[GRAPHIC OMITTED][GRAPHIC OMITTED]

                   1301 Capital of Texas Highway, Suite C-300
                               Austin, Texas 78746

                  NOTICE OF 2006 ANNUAL MEETING OF SHAREHOLDERS
                             To Be Held June 6, 2006

To Our Shareholders:

         You are cordially invited to attend our 2006 Annual Meeting of
Shareholders to be held at our offices, located at 1301 Capitol of Texas Hwy,
Suite C-300, Austin, Texas 78746, on Tuesday, June 6, 2006 at 8:30 a.m., Austin,
Texas time, for the following purposes:

(a)               To elect five directors to serve on our board of directors;

(b)               To approve an amendment to the 2005 Incentive and
                  Non-qualified Stock Option Plan;

(c)               To approve an amendment to the American Physicians Service
                  Group, Inc. Affiliated Group Deferred Compensation Master
                  Plan; and

(d)               To transact such other business as may properly come before
                  the meeting or any adjournment(s) thereof.

         The accompanying proxy statement contains information regarding, and a
more complete description of, the items of business to be considered at the
meeting.

         Only shareholders of record of our common stock at the close of
business on April 13, 2006 are entitled to notice of, and to vote at, the
meeting or any adjournment(s) thereof.

         You are cordially invited and urged to attend the meeting. Whether or
not you intend to attend the meeting, we ask that you sign and date the
accompanying proxy and return it promptly in the enclosed self-addressed
envelope. If you attend the meeting, you may vote in person, if you wish,
whether or not you have returned your proxy. In any event, you may revoke your
proxy at any time before it is exercised in the manner described in the proxy
statement.

                       By Order of our board of directors


                                                     W. H. HAYES
                                                     Secretary
Austin, Texas
May 3, 2006



                     AMERICAN PHYSICIANS SERVICE GROUP, INC.
                   1301 Capital of Texas Highway, Suite C-300
                               Austin, Texas 78746

                                 PROXY STATEMENT
                                       for
                       2006 ANNUAL MEETING OF SHAREHOLDERS
                             To Be Held June 6, 2006

     Our  board of  directors  hereby  solicits  your  proxy for use at our 2006
Annual  Meeting  of  Shareholders  to be held at our  offices,  located  at 1301
Capitol of Texas Hwy, Suite C-300, Austin, Texas 78746, on Tuesday, June 6, 2006
at  8:30  a.m.,  Austin,  Texas  time,  and  any  adjournment(s)  thereof.  This
solicitation  may be made in person or by mail,  telephone,  or  telecopy by our
directors,  officers, and employees,  who will receive no extra compensation for
participating  in this  solicitation.  In  addition,  we will  reimburse  banks,
brokerage firms, and other fiduciaries for forwarding  solicitation materials to
the  beneficial  owners of our common stock held of record by such  persons.  We
will pay the entire cost of this  solicitation.  This proxy  statement was first
mailed to shareholders on or about May 3, 2006.

     References in this report to "we",  "us",  "our",  and the  "Company"  mean
American Physicians Service Group, Inc.

                                  ANNUAL REPORT

     Enclosed is our Annual Report to  Shareholders  for the year ended December
31, 2005,  including  our audited  financial  statements.  The Annual  Report to
Shareholders  does not form any part of the  material  for the  solicitation  of
proxies.

                            OUTSTANDING COMMON STOCK

     Only  shareholders of record at the close of business on April 13, 2006 are
entitled  to notice  of,  and to vote at,  the  meeting  and any  adjournment(s)
thereof.  At April 13, 2006, we had  outstanding  and entitled to vote 2,694,509
shares of our common stock.

                                 QUORUM; VOTING

     The  presence,  in person or by proxy,  of the holders of a majority of the
outstanding  shares of our common stock is  necessary to  constitute a quorum at
the meeting. Abstentions and "broker non-votes" (i.e., shares held by brokers or
nominees that are represented at the meeting but with respect to which they have
no  discretionary  power to vote on a  particular  matter and have  received  no
instructions  from the  beneficial  owners  thereof or persons  entitled to vote
thereon)  will be  counted  in  determining  whether a quorum is  present at the
meeting.  If a  quorum  is  not  present  or  represented  at the  meeting,  the
shareholders  entitled  to vote  thereat,  present in person or  represented  by
proxy,  have the power to adjourn the meeting from time to time,  without notice
other  than an  announcement  at the  meeting,  until a  quorum  is  present  or
represented.  At any such  adjourned  meeting  at which a quorum is  present  or
represented,  any business may be transacted  that might have been transacted at
the meeting as originally notified.


                                       2


     On all matters (including election of directors) submitted to a vote of the
shareholders at the meeting or any  adjournment(s)  thereof,  each holder of our
common  stock will be  entitled  to one vote for each share of our common  stock
owned of record by such  shareholder at the close of business on April 13, 2006.
Cumulative voting is not permitted in the election of our directors.

     Proxies in the  accompanying  form that are properly  executed and returned
and that are not revoked  will be voted at the  meeting  and any  adjournment(s)
thereof and will be voted in accordance with the instructions thereon. Any proxy
upon which no  instructions  have been  indicated  with  respect to a  specified
matter will be voted according to the recommendations of our board of directors,
which are contained in this proxy statement.  Our board of directors knows of no
matters, other than those presented in this proxy statement, to be presented for
consideration  at the meeting.  If, however,  other matters properly come before
the meeting or any adjournment(s) thereof, the persons named in the accompanying
proxy  will  vote such  proxy in  accordance  with  their  judgment  on any such
matters.  The persons named in the accompanying  proxy may also, if they believe
it advisable, vote such proxy to adjourn the meeting from time to time.

     Each matter submitted to the shareholders  requires the affirmative vote of
a majority of the shares  entitled to vote and present in person or by proxy. If
you abstain from voting on a proposal, your abstention will have the effect of a
negative  vote on such  proposal.  Broker  non-votes  will have the  effect of a
negative vote on any proposal.

                               REVOCATION OF PROXY

     You have the power to revoke  your  proxy at any time  before the shares it
represents are voted. A revocation  will be effective upon receipt,  at any time
before  the  meeting  is called  to order,  by our  Secretary  of either  (a) an
instrument  revoking  your proxy or (b) a proxy duly  executed  by you bearing a
later date than the preceding  proxy.  Additionally,  you may change or revoke a
previously executed proxy by voting in person at the meeting.

                            1. ELECTION OF DIRECTORS

General

     Pursuant to our bylaws,  our board of directors has, by  resolution,  fixed
the  number of  directors  at five,  and five  directors  will be  elected.  All
nominees  will be  elected  to hold  office  until our next  annual  meeting  of
shareholders  and until his or her successor is duly elected and  qualified,  or
until his or her earlier death, resignation or removal.

     Should  any  nominee  for  director  become  unwilling  or unable to accept
nomination or election,  the proxies will be voted for the  election,  in his or
her stead,  of such other persons as our board of directors may recommend or our
board of directors may reduce the number of directors to be elected.  We have no
reason to believe  that any nominee  named below will be  unwilling or unable to
serve.


                                       3


Nominees
                                                                Director of
         Name                               Age                Company Since

     Lew N. Little, Jr.                      49                     2005
     Jackie Majors                           72                     2003
     William A. Searles                      63                     1989
     Kenneth S. Shifrin                      57                     1987
     Cheryl Williams                         54                     2003

     Mr.  Little has been a director  since  2005.  He has been Chief  Executive
Officer of Harden  Healthcare,  LLC.,  an  operator  and  manager of senior care
facilities,  since December 2001. Mr. Little was President of Capstar  Partners,
LLC., a private  investment  company,  from February  2000 until joining  Harden
Healthcare. Prior to his association with Capstar, Mr. Little had spent 18 years
in the  banking  industry,  most  recently  as  President  of Bank of America in
Austin, Texas.

