ACAP CORPORATION

                                  CONTENTS

President's Report                                                   1

Management's Financial Analysis                                      2

Consolidated Balance Sheet                                           7

Consolidated Statements of Operations and Comprehensive Income       8

Consolidated Statements of Stockholders' Equity                      9

Consolidated Statements of Cash Flows                               10

Notes to Consolidated Financial Statements                          11

Independent Auditors' Report                                        26

Stockholder Information                                             27

Directors and Officers                                              28


                           CORPORATE PROFILE

Acap Corporation is a life insurance holding company that primarily 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.

In addition to the acquisition program, Acap subsidiaries market Medicare
supplement health insurance policies, final expense life insurance policies,
and preneed funeral service contracts.

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.

                           PRESIDENT'S REPORT

OVERVIEW

As previously reported, the Company's leading objectives for 2000 were (1)
conversion of our policies to the recently acquired "LifePRO" policy
administration system and (2) establishment of a Medicare Supplement
marketing program. The conversion of a selected block of approximately
240,000 policies was completed in November. This was a significant
accomplishment, and projected efficiencies are being realized. In addition,
we now have a step-up in knowledge of the new system, and are proceeding
with the conversion of the remaining policies.

Regarding the marketing program, first-year Medicare Supplement premiums
increased from less than $300,000 in 1999 to over $3,200,000 in 2000.  The
number of contracted agents as of December 31, 2000, was 68% higher than a
year earlier.  The increase in Medicare Supplement premiums boosted revenues
to a Company-record $21.4 million.

However, the Medicare Supplement policies identified in the preceding
paragraph experienced a loss during 2000 due to higher-than-projected
claims. This, coupled with the cost of the above-mentioned conversion
activity, were two main reasons for a loss for the year (see below).
Consequently the Company took steps in November and December to reduce
general expenses by approximately $500,000 (annualized), and implemented
premium increases on the subject policies (phased over 12 months beginning
in January 2001) with the projection that this block will become profitable
by September 2001. The remaining Medicare Supplement policies (acquired
through reinsurance in 1999) are performing better than projected.

As planned, no acquisitions were attempted during 2000. However, the Company
is turning its attention once again to searching for suitable acquisition
prospects, including a broader range of candidates than was previously
possible, due to enhanced policy administration capabilities.

Results of Operations

The Company had a net loss for 2000 of $398,416, or $83.00 per basic common
share, compared to net income for 1999 of $1,350,170, or $161.39 per basic
common share.  The principal elements of the 2000 net loss were higher-than-
expected claim costs related to the Company's newly-marketed block of
Medicare Supplement business and a high level of conversion-related
expenses, discussed above.

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

The Company will concentrate on improving the results of its Medicare
supplement business during 2001.  The effectiveness of rate increases
implemented at the end of 2000 will be closely monitored.  The goal is for
new Medicare supplement writings to generate a profit in the first year and
for business written prior to the above-mentioned rate increases to begin
generating monthly profits prior to the end of 2001. Also, as mentioned
above, the Company has resumed its search for acquisition candidates, which
is inherently difficult to project (as to timing or scale).

I am pleased to introduce Roy L. Butler to you as a nominee to the Company's
Board of Directors.  Mr. Butler has many years of life insurance experience,
having served in both top accounting and operations positions with other
insurance companies.  He is a Certified Public Accountant and is currently
engaged in the practice of accounting through his own accounting firm.  We
believe that Mr. Butler will be a valuable addition to the Board and the
Audit Committee and look forward to his counsel and friendship.



William F. Guest
President
April 9, 2001


                            ACAP CORPORATION
                     MANAGEMENT'S FINANCIAL ANALYSIS


RESULTS OF OPERATIONS

As used herein, "American Capitol" is American Capitol Insurance Company, a
wholly-owned subsidiary of the Company.  "Texas Imperial" is Texas Imperial
Life Insurance Company, a wholly-owned subsidiary of American Capitol.

Life Segment

Premiums and other considerations were 11% lower in 2000 in comparison to
1999.  Normal attrition of existing policies and policies reaching the end
of their premium-paying periods exceeded the addition of premiums from
marketing during the year.

Net investment income was 5% higher during 2000 in comparison to 1999.  The
higher level of investment income in 2000 was primarily due to a higher
investment yield on invested assets in 2000.  The Company invested a portion
of its short-term investments into higher-yielding bonds during 2000.

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 2000 was 5% lower than the expense allowance
received during 1999.  The decrease in the expense allowance is attributable
to normal attrition of the reinsured policies.

As a result of the factors noted above, total revenue, including net
realized investment gains and losses, was 4% lower in 2000 as compared to
1999.

Policy benefits were 5% higher in 2000 in comparison to 1999.  The increase
in policy benefits was primarily attributable to an increase in the
Company's life reserves.

Total expenses were 4% lower in 2000 in comparison to 1999.  A major factor
in the decrease in total expenses was a decrease in commissions due to (1)
the decreased level of premiums and (2) the termination of the obligation to
pay a commission allowance on a reinsurance treaty.  However, general
expenses were 11% higher in 2000 in comparison to 1999.  The Company
currently operates on three policy administration systems.  During 2000, the
Company began the process of converting all of its policies to one of the
three policy administration systems.  To accomplish the conversions, the
Company added programming and conversion resources.  The Company completed
the conversion of its largest block of policies, involving approximately
240,000 policies, on November 1, 2000.  In November and December 2000, the
Company made expense reductions that on an annualized basis exceed $500,000.

