SECURITIES AND EXCHANGE COMMISSION
                               Washington, D. C.  20549


                                      FORM 10-Q


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


        For the Quarterly Period Ended                         Commission File
        June 30, 1998                                          No. 1-11632



                             AMERICAN ANNUITY GROUP, INC.



        Incorporated under                                     IRS Employer
        I.D.
        the Laws of Delaware                                   No. 06-1356481



                    250 East Fifth Street, Cincinnati, Ohio  45202
                                    (513) 333-5300






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



        As of August 1, 1998, there were 43,036,202 shares of the Registrant's
        Common Stock outstanding.

                                     Page 1 of 20






                          AMERICAN ANNUITY GROUP, INC. 10-Q
                                        PART I
                                FINANCIAL INFORMATION

                    AMERICAN ANNUITY GROUP, INC. AND SUBSIDIARIES
                              CONSOLIDATED BALANCE SHEET
                                (Dollars in millions)
                                                       June 30,December 31,
                                                          1998        1997 
        Assets
          Investments:
            Fixed maturities:
              Held to maturity - at amortized cost 
               (market - $2,141.6 and $2,340.6)       $2,073.0    $2,276.4 
              Available for sale - at market
               (amortized cost - $4,222.1 and
                  $3,922.0)                            4,414.2     4,099.4 
            Equity securities - at market 
               (cost - $37.3 and $30.9)                   85.7        83.0 
            Investment in affiliate                       21.1        16.8 
            Mortgage loans on real estate                 47.9        52.1 
            Real estate                                   45.9        42.0 
            Policy loans                                 241.0       241.0 
            Short-term investments                        51.4        13.9 
              Total investments                        6,980.2     6,824.6 
         
          Cash                                            43.0        36.8 
          Accrued investment income                      103.8       101.6 
          Unamortized insurance acquisition costs, net   286.0       261.6 
          Other assets                                   199.7       185.2 
          Assets held in separate accounts               343.6       300.5 

                                                      $7,956.3    $7,710.3 

        Liabilities and Capital
           Annuity benefits accumulated               $5,589.1    $5,528.1 
          Life, accident and health reserves             752.7       709.9 
          Notes payable                                  161.4       135.8 
          Payable to affiliates, net                      50.1        35.8 
          Deferred taxes on unrealized gains              75.2        71.8 
          Accounts payable, accrued expenses and other
            liabilities                                  123.9       119.5 
          Liabilities related to separate accounts       343.6       300.5 
              Total liabilities                        7,096.0     6,901.4 
         
          Mandatorily redeemable preferred securities
            of subsidiary trusts                         225.0       225.0 

          Stockholders' Equity:
            Common Stock, $1 par value
              -100,000,000 shares authorized
              - 43,135,364 and 43,199,147 shares
                outstanding                               43.1        43.2 
            Capital surplus                              366.5       368.0 
            Accumulated deficit at December 31, 1992    (212.6)     (212.6)
            Retained earnings since January 1, 1993      298.7       252.1 
            Unrealized gains on marketable
              securities, net                            139.6       133.2 
              Total stockholders' equity                 635.3       583.9 
         
                                                      $7,956.3    $7,710.3 
                                          2

                          AMERICAN ANNUITY GROUP, INC. 10-Q

                    AMERICAN ANNUITY GROUP, INC. AND SUBSIDIARIES
                            CONSOLIDATED INCOME STATEMENT
                       (In millions, except per share amounts)

                                        Three months ended  Six months ended 
                                               June 30,           June 30, 
                                              1998    1997      1998   1997
        Revenues:
          Net investment income             $130.9  $123.1    $257.9 $242.7 
          Realized gains (losses)
            on sales of investments            1.5    (0.1)      11.7   0.2
        Life, accident and health premiums    48.5    27.3      95.3   52.7 
          Equity in net earnings of affiliate  2.2     1.5       4.6    3.3 
          Other income                         3.8     2.7       7.0    5.3 
                                             186.9   154.5     376.5  304.2  
        Costs and Expenses: 
          Annuity benefits                    69.1    70.6     140.2  139.4 
          Life, accident and health benefits  36.6    25.8      74.7   50.0
          Amortization of insurance
            acquisition costs                 15.9     8.5      29.9   16.2 
          Trust preferred distribution
            requirement                        4.7     3.9       9.5    6.0
          Interest and other debt expenses     2.7     2.4       5.2    5.0 
          Other expenses                      25.6    17.4      46.6   35.5 
                                             154.6   128.6     306.1  252.1   

        Income before income taxes
          and extraordinary item              32.3    25.9      70.4  52.1 
        Provision for income taxes            10.6     8.2      23.0  16.4 
        Income before extraordinary item      21.7    17.7      47.4  35.7
           
        Extraordinary item - loss on
         prepayment of debt                     -       -       (0.8)   -  

        Net Income                          $ 21.7  $ 17.7    $ 46.6 $ 35.7  
                                                    
          Preferred dividend requirement        -       -         -  1.0 
                                                    
          Net income applicable to Common
            Stock                           $ 21.7  $ 17.7    $ 46.6  $ 34.7 
          
          Average number of common shares:                           
            Basic                             43.1    43.2      43.1 43.2 
            Diluted                           43.9    43.6      43.9 43.5 


        Basic earnings (loss) per common share:
          Before extraordinary item          $0.50   $0.41     $1.10  $0.80 
          Loss on prepayment of debt            -       -      (0.02)       - 

          Net income                         $0.50   $0.41     $1.08 $0.80 

        Diluted earnings (loss) per common share: 
          Before extraordinary item          $0.49   $0.41     $1.08 $0.80 
          Loss on prepayment of debt            -       -      (0.02)   -  
          Net income                         $0.49   $0.41     $1.06 $0.80 