     Mr. Majors has been a director  since March 2003.  He previously  served on
our board of directors  from 1989 through  1993.  Mr.  Majors was a director and
President of Prime Medical  Services,  Inc., or Prime, a provider of lithotripsy
services and a manufacturer  of specialty  vehicles for the transport of medical
and  broadcast/communications  equipment from 1989 until his retirement in 1996.
He was an  independent  business  consultant  from  1986  to 1989  and our  Vice
President-Merger and Acquisitions from 1984 to 1986.

     Mr.  Searles  has  been a  director  of ours  since  1989.  He has  been an
independent  business consultant since 1989. Before then, he spent 25 years with
various  Wall Street  firms,  the last ten years of which were with Bear Stearns
(an investment banking firm) as an Associate  Director/Limited  Partner.  He has
served as Chairman of the Board of APS Investment Services, Inc., a wholly-owned
subsidiary  of ours (which we will refer to as Investment  Services),  since May
1998.  He  currently  serves as a director  of  HealthTronics,  Inc.,  a urology
services and equipment manufacturer that is quoted on the Nasdaq National Market
under the symbol "HTRN".  Prime was merged into  HealthTronics in November 2004.
Mr.  Searles  served as a  director  of Prime  from  1989  until the time of the
merger.

     Mr.  Shifrin has been our  Chairman  of the Board since March 1990.  He has
been our  President  and Chief  Executive  Officer  since  March 1989 and he was
President and Chief  Operating  Officer from June 1987 to February  1989. He has
been a director of ours since February 1987. From February 1985 until June 1987,
Mr. Shifrin  served as our Senior Vice  President - Finance and  Treasurer.  Mr.
Shifrin is a director of  HealthTronics.  He was Vice Chairman of  HealthTronics
from  November  2004 to March 2006,  and served as the  Chairman of the Board of
Prime from 1989 until its merger  into  HealthTronics.  He has also  served as a
director  of  Financial  Industries  Corporation,  or FIC,  a  provider  of life
insurance and annuity products,  since June 2003. Mr. Shifrin is a member of the
World Presidents Organization.

     Ms.  Williams has been a director of ours since December 2003. She has been
a private  investor and business  consultant since 2002. She was Chief Financial
Officer  of Prime  from  1989 to  2002.  Prior  to that  she  held  finance  and
accounting positions in the data processing and aircraft industries.

        The board recommends that you vote FOR each nominee for director.


                                       4


COMPENSATION OF DIRECTORS

     Nonemployee  directors  receive a fee of $2,500  for each  in-person  board
meeting,  $400 for  teleconference  board  meetings and $400 for each  committee
meeting  they  attend.  The  chairpersons  of  the  Audit  Committee  and of the
Compensation  Committee  each receive an annual stipend of $5,000 for serving in
those  capacities.  Mr. Shifrin does not receive  separate  compensation for his
services as a director.  Directors  are eligible to receive  stock option grants
under our 2005  Incentive  and  Non-Qualified  Stock Option Plan.  In 2005,  Mr.
Majors, Mr. Searles and Ms. Williams were each granted options for 10,000 shares
of our common stock.  Mr. Little was granted  options for 25,000 shares in 2005.
Mr. Shifrin  received options for 15,000 shares of our common stock, as reported
in the "Options Granted in 2005" chart of the "Executive  Compensation"  section
of this proxy  statement.  All of these options have an exercise  price equal to
the  closing  price on the date of grant  and are  fully  vested  at the date of
grant.  Directors are also eligible to receive  grants of our common stock under
the  American   Physicians   Service  Group,  Inc.   Affiliated  Group  Deferred
Compensation  Master  Plan (the  "Deferred  Compensation  Plan").  In 2005,  Mr.
Shifrin was awarded 3,000 shares and Mr. Little, Mr. Majors, Mr. Searles and Ms.
Williams were each awarded 1,000 shares.

CERTAIN ADDITIONAL INFORMATION CONCERNING OUR BOARD OF DIRECTORS

         No family relationships exist among our officers or directors. Except
as indicated above with respect to HealthTronics and FIC, no director is a
director of any company with a class of securities registered pursuant to
Section 12 of the Securities Exchange Act of 1934, as amended, or the Exchange
Act, or subject to the requirements of Section 15(d) of the Exchange Act or any
company registered as an investment company under the Investment Company Act of
1940.

         Our board of directors held seven meetings during 2005, and each
director attended at least 75% of (a) the total number of our board meetings
held during 2005 (or, if shorter, during the period he or she served as a
director) and (b) the total number of meetings held by all committees of the
board on which he or she served during 2005 (or, if shorter, during the period
he or she served as a director). It is the policy of our board of directors to
hold an executive session without the presence of management at each board
meeting.






                                       5


           BOARD COMMITTEES; CORPORATE GOVERNANCE

GENERAL

     There are currently five members of our board of directors, including three
directors who the board has determined to be independent  under Rule 4200(a)(15)
of the Nasdaq listing standards.
     Our board of directors has an audit committee, a compensation committee and
a nominating committee. Our board of directors has adopted a written charter for
each of these committees.

BOARD MEETINGS

     In  regard  to  directors'  attendance  at  annual  shareholders  meetings,
although we do not have a formal policy regarding such attendance,  our board of
directors  encourages  all board  members  to  attend  such  meetings,  but such
attendance is not mandatory.  All of our board members  attended the 2005 annual
shareholders'  meeting.  In addition,  our board of directors  holds its regular
annual meeting immediately following the annual shareholders' meeting.

AUDIT COMMITTEE

     Our board of directors has an audit committee that, during 2005,  consisted
of three directors,  Mr. Little, Mr. Majors and Ms. Williams. The chairperson of
the committee is Ms.  Williams.  Mr. Little replaced Mr. Robert L. Myer, who did
not stand for  re-election,  on June 14, 2005. Our board has determined that the
committee members are "independent" as defined in Rule 4200(a)(15) of the Nasdaq
listing  standards.  In addition,  our board has  determined  that the committee
members meet the  independence  standards set forth in Rule  10A-3(b)(1)  of the
Exchange Act. Our board has further  determined  that Ms.  Williams is an "audit
committee financial expert" as such term is defined in Item 401(h) of Regulation
S-K promulgated by the Securities and Exchange Commission, or the SEC. The audit
committee held eight meetings during 2005.  Members  attended all meetings.  The
audit  committee  meets with our  independent  auditors,  reviews our  financial
statements, and selects our independent auditors for each fiscal year.

     The audit  committee's  policy is to pre-approve  all audit and permissible
non-audit  services  provided  by  our  independent  auditors.  Pre-approval  is
generally provided for up to one year and any pre-approval is detailed as to the
particular  service  or  category  of  services  and is  generally  subject to a
specific budget. The audit committee has delegated pre-approval authority to Ms.
Williams when expedition of services is necessary.

COMPENSATION COMMITTEE

     Our board has a  compensation  committee,  which in 2005 consisted of three
directors,   Mr.  Little,  Mr.  Majors  and  Ms.  Williams,   all  of  whom  are
"independent"  directors as defined in Rule  4200(a)(15)  of the Nasdaq  listing
standards.  Mr. Little replaced Mr. Myer, who did not stand for re-election,  on
June 14, 2005. The chairperson of the committee is Mr. Majors.  The compensation
committee  held one  meeting  during  2005,  with  all  members  attending.  The
compensation committee recommends to the board the compensation of our executive
officers and directors.


