UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-Q


             QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

                         SECURITIES EXCHANGE ACT OF 1934


                For the Quarterly Period Ended September 30, 2003
                          Commission File Number 0-4690


                        FINANCIAL INDUSTRIES CORPORATION
             (Exact Name of Registrant as specified in its charter)

                                Texas 74-2126975
        (State of Incorporation) (I.R.S. Employer Identification Number)


                      6500 River Place Blvd., Building One
                               Austin, Texas 78730
               (Address of principal executive offices) (Zip Code)

        Registrant's telephone number, including area code (512) 404-5000


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

         YES [X]           NO

Indicate  by check mark  whether  the  registrant  is an  accelerated  filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [X] NO

Number of common shares outstanding,  $0.20 par value, as of September 30, 2003:
9,689,198

                                      - 1 -


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                           Forward-Looking Statements


Except for historical factual  information set forth in this Quarterly Report on
Form 10-Q of Financial  Industries  Corporation  (the  "Company" or "FIC"),  the
statements, analyses, and other information contained in this report relating to
trends in the Company's  operations and financial  results,  the markets for the
Company's  products,  future  results,  the future  development of the Company's
business,  and the  contingencies  and uncertainties to which the Company may be
subject,  as well as other  statements  including  words  such as  "anticipate,"
"believe," "plan,"  "estimate," "expect," "intend" and other similar expressions
constitute  forward-looking  statements under the Private Securities  Litigation
Reform Act of 1995.  Such  statements are made based upon  management's  current
expectations and beliefs  concerning  financial results and economic  conditions
and are  subject to known and unknown  risks,  uncertainties  and other  factors
contemplated by the  forward-looking  statements.  Such factors  include,  among
other things:  (1) general  economic  conditions  and other  factors,  including
prevailing interest rate levels and stock market  performance,  which may affect
the ability of FIC to sell its products,  the market value of FIC's  investments
and the lapse rate and  profitability of policies;  (2) FIC's ability to achieve
anticipated levels of operational efficiencies and cost-saving initiatives;  (3)
customer  response  to  new  products,   distribution   channels  and  marketing
initiatives;  (4)  mortality,  morbidity  and other factors which may affect the
profitability  of FIC's  insurance  products;  (5) FIC's  ability to develop and
maintain  effective  risk  management  policies and  procedures  and to maintain
adequate  reserves for future  policy  benefits  and claims;  (6) changes in the
federal  income  tax laws and  regulations  that may  affect  the  relative  tax
advantages of some of FIC's products;  (7) increasing competition in the sale of
insurance and annuities;  (8)  regulatory  changes or actions,  including  those
relating to  regulation  of insurance  products  and  insurance  companies;  (9)
ratings  assigned  to  FIC's  insurance   subsidiaries  by  independent   rating
organizations  such as A.M.  Best Company,  which FIC believes are  particularly
important  to the sale of  annuity  and other  accumulation  products;  (10) the
performance  of our  investment  portfolios;  (11)  the  effect  of  changes  in
standards of accounting;  (12) the effects and results of  litigation;  and (13)
other factors discussed in the Company's Annual Report on Form 10-K for the year
ended  December 31, 2002 and in the Company's  other filings with the SEC, which
are available free of charge on the SEC's website at www.sec.gov.  Should one or
more  of  these  risks  or  uncertainties  materialize,   or  should  underlying
assumptions  prove  incorrect,  actual  results may vary  materially  from those
indicated.   Investors  should  not  place  undue  reliance  on  forward-looking
statements.  Each  forward-looking  statement  speaks only as of the date of the
particular  statement,  and the Company  undertakes  no  obligation  to publicly
update or revise any forward-looking statements.  There can be no assurance that
other factors not currently  anticipated by management  will not also materially
and adversely affect FIC.

                                      - 2 -


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                FINANCIAL INDUSTRIES CORPORATION AND SUBSIDIARIES


                                      INDEX


                                                                       Page No.


Part I - Financial Information

Item 1. Financial Statements
Consolidated Balance Sheets
     September 30, 2003 and December 31, 2002................................ 4

Consolidated Statements of Income
     For the three and nine month periods ended
     September 30, 2003 and September30, 2002, as restated................... 6

Consolidated Statements of Cash Flows
     For the nine month periods ended
     September 30, 2003 and September 30, 2002, as restated................. 10

Notes to Consolidated Financial Statements.................................. 13

Item 2. Management's Discussion and Analysis of
     Financial Conditions and Results of Operations......................... 38

Item 3. Quantitative and Qualitative Disclosures
     About Market Risk ..................................................... 55

Item 4.  Controls and Procedures............................................ 57


Part II

Other Information........................................................... 58

Signature Page.............................................................. 62

                                      - 3 -


<PAGE>


                FINANCIAL INDUSTRIES CORPORATION AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                                 (in thousands)

                                                 September 30,     December 31,
                                                     2003              2002
                                                  (unaudited)

Investments:

Fixed maturities held to maturity,
 at amortized cost (market value
 approximates $33 and $1,069 at
 September 30, 2003 and December 31,
 2002, respectively)                            $        29        $     1,090

Fixed maturities available for sale,
 at market value (amortized cost of
 $575,554 and $479,433 at September 30,
 2003 and December 31, 2002, respectively)          572,479            493,827

Trading securities, at market value                   6,101                  0

Equity securities, at market value
 (cost approximates $6,423 and $6,381 at
 September 30, 2003 and December 31, 2002,
 respectively)                                        7,145              6,351