                                          3

                          AMERICAN ANNUITY GROUP, INC. 10-Q

                    AMERICAN ANNUITY GROUP, INC. AND SUBSIDIARIES
              CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
                                    (In millions)

                                                          Six months ended   
                                                              June 30,      
                                                          1998        1997 
        Preferred Stock:
          Balance at beginning of period                $   -       $ 49.0 
          Preferred Stock retired                           -        (49.0)
            Balance at end of period                    $   -       $   -  
         
        Common Stock:
          Balance at beginning of period                $ 43.2      $ 43.3 
          Common Stock retired                            (0.1)       (0.1)
            Balance at end of period                    $ 43.1      $ 43.2 
         

        Capital Surplus:
          Balance at beginning of period                $368.0      $358.5 
          Common Stock issued                              0.2         0.2 
          Common Stock retired                            (1.7)       (0.7)
          Preferred Stock retired                           -          2.0 
          Preferred dividends declared                      -         (1.0)
            Balance at end of period                    $366.5      $359.0 


        Accumulated Deficit at December 31, 1992       ($212.6)    ($212.6)


        Retained Earnings Since January 1, 1993:
          Balance at beginning of period                $252.1      $186.5 
          Net income                                      46.6        35.7 
            Balance at end of period                    $298.7      $222.2 


        Unrealized Gains, Net:
          Balance at beginning of period                $133.2      $ 61.8 
          Change during period                             6.4        11.2 

            Balance at end of period                    $139.6      $ 73.0 

        Comprehensive Income:
          Net income                                    $ 46.6      $ 35.7 
          Other comprehensive income - change in net
            unrealized gains on marketable securities      6.4        11.2   
            Comprehensive income                        $ 53.0      $ 46.9 

                                          4

                          AMERICAN ANNUITY GROUP, INC. 10-Q

                    AMERICAN ANNUITY GROUP, INC. AND SUBSIDIARIES
                         CONSOLIDATED STATEMENT OF CASH FLOWS
                                    (In millions)

                                                         Six months ended  
                                                             June 30,      
                                                          1998        1997 
        Cash Flows from Operating Activities:
          Net income                                    $ 46.6      $ 35.7 
          Adjustments:
            Extraordinary loss on prepayment of debt       0.8          -  
            Increase in life, accident and health
                  reserves                                29.2        14.1 
            Benefits to annuity policyholders            140.2       139.4 
            Amortization of insurance acquisition costs   29.9        16.2 
            Equity in net earnings of affiliate           (4.6)       (3.3)
            Depreciation and amortization                  4.5         2.6 
            Realized gains on investing activities       (11.7)       (0.2)
            Increase in insurance acquisition costs      (48.9)      (34.8)
            Increase in accrued investment income         (1.5)         -  
            Increase in other assets                     (16.2)      (15.3)
            Increase in other liabilities                 11.6        16.8 
            Other, net                                    (9.3)       (6.7)
                                                         170.6       164.5 

        Cash Flows from Investing Activities:
          Purchases of and additional investments in:
            Fixed maturity investments                  (598.8)     (780.9)
            Equity securities                             (5.9)       (7.5)
            Real estate, mortgage loans and other assets (12.7)       (5.7)
            Affiliates                                      -         (4.9)
          Purchase of subsidiaries, net of cash acquired  (9.5)         -  
          Maturities and redemptions of fixed
            maturity investments                         398.0       197.4 
          Sales of:
            Fixed maturity investments                   177.9       393.9 
            Equity securities                              2.0         3.9 
            Real estate, mortgage loans and other assets  15.6         4.8 
          Decrease in policy loans                         0.6         0.1 

                                                         (32.8)     (198.9)

        Cash Flows from Financing Activities:
          Fixed annuity receipts                         238.2       259.7 
          Annuity surrenders, benefits and withdrawals  (354.8)     (288.5)
          Additions to notes payable                     150.0         7.0 
          Reductions of notes payable                   (125.7)      (52.0)
          Issuance of trust preferred securities            -        149.3 
          Retirement of Common Stock                      (1.8)       (0.8)
          Retirement of Preferred Stock                     -        (47.0)
          Cash dividends paid                               -         (1.0)
                                                         (94.1)       26.7 

        Net increase (decrease) in cash and
          short-term investments                          43.7        (7.7)

        Cash and short-term investments
          at beginning of period                          50.7        84.1 
        Cash and short-term investments
          at end of period                              $ 94.4      $ 76.4 

                                          5

                          AMERICAN ANNUITY GROUP, INC. 10-Q

                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


        A. Description of the Company

           American Annuity Group, Inc. ("AAG" or "the Company") markets the
           following nationwide:  (i) retirement products - primarily fixed
           and variable annuities;  (ii) individual life insurance and
           annuity policies through the sponsorship of state associations of
           funeral directors as well as individual and large operators of
           funeral homes and (iii) various forms of life and supplemental
           health insurance through payroll deduction plans, financial
           institutions and in-home sales.  In July 1998, AAG announced an
           agreement to sell its funeral services division.  (See Note L.)

           American Financial Group, Inc. ("AFG") and its subsidiaries owned
           35,059,995 shares (81%) of AAG's Common Stock at August 1, 1998.

        B. Accounting Policies

           Basis of Presentation  The accompanying Consolidated Financial
           Statements for AAG and its subsidiaries are unaudited, but
           management believes that all adjustments (consisting only of
           normal recurring accruals unless otherwise disclosed herein)
           necessary for fair presentation have been made.  The results of
           operations for interim periods are not necessarily indicative of
           results to be expected for the year.  The financial statements
           have been prepared in accordance with the instructions to Form 10-
           Q and therefore do not include all information and footnotes
           necessary to be in conformity with generally accepted accounting
           principles.  

