ACAP CORPORATION


CONTENTS

President's Report                                                       1 

Management's Financial Analysis                                          3

Consolidated Balance Sheet                                              10
 
 Consolidated Statements of Operations and Comprehensive Income         11

Consolidated Statements of Stockholders' Equity                         12

Consolidated Statements of Cash Flows                                   13

Notes to Consolidated Financial Statements                              14

Independent Auditors' Report                                            30

Stockholder Information                                                 31

Directors and Officers                                                  32
	
	
Corporate Profile	

Acap Corporation is a life insurance holding company that focuses on 
the acquisition of existing life insurance policies, either through 
direct purchase or the acquisition of life insurance companies.  
Adjuncts to the acquisition-oriented growth strategy include using 
financial leverage and reinsurance to make more acquisitions and to 
maximize the return to stockholders, consolidating and streamlining 
the operations of acquired businesses, concentrating on a limited 
number of lines of business and providing superior customer service to 
improve policy retention.

Acap was formed in 1985.  Acap's life insurance operations are 
conducted through its wholly-owned life insurance subsidiaries.  All 
operations are conducted from the corporate headquarters in Houston, 
Texas.  Acap's common stock is quoted on the NASD Electronic Bulletin 
Board under the symbol AKAP.

<PAGE>
PRESIDENT'S REPORT

Corporate Developments During 1998

Effective January 1, 1998, American Capitol Insurance Company 
("American Capitol"), a wholly-owned subsidiary of the Company, 
acquired through coinsurance 100% of the individual life insurance 
policies of Universal Life Insurance Company ("Universal") in force 
on that date.  The parties also executed an administrative agreement 
whereby American Capitol agreed to provide specified administrative 
functions for the 246,011 coinsured Universal policies.  American 
Capitol started administering the policies beginning July 1, 1998.  
Between January 1, 1998 and July 1, 1998, Universal continued to 
administer the policies, and American Capitol paid Universal the 
expense allowance stipulated in the administration agreement.

Concurrent with the coinsurance of the Universal policies, American 
Capitol retroceded 100% of the business to an unaffiliated reinsurance 
company.  The reinsurer pays American Capitol an expense allowance for 
administering the policies.  The Company's profits from the Universal 
transaction will initially be determined by the Company's ability to 
administer the policies for less than the expense allowance received 
from the reinsurer.  In the future, once the reinsurer has recovered 
the initial ceding fee, the Company is entitled to 70% of the profits 
generated by the policies.  Also, the Company has the right to 
recapture the retrocession under certain terms and conditions.

A significant effort was involved in transferring the administration 
of the coinsured Universal policies to American Capitol's home office 
and in converting the policies from Universal's policy administration 
system to American Capitol's policy administration system.  This 
effort involved considerable expense during 1998, which expenses 
should not be present in 1999.  Special thanks go to all the American 
Capitol employees who have put in extraordinary effort in connection 
with the administration and conversion of the Universal policies.

Effective October 31, 1998, American Capitol acquired through 100% 
coinsurance a block of approximately 1,900 Medicare supplement health 
insurance policies from Statesman National Life Insurance Company 
("Statesman").  The purchase price of the Medicare supplement block 
was $1 million.  As of December 31, 1998, the Medicare supplement 
policies had annualized premiums in force of approximately $2.1 
million. 

Results of Operations

The Company had a net loss for 1998 of $13,989, or $28.42 per basic 
common share, compared to net income for 1997 of $1,348,031, or 
$154.43 per basic common share. The loss for 1998 was primarily the 
result of an $800,000 realized investment loss on a single investment.  
Pre-tax operating income (which excludes realized investment gains and 
losses) for 1998 was $694,640 in comparison to $529,567 for 1997. 

A more complete analysis of the results of operations is included in 
the Management's Financial Analysis section of this Annual Report.  
Stockholders are urged to read the entire Annual Report to gain a 
better understanding of the Company, its recent financial 
performance, and its prospects.
	
Outlook	

In spite of the disappointment of the investment loss noted above, 
significant progress was made during 1998.  

* The Universal coinsurance was one of our largest acquisitions to 
  date.  We now administer over 325,000 policies.  

* The Statesman coinsurance expanded our product horizons.  As
  discussed below, we are considering expanding our presence in the 
  Medicare supplement market.  

* We continued to see growth in the premiums from the preneed
  marketing of Texas Imperial Life Insurance Company ("Texas 
  Imperial"), a wholly-owned subsidiary of American Capitol.  While 
  still relatively small, Texas Imperial's premiums were 41% higher 
  in 1998 than in 1997, following a 33% increase in 1997 over 1996.

During 1999, we will begin the task of converting all of our 
policies to a new policy administration system acquired during 1998.  
While it will be a time consuming and expensive process, the new 
system has greatly expanded capabilities.  The system will enable 
the Company to explore acquisition and marketing opportunities 
beyond traditional life insurance, into such areas as universal 
life, Medicare supplement and other types of business that the 
Company's existing systems are not capable of administering.  It is 
important to note that the move to the new policy administration 
system is not driven by Year 2000 considerations.  As discussed in 
the Management's Financial Analysis section of this Annual Report, 
the Company is well on its way to being Year 2000 compliant.

We are currently evaluating whether to begin marketing Medicare 
supplement health insurance.  If we decide to enter the Medicare 
supplement market, significant effort will be devoted during 1999 to 
getting the marketing "up on track" and monitoring its progress.  

We are encouraged by the recent progress of our preneed marketing 
and we are excited by the potential we see in the Medicare 
supplement market.  Our goal through marketing is to provide a more 
stable source of growth to augment the punctuated growth inherent in 
the Company's acquisition activities.  However, we remain committed 
to the pursuit of synergies and economies of scale through 
acquisitions in the insurance industry.  With the ability to broaden 
the acquisition focus beyond traditional life insurance, we believe 
the Company is well positioned to make future acquisitions.


                                                                           
William F. Guest
President
April 6, 1999
<PAGE>

MANAGEMENT'S FINANCIAL ANALYSIS

RESULTS OF OPERATIONS

Premiums and other considerations were 2% higher in 1998 in comparison 
to 1997.  While there was relatively little net change in premium 
income between 1998 and 1997, there were significant changes in the 
sources and composition of the premium income between the two years. 

  Effective October 31, 1998, American Capitol Insurance Company 
  ("American Capitol"), a wholly-owned subsidiary of the Company, 
  acquired through 100% coinsurance a block of approximately 1,900 
  Medicare supplement health insurance policies from Statesman 
  National Life Insurance Company ("Statesman").  The purchase 
  price of the Medicare supplement block was $1 million.  As of 
  December 31, 1998, the Medicare supplement policies had annualized 
  premiums in force of approximately $2.1 million.  Earned premiums 
  on this block of business for the last two months of 1998 were 
  approximately $350,000.

  Premiums in American Capitol's wholly-owned subsidiary, Texas
  Imperial Life Insurance Company ("Texas Imperial'), were 
  approximately $460,000 (41%) higher in 1998 in comparison to 1997. 
  Texas Imperial markets final expense life insurance and insurance-
  funded prepaid funeral service contracts.  Texas Imperial's 
  premiums have been increasing in recent years as the premiums 
  generated by new business have exceeded the loss of premiums 
  through normal policy attrition.  While Texas Imperial wrote a 
  smaller volume of business in 1998 in comparison to 1997 (based on 
  face amount), a larger proportion of the new business written 
  during 1998 was single premium whole life policies.

  During 1997, through July 31, 1997, American Capitol coinsured, and
  did not retrocede, 91.4% of the policies written by World Service 
  Life Insurance Company of America ("World Service") during that 
  period.  The policies written by World Service during that period 
  were mostly single premium whole life.  As a result, while in 1997 
  American Capitol had approximately $510,000 in reinsurance assumed 
  single premium life premiums, American Capitol had no corresponding 
  premium amounts in 1998.

  A substantial portion of the Company's premium paying business is
  limited pay business, meaning that premiums are only payable for a 
  specified number of years instead of for the life of the insured.  
  Premium income can be expected to decline on this block of policies 
  as the limited pay policies reach the end of their premium paying 
  term.

  The balance of the change in premium income was the decline in
  premiums resulting from normal policy attrition in American 
  Capitol.

Net investment income was 32% higher during 1998 in comparison to 
1997.  The higher level of investment income in 1998 was in part due 
to the larger average base of invested assets in 1998 in comparison to 
1997.  Investment expenses for 1998 were significantly lower than such 
expenses for 1997.  Investment expenses for 1997 include expenses 
related to American Capitol's home office building, which was sold in 
November 1997.  Investment income for 1997 includes $50,000 in 
forfeited earnest money American Capitol received when a prospective 
purchaser of the home office building could not complete the 
transaction. 

The Company reported net realized investment losses of $664,327 during 
1998, in comparison to net realized investment gains of $204,709 for 
1997.  As discussed below, the Company realized an $800,000 loss on a 
single investment during 1998.  But for that loss, net realized 
investment gains would have been comparable between 1998 and 1997.

On December 16, 1998, Texas Imperial acquired the stock of Statesman.  
Statesman was owned by the brother of the majority shareholder of 
Acap, and, as a result, this qualified as a related party transaction.  
Texas Imperial issued a promissory note of $100 to the sellers of the 
Statesman stock ("Sellers").  At the time of the acquisition of the 
Statesman stock by Texas Imperial, Statesman had approximately $1.8 
million in surplus debentures issued to the Sellers.  The Sellers' 
debentures backed the Sellers' representations and warranties and were 
to be adjusted based upon the outcome of certain post-closing price 
adjustments.  In connection with closing, Texas Imperial purchased an 
$800,000 surplus debenture from Statesman to bring Statesman's 
statutory equity to the level required by the Texas Department of 
Insurance (the "Department") as a condition of the Department's 
approval of Texas Imperial's acquisition of Statesman.  In January, 
1999, it was discovered that Statesman's claim liabilities were 
significantly understated.  The liability understatement exceeded the 
amount of the Sellers' debentures.  Given the mutual mistake of fact 
upon which the stock purchase, the surplus debenture purchase and the 
Department's approval of same were based, Texas Imperial, the Sellers, 
and Statesman agreed to rescind the purchase of the stock and the 
surplus debenture.  However, the rescission required the approval of 
the Department.  The Department did not grant its approval.  As a 
result, Texas Imperial determined that the $800,000 Statesman surplus 
debenture was uncollectible and recorded the realized investment loss 
on the debenture and wrote off its investment in Statesman of $100.  
Texas Imperial has no ongoing liability related to Statesman.

