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, 1997, 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.
                (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 issuer:  (1) filed all reports  required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the past 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 the 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.  Aggregate market value shall be computed by reference to the
price at which the stock was sold,  or the average bid and asked  prices of such
stock, as of a specified date within the past 60 days.

                                   $11,752,931

     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 past 60 days.

                          Index to Exhibits on Page 28


                APPLICABLE 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             No


                    APPLICABLE ONLY TO CORPORATE REGISTRANTS

     The number of shares  outstanding  of each of the  registrant's  classes of
common stock as of March 15, 1998, including redeemable common stock, was:

          Common Stock-Series A                          26,081,540
          Common Stock-Series B                             600,618


                       DOCUMENTS INCORPORATED BY REFERENCE

     The  issuer's   definitive  Proxy  Statement  for  the  Annual  Meeting  of
Shareholders to be held May 27, 1998, 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  that  involve  risks  and
uncertainties that could cause actual results to differ materially.

     Regan Holding Corp.  (the "Company") is a California  corporation,  engaged
primarily in the  marketing  and  administration  of life  insurance and annuity
products on behalf of unaffiliated insurance carriers.

     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") and IL Annuity and
Insurance  Company  ("IL  Annuity"),  collectively  referred  to  herein  as the
"Carriers."  American National is an unaffiliated company with over $1.5 billion
in capital and surplus  and is rated "A++" by A.M.  Best.  IL Annuity is also an
unaffiliated  company, with over $13 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,  training, managing and supervising 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  Processing  Agreements  (the
"Processing  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  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.

     The Marketing and Processing  Agreements  with American  National expire on
June 1, 1998,  and with IL Annuity on December 31,  2005,  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 Processing  Agreements.  Management  expects
that new agreements will be signed during the second quarter of 1998.

     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
Policies  marketed by the  Company  during  1997  consisted  of annuity and life
insurance  products which have been designed by the Company and which  generally
have  the  following   features:   (i)  a   contractually   guaranteed   maximum
administrative  fee; (ii) multiple cash value  strategies;  (iii) a guarantee to
credit  the full and  complete  net  earnings  of  outside  indices;  and (iv) a
guarantee  that  the  cost of  insurance  will be no  greater  than  the  yearly
renewable term rates provided by the reinsurers of the Policies, with changes in
the cost of  insurance  resulting  solely from changes in the  Policies'  future
experience factors.

     During  1997,  American  National  and IL Annuity  were the only  insurance
companies for which the Company marketed 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.

     Neither the Marketing Agreements nor the Processing  Agreements prevent the
Company from entering into similar  arrangements with other insurance companies.
However,  under the terms of the Marketing Agreements,  the Company is obligated
to give the Carriers the  opportunity to participate in the marketing of any new
products developed by the Company.

     The Company currently markets the Policies through a network  consisting of
over 12,000  independent  insurance  producers  that have entered into  producer
agreements with LMG (the  "Producers"),  pursuant to which,  the services of the
Producers  are  provided  on  a  non-exclusive  basis.  The  agreements  may  be
terminated immediately by either the Producer or the Company.

     LMG's sales  network is built on a  multi-level  structure,  with  Producer
compensation  based on sales volume. The  pay-for-performance  Producer contract
contains a nine-level "open book" design, which provides financial motivation to
retail Producers to build an organization of Producers constituting a hierarchy,
thereby  contributing  to their own  financial  growth  and to the growth of the
Company.  Except for the first level,  each Producer level has commission and/or
agency building requirements that must be met before the Producer may advance to
the next level.  Advancements to higher levels can occur as often as every three
months. Producers at the highest levels are considered Wholesalers.

     LMG provides tools and services that assist  Wholesalers  with  recruiting,
training and support  responsibilities  associated  with the  Producers in their
hierarchy. In addition, LMG 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. LMG also produces product  information,  sales
brochures, pre-approved advertisements and recruiting material.

     Through  its  wholly-owned   broker-dealer  subsidiary,   Legacy  Financial
Services,  Inc.  ("LFS"),  which is registered with the National  Association of
Securities Dealers (the "NASD"), the Company engages in the offering and sale of
variable annuity and life insurance  products,  mutual funds and debt and equity
securities  (collectively,  the "Products") on a fully disclosed  basis. LFS has
entered into agreements (the  "Agreements")  with various  entities  licensed to
sell the Products.  The Agreements grant LFS the non-exclusive  right to solicit
sales of the Products through its network of independent  representatives and to
provide  certain  marketing and  administrative  services in order to facilitate
sales of the 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 the Products pursuant to the
Agreements began during the first quarter of 1996.

     There were approximately 215 full-time  equivalent employees of the Company
as of March 15, 1998.

Competitive Business Conditions

     The life insurance and annuity business is highly competitive.  The Company
faces  competition from various  companies and  organizations,  including banks,
which  have  substantially  greater  assets,   financial  resources  and  market
acceptance.  The Company's  distribution system relies on independent  insurance
Producers  to  be  able  to  effectively  market  its  products   competitively.
Maintaining  relationships  with Producers  requires getting new products to the
market in an  efficient  and  timely  manner,  offering  competitive  commission
schedules, and providing superior marketing training and support.

Regulatory Environment

     LMG is licensed as a  third party administrator and/or  an insurance agency
in several  of the United States  and, accordingly, is subject  to regulation by
the various states' Departments of Insurance.

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

     As a registered broker-dealer, LFS is subject to regulation by the NASD and
the Securities and Exchange  Commission  (the "SEC"),  primarily with respect to
registration  and  supervision of its  representatives,  payment of commissions,
recordkeeping and financial condition.  LFS is also registered in several of the
United  States as a fully  disclosed  broker-dealer  and, as such, is subject to
regulation by the various states' Departments of Securities.

