AMERICAN CLASSIC VOYAGES CO, 424B2, 1999-04-22

AMERICAN CLASSIC VOYAGES CO
424B2, 1999-04-22
WATER TRANSPORTATION

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<PAGE> 1

PROSPECTUS

3,500,000 SHARES
AMERICAN CLASSIC VOYAGES CO. LOGO

AMERICAN CLASSIC VOYAGES CO.

COMMON STOCK

------------------------

American Classic Voyages Co. is the leading provider of overnight passenger
cruises among the Hawaiian Islands and on the Mississippi River system.

We are offering to sell 3,500,000 shares of common stock with this
prospectus. Our shares are quoted on the Nasdaq National Market under the symbol
"AMCV." On April 21, 1999, the last reported sale price of our common stock on
the Nasdaq National Market was $17 7/16 per share.

SEE "RISK FACTORS" BEGINNING ON PAGE 8 FOR A DISCUSSION OF RISKS THAT YOU
SHOULD CONSIDER BEFORE YOU INVEST IN THE COMMON STOCK BEING SOLD WITH THIS
PROSPECTUS.

------------------------

<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- -----
<S> <C> <C>
Public Offering Price........................... $17.00 $59,500,000
Underwriting Discount........................... $ 1.02 $ 3,570,000
Proceeds, before expenses, to American Classic
Voyages Co. .................................. $15.98 $55,930,000
</TABLE>

The underwriters may also purchase up to an additional 525,000 shares from
us within 30 days from the date of this prospectus to cover over-allotments.

Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.

------------------------

MERRILL LYNCH & CO.
DONALDSON, LUFKIN & JENRETTE
GOLDMAN, SACHS & CO.
CRAIG-HALLUM CAPITAL GROUP, INC.

------------------------

THE DATE OF THIS PROSPECTUS IS APRIL 21, 1999.
<PAGE> 2

"EXPERIENCE THE TRUE SPIRIT OF HAWAII"

Photo Photo

Kauai's Na Pali Coast Maui's Iao Valley

Map of Hawaiian Islands

Photo Photo

Diamond Head on Oahu Kilauea Volcano
on the Big Island

<PAGE> 3
PROJECT AMERICA
Rendering of New Vessel

Photo Photo
Atrium Main Pool Deck

Photo
Rendering of New Vessel

Photo Photo Photo
Cabaret Theatre Outdoor Stage
<PAGE> 4

"LIVE THE LEGEND"

Photo
Rendering of New Coastal Vessel

Photo Photo

Delta Queens River System Routes American Queen,
Mississippi Queen and
Delta Queen

Photo Photo

Americana Theme Cruises American Queen
Grand Staircase

<PAGE> 5

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.......................................... 4
Risk Factors................................................ 8
Use of Proceeds............................................. 14
Price Range of Common Stock and Dividend Policy............. 15
Selected Financial Data..................................... 16
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 18
Business.................................................... 26
Management.................................................. 39
Principal Stockholders...................................... 41
Underwriting................................................ 43
Legal Matters............................................... 45
Experts..................................................... 45
Incorporation by Reference.................................. 45
Where You Can Find Additional Information................... 46
Index to Financial Statements............................... F-1
</TABLE>

----------------------

You should rely only on the information contained in this prospectus. We
have not, and the underwriters have not, authorized any other person to provide
you with different information. If anyone provides you with different or
inconsistent information, you should not rely on it. We are not, and the
underwriters are not, making an offer to sell these securities in any
jurisdiction where the offer or sale is not permitted. You should assume that
the information appearing in this prospectus is accurate as of the date on the
front cover of this prospectus only. Our business, financial condition, results
of operations and prospects may have changed since that date.

3
<PAGE> 6

PROSPECTUS SUMMARY

This summary highlights information included elsewhere in this prospectus.
This summary may not contain all of the information you should consider before
investing in the common stock. You should read the entire prospectus carefully,
including the "Risk Factors" section.

AMERICAN CLASSIC VOYAGES CO.

American Classic Voyages Co. is the leading provider of overnight passenger
cruises among the Hawaiian Islands and on the Mississippi River system. We
operate two cruise lines under the names American Hawaii Cruises and Delta Queen
Steamboat Co. American Hawaii offers year-round cruises among the Hawaiian
Islands aboard the S.S. Independence, which has 867 passenger berths. A berth is
the industry term for a bed or sleeping space. Delta Queen operates year-round
cruises on three authentic paddlewheel riverboats, the Delta Queen, Mississippi
Queen and American Queen, which have a total of 1,026 passenger berths. Delta
Queen cruises provide varied itineraries on the Mississippi River system
featuring the culture and history of heartland America.

We are the largest owner and operator of U.S. built, owned and crewed
overnight passenger vessels, documented as "U.S.-flagged" vessels. U.S. law
requires our foreign-flagged competitors to include at least one foreign port in
each itinerary. We, on the other hand, can offer itineraries featuring only U.S.
ports. This gives us a distinct competitive advantage in Hawaii because the
closest foreign port to Hawaii requires a four day sail across the Pacific
Ocean.

INVESTMENT HIGHLIGHTS

We believe that the following factors are important to understand the
growth potential of our business:

- New Ships. We have entered into a contract with Ingalls Shipbuilding,
Inc. to build two "world-class" ships for use in the Hawaii market. We
expect delivery of the new ships in January 2003 and January 2004. Each
ship will have approximately 1,900 passenger berths. This will
substantially increase our presence in the Hawaii market. We are also
attempting to obtain an existing large, modern cruise ship for use in the
Hawaii market while we are building the new ships. In addition, we intend
to expand our Delta Queen line, including building up to five additional
ships. We intend to deploy these ships to underserved eastern seaboard,
Northern California and Pacific Northwest markets.

- Competitive Advantages. The Passenger Vessel Act of 1886 and related laws
prohibit our primary competitors, who sail foreign-flagged ships, from
offering itineraries consisting exclusively of U.S. ports. In addition,
we believe that the recently adopted U.S. Flag Cruise Ship Pilot Project
Statute gives us the exclusive right to operate large U.S.-flagged
vessels in the Hawaiian Islands, subject to various conditions, for the
life expectancy of our new vessels, which is approximately 25 years.

- Delta Queen's Market Leadership and Loyal Customer Base. According to the
Cruise Industry News 1998 Annual Report, Delta Queen enjoyed a 53% market
share of the available berths within the domestic waterways and rivers
segments of the overnight cruise market. In addition, our Delta Queen
customer base cruises frequently and is loyal to the Delta Queen brand of
cruises. This is evidenced by the significant number of Delta Queen
passengers who have previously taken a Delta Queen cruise.

- Access to Attractive Debt Financing. We have received a commitment for
financing guaranties from the U.S. Maritime Administration, an agency of
the U.S. Department of Transportation. We currently expect the Maritime
Administration to guaranty private financing for up to 87.5% of the cost
of constructing the new Hawaii vessels. With a Maritime Administration
guaranty, we anticipate obtaining financing at attractive rates.

4
<PAGE> 7

- Attractive Characteristics of Cruise Industry. We expect the North
American cruise market to grow for the following reasons:

- the worldwide market for cruise vacations has grown dramatically over
the past three decades;

- there are positive demographic trends impacting the cruise industry
including age and recreational spending;

- we believe that the cruise market has large untapped potential; and

- the cruise industry enjoys high customer satisfaction.

- Attractiveness of the Hawaii Cruise Market. We currently enjoy a 54%
share of the overnight Hawaii cruise market, based on Hawaii Visitors and
Convention Bureau statistics. We believe the Hawaii cruise market offers
strong potential for growth for the following reasons:

- Hawaii is one of the world's premier tourist destinations with over 6.5
million visitors per year;

- an extremely small percentage of visitors to Hawaii currently cruise;

- Hawaii visitors and cruisers in general share similar age and spending
profiles; and

- Hawaii offers an exciting new itinerary for experienced cruisers who
have visited other destinations such as the Caribbean and Alaska.

We cannot assure you that the North American cruise market will continue to
grow. Even if the market grows, we cannot assure you that our business will grow
at the same rate.

THE OFFERING

The following information regarding shares outstanding is as of April 20,
1999. It does not include a total of 6,212,882 shares of common stock reserved
for issuance under our stock option and purchase plans, of which 2,732,864
shares are subject to outstanding options and 3,000,000 shares are reserved
under our 1999 stock option plan. Our 1999 stock option plan is subject to
approval by our shareholders. Throughout this prospectus, unless we have stated
otherwise, we have assumed that the over-allotment option for an additional
525,000 shares of common stock has not been exercised.

Common stock we are offering..... 3,500,000

Common stock to be outstanding
after the offering............... 17,911,036 shares

How we will use our proceeds..... We intend to use the estimated net proceeds
of $55.6 million that we will receive from
this offering for expansion of existing
operations, including construction of the
initial Hawaii vessel.
------------------------

Our principal executive offices are located at Two North Riverside Plaza,
Suite 200, Chicago, Illinois 60606, (312) 258-1890.

5
<PAGE> 8

SUMMARY HISTORICAL FINANCIAL INFORMATION

We have derived the following summary historical financial data from our
audited consolidated financial statements included in our Annual Reports on Form
10-K for the years ended December 31, 1997 and 1998, each as filed with the
Securities and Exchange Commission.

As used in the following table, the following terms have the meanings set
forth below:

- Working capital is current assets minus current liabilities. Due to the
business cycle of the cruise industry, customer deposits are received in
advance of the cruise date and classified as current liabilities.
Therefore, working capital is typically negative. Working capital is
unaudited.

- Weighted average operating days for each cruise line is determined by
dividing capacity passenger nights for each cruise line by the cruise
line's total vessel capacity per day. Capacity passenger nights is
determined by multiplying, for the respective period, the actual
operating days of each vessel by each vessel's capacity per day.

- Vessel capacity per day represents the number of passengers each cruise
line can carry assuming double occupancy for cabins which accommodate two
or more passengers. Some cabins on the S.S. Independence and the American
Queen can accommodate three or four passengers.

- A passenger night represents one passenger spending one night on a
vessel; for example, one passenger taking a three-night cruise would
equal three passenger nights.

- Physical occupancy percentage is passenger nights divided by capacity
passenger nights.

These results of operations reflect historical performance and results for
any future period may be different. You should carefully read "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
together with the information below for a more complete discussion of our
historical results. The figures in the table below state dollars in thousands,
except for per share data and operating statistics.

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues.................................................... $190,408 $177,884 $192,225
Cost of operations.......................................... 122,545 111,295 125,595
-------- -------- --------
Gross profit................................................ 67,863 66,589 66,630
Selling, general and administrative expenses................ 45,367 41,015 44,232
Depreciation and amortization expense....................... 14,571 15,590 16,912
Impairment write-down(1).................................... 38,390 -- --
-------- -------- --------
Operating income (loss)..................................... (30,465) 9,984 5,486
Interest income............................................. 912 1,028 1,117
Interest expense............................................ 8,111 6,963 6,639
Other income................................................ 11,729(2) -- 300
-------- -------- --------
Income (loss) before income taxes........................... (25,935) 4,049 264
Income tax (expense) benefit................................ 8,299 (1,620) (107)
Net income (loss)........................................... $(17,636) $ 2,429 $ 157
PER SHARE INFORMATION:
Basic:
Basic weighted average shares outstanding................. 13,802 13,952 14,137
Earnings (loss) per share................................. $ (1.28) $ 0.17 $ 0.01
Diluted:
Diluted weighted average shares outstanding............... 13,802 14,338 14,777
Earnings (loss) per share................................. $ (1.28) $ 0.17 $ 0.01
footnotes on following page
</TABLE>

6
<PAGE> 9

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
BALANCE SHEET DATA (AT PERIOD END):
Cash and cash equivalents................................... $ 17,908 $ 19,187 $ 27,004
Working capital............................................. (38,745) (41,564) (35,284)
Total assets................................................ 211,864 210,895 212,792
Long-term debt, less current portion........................ 85,898 81,488 77,388
Total stockholders' equity.................................. 54,982 59,219 62,014
OTHER DATA:
Cash flows provided by (used in) operating activities....... 15,016 22,414 18,524
Cash flows provided by (used in) investing activities....... 13,891 (17,864) (8,224)
Cash flows provided by (used in) financing activities....... (17,047) (3,271) (2,483)
OPERATING STATISTICS (UNAUDITED):
Fare revenue per passenger night............................ $ 216 $ 228 $ 224
Total revenue per passenger night........................... 287 302 314
Weighted average operating days
Delta Queen............................................... 347 337 341
American Hawaii........................................... 366 337 365
Vessels capacity per day (passenger berths)
Delta Queen............................................... 1,024 1,026 1,026
American Hawaii........................................... 817 844 867
Passenger nights............................................ 643,891 588,892 611,624
Physical occupancy percentage............................... 98% 94% 92%
</TABLE>

- ---------------

(1) We removed the S.S. Constitution from service in Hawaii on June 27, 1995 and
recognized an impairment write-down of $38.4 million in 1996, or $1.89 per
share net of tax on a diluted basis.

(2) In October 1996, we sold the Maison Dupuy hotel located in New Orleans,
Louisiana for a gain of $11.7 million, or $0.57 per share net of tax on a
diluted basis.

EBITDA for 1998 was $22.7 million and for 1997 was $25.6 million. In 1996,
EBITDA was negative $4.2 million, after an impairment write-down of $38.4
million related to our decision not to renovate and return the S.S. Constitution
to service and a one-time gain of $11.7 million on the sale of the Maison Dupuy
hotel. In addition to the cash flows from operating, investing and financing
activities, we believe that EBITDA provides operating information relevant to
our ability to incur and service debt and to make capital expenditures. EBITDA
means earnings before interest, income taxes, depreciation and amortization.
EBITDA is unaudited, does not represent cash flows provided by operating
activities in accordance with generally accepted accounting principles, is not
to be considered as an alternative to net income or any other measurement under
generally accepted accounting principles used as a measure of operating
performance, and is not necessarily indicative of cash available to fund cash
needs.

7
<PAGE> 10

RISK FACTORS

Before you invest in our common stock, you should be aware that there are
various risks, including those described below, that could have a material
adverse effect on our business, including our operating results and financial
condition. The risk factors listed in this section, as well as any cautionary
language in this prospectus, provide examples of risks, uncertainties and events
that may cause our actual results to differ materially from the expectations we
describe in our forward-looking statements. You should carefully consider these
risk factors, together with all of the other information included in this
prospectus, before you decide whether to purchase shares of our common stock.

FORWARD-LOOKING STATEMENTS

This prospectus includes forward-looking statements. We have based these
forward-looking statements on our current expectations and projections about
future events. These forward-looking statements are not guarantees of future
performance and are subject to risks, uncertainties and assumptions, including
those set forth in this section and the following sections of this prospectus:

- the "Summary -- Investment Highlights,"

- "Management's Discussion and Analysis of Financial Condition and Results
of Operations -- Liquidity, Capital Resources and Financial Condition,"
and

- "Business -- Statutory Competitive Advantages," "-- The Vacation Cruise
Market," "-- The Hawaii Cruise Market," "-- Expansion Plans," "-- Current
Operations -- Vessels" and "-- Government Regulation."

These forward-looking statements involve substantial risks and uncertainties
which we believe are within the meaning of the Private Securities Litigation
Reform Act of 1995.

Words such as "expect," "anticipate," "intend," "plan," "believe,"
"estimate" and variations of such words and similar expressions are intended to
identify such forward-looking statements. We undertake no obligation to publicly
update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise. In light of these risks, uncertainties
and assumptions, the forward-looking events discussed in this prospectus might
not occur.

CONSTRUCTION DELAYS AND DEVIATIONS FROM SPECIFICATIONS FOR THE NEW HAWAII AND
COASTAL VESSELS MAY ADVERSELY AFFECT EXPANSION PLANS AND FUTURE FINANCIAL
PERFORMANCE

We have entered into a contract to construct at least two new vessels for
our Hawaii cruise business and currently intend to construct up to five new
coastal cruisers for the Delta Queen line. Without these new ships, our future
financial performance may be adversely impacted. Ingalls Shipbuilding has never
built a modern passenger ship and, because no U.S. shipyard has built a
passenger ship in over 40 years, there is a limited base of experienced
subcontractors for portions of the ships. We cannot assure you that we will be
able to successfully complete construction of the Hawaii cruise ships or the
coastal cruisers or that we will be able to complete these projects within
construction budgets or expected time frames. Factors that could impact
construction of the new vessels include:

- construction delays or complications;

- cost overruns;

- labor stoppages, slowdowns or shortages; and

- compliance with U.S. Coast Guard regulations and classification society
requirements.

Our business strategy has been developed on the assumption that we will be
able to put the Hawaii cruise ships and coastal cruisers into service on a
timely basis. We have also assumed that the ships will perform according to
their design specifications. A significant delay in delivering the vessels or a
material

8
<PAGE> 11

deviation from the design specifications could have a material adverse effect on
our business. Also, events out of the control of the shipyards constructing the
vessels could delay delivery.

WE HAVE LIMITED REMEDIES AGAINST THE SHIPYARD IN THE EVENT OF SHIPBUILDING
DELAYS WHICH WOULD DELAY THE INTRODUCTION OF NEW VESSELS

Although we obtained a performance guaranty from Ingalls Shipbuilding's
parent, Litton Industries, we have limited remedies against the shipyard in the
event of shipbuilding delays which would delay the introduction of new vessels.
If there was a significant delay in the delivery of the new cruise vessels, it
could have a material adverse effect on our expansion plans in Hawaii and on our
business as a whole.

IF WE DO NOT OBTAIN SIGNIFICANT AMOUNTS OF CAPITAL TO BUILD, PURCHASE AND
RENOVATE VESSELS, OUR EXPANSION PLANS AND FUTURE OPERATING RESULTS MAY BE
ADVERSELY AFFECTED

Our expansion plans are based in part on the construction of several new
vessels and the acquisition and renovation of existing vessels to be put into
operation in both the Hawaii market and the U.S. coastal and inland waterways
market. Our expansion plans require us to spend significant amounts of capital
in building, purchasing and renovating vessels. The final cost for these vessels
may exceed our initial estimates and we may be required to seek additional
sources of capital in order to complete the vessels. We cannot assure you that
we will be able to obtain additional financing at commercially acceptable levels
to finance this expansion or to pursue strategic business opportunities. We
expect to be able to use our cash on hand and cash generated from our future
operations to provide a significant portion of these funding needs. Our failure
to obtain enough capital may require us to delay or abandon some of our
expansion plans and could have a material adverse effect on our business.

INCREASED LEVERAGE MAY ADVERSELY AFFECT OUR FINANCIAL PERFORMANCE AND CASH FLOW

We will substantially increase our indebtedness as we finance a significant
portion of the construction costs under existing and contemplated agreements to
build new vessels. This higher level of indebtedness will require us to devote
an increased amount of our future cash flow from operations to the payment of
principal and interest on indebtedness. At December 31, 1998, we had outstanding
consolidated total long-term debt of $77.4 million. With construction costs for
each of the two Hawaii cruise ships projected to be approximately $470 million,
and for each of the five planned coastal cruisers expected to be approximately
$35 million, we intend to substantially increase our leverage. We expect that
approximately 87.5% of the cost for the new Hawaii cruise ships will be financed
through Maritime Administration guarantied private financing, and a substantial
portion of Delta Queen's expansion costs will be financed with debt. Under our
current expansion plans for American Hawaii and Delta Queen, and assuming we
build all of the ships contemplated, we could increase our indebtedness by
approximately $1.1 billion by 2007. Our increased leverage could adversely
affect our ability to repay debt and reduce our working capital available for
operations.

IF WE ARE UNABLE TO LOCATE AND INTRODUCE A FOREIGN-BUILT VESSEL IN HAWAII, OUR
GROWTH IN HAWAII WOULD BE DELAYED

The Pilot Project Statute provides that we may operate a foreign-built
cruise ship in Hawaii as a U.S.-flagged vessel after we sign a contract for the
construction of new U.S.-built passenger cruise ships. If we do not operate a
foreign-built cruise ship as permitted, we will not recognize any additional
revenues as a result of the Pilot Project Statute for at least four years. We
currently plan to operate such a ship. However, it is possible that we will not
be able to locate and obtain a suitable ship on commercially reasonable terms.
If we cannot find an acceptable ship, it could take at least four years before
the first of the Hawaii cruise ships we intend to construct is available for
operation. In that case, we would lose the incremental revenue growth gained by
introducing a larger and more modern cruise ship into the Hawaii market until
the new vessels are completed. For a more detailed discussion of the Pilot
Project Statute, see "Business -- Statutory Competitive Advantages."