A major source of revenue for the Company is the expense allowance the 
Company receives for administering certain blocks of reinsured 
policies.  The expense allowance for 1998 was 145% higher than the 
expense allowance received during 1997.  The increase in the expense 
allowance is attributable to the expense allowance American Capitol 
receives from Republic-Vanguard Life Insurance Company ("Republic") 
for administering a block of business coinsured by American Capitol 
from Universal Life Insurance Company ("Universal"), as discussed 
below.

Effective January 1, 1998, American Capitol coinsured 100% of the 
individual life insurance policies of Universal in force on that date.  
American Capitol paid Universal an initial ceding commission of $13 
million.  Universal transferred approximately $40 million in assets to 
American Capitol in connection with the coinsurance.  

Contemporaneous with the signing of the coinsurance agreement, the 
parties executed an administrative agreement (the "Administration 
Agreement") whereby American Capitol agreed to provide specified 
administrative functions for the 246,011 coinsured Universal policies.  
American Capitol started administering the policies beginning July 1, 
1998.  Between January 1, 1998 and July 1, 1998, Universal continued 
to administer the policies, and American Capitol paid Universal the 
expense allowance stipulated in the Administration Agreement.

Concurrent with the coinsurance of the Universal policies, American 
Capitol retroceded all of the coinsured Universal policies to 
Republic.  Republic paid American Capitol an initial ceding commission 
of $13.5 million.  American Capitol transferred $39.6 million in 
assets to Republic in connection with the retrocession.  While the 
retrocession is in effect, American Capitol receives an expense 
allowance from Republic.  Once Republic has recovered the initial 
ceding commission, Republic must, at American Capitol's sole option, 
retrocede back to American Capitol 100% of the policies.  Upon this 
retrocession, American Capitol then pays Republic 30% of the profits 
thereafter generated by the policies, retaining the other 70% of the 
profits.  In addition, American Capitol has the right to fully 
recapture the retrocession under certain terms and conditions.

The additional expense allowance related to the Universal policies was 
partially offset by the decline in the expense allowance due to normal 
policy attrition of the balance of the reinsured policies.

As a result of the factors noted above, total revenue, including net 
realized investment gains and losses, was 39% higher during 1998 than 
during 1997.  Excluding net realized investment gains and losses, 
total revenue was 54% higher during 1998 than during 1997. 

Policy benefits were 100% of premium income in 1998 compared to 99% of 
premium income in 1997.  A substantial portion of the Company's 
business that is not 100% coinsured is paid up insurance.  As a 
result, the Company has a relatively high ratio of policy benefits to 
premium income.

Total expenses were 96% higher in 1998 in comparison to 1997.  The 
increase in expenses is attributable to expenses incurred in 
connection with the coinsurance of the Universal policies.  Expenses 
for 1998 include $1.3 million paid to Universal for administering the 
policies American Capitol coinsured from Universal for the period 
January 1, 1998 through June 30, 1998.  Prior to July 1, 1998, the 
Company incurred expenses in preparing to assume the administration of 
the Universal policies.  Expenses for 1998 also include a one-time 
broker's fee of $227,500 associated with the Universal coinsurance.  
The Company incurred significant expenses, including approximately 
$300,000 in computer consulting expense, in connection with the 
conversion of the Universal policies from the system acquired from 
Universal to one of the Company's other policy administration systems.

Pre-tax operating income (which excludes net realized investment gains 
and losses) for 1998 was $694,640 in comparison to $529,567 for 1997, 
a 31% increase.

The Company recorded a net federal income tax expense for 1998 in 
comparison to a net federal income tax benefit for 1997.  During 
1997, the Company realized the benefit of approximately $550,000 in 
deferred tax assets upon which the Company had previously established 
a valuation reserve.

LIQUIDITY AND CAPITAL RESOURCES 

Liquidity of Insurance Subsidiaries

Acap's insurance subsidiaries have a significant portion of their 
assets invested in debt instruments, short-term investments, or other 
marketable securities.  Although there is no present need or intent to 
dispose of such investments, the insurance subsidiaries could 
liquidate portions of the investments should the need arise.  These 
assets should be sufficient to meet the insurance subsidiaries' 
anticipated long-term and short-term liquidity needs.

As of December 31, 1998, 100% of the insurance subsidiaries' 
portfolios of publicly-traded bonds are invested in securities that 
are rated investment grade (i.e., rated BBB-/Baa3 or higher by 
Standard & Poor or Moody).  The Company's investment policy prohibits 
making any new investment in below investment grade securities without 
the advance approval of the applicable insurance subsidiary's Board of 
Directors.  All of the Company's bonds are classified as available for 
sale and are, accordingly, reflected in the financial statements at 
fair value.  The insurance subsidiaries' liabilities are primarily 
long term in nature.  Therefore, long-term assets can be purchased 
with the general intent to hold such assets to maturity.  It has not 
been the Company's investment practice in the past to be an active 
trader with its bond portfolios.  It is not expected that the 
insurance subsidiaries' investment practices will change in the 
future.

A significant portion (23%) of the Company's bond portfolio is 
invested in mortgage-backed securities, with 90% of such mortgage-
backed securities classified as collateralized mortgage obligations 
and 10% classified as pass-through securities.  Mortgage-backed 
securities are purchased to diversify the portfolio from credit risk 
associated with corporate bonds.  The majority of mortgage-backed 
securities in the Company's investment portfolio have minimal credit 
risk because the underlying collateral is guaranteed by specified 
government agencies (e.g., GNMA, FNMA, FHLMC).

The principal risks inherent in holding mortgage-backed securities are 
prepayment and extension risks that arise from changes in the general 
level of interest rates.  As interest rates decline and homeowners 
refinance their mortgages, mortgage-backed securities prepay more 
rapidly than anticipated.  Conversely, as interest rates increase, 
underlying mortgages prepay more slowly, causing principal repayment 
of mortgage-backed securities to be extended.  In general, mortgage-
backed securities provide for higher yields than corporate debt 
securities of similar credit quality and expected maturity to 
compensate for this greater amount of cash flow risk.  Due to the 
underlying structure of the individual securities, the majority of 
mortgage-backed securities in the Company's investment portfolio have 
relatively low cash flow variability.

The Company's investments in collateralized mortgage obligations are 
primarily of the planned amortization class (59%), Z (17%) and 
sequential (14%) types.  A planned amortization class tranche is 
structured to provide more certain cash flows and is therefore subject 
to less prepayment and extension risk than other forms of mortgage-
backed securities.  Planned amortization class securities derive their 
stability at the expense of cash flow risk for other tranches as early 
repayments are applied first to other tranches, and cash flows 
originally applicable to other tranches are first applied to the 
planned amortization class tranche if that tranche's originally 
scheduled cash flows are received later than expected.  The Z tranche 
defers all interest to other tranches until those tranches are paid 
down, at which time accumulated interest and principal are paid to 
this class.  The cash flows associated with sequential tranches can 
vary as interest rates fluctuate, since these tranches are not 
supported by other tranches.

The Company records its fixed maturity and equity securities at fair 
value with unrealized gains and losses, net of taxes, reported as a 
separate component of stockholders' equity.  Primarily as a result of 
decreasing interest rates during the year, the fair value of the 
Company's fixed maturity and equity securities increased $271,063 
during 1998, following a $344,417 increase during 1997.  The 
accounting standard does not permit the Company to revalue its 
liabilities for changes in interest rates.

As of December 31, 1998, the Company held 23 mortgage loans as 
investments.  The Company's investment policy generally prohibits 
making new investments in mortgage loans (although mortgage loans may 
be acquired as approved assets in connection with an acquisition).  In 
addition to the real estate collateral, approximately $1.2 million of 
the mortgage loans are guaranteed by an individual that management has 
reason to believe has a net worth well in excess of the balance of the 
guaranteed loans.  The average yearly principal balance of the 
Company's mortgage loans at December 31, 1998 was approximately 
$74,000 and the weighted average maturity was 9 years.  Mortgage loans 
on Tennessee properties represent 35% of the mortgage loan balances at 
December 31, 1998, Texas properties 34%, Alabama properties 23%, with 
Louisiana, Florida and Kentucky properties representing the remainder 
of the mortgage loan balances.  Residential mortgages represent 56% of 
the mortgage loan balances at December 31, 1998 with commercial 
mortgages constituting the balance.  In general, the performance of 
commercial mortgages is more subject to changing U.S. and regional 
economic conditions than residential mortgages.  Mortgage loans are 
far less liquid an investment than publicly-traded securities.

Liquidity of the Parent Company

On January 31, 1995, Acap borrowed $1.5 million from Central National 
Bank of Waco, Texas.  At December 31, 1998, the outstanding principal 
balance of the loan was $562,500.  The loan is renewable each April 30 
until fully repaid.  The loan bears interest at a rate equal to the 
base rate of a bank plus 1%.  Principal payments on the loan are due 
quarterly.  The loan agreement contains certain restrictions and 
financial covenants.  Without the written consent of the bank, Acap 
may not incur any debt, pay common stock dividends or sell any 
substantial amounts of assets.  Also, American Capitol is subject to 
minimum statutory earnings and capital and surplus requirements during 
the loan term.  The Company is in compliance with all of the terms of 
the loan.  The principal payments on the bank loan are matched by the 
principal payments on a surplus debenture issued by American Capitol 
to Acap.

The primary sources of funds for Acap are payments on the surplus 
debenture from American Capitol and dividends from American Capitol.  
American Capitol may pay dividends in any one year without the prior 
approval of regulatory authorities as long as such dividends do not 
exceed certain statutory limitations.  As of December 31, 1998, the 
amount of dividends available to the parent company from American 
Capitol not limited by such restrictions is approximately $600,000.  
Payments on the surplus debenture may only be made to the extent 
statutory capital and surplus exceeds $2 million.  At December 31, 
1998, American Capitol's statutory capital and surplus was $2,202,516.

The determination of statutory surplus is governed by accounting 
practices prescribed or permitted by the State of Texas.  Statutory 
surplus therefore bears no direct relationship to surplus as would be 
determined under generally accepted accounting principles.
 
