownership interest. Due to the absence
of significant financial investment by the buyers relative to the amount of
loans ($61.5 million at December 31, 2000) owed to AFC subsidiaries, AFC
retained the financial risk in these businesses and continued accounting for
their operations under the equity method as investees.

     Beginning in the fourth quarter of 2000, AFC's equity in the results of
operations of these businesses is included in investee earnings. In 2002, 2001
and 2000, equity in net losses of investee corporations includes $9.0 million,
$16.6 million and $4.1 million, respectively, in losses of these businesses.

     Investee losses in 2001 include litigation judgments of $4.7 million
against one of these companies. In December 2002, this company sold its fixed
assets, ceased operations and transferred approximately $30 million in cash and
other assets to AFC. The amount transferred approximated AFC's carrying value of
loans to this business. Amounts included in equity in net losses of investee
corporations for this business were $5.4 million in 2002, $13.7 million in 2001
and $3.1 million in 2000.

     CHIQUITA Equity in net losses of investee corporations for 2000 includes
AFC's proportionate share of the results of Chiquita Brands International.
Chiquita reported net losses attributable to common shareholders of $112 million
in 2000.

     Equity in net losses of investees for 2000 includes a $95.7 million pretax
charge to writedown AFC's investment in Chiquita to a market value of
approximately $1 per share. In 2001, AFC suspended accounting for Chiquita under
the equity method due to Chiquita's pending restructuring. In March 2002,
Chiquita completed its reorganization under Chapter 11 of the U.S. Bankruptcy
Code. As a result of the restructuring, AFC's ownership percentage of Chiquita
was reduced to less than one-half of 1%.

CUMULATIVE EFFECT OF ACCOUNTING CHANGES Effective January 1, 2002, AFC
implemented Statement of Financial Accounting Standards ("SFAS") No. 142,
"Goodwill and Other Intangible Assets", under which goodwill is no longer
amortized, but is subject to an impairment test at least annually. The initial
impairment testing resulted in a charge of $40.4 million (net of minority
interest and taxes) for the cumulative effect of a change in accounting
principle.

                                      F-42




     In 2001, the cumulative effect of accounting change represents the
implementation of a new accounting standard (EITF 99-20) which resulted in a
writedown of $10.0 million (net of minority interest and taxes) of the carrying
value of certain collateralized debt obligations as of April 1, 2001.

     In October 2000, AFC implemented Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities", which requires all derivatives to be recognized in the balance
sheet at fair value and that the initial effect of recognizing derivatives at
fair value be reported as a cumulative effect of a change in accounting
principle. Accordingly, AFC recorded a charge of $9.1 million (net of minority
interest and taxes) to record its derivatives at fair value at the beginning of
the fourth quarter of 2000.

RECENT ACCOUNTING STANDARDS The following accounting standards have been or may
be implemented by AFC. The implementation of these standards is discussed under
various subheadings of Note A to the Financial Statements; effects of each are
shown in the relevant Notes.




    Accounting
    Standard         Subject of Standard (Year Implemented)            Reference
    ----------       --------------------------------------            ---------
                                                                
    SFAS #133        Derivatives (2000)                                "Derivatives"
    EITF 99-20       Asset-backed Securities (2001)                    "Investments"
    SFAS #141        Business Combinations (2001)                      "Business Combinations"
    SFAS #142        Goodwill and Other Intangibles (2002)             "Goodwill"



     Other standards issued in recent years did not apply to AFC or had only
negligible effects on AFC.

     In January 2003, the Financial Accounting Standards Board issued
Interpretation No.46, Consolidation of Variable Interest Entities ("FIN 46").
This interpretation will require companies to consolidate entities without
sufficient equity based on ownership of expected gains and losses. FIN 46 is
effective immediately to variable interest entities acquired after January 31,
2003. For entities acquired before that date, the guidance becomes effective for
periods beginning after June 15, 2003.

     AFC is currently assessing the application of FIN 46 as it relates to its
investments in two collateralized debt obligations ("CDOs"), for which AFC also
acts as investment manager. Under the CDOs, securities were issued in various
senior and subordinate classes and the proceeds were invested primarily in bank
loans, and to a lesser extent, high yield bonds, all of which serve as
collateral for the securities issued by the CDOs. None of the collateral was
purchased from AFC. The market value of the collateral at December 31, 2002 was
approximately $800 million.

     AFC's investments in the two CDOs are subordinate to the senior classes
(approximately 92% of the total securities) issued by the CDOs. To the extent
there are defaults and unrecoverable losses on the underlying collateral
resulting in reduced cash flows, AFC's class would bear losses first. Holders of
the CDO debt securities have no recourse against AFC for the liabilities of the
CDOs; accordingly, AFC's exposure to loss on these investments is limited to its
investment. AFC's investments in the CDOs are carried at estimated market value
of $13.7 million at December 31, 2002 and are included in fixed maturities in
AFC's balance sheet.

PROPOSED ACCOUNTING STANDARD GAFRI's variable annuity contracts contain a
guaranteed minimum death benefit ("GMDB") (which may exceed the value of the
policyholder's account) to be paid if the annuityholder dies before the annuity
payout period commences. At December 31, 2002, the aggregate GMDB values
(assuming every policyholder died on that date) exceeded the market value of the
underlying variable annuities by $233 million. Industry practice varies, but
GAFRI does not establish GAAP reserves for this mortality risk. If a proposed
accounting standard becomes effective, GAFRI would be required to record a
liability for the present value of expected GMDB payments. Initial recognition
of a GAAP liability (estimated to be less than 4% of the difference between the
underlying market value of the variable annuities and GMDB value) would be
accounted for as the cumulative effect of a change in accounting principles.
Death benefits paid in excess of the variable annuity account balance were $1.1
million in 2002.

                                      F-43




                         REPORT OF INDEPENDENT AUDITORS

BOARD OF DIRECTORS
AMERICAN FINANCIAL CORPORATION

We have audited the accompanying consolidated balance sheet of American
Financial Corporation and subsidiaries as of December 31, 2002 and 2001, and the
related consolidated statements of operations, changes in shareholders' equity
and cash flows for each of the three years in the period ended December 31,
2002. Our audits also included the financial statement schedules listed in the
Index at Item 15(a). These financial statements and schedules are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and schedules based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of American Financial
Corporation and subsidiaries at December 31, 2002 and 2001, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 2002, in conformity with accounting principles
generally accepted in the United States. Also, in our opinion, the related
financial statement schedules, when considered in relation to the basic
financial statements taken as a whole, present fairly in all material respects
the information set forth therein.

As discussed in Notes A and E to the consolidated financial statements, in 2002,
the Company implemented Statement of Financial Accounting Standards No. 142,
which required a change in the method of accounting for goodwill.

                                        ERNST & YOUNG LLP

Cincinnati, Ohio
February 19, 2003

                                      F-44






                 AMERICAN FINANCIAL CORPORATION AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEET
                             (DOLLARS IN THOUSANDS)




                                                                          December 31,
                                                               ------------------------------------
                                                                    2002                   2001
                                                                    ----                   ----
                                                                                
ASSETS:
 Cash and short-term investments                               $   870,797            $   543,644
 Investments:
  Fixed maturities - at market
   (amortized cost - $11,549,710 and $10,593,205)               12,006,910             10,748,605
  Other stocks - at market
   (cost - $173,933 and $187,810)                                  299,133                313,710
  Policy loans                                                     214,852                211,288
  Real estate and other investments                                257,731                262,801
                                                               -----------            -----------
      Total investments                                         12,778,626             11,536,404
 Recoverables from reinsurers and prepaid
  reinsurance premiums                                           2,866,780              2,286,509
 Agents' balances and premiums receivable                          708,327                666,171
 Deferred acquisition costs                                        842,070                818,323
 Other receivables                                                 306,904                254,137
 Variable annuity assets (separate accounts)                       455,142                529,590
 Prepaid expenses, deferred charges and other assets               425,127                451,362
 Goodwill                                                          248,683                312,134
                                                               -----------            -----------

                                                               $19,502,456            $17,398,274
                                                               ===========            ===========

LIABILITIES AND CAPITAL:
 Unpaid losses and loss adjustment expenses                    $ 5,203,831            $ 4,777,580
 Unearned premiums                                               1,847,924              1,640,955
 Annuity benefits accumulated                                    6,453,881              5,832,120
 Life, accident and health reserves                                902,393                638,522
 Payable to reinsurers                                             508,718                296,462
 Payable to American Financial Group, Inc.                         310,010                356,689
 Long-term debt:
  Holding companies                                                267,512                228,252
  Subsidiaries                                                     296,771                270,752
 Variable annuity liabilities (separate accounts)                  455,142                529,590
 Accounts payable, accrued expenses and other
  liabilities                                                    1,032,079                888,684
                                                               -----------            -----------
      Total liabilities                                         17,278,261             15,459,606

 Minority interest                                                 494,472                460,737

 Shareholders' Equity:
  Preferred Stock - at liquidation value                            72,154                 72,154
  Common Stock, no par value
    - 20,000,000 shares authorized
    - 10,593,000 shares outstanding                                  9,625                  9,625
  Capital surplus                                                  987,539                984,125
  Retained earnings                                                343,705                255,127
  Unrealized gain on marketable securities, net                    316,700                156,900
                                                               -----------            -----------
      Total shareholders' equity                                 1,729,723              1,477,931
                                                               -----------            -----------

                                                               $19,502,456            $17,398,274
                                                               ===========            ===========




See notes to consolidated financial statements.

                                      F-45




                 AMERICAN FINANCIAL CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENT OF OPERATIONS
                                 (IN THOUSANDS)



                                                                      Year ended December 31,
                                                      ---------------------------------------------------
                                                            2002                 2001               2000
                                                            ----                 ----               ----
                                                                                     
INCOME:
  Property and casualty insurance premiums            $2,402,600           $2,593,938         $2,494,892
  Life, accident and health premiums                     305,647              280,122            230,441
  Investment income                                      867,618              859,484            837,361
  Realized gains (losses) on:
    Securities                                           (78,935)             (24,140)           (26,581)
    Subsidiaries                                         (10,769)                 170              4,032
    Other investments                                       -                    -                27,230
  Other income                                           258,560              219,891            252,735
                                                      ----------           ----------         ----------
                                                       3,744,721            3,929,465          3,820,110

COSTS AND EXPENSES:
  Property and casualty insurance:
    Losses and loss adjustment expenses                1,814,699            2,080,057          1,961,538
    Commissions and other underwriting expenses          614,225              741,396            735,241
  Annuity benefits                                       300,966              294,654            293,171
  Life, accident and health benefits                     245,271              213,022            175,174
  Annuity and life acquisition expenses                  114,507               79,297             62,259
  Interest charges on borrowed money                      47,459               60,556             67,310
  Other operating and general expenses                   412,338              390,102            405,158
                                                      ----------           ----------         ----------
                                                       3,549,465            3,859,084          3,699,851
                                                      ----------           ----------         ----------
Operating earnings before income taxes                   195,256               70,381            120,259
Provision for income taxes                                23,996               15,287             32,812
                                                      ----------           ----------         ----------

Net operating earnings                                   171,260               55,094             87,447

Minority interest expense, net of tax                    (27,560)             (25,954)           (18,051)
Equity in net losses of investees, net of tax             (8,990)             (16,550)           (92,449)
                                                      ----------           ----------         ----------
Earnings (loss) before cumulative effect of
  accounting changes                                     134,710               12,590            (23,053)
Cumulative effect of accounting changes                  (40,360)             (10,040)            (9,072)
                                                      ----------           ----------         ----------

NET EARNINGS (LOSS)                                   $   94,350           $    2,550        ($   32,125)
                                                      ==========           ==========         ==========







See notes to consolidated financial statements.

                                      F-46






                 AMERICAN FINANCIAL CORPORATION AND SUBSIDIARIES
            CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
                             (DOLLARS IN THOUSANDS)



                                                                    Common Stock                       Unrealized
                                                    Preferred        And Capital       Retained       Gain (Loss)
                                                        Stock            Surplus       Earnings     on Securities           Total
                                                    ---------       ------------       --------     -------------      ----------

                                                                                                       
BALANCE AT DECEMBER 31, 1999                          $72,154           $970,407       $296,246     ($ 14,700)         $1,324,107


Net loss                                                 -                  -          ( 32,125)         -                (32,125)
Change in unrealized                                     -                  -              -          153,900             153,900
                                                                                                                       ----------
  Comprehensive income                                                                                                    121,775

Dividends on Preferred Stock                             -                  -            (5,772)         -                 (5,772)
Capital Contribution from parent                         -                12,267           -             -                 12,267
Other                                                    -                 1,739           -             -                  1,739
                                                      -------           --------       --------      --------          ----------

BALANCE AT DECEMBER 31, 2000                          $72,154           $984,413       $258,349      $139,200          $1,454,116
                                                      =======           ========       ========      ========          ==========


Net earnings                                          $  -              $   -          $  2,550      $   -             $    2,550
Change in unrealized                                     -                  -              -           17,700              17,700
                                                                                                                       ----------
  Comprehensive income                                                                                                     20,250

Dividends on Preferred Stock                             -                  -            (5,772)         -                 (5,772)
Capital Contribution from parent                         -                12,267           -             -                 12,267
Other                                                    -                (2,930)          -             -                 (2,930)
                                                      -------           --------       --------      --------          ----------

BALANCE AT DECEMBER 31, 2001                          $72,154           $993,750       $255,127      $156,900          $1,477,931
                                                      =======           ========       ========      ========          ==========


Net earnings                                          $  -              $   -          $ 94,350      $   -             $   94,350
Change in unrealized                                     -                  -              -          159,800             159,800
                                                                                                                       ----------
  Comprehensive income (loss)                                                                                             254,150

Dividends on Preferred Stock                             -                  -            (5,772)         -                 (5,772)
Capital Contribution from parent                         -                 6,133           -             -                  6,133
Other                                                    -                (2,719)          -             -                 (2,719)
                                                      -------           --------       --------      --------         -----------

BALANCE AT DECEMBER 31, 2002                          $72,154           $997,164       $343,705      $316,700          $1,729,723
                                                      =======           ========       ========      ========          ==========






See notes to consolidated financial statements.

                                      F-47




                 AMERICAN FINANCIAL CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENT OF CASH FLOWS
                                 (IN THOUSANDS)



                                                                               Year ended December 31,
                                                              ---------------------------------------------------
                                                                    2002                2001                2000
                                                                    ----                ----                ----
                                                                                            
OPERATING ACTIVITIES:
  Net earnings (loss)                                         $   94,350          $    2,550         ($   32,125)
  Adjustments:
    Cumulative effect of accounting changes                       40,360              10,040               9,072
    Equity in net losses of investees                              8,990              16,550              92,449
    Depreciation and amortization                                174,525             125,814              99,867
    Annuity benefits                                             300,966             294,654             293,171
    Realized (gains) losses on investing activities               58,202              (2,604)            (25,173)
    Deferred annuity and life policy acquisition
      costs                                                     (170,194)           (137,724)           (146,686)
    Decrease (increase) in reinsurance and
      other receivables                                         (669,790)           (299,802)             74,885
    Decrease (increase) in other assets                           29,545             (20,136)            (70,191)
    Increase in insurance claims and reserves                    703,244             546,522             189,587
    Increase in payable to reinsurers                            212,256             154,384              14,270
    Increase (decrease) in other liabilities                      45,567               8,193             (34,563)
    Increase (decrease) in minority interest                      16,603              18,491                (445)
    Other, net                                                    (4,820)             12,904               1,927
                                                              ----------          ----------          ----------
                                                                 839,804             729,836             466,045
                                                              ----------          ----------          ----------
INVESTING ACTIVITIES:
  Purchases of and additional investments in:
    Fixed maturity investments                                (6,199,022)         (3,827,768)         (1,635,578)
    Equity securities                                            (16,583)             (9,071)            (45,800)
    Subsidiary                                                   (48,447)               -                   -
    Real estate, property and equipment                          (53,639)            (90,111)            (88,371)
  Maturities and redemptions of fixed maturity
    investments                                                1,807,482             902,820             689,691
  Sales of:
    Fixed maturity investments                                 3,566,812           2,468,492             810,942
    Equity securities                                             23,669              15,814              84,147
    Investees and subsidiaries                                      -                 40,395              30,694
    Real estate, property and equipment                           22,417              71,002              30,150
  Cash and short-term investments of acquired
    (former) subsidiaries, net                                     4,684            (134,237)           (132,163)
  Decrease (increase) in other investments                        14,223              (7,827)              5,637
                                                              ----------          ----------          ----------
                                                                (878,404)           (570,491)           (250,651)
                                                              ----------          ----------          ----------
FINANCING ACTIVITIES:
  Fixed annuity receipts                                         874,470             616,628             496,742
  Annuity surrenders, benefits and withdrawals                  (549,919)           (622,474)           (731,856)
  Net transfers from (to) variable annuity assets                 20,807                (363)            (50,475)
  Additional long-term borrowings                                224,560             242,613             182,462
  Reductions of long-term debt                                  (159,926)           (143,840)           (141,577)
  Borrowings from AFG                                             14,300              17,077             174,500
  Payments to AFG                                                (62,100)           (100,500)           (108,413)
  Repurchases of trust preferred securities                         -                (75,000)             (1,427)
  Capital contributions                                            9,333              18,667              18,667
  Cash dividends paid                                             (5,772)             (5,772)             (5,772)
                                                              ----------          ----------          ----------
                                                                 365,753             (52,964)           (167,149)
                                                              ----------          ----------          ----------

NET INCREASE IN CASH AND SHORT-TERM INVESTMENTS                  327,153             106,381              48,245

Cash and short-term investments at beginning of
  period                                                         543,644             437,263             389,018
                                                              ----------          ----------          ----------

Cash and short-term investments at end of period              $  870,797          $  543,644          $  437,263
                                                              ==========          ==========          ==========




See notes to consolidated financial statements.

                                      F-48






                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
                                 INDEX TO NOTES

A.  ACCOUNTING POLICIES                        I.  SHAREHOLDERS' EQUITY
B.  ACQUISITIONS AND SALES OF SUBSIDIARIES     J.  INCOME TAXES
    AND INVESTEES                              K.  EQUITY IN LOSSES OF INVESTEES
C.  SEGMENTS OF OPERATIONS                     L.  COMMITMENTS AND CONTINGENCIES
D.  INVESTMENTS                                M.  QUARTERLY OPERATING RESULTS
E.  GOODWILL AND OTHER INTANGIBLES             N.  INSURANCE
F.  PAYABLE TO AMERICAN FINANCIAL GROUP        O.  ADDITIONAL INFORMATION
G.  LONG-TERM DEBT                             P.  SUBSEQUENT EVENTS
H.  MINORITY INTEREST
================================================================================

A.   ACCOUNTING POLICIES

     BASIS OF PRESENTATION The consolidated financial statements include the
     accounts of American Financial Corporation ("AFC") and its subsidiaries.
     Certain reclassifications have been made to prior years to conform to the
     current year's presentation. All significant intercompany balances and
     transactions have been eliminated. All acquisitions have been treated as
     purchases. The results of operations of companies since their formation or
     acquisition are included in the consolidated financial statements.

     The preparation of the financial statements in conformity with generally
     accepted accounting principles requires management to make estimates and
     assumptions that affect the amounts reported in the financial statements
     and accompanying notes. Changes in circumstances could cause actual results
     to differ materially from those estimates.

     INVESTMENTS All fixed maturity securities are considered "available for
     sale" and reported at fair value with unrealized gains and losses reported
     as a separate component of shareholders' equity. Short-term investments are
     carried at cost; loans receivable are carried primarily at the aggregate
     unpaid balance. Premiums and discounts on mortgage-backed securities are
     amortized over a period based on estimated future principal payments,
     including prepayments. Prepayment assumptions are reviewed periodically and
     adjusted to reflect actual prepayments and changes in expectations. The
     most significant determinants of prepayments are the difference between
     interest rates on the underlying mortgages and current mortgage loan rates
     and the structure of the security. Other factors affecting prepayments
     include the size, type and age of underlying mortgages, the geographic
     location of the mortgaged properties and the credit worthiness of the
     borrowers. Variations from anticipated prepayments will affect the life and
     yield of these securities.

     Gains or losses on securities are determined on the specific identification
     basis. When a decline in the value of a specific investment is considered
     to be other than temporary, a provision for impairment is charged to
     earnings and the cost basis of that investment is reduced.

     Emerging Issues Task Force Issue No. 99-20 established a new standard for
     recognizing interest income and impairment on certain asset-backed
     investments. Interest income on these investments is recorded at a yield
     based on projected cash flows. The yield is adjusted prospectively to
     reflect actual cash flows and changes in projected amounts. Impairment
     losses on these investments must be recognized when (i) the fair value of
     the security is less than its cost basis and (ii) there has been an adverse
     change in the expected cash flows. The new standard became effective on
     April 1, 2001. Impairment losses at initial application of this rule were
     recognized as the cumulative effect of an accounting change. Subsequent
     impairments are recognized as a component of net realized gains and losses.



                                      F-49





     INVESTMENT IN INVESTEE CORPORATIONS Investments in securities of 20%- to
     50%-owned companies are generally carried at cost, adjusted for AFC's
     proportionate share of their undistributed earnings or losses.

     Due to Chiquita's announced intention to pursue a plan to restructure its
     public debt, AFC wrote down its investment in Chiquita common stock to
     market value at December 31, 2000. In 2001, AFC suspended accounting for
     the investment under the equity method due to the expected restructuring,
     and reclassified the investment to "Other stocks." In a 2002 reorganization
     of Chiquita, AFC's ownership was reduced to less than one-half of 1%.

     GOODWILL Goodwill represents the excess of cost of subsidiaries over AFC's
     equity in their underlying net assets. Through December 31, 2001, goodwill
     was being amortized over periods of 20 to 40 years. Effective January 1,
     2002, AFC implemented Statement of Financial Accounting Standards ("SFAS")
     No. 142, under which goodwill is no longer amortized but is subject to an
     impairment test at least annually. As required under SFAS No. 142, AFC
     completed the transitional test for goodwill impairment (as of January 1,
     2002) in the fourth quarter of 2002. The resulting write-down was reported
     by restating first quarter 2002 results for the cumulative effect of a
     change in accounting principle.

     INSURANCE As discussed under "Reinsurance" below, unpaid losses and loss
     adjustment expenses and unearned premiums have not been reduced for
     reinsurance recoverable.

          REINSURANCE Amounts recoverable from reinsurers are estimated in a
     manner consistent with the claim liability associated with the reinsured
     policies. AFC's insurance subsidiaries report as assets (a) the estimated
     reinsurance recoverable on unpaid losses, including an estimate for losses
     incurred but not reported, and (b) amounts paid to reinsurers applicable to
     the unexpired terms of policies in force. Payable to reinsurers includes
     ceded premiums retained by AFC's insurance subsidiaries under contracts to
     fund ceded losses as they become due. AFC's insurance subsidiaries also
     assume reinsurance from other companies. Income on reinsurance assumed is
     recognized based on reports received from ceding companies.

          DEFERRED POLICY ACQUISITION COSTS ("DPAC") Policy acquisition costs
     (principally commissions, premium taxes and other marketing and
     underwriting expenses) related to the production of new business are
     deferred. For the property and casualty companies, DPAC is limited based
     upon recoverability without any consideration for anticipated investment
     income and is charged against income ratably over the terms of the related
     policies.

