SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549

                                    FORM 10-K

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

     For  the fiscal year ended December 31, 1998, or

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

     For  the transition period from _____________ to ____________

                          Commission file number 0-4366

                               Regan Holding Corp.
             (Exact Name of Registrant as Specified in Its Charter)

                 California                               68-0211359
       (State or Other Jurisdiction of                 (I.R.S. Employer
       Incorporation or Organization)                 Identification No.)

1179 N. McDowell Blvd., Petaluma, California                 94954
  (Address of Principal Executive Offices)                (Zip Code)

                                 (707) 778-8638
              (Registrant's Telephone Number, Including Area Code)

         Securities registered under Section 12(g) of the Exchange Act:

                           Common Stock, no par value
                                (Title of Class)

     Indicate by check mark  whether the  registrant:  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days.


                   Yes     X          No
                       ---------          ---------

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

     State the aggregate market value of the voting stock held by non-affiliates
of the registrant.  The aggregate market value shall be computed by reference to
the price at which the common  equity  was sold,  or the  average  bid and asked
prices of such common equity, as of a date specified within the 60 days prior to
the date of filing.

                                   $18,806,976

     There  is  currently  no  trading  market  for  the   registrant's   stock.
Accordingly,  the  foregoing is based on the price at which the  registrant  has
repurchased its stock during the 60 days prior to the date of filing.

                          Index to Exhibits on Page 28

<PAGE>



              APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
                   PROCEEDINGS DURING THE PRECEDING FIVE YEARS

         Indicate by check mark whether the issuer has filed all  documents  and
reports  required  to be  filed by  Section  12,  13 or 15(d) of the  Securities
Exchange Act of 1934 after the distribution of securities under a plan confirmed
by a court.

                   Yes     X          No
                       ---------          ---------

                    APPLICABLE ONLY TO CORPORATE REGISTRANTS

     Indicate  the  number of  shares  outstanding  of each of the  registrant's
classes of common stock as of March 15, 1999, including redeemable common stock:

         Common Stock-Series A                     25,992,437
         Common Stock-Series B                        548,633


                       DOCUMENTS INCORPORATED BY REFERENCE

     The  issuer's   definitive  Proxy  Statement  for  the  Annual  Meeting  of
Shareholders to be held May 21, 1999, is incorporated by reference into Part III
of this document.


                                     PART I

Item 1. Description of Business

     Except for historical  information  contained herein, the matters discussed
in this report contain  forward- looking  statements,  within the meaning of the
Private  Securities  Litigation  Reform  Act of 1995,  that  involve  risks  and
uncertainties that could cause actual results to differ materially.

     Regan Holding Corp. (the  "Company"),  is a California  Corporation that is
primarily  engaged,  through its wholly-owned  subsidiary Legacy Marketing Group
("Legacy"),  in the design,  marketing and  administration of life insurance and
annuity  products.  Through  Legacy,  the  Company has  entered  into  marketing
agreements (the "Marketing Agreements") with American National Insurance Company
("American  National"),  IL Annuity and Insurance  Company ("IL  Annuity"),  and
Transamerica Life Insurance and Annuity Company ("Transamerica"),  each of which
is an unaffiliated company (collectively  referred to herein as the "Carriers").
American  National  has over $1.4  billion in capital  and  surplus and is rated
"A++" by A. M. Best.  IL Annuity  has over $13.0  million in capital and surplus
and is rated "A" by A.M. Best. Transamerica has over $560 million in capital and
surplus and is rated "A+" by A.M. Best. The Company  currently  markets policies
written in the  District  of  Columbia  and in each  state of the United  States
except Alabama and New York.

     The Marketing Agreements grant Legacy the exclusive right to market certain
annuity and life  insurance  products  issued by the Carriers (the  "Policies").
Under the terms of the  Marketing  Agreements,  Legacy  is  responsible  for the
recruiting,  appointing  and training of producers  who contract  with Legacy to
sell the  Policies.  For these  services,  the  Carriers  pay  Legacy  marketing
allowances  and  commissions  based on the volume of Policies sold. The Carriers
are also  responsible for the payment to producers of commissions on the sale of
Policies.  Legacy may, in its discretion,  elect to pay commissions to producers
in addition to those paid by the Carriers.

     The Company currently markets the Policies through a network  consisting of
approximately  15,300 producers,  of whom approximately 5,000 generated business
during 1998. Each of these producers has entered into a producer  agreement with
Legacy  pursuant  to which  the  services  of the  producer  are  provided  on a
non-exclusive  basis.  These agreements may be terminated  immediately by either
the producer or Legacy, with or without cause.

     Legacy's  sales  network is built on a multi-level  structure,  pursuant to
which producers may recruit other producers. Recruited producers are referred to
as "downline"  producers within the recruiting  producer's  "downline  network."
Recruited producers may also recruit other producers, creating a hierarchy under
the original  recruiting  producer.  The producer contract contains a nine-level
"open book"  design in which a producer  may advance  from one level to the next
based  on his or her  commission  level  and  the  size  of his or her  downline
network.  As a producer advances within the system, the producer receives higher
commissions on sales made by the producer and the producer's  downline  network.
Legacy's  multi-level  structure creates a financial  incentive for producers to
build a hierarchy,  or downline network, of producers,  thereby  contributing to
their own  financial  growth and to the growth of the Company.  Advancements  to
higher levels can occur as often as every three months. Producers at the highest
levels are considered "wholesalers."

     Legacy provides tools and services that assist wholesalers with recruiting,
training and support  responsibilities  associated  with the  producers in their
downline network.  In addition,  Legacy assists producers with programs designed
to increase their sales and better serve their clients.  Recruiting and training
programs include visual presentations,  product videos and seminars, advertising
material  guidelines  and sales  flip  charts.  Legacy  also  generates  product
information, sales brochures, and recruiting material.

     In addition to Policy  marketing  and  administration,  Legacy  assists the
Carriers in Policy  design and  development.  Legacy's  marketing  and actuarial
departments  work with the  Carriers  to  design  proprietary  annuity  and life
insurance  products to be marketed by Legacy.  Most products  marketed by Legacy
include certain  guarantees for the benefit of policyholders,  known as Legacy's
Cornerstone  Guarantees,  which  are  designed  to be  unique  in the  insurance
marketplace.   Legacy's   Cornerstone   Guarantees   generally  include:  (i)  a
contractually  guaranteed  maximum  administrative  fee; (ii) multiple crediting
rate options;  and,  (iii) life  insurance  products  providing a guarantee that
changes  in the  cost of  insurance  will  result  solely  from  changes  in the
Policies' future experience factors.

     Legacy has also entered into Administrative Agreements (the "Administrative
Agreements")  with  each of the  Carriers  pursuant  to  which  Legacy  provides
clerical,  administrative and accounting  services with respect to the Policies.
Such services  include  billing,  collecting and remitting cash on the Policies.
However,  all cash  receipts  are  deposited  into  accounts  maintained  by the
Carriers and all cash remitted by the Carriers to either policyholders or Legacy
is paid from accounts  maintained by the Carriers.  For providing such services,
Legacy is paid on a per  transaction  basis with the amount of the fee depending
on the type of policy  and type of  service.  Historically,  all  administrative
services with respect to Policies were  performed at the Company's  headquarters
in  Petaluma,   California.   However,  during  1998,  Legacy  began  performing
administrative  services with respect to certain annuity  Policies at facilities
located in Rome, Georgia.

     During  1997,  American  National  and IL Annuity  were the only  insurance
companies  for  which  Legacy  marketed  and  administered  insurance  products.
Approximately  36.2%  and  57.0% of the  Company's  total  revenue  during  1997
resulted from  agreements with American  National and IL Annuity,  respectively.
During 1998, approximately 12.7%, 79.9%, and 1.7% of the Company's total revenue
resulted from agreements with American National,  IL Annuity,  and Transamerica,
respectively.

     Neither the Marketing Agreements nor the Administrative  Agreements prevent
Legacy from entering into similar  arrangements with other insurance  companies.
However,  the Marketing  Agreements prevent Legacy from marketing products which
are similar,  in the case of American  National and IL Annuity,  or the same, in
the case of Transamerica,  to those being offered under the respective Marketing
Agreements.  In  addition,  under the  terms of the  Marketing  Agreements  with
American National and IL Annuity,  Legacy is obligated to give American National
and IL Annuity  the  opportunity  to  participate  in the  marketing  of any new
products developed by Legacy.

     The Marketing and  Administrative  Agreements with American National and IL
Annuity expire on May 15, 1999, and December 31, 2005, respectively,  but may be
renewed by mutual agreement for successive one year terms.  These Agreements may
be terminated  by either party upon 180 days notice  without  cause,  and may be
terminated by either party  immediately  for cause.  In addition,  the Marketing
Agreements   with  American   National  and  with  IL  Annuity  will  terminated
automatically  at the end of any calendar quarter upon failure of Legacy to meet
certain quarterly minimum  production  requirements for two successive  calendar
quarters.  The Company is currently  negotiating with American National to renew
the  Marketing  and  Administrative  Agreements.  Management  expects  that  new
agreements  will be signed during the second  quarter of 1999. The Marketing and
Administrative  Agreements with  Transamerica do not have fixed terms but may be
terminated by either party upon twelve months notice without  cause,  and may be
terminated by either party immediately for cause.

     Through  its  wholly-owned   broker-dealer  subsidiary,   Legacy  Financial
Services, Inc. ("LFS"), the Company engages in the offering and sale of variable
annuity and life insurance products, mutual funds and debt and equity securities
on a fully disclosed basis.  LFS has entered into agreements (the  "Agreements")
with various entities pursuant to which LFS has a non-exclusive right to solicit
sales of these investment  products offered by such entities through its network
of   independent   representatives   and  to  provide   certain   marketing  and
administrative services in order to facilitate sales of such products. Under the
Agreements,  the Company is compensated based upon pre-determined percentages of
production.  The  Agreements may be terminated by any party upon 30 days written
notice.  Sales of products  pursuant to the  Agreements  began  during the first
quarter of 1996. During 1998,  approximately 1.7% of the Company's  consolidated
revenues were generated by LFS.

     Through its wholly-owned subsidiary,  LifeSurance Corporation,  the Company
conducts estate planning seminars which provide continuing education credits for
producers at various locations throughout the United States.  Producers pay fees
to attend the seminars and may also purchase educational  materials which can be
used as tools in  promoting  life  insurance  and  annuity  policies  and estate
planning concepts. The seminars and educational materials are marketed under the
business name Wealth Transfer Educational Systems.

     In August 1997,  Legacy Advisory  Services,  Inc.  ("LAS"),  a wholly-owned
subsidiary of the Company,  was  incorporated in the State of California for the
purpose of operating  as an  "investment  advisor," as defined by and  regulated
pursuant to the  Investment  Advisors Act of 1940.  LAS is  registered  with the
Securities and Exchange  Commission  (the "SEC") and is in the process of filing
notices with several states to provide investment management services to clients
of investment advisor representatives of LAS. LAS has conducted no operations to
date.

     In July 1998,  Legacy  Reinsurance  Company  ("LegacyRe"),  a  wholly-owned
subsidiary of the Company, was incorporated in the State of Arizona. The Company
is in the process of obtaining approval from the Arizona Department of Insurance
for LegacyRe to engage in the reinsurance  business.  Accordingly,  LegacyRe has
conducted  no  business  to date.  Upon  receipt of  approval  from the  Arizona
Department  of  Insurance,  LegacyRe  may  enter  into  one or more  reinsurance
agreements to reinsure annuity and life products.

Competitive Business Conditions

     The life insurance and annuity business is highly competitive.  The Company
faces  competition from various  companies and  organizations,  including banks,
securities   brokerage   firms,   investment   advisors   and  other   financial
intermediaries marketing insurance products,  annuities, mutual funds, and other
retirement  oriented  investments.  Some of these competitors have substantially
greater  assets,  financial  resources and market  acceptance  than Legacy.  The
Company's  distribution  system  relies on  independent  insurance  producers to
effectively market its products  competitively.  Maintaining  relationships with
producers  requires  introducing  new products to the market in an efficient and
timely manner, offering competitive commission schedules, and providing superior
marketing training and support.

Regulatory Environment

     Legacy, or a licensed  individual acting on behalf of Legacy (in the states
that do not permit the licensing of  corporations),  is licensed or is currently
seeking licensure as an insurance agent and/or third party  administrator in all
states  that  require  such  licensure.  As a  result  of being  licensed  as an
insurance agency,  Legacy's operations are subject to regulation,  including its
sales  practices,  fiduciary  responsibilities  and  familiarity  with pertinent
statutes  and  regulations.  As a result  of  being  licensed  as a third  party
administrator, Legacy is subject to regulation regarding maintenance of records,
settlement and payment of claims, underwriting services or standards, disclosure
of the administrator's capacity,  payment of fees or charges and other fiduciary
duties.

     Increased  national  attention  has  forced  the  National  Association  of
Insurance Commissioners and state insurance departments to examine existing laws
and  regulations  affecting  insurance  companies,  especially  those  laws  and
regulations  involving  insurance company  solvency,  marketing  practices,  and
investment  policies.  The Company has responded to this  increased  scrutiny by
instituting  strict  advertising  guidelines,  generating  consistent  marketing
materials  and  testimonies  addressing  appropriate  marketing  practices,  and
including  this  topic  in its bi-  annual  wholesaler  meetings.  Although  the
Company,  itself,  is not  an  insurance  company,  changes  in  the  regulatory
environment  which affect the  insurance  companies  with that it contracts  can
impact its operations.