9
<PAGE> 12

FAILURE TO ENTER INTO A CONTRACT WITH A SHIPYARD FOR COASTAL CRUISERS WILL
ADVERSELY IMPACT OUR DELTA QUEEN EXPANSION PLANS AND FUTURE REVENUE GROWTH

We currently plan to construct up to five new coastal ships for Delta
Queen. Without these new ships, our future revenue growth may be adversely
impacted. We have not yet entered into a definitive agreement to construct the
coastal ships. We cannot assure you that we will be able to reach agreement with
a shipyard to build the coastal ships on terms acceptable to us. If we cannot
reach such an agreement to build any or all of the five new coastal ships, then
we will not be able to implement our expansion plans or we will have to scale
back our expansion plans.

IF WE ARE UNABLE TO OBTAIN MARITIME ADMINISTRATION FINANCING GUARANTIES, IT WILL
IMPEDE OUR EXPANSION PLANS AND FUTURE REVENUE GROWTH

We intend to finance a significant portion of the purchase price of the
Hawaiian cruise ships through private financing guarantied by the Maritime
Administration. Without this financing, we may be unable to implement our
current expansion plans and our future revenue growth may be adversely affected.
If granted, guarantied financing through the Maritime Administration would
provide us with favorable financing terms for up to 87.5% of the cost of the
Hawaii cruise ships. While we have received a letter commitment from the
Maritime Administration, it is subject to customary conditions and we cannot
assure you that we will be able to obtain such guarantied financing for the
Hawaii cruise ships. If we do not obtain the Maritime Administration guaranty,
we will have to obtain financing for the Hawaii cruise ships from other sources.
Due to the size of our financing needs, we may be unable to obtain sufficient
financing, regardless of price; and if available, such alternative financing
would likely be at much less favorable rates than that of the Maritime
Administration guarantied financing. If we cannot finance the construction of
the Hawaii cruise ships, then we will have to abandon our current expansion
plans in Hawaii.

IF WE ARE UNABLE TO MAINTAIN ADEQUATE MANAGERIAL RESOURCES DURING OUR EXPANSION,
OUR BUSINESS MAY BE ADVERSELY AFFECTED

If we successfully execute our growth strategy, our expansion will place a
significant strain on our managerial resources. Our future performance will
depend upon management's ability to manage our growth effectively, which
includes our ability to:

- expand sales and marketing to fill the passenger berths in our expanded
fleet at profitable rates;

- operate, maintain and support a significantly expanded fleet of vessels;

- hire and train additional personnel to staff our expanded fleet and
support operations; and

- deploy capital efficiently.

The process of expanding our fleet of vessels may result in unforeseen
operating difficulties and may require management attention that would otherwise
be available for the ongoing operation of our existing fleet of vessels. Our
failure to manage our growth effectively may cause us to delay or abandon some
of our expansion plans and may have a material adverse effect on our business.

IF WE ARE UNABLE TO MANAGE OUR FINANCIAL RESOURCES DURING OUR EXPANSION, OUR
FINANCIAL PERFORMANCE MAY BE ADVERSELY AFFECTED

Our plans for expansion call for significant capital expenditures that will
not produce corresponding revenues in the near term which may place a strain on
our capital resources. The process of expanding our fleet of vessels may require
additional financial resources that would otherwise be available for the ongoing
operation of our existing fleet of vessels. Our failure to manage our financial
resources effectively during our expansion could force us to delay or abandon
some of our expansion plans and may have a material adverse effect on our
business.

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<PAGE> 13

IF DEMAND FOR OUR NEW CRUISE PRODUCTS FAILS TO DEVELOP AS EXPECTED OR
COMPETITION INCREASES, OUR BUSINESS MAY BE ADVERSELY AFFECTED

The Hawaii and coastal cruise markets where we intend to deploy our new
vessels currently do not have a large supply of cruise operators. If demand for
our new vessels does not develop, our financial performance may suffer. Our
expected deployment of vessels will increase the supply of available cruises in
these markets significantly. We engaged market research firms to assist us in
making our decision to pursue expansion plans. We cannot assure you, however,
that demand for our new cruise products, services and itineraries will develop.
If the market for these new cruise products fails to develop, develops more
slowly than expected or becomes saturated with competitors, our business may be
adversely affected.

INCREASED CAPACITY IN HAWAII MAY REDUCE OCCUPANCY AT THE S.S. INDEPENDENCE,
ADVERSELY AFFECTING REVENUES

The introduction of a larger, more modern foreign-built vessel or our new
cruise ships into the Hawaii cruise market could cause occupancy or revenue
levels on the S.S. Independence to decline. If revenue levels drop so much that
the S.S. Independence generates operating losses, it may reduce our expected
benefits from increased capacity in Hawaii and could have a material adverse
effect on our financial condition.

WE MAY HAVE TO SPEND MORE IN THE FUTURE ON THE S.S. INDEPENDENCE, WHICH MAY
ADVERSELY IMPACT OUR OPERATING RESULTS

Older ships such as the S.S. Independence may cost more to maintain and may
be less efficient than more modern cruise vessels. Older ships may be more prone
to mechanical problems and may require more repairs than modern cruise ships. We
may have to spend more in the future to maintain and to operate the S.S.
Independence, which could have an adverse effect on our operating results.

IF WE CANNOT BENEFIT FROM THE EXCLUSIVE RIGHTS OF THE PILOT PROJECT STATUTE, OUR
REVENUE GROWTH IN HAWAII WILL BE ADVERSELY AFFECTED

We believe the Pilot Project Statute provides us with the exclusive right
to operate large U.S.-flagged cruise ships in the Hawaiian Islands for the life
expectancy of our new ships. We will enjoy the benefits of the Pilot Project
Statute, however, only if we comply with its terms. Our competitive advantage
could be eliminated or diminished if the Pilot Project Statute were to be
repealed or amended, if our interpretation of its terms is not upheld or if we
fail to satisfy its requirements. This could have a material adverse effect on
our expansion plans. For a more detailed discussion of the Pilot Project
Statute, see "Business -- Statutory Competitive Advantages."

MODIFICATION OF THE PASSENGER VESSEL ACT MAY ADVERSELY AFFECT OUR BUSINESS

From time to time, proposals are made which would limit or eliminate the
terms of the Passenger Vessel Act. If the Passenger Vessel Act is repealed or
amended to allow foreign-flagged ships the same rights to transport passengers
between U.S. ports as U.S.-flagged ships, we could face considerable competition
in both our Delta Queen and American Hawaii lines, including competition from
entities with greater financial resources. Under the Passenger Vessel Act and
related laws, only U.S.-flagged ships may transport passengers between U.S.
ports. Consequently, only ships which are U.S. built, owned, operated and
documented may operate between U.S. ports, including the islands of Hawaii.
Foreign-flagged ships may transport passengers between U.S. ports only if their
itineraries include a stop at a foreign port. This increased competition could
have a material adverse effect on our business. For a more detailed discussion
of the Passenger Vessel Act, see "Business -- Statutory Competitive Advantages."

INCREASED COMPETITION IN THE HAWAII CRUISE MARKET AND FROM OTHER VACATION
ALTERNATIVES MAY ADVERSELY IMPACT OUR FINANCIAL PERFORMANCE

We presently compete against a wide range of vacation alternatives,
including other cruises, destination resorts and sightseeing vacations. Cruise
lines or other entities, including those with greater
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<PAGE> 14

resources, could introduce overnight U.S.-flagged vessels in direct competition
with our Delta Queen vessels, which may adversely impact our financial
performance. We may also face additional competition in the Hawaii cruise market
from foreign-flagged vessels as the Hawaii cruise market expands. The entry of
direct competition could make it more difficult for us to maintain or further
increase occupancy or prices for cruise vacations. This could result in lower
margins and reduce the profitability of our business.

AS A MEMBER OF THE VACATION AND LEISURE INDUSTRY, OUR BUSINESS IS SENSITIVE TO
GENERAL ECONOMIC AND BUSINESS CONDITIONS

As a vacation and leisure company providing cruise vacations, we depend on
our customers' leisure spending. Adverse changes in the general economic or
business environment could affect our customers by decreasing the amount of
money they spend on leisure activities such as cruising. A decrease in leisure
spending could affect passenger yields and occupancy rates on our ships, which
could adversely affect our financial performance.

IF WE DO NOT COMPLETE DRYDOCKING ON SCHEDULE OR WITHIN BUDGET, OUR REVENUES MAY
BE ADVERSELY IMPACTED

Operation of our vessels is subject to regulations established by the U. S.
Department of Transportation that are enforced by the U.S. Coast Guard. Among
these regulations is the requirement that the vessels be taken out of operation
and removed from the water for inspection of the exterior of the hull on a
periodic basis, referred to as drydocking. When we drydock one of our vessels as
required, we lose the revenue from that vessel's operations for the period it is
out of service. We also incur the additional cost of the drydock. The S.S.
Independence must be drydocked every 30 months and the Delta Queen vessels must
be drydocked every five years. Drydocks of Delta Queen vessels take place in the
winter months when our customer demand is weakest. For its last regularly
scheduled drydocking, the Mississippi Queen was out of service for 51 days
beginning on December 1, 1995. The Delta Queen was out of service beginning on
December 15, 1996 for 30 days for its last scheduled drydocking. The American
Queen, which first entered service in 1995, will have its first drydocking in
January, 2000. The last drydocking for the S.S. Independence began on May 17,
1997 and lasted 28 days. We cannot assure you that future drydocks for any of
our vessels will be completed on schedule or within their budgets.

RIVER AND OCEAN CONDITIONS AND WEATHER FACTORS CAN ADVERSELY AFFECT OUR
OPERATIONS AND OUR FINANCIAL PERFORMANCE

River or ocean conditions and weather factors can adversely affect our
operations and the financial performance of the Delta Queen and American Hawaii
lines by disrupting schedules or reducing operating days. As a result of
flooding and restrictions placed upon commercial travel along the inland rivers,
we have, in the past, canceled or re-routed scheduled cruises. We operate the
Hawaii cruise ship in and around the Hawaiian Islands. As a result, its
schedules are subject to ocean and weather conditions, including hurricane
conditions. Weather conditions could cause us to reschedule or cancel cruises.

THE LOSS OF VESSELS FROM SERVICE WOULD ADVERSELY IMPACT OUR BUSINESS

The loss of any vessel from service due to weather, casualty, mechanical
failure, extended or extraordinary maintenance, or otherwise, could adversely
affect our operating results. We believe we have a commercially reasonable level
of insurance coverage. In the event of a permanent or temporary loss of one or
more of the vessels, however, our insurance would not provide the replacement
costs of the vessels nor fully cover the impact of lost business.

ANTI-TAKEOVER AND TRANSFERABILITY LIMITATIONS OF U.S. OWNERSHIP REQUIREMENTS MAY
MAKE IT DIFFICULT FOR YOU TO SELL YOUR STOCK OR MAY DECREASE THE PRICE AT WHICH
YOU COULD SELL YOUR STOCK

One of the requirements for having U.S.-flagged vessels operating in U.S.
domestic trade is that 75% of our stockholders must be U.S. citizens. We have
restrictions in our certificate of incorporation limiting the transferability of
our common stock to non-U.S. citizens to preserve our U.S.-flagged status. These
limitations may have the effect of decreasing the liquidity of our common stock,
thereby making it more
12
<PAGE> 15

difficult for investors to dispose of their shares in an orderly manner. We have
also added legends to our stock certificates to indicate the citizenship of our
stockholders. These provisions and the level of ownership by Equity Group
Investments, Inc. and its affiliates, which we refer to as the "Equity Group,"
may deter a change in control and limit non-U.S. citizens', including
corporations and individuals, purchases of our common stock.

OUR CONTROLLING STOCKHOLDER MAY TAKE ACTIONS THAT ADVERSELY AFFECT OUR BUSINESS

Affiliates of the Equity Group will own an aggregate of approximately 42.2%
of the outstanding shares of common stock after this offering, or 41.0% if the
underwriter's over-allotment option is exercised in full. The Equity Group's
level of ownership after this offering may permit it to elect the members of our
board of directors who will control our future direction and operations. This
includes decisions regarding the issuance of securities, dividends, acquisitions
and our sale. The Equity Group's stockholders are, directly or indirectly,
trusts created for the benefit of Samuel Zell, Ann Lurie and their respective
families. Mr. Zell is the Chairman of our board of directors.

SALES OF OUR CONTROLLING STOCKHOLDER'S SHARES COULD HAVE AN ADVERSE EFFECT ON
OUR COMMON STOCK PRICE OR OUR ABILITY TO RAISE CAPITAL

The sale of a substantial number of shares of our common stock by the
Equity Group, or the perception that such a sale could occur, could negatively
affect the market price of our common stock. The Equity Group has pledged
4,603,000 of its 7,531,247 shares of our common stock to secure several loans.
If the Equity Group were to default on these loans, the creditors could acquire
the pledged shares. We have been advised by the Equity Group that it is
presently in compliance in all material respects with all covenants and terms of
these loans and has alternative resources with which to service the loans. Any
sale, or the perception that such a sale may occur, could also materially impair
our future ability to raise capital through an offering of equity securities.

OUR CONTROLLING STOCKHOLDER MAY HAVE CONFLICTS OF INTEREST WITH COMPETING
INTERESTS

The Equity Group, our controlling stockholder, is an investor directly or
indirectly in various business enterprises, both publicly and privately held.
Mr. Zell is also a officer and/or director in many of these affiliated
businesses. The Equity Group, Mr. Zell and/or these affiliated businesses may
from time to time receive opportunities in various businesses which might
compete with us in our current or future activities. Conflicts of interest may
result from such opportunities. The Equity Group and Mr. Zell have informed us
that neither it, he nor any of these affiliated businesses presently intends to
make investments which would cause a conflict of interest with us.

13
<PAGE> 16

USE OF PROCEEDS

The net proceeds from the sale of the 3,500,000 shares of common stock
offered by us are estimated to be approximately $55.6 million, or approximately
$64.0 million if the underwriters' over-allotment option is exercised in full,
after deducting the estimated underwriting discounts and commissions and
estimated offering expenses. We estimate that our expenses in connection with
this offering and certain related matters will total approximately $300,000. See
"Underwriting" for a discussion of underwriting terms and expenses.

We intend to use our net proceeds to finance the construction of the first
Hawaii cruise ship. Pending such use, we intend to invest the net proceeds of
the offering in short-term investment grade securities and government
obligations. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity, Capital Resources and Financial
Condition -- Capital Expenditures and Debt" and "Risk Factors -- If we do not
obtain significant amounts of capital to build, purchase and renovate vessels,
our expansion plans and future operating results may be adversely affected" for
more information on our proposed capital expenditures and intended use of
proceeds.

The amounts actually spent by us and the uses of the net proceeds may vary
significantly and will depend on a number of factors, including our future
revenues and the other factors described under "Risk Factors." For example, if
we do not obtain Maritime Administration guarantied financing, we may be forced
to abandon our Hawaii expansion plans. If we abandon our Hawaii expansion plans,
we will use the proceeds from this offering for other corporate purposes, such
as working capital.

14
<PAGE> 17

PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY

Our common stock trades on the Nasdaq National Market tier of the Nasdaq
Stock Market under the symbol AMCV. The following table sets forth, for the
periods indicated, the range of high and low closing sales price information for
shares of our common stock as reported on the Nasdaq National Market.

RANGE OF COMMON STOCK PRICES

<TABLE>
<CAPTION>
HIGH LOW
------------- ------------
<S> <C> <C> <C> <C>
1997
First Quarter............................................. $13 $10 1/8
Second Quarter............................................ $11 7/8 $ 9 7/8
Third Quarter............................................. $18 1/4 $10 1/4
Fourth Quarter............................................ $19 1/4 $16
1998
First Quarter............................................. $23 1/4 $17 1/4
Second Quarter............................................ $24 5/8 $14 3/4
Third Quarter............................................. $17 $12 1/2
Fourth Quarter............................................ $17 5/8 $11 3/8
1999
First Quarter............................................. $26 1/16 $17
Second Quarter (through April 21, 1999)................... $20 $17 1/4
</TABLE>

On April 21, 1999, the last reported closing sale price of the common stock
was $17 7/16 per share.

We did not pay cash dividends on our common stock during 1997 or 1998. We
currently anticipate that all of our earnings will be retained for planned
construction projects and ongoing business requirements. We do not anticipate
paying any cash dividends in the foreseeable future.

15
<PAGE> 18

SELECTED FINANCIAL DATA

We have derived the following summary selected financial data from our
audited consolidated financial statements included in our Annual Reports on Form
10-K for the years ended December 31, 1994, 1995, 1996, 1997 and 1998, each as
filed with the Securities and Exchange Commission.

As used in the following table, the following terms have the meanings set
forth below:

- A passenger night represents one passenger spending one night on a
vessel; for example, one passenger taking a three-night cruise would
equal three passenger nights.

- Physical occupancy percentage is passenger nights divided by capacity
passenger nights.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
1994 1995 1996 1997 1998
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues.......................................... $195,197 $188,373 $190,408 $177,884 $192,225
Cost of operations................................ 143,628 136,478 122,545 111,295 125,595
-------- -------- -------- -------- --------
Gross profit...................................... 51,569 51,895 67,863 66,589 66,630
Selling, general and administrative expenses...... 43,191 48,613 45,367 41,015 44,232
Depreciation and amortization expense............. 7,117 11,917 14,571 15,590 16,912
Impairment write-down............................. -- -- 38,390(1) -- --
One-time pre-opening costs........................ -- 5,900(2) -- -- --
Non-recurring charges............................. 5,699(3) -- -- -- --
-------- -------- -------- -------- --------
Operating income (loss)........................... (4,438) (14,535) (30,465) 9,984 5,486
Interest income................................... 1,389 1,706 912 1,028 1,117
Interest expense.................................. 717 5,708 8,111 6,963 6,639
Other income...................................... -- -- 11,729(4) -- 300
-------- -------- -------- -------- --------
Income (loss) before income taxes and minority
interest........................................ (3,766) (18,537) (25,935) 4,049 264
Income tax (expense) benefit...................... 1,451 6,308 8,299 (1,620) (107)
Minority interest in loss......................... 1,332 2,558 -- -- --
Net income (loss)................................. $ (983) $ (9,671) $(17,636) $ 2,429 $ 157
======== ======== ======== ======== ========
PER SHARE INFORMATION:
Basic:
Basic weighted average shares outstanding....... 14,085(5) 13,763 13,802 13,952 14,137
Earnings (loss) per share....................... $ (0.07)(5) $ (0.70) $ (1.28) $ 0.17 $ 0.01
Diluted:
Diluted weighted average shares outstanding..... 14,085(5) 13,763 13,802 14,338 14,777
Earnings (loss) per share....................... $ (0.07)(5) $ (0.70) $ (1.28) $ 0.17 $ 0.01
footnotes on following page
</TABLE>

16
<PAGE> 19

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
1994 1995 1996 1997 1998
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA (AT PERIOD END):
Cash and cash equivalents......................... $ 12,224 $ 6,048 $ 17,908 $ 19,187 $ 27,004
Working capital................................... (48,756) (48,313) (38,745) (41,564) (35,284)
Total assets...................................... 227,798 247,473 211,864 210,895 212,792
Long-term debt, less current portion.............. 65,000 103,272 85,898 81,488 77,388
Total stockholders' equity........................ 82,105 71,413 54,982 59,219 62,014
OTHER DATA:
Cash flows provided by (used in) operating
activities...................................... (4,804) (9,947) 15,016 22,414 18,524
Cash flows provided by (used in) investing
activities...................................... (67,866) (35,521) 13,891 (17,864) (8,224)
Cash flows provided by (used in) financing
activities...................................... 47,949 39,292 (17,047) (3,271) (2,483)
OPERATING STATISTICS (UNAUDITED):
Fare revenue per passenger night.................. $ 202 $ 208 $ 216 $ 228 $ 224
Total revenue per passenger night................. 297 288 287 302 314
Weighted average operating days
Delta Queen..................................... 339 263 347 337 341
American Hawaii................................. 303 272 366 337 365
Vessels capacity per day (passenger berths)
Delta Queen..................................... 588 1,024 1,024 1,026 1,026
American Hawaii................................. 1,544 1,594 817 844 867
Passenger nights.................................. 632,373 628,660 643,891 588,892 611,624
Physical occupancy percentage..................... 95% 90% 98% 94% 92%
</TABLE>

- -------------------------
(1) We removed the S.S. Constitution from service on June 27, 1995 and
recognized an associated impairment write-down of $38.4 million in 1996, or
1.89 per share net of tax on a diluted basis.

(2) In 1995, we incurred a $5.9 million, or $0.28 per share net of tax on a
diluted basis, one-time charge that represented costs associated with the
introduction of the American Queen in June of 1995.

(3) In 1994, we incurred a $5.7 million, or $0.20 per share-net of tax on both a
basic and diluted basis, in one-time charges due to problems related to the
renovation of the S.S. Independence.