     DPAC related to annuities and universal life insurance products is deferred
     to the extent deemed recoverable and amortized, with interest, in relation
     to the present value of expected gross profits on the policies. To the
     extent that realized gains and losses result in adjustments to the
     amortization of DPAC related to annuities, such adjustments are reflected
     as components of realized gains. DPAC related to annuities is also
     adjusted, net of tax, for the change in amortization that would have been
     recorded if the unrealized gains (losses) from securities had actually been
     realized. This adjustment is included in "Unrealized gains (losses) on
     marketable securities, net" in the shareholders' equity section of the
     Balance Sheet.

     DPAC related to traditional life and health insurance is amortized over the
     expected premium paying period of the related policies, in proportion to
     the ratio of annual premium revenues to total anticipated premium revenues.

          ANNUITY AND LIFE ACQUISITION EXPENSES Annuity and life acquisition
     expenses on the Statement of Operations consists primarily of amortization
     of DPAC related to the annuity and life, accident and health businesses.
     This line item also includes certain marketing and commission costs that
     are expensed as paid.

                                      F-50





          UNPAID LOSSES AND LOSS ADJUSTMENT EXPENSES The net liabilities stated
     for unpaid claims and for expenses of investigation and adjustment of
     unpaid claims are based upon (a) the accumulation of case estimates for
     losses reported prior to the close of the accounting period on direct
     business written; (b) estimates received from ceding reinsurers and
     insurance pools and associations; (c) estimates of unreported losses based
     on past experience; (d) estimates based on experience of expenses for
     investigating and adjusting claims and (e) the current state of the law and
     coverage litigation. Establishing reserves for asbestos and environmental
     claims involves considerably more judgment than other types of claims due
     to, among other things, inconsistent court decisions, an increase in
     bankruptcy filings as a result of asbestos-related liabilities, novel
     theories of coverage, and judicial interpretations that often expand
     theories of recovery and broaden the scope of coverage.

     Loss reserve liabilities are subject to the impact of changes in claim
     amounts and frequency and other factors. Changes in estimates of the
     liabilities for losses and loss adjustment expenses are reflected in the
     Statement of Operations in the period in which determined. In spite of the
     variability inherent in such estimates, management believes that the
     liabilities for unpaid losses and loss adjustment expenses are adequate.

          ANNUITY BENEFITS ACCUMULATED Annuity receipts and benefit payments are
     recorded as increases or decreases in "annuity benefits accumulated" rather
     than as revenue and expense. Increases in this liability for interest
     credited are charged to expense and decreases for surrender charges are
     credited to other income.

          LIFE, ACCIDENT AND HEALTH RESERVES Liabilities for future policy
     benefits under traditional life, accident and health policies are computed
     using the net level premium method. Computations are based on the original
     projections of investment yields, mortality, morbidity and surrenders and
     include provisions for unfavorable deviations. Reserves established for
     accident and health claims are modified as necessary to reflect actual
     experience and developing trends.

          VARIABLE ANNUITY ASSETS AND LIABILITIES Separate accounts related to
     variable annuities represent deposits invested in underlying investment
     funds on which Great American Financial Resources, Inc. ("GAFRI"), an
     83%-owned subsidiary, earns a fee. Investment funds are selected and may be
     changed only by the policyholder, who retains all investment risk.

          PREMIUM RECOGNITION Property and casualty premiums are earned over the
     terms of the policies on a pro rata basis. Unearned premiums represent that
     portion of premiums written which is applicable to the unexpired terms of
     policies in force. On reinsurance assumed from other insurance companies or
     written through various underwriting organizations, unearned premiums are
     based on reports received from such companies and organizations. For
     traditional life, accident and health products, premiums are recognized as
     revenue when legally collectible from policyholders. For interest-sensitive
     life and universal life products, premiums are recorded in a policyholder
     account which is reflected as a liability. Revenue is recognized as amounts
     are assessed against the policyholder account for mortality coverage and
     contract expenses.

          POLICYHOLDER DIVIDENDS Dividends payable to policyholders are included
     in "Accounts payable, accrued expenses and other liabilities" and represent
     estimates of amounts payable on participating policies which share in
     favorable underwriting results. Estimates are accrued during the period in
     which premiums are earned. Changes in estimates are included in income in
     the period determined. Policyholder dividends do not become legal
     liabilities unless and until declared by the boards of directors of the
     insurance companies.

                                      F-51




     MINORITY INTEREST For balance sheet purposes, minority interest represents
     (i) the interests of noncontrolling shareholders in AFC subsidiaries,
     including preferred securities issued by trust subsidiaries of GAFRI and
     (ii) American Financial Group, Inc.'s ("AFG") direct ownership interest in
     American Premier Underwriters, Inc. ("American Premier" or "APU") and
     American Financial Enterprises, Inc. For income statement purposes,
     minority interest expense represents those shareholders' interest in the
     earnings of AFC subsidiaries as well as accrued distributions on the trust
     preferred securities.

     INCOME TAXES AFC files consolidated federal income tax returns which
     include all 80%-owned U.S. subsidiaries, except for certain life insurance
     subsidiaries and their subsidiaries. Deferred income taxes are calculated
     using the liability method. Under this method, deferred income tax assets
     and liabilities are determined based on differences between financial
     reporting and tax bases and are measured using enacted tax rates. Deferred
     tax assets are recognized if it is more likely than not that a benefit will
     be realized.

     BENEFIT PLANS AFC provides retirement benefits to qualified employees of
     participating companies through the AFG Retirement and Savings Plan, a
     defined contribution plan. The Company makes all contributions to the
     retirement fund portion of the Plan and matches a percentage of employee
     contributions to the savings fund. Employees have been permitted to direct
     the investment of their contributions to independently managed investment
     funds, while Company contributions have been invested primarily in
     securities of AFG and affiliates. Employees may direct the investment of a
     portion of their vested retirement fund account balances (increasing from
     12.5% in July 2002 to 100% in April 2004) from securities of AFG and its
     affiliates to independently managed investment funds. As of December 31,
     2002, the Plan owned 12% of AFG's outstanding common stock. Company
     contributions are expensed in the year for which they are declared.

     AFC and many of its subsidiaries provide health care and life insurance
     benefits to eligible retirees. AFC also provides postemployment benefits to
     former or inactive employees (primarily those on disability) who were not
     deemed retired under other company plans. The projected future cost of
     providing these benefits is expensed over the period the employees earn
     such benefits.

     DERIVATIVES Effective October 1, 2000, AFC implemented SFAS No. 133,
     "Accounting for Derivative Instruments and Hedging Activities", which
     established accounting and reporting standards for derivative instruments
     (including derivative instruments that are embedded in other contracts) and
     for hedging activities. Prior year financial statements were not restated.
     SFAS No. 133 generally requires that derivatives (both assets and
     liabilities) be recognized in the balance sheet at fair value with changes
     in fair value included in current earnings. The cumulative effect of
     implementing SFAS No. 133, which resulted from the initial recognition of
     AFC's derivatives at fair value, was a loss of $9.1 million (net of
     minority interest and taxes).

     Derivatives are included in AFC's Balance Sheet and consist primarily of
     investments in common stock warrants (valued at $13.8 million at December
     31, 2002; included in other stocks), the equity-based component of certain
     annuity products (included in annuity benefits accumulated) and related
     call options (included in other investments) designed to be consistent with
     the characteristics of the liabilities and used to mitigate the risk
     embedded in those annuity products.

     STATEMENT OF CASH FLOWS For cash flow purposes, "investing activities" are
     defined as making and collecting loans and acquiring and disposing of debt
     or equity instruments and property and equipment. "Financing activities"
     include obtaining resources from owners and providing them with a return on
     their investments, borrowing money and repaying amounts borrowed. Annuity
     receipts, benefits and withdrawals are also reflected as financing
     activities. All other

                                      F-52





     activities are considered "operating". Short-term investments having
     original maturities of three months or less when purchased are considered
     to be cash equivalents for purposes of the financial statements.

B.   ACQUISITIONS AND SALES OF SUBSIDIARIES AND INVESTEES See Note P,
     "Subsequent Events" for information on the 2003 sales of Infinity and the
     direct-to-consumer auto business.

     NEW JERSEY PRIVATE PASSENGER AUTOMOBILE INSURANCE BUSINESS In September
     2002, an AFC subsidiary entered into an agreement under which an unrelated
     insurer will assume the subsidiary's obligations to renew its private
     passenger automobile insurance business written in New Jersey. AFC
     recognized a $10.8 million pretax loss on the transaction. As of September
     9, 2002, AFC no longer accepts any new private passenger automobile
     insurance in that state.

     MANHATTAN NATIONAL LIFE INSURANCE On June 28, 2002, GAFRI acquired
     Manhattan National Life Insurance Company ("MNL") from Conseco, Inc. for
     $48.5 million in cash. At December 31, 2002, MNL reinsured 90% of its in
     force business.

     SEVEN HILLS INSURANCE COMPANY In July 2001, AFC sold Seven Hills Insurance
     Company for $18.4 million, realizing a pretax gain of $7.1 million. AFC
     retained all liability for Seven Hills' business related to the period AFC
     owned the company.

     JAPANESE DIVISION In December 2000, AFC agreed to sell its Japanese
     property and casualty division to Mitsui Marine & Fire Insurance Company of
     America for $22 million in cash and recorded an estimated $10.7 million
     pretax loss. Upon completion of the sale in March 2001, AFC realized an
     additional pretax loss of $6.9 million (including post closing adjustments)
     and deferred a gain of approximately $21 million on ceded insurance; the
     deferred gain is being recognized over the estimated settlement period
     (weighted average of 4 years) of the ceded claims. At the same time, a
     reinsurance agreement under which Great American Insurance ceded a portion
     of its pool of insurance to Mitsui was terminated. The Japanese division
     generated net written premiums of approximately $60 million per year to
     Great American while Great American ceded approximately $45 million per
     year to Mitsui.

     STONEWALL INSURANCE COMPANY In September 2000, AFC sold Stonewall Insurance
     Company for $31.2 million (net of post closing adjustments), realizing a
     pretax loss of $10.3 million. Stonewall was a non-operating property and
     casualty subsidiary with approximately $320 million in assets, engaged
     primarily in the run-off of approximately $170 million in asbestos and
     environmental liabilities associated with policies written through 1991.

     COMMERCIAL LINES DIVISION In 1998, AFC sold its Commercial lines division
     to Ohio Casualty Corporation for $300 million cash plus warrants to
     purchase shares of Ohio Casualty common stock. AFC received an additional
     $25 million (included in gains on sales of subsidiaries) in August 2000
     under a provision in the sale agreement related to the retention and growth
     of the insurance businesses sold.

     START-UP MANUFACTURING BUSINESSES Since 1998, AFC subsidiaries have made
     loans to two start-up manufacturing businesses which were previously owned
     by unrelated third-parties. During 2000, the former owners chose to forfeit
     their equity interests to AFC rather than invest additional capital. Total
     loans extended to these businesses prior to forfeiture amounted to $49.7
     million and the accumulated losses of the two businesses were approximately
     $29.7 million.

     During the fourth quarter of 2000, AFC sold the equity interests to a group
     of employees for nominal cash consideration plus warrants to repurchase a
     significant ownership interest. Due to the absence of significant financial
     investment by the buyers relative to the amount of loans ($61.5 million at
     December 31, 2000) owed to AFC subsidiaries, the sale was not recognized as
     a

                                      F-53




     divestiture for accounting purposes and AFC continued accounting for their
     operations under the equity method as investees. In December 2002, one of
     the businesses sold substantially all of its assets for $29.5 million,
     which proceeds and approximately $675,000 in receivables and other assets
     were transferred to AFC. The amount transferred approximated AFC's carrying
     value of loans to this business. At December 31, 2001, $41.6 million in
     assets of this business were included in other assets and $9.8 million in
     liabilities of this business (after consolidation and elimination of loans
     from AFC subsidiaries) were included in other liabilities in AFC's
     consolidated balance sheet.

     Assets of the remaining start-up business ($15.3 million at December 31,
     2002, and $15.5 million at December 31, 2001) are included in other assets;
     liabilities of the business ($2.0 million at December 31, 2002 and 2001,
     after consolidation and elimination of loans from AFC subsidiaries) are
     included in other liabilities.

     AFC's equity in the losses of these two companies during 2002, 2001 and the
     fourth quarter of 2000 was $9.0 million, $16.6 million and $4.1 million,
     respectively, and is included in investee losses in the Statement of
     Operations.













                                      F-54





C.   SEGMENTS OF OPERATIONS AFC's property and casualty group has been engaged
     primarily in specialty commercial insurance and private passenger
     automobile insurance business. The Specialty group includes a highly
     diversified group of specialty business units. Some of the more significant
     areas are inland and ocean marine, California workers' compensation,
     agricultural-related coverages, executive and professional liability,
     fidelity and surety bonds, collateral protection, and umbrella and excess
     coverages. In 2003, AFC sold a substantial portion of its Personal segment;
     see Note P - "Subsequent Events." The Personal group wrote nonstandard and
     preferred/standard private passenger auto and other personal insurance
     coverage. AFC's annuity, life and health business markets primarily
     retirement products as well as life and supplemental health insurance.
     AFC's businesses operate throughout the United States. In 2002, 2001, and
     2000, AFC derived less than 2% of its revenues from the sale of life and
     supplemental health products in Puerto Rico and less than 1% of its
     revenues from the sale of property and casualty insurance in Mexico,
     Canada, Puerto Rico, Europe and Asia.

     The following tables (in thousands) show AFC's assets, revenues and
     operating profit (loss) by significant business segment. Operating profit
     (loss) represents total revenues less operating expenses.



                                                                 2002                2001                 2000
                                                                 ----                ----                 ----
                                                                                          
     ASSETS
     Property and casualty insurance (a)                  $ 9,960,769         $ 8,796,909          $ 8,200,683
     Annuities and life                                     9,349,280           8,370,904            7,934,851
     Other                                                    192,407             230,461              247,942
                                                          -----------         -----------          -----------
                                                           19,502,456          17,398,274           16,383,476
     Investment in investees                                   -                   -                    23,996
                                                          -----------         -----------          -----------
                                                          $19,502,456         $17,398,274          $16,407,472
                                                          ===========         ===========          ===========
     REVENUES (b)
       Property and casualty insurance:
       Premiums earned:
         Specialty                                        $ 1,497,088         $ 1,409,497          $ 1,223,435
         Personal                                             905,246           1,182,651            1,270,328
         Other lines (c)                                          266               1,790                1,129
                                                          -----------         -----------          -----------
                                                            2,402,600           2,593,938            2,494,892
       Investment and other income                            410,947             458,410              450,537
                                                          -----------         -----------          -----------
                                                            2,813,547           3,052,348            2,945,429
     Annuities and life (d)                                   897,365             855,733              823,586
     Other                                                     33,809              21,384               51,095
                                                          -----------         -----------          -----------
                                                          $ 3,744,721         $ 3,929,465          $ 3,820,110
                                                          ===========         ===========          ===========
     OPERATING PROFIT (LOSS)
     Property and casualty insurance:
       Underwriting:
         Specialty                                        $    24,544        ($    23,274)        ($    94,857)
         Personal                                               1,339             (93,254)            (108,372)
         Other lines (c)(e)                                   (52,207)           (110,987)               1,342
                                                          -----------         -----------          -----------
                                                              (26,324)           (227,515)            (201,887)
       Investment and other income                            211,424             296,725              289,549
                                                          -----------         -----------          -----------
                                                              185,100              69,210               87,662
     Annuities and life                                        61,553             100,864               96,211
     Other (f)                                                (51,397)            (99,693)             (63,614)
                                                          -----------         -----------          -----------
                                                          $   195,256         $    70,381          $   120,259
                                                          ===========         ===========          ===========



     (a)  Not allocable to segments.
     (b)  Revenues include sales of products and services as well as other
          income earned by the respective segments.
     (c)  Represents development of lines in "run-off"; AFC has ceased
          underwriting new business in these operations.
     (d)  Represents primarily investment income.
     (e)  Includes a special charge of $100 million in 2001 related to asbestos
          and other environmental matters ("A&E").
     (f)  Includes holding company expenses.



                                      F-55



D.   INVESTMENTS Fixed maturities and other stocks at December 31 consisted of
     the following (in millions):




                                                           2002                                            2001
                                      -------------------------------------------      -------------------------------------------
                                      Amortized      Market     Gross  Unrealized      Amortized     Market      Gross  Unrealized
                                                                -----------------                                -----------------
                                           Cost       Value      Gains     Losses          Cost       Value      Gains      Losses
                                      ---------       -----      -----     ------      ---------      -----      -----      ------

                                                                                                  
      Fixed maturities:
        United States Government
         and government agencies
         and authorities              $ 1,353.6   $ 1,402.0     $ 49.5    ($  1.1)    $ 1,000.1   $ 1,017.8     $ 21.7    ($  4.0)
        States, municipalities and
         political subdivisions           584.4       615.2       36.4       (5.6)        405.6       414.9       16.2       (6.9)
        Foreign government                163.3       169.9        6.6         -          105.5       108.8        3.5        (.2)
        Public utilities                1,038.9     1,058.3       43.4      (24.0)        772.0       778.8       14.4       (7.6)
        Mortgage-backed securities      3,106.6     3,232.1      134.6       (9.1)      2,632.9     2,702.5       89.5      (19.9)
        All other corporate             5,241.8     5,462.7      312.0      (91.1)      5,616.6     5,673.5      160.2     (103.3)
        Redeemable preferred stocks        61.1        66.7        7.8       (2.2)         60.5        52.3         .8       (9.0)
                                      ---------   ---------     ------     ------     ---------   ---------     ------     ------


                                      $11,549.7   $12,006.9     $590.3    ($133.1)    $10,593.2   $10,748.6     $306.3    ($150.9)
                                      =========   =========     ======     ======     =========   =========     ======     ======


      Other stocks                    $   173.9   $   299.1     $129.9    ($  4.7)    $   187.8   $   313.7     $135.7    ($  9.8)
                                      =========   =========     ======     ======     =========   =========     ======     ======



     The table below sets forth the scheduled maturities of fixed maturities
     based on market value as of December 31, 2002. Asset-backed securities and
     other securities with sinking funds are reported at average maturity. Data
     based on amortized cost is generally the same. Actual maturities may differ
     from contractual maturities because certain securities may be called or
     prepaid by the issuers. Mortgage-backed securities had an average life of
     approximately five years at December 31, 2002.

                       Maturity
                    --------------------------
                    One year or less                               6%
                    After one year through five years             23
                    After five years through ten years            33
                    After ten years                               11
                                                                 ---
                                                                  73

                    Mortgage-backed securities                    27
                                                                 ---
                                                                 100%
                                                                 ===

     Certain risks are inherent in connection with fixed maturity securities,
     including loss upon default, price volatility in reaction to changes in
     interest rates, and general market factors and risks associated with
     reinvestment of proceeds due to prepayments or redemptions in a period of
     declining interest rates.

     The only investment which exceeds 10% of Shareholders' Equity is an equity
     investment in Provident Financial Group, Inc., having a market value of
     $189 million and $191 million at December 31, 2002 and 2001, respectively.

     Realized gains (losses) and changes in unrealized appreciation
     (depreciation) on fixed maturity and equity security investments are
     summarized as follows (in thousands):




                                        Fixed             Equity               Tax
                                   Maturities         Securities           Effects          Total
                                   ----------         ----------         ---------       --------

                                                                            
         2002
         ----
         Realized                   ($ 61,081)          ($17,854)         $ 27,582      ($ 51,353)
         Change in Unrealized         301,800               (700)         (103,800)       197,300

         2001
         ----
         Realized                     (15,315)            (8,825)            8,451        (15,689)
         Change in Unrealized         139,000            (84,500)          (19,200)        35,300

         2000
         ----
         Realized                     (24,186)            (2,395)            9,303        (17,278)
         Change in Unrealized         255,200             29,900           (98,200)       186,900







                                      F-56







     Gross gains and losses on fixed maturity investment transactions included
     in the Statement of Cash Flows consisted of the following (in millions):

                                        2002         2001        2000
                                        ----         ----        ----

                  Gross Gains         $155.4       $108.9       $15.9
                  Gross Losses       ($216.5)     ($124.2)     ($40.1)

E.   GOODWILL AND OTHER INTANGIBLES Effective January 1, 2002, goodwill is no
     longer amortized but is subject to annual impairment testing under a two
     step process. Under the first step, an entity's net assets are classified
     by reporting units and compared to their fair value. Fair value was
     estimated based primarily on the present value of expected future cash
     flows. If the carrying amount of a reporting unit exceeds its fair value,
     the second step of the goodwill impairment test is performed to measure the
     amount of impairment loss, if any. In the second quarter of 2002, AFC
     completed the first step of its transitional impairment test and identified
     potential impairment of goodwill in its annuities and life insurance
     segment and the personal lines segment of its property and casualty
     insurance business. The second step of the impairment test, measuring the
     amount of impairment loss, was completed in the fourth quarter with a
     resulting $40.4 million impairment charge reported by restating first
     quarter 2002 results for the cumulative effect of a change in accounting
     principle. The impairment charge for the annuities and life insurance
     segment was related to a decrease in estimated future earnings based upon
     lower forecasted new business sales over the next few years. The impairment
     charge for the personal lines segment related primarily to planned future
     reductions in new business volume written through the direct channel.

     If the goodwill amortization of $13.8 million and $16.5 million in the
     years 2001 and 2000, respectively, had not been expensed, net earnings
     (loss) for the periods would have been earnings of $16.3 million and a loss
     of $15.6 million.

     Changes in the carrying value of goodwill during 2002, by reporting
     segment, are presented in the following table (in thousands):




                                              Property and Casualty
                                         --------------------------      Annuities
                                         Specialty         Personal       and Life        Total
                                         ---------         --------      ---------     --------
                                                                          
     Balance December 31, 2001            $154,339         $117,391        $40,404     $312,134
     Goodwill from acquisitions               -                 -            1,461        1,461
     Transitional impairment charge           -             (39,600)       (21,184)     (60,784)
     Other                                  (4,128)            -              -          (4,128)
                                          --------         --------        -------     --------
     Balance December 31, 2002            $150,211         $ 77,791        $20,681     $248,683
                                          ========         ========        =======     ========




     Included in deferred acquisition costs in AFC's Balance Sheet are $66.8
     million and $71.2 million at December 31, 2002 and 2001, respectively,
     representing the present value of future profits ("PVFP") related to
     acquisitions by AFC's annuity and life business. The PVFP amounts are net
     of $57.3 million and $45.5 million of accumulated amortization.
     Amortization of the PVFP was $11.8 million in 2002, $9.2 million in 2001
     and $10.7 million in 2000. During each of the next five years, the PVFP is
     expected to decrease at a rate of approximately 13% of the balance at the
     beginning of each respective year.

F.   PAYABLE TO AMERICAN FINANCIAL GROUP AFC has a reciprocal Master Credit
     Agreement with various AFG holding companies under which these companies
     make funds available to each other for general corporate purposes. Amounts
     borrowed under the agreement bear interest at 1% over LIBOR.



