SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K

(Mark One)
[X]      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934

         For the fiscal year ended December 31, 1999

                                                        OR

[ ]      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
         SECURITIES EXCHANGE ACT OF 1934

         For the transition period from           to

Commission File  Number 0-7288

                        INTERCONTINENTAL LIFE CORPORATION
              (Exact name of registrant as specified in its charter)

     Texas                   22-1890938
(State of Incorporation)  (I.R.S. Employer identification number)

701 Brazos, Suite 1400, Austin, Texas                       78701
(Address of Principal Executive Offices)               (Zip Code)

                        (512)  404-5000
(Registrant's Telephone Number)

    Securities Registered pursuant to Section 12(b) of the Act: None

    Securities Registered pursuant to Section 12(g) of the Act:

                  Common Stock, $.22 par value
                                                 (Title of Class)

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

YES   X    NO

                                       -1-

<PAGE>

The  aggregate  market value of the voting stock held by  non-affiliates  of the
Registrant  on March 15,  2000,  based on the closing  sales price in The Nasdaq
Small-Cap Market ($9.50 per share), was $44,152,333.

As of March 15,  2000,  Registrant  had  8,821,191  shares of its  common  stock
outstanding (excluding shares held in Treasury and not entitled to vote).

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


                                       -2-

<PAGE>

                                     PART I

Item 1. Business

General

InterContinental  Life Corporation  ("ILCO",  the "Company" or the "Registrant")
was originally  incorporated  in 1969 under the laws of the State of New Jersey.
During  1997,  ILCO  transferred  its  domicile  from New Jersey to the State of
Texas.  This  change  was  approved  by vote of the  shareholders  at the annual
meeting of shareholders held on June 19, 1997. Its executive offices are located
at 701 Brazos, Suite 1400, Austin, Texas 78701.

The Company is principally engaged,  through its subsidiaries,  in administering
existing  portfolios of life insurance  policies and annuity products.  Prior to
the end of 1997, the life insurance  subsidiaries  also administered an in-force
book of accident and health  insurance  business.  In December,  1997,  the life
insurance subsidiaries entered into an agreement, effective as of June 30, 1997,
with a third party insurer whereby the obligations under the accident and health
insurance and the  disability  income  business of the companies were assumed by
the reinsurer.  The arrangement provides for an initial period of reinsurance on
a coinsurance basis, pending applicable approvals of the assumption arrangement.

The  Company's  insurance  subsidiaries  are also  engaged  in the  business  of
marketing and underwriting  individual life insurance and annuity products in 49
states  and the  District  of  Columbia.  Such  products  are  marketed  through
independent, non-exclusive general agents.

The Company is controlled by Financial  Industries  Corporation  ("FIC"), a life
insurance holding company, through FIC's ownership of approximately 44.5% of the
Company's  outstanding common stock. FIC, ILCO and their insurance  subsidiaries
have  substantially  identical  management,  and a majority of the directors of
ILCO are also  directors  of FIC and  ILCO's and FIC's  insurance  subsidiaries.
Officers  allocate  their  time  between  ILCO  and FIC in  accordance  with the
comparative requirements of both companies and their subsidiaries. Roy F. Mitte,
Chairman,  President and Chief  Executive  Officer of FIC, the Company and their
insurance  subsidiaries,  is the beneficial owner of approximately 30.71% of the
outstanding  shares  of FIC's  common  stock.  FIC owns  Family  Life  Insurance
Company,  a  Washington  domiciled   underwriter  of  mortgage  protection  life
insurance.

The Company was organized in 1969 to be the publicly  owned holding  company for
InterContinental Life Insurance Company ("ILIC").  The Company acquired Standard
Life  Insurance  Company  ("Standard  Life") in 1986,  Investors  Life Insurance
Company of California  ("Investors-CA")  and Investors Life Insurance Company of
North America ("Investors-NA") in 1988, Meridian Life Insurance Company, renamed
Investors Life Insurance Company of Indiana ("Investors-Indiana"),  in February,
1995,  State  Auto Life  Insurance  Company  (via  merger of that  company  into
Investors-  Indiana in 1997) and Grinnell Life Insurance  Company (via merger of
that company into Investors- Indiana in 1998).


                                       -3-

<PAGE>

Acquisitions

Strategy. The Company's strategy has been and continues to be to grow internally
and through  acquisitions,  while  maintaining  an  emphasis  on cost  controls.
Management   believes  that,  under  appropriate   circumstances,   it  is  more
advantageous to acquire  companies with books of in-force life insurance than to
produce new  business,  because  initial  underwriting  costs have  already been
incurred  and mature  business is  generally  less likely to  terminate,  making
possible more predictable  profit  analysis.  However,  the Company's  insurance
subsidiaries  continue to market those products that are profitable,  as well as
develop  new  products  and  streamline   distribution   channels.  See  "Agency
Operations". It is also management's belief that the continuing consolidation in
the life insurance industry presents attractive opportunities for the Company to
acquire life  insurance  companies  that  complement or fit within the Company's
existing  marketing  structure and product lines. The Company's  objective is to
improve  the   profitability  of  acquired   businesses  by  consolidating   and
streamlining  the  administrative  functions  of these  businesses,  eliminating
unprofitable  products  and  distribution   channels,   applying  its  marketing
expertise to the acquired  company's  markets and agents,  and benefitting  from
economies of scale. The Company's  ability to make future  acquisitions  will be
dependent  on its being able to obtain the  necessary  financing.  In  addition,
since FIC has the same  acquisition  strategy  as ILCO,  a conflict  of interest
could  arise in the future  between  ILCO and FIC with  respect  to  acquisition
opportunities.

Completed Acquisitions.

a.  Standard  Life.  In November  1986,  the  Company  acquired  Standard  Life,
headquartered   in  Jackson,   Mississippi,   for  a  gross  purchase  price  of
$54,500,000.

b.  Investors-NA  and  Investors-CA.  In December  1988,  the  Company,  through
Standard Life,  purchased  Investors-CA and Investors-NA  from CIGNA Corporation
for a purchase price of $140 million.

c.  Investors-Indiana.   On  February  14,  1995,  ILCO,  through  Investors-NA,
purchased  from  Meridian  Mutual  Insurance  Company the stock of Meridian Life
Insurance Company, an Indianapolis-based life insurer, for a cash purchase price
of $17.1  million.  After the  acquisition,  Meridian  Life  changed its name to
Investors Life Insurance Company of Indiana ("Investors-Indiana").

d. State Auto Life. On July 9, 1997, ILCO and  Investors-Indiana  acquired State
Auto  Life  Insurance  Company,  an Ohio  domiciled  life  insurer,  from  State
Automobile  Mutual  Insurance  Company,  for an adjusted cash purchase  price of
$11.8 million.  Under the terms of the  transaction,  State Auto Life was merged
into Investors-Indiana.

e.  Grinnell  Life.  On June 30,  1998,  ILCO,  through a  subsidiary,  acquired
Grinnell Life Insurance Company ("Grinnell Life") for an adjusted purchase price
of $16.6 million.  A portion of the purchase price ($12.37  million) was paid by
way of a  dividend  to the  seller  immediately  prior  to  the  closing  of the
transaction; the balance of the purchase price was paid by ILCO's subsidiary.

                                       -4-

<PAGE>

As part of the transaction,  Grinnell Life was immediately  merged with and into
that subsidiary, with that subsidiary being the surviving entity.

Merger of Insurance Subsidiaries.  Investors-NA redomesticated from Pennsylvania
to  Washington in December of 1992.  Investors-CA  merged into  Investors-NA  on
December 31, 1992, and Standard Life merged into  Investors-NA on June 29, 1993.
The mergers  have  achieved  cost  savings,  such as reduced  auditing  expenses
involved in auditing  one  combined  company;  the savings of expenses  and time
resulting  from the  combined  company  being  examined  by one state  insurance
department  (Washington),  rather  than  three  (California,   Pennsylvania  and
Mississippi);  the  reduction  in the  number of tax  returns  and other  annual
filings  with 45 states;  and smaller  annual  fees to do  business  and reduced
retaliatory premium taxes in most states.

In December,  1997,  InterContinental  Life Insurance Company ("ILIC"),  an ILCO
subsidiary,  transferred  its  domicile  from New Jersey to  Indiana.  Following
completion of the redomestication, ILIC merged with Investors-Indiana, with ILIC
as the surviving  entity in the merger  process.  Immediately  after the merger,
ILIC changed its name to Investors  Life Insurance  Company of Indiana.  As used
hereinafter,  the  phrase  "Investors-IN"  shall be used to refer to the  merged
entities.  As a result of the merger,  Investors-IN is licensed in 47 states and
the  District of  Columbia.  As of December  31,  1999,  it had assets of $176.4
million and capital and surplus of $23 million.

Management  believes that these  acquisitions and  consolidations  have caused a
reduction in expenses and have further  strengthened the financial  condition of
the combined companies.

Operations

The Company has developed management  techniques to reduce operating expenses by
centralizing,  standardizing  and more  efficiently  performing  many  functions
common  to most  life  insurance  companies,  such as  underwriting  and  policy
administration,   accounting  and  financial  reporting,  marketing,  regulatory
compliance, actuarial services and asset management. The Company has selectively
recruited personnel in sales, marketing and various administrative departments.

The Company's centralized management techniques resulted in significant employee
reductions and expense savings in the life insurance  companies  acquired by the
Company.  During 1999, the general insurance expenses of the Company's insurance
subsidiaries on a statutory basis were  $15,910,308,  as compared to $15,172,682
in 1998 and  $15,574,265 in 1997. The level of expenses for the years 1999, 1998
and 1997 was  affected  by  expenses  incurred  in  connection  with  Year  2000
compliance  (see the discussion  under the caption "Data  Processing").  For the
year 1998,  the level of expenses  was also  affected  by  expenses  incurred in
connection with the acquisition of Grinnell Life Insurance Company. Expenses for
the year 1997  were also  affected  by the  acquisition  in July of that year of
State Auto Life.  Management is committed to maintaining  the general  insurance
expenses of the Company's insurance  subsidiaries at a level which will generate
an acceptable level of profitability  while maintaining the competitive  pricing
of their insurance products.


                                       -5-
<PAGE>

The number of  employees  within the  Company  and its  subsidiaries  (including
employees  who  also  perform  administrative  services  for  Family  Life)  was
approximately 312 at December 31, 1999.



Principal Products

The Company's  insurance  subsidiaries  are engaged  primarily in  administering
existing   portfolios  of  life   insurance   policies  and  annuity   products.
Approximately  79% of the total  collected  premiums  for 1999 were derived from
renewal  premiums  on  insurance  policies  and  annuity  products  sold  by the
insurance subsidiaries prior to their acquisition by the Company.

The  Company's  insurance   subsidiaries  are  also  engaged  in  marketing  and
underwriting individual life insurance and annuity products in 49 states and the
District  of  Columbia.   These  products  are  marketed  through   independent,
non-exclusive general agents.

The products  currently being distributed  include several versions of universal
life  insurance,   which  provide  permanent  life  insurance  protection  while
crediting  company-declared  current  interest  rates to the  cash  value of the
policy.  The  universal  life  insurance  portfolio of the  Company's  insurance
subsidiaries  consists  primarily of flexible  premium  universal life insurance
policies.  Under  the  flexible  premium  policies,  policyholders  may vary the
amounts of their coverage (subject to minimum and maximum limits) as well as the
date of payment and frequency of payments.

Direct  statutory  premiums  received from all types of universal  life products
were  $34.3  million in 1999,  as  compared  to $38.9  million in 1998 and $40.6
million in 1997.  Investors-NA received reinsurance premiums from Family Life of
$3.2 million in 1999,  pursuant to the reinsurance  agreement for universal life
products written by Family Life. In 1999, premium income from all life insurance
products  was  derived  from  all  states  in  which  the  Company's   insurance
subsidiaries are licensed,  with significant  amounts derived from  Pennsylvania
(14%), Ohio (9%), California (8%) and New Jersey (8%).

The  Company's  insurance  subsidiaries  received  premium  income  from  health
insurance  policies.  In 1999, premium income from all health insurance policies
was $0.8 million,  as compared to $1.0 million in 1998 and $0.9 million in 1997.
As described below, the health insurance business of the Company's  subsidiaries
is 100% reinsured with a third party reinsurer.

In December, 1997, ILCO's life insurance subsidiaries entered into a reinsurance
treaty under which most of the contractual  obligations and risks under accident
and health  insurance  policies  were  assumed by a third party  reinsurer.  The
transfer  was  effective  as of  July  1,  1997.  These  risks  and  contractual
obligations were sold pursuant to, first, a coinsurance  reinsurance  agreement.
Following applicable regulatory approvals,  the reinsurer will assume the direct
obligations of the companies,  on an assumption  reinsurance basis. The decision
to dispose of this book of business was based on management's  analysis that the
business was not  generating  targeted  profit  objectives and that the products
were not part of the core  business of the  subsidiaries.  The sale  permits the
companies to

                                       -6-

<PAGE>

focus on its primary  business - life insurance and annuity sales. In connection
with the  transaction,  the total  amount  of net  reserves  transferred  by the
subsidiaries was $6,327,504.  In addition to the transfer of reserves,  the life
companies  paid the reinsurer  $1,037,150 in  connection  with the  transaction,
which  amount was  accounted  for as an expense for the year ended  December 31,
1997. In 1997, the  transferred  business  generated  approximately  $791,000 in
annualized premiums.

Investors-NA  sponsors a variable annuity separate account,  which offers single
premium and flexible  premium  policies.  The policies  provide for the contract
owner to allocate  premium  payments among four  different  portfolios of Putnam
Variable  Trust (the  "Putnam  Fund"),  a series fund which is managed by Putnam
Investment  Management,  Inc. As of December  31,  1999,  the assets held in the
separate account were $48.4 million. During 1999, the premium income realized in
connection with these variable annuity policies was $117,666, which was received
from existing contract owners.

Investors-NA  also maintains a closed variable  annuity separate  account,  with
approximately  $19.8  million of assets as of December  31,  1999.  The separate
account was closed to new  purchases in 1981, as a result of an IRS ruling which
adversely affected the status of variable annuity separate accounts which invest
in  publicly-available  mutual funds.  The ruling did not  adversely  affect the
status of in-force contracts.

For the past several  years,  ILCO's life  companies  expanded  their  marketing
efforts in the fixed  annuity  market.  Direct  deposits  from the sale of fixed
annuity products were $7.6 million in 1999, as compared to $6.1 million in 1998,
and $3.5 million in 1997.  Investors-NA also received  reinsurance premiums from
Family Life of $1.8 million in 1999,  pursuant to a  reinsurance  agreement  for
annuity products between Investors-NA and Family Life Insurance Company.

During  the fourth  quarter  of 1998,  Investors-NA  developed  a group  deposit
administration  product,  designed  for use in  connection  with the  funding of
deferred compensation plans maintained by government employers under section 457
of  the  Internal   Revenue  Code.  The  company  has  established  a  marketing
relationship with a third-party administrator based in San Antonio, Texas, which
has established  relationships with school districts in Texas. Enrollments under
the program commenced during 1999, which contributed $0.9 million of the annuity
premiums for that year.

In October, 1999, a marketing subsidiary of the Company entered into a marketing
agreement with a third- party life insurance  company.  The marketing  agreement
makes   available,   to  appointed   agents  of  the  Company's  life  insurance
subsidiaries,  a portfolio of term life insurance  products not currently  being
offered by the  subsidiaries.  The underwriting  risk on the products sold under
this arrangement is assumed by the third-party  insurer. The Company's appointed
agents  receive  commissions  on the sales of these  products and the  Company's
marketing subsidiary receives an override commission.

                                       -7-
<PAGE>

The following table sets forth, for the three years ended December 31, 1999, the
combined  premium  income and other  considerations  received  by the  Company's
insurance subsidiaries from sales of their various lines of insurance.

<TABLE>
                                             Year Ended December 31,
<S>                                      <C>            <C>               <C>

Type of Insurance Premium                1999           1998              1997
                                    (In thousands)
Individual:
Life                                  $10,647          $10,528          $10,163
Accident & Health                         808              994              792
Total Individual Lines                 11,455           11,522           10,955
Group:
Life                                    3,164            2,323            2,639
Accident & Health                           0               11               40
Total Group Lines                       3,164            2,334            2,679
Credit:
Life                                      (14)             (21)             (27)
Accident & Health                          (1)              (3)              14
Total Credit Lines                        (15)             (24)             (13)
Total Premium                          14,604           13,832           13,621
Reinsurance Premiums Ceded             (3,472)          (2,942)          (2,590)
    Total Net Premium                  11,132           10,890           11,031
Amount Received on
Investment Type Contracts              45,536           48,739           47,862
     Total Premiums and
     Deposits Received                $56,668          $59,629          $58,893
</TABLE>



                                       -8-
<PAGE>

Investment of Assets

The  assets  held by the  Company's  insurance  subsidiaries  must  comply  with
applicable  state  insurance laws and  regulations  pertaining to life insurance
companies.  The investment portfolio of the Company's insurance  subsidiaries is
tailored to reflect the nature of the  insurance  obligations,  business  needs,
regulatory  requirements  and  tax  considerations  relating  to the  underlying
insurance  business with respect to such assets.  This is particularly  the case
with respect to interest-sensitive life insurance and deferred annuity products,
where the investment  emphasis is to obtain a targeted margin of profit over the
rate of interest  credited to  policyholders,  while endeavoring to minimize the
portfolio's  exposure to changing interest rates. To reduce the exposure to such
rate changes, portfolio investments are selected so that diversity, maturity and
liquidity   factors   approximate   the  duration  of  associated   policyholder
liabilities.

The investment objective of the Company's insurance subsidiaries  emphasizes the
selection of short to medium term high quality  fixed income  securities,  rated
Baa-3  (investment  grade) or better by Moody's  Investors  Service,  Inc. As of
December  31, 1999,  only 2.1% of the  Company's  total assets were  invested in
mortgage loans or real estate.  Non-affiliated  corporate debt  securities  that
were  non-investment  grade  represented  0.1% of the Company's  total assets at
December 31, 1999. The Company had  investments in debt securities of affiliated
corporations aggregating $41.5 million as of December 31, 1999.

Investments  in  mortgage-backed  securities  included  collateralized  mortgage
obligations   ("CMOs")  of  $178.9  million  and  mortgage-backed   pass-through
securities of $29.1 million at December 31, 1999.  Mortgage-backed  pass-through
securities,  sequential CMOs and support bonds,  which  comprised  approximately
52.0% of the book value of the Company's mortgage-backed  securities at December
31, 1999,  are sensitive to  prepayment  and  extension  risks.  The Company has
reduced the risk of prepayment  associated  with  mortgage-backed  securities by
investing in planned  amortization  class  ("PAC"),  target  amortization  class
("TAC")  instruments,  accretion  directed  bonds  and  scheduled  bonds.  These
investments  are  designed to amortize in a  predictable  manner by shifting the
risk of prepayment  of the  underlying  collateral  to other  investors in other
tranches  ("support  classes") of the CMO. PAC and TAC instruments and accretion
directed and scheduled bonds represented  approximately 48.0% and sequential and
support classes represented approximately 38% of the book value of the Company's
mortgage-backed securities at December 31, 1999. In addition, the Company limits
the risk of prepayment of CMOs by not paying a premium for any CMOs. The Company
does not invest in  mortgage-backed  securities with increased  prepayment risk,
such as  interest-only  stripped  pass-through  securities  and inverse  floater
bonds. The prepayment risk that certain  mortgage-backed  securities are subject
to is prevalent in periods of declining  interest  rates,  when mortgages may be
repaid  more  rapidly  than  scheduled  as  individuals  refinance  higher  rate
mortgages to take advantage of the lower current rates. As a result,  holders of
mortgage-backed  securities may receive large  prepayments on their  investments
which cannot be  reinvested  at an interest  rate  comparable to the rate on the
prepaying  mortgages.  The Company did not make  additional  investments in CMOs
during 1999. For the year 2000, the Company's investment  objectives include the
making of selected investments in CMOs.


                                       -9-
<PAGE>

The Company does not invest in non-agency mortgage-backed securities, which have
a greater credit risk than that of agency mortgage-backed securities.

The  Company  does  not  make  new  mortgage  loans  on  commercial  properties.
Substantially all of the Company's  mortgage loans were made by its subsidiaries
prior to their  acquisition  by the Company.  At December 31, 1999,  none of the
mortgage loans held by the Company had defaulted as to principal or interest for
more than 90 days, and none of the Company's mortgage loans were in foreclosure.
During  1999,  the  Company  wrote off the  value of  approximately  $81,000  of
principal and interest on mortgage loans which had defaulted as to principal and
interest payment for more than 90 days.

Another  key  element of the  Company's  investment  strategy  is to avoid large
exposure in other investment  categories which the Company believes carry higher
credit or liquidity risks,  including private placements,  partnerships and bank
participations.  These  categories  accounted  for  approximately  0.3%  of  the
Company's invested assets at December 31, 1999.

Investors-NA  was  the  owner  and  developer  of  Bridgepoint  Square  Offices.
Following the  completion  of the  construction,  the project  consisted of four
office  buildings,  with a total rentable space of approximately  364,000 square
feet, and two parking garages.  Investors-NA purchased the 20 acre tract of land
for this  complex  in  January,  1995.  At that  time,  the tract  included  one
completed and fully leased office  building,  an adjacent  parking  garage,  and
sites for three more office  buildings and another parking garage.  Investors-NA
completed  construction  of the three  remaining  office  buildings  and parking
garage in 1997.

In May, 1996, Family Life Insurance Company  ("FLIC"),  an indirect,  100% owned
subsidiary  of  FIC,  purchased  a 7.1  acre  tract  adjacent  to  the  original
Bridgepoint  Square tract. This second tract contained one building site and one
garage site. In January,  1997, FLIC began  construction on a four-story  office
building,  with rentable  space of  approximately  76,793  square feet,  and the
parking garage, with 350 parking spaces. In May, 1997, the entire rentable space
was leased to a major tenant in the  technology  business.  Construction  of the
parking garage and the building shell was completed in October, 1997.

In November,  1997,  Investors-NA  and Family Life entered into a sale agreement
with an independent  third party for the sale of their  respective  interests in
Bridgepoint Square Offices.  The transaction,  which closed on December 5, 1997,
was for an aggregate  price of $78 million.  The sale  resulted in a net pre-tax
profit to Investors-NA of approximately $14.6 million,  and a net pre-tax profit
to Family Life of approximately $4.5 million. See Item 2. Properties.

In October, 1998, Investors-NA purchased two adjoining tracts of land located in
Austin,  Texas  totaling  47.995 acres.  The aggregate  purchase price for these
tracts was $8.1  million.  Investors-NA  has  obtained  approval  of a site plan
development  proposal for these tracts.  The development permit provides for the
construction  of seven office  buildings  totaling  600,000  square  feet,  with
associated parking,  drives and related  improvements.  The initial phase of the
project ("Phase One") will consist of two office buildings,  associated  parking
and the infrastructure  for the entire project.  Construction on Phase One began
during the first  quarter of 1999 and is  expected  to be  completed  during the
third quarter of 2000.

                                      -10-

<PAGE>

The Company has established and staffed an investment department,  which manages
portfolio  investments  and  investment  accounting  functions  for ILCO's  life
insurance subsidiaries.

Agency Operations

ILCO's  insurance  subsidiaries  collectively  market  through  the  "Investors"
distribution  system.  Independent  non-exclusive  agents,  general  agents  and
brokers are recruited nation-wide to sell the products.  Such agents and brokers
also sell insurance  products for companies in competition with ILCO's insurance
subsidiaries.  In order to attract  agents and enhance the sale of its products,
the  Company's  insurance  subsidiaries  pay  competitive  commission  rates and
provide other sales  inducements.  The Investors  sales  distribution  system is
presently concentrating its efforts on the promotion and sale of universal life,
term life and fixed annuity products.

Marketing and sales for all of the Company's insurance subsidiaries are directed
by the  Executive  Vice  President  of  Marketing  and Sales.  The  Senior  Vice
President  for  Investors  Sales  directs   Regional  Vice  Presidents  who  are
responsible  for the  recruitment  and  maintenance  of the  general  agents and
managing general agents for individual insurance sales. During 1999, the Company
implemented a plan to restructure  the  compensation  arrangements  for Regional
Vice Presidents, so as to emphasize the role of personal production by the RVPs.

Data Processing

Since December,  1994, the data  processing  needs of ILCO's and FIC's insurance
subsidiaries  have been provided to ILCO's and FIC's Austin,  Texas and Seattle,
Washington  facilities by FIC Computer Services,  Inc., a subsidiary of FIC. See
Item 13 - Certain Relationships and Related Transactions with Management.

As the  provider of data  processing  for the Company and its  subsidiaries  and
affiliates,  FIC Computer Services,  Inc. utilizes a centralized computer system
to process  policyholder  records and financial  information.  In addition,  the
Company  uses   non-centralized   computer  terminals  in  connection  with  its
operations.

In response  to the  potential  operations  and policy  administration  problems
caused by the computer calendar change on January 1, 2000, the management of the
Company   instructed  FIC  Computer   Services,   Inc.  to  analyze  its  system
capabilities and the operational  requirements of the Company and its respective
subsidiaries  and  affiliates  with  respect to the Y2K  problem.  In 1996,  FIC
Computer Services,  Inc. conducted the analysis of all of the Company's systems.
After  reviewing that  analysis,  the Company  determined  that a plan should be
devised to prevent the data  processing  errors that would be encountered due to
the Y2K problem.  In November,  1996,  a  three-year  plan  outlining a proposed
solution (the "Year 2000 Plan") was  established  and approved by the Company to
ensure  that all of the  data  processing  systems  would  be Y2K  compliant  or
converted onto Y2K compliant systems. The Company began the major work under the
Year  2000  Plan in 1997  and  the  work,  including  extensive  testing  of the
converted systems,  was completed during the fourth quarter of 1999. The Company
did not experience any material disruptions in the processing of its business as
a result of the Year 2000 date change.


                                      -11-

<PAGE>

The Company established the Year 2000 Plan because FIC Computer Services, Inc.'s
analysis revealed that those systems that are not converted or modified into Y2K
compliant systems, may produce policy  administration  errors as a result of the
calendar  change,  requiring  that  the  life  insurance  subsidiaries  manually
administer  those policies.  This would have resulted in a material  increase in
administrative  costs incurred by the life insurance  subsidiaries  of both ILCO
and FIC.

The Company's  analysis  also  indicated  that, in addition to potential  policy
administration  errors in the life  insurance  subsidiaries,  any machine  which
contains  a  microchip  is  subject  to error  due to the Y2K  problem.  Such an
occurrence could not only create errors in the Company's  internal systems,  but
those of the Company's suppliers and service providers.  In order to prepare for
this contingency, the Year 2000 Plan called for the acquisition of new mainframe
hardware and  software,  and the  modification  and  conversion of the Company's
telephones, voice mail and desk-top personal computers.

The Year 2000 Plan included the conversion of certain systems onto the Company's
CK/4  System,  a system which is designed to be Y2K  compliant  according to the
representations  of the  vendor.  Those  systems  which are not  converted  were
upgraded  by  changing  individual  lines of  computer  code in order to  modify
current operating software such that it became Y2K compliant.

In order to continuously  evaluate the  effectiveness of the  modifications  and
conversions made to the various systems,  FIC Computer  Services,  Inc. acquired
testing  software to simulate  dates on or after January 1, 2000.  Additionally,
FIC Computer Services, Inc. ran the systems through model office cycles and also
conducted visual inspections of screen displays to determine whether the systems
functioned in a Y2K compliant manner.

The various  software  applications  described above are licensed to the Company
under agreements which permit the Company's  subsidiaries to process business on
its computer systems utilizing such software.

Under  the  Year  2000  Plan,  FIC  Computer  Services,  Inc.  utilized  its own
personnel, acquired Y2K compliant operating software, and engaged the assistance
of outside  consultants to facilitate the systems conversions and modifications.
For the twelve  month period ended  December 31, 1999,  the Company  incurred an
after tax cost of approximately  $195,000 in connection with the Year 2000 Plan,
as compared to an after tax expense of approximately $158,000 for the year ended
December 31, 1998 and $140,000 for the year ended December 31, 1997.

With respect to non-centralized  systems (i.e., desktop computers),  the Company
obtained updated software releases and new hardware designed to be Y2K compliant
according to the  representations  of the vendors.  The effort needed to correct
for Y2K problems on such systems was less time  intensive than the effort needed
to achieve compliance for its centralized  systems. The installation of such new
PC hardware and software was  commenced in early 1999 and was  completed  during
the fourth quarter of 1999.

                                      -12-

<PAGE>

The Company  also faced the risk that one or more of its  external  suppliers of
goods or  services  ("third  party  providers")  would not be in a  position  to
properly  interact  with the  Company due to the  inability  of such third party
provider  to resolve its own Y2K  issues.  Pursuant  to the Year 2000 Plan,  the
Company  completed an inventory of its third party  provider  relationships.  In
order to assess the Y2K  readiness  of such third party  providers,  the Company
developed  and  forwarded a detailed  questionnaire  to such  providers.  As the
responses to the questionnaires were received, the Company evaluated the overall
Y2K  readiness of its third party  provider  relationships.  The Company did not
experience any material problems with its third-party vendors which were related
to the Year 2000 date change.

Competition

There are many life and  health  insurance  companies  in the United  States.  A
significant  number of casualty  companies also market health insurance.  Agents
placing  insurance   business  with  ILCO's  life  insurance   subsidiaries  are
compensated  on  a  commission  basis.   However,   some  companies  pay  higher
commissions  and  charge  lower  premium  rates  and many  companies  have  more
substantial resources.

The principal cost and competitive  factors that affect the Company's ability to
sell its life insurance and annuity  products on a profitable basis are: (1) the
general  level of  premium  rates for  comparable  products;  (2) the  extent of
individual policy holder services required to service each product category; (3)
general  interest  rate levels;  (4)  competitive  commission  rates and related
marketing costs; (5) legislative and regulatory  requirements and  restrictions;
(6) the impact of competing insurance and other financial products;  and (7) the
condition of the regional and national economies.

Reinsurance and Reserves

Reinsurance  Ceded.  In  accordance  with  general  practices  in the  insurance
industry, the Company's insurance subsidiaries limit the maximum net losses that
may arise from large risks by reinsuring with other carriers.  Such  reinsurance
provides for a portion of the mortality  risk to be retained  (the  "Retention")
with the excess  being ceded to a reinsurer at a premium set forth in a schedule
based  upon the age and risk  classification  of the  insured.  The  reinsurance
treaties provide for allowances that help the Company's  insurance  subsidiaries
offset the expense of writing new business.  Investors-IN  generally retains the
first $60,000 to $100,000 of risk on the life of any individual,  depending upon
the type of coverage being  written.  Investors-NA  generally  retains the first
$100,000  to $250,000 of risk on the life of any  individual,  depending  on the
type of coverage being issued. Investors-NA maintains a bulk reinsurance treaty,
under  which it  reinsured  all of its  risks  under  accidental  death  benefit
policies.  The treaty was most recently  renegotiated with the current reinsurer
in January, 1997.