                                       6


NOMINATING COMMITTEE

     Our board of directors has a nominating committee that assists the board in
identifying qualified individuals to become directors. During 2005 the committee
consisted of three members, Mr. Little, Mr. Majors and Ms. Williams, all of whom
are "independent" directors as defined in Rule 4200(a)(15) of the Nasdaq listing
standards.  The  chairperson  of the  committee is Mr.  Majors.  The  nominating
committee held one meeting in 2005. All members attended.

     The  nominating  committee  identifies  nominees  by first  evaluating  the
current  members of the board who are willing to  continue  in service.  Current
members  of the board  with  skills  and  experience  that are  relevant  to our
business  and  who are  willing  to  continue  in  service  are  considered  for
re-nomination,  balancing the value of continuity of service by existing members
of the board  with that of  obtaining  a new  perspective.  If any member of the
board  does not wish to  continue  in  service  or if the  nominating  committee
decides not to recommend a member for re-election, the nominating committee will
identify  the  desired  skills and  experience  of a new nominee in light of the
criteria below. Research may be performed to identify qualified individuals.  To
date,  the  nominating  committee  has not engaged  third parties to identify or
evaluate or assist in identifying  potential nominees,  although it may do so in
the future if it considers doing so necessary or desirable.

     The consideration of any candidate for service on our board is based on the
nominating committee's  assessment of the candidate's  professional and personal
experiences  and expertise  relevant to our operations and goals.  The committee
evaluates  each  candidate  on his or her ability to devote  sufficient  time to
board activities to effectively  carry out the work of the board. The ability to
contribute positively to the existing  collaborative culture among board members
is also considered by the committee.  In addition,  the committee  considers the
composition of the board as a whole,  the status of the nominee as "independent"
under the Nasdaq's  listing  standards and the rules and regulations of the SEC,
and the nominee's experience with accounting rules and practices. Other than the
foregoing, there are no stated minimum criteria for director nominees,  although
the nominating committee may also consider such other factors as it may deem are
in our and our shareholders' best interests.

     After  completing  its  evaluation,   the  nominating   committee  makes  a
recommendation  to the full board of  directors  as to the persons who should be
nominated by the board, and the board determines the nominees after  considering
the recommendation and report of the nominating committee.

     The nominating  committee will consider director candidates  recommended by
our shareholders.  The nominating committee intends to assess such candidates in
the  same  manner  as  other  nominees,  as  described  above.  To  recommend  a
prospective nominee for the nominating committee's  consideration,  shareholders
should submit in writing the candidate's name and qualifications,  and otherwise
comply with our bylaws'  requirements  for  shareholder  nominations,  which are
described under "Shareholder Proposals" below, to:

                         American Physicians Service Group, Inc.
                         Corporate Secretary
                         1301 Capital of Texas Hwy, Suite C-300
                         Austin, TX 78746



                                       7


     A copy of the nominating  committee's  charter is available on our web site
at  http://www.amph.com.  The contents of this web site are not  incorporated by
reference and the web site address  provided in this proxy statement is intended
to be an inactive textual reference only.

SHAREHOLDER COMMUNICATIONS WITH THE BOARD OF DIRECTORS

     If a shareholder desires to send a communication to our board of directors,
such shareholder should send the communication to:

                         American Physicians Service Group, Inc.
                         1301 Capital of Texas Hwy, Suite C-300
                         Austin, TX 78746
                         Attention:  Chairman of the Board

The chairman of the board will forward the communication to the other board
members.

     If a  shareholder  desires  to send a  communication  to a  specific  board
member, such shareholder should send the communication to the above address with
attention to the specific  board  member,  not the chairman of the board (unless
such shareholder desires to send the communication to the chairman).

CODE OF ETHICS

     We have  established  a Code of  Ethics  for our chief  executive  officer,
senior finance officers and all other employees.  A current copy of this code is
available on our web site at http://www.amph.com.  The contents of this web site
are not  incorporated  by reference  and the web site  address  provided in this
proxy statement is intended to be an inactive textual reference only.




                                       8


        INFORMATION REGARDING EXECUTIVE OFFICER COMPENSATION

SUMMARY COMPENSATION TABLE

     Set forth  below is  information  concerning  aggregate  cash  compensation
earned during each of our last three fiscal years by our chief executive officer
and each of our other most highly compensated executive officers who received in
excess of  $100,000 in salary and  bonuses  during any of the last three  years,
whom we will refer to as our named executive officers.



                                                                                            Long Term
                                                          Annual Compensation             Compensation
                                                      ----------------------------      --------------------------
                                                                                          Securities                    All Other
                                                                                          Underlying      LTIP           Compen-
Name and Principal Position          Fiscal Year     Salary ($)       Bonus ($)            Options       Payouts          sation
                                                                                              (#)         (#)(1)          ($)(2)
-----------------------------        -----------     ----------      -----------          ---------      ---------      ----------
                                                                                                         
Kenneth S. Shifrin, Chairman,            2005          341,660         510,000              15,000          5,000             --
President and Chief                      2004          300,000         458,000              10,000         10,308          6,360
Executive Officer                        2003          300,000         421,000              50,000           --            6,152

William H. Hayes, Senior Vice            2005          148,332         110,000               5,000          3,000             --
President-Finance, Secretary and         2004          139,992         104,000               5,000          3,326          6,355
Chief Financial Officer                  2003          130,412         101,000              40,000           --            6,632

Thomas R. Solimine                       2005           91,200          50,000               5,000          1,000             --
Controller                               2004           82,750          50,000               5,000          1,000             --
                                         2003           79,390          50,000              30,000             --             --

Maury L. Magids, Senior Vice             2005          225,000         350,750                  --          3,000             --
President - Insurance                    2004          224,167         353,526              25,000         10,923            240
                                         2003          204,996         263,585              25,000           --              216

William A. Searles                       2005          108,000 (4)     212,626 (3)(5)       10,000          1,894             --
Chairman of the Board                    2004          108,000 (4)     238,102 (5)           5,000          1,000             --
of Investment Services                   2003           72,000 (4)     453,000 (5)          35,000           --               --





(1)   These shares were granted under the Deferred Compensation Plan.

(2)   Consists of our matching contributions to our 401(k) plan and premiums
      paid for group life insurance in excess of $50,000 coverage with respect
      to such officer.

(3)   The amount shown excludes $78,000 and $14,000 paid to Mr. Shifrin and Mr.
      Searles, respectively, under a 1999 incentive plan related to profits we
      realize upon the sale of our investment in HealthTronics.

(4)   Director's fee for serving as Chairman of Investment Services.

(5)   Non-discretionary incentive bonus based on Investment Services achieving
      specified levels of return on capital.


                                       9


OPTION GRANTS IN LAST FISCAL YEAR

         The following table provides information related to options granted to
the named executive officers during 2005. We do not have any outstanding stock
appreciation rights.



                                           Individual Grants
-----------------------------------------------------------------------------------------------------------------------------
                            Number of                                                                  Potential realizable
                            securities        Percent of                                                 value at assumed
                            underlying      total options                                              annual rates of stock
                              options         granted to          Exercise                            price appreciation for
                              granted        employees in           Price         Expiration                option term:
        Name                  (#)(1)          fiscal year          ($/Sh)            Date             5%($)(2)        10%($)
---------------------     ------------      -------------        ----------      ------------        ----------     ----------
                                                                                                    
 Kenneth S. Shifrin           15,000              26%              $11.55          12/06/10            47,850         105,750

 William H. Hayes              5,000               9%              $11.55          12/06/10            15,950          35,250

 Thomas R. Solimine            5,000               9%              $11.55          12/06/10            15,950          35,250

 Maury L. Magids                  --               --                  --                --                --              --

 William A. Searles           10,000               --(3)           $11.55          12/06/10            31,900          70,500





 (1)       These options were granted at the closing price on the date of grant.
           All options were vested at the date of grant.