                                      F-57





G.   LONG-TERM DEBT Long-term debt consisted of the following at December 31,
     (in thousands):

                                                           2002          2001
                                                           ----          ----
     HOLDING COMPANIES:
       AFC notes payable under bank line                 $248,000      $203,000
       American Premier Underwriters, Inc. ("APU")
         10-7/8% Subordinated Notes due May 2011,
         including premium of $777 and $836
         (imputed rate - 9.6%)                             11,498        11,557
       Other                                                8,014        13,695
                                                         --------      --------

                                                         $267,512      $228,252
                                                         ========      ========
     SUBSIDIARIES:
       GAFRI 6-7/8% Senior Notes due June 2008           $100,000      $100,000
       GAFRI notes payable under bank line                148,600       121,100
       Notes payable secured by real estate                35,610        36,253
       Other                                               12,561        13,399
                                                         --------      --------

                                                         $296,771      $270,752
                                                         ========      ========


     At December 31, 2002, sinking fund and other scheduled principal payments
     on debt for the subsequent five years were as follows (in millions):

                        Holding
                      Companies     Subsidiaries        Total
                      ---------     ------------        -----
           2003          $ 78.0           $  2.1       $ 80.1
           2004              -             150.8        150.8
           2005           170.0             11.3        181.3
           2006              -              19.6         19.6
           2007             5.1               .2          5.3

     In November 2002, AFC replaced its $300 million bank credit line with a new
     bank credit agreement. Currently, AFC may borrow up to $280 million under
     the new agreement; the line may be expanded to $300 million through the end
     of 2003. The new line consists of two facilities: a 364-day revolving
     facility, extendable annually, for one-third of the total line and a
     three-year revolving facility for the remaining two-thirds. Amounts
     borrowed bear interest at rates ranging from 1.25% to 2.25% over LIBOR
     based on AFG's credit rating. In addition, GAFRI has an unsecured credit
     agreement under which it can borrow up to $155 million at floating rates
     based on prime or Eurodollar rates through December 2004.

     Cash interest payments of $32 million, $50 million and $58 million were
     made on long-term debt in 2002, 2001 and 2000, respectively. Interest
     expense in the Statement of Operations includes interest credited on funds
     held by AFC's insurance subsidiaries under reinsurance contracts and other
     similar agreements as follows: 2002 - $11.7 million; 2001 - $7.1 million;
     and 2000 - $9.5 million.




                                      F-58





H.   MINORITY INTEREST Minority interest in AFC's balance sheet is comprised of
     the following (in thousands):

                                                             2002        2001
                                                             ----        ----
          Interest of AFG (parent) and noncontrolling
            shareholders in subsidiaries' common stock   $351,559    $317,824
          Preferred securities issued by
            subsidiary trusts                             142,913     142,913
                                                         --------    --------

                                                         $494,472    $460,737
                                                         ========    ========

     SUBSIDIARY PREFERRED SECURITIES Wholly-owned subsidiary trusts of GAFRI
     have issued preferred securities and, in turn, purchased a like amount of
     subordinated debt which provides interest and principal payments to fund
     the respective trusts' obligations. The preferred securities must be
     redeemed upon maturity or redemption of the subordinated debt. GAFRI
     effectively provides unconditional guarantees of its trusts' obligations.

     The preferred securities consisted of the following (in thousands):




          Date of                                                                   Optional
          Issuance            Issue (Maturity Date)            2002         2001    Redemption Dates
          -------------       ------------------------         ----         ----    ----------------
                                                                        
          November 1996       GAFRI 9-1/4% TOPrS (2026)       $72,913     $72,913    Currently redeemable
          March 1997          GAFRI 8-7/8% Pfd   (2027)        70,000      70,000    On or after 3/1/2007



     MINORITY INTEREST EXPENSE Minority interest expense is comprised of (in
     thousands):



                                                                      2002             2001         2000
                                                                      ----             ----         ----
                                                                                        
          Interest of AFG (parent) and noncontrolling
            shareholders in earnings of subsidiaries               $19,136          $14,879      $ 6,092
          Accrued distributions by subsidiaries
            on preferred securities, net of tax                      8,424           11,075       11,959
                                                                   -------          -------      -------

                                                                   $27,560          $25,954      $18,051
                                                                   =======          =======      =======



I.   SHAREHOLDERS' EQUITY At December 31, 2002, and 2001, American Financial
     Group beneficially owned all of the outstanding shares of AFC's Common
     Stock.

     PREFERRED STOCK Under provisions of both the Nonvoting (4.0 million shares
     authorized) and Voting (4.0 million shares authorized) Cumulative Preferred
     Stock, the Board of Directors may divide the authorized stock into series
     and set specific terms and conditions of each series. At December 31, 2002
     and 2001, the outstanding voting shares of AFC's Preferred Stock consisted
     of the following:

          SERIES J, no par value; $25.00 liquidating value per share; annual
          dividends per share $2.00; redeemable at AFC's option at $25.75 per
          share beginning December 2005 declining to $25.00 at December 2007 and
          thereafter; 2,886,161 shares (stated value $72.2 million) outstanding
          at December 31, 2002 and 2001.





                                      F-59




     UNREALIZED GAIN (LOSS) ON MARKETABLE SECURITIES, NET The change in
     unrealized gain (loss) on marketable securities included the following (in
     millions):




                                                                      Tax       Minority
                                                    Pretax        Effects       Interest            Net
                                                    ------        -------       --------           -----

                                                                                      
                        2002
     ----------------------------------------
     Unrealized holding gains on
       securities arising during the period         $195.2         ($66.4)        ($15.5)         $113.3
     Realized losses included in net income           78.9          (27.7)          (4.7)           46.5
                                                    ------          -----          -----          ------
     Change in unrealized gain on marketable
       securities, net                              $274.1         ($94.1)        ($20.2)         $159.8
                                                    ======          =====          =====          ======

                        2001
     ----------------------------------------
     Unrealized holding gains (losses) on
       securities arising during the period         $  0.8         ($ 0.3)        ($ 5.0)        ($  4.5)
     Adoption of EITF 99-20                           16.9           (6.0)          (0.9)           10.0
     Realized losses included in net income and
       unrealized gains of subsidiary sold            23.6           (8.3)          (3.1)           12.2
                                                    ------          -----          -----          ------
     Change in unrealized gain on marketable
       securities, net                              $ 41.3         ($14.6)        ($ 9.0)         $ 17.7
                                                    ======          =====          =====          ======

                        2000
     ----------------------------------------
     Unrealized holding gains on
       securities arising during the period         $221.1         ($75.8)        ($18.8)         $126.5
     Adoption of SFAS No. 133                         15.0           (5.3)           -               9.7
     Realized gains included in net income and
       unrealized losses of subsidiary sold           31.3          (10.9)          (2.7)           17.7
                                                    ------          -----          -----          ------
     Change in unrealized gain on marketable
       securities, net                              $267.4         ($92.0)        ($21.5)         $153.9
                                                    ======          =====          =====          ======




J.   INCOME TAXES The following is a reconciliation of income taxes at the
     statutory rate of 35% and income taxes as shown in the Statement of
     Operations (in thousands):



                                                                   2002               2001               2000
                                                                   ----               ----               ----
                                                                                            
        Earnings (loss) before income taxes:
          Operating                                            $195,256            $70,381           $120,259
          Minority interest expense                             (32,096)           (31,917)           (24,491)
          Equity in net losses of investees                     (13,830)           (25,462)          (142,230)
          Accounting changes                                    (57,716)           (15,948)           (13,882)
                                                               --------            -------           --------

        Total                                                  $ 91,614           ($ 2,946)         ($ 60,344)
                                                               ========            =======           ========

        Income taxes at statutory rate                         $ 32,065           ($ 1,031)         ($ 21,120)
        Effect of:
          Adjustment to prior year taxes                        (33,192)            (6,317)              -
          Minority interest                                       5,602              4,881              2,177
          Effect of foreign operations                           (4,212)            (3,421)               951
          Amortization and writeoff of intangibles                3,711              4,568              5,537
          Losses utilized                                        (3,300)            (1,245)            (7,000)
          Dividends received deduction                           (2,313)            (2,317)            (2,378)
          Tax exempt interest                                    (1,367)            (1,233)            (1,571)
          Nondeductible meals, etc.                                 992              1,381              1,300
          State income taxes                                        153                781                298
          Tax credits                                              -                (1,243)            (5,757)
          Other                                                    (875)              (300)              (656)
                                                               --------            -------            -------
        Total Provision (Credit)                                 (2,736)            (5,496)           (28,219)

        Amounts applicable to:
          Minority interest expense                               4,536              5,963              6,440
          Equity in net losses of investees                       4,840              8,912             49,781
          Accounting changes                                     17,356              5,908              4,810
                                                               --------            -------           --------
        Provision for income taxes as shown
          on the Statement of Operations                       $ 23,996            $15,287           $ 32,812
                                                               ========            =======           ========





                                      F-60




     Total earnings before income taxes include income subject to tax in foreign
     jurisdictions of $17.8 million in 2002, $8.3 million in 2001 and $10.6
     million in 2000.

     The total income tax provision (credit) consists of (in thousands):



                                                                        2002                 2001                2000
                                                                        ----                 ----                ----

                                                                                                     
             Current taxes:
               Federal                                               $17,535              $44,715             $10,324
               Foreign                                                 2,293                 -                  1,106
               State                                                     236                1,201                 459
             Deferred taxes:
               Federal                                               (24,492)             (50,679)            (39,588)
               Foreign                                                 1,692                 (733)               (520)
                                                                     -------              -------             -------

                                                                    ($ 2,736)            ($ 5,496)           ($28,219)
                                                                     =======              =======             =======



     For income tax purposes, certain members of the AFC consolidated tax group
     had the following carryforwards available at December 31, 2002 (in
     millions):



                                                                       Expiring            Amount
                                                                       --------            ------
                                                                                       
                                  {                                   2003 - 2007             $11
             Operating Loss       {                                   2008 - 2017               -
                                  {                                   2018 - 2020              89
             Other - Tax Credits                                                               11



     Deferred income tax assets and liabilities reflect temporary differences
     between the carrying amounts of assets and liabilities recognized for
     financial reporting purposes and the amounts recognized for tax purposes.
     The significant components of deferred tax assets and liabilities included
     in the Balance Sheet at December 31, were as follows (in millions):



                                                                              2002              2001
                                                                              ----              ----
                                                                                        
           Deferred tax assets:
             Net operating loss carryforwards                               $ 35.4            $ 68.3
             Insurance claims and reserves                                   278.6             268.2
             Other, net                                                      108.8              96.4
                                                                            ------            ------
                                                                             422.8             432.9
             Valuation allowance for deferred
               tax assets                                                    (34.9)            (40.9)
                                                                            ------            ------
                                                                             387.9             392.0
           Deferred tax liabilities:
             Deferred acquisition costs                                     (242.6)           (231.5)
             Investment securities                                          (188.3)           (109.0)
                                                                            ------            ------
                                                                            (430.9)           (340.5)
                                                                            ------            ------

           Net deferred tax asset (liability)                              ($ 43.0)           $ 51.5
                                                                            ======            ======



     The gross deferred tax asset has been reduced by a valuation allowance
     based on an analysis of the likelihood of realization. Factors considered
     in assessing the need for a valuation allowance include: (i) recent tax
     returns, which show neither a history of large amounts of taxable income
     nor cumulative losses in recent years, (ii) opportunities to generate
     taxable income from sales of appreciated assets, and (iii) the likelihood
     of generating larger amounts of taxable income in the future. The
     likelihood of realizing this asset will be reviewed periodically; any
     adjustments required to the valuation allowance will be made in the period
     in which the developments on which they are based become known.

     Cash payments for income taxes, net of refunds, were $30.0 million, $10.0
     million and $24.4 million for 2002, 2001 and 2000, respectively.


                                      F-61


K.   EQUITY IN LOSSES OF INVESTEES In addition to the start-up manufacturing
     operations discussed in Note B, and prior to Chiquita's March 2002
     restructuring, AFC owned 24 million shares (31% as of December 31, 2001) of
     Chiquita common stock. Chiquita is a leading international marketer,
     producer and distributor of quality fresh fruits and vegetables and
     processed foods.

     In January 2001, Chiquita announced a restructuring initiative that
     included discontinuing all interest and principal payments on its public
     debt. Due to the expected restructuring, AFC recorded a fourth quarter 2000
     pretax charge of $95.7 million to write down its investment in Chiquita to
     quoted market value at December 31, 2000. In 2001, AFC suspended accounting
     for the investment under the equity method and reclassified the investment
     to "Other stocks". In the third quarter of 2001, AFC wrote down its
     investment in Chiquita by an additional $8 million (to $.67 per share). In
     March 2002, the court approved Chiquita's plan of reorganization under
     Chapter 11 of the U.S. Bankruptcy Code. Under the plan, over $700 million
     in principal and accrued interest related to Chiquita's public debt was
     converted into common equity. As a result of the restructuring, AFC
     received approximately 171,000 "new" shares (less than one-half of 1%) in
     the reorganized company plus warrants expiring in 2009 to purchase an
     additional 2.9 million shares at $19.23 per share. All of the shares and
     approximately 4% of the warrants have been sold.

     For the year ended December 31, 2000, Chiquita reported net sales of $2.25
     billion, operating income of $27 million, a net loss of $95 million, and a
     net loss attributable to common shares of $112 million.

L.   COMMITMENTS AND CONTINGENCIES Loss accruals (included in other liabilities)
     have been recorded for various environmental and occupational injury and
     disease claims and other contingencies arising out of the railroad
     operations disposed of by American Premier's predecessor, Penn Central
     Transportation Company ("PCTC"), prior to its bankruptcy reorganization in
     1978 and certain manufacturing operations disposed of by American Premier.

     At December 31, 2002, American Premier had liabilities for environmental
     and personal injury claims aggregating $66.4 million. The environmental
     claims consist of a number of proceedings and claims seeking to impose
     responsibility for hazardous waste remediation costs related to certain
     sites formerly owned or operated by the railroad and manufacturing
     operations. Remediation costs are difficult to estimate for a number of
     reasons, including the number and financial resources of other potentially
     responsible parties, the range of costs for remediation alternatives,
     changing technology and the time period over which these matters develop.
     The personal injury claims include pending and expected claims, primarily
     by former employees of PCTC, for injury or disease allegedly caused by
     exposure to excessive noise, asbestos or other substances in the workplace.
     In December 2001, American Premier recorded a $12.1 million charge to
     increase its environmental reserves due to an increase in expected ultimate
     claim costs. At December 31, 2002, American Premier had $46.4 million of
     offsetting recovery assets (included in other assets) for such
     environmental and personal injury claims based upon estimates of probable
     recoveries from insurance carriers.

     AFC has accrued approximately $7 million at December 31, 2002, for
     environmental costs and certain other matters associated with the sales of
     former operations.

     AFC's insurance subsidiaries continue to receive claims related to
     environmental exposures, asbestos and other mass tort claims. Establishing
     reserves for these claims is subject to uncertainties that are
     significantly greater than those presented by other types of claims. The
     liability for asbestos and environmental reserves at December 31, 2002 and
     2001, respectively, was $572 million and $548 million; related recoverables
     from reinsurers (net of allowances for doubtful accounts) at those dates
     were $105 million and $101 million, respectively.


                                      F-62







     While management believes AFC has recorded adequate reserves for the items
     discussed in this note, the outcome is uncertain and could result in
     liabilities exceeding amounts AFC has currently recorded. Additional
     amounts could have a material adverse effect on AFC's future results of
     operations and financial condition.

M.   QUARTERLY OPERATING RESULTS (UNAUDITED) The operations of certain of AFC's
     business segments are seasonal in nature. While insurance premiums are
     recognized on a relatively level basis, claim losses related to adverse
     weather (snow, hail, hurricanes, tornadoes, etc.) may be seasonal.
     Quarterly results necessarily rely heavily on estimates. These estimates
     and certain other factors, such as the nature of investees' operations and
     discretionary sales of assets, cause the quarterly results not to be
     necessarily indicative of results for longer periods of time.

     The following are quarterly results of consolidated operations for the two
     years ended December 31, 2002 (in millions, except per share amounts).



                                                               1st          2nd           3rd          4th         Total
                                                           Quarter      Quarter       Quarter      Quarter          Year
                                                           -------      -------       -------      -------      --------
                                                                                                 
                        2002
     ---------------------------------------------
     Revenues                                               $925.6       $920.1        $935.4       $963.6      $3,744.7
     Earnings before accounting change                        46.1         16.4          24.1         48.2         134.8
     Cumulative effect of accounting change                  (40.4)         -             -            -           (40.4)
     Net earnings                                              5.7         16.4          24.1         48.2          94.4


                        2001
     ---------------------------------------------
     Revenues                                               $973.5       $995.0      $1,016.4       $944.6      $3,929.5
     Earnings (loss) before accounting change                 17.0         12.6         (51.9)        34.9          12.6
     Cumulative effect of accounting change                    -          (10.0)          -            -           (10.0)
     Net earnings (loss)                                      17.0          2.6         (51.9)        34.9           2.6



     Results for 2002 include a $16 million tax benefit in the first quarter and
     a $15 million tax benefit in the fourth quarter resulting from the
     reduction of previously accrued amounts due to the resolution of certain
     tax matters. Fourth quarter 2002 results also include a $30 million charge
     related to the settlement of asbestos-related litigation.

     The results for 2001 include goodwill amortization of approximately $3.4
     million per quarter.

     The 2001 third quarter results include a $100 million pretax charge to
     strengthen asbestos and environmental insurance reserves and pretax losses
     of $25 million resulting from the World Trade Center terrorist attack.

     AFC has realized gains (losses) on sales of subsidiaries in recent years
     (see Note B). Realized gains (losses) on securities, affiliates and other
     investments amounted to (in millions):



                                                 1st              2nd             3rd              4th             Total
                                             Quarter          Quarter         Quarter          Quarter              Year
                                             -------          -------         -------          -------            ------
                                                                                                  
           2002                               ($17.8)          ($47.5)         ($33.9)            $9.5            ($89.7)
           2001                                 (8.5)           (26.4)            7.0              3.9             (24.0)













                                      F-63





N.   INSURANCE Securities owned by insurance subsidiaries having a carrying
     value of just over $1 billion at December 31, 2002, were on deposit as
     required by regulatory authorities.

     INSURANCE RESERVES The liability for losses and loss adjustment expenses
     for certain long-term scheduled payments under workers' compensation, auto
     liability and other liability insurance has been discounted at about 8%, an
     approximation of long-term investment yields. As a result, the total
     liability for losses and loss adjustment expenses at December 31, 2002, has
     been reduced by $25 million.

     The following table provides an analysis of changes in the liability for
     losses and loss adjustment expenses, net of reinsurance (and grossed up),
     over the past three years on a GAAP basis (in millions). Adverse
     development recorded in 2002 and 2001 in prior year reserves related
     primarily to charges for asbestos and certain Specialty lines in run-off.



                                                                     2002              2001              2000
                                                                     ----              ----              ----

                                                                                              
        Balance at beginning of period                             $3,253            $3,192            $3,224

        Provision for losses and LAE occurring
          in the current year                                       1,664             1,950             2,056
        Net increase (decrease) in provision for
          claims of prior years                                       171               163               (60)
                                                                   ------            ------            ------
             Total losses and LAE incurred (*)                      1,835             2,113             1,996
        Payments for losses and LAE of:
          Current year                                               (594)             (831)             (905)
          Prior years                                              (1,094)           (1,036)             (936)
                                                                   ------            ------            ------
             Total payments                                        (1,688)           (1,867)           (1,841)

        Reserves of businesses sold                                  -                 (120)             (187)
        Reclass to unearned premiums                                 -                  (65)             -
                                                                   ------            ------            ------

        Balance at end of period                                   $3,400            $3,253            $3,192
                                                                   ======            ======            ======

        Add back reinsurance recoverables, net
          of allowance                                              1,804             1,525             1,324
                                                                   ------            ------            ------

        Gross unpaid losses and LAE included
          in the Balance Sheet                                     $5,204            $4,778            $4,516
                                                                   ======            ======            ======



     (*)  Before amortization of deferred gains on retroactive reinsurance of
          $20 million in 2002, $33 million in 2001 and $34 million in 2000.


     NET INVESTMENT INCOME The following table shows (in millions) investment
     income earned and investment expenses incurred by AFC's insurance
     companies.



                                                               2002            2001             2000
                                                               ----            ----             ----
                                                                                     
     Insurance group investment income:
       Fixed maturities                                      $850.9          $841.0           $815.5
       Equity securities                                        9.6             8.1             10.4
       Other                                                     .6             1.1              4.3
                                                             ------          ------           ------
                                                              861.1           850.2            830.2
     Insurance group investment expenses (*)                  (40.4)          (36.8)           (41.4)
                                                             ------          ------           ------

                                                             $820.7          $813.4           $788.8
                                                             ======          ======           ======



     (*)  Included primarily in "Other operating and general expenses" in the
          Statement of Operations.

                                      F-64




     STATUTORY INFORMATION AFC's insurance subsidiaries are required to file
     financial statements with state insurance regulatory authorities prepared
     on an accounting basis prescribed or permitted by such authorities
     (statutory basis). Net earnings and policyholders' surplus on a statutory
     basis for the insurance subsidiaries were as follows (in millions):



                                                                                                            Policyholders'
                                                                         Net Earnings (Loss)                    Surplus
                                                                 ---------------------------             -----------------
                                                                 2002       2001        2000             2002         2001
                                                                 ----       ----        ----             ----         ----
                                                                                                     
     Property and casualty companies                             $116        $34         $10           $1,742       $1,669
     Life insurance companies                                     (24)       (25)         40              445          414



     REINSURANCE In the normal course of business, AFC's insurance subsidiaries
     cede reinsurance to other companies to diversify risk and limit maximum
     loss arising from large claims. To the extent that any reinsuring companies
     are unable to meet obligations under agreements covering reinsurance ceded,
     AFC's insurance subsidiaries would remain liable. The following table shows
     (in millions) (i) amounts deducted from property and casualty written and
     earned premiums in connection with reinsurance ceded, (ii) written and
     earned premiums included in income for reinsurance assumed and (iii)
     reinsurance recoveries deducted from losses and loss adjustment expenses.



                                                                          2002               2001                2000
                                                                          ----               ----                ----
                                                                                                      
             Direct premiums written                                    $4,027             $3,573              $3,365
             Reinsurance assumed                                            80                 94                  76
             Reinsurance ceded                                          (1,693)            (1,114)               (803)
                                                                        ------             ------              ------

             Net written premiums                                       $2,414             $2,553 (*)          $2,638
                                                                        ======             ======              ======

             Direct premiums earned                                     $3,798             $3,393              $3,306
             Reinsurance assumed                                            91                 92                  45
             Reinsurance ceded                                          (1,486)              (891)               (856)
                                                                        ------             ------              ------

             Net earned premiums                                        $2,403             $2,594              $2,495
                                                                        ======             ======              ======

             Reinsurance recoveries                                     $1,142             $  773              $  567
                                                                        ======             ======              ======



            (*)  Net of $29.7 million unearned premium transfer related to the
                 sale of the Japanese division.

O.   ADDITIONAL INFORMATION Total rental expense for various leases of office
     space and equipment was $52 million, $53 million and $44 million for 2002,
     2001 and 2000, respectively. Sublease rental income related to these leases
     totaled $612,000 in 2002, $2.4 million in 2001 and $2.5 million in 2000.

     Future minimum rentals, related principally to office space, required under
     operating leases having initial or remaining noncancelable lease terms in
     excess of one year at December 31, 2002, were as follows: 2003 - $57
     million; 2004 - $50 million; 2005 - $35 million; 2006 - $26 million; 2007 -
     $17 million and $33 million thereafter. In addition, AFC has 99-year land
     leases (approximately 94 years remaining) at one of its real estate
     properties. Minimum lease payments under these leases are expected to be
     approximately $180,000 in 2003 and are adjusted annually for inflation.

     Other operating and general expenses included charges for possible losses
     on agents' balances, other receivables and other assets in the following
     amounts: 2002 - $2.7 million; 2001 - $3.5 million; and 2000 - $9.7 million.
     Losses and loss adjustment expenses included charges for possible losses on
     reinsurance recoverables of $6.6 million in 2002 and $11 million in 2001.
     The aggregate allowance for all such losses amounted to approximately $72
     million and $67 million at December 31, 2002 and 2001, respectively.