REINSURANCE

Reinsurance plays a significant role in the Company's operations.  
In accounting for reinsurance, the Company has reported ceded reserve 
credits and reinsurance claim credits as reinsurance receivables.  The 
cost of reinsurance related to long-duration contracts is accounted 
for over the life of the underlying reinsured policies using 
assumptions consistent with those used to account for the underlying 
policies.  At December 31, 1998, reinsurance receivables with a 
carrying value of $49.3 million were associated with a single 
reinsurer, Crown Life Insurance Company ("Crown").  At December 31, 
1997, Crown had statutory assets in excess of $6.6 billion and 
statutory stockholders' equity of approximately $500 million.  Crown 
is rated "Excellent" by A.M. Best Company, an insurance company rating 
organization.  At December 31, 1998, reinsurance receivables with a 
carrying value of $49.5 million were associated with Republic-Vanguard 
Life Insurance Company ("Republic").  Republic is rated 
"Excellent" by A.M. Best Company.  At December 31, 1997, Republic 
had statutory assets of approximately $800 million and statutory 
stockholders' equity of approximately $38 million.  At December 31, 
1998, reinsurance receivables with a carrying value of $2.3 million 
were associated with Alabama Reassurance Company ("Alabama Re").  The 
Alabama Re reinsurance receivables are secured by a trust account 
containing a $5 million letter of credit granted in favor of an 
insurance subsidiary of the Company.

With regard to the policies not 100% reinsured with Crown, Republic, 
or Alabama Re, the Company seeks to limit its exposure to loss on any 
single insured by reinsuring the portion of risks in excess of $50,000 
on the life of any individual through various reinsurance contracts, 
primarily of the coinsurance and yearly renewable term type.

The Company is contingently liable for amounts ceded to reinsurers in 
the event the reinsurers are unable to meet their obligations assumed 
under the reinsurance agreements.  Acap evaluates the financial 
condition of its reinsurers and monitors concentrations of credit 
risk to minimize its exposure to significant losses from reinsurer 
insolvencies. 
	
ACCOUNTING STANDARDS

In February 1997, the FASB issued SFAS No. 128, "Earnings Per 
Share."  SFAS No. 128, which had to be adopted for fiscal years 
ending after December 15, 1997, established standards for computing 
and presenting earnings per share ("EPS") and applies to entities 
with publicly-held common stock or potential common stock.  It 
replaces the presentation of primary EPS with a presentation of basic 
EPS.  It also requires dual presentation of basic and diluted EPS on 
the face of the income statement for all entities with complex capital 
structures and requires a reconciliation of the numerator and 
denominator of the basic EPS computation to the numerator and 
denominator of the diluted EPS computation, with all prior period EPS 
data presented restated.  The Company adopted SFAS No. 128 in 1997.

In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive 
Income."  SFAS No. 130 establishes standards for the reporting and 
display of comprehensive income and its components (revenues, 
expenses, gains, and losses) in a full set of general-purpose 
financial statements.  This statement requires that all items that are 
required to be recognized under accounting standards as components of 
comprehensive income be reported in a financial statement that is 
displayed with the same prominence as other financial statements.  
This statement does not require a specific format for that financial 
statement but requires that an enterprise display an amount 
representing total comprehensive income for the periods in that 
financial statement.  SFAS No. 130 is effective for fiscal years 
beginning after December 15, 1997.  As such, the Company adopted SFAS 
No. 130 in 1998.

In June, 1997, the FASB issued SFAS No. 131, "Disclosures about 
Segments of an Enterprise and Related Information."  SFAS No. 131 
establishes standards for the way that public business enterprises 
report information about operating segments in interim financial 
reports issued to stockholders.  The provisions of SFAS No. 131 did 
not have an impact on the Company in 1998 or 1997 since the Company 
did not have different operating segments.

YEAR 2000 STATUS	 

The Year 2000 issue is the result of computer programs being 
written using two digits rather than four to define the applicable 
year.  Any of the Company's computer programs or hardware that have 
date-sensitive software or embedded chips may recognize a date using 
"00" as the year 1900 rather than the year 2000.  This could result 
in a system failure or miscalculations causing disruptions of normal 
business activities.  To date, the Company has fully completed its 
assessment of all systems that could be significantly affected by the 
Year 2000 issue.  In addition, the Company has gathered information 
about the Year 2000 compliance status of material third parties with 
whom the Company conducts business and continues to monitor their 
compliance.

The Company's policies are administered on three policy administration 
systems.  One of the policy administration systems was internally 
developed.  The Company's assessment of that system found that minor 
corrections were necessary to make the system Year 2000 compliant. 
Those corrections have been completed, tested, and implemented.  Based 
on the testing performed, the Company believes that the system is now 
Year 2000 compliant.  The other two policy administration systems are 
vendor developed and supported systems.  The vendors have represented 
that the systems are Year 2000 compliant.  With all three policy 
administration systems Year 2000 compliant, the Company is positioned 
to perform all basic policy transactions without disruption.

The Company uses two general ledger and accounts payable systems.  One 
of the systems is no longer supported by the vendor who developed the 
system.  The Company's assessment of that system found that extensive 
modifications were needed to make the system Year 2000 compliant.  The 
other general ledger / accounts payable system is currently supported 
by the vendor.  While the version of that system in production at the 
Company is not Year 2000 compliant, the vendor has an updated version 
that is Year 2000 compliant.  The Company plans on installing the 
updated version of that system during the second quarter of 1999 and 
converting to exclusive use of that system for general ledger and 
accounts payable functions by the end of the third quarter of 1999.

The system used for claims processing of the Medicare supplement 
policies coinsured from Statesman is not Year 2000 compliant.  The 
Company has completed the assessment of the changes needed to make the 
claims system Year 2000 compliant.  The claims system will either be 
remediated or replaced by October 31, 1999.

Certain of the Company's minor subsystems are not currently Year 2000 
compliant and will be remediated.  The Company has completed the Year 
2000 assessment of these subsystems and is approximately 65% through 
the remediation of these subsystems.  The Company believes that the 
remediation, testing, and implementation of the subsystems will be 
completed by the end of the third quarter of 1999.

An assessment of the Company's operating equipment has determined that 
certain of the Company's personal computers will need to be replaced 
prior to January 1, 2000. 

To date, the Company has used existing internal resources to remediate 
the systems that are not Year 2000 compliant, and the costs thus 
incurred have not been significant.  Other than approximately $20,000 
to upgrade the general ledger / accounts payable systems and the 
replacement of some personal computers, it is expected that existing 
internal resources will be used to complete the Company's Year 2000 
project. 

Management of the Company believes that it has an effective program in 
place to resolve the Year 2000 issue in a timely manner.  As noted 
above, the Company has not yet completed all necessary phases of the 
Year 2000 program.  In the event that the Company does not complete 
any additional phases, the Company would not be able to use its 
general ledger system or the system used to pay Medicare supplement 
claims.

The Company has contingency plans for certain critical applications 
and is working on such plans for other applications.  These 
contingency plans involve, among other actions, manual workarounds and 
adjusting staffing strategies.

CAUTIONARY STATEMENT	

The 1995 Private Securities Litigation Reform Act provides issuers the 
opportunity to make cautionary statements regarding forward-looking 
statements.  Accordingly, any forward-looking statement contained 
herein or in any other oral or written statement by the Company or any 
of its officers, directors or employees is qualified by the fact that 
actual results of the Company may differ materially from such 
statement due to the following important factors, among other risks 
and uncertainties inherent in the Company's business: state insurance 
regulations, rate competition, adverse changes in interest rates, 
unforeseen losses with respect to loss and settlement expense reserves 
for unreported and reported claims, and catastrophic events.
<PAGE>

	ACAP CORPORATION
	CONSOLIDATED BALANCE SHEET
                                                             December 31,1998
Assets	
Investments:	
  Fixed maturities available for sale
      (amortized cost $35,221,831)                             $  36,968,374
  Mortgage loans                                                   1,930,734
  Policy loans                                                     6,811,849
  Short-term investments                                           1,573,630
                                                               -------------
     Total investments                                            47,284,587

Cash                                                                 120,332
Accrued investment income                                            543,305
Reinsurance receivables                                          105,155,284
Accounts receivable (less allowance for uncollectible
  accounts of $88,545)                                               563,245
Deferred acquisition costs                                         2,460,183
Property and equipment (less accumulated depreciation
  of $465,654)                                                       400,128
Costs in excess of net assets of acquired business
  (less accumulated amortization of $1,191,791)                    1,481,985
Other assets                                                         370,985
                                                               -------------
     Total assets                                               $158,380,034
                                                               =============
Liabilities	
Policy liabilities:	
  Future policy benefits                                        $139,496,503
  Contract claims                                                  2,397,219
                                                              --------------
     Total policy liabilities                                    141,893,722
                                                              --------------

Other policyholders' funds                                         2,850,960
Other liabilities                                                  1,730,420
Note payable                                                         562,500
Net deferred tax liability                                         1,176,156
Deferred gain on reinsurance                                       2,392,999
Deferred gain on sale of real estate                                 388,902
                                                              --------------
     Total liabilities                                          $150,995,659
                                                              --------------
Stockholders' Equity	
Series A preferred stock, par value $.10 per share,
  authorized, issued and outstanding 74,000 shares
  (involuntary liquidation value $2,035,000)                    $  1,850,000
Common stock, par value $.10 per share, authorized
  10,000 shares, issued 8,759 shares                                     876
Additional paid-in capital                                         6,259,589
Accumulated deficit                                               (1,440,233)
Treasury stock, at cost, 1,515 common shares                        (500,642)
Accumulated other comprehensive income-net unrealized
  investment gains, net of taxes of $531,758                       1,214,785
                                                              --------------
     Total stockholders' equity                                    7,384,375
                                                              --------------
     Total liabilities and stockholders' equity                 $158,380,034
                                                              ==============
See accompanying notes to consolidated financial statements.
<PAGE>
	ACAP CORPORATION
	CONSOLIDATED STATEMENTS OF OPERATIONS
	AND COMPREHENSIVE INCOME

                                                    Years Ended December 31,
                                                    1998             1997
  REVENUES
Premiums and other considerations               $2,581,834        2,521,103
Net investment income                            2,026,734        1,536,008
Net realized investment gains (losses)            (664,327)         204,709
Reinsurance expense allowance                    4,744,786        1,938,314
Amortization of deferred gain on reinsurance       210,479          193,682
Other income                                        41,969           53,167
                                               ----------------------------
   Total revenues                                8,941,475        6,446,983
                                               ----------------------------