     LFS is registered as a broker-dealer with, and is subject to regulation by,
the SEC and the National  Association of Securities Dealers (the "NASD"). LFS is
also  registered as a fully  disclosed  broker-dealer  in several  states.  As a
result of  federal  and state  broker-dealer  registration  and self  regulatory
organization ("SRO") memberships, LFS is subject to overlapping regulation which
cover many aspects of its securities  business.  Such regulations  cover matters
including  capital  requirements,  record-keeping  and  reporting  requirements,
supervisory and  organizational  procedures  intended to assure  compliance with
securities  laws and to prevent  the  improper  trading on  material  non-public
information,  employee-related matters, including qualification and licensing of
supervisory and sales personnel,  and rules of the SROs designed to promote high
standards of  commercial  honor and just and equitable  principles  of trade.  A
particular focus of the applicable regulations concerns the relationship between
broker-dealers  and  their  customers.   As  a  result,   many  aspects  of  the
broker-dealer  customer  relationship  are  subject  to  regulation,   including
"suitability"  determinations  as to customer  transactions,  limitations in the
amounts that may be charged to customers, and correspondence with customers. LFS
is currently in  compliance  with all  applicable  capital and other  regulatory
requirements.

     Compliance  with many of the  regulations  applicable to the Company or its
subsidiaries  involves  a  number  of  risks,  particularly  because  applicable
regulations  in a number  of areas may be  subject  to  varying  interpretation.
Regulators  make  periodic  examinations  and review  annual,  monthly and other
reports on the Company's operations and financial  condition.  In the event of a
violation  of  or   non-compliance   with  any  applicable  law  or  regulation,
governmental  regulators  and  SROs may  institute  administrative  or  judicial
proceedings that may result in censure,  fine, civil penalties (including treble
damages in the case of insider  trading  violations),  criminal  penalties,  the
issuance of  cease-and-desist  orders,  the  deregistration  or  suspension of a
non-compliant   broker-dealer,   the   suspension  of   disqualification   of  a
broker-dealer's  officers or  employees,  and other adverse  consequences.  Such
violations or non-compliance could also subject the Company and/or its employees
to civil actions by private persons. Any governmental, SRO or private proceeding
alleging violation of or non-compliance with laws and regulations  applicable to
the Company or its  subsidiaries  could have a material  adverse effect upon the
Company's  business,  financial  condition,  results of operations  and business
prospects.

     As  of  March  15,  1999,  the  Company  had  approximately  380  full-time
equivalent  employees.  None of the  employees  of the  Company are covered by a
collective  bargaining  agreement,  and the Company  believes  that its employee
relations are satisfactory.

     Information about the Company, including copies of the Company's Forms 10-K
and 10-Q may be reviewed at offices  maintained  by the SEC at 450 Fifth Street,
N.W., Room 1024,  Washington,  D.C. 20549 and at the regional offices of the SEC
located at Seven  World  Trade  Center,  New York,  New York 10048 and  Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago,  Illinois 60661. Copies of
such materials may be obtained from the Public  Reference  Section of the SEC at
450 Fifth Street, N.W., Room 1024, Washington,  D.C. 20549, at prescribed rates.
In addition,  the SEC maintains a Web site on the Internet at http://www.sec.gov
that contains  reports,  proxy and information  statements and other information
regarding registrants that file electronically with the SEC.

Item 2. Property

     The Company  currently  leases  approximately  43,000 square feet of office
space in Petaluma,  California, at which the Company's headquarters are located.
In March,  1999, the Company  entered into an agreement to purchase the building
which houses the office space  currently  leased for $4.3 million.  The building
consists  of  approximately  53,700  total  square  feet of  useable  office and
warehouse  space.  The Company has also entered  into a lease for  approximately
72,000 square feet of office space at another  location in Petaluma,  California
into which the Company intends to move its headquarters in mid-1999.  This lease
expires in April, 2009,  subject to extension at the option of the Company,  for
two additional  terms of five years each.  Once the Company's  headquarters  are
relocated,  the newly  purchased  building  is  expected  to be used for ongoing
operations  and staff and  producer  training  events.  Any unused space will be
offered for lease.

     The Company  also  currently  leases  approximately  30,500  square feet of
office space in Rome, Georgia. This lease expires in December,  2002, unless the
Company exercises its option to extend the lease for a period of three years.

     Management  believes  that  existing  and planned  office space is and will
continue to be adequate for the Company's operations for the foreseeable future.

Item 3. Legal Proceedings

     As a  professional  services firm engaged in marketing  and servicing  life
insurance and annuity products,  the Company encounters litigation in the normal
course of  business.  Management  is not aware of any  material  exposure to the
Company  currently  existing  as a result of such  litigation.  However,  Legacy
recently settled a lawsuit brought in the State of Alabama.  (See  "Management's
Discussion and Analysis of Financial Condition and Result of Operations.")

Item 4. Submission of Matters to a Vote of Security Holders

     No items were submitted to a vote of security holders during the fourth
calendar quarter of 1998.


                                     PART II

Item 5. Market for Registrant's Common Equity and Related Shareholder Matters

     There is no established  public trading market for the Company's stock. The
Company's Series A common stock is held by approximately  1,500  shareholders of
record.  The  Company's  Series B common  stock is held by  approximately  9,800
shareholders of record.

     The Board of Directors of the Company may, at its sole discretion,  declare
and pay dividends on common stock, subject to capital and solvency  restrictions
under  California  law. To date,  the Company has not paid any  dividends on its
common stock. The Company's ability to pay dividends is dependent on the ability
of the  Company's  wholly-owned  subsidiaries  to pay  dividends  or make  other
distributions  to its parent company.  As of December 31, 1998, the Company does
not anticipate  paying  dividends on any of its outstanding  common stock in the
foreseeable future.

Item 6. Selected Consolidated Financial Data

<TABLE>
<CAPTION>

                                   Year Ended        Year Ended       Year Ended        Year Ended     Year Ended
                                  December 31,      December 31,     December 31,      December 31,   December 31,
                                      1998            1997               1996              1995           1994
                                      ----            ----               ----              ----           ----
<S>                               <C>               <C>              <C>              <C>             <C> 

Selected Income Statement Data:

   Total Income                    $47,156,196      $ 22,581,075     $ 18,237,528     $  17,153,947  $    7,683,791
   Net Income                        9,770,208         3,150,454        2,714,495         4,858,620       5,085,866
   Earnings Per Share-Basic         $      .37      $        .12     $        .10     $         .18  $          .21
   Earnings Per Share-Diluted       $      .36      $        .12     $        .10     $         .18  $          .21

Selected Balance Sheet Data:

   Total Assets                    $31,286,013      $ 19,280,941     $  15,424,902    $  12,304,801  $    6,860,778
   Total Non Current Liabilities      662,808            281,894           316,741          304,557         130,146
   Total Liabilities                6,364,743          3,621,380         2,519,866        1,762,924       1,287,425
   Redeemable Common Stock         11,225,431         11,842,651        12,343,001       12,682,750      12,696,412
   Shareholders' Equity (Deficit)  13,695,839          3,816,910           562,035       (2,140,873)     (7,123,059)
   Cash Dividends Declared                 --                 --                --               --              --

Selected Operating Data:

   Total Premium
      Placed Inforce (1)      $ 1,653,000,000       $777,300,000     $ 626,800,000    $ 620,000,000  $  339,000,000
   Total No. of Policies
      Placed Inforce (1)               31,900             15,060            11,144           12,167           6,118
</TABLE>


(1)  Inforce  premium and policies are actually  statistics  of the Carriers but
     represent factors which directly affect the Company's revenue.



Item 7. Management's  Discussion and Analysis of Financial Condition and Results
        of Operations

Results of Operations

     Summary--The Company's net income increased  approximately $6.6 million, or
210.1%,  in 1998,  compared to 1997, and increased  approximately  $436,000,  or
16.1%, in 1997 compared to 1996. These increases are  attributable  primarily to
increases  in income  resulting  from  increases in sales  volume,  as discussed
below.

     Income--The  Company's  major sources of income are  marketing  allowances,
commission  income  and  administrative  fees from sales and  administration  of
annuity  and life  insurance  products  on  behalf  of the  Carriers.  Levels of
marketing  allowances  and commission  income are directly  related to the sales
volume of such products.  Administrative fees are a function not only of product
sales, but also of administration of policies inforce and producer appointments.
Total income increased  approximately $24.6 million, or 108.8%, in 1998 compared
to 1997, and increased approximately $4.3 million, or 23.8%, in 1997 compared to
1996. These increases are attributable  primarily to increases in premium placed
inforce for the Carriers, as discussed below.

     Marketing   allowances   and   commission   income,   combined,   increased
approximately  $20.9  million,  or  116.0%,  in 1998  from  1997  and  increased
approximately $3.7 million, or 25.7%, in 1997 from 1996. These increases are due
primarily  to  increases  in the volume of sales by the  Company's  distribution
network  for the  Carriers.  Premium  placed  inforce for the  Carriers  totaled
approximately  $1.7 billion,  $777.3 million,  and $626.8 million in 1998, 1997,
and 1996,  respectively.  This  represented a 112.6% increase from 1997 to 1998,
and a 24.0% increase from 1996 to 1997.  Also  contributing  to the increases in
income were shifts in both 1998 and 1997 to sales of products which yield higher
marketing allowances and commission income.

     Administrative fees increased approximately $3.1 million, or 84.9%, in 1998
compared  to 1997  and  increased  approximately  $468,000,  or  14.9%,  in 1997
compared to 1996.  These  increases are due primarily to increases in the number
of policies sold and administered  during the respective  periods and to a shift
in policies administered to those which generate higher administrative fees.

     In 1998, the Company marketed and administered insurance products for three
Carriers,  American National, IL Annuity and Transamerica.  However, the Company
did not begin marketing and  administering  products for Transamerica  until the
third  quarter of 1998. In 1998,  approximately  12.7%,  79.9%,  and 1.7% of the
Company's  total revenue  resulted from agreements  with American  National,  IL
Annuity,  and Transamerica,  respectively,  compared to approximately  36.2% and
57.0%  with  American  National  and  IL  Annuity,  respectively,  in  1997  and
approximately 87.5% and 5.9%,  respectively,  in 1996. This shift in income from
American  National to IL Annuity is attributable  primarily to favorable  market
acceptance of IL Annuity's products.

     Although  the Company  markets  and  administers  several  annuity and life
insurance products on behalf of the Carriers, the Company's revenues are derived
primarily  from sales and  administration  of annuity  products,  especially the
VisionMark  annuity offered by IL Annuity.  During 1998, 1997, and 1996,  79.9%,
57.0%,  and 5.9% of the Company's  revenue resulted from sales of the VisionMark
annuity, respectively.

     Savings  and  investment   income   represents   earnings   primarily  from
investments  in marketable  securities.  Such earnings  increased  approximately
$523,000, or 75.0%, in 1998 from 1997 due primarily to an increase in the amount
of assets invested.

     Expenses--Total  expenses increased  approximately $13.7 million, or 79.6%,
during 1998 compared to 1997 and increased approximately $3.6 million, or 25.9%,
in 1997  compared  to  1996.  These  increases  are  attributable  primarily  to
increases in compensation,  sales promotion and support,  occupancy expenses and
to a one-time settlement of litigation, as discussed below.

     As a service organization,  the Company's primary expenses are salaries and
related employee benefits.  These expenses increased approximately $6.9 million,
or 65.3%, in 1998 from 1997 and increased  approximately $2.3 million, or 27.4%,
in 1997 from 1996.  These  increases  resulted  primarily  from increases in the
average  number of full-time  equivalent  employees,  which rose to 291 in 1998,
from 184 in 1997,  and 151 in 1996.  These  increases  in the average  number of
employees are largely  attributable  to  preparation  for and  accommodation  of
increases in sales of insurance  products.  Salaries and benefits also increased
due to  increases  in bonuses  which are tied to net income,  to the addition of
personnel  at  higher  pay  levels  and to normal  pay  increases  for  existing
employees.

     Sales promotion and support expense consists  primarily of costs related to
the Company's  annual  national sales  conventions and to various sales training
activities.  Also included in sales promotion and support expense is the cost of
designing and printing sales brochures for use by producers. It is expected that
these  expenses  will  continue  to be a major  element  of the  Company's  cost
structure,  as attendance at the national  sales  convention  increases,  as the
number of producers  marketing  products for the Company  increases,  and as new
products are introduced.  This expense increased  approximately $3.0 million, or
115.2%,  in 1998 from 1997 and increased  approximately  $333,000,  or 14.9%, in
1997 from 1996,  due primarily to increased  producer  support costs  associated
with higher sales volume,  as discussed above. The increase in 1998 from 1997 is
also attributable to higher attendance at national sales conventions.

     Professional fees increased  approximately $1.9 million, or 267.5%,  during
1998  compared  to 1997 as a result of  increased  consulting  fees  related  to
various information systems products and expenses associated with the settlement
of litigation described in Note eight to Part I, Item 8, "Financial Statements."