                                      F-65




     UNREALIZED GAIN (LOSS) ON MARKETABLE SECURITIES, NET In addition to
     adjusting equity securities and fixed maturity securities classified as
     "available for sale" to fair value, SFAS 115 requires that certain other
     balance sheet amounts be adjusted to the extent that unrealized gains and
     losses from securities would result in adjustments had those gains or
     losses actually been realized. The components of the Consolidated Balance
     Sheet caption "Unrealized gain on marketable securities, net" in
     shareholders' equity are summarized as follows (in millions):



                                                                        Unadjusted                                  Adjusted
                                                                             Asset         Effect of                   Asset
                                                                       (Liability)          SFAS 115             (Liability)
                                                                       -----------          --------             -----------

                                                                                                          
     2002
     ----
     Fixed maturities                                                    $11,549.7            $457.2               $12,006.9
     Other stocks                                                            173.9             125.2                   299.1
     Deferred acquisition costs                                              873.1             (31.0)                  842.1
     Annuity benefits accumulated                                         (6,444.7)             (9.2)               (6,453.9)
                                                                                              ------
       Pretax unrealized                                                                       542.2

     Deferred taxes                                                          144.3            (187.3)                  (43.0)
     Minority interest                                                      (456.3)            (38.2)                 (494.5)
                                                                                              ------

       Unrealized gain                                                                        $316.7
                                                                                              ======

     2001
     ----
     Fixed maturities                                                    $10,593.2            $155.4               $10,748.6
     Other stocks                                                            187.8             125.9                   313.7
     Deferred acquisition costs                                              827.3              (9.0)                  818.3
     Annuity benefits accumulated                                         (5,827.9)             (4.2)               (5,832.1)
                                                                                              ------
       Pretax unrealized                                                                       268.1

     Deferred taxes                                                          144.7             (93.2)                   51.5
     Minority interest                                                      (442.7)            (18.0)                 (460.7)
                                                                                              ------

       Unrealized gain                                                                        $156.9
                                                                                              ======



     FAIR VALUE OF FINANCIAL INSTRUMENTS The following table presents (in
     millions) the carrying value and estimated fair value of AFC's financial
     instruments at December 31.



                                                                   2002                                   2001
                                                         -------------------------             -------------------------
                                                         Carrying             Fair             Carrying            Fair
                                                            Value            Value                Value           Value
                                                         --------         --------             --------        --------

                                                                                                    
     ASSETS:
     Fixed maturities                                     $12,007          $12,007              $10,749         $10,749
     Other stocks                                             299              299                  314             314

     LIABILITIES:
     Annuity benefits
       accumulated                                        $ 6,454          $ 6,284              $ 5,832         $ 5,659
     Long-term debt:
       Holding companies                                      268              268                  228             229
       Subsidiaries                                           297              287                  271             264

     MINORITY INTEREST:
     Trust preferred securities                           $   143          $   139              $   143         $   143

     AFC preferred stock                                       72               54                   72              61



     When available, fair values are based on prices quoted in the most active
     market for each security. If quoted prices are not available, fair value is
     estimated based on present values, discounted cash flows, fair value of
     comparable securities, or similar methods. The fair value of the liability
     for annuities in the payout phase is assumed to be the present value of the
     anticipated cash flows, discounted at current interest rates. Fair value of
     annuities in the accumulation phase is assumed to be the policyholders'
     cash surrender amount.


                                      F-66





     FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK On occasion, AFC and its
     subsidiaries have entered into financial instrument transactions which may
     present off-balance-sheet risks of both a credit and market risk nature.
     These transactions include commitments to fund loans, loan guarantees and
     commitments to purchase and sell securities or loans. At December 31, 2002,
     AFC and its subsidiaries had commitments to fund credit facilities and
     contribute limited partnership capital totaling up to $18 million.

     RESTRICTIONS ON TRANSFER OF FUNDS AND ASSETS OF SUBSIDIARIES Payments of
     dividends, loans and advances by AFC's subsidiaries are subject to various
     state laws, federal regulations and debt covenants which limit the amount
     of dividends, loans and advances that can be paid. Under applicable
     restrictions, the maximum amount of dividends available to AFC in 2003 from
     its insurance subsidiaries without seeking regulatory clearance is
     approximately $24 million. Additional amounts of dividends, loans and
     advances require regulatory approval.

     BENEFIT PLANS AFC expensed approximately $20 million in 2002, $19 million
     in 2001 and $22 million in 2000 for its retirement and employee savings
     plans.

     TRANSACTIONS WITH AFFILIATES AFG purchased a $3.7 million minority interest
     in a residential homebuilding company from an unrelated party in 1995. At
     that same time, a brother of AFC's chairman purchased a minority interest
     in the company for $825,000. In 2000, that brother and another brother of
     AFC's chairman acquired the remaining shares from the third parties. In
     addition, GAFRI had extended a line of credit to this company under which
     the homebuilder could borrow up to $8 million at 13%. At December 31, 2001,
     $6.4 million was due under the credit line. In September 2002, the
     homebuilding company was sold to an unrelated party and GAFRI's line of
     credit was repaid and terminated.

     In 2001, an AFC subsidiary purchased a 29% interest in an aircraft for $1.6
     million (fair value as determined by independent third party) from a
     company owned by a brother of AFC's chairman. The remaining interests in
     the aircraft are owned by AFC's chairman and his two brothers. Costs of
     operating the aircraft are being borne proportionately.

     In September 2000, GAFRI's minority ownership in a company engaged in the
     production of ethanol was repurchased by that company for $7.5 million in
     cash and $21.9 million liquidation value of non-voting redeemable preferred
     stock. Following the repurchase, AFC's Chairman beneficially owns 100% of
     the ethanol company. In December 2000, the ethanol company retired $3
     million of the preferred stock at liquidation value plus accrued dividends
     and issued an $18.9 million subordinated note in exchange for the remaining
     preferred stock. The subordinated note bears interest at 12-1/4% with
     scheduled repayments through 2005. During 2002 and 2001, respectively, $1
     million and $6 million of this note was repaid. The ethanol company also
     owes GAFRI $4.0 million under a subordinated note bearing interest at 14%.
     In addition, Great American has extended a $10 million line of credit to
     this company; no amounts have been borrowed under the credit line.

P.   SUBSEQUENT EVENTS (UNAUDITED)

     INFINITY PROPERTY AND CASUALTY CORPORATION On December 31, 2002, AFC
     transferred to Infinity Property and Casualty Corporation ("Infinity", a
     newly formed subsidiary) the following subsidiaries involved primarily in
     the issuance of nonstandard auto policies: Atlanta Casualty Company,
     Infinity Insurance Company, Leader Insurance Company and Windsor Insurance
     Company. Effective January 1, 2003, Great American Insurance Company, an
     AFC subsidiary, transferred to Infinity its personal insurance business
     written through independent agents. In February 2003, AFC sold 61% of
     Infinity in a public offering. The businesses transferred generated
     aggregate net written premiums

                                      F-67





     of approximately $690 million, $900 million and $1.2 billion for the years
     ended December 31, 2002, 2001, and 2000, respectively. AFC expects to
     realize a pretax loss of about $40 million on the sale in the first quarter
     of 2003. In addition, a substantial tax benefit related to AFC's book
     versus tax basis in Infinity stock may be available.

     DIRECT AUTOMOBILE INSURANCE BUSINESS In January 2003, AFC reached an
     agreement to sell two of its subsidiaries that market automobile insurance
     directly to customers. The transaction will include the transfer of Great
     American Insurance's right to renew certain of its personal automobile
     insurance business written on a direct basis in selected markets. Premiums
     generated by the businesses being sold were approximately $79 million in
     2002. AFC does not expect to report a significant gain or loss on the sale.












                                      F-68

                                                                         Annex A

                              AMENDED AND RESTATED

                      AGREEMENT AND PLAN OF REORGANIZATION

                                      AMONG

                         AMERICAN FINANCIAL GROUP, INC.,

                              AFC HOLDING COMPANY,

                                       AND

                         AMERICAN FINANCIAL CORPORATION





                           DATED AS OF OCTOBER 1, 2003





                                TABLE OF CONTENTS



                                                                                                                PAGE
                                                                                                                -----

                                                                                                          
ARTICLE 1.  THE HOLDING MERGER....................................................................................1
         Section 1.1       The Holding Merger.....................................................................1
         Section 1.2       Effects of the Holding Merger..........................................................2
         Section 1.3       No Exchange of Certificates............................................................3
         Section 1.4       Holding Merger Effective Time..........................................................3
         Section 1.5       Holding Merger Surviving Corporation Officers; Directors;
                           Articles of Incorporation and Regulations .............................................3


ARTICLE 2.  THE AFC MERGER........................................................................................3
         Section 2.1       The AFC Merger.........................................................................3
         Section 2.2       Effects of AFC Merger..................................................................5
         Section 2.3       Exchange of Certificates by Holders of Series J Preferred..............................6
         Section 2.4       AFC Merger Effective Time..............................................................7
         Section 2.5       AFC Merger Surviving Corporation Officers; Directors; Articles of
                           Incorporation and Regulations .........................................................7


ARTICLE 3.  APPROVAL OF AFC SHAREHOLDERS..........................................................................7
         Section 3.1       AFC Meeting............................................................................7
         Section 3.2       Proxy Statement/Prospectus.............................................................8
         Section 3.3       Correction of Statements...............................................................8


ARTICLE 4.  THE HOLDING MERGER CLOSING............................................................................8
         Section 4.1       Time and Place.........................................................................8
         Section 4.2       Deliveries at Closing..................................................................9
         Section 4.3       Filing of Certificate of Merger........................................................9


ARTICLE 5.  THE AFC MERGER CLOSING................................................................................9
         Section 5.1       Time and Place.........................................................................9
         Section 5.2       Deliveries at Closing..................................................................9
         Section 5.3       Filing of Certificate of Merger.......................................................10


ARTICLE 6.  REPRESENTATIONS AND WARRANTIES OF AFC................................................................10
         Section 6.1       Organization and Qualification; Active Subsidiaries...................................10
         Section 6.2       Authority Relative to this Agreement..................................................11
         Section 6.3       Consents and Approvals; No Violation..................................................11




                                TABLE OF CONTENTS



                                                                                                                PAGE
                                                                                                                -----

                                                                                                          
ARTICLE 7.  REPRESENTATIONS AND WARRANTIES OF AFG  IN CONNECTION WITH THE AFC MERGER.............................12
         Section 7.1       Organization and Qualification........................................................12
         Section 7.2       Capitalization........................................................................12
         Section 7.3       Authority Relative to this Agreement..................................................13
         Section 7.4       Consents and Approvals; No Violation..................................................13
         Section 7.5       SEC Filings; Financial Statements.....................................................14
         Section 7.6       Litigation............................................................................14
         Section 7.7       Employee Benefit Plans................................................................15
         Section 7.8       Taxes and Tax Returns.................................................................16
         Section 7.9       Compliance with Applicable Law........................................................16
         Section 7.10      Environmental Protection..............................................................17
         Section 7.11      Merger Consideration..................................................................18


ARTICLE 8.  REPRESENTATIONS AND WARRANTIES OF HOLDING............................................................18
         Section 8.1       Organization and Qualification........................................................18
         Section 8.2       Capitalization........................................................................19
         Section 8.3       Authority Relative to this Agreement..................................................19
         Section 8.4       Consents and Approvals; No Violation..................................................19


ARTICLE 9.  REPRESENTATIONS AND WARRANTIES OF AFG  IN CONNECTION WITH THE HOLDING MERGER.........................20
         Section 9.1       Organization and Qualification........................................................20
         Section 9.2       Authority Relative to this Agreement..................................................20
         Section 9.3       Consents and Approvals; No Violation..................................................20


ARTICLE 10. ADDITIONAL AGREEMENTS................................................................................21
         Section 10.1      Access to Information.................................................................21
         Section 10.2      Public Announcements..................................................................21
         Section 10.3      Best Efforts..........................................................................21
         Section 10.4      Rule 145..............................................................................22
         Section 10.5      Post Merger Matters...................................................................22
         Section 10.6      Survival of Indemnification for Directors and Officers................................22


ARTICLE 11. CONDITIONS TO CONSUMMATION OF THE AFC MERGER.........................................................22
         Section 11.1      Conditions to the Obligations of Each Party...........................................22
         Section 11.2      Additional Conditions to the Obligations of AFC.......................................23
         Section 11.3      Additional Conditions to the Obligations of AFG.......................................24


                                      -ii-


                                TABLE OF CONTENTS



                                                                                                                PAGE
                                                                                                                -----
                                                                                                          
ARTICLE 12. CONDITIONS TO CONSUMMATION OF THE HOLDING MERGER.....................................................25
         Section 12.1      Conditions to the Obligations of Each Party...........................................25
         Section 12.2      Additional Conditions to the Obligations of Holding...................................26
         Section 12.3      Additional Conditions to the Obligations of AFG.......................................26


ARTICLE 13. TERMINATION; AMENDMENTS; WAIVER......................................................................27
         Section 13.1      Termination...........................................................................27
         Section 13.2      Amendment.............................................................................29
         Section 13.3      Extension; Waiver.....................................................................29


ARTICLE 14. MISCELLANEOUS........................................................................................29
         Section 14.1      Survival of Representations, Warranties, Covenants and Agreements.....................29
         Section 14.2      Entire Agreement; Assignment..........................................................29
         Section 14.3      Validity..............................................................................30
         Section 14.4      Notices...............................................................................30
         Section 14.5      Governing Law.........................................................................32
         Section 14.6      Expenses..............................................................................32
         Section 14.7      Interpretation........................................................................32
         Section 14.8      Counterparts..........................................................................33
         Section 14.9      Parties in Interest...................................................................33






                                     -iii-

                                     Annexes


Annex I     -   Holding Officer's Certificate
Annex II    -   AFG Officer's Certificate (Holding Merger)
Annex III   -   AFC Officer's Certificate
Annex IV    -   AFG Officer's Certificate (AFC Merger)
Annex V     -   Legal Opinion of Keating, Muething & Klekamp, PLL
Annex VI    -   Legal Opinion of Akin, Gump, Strauss, Hauer & Feld LLP as to Tax
                Matters




                              AMENDED AND RESTATED
                      AGREEMENT AND PLAN OF REORGANIZATION


         THIS AMENDED AND RESTATED AGREEMENT AND PLAN OF REORGANIZATION
("Agreement") is made as of October 1, 2003 among AMERICAN FINANCIAL GROUP,
INC., an Ohio corporation ("AFG"), AFC HOLDING COMPANY, an Ohio corporation and
wholly owned subsidiary of AFG ("Holding"), and AMERICAN FINANCIAL CORPORATION,
an Ohio corporation and majority owned subsidiary of Holding ("AFC").

                                R E C I T A L S:

         WHEREAS, the Board of Directors of each of AFG and Holding have
determined that it is advisable and in the best interests of their respective
shareholders that, immediately prior to the consummation of the AFC Merger (as
hereinafter defined), Holding merge with and into AFG pursuant to the Holding
Merger (as hereinafter defined); and,

         WHEREAS, the Board of Directors of each of AFG and AFC have determined
that it is advisable and in the best interests of their respective shareholders
that AFC merge with and into AFG pursuant to the AFC Merger; and,

         WHEREAS, AFG and Holding desire to make certain representations,
warranties and agreements in connection with the Holding Merger; and,

         WHEREAS, AFG and AFC desire to make certain representations, warranties
and agreements in connection with the AFC Merger.

         NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, and intending to be legally bound hereby, the parties hereto
agree as follows:


                                   ARTICLE 1.
                               THE HOLDING MERGER

         Section 1.1       The Holding Merger.

                  (a)      AFG shall execute and deliver, and Holding shall
execute and deliver, a certificate of merger and any other documents required
under the laws of the State of Ohio to effect the merger of Holding with and
into AFG (the "Holding Merger") on the terms and conditions set forth in this
Agreement. The closing and consummation of the Holding Merger shall be governed
by the provisions of Article 4 of this Agreement.

                  (b)      In the Merger:


                                      -2-


                           (i)      Each share of common stock, no par value per
share, of Holding ("Holding Common Stock") issued and outstanding immediately
prior to the Holding Merger Effective Time (as hereinafter defined) shall, by
virtue of the Holding Merger and without the need for any further action on the
part of the holder thereof, be cancelled.

                           (ii)     Each share of AFG Common Stock issued and
outstanding immediately prior to the Holding Merger Effective Time shall be
converted, by virtue of the Holding Merger and without the need for any action
on the part of the holder thereof, into one (1) share of the common stock, no
par value, of AFG, as the corporation surviving the Holding Merger (in this
capacity, the "Holding Merger Surviving Corporation").

                  (c)      Each person who or that holds an option, warrant or
other right to acquire shares of AFG Common Stock, whether or not vested at the
Holding Merger Effective Time, shall, by virtue of the Holding Merger and
without the need for any further action on the part of the holder thereof, have
that option, warrant or other right converted into an option, warrant or other
right to acquire shares of Holding Merger Surviving Corporation common stock in
the same amounts and at the price or prices in effect with respect to the AFG
Common Stock immediately prior to the Holding Merger Effective Time. At the
Holding Merger Effective Time, the Holding Merger Surviving Corporation shall
assume each outstanding option, warrant or other right to acquire shares of AFG
Common Stock. To the extent necessary, the Compensation Committee of the Board
of Directors of the Holding Merger Surviving Corporation will take all action
necessary or advisable to provide for the foregoing.

                  (d)      The Holding Merger shall be effected under Section
1701.80 of the Ohio General Corporation Law, and this Agreement and the Holding
Merger need not be approved by the shareholders of either AFG or Holding. Each
of AFG and Holding shall use its best efforts to cause the Holding Merger to be
consummated in accordance with the terms hereof.

         Section 1.2       Effects of the Holding Merger.

                  When the Holding Merger has been effected, the separate
existence of Holding shall cease and Holding shall be merged with and into AFG,
with AFG being the Holding Merger Surviving Corporation. At and after the
Holding Merger Effective Time, AFG shall thereupon and thereafter possess all
the rights, privileges, powers, immunities, purposes and franchises, of a public
as well as of a private nature, of Holding, and, all and singular, the rights,
privileges, powers, immunities, purposes and franchises of Holding, and all
property, real, personal and mixed, tangible and intangible, and all debts due
to Holding, on whatever account, as well as for stock subscriptions and all
other things in action or belonging to Holding, shall be vested in AFG without
further act or deed; and all property, rights, privileges, powers, immunities,
purposes and franchises, and all and every other interest shall be thereafter as
effectually the property of AFG as they were of Holding; and the title to any
real estate vested by deed or otherwise or any other interest in real estate
vested by any instrument or otherwise in Holding shall not revert or become in
any way impaired by reason of the Holding Merger, but all rights of creditors
and all liens upon any property of Holding shall be preserved unimpaired, and
all debts, liabilities and duties




                                      -3-


of Holding shall thenceforth attach to AFG, and shall be enforceable against it
to the same extent as if said debts, liabilities and duties had been incurred or
contracted by it; all of the foregoing in accordance with Section 1701.82 and
other the applicable provisions of the Ohio Corporation Law.

         Section 1.3      No Exchange of Certificates.

                  From and after the Effective Time, each holder of an
outstanding certificate which immediately prior to the Effective Time
represented outstanding shares of AFG Common Stock shall represent and evidence
the same number of outstanding shares of Holding Merger Surviving Corporation
Common Stock.

         Section 1.4       Holding Merger Effective Time.

                  The term "Holding Merger Effective Time" shall mean the date
and time at which the Holding Merger shall have become effective pursuant to the
laws of the State of Ohio. The Holding Merger Effective Time shall be
immediately prior to the AFC Merger Effective Time.

         Section 1.5       Holding Merger Surviving Corporation Officers;
Directors; Articles of Incorporation and Regulations.

                  The officers and directors of AFG, as the Holding Merger
Surviving Corporation, immediately following the Holding Merger Effective Time,
shall be the officers and directors of AFG immediately prior to the Holding
Merger Effective Time. The Articles of Incorporation of AFG immediately prior to
the Holding Merger Effective Time shall be the Articles of Incorporation of the
Holding Merger Surviving Corporation. The Regulations of AFG immediately prior
to the Holding Merger Effective Time shall be the Regulations of the Holding
Merger Surviving Corporation. Nothing in this Section 1.5 shall be construed to
grant to any person any contractual or other right to hold office or a
directorship in the Holding Merger Surviving Corporation or to preclude the
shareholders or Board of Directors of the Holding Merger Surviving Corporation
from further amending or modifying the Articles of Incorporation or Regulations
of the Holding Merger Surviving Corporation.


                                   ARTICLE 2.
                                 THE AFC MERGER

         Section 2.1       The AFC Merger.

                  (a)      Each of AFG and AFC shall execute and deliver a
certificate of merger and any other documents required under the laws of the
State of Ohio to effect the merger of AFC with and into AFG (the "AFC Merger")
on the terms and conditions set forth in this Agreement. The closing and
consummation of the AFC Merger shall be governed by the provisions of Article 5
of this Agreement.


                                      -4-


                  (b)      In the AFC Merger:

                           (i)      Each share of common stock, no par value per
share, of AFC ("AFC Common Stock") issued and outstanding immediately prior to
the AFC Merger Effective Time (as hereinafter defined) shall, by virtue of the
AFC Merger and without the need for any further action on the part of the holder
thereof, be cancelled.

                           (ii)     Each share of Series J Preferred Stock, no
par value per share, of AFC (the "Series J Preferred") issued and outstanding
immediately prior to the AFC Merger Effective Time shall be converted, by virtue
of the AFC Merger and without the need for any further action on the part of the
holder thereof, into the right to receive the AFC Merger Consideration (as
hereinafter defined). The "AFC Merger Consideration" shall be, for each share of
Series J Preferred Stock, (1) that number of shares of common stock, no par
value per share, of AFG ("AFG Common Stock") equal to the quotient (rounded to
the nearest fourth decimal place) obtained by dividing Twenty Six Dollars
($26.00) by the lesser of Twenty Seven Dollars ($27.00) or the Average Closing
Price (as hereinafter defined) on the trading day that is three (3) business
days preceding the date on which the AFC Meeting (as hereinafter defined) occurs
(together with any cash to be paid to holders of Series J Preferred in lieu of
issuance of fractional shares of AFG Common Stock pursuant to Section 2.1(d)
below) plus (2) Accrued Dividends (as hereinafter defined) paid in cash in the
amount set forth in the next succeeding two (2) sentences. The "Average Closing
Price" as of any date shall mean the average of the mean of the daily high sales
price and daily low sales price of AFG Common Stock on the New York Stock
Exchange (as reported in The Wall Street Journal) for the twenty (20)
consecutive days in which such shares are trading ending at the close of trading
on the last day of trading before the date of the determination. The amount of
"Accrued Dividends" on each share to be paid in the AFC Merger as AFC Merger
Consideration shall mean the amount of dividends accruing from November 1, 2003
at the per diem rate of $.0055 per share of Series J Preferred Stock to the AFC
Merger Effective Time.

                           (iii)    Each share of AFG Common Stock issued and
outstanding immediately prior to the AFC Merger Effective Time shall be
converted, by virtue of the AFC Merger and without the need for any action on
the part of the holder thereof, into one (1) share of the common stock, no par
value, of AFG, as the corporation surviving the AFC Merger (in this capacity,
the "AFC Merger Surviving Corporation").