                                      -13-

<PAGE>

As discussed above (see "Principal  Products"),  in December,  1997, ILCO's life
insurance  subsidiaries entered into a reinsurance treaty under which all of the
contractual obligations and risks under individual accident and health insurance
policies  were  assumed  by a third  party  reinsurer.  In  connection  with the
transaction,  the total amount of net reserves  transferred by the  subsidiaries
was $6,327,504. In addition to the transfer of reserves, the life companies paid
the reinsurer  $1,037,150 in connection with the  transaction,  which amount was
accounted for as an expense for the year ended December 31, 1997.

Although  reinsurance does not eliminate the exposure of the Company's insurance
subsidiaries   to  losses  from  risks  insured,   the  net  liability  of  such
subsidiaries will be limited to the portion of the risk retained,  provided that
the reinsurers meet their contractual obligations.

The  Company's  insurance  subsidiaries  carry  reserves  on their books to meet
future obligations under their outstanding insurance policies. Such reserves are
believed  to be  sufficient  to meet policy  obligations  as they mature and are
calculated using assumptions for interest,  mortality,  expenses and withdrawals
in effect at the time the policies were issued.

     Reinsurance  Assumed.  In 1995,  Investors-NA  entered  into a  reinsurance
agreement with Family Life  pertaining to universal  life  insurance  written by
Family Life. The reinsurance agreement is on a co-insurance basis and applies to
all covered  business with  effective  dates on and after  January 1, 1995.  The
agreement applies to only that portion of the face amount of the policy which is
less than  $200,000;  face  amounts of $200,000 or more are  reinsured by Family
Life  with a  third  party  reinsurer.  In  1996,  Investors-NA  entered  into a
reinsurance  agreement with Family Life, pertaining to annuity contracts written
by Family Life. The agreement  applies to contracts  written on or after January
1, 1996. These  reinsurance  arrangements  reflect  management's plan to develop
universal  life  and  annuity  business  at   Investors-NA,   with  Family  Life
concentrating on the writing of term life insurance products.

FIC's Acquisition of Control of the Company

In January,  1985,  FIC acquired  26.53% of ILCO's common stock.  FIC and Family
Life  subsequently  acquired  additional shares of ILCO's common stock and as of
March 15,  2000,  FIC  owned,  directly  and  indirectly  through  Family  Life,
approximately 44.5% of the outstanding shares of ILCO's common stock.

FIC's Acquisition of Family Life

After FIC acquired control of ILCO,  FIC's primary  involvement in the insurance
industry  was  its  indirect  investment,  through  ILCO,  in  ILCO's  insurance
subsidiaries. In June 1991, FIC acquired Family Life Insurance Company, ("Family
Life"), based in Seattle, Washington, from Merrill Lynch Insurance Group, Inc.

                                      -14-

<PAGE>


Family Life  specializes in underwriting  and selling  mortgage  protection life
insurance to customers who are mortgage  borrowers from  financial  institutions
where  Family Life has  marketing  relationships.  Family Life  distributes  its
insurance  products primarily through a national career sales force in 49 states
and the District of Columbia.

The $114 million purchase price for Family Life and an additional $5 million for
transaction costs,  working capital and other related purposes were financed by:
(a) a $50  million  senior loan  provided  by a group of banks,  (b) $44 million
subordinated  notes issued to the seller and its  affiliates and (c) $25 million
senior subordinated notes issued to Investors-CA and Investors-NA.  In addition,
FIC granted to Investors-CA and Investors-NA nontransferable options to purchase
up to a total of 9.9% of FIC's  common  stock at a price of  $10.50  per  share,
equivalent to the then current  market  price,  subject to adjustment to prevent
dilution.  As a result  of the  five-for-one  stock  split  implemented  by FIC,
effective in November,  1996,  the exercise  price of the options was changed to
$2.10 per share.  The initial terms of the option provided for their  expiration
on June 12, 1998,  if not  previously  exercised.  In  connection  with the 1996
amendments to the subordinated  loans held by Investors-NA,  the expiration date
of the options was extended to September 12, 2006.  For a discussion of the 1996
amendments,  see Item 13, "Certain  Relationships and Related  Transactions with
Management" . In July, 1993, the  subordinated  notes held by the seller and its
affiliates  were  prepaid.  The  primary  source of the funds used to prepay the
subordinated  debt was a new  subordinated  loan of $34.5 million  obtained from
Investors-NA. See Item 13.

Senior Loan

The Senior  Loan of ILCO was  originally  arranged in  connection  with the 1988
acquisition of  Investors-NA  and  Investors-CA.  In January,  1993, the Company
refinanced its Senior Loan.  That  transaction  was done in connection  with the
prepayment of the  subordinated  indebtedness and the purchase of warrants which
had been issued as part of the financing of the 1988 acquisitions.  The terms of
the amended and restated credit facility are substantially the same as the terms
and  provisions  of the 1988 senior  loan.  The  maturity  date,  which had been
December 31, 1996, was extended to July 1, 1998 for the Senior Loan. The average
interest  rate paid by the  Company on its Senior Loan was  approximately  7.68%
during 1997 and 7.63% during 1998.

In February,  1995,  the Company  borrowed an  additional  $15 million under the
Senior Loan to help finance the  acquisition of  Investors-IN,  and the maturity
date of the Senior Loan was further extended to July 1, 1999. As of December 31,
1995, the outstanding  principal  balance of ILCO's senior loan  obligations was
$59.4 million.  In January,  1996, the Company made a scheduled  payment of $4.5
million  under its Senior Loan. In March,  1996,  the Company made the scheduled
payments for April 1st and July 1st, totaling $9 million. At that same time, the
Company made a payment of $941,000, an additional payment under the terms of the
loan applied to the principal  balance.  On April 1, 1996, an optional principal
payment in the amount of $15 million was made,  which  resulted in advancing the
scheduled payoff date of the Senior Loan to April 1, 1998. In July,

                                      -15-
<PAGE>


1996,  the Company made the  principal  payment for October 1st ($4.5  million),
plus an optional  principal  payment of $0.5  million.  In  connection  with the
acquisition of State Auto Life Insurance  Company in July, 1997, the Senior Loan
agreement was modified to extend the maturity date to October 1, 1998.

As of December 31, 1997, the outstanding principal balance of ILCO's senior loan
obligations was $11.0 million,  which reflected the prepayment by the Company of
the payment originally  scheduled for January 1, 1998. A regular payment, in the
amount of $3.7  million,  was made on April 1, 1998 and a prepayment of the July
1, 1998 installment,  in the amount of $3.7 million,  was made on June 30, 1998.
The  outstanding  principal  balance of ILCO's senior loan  obligations was $3.6
million at June 30, 1998. The final  installment  on the senior loan  obligation
scheduled  for October 1, 1998,  was prepaid on September 30, 1998. As a result,
the senior loan obligation of ILCO was fully discharged  effective September 30,
1998.

Regulation

     General. The Company's insurance subsidiaries are subject to regulation and
supervision  by the  states in which  they are  licensed  to do  business.  Such
regulation is designed  primarily to protect policy owners.  Although the extent
of regulation  varies by state, the respective state insurance  departments have
broad administrative  powers relating to the granting and revocation of licenses
to transact business, licensing of agents, the regulation of trade practices and
premium rates, the approval of form and content of financial  statements and the
type and character of investments.

These laws and  regulations  require the  Company's  insurance  subsidiaries  to
maintain  certain minimum surplus levels and to file detailed  periodic  reports
with the  supervisory  agencies  in each of the states in which they do business
and their  business and accounts are subject to  examination by such agencies at
any time. The insurance laws and  regulations of the  domiciliary  states of the
Company's insurance  subsidiaries  require that such subsidiaries be examined at
specified intervals.

Investors-NA  and  Investors-IN  are domiciled in the states of  Washington  and
Indiana,  respectively.  In  December, 1992,  Investors-NA  redomesticated  from
Pennsylvania to Washington, and Investors-CA merged into Investors-NA.  In June,
1993,  Standard  Life  merged  into  Investors-NA.   Prior  to  December,  1997,
Investors-IN  was  domiciled  in the State of New  Jersey.  In  December,  1997,
Investors-IN transferred its domicile to the State of Indiana.

A number of states regulate the manner and extent to which  insurance  companies
may test for acquired immune deficiency syndrome (AIDS) antibodies in connection
with the  underwriting of life insurance  policies.  To the extent  permitted by
law,  the  Company's  insurance   subsidiaries   consider  AIDS  information  in
underwriting  coverage and  establishing  premium  rates.  An  evaluation of the
financial  impact of future AIDS claims is extremely  difficult,  due in part to
insufficient  and conflicting data regarding the incidence of the disease in the
general  population  and the  prognosis  for the probable  future  course of the
disease.


                                      -16-
<PAGE>

     Risk-Based  Capital  Requirements.  The National  Association  of Insurance
Commissioners  ("NAIC") has imposed Risk-Based  Capital ("RBC")  requirements to
evaluate the adequacy of statutory capital and surplus in relation to investment
and insurance  risks  associated  with;  (i) asset  quality;  (ii) mortality and
morbidity;  (iii) asset and liability matching; and (iv) other business factors.
The  states  will use the RBC  formula  as an  early  warning  tool to  discover
potential weakly capitalized  companies for the purpose of initiating regulatory
action.  The RBC  requirements  are not  intended  to be a basis for ranking the
relative financial strength of insurance  companies.  The formula also defines a
new minimum capital standard which will supplement the prevailing  system of low
fixed minimum capital and surplus requirements on a state-by-state basis.

The RBC requirements  provide for four different levels of regulatory  attention
in those states that adopt the NAIC  regulations,  depending on the ratio of the
company's  Total  Adjusted  Capital  (which  generally  consist of its statutory
capital,  surplus and asset valuation  reserve) to its Authorized  Control Level
RBC. A "Company  Action Level Event" is triggered if a company's  Total Adjusted
Capital is less than 200% but  greater  than or equal to 150% of its  Authorized
Control  Level  RBC,  or if a negative  trend has  occurred  (as  defined by the
regulations)  and Total Adjusted Capital is less than 250% but more than 200% of
its Authorized  Control Level RBC. When a Company Action Level Event occurs, the
company  must submit a  comprehensive  plan to the  regulatory  authority  which
discusses  proposed  corrective  actions  to improve  its  capital  position.  A
"Regulatory  Action  Level Event" is  triggered  if a company's  Total  Adjusted
Capital is less than 150% but  greater  than or equal to 100% of its  Authorized
Control Level RBC. When a Regulatory  Action Level Event occurs,  the regulatory
authority  will perform a special  examination of the company and issue an order
specifying  corrective  actions that must be followed.  An  "Authorized  Control
Level  Event" is triggered if a company's  Total  Adjusted  Capital is less than
100% but greater than or equal to 70% of its  Authorized  Control Level RBC, and
the  regulatory  authority  may take any  action it deems  necessary,  including
placing the company under regulatory  control. A "Mandatory Control Level Event"
is  triggered  if a  company's  total  adjusted  capital is less than 70% of its
Authorized Control Level RBC, and the regulatory  authority is mandated to place
the company under its control.

Calculations  using the NAIC formula and the statutory  financial  statements of
the Company's  insurance  subsidiaries as of December 31, 1999 indicate that the
Total Adjusted Capital of each of the Company's insurance  subsidiaries is above
750% of its respective Authorized Control Level RBC.

     Solvency Laws Assessments.  The solvency or guaranty laws of most states in
which the Company's insurance subsidiaries do business may require the Company's
insurance  subsidiaries to pay assessments (up to certain  prescribed limits) to
fund  policyholder  losses or  liabilities  of insurance  companies  that become
insolvent.  Recent  insolvencies of insurance companies increase the possibility
that such  assessments  may be required.  These  assessments  may be deferred or
forgiven under most guaranty laws if they would threaten an insurer's  financial
strength and, in certain instances,  may be offset against future premium taxes.
The insurance  companies record the expense for guaranty fund assessments in the
period  assessed.  For the year ended December 31 1999, the Company's  insurance
subsidiaries  received a net credit on its guaranty fund  assessment  returns in
the amount of $13,478. The likelihood and amount of any other future assessments
cannot be estimated and are beyond the control of the Company.

                                      -17-

<PAGE>

     Surplus  Debentures  and  Dividends.  The Company  receives  payments  from
Investors-NA under the terms of two surplus  debentures.  The surplus debentures
were  originally  issued by Standard Life. Upon the merger of Standard Life into
Investors-NA,  the  obligations  of  the  surplus  debentures  were  assumed  by
Investors-NA.  Since  Investors-NA is domiciled in the State of Washington,  the
provisions of Washington  insurance law apply to the surplus  debentures.  Under
the provisions of the surplus  debentures and current law,  Investors-NA can pay
interest and principal on the surplus  debentures  without  having to obtain the
prior approval of the Washington  Insurance  Commissioner;  provided that, after
giving effect to such  payments,  the statutory  surplus of  Investors-NA  is in
excess of $10  million.  As of  December  31,  1999,  the  statutory  surplus of
Investors-NA  was  $72.6  million.   Investors-NA   does  give  five-days  prior
notification to the Washington  Insurance Department of each proposed payment on
the surplus debentures in accordance with an agreement between  Investors-NA and
the  Department.  ILCO  does not  anticipate  that  Investors-NA  will  have any
difficulty in making principal and interest payments on the surplus debentures.

Pursuant to the surplus  debentures,  Investors-NA paid to the Company principal
and interest on the surplus  debentures of $14,093,711  in 1997,  $13,382,361 in
1998 and $10,859,115 in 1999. As of December 31, 1999, the outstanding principal
balance  of the  surplus  debentures  was  $0.956  million  and  $4.94  million,
respectively.  The terms of the latter  debenture  provided for final payment of
the remaining principal on September 30, 1999. In September,  1999, Investors-NA
and ILCO  amended the payment  schedule to provide for payment of the  remaining
balance in four installments, with the final installment being due July 1, 2000.

In addition to the payments under the terms of the Surplus Debentures,  ILCO has
received dividends from its insurance subsidiaries.  Washington's insurance code
includes the "greater of" standard for payment of dividends to shareholders, but
has requirements that prior  notification of a proposed dividend be given to the
Washington Insurance  Commissioner and that cash dividends may be paid only from
earned surplus.  Under the "greater of" standard,  an insurer may pay a dividend
in an amount equal to the greater of (i) 10% of policyholder surplus or (ii) the
insurer's  net gain from  operations  for the previous  year. As of December 31,
1999,  Investors-NA  had earned surplus of $51.6 million.  Since the law applies
only to dividend  payments,  the ability of  Investors-NA  to make principal and
interest  payments under the Surplus  Debentures is not affected.  ILCO does not
anticipate that  Investors-NA  will have any difficulty in making  principal and
interest payments on the Surplus Debentures .

Investors-IN is domiciled in the State of Indiana.  Under the Indiana  insurance
code, a domestic insurer may make dividend  distributions  upon proper notice to
the  Department  of  Insurance,  as long as the  distribution  is  reasonable in
relation to adequate  levels of  policyholder  surplus and quality of  earnings.
Under Indiana law the dividend must be paid from earned  surplus.  Extraordinary
dividend  approval would be required where a dividend exceeds the greater of 10%
of  surplus  or the  net  gain  from  operations  for  the  prior  fiscal  year.
Investors-IN had earned surplus of $18.1 million at December 31, 1999.

                                      -18-

<PAGE>


     Valuation Reserves.  Commencing in 1992, the Mandatory Securities Valuation
Reserve ("MSVR") required by the NAIC for life insurance  companies was replaced
by a  mandatory  Asset  Valuation  Reserve  ("AVR")  which is  expanded to cover
mortgage loans, real estate and other investments.  During 1997, a change in the
NAIC's AVR  procedures  resulted  in a one-time  reduction  in the amount of the
reserves held by ILCO's life insurance  subsidiaries,  with a corresponding one-
time  increase in the amount of  surplus.  For  Investors-NA,  the amount of the
increase in surplus was $2,395,000; for Investors-IN, the amount of the increase
in surplus was $590,000.  A new mandatory Interest  Maintenance Reserve ("IMR"),
designed to defer realized capital gains and losses due to interest rate changes
on fixed income  investments  and to amortize those gains and losses into future
income,  is  also  effective  for  1992.  Previously,   realized  capital  gains
attributable  to interest  rate  changes  were  credited to the MSVR and had the
effect  of  reducing  the  required  MSVR   contributions  of  ILCO's  insurance
subsidiaries. Effective in 1992, such realized capital gains are credited to the
IMR.  As a result  of these  changes,  management  believes  that the  Company's
insurance  subsidiaries are required to accrue greater aggregate asset valuation
reserves.  The combination of the AVR and IMR will affect statutory  capital and
surplus and may reduce the ability of the Company's  insurance  subsidiaries  to
pay dividends and make payments on the surplus debentures.

     Insurance  Holding Company  Regulation.  Investors-NA  and Investors-IN are
subject to regulation under the insurance and insurance holding company statutes
of Washington and Indiana.  The insurance  holding  company laws and regulations
vary from  jurisdiction to  jurisdiction,  but generally  require  insurance and
reinsurance  subsidiaries  of insurance  holding  companies to register with the
applicable  state  regulatory  authorities  and to file with  those  authorities
certain reports  describing,  among other information,  their capital structure,
ownership,  financial condition,  certain intercompany  transactions and general
business  operations.  The insurance holding company statutes also require prior
regulatory agency approval or, in certain circumstances, prior notice of certain
material  intercompany  transfers  of  assets  as well as  certain  transactions
between insurance companies, their parent companies and affiliates.

Under the  Washington and Indiana  insurance  holding  company laws,  unless (i)
certain  filings are made with the  respective  department  of  insurance,  (ii)
certain  requirements are met,  including a public hearing and (iii) approval or
exemption is granted by the  respective  insurance  commissioner,  no person may
acquire any voting security or security convertible into a voting security of an
insurance  holding  company,  such as the Company,  which  controls an insurance
company  domiciled in that state, or merge with such a holding company,  if as a
result of such  transaction  such person would  "control" the insurance  holding
company.  "Control" is presumed to exist if a person directly or indirectly owns
or controls 10% or more or the voting securities of another person.

     Potential Federal  Regulation.  Although the federal  government  generally
does not directly  regulate the insurance  industry,  federal  initiatives often
have an impact on the  business.  Congress  and  certain  federal  agencies  are
investigating the current condition of the insurance industry (encompassing both
life and health and  property and casualty  insurance)  in the United  States in
order

                                      -19-

<PAGE>

to decide  whether  some form of federal  role in the  regulation  of  insurance
companies  would be appropriate.  Congress is currently  conducting a variety of
hearings relating in general to the solvency of insurers.  It is not possible to
predict the outcome of any such congressional activity nor the potential effects
thereof on the Company's insurance subsidiaries.

Congressional initiatives directed at repeal of the McCarran-Ferguson Act (which
exempts the  "business of  insurance"  from most  federal  laws,  including  the
antitrust  laws, to the extent it is subject to state  regulation)  and judicial
decisions   narrowing   the   definition   of   "business  of   insurance"   for
McCarran-Ferguson  Act purposes may limit the ability of insurance  companies in
general to share  information  with respect to  rate-setting,  underwriting  and
claims  management  practices.  Current and proposed  federal measures which may
also  significantly  affect the  insurance  industry  include  minimum  solvency
requirements  and  removal of  barriers  preventing  banks from  engaging in the
insurance business.

Federal Income Taxation

The Revenue Reconciliation Act of 1990 amended the Internal Revenue Code of 1986
to require a portion of the expenses incurred in selling  insurance  products to
be deducted over a period of years, as opposed to an immediate  deduction in the
year incurred.  Since this change only affects the timing of the deductions,  it
does not  affect  tax  expense as shown on the  Company's  financial  statements
prepared in accordance with GAAP. However,  the change will increase the tax for
statutory  accounting  purposes  in the  first  few  years,  which  will  reduce
statutory  surplus and,  accordingly,  may decrease the amount of cash dividends
that Investors-NA can pay to the Company. For the years ended December 31, 1997,
1998 and 1999,  the  decreases  in the  current  income  tax  provisions  of the
Company's insurance subsidiaries due to this change were $269,633,  $253,411 and
$409,193,  respectively.  The  change has a  negative  tax effect for  statutory
accounting   purposes  when  the  premium  income  of  the  Company's  insurance
subsidiaries increases,  but has a positive tax effect when their premium income
decreases.


                               Segment Information

The  principal  operations  of the  Company's  insurance  subsidiaries  are  the
underwriting of life insurance and annuities.  Accordingly,  no separate segment
information  is required to be provided  by the  Registrant  for the  three-year
period ending December 31, 1999.


Item 2. Properties

The  Registrant's  headquarters  are  currently  located at Austin  Centre,  701
Brazos,  Suite 1400,  Austin,  Texas.  Investors-NA  purchased Austin Centre, an
office-hotel property in downtown Austin in August, 1991 for a purchase price of
$31,275,000 from an unrelated  seller that had previously  acquired the property
through foreclosure. In September, 1995, Investors-NA entered into a contract to
sell Austin Centre to an Austin-based real estate investment firm for a purchase
price of $62.675

                                      -20-
<PAGE>


million,  less $1  million  to be  paid to a  capital  reserve  account  for the
purchaser.  The sale was  consummated  on March 29,  1996. A portion of the sale
proceeds equal to the amount that Investors- NA presently had invested in Austin
Centre were  retained and  reinvested  by  Investors-NA.  The balance of the net
proceeds  of  the  sale  were  used  to  reduce  ILCO's  bank   indebtedness  by
approximately $15 million.  Following the sale of the Austin Centre, the Company
and its affiliates  continued to occupy three floors of the office space under a
lease  arrangement.  The current lease,  which was entered into in May, 1997, is
for a five (5) year term  ending in  October,  2002,  with  options to renew for
three successive five (5) year terms thereafter.

In January,  1995,  ILCO,  through  Investors-NA,  purchased,  as an  investment
property,  an office  building  project  known as  Bridgepoint  Office Square in
Austin,  Texas for a cash purchase price of $9.75 million. The property consists
of 20 acres of land with four office  building  sites and two parking  structure
sites.  The first phase of development of the property was completed in 1986 and
consists of a five-story  office  building  with 83,474  square feet of rentable
space and a 550-car parking garage.

In the fourth quarter of 1995, construction began on the second office building,
containing  approximately  109,000  rentable  square feet, and the other parking
garage  containing  approximately  871  spaces.  That phase of the  project  was
completed in September,  1996.  In March,  1996,  construction  commenced on the
third office building,  with approximately 79,000 rentable square feet of office
space and was  completed in  December,  1996.  Construction  began on the fourth
building in July,  1996 and was completed in July,  1997.  The fourth  building
contains approximately 92,459 rentable square feet.

On May  3,  1996,  Family  Life  Insurance  Company,  an  indirect,  100%  owned
subsidiary of FIC,  purchased a tract of land adjoining the  Bridgepoint  Office
Square tract for a cash purchase price of $1.3 million. The property consists of
7.1 acres of land with one office building site and one parking  structure site.
Family Life began  construction  of the fifth  building  (known as  "Bridgepoint
Five") on the new site in January, 1997.  Construction of the parking garage and
the building shell was completed in October, 1997.

On November 24, 1997,  Investors-NA and Family Life entered into a contract with
Health and Retirement  Properties Trust, a Maryland real estate investment trust
(the "Purchaser") to sell their respective  interests in the Bridgepoint  Square
Office complex.  The aggregate  purchase price for the project was  $78,000,000.
The  transaction  closed on December 5, 1997.  The purchase  price was allocated
approximately  78.5% to  Investors-NA  and  21.5% to  Family  Life.  The sale of
Bridgepoint   Office  Square  resulted  in  a  net  profit  to  Investors-NA  of
approximately $14.0 million ($9.1 million after tax) that was included in ILCO's
fourth quarter earnings for the period ended December 31, 1997. For Family Life,
the sale  resulted in a net profit of  approximately  $4.5 million ($3.2 million
after tax) that was  included in FIC's  fourth  quarter  earnings for the period
ended December 31, 1997.

On October 29, 1998, Investors-NA purchased two adjoining tracts of land located
in Austin,  Texas totaling 47.995 acres. The aggregate  purchase price for these
tracts was $8.1 million. Prior to the closing, Investors-NA obtained approval of
Site Development Permit from the City of Austin for the

                                      -21-
<PAGE>


tracts.  The Site Development Permit allows for the construction of seven office
buildings  totaling  600,000 square feet,  with associated  parking,  drives and
related  improvements.  The  initial  phase of the  project  ("Phase  One") will
consist of two office buildings,  associated  parking and the infrastructure for
the entire project, which is known as River Place Pointe.  Construction on Phase
One  commenced  during the first quarter of 1999 and is expected to be completed
during the third  quarter of 2000.  The Company  plans to relocate its corporate
headquarters to space in one of the buildings during the third quarter of 2000.

ILCO leases a building located at 40 Parker Road,  Elizabeth,  New Jersey.  This
building,  which was  formerly the  Company's  headquarters  building,  contains
approximately  41,000  square feet of office space.  The  remaining  term of the
lease is 6 years,  and the lease calls for a minimum base rental of $450,000 per
annum.  The lease provides that all costs  including,  but not limited to, those
for maintenance,  repairs, insurance and taxes be borne by ILCO. The Company has
sub-leased the space in the property to third parties.

Investors-IN  owns three  buildings  which are  adjacent  to the 40 Parker  Road
building. One building, which is leased to third parties, contains approximately
3,500 square feet of space.  The second building  contains  approximately  2,500
square feet of space and is leased to persons who perform  maintenance  services
for  Investors-IN's  and ILCO's properties in Elizabeth,  New Jersey.  The third
building,  purchased during 1985,  contains  approximately  3,500 square feet of
space, and is partially leased to third parties .

Prior to December,  1999, Investors-NA owned an office building,  located at 206
West Pearl Street,  Jackson,  Mississippi,  which was the former headquarters of
Standard Life Insurance Company (the "Standard Life Building"). This building is
68 years old and contains  approximately 85,000 square feet (65,000 net rentable
square feet) of office  space.  On December 29, 1999,  Investors-NA  donated the
Standard  Life  Building  to  the  Jackson   Redevelopment   Authority  ("JRA").
Contemporaneously with the donation of the Standard Life Building,  Investors-NA
and Financial  Industries  Corporation  ("FIC") sold all of the adjacent parcels
they owned to the JRA for a total sale  price of  $2,500,000.00,  which has been
allocated  according  to the  respective  ownership  interests  of  Investors-NA
(approximately 59.28%) and FIC (approximately 40.72%). The donation and sale was
made pursuant to the terms of the Donation,  Purchase and Sale  Agreement  dated
July 17,  1998.  Investors-NA  intends to claim an income tax  deduction  on its
upcoming tax return for the donation of the Standard Life Building, which has an
appraised  value  at  December  15,  1999 of  approximately  $3,050,000.00.  The
donation  and sale  transaction  referenced  above  resulted in a net gain (GAAP
basis) of $0.992 million for ILCO and  $0.409  million  for FIC (or a combined
total of $1.401 million).

The Company  believes that its  properties and leased space are adequate to meet
its foreseeable requirements.






                                      -22-
<PAGE>

Item 3. Legal Proceedings

The Company and  Investors-NA  are  defendants  in a lawsuit  which was filed in
October, 1996, in Travis County, Texas. CIGNA Corporation, an unrelated company,
is also a named  defendant in the lawsuit.  The named  plaintiffs in the suit (a
husband and wife),  allege that the universal  life  insurance  policies sold to
them by INA Life Insurance  Company (a company which was merged into  Investors-
NA  in  1992)  utilized  unfair  sales  practices.  The  named  plaintiffs  seek
reformation  of the  life  insurance  contracts  and an  unspecified  amount  of
damages.  The named plaintiffs also seek a class action as to similarly situated
individuals. No certification of a class has been granted as of the date hereof.
The Company  believes  that the suit is without  merit and intends to vigorously
defend this matter.

In August,  1997,  another  individual  filed a similar action in Travis County,
Texas against the corporate entities  identified above. The lawsuit involves the
same type of policy and includes  allegations which are substantially  identical
to the  allegations  in the first action.  The named  plaintiff also seeks class
certification.  The  Company  believes  that  the  court  would  consider  class
certification  with  respect  to only one of these  actions.  The  Company  also
believes that this action is without merit and intends to vigorously defend this
matter.


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

No matter  was  submitted  during the  fourth  quarter of the fiscal  year ended
December 31, 1999 to a vote of security holders.




                                      -23-
<PAGE>



                                     PART II

Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters

A. Market Information

The following  table sets forth the quarterly  high and low sales prices for the
Company's  common stock in The Nasdaq  Small-Cap  Market for 1999 and 1998.  The
quotations set forth below have been adjusted to give  retroactive  effective to
the stock dividend (one share for each issued and  outstanding  share) which was
paid on March 17, 1999.

                                                     Prices
                                              High              Low


1999:

1st Quarter. . . . . . .                    $ 10.00           $ 8.250
2nd Quarter. . . . . . .                      9.875             7.00
3rd Quarter. . . . . . .                      11.50             9.250
4th Quarter. . . . . . .                      10.50             9.188

1998:

1st Quarter. . . . . . .                    $ 11.50           $ 9.375
2nd Quarter. . . . . . .                      13.906           11.00
3rd Quarter. . . . . . .                      13.50             9.75
4th Quarter. . . . . . .                      10.50             8.625



The common stock of the Company is traded in The Nasdaq Small-Cap Market (NASDAQ
Symbol:  ILCO).   Quotations  are  furnished  by  the  National  Association  of
Securities Dealers Automated Quotation System (NASDAQ).

B. Holders

The  approximate  number of record holders of the common stock of the Registrant
as of March 15, 2000 was 1,382.





                                      -24-

<PAGE>


C. Dividends

In 1999,  the Company paid a stock dividend in the amount of one share of common
stock for each share of common  stock issued and  outstanding.  The dividend was
paid on March 17, 1999, to holders of record on March 8, 1999.

No dividend was declared or paid by the Company  during 1997 or 1998.  Under the
terms of its Senior  Loan the Company  was not  permitted  to declare or pay any
dividends on its Common Stock during the term of the loan.  As discussed  above,
under the caption "Senior Loan", the Senior Loan of the Company was fully repaid
on September 30, 1998.