Primarily as a result of the higher level of conversion-related general
expenses during the year, the life segment had a pre-tax operating loss
(which excludes realized investment gains and losses) of $42,448 for 2000
compared to a pre-tax operating gain of $213,134 for 1999.

Health Segment

Premiums and other considerations were 63% higher in 2000 in comparison to
1999.   The Company acquired a block of Medicare supplement and hospital
indemnity policies effective June 1, 1999.  Whereas 1999 includes premiums
on the acquired blocks for seven months, 2000 includes premiums on the
acquired blocks for the full year.  The Company began marketing Medicare
supplement policies in May 1999.  First-year Medicare supplement premiums
for 1999 were approximately $300,000.  First-year Medicare supplement
premiums for 2000 were approximately $3.2 million.

The Health Segment had net realized investment gains of $800,000 in 1999, in
comparison to no net realized investment gains or losses in 2000.

As a result of the factors noted above, total revenue, including net
realized investment gains and losses, was 49% higher in 2000 as compared to
1999.  Excluding net realized investment gains and losses, total revenue was
64% higher in 2000 as compared to 1999.

Policy benefits were 69% of premiums in 2000 in comparison to 47% of
premiums in 1999.  Claim costs related to the Company's newly-marketed
Medicare supplement business were significantly higher in 2000 than in 1999.
The Company implemented a 30% rate increase effective December 1, 2000 on
its major new business Medicare supplement plans in response to the increase
in claim costs.

Total expenses were 41% of premiums in 2000 in comparison to 51% of premiums
in 1999.  General expenses for 1999 included expenses associated with moving
personnel and records related to the business acquired effective June 1,
1999 to the Company's offices and the expenses associated with the
installation of a new health claims administration software system. The
acquisition agreement whereby the Company acquired a block of Medicare
supplement and hospital indemnity policies effective June 1, 1999 contains a
refund formula whereby the Company is obligated to refund "excess profits"
from the acquisition date through December 31, 2001 if the results of the
acquired Medicare supplement business exceed stipulated levels.  The refund
is recorded in general expenses.

Primarily as a result of the increase in claim costs on the Company's newly-
marketed Medicare supplement business, the health segment had a pre-tax
operating loss (which excludes realized investment gains and losses) of
$722,136 for 2000 compared to a pre-tax operating gain of $426,267 for 1999.

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, 2000, 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 investments 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 (17%) of the Company's bond portfolio is invested in
mortgage-backed securities, with 92% of such mortgage-backed securities
classified as collateralized mortgage obligations and 8% 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 (68%), Z (16%) and sequential
(16%) 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 $670,068 during 2000, following a
$1,804,655 decrease during 1999.  Accounting standards do not permit the
Company to revalue its liabilities for changes in interest rates.

As of December 31, 2000, the Company held 12 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 $730,000 (83%) of the mortgage loans are
guaranteed by an individual who 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,
2000 was approximately $36,000 and the weighted average maturity was 12
years.  Mortgage loans on Tennessee properties represent 39% of the mortgage
loan balances at December 31, 2000, Alabama properties 33%, Texas properties
17%, with Florida and Kentucky properties representing the remainder of the
mortgage loan balances.  Residential mortgages represent 90% of the mortgage
loan balances at December 31, 2000 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 and investment than publicly
traded securities.

Liquidity of the Parent Company

On March 31, 1999, Acap borrowed $1.5 million from Central National Bank of
Waco, Texas.  Acap used $500,000 of the loan proceeds to repay an existing
loan at Central National Bank, with the balance of the loan proceeds used to
purchase a surplus debenture from American Capitol.  At December 31, 2000,
the outstanding principal balance of the loan was $1,062,500.  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.  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 at December 31, 2000.  The
principal payments on the bank loan are matched by the principal payments on
surplus debentures issued by American Capitol to Acap.

The primary sources of funds for Acap are payments on the surplus debentures
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, 2000, the amount of dividends available to
the parent company from American Capitol not limited by such restrictions is
approximately $448,000.  Payments on the surplus debentures may only be made
to the extent statutory capital and surplus exceeds $2 million.  At December
31, 2000, American Capitol's statutory capital and surplus was $3,057,327.

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
accounting principles generally accepted in the United States of America.

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, 2000,
reinsurance receivables with a carrying value of $45.6 million were
recoverable from a single reinsurer, Canada Life Assurance Company ("Canada
Life").  At December 31, 1999, Canada Life had statutory assets in excess of
$29 billion and statutory stockholders' equity of approximately $3 billion.
Canada Life is rated "Superior" by A.M. Best Company, an insurance company
rating organization.  At December 31, 2000, reinsurance receivables with a
carrying value of $46.3 million were recoverable from Republic-Vanguard Life
Insurance Company ("Republic").  Republic is rated "Excellent" by A.M. Best
Company.  At December 31, 1999, Republic had statutory assets of
approximately $850 million and statutory stockholders' equity of
approximately $43 million.  At December 31, 2000, reinsurance receivables
with a carrying value of $1.4 million were recoverable from Alabama
Reassurance Company ("Alabama Re").  The Alabama Re reinsurance receivables
are secured by a trust account containing a $3.2 million letter of credit
granted in favor of an insurance subsidiary of the Company.