                  (c)      Each person who or that holds an option, warrant or
other right to acquire shares of AFG Common Stock, whether or not vested at the
AFC Merger Effective Time, shall, by virtue of the AFC Merger and without the
need for any further action on the part of the holder thereof, have that option,
warrant or other right converted into an option, warrant or other right to
acquire shares of AFC Merger Surviving Corporation common stock in the same
amounts and at the price or prices in effect with respect to the AFG Common
Stock immediately prior to the AFC Merger Effective Time. At the AFC Merger
Effective Time, the AFC Merger Surviving Corporation shall assume each
outstanding option, warrant or other right to acquire shares of AFG Common
Stock. To the extent necessary, the Compensation Committee of the Board of



                                      -5-


Directors of the AFC Merger Surviving Corporation will take all action necessary
or advisable to provide for the foregoing.

                  (d)      No fractional shares of AFG Common Stock shall be
issued to holders of Series J Preferred in the AFC Merger. All fractional shares
of AFG Common Stock that a holder of Series J Preferred would otherwise be
entitled to receive as a result of the AFC Merger shall be aggregated. Such
holder shall be entitled to receive, in lieu of any fractional share of AFG
Common Stock, an amount in cash equal to the product of such fraction multiplied
by the Average Closing Price.

                  (e)      Notwithstanding anything in this Agreement to the
contrary, shares of Series J Preferred outstanding immediately prior to the AFC
Merger Effective Time and held by a holder who has not voted in favor of the AFC
Merger or consented thereto in writing and who has demanded appraisal for such
shares of Series J Preferred in accordance with Section 1701.85 of the Ohio
General Corporation Law shall not be converted into a right to receive the AFC
Merger Consideration, unless such holder fails to perfect or withdraws or loses
its, his or her right to appraisal, in which case such shares of Series J
Preferred shall be treated as if they had been converted as of the AFC Merger
Effective Time into a right to receive the AFC Merger Consideration, without
interest thereon. AFC shall give AFG prompt notice of any demands received by
AFC for appraisal of shares of Series J Preferred and, prior to the AFC Merger
Effective Time, AFG shall have the right to direct all negotiations and
proceedings with respect to such demands. Prior to the AFC Merger Effective
Time, AFC shall not, except with the prior written consent of AFG, make any
payment with respect to, or settle or offer to settle any such demands. From and
after the AFC Effective Time, AFG, as the AFC Merger Surviving Corporation,
shall have the right to direct all negotiations and proceedings with respect to
such demands.

                  (f)      As the sole holder of the AFC Common Stock, Holding
hereby covenants that it will vote to authorize and approve the execution,
delivery and performance by AFC of the AFC Merger and this Agreement at the AFC
Meeting. AFC shall promptly submit to Holding, as the sole holder of AFC Common
Stock, and the holders of the Series J Preferred this Agreement and the AFC
Merger for adoption and approval in accordance with Article 3 hereof. Each of
AFG and AFC shall use its best efforts to cause the AFC Merger to be consummated
in accordance with the terms hereof.

         Section 2.2       Effects of AFC Merger.

                  When the AFC Merger has been effected, the separate existence
of AFC shall cease and AFC shall be merged with and into AFG, AFG being the AFC
Merger Surviving Corporation. At and after the AFC Merger Effective Time, AFG
shall thereupon and thereafter possess all the rights, privileges, powers,
immunities, purposes and franchises, of a public as well as of a private nature,
of AFC, and, all and singular, the rights, privileges, powers, immunities,
purposes and franchises of AFC, and all property, real, personal and mixed,
tangible and intangible, and all debts due to AFC, on whatever account, as well
as for stock subscriptions and



                                      -6-


all other things in action or belonging to AFC, shall be vested in AFG without
further act or deed; and all property, rights, privileges, powers, immunities,
purposes and franchises, and all and every other interest shall be thereafter as
effectually the property of AFG as they were of AFC; and the title to any real
estate vested by deed or otherwise or any other interest in real estate vested
by any instrument or otherwise in AFC shall not revert or become in any way
impaired by reason of the AFC Merger, but all rights of creditors and all liens
upon any property of AFC shall be preserved unimpaired, and all debts,
liabilities and duties of AFC shall thenceforth attach to AFG, and shall be
enforceable against it to the same extent as if said debts, liabilities and
duties had been incurred or contracted by it; all of the foregoing in accordance
with Section 1701.82 and other applicable provisions of the Ohio General
Corporation Law.

         Section 2.3       Exchange of Certificates by Holders of Series J
Preferred.

                  From and after the AFC Merger Effective Time, each holder of
an outstanding certificate which immediately prior to the AFC Merger Effective
Time represented outstanding shares of Series J Preferred shall be entitled to
receive in exchange therefor, upon surrender thereof to Securities Transfer
Company, One East Fourth Street, Cincinnati, Ohio 45202: (i) a certificate or
certificates representing the number of whole shares of AFG Common Stock into
which such holder's shares were converted in accordance with 2.1(b)(ii); and
(ii) a check representing any cash payable in lieu of any fractional share of
AFG Common Stock computed as set forth in Section 2.1(d) hereof. No holder of a
certificate or certificates which immediately prior to the AFC Merger Effective
Time represented shares of Series J Preferred shall be entitled to receive any
dividend or other distribution from AFG until surrender of such holder's
certificate or certificates for a certificate or certificates representing
shares of AFG Common Stock. After the AFC Merger Effective Time, there shall be
no further registration of transfers of shares of Series J Preferred. If, after
the AFC Merger Effective Time, certificates representing Series J Preferred are
presented to AFG, they shall be cancelled and exchanged for the AFC Merger
Consideration to be received in accordance with 2.1(b)(ii). From and after the
AFC Merger Effective Time, AFG shall, however, be entitled to treat certificates
for shares of Series J Preferred which have not yet been surrendered for
exchange as evidencing solely the right to receive the AFC Merger Consideration
for such certificates in accordance with 2.1(b)(ii), notwithstanding any failure
to surrender such certificates in exchange therefor. If any certificate for
shares of AFG Common Stock is to be issued in a name other than that in which
the certificate for shares of Series J Preferred surrendered in exchange
therefor is registered, it shall be a condition of such issuance that the person
requesting such issuance shall pay any transfer or other tax required by reason
of the issuance of certificates for such shares of AFG Common Stock in a name
other than that of the registered holder of the certificate surrendered, or
shall establish to the satisfaction of AFG or its agent that such tax has been
paid or is not applicable. Notwithstanding the foregoing, AFG shall not be
liable to any holder of shares of Series J Preferred for any shares of AFG
Common Stock (or dividends or distributions with respect thereto) or cash in
lieu of fractional shares delivered to a public official pursuant to any
applicable abandoned property, escheat or similar law.




                                      -7-


         Section 2.4       AFC Merger Effective Time.

                  The term "AFC Merger Effective Time" shall mean the date and
time at which the AFC Merger shall have become effective pursuant to the laws of
the State of Ohio. The AFC Merger Effective Time shall be immediately after the
Holding Merger Effective Time.

         Section 2.5       AFC Merger Surviving Corporation Officers; Directors;
Articles of Incorporation and Regulations.

                  The officers and directors of AFG, as the AFC Merger Surviving
Corporation, immediately following the AFC Merger Effective Time shall be the
officers and directors of AFG immediately prior to the AFG Merger Effective
Time. The Articles of Incorporation of AFG immediately prior to the AFC Merger
Effective Time shall be the Articles of Incorporation of the AFC Merger
Surviving Corporation. The Regulations of AFG immediately prior to the AFC
Merger Effective Time shall be the Regulations of the AFC Merger Surviving
Corporation. Nothing in this Section 2.5 shall be construed to grant to any
person any contractual or other right to hold office or a directorship in the
AFC Merger Surviving Corporation or to preclude the shareholders or Board of
Directors of the AFC Merger Surviving Corporation from further amending or
modifying the Articles of Incorporation or Regulations of the AFC Merger
Surviving Corporation.


                                   ARTICLE 3.
                          APPROVAL OF AFC SHAREHOLDERS

         Section 3.1       AFC Meeting.

                  (a)      The AFC Merger shall be submitted for approval to the
holders of the AFC Common Stock and, in separate class votes (as provided in
Section 11.1(c)), of shares of Series J Preferred, at a meeting to be duly held
for this purpose by AFC (the "AFC Meeting"). AFC shall endeavor to hold the AFC
Meeting as soon as practicable after the date hereof. AFC, acting through its
Board of Directors, shall, in accordance with applicable law:

                           (i)      duly call, give notice of, convene and hold
the AFC Meeting;

                           (ii)     include in the Proxy Statement/Prospectus
(as hereinafter defined) the recommendation of the Special Committee of the AFC
Board of Directors appointed to evaluate the AFC Merger (the "AFC Special
Committee") and the full AFC Board of Directors that the holders of the Series J
Preferred vote in favor of the approval of the transactions contemplated by this
Agreement; and

                           (iii)    use its best efforts to solicit from the
holders of the Series J Preferred proxies in favor of the approval of the
transactions contemplated by this Agreement, and take all other actions
necessary or advisable to secure the approval by the holders of the Series J
Preferred of the transactions contemplated by this Agreement.




                                      -8-


         Section 3.2       Proxy Statement/Prospectus.

                  As soon as reasonably practicable after the date hereof, AFG
and AFC shall prepare and file with the Securities and Exchange Commission (the
"Commission"), and diligently pursue the effectiveness of, a registration
statement (the "Registration Statement") under the Securities Act of 1933 (the
"Securities Act"), registering the public offering of shares of AFG Common Stock
to be issued to holders of Series J Preferred in the AFC Merger, which
Registration Statement shall contain (1) a letter to shareholders of AFC, notice
of meeting, proxy statement meeting the requirements of Section 14 of the
Securities Exchange Act of 1934 (the "Exchange Act") and rules promulgated
thereunder and appropriate related forms of proxy with respect to the AFC
Meeting, and (2) a prospectus of AFG with respect to the shares of AFG Common
Stock to be issued in the AFC Merger (such proxy statement and prospectus,
together with all amendments thereto, are referred to herein as the "Proxy
Statement/Prospectus"). AFG and AFC shall simultaneously file the Registration
Statement with appropriate state governmental offices ("Governmental Offices")
under the securities or "blue sky" laws of such states as advised by counsel.
AFG and AFC shall use their best efforts, including but not limited to
responding promptly to comments, if any, issued by the Commission or the
Governmental Offices regarding the Registration Statement, to have the
Registration Statement declared effective by the Commission and Governmental
Offices. As soon as reasonably practicable after such effectiveness, AFC shall
promptly mail to the its shareholders the Proxy Statement/Prospectus in
connection with the AFC Meeting.

         Section 3.3       Correction of Statements.

                  Each of AFG and AFC shall correct promptly any information
specifically provided by it for inclusion in the Proxy Statement/Prospectus
which shall have become false or misleading in any material respect. Each of AFG
and AFC shall take all steps necessary to file or to cause to be filed with the
Commission and have declared effective or cleared by the Commission any
amendment or supplement to the Registration Statement or the Proxy
Statement/Prospectus so as to correct the same and to cause the Registration
Statement or the Proxy Statement/Prospectus as so corrected to be disseminated
to the respective stockholders of AFG and AFC, in each case as and to the extent
required by applicable law. The Registration Statement and the Proxy
Statement/Prospectus shall comply as to form in all material respects with the
provisions of the Securities Act, the Exchange Act and other applicable law.


                                   ARTICLE 4.
                           THE HOLDING MERGER CLOSING

         Section 4.1       Time and Place.

                  The consummation of the Holding Merger (the "Closing") shall
take place at the offices of Keating, Muething & Klekamp, P.L.L., 1400 Provident
Tower, One East Fourth Street, Cincinnati, Ohio 45202, at 10:00 a.m. local time
on the date of the satisfaction or waiver of all




                                      -9-


conditions set forth in Article 12 of this Agreement, or at such other place and
time as the parties hereto may agree.

         Section 4.2       Deliveries at Closing.

                  (a)      At the Closing, Holding shall deliver or cause to be
delivered to AFG:

                           (i)      an officer's certificate of Holding in the
form attached hereto as Annex I; and,

                           (ii)     all other documents required to be delivered
or caused to be delivered by Holding hereunder and such other documents and
instruments as AFG shall reasonably request in order to effect or evidence the
transactions contemplated hereby.

                  (b)      At the Closing, AFG shall deliver to Holding:

                           (i)      the officer's certificate of AFG in the form
attached hereto as Annex II; and,

                           (ii)     all other documents required to be delivered
or caused to be delivered by AFG hereunder and such other documents and
instruments as Holding shall reasonably request in order to effect or evidence
the transactions contemplated hereby.

         Section 4.3       Filing of Certificate of Merger.

         Contemporaneously with the deliveries pursuant to Section 4.2 above,
AFG and Holding shall cause agents acceptable to both AFG and Holding to deliver
to the Secretary of State of the State of Ohio for filing a certificate of
merger duly executed by AFG and shall make all other deliveries, filings or
recordings required by applicable law to consummate the Holding Merger.

                                   ARTICLE 5.
                             THE AFC MERGER CLOSING

         Section 5.1       Time and Place.

                  The consummation of the AFC Merger (the "Closing") shall take
place at the offices of Keating, Muething & Klekamp, P.L.L., 1400 Provident
Tower, One East Fourth Street, Cincinnati, Ohio 45202, at 11:00 a.m. local time
on the date of the satisfaction or waiver of all conditions set forth in Article
11 of this Agreement, or at such other place and time as the parties hereto may
agree. The parties hereto agree that the Closing shall not be held prior to
November 2, 2003.

         Section 5.2       Deliveries at Closing.

                  (a)      At the Closing, AFC shall deliver or cause to be
delivered to AFG:


                                      -10-


                           (i)      an officer's certificate of AFC in the form
attached hereto as Annex III; and,

                           (ii)     all other documents required to be delivered
or caused to be delivered by AFC hereunder and such other documents and
instruments as AFG shall reasonably request in order to effect or evidence the
transactions contemplated hereby.

                  (b)      At the Closing, AFG shall deliver or cause to be
delivered to AFC:

                           (i)      the AFC Merger Consideration in accordance
with Section 2.3;

                           (ii)     an officer's certificate of AFG in the form
attached hereto as Annex IV;

                           (iii)    the legal opinion of Messrs. Keating,
Muething & Klekamp. P.L.L. in the form annexed hereto as Annex V;

                           (iv)     the legal opinion of Akin, Gump, Strauss,
Hauer & Feld LLP as to tax matters in the form annexed hereto as Annex VI;

                           (v)      all other documents required to be delivered
or caused to be delivered by AFG hereunder and such other documents and
instruments as AFC shall reasonably request in order to effect or evidence the
transactions contemplated hereby.

         Section 5.3       Filing of Certificate of Merger.

                  Contemporaneously with the deliveries pursuant to Section 5.2
above and upon receipt of evidence that the certificate of merger with respect
to the Holding Merger has been filed with and accepted by the Secretary of State
of the State of Ohio, AFC and AFG shall cause agents acceptable to both AFC and
AFG to deliver to the Secretary of State of the State of Ohio for filing a
certificate of merger duly executed by AFC and AFG and shall make all other
deliveries, filings or recordings required by applicable law to consummate the
AFC Merger.


                                   ARTICLE 6.
                      REPRESENTATIONS AND WARRANTIES OF AFC

         AFC represents and warrants to AFG as follows:

         Section 6.1       Organization and Qualification; Active Subsidiaries.

         AFC is a corporation duly organized, validly existing and in good
standing under the laws of the State of Ohio and has all requisite corporate
power and authority to own, lease or operate the properties that it purports to
own, lease or operate and to carry on its business as it is now being conducted.
AFC is duly qualified or licensed as a foreign corporation to do business and is
in good standing (or the local law equivalent) in each jurisdiction where the
property owned,




                                      -11-


leased or operated by it or the nature of its activities makes such
qualification or licensing necessary, except for such failures to be so duly
qualified or licensed and in good standing which, when taken together with all
other such failures and all such failures of AFC would not have a material
adverse effect on the business, operations or financial condition of AFC, taken
as a whole.

         Section 6.2       Authority Relative to this Agreement.

                  AFC has the corporate power and authority to execute and
deliver this Agreement and to carry out its obligations hereunder. The execution
and delivery by AFC of this Agreement and the consummation by AFC of the
transactions contemplated hereby have been duly and validly authorized by each
of the AFC Special Committee and the full Board of Directors of AFC. Upon the
recommendation of the AFC Special Committee, the full Board of Directors of AFC
has directed that this Agreement be submitted to the holders of Series J
Preferred for approval at a meeting of such holders and, except for such
approval, no other corporate proceedings on the part of AFC are necessary to
authorize this Agreement or to consummate the transactions contemplated hereby.
This Agreement has been duly executed and delivered by AFC and, assuming the due
authorization, execution and delivery of this Agreement by the other parties
hereto, constitutes a legal, valid and binding agreement of AFC, enforceable
against AFC in accordance with its terms.

         Section 6.3       Consents and Approvals; No Violation.

                  Except in the case of clauses Section 6.4(b) through Section
6.4(d) below, as set forth in Section 6.4 of the AFC Disclosure Schedule and for
such failures to obtain consents, approvals, authorizations or permits for, or
make filings with or notifications to, or such violations, conflicts, breaches,
defaults, terminations, accelerations and rights of termination, cancellation,
amendment or acceleration which, individually or in the aggregate, would not
have a material adverse effect on the business, operations or financial
condition of AFC, none of the execution and delivery of this Agreement by AFC,
the consummation by AFC of the transactions contemplated hereby, or compliance
by AFC with any of the provisions hereof will: (a) conflict with or result in a
breach of any provision of the charter or bylaws (or other organizational or
governing documents) of AFC; (b) require any consent, approval, authorization or
permit of, or filing with or notification to, any governmental or regulatory
authority, except (A) pursuant to the Exchange Act, the Securities Act, the
securities or "blue sky" laws of certain states, (B) for filing a certificate of
merger pursuant to the Ohio General Corporation Law; (c) violate or conflict
with any judgment, order, writ, injunction, decree, statute, rule or regulation
applicable to AFC; or (d) conflict with, result in a breach of any provisions
of, constitute a default (or an event which with notice or lapse of time or both
would become a default) under, result in a termination of, accelerate the
performance required by, give to any third party any right of termination,
cancellation, amendment or acceleration under, or result in the creation of a
lien, security interest, charge or other encumbrance on any of the assets of AFC
pursuant to any note, bond, mortgage, indenture, license, lease, agreement or
other instrument or obligation to which AFC is a party or by which AFC may be
bound or affected.


                                      -12-


                                   ARTICLE 7.
                      REPRESENTATIONS AND WARRANTIES OF AFG
                        IN CONNECTION WITH THE AFC MERGER

         AFG represents and warrants to AFC as follows:

         Section 7.1       Organization and Qualification.

         AFG is a corporation duly organized, validly existing and in good
standing under the laws of the State of Ohio and has all requisite corporate
power and authority to own, lease or operate the properties that it purports to
own, lease or operate and to carry on its business as it is now being conducted.
AFG is duly qualified or licensed as a foreign corporation to do business and is
in good standing (or the local law equivalent) in each jurisdiction where the
property owned, leased or operated by it or the nature of its activities makes
such qualification or licensing necessary, except for such failures to be so
duly qualified or licensed and in good standing which would not have a material
adverse effect on the business, operations or financial condition of AFG and its
Subsidiaries, taken as a whole.

         Section 7.2       Capitalization.

         AFG. The authorized capital stock of AFG consists of Two Hundred
Million (200,000,000) shares of AFG Common Stock and Twenty Five Million
(25,000,000) shares of preference stock ("AFG Preferred Stock"). As of August 1,
2003, (i) Eighty Eight Million Three Hundred Sixteen Thousand Nine Hundred Two
(88,316,902) shares of AFG Common Stock were outstanding or issuable, including
One Million Three Hundred Sixty One Thousand Eight Hundred Sixty-Seven
(1,361,867) shares held by a subsidiary and set aside for issuance pursuant to a
plan of reorganization, (ii) no shares of AFG Preferred Stock were issued and
outstanding and (iii) Eighteen Million Six Hundred Sixty Six Thousand Six
Hundred Fourteen (18,666,614) shares of AFG Common Stock held back in AFG's
treasury. In addition, as of such date, Nine Million Six Hundred Ninety Three
Thousand Five Hundred Thirty Seven (9,693,537) shares of AFG Common Stock were
reserved for issuance in connection with the AFG Stock Option Plan, of which
Seven Million Seven Hundred Ninety Four Thousand Two Hundred Fifty Six
(7,794,256) shares were reserved for issuance upon the exercise of outstanding
AFG Stock Options and One Million Eight Hundred Ninety Nine Thousand Two Hundred
Eighty One (1,899,281) shares were reserved for issuance in connection with
ungranted additional stock options. All of the issued and outstanding shares of
capital stock of AFG are validly issued, fully paid and nonassessable and are
not subject to, nor were they issued in violation of, any preemptive rights.
Since December 31, 2002, AFG has not issued any shares of its capital stock or
additional options to purchase shares of its capital stock except for the
issuance of shares of AFG Common Stock (i) upon exercise of AFG Stock Options,
(ii) in connection with shares issued pursuant to a 1978 Plan of Reorganization,
(iii) in connection with shares issued pursuant to AFG's Employee Stock Purchase
Plan, (iv) in connection with AFG's dividend reinvestment plan; and (v) in
connection with AFG's Director's Compensation Plan. Except as set forth above,
in the AFC SEC Filings (as defined in Section 7.5 below) or in Schedule 7.2 of
the AFC




                                      -13-


Disclosure Schedule previously delivered by AFG to AFC (the "AFG Disclosure
Schedule"), as of the date hereof, (i) there are no shares of capital stock of
AFG authorized, issued or outstanding and (ii) there are no outstanding
subscriptions, options, warrants, calls, rights, convertible securities or other
agreements or commitments of any character obligating AFG or its subsidiaries,
to issue, transfer or sell, presently or in the future, any shares of the
capital stock or any securities convertible into, exchangeable for, or
evidencing the right to subscribe for, any shares of the capital stock of AFG.
Except as set forth in the AFG SEC Filings (as defined in Section 7.5 below) or
Schedule 7.2 of the AFG Disclosure Schedule, all of the outstanding shares of
capital stock of each of the AFG Subsidiaries have been validly issued and are
fully paid and nonassessable and are beneficially owned by either AFG or another
of the AFG Subsidiaries free and clear of all liens, charges, claims or
encumbrances. Except as set forth in the AFG SEC Filings or Schedule 7.2 of the
AFG Disclosure Schedule, there are no outstanding subscriptions, options,
warrants, calls, rights, convertible securities or other agreements or
commitments of any character relating to the issued or unissued capital stock of
any of the AFG Subsidiaries or securities convertible into, exchangeable for or
evidencing the right to subscribe for any shares of such capital stock, or
otherwise obligating any such AFG Subsidiary to issue, transfer or sell any such
capital stock or other securities. There are no voting trusts or other
agreements or understandings to which AFG or any of its subsidiaries is a party
with respect to the voting of the capital stock of AFG or any of the AFG
Subsidiaries.

         Section 7.3       Authority Relative to this Agreement.

         AFG has the corporate power and authority to execute and deliver this
Agreement and to carry out its obligations hereunder. The execution and delivery
of this Agreement by AFG and the consummation by AFG of the transactions
contemplated hereby, specifically including the AFC Merger, have been duly and
validly authorized by the Board of Directors of AFG. No other corporate
proceedings on the part of AFG are necessary to consummate the transactions
contemplated hereby. This Agreement has been duly executed and delivered by AFG
and, assuming the due authorization, execution and delivery of this Agreement by
each of the other parties hereto, constitutes a legal, valid and binding
agreement of AFG, enforceable against AFG in accordance with its terms.