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

           All acquisitions subsequent to the 1992 acquisition of Great
           American Life Insurance Company ("GALIC") have been treated as
           purchases.  The results of operations of companies since their
           acquisition have been included in AAG's Consolidated Financial
           Statements.  

           Investments  Debt securities are classified as "held to maturity"
           and reported at amortized cost if AAG has the positive intent and
           ability to hold them to maturity.  Debt and equity securities are
           classified as "available for sale" and reported at fair value with
           unrealized gains and losses reported as a separate component of
           stockholders' equity if the securities are not classified as held
           to maturity or bought and held principally for selling in the near
           term.  Only in certain limited circumstances, such as significant
           issuer credit deterioration or if required by insurance or other
           regulators, may a company change its intent to hold a certain
           security to maturity without calling into question its intent to
           hold other debt securities to maturity in the future.

           Short-term investments are carried at cost; mortgage loans on real
           estate are generally carried at amortized cost; policy loans are
           stated at the aggregate unpaid balance.



                                          6

                          AMERICAN ANNUITY GROUP, INC. 10-Q

                NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued


           Gains or losses on sales of securities are recognized at the time 
           of disposition with the amount of gain or loss determined on the
           specific identification basis.  When a decline in the value of a
           specific investment is considered to be other than temporary, a
           provision for impairment is charged to earnings and the carrying
           value of that investment is reduced.  Premiums and discounts on
           mortgage-backed securities are amortized over their expected
           average lives using the interest method.

           Investment in Affiliate  AAG's investments in equity securities of
           companies that are 20% to 50% owned by AFG and its subsidiaries
           are generally carried at cost, adjusted for a proportionate share
           of their undistributed earnings or losses.  Changes in AAG's
           equity in its affiliate caused by issuances of the affiliate's
           stock are recognized in earnings when such issuances are not part
           of a broader reorganization.  

           Insurance Acquisition Costs  Unamortized insurance acquisition
           costs consist primarily of deferred policy acquisition costs and
           the present value of future profits on business in force of
           acquired insurance companies.  Certain commission costs are
           expensed as paid and are included in amortization of life
           insurance acquisition costs.

           Deferred Policy Acquisition Costs ("DPAC")  DPAC (principally
           commissions, advertising, underwriting, policy issuance and sales
           expenses that vary with and are primarily related to the
           production of new business) is deferred to the extent that such
           costs are deemed recoverable.

           DPAC related to annuities and universal life insurance products is
           amortized, with interest, in relation to the present value of
           expected gross profits on the policies.  These expected gross
           profits consist principally of estimated future net investment
           income and surrender, mortality and other policy charges, less
           estimated future interest on policyholders' funds, policy
           administration expenses and death benefits in excess of account
           values.  DPAC is reported net of unearned revenue relating to
           certain policy charges that represent compensation for future
           services.  These unearned revenues are recognized as income using
           the same assumptions and factors used to amortize DPAC.

           To the extent that realized gains and losses result in adjustments
           to the amortization of DPAC, such adjustments are reflected as
           components of realized gains.

           To the extent that unrealized gains (losses) from securities
           classified as "available for sale" would result in adjustments to
           DPAC, unearned revenues and policyholder liabilities had those
           gains (losses) actually been realized, such balance sheet amounts
           are adjusted, net of deferred taxes.

           DPAC related to traditional life and health insurance is amortized
           over the expected premium paying period of the related policies,
           in proportion to the ratio of annual premium revenues to total
           anticipated premium revenues.  Such anticipated premium revenues
           were estimated using the same assumptions used for computing
           liabilities for future policy benefits.

                                          7
                          AMERICAN ANNUITY GROUP, INC. 10-Q

                NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued


           Present Value of Future Profits  Included in insurance acquisition
           costs are amounts representing the present value of future profits
           on business in force of acquired insurance companies, which
           represent the portion of the costs to acquire such companies that
           is allocated to the value of the right to receive future cash
           flows from insurance contracts existing at the date of
           acquisition.

           These amounts are amortized with interest over the estimated
           remaining life of the acquired policies for annuities and
           universal life products and over the expected premium paying
           period for traditional life and health insurance products.

           Start-up Costs  Costs associated with introducing new products and
           distribution channels are deferred until normal operations are
           reached.  These deferred costs are amortized on a straight-line
           basis over five years.

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

           Life, Accident and Health Reserves  Liabilities for future policy
           benefits under traditional ordinary life, accident and health
           policies are computed using the net level premium method. 
           Computations are based on anticipated investment yields,
           mortality, morbidity and surrenders and include provisions for
           unfavorable deviations.  Reserves are modified as necessary to
           reflect actual experience and developing trends.  

           The liability for future policy benefits for interest sensitive
           life policies is equal to the sum of the accumulated fund balances
           under such policies.

           Assets Held In and Liabilities Related To Separate Accounts 
           Separate account assets and related liabilities represent deposits
           maintained by several banks under a previously offered tax-
           deferred annuity program and, to a lesser extent, variable annuity
           deposits.  The Company receives an annual fee from each bank for
           sponsoring the program; if depositors elect to purchase an annuity
           from the Company, funds are transferred to the Company.

           Life, Accident and Health Premiums and Benefits  For traditional
           life, accident and health products, premiums are recognized as
           revenue when legally collectible from policyholders.  Policy
           reserves have been established in a manner which allocates policy
           benefits and expenses on a basis consistent with the recognition
           of related premiums and generally results in the recognition of
           profits over the premium-paying period of the policies.

           For interest-sensitive life and universal life products, premiums
           are recorded in a policyholder account which is reflected as a
           liability.  Revenue is recognized as amounts are assessed against
           the policyholder account for mortality coverage and contract
           expenses.  Surrender benefits reduce the account value.  Death
           benefits are expensed when incurred, net of the account value.