Item 2.  Properties

     The Company  currently  leases  approximately  43,300 square feet of office
space in Petaluma,  California.  The current lease expires in October, 2006, and
includes a commitment by the Company to lease an  additional  10,460 square feet
beginning  August 1, 1998.  Management  believes  that  existing  office  space,
combined  with the  additional  space to be leased in 1998,  is adequate for the
Company's current operations.

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 resulting from such litigation, except as follows:

     In  December,   1996,  LMG  and  American   National   (collectively,   the
"Co-defendants") 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.  The  plaintiffs,  policyholders  Buddie  Watson King and
Feyrene Zink, sought and received  conditional class action  certification prior
to service of the complaint upon the Co-defendants.  In February, 1997, the case
was removed to the U. S. Federal District Court in Birmingham,  Alabama, and the
conditional  class  action  certification  was vacated by the  federal  district
court. Thereafter, the federal court remanded the case back to the Circuit Court
of Jefferson County,  Alabama,  where the case is currently pending. The outcome
of the lawsuit cannot be determined.  However, the Company's management believes
that the suit is without merit and intends to defend vigorously. Accordingly, no
amounts have been recorded in the financial  statements for any losses which may
result from the lawsuit.

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 1997.


                                     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 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 Legacy  Marketing Group and Legacy  Financial  Services,  Inc., the Company's
wholly-owned  subsidiaries,  to pay dividends or make other distributions to its
parent company.  As of December 31, 1997, the Company had an accumulated deficit
and does not anticipate paying dividends on any of its outstanding  common stock
in the foreseeable future.

Item 6.  Selected Consolidated Financial Data

<TABLE>
<CAPTION>
                                                                                                         Five
                                          Year Ended     Year Ended     Year Ended     Year Ended    Months Ended
                                         December 31,   December 31,   December 31,   December 31,   December 31,
                                             1997           1996           1995           1994         1993 (2)
                                         ------------   ------------   ------------   ------------   ------------
<S>                                      <C>            <C>            <C>            <C>            <C>         
Selected Income Statement Data:

   Total Income                          $ 22,581,075   $ 18,237,528   $ 17,153,947   $  7,683,791   $  1,627,210
   Net Income Before
     Extraordinary Item                     3,150,454      2,714,495      4,858,620      5,085,866        473,187
   Basic and Diluted
     Earnings Per Share                  $        .12   $        .10   $        .18   $        .21   $        .02

Selected Balance Sheet Data:

   Total Assets                          $ 19,280,941   $ 15,424,902   $ 12,304,801   $  6,860,778   $  2,128,057
   Total Non Current Liabilities              281,894        316,741        304,557        130,146      1,136,321
   Total Liabilities                        3,621,380      2,519,866      1,762,924      1,287,425      2,199,685
   Redeemable Common Stock                 11,842,651     12,343,001     12,682,750     12,696,412     12,696,412
   Shareholders' Equity (Deficit)           3,816,910        562,035     (2,140,873)    (7,123,059)   (12,768,040)
   Cash Dividends Declared                         --             --             --             --             --

Selected Operating Data:

   Total Premium Placed Inforce (1)      $777,300,000   $626,800,000   $620,000,000   $339,000,000   $ 30,000,000
   Total No. of Policies
     Placed Inforce (1)                        15,060         11,144         12,167          6,118            313

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

(2)  Operating  statements  are for the five months ended December 31, 1993. See
     discussion at "Item 8. Financial  Statements and Supplementary Data," Notes
     to the Consolidated Financial Statements, Note 1(a).
</TABLE>

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  $436,000,  or
16.1%,  in 1997  compared to 1996.  This increase is  attributable  primarily to
increases in income,  resulting from increases in premium placed inforce for the
Carriers.  From 1995 to 1996, however,  net income decreased  approximately $2.1
million,  or 44.1%,  due  primarily  to  increases  in expenses  to  accommodate
increases in sales, 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 is directly related to the volume of
sales of such products.  Administrative  fees are a function not only of product
sales, but also  administration  of policies inforce and producer  appointments.
Total income increased approximately $4.3 million, or 23.8%, in 1997 compared to
1996,  and increased  approximately  $1.1 million,  or 6.3%, in 1996 compared to
1995. These increases are  attributable  primarily to increases in sales volume,
as discussed below.

     Marketing   allowances   and   commission   income,   combined,   increased
approximately  $3.7  million,  or,  25.7%,  in  1997  from  1996  and  increased
approximately  $633,000, or 4.6%, during 1996 from 1995. 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  $777.3 million,  $626.8 million,  and $620.0 million during 1997,
1996,  and 1995,  respectively.  This  represented a 24.0% increase from 1996 to
1997 and a 1.2% increase from 1995 to 1996.  Also  contributing to the increases
in income  were  shifts in both 1997 and 1996 to sales of  products  which yield
higher marketing allowances and commission income.

     Administrative fees increased approximately $468,000, or 14.9%, during 1997
compared to 1996, and increased  approximately  $104,000,  or 3.4%,  during 1996
compared to 1995.  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.

     During 1997, the Company marketed and administered  insurance  products for
only two Carriers,  American National and IL Annuity. During 1997, approximately
36.2% and 57.0% of the Company's  total revenue  resulted from  agreements  with
American National and IL Annuity, respectively,  compared to approximately 87.5%
and 5.9%, respectively, during 1996. This shift in income from American National
to IL Annuity is  attributable  primarily to favorable  market  acceptance of IL
Annuity's products.