A treaty with Canada Life provides that the Company is entitled to 85% of
the profits calculated pursuant to a formula contained in the treaty once
the accumulated profits under the treaty reach a specified level.  As of
December 31, 2000, there remains $6,665,255 in profits to be generated
before the Company is entitled to 85% of the profits.  As of December 31,
1999, such number was $7,747,477.

A treaty with Republic provides that the Company is entitled to 70% of the
profits calculated pursuant to a formula contained in the treaty once the
accumulated profits under the treaty reach a specified level.  As of
December 31, 2000, there remains $6,032,936 in profits to be generated
before the Company is entitled to 70% of the profits.  As of December 31,
1999, such number was $9,484,749.

A treaty with Alabama Re provides that the Company may recapture the treaty
without a charge to surplus of an insurance subsidiary of the Company under
statutory accounting once the accumulated profits, as such profits are
calculated pursuant to a formula contained in the treaty, reach a specified
level.  As of December 31, 2000, there remains $2,127,252 in profits to be
generated before the Company can recapture the treaty without a surplus
charge.  As of December 31, 1999, such number was $2,877,888.

With regard to the policies not 100% reinsured with Canada Life, 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 June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of FASB
Statement No. 133, an Amendment of FASB Statement No. 133."  SFAS No. 137
deferred the effective date of SFAS No. 133 for one year.  SFAS No. 133, as
amended, is now effective for all fiscal quarters of all fiscal years
beginning after June 15, 2000.  SFAS No. 133 generally requires that
derivatives embedded in hybrid instruments be separated from their host
contracts and be accounted for separately as derivative contracts.  For
instruments existing at the date of adoption, SFAS No. 133 provides an
entity the option of not applying this provision to such hybrid instruments
entered into before January 1, 1998 and not substantially modified
thereafter.  Consistent with the deferral of the effective date for one
year, SFAS No. 137 provides an entity the option of not applying this
provision to hybrid instruments entered into before January 1, 1998 or 1999
and not substantially modified thereafter.  Upon implementation of SFAS No.
133, hedging relationships may be redesignated and securities held-to-
maturity may be transferred to available-for-sale or trading.  The Company
is evaluating the impact SFAS No. 133 may have on its future consolidated
financial statements, but believes any impact will not be significant to its
consolidated financial statements.

In March 1998, the National Association of Insurance Commissioners ("NAIC")
adopted the Codification of Statutory Accounting Principles Project as the
NAIC-supported basis of accounting.  However, the codification project was
approved with the provision for state insurance commissioner discretion in
the determination of appropriate statutory accounting for insurers domiciled
in their state.  The adoption of this codification project will change, to
some extent, prescribed statutory accounting practices and will result in
changes to the accounting practice that insurance companies use to prepare
their statutory financial statements.  The effective date for the new
codified statutory accounting principles is January 1, 2001.  The Company
estimates that codification will not have a significant effect on the
statutory capital and surplus of its insurance subsidiaries at
January 1, 2001.

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.


                          ACAP CORPORATION
                     CONSOLIDATED BALANCE SHEET

                                                       December 31, 2000
ASSETS
Investments:
  Fixed maturities available for sale (amortized
     cost of $41,411,569)                                $ 41,373,303
  Equity securities                                           159,775
  Mortgage loans                                              877,809
  Policy loans                                              6,140,458
  Short-term investments                                    1,090,666
                                                        -------------
     Total investments                                     49,642,011
Cash                                                          131,032
Accrued investment income                                     668,076
Reinsurance receivables                                    95,615,646
Notes receivable                                            4,088,295
Accounts receivable (less allowance
  for uncollectible accounts of $88,291)                      585,857
Deferred acquisition costs                                  1,506,914
Property and equipment (less accumulated
  depreciation of $795,014)                                   748,502
Costs in excess of net assets of acquired business
  (less accumulated amortization of $1,671,120)             1,002,658
Net deferred tax asset                                        255,572
Other assets                                                  619,034
                                                         ------------
     Total assets                                        $154,863,597
                                                         ============

LIABILITIES
Policy liabilities:
  Future policy benefits                                 $134,229,372
  Contract claims                                           3,992,907
                                                         ------------
     Total policy liabilities                             138,222,279
                                                         ------------

Other policyholders' funds                                  1,988,228
Other liabilities                                           4,522,114
Note payable                                                1,062,500
Deferred gain on reinsurance                                2,052,156
Deferred gain on sale of real estate                          205,854
                                                         ------------
   Total liabilities                                     $148,053,131
                                                         ============
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                                          (872,355)
Treasury stock, at cost, 1,535 common shares                 (507,842)
Accumulated other comprehensive income-net unrealized
  investment gains, net of taxes of $41,314                    80,198
                                                         ------------
     Total stockholders' equity                             6,810,466
                                                         ------------
     Total liabilities and stockholders' equity          $154,863,597

See accompanying notes to consolidated financial statements.