           Income Taxes  AAG and its principal subsidiary, GALIC, have
           separate tax allocation agreements with American Financial
           Corporation ("AFC"), a subsidiary of AFG, which designate how tax
           payments are shared by members of the tax group.  In general, both
           companies compute taxes on a separate return basis.  GALIC is
           obligated to make payments to (or receive benefits from) AFC based
           
                                          8

                          AMERICAN ANNUITY GROUP, INC. 10-Q

                NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued


           on taxable income without regard to temporary differences.
           If GALIC's taxable income (computed on a statutory accounting
           basis) exceeds a current period net operating loss of AAG, the
           taxes payable by GALIC associated with the excess are payable
           to AFC.  If the AFC tax group utilizes any of AAG's net operating
           losses or deductions that originated prior to AAG's entering
           AFC's consolidated tax group, AFC will pay to AAG an amount
           equal to the benefit received.

           Deferred income tax assets and liabilities are determined based on
           differences between financial reporting and tax basis and are
           measured using enacted tax rates.  The Company recognizes deferred
           tax assets if it is more likely than not that a benefit will be
           realized.  Current and deferred tax assets and liabilities of
           companies in AFC's consolidated tax group are aggregated with
           other amounts receivable from or payable to affiliates.

           Stock-Based Compensation  As permitted under Statement of
           Financial Accounting Standards ("SFAS") No. 123, "Accounting
           for Stock-Based Compensation", AAG accounts for stock options
           and other stock-based compensation plans using the intrinsic
           value based method prescribed by Accounting Principles Board
           Opinion No. 25, "Accounting for Stock Issued to Employees."

           Benefit Plans  AAG sponsors an Employee Stock Ownership
           Retirement Plan ("ESORP") covering all employees who are
           qualified as to age and length of service.  The ESORP, which
           invests primarily in securities of AAG, is a trusteed,
           noncontributory plan for the benefit of the employees of AAG
           and its subsidiaries.  Contributions are discretionary by the
           directors of AAG and are charged against earnings in the year
           for which they are declared.  Qualified employees having vested
           rights in the plan are entitled to benefit payments at age 60.

           AAG and certain of its subsidiaries provide certain benefits to
           eligible retirees.  The projected future cost of providing these
           benefits is expensed over the period the employees earn such
           benefits.

           Earnings Per Share  In 1997, AAG implemented SFAS No. 128,
           "Earnings Per Share."  This standard requires the presentation of
           basic and diluted earnings per share for entities with potentially
           dilutive securities.  Basic earnings per share are calculated
           using the weighted average number of shares of common stock
           outstanding during the period.  Diluted earnings per share include
           the effect of the assumed exercise of dilutive common stock
           options.   

           Comprehensive Income   Effective January 1, 1998, AAG implemented
           SFAS No. 130, "Reporting Comprehensive Income."  SFAS No. 130 uses
           the term "comprehensive income" to describe the total of net
           earnings plus other comprehensive income.  For AAG, other
           comprehensive income represents the change in net unrealized gains
           on marketable securities net of deferred taxes and a
           reclassification adjustment for gains and losses included in net
           earnings.  Implementation of this statement had no impact on net
           earnings or stockholders' equity.  Prior periods have been
           restated to conform to the current presentation.

           Statement of Cash Flows  For cash flow purposes, "investing
           activities" are defined as making and collecting loans and
           acquiring and disposing of debt or equity instruments and property
           and equipment.  "Financing activities" include annuity receipts,
           benefits and withdrawals and obtaining resources from owners and 
           providing them with a return on their investments.  All other
           activities are
                                          9
                          AMERICAN ANNUITY GROUP, INC. 10-Q

                NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued


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

        C. Acquisitions

           In March 1998, GALIC acquired Arkansas National Life Insurance
           Company for approximately $30 million using cash on hand.  

           In December 1997, AAG acquired Great American Life Assurance
           Company of Puerto Rico, Inc. ("GA Life", formerly General Accident
           Life Assurance Company of Puerto Rico, Inc.) for approximately $50
           million in cash.  

        D. Investments

           The carrying value of AAG's fixed maturity portfolio was comprised
           of the following at June 30, 1998:


                                               Held to Available 
                                               Maturity for Sale   Total  
              U. S. Government and government
                agencies and authorities           -%       6%        6%  
              States, municipalities and political               
                subdivisions                       -        1         1   
              Public utilities                     5        2         7   
              Mortgage-backed securities          10       21        31   
              All other corporate                 17       38        55   
                                                  32%      68%      100%  

           "Investing activities" related to fixed maturity investments in
           AAG's Statement of Cash Flows consisted of the following (in
           millions):

                                               Held to  Available
                                               Maturity for Sale   Total  
              1998
              Purchases                         $   -   ($598.8)  ($598.8)
              Maturities and paydowns            178.1    219.9     398.0 
              Sales                               26.3*   151.6     177.9 
              1997
              Purchases                         $   -   ($780.9)  ($780.9)
              Maturities and paydowns            105.6     91.8     197.4 
              Sales                                 -     393.9     393.9 

        * Sold (at a gain of $0.1 million) due to significant deterioration of
        the issuers' creditworthiness.                 

        E. Investment in Affiliate

           Investment in affiliate reflects AAG's 4% ownership (2.7 million
           shares; carrying value of $21.1 million at June 30, 1998) of the
           common stock of Chiquita Brands International which is accounted
           for under the equity method.  AFG and its other subsidiaries own
           an additional 33% interest in the common stock of Chiquita. 
           Chiquita is a leading international marketer, producer and 
           distributor of bananas and other quality fresh and processed food
           products.
                                          10
                          AMERICAN ANNUITY GROUP, INC. 10-Q

                NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued


           The market value of AAG's investment in Chiquita was approximately
           $38 million at June 30, 1998 and $44 million at December 31, 1997. 
             