     Savings  and  investment   income   primarily   represents   earnings  from
investments  in marketable  securities.  Such earnings  decreased  approximately
$31,000, or 4.3%, in 1997 from 1996, and increased  approximately  $376,000,  or
106.3%,  in 1996 from 1995.  These  fluctuations  are  attributed  primarily  to
changes in the amount of assets invested.

     Seminar  income  consists  of  attendance  fees and  sales  of  educational
materials related to educational  seminars held by the Company. The seminars are
designed to stimulate sales of life insurance  products  through the training of
Producers in current estate  planning  concepts and were first  sponsored by the
Company during 1997.

     Expenses--Total  expenses increased  approximately $3.6 million,  or 25.9%,
during 1997 compared to 1996 and increased approximately $3.3 million, or 31.7%,
during 1996  compared to 1995.  These  increases are  attributable  primarily to
increases in compensation,  sales promotion and support,  and occupancy expenses
as discussed below.

     As a service organization,  the Company's primary expenses are salaries and
related employee benefits.  These expenses increased approximately $2.3 million,
or 27.4%, in 1997 from 1996, and increased approximately $2.0 million, or 31.3%,
in 1996 from 1995. These increases resulted from increases in the average number
of  full-time  equivalent  employees,  which rose to 184 during  1997,  from 151
during 1996 and 108 during  1995.  These  increases  in  employment  are largely
attributable  to  preparation  for and  accommodation  of  increases in sales of
insurance  products.  Salaries and benefits also increased  during 1997 and 1996
due to the addition of  personnel at higher pay levels and due to scheduled  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  conventions  increases,  as the
number of Producers  marketing  products for the Company  increases,  and as new
products are  introduced.  This expense  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,  and  increased
approximately  $869,000,  or 63.8%,  in 1996 from 1995,  due primarily to higher
costs associated with the Company's 1996 annual sales convention.

     Occupancy expense increased  approximately  $244,000, or 37.9%, during 1997
from 1996, and increased approximately $88,000, or 15.8%, during 1996 from 1995.
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 with increases in sales volume and employment, as discussed above.

     Depreciation and amortization expense increased  approximately $171,000, or
36.5%, in 1997 from 1996 and increased  approximately $99,000, or 26.6%, in 1996
from 1995.  These  increases are due primarily to  acquisitions  of fixed assets
during 1997 and 1996. Such  acquisitions  were necessary to improve newly leased
office space and to accommodate increases in employment, as discussed above.

Liquidity and Capital Resources

     The Company's  business is not capital  intensive.  Its major  expenditures
consist  primarily  of the funding of  operating  expenses  and the  purchase of
computer upgrades and furniture acquisitions to accommodate new employees, which
is generally  provided by cash from operations.  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.

     The Company's  ability to mobilize its assets  remained  strong at December
31, 1997,  with cash and investments  representing  66.8% of the Company's total
assets.  The Company  maintains a significant  portion of its assets in cash and
investments primarily to support growth in operations, to fund continued product
development  and  potential  strategic  acquisitions,  and 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.  During  1997,  redemption  requests  received by the Company  were not
material in amount,  either  individually  or in the aggregate,  and the Company
believes that its liquid assets are sufficient to meet anticipated  requests for
redemption.  In the unlikely event that all redeemable shares were presented for
redemption,  the Company  believes that such demands could be met by reserves on
hand. At December 31, 1997, the redemption value of redeemable  common stock was
approximately $5.9 million (see "Item 8. Financial  Statements and Supplementary
Data," Notes to Consolidated Financial Statements, Note 9).

     In  conjunction  with the leasing of  additional  office space during 1998,
management  anticipates that capital expenditures of approximately $420,000 will
be made during 1998 for leasehold improvements and furniture and fixtures.

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

     The  Company  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,  the Company  anticipates  that cash and investments  will
continue to represent a high  percentage of total assets.  The Company  believes
that  existing  cash and  investment  balances,  together  with cash  flows from
operations, will provide sufficient funding for the foreseeable future.

Item 8.  Financial Statements and Supplementary Data

                        Report of Independent Accountants

To the Board of Directors
   Regan Holding Corp.

We have audited the  accompanying  consolidated  balance sheets of Regan Holding
Corp.  and  Subsidiaries  as of  December  31,1997  and  1996,  and the  related
consolidated  statements of income,  shareholders'  equity  (deficit),  and cash
flows for each of the three years in the period ended  December 31, 1997.  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  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the accounting  principles used and the significant  estimates made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material  respects,  the  consolidated  financial  position of Regan Holding
Corp.  and  Subsidiaries  as of December  31, 1997 and 1996,  and the results of
their  operations and their cash flows for each of the three years in the period
ended  December 31, 1997,  in  conformity  with  generally  accepted  accounting
principles.


/s/ Coopers & Lybrand L.L.P.

San Francisco, California
March 18, 1998


REGAN HOLDING CORP. AND SUBSIDIARIES
Consolidated Balance Sheets

                                          December 31, 1997    December 31, 1996
                                          -----------------    -----------------
ASSETS
     Cash and cash equivalents              $    5,194,332       $    2,202,596
     Investments                                 7,692,279            7,947,207
     Accounts receivable                         1,239,306              511,710
     Prepaid expenses                              572,932              361,950
     Deferred income taxes-current                 488,437                   --
     Marketing supplies inventory                  228,853              251,979
     Income taxes receivable                            --              179,746
                                            --------------       --------------
         Total Current Assets                   15,416,139           11,455,188
                                            --------------       --------------