Policy loans                                         44,361             46,607

Mortgage loans                                            0                 17

Invested real estate                                 74,326             75,393

Short-term investments                               62,300            137,944

Total investments                                   766,741            761,229

Cash and cash equivalents                             6,312             24,975

Accrued investment income                             9,070              8,308

Agency advances and other receivables                15,480             19,728

Reinsurance receivables                              11,361             12,330

Due and deferred premiums                            11,091             11,981

Property held for use                                19,394             19,702

Property and equipment, net                           1,891              1,367

Deferred policy acquisition costs                    76,588             77,210

Present value of future profits of
 acquired businesses                                 24,901             23,796

Goodwill                                              4,428                  0

Other assets                                         13,786             15,739

Separate account assets                             344,969            334,637

Total Assets                                    $ 1,306,012        $ 1,311,002

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

                                      - 4 -


<PAGE>


                FINANCIAL INDUSTRIES CORPORATION AND SUBSIDIARIES
                     CONSOLIDATED BALANCE SHEETS, Continued
                                 (in thousands)

                                                 September 30,     December 31,
                                                     2003              2002
LIABILITIES AND SHAREHOLDERS' EQUITY              (unaudited)

Liabilities:

Policy liabilities and contractholder
 deposit funds:

Contractholder deposit funds                    $   564,613        $   557,466

Future policy benefits                              164,814            172,008

Other policy claims and benefits payable             15,322             17,035
                                                    744,749            746,509

Deferred federal income taxes                        17,216             25,814

Notes payable                                        15,000                  0

Other liabilities                                    23,582             29,400

Separate account liabilities                        344,969            334,637

Total Liabilities                                 1,145,516          1,136,360

Commitments and Contingencies

Shareholders' equity:

Common stock, $.20 par value, 25,000
 shares authorized in 2003 and 2002,
 12,466 and 11,856 shares issued in
 2003 and 2002, 9,689 and 9,601 shares
 outstanding in 2003 and 2002                         2,494              2,372

Additional paid-in capital                           68,414             66,541

Unearned compensation                                (1,396)                 0

Accumulated other comprehensive income               (2,333)             4,949

Retained earnings                                   117,054            123,046
                                                    184,233            196,908

Common treasury stock, at cost, 2,777
 and 2,255 shares at September 30, 2003
 and December 31, 2002                              (23,737)           (22,266)

Total Shareholders' Equity                          160,496            174,642

Total Liabilities and Shareholders' Equity      $ 1,306,012        $ 1,311,002

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

                                      - 5 -


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                FINANCIAL INDUSTRIES CORPORATION AND SUBSIDIARIES
                        CONSOLIDATED STATEMENTS OF INCOME
                 (in thousands except per share data, unaudited)

                                                Three Months Ended September 30,
                                                   2003               2002
                                                                    RESTATED
Revenues:

 Premiums                                       $   7,392          $     8,608

 Net investment income                              9,163               11,213

 Real estate income                                   422                  515

 Net realized investment losses                      (244)                 (79)

 Earned insurance charges                          10,070                9,934

 Other                                              1,321                  329
                                                   28,124               30,520

Benefits and expenses:

 Policyholder benefits and expenses                11,797               11,126

 Interest expense on contractholders
  deposit funds                                     6,740                7,423

 Amortization of present value of
  future profits of acquired businesses             1,025                1,109

 Amortization of deferred policy
  acquisition costs                                 2,744                2,852

 Operating expenses                                11,362                8,002

 Interest expense                                     207                    0
                                                   33,875               30,512

(Loss) income before federal income tax            (5,751)                   8

Federal income tax benefit                         (2,030)                (369)

Net (loss) income                               $  (3,721)         $       377

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

                                      - 6 -


<PAGE>


                FINANCIAL INDUSTRIES CORPORATION AND SUBSIDIARIES
                        CONSOLIDATED STATEMENTS OF INCOME
                 (in thousands except per share data, unaudited)

                                                Three Months Ended September 30,
                                                   2003               2002
                                                                    RESTATED
Net (Loss) Income Per Share

Basic:

Weighted average shares outstanding                   9,615              9,597

Basic earnings per share                        $     (0.39)       $      0.04

Diluted:

Common stock and common stock equivalents             9,615              9,647

Diluted earnings per share                      $     (0.39)       $      0.04

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

                                      - 7 -


<PAGE>


                FINANCIAL INDUSTRIES CORPORATION AND SUBSIDIARIES
                        CONSOLIDATED STATEMENTS OF INCOME
                 (in thousands except per share data, unaudited)

                                                 Nine Months Ended September 30,
                                                   2003               2002
                                                                    RESTATED

Revenues:
 Premiums                                       $    22,943        $    27,520

 Net investment income                               28,735             31,023

 Real estate income                                   1,339              1,840

 Net realized investment gains (losses)               1,021                (74)

 Earned insurance charges                            30,668             31,435

 Other                                                1,968              1,019
                                                     86,674             92,763

Benefits and expenses:

 Policyholder benefits and expenses                  31,503             33,525

 Interest expense on contractholders
  deposit funds                                      21,389             22,517

 Amortization of present value of
  future profits of acquired businesses               3,170              3,470

 Amortization of deferred policy
  acquisition costs                                   7,986              7,172

 Litigation settlement                                2,915                  0

 Operating expenses                                  28,644             24,986

 Interest expense                                       286                  0

   Total                                             95,893             91,670

(Loss) income before federal income
 tax and cumulative effect of change in
 accounting principle                                (9,219)             1,093

(Benefit) provision for federal income taxes         (3,227)               382

(Loss) income before cumulative
 effect of change in accounting principle            (5,992)               711

Cumulative effect of change in
 accounting principle                                     0             10,429

Net (Loss) Income                               $    (5,992)       $    11,140

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

                                      - 8 -


<PAGE>


                FINANCIAL INDUSTRIES CORPORATION AND SUBSIDIARIES
                        CONSOLIDATED STATEMENTS OF INCOME
                 (in thousands except per share data, unaudited)