BENEFITS AND EXPENSES
Policy benefits                                  2,590,050        2,486,979
Commissions and general expenses                 5,899,627        2,801,552
Interest expense                                    72,037           90,330
Amortization of costs in excess of net 
  acquired business                                239,662          239,662
Amortization of deferred acquisition costs         109,786           94,184
                                                 --------------------------
   Total benefits and expenses                   8,911,162        5,712,707
                                                 --------------------------

Income before federal income tax
expense (benefit)                                   30,313         734,276
Federal income tax expense (benefit):	
  Current                                          (49,481)        261,870
  Deferred                                          93,783        (875,625)
                                                 --------------------------
Net income (loss)                                  (13,989)      1,348,031
                                                 ==========================

OTHER COMPREHENSIVE INCOME
Net unrealized investment gains, net of taxes
  of $150,985 in 1998 and $177,416 in 1997         271,063         344,417

Net unrealized investment holding gains 
  arising during period, net of taxes of
  $10,396 in 1998 and $16,518 in 1997               23,800          32,065
Less:  reclassification adjustment for 
  net investment gains included in net
  income, net of taxes of $17,017 in 1998 and
  $52,502 in 1997                                  (38,960)       (101,915)
                                                  --------------------------
Comprehensive income                             $ 241,914       1,622,598
                                                  ==========================

EARNINGS PER SHARE
Basic earnings  (loss) per common share              $(28.42)       154.43
                                                  =========================

Diluted earnings (loss) per common share             $(35.52)       145.45
                                                  =========================


See accompanying notes to consolidated financial statements.
<PAGE>
	ACAP CORPORATION
	CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

                                                    Years Ended December 31,
                                                        1998         1997     
                                                   ------------------------
SERIES A PREFERRED STOCK 
(Including Additional Paid-in Capital)              $1,850,000    1,850,000
                                                   ------------------------

COMMON STOCK                                               876          876
                                                  -------------------------

ADDITIONAL PAID-IN CAPITAL

  Balance, beginning of year                         6,259,189    6,259,189
  Change during year                                       400           --
                                                  -------------------------
  Balance, end of year                               6,259,589    6,259,189
                                                  -------------------------

ACCUMULATED DEFICIT

  Balance, beginning of year                        (1,231,992)  (2,388,086)
  Net income (loss)                                    (13,989)   1,348,031
  Preferred stock cash dividends                      (194,252)    (191,937)
                                                  -------------------------
  Balance, end of year                              (1,440,233)  (1,231,992)
                                                  -------------------------

TREASURY STOCK

  Balance, beginning of year                          (450,482)    (426,419)
  Change during year                                   (50,160)     (24,063)
                                                   ------------------------
  Balance, end of year                                (500,642)    (450,482)
                                                   ------------------------

ACCUMULATED OTHER COMPREHENSIVE INCOME

  Balance, beginning of year                           943,722      599,305
  Change during year                                   271,063      344,417
                                                    -- --------------------
  Balance, end of year                               1,214,785      943,722
                                                     ======================

TOTAL STOCKHOLDERS' EQUITY                          $7,384,375    7,371,313
                                                    =======================

See accompanying notes to consolidated financial statements.

<PAGE>
	ACAP CORPORATION
	CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                     Years Ended December 31,
                                                         1998        1997 
                                                     ------------------------
 CASH FLOWS FROM OPERATING ACTIVITIES
  Net income (loss)                                  $(13,989)   1,348,031
    Adjustments to reconcile net income (loss) 
    to net cash provided by operating activities:
  Depreciation and amortization                       307,124      336,752
  Amortization of deferred acquisition costs          109,786       94,184
  Amortization of deferred gain on reinsurance       (210,479)    (193,682)
  Premium and discount amortization                   (63,490)      29,945
  Net realized investment gains (losses)              664,327     (204,709)
  Deferred federal income tax expense (benefit)        93,783     (875,625)
  Decrease in reinsurance receivables               1,657,076    1,814,662
  Decease (increase) in accrued investment income        8,898       (7,997)
  Decrease (increase) in accounts receivable         (278,117)     116,973
  Decrease in other assets                          1,190,157      107,003
  Decrease in policy liabilities                   (2,561,142)  (1,056,006)
  Increase (decrease) in other liabilities             34,062      246,982
                                                   -----------------------
    Net cash provided by operating activities         937,996    1,756,513
                                                   -----------------------
  CASH FLOWS FROM INVESTING ACTIVITIES
  Proceeds from sales of investments available
  for sale and principal repayments on 
  mortgage loans                                    9,712,958    6,214,388
  Purchases of investments available for sale      (8,845,902) (12,177,281)
  Proceeds from sale of real estate                        --    1,928,769
  Net decrease (increase) in policy loans             457,490      (18,779)
  Net decrease (increase) in short-term 
  investments                                        (693,527)     789,313
  Proceeds from coinsurance/assumption agreement      759,626    2,495,774
  Purchases of property and equipment                (287,655)     (93,099)
  Purchase of surplus debenture                      (800,000)          --
                                                  ------------------------
    Net cash provided by (used in) investing 
      activities                                      302,990     (860,915)
                                                  ------------------------

  CASH FLOWS FROM FINANCING ACTIVITIES
  Principal payments on note payable                 (250,000)    (250,000)
  Deposits on policy contracts                      1,227,606    1,591,091
  Withdrawals from policy contracts                (1,951,562)  (1,929,391)
  Preferred stock dividends paid                     (194,252)    (191,937)
  Treasury stock purchases                            (50,160)     (54,000)
                                                 -------------------------
    Net cash used in financing activities          (1,218,368)    (834,237)
                                                 -------------------------

  Net increase in cash                                 22,618       61,361
  Cash at beginning of year                            97,714       36,353
                                                 -------------------------
  Cash at end of year                                $120,332       97,714
                                                 =========================

See accompanying notes to consolidated financial statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 

Principles of Consolidation and Nature of Operations

The consolidated financial statements of Acap Corporation ("Acap" or 
"the Company"), include its wholly-owned subsidiaries, American 
Capitol Insurance Company ("American Capitol"); Imperial Plan, Inc. 
("Imperial Plan"); and Texas Imperial Life Insurance Company ("Texas 
Imperial").  All significant intercompany transactions and accounts 
have been eliminated in consolidation.  Controlling interest in the 
Company, approximately 46% at December 31, 1998, is owned by InsCap 
Corporation ("InsCap").

Acap is a life insurance holding company that focuses on the 
acquisition of existing life insurance policies, either through direct 
purchase or the acquisition of insurance companies.  Acap's life 
insurance operations are conducted through its wholly-owned life 
insurance subsidiaries.  Operations are conducted from the corporate 
headquarters in Houston, Texas.  Approximately half of the Company's 
direct collected premium comes from residents of the State of Texas, 
with no other state generating as much as 10% of the Company's direct 
collected premium.

Basis of Presentation

The consolidated financial statements have been prepared in accordance 
with generally accepted accounting principles.  Such accounting 
principles differ from prescribed statutory reporting practices used 
by the insurance subsidiaries in reporting to state regulatory 
authorities.  The more significant differences from statutory 
accounting principles are:  (a) acquisition costs related to acquiring 
new business are deferred and amortized over the expected lives of the 
policies rather than being charged to operations as incurred;  
(b) future policy benefits are based on estimates of mortality, 
interest and withdrawals generally representing the Company's 
experience, which may differ from those based on statutory mortality 
and interest requirements without consideration of withdrawals;  
(c) deferred federal income taxes are provided for temporary 
differences between assets and liabilities reported for financial 
reporting purposes and reported for federal income tax purposes;  (d) 
certain assets (principally furniture and equipment, agents' debit 
balances and certain other receivables) are reported as assets rather 
than being charged to accumulated deficit; (e) investments in fixed 
maturities available for sale are recorded at fair value rather than 
at amortized cost;  (f) for acquisitions accounted for as a purchase, 
the identified net assets of the acquired company are valued at their 
fair values and the excess of the value of the consideration over the 
net assets assumed is amortized over a period not to exceed nine 
years, whereas, for statutory purposes, this excess is not allowed and 
acquisitions are accounted for as equity investments; (g) two 
investment related reserves, the Asset Valuation Reserve ("AVR") and 
the Interest Maintenance Reserve ("IMR") are recorded under the 
statutory basis of accounting; (h) assets and liabilities are reported 
gross of reinsurance; (i) at the time of the initial ceding of a block 
of business, a deferred gain is set up and amortized over the life of 
the policies ceded; and (j) the decrease in surplus relief from 
reinsurance ceded agreements is amortized through net income with an 
offset in surplus netting to a zero effect on surplus under the 
statutory basis of accounting.

Generally, the net assets of the Company's insurance subsidiaries 
available for transfer to the parent company are limited to the 
amounts that the insurance subsidiaries' statutory net assets exceed 
minimum statutory capital requirements; however, payment of the 
amounts as dividends may be subject to approval by regulatory 
authorities.  As of December 31, 1998, the amount of dividends 
available to the parent company from subsidiaries not limited by such 
restrictions is approximately $600,000.  The combined net income of 
the Company's insurance subsidiaries (where applicable, from the date 
such subsidiary was acquired), as determined using statutory 
accounting practices, was $1,976,913 and $2,689,622 for the years 
ended December 31, 1998 and 1997, respectively.  The consolidated 
statutory stockholders' equity of the Company's insurance subsidiaries 
amounted to $2,202,516 and $3,540,343 at December 31, 1998 and 1997, 
respectively.  The total adjusted statutory stockholders' equity of 
the Company's insurance subsidiaries exceeds the applicable Risk-Based 
Capital requirements.

The preparation of financial statements in conformity with 
generally accepted accounting principles requires management to make 
estimates and assumptions that affect the reported amounts of assets 
and liabilities and disclosure of contingent assets and liabilities at 
the date of the financial statements and the reported amount of 
revenues and expenses during the reporting period.  Actual results 
could differ from those estimates.

Certain prior year amounts have been reclassified to conform to the 
current year presentation.  Such reclassifications had no impact on 
net income or stockholders' equity as previously reported.