The ability of an insurance  holding company,  such as ILCO, to pay dividends to
its shareholders may be limited by the company's  ability to obtain revenue,  in
the  form  of  dividends  and  other  payments,  from  its  operating  insurance
subsidiaries.  The right of such  subsidiaries  to pay  dividends  is  generally
restricted  by the  insurance  laws of  their  domiciliary  states.  See Item 1.
Business- Regulation - Surplus Debentures and Dividends.

Item 6. Selected Financial Data (in thousands, except per share data.)
<TABLE>
                                            Years Ended December 31,
<S>                                    <C>               <C>              <C>                  <C>            <C>


                                      1999              1998              1997              1996              1995

Revenues                        $  104,205        $  109,462        $  127,683        $  138,244        $  122,390
Benefits & Expenses                 85,466            91,876            96,081            96,801           105,907
Income from operations              18,739            17,586            31,602            41,443            16,483
Provisions for federal
income taxes                         5,974             6,467            11,062            14,505             5,769

Net Income                      $   12,765        $   11,119        $   20,540        $   26,938        $   10,714

Common Stock and
Common Stock
Equivalents 1                        8,800             8,934             8,738             8,882             8,864
Net income per share 1,  2
Basic                           $     1.45        $     1.27        $     2.38        $     3.18        $     1.29
Diluted                         $     1.45        $     1.25        $     2.35        $     3.04        $     1.24
Cash Dividend                          -0-               -0-               -0-               -0-               -0-
Long Term Debt                         -0-               -0-        $   10,964        $   24,944        $   59,385

Total Assets                    $1,321,199        $1,350,248        $1,321,653        $1,263,942        $1,315,293
</TABLE>


1.   Data for the years 1995 to 1998 has been  restated to reflect the effect of
     the stock dividend which was paid on March 17, 1999.

2.   Net  income  per  share for the years  1995 and 1996 has been  restated  to
     reflect the effect of FAS 128.


                                      -25-

<PAGE>


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

For the year ended December 31, 1999,  ILCO's net income was $12,765,000  (basic
earnings  of $1.45 per common  share,  or diluted  earnings  of $1.45 per common
share) as compared to $11,119,000  (basic earnings of $1.27 per common share, or
diluted  earnings of $1.25 per common  share) for the year 1998 and  $20,540,000
(basic  earnings  of $2.38 per common  share,  or diluted  earnings of $2.35 per
common  share) in 1997.  Earnings  per share are stated in  accordance  with the
requirements of Financial  Accounting  Standard (FAS) No. 128, which establishes
two  measures  of  earnings  per share:  basic  earnings  per share and  diluted
earnings  per share.  Basic  earnings  per share is computed by dividing  income
available to common shareholders by the weighted average number of common shares
outstanding during the period.  Diluted earnings per share reflect the potential
dilution that would occur if securities or other contracts to issue common stock
were converted or exercised. For the year 1998 and 1997, earnings per share have
been  restated  to reflect  the effect of the stock  dividend  which was paid on
March 17, 1999.


                              Results of Operations

Net income from  continuing  operations  (excluding  the gain resulting from the
sale of Bridgepoint  Square Offices in 1997, as described below) was $12,765,000
(basic  earnings  of $1.45 per common  share,  or diluted  earnings of $1.45 per
common share) for the year ended  December 31, 1999, as compared to  $11,119,000
(basic  earnings  of $1.27 per common  share,  or diluted  earnings of $1.25 per
common  share) for the year  ended  December  31,  1998 and  $11,443,000  (basic
earnings  of $1.32 per common  share,  or diluted  earnings  of $1.31 per common
share) for the year ended December 31, 1997.

Net  income  for  1997  includes  $9.1  million  resulting  from the sale of the
Bridgepoint  Square  Offices,  an office complex located in Austin,  Texas.  The
selling  price was $78  million,  which  was  allocated  approximately  78.5% to
Investors-NA  ($61.3  million).  The sale closed on December 5, 1997. As part of
the decision to sell the Bridgepoint properties,  the Company canceled its plans
to move its headquarters to one of the Bridgepoint  buildings and entered into a
new lease at the Austin Centre. Under the provisions of the lease,  Investors-NA
received  a payment  from the owner of the  Austin  Centre in the amount of $1.7
million.  That amount is included in net income for the year ended  December 31,
1997.


                                      -26-

<PAGE>

The results for 1998  include,  for the period  beginning on June 30, 1998,  the
operations of Grinnell  Life  Insurance  Company.  Grinnell Life was acquired on
June 30, 1998,  through a subsidiary of ILCO, for an adjusted  purchase price of
$16.6 million.  A portion of the purchase price ($12.37 million) was paid by way
of a dividend to the seller immediately prior to the closing of the transaction;
the balance of the purchase price was paid by ILCO's subsidiary.  As part of the
transaction, Grinnell Life was immediately merged with and into that subsidiary,
with that subsidiary being the surviving entity.

The statutory earnings of the Company's insurance  subsidiaries,  as required to
be  reported to  insurance  regulatory  authorities,  before  interest  expense,
capital gains and losses,  and federal income taxes were $18,344,000 at December
31, 1999, as compared to  $17,079,000  at December 31, 1998 and  $20,192,000  at
December 31, 1997.  These  statutory  earnings are the source to provide for the
repayment of ILCO's indebtedness.

The  operating  strategy  of the  Company's  management  emphasizes  several key
objectives:  expense  management;  marketing of  competitively  priced insurance
products  which are designed to generate an acceptable  level of  profitability;
maintenance of a high quality portfolio of investment grade securities;  and the
provision of quality customer service.

Premium  income,  net of reinsurance,  for the year 1999 was $11.13 million,  as
compared  to  $10.89  million  for the year  1998 and  $11.03  million  in 1997.
Reinsurance  premiums  ceded were $3.47  million in 1999,  as  compared to $2.94
million in 1998 and $2.59 million in 1997. For the year 1997, ceded  reinsurance
includes  the  results of the sale of the  accident  and  health and  disability
income  insurance  business of the Company's  life  insurance  subsidiaries.  In
December,  1997, ILCO's life insurance  subsidiaries  entered into a reinsurance
treaty under which all of the  contractual  obligations and risks under accident
and health and  disability  income  insurance  policies  were assumed by a third
party reinsurer.  These risks and contractual obligations were sold pursuant to,
first, a coinsurance  reinsurance  agreement.  Following  applicable  regulatory
approvals, the reinsurer will assume the direct obligations of the companies, on
an  assumption  reinsurance  basis.  The  decision  to  dispose  of this book of
business was based on management's analysis that the business was not generating
targeted  profit  objectives  and  that the  products  were not part of the core
business of the  subsidiaries.  The sale  permits the  companies to focus on its
primary  business - life  insurance and annuity  sales.  In connection  with the
transaction,  the total amount of net reserves  transferred by the  subsidiaries
was $6.33 million.  In addition to the transfer of reserves,  the life companies
paid the  reinsurer  $1.04  million in connection  with the  transaction,  which
amount was accounted for as an expense for the year ended  December 31, 1997. In
1997, the transferred  business generated  approximately  $791,000 in annualized
premiums.



                                      -27-

<PAGE>


Earned  insurance  charges  for the year  ended  December  31,  1999 were  $40.4
million,  as compared to $41.1  million for the year 1998 and $40.9  million for
1997.  This source of revenues is related to the  universal  life  insurance and
annuity book of business of Investors-NA.

The increase in  long-term  interest  rates  during  1999,  which was related to
general economic conditions,  had a negative effect upon the market value of the
fixed maturities available for sale segment of the portfolio. As of December 31,
1999,  the market value of the fixed  maturities  available for sale segment was
$404.2  million,  as  compared to an  amortized  cost of $411.5  million,  or an
unrealized loss of $7.3 million. The net of tax effect of this decrease has been
recorded as a decrease in shareholders' equity.

During 1999, the lapse rate with respect to universal  life  insurance  policies
decreased slightly from the lapse rate experienced in 1998. The rate in 1999 was
6.30%,  as compared to 7.25% in 1998. The lapse rate with respect to traditional
(non-universal) life insurance policies increased from the levels experienced in
1998.  The rate in 1999 was 8.15% as compared to 7.09% in 1998.  The lapse rates
experienced  during  the 1999  period  were  within the  ranges  anticipated  by
management.

                        Liquidity and Capital Resources

ILCO is a holding company whose principal  assets consist of the common stock of
Investors-NA  and its subsidiary,  Investors-IN.  ILCO's primary source of funds
consists of payments under two Surplus Debentures from Investors-NA.

As of December 31, 1997, the outstanding principal balance of ILCO's senior loan
obligations was $11.0 million,  which reflected the prepayment by the Company of
the payment originally  scheduled for January 1, 1998. A regular payment, in the
amount of $3.7  million,  was made on April 1, 1998 and a prepayment of the July
1, 1998 installment,  in the amount of $3.7 million,  was made on June 30, 1998.
The  outstanding  principal  balance of ILCO's senior loan  obligations was $3.6
million at June 30, 1998. The final  installment  on the senior loan  obligation
scheduled  for October 1, 1998,  was prepaid on September 30, 1998. As a result,
the senior loan obligation of ILCO was fully discharged  effective September 30,
1998.


                                      -28-

<PAGE>


ILCO receives  periodic  payments of principal  and interest from  Investors-NA,
pursuant to the terms of the Surplus  Debentures.  The Surplus  Debentures  were
originally  issued by  Standard  Life  Insurance  Company  and their  terms were
previously approved by the Mississippi Insurance  Commissioner.  Upon the merger
of Standard Life into  Investors-NA,  the obligations of the Surplus  Debentures
were assumed by Investors-NA. As of December 31, 1999, the outstanding principal
balance  of the  Surplus  Debentures  was  $0.956  million  and  $4.94  million,
respectively.  The terms of the latter  debenture  provided for final payment of
the remaining principal on September 30, 1999. In September,  1999, Investors-NA
and ILCO  amended the payment  schedule to provide for payment of the  remaining
balance in four installments, with the final installment being due July 1, 2000.
Since  Investors-NA  is domiciled in the State of Washington,  the provisions of
Washington  insurance law apply to the Surplus Debentures.  Under the provisions
of the Surplus  Debentures  and current law, no prior approval of the Washington
Insurance Commissioner is required for Investors-NA to pay interest or principal
on the Surplus Debentures;  provided that, after giving effect to such payments,
the statutory  surplus of Investors-NA is in excess of $10 million (the "surplus
floor").  However,  Investors-NA  has  voluntarily  agreed  with the  Washington
Insurance Commissioner that it will provide at least five days advance notice of
payments which it will make under the Surplus Debentures.  At December 31, 1999,
the statutory surplus of Investors-NA was $72.6 million, an amount substantially
in excess of the surplus floor.  The funds required by  Investors-NA to meet its
obligations  to the  Company  under  the  terms of the  Surplus  Debentures  are
generated  from  operating   income  generated  from  insurance  and  investment
operations.

In addition to the payments under the terms of the Surplus Debentures,  ILCO has
received dividends from its life insurance subsidiaries.  Washington's insurance
code   includes   the   "greater  of"  standard  for  payment  of  dividends  to
shareholders,  but has a  requirement  that  prior  notification  of a  proposed
dividend  be given  to the  Washington  Insurance  Commissioner  and  that  cash
dividends  may be paid  only from  earned  surplus.  As of  December  31,  1999,
Investors-NA had earned surplus of $51.6 million.  Since the law applies only to
dividend  payments,  the ability of  Investors-NA to make principal and interest
payments under the Surplus Debentures is not affected.  ILCO does not anticipate
that  Investors-NA  will have any  difficulty  in making  principal and interest
payments on the Surplus Debentures for the foreseeable future.



                                      -29-

<PAGE>


Investors-IN is domiciled in the State of Indiana.  Under the Indiana  insurance
code, a domestic insurer may make dividend  distributions  upon proper notice to
the  Department  of  Insurance,  as long as the  distribution  is  reasonable in
relation to adequate  levels of  policyholder  surplus and quality of  earnings.
Under Indiana law the dividend must be paid from earned  surplus.  Extraordinary
dividend  approval would be required where a dividend exceeds the greater of 10%
of  surplus  or the  net  gain  from  operations  for  the  prior  fiscal  year.
Investors-IN  had earned  surplus of $18.1 million at December 31, 1999.  During
1999,  Investors-IN  made a  dividend  payment  in the  amount of $3  million to
Investors-NA.  The payment  was made on June 29,  1999 after the advance  notice
required  by the  Indiana  insurance  code  had  been  provided  to the  Indiana
Department of Insurance.

ILCO's net cash flow  provided by (used in)  operating  activities  was $(20.89)
million for the year ended  December 31, 1999,  as compared to $(17.33)  million
for the year  ended  December  31,  1998 and $3.96  million  for the year  ended
December 31, 1997. The change between the 1997 and 1998 periods is primarily due
to the payments made in connection with the reinsurance of the health  insurance
business  and the  payment in 1998 of income  taxes  relating to the gain on the
sale of Bridgepoint Square Offices.

Management  believes that its cash, cash  equivalents and short term investments
are sufficient to meet the needs of its business.

                                   Investments

As of December  31,  1999,  the book value of the  Company's  investment  assets
totaled  $678.8  million as compared to $702.1  million as of December 31, 1998.
Total assets as of December 31, 1999 ($1.32 billion) decreased slightly from the
level as of December 31, 1998 ($1.35 billion).

The level of short-term  investments at the end of 1999 was $191.7  million,  as
compared to $171.8 million at the end of 1998.

Invested real estate and other invested assets  increased from $10.03 million at
December 31, 1998 to $21.15  million as of December 31, 1999.  This  increase is
related to the purchase by  Investors-NA  of the 47.995 acres of land in Austin,
Texas  for the  development  of the River  Place  Pointe  project.  The land was
purchased in October,  1998 by Investors-NA,  for an aggregate purchase price of
$8.1 million.  Prior to the closing of the transaction,  Investors-NA obtained a
Site  Development  Permit  for the  tracts  from  the City of  Austin.  The Site
Development  Permit  allows  for the  construction  of  seven  office  buildings
totaling  600,000  square  feet,  with  associated  parking,  drives and related
improvements.  Construction  on Phase One commenced  during the first quarter of
1999.  Upon  completion  of Phase One, the Company  plans to move its  corporate
headquarters to space in one of the buildings.  The move is currently  scheduled
for the third quarter of 2000. In connection  with the move,  Investors-NA  (the
tenant under the lease of its current Austin Centre space) intends to sub- lease
said space.  Investors-NA plans to commence development of the additional stages
of the River Place Pointe project following completion and leasing of Phase One.

                                      -30-
<PAGE>



Prior to December,  1999, Investors-NA owned an office building,  located at 206
West Pearl Street,  Jackson,  Mississippi,  which was the former headquarters of
Standard Life Insurance Company (the "Standard Life Building"). This building is
68 years old and contains  approximately 85,000 square feet (65,000 net rentable
square feet) of office  space.  On December 29, 1999,  Investors-NA  donated the
Standard  Life  Building  to  the  Jackson   Redevelopment   Authority  ("JRA").
Contemporaneously with the donation of the Standard Life Building,  Investors-NA
and Financial  Industries  Corporation  ("FIC") sold all of the adjacent parcels
they owned to the JRA for a total sale  price of  $2,500,000.00,  which has been
allocated  according  to the  respective  ownership  interests  of  Investors-NA
(approximately 59.28%) and FIC (approximately 40.72%). The donation and sale was
made pursuant to the terms of the Donation,  Purchase and Sale  Agreement  dated
July 17,  1998.  Investors-NA  intends to claim an income tax  deduction  on its
upcoming tax return for the donation of the Standard Life Building, which has an
appraised  value  at  December  15,  1999 of  approximately  $3,050,000.00.  The
donation  and sale  transaction  referenced  above  resulted in a net gain (GAAP
basis) of $0.992  million  for ILCO and  $0.409  million  for FIC (or a combined
total of $1.401 million).

The fixed  maturities  available for sale portion of invested assets at December
31,  1999  was  $404.2  million.  The  amortized  cost of the  fixed  maturities
available  for  sale  segment  as of  December  31,  1999  was  $411.5  million,
representing  a net  unrealized  loss  of $7.3  million.  This  unrealized  loss
principally  reflects  changes in  interest  rates from the date the  respective
investments  were  purchased.  To reduce the exposure to interest  rate changes,
portfolio  investments  are selected so that  diversity,  maturity and liquidity
factors approximate the duration of associated policyholder liabilities.

The  assets  held  by  ILCO's  life  insurance  subsidiaries  must  comply  with
applicable  state insurance laws and regulations.  In selecting  investments for
the portfolios of its life insurance subsidiaries,  the Company's emphasis is to
obtain  targeted  profit  margins,  while  minimizing  the  exposure to changing
interest rates.  This objective is implemented by selecting  primarily short- to
medium-term,  investment grade fixed income securities. In making such portfolio
selections,  the Company  generally  does not select new  investments  which are
commonly referred to as "high yield" or "non- investment grade."

The Company's fixed maturities portfolio (including short-term investments),  as
of  December  31,  1999,  included a  non-material  amount  (0.1% of total fixed
maturities and short-term  investments) of debt securities  which, in the annual
statements  of the  companies as filed with state  insurance  departments,  were
designated under the National  Association of Insurance  Commissioners  ("NAIC")
rating system as "3" (medium  quality) or below. For the year ended December 31,
1998, the comparable percentage was 0.6%.



                                      -31-
<PAGE>

The  consolidated  balance sheets of the Company as of December 31, 1999 include
$41.5 million of "Notes receivable from  affiliates",  represented by (i) a loan
of $22.5 million from Investors-NA to Family Life Corporation and a $2.5 million
loan from Investors-CA to Financial  Industries  Corporation (which is now owned
by Investors-NA as a result of the merger of Investors-CA into Investors-NA) and
$2.0 million of additions to the $2.5 million note made in  accordance  with the
terms of such  note;  these  loans  were  granted  in  connection  with the 1991
acquisition of Family Life Insurance Company by a wholly-owned subsidiary of FIC
(ii) a loan of $30 million by  Investors-NA to Family Life  Corporation  made in
July,  1993,  in  connection  with the  prepayment  by the FIC  subsidiaries  of
indebtedness  which had been  previously  issued to Merrill Lynch as part of the
1991 acquisition and (iii) a loan of $4.5 million by Investors-NA to Family Life
Insurance  Investment  Company made in July,  1993, in connection  with the same
transaction described above.

As of June 12, 1996, the provisions of the notes from  Investors-NA  to FIC, FLC
and FLIIC were  modified as follows:  (a) the $22.5  million note was amended to
provide for twenty  quarterly  principal  payments,  in the amount of $1,125,000
each, to commence on December 12, 1996; the final quarterly principal payment is
due on September 12, 2001; the interest rate on the note remains at 11%, (b) the
$30 million note was amended to provide for forty quarterly  principal payments,
in the amount of $163,540 each for the period December 12, 1996 to September 12,
2001;  beginning with the principal payment due on December 12, 2001, the amount
of the principal payment increases to $1,336,458;  the final quarterly principal
payment is due on September  12, 2006;  the interest rate on the note remains at
9%,  (c) the $4.5  million  note was  amended  to  provide  for forty  quarterly
principal  payments,  in the amount of $24,531 each for the period  December 12,
1996 to September 12, 2001; beginning with the principal payment due on December
12, 2001, the amount of the principal payment  increases to $200,469;  the final
quarterly  principal  payment is due on September 12, 2006; the interest rate on
the note  remains at 9%, (d) the $2.5  million  note was amended to provide that
the  principal  balance  of  the  note  is  to be  repaid  in  twenty  quarterly
installments  of  $125,000  each,  commencing  December  12, 1996 with the final
payment due on September 12, 2001;  the rate of interest  remains at 12% and (e)
the Master PIK note,  which was  issued to  provide  for the  payment in kind of
interest  due under the terms of the $2.5  million  note prior to June 12, 1996,
was amended to provide that the principal  balance of the note, in the amount of
$1,977,119,  is to be paid in twenty quarterly principal payments, in the amount
of $98,855.95 each, to commence  December 12, 1996 with the final payment due on
September 12, 2001; the interest rate on the note remains at 12%.

In December, 1998, FLIIC was dissolved. In connection with the dissolution,  all
of the assets and  liabilities  of FLIIC became the  obligations of FLIIC's sole
shareholder (FIC). Accordingly, the obligations under the provisions of the $4.5
million note described above are now the obligations of FIC.

The NAIC continued its rating of "3" to the "Notes  receivable from affiliates",
as amended.  These loans have not been included in the preceding  description of
NAIC rating percentages.

Management  believes that the absence of any material amounts of "high-yield" or
"non-investment  grade"  investments (as defined above) in the portfolios of its
life insurance  subsidiaries  enhances the ability of the Company to service its
debt, provide security to its policyholders and to credit relatively  consistent
rates of return to its policyholders.


                                      -32-
<PAGE>

                              Year 2000 Compliance

The  Company  and its  subsidiaries  utilize a  centralized  computer  system to
process policyholder records and financial information. In addition, the Company
uses  non-centralized  computer terminals in connection with its operations.  In
response to the potential operations and policy  administration  problems caused
by the calendar change on January 1, 2000, the Company evaluated its centralized
computer  systems and developed a plan to reach Y2K  compliance  (the "Year 2000
Plan").  A central feature of the plan was to convert certain of the centralized
systems to a common system which is already in compliance with Y2K requirements.

The Year 2000 Plan called for a conversion of certain systems onto the Company's
CK/4  System;  a system which is designed to be Y2K  compliant  according to the
representations  of the vendor.  Those systems  which are not converted  will be
upgraded  by  changing  individual  lines of  computer  code in order to  modify
current operating software such that it will become Y2K compliant.

In order to continuously  evaluate the  effectiveness of the  modifications  and
conversions made to the various systems,  FIC Computer Services acquired testing
software  to  simulate  dates on or after  January  1, 2000.  Additionally,  FIC
Computer Services ran the systems through model office cycles and also conducted
visual  inspections  of screen  displays  to  determine  whether the systems are
functioning in a Y2K compliant manner.

The various  software  applications  described above are licensed to the Company
under agreements which permit the Company's  subsidiaries to process business on
its computer systems utilizing such software.

The Company  completed  this systems  conversion and testing prior to January 1,
2000. For the year ended  December 31, 1999,  the Company  incurred an after-tax
expense of  approximately  $195,000 in  connection  with the Year 2000 Plan,  as
compared to an after-tax expense of approximately $158,000 for the year 1998 and
$140,000 for the year 1997.

With respect to non-centralized  systems (i.e., desktop computers),  the Company
obtained updated software releases and new hardware designed to be Y2K compliant
according to the representations of the vendors. The installation of such new PC
hardware  and  software  was  commenced  in  early  1999 and is  expected  to be
completed during the fourth quarter of 1999.

The Company  also faced the risk that one or more of its  external  suppliers of
goods or  services  ("third  party  providers")  would not be in a  position  to
properly  interact  with the  Company due to the  inability  of such third party
provider to resolve its own Y2K issues.  During 1999,  the Company  completed an
inventory of its third party provider relationships.  In order to assess the Y2K
readiness of such third party providers,  the Company  developed and forwarded a
detailed questionnaire to such providers. As the responses to the questionnaires
were  received,  the Company  evaluated  the overall Y2K  readiness of its third
party  provider  relationships.  The Company  did not  experience  any  material
problems with its  third-party  vendors which were related to the Year 2000 date
change.


                                      -33-
<PAGE>

            Cautionary Statements for Purposes of the "Safe Harbor"
       Provisions of the Private Securities Litigation Reform Act of 1995

Except  for  historical  factual  information  set  forth  in this  Management's
Discussion  and  Analysis,  certain  statements  made in this report are forward
looking and contain information about financial results, economic conditions and
other risks and known uncertainties. The Company cautions the reader that actual
results could differ materially from those anticipated by the Company, depending
upon  the  eventual  outcome  of  certain  factors,  including:  (1)  heightened
competition for new business,  (2) significant changes in interest rates and (3)
adverse regulatory changes affecting the business of insurance.


                             Accounting Developments

In February,  1997,  the  Financial  Accounting  Standards  Board (FASB)  issued
Financial Accounting Standard (FAS) No. 128, "Earnings Per Share," which revises
the  standards  for computing  earnings per share  previously  prescribed by APB
Opinion No. 15, "Earnings Per Share." The Statement  establishes two measures of
earnings per share:  basic  earnings  per share and diluted  earnings per share.
Basic  earnings  per share is computed by dividing  income  available  to common
shareholders by the weighted average number of common shares  outstanding during
the period.  Diluted  earnings per share  reflects the  potential  dilution that
could  occur  if  securities  or other  contracts  to issue  common  stock  were
converted or exercised.  The Statement  requires dual  presentation of basic and
diluted  earnings per share on the face of the income statement for all entities
with potential dilutive  securities  outstanding.  The Statement also requires a
reconciliation  of the numerator and denominator of the basic earnings per share
computation to the numerator and  denominator of the diluted  earnings per share
computation.  The Statement is effective for interim and annual  periods  ending
after  December 15, 1997.  Earlier  application  is not  permitted.  However,  a
company  may  disclose  pro forma  earnings  per share  amounts  that would have
resulted if it had  applied  the  Statement  in an earlier  period.  The Company
adopted FAS 128 in its annual  financial  statements for the year ended December
31, 1997.

In June, 1997, the FASB issued FAS No. 130,  "Reporting  Comprehensive  Income",
which  establishes  standards for reporting and display of comprehensive  income
and its components in a financial  statement  with the same  prominence as other
financial statements. Comprehensive income is defined as net income adjusted for
changes in  stockholders'  equity resulting from events other than net income or
transactions related to an entity's capital instruments. The Company adopted FAS
130 effective January 1, 1998, with reclassification of financial statements for
earlier years.

In June,  1997,  the FASB issued FAS No. 131,  "Disclosure  About Segments of an
Enterprise and Related  Information",  which establishes standards for reporting
information  about  operating  segments.  Generally,  FAS No. 131 requires  that
financial  information  be reported on the basis that it is used  internally for
evaluating  performance.  The Company  adopted FAS No. 131 effective  January 1,
1998 and  comparative  information  for earlier  years has been  restated.  This
statement  does not need to be applied to interim  financial  statements  in the
initial year of application. The adoption of FAS No. 131 did not impact upon the
Company's reporting of financial information.

                                      -34-

<PAGE>




In February,  1998, the FASB issued FAS No. 132,  "Employers'  Disclosures About
Pensions and Other  Postretirement  Benefits",  which revises current disclosure
requirements for employers' pension and other retiree benefits. FAS No. 132 does
not change the  measurement or  recognition  of pension or other  postretirement
benefit plans.  The Company adopted FAS No. 132 effective  January 1, 1998, with
the effect of such  adoption to be reflected in year-end  financial  statements.
The  adoption  of FAS No.  132 did not have a material  impact on the  Company's
results of operations, liquidity or financial position.

In December, 1997, the Accounting Standards Executive Committee issued Statement
of Position  ("SOP") 97-3,  "Accounting by Insurance and Other  Enterprises  for
Insurance-Related  Assessments",  which  provides  guidance  on  accounting  for
insurance-related  assessments.  The Company adopted SOP 97-3, effective January
1, 1999.  Previously  issued financial  statements were required to be restated.
The adoption of SOP 97-3 did not have a material impact on the Company's results
of operations, liquidity or financial position.

In  June,  1998,  the  FASB  issued  FAS No.  133,  "Accounting  for  Derivative
Instruments and Hedging Activities",  which establishes accounting and reporting
standards for derivative  instruments,  including certain derivative instruments
embedded in other contracts,  (collectively  referred to as derivatives) and for
hedging activities. FAS 133 is applicable to financial statements for all fiscal
quarters  of fiscal  years  beginning  after June 15, 2000 as amended by FAS No.
137,  "Accounting  for the  Derivative  Instruments  and  Hedging  Activities-
Deferral of the Effective  Date of FASB  Statements  No. 133". The operations of
the Company are not affected by the provisions of FAS No. 133.


                                Subsequent Event

On March 28, 2000, the Company purchased 546,000 shares of its common stock in a
single  transaction  at a price of $9.25  per  share.  The  purchase  price  was
approximately  $0.25 per share below the prevailing  market price at the time of
the purchase. The shares repurchased will be treated as treasury shares.


Item 7A.  Quantitative and Qualitative Disclosures About Market Risk

General. ILCO's principal assets are financial instruments, which are subject to
market  risks.  Market risk is the risk of loss arising from adverse  changes in
market rates and prices,  principally  interest rates on fixed rate investments.
For a discussion of the  Company's  investment  portfolio and the  management of
that portfolio to reflect the nature of the underlying insurance  obligations of
the  Company's  insurance  subsidiaries,  please  refer to the section  entitled
"Investment of Assets" in Item 1 of this report and the information set forth in
Item 7,  "Management's  Discussion  and  Analysis  of  Financial  Condition  and
Operations - Investments".


                                      -35-
<PAGE>


The  following is a discussion of the Company's  primary  market risk  sensitive
instruments.  It should be noted that this  discussion has been developed  using
estimates  and  assumptions.  Actual  results may differ  materially  from those
described below.  Further,  the following  discussion does not take into account
actions which could be taken by management in response to the assumed changes in
market rates. In addition, the discussion does not take into account other types
of risks which may be involved in the business  operations of the Company,  such
as the reinsurance recoveries on reinsurance treaties with third party insurers.

The primary market risk to the Company's  investment  portfolio is interest rate
risk. The Company does not use derivative financial instruments.

Interest  Rate Risk . Assuming  an  immediate  increase  of 100 basis  points in
interest rates,  the net  hypothetical  loss in fair market value related to the
financial  instruments segment of the Company's balance sheet is estimated to be
$23.3 million at December 31, 1999 and $17.1  million at December 31, 1998.  For
purposes of the foregoing  estimate,  the following  categories of the Company's
fixed  income  investments  were  taken  into  account:  (i)  fixed  maturities,
including fixed maturities  available for sale, (ii) short-term  investments and
(iii) notes  receivable  from  affiliates.  The market  value of such assets was
$639.5 million at December 31, 1999 and $672.6 million at December 31, 1998.

The fixed income  investments  of the Company  include  certain  mortgage-backed
securities. The market value of such securities was $208 million at December 31,
1999 and $250.8 million at December 31, 1998.  Assuming an immediate increase of
100 basis points in interest rates, the net hypothetical loss in the fair market
value  related  to such  mortgage-backed  securities  is  estimated  to be $12.0
million at December 31, 1999 and $7.1 million at December 31, 1998.