                                                 Nine Months Ended September 30,
                                                   2003               2002
Net (Loss) Income Per Share                                         RESTATED

Basic:

Weighted average shares outstanding                   9,603              9,543

Basic earnings per share:

(Loss) income per share before cumulative
 effect of change in accounting principle       $     (0.62)       $      0.08

Cumulative effect of change in accounting
 principle                                                0               1.09

Basic earnings per share                        $     (0.62)       $      1.17

Diluted:

Common stock and common stock equivalents             9,603              9,621

Diluted earnings per share:

(Loss) income per share before cumulative
 effect of change in accounting principle       $     (0.62)       $      0.07

Cumulative effect of change in
 accounting principle                                     0               1.09

Diluted earnings per share                      $     (0.62)       $      1.16

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

                                      - 9 -


<PAGE>


                FINANCIAL INDUSTRIES CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                            (in thousands, unaudited)

                                                 Nine Months Ended September 30,
                                                   2003               2002
                                                                    RESTATED
CASH FLOWS FROM OPERATING ACTIVITIES

Net (Loss) Income                               $    (5,992)       $    11,140

Adjustments to reconcile net income to
 net cash provided by operating activities:

Amortization of present value of future
 profits of acquired business                         3,170              3,470

Amortization of deferred policy
 acquisition costs                                    7,986              7,172

Depreciation                                          2,570              1,773

Cumulative effect of change in
 accounting principle                                     0            (10,429)

Realized (gain) loss on investments                  (1,021)                74

Changes in assets and liabilities:

Increase in accrued investment income                  (762)            (1,458)

Decrease in agent advances and other receivables      5,375              3,793

Decrease in due and deferred premiums                   890              1,075

Increase in deferred policy acquisition costs        (6,517)            (7,802)

Decrease (increase) in other assets                   1,384             (2,456)

Increase in policy liabilities and accruals           1,126              5,161

Increase (decrease) in other liabilities              1,748             (1,615)

Decrease in deferred federal income taxes            (4,402)            (1,109)

Net activity from trading securities                 (6,101)                 0

Other, net                                              727                (41)

Net cash provided by operating activities       $       181        $     8,748

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

                                     - 10 -


<PAGE>


                FINANCIAL INDUSTRIES CORPORATION AND SUBSIDIARIES
                CONSOLIDATED STATEMENTS OF CASH FLOWS, Continued
                            (in thousands, unaudited)

                                                 Nine Months Ended September 30,
                                                   2003               2002
                                                                    RESTATED
CASH FLOWS FROM INVESTING ACTIVITIES

Fixed maturities purchased                      $  (428,024)       $  (141,625)

Real estate capitalized                                (790)           (11,399)

Proceeds from sales and maturities of
 fixed maturities                                   323,758            189,999

Proceeds from payments received on mortgage
 loans                                                   17              3,649

Net change in policy loans                            2,246              2,184

Net change in short-term investments                 75,644            (34,370)

Net change in property and equipment                   (640)            (1,043)

Acquisition of subsidiaries, net of cash
 acquired                                            (3,183)                 0

Net cash (used in) provided by investing
 activities                                         (30,972)             7,395

CASH FLOW FROM FINANCING ACTIVITIES

Dividends Paid                                         (483)            (2,207)

Contractholder fund deposits                         44,503             40,276

Contractholder fund withdrawals                     (47,389)           (53,809)

Issuance of common capital stock                        944              1,007

Sale of treasury stock                                  656                  0

Purchase of treasury stock                           (1,103)              (460)

Proceeds from bank borrowings                        15,000                  0

Net cash provided by (used in) financing
 activities                                          12,128            (15,193)

Net (decrease) increase in cash                     (18,663)               950

Cash, beginning of year                              24,975              7,094

Cash, end of period                             $     6,312        $     8,044

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

                                     - 11 -


<PAGE>


                FINANCIAL INDUSTRIES CORPORATION AND SUBSIDIARIES
                CONSOLIDATED STATEMENTS OF CASH FLOWS, Continued
                            (in thousands, unaudited)

Supplemental Schedule of Noncash Investing and Financing Activities

The  Company  purchased  all of the  capital  stock  of the  New  Era  Marketing
companies  (as defined  and  described  in Note 6) for $4.2  million in cash and
contingent  consideration  in the form of  restricted  FIC common  stock of $0.6
million.  In  conjunction  with  the  acquisition,   assets  were  acquired  and
liabilities were assumed as follows:

Estimated fair value of assets acquired                         $5.0 million

Estimated fair value of liabilities assumed                     $0.2 million

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

                                     - 12 -


<PAGE>


                FINANCIAL INDUSTRIES CORPORATION AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

The financial  statements  included herein have been presented to conform to the
requirements  of Form 10-Q.  This  presentation  includes year end balance sheet
data  that was  derived  from  audited  financial  statements.  The notes to the
financial  statements do not  necessarily  include all  disclosures  required by
generally accepted accounting  principles  ("GAAP").  The reader should refer to
Form  10-K for the year  ended  December  31,  2002  previously  filed  with the
Securities  and  Exchange  Commission  for  financial   statements  prepared  in
accordance with GAAP.  Management believes the financial  statements reflect all
adjustments  necessary to present a fair statement of interim  results.  Certain
prior  year  amounts  have  been  reclassified  to  conform  with  current  year
presentation.  All  adjustments  made to the  interim  periods  are of a  normal
recurring  nature,  except  for  the  September  30,  2002  and  June  30,  2003
restatements described in Note 9.

The  consolidated   financial  statements  include  the  accounts  of  Financial
Industries   Corporation   ("FIC")  and  its   subsidiaries.   All   significant
intercompany items and transactions have been eliminated.