     Depreciation and amortization expense increased  approximately $682,000, or
106.5%,  in 1998 from 1997 and increased  approximately  $171,000,  or 36.5%, in
1997 from 1996.  These  increases  are due  primarily to  acquisitions  of fixed
assets.  Such  acquisitions  were necessary to improve newly leased office space
and to accommodate increases in employment,  as discussed above. In addition, as
a result of the  Company's  plans to  purchase  the  building  which  houses its
current   office   space   in   Petaluma,    California    (see   "Business   of
Company--Property"),  increased  depreciation expense of approximately  $411,000
attributable to leasehold  improvements was recognized during the fourth quarter
of 1998 and  approximately  $300,000 was recognized  during the first quarter of
1999.

     Stationery and supplies expense increased approximately $354,000, or 88.8%,
during 1998 from 1997 and increased  approximately  $112,000, or 38.9% from 1997
to 1996.  These  increases  are  primarily  the  result of  additional  supplies
necessary to support the increased  volume of business and  increased  number of
employees, as described above.

     Travel and entertainment increased approximately $265,000, or 80.3%, during
1998 from 1997 and $90,000, or 37.7%, from 1997 to 1996. These increases are due
to increased  travel by  personnel in the  Company's  marketing  department,  to
travel related to implementation of the carrier  relationship with Transamerica,
as discussed  above, and to travel necessary for set-up and training for an east
coast service center which became operational in July, 1998.

     Equipment expense increased  approximately  $217,000, or 58.5%, during 1998
from 1997 and $77,000, or 26.3%, from 1997 to 1996. The increases are due to the
increased  volume of business  and  increased  number of  employees as described
above.

     Courier and postage expense  increased  approximately  $222,000,  or 46.3%,
during 1998 from 1997 and $107,000,  or 28.70%, from 1997 to 1996. The increases
are due to an overall  increase in the volume of business and the  establishment
of the east coast service center.

     Occupancy expense increased  approximately  $262,000, or 29.5%, during 1998
from 1997,  and increased  approximately  $244,000,  or 37.9%,  during 1997 from
1996.  These increases are due primarily to increases in facilities rent expense
resulting from the Company's leasing additional office space in November,  1996,
and to  overall  increases  in  telephone  and other  utilities  expenses  which
correspond to increases in sales volume and employment, as discussed above.

Liquidity and Capital Resources

     The Company's  ability to mobilize its assets  remained  strong at December
31, 1998 and 1997,  with cash and short-term  investment  grade debt  securities
representing  73.2%  and  66.8% of the  Company's  total  assets,  respectively.
Generally,  the Company's  principal  needs for cash are: (i) funding  operating
expenses;  (ii) the  purchase  of  computer  hardware  and  software,  leasehold
improvements,  and  acquisitions  of furniture and fixtures to  accommodate  new
employees and support the growth in operations;  (iii) funding continued product
development  and  potential  strategic  acquisitions;  and, (iv) as a reserve to
cover possible  redemptions of certain of the Company's  common stock,  which is
redeemable  at the option of  shareholders  under  various  agreements  with the
Company.   It  is  contemplated   that,   during  the  first  quarter  of  1999,
approximately  $12.0  million  will be  invested  in the  equity  securities  of
Indianapolis Life Insurance Group of Companies,  Inc. (see discussion at "Recent
Developments"   below).  In  addition,   during  the  second  quarter  of  1999,
approximately $1.0 million will be paid as a down payment toward purchase of the
building that the Company currently  occupies and approximately  $1.7 million is
expected to be paid for furniture,  fixtures and leasehold  improvements for the
leased building into which the Company intends to move.

     The Company  generally  utilizes cash from operations to fund its needs for
cash.  The Company  generated cash from  operating  activities of  approximately
$12.1  million,  $4.6 million and $4.5 million for the years ended  December 31,
1998,  1997,  and 1996,  respectively.  The  Company  used  approximately  $10.9
million, $1.3 million and $3.5 million of net cash for investment activities for
the  years  ended  December  31,  1998,  1997,  and  1996,   respectively,   and
approximately $475,000,  $348,000, and $387,000 for redemption and retirement of
common  stock  for  the  years  ended   December  31,  1998,   1997,  and  1996,
respectively.  In 1998,  1997,  and 1996,  redemption  requests  received by the
Company were not material in amount,  either  individually nor in the aggregate,
and  the  Company  believes  that  its  liquid  assets  are  sufficient  to meet
anticipated  requests for redemption.  At December 31, 1998, 1997, and 1996, the
redemption value of redeemable common stock was approximately $9.6 million, $5.9
million,  and $5.0  million,  respectively.  The  Company's  future  cash  flows
available  to fund  operations  will depend  primarily  on the level of sales of
annuity and life  insurance  products and upon the Company's  ability to control
operating  expenses  in relation to demand  placed  upon the  organization  from
increased sales.

     In May of 1998,  the Company  entered into a  Shareholder's  Agreement with
Lynda  Regan,  Chief  Executive  Officer  of the  Company  and  Chairman  of the
Company's Board of Directors, and certain other individuals.  Under the terms of
this  agreement,  in the  event of the death of Ms.  Regan,  the  Company  shall
repurchase from Ms. Regan's estate all shares of common stock that were owned by
Ms.  Regan at the time of her  death or were  transferred  by her to one or more
trusts prior to her death. The purchase price to be paid by the Company shall be
equal to 125% of the fair market value of the shares.  The Company has purchased
a life  insurance  policy with a face amount of $14.0 million for the purpose of
funding this obligation in the event of Ms. Regan's death.

     In order to fund LFS during the start-up  phase,  the Company has committed
to make  sufficient  contributions  to support LFS's  operations to ensure LFS's
compliance   with  financial   requirements   through   December,   1999.   Such
contributions totaled $475,000 in 1998, $330,000 in 1997, and $455,000 in 1996.

     Management  intends  to  continue  to retain  any  earnings  for use in its
business and does not anticipate  paying any cash  dividends in the  foreseeable
future.  As a result,  management  anticipates  that cash and  investments  will
continue to represent a high  percentage  of total assets.  Management  believes
that  existing  cash and  investment  balances,  together  with cash  flows from
operations, will provide sufficient funding for the foreseeable future.

Recent Developments

     The Company is currently in the process of  negoiating  an  Investment  and
Funding Agreement (the "Investment  Agreement") with Indianapolis Life Insurance
Group of Companies,  Inc. (the "Indianapolis Group") and other parties. Pursuant
to the  Investment  Agreement,  the Company is expected to make a $12.0  million
investment  in the equity  securities  of the  Indianapolis  Group,  which is an
affiliate  of IL Annuity.  The purpose of this  investment  is to assure that IL
Annuity  will  continue  to offer  the  original  VisionMark  annuity  until the
modified version of the product is approved in all states.

     In March,  1999, the Company entered into an agreement to purchase for $4.3
million the building which houses the office space currently leased.

Year 2000

     As the  year  2000  approaches,  a  critical  business  issue  has  emerged
regarding how existing  application  software programs and operating systems can
accommodate  this date  value.  In brief,  many  existing  application  software
products in the marketplace  were designed to only  accommodate a two digit date
position  which  represents  the year  (e.g.,  '95 is stored on the  system  and
represents the year 1995). As a result,  the year 1999 (i.e.,  '99) could be the
maximum date value these systems will be able to accurately process.  Management
has developed and is implementing a plan to ensure that the Company will be year
2000 compliant.  This plan consists of the following four stages: (i) conducting
an  inventory of all  hardware,  software and support  systems,  (ii)  assessing
whether such  hardware,  software and support  systems are year 2000  compliant,
(iii) correcting or replacing any non-compliant  hardware,  software and support
systems;  and (iv) testing to ensure that all corrections to  replacements  made
pursuant to the third phase of the plan are functioning properly.  The first two
stages of this plan have been completed and management anticipates that the last
two stages will be  completed  by April 30,  1999.  The Company is also  working
closely with the Carriers and  significant  customers and vendors to ensure that
their systems will be fully year 2000 compliant.  Based on information currently
available,   Management   does  not  anticipate  that  the  Company  will  incur
significant  operating  expenses or be  required  to invest  heavily in computer
system  improvements to be year 2000 compliant.  However,  as noted, the Company
has not completed  implementation  of its compliance plan.  Although the Company
presently believes that, with the planned  modifications to existing systems and
the replacement or retirement of other systems,  the year 2000 compliance  issue
will be  resolved  in a timely  manner and will not pose  significant  operating
problems for the Company, there can be no absolute assurance in this regard. The
Company's  business  operations,  as well as its ability to provide products and
services to its customers without undue delay or interruption,  could be at risk
in the event unanticipated year 2000 issues arise. In addition,  there can be no
absolute assurances that unanticipated expenses related to the Company's ongoing
year 2000  compliance  efforts will not be incurred.  As previously  noted,  the
Company has communicated with its key suppliers and customers to determine their
year 2000  readiness  and the extent to which the Company is  vulnerable  to any
third  party year 2000  issues.  There can be no  guarantee  that the systems of
other  companies  on which the  Company's  systems  rely will be  converted in a
timely manner or in a manner that is compatible  with the Company's  systems.  A
failure  by such a company  to convert  their  systems  in a timely  manner or a
conversion  that  renders such  systems  incompatible  with those of the Company
could  have a  material  adverse  effect  on the  Company  and  there  can be no
assurance  that the Company's  contingency  plans will  adequately  mitigate the
effects of any third party  noncompliance.  In addition,  it is  unrealistic  to
assume that the Company  could remain  unaffected if the year 2000 issue results
in a widespread  economic  downturn.  Also,  it is possible  that the  Company's
insurance carriers could assert that its existing  liability  insurance programs
do not cover liabilities arising out of any operational problems associated with
the advent of the year 2000.

Item 7-A. Quantitative and Qualitative Disclosure about Market Risk.

     Not applicable.

Item 8. Financial Statements and Supplementary Data



                        Report of Independent Accountants


To the Shareholders of
     Regan Holding Corp.

In our opinion,  the  accompanying  consolidated  balance sheets and the related
consolidated statements of income, shareholders' equity (deficit) and cash flows
present  fairly,  in all  material  respects,  the  financial  position of Regan
Holding  Corp.  and its  subsidiaries  (the  "Company") at December 31, 1998 and
1997, and results of their operations and their cash flows for each of the three
years in the period ended  December  31,  1998,  in  conformity  with  generally
accepted   accounting   principles.   These   financial   statements   are   the
responsibility of the Company's management;  our responsibility is to express an
opinion on these  financial  statements  based on our audits.  We conducted  our
audits of these  statements  in  accordance  with  generally  accepted  auditing
standard  which 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,   assessing  the
accounting  principles  used and significant  estimates made by management,  and
evaluating the overall  financial  statement  presentation.  We believe that our
audits provide a reasonable basis for the opinion expressed above.

Our audits were made for the  purpose of forming an opinion on the  consolidated
financial statements taken as a whole. The consolidating  information on page 30
and 31 is presented for purposes of additional  analysis  rather than to present
the financial  position,  results of operations and cash flows of the individual
companies.  Accordingly, we do not express an opinion on the financial position,
results of operations and cash flows of the individual  companies.  However, the
consolidating  information  on page 30 and 31 has been subjected to the auditing
procedures applied in the audits of the consolidated  financial  statements and,
in our opinion,  is fairly  stated in all  material  respects in relation to the
consolidated financial statements taken as a whole.