Separate account assets have not been included,  since gains and losses on those
assets generally  accrue to the  policyholders.  The hypothetical  effect of the
interest  rate risk on fair values was  estimated  by  applying a commonly  used
model.  The model  projects  the impact of interest  rate  changes on a range of
factors, including duration and potential prepayment.


Item 8. Financial Statements and Supplementary Data

The following  Financial  Statements of ILCO and its  consolidated  subsidiaries
have been filed as part of this report:

1.   Report of PricewaterhouseCoopers LLP, Independent Accountants,  dated March
     27, 2000.

2.   Consolidated Balance Sheets, as of December 31, 1999 and December 31, 1998.

3.   Consolidated  Statements  of Income for the years ended  December 31, 1999,
     1998 and 1997.


                                      -36-

<PAGE>

4.   Consolidated  Statements of Changes in  Shareholders'  Equity for the years
     ended December 31, 1999, 1998 and 1997.

5.   Consolidated  Statements  of Cash Flows for the years  ended  December  31,
     1999, 1998 and 1997.

6.   Notes to Consolidated Financial Statements.


Item  9.  Changes  in and  Disagreements  with  Accountants  on  Accounting  and
Financial Disclosure

No independent  accountant who audited the Registrant's financial statements has
resigned or been dismissed during the two most recent fiscal years.

                                      -37-
<PAGE>

                                    PART III

Item 10.  Directors and Executive Officers of Registrant

         (a) Directors of the Registrant

The names and ages of the current  directors of the Registrant,  their principal
occupations  or employment  during the past five years and other data  regarding
them are set forth below.  All of the directors  other than Mr.  Chacosky,  were
elected at the 1999 annual shareholders meeting. Mr. Chacosky was appointed as a
director  in  January,  2000,  to fill a vacancy  created by an  increase in the
number of  directors  which was  approved by the Board of  Directors in January,
2000. The data supplied below is based on information provided by the directors,
except to the extent that such data is known to the Registrant.

                                  Director         Principal Occupation
Name                   Age         Since          and Other Information


Robert A. Bender       46           1997      Director of ILCO since October,
                                              1997.  Vice President of Family
                                              Life Insurance Company since
                                              January, 1997.  Vice President of
                                              Investors Life Insurance Company
                                              of North America since January,
                                              1997. Vice President of
                                              Investors-IN, formerly known as
                                              InterContinental Life Insurance
                                              Company since January, 1997.
                                              Assistant Vice President of
                                              Investors Life Insurance Company
                                              of North America from February,
                                              1994 to January, 1997.  Assistant
                                              Vice President of Investors-
                                              Indiana from February, 1994 to
                                              January, 1997.  Assistant Vice
                                              President of Investors-IN,
                                              formerly known as InterContinental
                                              Life Insurance Company from
                                              February, 1994 to January, 1997.
                                              Assistant Vice President of Family
                                              Life Insurance Company from
                                              February, 1994 to January, 1997.
                                              Retired from 22 years of service
                                              in the U.S. Army in February,
                                              1994.


                                      -38-
<PAGE>


Charles K.              42          2000      Vice President and Director of FIC
Chacosky                                      since January, 2000. Vice
                                              President and Director of ILCO
                                              since January, 2000.  Executive
                                              Vice President and Chief Actuary
                                              of Family Life Insurance Company,
                                              Investors Life Insurance Company
                                              of North America and Investors
                                              Life Insurance Company of Indiana
                                              since January, 2000.  Senior
                                              Manager, Pricewaterhouse - Coopers
                                              from February, 1997 to December,
                                              1999. Vice President, Germantown
                                              Life Insurance Company, February,
                                              1995 to January, 1997.

Jeffrey H. Demgen       47          1995      Director of FIC since May, 1995.
                                              Vice President of FIC since
                                              August, 1996.   Vice President and
                                              Director of ILCO since August,
                                              1996.  Director of FIC since May,
                                              1995.  Executive Vice President
                                              and Director of Family Life
                                              Insurance Company since August,
                                              1996. Senior Vice President and
                                              Director of Family Life Insurance
                                              Company from October, 1992 to
                                              August, 1996.  Executive Vice
                                              President and Director of
                                              Investors Life Insurance Company
                                              of North America since August,
                                              1996.  Senior Vice President and
                                              Director of Investors Life
                                              Insurance Company of North America
                                              from October, 1992 to June, 1995.
                                              Executive Vice President of
                                              Investors-IN, formerly known as
                                              InterContinental Life Insurance
                                              Company since August, 1996.
                                              Senior Vice President of
                                              Investors-IN, formerly known as
                                              InterContinental Life Insurance
                                              Company from October, 1992 to
                                              June, 1995.  Executive Vice
                                              President and Director of
                                              Investors-Indiana from August,
                                              1996 to December, 1997.  Senior
                                              Vice President of United Insurance
                                              Company of America from September,
                                              1984 to July, 1992.


                                      -39-
<PAGE>



Theodore A.             60          1991      Vice President and Director of
Fleron                                        ILCO since May, 1991.  Assistant
                                              Secretary since June, 1990.  Vice
                                              President and Director of FIC
                                              since August, 1996.  Senior Vice
                                              President, General Counsel,
                                              Assistant Secretary and  Director
                                              of Investors Life Insurance
                                              Company of North America and
                                              Investors-IN, formerly known as
                                              InterContinental Life Insurance
                                              Company since July, 1992.  General
                                              Counsel, Assistant Secretary and
                                              Director of Investors Life
                                              Insurance Company of North America
                                              and Investors- IN, formerly known
                                              as InterContinental Life Insurance
                                              Company from January, 1989 to
                                              July, 1992.  Senior Vice
                                              President, General Counsel,
                                              Director and Assistant Secretary
                                              of Investors-Indiana from
                                              June, 1995 to December, 1997.
                                              Senior Vice President, General
                                              Counsel, Director and Assistant
                                              Secretary of Family Life Insurance
                                              Company since August, 1996.

W. Lewis                 68           1988    Dentist practicing in San Marcos,
Gilcrease                                     Texas.  Director of ILCO since
                                              1988.  Director of FIC from 1979
                                              to July, 1991.

James M. Grace           56           1984    Vice President and Treasurer of
                                              the Company since January, 1985.
                                              Executive Vice President,
                                              Treasurer and Director of
                                              Investors-IN, formerly known as
                                              InterContinental Life Insurance
                                              Company since 1989. Vice
                                              President, Treasurer and Director
                                              of Financial Industries
                                              Corporation since July, 1976.
                                              Executive Vice President and
                                              Treasurer of Investors Life
                                              Insurance Company of North America
                                              since 1989.  Executive Vice
                                              President, Treasurer and Director
                                              of Family Life Insurance Company
                                              (a subsidiary of Financial
                                              Industries Corporation) since
                                              June, 1991. Director, Executive
                                              Vice President and Treasurer of
                                              Investors-Indiana from February,
                                              1995 to December, 1997.

Richard A.               68            1981   Certified Public Accountant and a
Kosson                                        partner in the firm of Manheim,
                                              Kosson & Novick in Millburn, New
                                              Jersey.  Director of ILCO since
                                              1981.


                                      -40-
<PAGE>


Roy F. Mitte             68            1984   Chairman of the Board and Chief
                                              Executive Officer of the Company
                                              and Investors-IN formerly known as
                                              InterContinental Life Insurance
                                              Company since January, 1985.
                                              President of the Company since
                                              April, 1985.  Chairman of the
                                              Board, President and Chief
                                              Executive Officer of Financial
                                              Industries Corporation since 1976.
                                              Chairman of the Board, President
                                              and Chief Executive Officer of
                                              Investors Life Insurance Company
                                              of North America since December,
                                              1988. Chairman of the Board,
                                              President and Chief Executive
                                              Officer of Family Life Insurance
                                              Company since June, 1991. Chairman
                                              of the Board, President and Chief
                                              Executive Officer of Investors-
                                              Indiana from  February 1995 to
                                              December, 1997.  Chairman, ILG
                                              Securities Corporation since
                                              December 1988.

Elizabeth T. Nash       50             1998   Member of the Board of Regents,
                                              Texas State University System
                                              since 1993, Chairman from 1997 to
                                              1998, Vice-Chairman from 1996 to
                                              1997.  Trustee of the Development
                                              Foundation of Southwest Texas
                                              State University since 1987,
                                              Chairman from 1992 to 1997, Vice-
                                              Chairman from 1989 to 1992.
                                              Director of ILCO since 1998.

Eugene E. Payne         57             1989   Vice President of ILCO since
                                              December, 1988 and Director and
                                              Secretary since May, 1989.  Vice
                                              President and Director of
                                              Financial Industries Corporation
                                              since February, 1992.  Executive
                                              Vice President, Secretary and
                                              Director of Investors Life
                                              Insurance Company of North America
                                              since December, 1988.  Executive
                                              Vice President since December 1988
                                              and Director since May, 1989 of
                                              Investors- IN, formerly known as
                                              InterContinental Life Insurance
                                              Company. Executive Vice President,
                                              Secretary and Director of Family
                                              Life Insurance Company since June,
                                              1991.  Director, Executive Vice
                                              President and Secretary of
                                              Investors-Indiana from February,
                                              1995 to December, 1997.

H. Gene Pruner           71             1995  Director of ILCO since August,
                                              1996.  Director of Investors-IN
                                              since February, 1995.  President
                                              of Market Share, Inc. since April,
                                              1985.


                                      -41-
<PAGE>


Steven P. Schmitt         53            1994  Senior Vice President since April,
                                              1992 and Director, Vice President
                                              and Assistant Secretary since
                                              August, 1989 of Investors Life
                                              Insurance Company of North America
                                              and Investors-IN, formerly known
                                              as InterContinental Life Insurance
                                              Company.  Senior Vice President
                                              since April, 1992 and Director and
                                              Vice President since June, 1991 of
                                              Family Life Insurance Company.
                                              Director, Senior Vice President
                                              and Assistant Secretary of
                                              Investors-Indiana from June, 1995
                                              to December, 1997.


The  incumbent  directors,  other  than Mr.  Pruner,  have  been  nominated  for
submission  to  vote of the  shareholders  for  reelection  at the  2000  annual
shareholders' meeting.

(b)  Executive Officers of the Registrant

The following table sets forth the names and ages of the persons who have served
as Registrant's  Executive  Officers during 1999 together with all positions and
offices held by them with the  Registrant.  Officers are elected to serve at the
will of the Board of Directors or until their  successors  have been elected and
qualified.

Name                       Age              Positions and Offices

Roy F. Mitte               68               Chairman of the Board, President
                                            and Chief Executive Officer

James M. Grace             56               Vice President and Treasurer

Eugene E. Payne            57               Vice President and Secretary

Jeffrey H. Demgen          47               Vice President

In May 1991,  Roy F. Mitte  suffered a stroke,  resulting  in partial  paralysis
affecting  his speech and  mobility.  Mr. Mitte  continues to make the requisite
decisions in his capacity as Chief  Executive  Officer,  although his ability to
communicate and his mobility are impaired.

(c)    Identification of certain significant employees

       Not Applicable.




                                      -42-
<PAGE>

(d)    Family relationships

       Not Applicable.

(e)    Business experience

All of the  executive  officers  of the  Company  are  members  of the  Board of
Directors and their business experience has been outlined in Item 10(a).

(f)    Involvement in certain legal proceedings

        Not Applicable

(g)   Compliance with Section 16(a) of the Securities Exchange Act of  1934

Section  16(a) of the  Securities  Exchange Act of 1934  requires the  Company's
officers  and  directors,  and  persons  who own  more  than  ten  percent  of a
registered  class  of the  Company's  equity  securities,  to  file  reports  of
beneficial  ownership on Form 3 and changes in  beneficial  ownership on Forms 4
and 5 with the  Securities  and Exchange  Commission.  Officers,  directors  and
greater than ten-percent  shareholders are required by SEC regulation to furnish
the Company  with copies of all Section  16(a) forms they file.  Based solely on
review  of the  copies  of such  forms  furnished  to the  Company,  or  written
representations that no Forms 5 were required, the Company believes that for the
period from January 1, 1999 through  December 31, 1999 all Section  16(a) filing
requirements applicable to its officers,  directors and greater than ten-percent
beneficial owners were complied with.



                                      -43-
<PAGE>


Item 11. Executive Compensation

Summary Compensation Table

The following table sets forth  information  concerning the  compensation of the
Company's Chief  Executive  Officer and each of the three other persons who were
serving as  executive  officers of the  Company at the end of 1999 and  received
cash compensation exceeding $100,000 during 1999.

<TABLE>

                               Annual Compensation
<S>                          <C>               <C>               <C>         <C>            <C>              <C>

        Name and                                                                            Awards          All Other
       Principal                                                          Other Annual                     Long Term
        Position            Year            Salary(1)          Bonus(5)   Compensation       Stock        Compensation(7)
                                                                                            Options
                                                                            (2, 3, 4)       (Shares)(6)
Roy F. Mitte,
Chairman,                   1999           $ 356,679        $ 1,535,000   $      -0-          10,000       $       -0-
President and               1998             356,679          1,535,000          -0-             -0-               -0-
Chief Executive             1997             252,253            751,500          -0-             -0-               -0-
Officer
James M. Grace,             1999             195,000             20,000      191,215          10,000             1,600
Vice President              1998             195,000             25,000      227,040             -0-             1,350
and Treasurer               1997             195,000             40,000      437,340             -0-            16,165

Eugene E.                   1999             195,000             20,000       95,520          10,000             1,600
Payne, Vice                 1998             195,000             20,000      100,020             -0-             4,390
President and               1997             195,000             40,000      278,920             -0-            20,025
Secretary
Jeffrey H.                  1999             150,000             20,000          -0-          10,000             1,600
Demgen, Vice                1998             145,384             15,000          -0-             -0-             1,615
President                   1997             117,884             30,000          -0-             -0-             1,400
</TABLE>



(1) The executive  officers of the Company have also been executive  officers of
the Company's  insurance  subsidiaries  and FIC and FIC's insurance  subsidiary,
Family Life.  FIC and/or Family Life  reimbursed the Company (or, in the case of
Mr.  Mitte,  authorized  payment  of) the  following  amounts as FIC's or Family
Life's share of these executive  officers' cash compensation and bonus for 1997,
1998 and 1999: (i) Mr. Mitte: $999,746,  $1,111,821 and $1,111,821 respectively,
which  amounts are not included in the above  table;  (ii) Mr.  Grace:  $68,150,
$64,152 and  $62,694,  respectively,  which  amounts  are  included in the above
table;  (iii) Dr.  Payne:  $68,150,  $61,447 and  $61,447,  respectively,  which
amounts are included in the above table; and (iv) Mr. Demgen $66,548, $72,173

                                      -44-
<PAGE>

and $76,500,  respectively,  which amounts are included in the above table.  Dr.
Payne elected to defer a portion  ($13,000) of his 1998  compensation  under the
provisions of the Company's  Non-Qualified Deferred Compensation Plan. See also,
Note 5.

(2) Does not  include  the  value of  perquisites  and other  personal  benefits
because the aggregate amount of any such compensation does not exceed the lesser
of $50,000 or 10 percent of the total amount of annual  salary and bonus for any
named individual.

(3) Includes the value realized by Mr. Grace in connection  with the exercise of
stock options. In 1999, Mr. Grace exercised options to purchase 24,000 shares of
the Company's common stock under the Non-Qualified  Option Plan. See "Aggregated
Option Exercises in 1999" below.

(4) Includes the value realized by Dr. Payne in connection  with the exercise of
stock  options.  In 1999, Dr. Payne  exercised  options to purchase 6,000 (which
number does not reflect the stock  dividend  paid on April 17,  1999,  since Dr.
Payne  exercised the options  prior to the date of the  dividend)  shares of the
Company's  common  stock  under  the  Non-Qualified  Stock  Option  Plan  .  See
"Aggregated Option Exercises in 1999" below.

(5) The data in this column  represents the amount of annual bonus awarded.  The
bonuses for Mr.  Grace,  Dr.  Payne and Mr.  Demgen for the year 1997  represent
amounts paid in 1997, but include the bonuses  awarded with respect to the years
1996 and 1997.  Dr. Payne elected to defer the amounts shown for 1997,  1998 and
1999 into the Company's  Non-Qualified  Deferred Compensation Plan. The Plan was
established  in 1997 to permit  Mr.  Grace and Dr.  Payne to defer a portion  of
their compensation. Under the provisions of the Plan, contributions are invested
on a money  purchase  basis  and plan  benefits  are  based on the  value of the
account at retirement or other  distribution.  In accordance with applicable tax
law  requirements,  amounts  allocated  to the Plan are subject to the claims of
general creditors of the Company. See also, Note 7.

(6) The data in this  column  represents  the  number  of shares  available  for
exercise under options granted in 1999 under the 1999 ILCO  Non-Qualified  Stock
Option Plan. See also, "Option Grants in 1999", below.

(7) All Other Compensation includes:

(i)  Company  contributions to the InterContinental  Life Corporation  Employees
     Savings and Investment  Plan. The amount of each such  contribution for the
     years 1997,  1998 and 1999,  respectively,  was as follows:  (a) Mr. Grace:
     $1,350, $1,350 and $1,600, respectively,  (b) Dr. Payne: $2,100, $2,100 and
     $1,600,  respectively  and (c) Mr.  Demgen:  $1,400,  $1,615  and $  1,600,
     respectively.

(ii) amounts paid by the Company to Mr. Grace and Dr.  Payne to  supplement  the
     benefits  under the  Company's  Pension Plan.  The Pension Plan  supplement
     relates to each of the past service years for Mr. Grace and Dr. Payne which
     were affected by the limitation on compensation  which the Pension Plan may
     take into  account for benefit  accrual  purposes.  Under  federal  pension
     rules, an employee's  benefits under a qualified  pension plan, such as the
     ILCO Pension Plan, are limited to certain  maximum  amounts.  The amount of
     the

                                      -45-
<PAGE>

payments made in 1997 was  determined  by comparing the accrued  benefit for the
listed  individuals under the ILCO Pension Plan through December 31, 1996 to the
accrued  benefit which the  individual  would have had under the Plan's  benefit
formula  without  application  of the  limitations  applicable  to tax qualified
retirement  plans.  The value of the difference,  representing an amount payable
for life  commencing at normal  retirement age, was then commuted to its present
value,  which  amount is  included in this  column.  In 1998,  the Company  made
similar  payments,  with respect to benefit accruals for the preceding year. Mr.
Grace and Dr. Payne elected to defer their respective amounts into the Company's
Non- Qualified  Deferred  Compensation  Plan. In 1999, the actuarial  consulting
firm which  provides  the Company  with the  calculations  of the amounts of the
supplements  advised the Company that certain  errors had been made with respect
to prior years. As a result,  the Company adjusted the amount of the supplements
for each of Dr. Payne and Mr. Grace. The adjustments resulted in a credit to the
Company in the amount of $74.96 for Dr. Payne and $6,574.43  with respect to Mr.
Grace. These amount were deducted from the Non-Qualified  Deferred  Compensation
Plan maintained by the Company for each individual The Company intends to make a
similar payment with respect to benefit accruals for subsequent years;  however,
there is no obligation for it to do so. See also, Note 5.

Option Grants in 1999

The  following  table sets forth  certain  information  regarding  stock options
granted  during  calendar  year  1999  to  the  persons  named  in  the  Summary
Compensation Table,  above. The options were granted under the  InterContinental
Life  Corporation  1999 Stock Option  Plan.  The plan was approved at the Annual
Meeting of Stockholders held on May 18, 1999.  During 1999,  options to purchase
10,000  shares of the common  stock of the  Company  were  granted to each of 46
employees  of the  Company,  its  subsidiaries  and  affiliates,  for a total of
460,000 options.  As of December 31 1999,  options to purchase a total of 20,000
shares had terminated as a result of employee turnover.

The potential  realizable  values on date of grant of stock  options  granted in
1999 shown below are  presented  pursuant to SEC rule and are  calculated  using
assumed  annual  rates of stock  price  appreciation  for the option  term.  The
theoretical  values of options do not  necessarily  bear a  relationship  to the
compensation cost to the Company or potential gain realized by an executive. The
actual amount,  if any, realized upon exercise of stock options will depend upon
the market  price of the common  stock of the Company  relative to the  exercise
price of the stock option at the time the stock option is exercised. There is no
assurance that the theoretical  values of stock options  reflected in this table
actually will be realized.


                                      -46-
<PAGE>

<TABLE>

<S>                   <C>                  <C>             <C>               <C>                    <C>
                                        % of Total
                                        Options                                             Potential Realizable
                                        Granted to                                          Value at Assumed
                                        Employees                                           Annual Rates of Stock
                     Options            During            Exercise         Expiration       Price Appreciation for
Name                 Granted (1)        1999              Price            Date             Option Term (2)


                                                                                                  5%             10%
Roy F. Mitte         10,000             2.27%             $9.00            5/18/05           $14,434         $30,880
James M.             10,000             2.27%              9.00            5/18/05            14,434          30,880
Grace
Eugene E.            10,000             2.27%              9.00            5/18/05            14,434          30,880
Payne
Jeffrey H.           10,000             2.27%              9.00            5/18/05            14,434          30,880
Demgen
</TABLE>


(1)  The options shown in the preceding table were each granted on May 18, 1999.
     Options  vest in 20%  increments  with the first 20%  vesting  on the first
     anniversary  of the date of grant and an  additional  20%  vesting  on each
     subsequent  anniversary.  The option  period for each  sequentially  vested
     portion of an option is one year from the  respective  Anniversary  Date on
     which said portion of the option becomes partially exercisable.

(2)  The potential  realizable  values on date of grant are calculated  assuming
     that the market price of the underlying security  appreciates in value from
     the  date of the  grant  to the  last  date on  which  the  options  may be
     exercised at an assumed annualized rate of 5% and, alternatively,  10%. The
     calculations  assume that each vested option is exercised as of the initial
     date on which such vested percentage may be exercised.


                                      -47-
<PAGE>

Aggregated Option Exercises in 1999

The following  table sets forth  information  concerning  each exercise of stock
options during 1999 by each of the  individuals  who were executive  officers of
the Company as of December 31, 1999.

                              Shares
                             Acquired                  Value
Name                       On Exercise (#)           Realized ($)


James M. Grace               24,000 (1)              $191,215

Eugene E. Payne               6,000 (2)                95,520

(1)  The number of shares  acquired upon exercise of options  reflects the stock
     dividend which was paid on March 17, 1999.

(2)  The number of shares  acquired  upon  exercise  does not  reflect the stock
     dividend which was paid on March 17, 1999, since the options were exercised
     prior to that date.


Aggregated Stock Option Values

The  following  table sets forth  information  with  respect to the  unexercised
options held by the executive officers of the Company.  The value of unexercised
in-the-money  stock  options at December  31, 1999 shown below are  presented in
accordance with SEC rules. The actual amount,  if any, realized upon exercise of
stock  options  will  depend  upon the market  price of the common  stock of the
Company relative to the exercise price per share of the stock option at the time
the  stock  option  is  exercised.  There is no  assurance  that the  values  of
unexercised  in-the-money stock options reflected in the following table will be
realized.

<TABLE>
                           Number of Unexercised                         Value of Unexercised
                               Options Held at                         In-the-Money Options at
                             December 31, 1999                            December 31, 19991
                           Exercisable      Unexercisable              Exercisable      Unexercisable
<S>                            <C>              <C>                         <C>              <C>


Roy F. Mitte                   -0-            10,000                    $    -0-         $2,500

Jeffrey H. Demgen              -0-            10,000                         -0-          2,500

James M. Grace                 -0-            10,000                         -0-          2,500

Eugene E. Payne                -0-            10,000                         -0-          2,500
</TABLE>



                                      -48-
<PAGE>

     (1)Based on the closing  price of the  Company's  common stock on NASDAQ on
     December 31, 1999 ($9.250).


Members of Compensation Committee

W. Lewis  Gilcrease,  Richard A. Kosson and Elizabeth T. Nash are the members of
the Company's Compensation  Committee,  which makes recommendations to the Board
of Directors with respect to the Chief Executive Officer's compensation.

Compensation Committee Interlocks and Insider Participation

Roy F. Mitte  determines  the  compensation  of all  executive  officers  of the
Company,  other than the Chief Executive  Officer.  Mr. Mitte is the Chairman of
the Board, President and Chief Executive Officer of the Company and FIC. He also
determines  the  compensation  of all executive  officers of FIC, other than the
Chief Executive Officer.

Pension Plan Table

The following table sets forth estimated  annual pension  benefits  payable upon
retirement at age of 65 under the Company's noncontributory defined benefit plan
("Pension  Plan")  to an  employee  in  the  final  pay  and  years  of  service
classifications indicated, assuming a straight life annuity form of benefit. The
amounts  shown in the  table do not  reflect  the  reduction  related  to Social
Security benefits referred to below.


                                Years of Service

                                                                       30 or
Remuneration              15            20               25            more

$125,000               $29,437        $39,250         $49,062         $58,875
 150,000                35,325         47,100          58,875          70,650
 160,000                37,680         50,240          62,800          75,360
 175,000                41,212         54,950          68,687          82,425
 200,000                47,100         62,800          78,500          94,200

The normal retirement  benefit provided under the Pension Plan is equal to 1.57%
of final  average  eligible  earnings  less  0.65% of the  participant's  Social
Security  covered  compensation  multiplied  by the number of years of  credited
service (up to 30 years).  The compensation  used in determining  benefits under
the  Pension  Plan  is  the  highest  average  earnings  received  in  any  five
consecutive full- calendar years during the last ten full-calendar  years before
the participant's retirement date. The maximum amount of annual salary and bonus
that can be used in determining  benefits under the Pension Plan is $200,000 for
any year prior to 1994 and is $150,000  for 1994,  1995 and 1996 and is $160,000
for 1997 and each subsequent year.


                                      -49-

<PAGE>

The annual eligible earnings, for 1999 only, covered by the Pension Plan (salary
up to  $160,000)  with  respect  to the  individuals  reported  in  the  Summary
Compensation  Table were as  follows,  with their  respective  years of credited
service under the Pension Plan at December 31, 1999 being shown in  parentheses:
Mr.  Mitte,  $160,000 (12 years),  Mr.  Grace,  $160,000 (12 years),  Dr. Payne,
$160,000 (11 years), and Mr. Demgen, $150,000 (7 years).

Compensation of Directors

Directors  who are not  officers or  employees  of the Company are paid a $5,000
annual fee, and are  compensated  $1,000 for each regular or special  meeting of
the Board of Directors  which they attend in person.  In the case of  telephonic
meetings of the Board, non-employee directors who participate in such telephonic
meetings are  compensated  $500 for such meeting.  Directors who participate via
telephone in a regular or special meeting which is held by other than conference
telephone are not entitled to a fee for such a meeting.

Non-employee directors serving on committees of the Board are compensated in the
amount of $500 for each committee meeting they attend whether such participation
is in person or by telephone,  provided that the committee  meeting is held on a
day other than that on which the Board meets.

Employment Agreements and Change In Control Arrangements

The terms and conditions of employment  agreements  that the Company would enter
into upon the occurrence of certain events that result in the agreements  taking
effect were approved by the Board of Directors with respect to Messrs. Grace and
Payne in 1991.  Each agreement  would include two  independent  provisions  with
respect to the effective date and the term of each agreement. First, the term of
the agreement  would begin on the earlier of (i) the date of retirement  (early,
normal or deferred) of Roy F. Mitte from his position as Chairman, President and
Chief  Executive  Officer of the Company or (ii) the date of death or disability
of Mr.  Mitte,  and would  terminate  on the last day of the twelfth  month next
following the  commencement  date of the term of the agreement,  unless extended
upon mutually acceptable terms.

Independently,  the term of the agreement  would commence upon the date that any
person  who is not  currently  a control  person  with  respect  to the  Company
acquires,  or enters  into an  agreement  to  acquire,  control of the  Company,
directly or indirectly,  and would end on the last day of the twelfth month next
following the date on which the employee  receives  notice of the termination of
his  employment  with the  Company  or the life  insurance  subsidiaries  of the
Company.

During the term of the agreement,  the employee would be entitled to perform all
of the duties of the position or positions held by the employee with the Company
and all  subsidiaries  of the  Company  on the date  immediately  preceding  the
commencement date of the agreement.

During the term of the  agreement,  the employee  would be entitled to an annual
rate of  compensation  which is not less than the annual rate of compensation in
effect  as of the  date  immediately  preceding  the  commencement  date  of the
agreement.  During the term of the agreement,  the employee would be entitled to
participate  in and benefit  from all  employee  benefit  plans and other fringe
benefits on

                                      -50-

<PAGE>

the same basis as such plans and benefits are made available to other  executive
personnel of the Company.

The  agreement  may be  terminated  by the  Company  only in the event  that the
employee is guilty of theft of property of the Company or commits a wrongful act
which has a material  adverse  effect upon the  business of the Company and with
respect to which the employee would not be entitled to indemnification under the
provisions of the Bylaws of the Company in effect as of the commencement date of
the agreement. The employee may terminate the agreement upon thirty days advance
written notice to the Company.

Item 12.  Security Ownership of Certain Beneficial Owners and Management

The following table presents  information as of March 15, 2000 as to all persons
who,  to the  knowledge  of the  Company,  were  beneficial  owners of five (5%)
percent or more of the Common Stock of the Company.


                                   Amount and Nature
Name and Address               of Beneficial Ownership         Percent of Class

Financial Industries Corp.
701 Brazos, Suite 1400
Austin, TX 78701                      3,932,692                    44.48 % (5)

Roy F. Mitte
701 Brazos, Suite 1400
Austin, TX 78701                      3,996,890 (1,2)              45.20 % (5)

Investors Life Insurance
Company of North America
701 Brazos, Suite 1400
Austin, TX 78701                        669,920 (3)                 7.58 % (5)

Investors Life Insurance
Company of Indiana
701 Brazos, Suite 1400
Austin, TX 78701                        563,120 (4)                 6.37 % (5)

Fidelity Management &
Research Company
82 Devonshire Street
Boston, MA 02109                         878,100 (6)                9.93 % (5)

Heartland Advisors, Inc.
790 North Milwaukee Street
Milwaukee, WI 53202                      550,600 (7)                6.23 % (5)

                                      -51-

<PAGE>

1.   As of March  15,  2000,  Mr.  Mitte,  jointly  with his wife  Joann,  owned
     1,552,206 common shares of Financial  Industries  Corporation  ("FIC"). The
     holdings of Mr.  Mitte of FIC's  common  stock  constitutes  30.71 % of the
     outstanding common stock of that company. In addition,  Mr. Mitte holds the
     position of Chairman,  President and Chief Executive  Officer of FIC. Since
     FIC holds a controlling  interest in ILCO, Mr. Mitte's personal holdings in
     the Company have been combined with the holdings of FIC in determining  the
     amount and percentage of Mr. Mitte's beneficial ownership of the Company.