 (2)       The potential realizable value of the options granted in 2005 was
           calculated by multiplying those options by the excess of (a) the
           assumed market value of our underlying common stock five years
           from grant date of the options if the market value of our common
           stock were to increase 5% or 10%, as applicable, in each year of
           the option's 5-year term over (b) the exercise price noted above.
           This calculation does not take into account any taxes or other
           expenses that might be owed. The 5% and 10% appreciation rates
           are set forth in the SEC rules and we make no representation that
           our common stock will appreciate at these assumed rates or at all.

 (3)       Mr. Searles is a director and Chairman of Investment Services,
           but is not an employee.



                                       10


Aggregated Option Exercises During 2005 and Option Values at December 31, 2005

          The following table provides  information related to options exercised
     by the named  executive  officers  during  2005 and the number and value of
     unexercised  options  held  at  December  31,  2005.  We do  not  have  any
     outstanding stock appreciation rights.




                                                                      Number of Securities            Value of Unexercised
                                                                     Underlying Unexercised         In-the-Money Options at
                                                                   Options at Fiscal Year-End           Fiscal Year-End (2)
                                                                  ---------------------------      ------------------------
                           Shares Acquired        Value
                            on Exercise          Realized        Exercisable      Unexercisable     Exercisable      Unexercisable
      Name                      (#)                ($)(1)              (#)             (#)               (#)              (#)
---------------------      -------------        ----------       -----------      ------------      ----------      --------------
                                                                                                    
 Kenneth S. Shifrin             50,000           $553,125          150,000               --          1,102,300             --

 William H. Hayes               59,000           $445,330           12,000           14,000             36,950         91,070

 Thomas R. Solimine             10,000           $ 81,330           20,000           10,000             64,650         65,050

 Maury L. Magids                 4,000           $ 41,250           46,000           23,000            354,510        130,950

 William A. Searles             50,000           $456,470           50,000               --            271,600             --





  (1)    The Value Realized is calculated by subtracting the per-share exercise
         price of the option from the closing price of our common stock on the
         date of exercise and multiplying the difference by the number of shares
         of our common stock acquired upon exercise.

  (2)    The Value of Unexercised In-the-Money Options is before any income
         taxes and is determined by aggregating for each option outstanding as
         of December 31, 2005 the amount calculated by multiplying the number of
         shares underlying such option by an amount equal to the closing price
         of our common stock on December 31, 2005, which was $13.20, less the
         exercise price of such option.



                                       11


LONG-TERM INCENTIVE PLANS - AWARDS IN LAST FISCAL YEAR

     The following  table provides  information  related to common stock granted
under the Deferred Compensation Plan during 2005.



                Long-Term Incentive Plans - Awards in Last Fiscal Year
                                                                                           Estimated Future Payouts under
                                                                                            Non-Stock Priced-Based Plans
                                                                                      -----------------------------------------
                                                        Performance
                                  Number of              or Other
                               Shares, Units or         Period Until
                                Other Rights (#)         Maturation                    Threshold        Target          Maximum
           Name                                           or Payout                       (#)             (#)             (#)
-------------------------       -------------         ---------------                 -----------      ---------       ---------
                                                                                                       
   Kenneth S. Shifrin               5,000                (1) (2)                         5,000           5,000           5,000

   William H. Hayes                 3,000                (1)                             3,000           3,000           3,000

   Thomas R. Solimine               1,000                (1)                             1,000           1,000           1,000

   Maury L. Magids                  3,000                (1)                             3,000           3,000           3,000

   William A. Searles               1,894                (1) (2)                         1,894           1,894           1,894





(1)      Represents awards under the Deferred Compensation Plan. Shares are
         earned in the year of award. Payout of the shares is subject to a
         schedule wherein shares become eligible for payout over five years, in
         equal annual amounts, following the grant (the "eligible shares"). Upon
         reaching age 60, participants are then entitled to receive the eligible
         shares and the shares that become eligible each year thereafter. In the
         event that a participant terminates employment or resigns and signs a
         non-competition agreement, all of the shares granted become eligible
         and will be paid out in four equal annual installments beginning with
         the date of the non-competition agreement. In the event that a
         terminating participant does not sign a non-competition agreement or if
         a participant is terminated for cause, the participant will receive
         only the eligible shares and shares not yet eligible will be forfeited
         and allocated pro rata to the remaining participants. All shares
         granted are to be paid out in the event of the death or disability of
         the participant.

(2)      Related to service as a director.



                                       12


EMPLOYMENT AGREEMENTS

     We have entered into employment  agreements with Mr. Shifrin and Mr. Hayes.
Each of these agreements provides for the payment of a base salary,  eligibility
for performance bonuses as determined by our board of directors,  and such other
benefits  as are  available  to our  other  salaried  employees.  Mr.  Shifrin's
agreement provides for a monthly salary, currently $29,166, and terminates March
1, 2010. Mr. Hayes' agreement provides for a monthly salary,  currently $12,500,
and terminates  March 1, 2008. Mr. Searles has a similar  Consulting  Agreement,
which provides for a monthly fee of $9,000 and terminates March 1, 2008. Each of
the agreements  entitles the  employee/director  to receive lump-sum payments in
the  event  the  agreements  are  terminated  by us  without  cause  or  by  the
employee/director  following  a "change  in  control"  of us, as  defined in the
agreements. These payments are calculated as the greater of (a) for Mr. Shifrin,
five times,  and for Mr. Hayes and Mr. Searles,  three times,  their  respective
average  annual cash  compensation  earned for the past five  years,  or (b) the
total  cash  compensation  that  would  otherwise  have  been  payable  to  them
throughout the remainder of the term of their  employment/consulting  agreements
assuming their current compensation, including the amount of any bonuses for the
immediately preceding calendar year, would have remained the same throughout the
remainder of the term of their employment/consulting agreements.

INDEMNITY AGREEMENTS

     We have entered into indemnity agreements with our directors and certain of
our officers.  The agreements generally provide that, to the extent permitted by
law,  we must  indemnify  each such  person  for  judgements,  expenses,  fines,
penalties  and amounts  paid in  settlement  of claims that result from the fact
that such  person was our  officer,  director  or  employee.  In  addition,  our
articles  of  incorporation  and  certain  of  our  subsidiaries'   articles  of
incorporation  provide for certain  indemnifications and limitations on director
liability.



                                       13


                      EQUITY COMPENSATION PLAN INFORMATION

         The following table sets forth certain information, as of December 31,
2005, concerning shares of common stock authorized for issuance under all of our
equity compensation plans.





                                                                                         Number of Securities Remaining
                                Number of Securities To                                  Available For Future Issuance
Plan category                   be Issued Upon Exercise     Weighted Average Exercise      Under Equity Compensation
                                of Outstanding Options,        Price of Outstanding       Plans (Excluding Securities
                                  Warrants and Rights      Options, Warrants and Rights     Reflected in Column (a))
-------------                     -------------------       ---------------------------     ----------------------
                                          (a)                          (b)                            (c)
                                                                                            
Equity compensation plans
   approved by security               628,963 (1)                   $7.92 (2)                        331,037
   holders...

Equity compensation plans
   not approved by security                --                         $ --                               --
   holders...

                   Total...           628,963                        $7.92                           331,037



  (1)  Includes 55,963 shares granted under the Deferred Compensation Plan.

  (2)  Excludes shares awarded under the Deferred Compensation Plan, as those
       are share awards in lieu of cash compensation and have no exercise price.


                      REPORT OF THE COMPENSATION COMMITTEE
                            OF THE BOARD OF DIRECTORS

     The Company is engaged in several highly  competitive  industries.  For the
Company to  succeed,  the Company  believes  that it must be able to attract and
retain qualified  executives.  To achieve this objective,  we have structured an
executive  compensation policy tied to operating performance that we believe has
enabled the Company to attract and retain key executives.