         Section 7.4       Consents and Approvals; No Violation.

                  Except, in the case of clauses Section 7.4(b) through Section
7.4(d) below, as set forth in Section 7.4 of the AFG Disclosure Schedule, and
for such failure to obtain consents, approvals, authorizations or permits for,
or make filings with or notifications to, or such violations, conflicts,
breaches, defaults, terminations, accelerations and rights of termination,
cancellation, amendment or acceleration which, individually or in the aggregate,
would not have a material adverse effect on the business, operations or
financial condition of AFG and its Subsidiaries, taken as a whole, none of the
execution and delivery of this Agreement by AFG, the consummation by AFG of the
transactions contemplated hereby or compliance by AFG or any of its Subsidiaries
with any of the provisions hereof will: (a) conflict with or result in a breach
of any provision of the charter or bylaws of AFG or any Subsidiary of AFG; (b)
require any consent,




                                      -14-


approval, authorization or permit of, or filing with or notification to, any
governmental or regulatory authority, except (i) pursuant to the Exchange Act,
the Securities Act and the securities or "blue sky" laws of certain states, and
(ii) for filing a certificate of merger under the Ohio General Corporation Law;
(c) violate or conflict with any judgment, order, writ, injunction, decree,
statute, rule or regulation applicable to AFG or any of its Subsidiaries or any
of their respective assets; or (d) conflict with, result in a breach of any
provisions of, constitute a default (or an event which with notice or lapse of
time or both would become a default) under, result in a termination of,
accelerate the performance required by, give to any third party any right of
termination, cancellation, amendment or acceleration under, or result in the
creation of a lien, security interest, charge or other encumbrance on any of the
assets of AFG or any of its Subsidiaries pursuant to, any note, bond, mortgage,
indenture, license, lease, agreement or other instrument or obligation to which
AFG or any of its Subsidiaries is a party or by which AFG or any of its
Subsidiaries or any of their respective assets may be bound or affected.

         Section 7.5       SEC Filings; Financial Statements.

                  AFG has previously delivered or made available to AFC true and
complete copies of its (i) Annual Report on Form 10-K for the year ended
December 31, 2002, as filed with the SEC, and all amendments thereto; (ii)
Quarterly Reports on Form 10-Q for the periods ended March 31, 2003 and June 30,
2003, as filed with the SEC; and (iii) all other reports, statements and
registration statements (including Current Reports on Form 8-K) filed by it with
the SEC since January 1, 2003 (collectively, the "AFG SEC Filings"). As of their
respective dates, the AFG SEC Filings did not contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. The financial statements of AFG included
in the AFG SEC Filings (the "AFG Financial Statements") present fairly, in all
material respects, the financial condition, results of operations and changes in
financial position of AFG as at the dates or for the periods indicated therein
in conformity with generally accepted accounting principles applied on a
consistent basks (except as otherwise indicated in such financial statements or
the notes thereto), subject, in the case of unaudited interim financial
statements, to normal recurring year-end adjustments ("GAAP").

         Section 7.6       Litigation.

                  Except as set forth in the AFG SEC Filings or Schedule 7.6 of
the AFG Disclosure Schedule, there are no actions, suits, claims, investigations
or proceedings pending or, to the knowledge of AFG, threatened against, relating
to, involving or otherwise affecting AFG or any of its Subsidiaries before any
court, governmental agency, commission, or administrative or regulatory
authority which, if adversely decided, in the aggregate, may reasonably be
expected to have a material adverse effect on the Condition of AFG and its
Subsidiaries, taken as a whole. Except as set forth in the AFG SEC Filings or
Schedule 7.6 of the AFG Disclosure Schedule, neither AFG nor any of its
Subsidiaries is subject to any order, judgment, injunction or decree that
materially and adversely affects or will materially and adversely affect the
Condition of AFG and its Subsidiaries, taken as a whole.




                                      -15-


         Section 7.7       Employee Benefit Plans.

                  (a)      For purposes hereof, the term "Benefit Plan" shall
mean any plan maintained currently by AFG or any Subsidiary of AFG for the
benefit of employees, former employees or Directors of AFG or any Subsidiary of
AFG.

                  (b)      With respect to each Benefit Plan which is an
employee pension benefit plan (as defined in Section 3(2) of the Employee
Retirement Income Security Act of 1974 ("ERISA"), other than any such plan that
meets the "top-hat" exception under Section 201(12) of ERISA (a "Qualified
Benefit Plan"): (i) either the IRS has issued a determination letter which
determined that such Qualified Benefit Plan satisfied the requirements of
Section 401(a) of the Code, as amended, such determination letter has not been
revoked or threatened to be revoked by the IRS and the scope of such
determination letter is complete, or a determination letter will be applied for
from the IRS within the appropriate time periods of the Internal Revenue Code of
1986 (the "Code"); (ii) such Qualified Benefit Plan is in compliance with all
qualification requirements of Section 401(a) of the Code; (iii) no application
has been made to the IRS under the voluntary compliance resolution program or
the walk-in closing agreement program and no circumstance or condition exists
which would qualify as a subject matter of such a filing; and (iv) such
Qualified Benefit Plan has been operated in compliance with all notice,
reporting and disclosure requirements of ERISA which apply to employee pension
benefit plans;

                  (c)      With respect to each Benefit Plan: (i) to the extent
such Benefit Plan is intended to provide benefits to plan participants that are
not subject to federal income tax so long as specific provisions of the Code are
met, such Benefit Plan currently meets such Code provisions; (ii) such Benefit
Plan has been operated in compliance with all applicable notice, reporting and
disclosure requirements of ERISA and the Code (including but not limited to the
filing of timely Forms 5500); (iii) such Benefit Plan, if a group health plan
subject to the requirements of Section 4980B of the Code or Sections 601 through
608 of ERISA, has been operated in compliance with such requirements; and (iv)
there is not now, and never has been, any "unrelated business taxable income" as
defined in Section 512 through 514 of the Code.

                  (d)      No prohibited transaction under Section 408 of ERISA
has occurred with respect to any Benefit Plan which would result, with respect
to any person, in (i) the imposition, directly or indirectly, of an excise tax
under Section 4975 of the Code or (ii) fiduciary liability under Section 409 of
ERISA.

                  (e)      No actions, suits or claims (other than routine
claims for benefits not subject to challenge by the plan administrator) are
pending or threatened against any Benefit Plan or against AFG or any affiliate
of AFG with respect to any Benefit Plan.

                  (f)      AFG and affiliates of AFG (or any pension plan
maintained by any of them) have not incurred any material liability to the
Pension Benefit Guaranty Corporation ("PBGC") or the IRS with respect to any
Benefit Plan which is a defined pension plan, except for the payment of PBGC
premiums, all of which if due prior to the date of this Agreement have




                                      -16-


been fully paid, and no PBGC reportable event under Section 4043(b) of ERISA has
occurred with respect to any such pension plan.

                  (g)      AFG or a subsidiary of AFG has all power and
authority necessary to amend or terminate each Benefit Plan without incurring
any penalty or liability provided that, in the case of an employee pension
benefit plan (as defined in Section 3(2) of ERISA), benefits accrued as of the
date of amendment or termination are not reduced.

         Section 7.8       Taxes and Tax Returns

         AFG and each of its Tax Subsidiaries (collectively, the "Group") has
timely filed or been included in all tax returns, declarations, reports,
estimates, information returns, statements and other material returns
(collectively, "Returns") relating to Taxes (as hereinafter defined) required to
be filed under U.S. federal, state, local or any foreign laws (taking into
account any extensions of time for filing such Returns). The Group has paid or
made provision for (by a tax accrual or tax reserve on the most recent
consolidated balance sheets of the Group (the "Balance Sheets") contained in the
AFG SEC Filings, which accruals or reserves have been recorded in accordance
with GAAP), all Taxes (except for such Taxes which if not so paid or provided
for would not, in the aggregate, have a material adverse effect on the financial
condition of AFG and its Subsidiaries, taken as a whole) in respect of all
taxable periods or portions thereof ending on or before the date of the Balance
Sheets. There are no material liens for Taxes upon the assets of the Group
except liens for Taxes not yet due. The Group is not delinquent in the payment
of any federal income or other Taxes and, except as set forth in Schedule 7.8 of
the AFG Disclosure Schedule, there are no outstanding deficiencies, assessments
or written proposals for assessment of federal income or other Taxes proposed,
asserted or assessed against the Group. Except as set forth in the AFG Financial
Statements or in Schedule 7.8 of the AFG Disclosure Schedule, no waivers are
presently open for the statute of limitations for the assessment of federal
income taxes for any consolidated federal income tax return of the Group. Except
as set forth in the AFG Financial Statements or in Schedule 7.8 of the AFG
Disclosure Schedule, no federal, state, local or foreign audits or other
administrative proceedings or court proceedings which are material to the
financial condition of the Group, taken as a whole, are presently pending with
regard to any Taxes or Returns of the Group. As used herein, "Taxes" means (A)
all net income, gross income, gross receipts, sales, use, transfer, franchise,
profits, withholding, payroll, employment, excise, severance, property or
windfall profits taxes, or other taxes of any kind whatsoever, together with any
interest and any penalties, additions to tax or additional amounts imposed by
any taxing authority (domestic or foreign) upon the Group with respect to all
periods or portions thereof ending on or before the AFC Merger Effective Time
and/or (B) any liability of the Group for the payment of any amounts of the type
described in the immediately preceding clause (A) as a result of being a member
of an affiliated or combined group.

         Section 7.9       Compliance with Applicable Law.

                  Each of AFG and its Subsidiaries holds all material licenses,
franchises, permits and authorizations necessary for the lawful conduct of its
business under and pursuant to all, and



                                      -17-


has complied with and is not in default in any respect under any, applicable
law, statute, order, rule, regulation, policy or guideline of any federal, state
or local governmental authority relating to AFG or any of its Subsidiaries
(other than where such default or noncompliance would not result in a material
limitation on the conduct of the business of AFG or any of its Subsidiaries, or
not cause AFG or any of its Subsidiaries to incur material financial penalty, or
would not be likely to otherwise have a material adverse effect on the business,
operations or financial condition of AFG and its Subsidiaries taken as a whole)
and none of AFG or any of its Subsidiaries has received written notice of
violation of, or knows of any violation of, any of the above.

         Section 7.10      Environmental Protection.

                  (a)      Except as set forth in the AFG SEC Filings or
Schedule 7.10 of the AFG Disclosure Schedule:

                           (i)      Each of AFG and its Subsidiaries is, in all
material respects, in compliance with all Environmental Laws (as hereinafter
defined) and has not received any communication within the last three years from
a governmental authority that alleges that AFG or any of its Subsidiaries is not
in such full compliance;

                           (ii)     There is no Environmental Claim (as
hereinafter defined) pending or, to AFG's best knowledge, threatened against AFG
or any of its subsidiaries or, to AFG's knowledge, pending or, to AFG's best
knowledge, threatened against any person or entity whose liability for any
Environmental Claim AFG or any of its Subsidiaries has retained or assumed
either contractually or by operation of law; and

                           (iii)    Except to the extent the same would not have
a material adverse effect on the financial condition of AFG and its
Subsidiaries, taken as a whole, there are no past or present actions,
activities, circumstances, conditions, events or incidents, including, without
limitation, the release, emission, discharge or disposal of any Material of
Environmental Concern (as hereinafter defined), that could reasonably be
expected to result in any Environmental Claim against AFG or any of its
Subsidiaries or against any person or entity whose liability for any
Environmental Claim AFG or any of its subsidiaries has retained or assumed
either contractually or by operation of law.

                  (b)      "Environmental Claim" means any written notice by any
governmental or regulatory agency, authority or instrumentality, or by any
third-party, alleging potential liability (including, without limitation,
potential liability for investigatory costs, cleanup costs, governmental
response costs, natural resources damages, property damages, personal injuries,
or penalties) arising out of, based on or resulting from (i) the presence, or
release into the environment, of any Material of Environmental Concern at any
location, whether or not owned by AFG or any of its Subsidiaries, or (ii)
circumstances forming the basis of any violation, or alleged violation, of any
Environmental Laws.




                                      -18-


                  (c)      "Environmental Laws" means all federal, state, local
and foreign laws and regulations relating to pollution or protection of human
health or the environment (including, without limitation, ambient air, surface
water, ground water, land surface or subsurface strata), including, without
limitation, laws and regulations relating to emissions, discharges, releases or
threatened releases of Materials of Environmental Concern or otherwise relating
to the manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of Materials of Environmental Concern.

                  (d)      "Materials of Environmental Concern" means any
substance, material or waste which is regulated by any governmental authority,
including, without limitation, any material, substance or waste which is defined
as a "hazardous waste," "hazardous material," "hazardous substance," "hazardous
chemical," "extremely hazardous waste," "restricted hazardous waste,"
"contaminant," "toxic waste," "pollutant," "biological agent" or "toxic
substance" under any law, ordinance, rule, regulation or guideline, including,
but not limited to, petroleum, petroleum products, asbestos, urea formaldehyde,
mold, radon, biological organisms and polychlorinated biphenyls.

         Section 7.11      Merger Consideration.

                  The AFG Common Stock to be issued to the holders of Series J
Preferred Stock pursuant to this Agreement and the AFC Merger at Closing shall,
when issued, be duly authorized, validly issued, fully paid and nonassessable
and listed on the New York Stock Exchange.


                                   ARTICLE 8.
                    REPRESENTATIONS AND WARRANTIES OF HOLDING

         Holding represents and warrants to AFG as follows:

         Section 8.1       Organization and Qualification.

                  Holding is a corporation duly organized, validly existing and
in good standing under the laws of the State of Ohio and has all requisite
corporate power and authority to own, lease or operate the properties it
purports to own, lease or operate and to carry on its business as it is now
being conducted. Holding is duly qualified or licensed as a foreign corporation
to do business and is in good standing (or the local law equivalent) in each
jurisdiction where the property owned, leased or operated by it or the nature of
its activities makes such qualification or licensing necessary, except for such
failures to be so duly qualified or licensed and in good standing which would
not have a material adverse effect on the business, operations or financial
condition of Holding.


                                      -19-


         Section 8.2       Capitalization.

         The authorized capital stock of Holding consists of Eight Hundred Fifty
(850) shares of common stock, no par value, which is the Holding Common Stock,
and One Thousand One Hundred Fifty (1,150) shares of preferred stock, no par
value per share. As of the date of this Agreement, One Hundred (100) shares of
Holding Common Stock were issued and outstanding, all of which were directly
held by AFG. No shares of Holding preferred stock are issued and outstanding as
of the date of this Agreement. All of the issued and outstanding shares of
Holding Common Stock are validly issued, fully paid and non-assessable and are
not subject to, nor are they issued in violation of, any preemptive rights.
Except as contemplated by this Agreement, there are no outstanding
subscriptions, warrants, calls, rights, convertible securities or other
agreements or commitments obligating Holding to issue, transfer, sell, presently
or in the future, any shares of capital stock.

         Section 8.3       Authority Relative to this Agreement.

         Holding has the corporate power and authority to execute and deliver
this Agreement and to carry out its obligations hereunder. The execution and
delivery of this Agreement by Holding and the consummation by Holding of the
transactions contemplated hereby, specifically including the Holding Merger,
have been duly and validly authorized by the Board of Directors of Holding and
shall be duly and validly authorized by AFG as the sole stockholder of Holding,
and no other corporate proceedings on the part of Holding are necessary to
authorize this Agreement or to consummate the transactions contemplated hereby.

         Section 8.4       Consents and Approvals; No Violation.

         Except in the case of clauses Section 8.4(b) through Section 8.4(d)
below, as set forth in Section 8.4 of the Disclosure Schedule previously
delivered by Holding to AFG (the "Holding Disclosure Schedule") and for such
failure to obtain consents, approvals, authorizations or permits for, or make
filings with or notifications to, or violations, conflicts, breaches, defaults,
terminations, accelerations and rights of termination, cancellation, amendment
or acceleration which, individually or in the aggregate, would not have a
material adverse effect on the business, operations or financial condition of
Holding, none of the execution and delivery of this Agreement by Holding, the
consummation by Holding of the transactions contemplated hereby or compliance by
Holding of any the provisions hereof with: (a) conflict with or result in a
breach of any provision of the charter or bylaws of Holding; (b) require any
consent, approval, authorization or permit of, or filing with or notification
to, any governmental or regulatory authority, except (i) pursuant to the
Exchange Act, the Securities Act and the securities or "blue sky" laws of
certain states, and (ii) for filing a certificate of merger under the Ohio
General Corporation Law; (c) violate or conflict with any judgment, order, writ,
injunction, decree, statute, rule or regulation applicable to Holding or any of
its assets; or (d) conflict with, result in the breach of any provisions of,
constitute a default (or an event which with notice or lapse of time or both
would become a default) under, result in a termination of, accelerate the
performance required by, give to any third party any right of termination,
cancellation,



                                      -20-


amendment or acceleration under, or result in the creation of a lien, security
interest, charge or other encumbrance of any of the assets of Holding pursuant
to, any note, bond, mortgage, indenture, license, lease, agreement or other
instrument or obligation to which Holding is a party or by which Holding or any
of its assets may be bound or affected.

                                   ARTICLE 9.
                      REPRESENTATIONS AND WARRANTIES OF AFG
                      IN CONNECTION WITH THE HOLDING MERGER

         AFG represents and warrants to Holding as follows:

         Section 9.1       Organization and Qualification.

                  AFG is a corporation duly organized, validly existing and in
good standing under the laws of the State of Ohio and has all requisite
corporate power and authority to own, lease or operate the properties that it
purports to own, lease or operate and to carry on its business as it is now
being conducted. AFG is duly qualified or licensed as a foreign corporation to
do business and is in good standing (or the local law equivalent) in each
jurisdiction where the property owned, leased or operated by it or the nature of
its activities makes such qualification or licensing necessary, except for such
failures to be so duly qualified or licensed and in good standing which would
not have a material adverse effect on the business, operations or financial
condition of AFG and its Subsidiaries, taken as a whole.

         Section 9.2       Authority Relative to this Agreement.

                  AFG has the corporate power and authority to execute and
deliver this Agreement and to carry out its obligations hereunder. The execution
and delivery of this Agreement by AFG and the consummation by AFG of the
transactions contemplated hereby, specifically including the Holding Merger,
have been duly and validly authorized by the Board of Directors of AFG. No other
corporate proceedings on the part of AFG are necessary to consummate the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by AFG and, assuming the due authorization, execution and delivery of
this Agreement by each of the other parties hereto, constitutes a legal, valid
and binding agreement of AFG, enforceable against AFG in accordance with its
terms.

         Section 9.3       Consents and Approvals; No Violation.

                  Except, in the case of clauses Section 9.3(b) through Section
9.3(d) below, as set forth in Section 9.3 of the AFG Disclosure Schedule, and
for such failure to obtain consents, approvals, authorizations or permits for,
or make filings with or notifications to, or such violations, conflicts,
breaches, defaults, terminations, accelerations and rights of termination,
cancellation, amendment or acceleration which, individually or in the aggregate,
would not have a material adverse effect on the business, operations or
financial condition of AFG and its Subsidiaries, taken as a whole, none of the
execution and delivery of this Agreement by AFG, the consummation by AFG of the
transactions contemplated hereby or compliance by AFG or any of



                                      -21-


its Subsidiaries with any of the provisions hereof will: (a) conflict with or
result in a breach of any provision of the charter or bylaws of AFG or any
Subsidiary of AFG; (b) require any consent, approval, authorization or permit
of, or filing with or notification to, any governmental or regulatory authority,
except (i) pursuant to the Exchange Act, the Securities Act and the securities
or "blue sky" laws of certain states, and (ii) for filing a certificate of
merger under the Ohio General Corporation Law; (c) violate or conflict with any
judgment, order, writ, injunction, decree, statute, rule or regulation
applicable to AFG or any of its Subsidiaries or any of their respective assets;
or (d) conflict with, result in a breach of any provisions of, constitute a
default (or an event which with notice or lapse of time or both would become a
default) under, result in a termination of, accelerate the performance required
by, give to any third party any right of termination, cancellation, amendment or
acceleration under, or result in the creation of a lien, security interest,
charge or other encumbrance on any of the assets of AFG or any of its
Subsidiaries pursuant to, any note, bond, mortgage, indenture, license, lease,
agreement or other instrument or obligation to which AFG or any of its
Subsidiaries is a party or by which AFG or any of its Subsidiaries or any of
their respective assets may be bound or affected.

                                   ARTICLE 10.
                              ADDITIONAL AGREEMENTS

         Section 10.1      Access to Information.

                  (a)      From the date of this Agreement, AFC and AFG shall,
and shall cause their respective authorized officers, directors, employees,
auditors, agents and Subsidiaries, and the authorized officers, directors,
employees, auditors and agents of their respective Subsidiaries, to, give to the
other party and its authorized officers, employees, counsel, advisors and
representatives full access to all authorized officers, employees, agents,
properties, offices and other facilities and to all books and records of it and
its Subsidiaries and shall furnish the other party with such financial,
operating and other data and information as such other party, through its
authorized officers, employees, agents or representatives, may from time to time
reasonably request.

         Section 10.2      Public Announcements.

                  AFC and AFG shall promptly issue a joint press release to
announce the execution and delivery of this Agreement. Thereafter, AFC and AFG
shall consult with each other before issuing any press release or otherwise
making any public statements with respect to any of the transactions
contemplated by this Agreement and shall not issue any such press release or
make any such public statement prior to such consultation, except as may be
required by law.

         Section 10.3      Best Efforts.

                  Subject to the terms and conditions herein provided, each of
the parties hereto shall use its best efforts to take, or cause to be taken, all
action, and to do, or cause to be done, all things necessary, proper or
advisable to consummate and make effective as promptly as practicable the
transactions contemplated by this Agreement and to obtain in a timely manner all



                                      -22-


waivers, consents and approvals of, and to make all filings with and
notifications to, any third parties as are necessary in order to consummate the
transactions contemplated by this Agreement. Each party hereto shall have the
right to review and approve in advance all characterizations of it and its
Subsidiaries which appear in any filing made in connection with the transactions
contemplated by this Agreement with any governmental body. In exercising the
foregoing right, the parties hereto shall act as promptly as possible.

         Section 10.4      Rule 145.

                  AFC will use all reasonable efforts to cause each holder of
Series J Preferred who or that is an affiliate of AFC to deliver to AFG prior to
the AFC Merger Effective Time a written agreement, substantially in the form of
Exhibit 10.4 hereto, that such affiliate will not offer to sell, sell or
otherwise dispose of any AFG Common Stock issued to such affiliate in connection
with the AFC Merger otherwise than within the limits and in accordance with the
provisions of Rule 145 under the Securities Act, as such rule may be amended
from time to time, or except in a transaction that, in the opinion of legal
counsel reasonably satisfactory to AFG, is exempt from registration under the
Securities Act.

         Section 10.5      Post Merger Matters.

         If at any time after the AFC Merger Effective Time or the Holding
Merger Effective Time any further action is necessary or desirable to carry out
the purposes of this Agreement, the proper officers and directors of each party
to this Agreement shall take all such necessary action.

         Section 10.6      Survival of Indemnification for Directors and
Officers.

         To the fullest extent not prohibited by law, from and after each of the
AFC Merger Effective Time and the Holding Merger Effective Time, all rights to
indemnification and to advancement of expenses as of the date hereof in favor of
the employees, agents, directors or officers of AFC or Holding with respect to
their activities as such prior to the AFC Merger Effective Time or the Holding
Merger Effective Time, as provided in their respective Articles or Regulations,
in effect on the date thereof or otherwise in effect on the date hereof, shall
survive the AFC Merger and the Holding Merger, as the case may be, and shall
continue in full force and effect for a period of not less than six years from
the AFC Merger Effective Time and the Holding Merger Effective Time as the case
may be.