2.   Includes 31,998 shares allocated to Mr. Mitte's account under the Employees
     Stock Ownership Plan and 32,200 shares owned directly by Mr. Mitte.

3.   Represents  563,120 shares owned by  Investors-IN  and 106,800 shares owned
     directly  by  Investors-NA.   Investors-IN  is  a  life  insurance  company
     subsidiary of Investors-NA.

4.   All are directly owned by Investors-IN.

5.   Assumes that outstanding  stock options available to other persons have not
     been exercised.

6.   As reported to the Company on a Schedule  13(G),  as amended,  filed by FMR
     Corporation,  the parent company of Fidelity  Management & Research Company
     ("Fidelity").  According to the Schedule  13(G)  filings,  Fidelity acts as
     investment  advisor to the  Fidelity  Low-Priced  Stock Fund,  a registered
     investment  company,  and the Fund is the owner of  878,100  shares of ILCO
     common stock,  including  10,300 shares which were purchased  subsequent to
     the Schedule  13(G)/A filed on February 1, 1999.  The most recent  Schedule
     13(G)/A was filed on February 14, 2000.

7.   As reported to the Company on a Schedule 13(G) initially filed by Heartland
     Advisors,  Inc. ("Heartland") on January 21, 1999 and most recently amended
     on a Schedule  13(G) filed on January 20,  2000.  According to its Schedule
     13(G) filings, Heartland acts as investment advisor with respect to certain
     investment  advisory  accounts,  with respect to which various persons have
     the right to receive or the power to direct the receipt of dividends  from,
     or the proceeds from the sale of securities.  The Schedule 13(G) identifies
     that the interests of one such account,  the Heartland Value Fund, a series
     of Heartland Group, Inc., a registered investment company,  relates to more
     than 5% of the common stock of ILCO.

The following  table contains  information as of March 15, 2000 as to the common
stock of the Company beneficially owned by each director,  nominee and executive
officer and by all  executive  officers and directors of the Company as a group.
The number of shares owned by each  individual  has been adjusted to reflect the
stock dividend which was paid on March 17, 1999.  The  information  contained in
the table has been  obtained by the Company  from each  director  and  executive
officer except for information known to the Company.  Except as indicated in the
notes to the  table,  each  beneficial  owner  has sole  voting  power  and sole
investment power as to the shares listed opposite his name.


                                      -52-

<PAGE>

                                Amount and Nature of               Percent of
Name                            Beneficial Ownership (2)(3)           Class

Robert A. Bender                         2,438                          *

Charles K. Chacosky                        -0-

Jeffrey H. Demgen                        8,450                          *

Theodore A. Fleron                      18,931                          *

W. Lewis Gilcrease                         -0-

James M. Grace                         112,026                         1.27 %

Richard A. Kosson                          200                          *

Roy F. Mitte (1)                     3,996,800                        45.20 %

Elizabeth T. Nash                          200                          *

Eugene E. Payne                         21,184                          *

H. Gene Pruner                             -0-

Steven P. Schmitt                       13,348                          *

All Executive
Officers and
Directors as a
group, all of
whom are listed
above                                4,173,377                        47.19 %

* Less than 1%

(1)  As an  executive  officer and  director of FIC,  which as of March 15, 2000
     beneficially owned 3,932,692 shares of the Company's common stock.

(2)  Includes  shares  beneficially   acquired  through   participation  in  the
     Company's  Employees  Stock  Ownership  Plan, 401K Plan and/or the Employee
     Stock Purchase Plan, which are group plans for eligible employees.



                                      -53-

<PAGE>

(3)  Does not include shares issuable upon exercise of options granted under the
     1999 Non- Qualified  Stock Option Plan to executive  officers and directors
     who are also  employees of the Company or its  subsidiaries,  which options
     are not currently exercisable.

Item 13.  Certain Relationships and Related Transactions with Management


a.   As part of the financing  arrangement  for the  acquisition  of Family Life
     Insurance  Company,  Family Life Corporation  ("FLC"), a subsidiary of FIC,
     entered into a Senior Loan  agreement  under which $50 million was provided
     by a group of  banks.  The  balance  of the  financing  consisted  of a $30
     million  subordinated  note issued by FLC to Merrill Lynch Insurance Group,
     Ins.  ("Merrill  Lynch") and $14 million borrowed by another  subsidiary of
     FIC  from  an  affiliate  of  Merrill  Lynch  and  evidenced  by  a  senior
     subordinated  note in the  principal  amount  of $12  million  and a junior
     subordinated  note in the  principal  amount of $2 million  and $25 million
     lent by two insurance  company  subsidiaries of ILCO. The latter amount was
     represented  by a $22.5  million loan from  Investors-NA  to FLC and a $2.5
     million loan provided  directly to FIC by Investors-CA.  In addition to the
     interest  provided under those loans,  Investors-NA and  Investors-CA  were
     granted  by FIC  non-transferable  options  to  purchase,  in  the  amounts
     proportionate  to their  respective  loans, up to a total of 9.9 percent of
     shares of FIC's  common  stock at a price of $10.50  per share  ($2.10  per
     share as adjusted  for the  five-for-one  stock split in  November,  1996),
     equivalent  to the then current  market  price,  subject to  adjustment  to
     prevent dilution. The original provisions of the options provided for their
     expiration on June 12, 1998 if not previously exercised. In connection with
     the 1996  amendments to the  subordinated  notes, as described  below,  the
     expiration date of the options were extended to September 12, 2006.

     On July 30, 1993, the subordinated  indebtedness  owed to Merrill Lynch and
     its  affiliate  was  prepaid.  The Company  paid $38 million  plus  accrued
     interest  to retire  the  indebtedness,  which had a  principal  balance of
     approximately $50 million on July 30, 1993. The primary source of the funds
     used to prepay the subordinated  debt was new  subordinated  loans totaling
     $34.5  million  that  FLC  and  another  subsidiary  of FIC  obtained  from
     Investors-NA.  The principal amount of the new subordinated debt is payable
     in four equal annual  installments  in 2000,  2001, 2002 and 2003 and bears
     interest  at an  annual  rate of 9%.  The  other  terms of the new debt are
     substantially  the same as those of the $22.5  million  subordinated  loans
     that  Investors-NA  had  previously  made to FLC and  that  continue  to be
     outstanding.

     In June, 1996, the provisions of the notes from Investors-NA to FIC, Family
     Life  Corporation  ("FLC") and Family  Life  Insurance  Investment  Company
     ("FLIIC") were modified as follows:  (a) the $22.5 million note was amended
     to  provide  for  twenty  quarterly  principal  payments,  in the amount of
     $1,125,000  each,  to commence on December  12, 1996;  the final  quarterly
     principal  payment is due on September  12, 2001;  the interest rate on the
     note  remains at 11%,  (b) the $30 million  note was amended to provide for
     forty quarterly principal payments,  in the amount of $163,540 each for the
     period  December  12,  1996 to  September  12,  2001;  beginning  with  the
     principal  payment due on December  12, 2001,  the amount of the  principal
     payment increases to $1,336,458;  the final quarterly  principal payment is
     due on September 12, 2006; the interest rate on the note remains at 9%, (c)
     the $4.5 million note

                                      -54-

<PAGE>

     was  amended to provide  for forty  quarterly  principal  payments,  in the
     amount of $24,531 each for the period  December  12, 1996 to September  12,
     2001;  beginning  with the principal  payment due on December 12, 2001, the
     amount of the principal payment increases to $200,469;  the final quarterly
     principal  payment is due on September  12, 2006;  the interest rate on the
     note  remains at 9%, (d) the $2.5  million note was amended to provide that
     the  principal  balance  of the note is to be repaid  in  twenty  quarterly
     installments of $125,000 each,  commencing December 12, 1996 with the final
     payment due on September 12, 2001; the rate of interest  remains at 12% and
     (e) the Master PIK note,  which was  issued to provide  for the  payment in
     kind of interest due under the terms of the $2.5 million note prior to June
     12,  1996,  was amended to provide that the  principal  balance of the note
     $1,977,119 is to be paid in twenty  quarterly  principal  payments,  in the
     amount of  $98,855.95  each,  to commence  December 12, 1996 with the final
     payment due on September 12, 2001; the interest rate on the note remains at
     12%.

     In December, 1998, FLIIC was dissolved. In connection with the dissolution,
     all of the assets  and  liabilities  of FLIIC  became  the  obligations  of
     FLIIC's sole  shareholder  (FIC).  Accordingly,  the obligations  under the
     provisions of the $4.5 million note described above are now the obligations
     of FIC.

b.   The data processing  needs of ILCO's and FIC's insurance  subsidiaries  are
     provided by FIC Computer Services,  Inc. ("FIC Computer"),  a subsidiary of
     FIC. Under the provisions of the data  processing  agreement,  FIC Computer
     provides data processing services to each subsidiary for fees equal to such
     subsidiary's   proportionate  share  of  FIC  Computer's  actual  costs  of
     providing  those  services  to  all  of  the  subsidiaries.  The  Company's
     insurance  subsidiaries paid $2.7 million and Family Life paid $1.9 million
     to FIC Computer for data processing services provided during the year ended
     December 31, 1999.

c.   In 1995, Investors-NA entered into a reinsurance agreement with Family Life
     pertaining  to  universal  life  insurance  written  by  Family  Life.  The
     reinsurance agreement is on a co-insurance basis and applies to all covered
     business with  effective  dates on and after January 1, 1995. The agreement
     applies to only that portion of the face amount of the policy which is less
     than  $200,000;  face  amounts of $200,000 or more are  reinsured by Family
     Life with a third party reinsurer.

d.   In 1996,  Investors-NA  entered into a  reinsurance  agreement  with Family
     Life, pertaining to annuity contracts written by Family Life. The agreement
     applies to contracts written on or after January 1, 1996.

e.   Roy F. Mitte serves as Chairman,  President and Chief Executive  Officer of
     both FIC and ILCO.  James M. Grace serves as Vice President,  Treasurer and
     Director of both  companies  and Secretary of FIC. Dr. Payne serves as Vice
     President,  Secretary and Director of both  companies.  Messrs.  Demgen and
     Fleron serve as Vice  Presidents and Directors of both  companies.  Mr. Roy
     Mitte holds beneficial ownership of 30.71% of the outstanding shares of FIC
     (see "Security Ownership of Certain Beneficial Owners and Management").


                                      -55-

<PAGE>

f.   Mr.  Joseph F.  Crowe  retired  from  active  service  with the  Company in
     January,  1997 and  served  on the  ILCO  Board  until  October,  1997;  he
     continues to serve on the Board of Directors of FIC.  Following Mr. Crowe's
     retirement, the Company entered into a consulting agreement with him. Under
     the terms of the  agreement,  Mr.  Crowe is to be  available  for  periodic
     consultation  on actuarial  matters  related to the  operations of the life
     insurance  companies.  The agreement  provides for a payment of $25,000 per
     year for a period of five- years.

g.   The Company and  Investors-NA  are parties to two surplus  debentures.  The
     surplus  debentures  were  originally  issued by  Standard  Life  Insurance
     Company.   Upon  the  merger  of  Standard  Life  into  Investors-NA,   the
     obligations of the surplus  debentures were assumed by Investors-NA.  Under
     the  terms of the  surplus  debentures,  Investors-NA  paid to the  Company
     principal and interest on the surplus  debentures of $10.8 million in 1999.
     As of December 31, 1999, the outstanding  principal  balance of the surplus
     debentures was $0.956 million and $4.94 million, respectively. The terms of
     the latter debenture provided for final payment of the remaining  principal
     on September 30, 1999. In September,  1999,  Investors-NA  and ILCO amended
     the payment  schedule to provide  for payment of the  remaining  balance in
     four installments, with the final installment being due July 1, 2000.


                                     Part IV

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

(a)      The following documents have been filed as part of this Report.

1.       Financial Statements as identified in Item 8 above.

2.       Financial Statement Schedules Required to be filed by Item 8.

         a.       Schedule I-Summary of Investments other than Investments in
                  Related Parties.

         b.       Schedule II -Condensed Financial Statements of Registrant.
         c.       Schedule IV-Reinsurance.

 3.      Exhibits  filed with this report or  incorporated  herein by reference
         are as listed in the Index to Exhibits on page EX-1.

(b)      Reports on Form 8-K:

          No  reports  on Form 8-K were  filed  during  the last  quarter of the
          fiscal year ended December 31, 1999.


                                      -56-

<PAGE>

                                   SIGNATURES


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

                                         InterContinental Life Corporation
                                                   (Registrant)


By:      /s/ Roy F. Mitte                   By:      /s/ James M. Grace
         Roy F. Mitte, Chairman of                   James M. Grace, Treasurer,
         the Board, President and                    Principal Accounting
         Chief Executive Officer                     and Financial Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following  persons on behalf of the  Registrant and
in the capacities indicated on March 29, 2000.

/s/ Roy F. Mitte                                 /s/ James M. Grace
Roy F. Mitte, Director                           James M. Grace, Director

/s/ Eugene E. Payne                               /s/ Jeffrey H. Demgen
Eugene E. Payne, Director                        Jeffrey H. Demgen, Director

/s/ Robert A. Bender                             /s/ Theodore A. Fleron
Robert A. Bender, Director                       Theodore A. Fleron, Director

/s/ W. Lewis Gilcrease                           /s/ Richard A. Kosson
W. Lewis Gilcrease, Director                     Richard A. Kosson, Director

 /s/ Elizabeth T. Nash                           /s/ H. Gene Pruner
Elizabeth T. Nash, Director                      H. Gene Pruner, Director

/s/ Steven P. Schmitt                            /s/ Charles K. Chacosky
Steven P. Schmitt, Director                      Charles K. Chacosky, Director




                                      -57-

<PAGE>


               INTERCONTINENTAL LIFE CORPORATION AND SUBSIDIARIES
                        FORM 10-K--ITEM 14 (a)(1) and (2)
                          LIST OF FINANCIAL STATEMENTS
                                TABLE OF CONTENTS



(1)  The following  consolidated  financial statements of InterContinental  Life
     Corporation and Subsidiaries are included in Item 8:

     Report of Independent Accountants.......................................F-2

     Consolidated Balance Sheets,
     December 31, 1999 and 1998..............................................F-3

     Consolidated Statements of Income, for the
     years ended December 31, 1999, 1998 and 1997............................F-5

     Consolidated Statements of Changes in Shareholders' Equity,
     for the years ended December 31, 1999, 1998 and 1997....................F-6

     Consolidated Statements of Cash Flows, for the years
     ended December 31, 1999, 1998 and 1997..................................F-9

     Notes to Consolidated Financial Statements.............................F-12

(2)  The   following    consolidated    financial    statement    schedules   of
     InterContinental Life Corporation and Subsidiaries are included:

     Schedule I - Summary of Investments Other
     Than Investments in Related Parties....................................F-44

     Schedule II - Condensed Financial Statements of
     Registrant.............................................................F-45

     Schedule IV - Reinsurance..............................................F-49



All other  schedules for which  provision is made in the  applicable  accounting
regulations of the Securities and Exchange Commission are not required under the
related instructions, or are not applicable, and therefore have been omitted.



                                       F-1
<PAGE>

                        REPORT OF INDEPENDENT ACCOUNTANTS



To The Board of Directors and Shareholders of
 InterContinental Life Corporation



In our  opinion,  the  consolidated  financial  statements  listed  in the index
appearing  under  Item  14(a)  (1) and (2) on page F-1  present  fairly,  in all
material respects,  the financial position of InterContinental  Life Corporation
and its  subsidiaries  (the  "Company")  at December 31, 1999 and 1998,  and the
results of their  operations and their cash flows for each of the three years in
the period ended  December 31, 1999, in conformity  with  accounting  principles
generally  accepted in the United  States.  In  addition,  in our  opinion,  the
financial  statement  schedules  listed in the index appearing under Item 14 (a)
(1) on page F-1 present fairly,  in all material  respects,  the information set
forth therein when read in conjunction with the related  consolidated  financial
statements. These financial statements and financial statement schedules are the
responsibility of the Company's management;  our responsibility is to express an
opinion on these financial statements and financial statement schedules based on
our audits.  We conducted  our audits of these  statements  in  accordance  with
auditing standards  generally accepted in the United States,  which require that
we plan and perform the audit to obtain  reasonable  assurance about whether the
financial  statements  are free of  material  misstatement.  An  audit  includes
examining,  on a test basis,  evidence supporting the amounts and disclosures in
the  financial   statements,   assessing  the  accounting  principles  used  and
significant  estimates made by management,  and evaluating the overall financial
statement  presentation.  We believe that our audits provide a reasonable  basis
for the opinion expressed above.




PricewaterhouseCoopers LLP
Dallas, Texas
March 27, 2000







                                       F-2
<PAGE>


               INTERCONTINENTAL LIFE CORPORATION AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                            (in thousands of dollars)
<TABLE>
                                                      December 31,
<S>                                              <C>                   <C>
                                                  1999                1998
ASSETS

Investments:
Fixed maturities, at
       amortized cost (market value
        approximates $2,056 and $3,059)     $     2,088         $    3,005
Fixed maturities available for sale,
       at market value (amortized cost
       $411,532 and $435,130)                   404,217            450,149
Equity securities, at market value
       (cost approximates $338 and $338)          1,943              3,121
Policy loans                                     50,882             53,614
Mortgage loans                                    6,844             10,332
Invested real estate and other invested
       assets                                    21,145             10,025
Short-term investments                          191,695            171,840

       Total investments                        678,814            702,086
Cash and cash equivalents                         3,358             12,206
Notes receivable from affiliates                 41,497             47,645
Accrued investment income                         7,529              7,768
Agent advances and other receivables             24,230             20,753
Reinsurance receivables                          18,769             18,847
Property and equipment, net                       4,416              3,470
Deferred policy acquisition costs                35,598             31,953
Present value of future profits of
       acquired businesses                       39,831             43,666
Other assets                                      9,304             10,643
Separate account assets                         457,853            451,211
       Total Assets                        $  1,321,199        $ 1,350,248
</TABLE>


               The accompanying notes are an integral part of the
                       consolidated financial statements.

                                       F-3
<PAGE>

               INTERCONTINENTAL LIFE CORPORATION AND SUBSIDIARIES
                     CONSOLIDATED BALANCE SHEETS, Continued
                            (in thousands of dollars)
<TABLE>

<S>                                                <C>                <C>
                                                         December 31,
LIABILITIES AND SHAREHOLDERS' EQUITY              1999                1998

Liabilities:
Policy liabilities and contractholder
 deposit funds:
Future policy benefits                       $  130,092        $     135,463
Contractholder deposit funds                    533,869              545,908
Unearned premiums                                 1,977                2,124
Other policy claims and benefits payable          9,893               10,856
                                                675,831              694,351
Other policyholders' funds                        3,012                3,056
Deferred federal income taxes                    21,741               30,185
Other liabilities                                14,635               20,127
Separate account liabilities                    454,289              448,294
    Total Liabilities                         1,169,508            1,196,013
Commitments and Contingencies
 (Notes 6, 8, 11 and 13)
Redeemable preferred stock:
Class A Preferred, $1 par value, 5,000,000
shares authorized, issued                         5,000                5,000
Class B Preferred, $1 par value, 15,000,000
shares authorized, issued                        15,000               15,000
                                                 20,000               20,000
Redeemable preferred stock held in treasury     (20,000)             (20,000)
                                                    -0-                  -0-
Shareholders' Equity:
Common Stock, $.22 par value,
 15,000,000 shares authorized;
 10,875,478 and 5,385,739 shares
 issued, and 8,827,941 and
 4,376,706 shares outstanding
 in 1999 and 1998, respectively                   2,392                1,185
Additional paid-in capital                        4,522                4,385
Accumulated other comprehensive
  income (loss)                                  (3,712)              11,571
Retained earnings                               151,932              140,356
                                                155,134              157,497
Common treasury stock, at cost,
 2,027,537 and 1,009,033 shares
 in 1999 and 1998,  respectively                 (3,443)              (3,262)
Total Shareholders' Equity                      151,691              154,235
Total Liabilities and Shareholders'
 Equity                                    $  1,321,199         $  1,350,248
</TABLE>

                   The accompanying notes are an integral part
                   of the consolidated financial statements.

                                       F-4
<PAGE>

               INTERCONTINENTAL LIFE CORPORATION AND SUBSIDIARIES
                        CONSOLIDATED STATEMENTS OF INCOME
              (in thousands of dollars, except for per share data)
<TABLE>

                                                        Year Ended December 31,
<S>                                                   <C>             <C>             <C>

                                                      1999            1998            1997

Revenues:

 Premium                                    $     11,132       $       10,890      $       11,031
 Net investment income                            49,913               54,619              57,740
 Earned insurance charges                         40,447               41,067              40,853
 Gain on sale of real estate                         112                  -0-              14,630
 Other                                             2,601                2,886               3,429
                                                 104,205              109,462             127,683
Benefits and expenses:
 Policyholder benefits and expenses               32,001               38,367              37,962
 Interest expense on contract holders
     deposit funds                                30,229               29,966              30,533
 Amortization of present value of future
     profits of acquired businesses                3,835                5,903               6,311
 Amortization of deferred policy
     acquisition costs                             2,372                2,128               2,818
 Operating expenses                               17,029               14,853              16,798
 Interest expense                                    -0-                  659               1,659
                                                  85,466               91,876              96,081
Income from operations                            18,739               17,586              31,602
Provision for federal income taxes:
   Current                                         5,955                6,899               9,005
   Deferred                                           19                (432)               2,057
                                                   5,974                6,467              11,062
Net income                                  $     12,765       $       11,119      $       20,540
Net income per share (Note 14):
Basic:
     Weighted average common stock
     outstanding                                   8,796                8,750               8,656
Basic earnings per share                    $       1.45       $         1.27      $         2.37
Diluted:
Common stock and common stock
     equivalents                                   8,800                8,924               8,738
Diluted earnings per share                  $       1.45       $         1.25      $         2.35
</TABLE>

              The accompanying notes are an integral part of these
                       consolidated financial statements.

                                       F-5
<PAGE>


               INTERCONTINENTAL LIFE CORPORATION AND SUBSIDIARIES
           CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
                                 (in thousands)
<TABLE>

                                                                                                      Additional
                                                                       Common Stock                    Paid-in
                                                                Shares              Amount             Capital
<S>                                                              <C>                  <C>               <C>


Balance at December 31, 1996                                     5,224           $   1,150          $   3,752
 Comprehensive Income:
   Net income
 Other comprehensive income:
   Change in net unrealized appreciation of
     equity securities
   Change in net unrealized gain on investments
     in fixed maturities available for sale
 Total comprehensive income
 Options exercised                                                  120                 26                 501
Balance at December 31, 1997                                      5,344              1,176               4,253
 Comprehensive income:
   Net income
 Other comprehensive income:
   Change in net unrealized appreciation of
     equity securities
   Change in net unrealized gain on investments
     in fixed maturities available for sale
 Total comprehensive income
 Treasury stock purchased
 Options exercised                                                    42                  9                132
Balance at December 31, 1998                                       5,386              1,185              4,385
 Comprehensive income:
   Net income
 Other comprehensive income:
   Change in net unrealized appreciation of
     equity securities
   Change in net unrealized loss on investments
     in fixed maturities available for sale
 Total comprehensive income
 Stock dividend paid                                               5,405               1,189
 Treasury stock reissued
 Options exercised                                                    84                  18                137
Balance at December 31, 1999                                      10,875         $     2,392       $      4,522
</TABLE>

              The accompanying notes are an integral part of these
                       consolidated financial statements.

                                       F-6
<PAGE>

               INTERCONTINENTAL LIFE CORPORATION AND SUBSIDIARIES
           CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
                            (in thousands of dollars)
 <TABLE>
                                                                    Accumulated Other Comprehensive Income

                                                                                  Net Unrealized
                                                                    Net           Gain (Loss)on
                                                                Unrealized          Investments         Total
                                                               Appreciation           In Fixed        Accumulated
                                                              (Depreciation)         Maturities         Other
                                                               of Equity              Available      Comprehensive
                                                               Securities             For Sale       Income (Loss)
<S>                                                               <C>                    <C>              <C>

Balance at December 31, 1996                                 $    1,255          $     1,525         $     2,780
 Comprehensive income:
   Net income
 Other comprehensive income:
   Change in net unrealized appreciation of
     equity securities                                            1,691                                    1,691
   Change in net unrealized gain on investments
      in fixed maturities available for sale                                            9,932              9,932
 Total comprehensive income                                       1,691                 9,932             11,623
 Options exercised
Balance at December 31, 1997                                      2,946                11,457             14,403
 Comprehensive income:
   Net income
 Other comprehensive income:
   Change in net unrealized appreciation of
    equity securities                                            (1,137)                                  (1,137)
   Change in net unrealized gain on investments
    in fixed maturities available for sale                                             (1,695)            (1,695)
 Total comprehensive income                                      (1,137)               (1,695)            (2,832)
 Treasury stock purchased
 Options exercised
Balance at December 31, 1998                                      1,809                 9,762             11,571
Comprehensive income:
  Net income
Other comprehensive income:
 Change in net unrealized apppreciation of
   equity securities                                               (766)                                    (766)
 Change in net unrealized loss on investments in
   fixed maturities available for sale                                                (14,517)           (14,517)
 Total comprehensive income                                        (766)              (14,517)           (15,283)
 Stock dividend paid
 Treasury stock reissued
 Options exercised
Balance at December 31, 1999                                  $   1,043          $     (4,755)       $    (3,712)
</TABLE>

              The accompanying notes are an integral part of these
                       consolidated financial statements.

                                       F-7

<PAGE>

               INTERCONTINENTAL LIFE CORPORATION AND SUBSIDIARIES
           CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
                            (in thousands of dollars)
<TABLE>

                                                                          Common           Total
                                                      Retained           Treasury       Shareholders'
                                                      Earnings             Stock           Equity
<S>                                                      <C>                <C>              <C>

Balance at December 31, 1996                        $   108,697         $  (3,018)      $   113,361
 Comprehensive income:
  Net income                                            20,540                               20,540
 Other comprehensive income:
  Change in net unrealized appreciation of
    equity securities                                                                         1,691
  Change in net unrealized gain on investments
    in fixed maturities available for sale                                                    9,932
 Total comprehensive income                              20,540                              32,163
 Treasury stock purchased                                                    (289)             (289)
 Options exercised                                                                              527
Balance at December 31, 1997                            129,237            (3,307)          145,762
 Comprehensive income:
   Net income                                            11,119                              11,119
 Other comprehensive income:
   Change in net unrealized appreciation of
     equity securities                                                                       (1,137)
   Change in net unrealized gain on investments
     in fixed maturities available for sale                                                  (1,695)
 Total comprehensive income                              11,119                               8,287
 Treasury stock reissued                                                       45                45
 Options exercised                                                                              141
Balance at December 31, 1998                            140,356            (3,262)          154,235
 Comprehensive income:
   Net income                                            12,765                              12,765
 Other comprehensive income:
   Change in net unrealized appreciation of
     equity securities                                                                         (766)
   Change in net unrealized loss on investments
     in fixed maturities available for sale                                                 (14,517)
 Total comprehensive income                              12,765                              (2,518)
 Stock dividend paid                                     (1,189)                                -0-
 Treasury stock purchased and reissued                                       (181)             (181)
 Options exercised                                                                              155
Balance at December 31, 1999                        $   151,932      $     (3,443)       $   151,691
</TABLE>




              The accompanying notes are an integral part of these
                       consolidated financial statements.

                                       F-8
<PAGE>


               INTERCONTINENTAL LIFE CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                            (in thousands of dollars)
<TABLE>

                                                       Year Ended December 31,
<S>                                             <C>               <C>                 <C>

CASH FLOWS FROM OPERATING                       1999              1998                1997
ACTIVITIES

Net Income                                 $   12,765         $  11,119          $   20,540
Adjustments to reconcile net income to
       net cash (used in) provided by
 operating activities:
Amortization of present value of future
      profits of acquired businesses            3,835             5,903               6,311
Amortization of deferred policy
     acquisition costs                          2,372             2,128               2,819
Depreciation                                      488               551               2,398
Net gain on sales of investments                 (112)             (988)            (14,805)
Financing costs amortized                         -0-               111                 525
Amortization of deferred gain on sale of
     real estate                                 (110)             (110)               (110)
Changes in assets and liabilities:
Decrease in accrued investment income             239               698                 362
(Increase) decrease in agent advances and
     other  receivables                        (3,399)           (7,686)               4,170
Policy acquisition costs deferred              (6,017)           (5,460)              (4,502)
Decrease in policy liabilities and
     contractholder deposit funds             (18,520)          (16,194)             (17,585)
(Decrease) in other policyholders'
     funds                                        (44)             (668)                (258)
(Decrease) increase in other liabilities       (5,382)           (1,036)               5,172
(Decrease) increase in deferred federal
     income taxes                              (8,444)           (2,355)               5,302
(Decrease) increase in other assets             1,339            (2,691)               1,036
Other, net                                        100              (653)              (7,416)
Net cash (used in) provided by operating
     activities                               (20,890)          (17,331)               3,959
</TABLE>

              The accompanying notes are an integral part of these
                       consolidated financial statements.

                                       F-9
<PAGE>

               INTERCONTINENTAL LIFE CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                            (in thousands of dollars)
<TABLE>

                                                                          Year Ended December 31,
<S>                                                                     <C>                <C>             <C>

CASH FLOWS FROM INVESTING                                                1999                 1998               1997

ACTIVITIES
Purchase of insurance subsidiary                                           -0-              (1,322)            (11,688)
Investments purchased                                                 (79,308)             (41,915)            (24,276)
Proceeds from sales and maturities of
investments                                                           106,517               77,700             117,025
Net change in short-term investments                                  (19,855)              (7,218)            (71,415)
Purchases and retirements of equipment,                                (1,434)              (2,119)               (283)
net
Decrease in notes receivable from
affiliates                                                              6,148                6,148               6,148

Net cash provided by investing
activities                                                             12,068               31,274              15,511

CASH FLOWS FROM FINANCING
ACTIVITIES
Reissuance (purchase) of treasury stock                                  (181)                   45               (289)
Issuance of common stock                                                   155                  141                527
Repayment of debt                                                          -0-             (10,964)            (13,980)

Net cash used in financing activities                                     (26)             (10,778)            (13,742)

Net increase (decrease) in cash and cash
     equivalents                                                       (8,848)                3,165               5,728
Cash and cash equivalents, beginning of
     year                                                               12,206                9,041               3,313

Cash and cash equivalents, end of year                            $      3,358         $     12,206          $    9,041
</TABLE>

              The accompanying notes are an integral part of these
                       consolidated financial statements.