     Net fixed assets                            2,610,324            1,741,388
     Deferred income taxes-non current             783,477            1,600,150
     Other assets                                  471,001              628,176
                                            --------------       --------------
         Total Non Current Assets                3,864,802            3,969,714
                                            --------------       --------------
         TOTAL ASSETS                       $   19,280,941       $   15,424,902
                                            ==============       ==============

LIABILITIES, REDEEMABLE COMMON STOCK,
AND SHAREHOLDERS' EQUITY

LIABILITIES
     Accounts payable                       $      344,071       $      170,738
     Accrued liabilities                         2,605,854            2,032,387
     Income taxes payable                          389,561                   --
                                            --------------       --------------
         Total Current Liabilities               3,339,486            2,203,125
                                            --------------       --------------

     Loan payable                                  132,285              132,285
     Deferred incentive compensation               149,609              184,456
                                            --------------       --------------
         Total Non Current Liabilities             281,894              316,741
                                            --------------       --------------
         TOTAL LIABILITIES                       3,621,380            2,519,866
                                            --------------       --------------

COMMITMENTS AND CONTINGENCIES (Note 8)                  --                   --

REDEEMABLE COMMON STOCK, Series A and B
(Note 9)                                        11,842,651           12,343,001
                                            --------------       --------------
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:
         20,614,014 and 20,800,791 shares at
         December 31, 1997 and 1996,
         respectively                            3,382,914            3,532,071
     Paid-in capital from retirement of
     common stock                                  611,559              310,110
     Accumulated deficit                          (182,433)          (3,332,887)
     Net unrealized gains on investments             4,870               52,741
                                            --------------       --------------
         TOTAL SHAREHOLDERS' EQUITY              3,816,910              562,035
                                            --------------       --------------
         TOTAL LIABILITIES, REDEEMABLE COMMON
         STOCK AND SHAREHOLDERS' EQUITY     $   19,280,941       $   15,424,902
                                            ==============       ==============

           See accompanying notes to consolidated financial statements


REGAN HOLDING CORP. AND SUBSIDIARIES
Consolidated Income Statements

<TABLE>
<CAPTION>
                                                          For the Year Ended December 31,
                                                  1997                 1996                 1995
                                                  ----                 ----                 ----
<S>                                         <C>                  <C>                  <C>           
INCOME
     Marketing allowances                   $   12,386,755       $   10,039,278       $    9,767,414
     Commission income                           5,609,078            4,281,032            3,920,318
     Administrative fees                         3,603,708            3,136,123            3,032,538
     Savings and investment income                 697,593              728,927              353,393
     Seminar income                                220,406                   --                   --
     Other income                                   63,535               52,168               80,284
                                            --------------       --------------       --------------
         Total Income                           22,581,075           18,237,528           17,153,947
                                            --------------       --------------       --------------
EXPENSES
     Salaries and related benefits              10,512,259            8,253,564            6,287,339
     Sales promotion and support                 2,565,200            2,231,978            1,362,689
     Occupancy                                     887,608              643,726              555,679
     Professional fees                             712,129              652,219              766,025
     Depreciation and amortization                 640,614              469,255              370,651
     Courier and postage                           480,175              373,158              255,149
     Stationery and supplies                       399,140              292,695              195,541
     Equipment                                     369,706              287,448              261,691
     Travel and entertainment                      329,611              239,400              196,868
     Insurance                                     165,028              167,154               89,729
     Miscellaneous                                 174,127               74,273               50,758
                                            --------------       --------------       --------------
         Total Expenses                         17,235,597           13,684,870           10,392,119
                                            --------------       --------------       --------------

INCOME FROM OPERATIONS                           5,345,478            4,552,658            6,761,828
PROVISION FOR INCOME TAXES                       2,195,024            1,838,163            1,903,208
                                            --------------       --------------       --------------

NET INCOME                                  $    3,150,454       $    2,714,495       $    4,858,620
                                            ==============       ==============       ==============
EARNINGS PER SHARE

Weighted average shares outstanding             26,895,594           27,540,209           27,563,679

Basic earnings per share                    $          .12       $          .10       $          .18
                                            ==============       ==============       ==============
Diluted earnings per share                  $          .12       $          .10       $          .18
                                            ==============       ==============       ==============


                       See accompanying notes to consolidated financial statements
</TABLE>


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

<TABLE>
<CAPTION>
                                                         Paid-in                          Net
                                                       Capital from                    Unrealized
                             Series A Common Stock     Retirement of    Accumulated      Gains/
                             Shares         Amount     Common Stock       Deficit       (Losses)        Total
                             ------         ------     -------------    -----------    ----------       -----
<S>                        <C>           <C>            <C>            <C>             <C>           <C>         
Balance
   January 1, 1995         20,964,126    $ 3,801,004    $        --    $(10,906,002)   $  (18,061)   $(7,123,059)

Issuance of stock             106,665          1,067                                                       1,067

Net income for the
   twelve months ended
   December 31, 1995                                                      4,858,620                    4,858,620

Net unrealized losses on
   investments                                                                            207,806        207,806

Deferred taxes on net
   unrealized losses               --             --             --              --       (85,307)       (85,307)
                           ----------    -----------    -----------    ------------    ----------    -----------
Balance
   December 31, 1995       21,070,791      3,802,071             --      (6,047,382)      104,438     (2,140,873)

Redemptions and
   retirement of
   common stock              (270,000)      (270,000)       310,110                                      40,110

Net income for the
   twelve months ended
   December 31, 1996                                                      2,714,495                    2,714,495

Net unrealized losses on
   investments                                                                            (93,603)       (93,603)

Deferred taxes on net
   unrealized losses                                                                       41,906         41,906
                           ----------    -----------    -----------    ------------    ----------    -----------
Balance
   December 31, 1996       20,800,791      3,532,071        310,110      (3,332,887)       52,741        562,035