(4) In October 1996, we sold the Maison Dupuy hotel located in New Orleans,
Louisiana for a gain of $11.7 million, or $0.57 per share net of tax on a
diluted basis.

(5) Figures for 1994 are unaudited.

EBITDA for 1998 was $22.7 million and for 1997 was $25.6 million. In 1996,
EBITDA was negative $4.2 million, after an impairment write-down of $38.4
million related to our decision not to renovate and return the S.S. Constitution
to service and a one-time gain of $11.7 million on the sale of the Maison Dupuy
hotel. In 1995, EBITDA was negative $2.6 million, after a one-time charge of
$5.9 million that represented costs associated with the introduction of the
American Queen in June 1995. EBITDA for 1994 was $2.7 million, after a one-time
charge of $5.7 million due to problems related to the renovation of the S.S.
Independence. Along with cash flows from operating, financing and investing
activities, we believe that EBITDA provides operating information relevant to
our ability to incur and service debt and to make capital expenditures. EBITDA
means earnings before interest, income taxes, depreciation and amortization.
EBITDA is unaudited and does not represent cash flows provided by operating
activities in accordance with generally accepted accounting principles, is not
to be considered as an alternative to net income or any other measurement under
generally accepted accounting principles used as a measure of operating
performance, and is not necessarily indicative of cash available to fund all
cash needs.

17
<PAGE> 20

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

GENERAL

American Classic Voyages Co. is a holding company which owns and controls
The Delta Queen Steamboat Co. and Great Hawaiian Cruise Line, Inc. Through our
various subsidiaries, we operate two cruise lines: Delta Queen, which owns and
operates the American Queen, Mississippi Queen and Delta Queen steamboats, and
American Hawaii, which owns and operates the S.S. Independence steamship.

Our revenues are comprised of:

- cruise fares,

- onboard revenues, such as those from gift shops and shore excursions, and

- trip cancellation insurance and pre- and post-cruise hotel packages.

Additional revenue is also derived from the sale of airplane tickets to and
from points of embarkation or disembarkation. Our cost for air tickets typically
matches the revenue we generate from sales of airline tickets, so we recognize
minimal profits from such sales. Our cost of operations are comprised of:

- passenger expenses, such as employee payroll and benefits, and the cost
of food and beverages,

- vessel operating costs including lay-up and drydocking costs for our
vessels,

- insurance costs,

- commissions paid to travel agents, and

- air ticket and hotel costs.

When we receive deposits from passengers for cruises, we establish a
liability for unearned passenger revenue. We recognize revenue when the
passengers take their cruises and make a corresponding reduction in our unearned
passenger revenues. Our revenues and some of our expenses vary considerably when
measured on a quarterly basis. This is due to the seasonality of our Delta Queen
revenues, the timing of our layups and drydockings, and fluctuations in
airfares. These variations are reflected in our fare revenues per passenger
night, which are commonly referred to as fare per diems, and our occupancy
rates.

Seasonality

Delta Queen's operations are seasonal. Historically, we have had greater
passenger interest and higher yields in the spring and fall months of the year.
The vessels typically undergo their annual lay-ups in December or January. While
American Hawaii has historically experienced greater passenger interest in the
summer and fall months of the year, quarterly variations in its revenues are
much smaller than those of Delta Queen. During the summer months, in particular,
American Hawaii tends to have average occupancies in excess of 100% as the
number of families sharing cabins with children increases significantly during
this period.

RESULTS OF OPERATIONS

Selected quarterly data

As a result of seasonality, timing of vessel lay-ups and drydocking and the
factors affecting our revenues, results of operations vary on a quarterly basis.
The following tables set forth selected unaudited quarterly data for 1996, 1997
and 1998. We cannot assure you that our historical quarterly results of

18
<PAGE> 21

operations will be indicative of our future performance. The figures in the
tables below state dollars in thousands, except per share data, fare revenue and
percentages.

<TABLE>
<CAPTION>
1996 -- QUARTERS ENDED
-----------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- ------- ------------ -----------
<S> <C> <C> <C> <C>
Revenues........................................ $ 41,628 $49,021 $49,776 $49,983
Gross profit.................................... 13,556 17,721 17,950 18,636
Operating (loss) income......................... (41,784)(1) 2,323 4,834 4,162
Net (loss) income............................... (43,271)(1) 381 2,851 22,403(2)
Diluted (loss) income per share................. (3.14) 0.03 0.20 1.59
Fare revenue per passenger night................ 204 218 209 230
Physical occupancy percentage................... 95% 98% 102% 98%
</TABLE>

<TABLE>
<CAPTION>
1997 -- QUARTERS ENDED
-----------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- ------- ------------ -----------
<S> <C> <C> <C> <C>
Revenues......................................... $ 40,372 $42,356 $49,746 $45,410
Gross profit..................................... 13,233 17,661 19,606 16,089
Operating (loss) income.......................... (1,869) 3,451 6,098 2,304
Net (loss) income................................ (1,988) 1,177 2,770 470
Diluted (loss) income per share.................. (0.14) 0.08 0.19 0.03
Fare revenue per passenger night................. 221 245 224 223
Physical occupancy percentage.................... 91% 94% 96% 93%
</TABLE>

<TABLE>
<CAPTION>
1998 -- QUARTERS ENDED
-----------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- ------- ------------ -----------
<S> <C> <C> <C> <C>
Revenues......................................... $ 40,668 $53,535 $50,920 $47,102
Gross profit..................................... 11,209 20,562 18,184 16,675
Operating (loss) income.......................... (6,143) 4,037 3,798 3,794
Net (loss) income................................ (4,362) 1,574 1,454 1,491
Diluted (loss) income per share.................. (0.31) 0.11 0.10 0.10
Fare revenue per passenger night................. 211 231 222 230
Physical occupancy percentage.................... 87% 97% 95% 88%
</TABLE>

- ---------------
(1) In the first quarter of 1996, we decided not to renovate and return the S.S.
Constitution to service, resulting in write-down costs of $38.4 million,
$2.79 per share on a diluted basis before any associated tax benefit. The
tax benefit associated with this write-down was recognized in the fourth
quarter of 1996. Had such tax benefit been recognized in the first quarter
of 1996, the per share write-down costs net of tax on a diluted basis would
have been $1.89.

(2) In the fourth quarter of 1996, we sold the Maison Dupuy hotel located in New
Orleans, Louisiana for a gain of $11.7 million, or $0.57 per share, net of
tax on a diluted basis. The fourth quarter also includes a year-to-date
adjustment of the federal tax benefit based on our review of our tax
position.

The following discusses our consolidated results of operations and
financial condition for the years ended December 31, 1998, 1997 and 1996.

YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997

Consolidated revenues for 1998 increased $14.3 million to $192.2 million
from $177.9 million for 1997. This represents a $2.7 million increase in fare
revenues combined with an $11.6 million increase in other revenues. American
Hawaii's fare revenues increased $4.1 million on a 14% increase in passenger
nights mainly due to an 11% increase in capacity associated with additional
operating days in 1998. The number of operating days was higher in 1998 than in
1997 because the S.S. Independence was out of service for a four-week drydock in
1997. American Hawaii's fare per diems, however, decreased by 5%. Delta Queen's
fare revenues decreased $1.4 million, attributable to a 5% decrease in
occupancy, offset by a

19
<PAGE> 22

3% increase in fare per diems. Consolidated fare per diems for 1998 decreased 2%
to $224, as the decrease in fare per diems at American Hawaii more than offset
the increase in fare per diems at Delta Queen. The $11.6 million increase in
other revenues was mainly due to an increase in passenger nights at American
Hawaii and an increase in passengers electing to purchase air through American
Hawaii under various air promotions. As a result, consolidated total revenue per
passenger night increased 4% to $314. As discussed below, the increase in air
revenue was offset by a corresponding increase in related air expenses.

Consolidated cost of operations for 1998 increased $14.3 million to $125.6
million from $111.3 million for 1997. American Hawaii's operating costs
increased $15.0 million, primarily as a result of additional operating days and
an increase in air package expenses. The increase in air package expenses was
directly related to the increase in air revenue, as noted above. Delta Queen's
operating costs decreased by $0.7 million reflecting the decrease in occupancy.

Consolidated selling, general and administrative expenses, before capacity
expansion costs, increased $2.0 million to $41.9 million for 1998 from $39.9
million in 1997. The increase in consolidated selling, general and
administrative expenses reflects additional selling and marketing spending at
both cruise lines in the first half of the year. Capacity expansion costs of
$2.3 million in 1998 were $1.2 million higher than in the prior year. Capacity
expansion expenses were incurred for a full year during 1998 for both cruise
lines, whereas in 1997, these expenses were incurred in the second half of the
year for American Hawaii only. The $1.3 million increase in depreciation and
amortization expense was attributable to capital expenditures incurred during
the 1997 S.S. Independence drydock and Delta Queen vessel lay-ups completed
earlier in 1998.

As a result of increases in expenses as detailed above, consolidated
operating income for 1998 was $5.5 million as compared to $10.0 million for
1997.

Interest expense decreased slightly due to a lower outstanding debt balance
during 1998, while our effective tax rate remained unchanged from the prior
year.

YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996

Consolidated revenues for 1997 decreased $12.5 million to $177.9 million
from $190.4 million for 1996 representing a $6.6 million decrease in cruise
revenues combined with a $5.9 million decrease in hotel revenues as a result of
the sale of the Maison Dupuy hotel. Delta Queen owned and operated the hotel,
located in New Orleans, prior to its sale in October 1996. Delta Queen's cruise
revenues increased $7.1 million, reflecting an 12% increase in fare per diems
combined with an 11% increase in revenue from air and land packages. The
increase in fare per diems as compared to 1996 was attributable to a reduction
in the use of discounts to fill open inventory close to a sailing date. American
Hawaii's revenues decreased $13.7 million as a result of an 8% decrease in
operating days due to the S.S. Independence drydock combined with a 3% decrease
in fare per diems and a 9% decrease in occupancy. Consolidated fare per diems
for 1997 increased 6% to $228, and consolidated total revenue per passenger
night increased 5% to $302, as the increase in fare per diems at Delta Queen
more than offset the decrease in fare per diems at American Hawaii.

Consolidated cost of operations decreased $11.2 million to $111.3 million
for 1997 from $122.5 million for 1996. Hotel-related costs of operations
represented $1.9 million of the 1996 costs. American Hawaii's operating costs
decreased $9.2 million primarily as a result of the S.S. Independence drydock
while Delta Queen's cruise operating costs decreased $0.1 million. Savings in
Delta Queen's passenger and vessel expenses were offset by an increase in air
and land package expense corresponding to the increased sales of air and land
packages.

Consolidated selling, general and administrative expenses decreased $4.4
million to $41.0 million for 1997 from $45.4 million for 1996. Of the $4.4
million decrease, $2.3 million was attributable to the hotel, with the remainder
of the decrease primarily due to cost savings at Delta Queen. Also included in
selling, general and administrative expenses for 1997 were $1.6 million of
American Hawaii's office relocation costs and costs incurred for planning for
capacity expansion in Hawaii. The $1.0 million increase in

20
<PAGE> 23

depreciation and amortization expense was primarily attributable to the S.S.
Independence drydock and capital improvements on Delta Queen vessels during
lay-ups earlier in the year.

In the first quarter of 1996, we recognized an impairment write-down of
$38.4 million related to our decision not to renovate or return the S.S.
Constitution to service. As the vessel was sold in November 1997 for net sale
proceeds of $1.8 million, the salvage value of the vessel was written down from
$2.5 million to $1.8 million. This write-down was offset by a reduction in the
reserve set-up for the estimated costs to be incurred on behalf of the vessel
until its eventual disposition.

Consolidated cruise operating income for 1997 was $10.0 million as compared
to cruise operating income of $6.5 million, excluding the S.S. Constitution
write-down and hotel operations in 1996. Hotel operating income in 1996 was $1.4
million.

Interest expense decreased $1.1 million due to a lower outstanding debt
balance in 1997. Our consolidated effective tax rate increased to 40% in 1997
from 32% in the prior year as we recognized additional state tax expenses in
1997.

LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL CONDITION

Operating Activities

For the year ended December 31, 1998, cash provided by operations was $18.5
million compared to $22.4 million in 1997. The decrease reflected the decline in
operating income as mentioned earlier and changes in other working capital
accounts. Offsetting the decrease was an increase in unearned passenger
revenues, representing passenger cruise deposits, which increased $5.6 million
in 1998 as compared to an increase of $2.0 million in 1997. The increase in
unearned passenger revenues was greater in 1998 than in 1997 due to the timing
of Delta Queen's 1998/1999 lay-ups, as discussed below, which occurred later
than the 1997/1998 lay-ups and deposits received in 1998 for the millennium
charter cruises for both cruise lines.

Investing Activities

During 1998, we made expenditures of $8.8 million on capital projects, of
which $5.6 million related to our existing vessels. $3.8 million of the $5.6
million related to the Delta Queen and American Queen lay-ups, which were
completed in the first quarter of 1998. The remaining $1.8 million related to
vessel improvement projects and costs incurred for the Mississippi Queen lay-up
which began December 13, 1998. Other significant capital expenditures included
$3.0 million related to design fees and costs associated with new shipbuilding
programs at American Hawaii and Delta Queen, as discussed below.

In February 1998, we received $0.3 million of final proceeds from the buyer
of the Maison Dupuy hotel which we sold in October 1996. Additionally, $0.3
million of cash pledged under a letter of credit became unrestricted during 1998
upon the cancellation of the letter of credit.

Financing Activities

We made scheduled principal payments of $4.1 million under the American
Queen and S.S. Independence ship financing notes during 1998. We repurchased
$0.8 million of our common stock during 1998 under the stock repurchase plan, as
discussed below. We received $2.9 million during 1998 from the issuance of our
common stock, principally from stock options exercised by our employees. We paid
$0.5 million during 1998 for financing efforts related to our new shipbuilding
programs.

Capital Expenditures and Debt

On January 21, 1999, the Mississippi Queen completed a 39-day lay-up. The
American Queen also completed a 15-day lay-up on February 10, 1999. The Delta
Queen completed a 54-day lay-up on February 27, 1999. The lay-ups for the three
vessels, including repairs and maintenance, cost approximately $5.5 million and
were funded from working capital.

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<PAGE> 24

In October 1997, we announced plans to expand capacity in the Hawaii cruise
market. We intend to construct two new cruise ships over the next five years and
plan to introduce an existing foreign-built cruise ship in the Hawaii market
while awaiting construction of the new vessels. On March 9, 1999, we signed a
definitive agreement with Ingalls Shipbuilding to construct two passenger ships,
each containing approximately 1,900 passenger berths, with options to build up
to four additional vessels. The estimated total construction cost of the two
initial ships will be approximately $470 million each. The agreement provides
that the first ship will be delivered in January 2003 and the second ship in
January 2004. See "Business -- Expansion Plans -- Hawaii Expansion Plans" for a
discussion of the material terms of the construction contract with Ingalls
Shipbuilding.

In 1999, we expect to spend between $80 million and $100 million on
building the two new Hawaii cruise vessels, which includes anticipated payments
to Ingalls Shipbuilding.

In April 1998, we announced plans to expand capacity at Delta Queen. For
the Delta Queen fleet, we intend to build up to five new small coastal ships
over the next seven to 10 years. The ships will each accommodate approximately
226 passengers and cruise in coastal areas and other itineraries not currently
served by existing Delta Queen vessels. These include such U.S. locations as the
Eastern Coastline and the Pacific Northwest. We have completed naval contract
designs and are presently negotiating with a U.S. shipyard. The estimated
construction cost of the ships will be approximately $35 million each. If we
decide to go forward with the expansion plan and enter into a shipyard contract,
construction of the first new vessel will begin in mid-1999 with a targeted
introduction of the first coastal cruiser into service in mid-2001.

We have entered into an agreement to acquire a new vessel and plan to
convert it into an overnight passenger vessel with approximately 150 passenger
berths for use as the fourth Delta Queen riverboat. The purchase price for the
vessel is approximately $8.0 million. We have conducted a due diligence review
to ensure the vessel can be effectively and efficiently renovated for passenger
use and that the cost of outfitting the vessel is consistent with our current
estimates. Based on this due diligence review, we are seeking to amend the terms
and conditions of the agreement. We estimate that the total renovation,
relocation, start-up and marketing costs will require an additional $12 million.
We expect that the conversion project will take between six and nine months and
that the vessel will be able to enter into service in the first half of 2000.

Assuming we proceed with our expansion plans for the Delta Queen line, we
expect to spend between $15 million and $20 million in 1999 on building the new
coastal cruise vessels, which also includes anticipated payments to the
shipyard. We estimate that costs to be incurred in 1999 to acquire and outfit
the fourth riverboat will be $18 million.

We intend to finance a significant portion of the purchase price of the
Hawaii cruise ships through the Maritime Administration, which provides
guaranties of private financing for new vessel construction projects conducted
in U.S. shipyards. We have received a letter commitment from the Maritime
Administration, subject to customary conditions, for financing guaranties for
debt for up to 87.5% of the cost of the vessels. The guarantied debt would be
accessed during the construction period, with interest payments during that
period capitalized as part of the cost of construction. In the current market,
this type of debt generally bears interest at a rate of 100 to 150 basis points
over the comparable U.S. government obligations and can have a term of up to 25
years from the date of delivery of the vessel. The loans generally amortize on a
straight line basis over the term of the loan commencing after the delivery
date. Fees associated with the financing guarantees include a one-time
investigation fee equal to $1,386,906. In addition, the Maritime Administration
imposes an annual guaranty fee of not less than 1/4 of 1% and not more than 1%
of the indebtedness, reduced by any required escrow, based upon the obligor's
ratio of long-term debt to stockholders' equity. The present value of the annual
guaranty fees is payable at the closing of the Maritime Administration
guarantied financing and capitalized as part of the vessel cost. See "Risk
Factors -- If we are unable to obtain Maritime Administration financing
guaranties, it will impede our expansion plans and future revenue growth" for
more detail regarding the impact on us if we do not obtain

22
<PAGE> 25

Maritime Administration financing guaranties. We currently have several Maritime
Administration guarantied loans outstanding, secured by the S.S. Independence
and the American Queen.

In June 1997, our board of directors approved a stock repurchase plan. The
plan authorizes us to repurchase up to one million shares of our stock. These
shares may be purchased from time to time in the public market or through
privately negotiated transactions. As of December 31, 1998, we had repurchased
51,000 shares at an average purchase price of $14.84 per share under the plan.
We currently have no intention to repurchase any additional shares of common
stock.

As of December 31, 1998, we complied with all covenants under our various
debt agreements.

On February 25, 1999, The Delta Queen Steamboat Co. entered into a credit
agreement with a group of lenders, with The Chase Manhattan Bank as agent. This
credit agreement provides for a revolving credit facility of up to $70 million
to fund the expansion of our Delta Queen line. This new $70 million facility
replaced our prior credit facility with Chase Manhattan.

Borrowings under the new credit facility bear interest at either the
greater of Chase Manhattan's prime rate or alternative base rates plus a margin
ranging from 0.50% to 1.50% or the London Interbank Offered Rate plus a margin
ranging from 1.50% to 2.50%. We are also charged a fee of 0.50% per annum on any
unused commitment. The new credit facility is secured by all of the assets of
The Delta Queen Steamboat Co., except for the American Queen. The new credit
facility limits the dividends The Delta Queen Steamboat Co. may pay to between
$5 million and $15 million per year when aggregated with investments and other
payments.

Subject to obtaining Maritime Administration guarantied financing, we
believe we will have adequate access to capital resources, both internally and
externally, to meet our current short-term and long-term capital commitments.
Such resources may include cash on hand and the ability to secure additional
financing through the capital markets. We continually evaluate opportunities to
increase capacity at both Delta Queen and in Hawaii and to strategically grow
our business. As discussed earlier, we announced plans to expand capacity at
Delta Queen and in the Hawaii market. Although we believe that we will be able
to obtain sufficient equity and debt financing from the capital markets to
construct the new vessels, we cannot assure you that we will be able to obtain
additional financing at commercially acceptable levels to finance such new
construction and, if we so choose, to pursue strategic business opportunities.

Impact of Year 2000

Many computer programs have been written using two digits rather than four
to define the applicable year. Any of our computer programs that have
time-sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. This could result in a major system failure, miscalculations
and/or other unanticipated problems.

State of readiness

We have established internally staffed project teams to address Year 2000
issues. Each team is formulating a plan that focuses on Year 2000 compliance
efforts for information technology systems and non-information technology
systems. This plan addresses:

- information technology systems software and hardware such as
reservations, accounting and associated systems, personal computers and
software, and

- non-information technology systems such as embedded chip systems in
building facilities, shipboard navigation, control, power generation
systems, and communication systems.