           Included in equity in Chiquita's 1998 earnings is a $1.0 million
           gain attributable to Chiquita's issuance of common stock.

        F. Unamortized Insurance Acquisition Costs

           Unamortized insurance acquisition costs consisted of the following
           (in millions):
                                                       June 30, December 31,
                                                          1998         1997 
                Deferred policy acquisition costs       $321.2       $300.6 
                Present value of future profits acquired 102.1        102.0 
                Unearned revenues                       (137.3)      (141.0)
                                                        $286.0       $261.6 
        G. Notes Payable

           Notes payable consisted of the following (in millions):

                                                       June 30, December 31,
                                                          1998         1997 
                
                Direct obligations of AAG               $  1.3       $  1.3 
                Obligations of AAG Holding (guaranteed by AAG):
                  6-7/8% Senior Notes due 2008           100.0           -  
                  Unsecured Bank Credit Line due 2003     57.0           -  
                  Secured Bank Credit Line due 1999         -          75.0 
                  Unsecured Bank Credit Line due 1998       -          32.0 
                  11-1/8% Senior Subordinated Notes due 2003-          24.1   
                Other subsidiary debt                      3.1          3.4 
                     Total                              $161.4       $135.8 

           In January 1998, AAG Holding replaced its existing bank lines with
           a new $200 million unsecured credit agreement.  Loans under the
           credit agreement mature from 2000 to 2003 and bear interest at
           floating rates based on prime or Eurodollar rates.  In February
           1998, AAG Holding borrowed $50 million under the new credit line
           and retired its 11-1/8% Notes realizing a pretax extraordinary
           loss of $1.2 million; included in the Notes retired by AAG Holding
           was approximately $24.3 million principal amount of 11-1/8% Notes
           previously acquired by AAG and GALIC.

           In June 1998, AAG Holding sold $100 million principal amount of
           6-7/8% Senior Notes due 2008 and used the net proceeds to repay     
           outstanding indebtedness under the unsecured bank credit line.

           At June 30, 1998, scheduled principal payments on debt for the
           remainder of 1998 and the subsequent five years were as follows
           (in millions):

                        1998      1999      2000      2001      2002      2003 
          
                        $0.4      $0.8      $0.8      $0.6      $0.5     $57.5 
          

           At June 30, 1998 and December 31, 1997, the weighted average
           interest rate on amounts borrowed under AAG Holding's bank credit
           lines was 6.16% and 6.80%, respectively.

                                          11


                          AMERICAN ANNUITY GROUP, INC. 10-Q

                NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued


        H. Mandatorily Redeemable Preferred Securities of Subsidiary Trusts

           Wholly-owned subsidiary trusts of AAG Holding have issued $225
           million of preferred securities and, in turn, purchased $225
           million of newly-issued AAG Holding subordinated debt which
           provide interest and principal payments to fund the Trusts'
           obligations.  The preferred securities are mandatorily
           redeemable upon maturity or redemption of the subordinated
           debt.  The three preferred securities issues are summarized as
           follows:

        Date of                                                 Optional
        Issuance       Issue (Maturity Date)     Amount         Redemption    
                                                                 Dates     
        November 1996   9-1/4% TOPrS* (2026)   75,000,000       On or after
                                                                11/7/2001
        March 1997      8-7/8% Preferred
                           Securities (2027)   75,000,000       On or after   
                                                                 3/1/2007
        May 1997       7-1/4% ROPES** (2041)   75,000,000       Prior to
                                                                9/28/2000 and 
                                                                after         
                                                                9/28/2001

               *  Trust Originated Preferred Securities
               ** Remarketed Par Securities

        AAG and AAG Holding effectively provide an unconditional guarantee of
        the Trusts' obligations. 

        I. Stockholders' Equity

           The Company is authorized to issue 25,000,000 shares of Preferred
           Stock, par value $1.00 per share.  

           In March 1997, AAG retired all of its outstanding Series B
           Preferred Stock for approximately $47 million.

           At June 30, 1998, there were 3.0 million shares of AAG Common
           Stock reserved for issuance under AAG's Employee Stock Option
           Plan.  Under the Stock Option Plan, the exercise price of each
           option equals the market price of AAG Common Stock at the date of
           grant.  Options become exercisable at the rate of 20% per year
           commencing one year after grant.  All options expire ten years
           after the date of grant.

           "Retained earnings since January 1, 1993" reflects accumulated
           changes in AAG's retained earnings since its acquisition of
           GALIC.

           The change in net unrealized gains on marketable securities for
           the six months ended June 30 included the following (in millions):

                                          1998                1997        
                                  Pretax Taxes   Net  Pretax Taxes  Net 
           Unrealized holding
           gains (losses) on
             securities arising
            during the period      $12.4 ($4.3) $8.1  $17.4 ($6.1)$11.3 
           Less reclassification
            adjustment for gains
                realized in
                net income          (2.6)  0.9  (1.7)  (0.2)  0.1  (0.1)
           Change in net
            unrealized gains on
             marketable securities  $9.8 ($3.4) $6.4  $17.2 ($6.0) $11.2 

                                          12

                          AMERICAN ANNUITY GROUP, INC. 10-Q

                NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued


        J. Contingencies

           The Company is continuing its clean-up activities at certain of
           its former manufacturing operations and third-party sites, in some
           cases in accordance with consent agreements with federal and state
           environmental agencies.  Changes in regulatory standards and
           further investigations could affect estimated costs in the future. 
           Management believes that reserves recorded are sufficient to
           satisfy the known liabilities and that the ultimate cost will not,
           individually, or in the aggregate, have a material adverse effect
           on the financial condition or results of operations of AAG.