                                      F-10
<PAGE>

         INTERCONTINENTAL LIFE CORPORATION AND SUBSIDIARIES CONSOLIDATED
                            STATEMENTS OF CASH FLOWS
                            (in thousands of dollars)

Supplemental Cash Flow Disclosures:
                                                    Year Ended December 31,
                                         1999           1998           1997

Income taxes paid                      $9,050        $11,700          $2,200
Interest paid                          $  461        $   871          $1,925

Supplemental Schedule of Non-Cash Investing Activities:

The Company purchased the outstanding  capital stock of two life insurers in the
second quarter of 1998 and the third quarter of 1997 for cash purchase prices of
$16.6 million  (including a $12.4 million  dividend paid by the acquired company
to its former  parent)  and $11.8  million,  respectively,  net of post  closing
adjustments.  The  consolidated  statements  of cash flows reflect the impact of
these  acquisitions.  These purchases resulted in the Company receiving tangible
assets and assuming liabilities as follows:


                                              1998                  1997

                  Assets                    $57,745                 $32,420
                  Liabilities               $41,135                 $20,653





              The accompanying notes are an integral part of these
                       consolidated financial statements.

                                      F-11
<PAGE>

           INTERCONTINENTAL LIFE CORPORATION AND SUBSIDIARIES NOTES TO
                        CONSOLIDATED FINANCIAL STATEMENTS

1. Organization and Summary of Significant Accounting Policies

Organization

InterContinental  Life  Corporation  (ILCO  or  the  "Company")  is  principally
engaged,  through its  subsidiaries,  in  administering  existing  portfolios of
individual  life  insurance  and  annuity  products.   The  Company's  insurance
subsidiaries  are also  engaged in the business of  marketing  and  underwriting
individual life insurance and annuity  products in 49 states and the District of
Columbia. Such products are marketed through independent,  non-exclusive general
agents.

Principles of Consolidation

The consolidated  financial  statements include the accounts of InterContinental
Life Corporation and its subsidiaries. All significant intercompany accounts and
transactions have been eliminated.

Basis of Presentation

The  financial  statements  have been  prepared  in  conformity  with  generally
accepted accounting principles which differ from statutory accounting principles
required by regulatory  authorities  for the Company's  insurance  subsidiaries.
Significant accounting policies followed by the Company are:

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  assets and  liabilities at the date of the financial  statements and
the  reported  amounts of revenues  and expenses  during the  reporting  period.
Actual results will differ from those estimates.

Investments

The Company's general investment philosophy is to hold fixed maturity securities
until  maturity.  However,  fixed  maturities  may be sold prior to the maturity
dates in response  to  changing  market  conditions,  duration  of  liabilities,
liquidity  factors,  interest  rate  movements  and  other  investment  factors.
Accordingly,  most fixed  maturity  investments  are classified as available for
sale and are carried at market value.  All other fixed maturities are carried at
the  lower of  amortized  cost or net  realizable  value as  management  has the
positive  intent and the  Company has the  ability to hold such  investments  to
maturity.  Unrealized gains and losses on securities  available for sale are not
recognized  in earnings  but are  reported as a separate  component of equity in
accumulated other comprehensive income, net of income tax effect.


                                      F-12
<PAGE>


               INTERCONTINENTAL LIFE CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Premiums  and  discounts  on  collateralized  mortgage  obligations  (CMOs)  are
amortized  over  the  estimated  redemption  period  as  opposed  to the  stated
maturities.

Equity  securities are carried at market value.  Unrealized  gains and losses on
equity  securities,  net of deferred income taxes, if applicable,  are reflected
directly  in   shareholders'   equity  as  a  component  of  accumulated   other
comprehensive  income.  Mortgage  loans and policy  loans are recorded at unpaid
balances.  Short-term investments are carried at cost, which approximates market
value,  and generally  consist of those fixed  maturities and other  investments
that are intended to be held less than one year from the date of purchase.

Real estate is carried at cost less accumulated depreciation, which is generally
calculated  using the  straight-line  method  over 20 to 40  years.  Accumulated
depreciation  on  investments  in real estate is  $2,126,231  and  $5,501,545 at
December 31, 1999 and 1998, respectively.

Realized gains and losses on disposal of investments are included in net income.
The cost of investments sold is determined on the specific identification basis,
except  for  equity  securities,  for which the  first-in,  first-out  method is
employed.  When an impairment of the value of an investment is considered  other
than  temporary,  the  decrease in value is reported in net income as a realized
investment loss and a new cost basis is established.

Cash and Cash Equivalents

Short-term  investments  with  maturities of three months or less at the time of
purchase are reported as cash equivalents.

Sale of Real Estate

Prior to December,  1999,  FIC owned several  parcels of real estate in Jackson,
Mississippi,  adjacent  to an  office  building  which  formerly  served  as the
headquarters of Standard Life Insurance  Company (the "Standard Life Building").
The Standard  Life  Building was owned by Investors  Life  Insurance  Company of
North  America  ("Investors-NA").  This  building  is 68 years old and  contains
approximately  85,000  square feet (65,000 net  rentable  square feet) of office
space. On December 29, 1999,  Investors-NA donated the Standard Life Building to
the Jackson Redevelopment Authority ("JRA"). Contemporaneously with the donation
of the Standard Life Building, Investors-NA and Financial Industries Corporation
("FIC") sold all of the adjacent  parcels they owned to the JRA for a total sale
price of  $2,500,000,  which  has been  allocated  according  to the  respective
ownership   interests   of   Investors-NA   (approximately   59.28%)   and   FIC
(approximately  40.72%). The donation and sale was made pursuant to the terms of
the  Donation,  Purchase and Sale  Agreement  dated July 17, 1998.  Investors-NA
intends  to claim an income tax  deduction  of its  upcoming  tax return for the
donation of the Standard Life Building, which has an appraised value at December
15,  1999  of  approximately  $3,050,000.  The  donation  and  sale  transaction
referenced  above  resulted in a net gain (GAAP  basis) of $992,494 for ILCO and
$408,664 for FIC (combined total of $1,401,158).

                                      F-13
<PAGE>

               INTERCONTINENTAL LIFE CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Net income for 1997 includes $14.6 million (before federal income tax) resulting
from the sale during the fourth quarter of 1997 of the Bridgepoint Square office
complex.  The  aggregate  selling  price was $78  million  which  was  allocated
approximately 78.5% to Investors-NA and 21.5% to Family Life. The sale closed on
December 5, 1997.

Property and Equipment

Property  and  equipment  is  stated  at  cost  less  accumulated  depreciation.
Depreciation is calculated  using  straight-line  and  accelerated  methods over
estimated  useful lives of 10 to 33 years for buildings and  improvements and 10
years for  furniture  and  equipment.  Maintenance  and  repairs  are charged to
expense when incurred.  Accumulated  depreciation for property and equipment and
home office real estate was  $4,630,102  and $5,091,037 at December 31, 1999 and
1998, respectively.

Deferred Acquisition Costs

The  cost  of  acquiring  new  and  renewal  business,  principally  first  year
commissions  and  certain  expenses  of the  policy  issuance  and  underwriting
departments,  which vary with and are primarily related to the production of new
and renewal business, have been deferred to the extent recoverable.  Acquisition
costs  related  to  universal  life  products  are  deferred  and  amortized  in
proportion  to the ratio of estimated  annual gross  profits to total  estimated
gross  profits  over the  expected  lives of the  contracts.  Acquisition  costs
related to traditional  life insurance  business are deferred and amortized over
the premium paying period of the related policies.

Present Value of Future Profits

The present  value of future  profits of acquired  traditional  life business is
amortized over the premium  paying period of the related  policies in proportion
to the ratio of the annual premium revenue to total anticipated  premium revenue
applicable to such policies.  Interest on the unamortized balance is accreted at
rates from 7.0% to 8.5%.

For  interest-sensitive  products,  these costs are amortized in relation to the
present  value,  using the current  credited  interest  rate, of expected  gross
profits of the policies over the anticipated coverage period.

Retrospective  adjustments  of  these  amounts  are made  periodically  upon the
revision of estimates of current or future gross profits on universal  life-type
products  to be realized  from a group of  policies.  Recoverability  of present
value of future  profits is  evaluated  periodically  by  comparing  the current
estimate of future profits to the unamortized asset balances.



                                      F-14
<PAGE>
               INTERCONTINENTAL LIFE CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Anticipated  investment  returns,  including realized gains and losses, from the
investment  of   policyholder   balances  are  considered  in  determining   the
amortization of present value of future profits acquired.

Deferred Financing Costs

Financing costs associated with the Company's Senior Loan were deferred and were
amortized over the borrowing periods using the interest method.

Separate Accounts

Separate  account assets,  carried at market value,  and  liabilities  represent
policyholder funds maintained in accounts having specific investment objectives.
The net investment income,  gains and losses of these accounts,  less applicable
contract  charges,  generally accrue directly to the  policyholders  and are not
included in the Company's  statement of income, with the exception for the gains
and losses in the Company's seed money in the separate accounts.

Solvency Laws Assessments

The solvency or guaranty  laws of most states in which the  Company's  insurance
subsidiaries do business may require the Company's insurance subsidiaries to pay
assessments (up to certain  prescribed  limits) to fund  policyholder  losses or
liabilities of insurance companies that become insolvent.  These assessments may
be deferred  or  forgiven  under most  guaranty  laws if they would  threaten an
insurer's  financial strength and, in certain  instances,  may be offset against
future premium taxes. The Company's insurance subsidiaries' expense for guaranty
fund  assessment  from  states  which do not allow  premium  tax  offsets is not
material.

Policy Liabilities and Contractholder Deposit Funds

Liabilities for future policy benefits  related to traditional life products are
computed using the net level premium method or an equivalent  actuarial  method.
Assumptions for future  investment  yields are incorporated in these liabilities
(principally 8% for guaranteed premium products).  Assumptions for mortality and
withdrawal,  based on industry and Company experience for all products,  include
provisions for possible unfavorable deviations.  The liability for future policy
benefits  for  traditional  life  policies is graded to reserves  stipulated  by
regulatory  authorities  over a 30-year  period or the end of the premium paying
period, if less.

Contractholder  deposit funds are  liabilities  for  universal  life and annuity
products.  These  liabilities  consist of deposits  received from  customers and
accumulated net investment  income on their fund balances,  less  administrative
charges.  Universal life fund balances are also assessed mortality charges.  The
cash value benefit for these products is based on actual crediting rates,  which
are lower than assumed investment yields.

                                      F-15
<PAGE>

               INTERCONTINENTAL LIFE CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Liabilities for future policy benefits related to non-cancelable  and guaranteed
renewable  accident  and health  contracts  are  computed  based on industry and
Company experience and estimated future investment yields ranging from 4 1/2% to
6%. Unearned  premium reserves for credit life and accident and health contracts
are  computed  on  either  the  sum-of-the-year's  digits  or pro  rata  methods
depending upon the type of coverage.  In December,  1997,  ILCO's life insurance
subsidiaries   entered  into  a  reinsurance  treaty  under  which  all  of  the
contractual  obligations and risks under accident and health insurance  policies
were assumed by a third party reinsurer. (See Note 8.)

Other Policy Claims and Benefits Payable

The  liability  for  other  policy  claims  and  benefits   payable   represents
management's  estimate  of  unpaid  losses on  claims  and  other  miscellaneous
liabilities to policyholders. Estimated unpaid losses on claims are comprised of
losses on claims that have been reported but not yet paid,  including  estimates
of additional development of initial claims estimates, and claims that have been
incurred but not yet reported (IBNR) to the Company.

The  liability  for other policy  claims and benefits  payable is subject to the
impact of changes in claim severity, frequency and other factors. Although there
is considerable variability inherent in such estimates, management believes that
the liability recorded is adequate.

Revenue Recognition

Premiums on traditional  life and health products are recognized as revenue over
the premium  paying  period when due.  Credit life and credit  health  insurance
premiums are recognized over the contract period on a pro rata basis, or the sum
of years  digits  basis.  Benefits  and  expenses  are  associated  with  earned
premiums,  so as to  result  in  recognition  of  profits  over the lives of the
contracts.

Proceeds  from  investment-related  products  and  universal  life  products are
recorded as liabilities when received.  Revenues for investment-related products
consist of contract  charges  assessed  against the deposit  fund values and net
investment  income.  Related  benefit  expenses  primarily  consist of  interest
credited to the fund values after  deductions for investment and policy charges.
Revenues for universal life products consist of net investment income, mortality
and  administration  charges  against  deposits  and fund  values and  surrender
charges  assessed  against the fund values.  Related  benefit  expenses  include
universal life benefit claims in excess of fund values and interest  credited to
universal life fund values.






                                      F-16
<PAGE>

               INTERCONTINENTAL LIFE CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Net Income Per Share

Net income per share is  calculated  based on two  methods,  basic  earnings per
share and diluted  earnings per share.  Basic  earnings per share is computed by
dividing income available to common  shareholders by the weighted average number
of common  shares  outstanding  during the period.  Diluted  earnings  per share
reflects  the  potential  dilution  that  could  occur  if  securities  or other
contracts to issue common stock were  converted or  exercised.  Both methods are
presented on the face of the income statement.

Federal Income Taxes

In February,  1992, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" (FAS 109).
The Company adopted FAS 109 on a prospective  basis  effective  January 1, 1993.
FAS 109 mandates the asset and liability  method for computing  deferred  income
taxes.  Under this method,  balance sheet amounts for deferred  income taxes are
computed  based on the tax  effect  of the  differences  between  the  financial
reporting and federal income tax basis of assets and  liabilities  using the tax
rates which are expected be in effect when these  differences are anticipated to
reverse.

New Accounting Pronouncements

In February 1997,  the Financial  Standards  Board ("FASB")  issued FAS No. 128,
"Earnings Per Share",  which  revises the  standards for computing  earnings per
share  previously  prescribed by APB Opinion No. 15,  "Earnings Per Share".  The
Statement  establishes  two measures of earnings per share.  Basic  earnings per
share is computed by dividing  income  available to common  shareholders  by the
weighted average number of common shares outstanding during the period.  Diluted
earnings  per  share  reflects  the  potential  dilution  that  could  occur  if
securities or other contracts to issue common stock were converted or exercised.
The Statement requires dual presentation of basic and diluted earnings per share
on the face of the income statement for all entities with  potentially  dilutive
securities outstanding.

The Statement also requires a reconciliation of the numerator and denominator of
the basic earnings per share computation to the numerator and denominator of the
diluted earnings per share  computation.  The Statement is effective for interim
and annual periods ending after December 15, 1997. The Company  adopted SFAS No.
128 for the year ended December 31, 1997.







                                      F-17
<PAGE>

               INTERCONTINENTAL LIFE CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In June 1997,  the FASB issued FAS No. 130,  "Reporting  Comprehensive  Income,"
which  establishes  standards  for the  reporting  and display of  comprehensive
income  and its  components.  Comprehensive  income  is  defined  as net  income
adjusted for changes in  stockholders'  equity  resulting from events other than
net income or  transactions  related to an  entity's  capital  instruments.  The
Company  has  adopted  FAS 130 for the  year  ended  December  31,  1998 and has
restated  the  financial  statement  presentation  for 1997 as  required by this
pronouncement.

In June 1997,  the FASB issued FAS No. 131,  "Disclosures  about  Segments of an
Enterprise and Related  Information," which establishes  standards for reporting
information about operating segments. Generally, FAS 131 requires that financial
information  be reported  on the basis that is used  internally  for  evaluating
performance.  The Company adopted SFAS 131 for the year ended December 31, 1998.
As  described  in Note 1,  the  Company  is  principally  engaged,  through  its
subsidiaries,  in administering existing portfolios of individual life insurance
and annuity products.  The Company's insurance  subsidiaries are also engaged in
the business of marketing and underwriting individual life insurance and annuity
products in 49 states and the District of Columbia.  Such  products are marketed
through  independent,  non-exclusive  general agents.  Management  considers the
Company's  insurance  operations to constitute one reportable  segment.  Premium
revenues for  traditional  insurance  products and earned  insurance  charges on
universal  life  and  annuity   products  are  presented  in  the   accompanying
consolidated statements of income. No single customer accounts for 10 percent or
more of the Company's revenue. The Company has no foreign operations.

In February  1998,  the FASB issued FAS No. 132,  "Employers  Disclosures  about
Pensions and Other  Postretirement  Benefits," which revises current  disclosure
requirements for employers' pension and other retiree benefits. FAS 132 does not
change the measurement or recognition of pension or other postretirement benefit
plans.  The Company  adopted FAS 132 for the year ended  December 31, 1998,  and
restated disclosures for 1997 as required by this pronouncement.

In December 1997, the Accounting  Standards Executive Committee issued Statement
of Position  ("SOP") 97-3,  "Accounting by Insurance and Other  Enterprises  for
Insurance-Related  Assessments,"  which  provides  guidance  on  accounting  for
insurance-related assessments. The Company adopted SOP 97-3 January 1, 1999. The
adoption of this SOP did not have a material  impact on the Company's  financial
statements.




                                      F-18
<PAGE>


               INTERCONTINENTAL LIFE CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In  June,  1998,  the  FASB  issued  FAS No.  133,  "Accounting  for  Derivative
Instruments and Hedging Activities," which establishes  accounting and reporting
standards for derivative  instruments,  including certain derivative instruments
embedded in other contracts,  (collectively  referred to as derivatives) and for
hedging  activities.  FAS No. 133 is applicable to financial  statements for all
fiscal quarters of fiscal years beginning after June 15, 2000, as amended by FAS
No.  137,  "Accounting  for  Derivative  Instruments  and Hedging  Activities  -
Deferral of the  Effective  Date of FAS No.  133".  As the Company does not have
significant investments in derivative financial instruments, the adoption of FAS
133 is not  anticipated  to have a material  impact on the Company's  results of
operations, liquidity or financial position.

Reclassification  Certain prior years' amounts have been reclassified to conform
with the 1999 presentation.






                                      F-19
<PAGE>

               INTERCONTINENTAL LIFE CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2.       Investments

Fixed  Maturities  The amortized  cost,  gross  unrealized  gains and losses and
market values of fixed  maturities  available for sale and fixed maturities held
to  maturity at December  31,  1999 and 1998,  respectively  were as follows (in
thousands):
<TABLE>

                                                      Amortized         Gross Unreal-      Gross Unreal-         Market
                                                         Cost            ized Gains         ized Losses           Value
<S>                                                      <C>                 <C>                <C>                 <C>

Fixed Maturities Available
 for Sale as of December 31, 1999:
U.S. Treasury securities and
 obligations of U.S. government
   agencies and corporations                       $     26,191      $         745       $         30      $      26,906
Obligations of states and political
   subdivisions                                           4,680                 91                -0-              4,771
Corporate securities                                    172,686                334              8,306            164,714
Mortgage-backed securities                              207,975              3,273              3,422            207,826
Total fixed Maturities Available
  For Sale
Fixed Maturities Held to Maturity:                      411,532              4,443             11,758            404,217
Private placements-corporate
                                                          2,088                 11                 43              2,056
Total Fixed Maturities                             $    413,620      $       4,454        $    11,801       $    406,273
Fixed Maturities Available For
Sale as of  December 31, 1998

U.S. Treasury securities and
 obligations of U.S. government
   agencies and corporations                       $     37,360      $       3,293     $            1       $     40,652
Obligations of states and political
   subdivisions                                           4,690                383                -0-              5,073
Corporate securities                                    148,989              4,755                110            153,634
Mortgage-backed securities                              244,091              7,067                368            250,790
Total Fixed Maturities Available
For Sale                                                435,130             15,498                479            450,149
Fixed Maturities Held to
Maturity:
   Private placements-corporate                          3,005                  54                -0-              3,059
   Total Fixed Maturities                           $   438,135      $      15,552     $          479        $   453,208
</TABLE>



                                      F-20
<PAGE>

               INTERCONTINENTAL LIFE CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The amounts of  unrealized  gains and losses on fixed  maturities  available for
sale included in accumulated other comprehensive income reflected in the balance
sheet have been reduced by estimated  deferred taxes in the amount of $2,560,000
and $5,257,000 in 1999 and 1998, respectively.

The amortized cost and market value of fixed  maturities  available for sale and
fixed  maturities  held to  maturity  at  December  31,  1998 is shown  below by
contractual maturity.  Actual maturities may differ from contractual  maturities
because  borrowers  may have the  right to call or  prepay  obligations  with or
without  call or  prepayment  penalties.
                                   Fixed  Maturities  Available  for Sale

                                         Amortized             Market
                                           Cost                Value
                                                (in thousands)

Due in one year or less                $  18,967              $  19,008
Due after one through five years          59,154                 58,742
Due after five through ten years          35,812                 34,718
Due after ten years                       89,624                 83,923
Mortgage backed securities               207,975                207,826
Total Fixed Maturities Available
 for Sale                              $ 411,532              $ 404,217

                                        Fixed Maturities Held to Maturity
                                         Amortized                 Market
                                            Cost                    Value
                                                   (in thousands)

Due in one year or less                  $   569              $      566
Due after one through five years             903                     891
Due after five through ten years             545                     517
Due after ten years                           71                      82
Mortgage backed securities                   -0-                     -0-
Total Fixed Maturities Held to Maturity  $ 2,088              $    2,056

Proceeds from sales and  maturities of investments  in fixed  maturities  during
1999,   1998  and  1997  were   approximately   $106,517,000,   $77,700,000  and
$117,025,000.  Gross gains of approximately $443,000,  $178,000 and $293,000 and
gross losses of  approximately  $61,000,  $16,000 and $123,000  were realized on
those sales and maturities in 1999, 1998 and 1997, respectively.

                                      F-21
<PAGE>

               INTERCONTINENTAL LIFE CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Equity Securities

The change in net unrealized  appreciation for equity  securities was $(766,000)
and $(1,137,000)  for the years ended December 31, 1999 and 1998,  respectively.
Amounts as of December 31 were as follows (in thousands):
                                                 1999              1998


Unrealized appreciation                      $  1,617         $    2,796
Unrealized depreciation                           (12)               (13)
Net unrealized appreciation before tax          1,605              2,783
Less: Federal income tax                         (562)              (974)
Net unrealized appreciation                  $  1,043         $    1,809

Equity  securities  included a $1,897,500  investment,  ($318,390  at cost),  in
189,750 shares of common stock of Financial  Industries  Corporation  (FIC) (See
note 9). This represents 3.8% of FIC's outstanding  common stock at December 31,
1999.

The net change in  unrealized  investment  gains  (losses)  represents  the only
component of other  comprehensive  income for the years ended December 31, 1999,
1998 and 1997. The following is a summary of the change in unrealized investment
gains  (losses)  net of related  deferred  income  taxes which are  reflected in
accumulated other comprehensive income for the periods presented:

Change in Unrealized Gains (Losses)
 on Investments                          1999           1998           1997
                                                     (in thousands)


Fixed maturities                      $(22,334)       $  (2,607)     $   15,280
Equity securities                       (1,178)          (1,749)          2,602
                                       (23,512)          (4,356)         17,882
Deferred federal income taxes           (8,229)          (1,524)          6,259
Net change in unrealized gains
  (losses) on investments             $(15,283)       $  (2,832)     $   11,623



                                      F-22
<PAGE>

               INTERCONTINENTAL LIFE CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table sets forth the reclassification adjustments required for the
years ended December 31, 1999, 1998 and 1997:

Reclassification Adjustments                 1999         1998           1997
                                                      (in thousands)

Unrealized holding gains (losses)
 on investments
 arising during the period               $ (15,034)     $ (2,621)      $ 11,733
Reclassification adjustments for
 gains included in net income                  249           211            110

Unrealized gains (losses) on
 investments, net of
 reclassification adjustment             $ (15,283)      $(2,832)      $ 11,623

Net Investment Income

The  components  of  net  investment   income  are  summarized  as  follows  (in
thousands):

                                                Year Ended December 31,

                                           1999            1998           1997

Fixed maturities                        $ 43,755        $ 47,322      $  46,570
Equity securities                              1               7             10
Other, including policy loans,
   real estate and mortgage loans          6,880           8,275         14,826
                                          50,636          55,604         61,406
Investment expenses                         (723)           (985)        (3,666)
Net Investment Income                   $ 49,913        $ 54,619      $  57,740





                                      F-23
<PAGE>

               INTERCONTINENTAL LIFE CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Realized Gains and Losses

Net realized  gains (losses)  included in net  investment  income are summarized
below (in thousands): Year Ended December 31,
                                               1999          1998         1997

Fixed maturities available for sale       $     382      $    162     $    171
Equity securities                                 1           164           (2)
Other investments                                74           662            6
                                                457           988          175
Income taxes                                    160           346           61
Net realized gains                        $     297      $    642     $    114

Mortgage loans and invested real estate

The  Company's  mortgage  loans and  invested  real  estate are  diversified  by
property type,  location and issuer.  Mortgage loans are  collateralized  by the
related  properties  and  such  loans  generally  range  from  15% to 80% of the
property's  value at the time the loan is made. No new mortgage  loans were made
during the three year period ended December 31, 1999.

Non-income producing investments

The carrying  value of non-income  producing  investments  were as follows as of
December 31:

                                            1999                   1998
                                                   (in thousands)

Fixed Maturities                    $         -0-       $            -0-
Mortgage loans                                -0-                     81
Total                               $         -0-       $             81



                                      F-24

<PAGE>

               INTERCONTINENTAL LIFE CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

3.  Disclosures about Fair Value of Financial Instruments

The estimated fair value of the Company's financial  instruments at December 31,
1999 are as follows:
                                         Carrying                   Fair
                                          Amount                   Value
                                                  (in thousands)

Financial assets:
Fixed maturities                         $406,305                $406,273
Policy loans                               50,882                  50,882
Mortgage loans                              6,884                   6,701
Short-term investments                    191,695                 191,695
Cash and cash equivalents                   3,358                   3,358
Notes receivable from affiliates           41,497                  41,497

Financial liabilities:
Deferred annuities                        113,923                 112,714

  Supplemental Contracts                   13,745                  13,309

The following  methods and  assumptions  were used to estimate the fair value of
each class of financial investments:

Fixed maturities

Fair values are based on quoted market prices or dealer quotes.

Policy loans

Policy loans are, generally, issued with coupon rates below market rates and are
considered  early payment of the life benefit.  As such, the carrying  amount of
these financial instruments is a reasonable estimate of their fair value.

Mortgage loans

The fair value of  mortgage  loans is  estimated  using a  discounted  cash flow
analysis  using  rates  for BBB-  rated  bonds  with  similar  coupon  rates and
maturities.



                                      F-25
<PAGE>
               INTERCONTINENTAL LIFE CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Cash and cash equivalents and short-term investments

The carrying amount of these instruments approximates market value.

Notes receivable from affiliates

The fair value is based on redemption value.

Deferred annuities and supplemental contracts

The fair value of deferred  annuities is estimated using cash surrender  values.
Fair values for supplemental contracts is estimated using a discounted cash flow
analysis, based on interest rates currently offered on similar products.

4.  Present Value of Future Profits of Acquired Business

An analysis of the present value of future profits of acquired  businesses is as
follows:

                                                1999                 1998
                                                    (in thousands)

Beginning balance                          $   43,666          $     47,286
Acquisition of insurance subsidiary                -0-                1,981
Accretion of interest                            3,382                3,559
Amortization                                   (7,217)               (9,160)
Ending Balance                             $   39,831          $     43,666

Amortization of the present value of future profits included in the consolidated
statements of income is presented net of the accretion of interest.

The estimated  amount of present value of future  profits to be amortized net of
interest  accretion  during  each of the  next  five  years is as  follows:
                                 (in thousands)
                                  2000 $ 4,106
                                  2001 $ 3,739
                                  2002 $ 3,466
                                  2003 $ 3,199
                                  2004 $ 2,966






                                      F-26
<PAGE>

               INTERCONTINENTAL LIFE CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

5.  Acquisition of Business

On June 30,  1998,  ILCO,  through  a  subsidiary,  Investors-Indiana,  acquired
Grinnell  Life  Insurance  Company  ("Grinnell  Life")  an  Iowa-domiciled  life
insurer,  from Grinnell Mutual Life Insurance  Company for an adjusted  purchase
price  of  $16.6  million.  As  part  of  the  transaction,  Grinnell  Life  was
immediately merged with and into Investors-Indiana, with Investors-Indiana being
the surviving entity.

On July 9, 1997, ILCO and  Investors-Indiana  acquired State Auto Life Insurance
Company, an Ohio domiciled life insurer,  from State Automobile Mutual Insurance
Company,  for an adjusted cash purchase price of $11.8 million.  The transaction
was accounted for as a purchase business combination.  Accordingly,  the results
of State Auto  Life's  operations  are  included  in income from the date of the
acquisition.  The purchase  price was allocated to the fair values of the assets
and liabilities acquired including the present value of future profits disclosed
in Note 4. Under the terms of the  transaction,  State Auto Life was merged into
Investors-Indiana.

6.  Senior Loans

The Senior  Loan of ILCO was  originally  arranged in  connection  with the 1988
acquisition of  Investors-NA  and  Investors-CA.  In January,  1993, the Company
refinanced its Senior Loan.  That  transaction  was done in connection  with the
prepayment of the  subordinated  indebtedness and the purchase of warrants which
had been issued as part of the financing of the 1988 acquisitions.  The terms of
the amended and restated  credit  facility  were  substantially  the same as the
terms and provisions of the 1988 senior loan. The average  interest rate paid by
the Company on its Senior  Loan was  approximately  7.68%  during 1997 and 7.63%
during 1998. The maturity  date,  which had been December 31, 1996, was extended
to July 1, 1998 for the Senior Loan.

In February,  1995,  the Company  borrowed an  additional  $15 million under the
Senior Loan to help finance the  acquisition of  Investors-IN,  and the maturity
date of the Senior Loan was further extended to July 1, 1999. As of December 31,
1995, the outstanding  principal  balance of ILCO's senior loan  obligations was
$59.4 million.  In January,  1996, the Company made a scheduled  payment of $4.5
million  under its Senior Loan. In March,  1996,  the Company made the scheduled
payments for April 1st and July 1st, totaling $9 million. At that same time, the
Company made a payment of $941,000, an additional payment under the terms of the
loan applied to the principal  balance.  On April 1, 1996, an optional principal
payment in the amount of $15 million was made,  which  resulted in advancing the
scheduled  payoff date of the Senior Loan to April 1, 1998. In July,  1996,  the
Company  made the  principal  payment for October  1st ($4.5  million),  plus an
optional  principal payment of $0.5 million.  In connection with the acquisition
of State Auto Life  Insurance  Company in July,  1997, the Senior Loan agreement
was modified to extend the maturity date to October 1, 1998.