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<PAGE> 26

Our Year 2000 plan addresses the Year 2000 issues in various phases for
both types of systems including:

- inventory of our systems, equipment and suppliers that may be vulnerable
to Year 2000 issues;

- assessment of inventoried items to determine the risks associated with
their possible failure to be Year 2000 compliant;

- testing of systems and components to determine if they are Year 2000
compliant, both prior to and subsequent to remediation;

- remediation and implementation of new systems; and

- contingency planning to address reasonably likely worst case scenarios.

For information technology systems, inventories and risk assessments have
been substantially completed for all our shoreside software applications,
hardware and operating systems. Most of our reservations systems functions have
been tested and were found to be compliant. The remaining functions will be
tested and remediated, if necessary, by mid-1999. We have also determined that
our shoreside phone system and onboard financial systems on the Delta Queen
vessels are Year 2000 compliant. The S.S. Independence's onboard financial
system and our shoreside accounting system, however, are not Year 2000
compliant. We will utilize both internal and external resources to continue
testing, reprogramming and replacing our information technology systems that
require Year 2000 modifications. We anticipate completing the system
improvements and the Year 2000 project no later than September 30, 1999. This is
prior to any anticipated impact on our operating systems. We anticipate that
these modifications and improvements will enable our information systems to
function properly with respect to dates in the Year 2000 and thereafter.

Inventories and risk assessments are currently being performed for all
non-information technology systems and are expected to be finalized by April 30,
1999. The process of testing, remediation and implementation is expected to be
completed by September 30, 1999.

Risks of Year 2000 issues

If any of our suppliers or travel partners do not, or if we do not,
successfully deal with the Year 2000 issue, we could experience delays in
scheduled cruises which could result in lost revenues or increases in costs and
could subject us to claims and damages. To determine the most reasonably likely
sources of these risks, we have been communicating with our major suppliers and
travel partners on their Year 2000 compliance issues. For example, our external
air ticketing and credit card processing software has been determined to be Year
2000 compliant.

Based on these procedures, management believes that the most reasonably
likely sources of risk to us include:

- the disruption of transportation channels relevant to our operations,
including ports and transportation vendors, primarily airlines, as a
result of a general failure of support systems and necessary
infrastructure;

- the disruption of travel agency and other sales distribution systems; and

- the inability of principal product suppliers to deliver goods and
services.

The severity of these possible problems would depend on the nature of these
problems and how quickly they could be corrected or alternatives implemented.

Our major suppliers and travel partners consist of our transportation
vendors, our primary external airline ticketing vendor, and our primary credit
card processing software vendors. Our primary external airline ticketing vendor
has certified that its systems are Year 2000 compliant. Our primary credit card
processing software vendors have also certified that their systems are Year 2000
compliant. We have not received written assurance from our transportation
vendors indicating that they will be Year 2000
24
<PAGE> 27

compliant before the end of 1999. Because we have no contingency plan to
transport our customers long distances to and from our embarkation and
disembarkation points, failure by our transportation vendors to provide
transportation services could have a material adverse effect on our operations
and our financial condition.

Some risks of the Year 2000 issue are beyond our control and the control of
our other travel partners and suppliers. For example, no preparations or
contingency plan will protect us from a downturn in economic activity caused by
the possible ripple effect throughout the entire economy that could be caused by
problems of others with Year 2000 issues.

Costs

We have estimated our total costs for system improvements and the Year 2000
project to be approximately $1.0 million. These efforts are being funded from
working capital. Of the total project cost, approximately $0.5 million is
attributable to the implementation of a new accounting system. This amount
includes new software, new hardware, and consulting fees, all of which will be
capitalized. Another $0.3 million of capital outlays is attributable to the
upgrading of the S.S. Independence's onboard financial system and to the
replacement of imbedded chip systems in several of our vessels. The remaining
$0.2 million is expected to be expensed as incurred and is not expected to have
a material impact on the results of operations. The Year 2000 project represents
less than 10% of our information systems budget. To date, we have incurred and
expensed approximately $75,000 related to our systems improvements and the Year
2000 project. These costs do not include costs incurred by us as a result of the
failure of any third parties, including suppliers, to become Year 2000 compliant
or costs to implement any contingency plans.

The costs of the project and the date on which we believe it will complete
the Year 2000 modifications are based on our best estimates given presently
available information. These estimates were derived utilizing numerous
assumptions of future events, including the continued availability of the
resources we rely on, third party modification plans and other factors. We
cannot assure you, however, that these estimates will be achieved, and actual
results could differ materially from those anticipated. Specific factors that
might cause such material differences include, but are not limited to, the
availability and cost of personnel trained in this area, the ability to locate
and correct all relevant computer code, and similar uncertainties.

Contingency plans

We are preparing our contingency plans to identify and determine how to
handle our most probable worst case scenarios. Preliminary contingency plans are
currently being reviewed. Comprehensive contingency plans are estimated to be
complete by mid-1999.

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<PAGE> 28

BUSINESS

GENERAL

American Classic Voyages Co. is the leading provider of overnight passenger
cruises among the Hawaiian Islands and on the Mississippi River system. We
operate two cruise lines under the names American Hawaii and Delta Queen.
American Hawaii, acquired in August 1993, operates the S.S. Independence, a
U.S.-flagged ocean liner with 867 total passenger berths. American Hawaii
provides inter-island cruises on a year-round basis among the Hawaiian Islands.
Delta Queen currently operates the Delta Queen, American Queen and Mississippi
Queen, U.S.-flagged paddlewheel steamboats having 1,026 total passenger berths.
Delta Queen provides cruise vacations on the Mississippi, Ohio, Cumberland,
Tennessee, Arkansas, Illinois and Atchafalaya Rivers. We do not offer gaming on
our vessels.

American Classic Voyages Co. is a Delaware corporation incorporated in 1985
as a holding company that owns and controls The Delta Queen Steamboat Co., which
operates Delta Queen through various subsidiaries, and Great Hawaiian Cruise
Line, Inc., which operates American Hawaii through various subsidiaries.

STATUTORY COMPETITIVE ADVANTAGES

Passenger Vessel Act of 1886

Under the Passenger Vessel Act and related U.S. laws, only U.S. ships that
are:

- U.S. built,

- owned by U.S. citizens,

- operated by U.S. crews and officers, and

- U.S.-flagged by the U.S. Coast Guard

are permitted to operate exclusively between U.S. ports, including the islands
of Hawaii. We are the only U.S.-flagged, large scale, overnight cruise line
operator providing inter-island vacations among the Hawaiian Islands. Most
cruise line operators, such as Carnival Cruise Lines, Royal Caribbean
International, Princess Cruises and Disney Cruise Line, do not sail U.S.-flagged
vessels. Therefore, they must include a foreign port in their itineraries.
Typically, operators of non-U.S.-flagged ships send some of their ships to
Hawaii in late spring or early fall, generally using Vancouver, British Columbia
or Ensenada, Mexico as their foreign ports of call, as they reposition their
cruise ships to or from the Alaska market.

Accordingly, we believe our U.S.-flagged designation provides us with
significant itinerary advantages. Our cruises can visit and explore the beauty
and attractions of the various Hawaiian Islands without having to include a
foreign port, which involves at least four sailing days across the Pacific
Ocean. On inland U.S. waterways, where Delta Queen operates, the Passenger
Vessel Act requirements effectively prohibit foreign-flagged vessels from
offering competing itineraries.

U.S. Flag Cruise Ship Pilot Project Statute

The Pilot Project Statute was enacted in 1997 to develop the U.S.-flagged
cruise ship industry and stimulate commercial construction of cruise ships in
the U.S. In connection with our execution of a definitive agreement with Ingalls
Shipbuilding to construct at least two new vessels in a U.S. shipyard, we
believe that we will have

(1) the exclusive right to operate large U.S.-flagged cruise ships in
the domestic trade among the Hawaiian Islands for the life expectancy of
the vessels, and

(2) the right to operate a foreign-built cruise ship as a U.S.-flagged
ship in the Hawaiian Islands for a period of two years following delivery
of the final vessel under the contract.

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<PAGE> 29

We will enjoy the benefits of the Pilot Project Statute, however, only if
we comply with its terms. The Pilot Project Statute requires, among other
things, as a condition to obtaining these rights that the agreement to construct
the new cruise ships provide that:

- the vessels are built with more than 867 berths each; and

- delivery of the first vessel be prior to January 1, 2005 and the
second vessel prior to January 1, 2008.

The statute does not restrict the activities of small U.S.-flagged cruise
ships with fewer than 275 passengers and less than 10,000 gross tons.

THE VACATION CRUISE MARKET

The cruise industry is among the fastest growing segments in the
leisure/vacation industry, according to Cruise Line International Association
statistics. We believe that the demand for cruises will continue to expand for
the reasons discussed below.

Historically Strong Growth Rates

Cruise Line Association statistics indicate that the cruise industry has
experienced passenger growth of approximately 9% annually since 1970.

[Graph Showing Growth in North American Cruise Passengers]

<TABLE>
<CAPTION>
Number of
Passengers
Years (Million)
'1970' 0.5
- ------ ---
<S> <C>
'1980' 1.40
'1984' 1.90
'1988' 3.20
'1992' 4.10
'1996' 4.70
'1997' 5.00
'1998' 5.40
</TABLE>

* Estimated
Source: Cruise Line Association

Our revenues, however, have not grown historically at the same rate as the
cruise industry. This has been due, in part, to the cruise industry growing by
introducing new and increasingly larger cruise ships. Although we cannot assure
you that our growth rate will increase to or above the growth level of the
industry as a whole through the introduction of new vessels into Hawaii, we
believe that our introduction of new cruise ships into Hawaii will expand our
business and increase our revenues.

Strong Demographics

The demographics of the U.S. population appear favorable to the cruise
industry. There are 133 million potential cruise passengers in the United States
target market. The U.S. target market is defined by the Cruise Line Association
as adults 25 years of age or older with household incomes in excess of $20,000.

27
<PAGE> 30

According to the Cruise Line Association, the average age of cruise
passengers currently is 50 years. Between the years 2000 and 2010, the U.S.
population aged 45-54 and 55-64, the prime ages for cruising, is expected to
grow from 37,030,000 to 43,564,000 and from 23,962,000 to 35,283,000,
respectively, according to U.S. Census Bureau statistics. This growth amounts to
increases of over 18% and 47%, respectively. As Americans continue to live
longer, we believe the base of potential new and returning passengers for the
cruise industry should continue to grow.

In addition, consumers have increased their recreational spending.
According to the Bureau of Economic Analysis, recreation expenditures grew at an
average rate of 6.4% between 1975 and 1998, while personal consumption grew at
an average rate of 3.1% and gross domestic product grew at an average rate of
3.0% during the same period.

Large Untapped Market Potential

While the cruise market has grown significantly over the past three
decades, we believe that its untapped potential is very large. This is supported
by Cruise Line Association statistics indicating that almost 90% of the U.S.
population has never cruised. In addition, according to a Cruise Line
Association study, 56% of those surveyed in its target market of Americans over
the age of 25 with annual incomes in excess of $20,000 report that they are
interested in cruising. We cannot assure you, however, that we will be able to
capture any of this untapped potential in the future.

High Customer Satisfaction

Cruise passengers report very high customer satisfaction with their
vacation experiences. According to the Cruise Line Association, over 90% of
cruisers indicate cruises are better than or as good as other vacations.

These high levels of customer satisfaction are further supported by a high
return rate. According to a Cruise Line Association study, passengers who have
cruised over the past five years have taken an average of 2.4 cruises during
this period.

Modern Ships and New Itineraries

According to Cruise Line Association statistics, the cruise industry has
historically seen a close correlation between growth in capacity and growth in
the number of passengers.

[Graph Showing Growth in North American Cruise Capacity vs. Growth in Number of
Passengers]

<TABLE>
<CAPTION>
CAPACITY GROWTH(%) PASSENGER GROWTH(%)
------------------ -------------------
<S> <C> <C>
'1987' 10.50 10.40
'1988' 8.20 9.60
'1989' 0.10 3.50
'1990' 15.40 10.80
'1991' 3.70 9.30
'1992' 12.60 3.90
'1993' 6.60 8.30
'1994' -0.7 -0.7
'1995' 1.80 -1.6
'1996' 4.90 6.30
'1997' 7.40 8.50
</TABLE>

Source: Cruise Line Association

In order to accommodate passenger preferences for the most modern ships
available, the cruise industry has built new ships. In turn, these new ships
have had the effect of attracting new passengers, as well as

28
<PAGE> 31

providing a wider variety of experiences for the passengers who have cruised
before. Based upon figures contained in public filings, occupancy rates for the
major cruise lines have remained strong. Many of these major cruise lines report
occupancy rates near or above 100%. As occupancy rates are based on double
occupancy, these rates can exceed 100% since many cabins accommodate more than
two people. As the industry continues to increase passenger berth capacity, we
believe that passenger growth will keep pace with the new development.

Cruise lines have also been able to increase customer demand by offering
new itineraries, which have been particularly effective at encouraging
experienced cruisers to take new cruises. Certain itineraries, such as Europe
and the Panama Canal, have experienced substantial growth in the last ten years.
As the Caribbean and other itineraries mature, Hawaii is receiving increased
attention as a market with strong growth potential.

THE HAWAII CRUISE MARKET

Hawaii is one of the world's premier tourist destinations. With its
excellent year-round weather and natural beauty, Hawaii received approximately
6.7 million visitors in 1998, 4.3 million of whom were westbound travelers, as
categorized by Hawaii Visitors and Convention Bureau statistics. The Hawaii
Visitors Bureau reported that westbound Hawaii visitors have typically stayed in
Hawaii for relatively long visits, averaging 10.3 days in 1997. These westbound
visitors to Hawaii also tend to be relatively affluent, spending an average in
1997 of $165 per day per visitor.

Despite the appeal of Hawaii, the Hawaii cruise market is currently
underdeveloped. While 35% of all vacationers to Alaska are cruisers, only 1% of
westbound travelers to Hawaii cruise while visiting the Hawaiian Islands,
according to the Alaska Division of Tourism and the Hawaii Visitors Bureau.

We believe that the low percentage of cruisers in Hawaii may be
attributable in part to the following factors:

- the itineraries that can be offered by most cruise lines are
significantly limited by the Passenger Vessel Act, which requires
non-U.S.-flagged ships to include a foreign port in their itineraries;
and

- the limited passenger capacity and age of the S.S. Independence, the only
U.S.-flagged passenger vessel currently operating in Hawaii.

Even with these limitations, however, the draw of Hawaii has resulted in an
increase in cruisers visiting Hawaii as non-U.S.-flagged cruise ships have
offered Hawaii as a new itinerary. Based on statistics compiled by the Hawaii
Visitors Bureau, the number of passengers traveling on non-U.S. cruise ships has
increased to an estimated 37,900 in 1998 from 14,750 in 1994. In 1998 we carried
approximately 45,300 passengers. This represents 54% of approximately 83,200
total Hawaiian Island 1998 cruise passengers, as preliminarily reported by the
Hawaii Visitors Bureau.

We believe that Hawaii resembles the Caribbean cruise market in its early
stages. Like the Caribbean market, Hawaii has exotic and scenic destinations for
cruises, with year-round warm weather and abundant water activities. The
Caribbean cruise market grew from 7.2 million passenger nights in 1987 to 12.1
million passenger nights in 1998, according to Cruise Line Association
statistics. More developed cruise markets with higher market penetration, such
as the Caribbean, have already been visited by experienced cruisers. We believe
Hawaii will be an attractive new destination for experienced cruisers seeking
new itineraries.

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<PAGE> 32

EXPANSION PLANS

We believe that there is significant untapped market potential in the
cruise industry and plan to realize some of this potential by expanding both our
Hawaii and Delta Queen cruise lines. In the Hawaii cruise market, we plan to
leverage our U.S.-flagged designation and the unique competitive advantages
offered to us under the Pilot Project Statute by introducing larger, more modern
vessels into the Hawaii vacation market. To expand Delta Queen's position in the
U.S. inland waterway cruise market, we plan to extend our cruise itineraries
into the U.S. coastal cruise market with up to five new coastal cruisers and to
introduce a fourth riverboat on the West Coast.

Hawaii Expansion Plans

On March 9, 1999, we executed definitive agreements with Ingalls
Shipbuilding to construct at least two new vessels for the Hawaii cruise market.
The new Hawaii cruise ships are currently estimated to cost $440 million each,
plus approximately $30 million for furnishings, fixtures and equipment. The
contract provides that Ingalls Shipbuilding will deliver the first new ship in
January 2003 and the second ship in January 2004. In addition, the shipbuilding
contract provides us an option to build up to four additional vessels. The
estimated contract price of the first option vessel is $487 million and the
contract price for subsequent option vessels will be negotiated between the
parties. Ingalls Shipbuilding will provide a limited warranty for the design,
material and workmanship of each vessel for one year after delivery.

With the assistance of Ingalls Shipbuilding, we have developed a team of
experienced cruise ship designers and builders to participate in the development
and construction process, including:

- Kvaerner-Masa Yards for construction strategy and sub-contractor
supervision,

- Kvaerner-Masa Technology for engineering,

- Yran & Storbraaten for naval design and architecture, and

- Robert Tilberg Design for naval design and architecture.

Ingalls Shipbuilding has agreed in the shipbuilding contract to maintain the
participation of Kvaerner-Masa Yards and Kvaerner-Masa Technology during
construction of the new vessels.

Each of the new vessels is expected to measure approximately 840 feet in
length, with 13 decks and approximately 950 cabins containing at least 1,900
passenger berths. The new vessels have been designed with features that maximize
passenger fare revenue. For example, the ships will have 77% outside cabins with
seaside views, and 69% of the cabins will have their own private balconies.
Outside cabins are highly desirable to passengers and are usually priced at a
premium. Rooms with balconies generally receive an additional premium to outside
cabins. The percentage of outside cabins and balconies on the new vessels
compares very favorably to those of other cruise ships that are currently
entering service. For example, according to Cruise Line Association statistics,
the Disney Magic, Grand Princess, and the Carnival Paradise compare as follows:

<TABLE>
<CAPTION>
PERCENTAGE OF
---------------------------------------------
SHIP NAME/(YEAR ENTERED SERVICE) OUTSIDE CABINS(%) CABINS WITH BALCONIES(%)
-------------------------------- ----------------- ------------------------
<S> <C> <C>
Our Proposed New Vessels............................... 77 69
Disney Magic (1998).................................... 72 43
Grand Princess (1998).................................. 72 55
Carnival Paradise (1998)............................... 61 N/A
</TABLE>

The new cruise ships will contain a host of modern amenities to ensure
passenger comfort and enjoyment. As currently designed, the ships will have
three roomy upper decks, each designed to maximize the sense of spaciousness
on-board while offering magnificent 270 degree views of the islands and the sea.
Panoramic lifts will ascend through the atrium of each ship, delivering
passengers to the top level of the glass pavilion on the uppermost deck. During
the day, passengers will be able to stroll on the sun deck, relax in any of the
ship's whirlpool baths and swim in any of the pools. Consistent with
vacationers' emphasis on fitness and personal care, passengers will be able to
take advantage of extensive health spa

30
<PAGE> 33

and gymnasium facilities aboard the cruise ship, including aerobic studios. The
spa will be a full-service facility offering massages, facials and aroma
therapy. Passengers will also be able to choose from a variety of different
theme bars and restaurants ranging from a Hawaiian cowboy lounge and pre-dinner
patio bar to a two-deck main dining room, buffet-style restaurant and a
specialty restaurant. The new vessels' design incorporates a 6,000 square foot
retail area that will contain a variety of shops, including a gift shop, beauty
salon, jewelry store and clothing stores.

To take advantage of the excellent year-round weather in Hawaii, a 500 seat
outdoor theater will be the main night attraction featuring such events as
Polynesian and western line dancing shows to hula dance classes and
presentations by the "kumu," the ship's Hawaiian cultural historian. Each of the
new vessels will also have a 600 seat cabaret lounge and a 750 seat indoor
theater which will have the capacity to stage high quality Broadway-style shows.

To maximize demand, the new vessels have been designed to accommodate the
differing needs and desires of a broad range of passengers. For example, we
expect to attract a significant amount of meeting, conference and incentive
travel business as a result of the Hawaii destination and the tax advantages to
an employer sponsoring or individual attending a meeting on a U.S.-flagged ship.
Internal Revenue Code Section 274(h) allows a deduction of up to $2,000 per
person each calendar year for business-related meetings and conventions held
aboard U.S.-flagged cruise vessels sailing between U.S. ports. As a result, the
design of the new vessels allocates specific portions of the ship for
conferences, meetings and other functions. The new ships are also designed to be
"family friendly" and will have large spaces dedicated to both young children
and teenagers.