                                  ARTICLE 11.
                  CONDITIONS TO CONSUMMATION OF THE AFC MERGER

         Section 11.1      Conditions to the Obligations of Each Party.

                  The respective obligations of AFC and AFG to effect the AFC
Merger are subject to the satisfaction, at or prior to the AFC Merger Effective
Time, of the following conditions:


                                      -23-


                  (a)      There shall not be in effect: (i) any judgment,
injunction, decree or order issued by any federal, state or local court or
arbitrator of competent jurisdiction; or (ii) any statute, rule, regulation or
order enacted or promulgated by any federal, state or local, legislative,
administrative or regulatory body of competent jurisdiction, that in either of
cases (i) or (ii) prohibits or restricts the consummation of the transactions
contemplated hereby or makes such consummation illegal or restricts in any
material respect or prohibits the effective operation of the business of AFC or
AFG and its Subsidiaries after the consummation of the AFC Merger;

                  (b)      The Registration Statement shall have been declared
effective under the Securities Act and no stop order suspending such
effectiveness shall have been issued or proceedings for such purpose shall have
been instituted;

                  (c)      This Agreement and the AFC Merger hereby contemplated
shall have been adopted and/or approved by the requisite affirmative vote of a
majority of the voting power of AFC and, in a separate class vote, by the
affirmative vote of the holders of a majority of the shares of Series J
Preferred outstanding and by the affirmative vote of the holders of a majority
of the Series J Preferred voting on the matter excluding any shares of Series J
Preferred beneficially owned by AFG, any director or executive officer of AFG,
the spouses and unemancipated children of any such AFG director or executive
officer, Carl H. Lindner, Jr., the siblings or children of Carl H. Lindner, Jr.
or the spouses and unemancipated children of Carl H. Lindner, Jr. or of any of
his siblings or children;

                  (d)      Either the consent of the Required Lenders (as
defined in the Credit Agreement) shall have been obtained or the Credit
Agreement dated as of November 25, 2002 among AFG, AFC Holding and AFC and Fleet
National Bank, for itself or as Administrative Agent for the Lenders, Bank of
America, N.A., for itself and as syndication agent for the Lenders, Key Bank
National Association, for itself and as documentation agent for the Lenders (the
"Credit Agreement") shall have been revised, in either case to permit the merger
of AFC to AFG;

                  (e)      The Holding Merger shall have been consummated; and,

                  (f)      Delivery to AFG and to the Special Committee of the
legal opinion of Akin, Gump, Strauss, Hauer & Feld LLP as to tax matters.

         Section 11.2      Additional Conditions to the Obligations of AFC.

                  The obligation of AFC to consummate the AFC Merger is further
subject to the satisfaction (or waiver by AFC), at or prior to the AFC Merger
Effective Time, of the following conditions:

                  (a)      AFC and AFG shall have performed in all material
respects all their respective obligations hereunder required to be performed by
them at or prior to the Closing;


                                      -24-


                  (b)      The representations and warranties of AFG contained
in this Agreement and in any certificate or other writing delivered by AFG
pursuant hereto which are qualified by the term "material" or "materiality"
shall be true and correct in all respects, and all other representations and
warranties of AFG contained in this Agreement and in any certificate or other
writing delivered by AFG pursuant hereto shall be true and correct in all
material respects, at and as of the date of this Agreement and at and as of the
Closing as if made at and as of such time (except as to any representation or
warranty which specifically relates to an earlier date);

                  (c)      AFC shall have received the deliveries described in
Section 5.2(b) and all agreements included in such deliveries shall have been
duly executed and delivered by all parties thereto;

                  (d)      AFC shall have received all documents it may
reasonably request relating to the existence of AFG and its corporate authority
for this Agreement, all in form and substance reasonably satisfactory to AFC;

                  (e)      Any and all material permits, consents, waivers,
clearances, approvals and authorizations of and filings with all third parties
and governmental bodies shall have been obtained which are required to
consummate the transactions contemplated hereby;

                  (f)      AFG shall have caused to be delivered to AFC a
"bringdown" certificate executed by any one (1) of its Chief Executive Officers
or Co-Presidents or the Chief Financial Officer in their respective corporate
capacities and not in their individual capacities, dated the date on which the
Registration Statement (or last amendment thereto) shall become effective and
dated the date of the AFC Merger Effective Time, and addressed to AFC, in form
and substance customary in transactions of the nature contemplated hereby;

                  (g)      AFC shall have received a favorable "fairness
opinion" from an investment banking firm in form and substance customary in
transactions of the nature contemplated hereby and acceptable to AFC Special
Committee; and,

                  (h)      The shares of AFG Common Stock to be received as AFC
Merger Consideration shall have been listed on the New York Stock Exchange.

         Section 11.3      Additional Conditions to the Obligations of AFG.

                  The obligation of AFG to consummate the AFC Merger are further
subject to the satisfaction (or waiver by AFG), at or prior to the AFC Merger
Effective Time, of the following conditions:

                  (a)      AFC shall have performed in all material respects all
of its obligations hereunder required to be performed by it at or prior to the
Closing;

                  (b)      The representations and warranties of AFC contained
in this Agreement and in any certificate or other writing delivered by AFC
pursuant hereto which are qualified by


                                      -25-


the term "material" or "materiality" shall be true and correct in all respects,
and all other representations and warranties of AFC contained in this Agreement
and in any certificate or other writing delivered by AFC pursuant hereto shall
be true and correct in all material respects, at and as of the date of this
Agreement and at and as of the Closing as if made at and as of such time (except
as to any representation or warranty which specifically relates to an earlier
date);

                  (c)      AFG shall have received the deliveries described in
Section 5.2(a) and all agreements included in such deliveries and in the
deliveries described in Section 5.2(b) shall have been duly executed and
delivered by all parties thereto;

                  (d)      AFG shall have received all documents they may
reasonably request relating to the existence of AFC and its corporate authority
for this Agreement, all in form and substance reasonably satisfactory to AFG;

                  (e)      Any and all material permits, consents, waivers,
clearances, approvals and authorizations of and filings with all third parties
and governmental bodies shall have been obtained which are required (i) to
consummate the transactions contemplated hereby or (ii) to prevent a breach,
default or right of termination under any agreement to which AFC is a party or
by which it is bound caused by consummation of the transactions contemplated
hereby;

                  (f)      AFC shall have caused to be delivered to AFG a
"bringdown" certificate executed by any one (1) of its executive officers in
their respective corporate capacities and not in their individual capacities,
dated the date on which the Registration Statement (or last amendment thereto)
shall become effective and dated the date of the AFC Merger Effective Time, and
addressed to AFG, in form and substance customary in transactions of the nature
contemplated hereby; and,

                  (g)      All necessary consents or permits from or filings
with state securities commissions shall have been obtained or made.

                                  ARTICLE 12.
                CONDITIONS TO CONSUMMATION OF THE HOLDING MERGER

         Section 12.1      Conditions to the Obligations of Each Party.

                  The respective obligations of AFG and Holding to effect the
Holding Merger are subject to the satisfaction, at or prior to the Holding
Merger Effective Time, of the following condition:

         There shall not be in effect: (i) any judgment, injunction, decree or
order issued by any federal, state or local court or arbitrator of competent
jurisdiction; or (ii) any statute, rule, regulation or order enacted or
promulgated by any federal, state or local, legislative, administrative or
regulatory body of competent jurisdiction, that in either of cases (i) or (ii)
prohibits or restricts the consummation of the transactions contemplated hereby
or makes such


                                      -26-


consummation illegal or restricts in any material respect or prohibits the
effective operation of the business of AFC or AFG and its Subsidiaries after the
consummation of the Holding Merger.

         Section 12.2      Additional Conditions to the Obligations of Holding.

                  The obligation of Holding to consummate the Holding Merger is
further subject to the satisfaction (or waiver by Holding), at or prior to the
Holding Merger Effective Time, of the following conditions:

                  (a)      AFG shall have performed in all material respects all
its respective obligations hereunder required to be performed by it at or prior
to the Closing;

                  (b)      The representations and warranties of AFG contained
in this Agreement and in any certificate or other writing delivered by AFG
pursuant hereto which are qualified by the term "material" or "materiality"
shall be true and correct in all respects, and all other representations and
warranties of AFG contained in this Agreement and in any certificate or other
writing delivered by AFG pursuant hereto shall be true and correct in all
material respects, at and as of the date of this Agreement and at and as of the
Closing as if made at and as of such time (except as to any representation or
warranty which specifically relates to an earlier date);

                  (c)      Holding shall have received the deliveries described
in Section 4.2(b) and all agreements included in such deliveries shall have been
duly executed and delivered by all parties thereto;

                  (d)      Holding shall have received all documents it may
reasonably request relating to the existence of AFG and its corporate authority
for this Agreement, all in form and substance reasonably satisfactory to
Holding; and,

                  (e)      Any and all material permits, consents, waivers,
clearances, approvals and authorizations of and filings with all third parties
and governmental bodies shall have been obtained which are required to
consummate the transactions contemplated hereby.

         Section 12.3      Additional Conditions to the Obligations of AFG.

                  The obligation of AFG to consummate the Holding Merger are
further subject to the satisfaction (or waiver by AFG), at or prior to the
Effective Time, of the following conditions:

                  (a)      Holding shall have performed in all material respects
all of its obligations hereunder required to be performed by it at or prior to
the Closing;

                  (b)      The representations and warranties of Holding
contained in this Agreement and in any certificate or other writing delivered by
Holding pursuant hereto which are qualified by the term "material" or
"materiality" shall be true and correct in all respects, and all other
representations and warranties of Holding contained in this Agreement and in any



                                      -27-


certificate or other writing delivered by Holding pursuant hereto shall be true
and correct in all material respects, at and as of the date of this Agreement
and at and as of the Closing as if made at and as of such time (except as to any
representation or warranty which specifically relates to an earlier date);

                  (c)      AFG shall have received the deliveries described in
Section 4.2(a) and all agreements included in such deliveries and in the
deliveries described in Section 4.2(b) shall have been duly executed and
delivered by all parties thereto;

                  (d)      AFG shall have received all documents it may
reasonably request relating to the existence of Holding and its corporate
authority for this Agreement, all in form and substance reasonably satisfactory
to AFG;

                  (e)      Any and all material permits, consents, waivers,
clearances, approvals and authorizations of and filings with all third parties
and governmental bodies shall have been obtained which are required (i) to
consummate the transactions contemplated hereby or (ii) to prevent a breach,
default or right of termination under any agreement to which Holding is a party
or by which it is bound caused by consummation of the transactions contemplated
hereby.

                                  ARTICLE 13.
                         TERMINATION; AMENDMENTS; WAIVER

         Section 13.1      Termination.

                  This Agreement may be terminated and the transactions
contemplated hereby may be abandoned at any time notwithstanding approval hereof
by the holders of the Series J Preferred, but prior to the AFC Merger Effective
Time:

                  (a)      By the mutual written consent of the Board of
Directors of each of AFC (acting through the Special Committee), AFG and
Holding; or

                  (b)      By AFC (acting through the Special Committee), on the
one hand, or AFG, on the other, if the transactions contemplated hereby shall
not have been consummated by December 31, 2003; provided, however, that the
right to terminate this Agreement under this Section 13.1(b) shall not be
available to any party, failure of which to fulfill any obligation under this
Agreement has been the cause of, or resulted in, the failure of the AFC Merger
Effective Time to occur on or before such date; or

                  (c)      By either AFC (acting through the Special Committee),
on the one hand, or AFG, on the other, if a court of competent jurisdiction in
the United States or any state thereof or other United States governmental,
regulatory or administrative body shall have issued an order, decree or ruling
or taken any other action (which order, decree, ruling or other action the
parties agree to use their best efforts through appeals and otherwise to vacate)
permanently restraining, enjoining or otherwise prohibiting the transactions
contemplated by this Agreement and such order, decree, ruling or other action
shall have become final and nonappealable; or


                                      -28-

                  (d)      By either AFG or AFC (acting through the Special
Committee) if the shareholders of AFC do not approve the transactions
contemplated by this Agreement; or

                  (e)      By either AFC (acting through the Special Committee)
or AFG if, in the case of AFC, AFG materially breaches a warranty,
representation or covenant contained herein not cured within fifteen (15) days
after notice of such breach is received or suffers a material adverse change to
the business, operations or financial condition of AFG and its Subsidiaries,
taken as a whole, or, in the case of AFG, AFC materially breaches a warranty,
representation or covenant contained herein not cured within fifteen (15) days
after notice of such breach is received or suffers a material adverse change to
its business, operations or financial condition, taken as a whole; or

                  (f)      By AFC (acting through the Special Committee) if
there shall have occurred any events, changes or developments (other than any
information specifically provided by AFC (acting through the Special Committee)
for inclusion in the Proxy Statement/Prospectus being or becoming false or
materially misleading) which, individually or in the aggregate, have materially
adversely affected, or are reasonably likely to materially adversely affect, the
financial condition of AFG and its Subsidiaries, taken as a whole; or

                  (g)      By AFC if the Special Committee determines, after
consultation with and based on the written advice of its legal counsel, that as
a result of an event or condition which (i) existed prior to the date of this
Agreement and should have been disclosed in the AFG SEC Filings but was not so
disclosed or (ii) occurs on or after the date of this Agreement (other than any
information specifically provided by AFC (acting through the Special Committee)
for inclusion in the Proxy Statement/Prospectus being or becoming false or
materially misleading), the Special Committee would violate its fiduciary duties
in accordance with applicable law if AFC (acting through the Special Committee)
did not terminate this Agreement; or

                  (h)      By AFG, if the Average Closing Price of AFG Common
Stock shall be less than Nineteen Dollars ($19.00).

                  In the event of the termination of this Agreement pursuant to
the terms of this Section 13.1, this Agreement shall forthwith become void and
have no effect, without any liability on the part of either party hereto, except
that: (A) the provisions of this Section 13.1 and Section 14.6 hereof shall
survive any such termination and shall continue to be binding on the parties
hereto; and (B) nothing contained in this Section 13.1 shall relieve any party
from any liability, if any, for any termination of this Agreement under
paragraphs (d) and (e) above. Notwithstanding the foregoing, AFG shall not
assert any claim or action against AFC (or any of its directors, officers,
shareholders or agents) or against any third party, including any action based
on tort or other extra-contractual theories of law or equity, that arises from
or is based upon any act that interferes or allegedly interferes with this
Agreement or that results in the termination of this Agreement pursuant to
Section 13.1(g) hereof.


                                      -29-


         Section 13.2      Amendment.

                  This Agreement may be amended by the parties hereto (in the
case of AFC, acting through the Special Committee) at any time before or after
adoption of this Agreement by the shareholders of AFC but, after any such
approval by the shareholders of AFC, no amendment shall be made which adversely
affects the rights of the holders of Series J Preferred hereunder without the
approval of the holders of Series J Preferred. This Agreement may not be
amended, modified or supplemented except by an instrument in writing signed by
all the parties hereto that expressly states that it amends, modifies or
supplements this Agreement.

         Section 13.3      Extension; Waiver.

                  At any time prior to the Closing, any party hereto (in the
case of AFC, acting through the Special Committee) may: (i) extend the time for
the performance of any of the obligations or other acts of any other party
hereto; (ii) waive any inaccuracies in the representations and warranties
contained herein by any other party or in any document or writing delivered
pursuant hereto by such other party; or (iii) waive compliance with any of the
agreements of any other party or with any conditions to its own obligations. Any
agreement on the part of any party hereto to any such extension or waiver shall
be valid only if set forth in an instrument in writing signed on behalf of such
party.


                                  Article 14.
                                  MISCELLANEOUS

         Section 14.1      Survival of Representations, Warranties, Covenants
and Agreements.

                  Other than any covenant or agreement herein, the nature of
which is to be performed after the Closing, and the representations and
warranties of AFG set forth in Section 7.5 hereof (which shall survive the AFC
Merger Effective Time for a period of twelve (12) months), the representations,
warranties, covenants and agreements made in this Agreement or in any
certificate or Disclosure Schedule delivered pursuant to the provisions of this
Agreement shall only survive until the AFC Merger Effective Time or the Holding
Merger Effective Time, as applicable.

         Section 14.2      Entire Agreement; Assignment.

                  This Agreement (including the Disclosure Schedules, Exhibits
and Annexes hereto) constitutes the entire agreement between the parties hereto
with respect to the subject matter hereof and supersedes all other prior
agreements and understandings, both written and oral, between the parties with
respect to the subject matter hereof. This Agreement may not be assigned, by
operation of law or otherwise, by any of the parties hereto without the prior
written consent of each of the other parties hereto. Any such purported
assignment undertaken or occurring without such consent shall be null and void
and of no legal force and effect.


                                      -30-


         Section 14.3      Validity.

                  The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any of the other
provisions of this Agreement, each of which shall remain in full force and
effect.


         Section 14.4      Notices.

                  All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given when delivered in person, by cable, telecopy or telex, or by
registered or certified mail (postage prepaid, return receipt requested) to the
respective parties as follows:

                  If to AFG, to:

                           AMERICAN FINANCIAL GROUP, INC.
                           900 Provident Tower
                           One East Fourth Street
                           Cincinnati, Ohio  45202
                           Attention:  Carl H. Lindner
                           Telephone:  (513) 579-2121
                           Facsimile:  (513) 579-2580

                  with a required copy (which shall not constitute notice) to:

                           AMERICAN FINANCIAL GROUP, INC.
                           900 Provident Tower
                           One East Fourth Street
                           Cincinnati, Ohio  45202
                           Attention:  James C. Kennedy, Esq.
                           Telephone:  (513) 579-2538
                           Facsimile:  (513) 579-0108

                                    - and -

                           KEATING, MUETHING & KLEKAMP, PLL
                           1400 Provident Tower
                           One East Fourth Street
                           Cincinnati, Ohio  45202
                           Attention:  Edward E. Steiner, Esq.
                           Telephone:  (513) 579-6468
                           Facsimile:  (513) 579-6578



                                      -31-


                  If to AFC, to:

                           AMERICAN FINANCIAL CORPORATION
                           900 Provident Tower
                           One East Fourth Street
                           Cincinnati, Ohio  45202
                           Attention:  Joseph P. Tomain
                           Telephone:  (513)
                           Facsimile:  (513)

                  with a required copy (which shall not constitute notice) to:

                           TAFT, STETTINIUS & HOLLISTER LLP
                           1800 U.S. Bank Tower
                           425 Walnut Street
                           Cincinnati, Ohio 45202-3957
                           Attention:  Timothy E. Hoberg, Esq.
                           Telephone:  (513) 381-2838
                           Facsimile:  (513) 381-0205

                                    - and -

                           KEATING, MUETHING & KLEKAMP, PLL
                           1400 Provident Tower
                           One East Fourth Street
                           Cincinnati, Ohio  45202
                           Attention:  Edward E. Steiner, Esq.
                           Telephone:       (513) 579-6468
                           Facsimile:       (513) 579-6578


                  If to Holding, to:

                           AFC HOLDING COMPANY
                           900 Provident Tower
                           One East Fourth Street
                           Cincinnati, Ohio  45202
                           Attention:  Carl H. Lindner
                           Telephone:  (513) 579-2121
                           Facsimile:  (513) 579-2580


                                      -32-


                  with a required copy (which shall not constitute notice) to:

                           AMERICAN FINANCIAL GROUP, INC.
                           900 Provident Tower
                           One East Fourth Street
                           Cincinnati, Ohio  45202
                           Attention:  James C. Kennedy, Esq.
                           Telephone:  (513) 579-2538
                           Facsimile:  (513) 579-0108

                                    - and -

                           KEATING, MUETHING & KLEKAMP, PLL
                           1400 Provident Tower
                           One East Fourth Street
                           Cincinnati, Ohio  45202
                           Attention:  Edward E. Steiner, Esq.
                           Telephone:       (513) 579-6468
                           Facsimile:       (513) 579-6578


or to such other address as the person to whom notice is given may have
previously furnished to the other in writing in the manner set forth above
(provided, that notice of any change of address shall be effective only upon
receipt thereof).

         Section 14.5      Governing Law.

                  This Agreement shall be governed by and construed in
accordance with the laws of the State of Ohio, regardless of the internal
substantive laws that might otherwise govern under applicable principles of
conflicts of laws thereof.

         Section 14.6      Expenses.

                  All expenses incurred by any party hereto in connection with
this Agreement and the consummation of the transactions contemplated hereby
shall be paid by the party incurring such expenses.

         Section 14.7      Interpretation.

                  (a)      The descriptive headings herein are inserted for
convenience of reference only and are not intended to be part of, or to affect
the meaning or interpretation of, this Agreement.

                  (b)      The term "Subsidiary" when used herein with respect
to any person means: (i) any corporation, partnership or other business
association or entity in which such



                                      -33-


person has a majority equity interest; (ii) any other corporation, partnership,
limited liability company or other business association or entity which is
consolidated with such person for financial reporting purposes; or (iii)
Infinity Property and Casualty Corporation with respect to any period prior to
February 18, 2003. For purposes of Section 7.8, the term "Tax Subsidiary" means
any Subsidiary of AFG that meets the definition of an affiliated group member as
set forth in Section 1504(a) of the Internal Revenue Code (without regard to
Section 1504(b)(2) thereof). The term "person" when used herein means any
individual, corporation, partnership, joint venture, trust, unincorporated
association or other entity of any nature whatsoever. The term "knowledge" when
used herein with respect to AFG or AFC means actual knowledge or actually
knowing after due inquiry within AFG or AFC, as the case may be, and their
respective Subsidiaries (which due inquiry each party undertakes to make).

         Section 14.8      Counterparts.

                  This Agreement may be executed in multiple counterparts, each
of which shall be deemed to be an original, but all of which shall constitute
one and the same agreement.

         Section 14.9      Parties in Interest.

                  This Agreement shall be binding upon and inure solely to the
benefit of each party hereto, and nothing in this Agreement, express or implied,
is intended to confer upon any other person any rights or remedies of any nature
whatsoever under or by reason of this Agreement.


                       THIS SPACE INTENTIONALLY LEFT BLANK




                                      -34-


         IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed on its behalf by its officer thereunto duly authorized as of the day
and year first above written.

                               AMERICAN FINANCIAL GROUP, INC.



                               By:
                                  ---------------------------------------------
                                        James C. Kennedy
                                        Vice President, Deputy General Counsel
                                           & Secretary

                               AFC HOLDING COMPANY



                               By:
                                  ---------------------------------------------
                                        James C. Kennedy
                                        Vice President, Deputy General Counsel
                                           & Secretary

                               AMERICAN FINANCIAL CORPORATION



                               By:
                                  ---------------------------------------------
                                        Karl J. Grafe
                                        Assistant Secretary



                                                                         Annex B

[LETTER HEAD]

DUFF & PHELPS, LLC



October 1, 2003

Special Committee of the Board of Directors
American Financial Corporation
c/o Taft, Stettinius & Hollister LLP
425 Walnut Street, Suite 1800
Cincinnati, OH  45202-0205

Dear Members of the Special Committee:

We understand that American Financial Group, Inc., an Ohio corporation ("AFG"),
AFC Holding Company, an Ohio corporation and wholly owned subsidiary of AFG
("Holding"), and American Financial Corporation, an Ohio corporation and
majority owned subsidiary of Holding ("AFC" or the "Company") have proposed a
merger of AFC with and into AFG, and immediately prior thereto, a merger of
Holding with and into AFG (the "Merger"). Currently, AFG owns 100% of the common
stock and 79% of the voting equity securities of AFC. AFC has one series of
publicly held voting preferred stock (the "Series J Preferred Stock"), which
represents the other 21% of AFC's voting securities.