As of December 31, 1997, the outstanding principal balance of ILCO's senior loan
obligations was $11.0 million,  which reflected the prepayment by the Company of
the payment originally  scheduled for January 1, 1998. A regular payment, in the
amount of $3.7  million,  was made on April 1, 1998 and a prepayment of the July
1, 1998 installment,  in the amount of $3.7 million,  was made on June 30, 1998.
The  outstanding  principal  balance of ILCO's senior loan  obligations was $3.6
million at June 30, 1998. The final  installment  on the senior loan  obligation
scheduled  for October 1, 1998,  was prepaid on September 30, 1998. As a result,
the senior loan obligation of ILCO was fully discharged  effective September 30,
1998.


                                      F-27
<PAGE>

               INTERCONTINENTAL LIFE CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


7. Income Taxes

The Company  files  consolidated  federal  income tax returns  with its non-life
subsidiaries.  The Company's  life insurance  subsidiaries  file a separate life
consolidated  federal  income tax return.  In accordance  with the Company's tax
allocation agreement, federal income tax expense or benefit is allocated to each
member  of the  consolidated  group as if each  member  were  filing a  separate
return.

The U.S. federal income tax provision (benefit) charged to continuing operations
for the years ended December 31, was as follows:

                                         1999             1998            1997
                                                   (in thousands)

Current tax provision                  $  5,955       $   6,899      $   9,005
Deferred tax provision                       19            (432)         2,057
Total provision for income taxes       $  5,974       $   6,467      $  11,062

Provision  has not been made for state  income  tax  expense  since  expense  is
minimal.  Premium taxes are paid to various  states where  premium  revenues are
earned.  Premium  taxes are  included in the  statement  of income as  operating
expenses.

The provision for income taxes differs from the amount of income tax  determined
by applying the U.S.  statutory federal income tax rate of 35% to pre-tax income
from continuing operations as a result of the following  differences:
                                           1999           1998            1997
                                                    (in thousands)

Income taxes at the U.S.
 statutory rate                         $  6,559      $   6,155      $  11,062
Charitable contribution                     (920)           -0-            -0-
Increase (decrease) in taxes
resulting from:
  Non-deductible compensation                335            312            -0-
Total provision for income taxes        $  5,974      $   6,467      $  11,062







                                      F-28
<PAGE>


               INTERCONTINENTAL LIFE CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Deferred  taxes are recorded for  temporary  differences  between the  financial
reporting  bases and the federal  income tax bases of the  Company's  assets and
liabilities.  The sources of these  differences  and the estimated tax effect of
each are as follows:
<TABLE>

                                                       December 31,
<S>                                           <C>                   <C>
                                              1999                  1998
Deferred Tax Liability:                              (in thousands)

Deferred policy acquisition costs        $   8,340              $   6,897
Present value of future profits             11,597                 12,718
Net unrealized (depreciation)
 appreciation on                            (1,998)                 6,231
marketable securities
Acquisition discounts on mortgages/
 policy loans                                1,210                  1,213
Reinsurance recoverable                      5,571                  5,607
Other taxable temporary differences          2,965                  2,782
Total deferred tax liability                27,685                 35,448

Deferred Tax Asset:

Policy reserves                              2,771                  1,896
Invested assets                              1,655                  1,759
Net operating loss carry forward             1,195                  1,298
Minimum tax credit                             323                    310

Total deferred tax asset                     5,944                  5,263

Net deferred tax liability                $ 21,741             $   30,185
</TABLE>

Deferred  federal  income tax benefit of $8,229,000  and $1,524,000 for 1999 and
1998,   respectively,   have  been  provided  on  the  unrealized   appreciation
(depreciation)  of  marketable  securities  and  included  in the balance of the
deferred  tax  liability  account.  This  increase or  decrease in deferred  tax
liability has been recorded as a reduction or increase to the equity  adjustment
due to the net change in unrealized  appreciation  or  depreciation  and has not
been  reflected in the deferred  income tax expense  included in net income from
operations.

Under the provisions of pre-1984 life insurance  company income tax regulations,
a portion of "gain from  operations" of Investors-IN  and  Investors-NA  was not
subject to current  taxation but was accumulated,  for tax purposes,  in special
tax memorandum accounts designated as "policyholders' surplus accounts". Subject
to certain  limitations,"policyholders'  surplus" is not taxed until distributed
or the  insurance  company no longer  qualifies to be taxed as a life  insurance
company. The accumulation in these accounts for Investors-NA and Investors-IN at
December 31, 1999 was $8,225,000 and  $4,357,000,  respectively.  Federal income
tax  of  $2,879,000  and  $1,525,000  would  be due if  the  entire  balance  is
distributed at a tax rate of 35%.

                                      F-29
<PAGE>

               INTERCONTINENTAL LIFE CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



The Company does not  anticipate any  transactions  that would cause any part of
the policyholders' surplus accounts to become taxable and, accordingly, deferred
taxes have not been provided on such amounts. At December 31, 1999, Investors-NA
and Investors-IN have approximately $138,000,000 and $19,400,000,  respectively,
in  the   aggregate  in  their   shareholders'   surplus   accounts  from  which
distributions could be made without incurring any federal tax liability.

At December 31, 1999,  the Company and its  non-life  wholly-owned  subsidiaries
have net operating loss carry forwards of approximately $3.3 million.

8. Reinsurance

The Company  reinsures  portions of certain policies thereby  providing  greater
diversification  of  risk  and  minimizing  exposure  on  larger  policies.  The
Company's  retention  on any one  individual  ranges  from  $60,000 to  $250,000
depending on the risk. The Company  remains liable to the extent the reinsurance
companies are unable to meet their obligations under the reinsurance agreements.

In December, 1997, ILCO's life insurance subsidiaries entered into a reinsurance
treaty under which most of the contractual  obligations and risks under accident
and health  insurance  policies  were  assumed by a third party  reinsurer.  The
transfer  is  effective  as  of  July  1,  1997.  These  risks  and  contractual
obligations were sold pursuant to, first, a coinsurance  reinsurance  agreement.
Following applicable regulatory approvals,  the reinsurer will assume the direct
obligations of the companies,  on an assumption  reinsurance basis. The decision
to dispose of this block of business was based on management's analysis that the
business was not  generating  targeted  profit  objectives and that the products
were not part of the core  business of the  subsidiaries.  The sale  permits the
company to focus on its primary  business:  life insurance and annuity sales. In
connection with the transaction, the total amount of net reserves transferred by
the  subsidiaries was $6,327,504.  In addition to the transfer of reserves,  the
life companies paid the reinsurer $1,037,150 in connection with the transaction,
which  amount was  accounted  for as an expense for the year ended  December 31,
1997. In 1997, the  transferred  business  generated  approximately  $791,000 in
annualized premiums.



                                      F-30
<PAGE>


               INTERCONTINENTAL LIFE CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The amounts  reported in the consolidated  financial  statements for reinsurance
ceded are as follows:
                                                          December 31,
                                                     1999               1998
                                                         (in thousands)

Future policy benefits                           $   10,010       $   10,178
Unearned premiums                                     1,605            1,878
Other policy claims and benefits payable              4,103            4,225
Amounts recoverable on paid claims                    3,051            2,566
Reinsurance receivables                          $   18,769       $   18,847


                                                     Year ended December 31,
                                            1999           1998          1997
                                                      (in thousands)

Premiums                                $   3,472       $   2,942    $   2,590
Policyholder benefits and expenses      $  14,568       $  20,311    $  15,286

9. Shareholders' Equity

Financial  Industries  Corporation  ("FIC"),  a life insurance  holding company,
retains  ownership of approximately  44.5% of the Company's  outstanding  common
stock. FIC held options to purchase up to an additional 1,702,155 shares, (which
number does not reflect the stock dividend paid by ILCO on March 7, 1999) of the
Company's  authorized but unissued  common stock at a price equal to the average
market value during the six months  preceding the exercise  date.  These options
expired on September 30, 1998.

The Company's ability to pay dividends to its shareholders is affected, in part,
by the receipt of dividends from Investors-NA, which is organized under the laws
of the state of Washington.  Under current  Washington law, any proposed payment
of a dividend or distribution  which,  together with dividends or  distributions
paid  during the  preceding  twelve  months,  exceeds  the greater of (i) 10% of
statutory  surplus as of the  preceding  December 31 or (ii)  statutory net gain
from  operations  for the preceding  calendar  year is called an  "extraordinary
dividend"  and may not be paid until either it has been  approved,  or a waiting
period  shall  have  passed  during  which it has not been  disapproved,  by the
insurance commissioner.

In  addition,  Washington  laws require  that prior  notification  of a proposed
dividend be given to the Washington  Insurance  Commissioner  and that dividends
may be paid only from earned surplus.

                                      F-31
<PAGE>

               INTERCONTINENTAL LIFE CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Net income (before surplus  debenture  interest expense) and capital and surplus
of  Investors-NA  as reported  to  insurance  regulators  and as  determined  in
accordance  with  statutory  accounting  practices  are as  follows:
                                            Year Ended December 31,
                                         1999           1998            1997

Net Income                            $12,549        $ 14,246        $ 25,925
Capital and Surplus                   $75,169        $ 70,627        $ 73,932

The insurance regulations of the state of Washington limit the amount an insurer
may invest in the  obligations  of any one  corporation  to four  percent of the
insurer's   statutory   admitted  assets.   Investors-NA  held  $41,497,000  and
$47,645,000 in subordinated  notes issued by FIC and Family Life Corporation,  a
wholly-owned  subsidiary  of FIC, at December  31, 1999 and 1998,  respectively.
Prior to the acquisition of these notes,  Investors-NA received written approval
from the  Washington  State  Insurance  Department for the inclusion of the full
amount of these notes in its statutory  admitted  assets.  At December 31, 1999,
this permitted  practice did not increase  statutory  surplus over what it would
have been under prescribed statutory accounting practices.

In 1998, the NAIC adopted the  Codification of Statutory  Accounting  Principles
guidance,  which will replace the current  Accounting  Practices and  Procedures
manual as the NAIC's primary guidance on statutory  accounting.  The NAIC is now
considering amendments to the Codification guidance that would also be effective
upon  implementation.   The  Codification  provides  guidance  for  areas  where
statutory accounting has been silent and changes current statutory accounting in
some  areas,  e.g.  deferred  income  taxes are  recorded.  The  Company has not
estimated the  potential  effect of the  Codification  guidance on statutory net
income and statutory capital and surplus. However, the actual effect of adoption
could  differ as changes  are made to the  Codification  guidance,  prior to its
recommended effective date of January 1, 2001.

In 1988,  the Company  authorized  the issuance of 10 million  shares of Class C
Preferred  Stock,  $1.00 par value.  The  Company was not  permitted,  under the
provisions  of the Senior Loan  Agreements  (See Note 6), to issue any preferred
stock except Class A and Class B issued in connection  with the  acquisition  of
the Investors Life Companies. The Company has reacquired the Class A and Class B
Preferred Stock and holds the shares in treasury.

10. Retirement Plans and Employee Stock Plans

Retirement Plan

The  Company  maintains a  retirement  plan,  ("ILCO  Pension  Plan"),  covering
substantially  all  employees  of the Company.  The plan is a  non-contributory,
defined  benefit  pension  plan,  which  covers each  eligible  employee who has
attained 21 years of age and has  completed  one year or more of  service.  Each
participating subsidiary company contributes an amount necessary (as actuarially
determined) to fund the benefits provided for its participating employees.

                                      F-32
<PAGE>

               INTERCONTINENTAL LIFE CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Plan's basic retirement  income benefit at normal retirement age is 1.57% of
the participant's  average annual earnings less 0.65% of the participant's final
average earnings up to covered compensation  multiplied by the number of his/her
years of credited service.  For participants who previously  participated in the
plan  maintained  by the Company for the benefit of former  employees of the IIP
Division of CIGNA  Corporation  (the IIP Plan),  the benefit  formula  described
above  applies to service  subsequent  to May 31, 1996.  With respect to service
prior to that date, the benefit formula  provided by the IIP Plan is applicable,
with certain exceptions applicable to former IIP employees who are classified as
highly compensated employees.

Former eligible IIP employees commenced  participation  automatically.  The Plan
also provides for early retirement, postponed retirement and disability benefits
to eligible employees.  Participant benefits become fully vested upon completion
of five years of service, as defined, or attainment of normal retirement age, if
earlier.

The pension costs for the plan includes the following components:

                                           1999            1998         1997
                                                      (in thousands)

Service cost for benefits earned
 during the period                      $    446      $    460      $    390

Interest cost on projected benefit
obligation                                   905           793           693
Expected return on plan assets            (1,277)       (1,235)       (1,226)
Amortization of unrecognized prior
service cost                                (229)         (229)         (229)

    Pension benefit                     $   (155)     $   (211)     $   (372)




                                      F-33
<PAGE>

               INTERCONTINENTAL LIFE CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following summarizes the funded status of the plan at December 31:

                                                     1999            1998
                                                        (in thousands)

Change in benefit obligation:
  Benefit obligation at beginning
   of period                                    $ 12,726          $ 11,162
  Service cost                                       446               460
  Interest cost                                      905               793
  Benefits paid                                     (483)             (443)
 (Gain)/Loss due to change in
   assumptions                                       -0-               804
 (Gain)/Loss due to experience                       274               (50)

  Benefit Obligation at end of year             $ 13,868          $ 12,726


Change in plan assets:                              1999                 1998

Fair value of plan assets at
 beginning of year                             $ 16,238           $  15,681

Actual return on plan assets                        570               1,000

Benefits paid                                      (483)               (443)

Fair value of plan assets at end of year       $ 16,325           $   16,238

Funded Status:

Funded status at end of year                   $  2,457           $    3,512

Unrecognized prior service cost                    (240)                (469)

Unrecognized actuarial net loss                   2,665                1,683

Prepaid pension expense at end of year         $  4,882           $    4,726





                                      F-34
<PAGE>

               INTERCONTINENTAL LIFE CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The significant assumptions for the plans are as follows:

The discount rate for projected benefit  obligations was 7.25%,  7.25% and 7.75%
in 1999, 1998 and 1997. The assumed long-term rate of compensation increases was
5.0%,  5.0% and 6.0% for 1999,  1998 and 1997.  The  assumed  long-term  rate of
return on plan assets was 8.0% for 1999,  1998 and 1997.  Assumed  expenses as a
percentage of plan assets were 0% for 1999, 1998 and 1997.

Savings and Investment Plan

The  Company  maintains  a Savings  and  Investment  (401(k))  Plan that  allows
eligible  employees  who  have  met  a  one-year  service  requirement  to  make
contributions to the Plan on a tax-deferred  basis. A Plan participant may elect
to contribute up to 16% of eligible earnings on a tax deferred basis, subject to
certain limitations  applicable to "highly compensated  employees" as defined in
the Internal  Revenue Code. Plan  participants may allocate  contributions,  and
earnings  thereon,  between  investment  options selected by  participants.  The
Account Balance of each  Participant  attributable to employee  contributions is
100% vested at all times.  Prior to January 1, 1990,  the Company made  matching
contributions of up to 50% of the first 6% of eligible compensation  contributed
by the plan  participants.  Vesting of such  Company  contributions  is based on
number  of  years of  service.  The  employer  contributions  were  discontinued
effective  January 1, 1990.  During 1995,  the Plan was amended to allow for the
addition of Family Life Insurance  Company (FLIC), a wholly-owned  subsidiary of
FIC, as a participating employer, thus allowing FLIC employees to participate in
the Plan. The amendment did not affect the Plan's tax-qualified status.

In 1997,  the Plan was  amended to provide  for a matching  contribution  by the
Company.  The match,  which is in the form of shares of ILCO  common  stock,  is
equal to 100% of an eligible participant's elective deferral  contributions,  as
defined in the Plan, not to exceed 1% of the  participant's  plan  compensation.
Allocations  are made on a quarterly  basis to the account of  participants  who
have at least 250 hours of service in that quarter.

Employee Stock Ownership Plan

During 1979,  the Company  established  an Employee  Stock  Ownership Plan and a
related  trust for the  benefit  of its  employees.  The Plan  generally  covers
employees  who  have  attained  the age of 21 and  have  completed  one  year of
service.  Vesting  of  benefits  to  employees  is based on  number  of years of
service.  No  contributions  were  made to the  Plan in 1999,  1998 or 1997.  At
December 31, 1999, the Plan had a total of 579,314 shares which are allocated to
participants.

During  1995,  the  Plan was  amended  to allow  for the  addition  of FLIC as a
participating employer, thus allowing FLIC employees to participate in the Plan.
The amendment did not affect the Plan's tax-qualified status.


                                      F-35
<PAGE>


               INTERCONTINENTAL LIFE CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Effective May 1, 1998,  the 401(k) Plan was amended to provide for the merger of
the ESOP into the 401(k) Plan. In connection with the merger,  certain  features
under  the  ESOP  were  preserved  for  the  benefit  of  employees   previously
participating  in the ESOP with regard to all  benefits  accrued  under the ESOP
through the date of merger.

Stock Option Plans

The Company applies APB Opinion No. 25 and related Interpretations in accounting
for  its  stock  option  plans,  which  are  described  below  accordingly.   No
compensation cost has been recognized by the Company in the accompanying  income
statement for its stock option plans.

In 1999,  the Company paid a stock dividend in the amount of one share of common
stock for each share of common  stock issued and  outstanding.  The dividend was
paid on March 17,  1999 to holders of record on March 8, 1999.  The data in this
note has been restated to reflect the effect of the stock dividend.

Under the Company's  Incentive Stock Option Plan,  options to purchase shares of
the Company's  common stock,  at 100% of fair market value on the date of grant,
have been granted to key  employees.  A total of 630,000 shares of the Company's
common stock are currently reserved for issuance under this plan. As of December
31, 1999,  options to purchase 655,700 shares have been granted since the plan's
inception.  As of December 31, 1999,  483,500  options have been  exercised  and
172,200 options have been terminated.

At  December  31,  1999 there were no  options  remaining  under the ISO Plan to
purchase shares of the Company's common stock.  The number of options  exercised
in 1999, 1998 and 1997 were -0-, -0- and 144,000, respectively.

Under the  Non-Qualified  Stock  Option  Plan for certain  officers,  directors,
agents and others,  the Board of Directors  is  authorized  to issue  options to
purchase up to  1,200,000  shares of the  Company's  common stock at 100% of the
fair market value on the date of grant but in no case less than $1.67 per share.
In 1988, options to purchase 660,000 shares were granted at a price of $1.67 per
share. In 1990,  options to purchase 60,000 shares expired.  In 1991, options to
purchase  100,000 shares were granted at prices ranging from $4.38 to $4.63.  In
1992 options to purchase  120,000 shares expired.  In 1995,  options to purchase
120,000  shares were granted at a price of $5.56 per share.  These same options,
along with 40,000 other options, were terminated in 1996. In 1997 84,000 options
were canceled.  There were no options granted in 1998, 1997 and 1996. The number
of options  exercised in 1999,  1998 and 1997 were 84,000,  84,000,  and 96,000,
respectively.

Under the  Company's  1999  Non-Qualified  Stock Option Plan options to purchase
shares of the  Company's  common  stock at 100% of the fair market  value on the
date of grant but in no case less than $9.00 per share,  were granted to certain
employees of the Company,  its subsidiaries  and affiliates.  In 1999 options to
purchase  460,000  shares were  granted at prices  ranging from $9.00 to $10.38.
During 1999, 20,000 options were canceled and no options were exercised.




                                      F-36
<PAGE>

               INTERCONTINENTAL LIFE CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following  table  summarized  activity under all Plans for each of the three
years ended December 31, 1999:

                                               1997                Weighted
                                               Shares               Average
                                              (000's)           Exercise Price
Outstanding at the beginning of the year       492              $     2.25
         Granted                               -0-                    0.00
         Exercised                            (240)                   2.19
         Canceled                              (84)                   3.60

Outstanding at the end of the year             168              $     1.67

Options exercisable at year end                -0-              $      -0-
Weighted average fair value of options
granted during the year                                         $      -0-


                                                1998               Weighted
                                               Shares               Average
                                               (000's)          Exercise Price

Outstanding at the beginning of the year         168            $     1.67
         Granted                                 -0-                  0.00
         Exercised                               (84)                 1.67
         Canceled                                -0-                  0.00
Outstanding at the end of the year                84            $     1.67

Options exercisable at year end                  -0-            $      -0-

Weighted average fair value of options
 granted during the year                                        $      -0-


                                                1999               Weighted
                                               Shares               Average
                                               (000's)          Exercise Price
Outstanding at the beginning of the year          84            $     1.67
         Granted                                 460                  9.06
         Exercised                               (84)                 1.67
         Canceled                                (20)                 9.00
Outstanding at the end of the year               440            $     9.06

Options exercisable at year end                  -0-

Weighted average fair value of options
granted during the year                                         $     9.06


                                      F-37
<PAGE>

               INTERCONTINENTAL LIFE CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of December 31, 1999:

                                                     Options Outstanding
                             Number Outstanding      weighted-average remaining
Range of exercise prices     December 31, 1999       contractual Life (years)
   $9.00 to $10.38                  440,000                  3.38

                             Weighted Average
Range of exercise prices     Exercise prices
   $9.00 to $10.38                    $9.06

                             Number exercisable      Weighted average
Range of Exercise prices     December 31, 1999       exercise price
   $9.00 to $10.38                  -0-                       -0-

11. Leases

The Company and its subsidiaries occupy office facilities under lease agreements
which expire at various dates through 2005.  Certain  office space leases may be
renewed at the option of the Company.

Rent expense in 1999, 1998, and 1997 was $2,320,185, $2,283,198, and $3,147,037,
respectively, under these lease agreements. Minimum annual future rentals are as
follows:

                                   (in thousands)
                                   2000     1,868
                                   2001     1,850
                                   2002     1,475
                                   2003       723
                                   2004       689
                             Thereafter       689
                                          $ 7,294





                                      F-38
<PAGE>

               INTERCONTINENTAL LIFE CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

12. Related Party Transactions

The obligations of the Company under the Senior Loan were guaranteed by FIC. FIC
presently  owns  3,932,692  shares of the company's  Common Stock,  constituting
44.5% of such  shares  outstanding.  FIC held  options to acquire an  additional
1,702,155  shares,  (which does not reflect the stock  dividend  paid by ILCO on
March 7, 1999) at the  average  bid price of such  shares  during the  six-month
period preceding the date of any such purchase as long as ILCO's debt guaranteed
by FIC (the Senor  Loans)  remained  outstanding.  As  described  in Note 6, the
current Senior Loan of ILCO was fully repaid on September 30, 1998. Accordingly,
FIC's rights under the 1986 option agreement expired on September 30, 1998.

FIC Property Management,  Inc., ("FIC Property"), a subsidiary of FIC, conducted
the leasing activities for the Bridgepoint Square properties previously owned by
Investors-NA. As described in Note 1, these properties were sold in 1997.

In connection  with the December,  1997 sale of  Bridgepoint  Square  Offices by
Investors-NA and Family Life Insurance Company, FIC Realty Services, Inc., ("FIC
Realty"),  a subsidiary of FIC, received a commission in the amount of $156,000,
of which  $122,538  was paid by  Investors-NA  and  $33,462 by Family  Life.  In
connection  with the 1996 sale of  Austin  Centre by  Investors-NA,  FIC  Realty
received a commission in the amount of $123,350 from Investors-NA.

As  part of the  financing  arrangement  for  the  acquisition  of  Family  Life
Insurance Company, Family Life Corporation ("FLC"), a subsidiary of FIC, entered
into a senior loan agreement  under which $50 million was provided by a group of
banks. The balance of the financing consisted of a $30 million subordinated note
issued by FLC to Merrill Lynch Insurance Group,  Inc.  ("Merrill Lynch") and $14
million borrowed by another subsidiary of FIC from an affiliate of Merrill Lynch
and  evidenced  by a senior  subordinated  note in the  principal  amount of $12
million and a junior subordinated note in the principal amount of $2 million and
$25 million  lent by two  insurance  company  subsidiaries  of ILCO.  The latter
amount was  represented by a $22.5 million loan from  Investors-NA  to FLC and a
$2.5 million loan provided  directly to FIC by Investors- CA. In addition to the
interest provided under those loans,  Investors-NA and Investors-CA were granted
by FIC  non-transferable  options to purchase,  in the amounts  proportionate to
their  respective  loans, up to a total of 9.9 percent of shares of FIC's common
stock at a price of  $10.50  per share  ($2.10  per  share as  adjusted  for the
five-for-one  stock split in  November,  1996),  equivalent  to the then current
market price, subject to adjustment to prevent dilution. The original provisions
of the options  provided for their expiration on June 12, 1998 if not previously
exercised.  In connection with the 1996 amendments to the subordinated notes, as
described  below,  the expiration  date of the options was extended to September
12, 2006.





                                      F-39
<PAGE>

               INTERCONTINENTAL LIFE CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

On July 30, 1993, the  subordinated  indebtedness  owed to Merrill Lynch and its
affiliate  was prepaid.  The Company  paid $38 million plus accrued  interest to
retire the  indebtedness,  which had a principal  balance of  approximately  $50
million on July 30,  1993.  The  primary  source of the funds used to prepay the
subordinated debt was new subordinated loans totaling $34.5 million that FLC and
Family Life Insurance  Investment Company ("FLIIC"),  another subsidiary of FIC,
obtained from  Investors-NA.  The principal amount of the new subordinated  debt
was payable in four equal annual  installments in 2000,  2001, 2002 and 2003 and
bears  interest  at an annual  rate of 9%.  The other  terms of the new debt are
substantially  the same as those of the $22.5  million  subordinated  loans that
Investors-NA had previously made to FLC and that continue to be outstanding.

In June,  1996,  the provisions of the notes from  Investors-NA  to FIC, FLC and
FLIIC were  modified  as  follows:  (a) the $22.5  million  note was  amended to
provide for twenty  quarterly  principal  payments,  in the amount of $1,125,000
each, to commence on December 12, 1996; the final quarterly principal payment is
due on September 12, 2001; the interest rate on the note remains at 11%, (b) the
$30 million note was amended to provide for forty quarterly  principal payments,
in the amount of $163,540 each for the period December 12, 1996 to September 12,
2001;  beginning with the principal payment due on December 12, 2001, the amount
of the principal payment increases to $1,336,458;  the final quarterly principal
payment is due on September  12, 2006;  the interest rate on the note remains at
9%,  (c) the $4.5  million  note was  amended  to  provide  for forty  quarterly
principal  payments,  in the amount of $24,531 each for the period  December 12,
1996 to September 12, 2001; beginning with the principal payment due on December
12, 2001, the amount of the principal payment  increases to $200,469;  the final
quarterly  principal  payment is due on September 12, 2006; the interest rate on
the note  remains at 9%, (d) the $2.5  million  note was amended to provide that
the  principal  balance  of  the  note  is  to be  repaid  in  twenty  quarterly
installments  of  $125,000  each,  commencing  December  12, 1996 with the final
payment due on September 12, 2001; the rate of interest  remains at 12%, (e) the
Master PIK note, which was issued to provide for the payment in kind of interest
due under the terms of the $2.5 million note prior to June 12, 1996, was amended
to provide that the  $1,977,119  principal  balance of the note is to be paid in
twenty  quarterly  principal  payments,  in the amount of  $98,855.95  each,  to
commence December 12, 1996 with the final payment due on September 12, 2001; the
interest rate on the note remains at 12%.

In December 1998 FLIIC was dissolved. In connection with the dissolution, all of
the assets and  liabilities  of FLIIC  became the  obligations  of FLIIC's  sole
shareholder,  FIC. Accordingly, the obligations under the provisions of the $4.5
million note described above are now the obligations of FIC.

The Company  reimbursed  FIC for rental  expenses  and certain  other  operating
expenses  incurred  during  1997 on behalf of the  Company.  The  amount of such
reimbursement was approximately $822,000.







                                      F-40
<PAGE>


               INTERCONTINENTAL LIFE CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Data  processing  services  for  ILCO's  and FIC's  insurance  subsidiaries  are
provided by FIC Computer Service,  Inc. ("FIC  Computer"),  a subsidiary of FIC.
Each  of  FIC's  and  ILCO's  insurance  subsidiaries  has  entered  into a data
processing  agreement  with FIC  Computer  whereby FIC  Computer  provides  data
processing  services  to each  subsidiary  for fees  equal to such  subsidiary's
proportionate  share of FIC Computer's  actual costs of providing those services
to  all  of  the  subsidiaries.   The  Company's  insurance   subsidiaries  paid
$2,730,189,   $2,818,095  and  $3,010,110  and  Family  Life  paid   $1,916,350,
$1,610,397 and $824,425 to FIC Computer for data  processing  services  provided
during the years ended December 31, 1999, 1998 and 1997, respectively.

In 1995,  Investors-NA  entered into a  reinsurance  agreement  with Family Life
Insurance Company ("Family Life") pertaining to universal life insurance written
by Family Life. The reinsurance agreement is on a co-insurance basis and applies
to all covered  business with effective  dates on and after January 1, 1995. The
agreement applies to only that portion of the face amount of the policy which is
less than  $200,000;  face  amounts of $200,000 or more are  reinsured by Family
Life with a third party reinsurer.

In 1996,  Investors-NA  entered into a reinsurance  agreement  with Family Life,
pertaining to annuity contracts written by Family Life. The agreement applies to
contracts written on or after January 1, 1996.

ILCO  received  $13 million,  $11 million,  and $14 million from Family Life for
direct costs  incurred by ILCO on behalf of Family  Life's  operations  in 1999,
1998 and 1997, respectively. Under an agreement between ILCO and Family Life all
direct costs incurred on behalf of the other are to be reimbursed.

13. Commitments and Contingencies

The Company and its subsidiaries are defendants in certain legal actions related
to the normal business  operations of the Company.  Management believes that the
resolution  of such  matters  will not have a material  impact on the  financial
statements.


                                      F-41
<PAGE>


               INTERCONTINENTAL LIFE CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

14. Net Income Per Share

The following table reflects the  calculation of basic and diluted  earnings per
share:
<TABLE>
                                                            Year Ended December 31,
<S>                                                     <C>            <C>          <C>
                                                       1999           1998          1997
                                                    (in thousands except per share amounts)

Basic:
Net income available to common shareholders        $ 12,765         $ 11,119       $ 20,540
Weighted average common stock outstanding             8,796            8,750          8,656
Basic earnings per share                           $   1.45         $   1.27       $   2.37
Diluted:
Net income available to common shareholders        $ 12,765         $ 11,119       $ 20,540
Weighted average common stock outstanding             8,796            8,750          8,656
Common stock options                                    273            2,638            176
Repurchase of treasury stock                           (269)          (2,464)           (94)
Common stock and common stock equivalents             8,800            8,924          8,738
Diluted earnings per share                         $   1.45         $   1.25       $   2.35
</TABLE>

The  options  held by FIC to  purchase  ILCO stock were  excluded  from the 1997
diluted EPS calculation as they were anti dilutive.