In order to expedite introduction of a larger, more modern ship into the
Hawaii cruise market, we intend to obtain and operate a foreign-built vessel as
a U.S.-flagged vessel in the Hawaii market. Our ability to operate a
foreign-built vessel in the Hawaiian Islands arises under the terms of the Pilot
Project Statute. We have targeted vessels that were built since 1980 and can
accommodate between 1,200 and 2,000 passengers. If successful in obtaining a
foreign-built vessel, we plan to introduce this vessel into service by the end
of 2000.

We have hired Roderick K. McLeod, a 27-year veteran of the cruise industry,
to manage all aspects of our expansion plans in the Hawaii market. Mr. McLeod
will oversee development of our expanded Hawaii business.

Delta Queen Expansion Plans

In order to capitalize upon its strong market position and brand name
recognition, Delta Queen plans to expand its current business by introducing:

- a fourth riverboat offering new itineraries; and

- up to five new vessels capable of offering cruises along U.S. coastal
waterways.

By extending the Delta Queen line beyond our country's heartland and inland
rivers to underserved coastal markets, Delta Queen plans to offer its unique
cruising experience on itineraries highlighting historically or culturally
interesting or beautiful U.S. coastal regions.

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<PAGE> 34

Coastal Cruises

We believe that there are itineraries along the U.S. coastlines with
significant cruise market potential. As a further extension of Delta Queen's
inland waterway cruise itineraries, we plan to build up to five new ships
offering cruises along the eastern seaboard, in the Pacific Northwest and along
the California coast of the U.S. Possible new destinations identified by Delta
Queen include the following:

- Eastern seaboard

Halifax, Nova Scotia
New Brunswick, Maine
Boston Harbor
Martha's Vineyard
Chesapeake Bay
New York City

Baltimore
Annapolis, Maryland
Washington, D.C.
Charleston, South Carolina
Savannah, Georgia
Florida's beaches

- California

San Francisco
Napa Valley's wine country

- Pacific Northwest

Puget Sound
The Columbia River
The Willamette River
Canada's Inside Passage
The Alaskan coast

We plan to capture these underserved coastal markets by building up to five
new ships with approximately 226 passenger berths each in the next seven to ten
years to extend the itineraries of the Delta Queen line. We are currently
negotiating with a shipyard to construct the first two new coastal vessels. We
hope that construction on the first vessel can begin as early as mid-1999.
Assuming construction commences at that time, the first ship could be launched
as early as the first half of 2001. Delivery of the second vessel is planned for
the second half of 2001.

Each coastal vessel will be approximately 300 feet long, have
diesel-electric propulsion systems and "state-of-the art" safety technology. The
total project cost for each new vessel is estimated at $35 million.

The new Delta Queen coastal cruise vessels will have an historic design
inspired by the Fall River Line vessels which traveled between New York and New
England from 1847 through 1937 and became symbolic of elegant transportation and
gracious service. The new vessels will be decorated in classic New England
federal and nautical decor reminiscent of turn-of-the-century coastal ships,
featuring the "first-class" amenities for which Delta Queen steamboats have come
to be known. Approximately 90% of the passenger berths on each of the vessels
will be in outside cabins. The new vessels will each have the following
features:

- elegant dining rooms with fine artwork, architectural embellishments and
windows

- a grand salon for entertainment

- two bars

- other services typically offered on Delta Queen steamboats

Delta Queen coastal cruises also plan to offer shore excursions to
highlight the unique and historically significant destinations in its new
itineraries and may also offer special cruise packages revolving around specific
themes, similar to those offered by Delta Queen's steamboat river cruises.
Further, we believe that this expansion into coastal cruise itineraries will
appeal to a younger and more physically active customer. Then, as those
customers age, we will have the opportunity to transition these same customers
to Delta Queen river cruises. By extending the Delta Queen line into coastal
cruise itineraries, it will allow Delta

32
<PAGE> 35

Queen to increase gradually the number and range of itineraries it can offer and
to attract a broader base of passengers.

We believe that destinations and shore tours will be the key reasons for
customer interest in coastal cruise itineraries. New destinations are
particularly important for frequent cruisers, who are always seeking new cruise
experiences. Cruise destinations which can easily be reached by car are less
appealing to potential cruise customers than those which are more distant or
difficult to reach by other means. Shore tours that capitalize on the unique
characteristics of each destination also appear to appeal to potential coastal
cruise customers. For example, Cruise Line Association statistics indicated that
in 1997, approximately 70% of all cruise passengers purchased at least one shore
excursion and approximately 90% went sightseeing on shore at some time during
their cruise vacation. Prospective customers have expressed interest in spending
longer periods of time in selected destinations. Unique or proprietary shore
tour events may also afford Delta Queen an opportunity to distinguish its
coastal cruises from those of its competitors. While not the primary reason for
selecting a cruise, we believe that the character of the proposed vessels also
appears to be an element consumers consider in selecting a cruise. The design of
the ships may lend uniqueness to the cruise experience and offers a platform for
historical theme cruises.

New Riverboat

CURRENT OPERATIONS

American Hawaii -- Current Operations

American Hawaii's cruise ship, the S.S. Independence, operates inter-island
cruise vacations among the Hawaiian Islands year round. Built in 1951, the S.S.
Independence has 867 passenger berths. American Hawaii offers primarily seven
day itineraries with ports of call throughout the Hawaiian Islands. In addition,
American Hawaii also offers three and four day itineraries. Many cruise
passengers also choose to extend their stay in Hawaii, purchasing hotel
accommodations through American Hawaii. American Hawaii offers more than 50
optional shore excursion activities to passengers to showcase the spectacular
Hawaiian scenery and local attractions, including the following:

- helicopter and submarine rides

- deep sea fishing

- snorkeling

- scuba diving

- tours of popular destinations such as Pearl Harbor and the Arizona
Memorial, Fern Grotto and the historic town of Lahaina

The itinerary also affords an opportunity to view Mount Kilauea, one of the
world's few active volcanoes, and the soaring sea cliffs of the inaccessible Na
Pali coast.

33
<PAGE> 36

American Hawaii offers theme cruises organized around specific activities
or seasons, including:

- "Whales in the Wild" cruises, in which passengers can observe whales that
make Hawaii their winter playground

- "Hawaiian Heritage" cruises, which emphasize native Hawaiian ceremonies
and rituals

- "Big Band" cruises featuring 1940's Big Band orchestra music and Golden
Age of Movies film screenings

Cruise fares on American Hawaii for a seven-night cruise, as stated in the
1999 cruise brochure, range from luxurious suites at $3,280 per person to
interior cabins with a single sofa bed and fold-away upper berth at $1,230 per
person, based on double occupancy. The fare also includes three full service
meals per day, along with mid-afternoon snacks and a late evening buffet, night
entertainment on the vessel and port charges. American Hawaii also offers
seasonal youth programs to attract passengers with children, as the S.S.
Independence has a large number of cabins that can accommodate three and four
passengers.

American Hawaii offers additional services and products to its passengers,
including bar services, beauty salon services, photography services, shore
excursions and gift shop products. American Hawaii also distributes a line of
specialty products through its onboard gift shops utilizing the "American Hawaii
Cruises" logo. In order to facilitate and simplify passengers' travel planning
process, American Hawaii offers air transportation arrangements to and from the
Hawaiian Islands through agreements with several major commercial airlines as
well as trip cancellation insurance.

American Hawaii is marketed as "the best and most convenient" way to
experience the Hawaiian Islands. We accomplish this by focusing on onboard
dining, entertainment, and offering an extensive package of shore excursions at
all stops along the itinerary, as well as by providing a wide variety of
activities, demonstrations and lectures designed to enhance passengers' overall
experience of the unique Hawaiian culture. Additionally, the Hawaii vacation
package is promoted as a convenient and rewarding alternative to land-based
multi-island vacations.

American Hawaii's marketing efforts target consumers who are interested in
Hawaii, cruise enthusiasts and other consumers who fit desirable demographic or
geographic profiles. American Hawaii sends out more than six million pieces of
direct mail annually to reach these potential customers in an effort to develop
cruise sales. These direct mailings are made throughout the year to drive
business during specific time frames. American Hawaii also sends out the Holokai
Hui News newsletter, aimed at generating repeat passengers, and sends
cooperative direct mail to travel agents to promote cruise sales. The travel
agency community also receives periodic fax broadcasts and a quarterly
newsletter, the Kuaihelani. American Hawaii also places advertisements in
specialized publications such as Islands, Hawaii, Modern Maturity, Car and
Travel and Endless Vacation magazines and has been the subject of numerous
feature articles in national travel and leisure magazines and newspaper travel
sections.

Delta Queen -- Current Operations

Delta Queen's three paddlewheel steamboats offer cruise itineraries for
trips along the Mississippi, Ohio, Cumberland, Tennessee, Arkansas, Illinois and
Atchafalaya Rivers, as well as the Intracoastal Waterway. Ports of embarkation
and disembarkation, which are typically locations of historical or cultural
significance, include:

- New Orleans

- Memphis

- St. Louis

- St. Paul

- Louisville

- Cincinnati

- Pittsburgh

- Nashville

- Chattanooga

- Galveston

34
<PAGE> 37

Other ports of call include:

- Hannibal, Missouri

- Prairie du Chien, Wisconsin

- Vicksburg and Natchez, Mississippi

- Shiloh, Tennessee

According to the Cruise Industry News 1998 Annual Report, Delta Queen
enjoyed a 53% market share of the available berths within the domestic waterways
and rivers segments of the overnight cruise market. Delta Queen is marketed to
mature adult travelers as a unique vacation experience aboard classic steamboats
in which the people, sights, romance and history of heartland America are
explored. We believe individuals are attracted to our paddlewheel steamboat
cruises because of the quality of our service, dining, accommodations and
entertainment as well as the unique characteristics of the steamboat experience,
including the connection to American history.

Delta Queen promotes special cruise packages revolving around specific
themes which allow passengers to participate in activities, meet special guest
lecturers, and enjoy entertainment relevant to the theme. Seasonal theme cruises
include:

- "Spring Pilgrimage"

- "Fall Foliage -- Autumn in America"

- "Old Fashioned Holidays"

Geographic themed cruises include:

- "Dixie Fest"

- "Mark Twain Heartland"

- "Cajun Culture"

- "Gardens of the River"

Old standbys and continuing favorites are:

- "Kentucky Derby" cruises that include attendance at the Kentucky Derby
horse race

- "The Great Steamboat Race" a reenactment of the famous 19th Century race
between the Natchez and the Robert E. Lee steamboats

For nostalgia and history lovers, Delta Queen offers:

- "Big Band"

- "The Year That Was . . . "

- "Civil War"

- "Fabulous 50s" theme cruises

In a continuing effort to upgrade its cruise product, Delta Queen introduced in
1998 enhancements to the onboard dining, entertainment and shore excursions
which highlighted America's heartland. In addition, several new theme cruises
were added, such as "Tramping on the River" cruises featuring impromptu river
stops; and "The History of Steamboatin'," which retraced the 1811 voyage of the
first successful steamboat voyage down the Ohio and Mississippi Rivers to New
Orleans.

The Steamboatin'(TM) cruise fare for an average five-night cruise, as
stated in the 1999/2000 cruise brochure, ranges from luxurious suites at $3,410
per person to interior cabins with lower and upper passenger berths at $1,390
per person, based on double occupancy. The fare also includes three full service
meals per day, along with mid-afternoon snacks and a late evening buffet, day
and night entertainment on the vessels and port charges.

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<PAGE> 38

To attract additional customers, Delta Queen has developed products which
combine its steamboat cruises with escorted tours and overnight stays at
historic port cities. As a convenience to its passengers, Delta Queen will also
arrange hotel accommodations and air and land transportation to and from the
cruise embarkation and disembarkation point.

Delta Queen annually welcomes back a large number of prior passengers
through its relationship marketing program. New passengers are acquired through
targeted direct mail, direct response advertising and other promotional
activity. Media coverage generated by public relations activity is another
method of acquiring new customers and building brand awareness. In 1998,
Steamboatin'(TM) vacations were featured or mentioned in more than 3,000
articles in publications with national and local circulations. In addition, each
year a significant number of new customers are referred by prior customers.
Nearly all Steamboatin'(TM) vacations are booked via travel agents, who receive
frequent communications from Delta Queen and who are supported with collateral
and mailing materials.

Vessels

We currently operate four ships with a total of 1,893 passenger berths. The
following table represents a list of our ships, the year they entered into
service, their estimated passenger capacity based upon double occupancy per
cabin, and their areas of operation:

CURRENT VESSELS

<TABLE>
<CAPTION>
YEAR VESSEL ENTERED PASSENGER
VESSEL INTO SERVICE CAPACITY PRIMARY AREAS OF OPERATION
------ ------------------- --------- --------------------------
<S> <C> <C> <C>
S.S. Independence(1)....................... 1951 867 Hawaii
American Queen............................. 1995 436 Mississippi River System
Mississippi Queen.......................... 1976 416 Mississippi River System
Delta Queen................................ 1926 174 Mississippi River System
</TABLE>

- ---------------
(1) Substantially renovated in 1994.

The following table represents a list of the new vessels we currently plan
to build or obtain, together with their estimated delivery dates, and based upon
double occupancy per cabin, their estimated passenger capacity:

PLANNED VESSELS

<TABLE>
<CAPTION>
ESTIMATED DELIVERY DATE ESTIMATED PASSENGER CAPACITY
----------------------- ----------------------------
<S> <C> <C>
HAWAII VESSELS:
Foreign-Built.............................. Late-2000 1,200-2,000
Newbuild #1............................. January 2003 1,900
Newbuild #2............................. January 2004 1,900
DELTA QUEEN VESSELS:
Western Riverboat.......................... Mid-2000 Approximately 150
Up to Five New Coastal Cruisers............ Commencing 2001 Approximately 226
</TABLE>

Sales And Marketing

We maintain separate field sales and reservation staffs for Delta Queen and
American Hawaii. We sell our cruise products primarily through two major
channels, of which the most significant channel is travel agents operating
throughout the U.S. We have programs which educate travel agents about the
unique nature of our travel experiences, the vessels' itineraries, special
programs, theme cruises and pricing policies. To assist in obtaining
reservations from travel agents, we engage in both consumer and trade-oriented
advertising, including direct mailings of Delta Queen and American Hawaii
literature to travel agencies. We also maintain contact with travel agents
through each cruise line's field sales personnel who conduct educational
seminars and attend trade shows. Our second major sales channel is group travel
organizers, consisting of clubs, travel agencies and tour operators who arrange
for the sale of cruise

36
<PAGE> 39

vacations at discounted fares. We provide a variety of incentives to these
organizers, including fare discounts and promotional materials. During 1998, no
single customer accounted for more than 10% of our consolidated revenues.

Pricing And Advance Reservations

We issue separate full color sales brochures for each of Delta Queen and
American Hawaii, which contain descriptive information, itineraries and fare
schedules, prior to the beginning of each upcoming calendar year. We price our
cruise fares, based on cabin category, using a single pricing schedule for each
cruise line throughout the calendar year. As an inducement for passengers to
book early, we generally offer an early booking discount which typically
consists of the current year's fares to passengers who book more than six to
eight months in advance for the upcoming year. In addition, we offer to group
travel organizers and others limited discounts from our published fare
schedules.

We actively market our cruises up to one year prior to the cruise year and
the level of advance reservations at any given date provides us with an
indication of our future fare revenue. A significant portion of such
reservations is booked more than six months in advance of the cruise date.
Generally, customers of each cruise line must pay a $300 refundable deposit
within one week of booking a cruise with the balance of the cruise fare to be
remitted 60 days in advance of the departure date. Cancellations received three
months or less before a scheduled cruise are subject to a loss of deposit and/or
a cancellation charge ranging from 25% to 100% of the cruise fare. For a nominal
fee, we also offer trip cancellation insurance through a third-party insurer
which allows the customers to reduce their exposure to cancellation charges. As
of March 26, 1999, advance reservations for the 1999 cruise year for both Delta
Queen and American Hawaii combined were $126.8 million. However, we cannot
specifically determine the amount of revenues to be derived from advance
reservations as there can be no assurance that any particular advance
reservation will result in any revenue to us.

Government Regulation

Federal maritime law prohibits non-U.S.-flagged vessels from receiving and
discharging passengers at any two U.S. ports without stopping at an intervening
non-U.S. port. Periodically there has been debate about the potential amendment
or repeal of this law and the broader cabotage laws encompassed under the
Passenger Vessel Act and related U.S. laws. In August 1995, we joined the
Maritime Cabotage Task Force, a broad national coalition of 415 companies,
associations and unions representing all modes of domestic transportation. The
task force is responsible for monitoring potential adverse changes in
legislation that could affect the U.S. maritime industry and publicizing the
economic and national security issues relevant to maintaining a strong
U.S.-flagged vessel industry. Through the coalition's efforts, numerous
legislators and key Congressional staff members have been made aware of the
substantive issues and positions surrounding any changes to this legislation. In
1997 and 1998, bills were introduced to the Senate to modify the Passenger
Vessel Act, including allowing foreign-flagged ships into a limited number of
itineraries where there was no existing U.S.-flagged ship in service. None of
these bills were approved by the relevant subcommittees or committees of the
Senate or the House of Representatives.

One of the criteria for operating U.S.-flagged vessels in U.S. domestic
trade is that holders of at least 75% of our shares must be U.S. citizens. In
order to preserve the status of our U.S.-flagged vessels, our certificate of
incorporation contains a provision restricting the transfer of shares of our
common stock to non-U.S. citizens. In addition, we have created separate forms
of stock certificates with legends to indicate whether the stockholder is a U.S.
or non-U.S. citizen.

We are subject to various Federal and state regulations which affect the
operations of our vessels. Our U.S.-flagged vessels are subject to regulations
promulgated by the U.S. Department of Transportation and enforced by the U.S.
Coast Guard. The Coast Guard conducts both scheduled and unannounced inspections
to determine compliance with these regulations and has the authority to delay or
suspend cruises. The Delta Queen vessels must be drydocked for an inspection of
the hulls' exteriors every five years. Previously, American Hawaii was required
to drydock the S.S. Independence approximately every

37
<PAGE> 40

18 months for a similar procedure. The Coast Guard is empowered to increase the
interval between inspections and accordingly, we have requested and received
permission from the Coast Guard to lengthen the interval of the drydocking of
the S.S. Independence to 30 months, subject to annual hull surveys. In May 1997,
the S.S. Independence was out of service for a four-week period and the next
drydocking is scheduled for January 2000.

Like other entities that operate vessels on U.S. waterways, we are also
subject to federal, state and local health and safety laws, regulations and
ordinances, including environmental laws. Periodically, we incur expenditures to
keep our vessels in compliance with applicable laws, regulations and ordinances.
We do not anticipate making any material expenditures in 1999 with respect to
environmental matters. However, the coverage and attendant compliance costs
associated with such laws, regulations and ordinances may result in future
additional costs to our operations.

Federal law requires that vessels for 50 or more overnight passengers be
constructed of fire retardant materials. Since 1968 Congress has granted the
Delta Queen eight consecutive Congressional exemptions from this requirement
because of fire prevention and safety enhancements made to the vessel and the
Delta Queen's historic status. The statute exempting the Delta Queen requires us
to notify potential passengers that the Delta Queen does not comply with
applicable fire standards and prohibits us from disclaiming liability for loss
due to fire caused by our negligence. The current exemption has been extended to
November 1, 2008. Our ability to operate the Delta Queen is dependent upon
retaining our current Congressional exemption and obtaining additional
exemptions subsequent to 2008. Ocean-going passenger vessels were required to
make enhancements to life safety systems by October 1, 1997 in order to comply
with federal law. The S.S. Independence was brought into compliance during its
spring 1997 drydock as discussed above.

The Federal Maritime Commission regulates passenger vessels with 50 or more
passenger berths departing from U.S. Ports and requires that operators post
security to be used in the event the operator fails to provide cruise services,
or otherwise satisfy required financial standards. We have been approved as a
self-insurer by the Federal Maritime Commission, and therefore, subject to
continued approval, are not required to post security for passenger cruise
deposits. The Federal Maritime Commission has reviewed its standards and in June
1996 issued proposed regulations to increase significantly the financial
responsibility requirements. We filed our objection to the proposals, as we
believe that the Federal Maritime Commission's current standards provide
passengers with adequate protection in the event of an operator's
non-performance and that further requirements may impose an undue burden on
operators. At this time we cannot predict if the proposed changes will be
approved as currently constituted, or at all.