        K. Additional Information

           Statutory Information of Great American Life Insurance Company 
           Insurance companies are required to file financial statements
           with state insurance regulatory authorities prepared on an
           accounting basis prescribed or permitted by such authorities
           (statutory basis).  Certain statutory amounts for GALIC, AAG's
           primary insurance subsidiary, were as follows (in millions):

                                             June 30, December 31,
                                                1998         1997 
                Capital and surplus           $324.6       $317.0 
                Asset valuation reserve         61.7         64.7 
                Interest maintenance reserve    23.1         23.9 

                                           Six months ended June 30,
                                                1998         1997 

                Pretax income from operations  $38.7        $45.5 
                Net income from operations      30.8         34.4 
                Net income                      29.1         35.5 

            The amount of dividends which can be paid by GALIC without prior
        approval of regulatory authorities is subject to restrictions relating
        to capital and surplus and statutory net income.  Based on net income
        for the year ended December 31, 1997, GALIC may pay $73.6 million in
        dividends in 1998 without prior approval.  In the first six months of
        1998, AAG received $16.0 million in capital distributions from GALIC.

        L. Subsequent Events 

           In July 1998, AAG reached a definitive agreement to sell its 
           funeral services division to Service Corporation International for
           $164 million in cash.  This division includes American Memorial
           Life Insurance Company and Arkansas National.  At June 30, 1998,
           the carrying value of the funeral services division was
           approximately $125 million.  In August 1998, AAG executed an
           agreement to acquire Old Republic Life Insurance Company of New
           York for approximately $25 million.  Completion of these
           transactions which are expected to occur in the fourth quarter of
           1998, are subject to certain conditions, including receipt of
           regulatory approvals.
                                         13 

                          AMERICAN ANNUITY GROUP, INC. 10-Q

                         Management's Discussion and Analysis
                   of Financial Condition and Results of Operations


        GENERAL

        American Annuity Group, Inc. ("AAG" or "the Company") and its
        subsidiary, AAG Holding Company, Inc., are organized as holding
        companies with nearly all of their operations being conducted by their
        subsidiaries.  These companies, however, have continuing expenditures
        for administrative expenses, corporate services, satisfaction of
        liabilities in connection with discontinued operations and for the
        payment of interest and principal on borrowings and stockholder
        dividends.

        Forward-Looking Statements   The Private Securities Litigation Reform
        Act of 1995 encourages corporations to provide investors with
        information about the Company's anticipated performance and provides
        protection from liability if future results are not the same as
        management's expectations.  This document contains certain forward-
        looking statements that are based on assumptions which management
        believes are reasonable, but, by their nature, inherently uncertain. 
        Future results could differ materially from those projected.  Factors
        that could cause such differences include, but are not limited to: 
        changes in economic conditions, regulatory actions and competitive
        pressures.  AAG undertakes no obligation to update any forward-looking
        statements.  

        LIQUIDITY AND CAPITAL RESOURCES  

        Ratios  AAG's ratio of earnings to fixed charges exceeds 5 times.  Its
        proforma ratio of consolidated debt to capital at June 30, 1998 was
        17%.  Proforma consolidated debt includes the Company's notes payable
        and its Remarketed Par Securities ("ROPES"), net of approximately $95
        million of unrestricted cash and marketable investments on hand at AAG
        (parent).  Capital represents the sum of proforma consolidated debt,
        redeemable preferred securities of subsidiary trusts and stockholders'
        equity (excluding unrealized gains).  

        The National Association of Insurance Commissioners' ("NAIC") risk-
        based capital ("RBC") formulas determine the amount of capital that an
        insurance company needs to ensure that it has an acceptable
        expectation of not becoming financially impaired.  At June 30, 1998,
        the capital ratios of each of AAG's principal insurance subsidiaries
        was at least 4.3 times its authorized control level RBC. 

        Sources and Uses of Funds  The ability of AAG and AAG Holding to pay
        interest and principal on debt, dividends on preferred securities,
        obligations related to discontinued manufacturing operations and other
        holding company costs is largely dependent upon payments from its
        principal subsidiary, Great American Life Insurance Company ("GALIC"),
        in the form of capital distributions.  The amount of capital
        distributions which can be paid by GALIC is subject to restrictions
        relating to statutory surplus and earnings.  In the first six months
        of 1998, GALIC made $16 million in such payments; the maximum amount
        of dividends payable by GALIC during the remainder of 1998 without
        prior regulatory approval is $58 million.

        Since year end 1996 (through June 1998), AAG has retired $65 million
        principal amount of its public debentures and $49 million of preferred
        stock.  In addition, AAG acquired Great American Life Assurance
        Company of Puerto Rico, Inc. ("GA Life") for approximately $50 million
        in December 1997.  AAG funded these outlays with issuances of trust
        preferred securities, bank borrowings, dividends from GALIC and cash
        on hand.  The March 1998 acquisition of Arkansas National Life
        Insurance Company was completed using cash on hand at GALIC.

                                          14


                          AMERICAN ANNUITY GROUP, INC. 10-Q

                         Management's Discussion and Analysis
             of Financial Condition and Results of Operations - Continued


        In June 1998, AAG Holding retired $100 million of its bank line using
        proceeds from a public debt offering.

        Including cash and investments on hand and the unused availability
        under a bank line of credit, AAG and AAG Holding had more than $230
        million of liquidity at August 1, 1998.  In July 1998, AAG announced
        an agreement to sell its funeral services division for $164 million in
        cash.  The majority of the proceeds will be received by AAG's
        insurance subsidiaries.  The ultimate use of these proceeds has not
        been determined.  Based upon the current level of operations and
        anticipated growth, AAG believes that it will have sufficient
        resources to meet its liquidity requirements. 