                            ACAP CORPORATION
    CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

                                                  Years Ended December 31,
                                                       2000         1999
REVENUES
Premiums and other considerations                $14,713,326    10,121,843
Net investment income                              2,198,505     2,097,714
Net realized investment gains (losses)               	(5,274)      782,054
Reinsurance expense allowance                      3,730,884     3,934,706
Amortization of deferred gain                        260,320       263,570
Other income                                         522,387       283,703
                                                  ------------------------
   Total revenues                                 21,420,148    17,483,590
                                                  ------------------------
BENEFITS AND EXPENSES
Net policy benefits                               11,195,353     6,086,799
Commissions and general expenses                  10,382,599     9,314,979
Interest expense                                     109,348        93,981
Amortization of costs in excess of
  net assets of acquired business                    239,662       239,662
Amortization of deferred acquisition costs           263,044       326,714
                                                  ------------------------
   Total benefits and expenses                    22,190,006    16,062,135
                                                  ------------------------
EARNINGS
Income (loss) before federal income
  tax expense (benefit)                             (769,858)    1,421,455
Federal income tax expense (benefit):
  Current                                            146,312       494,813
  Deferred                                          (517,754)     (423,528)
                                                  ------------------------
Net income (loss)                                   (398,416)    1,350,170
                                                  ========================
OTHER COMPREHENSIVE INCOME (LOSS)
Net unrealized investment gains (losses), net of
  taxes of $440,184 in 2000 and $930,628 in 1999     670,068    (1,804,655)
Net unrealized investment holding losses arising
  during period, net of taxes of $0 in 2000 and
  ($11,856) in 1999                                       --       (23,016)
Less:  reclassification adjustment for net
  investment gains included in net income, net of
  taxes of $0 in 2000 and $6,102 in 1999                  --        11,844
                                                   -----------------------
Comprehensive income (loss)                       $  271,652      (465,657)
                                                   =======================

EARNINGS PER SHARE
Basic earnings (loss) per common share            $   (83.00)       161.39

Diluted earnings (loss) per common share              (83.00)       155.79
                                                    ======================

See accompanying notes to consolidated financial statements.

                                     ACAP CORPORATION
              CONSOLDIATED STATEMENTS OF STOCKHOLDERS' EQUITY

                                                   Years Ended December 31,
                                                       2000        1999

SERIES A PREFERRED STOCK
 (Including Additional Paid-in Capital)	         $ 1,850,000   1,850,000
                                                    ----------------------
COMMON STOCK                                               876         876
                                                    ----------------------
ADDITIONAL PAID-IN CAPITAL                           6,259,589   6,259,589
                                                    ----------------------

ACCUMULATED DEFICIT

  Balance, beginning of year                         (272,751) (1,440,233)
  Net income (loss)                                  (398,416)  1,350,170
  Preferred stock cash dividends                     (201,188)   (182,688)
                                                     --------------------
Balance, end of year                                 (872,355)   (272,751)
                                                     --------------------
TREASURY STOCK

  Balance, beginning of year                         (507,362)   (500,642)
  Change during year                                     (480)     (6,720)
                                                    ---------------------
  Balance, end of year                               (507,842)   (507,362)
                                                    ---------------------
ACCUMULATED OTHER COMPREHENSIVE INCOME

  Balance, beginning of year                         (589,870)  1,214,785
  Change during year                                  670,068  (1,804,655)
                                                    ---------------------
Balance, end of year                                   80,198    (589,870)
                                                    ---------------------
TOTAL STOCKHOLDERS'                               $ 6,810,466   6,740,482
                                                    =====================

See accompanying notes to consolidated financial statements.


                                   ACAP CORPORATION
                      CONSOLDIATED STATEMENTS OF CASH FLOWS

                                                   Years Ended December 31,
                                                        2000        1999
 CASH FLOWS FROM OPERATING ACTIVITIES
  Net income (loss)                                $  (398,416)  1,350,170
    Adjustments to reconcile net income(loss) to
    net cash used in operating activities:
  Depreciation and amortization                        439,777     365,558
  Amortization of deferred acquisition costs           263,044     326,714
  Amortization of deferred gain on reinsurance        (260,320)   (263,570)
Premium and discount amortization                        9,453     (19,294)
  Net realized investment losses (gains)                 5,274    (782,054)
  Deferred federal income tax benefit                 (517,754)   (423,528)
  Decrease in reinsurance receivables                5,586,706   4,370,090
  Increase in accrued investment income                (35,256)    (89,515)
  Decrease (increase) in accounts receivable            48,946     (43,930)
  Decrease (increase) in other assets                 (289,946)     41,897
  Decrease in policy liabilities                    (6,007,243) (6,615,613)
  Increase in other liabilities                        873,696   1,375,198
                                                    ----------------------
    Net cash used in operating activities             (282,039)   (407,877)
                                                    ----------------------

  CASH FLOWS FROM INVESTING ACTIVITIES
 Proceeds from sales and maturities of
   investments available for sale and principal
   repayments on  mortgage loans                      4,291,443  4,264,554
Purchases of investments available for sale         (6,410,454) (7,292,284)
Net decrease in policy loans                           222,785     160,178
Net decrease (increase) in short-term investments    3,423,609  (2,944,091)
Proceeds from assumption agreement                          --   2,310,314
Purchases of property and equipment                    (82,712)   (591,673)
Principal payments received on notes receivable             --   4,437,313
                                                    ----------------------
    Net cash provided by investing activities        1,444,671     344,311
                                                    ----------------------
  CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of note payable                      --   1,500,000
Principal payments on note payable                    (250,000)   (750,000)
Deposits on policy contracts                         1,046,324   1,241,182
Withdrawals from policy contracts                   (1,753,436) (1,731,360)
Preferred stock dividends paid                        (201,188)   (182,688)
Treasury stock purchases                                  (480)     (6,720)
                                                    ----------------------
  Net cash provided by (used in) financing
   activities                                       (1,158,780)     70,414
                                                    ======================
Net increase in cash                                     3,852       6,848
Cash at beginning of year                              127,180     120,332
                                                    ----------------------
Cash at end of year                                $   131,032     127,180
                                                    ======================

See accompanying notes to consolidated financial statements.