     During 2005,  the  Compensation  Committee  was  comprised  of Mr.  Majors,
chairman,  Mr. Little and Ms. Williams.  Mr. Little, Mr. Majors and Ms. Williams
are all  independent  non-employee  directors.  The  Compensation  Committee has
primary  responsibility for determining executive compensation levels. The board
of directors as a whole maintains a philosophy  that a significant  component of
both annual and long-term compensation of executive officers,  including that of
the Chief  Executive  Officer,  should be linked to  measurable  performance.  A
portion of the management  compensation has been comprised of bonuses,  based on
operating  and  stock  price  performance,  with a  particular  emphasis  on the
attainment of planned  objectives.  Accordingly,  in years in which  performance
goals are achieved or exceeded,  executive  compensation tends to be higher than
in years in which performance is below  expectations.  Stock options are granted
from time to time to members of  management,  based  primarily on such  person's
potential contribution to the Company's long-term growth and profitability.  The
Committee  feels that  options are an  effective  incentive  to create value for
shareholders  since the value of an option  bears a direct  relationship  to our
stock price.  The Committee  further  recognizes  that long-term  performance is
becoming  an  increasingly   more  important   component  of  overall  executive
compensation.


                                       14


     On an annual basis, the Compensation  Committee approves  performance-based
compensation  for  the  named  executive   officers  and  other  officers.   The
Compensation Committee typically makes these compensation decisions in the first
quarter of a particular fiscal year for the prior fiscal year's  performance and
sets annual targeted  performance  goals for the current year. The  Compensation
Committee sets annual  targeted goals for one or more of the following  measures
of  the  Company's  performance:  earnings  per  share,  stock  price,  revenue,
operating income, and cash flow. In determining the amount of  performance-based
compensation for a particular year, the Compensation  Committee will evaluate to
what extent the annual targeted goals for such year were achieved.  In addition,
the Compensation  Committee will consider the performance of the officer's unit,
division  or  function  for  such  year  and  other   performance   factors  the
Compensation  Committee deems relevant.  The amount of the compensation  will be
determined  by the  Compensation  Committee  with an objective  portion based on
attainment of set operating  income goals and a  discretionary  portion based on
performance across the wider range of goals. In addition, the allocation of such
compensation  between cash, stock options and deferred stock compensation awards
will be determined by the Committee.

     For 2005, our executive  compensation program,  including that of the Chief
Executive Officer, consisted of base salary, a cash bonus, deferred compensation
based on current year  performance,  and long-term  stock option awards,  all of
which  relate to the  achievement  of  specific  current  and  long-term  goals.
Specifically, the cash bonus and deferred compensation paid to the executives of
our subsidiaries was based upon achieving, among other things, a targeted pretax
income.  The  Chief  Executive  Officer  was paid a bonus  for 2005  based  upon
achieving specific operating income,  cash flow and stock price thresholds,  and
implementing short and long-term  initiatives for improving the Company's return
on investment.

     One of the  Company's  primary  objectives  is financial  performance  that
achieves several long-term goals, including  earnings-per-share  growth, revenue
growth,  stock price growth and a proper  diversification of business risks. The
Committee  believes that its  compensation  policy promotes those objectives and
that   compensation   levels  during  2005  adequately   reflect  the  Company's
compensation goals and policies.

               Compensation Committee: Jackie Majors, Chairperson
                                       Lew N. Little, Jr.
                                       Cheryl Williams




                                       15



                                PERFORMANCE GRAPH

         The graph below compares, assuming $100 was invested on December 31,
2000 and assuming the reinvestment of any dividends, our cumulative total
shareholder return with the total shareholder returns of all NASDAQ stocks (the
"NASDAQ Total") and of all stocks (the "Peer Index") contained in the NASDAQ
Financial and Insurance indexes, with each index being given equal weight.

The following is a table representation of the performance graph depicted on
page 16 of the print version of the proxy.


                        NASDAQ Total         Peer Index      APS Group
                        ----------          -----------      -----------
        12/29/00          100.00               100.00          100.00
        12/31/01           79.32               108.87          246.67
        12/31/02           54.84               111.25          283.27
        12/31/03           81.99               145.87          704.67
        12/31/04           89.23               172.56          692.67
        12-30/05           91.12               182.31          820.00




                                       16


                             AUDIT COMMITTEE REPORT

     The  Audit  Committee  (the  "Committee")  of the board of  directors  (the
"board") was comprised of three  directors in 2005 and operates  under a written
charter adopted by the board. The Committee, among other things,

o    reviews with the  independent  auditors and  management the adequacy of the
     Company's accounting  and  financial reporting controls;

o    reviews with management and the independent auditors significant
     accounting and reporting principles, practices and procedures
     applied in preparing the Company's financial statements;

o    discusses with the independent auditors their judgment about the
     quality, not just the acceptability, of the Company's accounting
     principles used in the Company's financial reporting;

o    reviews the activities and independence of the independent auditors;

o    reviews and discusses the audited  financial  statements with  management
     and the independent  auditors and the results of the audit; and

o    appoints independent auditors.

     The Audit Committee is responsible for hiring, terminating and compensating
the auditor and approving all related fees. The Audit  Committee or a designated
member  thereof,  pre-approves  audit and  non-audit  services  rendered  by our
independent auditors. If pre-approval authority is delegated,  the delegate must
report  back  to the  Audit  Committee  at the  first  Audit  Committee  meeting
following any approval.

     It is the  responsibility of our executive  management to prepare financial
statements in accordance with accounting  principles  generally  accepted in the
United  States  of  America  and of our  independent  auditors  to  audit  those
financial statements.

     In this  context,  the  Committee  has reviewed and held  discussions  with
management and the independent  auditors  regarding the Company's 2005 financial
statements.  Management  represented  to the  Committee  that  our  consolidated
financial  statements  were prepared in accordance  with  accounting  principles
generally  accepted  in the United  States of  America,  and the  Committee  has
reviewed and discussed the consolidated financial statements with management and
the independent auditors.  The Committee discussed with the independent auditors
the matters  required to be discussed by Statement on Auditing  Standards No. 61
(Codification of Statements on Auditing Standards).

     In addition,  the Committee has discussed with the independent auditors the
auditor's  independence  from the Company and  management  and has  received the
written  disclosure  and the letter from the  independent  auditors  required by



                                       17


Independence Standards Board Standard No. 1 (Independence Discussions with Audit
Committees).  Further,  the  Committee has  considered  whether the provision of
non-audit  services by the independent  auditors is compatible with  maintaining
the auditor's independence.

     The  Committee  meets  with the  independent  auditors,  with  and  without
management  present,   to  discuss  the  results  of  their  examinations,   the
evaluations of our internal  controls,  and the overall quality of our financial
reporting.

     Based on the  reviews and  discussions  referred  to above,  the  Committee
recommended  to the board that the audited  financial  statements be included in
the Company's  Annual Report on Form 10-K for the year ended  December 31, 2005,
for filing with the  Securities  and Exchange  Commission.  The Audit  Committee
considered the independent auditors' provision of non-audit services in 2005 and
determined that our independent auditors did not perform such services in 2005.

                  Audit Committee:     Cheryl Williams, Chairperson
                                       Lew N. Little, Jr.
                                       Jackie Majors


                             DESIGNATION OF AUDITORS

     Upon the  recommendation  of our audit  committee,  our board of  directors
designated BDO Seidman,  LLP, independent  registered public accounting firm, to
audit our books and  accounts for the year ended  December  31, 2005.  The audit
committee has not met to evaluate the performance of our independent auditors in
2005 and, consequently,  has not yet selected our independent auditors for 2006.
Representatives  of our  independent  auditors will be present at the meeting to
respond to appropriate  questions,  and they will have the opportunity,  if they
desire, to make a statement.