PricewaterhouseCoopers LLP
March 3, 1999





REGAN HOLDING CORP. AND SUBSIDIARIES
Consolidated Balance Sheets

<TABLE>
<CAPTION>


                                                        December 31, 1998       December 31, 1997
<S>                                                   <C>                      <C> 
ASSETS
     Cash and cash equivalents                          $       5,916,731       $       5,194,332
     Investments                                               16,987,628               7,692,279
     Accounts receivable                                        1,704,265               1,239,306
     Prepaid expenses                                             768,913                 572,932
     Income taxes receivable                                      884,089                      --
     Deferred income taxes-current                                359,421                 488,437
     Marketing supplies inventory                                 385,616                 228,853
                                                        -----------------       ----------------- 
       Total Current Assets                                    27,006,663              15,416,139
                                                        -----------------       ----------------- 
     Net fixed assets                                           2,982,267               2,610,324
     Deferred income taxes-non current                            904,974                 783,477
     Other assets                                                 392,109                 471,001
                                                        -----------------       ----------------- 
       Total Non-Current Assets                                 4,279,350               3,864,802
                                                        -----------------       ----------------- 
       TOTAL ASSETS                                     $      31,286,013       $      19,280,941
                                                        =================       ================= 

LIABILITIES, REDEEMABLE COMMON STOCK,
AND SHAREHOLDERS' EQUITY

LIABILITIES
     Accounts payable                                   $        418,821        $         344,071
     Accrued sales convention costs                              894,713                1,226,169
     Accrued liabilities                                       4,388,401                1,379,685
     Income taxes payable                                             --                  389,561
                                                        -----------------       ----------------- 
     Total Current Liabilities                                 5,701,935                3,339,486
                                                        -----------------       ----------------- 
     Loan payable                                                132,285                  132,285
     Incentive compensation payable                              530,523                  149,609
                                                        -----------------       ----------------- 
       Total Non-Current Liabilities                             662,808                  281,894
                                                        -----------------       ----------------- 
       TOTAL LIABILITIES                                       6,364,743                3,621,380
                                                        -----------------       ----------------- 
COMMITMENTS AND CONTINGENCIES                                         --                       --

REDEEMABLE COMMON STOCK, Series A and B                        11,225,431              11,842,651
                                                        -----------------       ----------------- 
SHAREHOLDERS' EQUITY 
     Preferred stock, no par value:
         Authorized: 100,000,000 shares
         No shares issued or  outstanding                             --                       -- 
     Series A common  stock,  no par value:
         Authorized:  45,000,000 shares
         Issued and outstanding: 20,530,224 
         and 20,614,014 shares at 
         December 31, 1998 and 1997, respectively               3,248,874               3,382,914
     Paid-in capital from retirement of common stock              888,109                 611,559
     Paid-in capital from producer stock options                   25,000                      --
     Retained earnings (accumulated deficit)                    9,587,775                (182,433)
     Accumulated other comprehensive income-net                   (53,919)                  4,870
                                                        -----------------       ----------------- 
         TOTAL SHAREHOLDERS' EQUITY                            13,695,839               3,816,910
                                                        -----------------       ----------------- 
         TOTAL LIABILITIES, REDEEMABLE COMMON
         STOCK AND SHAREHOLDERS' EQUITY                 $      31,286,013       $      19,280,941
                                                        =================       ================= 

</TABLE>

           See accompanying notes to consolidated financial statements





REGAN HOLDING CORP. AND SUBSIDIARIES
Consolidated Income Statements



<TABLE>
<CAPTION>

                                                                 For the Year Ended December 31,

                                                            1998                  1997                  1996
                                                            ----                  ----                  ----

<S>                                                  <C>                   <C>                  <C>

INCOME
     Marketing allowances                              $ 26,229,937          $ 12,386,755          $ 10,039,278
     Commission income                                   12,651,358             5,609,078             4,281,032
     Administrative fees                                  6,664,224             3,603,708             3,136,123
     Savings and investment income                        1,221,032               697,593               728,927
     Seminar income                                         263,785               220,406                    --
     Other income                                           125,860                63,535                52,168
                                                       ------------          ------------          ------------
         Total Income                                    47,156,196            22,581,075            18,237,528
                                                       ------------          ------------          ------------

EXPENSES
     Salaries and related benefits                       17,371,780            10,512,259             8,253,564
     Sales promotion and support                          5,520,798             2,565,200             2,231,978
     Occupancy                                            1,149,787               887,608               643,726
     Professional fees                                    2,617,377               712,129               652,219
     Depreciation and amortization                        1,323,052               698,556               469,255
     Courier and postage                                    702,612               480,175               373,158
     Stationery and supplies                                753,397               399,140               292,695
     Equipment                                              586,164               369,706               287,448
     Travel and entertainment                               594,224               329,611               239,400
     Insurance                                              169,524               165,028               167,154
     Miscellaneous                                          171,351               116,185                74,273
                                                       ------------          ------------          ------------
         Total Expenses                                  30,960,066            17,235,597            13,684,870
                                                       ------------          ------------          ------------
INCOME FROM OPERATIONS                                   16,196,130             5,345,478             4,552,658
PROVISION FOR INCOME TAXES                                6,425,922             2,195,024             1,838,163
                                                       ------------          ------------          ------------
NET INCOME                                             $  9,770,208          $  3,150,454          $  2,714,495
                                                       ============          ============          ============
EARNINGS PER SHARE

Weighted average shares outstanding--basic               26,543,535            26,895,594            27,540,209

Basic earnings per share                               $        .37          $        .12          $        .10
                                                       ============          ============          ============
Weighted average shares outstanding--diluted             27,187,436            26,895,594            27,540,209

Diluted earnings per share                             $        .36          $        .12          $        .10
                                                       ============          ============          ============
</TABLE>

           See accompanying notes to consolidated financial statements






REGAN HOLDING CORP. AND SUBSIDIARIES
Consolidated Statements of Shareholders' Equity (Deficit)

<TABLE>
<CAPTION>

                                                                  Paid-in
                                                    Paid-in       Capital     Retained       Accumulated
                                                 Capital from      from       Earnings          Other
                         Series A Common Stock   Retirement of   Producer   (Accumulated    Comprehensive
                         Shares       Amount     Common Stock     Options     Deficit)         Income       Total
<S>                    <C>          <C>          <C>          <C>          <C>          <C>                <C>

Balance
   January 1, 1996     21,070,791   $ 3,802,071  $        --  $        --  $(6,047,382) $   104,438       ($2,140,873)
Comprehensive Income:
   Net income for the
   twelve months
   ended December 31,
   1996                                                                      2,714,495                      2,714,495
   Net realized losses
   on investments                                                                           (93,603)          (93,603)
   Deferred taxes on net
   unrealized losses                                                                         41,906            41,906
                                                                                                            ---------
     Total comprehensive
       income                                                                                               2,662,798
                                                                                                            ---------
Redemption and
   retirement of
   common stock          (270,000)     (270,000)     310,110                                                   40,110
                         --------      --------      -------      -------    ---------      -------         ---------
Balance
   December 31, 1996   20,800,791     3,532,071      310,110           --   (3,332,887)      52,741           562,035
Comprehensive income:
   Net income for the
   twelve months
   ended December 31,
   1997                                                                      3,150,454                      3,150,454
   Net unrealized losses
   on investments                                                                           (80,010)          (80,010)
   Deferred taxes on net
   unrealized losses                                                                         32,139            32,139
     Total comprehensive                                                                                    ---------
     income                                                                                                 3,102,583
                                                                                                            ---------
Redemption and
   retirement of
   common stock          (186,777)     (149,157)     301,449                                                  152,292
                         --------      --------      -------      -------    ---------      -------         ---------
Balance
   December 31, 1997   20,614,014     3,382,914      611,559           --     (182,433)       4,870         3,816,910
Comprehensive Income:
   Net income for the
   twelve months
   ended December 31,
   1998                                                                      9,770,208                      9,770,208
   Net unrealized losses
   on investments                                                                           (98,671)          (98,671)
   Deferred taxes on net
   unrealized losses                                                                         39,882            39,882
                                                                                                            ---------
     Total comprehensive
     income                                                                                                 9,711,419
                                                                                                            ---------
Redemption and
   retirement of
   common stock           (83,790)     (134,040)     276,550                                                  142,510
Producer stock option
   expense                                                         25,000                                      25,000
                         --------      --------      -------      -------   ----------      -------         ---------
Balance
   December 31, 1998   20,530,224   $ 3,248,874  $   888,109  $    25,000  $ 9,587,775  $   (53,919)    $  13,695,839
                       ==========   ===========  ===========  ===========  ===========  ===========     =============
</TABLE>

          See accompanying notes to consolidated financial statements.





REGAN HOLDING CORP. AND SUBSIDIARIES
Consolidated Statements of Cash Flows

<TABLE>
<CAPTION>

                                                                      For the Year Ended December 31,

                                                               1998               1997                1996
<S>                                                       <C>                 <C>                  <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net Income                                               $9,770,208          $3,150,454          $2,714,495
   Adjustments to reconcile net income to cash
     provided by operating activities:
       Depreciation and amortization of fixed assets         1,252,116             632,781             465,394
       Amortization of intangible assets                        70,936              65,775               3,861
       Producer stock option expense                            25,000                  --                  --
       Amortization/accretion of investments                   (73,118)            (68,761)            (39,372)
       Net realized gain on sales of investments               (54,633)            (13,499)             (2,525)
       Realized loss on sale of fixed assets                        --              19,603                  --
       Changes in assets and liabilities
         Net change in accounts receivable                    (464,959)           (727,596)            995,418
         Net change in prepaid expenses                       (195,981)           (210,982)           (255,411)
         Net change in income taxes receivable
           and payable                                      (1,273,650)            569,307            (174,059)
         Net change in deferred tax assets                      47,401             360,375             539,413
         Net change in marketing supplies inventory           (156,763)             23,126             (73,265)
         Net change in accounts payable                         74,750             173,333              48,290
         Net change in accrued sales convention costs         (331,456)            400,613             850,956
         Net change in accrued liabilities                   3,008,716             172,854             (66,800)
         Net change in other assets and liabilities            406,676              50,959            (461,861)
         Net cash provided by operating activities          12,105,243           4,598,342           4,544,534

CASH FLOWS FROM INVESTING ACTIVITIES:
   Purchases of investments                                (15,396,140)        (20,404,456)        (19,087,646)
   Proceeds from sales and maturities of investments         6,129,871          20,667,228          16,156,162
   Purchases of fixed assets                                (1,624,059)         (1,521,320)           (519,758)
   Payments for organization costs                             (17,806)                 --                  --
         Net cash used in investing activities             (10,908,134)         (1,258,548)         (3,451,242)

CASH FLOWS FROM FINANCING ACTIVITIES:
   Redemption and retirement of common stock                  (474,710)           (348,058)           (299,639)
   Payments on note payable                                         --                  --             (87,688)
         Net cash used in financing activities                (474,710)           (348,058)           (387,327)

INCREASE IN CASH AND CASH EQUIVALENTS                          722,399           2,991,736             705,965
CASH AND CASH EQUIVALENTS,
   BEGINNING OF PERIOD                                       5,194,332           2,202,596           1,496,631
CASH AND CASH EQUIVALENTS,
   END OF PERIOD                                            $5,916,731          $5,194,332          $2,202,596

SUPPLEMENTAL CASH FLOW INFORMATION:
   Taxes Paid                                               $7,201,000          $1,265,025          $1,472,806
   Interest Paid                                            $   19,873          $   18,695          $   18,883

</TABLE>

           See accompanying notes to consolidated financial statements





                      REGAN HOLDING CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.   Organization and Summary of Significant Accounting Policies

     a.   Organization

          Regan Holding Corp. (the  "Company") was  incorporated in the State of
          California on February 21, 1990, for the primary purpose of owning and
          operating an insurance company. The Company conducted business through
          its  primary  subsidiary,  Old Colony  Life  Insurance  Company  ("Old
          Colony"),  until May 21, 1992. The Company conducted no operations and
          prepared no financial statements through August 1, 1993.

          The Company,  through its  wholly-owned  subsidiary  Legacy  Marketing
          Group ("LMG"),  has entered into marketing  agreements (the "Marketing
          Agreements")  with  American  National  Insurance  Company  ("American
          National"),  IL Annuity  and  Insurance  Company  ("IL  Annuity")  and
          Transamerica  Life  Insurance  and Annuity  Company  ("Transamerica"),
          collectively  referred to herein as the "Carriers."  American National
          is an  unaffiliated  company  with over $1.4  billion in  capital  and
          surplus and is rated "A++" by A.M. Best. IL Annuity is an unaffiliated
          company,  with over $13.0  million in capital and surplus and is rated
          "A" by A.M. Best.  Transamerica is also an unaffiliated  company, with
          over $560  million in capital  and  surplus  and is rated "A+" by A.M.
          Best. The Marketing  Agreements  grant the Company the exclusive right
          to market certain  annuity and life insurance  products  issued by the
          Carriers   (the   "Policies").   Under  the  terms  of  the  Marketing
          Agreements, the Company is responsible for the recruiting, appointing,
          and  training  of  producers  in the sale of the  Policies.  For these
          services,  the  Carriers  pay the  Company  marketing  allowances  and
          commissions based on the volume of Policies sold.

          The Company has also entered into insurance administrative  agreements
          (the "Administrative  Agreements") with the Carriers pursuant to which
          the Company provides clerical,  administrative and accounting services
          with  respect  to  the  Policies.   Such  services   include  billing,
          collecting  and  remitting  cash on the  Policies.  However,  all cash
          receipts are deposited  into accounts  maintained by the Carriers upon
          receipt by the  Company and all cash  remitted  is paid from  accounts
          maintained by the Carriers.  For providing such services,  the Company
          is  paid  on a per  transaction  basis  with  the  amount  of the  fee
          depending on the type of policy.

          Effective March 1, 1996, the Marketing and  Administrative  Agreements
          with American National were amended to reduce certain  commissions and
          administrative fees earned by the Company.  In addition,  during April
          1996,  certain  investment  strategy  features of the annuity policies
          offered by American National were eliminated.

          The Marketing and Administrative Agreements with American National and
          IL Annuity expire May 15, 1999,  and December 31, 2005,  respectively,
          but may be renewed by mutual  agreement for successive one year terms.
          The  Agreements may be terminated by either party upon 180 days notice
          without cause,  and may be terminated by either party  immediately for
          cause.   In  addition,   the  Marketing   Agreements   will  terminate
          automatically  at the end of any calendar  quarter upon failure of the
          Company to meet certain quarterly minimum production  requirements for
          two successive calendar quarters. The Company is currently negotiating
          with  American  National  to renew the  Marketing  and  Administrative
          Agreements.  Management  expects  that new  agreements  will be signed
          during the second  quarter of 1999.  The Marketing and  Administrative
          Agreements  with  Transamerica  do not  have a fixed  term  but may be
          terminated by either party upon twelve months  notice  without  cause,
          and may be terminated by either party immediately for cause.