                            ACAP CORPORATION
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1. 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, 2000, 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.  In May 1999, Acap began marketing
Medicare supplement health insurance.  Acap's insurance operations are
conducted through its wholly-owned 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 15% of the
Company's direct collected premium.

Basis of Presentation

The consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of America
("GAAP").  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 and the Interest Maintenance Reserve, 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, 2000 the
amount of dividends available to the parent company from subsidiaries not
limited by such restrictions is approximately $448,000.  The combined net
income of the Company's insurance subsidiaries as determined using statutory
accounting practices, was $5,729,831 and $7,318,723 for the years ended
December 31, 2000 and 1999, respectively.  The consolidated statutory
stockholders' equity of the Company's insurance subsidiaries amounted to
$3,057,327 and $4,081,403 at December 31, 2000 and 1999, respectively.  The
total adjusted statutory stockholders' equity of the Company's insurance
subsidiaries exceeds the applicable Risk-Based Capital requirements.

In March 1998, the National Association of Insurance Commissioners ("NAIC")
adopted the Codification of Statutory Accounting Principles Project as the
NAIC-supported basis of accounting.  However, the codification project was
approved with the provision for state insurance commissioner discretion in
the determination of appropriate statutory accounting for insurers domiciled
in their state.  The adoption of this codification project will change, to
some extent, prescribed statutory accounting practices and will result in
changes to the accounting practice that insurance companies use to prepare
their statutory financial statements.  The effective date for the new
codified statutory accounting principles is January 1, 2001.  The Company
estimates that codification will not have a significant effect on the
statutory capital and surplus of its insurance subsidiaries at
January 1, 2001.

The preparation of financial statements in conformity with GAAP 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 (loss).

Mortgage loans on real estate are carried at their 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 (losses).

Deferred Acquisition Costs

Deferred acquisition costs are the costs of policies acquired through the
purchase of insurance companies and represent 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 years ended December 31, are
summarized as follows:

                                                     2000          1999

Balance, beginning of year                        $1,769,958   2,460,183
Insurance in force acquired during the year               --    (363,511)
Amortized during the year                           (263,044)   (326,714)
                                                  ----------------------
Balance, end of the year                          $1,506,914   1,769,958
                                                   =====================

The amortization of deferred acquisition costs is expected to be between
$100,000 and $225,000 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 $200,115 and $125,896 for the
years ended December 31, 2000 and 1999, 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 to 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
earned.  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, 2000.

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 (Loss) per Share

Loss per common share for 2000 was computed as follows:

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

Net loss                              $ (398,416)

Preferred dividends                     (201,188)
                                        --------
BASIC AND DILUTED LOSS PER SHARE
Loss to common stockholders           $ (599,604)     7,224      $(83.00)
                                          ===============================
Earnings per common share for 1999 were computed as follows:

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

Net income                            $1,350,170

Preferred dividends                     (182,688)
                                      ----------
BASIC EARNINGS PER SHARE
Income available to
 common stockholders                   1,167,482      7,234      $161.39

Effect of Dilutive Securities:
Stock options                                 --        260           --
                                        --------------------------------
DILUTED EARNINGS PER SHARE
Income available to common
 stockholders plus assumed exercise   $1,167,482      7,494      $155.79
                                       =================================

Participating Policies

Acap maintains both participating and nonparticipating life insurance
policies.  Participating business represented approximately 18% and 11% of
the life insurance in force at December 31, 2000 and 1999, and 47% and 45%
of life insurance premium income at December 31, 2000 and 1999,
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.

Statements 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.
The pro forma disclosure required by SFAS No. 123 has not been included in
the financial statements since the effects of SFAS No. 123 are not material
to the financial statements.

Accounting Standards

In June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities-Deferral of the Effective Date of FASB
Statement No. 133, an Amendment of FASB Statement No. 133."  SFAS No. 137
deferred the effective date of SFAS No. 133 for one year.  SFAS No. 133, as
amended, is now effective for all fiscal quarters of all fiscal years
beginning after June 15, 2000.  SFAS No. 133 generally requires that
derivatives embedded in hybrid instruments be separated from their host
contracts and be accounted for separately as derivative contracts.  For
instruments existing at the date of adoption, SFAS No. 133 provides an
entity the option of not applying this provision to such hybrid instruments
entered into before January 1, 1998 and not substantially modified
thereafter.  Consistent with the deferral of the effective date for one
year, SFAS No. 137 provides an entity the option of not applying this
provision to hybrid instruments entered into before January 1, 1998 or 1999
and not substantially modified thereafter.  Upon implementation of SFAS No.
133, hedging relationships may be re-designated and securities held-to-
maturity may be transferred to available-for-sale or trading.  The Company
is evaluating the impact SFAS No. 133 may have on its future consolidated
financial statements, but believes any impact will not be significant to its
consolidated financial statements.