Fees paid to our auditors' firm during 2005 and 2004 were comprised of the
following:

                                                     2005              2004
                                                     ----              ----

         Audit Fees ........................      $ 155,000         $ 135,000

         Audit-related Fees.................      $   6,000         $  10,000

         Tax Fees..........................       $      --         $      --

         All Other Fees.....................      $      --         $      --
                                                  ---------         ---------

         Total..............................      $ 161,000         $ 145,000
                                                  =========         =========

AUDIT FEES. Audit fees relate to services rendered in connection with the audit
of the annual financial statements included in our Form 10-K and the quarterly
reviews of financial statements included in our Form 10-Q filings.


                                       18


    AUDIT-RELATED FEES. Audit-related services include fees for assurance and
related services, such as consultations concerning financial accounting and
reporting matters.

    TAX FEES.  There were no tax fees in 2005 or 2004.

    ALL OTHER FEES.  There were no other fees in 2005 or 2004.

All fees paid in 2005 to our independent auditors were pre-approved by the Audit
Committee.

         SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The  following  table sets forth certain  information  as of April 13, 2006
regarding the amount and nature of the beneficial  ownership of our common stock
by (a) each  person who is known by us to be the  beneficial  owner of more than
five  percent of the  outstanding  shares of our common  stock,  (b) each of our
directors and nominees for director,  (c) each of our named executive  officers,
and (d) all of our officers and directors as a group:




                                                            Amount and Nature
                                                               of Beneficial                Percent
Name and Address of                                              Ownership                     of
Beneficial Owner                                              See Notes (1)(2)               Class
-----------------------------------------------------------------------------------------------------

                                                                                        
Kenneth S. Shifrin........................................ .......696,049                     24.5%
1301 Capital of Texas Highway, Suite C-300
Austin, Texas 78746

Boston Avenue Capital, LLC. (3)...................................298,661                     11.1%
124 East Fourth Street
Tulsa, Oklahoma 74103

Daniel  Zeff (4) ................................................ 274,834                     10.2%
C/o Zeff Holding Company, LLC
50 California Street, Suite 1500
San Francisco, CA 94111

First Wilshire Securities Management, Inc. (5) ...................226,018                      8.4%
600 South Lake Street, Suite 100
Pasadena, CA 91106-3955

Lew N. Little, Jr................................................. 25,500                         *
1301 Capital of Texas Highway, Suite C-300
Austin, Texas 78746

Jackie Majors .................................................... 41,500                       1.5%
1301 Capital of Texas Highway, Suite C-300
Austin, Texas 78746

William A. Searles................................................ 50,000                       1.8%
1301 Capital of Texas Highway, Suite C-300
Austin, Texas  78746



                                       19




                                                            Amount and Nature
                                                               of Beneficial                Percent
Name and Address of                                              Ownership                     of
Beneficial Owner                                              See Notes (1)(2)               Class
-----------------------------------------------------------------------------------------------------

                                                                                       
Cheryl Williams................................................... 31,063                     1.1%
1301 Capital of Texas Highway, Suite C-300
Austin, Texas 78746

W. H. Hayes........................................................81,480                     3.0%
1301 Capital of Texas Highway, Suite C-300
Austin, Texas 78746

Maury L. Magids....................................................66,000                     2.4%
1301 Capital of Texas Highway, Suite C-300
Austin, Texas  78746

Thomas R. Solimine ................................................27,360                     1.0%
1301 Capital of Texas Highway, Suite C-300
Austin, Texas  78746

All officers and directors as
 a group (9 persons) (6)........................................1,086,713                    34.6%



* Represents less than 1% of the outstanding shares of common stock at April 13,
2006.


(1)      Except as otherwise indicated, and subject to community property laws
         where applicable, each individual has sole voting and investment power
         with respect to all shares owned by such individual.

(2)      The number of shares of our common stock beneficially owned by our
         officers and directors includes the following number of shares subject
         to options that are presently exercisable or exercisable within 60 days
         after April 13, 2006: Mr. Shifrin, 150,000; Mr. Little, 25,000; Mr.
         Majors, 37,500; Mr. Searles, 50,000; Ms. Williams, 30,000; Mr. Hayes,
         19,000; Mr. Magids, 62,000; Mr. Solimine, 25,000. The number of shares
         beneficially owned by all of our directors and officers as a group,
         including the above-named directors, includes 416,500 shares subject to
         options that are presently exercisable or exercisable within 60 days
         after April 13, 2006.

(3)      Based on a Form 3 filed by Boston Avenue Capital, LLC with the SEC on
         April 3, 2006, Boston Avenue Capital, LLC, jointly with Yorktown Avenue
         Capital, LLC and Charles Gillman, held 93,140 shares directly and
         205,521 shares indirectly.

(4)      Based on an amendment to Schedule 13G filed by Daniel Zeff on March 27,
         2006, Mr. Zeff, in his capacity as sole manager and member of Zeff
         Holding Company, LLC, has sole voting and investment power over 274,834
         shares of our common stock as of March 21, 2006.

(5)      Based on Schedule 13F filed by First Wilshire Securities Management,
         Inc. with the SEC on February 16, 2006, they have sole investment power
         over 226,018 shares of our common stock and sole voting power over
         9,900 shares of our common stock as of December 31, 2005.

(6)      Includes the president and chairman of the board, if any, of each of
         our consolidated subsidiaries.


                                       20


                 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

ASSET MANAGEMENT

     In May 1998, we formed APS Asset Management,  Inc., or Asset Management, of
which we initially  owned 95%.  Asset  Management  was organized to manage fixed
income  and equity  assets for  institutional  and  individual  clients on a fee
basis.  Certain of our officers,  directors and employees also invested in Asset
Management,  paying the same price per share as we did. Their investments are as
follows:

   Name                     Title                                    Ownership %
   ----                     -----                                    -----------

   George S. Conwill        President of Investment                       1%
                            Services
   William A. Searles       Director and Chairman of Investment           1%
                            Services
OTHER

         During 2005, Mr. Searles also served as a director and Chairman of the
Board of Investment Services. For his additional director services, Mr. Searles
was paid monthly director fees of $9,000, plus a non-discretionary incentive
amount based on Investment Services achieving certain levels of return on
capital. His total non-discretionary incentive compensation earned for these
additional director duties was $223,810 in 2005, consisting of $212,676 cash
compensation and $11,184 deferred compensation.

             SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

     Section 16(a) of the Exchange Act requires our directors and officers,  and
persons who own more than 10% of a registered class of our equity securities, to
file initial  reports of ownership and reports of changes in ownership  with the
SEC,  and the NASDAQ  Market.  Such persons are  required by SEC  regulation  to
furnish us with copies of all Section 16(a) forms they file.

     Based  solely on review of the  copies of such  forms  received  by us with
respect to 2005, or written  representations  from certain reporting persons, we
believe that all filing  requirements  applicable  to our directors and officers
and persons who own more than 10% of a registered class of our equity securities
have been complied with except for Mr. Magids who failed to timely file a Form 4
with respect to one option exercise.



                                       21



  2. PROPOSAL TO AMEND THE 2005 INCENTIVE AND NON-QUALIFIED STOCK OPTION PLAN

         Our 2005 Incentive and Non-qualified Stock Option Plan (the "2005
Plan") currently contains an Exchange Provision as follows:

         The Committee may at any time offer to exchange or buy out any
         previously granted Option for a payment in cash, Common Stock or
         another Option, based on the terms and conditions the Committee
         determines and communicates to the Option holder at the time the offer
         is made.