                                      F-42


<PAGE>
               INTERCONTINENTAL LIFE CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

15.  Quarterly Financial Data (unaudited)( in thousands, except per
     share amounts)

                                  Three Months                 Three Months
                                      Ended                       Ended
                                    March 31,                    June 30,
                                 1999       1998          1999          1998

Net Operating Revenue         $ 26,270   $ 27,872      $ 26,693    $   27,527
Net Income                    $  2,961   $  2,719      $  2,627    $    2,808
Basic earnings per share      $   0.34   $   0.32      $   0.30    $     0.32
Diluted earnings per share    $   0.34   $   0.31      $   0.30    $     0.31

                                  Three Months                 Three Months
                                     Ended                        Ended
                                  September 30,                 December 31,
                                 1999      1998           1999          1998

Net Operating Revenue         $ 25,299   $ 27,269      $ 25,943    $  26,793
Net Income                    $  3,135   $  2,829      $  4,042    $   2,763
Basic earnings per share      $   0.36   $   0.33      $   0.46    $    0.32
Diluted earnings per share    $   0.36   $   0.32      $   0.46    $    0.32


16.  Subsequent Events

On March 28, 2000, the Company purchased 546,000 shares of its common stock in a
single  transaction  at a price of $9.25  per  share.  The  purchase  price  was
approximately  $.25 per share below the  prevailing  market price at the time of
the purchase. The shares repurchased will be treated as treasury shares.

                                      F-43
<PAGE>

               INTERCONTINENTAL LIFE CORPORATION (PARENT COMPANY)
  SCHEDULE I - SUMMARY OF INVESTMENT OTHER THAN INVESTMENTS IN RELATED PARTIES
                               December 31, 1999
                            (in thousands of dollars)

<TABLE>



           Column A                          Column B          Column C           Column D
<S>                                            <C>               <C>                 <C>
                                                                               Amount at which
                                                                                 Shown in the
       Type of Investment                      Costs             Value          Balance Sheet
Fixed maturities available for sale:
United States Government and
government agencies and
authorities                                $  26,191          $  26,906           $  26,906
States, municipalities and political
subdivisions                                   4,680              4,771               4,771
Corporate securities                         172,686            164,714             164,714
Mortgage-backed securities                   207,975            207,826             207,826
Total fixed maturities available for
     sale                                    411,532            404,217             404,217
Fixed maturities held to maturity              2,088              2,056               2,088
Total fixed maturities                     $ 413,620          $ 406,273           $ 406,305

Equity securities:
Public utilities                                   2                  2                   2
Industrial, miscellaneous and all
    other                                         18                 43                  43

Total equity securities                           20                 45                  45
Policy loans                                  50,882             50,882              50,882
Mortgage loans                                 6,844              6,701               6,844
Real estate                                   21,145             21,145              21,145
Short term investments                       191,695            191,695             191,695
Total investments                          $ 684,206          $ 676,741           $ 676,916

</TABLE>



                                      F-44
<PAGE>


               INTERCONTINENTAL LIFE CORPORATION (PARENT COMPANY)
           SCHEDULE II - CONDENSED FINANCIAL STATEMENTS OF REGISTRANT
                                 BALANCE SHEETS
                           December 31, 1999 and 1998

                            (in thousands of dollars)


ASSETS                                          1999                    1998
Short-term investments                   $    15,505             $     3,732
Cash and cash equivalents                         48                     157

Subordinated debenture receivables
 from Investors Life Insurance
 Company of North America                      5,896                  15,896
Investments in and advances to
 subsidiaries                                129,345                 134,437

Accounts receivable                            5,144                   4,960
Property and equipment, net                      260                     265
Other assets                                     382                     388

     Total Assets                        $   156,580             $   159,835


                                      F-45
<PAGE>


               INTERCONTINENTAL LIFE CORPORATION (PARENT COMPANY)
           SCHEDULE II - CONDENSED FINANCIAL STATEMENTS OF REGISTRANT
                            BALANCE SHEETS, continued
                           December 31, 1999 and 1998
                            (in thousands of dollars)



LIABILITIES AND SHAREHOLDERS' EQUITY

Liabilities:                                  1999                  1998

Accounts payable and accrued
 expenses                                $    1,808          $      2,409
Deferred gain on sale of
 real estate                                    628                   738


Total Liabilities                             2,436                 3,147
Redeemable preferred stock:
 Class A preferred stock, $1 par value,
 shares authorized and issued                 5,000                 5,000
Redeemable preferred stock:
 Class B preferred stock, $1 par value,      15,000                15,000
 shares authorized and issued                20,000                20,000

Redeemable preferred stock,
 repurchased and held as
 treasury stock                             (20,000)              (20,000)
                                                -0-                   -0-

Shareholders' Equity:

Common stock, $.22 par value,
 15,000,000 shares authorized;
 10,875,478 and 5,385,739 shares
 issued, 8,827,941 and 4,376,706
 shares outstanding in 1999 and
 1998, respectively                           2,392                 1,185

Additional paid-in capital                    4,522                 4,385

Accumulated other comprehensive
 income                                      (3,712)               11,571

Retained earnings (including
 $147,259 and $135,423 of
 undistributed earnings of
 subsidiaries at December 31,
 1999 and 1998, respectively)               151,932               140,356
                                            155,134               157,497
Common treasury stock, at cost,
 1,378,017 and 684,273 shares in
 1999 and 1998
                                               (990)                 (809)
Total Shareholders' Equity                  154,144               156,688

Total Liabilities and
 Shareholders' Equity                   $   156,580           $    159,835


                                      F-46
<PAGE>

               INTERCONTINENTAL LIFE CORPORATION (PARENT COMPANY)
           SCHEDULE II - CONDENSED FINANCIAL STATEMENTS OF REGISTRANT
                              STATEMENTS OF INCOME
                  Years Ended December 31, 1999, 1998 and 1997
                            (in thousands of dollars)

<TABLE>
                                              1999             1998             1997
<S>                                            <C>              <C>              <C>

Revenues charged to subsidiaries:
Interest income                         $    1,418        $   2,391           $    3,345
Other income                                   134              138                  131
                                             1,552            2,529                3,476
Operating expenses                             122              348                  958
Interest expense                               -0-              415                1,417
                                               122              763                2,375
Income from operations                       1,430            1,766                1,101
Federal income tax provision                   501              618                  385
Net income before equity in
undistributed earnings from subsidiaries       929            1,148                  716

Equity in undistributed earnings from
     subsidiaries                           11,836            9,971               19,824
Net income                              $   12,765        $  11,119           $   20,540
</TABLE>


                                      F-47
<PAGE>

<TABLE>

               INTERCONTINENTAL LIFE CORPORATION (PARENT COMPANY)
           SCHEDULE II - CONDENSED FINANCIAL STATEMENTS OF REGISTRANT
                            STATEMENTS OF CASH FLOWS
                  Years Ended December 31, 1999, 1998 and 1997
                            (in thousands of dollars)


                                                             Year ended December 31,
<S>                                               <C>                   <C>                  <C>

CASH FLOWS FROM OPERATING                        1999                  1998                1997
ACTIVITIES:

Net income                                 $   12,765             $  11,119            $ 20,540
Adjustments to reconcile net
 income to net cash provided
 by (used in) operating activities:

Amortization of deferred gain
 on sale of real estate                          (110)                 (110)               (109)

Decrease (increase)  in accounts receivable      (184)                  (20)              1,023

Decrease (increase) in investment in and
 advances to subsidiaries                     (10,191)               (8,957)            (24,927)

(Decrease) increase in accounts
 payable and accrued expenses                    (601)                 (161)                344

Decrease in other assets                            6                   105                 529

Other                                               5                   -0-                   6

Net cash provided by (used in) operating
 activities                                     1,690                 1,976              (2,594)

CASH FLOWS FROM INVESTING
  ACTIVITIES:
Change in short term investments              (11,773)               (3,040)              5,560

Net cash (used in) provided by investing
 activities                                   (11,773)               (3,040)              5,560

CASH FLOWS FROM FINANCING
  ACTIVITIES:
Repayment of debt                                 -0-                (10,964)            (13,980)
Stock options exercised                           155                    141                 527
Purchase and reissuance of treasury stock        (181)                    45                (290)
Payment received on subordinated
 debenture receivable                          10,000                 11,900              10,750
Net cash provided by (used in) financing
 activities                                     9,974                  1,122              (2,993)
Net increase (decrease) in cash
 and cash equivalents                            (109)                    58                 (27)
Cash and cash equivalents,
  beginning of year                               157                     99                 126
Cash and cash equivalents,
 end of year                                $      48             $      157       $          99
</TABLE>


                                      F-48
<PAGE>

               INTERCONTINENTAL LIFE CORPORATION AND SUBSIDIARIES
                            SCHEDULE IV - REINSURANCE
                            (in thousands of dollars)

                                                     Ceded To       Assumed
                                       Direct          Other       From Other
1999                                   Amount        Companies     Companies

Life insurance in -force          $ 6,612,022      $ 1,294,265     $ 438,833
Premium:
Life insurance                         13,776            2,741            21
Accident-health insurance                 808              731            (1)
Total                             $    14,584      $     3,472     $      20

1998
Life insurance in-force           $ 7,258,662      $ 1,531,981     $ 331,133
Premium:
Life insurance                    $    12,782      $     2,112     $      48
Accident-health insurance               1,001              830             1
Total                             $    13,783      $     2,942     $      49

1997
Life insurance in -force          $ 7,788,147      $ 1,636,371     $ 174,777
Premium:
Life insurance                    $    12,661      $     2,186     $      114
Accident-health insurance                 809              404             37
Total                             $    13,470      $     2,590     $      151


                                      F-49
<PAGE>

               INTERCONTINENTAL LIFE CORPORATION AND SUBSIDIARIES
                      SCHEDULE IV - REINSURANCE, continued
                            (in thousands of dollars)

                                                               Percentage
                                             Net               Of Amount
1999                                        Amount              Assumed

Life insurance in-force              $   5,756,590               7.62%
Premium:
     Life insurance                         11,056               0.19%
     Accident-health insurance                  76               1.03%
Total                                $      11,132               0.18%

1998
Life insurance in-force              $   6,057,814               5.47%
Premium:
     Life insurance                  $      10,718               0.45%
     Accident-health insurance                 172               0.58%
Total                                $      10,890               0.45%

1997
Life insurance in-force              $   6,326,553               2.76%
Premium:
     Life insurance                  $      10,589               1.08%
     Accident-health insurance                 442               8.37%
Total                                $      11,031               1.37%









                                      F-50

<PAGE>

                                  Exhibit Index

Exhibit                   Page               Description
Number         Number


3(a)                                     Certificate of Incorporation of
                                         InterContinental Life Corporation
                                         filed May 22, 1969 and Amendments
                                         thereto (2)

                                       (i)  Amendment filed July 16, 1973

                                      (ii)  Amendment filed August 4, 1977

                                      (iii) Amendment filed February 10, 1983

                                      (iv)  Amendment filed December 14, 1988

                                       (v)  Amendment filed February 9, 1990

 3(b)                               By-laws of InterContinental Life
                                    Corporation. (3)

 3(c)                               Articles of Incorporation of
                                    InterContinental Life Corporation of
                                    Texas. (15)

 3(d)                               Amendment to Articles of Incorporation of
                                    InterContinental Life Corporation of
                                    Texas. (15)

 3(e)                               By-Laws of InterContinental Life
                                    Corporation of Texas. (15)

 3(f)                               Articles of Merger of InterContinental Life
                                    Corporation and InterContinental Life
                                    Corporation of Texas. (15)

 3(g)                               Plan and Agreement of Merger Between
                                    InterContinental Life Corporation and
                                    InterContinental Life Corporation of
                                    Texas. (15)

10(a)                               Registrant's Incentive Stock Option Plan.(1)

10(m)                               Lease dated December 20, 1985 between
                                    Registrant and Parker Road Associates for
                                    the rental of 40 Parker Road, Elizabeth,
                                    New Jersey. (4)

10(o)                               (i)   Grid Note dated December 18, 1985 in
                                          the amount of $800,000 made by the
                                          Registrant and payable to Midlantic
                                          National Bank. (4)


                                     Ex - 1
<PAGE>


                                     (ii) Demand Note dated December 18, 1985 in
                                          the amount of $491,165.03 made by
                                          Registrant and payable to Midlantic
                                          National Bank. (4)

10(ah)                               Credit Agreement for $125,000,000 dated as
                                     of December 28, 1988 among Registrant and
                                     certain banks identified therein. (5)

10(ai)                               Note Purchase Agreement dated as of
                                     December 31, 1988 between Registrant and a
                                     Rhode Island based insurance/financial
                                     services company. A Note Purchase Agreement
                                     in substantially identical form was
                                     executed with seven other entities
                                     identified in these exhibit. (5)

10(aj)                               Class A Preferred Stock Purchase Agreement
                                     dated as of December 1, 1988 between
                                     Registrant and Insurance Company of North
                                     America. (5)

10(ak)                               Class B Preferred Stock Purchase Agreement
                                     dated as of December 1, 1988 between
                                     Registrant and a Rhode Island based
                                     insurance/financial services company.
                                     A Class B Preferred Stock Purchase
                                     Agreement in substantially identical  form
                                     was executed with seven other entities
                                     identified in this exhibit.  (5)

10(al)                               Pledge Agreement dated as of December 28,
                                     1988 between Registrant and The First
                                     National Bank of Chicago, as Agent. (5)

10(am)                               Surplus Debenture dated as of December 28,
                                     1988 in the amount of $140,000,000 made by
                                     Standard to Registrant.  (5)

10(an)                               Warrant Agreement dated as of December 29,
                                     1988 between Registrant and a Connecticut
                                     based insurance/financial services company.
                                     A Warrant Agreement in substantially
                                     identical form was executed with seven
                                     other entities.  (5)

10(aq)                               Registrant's Defined Benefit Pension Plan,
                                     effective as of January 1, 1988.

10(ar)                               Registrant's Employee Stock Purchase Plan,
                                     effective as of August 25, 1989.  (6)

10(as)                               Registrant's Non-Qualified Stock Option
                                     Plan.  (6)


                                     Ex - 2
<PAGE>

10(at)                                Exchange and Amendment Agreement dated
                                      July 30, 1990 between Registrant and the
                                      holders of its Class A Preferred Stock
                                      and its Class B Preferred Stock.  (7)

10(au)                                Amendment dated July 30, 1990 to Senior
                                      Loan Agreement among the Registrant and
                                      certain banks identified therein.  (7)

10(av)                                InterCreditor Agreement dated June 12,
                                      1991, among Investors Life Insurance
                                      Company of North America, Investors Life
                                      Insurance Company of California, Merrill
                                      Lynch Insurance Group, Inc. and Merrill
                                      Lynch & Co., Inc. (8)


10(aw)                                Note dated June 12, 1991 in the amount of
                                      $22.5 million made by Family Life
                                      Corporation in favor of Investors Life
                                      Insurance Company of North America.  (8)

10(ax)                                Note dated June 12, 1991 in the amount of
                                      $2.5 million made by Financial Industries
                                      Corporation in favor of Investors Life
                                      Insurance Company of California.  (8)

10(ay)                                InterCreditor Agreement among Investors
                                      Life Insurance Company of North America,
                                      Investors Life Insurance Company of
                                      California and the Agent under the Credit
                                      Agreement dated as of June 12, 1991.  (8)

10(az)                                Option Agreement by Financial Industries
                                      Corporation in favor of Investors Life
                                      Insurance Company of North America and
                                      Investors Life Insurance Company of
                                      California.  (8)

10(aaa)                               Hotel Lease Agreement dated as of
                                      August 22, 1991 between Investors Life
                                      Insurance Company of North America and FIC
                                      Realty Services, Inc.  (9)

10(aab)                               Management Agreement dated as of September
                                      4, 1991 between Investors Life Insurance
                                      Company of North America and FIC Property
                                      Management, Inc.  (9)

10(aac)                               Amended and Restated Credit Agreement
                                      dated January 29, 1993 among the
                                      Registrant and certain banks identified
                                      therein.  (10)

10(aad)                               Amended and Restated Pledge Agreement
                                      dated January 29, 1993 between the
                                      Registrant and the agent bank named
                                      therein.  (10)

                                     Ex - 3
<PAGE>

10(aae)                               Stock Option Agreement dated March 8, 1986
                                      between Registrant and Financial
                                      Industries Corporation.  (10)

10(aaf)                               Surplus Debenture dated as of November 13,
                                      1986 in the amount of $15,000,000 made by
                                      New Standard to Registrant. (10)

10(aag)                               Terms and Conditions of Employment
                                      Contracts of James M. Grace, Eugene E.
                                      Payne and Joseph F. Crowe approved by
                                      Registrant's Board of Directors on
                                      May 16, 1991,  (10)

10(aah)                               Letter agreement and addendum dated
                                      July 23, 1992 between Investors Life
                                      Insurance Company of North America and Mr.
                                      and Mrs. Theodore A. Fleron.  (10)

10(aai)                               Letter agreement dated October 15, 1992
                                      between Roy F. Mitte and Registrant
                                      evidencing surrender and cancellation of
                                      stock options.  (10)

10(aaj)                               Note dated July 30, 1993 in the amount of
                                      $30 million made by Family Life
                                      Corporation in favor of Investors Life
                                      Insurance Company of North America.  (11)

10(aak)                               Note dated July 30, 1993 in the amount of
                                      $4.5 million made by Family Life Insurance
                                      Investment Company in favor of Investors
                                      Life Insurance Company of North
                                      America.  (11)

10(aal)                               Amendment No. 1 dated July 30, 1993
                                      between Family Life Corporation and
                                      Investors Life Insurance Company of North
                                      America amending $22.5 million note.  (11)

10(aam)                               Cancellation of Stock Option Agreement
                                      dated  October 21, 1993 between Registrant
                                      and Roy F. Mitte.  (11)

10(aan)                               Waiver and Amendment Agreement dated as of
                                      July 23, 1993 among the Registrant and
                                      certain banks identified therein. (12)

10(aao)                               Amendment Agreement dated as of December
                                      20, 1993 among the Registrant and certain
                                      banks identified therein. (12)

10(aap)                               Amendment Agreement dated as of March 12,
                                      1994 among the Registrant and certain
                                      banks identified therein. (12)


                                     Ex - 4

<PAGE>

10(aaq)                               Amendment Agreement dated as of December
                                      22, 1994 among the Registrant and certain
                                      banks identified therein. (12)

10(aar)                               Amendment Agreement dated as of February
                                      10, 1995 among the Registrant and certain
                                      banks identified therein. (12)


10(aas)                               Data Processing Agreement dated as of
                                      November 30, 1994 between InterContinental
                                      Life Insurance Company and FIC Computer
                                      Services, Inc.  (12)


10(aat)                               Data Processing Agreement dated as of
                                      November 30, 1994 between Investors Life
                                      Insurance Company of North America  and
                                      FIC Computer Services, Inc.  (12)

10(aau)                               Data Processing Agreement dated as of
                                      November 30, 1994 between Family Life
                                      Insurance Company and FIC Computer
                                      Services, Inc.  (12)

10(aav)                               Lease Agreement dated as of September 30,
                                      1994 between FIC Realty Services, Inc. and
                                      Atrium Beverage Corporation.  (12)

10(aaw)                               Management Agreement dated as of September
                                      30, 1994 between HCD Austin Corporation as
                                      agent for FIC Realty Services, Inc. and
                                      Atrium Beverage Corporation. (12)

10(aax)                               Amendment Agreement dated as of August 8,
                                      1995 among the Registrant and certain
                                      banks identified therein. (13)

10(aay)                               Amendment Agreement dated as of December
                                      15, 1995 among the Registrant and certain
                                      banks identified therein. (13)

10(aaz)                               Agreement of Sale dated as of September 5,
                                      1995 between Omni Congress Joint venture
                                      as Buyer and Investors Life Insurance
                                      Company of North America as Seller, with
                                      exhibits, amendments and assignment.  (13)

10(aaaa)                              Amendment No. 2 dated December 12, 1996,
                                      effective June 12, 1996 to the note dated
                                      June 12, 1991 in the amount of $22.5
                                      million made by Family Life Corporation in
                                      favor of Investors Life Insurance Company
                                      of North America. (14)


                                     Ex - 5

<PAGE>

10(aaab)                              (i)      Amendment No. 1 dated
                                               December 12, 1996, effective
                                               June 12, 1996 to the note dated
                                               June 12, 1991 in the amount of
                                               $2.5 million made by Financial
                                               Industries Corporation in favor
                                               of Investors Life Insurance
                                               Company of California.(14)

                                      (ii)     Amendment No. 1 dated December
                                               12, 1996, effective June 12, 1996
                                               to the "payment in kind"
                                               provisions of the note dated
                                               June 12, 1991 in the amount of
                                               $2.5 million made by Financial
                                               Industries Corporation in favor
                                               of Investors Life Insurance
                                               Company of North America. (14)

10(aaac)                               Amendment No. 1 dated December 12, 1996,
                                       effective June 12, 1996 to the note dated
                                       July 30, 1993 in the amount of $30
                                       million made by Family Life Corporation
                                       in favor of Investors Life Insurance
                                       Company of North America.(14)

10(aaad)                               Amendment No. 1 dated December 12, 1996,
                                       effective June 12, 1996 to the note dated
                                       July 30, 1993 in the amount of $4.5
                                       million made by Family Life Insurance
                                       Investment Company in favor of Investors
                                       Life Insurance Company of North
                                       America. (14)

10(aaae)                               Amendment Agreement dated as of April 24,
                                       1996 between Registrant and certain banks
                                       identified therein.(14)

10(aaaf)                               Waiver Agreement dated as of December 12,
                                       1996 between Registrant and certain banks
                                       identified therein.(14)

10(aaag)                               Amendment Agreement dated December 12,
                                       1996 to the Option Agreement by Financial
                                       Industries Corporation in favor of
                                       Investors Life Insurance Company of North
                                       America and Investors Life Insurance
                                       Company of California. (14)

10(aaah)                               Amendment and Waiver Agreement dated as
                                       of March 31, 1997 among the Registrant
                                       and certain banks identified
                                       therein. (16).

10(aaai)                               Amendment and Waiver Agreement dated as
                                       of December 9, 1997 among the Registrant
                                       and certain banks identified
                                       therein. (16).

10(aaaj)                               Assignment Agreement dated December 23,
                                       1998, from Family Life Insurance
                                       Investment Company to Financial
                                       Industries Corporation, assigning the 9%
                                       Senior Subordinated Note dated July 30,
                                       1993 in the amount of $4.5 million made
                                       by Family Life Insurance Investment
                                       Company in favor of Investors Life
                                       Insurance Company of North America.  (17)

                                     Ex - 6
<PAGE>


10(aaak)                                InterContinental Life Corporation 1999
                                        Stock Option Plan. Filed on April 20,
                                        1999 with Registrant's Form DEF 14A,
                                        and incorporated herein by reference.

10(aaal)          Ex-9                  Amendment to Surplus Debenture dated
                                        September 28, 1999 between Investors
                                        Life Insurance Company of North America
                                        and the Registrant.

21                Ex-11                 Subsidiaries of the Registrant.

23                Ex-12                 Consent of PricewaterhouseCoopers LLP.



(1)  Filed with the Registrant's  Annual Report of Form 10-K for the fiscal year
     ended  December 31, 1983,  Commission  File No.  0-7290,  and  incorporated
     herein by reference.

(2)  Filed   with  the   Registrant's   Registration   Statement   on  Form  S-8
     (Registration  No. 2085333) and  incorporated  herein by reference;  except
     Amendment  filed  December  14,  1988  (item  (iv)),  which was filed  with
     Registrant's  Current  Report  of Form 8-K  dated  January  12,  1989,  and
     incorporated  herein by reference;  and Amendment  filed  February 9, 1990,
     which was filed with Registrant's Annual Report on Form 10-K for the fiscal
     year ended December 31, 1989, and incorporated herein by reference.

(3)  Filed with the Registrant's  Annual Report on Form 10-K for the fiscal year
     ended December 31, 1984 and incorporated herein by reference.

(4)  Filed with the Registrant's  Annual Report of Form 10-K for the fiscal year
     ended December 31, 1985 and incorporated herein by reference.

(5)  Filed with  Registrant's  Annual  Report of Form 10-K for the  fiscal  year
     ended December 31, 1988, and incorporated herein by reference,

(6)  Filed with Registrants Annual Report on Form 10-K for the fiscal year ended
     December 31, 1989, and incorporated herein by reference.

(7)  Filed with  Registrant's  Annual  Report on Form 10-K for the  fiscal  year
     ended December 31, 1990, and incorporated herein by reference.

(8)  Filed with Financial  Industries  Corporation's  Current Report on Form 8-K
     dated June 25, 1991, and incorporated herein by reference.


                                     Ex - 7

<PAGE>

(9)  Filed with  Registrant's  Annual  Report on Form 10-K for the  fiscal  year
     ended December 31, 1991, and incorporated herein by reference.

(10) Filed with  Registrant's  Annual  Report on Form 10-K for the  fiscal  year
     ended December 31, 1992, and incorporated herein by reference.

(11) Filed with  Registrant's  Annual  Report on Form 10-K for the  fiscal  year
     ended December 31, 1993, and incorporated herein by reference.

(12) Filed with  Registrant's  Annual  Report on Form 10-K for the  fiscal  year
     ended December 31, 1994, and incorporated herein by reference.

(13) Filed with  Registrant's  Annual  Report on Form 10-K for the  fiscal  year
     ended December 31, 1995, and incorporated herein by reference.

(14) Filed with  Registrant's  Annual  Report on Form 10-K for the  fiscal  year
     ended December 31, 1996, and incorporated herein by reference.

(15) Filed  with  Registrant's  Quarterly  Report  on Form  10-Q for the  fiscal
     quarter ended June 30, 1997, and incorporated herein by reference.

(16) Filed with  Registrant's  Annual  Report on Form 10-K for the  fiscal  year
     ended December 31, 1997, and incorporated herein by reference.

(17) Filed with  Registrant's  Annual  Report on form 10-K for the  fiscal  year
     ended December 31, 1998, and incorporated herein by reference.



                                     Ex - 8

<PAGE>

                                Exhibit 10(aaal)

                         $140,000,000 SURPLUS DEBENTURE

                               AMENDMENT AGREEMENT

This Amendment Agreement is entered into as of September 28, 1999 by and between
InterContinental  Life Corporation ("ILCO") and Investors Life Insurance Company
of North  America  ("Investors-NA")  as  successor-by-merger  to  Standard  Life
Insurance Company ("Standard")


                              W I T N E S S E T H :

     WHEREAS,  ILCO and Standard were parties to that certain Surplus  Debenture
     in  the  amount  of  $140,000,000  (the  "Surplus   Debenture")  issued  in
     connection with the acquisition of Investors-NA, INA Life Insurance Company
     (now merged into  Investors-NA) and INA Security  Corporation (now known as
     ILG Securities Corporation) in 1988.

     WHEREAS,  Investors-NA  is  the  successor-by-merger  to the  interests  of
     Standard;

     WHEREAS, under the terms of the Surplus Debenture,  the remaining principal
     balance of the Surplus  Debenture  is to be paid in full on  September  30,
     1999;

     WHEREAS,  the  remaining  principal  balance of the  Surplus  Debenture  at
     September 28, 1999 is $6,940,000;

     WHEREAS,  the parties  desire to amend the payment  schedule of the Surplus
     Debenture;

     NOW,  THEREFORE,  for good and  valuable  consideration,  the  receipt  and
     sufficiency  of which is hereby  acknowledged,  the parties hereto agree as
     follows:

     (18) Defined Terms. Capitalized terms used herein and not otherwise defined
          herein shall have the meanings attributed to such terms in the Surplus
          Debenture.

     (19) Schedule of Payments.  The remaining  principal balance of the Surplus
          Debenture,  plus interest  accumulating thereon as calculated pursuant
          to the interest rate formula contained in the Surplus Debenture, shall
          be  paid on the  last  day of  each  period  in  accordance  with  the
          following schedule:

                     Payment Amount                          Period
                 $2,000,000, plus interest            7/1/1999 - 10/1/1999
                 $2,000,000, plus interest            10/1/1999 - 1/1/2000
                 $2,000,000, plus interest            1/1/2000 - 4/1/2000
                 $  940,000, plus interest            4/1/2000 - 7/1/2000


                                     Ex - 9

<PAGE>

     (20) Effectiveness  of Amendment.  This  Amendment  Agreement  shall become
          effective as of the date first above written.  Except as  specifically
          amended  above,  all of the terms,  conditions  and  covenants  of the
          Surplus  Debenture  shall  remain in full  force and  effect and shall
          continue to be binding upon the parties hereto in all respects and are
          hereby ratified and confirmed.

IN WITNESS  WHEREOF,  this  Amendment  Agreement is executed on this 28th day of
September, 1999 by duly authorized officers of ILCO and Investors-NA.


INTERCONTINENTAL LIFE CORPORATION

By: /s/ Roy F. Mitte
Name: Roy F. Mitte
Title: President


INVESTORS LIFE INSURANCE COMPANY
OF NORTH AMERICA (successor-by-merger
to STANDARD LIFE INSURANCE COMPANY)

By:    /s/ James M. Grace
Name: James M.. Grace
Title: Executive Vice President



                                     Ex - 10

<PAGE>

                                   EXHIBIT 21

                           SUBSIDIARIES OF REGISTRANT

                Investors Life Insurance Company of North America

                   Investors Life Insurance Company of Indiana

                           ILG Securities Corporation

                              ILG Sales Corporation

                       InterContinental Growth Plans, Inc.

                      InterContinental Life Agency, Inc. *



         *Wholly-owned subsidiary of InterContinental Growth Plans, Inc.


                                     Ex - 11



<PAGE>




                                   EXHIBIT 23




                       CONSENT OF INDEPENDENT ACCOUNTANTS



We  hereby  consent  to the  incorporation  by  reference  in  the  Registration
Statement on Form S-8 (No. 33-71074) of InterContinental Life Corporation of our
report dated March 27, 2000 appearing on page F-2 of this Form 10-K.



PricewaterhouseCoopers LLP
Dallas, Texas
March 27, 2000







                                     Ex - 12