2. INVESTMENTS

Fixed Maturity Securities

The amortized cost and fair values of investments in fixed maturity
securities as of December 31, 2000 are as follows:

                                            Gross         Gross
                              Amortized  Unrealized	  Unrealized       Fair
                                 Cost       Gains         Losses        Value

Government securities           $ 3,428,105   117,910         --      3,546,015
Corporate securities             27,763,706   323,723   (663,681)    27,423,748
Asset-backed securities           3,655,011    37,101   (136,129)     3,555,983
Mortgage-backed securities        6,564,747   293,830    (11,020)     6,847,557
                                 ----------------------------------------------
                                $41,411,569   772,564   (810,830)    41,373,303
                                ===============================================

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:

                                                       2000          1999

Proceeds on sales                                  $1,335,942      970,720
                                                    ======================
Gross realized gains on sales                              --          275
Gross realized losses on sales                         (9,741)     (23,966)
                                                    ----------------------
Net realized losses on sales                           (9,741)     (23,691)
Realized gains on transactions other than sales         4,467        5,745
                                                    ----------------------
Net realized losses                                $   (5,274)     (17,946)
                                                    ======================

The amortized cost and estimated fair value of fixed maturity securities at
December 31, 2000 by contractual maturity is 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                       $ 2,006,862      2,016,281
Maturing after one year through five years           9,375,329      9,473,146
Maturing after five years through ten years         12,424,923     12,242,915
Maturing after ten years                            11,039,708     10,793,404
                                                     ------------------------
                                                    34,846,822     34,525,746
Mortgage-backed securities                           6,564,747      6,847,557
                                                     ------------------------
                                                   $41,411,569     41,373,303
                                                     ========================

A summary of the fair value of mortgage-backed securities by type as of
December 31, 2000 follows:

Collateralized mortgage obligations:
  Planned amortization class                                     $4,235,063
  Z                                                               1,020,711
  Sequential                                                      1,003,688
  Other                                                               7,521
                                                                  ---------
                                                                  6,266,983
Pass-through securities                                             580,574
                                                                  ---------
                                                                 $6,847,557
                                                                  =========

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, 2000, 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,
2000 was 8.2%.

The distribution of principal balances on mortgage loans held as of December
31, 2000 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                                    $ 31,915
Maturing after one year through five years                       206,843
Maturing after five years through ten years                      136,768
Maturing after ten years                                         502,283
                                                               ---------
                                                                $877,809
                                                               =========

The distribution of mortgage loans by class of loan and geographic
distribution follows:


                                                               Principal
                                                                Balance
Commercial loans:
  Texas                                                         $ 87,530
                                                                 =======
Residential loans:
  Tennessee                                                     $343,585
  Alabama                                                        293,741
  Texas                                                           59,210
  Florida                                                         59,707
  Kentucky                                                        34,036
                                                                 -------
                                                                $790,279
                                                                 =======

Investment Income

A summary of net investment income follows:
                                                        2000        1999

Interest on fixed maturities                       $ 2,001,749   1,805,248
Interest on mortgage loans                              76,610     153,595
Interest on policy loans                                38,944      43,934
Interest on cash and short-term investments             89,148      97,925
Miscellaneous investment income                         56,660     109,442
                                                    ----------------------
                                                     2,263,111   2,210,144
Investment expense                                     (64,606)   (112,430)
                                                    ----------------------
                                                   $ 2,198,505   2,097,714
                                                    ======================

Unrealized Investment Gains (Losses)

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

                                          Equity        Fixed
                                        Securities    Maturities     Total

Balance, January 1, 1999                $     --     1,214,785    1,214,785
Change during the year                        --    (1,804,655)  (1,804,655)
Balance, December 31, 1999                            (589,870)    (589,870)
Change during the year                   105,451       564,617      670,068
                                         ----------------------------------
Balance, December 31, 2000              $105,451       (25,253)      80,198
                                         ==================================

Net Realized Investment Gains (Losses)

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

                                                    2000          1999

Fixed maturities                              $   (5,274)       (17,946)
Other (see Note 5)                                    --        800,000
                                                 ----------------------
                                              $   (5,274)       782,054
                                               ========================

Other Investment Disclosures

At December 31, 2000, bonds with a fair value of $5,527,247 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, 2000 were as follows:

                                              Balance
                                           Sheet Amount        Category

AT&T                                        $1,185,026      Fixed maturity
Hydro Quebec                                 1,141,416      Fixed maturity
Merrill Lynch                                1,087,640      Fixed maturity
Ford Motor Company                           1,068,163      Fixed maturity
General Electric Capital Corp                1,022,333      Fixed maturity
Ingersoll Rand                                 985,809      Fixed maturity
Green Tree Home Equity Loan                    966,099      Fixed maturity
Conoco                                         944,663      Fixed maturity
General Motors                                 922,517      Fixed maturity
La Farge Corp.                                 872,337      Fixed maturity
Simon Property Group                           715,456      Fixed maturity
PNC Mortgage Security                          711,171      Fixed maturity
Sprint Capital Corp.                           695,095      Fixed maturity

3. Fair Values

The carrying values and estimated fair values of the Company's financial
instruments as of December 31, 2000 are as follows:

                                          Carrying Amount      Fair Value
Assets:
Fixed maturities                            $41,373,303       41,373,303
Equity securities                               159,775          159,775
Mortgage loans                                  877,809          889,571
Policy loans                                  6,140,458        6,140,458
Short-term investments                        1,090,666        1,090,666
Notes receivable                              4,088,295        4,088,295
Liabilities:
Note payable                                  1,062,500        1,062,500

Estimated market values of publicly traded fixed maturity securities and
equity 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 and notes receivable 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 March 31, 1999, Acap borrowed $1.5 million from Central National Bank of
Waco, Texas.  Acap used $500,000 of the loan proceeds to repay an existing
loan at Central National Bank, with the balance of the loan proceeds used to
purchase a surplus debenture from American Capitol,
which debenture is security on the loan.  At December 31, 2000 the
outstanding principal balance of the loan was $1,062,500.  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.  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.