          Through its wholly-owned  broker-dealer  subsidiary,  Legacy Financial
          Services,  Inc. ("LFS"),  the Company engages in the offering and sale
          of variable annuity and life insurance products, mutual funds and debt
          and equity securities on a fully disclosed basis. LFS has entered into
          agreements (the  "Agreements") with various entities pursuant to which
          LFS has a  non-exclusive  right to solicit  sales of these  investment
          products  offered by such entities  through its network of independent
          representatives  and to provide certain  marketing and  administrative
          services  in order to  facilitate  sales of such  products.  Under the
          Agreements,  the  Company is  compensated  based  upon  pre-determined
          percentages  of  production.  The  Agreements may be terminated by any
          party upon 30 days written notice.  Sales of products  pursuant to the
          Agreements began during the first quarter of 1996.

          Through  LifeSurance  Corporation,   a  wholly-owned  subsidiary,  the
          Company  conducts  estate planning  seminars which provide  continuing
          education  credits for producers at various  locations  throughout the
          United States.  Producers pay  attendance  fees to attend the seminars
          and may also purchase educational materials which can be used as tools
          in promoting life insurance and annuity  policies and estate  planning
          concepts.  The seminars and  educational  materials are marketed under
          the business name Wealth Transfer Educational Systems.

          In August 1997, Legacy Advisory Services, Inc. ("LAS"), a wholly-owned
          subsidiary of the Company, was incorporated in the state of California
          for the purpose of operating as an "investment advisor," as defined by
          and regulated pursuant to the Investment  Advisors Act of 1940. LAS is
          registered with the Securities and Exchange Commission (the "SEC") and
          is in the process of filing  notices  with  several  states to provide
          investment  management  services  to  clients  of  investment  advisor
          representatives of LAS. LAS has conducted no operations to date.

          In July 1998, Legacy Reinsurance Company ("LegacyRe"),  a wholly-owned
          subsidiary of the Company,  was  incorporated in the State of Arizona.
          The Company is in the process of obtaining  approval  from the Arizona
          Department  of  Insurance  for  LegacyRe to engage in the  reinsurance
          business.  Accordingly,  LegacyRe  has  conducted no business to date.
          Upon receipt of approval  from the Arizona  Department  of  Insurance,
          LegacyRe may enter into one or more reinsurance agreements to reinsure
          annuity and life products.

     b.   Basis of Presentation

          The  accompanying  consolidated  financial  statements are prepared in
          conformity with generally accepted  accounting  principles and include
          the accounts of Regan Holding Corp. and its wholly-owned subsidiaries,
          Legacy  Marketing  Group,  Legacy  Financial  Services,  Inc.,  Legacy
          Advisory Services,  Inc., Legacy Reinsurance  Company, and LifeSurance
          Corporation.  All significant  intercompany  accounts and transactions
          have been eliminated.

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

     c.   Revenue Recognition

          Marketing  allowances and  commissions  are  recognized  when policies
          become   inforce.   Administrative   fees  are  recognized  on  a  per
          transaction basis as services are performed.

     d.   Cash and Cash Equivalents

          Cash  and cash  equivalents  include  cash on hand  and in  banks  and
          short-term  investments with an original  maturity of 90 days or less.
          The carrying amount of cash and cash equivalents  approximates  market
          value.

     e.   Investments

          Investments include  mortgage-backed  securities,  corporate bonds and
          equity securities, and obligations backed by U.S. government agencies.
          The Company's investments are classified as available-for-sale and are
          carried at market value.  Market values are determined using published
          quotes as of the close of business.  Unrealized gains and losses,  net
          of the related tax effect, are excluded from earnings and are reported
          as a separate component of shareholders'  equity,  within "accumulated
          other comprehensive income," until realized.

          Premiums and  discounts are amortized or accreted over the life of the
          related  investment  as an  adjustment  to yield  using the  effective
          interest method.  Interest income is recognized when earned.  Realized
          gains and losses on sales of investments  are included in earnings and
          are derived using the specific  identification  method for determining
          the cost of investments sold.

     f.   Fixed Assets

          Fixed assets are stated at cost,  less  accumulated  depreciation  and
          amortization.  Depreciation  is computed on the  straight-line  method
          over the estimated useful life of each type of asset. The Company uses
          an estimated  useful life for computers and furniture and equipment of
          5 years.  Leasehold  improvements  are amortized  over the term of the
          lease  or the  estimated  useful  life,  whichever  is  shorter.  Upon
          retirement  or  disposition  of  fixed  assets,  any  gain  or loss is
          included in income.

     g.   Sales Promotion and Support Costs

          Sales promotion and support costs are expensed as incurred, except for
          sales brochures and other marketing  materials,  which are inventoried
          at cost.

     h.   Income Taxes

          The Company and its  subsidiaries  file  consolidated  tax returns for
          federal purposes.  For financial  reporting  purposes,  the income tax
          effects of transactions are recognized in the year in which they enter
          into the determination of recorded income, regardless of when they are
          recognized  for income tax purposes.  Accordingly,  the provisions for
          income taxes in the consolidated  statements of income include charges
          or credits for deferred income taxes relating to temporary differences
          between  the tax basis of assets and  liabilities  and their  reported
          amounts in the financial statements.

     i.   Earnings Per Share

          Basic and diluted  earnings per share are presented in accordance with
          Statement  of  Financial   Accounting   Standards  ("SFAS")  No.  128,
          "Earnings  Per  Share."  Earnings  per share is based on the  weighted
          average  number  of common  shares  outstanding,  including  shares of
          redeemable common stock.

     j.   Reclassifications

          Certain 1997, 1996 and 1995 balances have been reclassified to conform
          with the 1998 presentation.  Such  reclassifications  had no effect on
          net income or shareholders' equity (deficit).

     k.   Recent Accounting Pronouncements

          Comprehensive Income

          During   1998,   the  Company   adopted   SFAS  No.  130,   "Reporting
          Comprehensive  Income".  SFAS No. 130  establishes  standards  for the
          reporting and display of comprehensive  income and its components in a
          full set of general purpose financial statements. Comprehensive income
          is defined as the change in equity of a business  enterprise  during a
          period  from  transactions  and other  events and  circumstances  from
          non-owner  sources.  SFAS  No.  130  is  effective  for  fiscal  years
          beginning after December 15, 1997.

          Segment Reporting

          In 1998, the Company adopted No. 131, "Disclosure about Segments of an
          Enterprise   and   Related   Information."   SFAS  No.  131   requires
          publicly-held  companies  to report  financial  and other  information
          about key  revenue-producing  segments  of the  entity  for which such
          information  is  available  and is  utilized  by the chief  operations
          decision  maker.  Specific  information  to be reported for individual
          segments  includes  profit or loss,  certain revenue and expense items
          and total assets. A reconciliation of segment financial information to
          amounts reported in the financial  statements is to be provided.  SFAS
          No. 131 is effective  for fiscal years  beginning  after  December 15,
          1997.  The  adoption  of SFAS No. 131 did not affect the  consolidated
          results  of  operations  or  consolidated  financial  position  of the
          Company.

     l.   Internal Use Software Cost

          In April 1998, the American  Institute of Certified Public Accountants
          issued  Statement  of  Position  98-1,  "Accounting  for the  Costs of
          Computer  Software  Developed  or  Obtained  for  Internal  Use" ("SOP
          98-1").  SOP 98-1 provides  guidance on determining  whether  computer
          software is internal use software and on  accounting  for the proceeds
          from computer software  originally  developed or obtained for internal
          use and  then  subsequently  sold  to the  public.  It  also  provides
          guidance on capitalization of the costs incurred for computer software
          developed  or  obtained  for  internal  use.  The  Company has not yet
          determined  the impact,  if any, of adopting  SOP 98-1,  which will be
          effective for the Company's year ending December 31, 1999.


2.   Investments

     Investment portfolios at the dates indicated consisted of the following:


<TABLE>
<CAPTION>

                              Maturity in years:
                                    1 Year          1 to 5        Longer Than
                                    or Less          Years         10 Years         Other          Total
                                    -------          -----         --------         -----          -----
<S>                           <C>                <C>           <C>               <C>            <C> 
      December 31, 1998

      Government agency
        securities                 $ 2,256,704    $ 4,841,327    $ 1,788,614        $        --    $ 8,886,645
      Corporate bonds                1,001,018             --        526,307                 --      1,527,325
      Mortgage-backed securities            --             --             --          1,524,500      1,524,500
      Equity securities                     --             --             --          5,139,732      5,139,732
                                   -----------    -----------    ------------       -----------    -----------
      Amortized cost                 3,257,722      4,841,327      2,314,921          6,664,232     17,078,202
      Gross unrealized gains            14,132         20,059         27,369            139,217        200,777
      Gross unrealized losses          (22,556)            --         (3,164)          (265,631)      (291,351)
                                   -----------    -----------    -----------        -----------    -----------
        Market value               $ 3,249,298    $ 4,861,386    $ 2,339,126        $ 6,537,818    $16,987,628

      December 31, 1997

      Government agency
        securities                 $ 3,588,363    $   500,762    $         --       $        --    $ 4,089,125
      Mortgage-backed securities            --             --              --         2,336,717      2,336,717
      Equity securities                     --             --              --         1,252,750      1,252,750
                                   -----------    -----------    ------------       -----------    -----------
        Amortized cost               3,588,363        500,762              --         3,589,467      7,678,592
      Gross unrealized gains            14,042          8,103              --            31,745         53,890
      Gross unrealized losses               --             --              --           (40,203)       (40,203)
                                   -----------    -----------    ------------       -----------    -----------
        Market value               $ 3,602,405    $   508,865    $         --       $ 3,581,009    $ 7,692,279
</TABLE>


     Included in operating  results for the years ended December 31, 1998, 1997,
     and 1996 are $824,164,  $494,033, and $501,753 of interest income earned on
     investments, respectively.

3.   Fixed Assets

     A summary of fixed assets at the dates indicated follows:

                                                   Accumulated
                                                  Depreciation       Net
                                       Cost       Amortization    Book Value

     December 31, 1998
     Computers                     $ 3,406,540    $ 1,499,340    $ 1,907,200
     Leasehold improvements          1,290,647        970,030        320,617
     Furniture and equipment         1,202,577        578,659        623,918
     Land                              127,522             --        127,522
     Artwork                             3,010             --          3,010
                                   -----------    -----------    -----------
             Totals                $ 6,030,296    $ 3,048,029    $ 2,982,267
                                   ===========    ===========    ===========

     December 31, 1997
     Computers                     $ 2,088,329    $   981,955    $ 1,106,374
     Leasehold improvements          1,227,563        429,797        797,766
     Furniture and equipment           974,922        396,260        578,662
     Land                              127,522             --        127,522
                                   -----------    -----------    -----------
             Totals                $ 4,418,336    $ 1,808,012    $ 2,610,324
                                   ===========    ===========    ===========

4.   Accrued Liabilities

     Accrued liabilities at December 31 consisted of the following:

                                                  1998            1997
     Accrued compensation                     $ 2,595,760     $   976,428
     Commissions payable                          714,926         234,836
     Producer seminar expenses                         --          39,498
     Investment acquisition payable               500,000              --
     Other                                        577,715         128,923
                                              -----------     -----------
             Totals                           $ 4,388,401     $ 1,379,685


5.   Incentive Compensation Payable

     Under the Company's officer incentive bonus plan (the "Plan"), each officer
     of the Company is allocated 1.25% of annual net income in a given year (the
     "Bonus Year"), before officer incentive bonuses, as an incentive bonus (the
     "Bonus").  The payment of the Bonus occurs in equal  amounts over the three
     years  following the Bonus Year.  The first payment is  automatically  paid
     immediately following the end of the Bonus Year. The remaining two payments
     are paid in February of each of the second and third  years  following  the
     Bonus Year and are contingent upon the Company achieving targeted growth in
     net income  during the first and second  years  following  the Bonus  Year,
     respectively.  The Bonus payment is forfeited for any year during which the
     specified growth is not achieved.  At December 31, 1998 and 1997,  $488,672
     and $149,609, respectively, are reflected as incentive compensation payable
     in the accompanying  balance sheets.  Such amounts primarily  represent the
     deferred  portion of the 1998 and 1997 Bonuses.  Also included in incentive
     compensation  payable at December 31, 1998,  are bonus  amounts  payable to
     information systems personnel in the year 2000 of $41,851.

6.   Deferred Compensation Plans

     The Company  sponsors a  qualified  defined  contribution  401(k) plan (the
     "401(k) Plan"), which is available to all employees. The 401(k) Plan allows
     employees to defer,  on a pretax basis, a portion of their  compensation as
     contributions  to the plan.  Employees may elect to contribute up to 15% of
     their  annual  compensation  (not to exceed  $10,000  annually for 1998 and
     $9,500 for 1997 and 1996) to the 401(k)  Plan.  The Company  matches 50% of
     each   employee's   contributions,   up  to  a  maximum  of  6%  of  annual
     compensation.  The Company's  matching  contributions  charged to operating
     expenses were $272,658, $181,443, and $134,673 for the years ended December
     31, 1998, 1997, and 1996, respectively.