1.   Other Comprehensive Income

The  following  is  a  reconciliation   of  the  change  in  accumulated   other
comprehensive   income  from  December  31,  2002  to  September  30,  2003  (in
thousands):

<TABLE>
<S>     <C>                          <C>                   <C>                <C>              <C>
                                Net unrealized          Net                                  Net
                                gain (loss) on          Appreciation                         accumulated
                                investments in          (depreciation)                       other
                                fixed maturities        of equity                            comprehensive
                                available for           securities                           income
                                sale                                        Other            (loss)


Balance at December 31, 2002    $     6,601             $       (20)        $    (1,632)     $     4,949

Current Period Change                (8,026)                    489                 255           (7,282)

Balance at September 30, 2003   $    (1,425)            $       469         $    (1,377)     $    (2,333)
</TABLE>

                                     - 13 -


<PAGE>


                FINANCIAL INDUSTRIES CORPORATION AND SUBSIDIARIES
           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


2.   Earnings per Share

The following table reflects the  calculation of basic and diluted  earnings per
share (amounts in thousands, except per share amounts):

<TABLE>
<S>     <C>                                   <C>             <C>                 <C>               <C>
                                              Three months ended                    Nine months ended
                                                 September 30,                         September 30,
                                             2003             2002                2003              2002
                                                            RESTATED                              RESTATED
BASIC:

Net (loss) income available to common
  shareholders                          $    (3,721)      $       377        $    (5,992)       $    11,140

Weighted average common
  shares outstanding                          9,615             9,597              9,603              9,543

Basic earnings per share                $     (0.39)      $      0.04        $     (0.62)              1.17

DILUTED:

Net (loss) income available to common
shareholders                            $    (3,721)      $       377        $    (5,992)       $    11,140

Weighted average common shares
 outstanding                                  9,615             9,597              9,603              9,543

Common stock options                              0               219                  0                270

Repurchase of treasury stock                      0              (169)                 0               (192)

Common stock and common stock
  equivalents                                 9,615             9,647              9,603              9,621

Diluted earnings per share              $     (0.39)      $      0.04        $     (0.62)       $      1.16
</TABLE>

                                     - 14 -


<PAGE>


               FINANCIAL INDUSTRIES CORPORATION AND SUBSIDIARIES
           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


Options to purchase 873,020 shares of common stock at prices  ranging from $8.18
to $16.42 were  outstanding  at September 30, 2003, but were not included in the
computation  of diluted  earnings per share for the three and nine months ending
September 30, 2003 because the inclusion would result in an antidilutive  effect
in periods where a loss from continuing operations was incurred.

3.   Stock Option Plans and Other Equity Incentive Plans

The Company  follows the  disclosure-only  provisions  of Statement of Financial
Accounting   Standards   ("SFAS")   No.   123,   "Accounting   for   Stock-Based
Compensation,"  as  amended  by  SFAS  No.  148,  "Accounting  for  Stock  Based
Compensation  - Transition  and  Disclosure."  SFAS No. 123 allows  companies to
follow existing  accounting rules,  Accounting  Principles Board ("APB") Opinion
No. 25,  "Accounting  for Stock Issued to  Employees,"  provided  that pro forma
disclosures  are made of what net income and  earnings per share would have been
had the company  recognized  expense for stock-based  awards based on their fair
value at date of grant. For purpose of pro forma disclosures, the estimated fair
value of the options is amortized to expense over the options'  vesting  period.
Pro forma income  information is as follows (in thousands  except for net income
(loss) per share):

<TABLE>
<S>      <C>                            <C>                <C>                 <C>              <C>
                                         Three months ended                     Nine months ended
                                            September 30,                          September 30,
                                       2003               2002                2003              2002
                                                        RESTATED                              RESTATED

Net (loss) income as reported      $    (3,721)       $       377        $    (5,992)       $    11,140

Pro forma compensation expense,
net of tax benefits                          0                 39                  0                115

Pro forma net (loss) income        $    (3,721)       $       338        $    (5,992)       $    11,025

Net (loss) income per share:

  Basic as reported                $     (0.39)       $      0.04        $     (0.62)       $      1.17

  Diluted as reported              $     (0.39)       $      0.04        $     (0.62)       $      1.16

  Basic - Pro Forma                $     (0.39)       $      0.04        $     (0.62)       $      1.16

  Diluted - Pro Forma              $     (0.39)       $      0.04        $     (0.62)       $      1.15
</TABLE>

                                     - 15 -


<PAGE>


               FINANCIAL INDUSTRIES CORPORATION AND SUBSIDIARIES
           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


4.   Dividends Declared

The Board  declared a dividend of $0.05 per common share  payable on January 24,
2003 to shareholders of record as of January 3, 2003.

5.   Trading Securities

FIC's trading securities consist of Collateralized Mortgage Obligations ("CMOs")
of the type generally  referred to as "inverse floaters" which have coupon rates
that vary in an inverse  relationship with a specified benchmark rate. The value
of FIC's  trading  securities  as of September  30, 2003 was $6.1  million.  The
change in the market value of trading  securities  during the period is included
in net realized investment income on the income statement.  The change in market
value  included in income  during the three and nine months ended  September 30,
2003 is $ (630,000)  and  $131,000,  respectively.  FIC did not have any trading
securities at December 31, 2002.

6.   Acquisition of Subsidiaries and Related Transactions

On June 5, 2003,  FIC,  through a subsidiary,  acquired  three  companies in the
secondary education financial services market. Each of the three transactions is
described below. In connection with the acquisitions,  FIC, or its subsidiaries,
entered into the transactions that are described below:

     A.   Acquisition of Marketing Companies:

A newly  created  subsidiary  of FIC, FIC  Financial  Services,  Inc.  ("FICFS")
acquired  all  of the  issued  and  outstanding  capital  stock  of:  (i)  Total
Consulting  Group,  Inc.  ("TCG"),  (ii) JNT Group, Inc. ("JNT") and (iii) three
companies  collectively  referred to as "Paragon" - Paragon Benefits,  Inc., The
Paragon  Group,  Inc.  and Paragon  National,  Inc.  (collectively  the "New Era
Marketing  Companies").  The  acquisitions  were  consummated  pursuant to three
separate stock purchase agreements by and among the parties.  The effective date
of the acquisitions was May 30, 2003.