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 is at the base
interest rate of the bank.  Both notes were renewed in 1999.  As of December
31, 2000 no funds have been borrowed on these notes.

5.  COMMITMENTS AND CONTINGENCIES

Lease

In 1997, in conjunction with the sale of American Capitol's home office
building, American Capitol entered into a lease agreement with the new owner
of the building to lease 13,087 square feet, approximately one quarter of
the net rentable area of the building (the area it then occupied), for five
years.  In 1998, an amendment was made to the original lease agreement to
lease an additional 8,424 square feet.  The effective date of the amendment
was June 1, 1998, and runs coterminously with the original lease agreement.
In 1999, an amendment was made to the original lease agreement to lease an
additional 8,683 square feet.  The effective date of the amendment was
September 1, 1999, and runs coterminously with the original lease agreement.
Total lease obligations under the above are $400,767 in 2001 and $357,771 in
2002.  American Capitol paid approximately $396,000 in 2000 and
approximately $270,000 in 1999 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, 2000, reinsurance receivables with a carrying value of
$46.3 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, 1999, Republic had statutory
assets of approximately $850 million and statutory stockholders' equity of
approximately $43 million.  At December 31, 2000, reinsurance receivables
with a carrying value of $45.6 million were associated with a single
reinsurer, Canada Life Assurance Company ("Canada Life").  At December 31,
1999, Canada Life had statutory assets in excess of $29 billion and
statutory stockholders' equity of approximately $3 billion.  Canada Life is
rated "Superior" by A.M. Best Company.  At December 31, 2000, reinsurance
receivables with a carrying value of $1.4 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 $3.2 million letter of credit
granted in favor of an insurance subsidiary of the Company.  At December 31,
2000, 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 Canada Life, Alabama Re and Republic as discussed above,
management does not believe the Company has significant concentrations of
credit risk related to reinsurance, or otherwise.

The Canada Life, 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 Canada Life, 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.

On June 10, 1999, the Court approved a Liquidation Plan Regarding the
Insolvency and Liquidation of The Statesman National Life Insurance Company
(the "Liquidation Plan") executed by American Capitol, Texas Imperial,
Statesman, the Department, and the National Organization of Life and Health
Insurance Guaranty Associations ("NOLHGA").  Pursuant to the Liquidation
Plan, American Capitol and Texas Imperial assumed all life insurance
policies issued by Statesman since September 30, 1998 as well as all of the
Medicare supplement and hospital indemnity health insurance policies in
force in Statesman.  Participating guaranty associations, represented by
NOLHGA, funded the transaction with a combination of cash and promissory
notes.  In determining the funding amount, among other things, the Company
received credit in an amount equal to the $800,000 surplus debenture Texas
Imperial purchased from Statesman during 1998 and which Texas Imperial wrote
off at December 31, 1998.  Pursuant to the Liquidation Plan, three years
after the closing of the assumption transactions, the actual results of the
Medicare supplement policies in question will be compared to the projected
results for the three year period and, if the actual results have been
better than projected ("excess profits"), the participating guaranty
associations will be entitled to participate in the excess profits as a
refund in an amount prescribed by a formula set out in the Liquidation Plan.
If the actual results are worse than the projected results, the guaranty
associations are not obligated to compensate the Company for such shortfall.
At December 31, 2000 the excess profits owed to the guaranty associations
were approximately $2.8 million and are included in other liabilities. The
assumption transactions closed on June 18, 1999 with an effective date of
June 1, 1999.  Approximately $11 million in cash and notes were transferred
to the Company from the participating guaranty associations and
approximately $10 million in liabilities were transferred to the Company in
connection with the assumption transactions.

The effect of reinsurance on premiums and benefits follows:

                                              Years ended December 31,
                                                  2000          1999

Direct premiums                               $23,499,234    16,546,293
Reinsurance assumed                               656,255     4,396,346
Reinsurance ceded                              (9,442,163)  (10,820,796)
                                               ------------------------
Net premiums                                  $14,713,326    10,121,843
                                               ========================


Direct policy benefits                        $17,235,014    10,950,719
Reinsurance assumed                               403,125     3,662,726
Reinsurance ceded                              (6,442,786)   (8,526,646)
                                               ------------------------
Net policy benefits                           $11,195,353     6,086,799
                                               ========================

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, 2000 and
1999 were $111,458 and $86,160, respectively.  Net cash payments of $240,757
and $144,000 for federal income taxes were made during the years ended
December 31, 2000 and 1999, respectively.

The following reflects assets acquired and liabilities assumed relative to
the assumption agreement for the policies of Statesman, the consideration
received for such assumption, and the net cash flow relative to such
assumption on May 31, 1999:

Assets acquired                                              $ 10,893,429
Liabilities assumed                                           (10,093,429)
Credit received                                                  (800,000)
Gain from assumption                                         $         --
                                                              ===========
Net cash from assumption:
Cash acquired                                                $  1,510,314
Credit received                                                   800,000
Gain from assumption                                                   --
                                                              -----------
Net cash provided from assumption                            $  2,310,314
                                                              ===========

In connection with the funding amount related to the assumption agreement
for the policies of Statesman, the Company received credit in an amount
equal to the $800,000 surplus debenture Texas Imperial purchased from
Statesman during 1998.