Redemptions and
   retirement of
   common stock              (186,777)      (149,157)       301,449                                      152,292

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
                           ----------    -----------    -----------    ------------    ----------    -----------
Balance
   December 31, 1997       20,614,014    $ 3,382,914    $   611,559    $   (182,433)  $     4,870    $ 3,816,910
                           ==========    ===========    ===========    ============   ===========    ===========


                           See accompanying notes to consolidated financial statements.
</TABLE>


REGAN HOLDING CORP. AND SUBSIDIARIES
Consolidated Statements of Cash Flows

<TABLE>
<CAPTION>
                                                                         For the Year Ended December 31,
                                                                     1997             1996              1995
                                                                     ----             ----              ----
<S>                                                             <C>              <C>               <C>         
CASH FLOWS FROM OPERATING ACTIVITIES:
     Net Income                                                 $  3,150,454     $  2,714,495      $  4,858,620
     Adjustments to reconcile net income to cash
         provided by operating activities:
              Depreciation and amortization of
                  fixed assets                                       632,781          465,394           354,854
              Accretion/amortization of investments                  (68,761)         (39,372)          (33,903)
              Net realized gain on sales of investments              (13,499)          (2,525)               --
              Realized loss on sale of fixed assets                   19,603               --                --
     Net change in accounts receivable                              (727,596)         995,418        (1,262,202)
     Net change in prepaid expenses                                 (210,982)        (255,411)           15,594
     Net change in marketing supplies inventory                       23,126          (73,265)         (104,036)
     Net change in income taxes receivable and payable               569,307         (174,059)         (109,792)
     Net change in deferred income taxes                             360,375          539,413           508,103
     Net change in accounts payable                                  173,333           48,290            54,994
     Net change in accrued liabilities                               573,467          784,156           528,849
     Net change in other assets and liabilities                      116,734         (458,000)          228,286
                                                                ------------     -------------     ------------
              Net cash provided by operating activities            4,598,342        4,544,534         5,039,367
                                                                ------------     ------------      ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
     Purchases of investments                                    (20,404,456)     (19,087,646)       (6,589,085)
     Proceeds from sales and maturities of investments            20,667,228       16,156,162         3,497,115
     Purchases of fixed assets                                    (1,521,320)        (519,758)         (823,022)
                                                                ------------     -------------     ------------
              Net cash used in investing activities               (1,258,548)      (3,451,242)       (3,914,992)
                                                                ------------     -------------     ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
     Redemptions and retirement of common stock                     (348,058)        (299,639)               --
     Payments on note payable                                             --          (87,688)         (280,000)
     Proceeds from issuance of common stock                               --               --             1,067
              Net cash used in financing activities                 (348,058)        (387,327)         (278,933)
                                                                -------------    ------------      ------------
INCREASE IN CASH AND CASH EQUIVALENTS                              2,991,736          705,965           845,442
CASH AND CASH EQUIVALENTS,
     BEGINNING OF PERIOD                                           2,202,596        1,496,631           651,189
                                                                ------------     ------------      ------------
CASH AND CASH EQUIVALENTS,
     END OF PERIOD                                              $  5,194,332     $  2,202,596      $  1,496,631
                                                                ============     ============      ============
SUPPLEMENTAL CASH FLOW INFORMATION:
     Interest paid                                              $     18,695     $     18,883      $     12,042
     Income taxes paid                                          $  1,265,025     $  1,472,806      $  1,450,300


                           See accompanying notes to consolidated financial statements
</TABLE>


                      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")  and IL  Annuity  and  Insurance  Company  ("IL  Annuity"),
          collectively  referred to herein as the "Carriers."  American National
          is an  unaffiliated  company  with over $1.5  billion in  capital  and
          surplus  and is  rated  "A++"  by A.M.  Best.  IL  Annuity  is also an
          unaffiliated company, with over $13 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,  training,  managing and  supervising  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 Processing Agreements (the
          "Processing  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 Processing  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 Processing  Agreements with American National and IL
          Annuity expire June 1, 1998, 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   Processing
          Agreements.  Management  expects  that new  agreements  will be signed
          during the second quarter of 1998.

          In May 1995,  the  Company  formed  Legacy  Financial  Services,  Inc.
          ("LFS"),  a  wholly-owned   broker-dealer  subsidiary.  LFS  has  been
          approved by the National  Association  of  Securities  Dealers and the
          Securities and Exchange  Commission to engage in the offering and sale
          of variable annuity and life insurance products, mutual funds and debt
          and  equity  securities  (collectively,  the  "Products")  on a  fully
          disclosed  basis.  LFS has entered into agreements (the  "Agreements")
          with various  entities  licensed to sell the Products.  The Agreements
          grant LFS the  non-exclusive  right to solicit  sales of the  Products
          through  its  network of  independent  representatives  and to provide
          certain marketing and  administrative  services in order to facilitate
          sales  of  the  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 the  Products  pursuant to the  Agreements  began  during the
          first quarter of 1996.