                                     - 16 -


<PAGE>


               FINANCIAL INDUSTRIES CORPORATION AND SUBSIDIARIES
           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

The  consideration  paid by FICFS for the purchase of TCG was $1,984,824 in cash
and 97,417 shares of restricted  common stock of FIC. The value  assigned to the
restricted common stock was $1,327,794 and was based on the 10-day average price
of  FIC  common  stock  as of  two  days  prior  to the  effective  date  of the
acquisition.  The  restricted  common stock is subject to a lock-up period of 12
months for  shareholders  other than two key  employees of TCG whose  restricted
common stock was valued at $756,842.  The restricted  common stock issued to two
key  employees of TCG is locked-up  pursuant to a three-year  vesting  schedule,
which is subject to the continued  employment of the employees under  employment
agreements  between the employees and FICFS. The value of the restricted  common
stock issued to the two key employees has been recorded as unearned compensation
as a component of  shareholders'  equity and is being recognized as compensation
expense  over the  vesting  period.  The  consideration  paid by  FICFS  for the
purchase of JNT was  $514,583  in cash and 17,899  shares of  restricted  common
stock of FIC. The value assigned to the restricted common stock was $243,964 and
was based on the 10-day  average  price of FIC common stock as of two days prior
to the effective date of the  acquisition.  The restricted  stock portion of the
consideration  is  subject  to a  three-year  vesting  restriction  based on the
three-year  employment  agreement  entered into by and between FICFS and one key
employee of JNT.  The value of the  restricted  common  stock  issued to the key
employee  has  been  recorded  as  unearned   compensation  as  a  component  of
shareholders'  equity and is being  recognized as compensation  expense over the
vesting period.  The consideration paid by FICFS for the purchase of Paragon was
$1,410,750  in cash and 105,593  shares of  restricted  common stock of FIC. The
value  assigned to the  restricted  common stock was $1,439,233 and was based on
the  10-day  average  price of FIC  common  stock  as of two  days  prior to the
effective  date  of  the   acquisition.   A  portion  of  the  restricted  stock
consideration  is  subject  to a  vesting  restriction  based on the  employment
agreements entered into by and between FICFS and three key employees of Paragon.
A portion of the restricted  stock is subject to forfeiture if certain  business
targets are not met. The value of the restricted  common stock issued to the key
employees  has  been  recorded  as  unearned  compensation  as  a  component  of
shareholders'  equity and is being  recognized as compensation  expense over the
vesting period.

                                     - 17 -


<PAGE>


                FINANCIAL INDUSTRIES CORPORATION AND SUBSIDIARIES
           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

The results of operations of the New Era Marketing Companies are included in the
Consolidated  Statement of Income from the  effective  date of the  acquisitions
(May  30,  2003).  The pro  forma  results  as if FIC had  acquired  the New Era
Marketing  Companies on January 1, 2003 are as follows (in thousands  except per
share amounts):

                                              Nine Months Ending Sept. 30, 2003

Revenues                                                  $    88,068

Net Loss                                                  $    (6,045)

Basic Earnings Per Share                                  $     (0.63)

Diluted Earnings Per Share                                $     (0.63)


The pro forma information for the corresponding  2002 periods is not provided as
it is not practicable to obtain.

The  acquisition  of the New Era Marketing  Companies has been  accounted for in
accordance with SFAS No. 141, "Business  Combinations."  This statement requires
that FIC estimate the fair value of assets acquired and  liabilities  assumed by
the Company as of the date of the acquisition and allocate the purchase price to
those assets and liabilities.  The adjusted  purchase price paid for the New Era
Marketing  Companies  (including   transaction  fees  and  excluding  contingent
consideration  amounts  accounted for as  compensation  as described  above) was
$4,239,591.  The Company  previously  reported in its 8-K filed on June 6, 2003,
that the  purchase  price was $6.9  million.  However,  a portion of that amount
($2.4 million) has been reclassified as contingent compensation,  rather than as
part of the purchase price. FIC has not finalized the allocation of the purchase
price as of September 30, 2003. An  estimation of this  allocation  was prepared
and included as part of these financial statements.  The purchase price has been
allocated as follows:  $116,000 to cash,  $158,000 to agency  advances and other
receivables, $288,000 to property, plant and equipment, $28,000 to other assets,
$182,000  to  other   liabilities   and  $4.4  million  to  goodwill  and  other
intangibles. While the Company has not completed its allocation of cost to other
intangibles,   its   preliminary   assessment  is  that  such  amounts  are  not
significant, and accordingly, no amortization expense has been recorded.

                                     - 18 -


<PAGE>


                FINANCIAL INDUSTRIES CORPORATION AND SUBSIDIARIES
           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


     B.   Marketing Agreement:

In addition to the acquisitions  described above and the  establishment of FICFS
as a wholly-owned  subsidiary of FIC, the life insurance company subsidiaries of
FIC,  Investors Life Insurance Company of North America  ("Investors  Life") and
Family  Life  Insurance  Company  ("Family  Life"),  entered  into  a  marketing
agreement  with  Equita  Financial  and  Insurance   Services  of  Texas,   Inc.
("Equita"),  a  Dallas-based  company  engaged  in the  marketing  and  sale  of
insurance policies,  annuity contracts and related financial products. Under the
terms of the  agreement,  Equita was granted an exclusive  appointment to market
products  underwritten  by  Investors  Life  and  Family  Life  ("Products")  to
individuals over the age of fifty-five (the "Exclusive Market"). The appointment
is for a ten-year  period;  however,  the exclusive  rights of Equita  terminate
unless certain production targets are met.