7.  FEDERAL INCOME TAXES

Acap and its subsidiaries file a consolidated federal income tax return.  At
December 31, 2000, Acap had a remaining tax net operating loss carryforward
of approximately $850,000 that will expire during the years 2002 through
2019 if not previously utilized.  At December 31, 2000, the Company had
alternative minimum tax carryforwards of approximately $650,000 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, 2000, 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 2000 and 1999 computed
at the applicable federal tax rate of 34% to the amount recorded in the
consolidated financial statements is as follows:

                                                            2000      1999

Federal income tax expense (benefit) at statutory rate  $(261,752)   483,295
Small life insurance company special deduction           (167,428)  (524,868)
Change in valuation allowance                              14,875    130,321
Tax refund                                                     --    (74,715)
Other, net                                                 42,863     57,252
                                                         -------------------
Total federal income tax expense (benefit)              $(371,442)    71,285
                                                         ===================

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, 2000 are as follows:

Deferred Tax Assets:
Deferred gain on reinsurance                                    $    794,458
Deferred gain on sale of real estate                                  69,990
Net operating loss carryforwards                                     288,482
Alternative minimum tax credit carryforwards                         657,045
Deferred policy acquisition costs                                    674,164
Other                                                                 49,915
                                                                 -----------
Total gross deferred tax assets                                    2,534,054
Less:  valuation allowance                                        (1,250,138)
                                                                 -----------
Deferred tax assets                                                1,283,916
                                                                 -----------
Deferred Tax Liabilities:
Policy reserves and policy funds                                     947,436
Other                                                                 80,908
                                                                 -----------
Deferred tax liabilities                                           1,028,344
                                                                 -----------
Net deferred tax asset                                          $    255,572
                                                                 ===========

A valuation allowance for the net operating loss carryforward, alternative
minimum tax credit carryforward, and a portion of other deferred tax assets
of $1,250,138 was established at December 31, 2000 against the deferred tax
asset.  The net change in the total valuation allowance for the years ended
December 31, 2000 and 1999 was an increase of $14,875 and $130,321,
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.

SEGMENT INFORMATION

The Company operates in two reportable segments: Life and Health.

Financial information by industry segment is summarized as follows:

                                                  Years Ended December 31
                                                     2000          1999
Revenues:
Life                                             $ 8,297,909     8,670,058
Health                                            13,122,239     8,813,532
                                                  ------------------------
Revenues                                         $21,420,148    17,483,590
                                                ==========================
Pretax Income (Loss) from Continuing Operations:
Life                                             $   (47,722)      195,188
Health                                              (722,136)    1,226,267
                                                  ------------------------
Pretax Income (Loss) from Continuing Operations  $  (769,858)    1,421,455
                                                  ========================


Identifiable Assets (as of December 31):

Life                                            $147,257,134   153,330,325
Health                                             7,606,463     7,814,268
                                                 -------------------------
Identifiable Assets                             $154,863,597   161,144,593
                                                 =========================

Revenues include premiums, net investment income, realized investment gains
and losses, policy and contract charges, and other income.

AMERICAN CAPITOL KEY EMPLOYEE STOCK OPTION PLAN

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, 2000,
options to purchase 500 of the 761 shares of Acap common stock owned by
American Capitol had been granted, with a weighted average option price of
$246.00 per share.  During 2000, options to purchase 100 shares were
forfeited.

Stock options granted for Acap Corporation common stock are summarized as
follows:

                                               Avg.      Number of Shares
                                          Option Price     2000    1999

Outstanding at January 1                      $244.80       500     500

Options forfeited                             $240.00       100      --

Outstanding at December 31                    $246.00       400     500

Available for future grant                                  361     259


10. 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.  There was no activity related to
the Series A Preferred Stock for 2000 or 1999 other than the payment of
dividends.

Common Stock

A reconciliation of the number of shares of Common Stock issued and
outstanding follows:
                                                        2000        1999

Number of shares issued at January 1                   8,759        8,759
Number of treasury shares held at January 1           (1,533)      (1,515)
Treasury shares purchased during the year        	    (2)         (18)
                                                      -------------------

Number of shares outstanding at December 31            7,224        7,226
                                                      ===================


                              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, 2000, and the related
consolidated statements of operations and comprehensive income,
stockholders' equity, and cash flows for the years ended December 31, 2000
and 1999.  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 auditing standards generally
accepted in the United States of America.  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, 2000, and the results of
their operations and their cash flows for the years ended December 31, 2000
and 1999, in conformity with accounting principles generally accepted in the
United States of America.


KPMG

Houston, Texas
March 9, 2001

                             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.

                                         2000                1999

                                     High     Low       High      Low
First quarter                        $600     525        530      501
Second quarter                        600     525        511      511
Third quarter                         500     490        511      511
Fourth quarter                        500     490        511      511


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 26, 2001 was 634.


DIVIDENDS

Acap declared no common stock dividends in 2000 or 1999.  At present,
management anticipates that no dividends will be declared or paid with
respect to Acap's common stock during 2001.  The covenants of a bank loan
require the advance approval of the bank in order to pay common stock
dividends.


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 2000 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 14, 2001 at 8:00 a.m. at the Company's office at
10555 Richmond Avenue, Houston, Texas, on the second floor.


                      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


       SENIOR 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

Missey L. Castro
Vice President

Nelda I. Mays
Vice President

G. Michael Rambo
Vice President











































                               ACAP CORPORATION

           10555 Richmond Avenue, 2nd Floor   Houston, Texas 77042