        Investments  Insurance laws restrict the types and amounts of
        investments which are permissible for life insurers.  These
        restrictions are designed to ensure the safety and liquidity of
        insurers' investment portfolios.  The NAIC has developed a model
        investment law which management believes will not have a material
        impact on AAG's operations.

        The NAIC assigns quality ratings to publicly traded as well as
        privately placed securities.  These ratings range from Class 1
        (highest quality) to Class 6 (lowest quality).  The following table
        shows the Company's fixed maturity portfolio by NAIC designation (and
        comparable Standard & Poor's Corporation rating) as of June 30, 1998:

             NAIC                                        % of Total 
             Rating   Comparable S&P Rating             Market Value
                1     AAA, AA, A                               67%  
                2     BBB                                      25   
                           Total investment grade              92   
                3     BB                                        4   
                4     B                                         3   
                5     CCC, CC, C                                1   
                6     D                                         -   
                           Total non-investment grade           8   
                           Total fixed maturities             100%  

        Management believes that the high credit quality of AAG's investment
        portfolio should generate a stable and predictable investment return.

        AAG invests primarily in fixed income investments which, including
        loans and short-term investments, comprised 98% of its investment
        portfolio at June 30, 1998.  AAG generally invests in securities with
        intermediate-term maturities with an objective of optimizing interest
        yields while maintaining an appropriate relationship of maturities
        between AAG's assets and expected liabilities.

        At June 30, 1998, AAG had less than 2% of total assets invested in
        mortgage loans and real estate, the majority of which had been
        acquired within the last five years.

        At June 30, 1998, AAG's mortgage-backed securities ("MBSs") portfolio
        represented less than one-third of fixed maturity investments.  AAG
        invests primarily in MBSs which have a lower risk of prepayment.  In
        addition, the majority of MBSs held by AAG were purchased at a
        discount.  Management believes that the structure and discounted
        nature of the MBSs will reduce the effect of prepayments on earnings
        over the anticipated life of the MBS portfolio.

                                          15


                          AMERICAN ANNUITY GROUP, INC. 10-Q

                         Management's Discussion and Analysis
             of Financial Condition and Results of Operations - Continued


        Nearly 90% of AAG's MBSs are rated "AAA" with substantially all being
        investment grade quality.  The market in which these securities trade
        is highly liquid.  Aside from interest rate risk, AAG does not believe
        a material risk (relative to earnings or liquidity) is inherent in
        holding such investments.

        Uncertainties
             Contingencies  A managing general agency which produced less than
        10% of GALIC's premiums in the first six months of 1997 was named a
        defendant in a lawsuit filed in July 1996 by two regulatory agencies
        in California.  The managing general agency has settled the
        allegations brought against it by agreeing, among other things, to
        modify certain sales practices.  The regulatory agencies have taken a
        position that GALIC may be responsible for certain acts of its
        insurance agents in connection with the sale of GALIC's annuities. 
        GALIC is engaged in discussions with the regulatory agencies to
        resolve this matter.  This agent no longer markets products for GALIC. 
        The ultimate outcome is not expected to have a material adverse impact
        on the financial condition of the Company.
          
        RESULTS OF OPERATIONS

        General    The operations of GA Life and Arkansas National are
        included in AAG's consolidated financial statements from their dates
        of acquisition in December 1997 and March 1998, respectively.    

        The Company's principal products are its fixed annuities Single
        Premium Deferred Annuities ("SPDAs") and Flexible Premium Deferred
        Annuities ("FPDAs").  The following table summarizes AAG's premiums
        for annuities and other forms of life and health insurance (in
        millions):

                                         Three months ended   Six months ended
                                               June 30,           June 30,   
                                              1998   1997        1998   1997 
           Retirement Annuities:
             SPDAs                            $ 69   $ 57        $121   $127 
             FPDAs - renewal                    41     46          79     89 
             FPDAs - first year                 10     10          17     18 
             Variable annuities
               - flexible premium                4      -           8      1 
             Variable annuities
               - single premium                 16      9          29     15 
           Pre-need life insurance              26     16          49     29 
           Pre-need annuities                    7     11          15     23 
           Other life insurance                 17      5          35     11 
           Accident and health insurance         5      5          10     10 
             Total premiums                   $195   $159        $363   $323 

        AAG's growth in total premiums is attributable to acquisitions as well
        as the introduction of new fixed and variable products.

        Pretax Operating Earnings  Pretax earnings from operations (before
        realized gains (losses) and equity in net earnings of affiliate) for
        the second quarter and first six months of 1998 were $28.6 million and
        $54.1 million, respectively, compared to $24.5 million and $48.6
        million for the same periods in 1997.  

                                          16

                          AMERICAN ANNUITY GROUP, INC. 10-Q

                         Management's Discussion and Analysis
             of Financial Condition and Results of Operations - Continued


        Net Investment Income  Net investment income increased 6% in both the
        second quarter and first six months of 1998 compared to the same
        periods in 1997 due primarily to an increase in the Company's average
        fixed maturity investment base.  This increase was partially offset by
        decreasing market interest rates.  Investment growth resulted from
        acquisitions, internal cash flow generated by AAG's insurance
        operations and the investment of a portion of the proceeds from the
        issuance of trust preferred securities.  Investment income is shown
        net of investment expenses of $1.5 million in 1998 and $2.0 million in
        1997.  Lower investment expenses in 1998 reflect a decrease in fees
        charged by an affiliate.

        Life, Accident and Health Premiums and Benefits   Increases in life,
        accident and health premiums and benefits reflect primarily the
        acquisition of GA Life and increased sales of pre-need life insurance.