     C.   Stock  Purchase  and Option  Agreement - American  Physicians  Service
          Group, Inc. ("APS"):

In  consideration  of the role that APS served in having brought the opportunity
to  acquire  the New Era  Marketing  Companies  to FIC and  APS's  intention  to
actively  assist FIC in promoting FIC's business plan; FIC sold 27,395 shares of
its  common  stock  ("Common  Stock"),  par value  $.20 per  share to APS,  at a
purchase  price of $14.64 per share.  These  shares  represent  a portion of the
shares that FIC recently  purchased from Roy F. Mitte (former Chairman and Chief
Executive Officer of FIC) pursuant to the provisions of the previously announced
settlement of the litigation  between FIC, Mitte family  members,  and the Mitte
Foundation  (the  "Settlement  Agreement").  In addition,  FIC granted to APS an
option to acquire up to 323,000  shares of Common Stock at a per share  exercise
price  equal to $16.42  per share,  but only if  "Qualifying  Premiums"  for the
"Determination Period" exceed $200,000,000.  The Qualifying Premiums requirement
refers,  with certain  exceptions,  to the amount of premiums for life insurance
and annuity products marketed through FICFS, the newly-established subsidiary of
FIC that  purchased  the New Era  Marketing  Companies,  and  includes  premiums
received by FIC's life  insurance  subsidiaries  in  connection  with the Equita
Marketing Agreement  described above. The Determination  Period means the period
beginning  on July 1, 2003 and  ending on  December  31,  2005.  Unless  earlier
exercised,  the  option  expires on  December  31,  2006.  The fair value of the
options at the date the Qualifying Premium targets, if met, are achieved will be
recognized as expense at that date in accordance  with SFAS No. 123 and Emerging
Issues Task Force ("EITF") Issue No. 96-18,  "Accounting for Equity  Instruments
That Are Issued to Other Than  Employees for Acquiring,  or in Conjunction  with
Selling, Goods or Services."

                                     - 19 -


<PAGE>


                FINANCIAL INDUSTRIES CORPORATION AND SUBSIDIARIES
           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


     D.   Stock Purchase and Option  Agreement - Equita  Financial and Insurance
          Services of Texas, Inc. ("Equita"):

In  consideration  of  the  role  that  Equita  served  in  having  brought  the
opportunity  to acquire  the New Era  Marketing  Companies  to FIC and  Equita's
intention to assist FIC in the  implementation  of its business plan through the
marketing  agreement described above, FIC granted to Equita an option to acquire
up to 169,000  shares of Common  Stock at a per share  exercise  price  equal to
$16.42 per  share,  but only if  "Qualifying  Premiums"  for the  "Determination
Period"  exceed  $200,000,000.   The  definitions  of  Qualifying  Premiums  and
Determination  Period are the same as those for the  option  granted to APS with
respect  to the base  option  only.  In  addition,  FIC  granted  to  Equita  an
additional  option to  purchase  up to 158,000  shares of Common  Stock at a per
share exercise  price equal to $16.42 per share,  but only at the rate of 10,000
shares for each  $10,000,000  increment  by which  Qualifying  Premiums  for the
Determination Period exceed $200,000,000.  Unless earlier exercised, the options
granted to Equita expire on December 31, 2006.  The fair value of the options at
the date the Qualifying Premium targets, if met, are achieved will be recognized
as expense  in  accordance  with SFAS No.  123 and EITF Issue No.  96-18 at that
date.

     E.   Employment Agreement and Option Agreement - William P. Tedrow:

In order to implement its business plan for the New Era Marketing Companies, FIC
appointed  William P. Tedrow as President of FICFS and a Vice  President of FIC.
FIC and Mr. Tedrow entered into an employment  agreement for a term ending March
31,  2009.  In  addition,  the  agreement  provides  Mr.  Tedrow with a 6% stock
interest in FICFS subject to a right of repurchase by FIC and a lump sum payment
of $400,000 for Mr.  Tedrow's  efforts in organizing and integrating the New Era
Marketing  Companies  to FIC. The lump sum payment was included as an expense in
the Consolidated Income Statement for the nine months ended September 30, 2003.

The  restricted  stock  interest is subject to repurchase by FIC on December 31,
2008, or earlier upon termination of the employment agreement or the termination
of the  employment  of Mr.  Tedrow.  The  repurchase  price  is  based  upon the
valuation  of FICFS and an actuarial  valuation  of the block of  insurance  and
annuity  policies  produced  by or  through  FICFS;  provided,  however,  if the
repurchase is made in connection with the termination of Mr. Tedrow's employment
for cause,  or if Mr. Tedrow  terminates his employment  without good reason (as
defined in the  agreement),  the  repurchase  price is  limited  to $10.  If the
repurchase  price exceeds $5 million,  FIC may, in lieu of paying such excess in
cash,  deliver to Mr. Tedrow a  subordinated  note of FIC, such note to be for a
ten-year  term,  with equal  payments of principal and interest on a semi-annual
basis,   and  bearing  interest  at  the   then-prevailing   rate  for  ten-year
U.S.Treasury  notes, plus 2.5%. A liability equal to the estimated fair value of
the repurchase obligation to Mr. Tedrow will be estimated at each reporting date
with  changes in the fair value of the  obligation  recorded in earnings in each
reported  period.  The  estimated  fair value of the  repurchase  obligation  at
September 30, 2003 was $0.