We further understand, under the Amended and Restated Agreement and Plan of
Reorganization dated [October 1, 2003] (the "Merger Agreement"), and pursuant to
the merger of AFC with and into AFG, the Series J Preferred Stockholders will
receive $26.00 per share in common stock of AFG ("AFG Common Stock"), calculated
based on the average of the mean of the average daily high sales price and daily
low sales price of AFG Common Stock for a 20-day period prior to the Merger,
plus cash dividends accruing from November 1, 2003 to the effective time of the
Merger (the "Transaction Consideration"). Additionally, in the event that the
AFG Common Stock trades above $27.00 per share for a specified period prior to
the Merger, certain adjustments will be made to the Transaction Consideration.
Furthermore, pursuant to the Merger Agreement, the parties agreed that the
closing of the Merger will not be held prior to November 2, 2003. Therefore, the
$1.00 semi-annual dividend per share of Series J Preferred Stock payable on
November 1, 2003 will be paid in cash on such date.

The Special Committee of the Board of Directors (the "Special Committee") of AFC
has engaged Duff & Phelps, LLC ("Duff & Phelps") as its independent financial
advisor to advise the Special Committee in connection with the contemplated
Transaction Consideration to be received by the holders of shares of Series J
Preferred Stock.


Special Committee of the Board of Directors
American Financial Corporation
October 1, 2003
Page 2


Specifically, Duff & Phelps has been asked to provide an opinion (the "Opinion")
as to whether the Transaction Consideration to be received by the holders of
shares of Series J Preferred Stock pursuant to the Merger Agreement is fair to
the holders of such shares from a financial point of view.

In 2000, Duff & Phelps was engaged to provide certain limited financial advisory
services to an affiliate of AFG, for which services we have received
compensation.


SCOPE OF ANALYSIS

In conducting our analysis and arriving at our Opinion, we met with the senior
management of AFC and AFG on May 14, 2003, in Cincinnati, Ohio, to discuss the
history, current business operations, financial condition, future prospects, and
strategic objectives of AFC, AFG, and their affiliates, as well as the
anticipated effects of the Merger. In addition, we reviewed and analyzed, among
other things:

         1.       AFC's and AFG's historical financial statements and
                  descriptive information, including: audited financial
                  statements on SEC form 10K for the fiscal years ending on or
                  about December 31, 2000 to 2002; unaudited financial
                  statements on SEC form 10Q for the second quarter ended June
                  30, 2003; and certain other public filings and financial
                  information prepared by AFC and AFG management.

         2.       Pro forma financial statements prepared by AFC and AFG
                  management reflecting the effect of the Merger on AFG's
                  financial statements.

         3.       Form of Amended and Restated Agreement and Plan of
                  Reorganization.

         4.       AFC's Amended Articles of Incorporation.

         5.       Historical stock prices and trading volume of the common stock
                  of AFG, Great American Financial Resources, Inc. ("GAFRI"),
                  and Infinity Property and Casualty ("Infinity").

         6.       Historical stock prices and trading volume of the Series J
                  Preferred Stock of AFC.

         7.       Historical financial performance and valuation multiples of
                  public companies deemed comparable to the AFG, GAFRI, and
                  Infinity, respectively.

         8.       Trading prices and yields for comparable publicly traded
                  preferred stock securities based on issuer and security
                  attributes, including credit quality, issuance size, and
                  issuer industry.

Special Committee of the Board of Directors
American Financial Corporation
October 1, 2003
Page 3


         9.       Discounted cash flow analyses on the Series J Preferred Stock
                  by discounting, at various discount rates, the anticipated
                  cash flows from the Series J Preferred Stock, including
                  dividends and liquidation preference, based on yield data
                  derived from our selected comparable publicly-traded preferred
                  stock securities.

         10.      Certain other relevant, publicly available information,
                  including economic, industry, and investment information.


Duff & Phelps also took into account its assessment of general economic, market,
and financial conditions, as well as its experience in securities and business
valuation, in general, and with respect to similar transactions, in particular.
Duff & Phelps did not make any independent evaluation or appraisal of the
properties, assets, liabilities or reserves of AFG or AFC, nor has Duff & Phelps
conducted any independent actuarial or physical inspections.

In preparing its forecasts, performing its analysis, and rendering its Opinion
with respect to the Merger, Duff & Phelps relied upon the accuracy and
completeness of all information provided to it, whether obtained from public or
private sources, including Company management, and has not assumed
responsibility for independent verification of such information. With respect to
Company-prepared financial forecasts, we have assumed they have been reasonably
prepared in good faith on bases reflecting the best currently available
estimates of AFC and AFG management. Duff & Phelps's Opinion further assumes
that information supplied and representations made by AFC and AFG management are
substantially accurate regarding AFC, AFG, and the terms of the Merger. None of
AFC or AFG management, their boards, or the Special Committee placed any
limitation upon Duff & Phelps with respect to the procedures followed or factors
considered by Duff & Phelps in rendering its Opinion.

Duff & Phelps has prepared this Opinion effective as of October 1, 2003, and the
Opinion is necessarily based upon market, economic, financial, and other
conditions as they exist and can be evaluated as of such date.

It is understood that this Opinion is for the information of the Special
Committee. Except as required under the disclosure requirements of the
securities laws and applicable law or legal process, without our prior written
consent, which consent will not be unreasonably withheld, this letter may not be
quoted or referred to, in whole or in part, in any written document, or used for
any other purpose.



Special Committee of the Board of Directors
American Financial Corporation
October 1, 2003
Page 4



CONCLUSION

Based upon and subject to the foregoing, Duff & Phelps is of the opinion that
the Transaction Consideration to be received by holders of shares of Series J
Preferred Stock pursuant to the Merger Agreement is fair to the holders of such
shares from a financial point of view.

Respectfully submitted,












DUFF & PHELPS, LLC


                                                                 Annex C


Section 1701.84 Persons entitled to relief as dissenting shareholders.

   The following are entitled to relief as dissenting shareholders under section
1701.85 of the Revised Code:

   (A) Shareholders of a domestic corporation that is being merged or
consolidated into a surviving or new entity, domestic or foreign, pursuant to
section 1701.78, 1701.781 [1701.78.1], 1701.79, 1701.791 [1701.79.1], or
1701.801 [1701.80.1] of the Revised Code;

   (B) In the case of a merger into a domestic corporation, shareholders of the
surviving corporation who under section 1701.78 or 1701.781 [1701.78.1] of the
Revised Code are entitled to vote on the adoption of an agreement of merger, but
only as to the shares so entitling them to vote;

   (C) Shareholders, other than the parent corporation, of a domestic subsidiary
corporation that is being merged into the domestic or foreign parent corporation
pursuant to section 1701.80 of the Revised Code;

   (D) In the case of a combination or a majority share acquisition,
shareholders of the acquiring corporation who under section 1701.83 of the
Revised Code are entitled to vote on such transaction, but only as to the shares
so entitling them to vote;

   (E) Shareholders of a domestic subsidiary corporation into which one or more
domestic or foreign corporations are being merged pursuant to section 1701.801
[1701.80.1] of the Revised Code.





Section 1701.85 Dissenting shareholder's demand for fair cash value of shares.

   (A)(1) A shareholder of a domestic corporation is entitled to relief as a
dissenting shareholder in respect of the proposals described in sections
1701.74, 1701.76, and 1701.84 of the Revised Code, only in compliance with this
section.

   (2) If the proposal must be submitted to the shareholders of the corporation
involved, the dissenting shareholder shall be a record holder of the shares of
the corporation as to which he seeks relief as of the date fixed for the
determination of shareholders entitled to notice of a meeting of the
shareholders at which the proposal is to be submitted, and such shares shall not
have been voted in favor of the proposal. Not later than ten days after the date
on which the vote on the proposal was taken at the meeting of the shareholders,
the dissenting shareholder shall deliver to the corporation a written demand for
payment to him of the fair cash value of the shares as to which he seeks relief,
which demand shall state his address, the number and class of such shares, and
the amount claimed by him as the fair cash value of the shares.

   (3) The dissenting shareholder entitled to relief under division (C) of
section 1701.84 of the Revised Code in the case of a merger pursuant to section
1701.80 of the Revised Code and a dissenting shareholder entitled to relief
under division (E) of section 1701.84 of the Revised Code in the case of a
merger pursuant to section 1701.801 [1701.80.1] of the Revised Code shall be a
record holder of the shares of the corporation as to which he seeks relief as of
the date on which the agreement of merger was adopted by the directors of that
corporation. Within twenty days after he has been sent the notice provided in
section 1701.80 or 1701.801 [1701.80.1] of the Revised Code, the dissenting
shareholder shall deliver to the corporation a written demand for payment with
the same information as that provided for in division (A)(2) of this section.

   (4) In the case of a merger or consolidation, a demand served on the
constituent corporation involved constitutes service on the surviving or the new
entity, whether the demand is served before, on, or after the effective date of
the merger or consolidation.

   (5) If the corporation sends to the dissenting shareholder, at the address
specified in his demand, a request for the certificates representing the shares
as to which he seeks relief, the dissenting shareholder, within fifteen days
from the date of the sending of such request, shall deliver to the corporation
the certificates requested so that the corporation may forthwith endorse on them
a legend to the effect that demand for the fair cash value of such shares has
been made. The corporation promptly shall return such endorsed certificates to
the dissenting shareholder. A dissenting shareholder's failure to deliver such
certificates terminates his rights as a dissenting shareholder, at the option of
the corporation, exercised by written notice sent to the dissenting shareholder
within twenty days after the lapse of the fifteen-day period, unless a court for
good cause shown otherwise directs. If shares represented by a certificate on
which such a legend has been endorsed are transferred, each new certificate
issued for them shall bear a similar legend, together with the name of the
original dissenting holder of such shares. Upon receiving a demand for payment
from a dissenting shareholder who is the record holder of uncertificated
securities, the corporation shall make an appropriate notation of the demand for
payment in its shareholder records. If uncertificated shares for which payment
has been demanded are to be transferred, any new certificate issued for the
shares shall bear the legend required for certificated securities as provided in
this paragraph. A transferee of the shares so endorsed, or of uncertificated
securities where such notation has been made, acquires only such rights in the
corporation as the original dissenting holder of such shares had immediately
after the service of a demand for payment of the fair cash value of the shares.
A request under this paragraph by the corporation is not an admission by the
corporation that the shareholder is entitled to relief under this section.

   (B) Unless the corporation and the dissenting shareholder have come to an
agreement on the fair cash value per share of the shares as to which the
dissenting shareholder seeks relief, the dissenting shareholder or the
corporation, which in case of a merger or consolidation may be the surviving or
new entity, within three months after the service of the demand by the
dissenting shareholder, may file a complaint in the court of common pleas of the
county in which the principal office of the corporation that issued the shares
is located or was located when the proposal was adopted by the shareholders of
the corporation, or, if the proposal was not required to be submitted to the
shareholders, was approved by the directors. Other dissenting shareholders,
within that three-month period, may join as plaintiffs or may be joined as
defendants in any such proceeding, and any two or more such proceedings may be
consolidated. The complaint shall contain a brief statement of the facts,
including the vote and the facts entitling the dissenting shareholder to the
relief



demanded. No answer to such a complaint is required. Upon the filing of such a
complaint, the court, on motion of the petitioner, shall enter an order fixing a
date for a hearing on the complaint and requiring that a copy of the complaint
and a notice of the filing and of the date for hearing be given to the
respondent or defendant in the manner in which summons is required to be served
or substituted service is required to be made in other cases. On the day fixed
for the hearing on the complaint or any adjournment of it, the court shall
determine from the complaint and from such evidence as is submitted by either
party whether the dissenting shareholder is entitled to be paid the fair cash
value of any shares and, if so, the number and class of such shares. If the
court finds that the dissenting shareholder is so entitled, the court may
appoint one or more persons as appraisers to receive evidence and to recommend a
decision on the amount of the fair cash value. The appraisers have such power
and authority as is specified in the order of their appointment. The court
thereupon shall make a finding as to the fair cash value of a share and shall
render judgment against the corporation for the payment of it, with interest at
such rate and from such date as the court considers equitable. The costs of the
proceeding, including reasonable compensation to the appraisers to be fixed by
the court, shall be assessed or apportioned as the court considers equitable.
The proceeding is a special proceeding and final orders in it may be vacated,
modified, or reversed on appeal pursuant to the Rules of Appellate Procedure
and, to the extent not in conflict with those rules, Chapter 2505. of the
Revised Code. If, during the pendency of any proceeding instituted under this
section, a suit or proceeding is or has been instituted to enjoin or otherwise
to prevent the carrying out of the action as to which the shareholder has
dissented, the proceeding instituted under this section shall be stayed until
the final determination of the other suit or proceeding. Unless any provision in
division (D) of this section is applicable, the fair cash value of the shares
that is agreed upon by the parties or fixed under this section shall be paid
within thirty days after the date of final determination of such value under
this division, the effective date of the amendment to the articles, or the
consummation of the other action involved, whichever occurs last. Upon the
occurrence of the last such event, payment shall be made immediately to a holder
of uncertificated securities entitled to such payment. In the case of holders of
shares represented by certificates, payment shall be made only upon and
simultaneously with the surrender to the corporation of the certificates
representing the shares for which the payment is made.

   (C) If the proposal was required to be submitted to the shareholders of the
corporation, fair cash value as to those shareholders shall be determined as of
the day prior to the day on which the vote by the shareholders was taken and, in
the case of a merger pursuant to section 1701.80 or 1701.801 [1701.80.1] of the
Revised Code, fair cash value as to shareholders of a constituent subsidiary
corporation shall be determined as of the day before the adoption of the
agreement of merger by the directors of the particular subsidiary corporation.
The fair cash value of a share for the purposes of this section is the amount
that a willing seller who is under no compulsion to sell would be willing to
accept and that a willing buyer who is under no compulsion to purchase would be
willing to pay, but in no event shall the fair cash value of a share exceed the
amount specified in the demand of the particular shareholder. In computing such
fair cash value, any appreciation or depreciation in market value resulting from
the proposal submitted to the directors or to the shareholders shall be
excluded.

   (D)(1) The right and obligation of a dissenting shareholder to receive such
fair cash value and to sell such shares as to which he seeks relief, and the
right and obligation of the corporation to purchase such shares and to pay the
fair cash value of them terminates if any of the following applies:

   (a) The dissenting shareholder has not complied with this section, unless the
corporation by its directors waives such failure;

   (b) The corporation abandons the action involved or is finally enjoined or
prevented from carrying it out, or the shareholders rescind their adoption of
the action involved;

   (c) The dissenting shareholder withdraws his demand, with the consent of the
corporation by its directors;

   (d) The corporation and the dissenting shareholder have not come to an
agreement as to the fair cash value per share, and neither the shareholder nor
the corporation has filed or joined in a complaint under division (B) of this
section within the period provided in that division.

   (2) For purposes of division (D)(1) of this section, if the merger or
consolidation has become effective and the surviving or new entity is not a
corporation, action required to be taken by the directors of the corporation
shall be taken by the general partners of a surviving or new partnership or the
comparable representatives of any other surviving or new entity.



   (E) From the time of the dissenting shareholder's giving of the demand until
either the termination of the rights and obligations arising from it or the
purchase of the shares by the corporation, all other rights accruing from such
shares, including voting and dividend or distribution rights, are suspended. If
during the suspension, any dividend or distribution is paid in money upon shares
of such class or any dividend, distribution, or interest is paid in money upon
any securities issued in extinguishment of or in substitution for such shares,
an amount equal to the dividend, distribution, or interest which, except for the
suspension, would have been payable upon such shares or securities, shall be
paid to the holder of record as a credit upon the fair cash value of the shares.
If the right to receive fair cash value is terminated other than by the purchase
of the shares by the corporation, all rights of the holder shall be restored and
all distributions which, except for the suspension, would have been made shall
be made to the holder of record of the shares at the time of termination.





                                     PART II

                     INFORMATION NOT REQUIRED IN PROSPECTUS

         ITEM 20.  INDEMNIFICATION OF DIRECTORS AND OFFICERS.

         Ohio Revised Code, Section 1701.13(E), allows indemnification by the
Registrant to any person made or threatened to be made a party to any
proceedings, other than a proceeding by or in the right of the Registrant, by
reason of the fact that he is or was a director, officer, employee or agent of
the Registrant, against expenses, including judgment and fines, if he acted in
good faith and in a manner reasonably believed to be in or not opposed to the
best interests of the Registrant and, with respect to criminal actions, in which
he had no reasonable cause to believe that his conduct was unlawful. Similar
provisions apply to actions brought by or in the right of the Registrant, except
that no indemnification shall be made in such cases when the person shall have
been adjudged to be liable for negligence or misconduct to the Registrant unless
deemed otherwise by the court. Indemnification may be authorized by a majority
vote of a quorum of disinterested directors or upon the written opinion of
independent counsel or by the shareholders or by court order. The Registrant's
Code of Regulations extends such indemnification.

         The Registrant maintains, at its expense, Directors and Officers
Liability and Company Reimbursement Liability Insurance. The Directors and
Officers Liability portion of such policy covers all directors and officers of
the Registrant and of the companies which are, directly or indirectly, more than
50% owned by the Registrant. The policy provides for payment on behalf of the
directors and officers, up to the policy limits and after expenditure of a
specified deductible, of all Loss (as defined) from claims made against them
during the policy period for defined wrongful acts, which include errors,
misstatements or misleading statements, acts or omissions and neglect or breach
of duty by directors and officers in the discharge of their individual or
collective duties as such. The insurance includes the cost of investigations and
defenses, appeals and bonds and settlements and judgments, but not fines or
penalties imposed by law. The insurance does not cover any claims arising out of
acts alleged to have been committed prior to October 24, 1978. The insurer limit
of liability under the policy is $175,000,000 in the aggregate for all losses
each year subject to certain individual and aggregate deductibles. The policy
contains various exclusions and reporting requirements.


ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

         Exhibit
         Number          Description of Document
         -----------     ------------------------------------------------------

              2**        Agreement and Plan of Reorganization and Merger among
                         the Registrant, AFC Holding Company and American
                         Financial Corporation (contained in Annex A to the
                         proxy statement/prospectus)

              5**        Opinion of Keating, Muething & Klekamp, P.L.L.


              8**        Opinion of Akin, Gump, Strauss, Hauer & Feld LLP as to
                         tax matters


             12**        Computation of ratios of earnings to fixed charges
                         (incorporated by reference to the Registrant's Form
                         10-Q for the quarter ended June 30, 2003)

           23.1**        Consent of Keating, Muething & Klekamp, P.L.L.
                         (contained in Exhibit 5)


           23.2**        Consent of Akin, Gump, Strauss, Hauer and Feld LLP
                         (contained in Exhibit 8)



           23.3          Consent of Independent Auditors




             24**        Powers of Attorney (contained on the signature page)

           99.1**        Opinion of Duff & Phelps (contained in Annex B to the
                         proxy statement/prospectus)


           99.2**        Form of proxy for special meeting of American Financial
                         Corporation

           99.3          Voting Agreements


         * Incorporated by reference from other documents filed with the
           Commission as indicated.

        ** Previously filed.


Item 22. Undertakings.

         The undersigned Registrant hereby undertakes as follows:

         To file, during any period in which offers or sales are being made, a
post-effective amendment to this Amendment No. 1 to the Registration Statement:

                  (i) to include any prospectus required by Section 10(a)(3) of
         the Securities Act,

                  (ii) to reflect in the prospectus any facts or events arising
         after the effective date of the Registration Statement for the most
         recent post-effective amendment thereof) which, individually or in the
         aggregate, represent a fundamental change in the information set forth
         in the Registration


                                      II-1


         Statement. Notwithstanding the foregoing, any increase or decrease in
         volume of securities offered (if the total value of securities offered
         would not exceed that which was registered) and any deviation from the
         low or high end of the estimated maximum offering range may be
         reflected in the form of prospectus filed with the Commission pursuant
         to Rule 424(b) if, in the aggregate, the changes in volume and price
         represent no more than 20 percent change in the maximum aggregate
         offering price set forth in the "Calculation of Registration Fee"
         taking the effective registration statement.

                  (iii) to include any material information with respect to the
         plan of distribution not previously disclosed in the Registration
         Statement or any material change to such information in the
         Registration Statement.

         That, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.

         To remove from registration by means of post-effective amendment any of
the securities being registered which remain unsold in the termination of the
offering.

         To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Item 4, 10(b), 11 or 13 of this form,
within one business day of receipt of such request, and to send the incorporated
documents by first class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the effective date of the
Registration Statement through the date of responding to the request.

         To supply by means of a post-effective amendment all information
concerning a transaction, and the Company being acquired involved therein, that
was not the subject of and included in the Registration Statement when it became
effective.

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

         Prior to any public reoffering of the securities registered hereunder
through use of a prospectus which is a part of this registration statement, by
any person or party who is deemed to be an underwriter within the meaning of
Rule 145(c), the issuer undertakes that such reoffering prospectus will contain
the information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other items of the applicable form.

         That every prospectus (i) that is filed pursuant to paragraph 7
immediately preceding, or (ii) that purports to meet the requirements of Section
10(a)(3) of the Act and is used in connection with an offering of securities
subject to Rule 415, will be filed as a part of an amendment to the registration
statement and will not be used until such amendment is effective, and that, for
purposes of determining any liability under the Securities Act of 1933, each
such post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.



                                      II-2


         Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the provisions described under Item 20 above, or
otherwise (other than insurance), the Registrant has been advised that in the
opinion of the SEC such indemnification is against public policy as expressed in
the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the Securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it, other than indemnification pursuant to court order and
not including any coverage under, or agreement to pay premiums for, any policy
of insurance, is against public policy as expressed in the Act and will be
governed by the final adjudication of such issue.



                                      II-3



                                   SIGNATURES


         Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Amendment to Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized in the
City of Cincinnati, State of Ohio, on the 6th day of October, 2003.


                               AMERICAN FINANCIAL GROUP, INC.



                               BY:      Carl H. Lindner
                                  ----------------------------------------------
                                        Carl H. Lindner
                                        Chief Executive Officer


         Pursuant  to the requirements of the Securities Act of 1933, this
Amendment to Registration Statement has been signed by the following persons in
the capacities and on the dates indicated.




             SIGNATURE                                     CAPACITY                                  DATE
------------------------------------     ---------------------------------------------    ---------------------------
                                                                                          
          *                              Chairman of the Board of Directors                     October 7, 2003
---------------------------------        (principal executive officer)
 Carl H. Lindner


          *                              Director                                               October 7, 2003
---------------------------------
 Carl H. Lindner III


          *                               Director                                              October 7, 2003
---------------------------------
 S. Craig Lindner




                                      II-4



                                                                                         
          *                              Director                                              October 7, 2003
---------------------------------
 Theodore H. Emmerich



          *                              Director                                              October 7, 2003
---------------------------------
 James E. Evans



          *                              Director                                              October 7, 2003
---------------------------------
 Terry S. Jacobs



          *                              Director                                              October 7, 2003
---------------------------------
 William R. Martin



           *                             Director                                              October 7, 2003
---------------------------------
 William A. Shutzer



           *                             Director                                              October 7, 2003
---------------------------------
 William W. Verity



Fred Runk                                Senior Vice President and Treasurer                   October 7, 2003
---------------------------------             (principal financial officer and principal
     Fred J. Runk                             accounting officer)



*By: Karl J. Grafe                       Attorney-in-Fact                                      October 7, 2003
----------------------------------
     Karl J. Grafe


                                     II-5