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<PAGE> 41

MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

Our executive officers and directors and their ages as of the date of this
prospectus are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Samuel Zell............................... 57 Chairman of the Board of Directors
Philip C. Calian.......................... 36 Director, President and Chief Executive
Officer
Arthur A. Greenberg....................... 58 Director
Jerry R. Jacob............................ 65 Director
Emanuel L. Rouvelas....................... 54 Director
Mark Slezak............................... 40 Director
Joseph P. Sullivan........................ 65 Director
Jeffrey N. Watanabe....................... 56 Director
Jordan B. Allen........................... 36 Executive Vice President, Secretary and
General Counsel
Roderick K. McLeod........................ 58 Executive Vice President
Randall L. Talcott........................ 38 Vice President -- Finance, Treasurer and
Chief Accounting Officer
J. Scott Young............................ 47 Executive Vice President -- Operations and
President of Delta Queen and American
Hawaii
</TABLE>

Samuel Zell. Chairman of the Board of Directors of American Classic since
August 1993; Director of American Classic since 1980; previously Chairman of the
Board of American Classic from 1984 through 1988; Chairman of the Board of
Equity Group, Anixter International Inc., Capital Trust, Inc., Chart House
Enterprises, Inc., Jacor Communications, Inc. and Manufactured Home Communities,
Inc.; Chairman of the Board of Trustees of Equity Office Properties Trust and
Equity Residential Properties Trust; and Director of Davel Communications, Inc.,
Fred Meyer, Inc. and Ramco Energy plc.

Philip C. Calian. Director, President and Chief Executive Officer of
American Classic since February 1995; Executive Vice President and Chief
Operating Officer of American Classic from December 1994 until February 1995;
Director, Chairman of the Board and Chief Executive Officer of Delta Queen and
Great Hawaiian Cruise Line, Inc., American Classic's primary operating
subsidiary for American Hawaii since February 1995; Chairman of the Board of CFI
Industries, Inc. from March 1995 until August 1996; Co-Chairman and Chief
Executive Officer of CFI Industries, Inc. from September 1994 until March 1995;
Acting President and Chief Executive Officer of CFI Industries, Inc. from
January 1994 until September 1994; Vice President, Chief Financial Officer and
Treasurer of CFI Industries, Inc. from September 1993 until September 1994; and
Director of Mergers and Acquisitions of Great American Management and
Investment, Inc. from May 1990 until December 1994.

Arthur A. Greenberg. Director of American Classic since 1982; Vice
President and Assistant Treasurer of American Classic from January 1990 until
June 1995; Director of Delta Queen and American Hawaii since August 1993; Vice
President and Assistant Treasurer of Delta Queen and American Hawaii from August
1993 until June 1995; Senior Vice President of American Hawaii from June 1993
until August 1993; principal of Arthur A. Greenberg, C.P.A. and Senior Tax
Advisor of Equity Group since 1997; President of the accounting firm of
Greenberg & Pociask, Ltd. from 1971 until 1997; and Executive Vice President of
Equity Group from 1986 through 1996.

Jerry R. Jacob. Director of American Classic since 1991 and a private
investor; Chairman of the Board of Midway Airlines Corporation from August 1994
until February 1997; Vice President of American Airlines, Inc. from 1974 to June
1993; and Director of Syratech Corp.

Emanuel L. Rouvelas. Director of American Classic since 1998; senior
partner of Preston Gates Ellis & Rouvelas Meeds in Washington, D.C. since 1974;
Vice Chairman and Trustee of the American College of Greece; and Director of OMI
Corp.

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<PAGE> 42

Mark Slezak. Director of American Classic since 1998; Director, Chief
Financial Officer and Treasurer of Lurie Investments, Inc., a private investment
management company, since March 1995; Senior Vice President of Equity Group from
January 1991 until January 1997; Treasurer of Equity Group from January 1990
until January 1996; and Director of Equity Group.

Joseph P. Sullivan. Director of American Classic since July 1997; Director
and Chairman of the Executive Committee of IMC Global, Inc. since March 1996;
Chairman of the Board of The Vigoro Corporation from May 1991 until March 1996;
Chief Executive Officer of The Vigoro Corporation from May 1991 until September
1994; and Director of Mycogen, Inc. since February 1998.

Jeffrey N. Watanabe. Director of American Classic since 1998; partner and
principal of Watanabe, Ing & Kawashima since 1971; and Director of American
Savings Bank, Grace Pacific Corporation, Hawaiian Electric Industries, Inc.,
First Insurance Company of Hawaii, Ltd., and The Children's Television Workshop.

Jordan B. Allen. Executive Vice President of American Classic since January
1998; Senior Vice President of American Classic from June 1995 until January
1998; Vice President of American Classic from August 1993 until June 1995;
General Counsel of American Classic since August 1993; Secretary of American
Classic since February 1997; Executive Vice President of Delta Queen and
American Hawaii since January 1998; Senior Vice President of Delta Queen and
American Hawaii from February 1997 until January 1998; Vice President of Delta
Queen and American Hawaii from August 1993 until January 1997; and a member of
Rosenberg & Liebentritt, P.C. from September 1990 until December 1996.

Roderick K. McLeod. Executive Vice President of American Classic since
February 1999 with primary responsibility for Hawaii cruise growth
opportunities; Senior Vice President -- Marketing for Carnival Cruise Line from
July 1997 through February 1999; Executive Vice President of Sales, Marketing
and Passenger Services for Royal Caribbean Cruises Ltd. from January 1972
through August 1986 and October 1988 through June 1996; President and Chief
Operating Officer of Norwegian Cruise Line from August 1986 through October
1988.

Randall L. Talcott. Vice President -- Finance, Treasurer and Chief
Accounting Officer of American Classic since October 1998; Treasurer of ANTEC
Corporation from July 1994 through September 1998; and consultant from January
1994 through July 1994.

J. Scott Young. Executive Vice President -- Operations of American Classic
and President of Delta Queen and American Hawaii since April 1998; Senior Vice
President -- Operations of American Classic from June 1996 until April 1998;
Executive Vice President of Delta Queen from June 1992 until May 1994; Director
of Delta Queen since May 1994; Executive Vice President of Delta Queen since
August 1993; Chief Operating Officer of Delta Queen since June 1996; and
Director, Executive Vice President and Chief Operating Officer of American
Hawaii since June 1996.

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<PAGE> 43

PRINCIPAL STOCKHOLDERS

The following table sets forth, as of April 15, 1999, information about the
amount and nature of stock ownership with respect to each person or entity who
is known by our management to be the beneficial owner of more than 5% of the
outstanding shares of our common stock. The number of shares of our common stock
indicated as beneficially owned is reported on the basis of regulations of the
SEC governing the determination of beneficial ownership of securities.

<TABLE>
<CAPTION>
AMOUNT AND NATURE
OF BENEFICIAL
NAME AND ADDRESS OF BENEFICIAL OWNER OWNERSHIP PERCENT OF CLASS
------------------------------------ ----------------- ----------------
<S> <C> <C>
Samuel Zell, Ann Lurie Revocable Trust and Entities
Controlled by Samuel Zell and/or Ann Lurie:(1)(2)(3)
EGI Holdings, Inc......................................... 3,641,873
EGIL Investments, Inc..................................... 3,641,874
Samstock, L.L.C........................................... 52,500
Anda Partnership.......................................... 52,500
Samuel Zell............................................... 125,500
Ann Lurie Revocable Trust................................. 17,000
---------
Total............................................. 7,531,247 51.8%
Two N. Riverside Plaza
Chicago, IL 60606
Wallace R. Weitz & Company(4)............................... 1,497,400 10.5%
1125 S. 103rd Street, Suite 600
Omaha, NE 68124-6008
</TABLE>

- ---------------
(1) The referenced entities or individuals are each the beneficial owner of the
shares of common stock shown next to their name. EGI Holdings, Inc. and EGIL
Investments, Inc. are both Illinois corporations and wholly owned by Equity
Group, an Illinois corporation. The stockholders of Equity Group are trusts
created for the benefit of Samuel Zell and his family and Ann Lurie and her
family. One of the co-trustees of certain of the trusts created for the
benefit of Mrs. Lurie and her family is Mark Slezak. Samstock, L.L.C. is a
Delaware limited liability company and wholly owned by SZ Investments,
L.L.C., a Delaware limited liability company. The sole managing member of SZ
Investments, L.L.C. is a corporation whose sole stockholder is a trust of
which Mr. Zell is the trustee and beneficiary; the non-managing members are
two partnerships whose partners are trusts created for the benefit of Mr.
Zell. Anda Partnership is a Nevada general partnership whose partners are
trusts created for the benefit of Mrs. Lurie and her family of which Mrs.
Lurie and Mr. Slezak are co-trustees. Mrs. Lurie is the trustee and
beneficiary of the Ann Lurie Revocable Trust.

The above chart includes 5,000 stock units beneficially owned by Mr. Zell
which convert to 5,000 shares of common stock at a time determined by Mr.
Zell at the time of the grant. The chart also includes options to purchase
120,000 shares of common stock beneficially owned by Mr. Zell which are
currently exercisable.

Mr. Zell disclaims beneficial ownership of 3,641,874 shares beneficially
owned by the subsidiaries of Equity Group; 52,500 shares beneficially owned
by Anda Partnership and 17,000 shares beneficially owned by the Ann Lurie
Revocable Trust. Mrs. Lurie disclaims beneficial ownership of 3,641,873
shares beneficially owned by the subsidiaries of Equity Group; 52,500 shares
beneficially owned by Samstock, L.L.C.; 5,500 stock units beneficially owned
by Mr. Zell; and options to purchase 120,000 shares beneficially owned by
Mr. Zell.

(2) 3,603,000 of the shares owned by EGI Holdings are held at four financial
institutions as collateral for loans. Under the various loan agreements, the
institutions cannot vote or exercise any ownership rights relating to the
pledged shares unless there is an event of default.

41
<PAGE> 44

(3) 1,000,000 of the shares owned by EGIL Investments are held at a financial
institution as collateral for a loan. Under the loan agreement, the
institution cannot vote or exercise any ownership rights relating to the
pledged shares unless there is an event of default.

(4) According to a Schedule 13G dated February 10, 1999 filed with the SEC by
Wallace R. Weitz & Company. The common stock reported herein is beneficially
owned by Wallace R. Weitz & Company, a Nebraska corporation and a registered
investment adviser.

42
<PAGE> 45

UNDERWRITING

GENERAL

Merrill Lynch, Pierce, Fenner & Smith Incorporated, Donaldson, Lufkin &
Jenrette Securities Corporation, Goldman, Sachs & Co., and Craig-Hallum Capital
Group, Inc. are acting as representatives of each of the underwriters named
below. Subject to the terms and conditions set forth in the purchase agreement
among us and the underwriters, we have agreed to sell to the underwriters, and
each of the underwriters severally and not jointly has agreed to purchase from
us, the number of shares of common stock set forth opposite its name below.

<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF SHARES
- ------------ ----------------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated................................... 810,000
Donaldson, Lufkin & Jenrette Securities Corporation......... 810,000
Goldman, Sachs & Co. ....................................... 810,000
Craig-Hallum Capital Group, Inc. ........................... 270,000
BNY Capital Markets, Inc. .................................. 100,000
A.G. Edwards & Sons, Inc. .................................. 100,000
Lazard Freres & Co. LLC..................................... 100,000
NationsBanc Montgomery Securities LLC....................... 100,000
J.C. Bradford & Co. ........................................ 50,000
D. A. Davidson & Co. ....................................... 50,000
EVEREN Securities, Inc. .................................... 50,000
Legg Mason Wood Walker, Incorporated........................ 50,000
Raymond James & Associates, Inc. ........................... 50,000
Southcoast Capital L.L.C. .................................. 50,000
Southeast Research Partners, Inc. .......................... 50,000
Stephens Inc. .............................................. 50,000
---------
Total.......................................... 3,500,000
=========
</TABLE>

In the purchase agreement, the underwriters have agreed, subject to the
terms and conditions set forth in such agreement, to purchase all of the shares
of common stock being sold under the terms of such agreement if any of the
shares of common stock being sold under the terms of such agreement are
purchased. In the event of a default by an underwriter, the purchase agreement
provides that, in some circumstances, the purchase commitments of the
nondefaulting underwriters may be increased or the purchase agreement may be
terminated.

We have agreed to indemnify the underwriters against some liabilities,
including some liabilities under the Securities Act, or to contribute to
payments the underwriters may be required to make in respect of those
liabilities.

The shares of common stock are being offered by the several underwriters,
subject to prior sale, when, as and if issued to and accepted by them, subject
to approval of legal matters by counsel for the underwriters and other
conditions. The underwriters reserve the right to withdraw, cancel or modify
such offer and reject orders in whole or in part.

COMMISSIONS AND DISCOUNTS

The representatives have advised us that the underwriters propose initially
to offer the shares of common stock to the public at the public offering price
set forth on the cover page of this prospectus, and to some dealers at such
price less a concession not in excess of $.60 per share. The underwriters may
allow, and such dealers may reallow, a discount not in excess of $.10 per share
of common stock to other dealers. After the offering, the public offering price,
concession and discount may be changed.

43
<PAGE> 46

The following table shows the per share and total public offering price,
underwriting discount to be paid by us to the underwriters and the proceeds
before expenses to us. The information is presented assuming either no exercise
or full exercise by the underwriters of their over-allotment option.

<TABLE>
<CAPTION>
PER SHARE WITHOUT OPTION WITH OPTION
--------- -------------- -----------
<S> <C> <C> <C>
Public Offering Price.................................... $17.00 $59,500,000 $68,425,000
Underwriting Discount.................................... $ 1.02 $ 3,570,000 $ 4,105,500
Proceeds, before expenses, to American Classic Voyages
Co. ................................................... $15.98 $55,930,000 $64,319,500
</TABLE>

The expenses of the offering, exclusive of the underwriting discount, are
estimated at $300,000 and are payable by us.

OVER-ALLOTMENT OPTION

We have granted an option to the underwriters, exercisable for 30 days
after the date of this prospectus, to purchase up to an aggregate of 525,000
additional shares of our common stock at the public offering price set forth on
the cover page of this prospectus, less the underwriting discount. The
underwriters may exercise this option solely to cover over-allotments, if any,
made on the sale of our common stock offered hereby. To the extent that the
underwriters exercise this option, each underwriter will be obligated, subject
to certain conditions, to purchase a number of additional shares of common stock
proportionate to such underwriter's initial amount reflected in the foregoing
table.

NO SALES OF SIMILAR SECURITIES

We and our executive officers and directors and certain of our stockholders
have agreed, with some exceptions, without the prior written consent of Merrill
Lynch on behalf of the underwriters for a period of 120 days after the date of
this prospectus not to directly or indirectly

- offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option,
right or warrant for the sale of, or lend or otherwise dispose of or
transfer any shares of common stock or securities convertible into or
exchangeable or exercisable for or repayable with our common stock,
whether now owned or later acquired by the person executing the agreement
or with respect to which the person executing the agreement later
acquires the power of disposition, or file any registration statement
under the Securities Act relating to any shares of our common stock or

- enter into any swap or any other agreement that transfers, in whole or in
part, the economic consequence of ownership of our common stock, whether
any such swap or transaction is to be settled by delivery of our common
stock or other securities, in cash or otherwise, except for options or
shares granted under the 1992 stock option plan, the executive stock
option plan, the 1995 employee stock purchase plan, subject to approval
by our stockholders, the 1999 stock option plan and the shares of common
stock sold pursuant to this offering.

PRICE STABILIZATION, SHORT POSITIONS AND PENALTY BIDS

Until the distribution of our common stock is completed, SEC rules may
limit the ability of the underwriters and some selling group members to bid for
and purchase our common stock. As an exception to these rules, the
representatives are permitted to engage in transactions that stabilize the price
of our common stock. Such transactions consist of bids or purchases for the
purpose of pegging, fixing or maintaining the price of our common stock.

If the underwriters create a short position in our common stock in
connection with the offering, if, for example, they sell more shares of common
stock than are set forth on the cover page of this prospectus, the
representatives may reduce that short position by purchasing shares of our
common stock in the open market. The representatives may also elect to reduce
any short position by exercising all or part of the over-allotment option
described above.

44
<PAGE> 47

In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases.

Neither we nor the underwriters make any representation or prediction as to
the direction or magnitude of any effect that the transactions described above
might have on the price of our common stock. In addition, neither we nor the
underwriters make any representation that the representatives will engage in
such transactions or that such transactions, once commenced, will not be
discontinued without notice.

PASSIVE MARKET MAKING

In connection with this offering, underwriters may engage in passive market
making transactions, bids for and purchases of our common stock, on The Nasdaq
National Market in accordance with Regulation M under the Securities Exchange
Act of 1934 during a period before the commencement of offers or sales of common
stock hereunder.

Some of the underwriters and their affiliates engage in transactions with,
and perform services for, us and other entities owned or controlled by Mr. Zell
in the ordinary course of business and have engaged, and may in the future
engage, in commercial and investment banking transactions and financial advisory
services with us and other entities owned or controlled by Mr. Zell, for which
they have received customary compensation.

LEGAL MATTERS

The validity of the shares of common stock offered hereby will be passed
upon for us by Seyfarth, Shaw, Fairweather & Geraldson, Chicago, Illinois. In
connection with this offering, Sidley & Austin, Chicago, Illinois, will pass
upon legal matters for the underwriters.

EXPERTS

The historical consolidated financial statements of American Classic
Voyages Co. as of December 31, 1998 and 1997, and for each of the years in the
three-year period ended December 31, 1998, have been incorporated by reference
herein and elsewhere in the registration statement from our Annual Report on
Form 10-K for the year ended December 31, 1998 in reliance upon the report of
KPMG LLP, independent certified public accountants, incorporated by reference
herein, and upon the authority of said firm as experts in accounting and
auditing.

INCORPORATION BY REFERENCE

We have filed the following documents with the SEC under the Exchange Act,
which are incorporated herein by reference:

1. Annual Report on Form 10-K, for the year ended December 31, 1998;

2. Current Report on Form 8-K dated February 22, 1999;

3. Current Report on Form 8-K dated March 26, 1999, as amended on Form
8-K/A dated April 21, 1999;

4. Current Report on Form 8-K dated April 14, 1999;

5. Information Statement on Schedule 14C dated March 8, 1999; and

6. The description of the common stock, contained in our Registration
Statement on Form S-1 (Registration No. 33-45139), all amendments
thereto and reports filed for the purpose of updating such
description.

45
<PAGE> 48

All documents filed by us pursuant to Section 13(a), 13(c), 14 or 15(d) of
the Exchange Act (1) subsequent to the initial filing of this prospectus and
prior to the date it is declared effective and (2) subsequent to the date of
this prospectus and prior to the termination of this offering are incorporated
by reference and become a part of this prospectus and to be a part hereof from
their date of filing.

Any statement contained in this prospectus or in a document incorporated by
reference are modified or superseded for purposes of this prospectus to the
extent that a statement contained in any such document modifies or supersedes
such statement. Any such statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this
prospectus.

On written or telephone request, we will provide free of charge to each
person, including any beneficial owner, to whom a copy of this prospectus is
delivered, a copy of any or all of the documents incorporated by reference in
this prospectus but not delivered with this prospectus. Written or telephone
requests for such copies should be directed to our principal office: American
Classic Voyages Co., Two North Riverside Plaza, Suite 200, Chicago, Illinois
60606, Attention: Investor Relations, Telephone: (312) 258-1890.

WHERE YOU CAN FIND ADDITIONAL INFORMATION

We file reports, proxy statements and other information with the SEC. Those
reports, proxy statements and other information may be obtained:

- At the Public Reference Room of the SEC, Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, DC 20549;

- At the public reference facilities at the SEC's regional offices located
at Seven World Trade Center, 13th Floor, New York, New York 10048 or 500
West Madison Street, Suite 1400, Chicago, Illinois 60661;

- By writing to the SEC, Public Reference Section, Judiciary Plaza, 450
Fifth Street, N.W., Washington, DC 20549 or calling the SEC at
1-800-SEC-0330;

- At the offices of the National Association of Securities Dealers, Inc.,
Reports Section, 1735 K Street, N.W., Washington, DC 20006; or

- From the Internet site maintained by the SEC at http://www.sec.gov which
contains reports, proxy and information statements and other information
regarding issuers that file electronically with the SEC.

Some locations may charge prescribed or modest fees for copies.

We have filed with the SEC a registration statement on Form S-3 under the
Securities Act covering the shares of common stock offered hereby. As permitted
by the SEC, this prospectus, which constitutes a part of the registration
statement, does not contain all the information included in the registration
statement. Such additional information may be obtained from the locations
described above. Statements contained in this prospectus as to the contents of
any contract or other document are not necessarily complete. You should refer to
the contract or other document for all the details.

46
<PAGE> 49

AMERICAN CLASSIC VOYAGES CO.

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C>
Independent Auditors' Report................................ F-2
Consolidated Balance Sheets as of December 31, 1998 and
1997...................................................... F-3
Consolidated Statements of Operations for the years ended
December 31, 1998, 1997 and 1996.......................... F-4
Consolidated Statements of Cash Flows for the years ended
December 31, 1998, 1997 and 1996.......................... F-5
Consolidated Statements of Changes in Stockholders' Equity
for the years ended December 31, 1998, 1997 and 1996...... F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>

F-1
<PAGE> 50

INDEPENDENT AUDITORS' REPORT

The Board of Directors and Stockholders
American Classic Voyages Co.