                                     - 20 -


<PAGE>


                FINANCIAL INDUSTRIES CORPORATION AND SUBSIDIARIES
           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


In  addition,  FIC  granted to Mr.  Tedrow an option to  purchase  up to 150,000
shares of Common  Stock at a per share  exercise  price of  $13.07,  but only if
"Qualifying  Premiums" for the "Determination  Period" exceed $200,000,000.  The
definitions  of  Qualifying  Premiums and  Determination  Period are the same as
those for the option granted to APS described above.  Unless earlier  exercised,
the  options  expire  on  December  31,  2006,  or  earlier  in the event of the
termination  of Mr.  Tedrow's  employment  for  cause  or if he  terminates  his
employment  without  good  cause.  The options  granted to Mr.  Tedrow are being
accounted  for in accordance  with APB Opinion No. 25 and  Financial  Accounting
Standards  Board  ("FASB")   Interpretation   No.  28,   "Accounting  for  Stock
Appreciation  Rights  and  Other  Variable  Stock  Option  or  Award  Plans,  an
interpretation of APB Opinions No. 15 and 25." No expense related to the options
granted  to Mr.  Tedrow  was  recognized  in the  three  and nine  months  ended
September 30, 2003.

In his capacity at the Company,  Mr. Tedrow has participated  during the current
year in the general supervision of investment  activities.  On October 29, 2003,
the Company announced that it is reviewing its investment  activities during the
past year, including mark-ups and commissions paid during that time. The Company
is also investigating, among other things, relationships between a broker-dealer
used by the Company and William P. Tedrow.  As stated  above,  Mr. Tedrow is the
president of the Company's FICFS subsidiary and a Vice President of the Company.
Mr. Tedrow has been placed on  administrative  leave pending the results of this
investigation.

     F.   Review of New Era Business

The Company is currently  reviewing the business  plans of the New Era Marketing
Companies  in order to  determine  what  changes,  if any,  may be needed in the
operation  of  the  business  entities  which  operate  as  part  of  the  FICFS
subsidiary.  In  connection  with its  review of the  operations  of FICFS,  the
Company  evaluated the goodwill  that was  established  in  connection  with the
acquisition  of the New Era companies and has  determined  that,  for the period
ended  September  30,  2003,  no  adjustment  to the  carrying  value  that  was
previously established is required.

7.   Notes Payable

In May 2003, FIC issued $15,000,000  aggregate principal amount of Floating Rate
Senior  Notes due 2033 (the  "Senior  Notes")  and entered  into a Senior  Notes
Subscription  Agreement  ("Subscription  Agreement") with InCapS Funding I, Ltd.
("InCapS"), wherein InCapS agreed to purchase the Senior Notes. The Senior Notes
were issued on May 22, 2003 pursuant to an indenture  between FIC and Wilmington
Trust Company, as Trustee (the "Indenture").

                                     - 21 -


<PAGE>


                FINANCIAL INDUSTRIES CORPORATION AND SUBSIDIARIES
           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


The  principal  amount  of the  Senior  Notes is to be paid on May 23,  2033 and
interest is to be paid  quarterly,  beginning on August 23, 2003, at the rate of
4.20% over LIBOR (LIBOR is recalculated  quarterly and the interest rate may not
exceed 12.5% prior to May 2008).  FIC may redeem the Senior Notes at any time on
or after May 23, 2008 by payment of 100% of the  principal  amount of the Senior
Notes being redeemed plus unpaid interest accrued to the payment date.  Proceeds
from the Senior Notes were used to fund the acquisition of the New Era Marketing
Companies (See Note 6) and to pay down intercompany payables.

8.   New Accounting Pronouncements

In June 2002,  the FASB issued SFAS No. 146,  "Accounting  for Costs  Associated
with Exit or Disposal  Activities,"  which  addresses  financial  accounting and
reporting for costs  associated  with exit or disposal  activities and nullifies
EITF Issue No. 94-3,  "Liability  Recognition for Certain  Employee  Termination
Benefits and Other Costs to Exit an Activity  (including  Certain Costs Incurred
in a Restructuring)."  SFAS No. 146 is effective for exit or disposal activities
that are initiated after December 31, 2002. The adoption of SFAS No. 146 did not
materially affect FIC's results of operations,  liquidity or financial position.

In December  2002,  the FASB issued SFAS No. 148,  "Accounting  for  Stock-Based
Compensation - Transition and  Disclosure."  The statement amends SFAS No.123 to
provide alternative methods of transition for voluntary change to the fair value
based method of accounting for stock-based employee  compensation.  In addition,
SFAS No.  148  amends  the  disclosure  requirements  of SFAS No. 123 to require
prominent  disclosures in both annual and interim financial statements about the
method of accounting for stock-based employee compensation and the effect of the
method used on reported  results.  SFAS No. 148  prescribes  a specific  tabular
format for the pro forma disclosures required by SFAS No. 123 and requires their
disclosure  in  the  "Summary  of  Significant   Accounting   Policies"  or  its
equivalent.  In  addition,  SFAS No. 148  requires  inclusion of these pro forma
disclosures in financial reports for interim periods.  SFAS No. 148 is effective
for financial  statements  for fiscal years ending after  December 15, 2002. FIC
continues  to account  for its stock  option  plans under APB Opinion No. 25 and
related  interpretations  as  allowed by this  statement.  FIC has  adopted  the
disclosure provisions of SFAS No. 148.


                                     - 22 -


<PAGE>


                FINANCIAL INDUSTRIES CORPORATION AND SUBSIDIARIES
           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


In November 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting
and Disclosure  Requirements for Guarantees,  Including  Indirect  Guarantees of
Indebtedness  of Others" ("FIN 45"). FIN 45 elaborates on the  disclosures to be
made by a guarantor  in its interim and annual  financial  statements  about its
obligations under certain  guarantees that it has issued. It also clarifies that
a  guarantor  is required to  recognize,  at the  inception  of a  guarantee,  a
liability  for the fair  value  of the  obligation  undertaken  in  issuing  the
guarantee.  The initial  measurement  provisions  of FIN 45 are  applicable on a
prospective  basis to guarantees issued or modified after December 31, 2002. The
disclosure  requirements  of  FIN  45  are  effective  for  years  ending  after
December 15, 2002. FIN 45 did not have a material effect on the Company.