     The Company also sponsors a non-qualified deferred compensation plan, which
     is available to certain  employees  who,  because of Internal  Revenue Code
     limitations,  do not receive Company matching  contributions of up to 6% of
     annual  compensation (the  "Non-qualified  Employee Plan").  Under the Non-
     qualified Employee Plan, certain employees may defer, on a pre-tax basis, a
     percentage of annual  compensation,  including bonuses. The Company matches
     50% of each  employee's  contributions,  up to a  maximum  of 6% of  annual
     compensation, less amounts already matched under the 401(k) Plan. Deferrals
     under the  Non-qualified  Employee  Plan did not begin until first  quarter
     1999.

     The Company also sponsors a non-qualified  deferred compensation plan under
     which  producers  may  defer,  on a  pre-tax  basis,  up to 50%  of  annual
     commissions (the "Producer Deferred Plan"). Producers who earn a minimum of
     $100,000 in annual  commission  are eligible to participate in the Producer
     Deferred Plan. In addition,  the Company will match producer  contributions
     for those  producers who earn over $250,000 in annual  commissions at rates
     ranging from 1% to 5% of amounts deferred, depending on the level of annual
     commissions  earned.  Assets held by the Company in the  Producer  Deferred
     Plan are  subject  to the  general  creditors  of the  Company  and will be
     reflected as a liability in the Company's financial  statements.  Deferrals
     under the Producer Deferred Plan will not begin until the second quarter of
     1999.

7.   Commitments and Contingencies

     The Company leases its office  premises and certain office  equipment under
     operating leases. Related rent expense of $369,231,  $335,973, and $219,214
     are  included in  occupancy  costs for the years ended  December  31, 1998,
     1997,  and 1996,  respectively.  Total  rentals for and leases of equipment
     included in equipment  expenses were $255,078,  $146,874,  and $132,635 for
     the years ended December 31, 1998, 1997, and 1996, respectively.

     The Company  currently  leases  approximately  43,000 square feet of office
     space in Petaluma,  California,  at which the  Company's  headquarters  are
     located.  In March, 1999, the Company entered into an agreement to purchase
     the building which houses the office space currently leased for $4,300,000.
     Management is currently negotiating with financial institutions and expects
     to obtain  financing for  approximately  $3,225,000  of the purchase  price
     during the second quarter of 1999. The building  consists of  approximately
     53,700  total  square  feet of  useable  office  and  warehouse  space.  In
     addition, as a result of the Company's plans to purchase the building which
     houses its current office space in Petaluma,  California  (see "Business of
     Company--Property"),   increased   depreciation  expense  of  approximately
     $411,000  attributable to leasehold  improvements was recognized during the
     fourth quarter of 1998 and approximately $300,000 was recognized during the
     first quarter of 1999. On October 27, 1998, the Company  entered into a new
     lease for  approximately  72,000  square feet of office  space in Petaluma,
     California,  into which the Company intends to move its  headquarters  upon
     vacating the space it currently leases.  This lease expires in April, 2009,
     and  includes  an  option  to extend  the term for two  five-year  periods.
     Pursuant to the lease, the Company,  will pay monthly rent of $71,612, plus
     a pro-rata share of property  taxes and operating  expenses based on leased
     square footage.

     The Company's  minimum annual lease  commitments under all operating leases
     are as follows:

                       1999                               $ 1,102,459
                       2000                                 1,249,408
                       2001                                 1,175,618
                       2002                                 1,034,037
                       2003                                   993,219
                       Thereafter                           5,499,216
                                                          -----------
                       Total minimum lease payments       $11,053,957
                                                          ===========

     In May of 1998,  the Company  entered into a  Shareholder's  Agreement with
     Lynda  Regan,  Chief  Executive  Officer of the Company and Chairman of the
     Company's  Board of  Directors,  and certain other  individuals.  Under the
     terms of this  agreement,  in the  event of the  death  of Ms.  Regan,  the
     Company shall repurchase from Ms. Regan's estate all shares of Common Stock
     that were owned by Ms.  Regan at the time of her death or were  transferred
     by her to one or more trusts prior to her death.  The purchase  price to be
     paid by the Company  shall be equal to 125% of the fair market value of the
     shares.  The Company  has  purchased  a life  insurance  policy with a face
     amount of $14.0  million for the purpose of funding this  obligation in the
     event of Ms. Regan's death.

     As a  professional  services firm engaged in marketing  and servicing  life
     insurance and annuity products,  the Company  encounters  litigation in the
     normal course of business,  including the activities relating to its former
     business of operating  an  insurance  company.  In December  1996,  LMG and
     American National Insurance Company  ("American  National") were named in a
     lawsuit filed in the Circuit Court of Jefferson County,  Alabama,  alleging
     misrepresentation  and price  discrimination in connection with the sale of
     certain annuity  products issued by American  National and marketed by LMG.
     American  National  and LMG have denied the  allegations  contained  in the
     complaint as well as any  wrongdoing  with respect to the sale and issuance
     of  annuities.  However,  on June 7,  1998,  in order  to avoid  protracted
     litigation,  American National and LMG entered into a settlement  agreement
     with  the  plaintiffs  and  other  class  members.  LMG's  portion  of  the
     settlement,  net of  recovery  under its  errors  and  omissions  insurance
     policy,  was approximately  $1.1 million,  which was recorded as an expense
     during the second quarter of 1998.  Management is not aware of any material
     asserted or unasserted litigation which existed at December 31, 1998.

     As part of the  Company's  agreements  with its  insurance  producers  (the
     "Producers"), the Company may, under certain circumstances, be obligated to
     purchase the business of the Producers. At December 31, 1998, there were no
     outstanding commitments relating to the above by the Company.

9.   Redeemable Common Stock

     During  the three  years  ended  December  31,  1992,  the  Company  issued
     5,935,094  shares  of  Series  A Common  Stock  (the  "Redeemable  Series A
     Stock"), no par value, at prices ranging from $1.00 to $2.25 per share. The
     Redeemable  Series A Stock was issued in  accordance  with the terms of the
     701 Asset  Accumulator  Program (the "701 Plan")  between the Company,  its
     insurance  Producers,  and  its  employees,  and the  Confidential  Private
     Placement   Memorandum  and  Subscription   Agreement  (the   "Subscription
     Agreement") between the Company and certain accredited investors. Under the
     terms of the 701 Plan and the Subscription Agreement, the Redeemable Series
     A Stock may be  redeemed  at the option of the holder  after being held for
     two  consecutive  years,  subject  to the  Company's  ability  to make such
     purchases under applicable corporate law.

     In  connection  with a merger in 1991  between the Company and  LifeSurance
     Corporation,  a  wholly-owned  insurance  subsidiary of the Company with no
     current  ongoing  operations,  615,242 shares of Series B Common Stock (the
     "Redeemable  Series B Stock"),  no par value, were authorized and issued in
     exchange  for all of the  outstanding  stock  of  LifeSurance  Corporation.
     Pursuant to the Agreement and Plan of Merger (the "Merger Agreement"),  the
     Redeemable  Series B Stock is  subject to  redemption  at the option of the
     holder in quantities of up to 10% per year, provided that the redemption is
     in accordance with applicable corporate law. All of the Series A Redeemable
     Common   Stock  and  Series  B  Redeemable   Common  Stock  are   hereafter
     collectively referred to as the "Redeemable Common Stock."

     Redeemable  Common  Stock has been  recorded at the greater of the issuance
     value or the  redemption  value as of December  31, 1998 and 1997.  The 701
     Plan, the Subscription Agreement, and the Merger Agreement specify that the
     Redeemable  Common  Stock is to be  redeemed at a rate per share based upon
     current  fair  market  value.   These  Agreements  specify  factors  to  be
     considered  in  determining  fair market  value,  including the net present
     value of inforce insurance policy cash flows. However, since the Company no
     longer  operates an  insurance  business,  this  factor is not  applicable.
     Further,  there is no active trading  market for the Company's  stock which
     would establish market value. Accordingly, the Company's Board of Directors
     has approved a redemption value of $1.66 per share as of December 31, 1998,
     based on management's  estimate of fair market value.  The total redemption
     value for Series A and Series B Redeemable  Common Stock was $8,584,602 and
     $994,552,  respectively, at December 31, 1998, and $5,287,033 and $576,827,
     respectively,  at December 31, 1997.  Carrying  value  exceeded  redemption
     value by  $1,646,277 at December 31, 1998,  and  $5,978,791 at December 31,
     1997.  As the  shares  are  redeemed,  the  excess of  carrying  value over
     redemption value is reflected as additional paid-in capital.

     Changes to  Redeemable  Common  Stock  during the years ended  December 31,
     1998, 1997, and 1996 were as follows:

<TABLE>
<CAPTION>

                                             Series A                        Series B                       Total
                                   Redeemable Common Stock         Redeemable Common Stock          Redeemable Common Stock
                                                   Carrying                       Carrying                          Carrying
                                                  (Issuance)                     (Issuance)                        (Issuance)
                                       Shares        Amount         Shares        Amount            Shares           Amount
<S>                               <C>            <C>             <C>            <C>
     Balance
         January 1, 1996             5,935,094     10,850,686      610,688       1,832,064          6,545,782       12,682,750
     Redemptions and
         retirement of
         common stock                 (166,008)      (338,663)        (362)         (1,086)          (166,370)        (339,749)
                                     ---------     -----------     --------     ----------          ----------      -----------
     Balance
         December 31, 1996           5,769,086     10,512,023      610,326       1,830,978          6,379,412       12,343,001
     Redemptions and
         retirement of
         common stock                 (261,760)      (471,955)      (9,465)        (28,395)          (271,225)        (500,350)
                                     ---------     -----------     --------     ----------          ----------      -----------
     Balance
         December 31, 1997           5,507,326      10,040,068      600,861      1,802,583          6,108,187       11,842,651
     Redemptions and
         retirement of
         common stock                 (335,879)       (612,021)      (1,733)        (5,199)          (337,612)        (617,220)
                                     ---------     -----------     --------     ----------          ----------      -----------
     Balance
         December 31, 1998           5,171,447     $ 9,428,047      599,128     $1,797,384          5,770,575       11,225,431
                                     =========     ===========     ========     ==========          ==========      ===========
</TABLE>
 

     Shares of Redeemable Common Stock are excluded from total shares issued and
     outstanding in the accompanying balance sheets.


10.  Stock Options and Stock Awards

     At December 31, 1998, the Company has two stock-based  compensation  plans,
     which are  described  below.  Options were first  granted  under both plans
     during 1998. Under both plans, the exercise price of each option equals the
     estimated fair market value of the Company's stock on the date of grant, as
     estimated by  management  (see Note 9),  except for options  granted to 10%
     shareholders  where the exercise  price equals 110% of the  estimated  fair
     market value.

     Under the Regan Holding Corp. 1998 Stock Option Plan (the "Employee  Option
     Plan"),  the Company may grant to employees and directors  stock options to
     purchase the Company's common stock. Under the Regan Holding Corp. Producer
     Stock Option Plan (the "Producer  Option  Plan"),  the Company may grant to
     LMG producers and LFS registered  representatives stock options to purchase
     the Company's common stock.

     Effective January 1, 1998, 1,479,000 and 892,000 options were granted under
     the Employee Option Plan and the Producer Option Plan, respectively,  at an
     exercise  price of $0.73 per  share.  Effective  July 1,  1998,  34,000 and
     100,000  options  were  granted  under  the  Employee  Option  Plan and the
     Producer  Option  Plan,  respectively,  at an  exercise  price of $1.03 per
     share. The employee options granted during 1998 expire in ten years and the
     producer  options  granted  during 1998 expire in six years.  In  addition,
     during the first  quarter of 1999,  1,477,300  and  4,913,000  options were
     granted  under the  Employee  Option  Plan and the  Producer  Option  Plan,
     respectively,  at an  exercise  price  of  $1.27  per  share  and at  terms
     consistent with those described  above. A summary of option activity during
     1998 follows:


<TABLE>
<CAPTION>

                            Employee Option Plan           Producer Option Plan                  Total
                                  Weighted-average                 Weighted-average               Weighted-average
                          Shares   Exercise Price        Shares     Exercise Price      Shares     Exercise Price
<S>                       <C>         <C>             <C>         <C>                 <C>          <C>
     Outstanding at
       January 1, 1998         --       $   --              --       $    --                  --       $     --
     Granted             1,513,000      $  0.74         992,000      $  0.76           2,505,000       $   0.75
     Forfeited             (23,000)     $  0.73          (6,500)     $  0.73             (29,500)      $   0.73
                         ----------     -------         --------     -------           ----------      --------
     Outstanding at
       December 31, 1998 1,490,000      $  0.74         985,500      $  0.76           2,475,500       $   0.75
                         ==========     =======         ========     =======           ==========      ========
</TABLE>

     The  remaining  outstanding  options at  December  31, 1998 have a weighted
     average  remaining  outstanding  life of 7.8  years  and  were  granted  at
     exercise prices ranging from $0.73 to $1.03 per share.