Investments

Investments are reported on the following bases:

All of the Company's debt securities are accounted for in accordance 
with Statement of Financial Accounting Standards ("SFAS") No. 115 and 
are classified as available-for-sale securities. Accordingly, such 
securities are reported at fair value, with unrealized gains and 
losses, net of taxes, excluded from earnings and reported as a 
separate component of stockholders' equity as accumulated other 
comprehensive income.

Mortgage loans on real estate are carried at unpaid principal 
balances.

Policy loans are carried at their unpaid principal balances.  Policy 
loans consist primarily of automatic borrowings against a policy's 
cash surrender value to pay policy premiums.  Interest accrues at 
rates ranging from 5% to 10%.

Short-term investments, consisting primarily of commercial paper, are 
carried at cost.

Write-downs and other realized gains and losses, determined on the 
specific identification method, are accounted for in the consolidated 
statements of operations in net realized investment gains.

Deferred Acquisition Costs

Deferred acquisition costs are the cost of policies acquired through 
the purchase of insurance companies, representing the actuarially 
determined present value of projected future profits from policies in 
force at the purchase date.

For interest-sensitive whole life contracts, deferred costs are 
amortized in relation to the present value of expected future gross 
profits from the contracts.  For traditional contracts, deferred costs 
are amortized in relation to future anticipated premiums.  The 
deferred costs are reviewed to determine that the unamortized portion 
of such costs does not exceed recoverable amounts.  Management 
believes such amounts are recoverable.

The deferred acquisition costs for the year ended December 31, 1998 
are summarized as follows:

Balance at December 31, 1997                            $1,569,969
Insurance in force acquired                              1,000,000
Amortized during the year                                 (109,786)
                                                      ------------
Balance at December 31, 1998                            $2,460,183
                                                      ============

The amortization of deferred acquisition costs is expected to be
between $200,000 and $300,000 over each of the next five years.

Property and Equipment

Property and equipment are carried at cost.  Depreciation is computed 
using the straight-line method over the estimated useful lives, which 
range from five to ten years.  Depreciation expense was $67,462 and 
$50,936 for the years ended December 31, 1998 and 1997, respectively.  
When assets are retired or otherwise disposed of, the cost and related 
accumulated depreciation are removed from the accounts, and any 
resulting gains or losses are recognized in income for the period.  
The cost of maintenance and repairs is charged to income as incurred; 
significant renewals and betterments are capitalized.

Costs in Excess of Net Assets of Acquired Business

The costs in excess of net assets of acquired business are amortized 
on a straight-line basis over remaining terms of three years and seven 
years.

Recognition of Premium Revenue and Related Expenses, Liability for 
Future Policy Benefits and Contract Claims

For traditional insurance contracts, premiums are recognized as 
revenue when due.  Benefits and expenses are associated with earned 
premiums so as to result in their recognition over the premium paying 
period of the contracts.  Such recognition is accomplished by means of 
the provision for future policy benefits and the amortization of 
deferred policy acquisition costs.

For contracts with mortality risk that permit the Company to make 
changes in the contract terms (such as interest-sensitive whole life 
policies), premium collections and benefit payments are accounted for 
as increases or decreases to a liability account rather than as 
revenue and expense.  In addition, decreases to the liability account 
for the costs of insurance and policy administration and for surrender 
penalties are recorded as revenues.  Interest credited to the 
liability account and benefit payments made in excess of a contract 
liability account balance are charged to expense.

For investment contracts without mortality risk (such as deferred 
annuities), net premium collections and benefit payments are recorded 
as increases or decreases to a liability account rather than as 
revenue and expense.  Surrender penalties are recorded as revenues.  
Interest credited to the liability account is charged to expense.

Reserves for traditional contracts are calculated using the net level 
premium method and assumptions as to investment yields, mortality, 
withdrawals and dividends.  The assumptions are based on past and 
expected experience and include provisions for possible unfavorable 
deviation.  These assumptions are made at the time the contract is 
issued or, for contracts acquired by purchase, at the purchase date.  
Interest assumptions used to compute reserves ranged from 4% to 9% at 
December 31, 1998.

Reserves for interest-sensitive whole life policies and investment 
contracts are based on the contract account balance if future benefit 
payments in excess of the account balance are not guaranteed, or the 
present value of future benefit payments when such payments are 
guaranteed.

The liability for contract claims represents the liability for claims 
reported in excess of the related policy benefit reserve plus an 
estimate of claims incurred but not reported.

Earnings per Share

Earnings per common share for 1998 were computed as follows:

                                                        Weighted 
                                                         Average       Per
                                            Income       Shares       Share
                                          (Numerator) (Denominator)  Amount
                                 --------------------------------------------
Net loss                                  $  (13,989)

Preferred dividends                         (194,252)
                                            --------
BASIC EARNINGS PER SHARE
Income available to common stockholders     (208,241)     7,326       $(28.42)

Effect of Dilutive Securities
Stock options                               (58,976)        197
                                      ----------------------------------------
DILUTED EARNINGS PER SHARE
Income available to common
  stockholders plus assumed exercise      ($267,217)      7,523       $(35.52)
                                      ----------------------------------------
	
Earnings per common share for 1997 were computed as follows:

                                                       Weighted         Per
                                          Income     Average Shares    Share
                                       (Numerator)    (Denominator)    Amount
                                       ----------    -------------     ------

Net income                              $1,348,031

Preferred dividends                       (191,937)
                                         --------- 
BASIC EARNINGS PER SHARE
Income available to common stockholders  1,156,094        7,486       $154.43

EFFECT OF DILUTIVE SECURITIES
Stock options                              (58,976)          57     
                                 ---------------------------------------------

Diluted Earnings Per Share
Income available to common stockholders
  plus assumed exercise                 $1,097,118        7,543       $145.45
                                 =============================================

Participating Policies

Acap maintains both participating and nonparticipating life insurance 
policies.  Participating business represented approximately 11% and 
23% of the life insurance in force, and 44% and 28% of life insurance 
premium income at December 31, 1998 and 1997, respectively.  Dividends 
to participating policyholders are determined annually and are payable 
only upon declaration of the Boards of Directors of the insurance 
subsidiaries.

Federal Income Taxes

The Company accounts for income taxes in accordance with SFAS No. 109 
which requires that a deferred tax liability be recognized for all 
taxable temporary differences and a deferred tax asset be recognized 
for an enterprise's deductible temporary differences and operating 
loss and tax credit carryforwards.  A deferred tax asset or liability 
is measured using the marginal tax rate that is expected to apply to 
the last dollars of taxable income in future years.  The effects of 
enacted changes in tax laws or rates are recognized in the period that 
includes the enactment date.

Statement of Cash Flows

For purposes of reporting cash flows, cash includes cash on hand, in 
demand accounts, in money market accounts and in savings accounts.

Stock Based Compensation

The Company grants stock options to employees for a fixed number of 
shares with an exercise price equal to the fair market value of the 
shares at the date of grant.  The Company accounts for stock options 
in accordance with APB Opinion No. 25, "Accounting for Stock Issued 
to Employees," and accordingly recognizes no compensation expense for 
the stock option grants.

Accounting Standards

In February 1997, the FASB issued SFAS No. 128, "Earnings Per 
Share."  SFAS No. 128, which must be adopted for fiscal years ending 
after December 15, 1997, established standards for computing and 
presenting earnings per share ("EPS") and applies to entities with 
publicly held common stock or potential common stock.  It replaces the 
presentation of primary EPS with a presentation of basic EPS.  It also 
requires dual presentation of basic and diluted EPS on the face of the 
income statement for all entities with complex capital structures and 
requires a reconciliation of the numerator and denominator of the 
basic EPS computation to the numerator and denominator of the diluted 
EPS computation, with all prior period EPS data presented restated.  
The Company adopted SFAS No. 128 in 1997.

In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive 
Income."  SFAS No. 130 establishes standards for reporting and 
display of comprehensive income and its components (revenues, 
expenses, gains, and losses) in a full set of general-purpose 
financial statements.  This statement requires that all items that are 
required to be recognized under accounting standards as components of 
comprehensive income be reported in a financial statement that is 
displayed with the same prominence as other financial statements.  
This statement does not require a specific format for that financial 
statement but requires that an enterprise display an amount 
representing total comprehensive income for the periods in that 
financial statement.  SFAS No. 130 is effective for fiscal years 
beginning after December 15, 1997.  As such, the Company adopted SFAS 
No. 130 in 1998.

In June, 1997, the FASB issued SFAS No. 131, "Disclosures about 
Segments of an Enterprise and Related Information."  SFAS No. 131 
establishes standards for the way that public business enterprises 
report information about operating segments in interim financial 
reports issued to shareholders.  The provisions of SFAS No. 131 did 
not have an impact on the Company in 1998 or 1997 since the Company 
did not have different operating segments .

2. INVESTMENTS	

Fixed Maturity Securities

The amortized cost and fair values of investments in fixed maturity 
securities as of December 31, 1998 are as follows:

                                               Gross       Gross
                                 Amortized  Unrealized  Unrealized     Fair 
                                   Cost        Gains       Losses      Value
                                   ----        -----       ------      -----
Government securities          $3,229,941     233,141         --     3,463,082
Corporate securities           20,171,643     915,763     (2,038)   21,085,368
Asset-backed securities         3,519,875      58,707    (19,640)    3,558,942
Mortgage-backed securities      8,300,372     560,895       (285)    8,860,982
                             $ 35,221,831   1,768,506    (21,963)   36,968,374
                             ==================================================

A summary of proceeds from the sales of investments in fixed maturity 
securities, exclusive of proceeds from maturities, and the gross gains 
and losses realized on those sales follows:

                                                  1998              1997
                                                ----------------------------
Proceeds on sales                              $5,054,569          5,603,725
                                                ============================

Gross realized gains on sales                      70,668            154,017
Gross realized losses on sales                    (19,186)                --
                                              -------------------------------
Net realized gains on sales                        51,482            154,017
Realized gains on transactions other than sales     4,495                399
                                              -------------------------------
Net realized gains                            $    55,977            154,416
                                              ===============================

The amortized cost and estimated fair value of fixed maturity 
securities at December 31, 1998, by contractual maturity, are shown 
below.  Expected maturities will differ from contractual maturities 
because borrowers may have the right to call or prepay obligations 
with or without call or prepayment penalties.