The board of directors has never utilized this provision and has no intention of
doing  so,  but  believes  that  deleting  it from the 2005 Plan  clarifies  its
position and better protects shareholders during the remaining life of the plan.
The  board  continues  to  believe  that  it is in  the  best  interests  of all
shareholders  for employees and directors to have a direct financial stake in us
through stock  options and further  believes  that those option  holders  should
share the same risks and rewards as all other shareholders.

OUR BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE AMENDMENT TO
ELIMINATE THE EXCHANGE PROVISION FROM THE 2005 PLAN.

The following is a brief summary of the Plan  incorporating the proposed change.
The Plan is attached as Appendix A to our 2005 Proxy Statement (available in the
SEC's EDGAR  system of SEC.gov)  and  reference  is made to such  Appendix for a
complete  statement of the provisions of the Plan. Neither the Plan nor the 2005
Proxy Statement is incorporated by reference in this 2006 Proxy Statement.

     The Plan  provides  for the  granting  of options to purchase up to 350,000
shares of our common stock;  provided  that the maximum  number of shares of our
common  stock with  respect to which  options  may be granted to any  individual
during any calendar year is 150,000.  If any option expires or terminates  prior
to its  exercise  in full,  the  shares of our  common  stock  allocable  to the
unexercised  portion of such option may again be available for options under the
Plan. The Plan will be administered by an administrative  body (the "Committee")
designated  by our board of  directors.  Our board may  designate  itself as the
Committee or appoint two or more "nonemployee" and "outside"  directors,  within
the meaning of the federal  securities laws and the Code (as defined below),  to
serve as the  Committee.  Participants  under the Plan will be  selected  by the
Committee  upon the  recommendation  of our  management.  All employees  will be
eligible for selection to  participate in the Plan. The Committee will determine
the number of shares  underlying  options  granted to any  individual  under the
Plan, and options will vest and become  exercisable in the manner and within the
periods  specified by the  Committee in its  discretion.  The number and kind of
shares  subject to the Plan can be  appropriately  adjusted  in the event of any
change in the capital  structure of the Company (such as a stock split,  reverse
stock split,  stock  dividend,  combination  or  reclassification  of our common
stock).

     The Plan enables us to grant either  "incentive stock options",  as defined
in Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), or
options that are not intended to be "incentive  stock  options".  Options may be
granted only to our  employees,  directors  and  consultants  and  advisors.  No
options  may be granted  under the Plan later  than April 6, 2015.  Any  options
granted  under the Plan must have an exercise  period of no more than ten years.



                                       22


The  exercise  price  per share  for each  option  may not be less than the fair
market  value on the date of grant,  as "fair  market  value" is  defined in the
Plan.  The Plan provides that payment of the exercise price may be made in cash,
by  delivery of already  owned  shares of our common  stock,  valued at its fair
market value on the exercise date, or through such cashless exercise  procedures
that are deemed acceptable by the Committee. Proceeds received from the optioned
shares  will be used for  general  corporate  purposes.  To the extent  that the
aggregate  fair market value  (determined as of the time such option is granted)
of the common stock for which any employee may have incentive stock options vest
in any calendar year exceeds $100,000, such excess incentive stock options shall
be treated as non-qualified options.

     No options shall be assignable or  transferable  by the optionee  except by
will  or by the  laws of  descent  and  distribution  or by  Committee  approved
transfer  to a  "family  member"  as  defined  in the Plan,  and each  option is
exercisable  during the  lifetime  of an  optionee  only by the  optionee or the
optionee's guardian or legal representative.

     Upon a "Change  in  Control"  (as  defined  in the  Plan),  dissolution  or
liquidation,  corporate  separation or division,  or sale of  substantially  all
assets,  the  Committee  may  provide  for  (1)  the  continuation  of the  then
outstanding options (if we are the surviving corporation), (2) the assumption of
the Plan and the then outstanding options by the surviving entity or its parent,
(3) the  substitution  by the  surviving  entity or its parent of  options  with
substantially   similar  terms  as  the  then  outstanding   options,   (4)  the
cancellation of outstanding options for a cash payment equal to the in-the-money
value thereof or (5) the cancellation of outstanding  options without payment of
consideration.  If vested options would be cancelled without payment, the option
holder would have the right to exercise such options  before such  cancellation.
In connection with the  alternatives  described  above, the Committee may in its
discretion accelerate unvested options.

     The  board of  directors,  subject  to  certain  exceptions,  may  suspend,
terminate or amend the Plan at its discretion.

     The  following  awards have been made under the Plan as of April 13,  2006:
Mr. Shifrin,  15,000 options;  Mr. Hayes,  5,000 options;  Mr.  Solimine,  5,000
options; Mr. Searles,  10,000 options; all executive officers as a group, 40,000
options;  all  directors,  who are not executive  officers,  as a group,  45,000
options;  and all employees,  including  current  officers who are not executive
officers,  as a group,  43,000  options.  No  determination  has been  made with
respect to future recipients of options under the Plan and it is not possible to
specify the names or positions of the persons to whom options may be granted, or
the number of shares,  within the limitations of the Plan, to be covered by such
options.

     Under currently applicable  provisions of the Code, as amended, an optionee
will not be deemed to receive any income for federal  income tax  purposes  upon
the  grant of any  option  under  the  Plan,  nor will we be  entitled  to a tax
deduction  at that  time.  Upon the  exercise  of a  non-incentive  option,  the
optionee will be deemed to have received  ordinary  income in an amount equal to
the difference  between the exercise price and the market price of the shares on
the  exercise  date.  We will be allowed an income  tax  deduction  equal to the
excess of market  value of the shares on the date of  exercise  over the cost of
such shares to the optionee. No income will be recognized by the optionee at the
time of exercise of an incentive stock option. If the stock is held at least one
year  following  the exercise date and at least two years from the date of grant



                                       23


of the  option,  the  optionee  will  realize a capital  gain or loss upon sale,
measured as the  difference  between the exercise  price and the sale price.  If
both of these holding period requirements are not satisfied, ordinary income tax
treatment  will apply to the amount of gain at sale or  exercise,  whichever  is
less. If the actual gain exceeds the amount of ordinary income,  the excess will
be  considered  short-term or long-term  capital gain  depending on how long the
shares are  actually  held.  No income  tax  deduction  will  allowed by us with
respect to shares  purchased  by an optionee  upon the  exercise of an incentive
stock  option,  provided  such  shares  are held  for the  required  periods  as
described above.

     Under the Code, an option will  generally be  disqualified  from  receiving
incentive  stock  option  treatment  if it is  exercised  more than three months
following termination of employment.  However, if the optionee is disabled, such
statutory  treatment is available  for one year  following  termination.  If the
optionee  dies while  employed  by us or within  three  months  thereafter,  the
statutory  time  limit is  waived  altogether.  In no  event do these  statutory
provisions  extend the rights to exercise an option beyond those provided by its
terms.