     The  Company  accounts  for the fair value of the  Producer  Option Plan in
     accordance with SFAS No. 123  "Accounting  for  Stock-based  Compensation."
     Accordingly,  the fair value of each option  grant is estimated on the date
     of grant using the "minimum value" model  prescribed by SFAS No. 123, using
     the following  assumptions:  (i) a risk free interest rate of 5.9% for both
     plans;  and, (ii) an estimated  life of six years and ten years for options
     granted  under  the  Employee   Option  Plan  and  Producer   Option  Plan,
     respectively. Volatility and dividend yield assumptions are not applicable,
     as the  Company's  stock is not  publicly  traded nor does the  Company pay
     dividends.  $25,000  of  compensation  cost  has  been  included  in  sales
     promotion and support expense in the accompanying  financial statements for
     the year ended  December 31, 1998.  The Company  applies APB Opinion 25 and
     related  Interpretations  in  accounting  for  the  Employee  Option  Plan.
     Accordingly,  no compensation  expense has been recognized for the Employee
     Option  Plan.  Had the Company  elected to recognize  compensation  cost in
     accordance  with SFAS No. 123,  the  Company's  net income and earnings per
     share for the year ended December 31, 1998, would have been reduced for the
     Employee Option Plan to the pro forma amounts indicated below:

                                       As reported      Pro forma
                                       -----------     -----------
          Net Income                   $ 9,770,208     $ 9,727,809
          Basic earnings per share     $      0.37     $      0.37
          Diluted earnings per share   $      0.36     $      0.36

     The Employee Option Plan and the Producer  Option Plan are  administered by
     committees  which  are  appointed  by the  Company's  Board  of  Directors.
     5,500,000  and  9,500,000  shares  have been  reserved  for grant under the
     Employee Option Plan and the Producer Option Plan, respectively, subject to
     approval by shareholders at the Company's Annual Meeting to be held in May,
     1999.

     Pursuant to the Producer  Option Plan, the Company may also award shares of
     common stock to Producers. During 1998, no stock awards were made. However,
     during the first quarter of 1999,  291,264  shares of Series A common stock
     were awarded to wholesalers.

11.  Income Taxes

     Deferred tax assets and liabilities are recognized as temporary differences
     between  amounts  reported in the financial  statements  and the future tax
     consequences  attributable  to those  differences  that are  expected to be
     recovered or settled.

     The  provisions  for  federal  and state  income  taxes  consist of amounts
     currently  payable and amounts deferred which,  for the periods  indicated,
     are shown below:

<TABLE>
<CAPTION>

                                                For the Year Ended December 31,

                                         1998                 1997               1996
                                         ----                 ----               ----
<S>                                 <C>                 <C>              <C>
      Current income taxes:
           Federal                   $5,002,541           $1,262,317       $  891,442
           State                      1,375,980              572,332          407,305
                                      ---------           ----------        ---------
            Total current             6,378,521            1,834,649        1,298,747
                                      ---------           ----------        ---------
      Deferred income taxes:
           Federal                       55,818              405,951          523,365
           State                         (8,417)             (45,576)          16,051
                                      ---------           ----------        ---------  
            Total deferred               47,401              360,375          539,416
                                      ---------           ----------        ---------
      Provision for income taxes     $6,425,922           $2,195,024       $1,838,163
                                     ==========           ==========       ==========
</TABLE>


     The Company's  deferred tax assets  (liabilities) at December 31 consist of
     the following:

                                                          1998           1997

      Alternative minimum tax credit carryforward     $  373,620       $652,322
      Sales incentive trip accrual                       359,424        488,437
      Fixed asset depreciation                           130,115        (26,834)
      Deferred compensation                              213,122         59,596
      Other                                              188,114         98,393
                                                      ----------     ----------
        Total deferred tax assets                     $1,264,395     $1,271,914
                                                      ==========     ==========

     The  provisions  for income  taxes differ from the  provisions  computed by
     applying  the  statutory  federal  income tax rate  (34%) to income  before
     taxes, as follows:

     For the Year Ended December 31,

<TABLE>
<CAPTION>

                                                 1998            1997              1996
                                                 ----            ----              ----
<S>                                         <C>              <C>             <C> 
        Federal income taxes due at
          statutory rate (34%)               $ 5,566,612      $ 1,817,462     $ 1,547,904
        Increases (reductions) in
          income taxes resulting from:
            State franchise taxes, net of
              federal income tax benefit         907,981          375,892         288,628
                      Other                      (48,671)           1,670           1,631
                                             ------------     -----------     -----------
        Provision for income taxes           $ 6,425,922      $ 2,195,024     $ 1,838,163
                                             ============     ===========     ===========
</TABLE>


     As of December  31, 1998,  the Company  also has, for income tax  purposes,
     $373,620,  in  alternative  minimum tax credits which can be used to reduce
     income  taxes  in  subsequent  years  to the  extent  regular  tax  exceeds
     tentative minimum tax. The credits have no expiration date.

12.  Earnings per share

     Following is a reconciliation of the numerator and denominator of the basic
     and  diluted  earnings  per share  calculations.  No  potentially  dilutive
     securities existed prior to January 1, 1998.

<TABLE>
<CAPTION>

                                                       For the year ended December 31, 1998
                                                  ---------------------------------------------
                                                     Income           Shares          Per-share
                                                  (Numerator)      (Denominator)        Amount
                                                  -----------      -------------      ---------
<S>                                             <C>               <C>              <C> 
        Basic earnings per share
           Income available to common
           shareholders                           $  9,770,208      26,543,535       $    0.37

        Effective of dilutive securities
           Employee and producer stock options              --         643,901
                                                  ------------      ----------       ---------
        Diluted earnings per share                $  9,770,208      27,187,436       $    0.36
                                                  ============      ==========       =========
</TABLE>


     Options to purchase  134,000 shares of common stock at $1.03 per share were
     outstanding  during the second half of 1998,  and remained  outstanding  at
     December 31,  1998,  but were not  included in the  computation  of diluted
     earnings per share because the options' exercise price was greater than the
     average market price of the common shares. Of these options,  34,000 expire
     on June 30, 2008, and 100,000 expire on June 30, 2004.

13.  Segment Information

     The  Company  adopted  SFAS  No.  131  "Disclosures  about  Segments  of an
     Enterprise  and  Related  Information",  on January  1, 1998.  SFAS No. 131
     supersedes  SFAS No. 14  "Financial  Reporting  for  Segments of a Business
     Enterprise" replacing the "industry segment" approach with the "management"
     approach. The management approach designates the internal organization that
     is  used  by  management  for  making  operating  decisions  and  assessing
     performance as the source of the Company's  reportable  segments.  SFAS No.
     131 also requires disclosure about products and services,  geographic areas
     and major  customers.  The  adoption  of SFAS No.  131 did not  affect  the
     consolidated  results of operations or consolidated  financial  position as
     previously reported.

     The Company has determined that its reportable  segments are those that are
     based on the Company's method of internal reporting, which disagregates its
     business into two primary reportable segments:  Legacy Marketing Group, and
     Legacy  Financial  Services,  Inc. The  financial  results of the Company's
     operating  segments  are  presented  on an  accrual  basis.  There  are  no
     significant  differences between the accounting policies of the segments as
     compared to the Company's consolidated financial statements. In addition to
     revenues  and  expenses  recorded  directly  by each  segment,  the Company
     evaluates the  performance of its segments and allocates  resources to them
     based on estimates of salaries and other expenses attributed to each of the
     segments' operations. There are no intersegment revenues.

     The table below presents information about the Company's operating segments
     for the years ended December 31, 1998, 1997 and 1996, respectively.

<TABLE>
<CAPTION>

                           Legacy        Legacy
                          Marketing     Financial                      Reconciling
                            Group      Services,Inc.      Other           Items               Total
                            -----      -------------      -----           -----               -----
<S>                     <C>           <C>             <C>            <C>                 <C> 
     1998
       Net income (loss) $10,482,908    $(198,498)     $ 9,767,368    $(10,281,570)       $ 9,770,208
       Total assets      $30,087,878    $ 816,741      $27,110,236    $(26,728,842)       $31,286,013

     1997
       Net income (loss) $ 3,808,407    $(353,973)     $ 3,149,557    $ (3,453,537)       $ 3,150,454
       Total assets      $20,467,771    $ 473,129      $13,640,877    $(15,300,836)       $19,280,941

     1996
       Net income (loss) $ 3,530,572    $(330,740)     $ 2,712,395    $ (3,197,732)       $ 2,714,495
       Total assets      $12,411,428    $ 352,138      $14,053,636    $(11,392,300)       $15,424,902
</TABLE>



     "Other"  items above include  Regan  Holding  Corp.  (stand-alone)  and its
     remaining subsidiaries,  LifeSurance Corporation, Legacy Advisory Services,
     Inc., and Legacy  Reinsurance  Company.  Such  entities'  operations do not
     currently  factor   significantly  into  management  decision  making  and,
     accordingly,   were  not  separated   for  purposes  of  this   disclosure.
     "Reconciling Items" consist solely of eliminations of intercompany  amounts
     such as investment in, and income from, subsidiaries.

14.  Related Party Transactions

     The Company paid Ashley A. Penney, a director until August, 1997, $173,300,
     $133,113, and $140,100 for services provided as a human resource consultant
     during the years ended December 31, 1998, 1997, and 1996, respectively.

15.  Concentration of Risk

     At  December  31,  1998,  the  Company  was  contracted  with  over  15,300
     independent  insurance  Producers to sell insurance products throughout the
     country  in a  majority  of the fifty  states.  Production  in no one state
     accounted  for over 20% of  insurance  premiums to the  Carriers nor of the
     corresponding revenue of the Company during 1998.

     Prior to December,  1995,  American National was the only insurance company
     with which the Company was contracted to market  insurance  products.  This
     arrangement  generated  approximately  12.7%,  36.2%  and  87.5%  of  total
     revenues  to the  Company  during  1998,  1997 and 1996,  respectively.  In
     December   1995,   the  Company   contracted   to  provide   marketing  and
     administrative   services  for  IL  Annuity.   This  arrangement  generated
     approximately  79.9%, 57.0% and 5.9% of the Company's revenues during 1998,
     1997 and 1996, respectively. In May 1998, the Company contracted to provide
     marketing and  administrative  services for Transamerica.  These agreements
     generated approximately 1.7% of the company's revenue during 1998. However,
     neither the Marketing Agreements nor the Administrative  Agreements prevent
     the Company from entering into similar  arrangements  with other  insurance
     companies.

     Although  the Company  markets  and  administers  several  annuity and life
     insurance  products on behalf of the Carriers,  the Company's  revenues are
     derived  primarily  from  sales and  administration  of  annuity  products,
     especially the VisionMark annuity offered by IL Annuity. During 1998, 1997,
     and 1996,  79.9%,  57.0%,  and 5.9% of the Company's  revenue resulted from
     sales of the VisionMark annuity, respectively.

16.  Subsequent Events

     The Company is currently in the process of  negoiating  an  Investment  and
     Funding  Agreement (the  "Investment  Agreement")  with  Indianapolis  Life
     Insurance  Group of Companies,  Inc. (the  "Indianapolis  Group") and other
     parties.  Pursuant to the Investment Agreement,  the Company is expected to
     make  a  $12.0  million   investment  in  the  equity   securities  of  the
     Indianapolis  Group,  which is an affiliate  of IL Annuity.  The purpose of
     this  investment  is to assure that IL Annuity  will  continue to offer the
     original  VisionMark  annuity until the modified  version of the product is
     approved in all states.

     In March,  1999, the Company entered into an agreement to purchase for $4.3
     million the building which houses the office space currently leased.




REGAN HOLDING CORP. AND SUBSIDIARIES
Consolidating Balance Sheet
December 31, 1998

<TABLE>
<CAPTION>

                                              Legacy                   Legacy
                    Regan       Legacy       Financial                Advisory    Legacy      Combined                 Consolidated
                   Holding     Marketing     Services,   LifeSurance  Services, Reinsurance   December                   December
                    Corp.        Group         Inc.      Corporation    Inc.     Company      31, 1998    Eliminations   31, 1998
                    -----        -----         ----      -----------    ----     -------      -------     ------------   --------
<S>            <C>           <C>           <C>          <C>          <C>        <C>         <C>           <C>           <C>
ASSETS

Cash and
 cash
 equiva
 -lents        $    85,893   $ 4,804,009   $  547,748   $  269,081   $ 10,000   $200,000    $ 5,916,731   $             $ 5,916,731
Investments                   16,987,628                                                     16,987,628                  16,987,628
Accounts
  receivable           293     1,490,244      213,728                                         1,704,265                   1,704,265
Prepaid
 expenses          344,457       490,172       55,893           93      3,298                   893,913       (125,000)     768,913
Income taxes
 receivable
 (payable)       4,268,676    (3,371,348)     (13,584)         (12)       357                   884,089                     884,089
Intercompany
 receivable
 (payable)      (7,919,392)    8,185,298       (6,973)    (233,056)   (15,888)    (9,989)            --                          --
Deferred
 income 
 taxes
 --current                       359,421                                                        359,421                     359,421
Marketing
 supplies
 inventory                       351,115       12,207       22,294                              385,616                     385,616
               -----------   -----------   ----------   ----------   --------   --------    -----------   ------------  -----------
 Total
  Current
   Assets       (3,220,073)   29,296,539      809,019       58,400     (2,233)   190,011     27,131,663       (125,000)  27,006,663
               -----------   -----------   ----------   ----------   --------   --------    -----------   ------------  -----------
Net fixed
 assets          2,648,191       334,076                                                      2,982,267                   2,982,267
Investment
 in
 subsid
 -iaries        26,603,842                                                                   26,603,842    (26,603,842)          --
Deferred
 income
 taxes--
 non-
 current           637,883       267,091                                                        904,974                     904,974
Other
 assets                          190,172        7,722      184,226                 9,989        392,109                     392,109
               -----------   -----------   ----------   ----------   --------   --------    -----------   ------------  -----------
  TOTAL
  ASSETS       $26,669,843   $30,087,878   $  816,741   $  242,626   $ (2,233)  $200,000    $58,014,855   $(26,728,842) $31,286,013
               ===========   ===========   ==========   ==========   ========   ========    ===========   ============  ===========
LIABILITIES