        Equity in Net Earnings of Affiliate  Equity in net earnings of
        affiliate represents AAG's proportionate share of the results of
        Chiquita Brands International.  Chiquita reported net income for the
        second quarter and first six months of 1998 of $53 million and $94
        million, respectively, compared to $41 million and $84 million for the
        same periods in 1997.  Included in equity in Chiquita's 1998 earnings
        are gains attributable to Chiquita's issuance of common stock.    

        Annuity Benefits  Annuity benefits reflect interest credited to
        annuity policyholders' funds accumulated.  The majority of GALIC's
        fixed rate annuity products permit GALIC to change the crediting rate
        at any time (subject to minimum interest rate guarantees of 3% or 4%
        per annum).  As a result, management has been able to react to changes
        in market interest rates and maintain a desired interest rate spread
        without a substantial effect on persistency.  
          
        Amortization of Insurance Acquisition Costs   Amortization of
        insurance acquisition costs includes certain commissions on sales of
        life insurance products.  The increase in 1998 reflects the
        acquisition of GA Life as well as increased sales of pre-need life
        insurance products.  The costs in the second quarter and the first six
        months of 1998 also include amortization of the present value of
        future profits of businesses acquired amounting to $2.4 million and
        $4.8 million, respectively, compared to $1.8 million and $3.7 million
        for the same periods in 1997.

        Trust Preferred Distribution Requirement  Trust preferred distribution
        requirement represents amounts accrued on preferred securities issued
        by subsidiaries of AAG Holding in 1997 and 1996.  A portion of the
        proceeds from these issuances was used to retire debt.

        Interest and Other Debt Expenses   AAG's interest expense increased
        slightly in 1998.  During 1997 and 1998 the Company replaced higher
        coupon public debt with significantly lower interest rate bank debt. 
        This decrease in average rates was offset by higher average debt,
        which resulted primarily from funds borrowed to acquire GA Life.      

        Other Expenses   Increases in other expenses reflect (i) the
        acquisitions of GA Life and Arkansas National, (ii) higher
        depreciation and amortization costs and (iii) increases in personnel
        costs.   

        Extraordinary Item   Extraordinary item reflects AAG's losses, net of
        tax, on prepayment of its debt.

                                          17


                          AMERICAN ANNUITY GROUP, INC. 10-Q

                         Management's Discussion and Analysis
             of Financial Condition and Results of Operations - Continued


        New Accounting Standards to be Implemented   The Financial Accounting
        Standards Board issued Statement of Financial Accounting Standard
        ("SFAS") No. 131, "Disclosures about Segments of an Enterprise and
        Related Information," which is scheduled to become effective during
        the fourth quarter of 1998.  The implementation of SFAS No. 131 will
        have no effect on AAG's financial position or net income.

        Statement of Position ("SOP") 98-5, "Reporting on the Costs of Start-
        Up Activities," was issued during the second quarter of 1998.  The SOP
        is effective for fiscal years beginning after December 15, 1998, and
        requires that costs of start-up activities be expensed as incurred. 
        The SOP requires that unamortized balances of previously deferred
        costs be expensed no later than the first quarter of 1999 and reported
        as the cumulative effect of a change in accounting principle.  AAG had
        $11 million in capitalized start-up costs at June 30, 1998.

                                          18

                          AMERICAN ANNUITY GROUP, INC. 10-Q
                                       PART II
                                  OTHER INFORMATION


                                        ITEM 4

                 Submissions of Matters to a Vote of Security Holders

        The Registrant's Annual Stockholders' Meeting was held May 19, 1998. 
        Proxies were solicited pursuant to Regulation 14A under the Securities
        Exchange Act of 1934.  All of the nominees for director proposed by
        the Registrant were elected to the Board of Directors.

        In addition to the election of directors, stockholders also voted to
        approve an amendment to the AAG 1994 Stock Option Plan to increase the
        maximum number of options to be granted from 2,000,000 to 3,000,000
        [Proposal 2].  The votes cast for, against, and the number withheld or
        abstentions as to each matter voted on at the 1998 Annual Meeting is
        set forth below:

                                                             Withheld/
                                For          Against           Abstain 
        Election of Directors:
          Carl H. Lindner     41,214,965          NA          13,786
          S. Craig Lindner    41,215,003          NA          13,748
          Robert A. Adams     41,217,839          NA          10,912
          John T. Lawrence III41,219,705          NA           9,046
          A. Leon Fergenson   41,217,522          NA          11,229
          Ronald G. Joseph    41,219,965          NA           8,786
          William R. Martin   41,218,887          NA           9,864
        Proposal 2            39,818,864   1,384,263          25,624 

        NA - Not Applicable

                                        ITEM 5

                                  Other Information

        Stockholder Proposals

        The Proxy Form used by the Company for its Annual Meeting of
        Stockholders typically grants authority to management's proxies to
        vote in their discretion on any matters that come before the Meeting
        as to which adequate notice has not been received.  In order for a
        notice to be deemed adequate for the 1999 Annual Meeting, it must be
        received by February 15, 1999.  In order for a proposal to be
        considered for inclusion in the Company's proxy statement for that
        Meeting, it must be received by December 1, 1998.

                                        ITEM 6

                           Exhibits and Reports on Form 8-K

        (a)   Exhibit 27 - Financial Data Schedule as of June 30, 1998.  For
        submission in electronic filing only.

        (b)   Report on Form 8-K - None.
                                          19


                          AMERICAN ANNUITY GROUP, INC. 10-Q
                                       PART II
                                  OTHER INFORMATION


                                      Signature


        Pursuant to the requirements of the Securities Exchange Act of 1934,
        the Registrant has duly caused this report to be signed on its behalf
        by the undersigned duly authorized.

                                           American Annuity Group, Inc.


        August 14, 1998                    BY:/s/William J. Maney             
                                              William J. Maney
                                              Senior Vice President, Treasurer
                                               and Chief Financial Officer
                                          20