                                                Amortized              Fair
                                                  Cost                 Value

Maturing in one year or less                    $ 362,353            361,980
Maturing after one year through five years      6,839,944          7,059,093
Maturing after five years through ten years    14,229,721         14,906,133
Maturing after ten years                        5,489,441          5,780,186

                                               -----------------------------
                                               26,921,459         28,107,392
Mortgage-backed securities                      8,300,372          8,860,982
                                               -----------------------------
                                              $35,221,831         36,968,374
                                              ==============================

A summary of the fair value of mortgage-backed securities by type as of
December 31, 1998 follows:

Collateralized mortgage obligations:

  Planned amortization class                                      $5,201,244
  Z                                                                1,531,949
  Sequential                                                       1,211,301
  Other                                                               49,956
                                                                ------------
                                                                   7,994,450
Pass-through securities                                              866,532
                                                                 -----------
                                                                  $8,860,982
                                                                ============

With a planned amortization class security, early repayments are 
applied first to other tranches, and cash flows originally applicable 
to other tranches are first applied to the planned amortization class 
tranche if that tranche's originally scheduled cash flows are received 
later than expected.  The Z tranche defers all interest to other 
tranches until those tranches are paid down, at which time accumulated 
interest and principal are paid to this class.  Sequential tranches 
are not supported by other tranches.

As of December 31, 1998, 100% of the Company's fixed maturity 
securities were rated investment grade (i.e., rated BBB-/Baa3 or 
higher by Standard & Poor or Moody).

Mortgage Loans

The weighted average interest rate of mortgage loans held as of 
December 31, 1998 was 9.2%.

The distribution of principal balances on mortgage loans held as of 
December 31, 1998 by contractual maturity follows.  Actual maturities 
may differ from contractual maturities because borrowers may have the 
right to prepay obligations with or without penalties.

                                                                  Principal
                                                                   Balance
                                                                   -------
Maturing in one year or less                                        $190,995
Maturing after one year through five years                           577,750
Maturing after five years through ten years                          564,178
Maturing after ten years                                             597,811
                                                                 -----------
                                                                  $1,930,734
                                                                ============

The distribution of mortgage loans by class of loan and geographic 
distribution follows:
                                                                   Principal
                                                                    Balance
                                                                     ------
Commercial loans:
  Texas                                                           $  573,656
  Tennessee                                                          215,727
  Louisiana                                                           36,097
  Alabama                                                             16,704
                                                                   ---------
                                                                  $  842,184
                                                                  ==========
Residential loans:
  Tennessee                                                       $  453,714
  Alabama                                                            423,538
  Texas                                                               81,465
  Florida                                                             63,719
  Kentucky                                                            35,103
  Louisiana                                                           31,011  
                                                                  ----------
                                                                  $1,088,550
                                                                  ==========
Investment Income

A summary of net investment income follows:
                                                         1998         1997
                                                         ----         ----

Interest on fixed maturities                          $1,676,508   1,356,634
Interest on mortgage loans                               293,860     256,959
Interest on policy loans                                  42,769      49,327
Interest on cash and short-term investments               37,025      37,396
Real estate income                                            --      26,582
Miscellaneous investment income                           40,192     139,860
                                                       ---------------------
                                                                           
                                                       2,090,354   1,866,758
Investment expense                                       (63,620)   (330,750)
                                                       ---------------------
                                                      $2,026,734   1,536,008
                                                       =====================

Unrealized Investment Gains (Losses)

The change between cost and fair value for fixed maturity and equity 
securities, net of taxes, follows:

                                                Fixed      Equity
                                             Maturities  Securities  Total
                                             ----------  ----------  -----

Balance, January 1, 1997                   $  599,443      (138)     599,305
Change during the year                        344,279       138      344,417
                                            --------------------------------
Balance, December 31, 1997                    943,722        --      943,722
Change during the year                        271,063        --      271,063
                                            --------------------------------
Balance, December 31, 1998                 $1,214,785        --    1,214,785
                                            ================================

Net Realized Investment Gains (Losses)

A summary of net realized investment gains (losses) follows:

                                                          1998        1997
                                                          ----        ----

Fixed maturities                                       $  55,977     154,416
Equity securities (including investment 
   in subsidiaries)                                         (100)     (3,203)
Real estate                                               79,796      53,496
Surplus debenture                                       (800,000)         --
                                                       ---------------------
                                                       $(664,327)    204,709
                                                      ======================

On December 16, 1998, Texas Imperial acquired the stock of Statesman 
National Life Insurance Company ("Statesman").  Statesman was owned 
by the brother of the majority shareholder of Acap, and, as a result, 
this qualified as a related party transaction.  Texas Imperial issued 
a promissory note of $100 to the sellers of the Statesman stock 
("Sellers").  At the time of the acquisition of the Statesman stock 
by Texas Imperial, Statesman had approximately $1.8 million in surplus 
debentures issued to the Sellers.  The Sellers' debentures backed the 
Sellers' representations and warranties and were to be adjusted based 
upon the outcome of certain post-closing price adjustments.  In 
connection with closing, Texas Imperial purchased an $800,000 surplus 
debenture from Statesman to bring Statesman's statutory equity to the 
level required by the Texas Department of Insurance (the 
"Department") as a condition of the Department's approval of Texas 
Imperial's acquisition of Statesman.  In January, 1999, it was 
discovered that Statesman's claim liabilities were significantly 
understated.  The liability understatement exceeded the amount of the 
Sellers' debentures.  Given the mutual mistake of fact upon which the 
stock purchase, the surplus debenture purchase and the Department's 
approval of same were based, Texas Imperial, the Sellers, and 
Statesman agreed to rescind the purchase of the stock and the surplus 
debenture.  However, the rescission required the approval of the 
Department.  The Department did not grant its approval.  As a result, 
Texas Imperial determined that the $800,000 Statesman surplus 
debenture was uncollectible and recorded the realized investment loss 
on the debenture and wrote off its investment in Statesman of $100.

Other Investment Disclosures

At December 31, 1998, bonds with a fair value of $5,697,557 were on 
deposit with various regulatory authorities.

Investments, other than investments issued or guaranteed by the United 
States Government or a United States Government agency or authority, 
in excess of 10% of stockholders' equity at December 31, 1998 were as 
follows:
                                                  Balance
                                                Sheet Amount      Category
                                                ------------    -------------
Merrill Lynch                                    $1,123,463    Fixed maturity
Ingersoll Rand                                    1,036,256    Fixed maturity
General Motors                                    1,020,516    Fixed maturity
Green Tree Home Equity Loan                       1,004,110    Fixed maturity
La Farge Corp                                       988,636    Fixed maturity
AT&T                                                885,813    Fixed maturity
EQCC Home Equity                                    847,813    Fixed maturity
PNC Mortgage Security                               746,197    Fixed maturity

3.  FAIR VALUES

The carrying values and estimated fair values of the Company's financial
instruments as of December 31, 1998 are as follows:

                                                 Carrying Amount   Fair Value
                                                 ---------------   ----------
Assets:
      Fixed maturities                             $36,968,374     36,968,374
      Mortgage loans                                 1,930,734      1,943,679
      Policy loans                                   6,811,849      6,811,849
      Short-term investments                         1,573,630      1,573,630
Liabilities
      Note payable                                     562,500        562,500

Estimated market values of publicly-traded fixed maturity securities 
are as reported by an independent pricing service.  Estimated market 
values of fixed maturity securities not actively traded in a liquid 
market are estimated using a third party pricing system, which uses a 
matrix calculation assuming a spread over U.S. Treasury bonds.

 Fair values of mortgage loans are estimated by discounting expected 
cash flows, using market interest rates currently being offered for 
similar loans.  

Policy loans have no stated maturity dates and are a part of the 
related insurance contracts.  Accordingly, it is not practicable for 
the Company to estimate a fair value for them.  

For short-term investments, the carrying amount is a reasonable 
estimate of fair value.  

In that the note payable is a floating rate instrument, the principal 
balance is a reasonable estimate of the note's fair value.

4.  NOTE PAYABLE 

On January 31, 1995, the Company borrowed $1.5 million from Central 
National Bank of Waco, Texas.  The note is renewable by the bank each 
April 30 until fully repaid.  The note bears interest at a rate equal 
to the base rate of a bank plus 1%.  Principal payments on the note of 
$62,500 are due quarterly (a six year amortization) beginning April 
30, 1995.  The loan agreement contains certain restrictions and 
financial covenants.  Without the written consent of the bank, Acap 
may not incur any debt, pay common stock dividends or sell any 
substantial amounts of assets.  Also, American Capitol is subject to 
minimum statutory earnings and capital and surplus requirements during 
the loan term.  The Company is in compliance with all of the terms of 
the loan.

During 1997, American Capitol and Texas Imperial obtained revolving 
lines of credit from a bank by signing unsecured promissory notes in 
the amount of $200,000 and $150,000, respectively.  Interest on both 
notes are at the base interest rate of the bank.  Both notes were 
renewed in 1998.  As of December 31, 1998 no funds have been borrowed 
on these notes.

5.  COMMITMENTS AND CONTINGENCIES

Leases

In conjunction with the sale of American Capitol's home office 
building on November 21, 1997, American Capitol entered a lease 
agreement with the new owner of the building to lease approximately 
one quarter of the net rentable area of the building, the area it then 
currently occupied, for five years at an annual rental of $124,320.  
American Capitol has the option to extend the lease for an additional 
five years at the end of the initial term of the lease.  An amendment 
was made to this lease agreement in 1998 to lease an additional 8,424 
square feet.  The effective date of the amendment was June 1, 1998 and 
runs concurrently with the original lease agreement.  The annual 
rental for the first year is approximately $103,246 and the annual 
rental for the remaining years is approximately $111,070.  American 
Capitol paid $203,771 in rental payments in 1998 in connection with 
this lease agreement.

Reinsurance

The Company accounts for reinsurance in accordance with Statement of 
Financial Accounting Standards No. 113.  In accounting for 
reinsurance, the Company has reported ceded reserve credits and 
reinsurance claim credits as reinsurance receivables.  The cost of 
reinsurance related to long-duration contracts is accounted for over 
the life of the underlying reinsured policies using assumptions 
consistent with those used to account for the underlying policies.