Accounts
 payable       $    13,579   $   345,259   $   28,766   $   31,217   $          $           $   418,821   $             $   418,821
Accrued
 sales
 convention
 costs                           894,713                                                        894,713                     894,713
Accrued
 liabilities       306,458     3,914,794      262,044       30,105                            4,513,401       (125,000)   4,388,401
               -----------   -----------   ----------   ----------   --------   --------    -----------   ------------  -----------
 Total
  Current
  Liabilities      320,037     5,154,766      290,810       61,322         --         --      5,826,935       (125,000)   5,701,935
               -----------   -----------   ----------   ----------   --------   --------    -----------   ------------  -----------
Loan payable                     132,285                                                        132,285                     132,285
Incentive
 compensation
 payable                         530,523                                                        530,523                     530,523
               -----------   -----------   ----------   ----------   --------   --------    -----------   ------------  -----------
 Total Non
  -Current
  Liabilities           --       662,808           --           --         --         --        662,808             --      662,808
               -----------   -----------   ----------   ----------   --------   --------    -----------   ------------  -----------
 TOTAL
 LIABILITIES       320,037     5,817,574      290,810       61,322         --         --      6,489,743       (125,000)   6,364,743
               -----------   -----------   ----------   ----------   --------   --------    -----------   ------------  -----------
COMMITMENTS
AND
CONTINGENCIES
REDEEMABLE
COMMON
STOCK           11,225,431            --           --           --         --         --     11,225,431             --   11,225,431
               -----------   -----------   ----------   ----------   --------   --------    -----------   ------------  -----------
SHAREHOLDERS'
EQUITY

Common stock     3,248,874       100,000       50,000                            100,000      3,498,874       (250,000)   3,248,874
Paid-in
 capital
 from
 retirement
 of common
 stock             888,109       510,753    1,425,000    7,765,544               100,000     10,689,406     (9,801,297)     888,109
Paid-in
 capital
 from producer 
 stock options      25,000                                                                       25,000                      25,000
Retained
 earnings
 (accumulated
  deficit)      10,962,392    23,713,470     (949,069)  (7,584,240)    (2,233)               26,140,320    (16,552,545)   9,587,775
Accumulated
 other
 comprehensive
 income - net                    (53,919)                                                       (53,919)                    (53,919)
               -----------   -----------   ----------   ----------   --------   --------    -----------   ------------  -----------
 TOTAL
 SHAREHOLDERS'
 EQUITY         15,124,375    24,270,304      525,931      181,304     (2,233)   200,000     40,299,681    (26,603,842)  13,695,839
               -----------    ----------   ----------   ----------   --------   --------    -----------   ------------  -----------
 TOTAL
 LIABILITIES,
 REDEEMABLE
 STOCK &
 SHAREHOLDERS'
 EQUITY        $26,669,843   $30,087,878   $  816,741   $  242,626   $ (2,233)  $200,000    $58,014,855   $(26,728,842) $31,286,013
               ===========   ===========   ==========   ==========   ========   ========    ===========   ============  ===========

</TABLE>



REGAN HOLDING CORP. AND SUBSIDIARIES
Consolidating Income Statement
For the Year Ended December 31, 1998

<TABLE>
<CAPTION>
                                                     Legacy                      Legacy
                        Regan         Legacy        Financial                   Advisory      Combined                  Consolidated
                       Holding      Marketing       Services,    LifeSurance    Services,   December 31,                December 31,
                        Corp.         Group           Inc.       Corporation      Inc.          1998      Eliminations      1998
                        -----         -----           ----       -----------      ----          ----      ------------      ----
<S>                  <C>           <C>             <C>          <C>            <C>       <C>            <C>             <C>
INCOME
 Marketing
  allowances         $              $26,088,362    $ 141,575       $            $         $26,229,937    $               $26,229,937
 Commission
  income                             12,015,010      636,348                               12,651,358                     12,651,358
 Administrative
  fees                                6,664,224                                             6,664,224                      6,664,224
 Savings and
   investment
   income                   (720)     1,221,752                                             1,221,032                      1,221,032
 Intercompany
   management
   fee income          1,610,814        178,100                                             1,788,914      (1,788,914)            --
 Seminar income                         263,785                                               263,785                        263,785
 Other income                            80,834       45,026                                  125,860                        125,860
                     -----------    -----------    ---------       -------      -------   -----------      ----------     ----------
   Total Income        1,610,094     46,512,067      822,949            --           --    48,945,110      (1,788,914)    47,156,196
                     -----------    -----------    ---------       -------      -------   -----------      ----------     ----------

EXPENSES
 Salaries and
   related
   benefits               27,442     16,680,399      663,939                               17,371,780                     17,371,780
 Sales promotion
   and support            62,566      5,401,569       56,663                                5,520,798                      5,520,798
 Occupancy               506,317        638,979        4,491                                1,149,787                      1,149,787
 Professional
   fees                  325,542      2,247,895       42,265           135         1,540    2,617,377                      2,617,377
 Depreciation
   and
   amortization        1,218,520        100,671        3,861                                1,323,052                      1,323,052
 Courier and
   postage                 7,716        656,546       38,350                                  702,612                        702,612
 Stationery and
   supplies                1,045        749,465        2,887                                  753,397                        753,397
 Equipment               242,448        328,180       15,536                                  586,164                        586,164
 Travel and
   entertainment             596        568,382       25,246                                  594,224                        594,224
 Insurance                43,225        122,474        3,825                                  169,524                        169,524
 Miscellaneous            12,218        154,460        4,423                        250       171,351                        171,351
 Intercompany
   management
   fees                               1,500,000      288,914                                1,788,914      (1,788,914)            --
                     -----------    -----------    ---------       -------    ---------   -----------      ----------     ----------
   Total Expenses      2,447,635     29,149,020    1,150,400           135        1,790    32,748,980      (1,788,914)    30,960,066
                     -----------    -----------    ---------       -------    ---------   -----------      ----------     ----------

INCOME BEFORE
 INCOME FROM
 SUBSIDIARIES           (837,541)    17,363,047     (327,451)         (135)      (1,790)   16,196,130                     16,196,130
INCOME FROM
 SUBSIDIARIES         10,281,570                                                           10,281,570     (10,281,570)            --
                     -----------    -----------    ---------       -------      -------   -----------      ----------     ----------
INCOME FROM
 OPERATIONS            9,444,029     17,363,047     (327,451)         (135)      (1,790)   26,477,700     (10,281,570)    16,196,130
PROVISION FOR
 INCOME TAXES           (326,181)     6,880,139     (128,953)          474          443     6,425,922                      6,425,922
                     -----------    -----------    ---------       -------      -------   -----------      ----------     ----------

NET INCOME           $ 9,770,210    $10,482,908    $(198,498)      $  (609)     $(2,233)  $20,051,778    $(10,281,570)   $ 9,770,208
                     ===========    ===========    =========       =======      =======   ===========    ============    ===========
</TABLE>





Item 9.  Changes  In  and  Disagreements  With  Accountants  on  Accounting  and
         Financial Disclosure

     None.





                                    PART III

     The  Company's  definitive  Proxy  Statement  for  the  Annual  Meeting  of
Shareholders to be held May 21, 1999, is hereby incorporated by reference.



                                     PART IV

Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K

          (a)  Index to Exhibits and Financial Statement Schedules:

               1.   The following financial statements are included in Item 8:

                    (i)   Independent Accountants Report.

                    (ii)  Consolidated  Balance Sheets  as of  December 31, 1998
                          and 1997.

                    (iii) Consolidated  Income  Statements for the  years  ended
                          December 31, 1998, 1997 and 1996.

                    (iv)  Consolidated   Statements  of   Shareholders'   Equity
                          (Deficit) for the years ended  December 31, 1998, 1997
                          and 1996.

                    (v)   Consolidated Statements  of Cash  Flows  for the years
                          ended December 31, 1998, 1997 and 1996.

                    (vi)  Notes to Consolidated Financial Statements.

                    (vii) Supplemental consolidating data.

               2.   Financial   statement  schedules  are  omitted  because  the
                    information  is not  required  or has been  included  in the
                    financial statements and related notes.

               3.   The  following  exhibits  are  included  in response to Item
                    14(c):

               3(a) Restated Articles of Incorporation.1

               3(b) Amended and Restated Bylaws of the Company.1

               4    Certificate  of  Determination  of  Preferences  of Series C
                    Common Stock of Regan  Holding  Corp.2 10(a)  Administrative
                    Services  Agreement  effective  January 1, 1991, as amended,
                    between Allianz Life Insurance  Company of North America and
                    the Company.2

               10(b)Marketing  Agreement  effective  June 1, 1993,  as  amended,
                    between  American   National   Insurance   Company  and  the
                    Company.2 10(c)  Insurance  Processing  Agreement  effective
                    June  1,  1993,  as  amended,   between  American   National
                    Insurance  Company and the Company.2  10(d) Form of Producer
                    Agreement.2  10(e) Lease Agreement dated September 26, 1996,
                    for 1179 North McDowell Blvd., Petaluma,  California 94954.1
                    10(f)  Settlement  Agreement dated June 18, 1993,  among the
                    State of Georgia as receiver for and on behalf of Old Colony
                    Life  Insurance  Company,  other  related  parties  and  the
                    Company.2  10(g)  401(K)  Profit  Sharing Plan & Trust dated
                    July 1, 1994.2

               10(h)Marketing  Agreement  effective  January 1, 1996  between IL
                    Annuity and Insurance Company and the Company.3

               10(i)Insurance  Processing  Agreement  effective  January 1, 1996
                    between IL Annuity and Insurance Company and the Company.3

--------

1    Incorporated herein by reference from the Company's quarterly Form 10-Q for
     the three months ended September 30, 1996.

2    Incorporated herein by reference from the Company's quarterly Form 10-K for
     the year ended December 31, 1994.

3    Incorporated  herein by reference form the Company's  annual report on Form
     10-K for the year ended December 31, 1995.



               10(j)Marketing   Agreement  effective  January  1,  1996  between
                    Indianapolis Life Insurance Company and the Company.3

               10(k)Insurance  Processing  Agreement  effective  January 1, 1996
                    between   Indianapolis   Life  Insurance   Company  and  the
                    Company.3

               10(l)Amendment   Three  to  Marketing   Agreement  with  American
                    National Insurance Company.4

               10(m)Amendment   Four  to  Marketing   Agreement   with  American
                    National Insurance Company.5

               10(n)Amendment   Five  to  Marketing   Agreement   with  American
                    National Insurance Company.

               10(o)Amendment Six to Marketing  Agreement with American National
                    Insurance Company.

               10(p)Amendment   Two  to  Processing   Agreement   with  American
                    National Insurance Company.4

               10(q)Amendment  Three  to  Processing   Agreement  with  American
                    National Insurance Company.5

               10(r)Amendment   Four  to  Processing   Agreement  with  American
                    National Insurance Company.

               10(s)Amendment   Five  to  Processing   Agreement  with  American
                    National Insurance Company.

               21   Subsidiaries of the Company.3

               27   Financial Data Schedule

          (b)  Reports on Form 8-K filed during the quarter  ended  December 31,
               1998.

               No  reports  on Form 8-K were  filed  during  the  quarter  ended
               December 31, 1998.


--------

4    Incorporated herein by reference from the Company's quarterly Form 10-Q for
     the three months ended June 30, 1998.

5    Incorporated herein by reference from the Company's quarterly Form 10-Q for
     the three months ended September 30, 1998.




                                   SIGNATURES

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

    REGAN HOLDING CORP.



    By:    /s/ R. Preston Pitts                            Date:  March 31, 1999
           --------------------------------------
           R. Preston Pitts, President and Chief Operating Officer



    By:    /s/ David A. Skup                               Date:  March 31, 1999
           --------------------------------------
           David A. Skup, Chief Financial Officer


     Pursuant to the  requirements of the securities  Exchange act of 1934, this
report  has  been  signed  below  by the  following  persons  on  behalf  of the
registrant and in the capacities and on the dates indicated.



    By:      /s/ Lynda L. Regan                            Date:  March 31, 1999
             ------------------------------------
             Lynda L. Regan, Chairman



    By:      /s/ Steven C. Anderson                        Date:  March 31, 1999
             ------------------------------------
             Steven C. Anderson, Director



    By:      /s/ R. Preston Pitts                          Date:  March 31, 1999
             ------------------------------------
             R. Preston Pitts, Director



    By:      /s/ Ute Scott-Smith                           Date:  March 31, 1999
             ------------------------------------
             Ute Scott-Smith, Director




                                INDEX TO EXHIBITS


     Item No.      Description                                        Page


     27            Financial Data Schedule                             37