We have audited the consolidated balance sheets of American Classic Voyages
Co. and subsidiaries as of December 31, 1998 and 1997, and the related
consolidated statements of operations, changes in stockholders' equity and cash
flows for each of the years in the three-year period ended December 31, 1998. In
connection with our audits of the consolidated financial statements, we also
have audited the financial statement schedule. These consolidated financial
statements and financial statement schedule are the responsibility of management
of American Classic Voyages Co. Our responsibility is to express an opinion on
these consolidated financial statements and financial statement schedule based
on our audits.

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

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of American
Classic Voyages Co. and subsidiaries as of December 31, 1998 and 1997 and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1998, in conformity with generally accepted
accounting principles. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.

KPMG LLP

Chicago, Illinois
February 19, 1999

F-2
<PAGE> 51

AMERICAN CLASSIC VOYAGES CO.

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARES AND PAR VALUE)

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1998 1997
-------- --------
<S> <C> <C>
ASSETS
Cash and cash equivalents................................... $ 27,004 $ 19,187
Restricted short-term investments........................... 60 325
Accounts receivable......................................... 1,989 1,299
Inventory................................................... 2,413 2,274
Prepaid air tickets......................................... 2,527 1,982
Prepaid expenses and other current assets................... 4,113 3,557
-------- --------
Total current assets................................... 38,106 28,624

Property and equipment, net................................. 162,129 171,105
Deferred income taxes, net.................................. 10,011 9,564
Other assets................................................ 2,546 1,602
-------- --------
Total assets........................................... $212,792 $210,895
======== ========
LIABILITIES
Accounts payable............................................ $ 13,493 $ 14,282
Other accrued liabilities................................... 16,500 18,093
Current portion of long-term debt........................... 4,100 4,100
Unearned passenger revenues................................. 39,297 33,713
-------- --------
Total current liabilities.............................. 73,390 70,188

Long-term debt, less current portion........................ 77,388 81,488
-------- --------
Total liabilities...................................... $150,778 $151,676
======== ========
STOCKHOLDERS' EQUITY
Preferred stock, $0.01 par value (5,000,000 shares
authorized, none issued and outstanding).................. -- --
Common stock, $0.01 par value (20,000,000 shares authorized,
14,293,931 and 14,006,015 shares issued, respectively).... 143 140
Additional paid-in capital.................................. 80,451 77,059
Accumulated deficit......................................... (17,823) (17,980)
Common stock in treasury, at cost (51,000 shares)........... (757) --
-------- --------
Total stockholders' equity............................. 62,014 59,219
-------- --------
$212,792 $210,895
======== ========
</TABLE>

The accompanying notes are an integral part of these Consolidated Financial
Statements.

F-3
<PAGE> 52

AMERICAN CLASSIC VOYAGES CO.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Revenues.................................................... $192,225 $177,884 $190,408

Cost of operations (exclusive of depreciation and
amortization shown below)................................. 125,595 111,295 122,545
-------- -------- --------
Gross profit................................................ 66,630 66,589 67,863

Selling, general and administrative expenses................ 44,232 41,015 45,367
Depreciation and amortization expense....................... 16,912 15,590 14,571
Impairment write-down (Note 4).............................. -- -- 38,390
-------- -------- --------
Operating income (loss)..................................... 5,486 9,984 (30,465)

Interest income............................................. 1,117 1,028 912
Interest expense............................................ 6,639 6,963 8,111
Other income................................................ 300 -- 11,729
-------- -------- --------

Income (loss) before income taxes........................... 264 4,049 (25,935)

Income tax (expense) benefit................................ (107) (1,620) 8,299
-------- -------- --------

Net income (loss)........................................... $ 157 $ 2,429 $(17,636)
======== ======== ========
PER SHARE INFORMATION
Basic:
Basic weighted average shares outstanding................. 14,137 13,952 13,802
Earnings (loss) per share................................. $ 0.01 $ 0.17 $ (1.28)

Diluted:
Diluted weighted average shares outstanding............... 14,777 14,338 13,802
Earnings (loss) per share................................. $ 0.01 $ 0.17 $ (1.28)
</TABLE>

The accompanying notes are an integral part of these Consolidated Financial
Statements.

F-4
<PAGE> 53

AMERICAN CLASSIC VOYAGES CO.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)......................................... $ 157 $ 2,429 $(17,636)
ADJUSTMENTS TO RECONCILE NET INCOME (LOSS) TO NET CASH
PROVIDED BY OPERATING ACTIVITIES
Depreciation and amortization expense..................... 16,912 15,590 14,571
Impairment write-down (Note 4)............................ -- -- 38,390
Gain on sale of assets.................................... (300) -- (11,729)
Changes in certain working capital accounts and other
Accounts receivable.................................... (690) 2,435 (2,600)
Accounts payable....................................... (789) 3,599 (2,305)
Other accrued liabilities.............................. (529) (5,344) (289)
Other assets........................................... (258) 1,576 (6,400)
Unearned passenger revenues............................ 5,584 2,044 3,137
Prepaid expenses and other............................. (1,563) 85 (123)
-------- -------- --------
Net cash provided by operating activities................. 18,524 22,414 15,016
-------- -------- --------
INVESTING ACTIVITIES
Decrease in restricted investments........................ 265 2,632 7,724
Capital expenditures...................................... (8,789) (22,326) (15,355)
Proceeds from sale of assets.............................. 300 1,830 21,522
-------- -------- --------
Net cash (used in) provided by investing activities....... (8,224) (17,864) 13,891
-------- -------- --------
FINANCING ACTIVITIES
Proceeds from borrowings.................................. -- -- 6,903
Repayments of borrowings.................................. (4,100) (4,410) (23,923)
Purchase of common stock.................................. (757) -- --
Issuance of common stock.................................. 2,907 1,139 368
Deferred financing fees................................... (533) -- (395)
-------- -------- --------
Net cash used in financing activities..................... (2,483) (3,271) (17,047)
-------- -------- --------
Increase in cash and cash equivalents..................... 7,817 1,279 11,860
Cash and cash equivalents, beginning of period............ 19,187 17,908 6,048
-------- -------- --------
Cash and cash equivalents, end of period.................. $ 27,004 $ 19,187 $ 17,908
======== ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest............................................... $ 6,438 $ 6,791 $ 7,952
Income taxes........................................... $ 232 $ 249 $ 450
</TABLE>

The accompanying notes are an integral part of these Consolidated Financial
Statements.

F-5
<PAGE> 54

AMERICAN CLASSIC VOYAGES CO.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS)

<TABLE>
<CAPTION>
ADDITIONAL TOTAL
PAID-IN ACCUMULATED TREASURY STOCKHOLDERS'
COMMON STOCK CAPITAL DEFICIT STOCK EQUITY
------------ ---------- ----------- -------- -------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1995............... $138 $74,048 $ (2,773) $ -- $ 71,413
Net loss................................. -- -- (17,636) -- (17,636)
Stock issued under option and benefit
plans.................................. 1 1,204 -- 1,205
---- ------- -------- ----- --------
Balance, December 31, 1996............... 139 75,252 (20,409) -- 54,982
Net income............................... -- -- 2,429 -- 2,429
Stock units issued to Directors, net..... -- 219 -- -- 219
Stock issued under option and benefit
plans.................................. 1 1,588 -- 1,589
---- ------- -------- ----- --------
Balance, December 31, 1997............... 140 77,059 (17,980) -- 59,219
Net income............................... -- -- 157 -- 157
Stock units issued to Directors, net..... -- 138 -- -- 138
Stock issued under option and benefit
plans.................................. 3 3,254 -- -- 3,257
Purchase of treasury stock............... -- -- -- (757) (757)
---- ------- -------- ----- --------
Balance, December 31, 1998............... $143 $80,451 $(17,823) $(757) $ 62,014
==== ======= ======== ===== ========
</TABLE>

The accompanying notes are an integral part of these Consolidated Financial
Statements.

F-6
<PAGE> 55

AMERICAN CLASSIC VOYAGES CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NATURE OF OPERATIONS

American Classic Voyages Co., through its subsidiaries, operates two cruise
lines under the names of The Delta Queen Steamboat Co. and American Hawaii
Cruises. The Delta Queen Steamboat Co., through its subsidiaries, owns and
operates the American Queen, Mississippi Queen and Delta Queen steamboats which
conduct overnight cruise operations on certain U.S. inland waterways ("Delta
Queen"). Delta Queen also owned and operated the Maison Dupuy Hotel (the
"Hotel") located in New Orleans, prior to its sale in October 1996. American
Hawaii Cruises, through its subsidiaries owns and operates the S.S. Independence
steamship providing overnight cruises among the Hawaiian Islands. American
Hawaii also owned the S.S. Constitution steamship which was removed from service
in June 1995 and was sold on November 4, 1997.

PRINCIPLES OF CONSOLIDATION

The accompanying Consolidated Financial Statements include the accounts of
American Classic Voyages Co. ("AMCV") and its wholly owned subsidiaries, The
Delta Queen Steamboat Co. ("DQSC"), and Great Hawaiian Cruise Line, Inc.
("GHCL") (collectively with such subsidiaries, the "Company"). The accompanying
Consolidated Financial Statements have been prepared in accordance with
generally accepted accounting principles. All significant intercompany accounts
and transactions have been eliminated in consolidation. Certain previously
reported amounts have been reclassified to conform to the 1998 presentation.

USE OF ESTIMATES

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 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.

CASH AND CASH EQUIVALENTS

All highly liquid investments purchased with an original maturity of three
months or less are considered cash equivalents.

RESTRICTED SHORT-TERM INVESTMENTS

As of December 31, 1998 and 1997, restricted short-term investments
reflected cash pledged as collateral on outstanding letters of credit related to
certain contracts with vendors.

INVENTORIES

Inventories consists of provisions, supplies, fuel and gift shop
merchandise carried at the lower of cost (weighted-average) or market.

PREPAID AIR TICKETS

Prepaid air tickets consists of air tickets purchased by the Company and
resold to passengers in advance of sailings.

F-7
<PAGE> 56
AMERICAN CLASSIC VOYAGES CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

PROPERTY AND EQUIPMENT

Property and equipment primarily consists of vessels and leasehold
improvements which are recorded at cost. Construction-in-progress represents
expenditures for the vessels under construction, renovation, lay-up and/or
drydock. Depreciation is computed using the straight-line method based upon the
estimated useful lives of the various classes of assets ranging from 3 to 40
years. Lay-up and drydock expenditures relating to vessel improvements or
betterments are capitalized. In addition, lay-up and drydock expenditures
relating to cleaning, repairs and maintenance are accrued evenly over the period
to the next scheduled lay-up and/or drydock and are included in other accrued
liabilities. Interest costs incurred during vessel construction periods were
capitalized into the cost of the related vessels. The Company reviews long-lived
assets, identifiable intangibles, goodwill, and reserves for impairment whenever
events or changes in circumstances indicate the carrying amount of the assets
may not be fully recoverable. In 1997, the Company reduced the cost of the S.S.
Constitution to its salvage value as further discussed in Note 4.

GOODWILL

In August 1993, the Company acquired substantially all the assets and
certain liabilities of American Global Line Inc. ("the GHCL Acquisition"). The
GHCL Acquisition was accounted for as a purchase. In connection with this
purchase, goodwill was recorded for the excess of purchase price over the fair
value of the net assets acquired and was being amortized over its estimated
useful life of 25 years using the straight-line method. In 1996, in connection
with its decision not to return the S.S. Constitution to service, the Company
wrote-off the remaining goodwill balance (see Note 4). Amortization expense for
1996 was $52,000.

INCOME TAXES

Deferred tax assets and liabilities are recognized for the expected future
tax consequences of temporary differences between carrying amounts and the tax
bases of other assets and liabilities.

REVENUE AND EXPENSE RECOGNITION

The Company generally receives passenger fares up to 60 days prior to the
cruise date. Prepaid passenger fares are deferred and recognized as revenue
during the associated cruise. The Company is self-insured in respect of
guaranteeing the Company's passenger cruise deposits. Advertising costs are
expensed as incurred and are included in selling expense.

EARNINGS PER SHARE INFORMATION

Basic earnings per share is computed by dividing net income by the
weighted-average number of common shares outstanding. Diluted earnings per share
is computed in a similar manner except that the denominator is increased to
include dilutive potential common shares from stock options and stock units. See
Note 2 for a reconciliation of basic and diluted earnings per share.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company's financial instruments include restricted short-term
investments, accounts receivable, accounts payable, other accrued expenses and
long-term debt. At December 31, 1998 and 1997, the fair values of all financial
instruments were not materially different from their carrying or contract
values.

STOCK-BASED COMPENSATION PLANS

The Company has elected to account for employee stock-based compensation
plans in accordance with Accounting Principles Board Opinion No. 25, as
permitted under Statement of Financial Standards
F-8
<PAGE> 57
AMERICAN CLASSIC VOYAGES CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

("SFAS") No. 123, "Accounting for Stock-Based Compensation". See Note 10 for pro
forma effect for the fair value accounting method, as defined in SFAS No. 123.

NEW ACCOUNTING PRONOUNCEMENT

In June 1997, the Financial Accounting Standards Board issued SFAS No. 131
"Disclosure about Segments of an Enterprise and Related Information", which
requires the reporting of certain information about operating segments and
related disclosures about products and services, geographic areas, and major
customers. The Company has reviewed SFAS 131 and has determined that the Company
operates as a single business segment.

RISK AND UNCERTAINTIES

The Company is subject to varying degrees of risk and uncertainty. The
Company insures its vessels and other business assets against insurable risks in
a manner it deems appropriate. The Company believes there is no concentration of
risk with any single customer or supplier, or small group of customers or
suppliers, whose failure or non-performance would materially affect the
Company's results.

NOTE 2. EARNINGS PER SHARE

The earnings per share reconciliations presented below for the years ended
December 31, 1998 and 1997 have been prepared pursuant to the requirements of
SFAS No. 128 (in thousands, except per share amount):

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------------------------
1998 1997
--------------------------------- ---------------------------------
PER PER
NUMERATOR DENOMINATOR SHARE NUMERATOR DENOMINATOR SHARE
--------- ----------- ----- --------- ----------- -----
<S> <C> <C> <C> <C> <C> <C>
Basic earnings per share................ $157 14,137 $0.01 $2,429 13,952 $0.17
===== =====
Additional shares assuming exercise of
dilutive stock options and immediate
vesting of stock units................ -- 640 -- 386
---- ------ ------ ------
Diluted earnings per share.............. $157 14,777 $0.01 $2,429 14,338 $0.17
==== ====== ===== ====== ====== =====
</TABLE>

For the years ended December 31, 1998 and 1997, options to purchase 858,000
and 523,000 shares of common stock, respectively, at prices ranging from $15.00
to $20.00 were outstanding during 1998 and 1997, but were not included in the
computation of diluted earnings per share because the options' exercise prices
were greater than the average market prices of the common shares.

As the Company reported a net loss for the year ended December 31, 1996,
diluted earnings per share was computed in the same manner as basic earnings per
share. Therefore, at December 31, 1996, outstanding options to purchase
1,730,553 shares of common stock at prices ranging from $3.25 to $20.00, were
not included in the computation of diluted earnings per share.

F-9
<PAGE> 58
AMERICAN CLASSIC VOYAGES CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

NOTE 3. PROPERTY AND EQUIPMENT

Property and equipment consisted of (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1998 1997
-------- --------
<S> <C> <C>
Vessels.................................................. $218,649 $211,231
Buildings................................................ 7,704 8,590
Construction-in-progress................................. 813 2,674
Other.................................................... 10,756 8,003
-------- --------
237,922 230,498
Less accumulated depreciation............................ (75,793) (59,393)
-------- --------
$162,129 $171,105
======== ========
</TABLE>

At December 31, 1998, other property and equipment included $3.0 million of
technical consulting and design fees related to capacity expansion at American
Hawaii and Delta Queen. During 1998, $1.4 million of leasehold improvements were
written-off along with $0.5 million of related accumulated depreciation upon the
amendment to the lease covering the Company's Chicago headquarters facilities.
This write-off was offset by a receivable from the landlord for the value of the
undepreciated leasehold improvements (see Note 9 for further information).
During 1997, $0.8 million of fully depreciated assets that were no longer in use
were written-off along with the related accumulated depreciation.

NOTE 4. IMPAIRMENT WRITE-DOWN

The S.S. Constitution was removed from service on June 27, 1995 and was
placed in wet berth at a shipyard in Portland, Oregon. In 1996, after evaluating
the scope and cost of the S.S. Constitution reconstruction project as well as
considering various alternatives, the Company decided not to renovate or return
the S.S. Constitution to service. The Company recognized an impairment
write-down of $38.4 million, composed of (i) $36.1 million directly related to
the write-down of the vessel and its allocated goodwill to an estimated salvage
value of $2.5 million, and (ii) $2.3 million which represented the remaining
goodwill balance from the GHCL Acquisition. The Company reserved for the
estimated costs to be incurred on behalf of the S.S. Constitution until its
eventual disposition.

On November 4, 1997, the Company sold the vessel for net sale proceeds of
$1.8 million and as such, the salvage value of the vessel was written down from
$2.5 million to $1.8 million. This write-down was offset by a reduction in the
reserve set-up for the estimated costs to be incurred on behalf of the vessel,
as mentioned above.

NOTE 5. DISPOSITION OF ASSETS

In October 1996, the Company sold its subsidiary which owned the Hotel in
New Orleans for $22.0 million in cash. In addition, the Company entered into a
Profit Participation Agreement with the buyer which provided for future payments
based on the future performance of the Hotel. The agreement was terminated in
February 1998 when the Company received final proceeds of $0.3 million from the
buyer.

Upon the sale of the Hotel, the Company paid down its then outstanding
borrowings, which were $9.5 million under its prior credit agreement with a
group of financial institutions with The Chase Manhattan Bank, as agent (the
"Credit Agreement"). The balance of the Hotel sale proceeds were used for
general corporate purposes.

F-10
<PAGE> 59
AMERICAN CLASSIC VOYAGES CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

NOTE 6. LONG-TERM DEBT

Long-term debt consists of (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1998 1997
------- -------
<S> <C> <C>
U.S. Government Guaranteed Ship Financing Note, American
Queen Series, LIBOR+0.25% floating rate notes due
semi-annually beginning February 24, 1996 through August
24, 2005.................................................. $16,809 $19,233
U.S. Government Guaranteed Ship Financing Bond, American
Queen Series, 7.68% fixed rate, sinking fund bonds due
semi-annually beginning February 24, 2006 through June 2,
2020...................................................... 36,198 36,198
U.S. Government Guaranteed Ship Financing Note, Independence
Series A, LIBOR+0.27% floating rate notes due
semi-annually beginning June 7, 1996 through December 7,
2005...................................................... 9,248 10,570
U.S. Government Guaranteed Ship Financing Bond, Independence
Series A, 6.84% fixed rate sinking fund bonds due
semi-annually beginning June 7, 2006 through December 7,
2015...................................................... 13,215 13,215
U.S. Government Guaranteed Ship Financing Note, Independence
Series B, LIBOR+0.27% floating rate notes due
semi-annually beginning December 7, 1996 through December
7, 2005................................................... 2,478 2,832
U.S. Government Guaranteed Ship Financing Bond, Independence
Series B, 7.46% fixed rate sinking fund bonds due
semi-annually beginning June 7, 2006 through December 7,
2015...................................................... 3,540 3,540
------- -------
81,488 85,588
Less current portion........................................ 4,100 4,100
------- -------
$77,388 $81,488
======= =======
</TABLE>

Required principal payments on long-term debt over the next five years are
$4.1 million for each of the years from 1999 to 2003. For the years ended
December 31, 1998 and 1997, the weighted-average interest rate on outstanding
borrowings was approximately 7.0% and 6.9%, respectively.

The American Queen Series and the Independence Series A and B debt are
guaranteed by the U.S. Government through the Maritime Administration ("MARAD")
and are secured by first mortgages on the American Queen and the S.S.
Independence, respectively. These Series contain various covenants which, among
other things, require the compliance with certain financial ratios at the end of
each year.

Upon the issuance of the Independence Series A and B debt in 1995 and 1996,
$2.2 million was deposited into an account representing six months of debt
service. The debt service deposit was released to the Company in 1997 as GHCL
had met the required cash flow and debt to equity ratios as of December 31,
1996.

As of December 31, 1996, the Company's restricted short-term investments
included an escrow account for remaining American Queen construction costs in
the amount of $0.3 million, which was released to the Company in October 1997
and was used to pay down the principal balance of the American Queen Series.