     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.,  and
          LifeSurance Corporation,  a non-operating subsidiary.  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

          Through June 30, 1995, in  accordance  with the terms of the Marketing
          Agreement with American National, marketing allowances and commissions
          were accrued when policies were  submitted for  acceptance.  Effective
          July 1, 1995, both the Marketing  Agreement with American National and
          the  related  recording  of  revenue  were  modified  to  provide  for
          recognition  of  marketing   allowances  and  commissions  only  after
          policies  become  inforce,  which is  consistent  with the  method  of
          recognition of revenue generated under the Marketing Agreement with IL
          Annuity. 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 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 1996 and 1995 balances have been  reclassified to conform with
          the 1997  presentation.  Such  reclassifications  had no effect on net
          income or shareholders' equity.

     k.   Comprehensive Income

          In June, 1997, the FASB issued SFAS No. 130, "Reporting  Comprehensive
          Income."  SFAS No. 130  establishes  standards  for the  reporting and
          display of  comprehensive  income and its  components 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 form
          transactions  and  other  events  and  circumstances   from  non-owner
          sources.  SFAS No. 130 is effective for fiscal years  beginning  after
          December 15, 1997. The Company does not believe that SFAS No. 130 will
          have a material impact on the Company's financial statements.

     l.   Segment Reporting

          In June,  1997,  the FASB  issued  SFAS No.  131,  "Disclosures  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
          operation  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 would be
          provided.  SFAS No. 131 is effective for fiscal years  beginning after
          December 15, 1997. The Company does not believe that SFAS No. 131 will
          have a material impact on the Company's financial statements.

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, 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
                        ===========   ===========   ===========   ===========   ===========
December 31, 1996
-----------------
Government agency
  securities            $        --   $ 1,093,183   $ 1,909,275   $        --   $ 3,002,458
U.S. Treasury notes         552,213            --            --            --       552,213
Corporate bonds                  --            --       503,496                     503,496
Mortgage-backed
  securities                     --            --            --     3,053,187     3,053,187
Equity securities                --            --            --       747,750       747,750
                        -----------   -----------   -----------   -----------   -----------
  Amortized cost            552,213     1,093,183     2,412,771     3,800,937     7,859,104
Gross unrealized gains       26,338        43,318        65,611        14,971       150,238
Gross unrealized losses          --            --       (10,214)      (51,921)      (62,135)
                        -----------   -----------   -----------   -----------   -----------
  Market value          $   578,551   $ 1,136,501   $ 2,468,168   $ 3,763,987   $ 7,947,207
                        ===========   ===========   ===========   ===========   ===========
</TABLE>

     Included in operating  results for the years ended December 31, 1997,  1996
     and 1995 are $494,033,  $501,753, and $319,490 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, 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
                              ==============    =============    ==============
December 31, 1996
-----------------
Computers                     $    1,614,881    $     659,111    $      955,770
Leasehold improvements               689,722          323,813           365,909
Furniture and equipment              671,416          251,707           419,709
                              --------------    -------------    --------------
         Totals               $    2,976,019    $   1,234,631    $    1,741,388
                              ==============    =============    ==============

4.   Accrued Liabilities

     Accrued liabilities at December 31 consisted of the following:

                                           1997                   1996
                                           ----                   ----
Annual sales convention              $   1,226,169         $     825,556
Accrued compensation                       976,428               843,301
Producer seminar expenses                   39,498               151,531
Other                                      363,759               211,999
                                     -------------         -------------
         Totals                      $   2,605,854         $   2,032,387
                                     =============         =============

5.   Loan Payable

     The  Company  has  a  loan  payable,   bearing  interest  at  9%  annually,
     representing  amounts  borrowed in a non-cash  transaction  to pay premiums
     related to a split-dollar life insurance policy. The outstanding balance of
     the loan was $132,285 at December 31, 1997 and 1996.

6.   Deferred Incentive Compensation

     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, 1997 and 1996,  $149,609
     and   $184,456,   respectively,   are   reflected  as  deferred   incentive
     compensation in the accompanying balance sheets. Such amounts represent the
     deferred  portion of the 1997 and 1996 Bonuses,  except for the second year
     payment of the 1995 Bonus, which was forfeited,  because net income targets
     were not achieved in 1996.

7.   Deferred Compensation Plan

     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 $9,500 annually for 1997 and 1996
     and $9,240 for 1995) 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
     $181,443, $134,673, and $83,849 for the years ended December 31, 1997, 1996
     and 1995, respectively.

8.   Commitments and Contingencies

     The Company leases its office  premises and certain office  equipment under
     operating leases. Related rent expense of $335,973,  $219,214, and $198,196
     are  included in  Occupancy  costs for the years ended  December  31, 1997,
     1996,  and 1995,  respectively.  Total  rentals for and leases of equipment
     included in Equipment  expenses were $146,874,  $132,635,  and $107,585 for
     the years ended December 31, 1997, 1996 and 1995, respectively.

     The Company  currently  leases  approximately  43,300 square feet of office
     space  at  an  annual  rent  of   approximately   $292,000   plus  required
     maintenance, landscaping and related expenses. The current lease expires in
     October,  2006,  and  includes  a  commitment  by the  Company  to lease an
     additional  10,460 square feet beginning  August 1, 1998,  which will raise
     the annual rent by approximately $72,000 per year.

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

               1998                              $         481,191
               1999                                        537,536
               2000                                        525,200
               2001                                        432,797
               2002                                        442,030
               Thereafter                                1,783,529
                                                 -----------------
               Total minimum lease payments      $       4,202,283
                                                 =================

     In order to fund LFS during the start-up  phase,  the Company has committed
     to make sufficient  contributions to support LFS's operations and to ensure
     LFS's compliance with financial  regulatory  requirements  through December
     31, 1998.  Such  contributions  totaled  $330,000,  $455,000,  and $215,000
     during 1997, 1996 and 1995, respectively.

     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, 1997, there were no
     outstanding commitments relating to the above by the Company.