At December 31, 1998, reinsurance receivables with a carrying value of 
$49.5 million were associated with Republic-Vanguard Life Insurance 
Company ("Republic").  Republic is rated "Excellent" by A.M. Best 
Company, an insurance rating organization.  At December 31, 1997, 
Republic had statutory assets of approximately $800 million and 
statutory stockholder equity of approximately $38 million.  At 
December 31, 1998, reinsurance receivables with a carrying value of 
$49.3 million were associated with a single reinsurer, Crown Life 
Insurance Company ("Crown").  At December 31, 1997, Crown had 
statutory assets in excess of $6.6 billion and statutory stockholders' 
equity of approximately $500 million.  Crown is rated "Excellent" by 
A.M. Best Company.  At December 31, 1998, reinsurance receivables with 
a carrying value of $2.3 million were associated with Alabama 
Reassurance Company ("Alabama Re").  While Alabama Re is currently 
rated "Fair" by A.M. Best Company, the Alabama Re reinsurance 
receivables are secured by a trust account containing a $5 million 
letter of credit granted in favor of an insurance subsidiary of the 
Company.  At December 31, 1998, the remaining reinsurance receivables 
were associated with various other reinsurers.

The Company is contingently liable for amounts ceded to reinsurers in 
the event the reinsurers are unable to meet their obligations assumed 
under the reinsurance agreements.  The Company evaluates the financial 
condition of its reinsurers and monitors concentrations of credit risk 
to minimize its exposure to significant losses from reinsurer 
insolvencies.  Other than its exposure to Crown, Alabama Re and 
Republic as discussed above, management does not believe the Company 
has significant concentrations of credit risk related to reinsurance, 
or otherwise.

On March 5, 1998, American Capitol closed a coinsurance transaction 
with Universal Life Insurance Company ("Universal").  Pursuant to 
the coinsurance agreement (the "Coinsurance Agreement"), American 
Capitol coinsured 100% of the individual life insurance policies of 
Universal in force at January 1, 1998.  The effective date of the 
Coinsurance Agreement was January 1, 1998.  American Capitol paid 
Universal an initial ceding commission of approximately $13 million.  
Universal transferred approximately $40 million in assets to American 
Capitol in connection with the coinsurance. 

Contemporaneous with the signing of the Coinsurance Agreement, the 
parties executed an administrative agreement (the "Administration 
Agreement") whereby American Capitol agreed to provide specified 
administrative functions for the 246,011 coinsured Universal policies.  
American Capitol started administering the policies beginning July 1, 
1998.  Between January 1, 1998 and July 1, 1998, Universal continued 
to administer the policies, and American Capitol paid Universal the 
expense allowance stipulated in the Administration Agreement.

Concurrent with the coinsurance of the Universal policies, American 
Capitol retroceded all of the coinsured Universal policies to 
Republic.  Republic paid American Capitol an initial ceding commission 
of $13.5 million.  American Capitol transferred $39.6 million in 
assets to Republic in connection with the retrocession.  Once Republic 
has recovered the initial ceding commission, Republic must, at 
American Capitol's option, retrocede back to American Capitol 100% of 
the policies.  Upon this retrocession, American Capitol then pays 
Republic 30% of the profits generated by the policies, retaining the 
other 70% of the profits.  In addition, American Capitol has the right 
to recapture the retrocession under certain terms and conditions.

The Crown, Republic, and Alabama Re reinsurance treaties are 
representative of a key use of reinsurance by the Company.  
Immediately following the purchase of a block of life insurance 
policies through the Company's acquisition program, the Company may 
reinsure all or a portion of the acquired policies.  By doing so, the 
Company seeks to recover all or a portion of the purchase price of the 
acquired policies and transfer the risks associated with the policies 
to the reinsurer.  The Company retains the administration of the 
reinsured policies and seeks to profit from the compensation the 
Company receives from the reinsurer for such policy administration.  
The Company is entitled, but not obligated, to recapture the policies 
at a price determined by a formula in the reinsurance treaty.

With regard to the policies not 100% reinsured with Crown, Republic, 
or Alabama Re, the purpose of reinsurance is to limit the Company's 
exposure to loss on any single insured.  The Company reinsures the 
portion of risks in excess of a maximum of $50,000 on the life of any 
individual through various reinsurance contracts, primarily of the 
coinsurance and yearly renewable term type. 

Effective October 31, 1998, American Capitol coinsured from Statesman 
National Life Insurance Company ("Statesman") 100% of its pre-
standard Medicare supplement policies in force.  American Capitol paid 
Statesman an initial ceding commission of $1 million.  Statesman 
transferred approximately $800,000 in assets to American Capitol in 
connection with the coinsurance.

The effect of reinsurance on premiums and benefits follows:

                                                    Years ended December 31,
                                                       1998          1997
                                                       ----          ----
Direct premiums                                  $  7,917,467      7,227,841
Reinsurance assumed                                 9,314,872      1,761,954
Reinsurance ceded                                 (14,650,505)    (6,468,692)
  Net premiums                                     $2,581,834      2,521,103
                                                  ==========================

Direct policy benefits                           $  8,139,517      7,871,643
Reinsurance assumed                                 8,610,983      2,771,068
Reinsurance ceded                                 (14,160,450)    (8,155,732)
                                                 ---------------------------
Net policy benefits                              $  2,590,050      2,486,979
                                                 ===========================

Litigation  

Acap and its subsidiaries are involved in various lawsuits and legal 
actions arising in the ordinary course of operations.  Management is 
of the opinion that the ultimate disposition of the matters will not 
have a material adverse effect on Acap's results of operations or 
financial position.

6.  SUPPLEMENTAL INFORMATION REGARDING CASH FLOWS

Cash payments for interest expense for the years ended December 31, 
1998 and 1997 were $69,015 and $92,176, respectively.  Net cash 
payments of $208,143 and $282,779 for federal income taxes were made 
during the years ended December 31, 1998 and 1997, respectively.

The following reflects assets acquired and liabilities assumed by the 
Company relative to the coinsurance agreement covering the policies of 
Universal, the consideration given for such reinsurance and the net 
cash flow relative to such coinsurance on January 1, 1998.

Assets acquired                                                $ 39,972,696
Liabilities assumed                                             (53,085,774)
                                                                -----------
Cost of coinsurance                                            $(13,113,078)

Cash paid for coinsurance                                      $(13,113,078)

Net cash from coinsurance:
Cash acquired                                                  $ 38,597,840
Cash paid for coinsurance                                       (13,113,078)
                                                                -----------
Net cash provided from coinsurance                             $ 25,484,762
                                                                ===========
	
The following reflects assets and liabilities transferred in 
connection with a coinsurance agreement whereby all policies assumed 
from Universal were 100% retroceded to Republic, the ceding commission 
received and the net cash flow related to the coinsurance agreement on 
January 1, 1998.

Assets transferred                                             $(39,580,339)
Liabilities transferred                                          53,080,339
                                                                -----------
Net cash transferred                                           $ 13,500,000
                                                                ===========

Ceding commission received                                     $ 13,500,000
                                                                ===========

Net cash from coinsurance                                      $         --
                                                                ===========

Cash paid                                                      $(38,984,762)
Cash received from coinsurance                                   13,500,000
                                                                -----------
Net cash used from coinsurance                                  (25,484,762)
                                                                -----------
Net proceeds from coinsurance                                  $         --
                                                                ===========
	
The following reflects assets acquired and liabilities assumed 
relative to the coinsurance agreement covering the pre-standard 
Medicare supplement policies of Statesman, the consideration given for 
such coinsurance and the net cash flow relative to such coinsurance on 
October 31, 1998.

Assets acquired                                                $    818,443
Liabilities assumed                                              (1,818,443)
                                                                -----------
Cost of coinsurance                                            $ (1,000,000)
                                                                ===========

Cash paid for coinsurance                                      $ (1,000,000)

Net cash from coinsurance:
Cash acquired                                                  $  1,759,626
Cash paid for coinsurance                                        (1,000,000)
                                                                -----------  
Net cash provided from coinsurance                             $    759,626
                                                                ===========

7.  FEDERAL INCOME TAXES

Acap and American Capitol file a consolidated federal income tax 
return.  The other subsidiaries of the Company file separate federal 
income tax returns.  At December 31, 1998, Acap had a remaining tax 
net operating loss carryover of approximately $900,000 that will 
expire during the years 2001 through 2012 if not previously utilized.  
At December 31, 1998, the Company had alternative minimum tax 
carryforwards of approximately $500,000 that are available for an 
indefinite period to reduce future regular federal income taxes.

A portion of life insurance taxable income generated prior to 1984 is 
not taxable unless it exceeds certain statutory limitations or is 
distributed to stockholders, in which case it becomes taxable at 
ordinary corporate rates.  Such income is accumulated in a 
Policyholders' Surplus account that, at December 31, 1998, had a 
balance of approximately $4,800,000.  No provision has been made for 
income taxes related to this accumulation.

A reconciliation of income tax expense (benefit) for 1998 and 1997 
computed at the applicable federal tax rate of 34% to the amount recorded in
the consolidated financial statements is as follows:

                                                          1998       1997
                                                          ----       ----   
Federal income tax expense at statutory rate           $ 10,306     249,654
Small life insurance company special deduction               --    (307,981)
Change in valuation allowance                           (70,780)   (620,895)
Tax underpayment (refund)                                (6,238)     10,617
Tax rate differential on net operating loss carryback    70,148          --
Other, net                                               40,866      54,850
                                                        --------------------
Total federal income tax expense (benefit)             $ 44,302    (613,755)
                                                        ==================== 

The small life insurance company special deduction noted above is 
available to life insurance companies with assets under $500 million.  
The deduction is 60% of life insurance taxable income under $3 
million.  The deduction is phased out for life insurance taxable 
income between $3 million and $15 million, with the deduction reduced 
by 15% of the life insurance taxable income in excess of $3 million.