As of December 31, 1998, the Company had a revolving credit facility under
the Credit Agreement which provided for borrowings of up to $15.0 million with a
final maturity on March 31, 1999. In 1998, no borrowings were outstanding at any
time under this facility. Borrowings bear interest, at the option of the
Company, equal to either a LIBOR rate or prime rate basis. The Company is also
required to pay a

F-11
<PAGE> 60
AMERICAN CLASSIC VOYAGES CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

commitment fee on the unused portion of the facility at a rate ranging from
0.375% to 0.500% per annum. The Credit Agreement is guaranteed by AMCV and
secured by substantially all the assets of DQSC, excluding the American Queen.
The Credit Agreement contains various limitations, restrictions and financial
covenants which, among other things, requires maintenance of certain financial
ratios, restricts additional indebtedness, limits intercompany advances to $20.0
million and limits the payment of dividends from DQSC to AMCV to $2.0 million
per annum. See Note 12 for further information.

As of December 31, 1998, the Company complied with all covenants under its
various debt agreements.

NOTE 7. COMMITMENTS AND CONTINGENCIES

The Company leases certain facilities and equipment under operating leases.
The Company currently leases approximately 21,000 square feet from a partnership
controlled by an affiliated company, at an annual rate of approximately $99,000.
In addition, the DQSC and GHCL headquarters is maintained pursuant to an
assignment from local authorities. The Company paid approximately $165,000 and
$160,000 under this arrangement for the years ended December 31, 1998 and 1997,
respectively. This arrangement may be terminated at any time by the local
authorities upon determination that a superior maritime use is deemed to exist.
Rent expense for the years ended December 31, 1998, 1997 and 1996 was
approximately $842,000, $916,000 and $848,000, respectively.

The future minimum lease commitments for the next five years and thereafter
under all noncancelable operating leases, excluding assignment payments, as of
December 31, 1998, are $322,000, $374,000, $396,000, $348,000, $323,000 and
$243,000.

The Company is subject to litigation in the ordinary course of business. In
the opinion of management, the outcome of such litigation will not have a
material effect on the results of operations or financial position of the
Company as most is covered by insurance, net of a deductible.

NOTE 8. INCOME TAXES

The provision (benefit) for income taxes consisted of (in thousands):

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1998 1997 1996
----- ------ -------
<S> <C> <C> <C>
Current tax provision (benefit):
Federal............................................ $ -- $ -- $ --
State.............................................. 213 163 (458)
----- ------ -------
213 163 (458)
----- ------ -------
Deferred tax provision (benefit):
Federal............................................ 89 1,323 (9,073)
State.............................................. (195) 134 1,232
----- ------ -------
(106) 1,457 (7,841)
----- ------ -------
Total tax provision (benefit)................. $ 107 $1,620 $(8,299)
===== ====== =======
</TABLE>

F-12
<PAGE> 61
AMERICAN CLASSIC VOYAGES CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

The provision (benefit) for income taxes differs from amounts computed by
applying the U.S. statutory Federal income tax rate. The differences are
summarized as follows (in thousands):

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1998 1997 1996
----- ------ -------
<S> <C> <C> <C>
35% 35% 35%
----- ------ -------
Tax provision (benefit) at statutory rate.......... $ 93 $1,417 $(9,076)
State income taxes (net of Federal benefit)........ 12 193 503
Non-deductible expenses............................ 221 313 121
Other.............................................. (219) (303) 153
----- ------ -------
Total tax provision (benefit)................. $ 107 $1,620 $(8,299)
===== ====== =======
</TABLE>

The tax effects of temporary differences that gave rise to significant
portions of the deferred tax assets and deferred tax liabilities are presented
below (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1998 1997
------- -------
<S> <C> <C>
Deferred tax assets:
Insurance costs and reserves............................. $ 1,097 $ 1,198
Non-recurring executive compensation..................... 490 809
Benefit cost accruals.................................... 491 483
Alternative minimum tax credit carryforwards............. 2,196 2,196
Drydock accruals......................................... 967 820
Net operating loss carryforward.......................... 35,090 33,041
Goodwill, due to basis differences....................... 1,270 1,248
------- -------
Total deferred tax assets........................... 41,601 39,795
------- -------
Deferred tax liabilities:
Capital construction fund................................ 1,237 1,472
Property plant and equipment, due to basis differences
and depreciation, net................................. 30,353 28,759
------- -------
Total deferred tax liabilities...................... 31,590 30,231
------- -------
Net deferred tax asset.............................. $10,011 $ 9,564
======= =======
</TABLE>

At December 31, 1998, consolidated net operating losses of approximately
$3.0 million, $10.0 million, $36.0 million, $14.0 million, $29.0 million and
$5.0 million expiring in 2008, 2009, 2010, 2011, 2012 and 2018, respectively,
were available to offset future taxable income of the Company.

In 1993, the Company established a capital construction fund (the "CCF")
pursuant to Section 607 of the Merchant Marine Act of 1936, into which it
deposited approximately $12.0 million. This fund was primarily used to pay
liabilities assumed in the Acquisition and allowed the Company to accelerate
recognition of certain deductions for qualified capital expenditures for income
tax purposes. As a result of the CCF, the Company has approximately a $2.2
million alternative minimum tax credit carryforward available with no expiration
date.

NOTE 9. RELATED PARTIES

As of December 31, 1998, the largest stockholders of the Company's common
stock were certain affiliates of Equity Group Investments ("EGI"), including EGI
Holdings, Inc. and EGIL Investments, Inc., which owned an aggregate of 53% of
the Company's common stock. EGI and its affiliates provided

F-13
<PAGE> 62
AMERICAN CLASSIC VOYAGES CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

certain administrative support services for the Company, including but not
limited to legal, accounting, tax, benefit and insurance brokerage services. In
addition, as previously mentioned in Note 7, the Company leases office space
from an affiliate of EGI. In the aggregate, the fees charged by EGI and its
affiliates for such services and rent were approximately $0.4 million, $0.7
million, and $1.5 million for the years ended December 31, 1998, 1997 and 1996,
respectively. These arrangements with EGI and its affiliates are subject to
approval by a majority of the non-affiliated members of the Company's Board of
Directors, and are conducted on terms no less favorable to the Company than
could be obtained from unaffiliated third parties.

In late 1997, the Company subleased approximately 13,000 square feet of
Chicago office space (the "sublease area") to Equity Office Properties Trust, an
affiliate of EGI. For the years ended December 31, 1998 and 1997, approximately
$78,000 and $23,000, respectively, was received by the Company under the
sublease at a rate which it believes to be competitive for comparable space for
an unaffiliated party. In mid-1998, the Company entered into an amended lease
agreement covering the Chicago office space whereby the subleased area was
removed from the lease. The Company was granted a $0.6 million reduction in
future rent on its remaining office space, representing the value of
undepreciated leasehold improvements of the sublease area.

The Company paid approximately $768,000 for legal services to Preston Gates
Ellis & Rouvelas Meeds ("Preston Gates") during 1998. Mr. Rouvelas, a Director
of the Company, is a partner of Preston Gates. The Company paid approximately
$113,000 for legal services to Watanabe, Ing & Kawashima ("WIK") during 1998.
Mr. Watanabe, a Director of the Company, is a partner of WIK.

NOTE 10. EMPLOYEE BENEFIT PLANS

RETIREMENT PLANS

The Company's non-union employees are eligible to participate in the
ADVANTAGE Retirement Savings Plan (as amended and restated October 1, 1987,
"ADVANTAGE Plan"), a profit-sharing plan with a salary deferral feature that
qualifies under Section 401 of the Internal Revenue Code of 1986, as amended.
The ADVANTAGE Plan allows participants to defer a portion of their eligible
compensation on a pre-tax basis. Participant contributions are 100% vested at
the time the contribution is made. Matching contributions are made by the
Company in an amount equal to 100% of the amount of a participant's contribution
with a maximum of 4% of such participant's annual eligible wages, subject to
Internal Revenue Service maximums. In addition, the Company may make
discretionary profit-sharing contributions which are allocated to eligible
employees based on eligible compensation. Company contributions vest over a
five-year period. Matching and profit-sharing contributions approximated
$497,000, $550,000 and $708,000 for the years ended December 31, 1998, 1997 and
1996, respectively.

The Company also maintains a non-qualified deferred compensation plan (the
"Restoration Plan"), effective August 1, 1998. The purpose of the Restoration
Plan is to provide deferrals for eligible employees that may not be made to the
ADVANTAGE Plan because of certain restrictions and limitations in the Code.
Benefits will be paid from employee contributions. The Company's liability under
the Restoration Plan as of December 31, 1998 was $30,000.

The Company also contributes, under collective bargaining agreements, to
funds designed to provide pension and health benefits for its union employees.
The Company contributed $2,203,000, $2,147,000 and $2,337,000 to such plans for
the years ended December 31, 1998, 1997 and 1996, respectively.

EMPLOYEE STOCK PURCHASE PLAN

The American Classic Voyages Co. 1995 Employee Stock Purchase Plan (the
"ESP Plan") allows eligible employees to purchase common stock of the Company,
through payroll deductions, at a discounted
F-14
<PAGE> 63
AMERICAN CLASSIC VOYAGES CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

price from the market price. The exercise price under the ESP Plan is deemed to
be 85% of the lesser of (i) the market value of the Company's common stock on
the last business day of the offering period or (ii) the greater of (a) the
average market value during the offering period and (b) the market value on the
first business day of the offering period. There is a maximum of 500,000 shares
authorized under the ESP Plan. There were 11,622, 9,718 and 12,297 shares issued
during 1998, 1997 and 1996, respectively, at an average price of $13.38, $10.70
and $7.13 per share for 1998, 1997 and 1996, respectively. At December 31, 1998,
approximately 461,000 shares were available for offering under the ESP Plan.

STOCK-BASED COMPENSATION PLANS

The Company granted, as of January 1, 1992, fully vested options to the
Company's then senior executive officers, to purchase shares of common stock, in
lieu of bonus payments (the "Executive Stock Option Plan"). These options are
exercisable, in whole or in part, at any time prior to January 2, 2002, at an
exercise price of $3.25 per share.

The Company adopted the 1992 Stock Option Plan effective January 2, 1992
(the "1992 Plan"). Pursuant to the 1992 Plan, certain officers, directors, key
employees, and consultants will be offered the opportunity to acquire shares of
the Company's common stock via stock option grants. In addition, the 1992 Plan
provides for the granting of stock units and stock appreciation rights ("SARs").
The exercise price of options granted under the 1992 Plan cannot be less than
the fair market value of the Company's common stock at the date of grant. As of
December 31, 1998, 2,703,198 shares of the Company's common stock have been
reserved for issuance under the 1992 Plan. Options granted under the 1992 Plan
generally vest over a three-year period and expire 10 years from the date of
grant. The per share weighted-average fair value of stock options granted during
1998, 1997 and 1996 was $7.86, $4.25 and $3.48, respectively, on the date of
grant using the Black-Scholes option-pricing model with the following
weighted-average assumptions for 1998, 1997 and 1996 respectively: expected
volatility of 53%, 52% and 50%, risk-free interest rates of 4.6%, 5.7% and 6.0%,
expected lives of three years and dividend yield of 0% for all years.

In 1998 and 1997, under the terms of the 1992 Plan, the Company paid each
non-employee director stock units as an annual retainer. The stock units in
general vest at a rate of 25% on the first day of each calendar quarter. The
fully vested stock units will be converted into an equal number of common stock
shares at any time as selected by each director prior to each grant.

In 1995, the Company granted SARs to key employees. All of the SARs were
canceled in 1996.

During 1995, the Financial Accounting Standards Board issued SFAS No. 123,
"Accounting for Stock Based Compensation," which defines a fair value based
method of accounting for an employee stock option or similar equity instrument
and encourages all entities to adopt that method of accounting for all of their
employee stock compensation plans. However, it also allows an entity to continue
to measure compensation cost for those plans using the method of accounting
prescribed by APB No. 25, "Accounting for Stock Issued to Employees." Entities
electing to remain with the accounting in APB No. 25 must make pro forma
disclosures of net income and earnings per share, as if the fair value based
method of accounting defined in this Statement has been applied.

The Company applies APB No. 25 in accounting for its plans and,
accordingly, no compensation cost has been recognized for its stock options in
the financial statements. Had the Company determined compensation cost based on
the fair value at the grant date for its stock options under SFAS No. 123, the

F-15
<PAGE> 64
AMERICAN CLASSIC VOYAGES CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

Company's net income (loss) and earnings (loss) per share would have been
adjusted to the pro forma amounts indicated below (in thousands, except per
share amounts):

<TABLE>
<CAPTION>
1998 1997 1996
------- ------ --------
<S> <C> <C> <C> <C>
Net income (loss).................................... As reported $ 157 $2,429 $(17,636)
Pro forma (2,487) 1,422 (18,033)
Basic earnings (loss) per share...................... As reported $ 0.01 $ 0.17 $ (1.28)
Pro forma (0.18) 0.10 (1.31)
Diluted earnings (loss) per share.................... As reported $ 0.01 $ 0.17 $ (1.28)
Pro forma (0.18) 0.10 (1.31)
</TABLE>

Pro forma net income (loss) and earnings (loss) per share reflect only
options granted since 1995. Therefore, the full impact of calculating
compensation cost for stock options under SFAS No. 123 is not reflected in the
pro forma amounts presented above because compensation cost is reflected over
the options' vesting period which is generally three years and compensation cost
for options granted prior to January 1, 1995 is not considered.

The table below summarizes the activities for 1996, 1997 and 1998:

<TABLE>
<CAPTION>
EXECUTIVE STOCK
OPTION PLAN 1992 PLAN
--------------- --------------------------------------- WEIGHTED-AVERAGE
SHARES SHARES SHARES SHARES EXERCISE PRICE
SUBJECT TO SUBJECT TO SUBJECT TO SUBJECT TO FOR OPTIONS
OPTIONS OPTIONS STOCK UNITS SARS AND SARS ONLY
--------------- ---------- ----------- ---------- ----------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1995..... 323,971 1,179,410 -- 280,000 $13.04
Granted........................ -- 895,680 -- -- 9.50
Canceled....................... -- (582,668) -- (280,000) 15.36
Exercised...................... (85,840) -- -- -- 3.25
------- --------- ------ -------- ------
Balance at December 31, 1996..... 238,131 1,492,422 -- -- 10.54
Granted........................ -- 62,000 24,500 -- 12.36
Canceled....................... -- (71,753) (1,450) -- 11.43
Exercised...................... (43,006) (60,290) -- -- 7.90
Converted...................... -- -- (2,650) -- --
------- --------- ------ -------- ------
Balance at December 31, 1997..... 195,125 1,422,379 20,400 -- 10.74
Granted........................ -- 1,618,000 14,000 -- 17.10
Canceled....................... (19,512) (151,236) -- -- 13.44
Exercised...................... (50,000) (215,047) -- -- 9.29
Converted...................... -- -- (7,000) -- --
------- --------- ------ -------- ------
Balance at December 31, 1998..... 125,613 2,674,096 27,400 -- $14.39
======= ========= ====== ======== ======
</TABLE>

F-16
<PAGE> 65
AMERICAN CLASSIC VOYAGES CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

The following table summarizes information about options outstanding at
December 31, 1998:

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------- ------------------------------
WEIGHTED-AVERAGE
RANGE OF OUTSTANDING REMAINING WEIGHTED-AVERAGE EXERCISABLE WEIGHTED-AVERAGE
EXERCISE PRICE AT 12/31/98 CONTRACTUAL LIFE EXERCISE PRICE AT 12/31/98 EXERCISE PRICE
- --------------- ----------- ---------------- ---------------- ----------- ----------------
<C> <S> <C> <C> <C> <C> <C>
$ 3.25 ................ 125,613 3 $ 3.25 125,613 $ 3.25
7.97- 9.88 ................ 441,855 8 8.96 365,997 8.88
10.25- 15.00 ................ 408,451 7 11.65 370,446 11.70
15.32- 20.00 ................ 1,823,790 9 17.08 637,123 17.16
- --------------- --------- -- ------ --------- ------
$ 3.25- $20.00 ................ 2,799,709 8 $14.39 1,499,179 $12.63
=============== ========= == ====== ========= ======
</TABLE>

NOTE 11. UNAUDITED QUARTERLY RESULTS OF OPERATIONS

Summarized unaudited quarterly results of operations for 1998 and 1997 are
as follows:

<TABLE>
<CAPTION>
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
YEAR ENDED DECEMBER 31, 1998 1998 1998 1998 1998
---------------------------- --------- -------- ------------- ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenues......................................... $40,668 $53,535 $50,920 $47,102
Gross profit..................................... 11,209 20,562 18,184 16,675
Operating (loss) income.......................... (6,143) 4,037 3,798 3,794
Pre-tax (loss) income............................ (7,262) 2,614 2,424 2,488
Net (loss) income................................ (4,362) 1,574 1,454 1,491
Basic (loss) earnings per share.................. (0.31) 0.11 0.10 0.10
Diluted (loss) earnings per share................ (0.31) 0.11 0.10 0.10
</TABLE>

<TABLE>
<CAPTION>
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
YEAR ENDED DECEMBER 31, 1997 1997 1997 1997 1997
---------------------------- --------- -------- ------------- ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenues......................................... $40,372 $42,356 $49,746 $45,410
Gross profit..................................... 13,233 17,661 19,606 16,089
Operating (loss) income.......................... (1,869) 3,451 6,098 2,304
Pre-tax (loss) income............................ (3,314) 1,962 4,617 784
Net (loss) income................................ (1,988) 1,177 2,770 470
Basic (loss) earnings per share.................. (0.14) 0.08 0.20 0.03
Diluted (loss) earnings per share................ (0.14) 0.08 0.19 0.03
</TABLE>

The sum of quarterly (loss) earnings per common share may differ from
full-year amounts due to changes in the number of shares outstanding during the
year.

NOTE 12. SUBSEQUENT EVENTS (UNAUDITED)

REGISTRATION STATEMENT

On February 22, 1999, the Company filed a Registration Statement on Form
S-3 with the Securities and Exchange Commission relating to a proposed public
offering of up to 3,450,000 shares of common stock. The expected proceeds of
this issuance will be used to fund capacity expansion in the Hawaiian cruise
market. No assurances can be given, however, that this offering will be
consummated.

F-17
<PAGE> 66
AMERICAN CLASSIC VOYAGES CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

CHASE CREDIT AGREEMENT

In the first quarter of 1999, DQSC, as borrower, closed on a new long-term
credit facility with The Chase Manhattan Bank, as agent, and several participant
banks (the "Chase Facility"). The Chase Facility, which is a $70 million
revolving credit facility maturing in February 2004, replaces the Credit
Facility. Borrowings under the new facility bear interest at a rate, at the
option of the Company, equal to either (1) the greater of Chase's prime rate or
certain alternative base rates plus a margin ranging from 0.50% to 1.50%, or (2)
the London Interbank Offered Rate plus a margin ranging from 1.50% to 2.50%. The
Company is also required to pay an unused commitment fee at a rate of 0.50% per
annum.

The Chase Facility will be used to fund the acquisition of the fourth Delta
Queen riverboat, the construction of the first two coastal vessels, and Delta
Queen working capital. The new facility is secured by all of the assets of DQSC
except the American Queen, and has various limitations and restrictions on
investments, additional indebtedness, the construction costs of the new vessels,
and other capital expenditures. The Chase Facility also limits dividends by
DQSC, when aggregated with investments and certain other payments, to amounts
ranging from $5 million to $15 million per annum. DQSC is required to comply
with certain financial covenants, including maintenance of minimum interest
coverage ratios and maximum leverage ratios.

CONSTRUCTION CONTRACT

On March 9, 1999, the Company executed definitive agreements with Ingalls
Shipbuilding, Inc. to construct at least two new vessels for the Hawaii cruise
market. The new Hawaii cruise ships will have the capacity to accommodate
approximately 1,900 passengers each and are currently estimated to cost $440
million each, plus approximately $30 million for furnishings, fixtures and
equipment. The contract provides that Ingalls Shipbuilding will deliver the
first new ship in January 2003 and the second ship in January 2004. In addition,
the shipbuilding contract provides the Company an option to build up to four
additional vessels. The estimated contract price of the first option vessel is
$487 million and the contract price for the subsequent option vessels will be
negotiated between the parties. Ingalls Shipbuilding will provide a limited
warranty for the design, material and workmanship of each vessel for one year
after delivery.

F-18
<PAGE> 67

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3,500,000 SHARES

[AMCV LOGO]

AMERICAN CLASSIC VOYAGES CO.

COMMON STOCK

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PROSPECTUS
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MERRILL LYNCH & CO.
DONALDSON, LUFKIN & JENRETTE
GOLDMAN, SACHS & CO.
CRAIG-HALLUM CAPITAL GROUP, INC.

APRIL 21, 1999

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