     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.  Management is not aware of any
     material  asserted or unasserted  litigation  which existed at December 31,
     1997, except as follows:

          In  December,  1996,  LMG and  American  National  (collectively,  the
          "Co-defendants") 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.  The  plaintiffs,
          policyholders Buddie Watson King and Feyrene Zink, sought and received
          conditional  class  action  certification  prior  to  service  of  the
          complaint  upon the  Co-defendants.  In February,  1997,  the case was
          removed to the U. S. Federal  District Court in  Birmingham,  Alabama,
          and the  conditional  class  action  certification  was vacated by the
          federal  district  court.  Thereafter,  the federal court remanded the
          case back to the above  Circuit  Court of Jefferson  County,  Alabama,
          where the case is currently pending. The outcome of the lawsuit cannot
          be determined.  However,  the Company's  management  believes that the
          suit is without merit and intends to defend  vigorously.  Accordingly,
          no amounts  have been  recorded in the  financial  statements  for any
          losses which may result from the lawsuit.

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.

     At December 31, 1994, the Company did not have  sufficient  current assets,
     as required under California corporate law, to purchase all of the Series A
     Redeemable  Common  Stock and Series B Redeemable  Common Stock  (hereafter
     collectively referred to as the "Redeemable Common Stock"). However, during
     1995, current assets surpassed current  liabilities by an amount sufficient
     to allow the  Company  to meet its  obligations  under  the 701  Plan,  the
     Subscription Agreement, and the Merger Agreement.

     Redeemable  Common  Stock has been  recorded at the greater of the issuance
     value or the  redemption  value as of December  31, 1997 and 1996.  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 $.96 per share as of  December 31, 1997,
     based on management's  estimate of fair market value.  The total redemption
     value for Series A and Series B Redeemable  Common Stock was $5,287,033 and
     $576,827,  respectively,  at December 31, 1997 and $4,499,887 and $476,054,
     respectively,  at December 31, 1996.  Carrying  value  exceeded  redemption
     value by  $5,978,791 at December 31, 1997,  and  $7,367,060 at December 31,
     1996.  As the  shares  are  redeemed,  the  excess of  carrying  value over
     redemption value will be reflected as additional paid-in capital.

     Changes to  Redeemable  Common  Stock  during the years ended  December 31,
     1997, 1996 and 1995 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>           <C>         <C>        
Balance
January 1, 1995        5,935,094   $10,850,686      615,242   $1,845,726    6,550,336   $12,696,412
Adjustment to
fractional share
liability                     --            --       (4,554)     (13,662)      (4,554)      (13,662)
                       ---------   -----------      -------   ----------    ---------   -----------
Balance
December 31, 1995      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
                       =========   ===========      =======   ==========    =========   ===========
</TABLE>

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

10.  Stock Awards and Stock Options

     At December 31, 1996,  the Company had  outstanding  warrants which granted
     the holder the right to purchase  140,950  shares of its common  stock at a
     price of $2.25 per share. The warrants became exercisable on April 1, 1995,
     and expired on March 31, 1997.

     In August,  1997,  the  Company's  shareholders  voted to approve the Regan
     Holding Corp. 1998 Stock Option Plan, which authorizes the Company to grant
     stock options to employees and directors (the "Employee Option Plan").  The
     Employee  Option Plan is administered by two committees (the " Committees")
     which are appointed by the Company's Board of Directors.  1,500,000  shares
     of the Company's  Series A Common Stock were reserved by  shareholders  for
     granting under the Employee  Option Plan. On January 1, 1998 (the "Employee
     Grant Date"),  1,476,000 options were granted to employees  pursuant to the
     Employee Option Plan (the "Employee  Options").  The Employee  Options vest
     evenly over four years following the Employee Grant Date. Once vested,  the
     Employee  Options become  exercisable at the estimated fair market value of
     $.73 per share. Any unexercised Employee Options expire ten years after the
     Employee  Grant Date.  The Employee  Options  qualify as  "Incentive  Stock
     Options,"  as  defined  by the  Internal  Revenue  Code.  The impact of the
     Employee  Options  on the  Company's  1998  Financial  Statements  will  be
     accounted for in accordance with SFAS No. 123,  "Accounting for Stock-Based
     Compensation," and is not expected to be material.

     During 1997,  the Company's  Board of Directors  approved the Regan Holding
     Corp.  Producer  Stock  Option Plan (the  "Producer  Option  Plan"),  which
     provides  for the  granting  of  stock  options  to LMG  Producers  and LFS
     registered  representatives.  2,700,000  shares of the  Company's  Series A
     Common Stock were  reserved for  granting  under the Producer  Stock Option
     Plan. On January 1, 1998,  (the "Producer Grant Date") 795,400 options were
     granted pursuant to the Producer Stock Option Plan (the "Producer Options).
     The  Producer  Options vest evenly over five years  following  the Producer
     Grant Date.  Once vested,  the Producer  Options become  exercisable at the
     estimated  fair market value of $.73 per share.  Any  unexercised  Producer
     Options  expire six years after the Producer  Grant Date. The impact of the
     Producer  Options  on the  Company's  1998  financial  statements  will  be
     accounted  for  in  accordance  with  Statement  of  Financial   Accounting
     Standards No. 123,  "Accounting for Stock-Based  Compensation,"  and is not
     expected to be material.