        3. PROPOSAL TO AMEND THE AMERICAN PHYSICIANS SERVICE GROUP, INC.
               AFFILIATED GROUP DEFERRED COMPENSATION MASTER PLAN


The  Deferred  Compensation  Plan was approved by the  shareholders  on June 14,
2005.  One  provision  of the  Deferred  Compensation  Plan,  which  calls for a
participant leaving the Company to sign a non-competition  agreement and then be
paid his or her deferred  shares over four years,  has now been determined to be
unnecessary  to  protect  our  interests,   unfair  to  the  participants,   and
administratively  burdensome.  The board of directors believes that the required
non-competition  agreement provides adequate  protection to us and is unaffected
by the manner in which the deferred  shares are  distributed.  The board further
believes  that  the  Deferred   Compensation  Plan  was  implemented  to  reward
outstanding  service to us and that a participant showing good faith in entering
into a non-competition  agreement should not be further restricted by having the
delivery of his or her shares delayed.  Lastly, the board believes that tracking
and  issuing  relatively  small  amounts  of shares is not a  productive  use of
management's  time.  Consequently,  the board  approved  changes to the Deferred
Compensation Plan as follows:

Section 4.1 is to be modified with the highlighted language at iii:

         4.1   Pay-Out of Participant's Entire Account Balance in Lump Sum

         Each Participant's Account Balance, represented by the Shares, shall be
         paid to such Participant in full upon the occurrence of the following:
         (i) the death of the Participant, or (ii) the Disability of the
         Participant. (iii) IF PARTICIPANT RESIGNS FOR ANY REASON OR IS
         TERMINATED BUT SUCH TERMINATION IS NOT A TERMINATION FOR CAUSE AND
         PARTICIPANT EXECUTES A NON-COMPETITION AGREEMENT REASONABLY
         SATISFACTORY TO EMPLOYER. In order to meet the requirements of pay-out
         under this Article IV, on the date Participant becomes entitled to the
         pay-out of Participant's deferred compensation, Employer shall cause
         the Shares to be issued into the name of the Participant, it being
         expressly understood that the form of payment for the deferred
         compensation under this Plan are shares of stock of American Physicians
         Service Group, Inc.

Section 4.3 is to be deleted in its entirety:


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         4.3   Pay-Out of Participant's Entire Account Balance in Installments

         In the event that the Participant executed a non-competition agreement
         reasonably satisfactory to Employer each Participant's Account Balance
         shall be paid to such Participant in four equal installments beginning
         with the date of the non-competition agreement and continuing annually
         thereafter on the anniversary of the non-competition agreement.

OUR BOARD OF  DIRECTORS  RECOMMENDS  A VOTE FOR  APPROVAL  OF THE  AMENDMENT  TO
ELIMINATE THE FOUR YEAR PAYOUT  PROVISION FROM THE AMERICAN  PHYSICIANS  SERVICE
GROUP, INC. AFFILIATED GROUP DEFERRED COMPENSATION MASTER PLAN.

The following is a brief summary of the Deferred Compensation Plan incorporating
the proposed changes. The Deferred Compensation Plan is attached as Appendix B
to our 2005 Proxy Statement (available in the SEC's EDGAR system at SEC.gov) and
reference is made to such Appendix for a complete statement of the provisions of
the Deferred Compensation Plan. Neither the Plan nor the 2005 Proxy Statement is
incorporated by reference in this 2006 Proxy Statement.

     The Deferred  Compensation  Plan provides for the granting of up to 150,000
shares of our common stock to directors and key employees (the  "Participants").
The  Deferred  Compensation  Plan  will  be  administered  by  the  Compensation
Committee,  comprised of three members, all of whom are "nonemployee directors",
within the meaning of federal  securities laws. The Committee will determine the
number of shares to be awarded. Distribution of the shares will be controlled by
the terms of the Deferred Compensation Plan.

     The Deferred  Compensation  Plan is intended to be an  unfunded,  unsecured
promise to pay the Participant  the shares,  subject to the terms and conditions
of the Deferred  Compensation Plan. At such time as shares are to be distributed
to  Participants,  our board will  determine  whether to fund the shares through
open market purchases or from authorized but unissued shares.

     Shares are earned in the year of award.  Payout of the shares is subject to
a schedule  whereby shares become  eligible for payout over five years, in equal
annual amounts,  following the grant (the "eligible shares").  Upon reaching age
60, Participants are entitled to receive the eligible shares and the shares that
become eligible each year thereafter.

          In the event that a Participant  terminates  employment or resigns and
     signs  a  non-competition  agreement,  all of  the  shares  granted  become
     eligible and will be paid out. In the event that a terminating  participant
     does not sign a non-competition agreement or if a participant is terminated
     for Cause (as defined in the Deferred  Compensation  Plan), the participant
     will receive only the eligible  shares and shares not yet eligible  will be
     forfeited and allocated pro rata to the other participants.

          All shares granted, whether or not eligible, are to be paid out in the
     event of the death or disability of the participant.

          Under currently applicable  provisions of the Internal Revenue Code of
     1986,  as amended,  a  participant  will not be deemed to have received any
     income for federal tax purposed upon the grant of deferred shares under the


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     Deferred  Compensation  Plan, nor will we be entitled to a tax deduction at
     that time.  Upon  becoming  entitled  to receive  the  deferred  shares the
     participant  will be deemed to have received  ordinary  income,  taxable as
     compensation,  in an amount  equal to the fair  value of the  shares on the
     date he or she is  entitled to receive  them.  We will be allowed an income
     tax deduction in a like amount at that time.

The Committee has made stock grants under the Deferred  Compensation Plan to the
individuals  and  in the  amounts  set  forth  in the  table  titled  "Executive
Compensation  -- Long-Term  Incentive  Plans -- Awards in Last Fiscal Year" with
respect to our named  executive  officers  and as described  under  "Election of
Directors -- Compensation of Directors" with respect to our directors.

                              SHAREHOLDER PROPOSALS

          Any of our  shareholders  meeting  certain minimum stock ownership and
     holding  period  requirements  may present a proposal to be included in our
     proxy statement for action at the annual meeting of shareholders to be held
     in 2007 pursuant to Rule 14a-8 of the Exchange Act. Such  shareholder  must
     deliver  such  proposal to our  principal  executive  offices no later than
     January 6, 2007,  unless we notify the shareholders  otherwise.  Only those
     proposals that are appropriate  for  shareholder  action and otherwise meet
     the  requirements  of Rule 14a-8 of the Exchange Act may be included in our
     proxy statement.

          A shareholder who otherwise  intends to present  business,  other than
     for the  nomination of a person for election to our board of directors,  at
     our 2007 annual meeting of shareholders  must comply with the  requirements
     set forth in our bylaws,  which require,  among other things, that to bring
     business  before our 2007 annual meeting,  a shareholder  must give written
     notice that  complies  with our bylaws to our  Secretary  at our  principal
     executive  offices.  A shareholder's  notice shall be timely if received by
     our Secretary no earlier then January 5, 2007 and no later than February 7,
     2007, unless we notify our shareholders otherwise.

          A  shareholder  who intends to  nominate a person for  election to our
     board of directors at the 2007 annual meeting must give written notice that
     complies  with our  bylaws  to our  Secretary  at our  principal  executive
     offices no earlier then January 5, 2007 and no later than February 7, 2007,
     unless we notify our shareholders otherwise.

          As a result,  a notice of a  shareholder  proposal for the 2006 annual
     meeting,  submitted other than pursuant to Rule 14a-8,  will be untimely if
     not  received  by us within the time  deadlines  required  by our bylaws as
     described   above.  As  to  any  such  proposals,   the  proxies  named  in
     management's  proxy for that  meeting  will be entitled  to exercise  their
     discretionary  authority on that proposal  unless we receive  notice of the
     matter to be proposed  within the time deadlines  required by our bylaws as
     described  above.  Even if proper notice is received on a timely basis, the
     proxies  named in  management's  proxy for that  meeting  may  nevertheless
     exercise  their  discretionary  authority  with  respect to such  matter by
     advising  shareholders  of such  proposal  and how they  intend to exercise
     their  discretion to vote on such matter to the extent permitted under Rule
     14a-4(c)(2) of the Exchange Act.



                                       26


                                  OTHER MATTERS

          Our board of  directors  does not  intend  to bring any other  matters
     before the meeting  and does not know of any matters  which will be brought
     before the meeting by others.  However,  if any other matters properly come
     before the meeting,  the persons named in the accompanying  proxy will vote
     the proxies in accordance with their judgment on such matters.


                       By Order of our board of directors


                       W. H. HAYES Secretary






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