The tax effects of temporary differences that give rise to significant 
portions of the deferred tax assets and deferred tax liabilities at 
December 31, 1998 are as follows:

Deferred Tax Assets:
Deferred gain on reinsurance                                     $  809,121
Deferred gain on sale of real estate                                132,227
Net operating loss carryforwards                                    319,968
Alternative minimum tax credit carryforwards                        501,091
Other                                                                45,024
                                                                  ---------
Total gross deferred tax assets                                   1,807,431
Less:  valuation allowance                                       (1,104,942)
                                                                  ---------
Deferred tax assets                                                 702,489
                                                                  ---------

Deferred Tax Liabilities:
Net unrealized gains on 
  available-for-sale securities                                     531,758
Deferred policy acquisition costs                                   310,074
Policy reserves and policy funds                                    971,353
Other                                                                65,460
                                                                  ---------
Deferred tax liabilities                                          1,878,645
                                                                  =========
Net deferred tax liability                                       $1,176,156
                                                                  =========
	
A valuation allowance for the net operating loss carryforward, 
alternative minimum tax credit carryforward, and a portion of other 
deferred tax assets of $1,104,942 was established at December 31, 
1998 against the deferred tax asset.  The net change in the total 
valuation allowance for the years ended December 31, 1998 and 1997 
was a decrease of $70,780 and a decrease of $620,895, respectively.  
Management believes that it is more likely than not that the deferred 
tax assets that are not provided for in the valuation allowance are 
recoverable.

8.  AMERICAN CAPITOL KEY EMPLOYEE STOCK OPTION PLAN

On July 18, 1988, the Board of Directors of American Capitol approved 
a non-qualified stock option plan (the "1988 Plan").  Under the 
terms of the 1988 Plan, stock options could only be granted on shares 
of common stock of Acap owned by American Capitol.  The options 
enabled the grantee to purchase the common stock to which the options 
relate at the fair market value of the common stock on the date the 
options were granted.  During 1997, all of the outstanding options 
granted under the 1988 Plan were exercised and the 1988 Plan was 
terminated.

Effective September 2, 1997, the Board of Directors of American 
Capitol adopted an incentive stock option plan (the "1997 Plan").  
The 1997 Plan provides that the Board of Directors of American Capitol 
or the Compensation Committee of the Board of Directors may grant 
stock options to any employee determined to be a key employee.  The 
stock options may only be granted on shares of common stock of Acap 
owned by American Capitol.  The options enable the grantee to purchase 
the common stock to which the options relate at the fair market value 
of the common stock on the date of granting the options.  The options 
vest five years from the date of grant and must be exercised within 
ten years from the date of grant.  As of December 31, 1998, options to 
purchase 500 of the 743 shares of Acap common stock owned by American 
Capitol had been granted, with a weighted average option price of 
$244.80 per share.

Stock options granted for Acap Corporation common stock are summarized 
as follows:
                                                           Number of Shares
                                          Option Price       1998     1997
                                          ---------------------------------
Outstanding at January 1                  244.80/187.50       500       68
Granted during the year                       $244.80          --      500
Exercised during the year                     $187.50          --      (68)
                                                            ---------------
Outstanding at December 31                    $244.80         500      500
                                                            ===============
Available for future grant                                    243       34
                                                            ===============

9. CAPITAL STOCK

Acap has two classes of capital stock:  preferred stock ($.10 par 
value, authorized 80,000 shares), which may be issued in series with 
such dividend, liquidation, redemption, conversion, voting, and other 
rights as the Board of Directors may determine, and common stock ($.10 
par value, authorized 10,000 shares), the "Common Stock."  The only 
series of preferred stock outstanding is the Cumulative Exchangeable 
Preferred Stock, Series A, $2.50 (Adjustable), the "Series A Preferred 
Stock."

Series A Preferred Stock

There are 74,000 shares of Series A Preferred Stock authorized, issued 
and outstanding.  Acap pays dividends quarterly on the Series A 
Preferred Stock (when and as declared by the Board of Directors).  The 
amount of the dividend is based on the prime rate of a Pittsburgh bank 
plus 2%.  Acap has the right, if elected by the Board of Directors, to 
redeem the Series A Preferred Stock at the fixed redemption price of 
$27.50 per share.  The holders of Series A Preferred Stock are 
entitled to liquidating distributions of $27.50 per share.  The 
cumulative dividends and liquidating distributions of the Series A 
Preferred Stock are payable in preference to the Common Stock.  The 
Series A Preferred Stock is nonvoting, except as required by law and 
except that, if six quarterly dividends are unpaid and past due, the 
holders of the Series A Preferred Stock may elect two directors to 
Acap's Board of Directors.  Prior to August 26, 1996, the Series A 
Preferred Stock had been exchangeable, at the option of the holders, 
into shares of common stock of Fortune National Corporation 
("Fortune").  Effective August 26, 1996, Fortune adopted a plan of 
dissolution and liquidation.  Consequently, the exchange option of 
Series A Preferred Stock expired.  There was no activity related to 
the Series A Preferred Stock for the two years ended December 31, 1998 
other than payments of dividends.

Common Stock

Fortune, formerly the owner of 63.7% of the Company's outstanding 
Common Stock, adopted a plan of dissolution and liquidation at its 
annual stockholder meeting on August 26, 1996.  At that date, Fortune 
had no assets other than its holding of the Company's Common Stock.  
Under the plan, no fractional shares of the Company's Common Stock 
were issued.  Fortune stockholders who did not buy from the Company 
enough Fortune common stock to round up their holdings elected to 
sell their "odd lot" shares of Fortune common stock to the Company.

As a result of the Company's purchase of the "odd lot" shares and the 
conversion of the Company's holding of Fortune common stock into 
company Common Stock, the Company added $320,566 (910 shares) to 
treasury stock, reducing the number of outstanding shares of Company 
Common Stock to approximately 7,603.  During 1998 and 1997, the 
Company added another 209 and 225, respectively, shares to treasury 
stock, reducing the number of outstanding shares of Company Common 
Stock.

<PAGE>
	ACAP CORPORATION
      INDEPENDENT AUDITORS' REPORT
	


The Board of Directors and Stockholders
Acap Corporation


We have audited the accompanying consolidated balance sheet of Acap 
Corporation and subsidiaries as of December 31, 1998, and the related 
consolidated statements of operations and comprehensive income, 
stockholders' equity, and cash flows for the years ended December 31, 
1998 and 1997.  These consolidated financial statements are the 
responsibility of the Company's management.  Our responsibility is to 
express an opinion on these consolidated financial statements based on 
our audits.

We conducted our audits in accordance with generally accepted auditing 
standards.  Those standards require that we plan and perform the audit 
to obtain reasonable assurance about whether the financial statements 
are free of material misstatement.  An audit includes examining, on a 
test basis, evidence supporting the amounts and disclosures in the 
financial statements.  An audit also includes assessing the accounting 
principles used and significant estimates made by management, as well 
as evaluating the overall financial statement presentation.  We 
believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to 
above present fairly, in all material respects, the financial position 
of Acap Corporation and subsidiaries as of December 31, 1998, and the 
results of their operations and their cash flows for the years ended 
December 31, 1998 and 1997, in conformity with generally accepted 
accounting principles.


                                                                 
KPMG LLP


Houston, Texas
March 26, 1999
	
<PAGE>
                               ACAP CORPORATION
                            STOCKHOLDER INFORMATION
	
MARKET INFORMATION

The common stock of Acap is traded over-the-counter with activity in 
the stock reflected nationally on the OTC Bulletin Board electronic 
quotation system of the National Association of Securities Dealers.  
The Company's stock symbol is AKAP.

The table below presents the range of closing bid quotations for 
Acap's common stock during the two most recent fiscal years.
	
                                    1998                    1997     
                              ---------------------------------------
                              High        Low         High        Low
                              ---------------------------------------
First quarter                 $400        370         290         240
Second quarter                 475        396         275         240
Third quarter                  450        442         350         247
Fourth quarter                 480        442         370         360

The prices presented are bid prices, which reflect inter-dealer 
transactions and do not include retail markups and markdowns or any 
commission to the parties involved.  As such, the prices may not 
reflect prices in actual transactions.

HOLDERS

The approximate number of holders of record of Acap's common stock as 
of March 22, 1999 was 696.

DIVIDENDS

Acap declared no common stock dividends in 1998 or 1997.  At present, 
management anticipates that no dividends will be declared or paid 
with respect to Acap's common stock during 1999.

FORM 10-KSB

Stockholders may receive without charge a copy of the Company's 
Annual Report on Form 10-KSB filed with the Securities and Exchange 
Commission by writing to Stockholder Services, Acap Corporation, 
10555 Richmond Avenue, 2nd Floor, Houston, TX 77042.

TRANSFER AGENT

The registrar and transfer agent for the Company's common stock is 
Continental Stock Transfer & Trust Company, 2 Broadway, New York, NY 
10004.  For a change of name or address, or to replace lost stock 
certificates, write to Continental at the address above or call (212) 
509-4000.

INVESTOR RELATIONS

Requests for information should be directed by mail to Stockholder 
Services, Acap Corporation, 10555 Richmond Avenue, 2nd Floor, 
Houston, TX 77042 or by calling (713) 974-2242.

INDEPENDENT AUDITORS

The Company's consolidated financial statements for 1998 were audited 
by the independent accounting firm of KPMG LLP, 700 Louisiana, 
Houston, TX 77002.

ANNUAL MEETING

Stockholders are invited to attend the Annual Meeting of Stockholders 
which will be held on Monday, May 3, 1999 at 8:00 a.m. at the 
Company's office at 10555 Richmond Avenue, Houston, Texas, on the 
second floor.

<PAGE>
	
                          ACAP CORPORATION
                       DIRECTORS AND OFFICERS

BOARD OF DIRECTORS OF ACAP	

R. Wellington Daniels
Investor; Retired Director of National Accounts, American Cyanamid

William F. Guest
Chairman of the Board and President, Acap Corporation

C. Stratton Hill, Jr., M.D.
Physician

OFFICERS OF ACAP

William F. Guest
Chairman of the Board and President

John D. Cornett
Executive Vice President and Treasurer

H. Kathleen Musselwhite
Secretary and Assistant Treasurer

OFFICERS OF AMERICAN CAPITOL AND TEXAS IMPERIAL	

William F. Guest
Chairman of the Board

John D. Cornett
President

H. Kathleen Musselwhite
Secretary, Treasurer and Controller

Dan R. Stites
Senior Vice President

Eugene L. Ligon
Vice President

G. Mike Rambo
Vice President

Carolyn M. Rawlins
Assistant Secretary

Linda G. Stark
Assistant Vice President

C. Stratton Hill, Jr., M.D.
Medical Director
	


<PAGE>














































                              ACAP CORPORATION

            10555 Richmond Avenue, 2nd Floor   Houston, Texas 77042