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:

                                     For the Year Ended December 31,
                                  1997            1996            1995
                                  ----            ----            ----
Current income taxes:
    Federal                  $  1,262,317    $    891,442    $    778,164
    State                         572,332         407,305         604,928
                             ------------    ------------    ------------
        Total current           1,834,649       1,298,747       1,383,092
                             ------------    ------------    ------------
Deferred income taxes:
    Federal                       405,951         523,365       1,066,893
    State                         (45,576)         16,051        (546,777)
                             ------------    ------------    ------------
        Total deferred            360,375         539,416         520,116
                             ------------    ------------    ------------
Provision for income taxes   $  2,195,024    $  1,838,163    $  1,903,208
                             ============    ============    ============

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

                                                    1997            1996
                                                    ----            ----

Alternative minimum tax credit carryforward    $    652,320    $  1,387,885
Sales incentive trip accrual                        488,437              --
State net operating loss carryforward                    --         205,891
Fixed asset depreciation                            (26,834)        (39,833)
Other                                               157,991          46,207
                                               ------------    ------------
    Total deferred tax assets                  $  1,271,914    $  1,600,150
                                               ============    ============

     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,
                                      1997             1996            1995
                                      ----             ----            ----
Federal income taxes due at
  statutory rate (34%)             $ 1,817,462     $  1,547,904    $  2,299,022
Increases (reductions) in
  income taxes resulting from:
    State franchise taxes, net
      of federal income tax
      benefit                          375,892          288,628         258,407
    Reversal of valuation
      allowance                             --               --        (437,310)
    Adjustment to prior years'
      provisions                            --               --        (240,695)
    Other                                1,670            1,631          23,784
                                   -----------     ------------    ------------
Provision for income taxes         $  2,195,024    $  1,838,163    $  1,903,208
                                   ============    ============    ============

     As of December 31, 1997, the Company also has, for federal and state income
     tax purposes, $210,775 and $441,545,  respectively,  in alternative minimum
     tax credits which can be used to reduce income taxes in subsequent years to
     the extent of tentative minimum tax. The credits have no expiration date.

12.  Related Party Transactions

     The Company paid Ashley A. Penney, a director until August, 1997, $133,113,
     $140,100 and $107,293 for services provided as a human resource  consultant
     during the years ended December 31, 1997, 1996 and 1995, respectively.

     Pursuant to a salary continuation agreement related to the Company's former
     Chief Executive Officer, John Regan, payments totaling $87,688 and $280,000
     were made to Ms. Regan  during the years ended  December 31, 1996 and 1995,
     respectively,  as an  obligation  of the  Company  to his  estate.  No such
     payments were made during 1997.

13.  Concentration of Risk

     At  December  31,  1997,  the  Company  was  contracted  with  over  12,000
     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 1997.

     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  36.2%,  87.5%,  and  97.7%  of total
     revenues  to the  Company  during  1997,  1996 and 1995,  respectively.  In
     December   1995,   the  Company   contracted   to  provide   marketing  and
     administrative   services  for  IL  Annuity.   This  arrangement  generated
     approximately  57.0% and 5.9% of the  Company's  revenues  during  1997 and
     1996,  respectively.  However,  neither the  Marketing  Agreements  nor the
     Processing  Agreements  prevent  the Company  from  entering  into  similar
     arrangements with other insurance companies.

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 27, 1998, 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, 1997 and 1996.
          (iii)    Consolidated  Income  Statements  for the  years  ended
                   December 31, 1997, 1996 and 1995.
          (iv)     Consolidated Statements of Shareholders' Equity (Deficit) for
                   the years ended December 31, 1997, 1996 and 1995.
          (v)      Consolidated Statements of Cash Flows for the years ended
                   December 31, 1997, 1996 and 1995.
          (vi)     Notes to Consolidated Financial Statements.

     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.***
          3(b)     Amended and Restated Bylaws of the Company.***
          4        Certificate of Determination of Preferences of Series C
                   Common Stock of Regan Holding Corp.*
          10(a)    Administrative Services Agreement effective January 1, 1991,
                   as amended, between Allianz Life Insurance Company of North
                   America and the Company.*
          10(b)    Marketing Agreement effective June 1, 1993, as amended,
                   between American National Insurance Company and the Company.*
          10(c)    Insurance Processing Agreement effective June 1, 1993, as
                   amended, between American National Insurance Company and the
                   Company.*
          10(d)    Form of Producer Agreement.*
          10(e)    Lease Agreement dated September 26, 1996, for 1179 North
                   McDowell Blvd., Petaluma, California 94954.***
          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.*
          10(g)    401(K) Profit Sharing Plan & Trust dated July 1, 1994.*
          10(h)    Marketing Agreement effective January 1, 1996 between IL
                   Annuity and Insurance Company and the Company.**
          10(i)    Insurance Processing Agreement effective January 1, 1996
                   between IL Annuity and Insurance Company and the Company.**
          10(j)    Marketing Agreement effective January 1, 1996 between
                   Indianapolis Life Insurance Company and the Company.**
          10(k)    Insurance Processing Agreement effective January 1, 1996
                   between Indianapolis Life Insurance Company and the
                   Company.**
          21       Subsidiaries of the Company.**
          27       Financial Data Schedule

          *   Incorporated  herein by reference from the Company's  annual
              report on Form 10-K for the year ended  December 31, 1994.
          **  Incorporated  herein by reference  from the  Company's  annual
              report on Form 10-K for the year ended  December 31, 1995.
          *** Incorporated  herein by reference form the Company's quarterly
              Form 10-Q for the three months ended September 30, 1996.

(b)  Reports on Form 8-K filed during the quarter ended December 31, 1997.

     No reports on Form 8-K were filed  during the quarter  ended  December  31,
     1997.


                                   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:..........................................  Date:
        R. Preston Pitts, President

     By:..........................................  Date
        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:..........................................  Date
        Lynda L. Regan, Chairman

     By:..........................................  Date
        Steve C. Anderson, Director

     By:..........................................  Date
        R. Preston Pitts, Director

     By:..........................................  Date
        Ute Scott-Smith, Director


                                INDEX TO EXHIBITS

Item No.   Description                                                      Page

27         Financial Data Schedule .........................................  9