In  January  2003,  the FASB  issued  Interpretation  No. 46  "Consolidation  of
Variable Interest Entities, an interpretation of ARB 51" ("FIN 46"). The primary
objectives of FIN 46 are to provide guidance on the  identification  of entities
for which  control is achieved  through  means other than through  voting rights
("variable  interest  entities" or "VIEs") and how to  determine  when and which
business enterprise should consolidate the VIE (the "primary beneficiary"). This
new model for  consolidation  applies to an entity  which  either (1) the equity
investors  (if  any) do not have a  controlling  financial  interest  or (2) the
equity  investment at risk is insufficient  to finance that entity's  activities
without receiving additional  subordinated financial support from other parties.
In addition,  FIN 46 requires  that both the primary  beneficiary  and all other
enterprises  with a  significant  variable  interest  in a VIE  make  additional
disclosures.  The FASB has deferred FIN 46 until the end of periods ending after
December  15, 2003 for VIEs created before February 1, 2003  that have not been
reported in accordance with FIN 46.  FIN 46 is not  expected to have  a material
effect on the Company.

In April 2003,  the FASB issued SFAS No. 149,  "Amendment  of  Statement  133 on
Derivative  Instruments and Hedging  Activities." This statement amends SFAS No.
133,  "Accounting  for  Derivative  Instruments  and  Hedging  Activities,"  for
decisions  made  (1) as  part of the  FASB's  Derivatives  Implementation  Group
process that effectively  required amendments to SFAS No. 133, (2) in connection
with  other  FASB  projects  dealing  with  financial  instruments,  and  (3) in
connection with  implementation  issues raised in relation to the application of
the definition of a derivative.  The adoption of SFAS No. 149 is not expected to
materially affect FIC's results of operations, liquidity or financial position.

                                     - 23 -


<PAGE>


                FINANCIAL INDUSTRIES CORPORATION AND SUBSIDIARIES
           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


In April  2003,  the FASB  issued  SFAS No. 133  Implementation  Issue No.  B36,
"Embedded  Derivatives:  Modified Coinsurance  Arrangements and Debt Instruments
That  Incorporate  Credit Risk  Exposures  That Are Unrelated or Only  Partially
Related  to  the  Creditworthiness  of the  Obligor  Under  Those  Instruments."
Implementation Issue No. B36 indicates that a modified  coinsurance  arrangement
("modco"),  in which funds are  withheld  by the ceding  insurer and a return on
those withheld funds is paid based on the ceding  company's return on certain of
its investments,  generally contains an embedded  derivative feature that is not
clearly and closely  related to the host  contract and should be  bifurcated  in
accordance  with the  provisions  of SFAS No. 133,  "Accounting  for  Derivative
Instruments and Hedging  Activities." The effective date of Implementation Issue
No. B36 is the first day of the first fiscal quarter  beginning  after September
15,  2003.  Beginning  in the fourth  quarter of 2003,  FIC intends to apply the
guidance  prospectively for existing contracts and all future  transactions.  As
permitted by SFAS No. 133, all contracts  entered into prior to January 1, 1999,
were grandfathered  and are exempt  from  provisions of SFAS No. 133 that relate
to  embedded  derivatives.  Based  upon FIC's  current  level of modco and funds
withheld  reinsurance,  the application of  Implementation  Issue No. B36 is not
expected to have a material impact on consolidated financial position or results
of operations.

In May 2003,  the FASB issued SFAS No. 150,  "Accounting  for Certain  Financial
Instruments with  Characteristics of both Liabilities and Equity".  SFAS No. 150
establishes  standards  for  how  an  issuer  classifies  and  measures  certain
financial instruments with characteristics of both liabilities and equity and is
effective for financial  instruments entered into or modified after May 31, 2003
and  otherwise  is  effective  at the  beginning  of the  first  interim  period
beginning  after June 15,  2003,  except for  mandatorily  redeemable  financial
instruments  of  a  nonpublic  entity.  For  mandatorily   redeemable  financial
instruments of a nonpublic entity, SFAS No. 150 is effective for existing or new
contracts for fiscal  periods  beginning  after December 15, 2003. For financial
instruments  created before the issuance date of SFAS No. 150 and still existing
at the  beginning of the interim  period of adoption,  transition is achieved by
reporting  the  cumulative  effect of a change  in an  accounting  principle  by
initially measuring the financial instruments at fair value or other measurement
attribute  required by SFAS No. 150. At its October 29, 2003  meeting,  the FASB
agreed to  indefinitely  defer the  implementation  of a portion of SFAS No. 150
regarding  the  accounting  treatment  for  minority  interests  in finite  life
partnerships.  The provisions of SFAS No. 150, which we adopted in 2003, did not
have a  material  impact  on our  consolidated  financial  statements.  We  will
continue to evaluate the  potential  impact of SFAS No. 150 on our  consolidated
financial position and results of operations.

                                     - 24 -


<PAGE>


                FINANCIAL INDUSTRIES CORPORATION AND SUBSIDIARIES
           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


In July 2003,  the Accounting  Standards  Executive  Committee  ("AcSEC") of the
American Institute of Certified Public Accountants ("AICPA") issued Statement of
Position ("SOP") 03-01,  "Accounting and Reporting by Insurance  Enterprises for
Certain Nontraditional Long-Duration Contracts and for Separate Accounts." AcSEC
has  developed  the SOP to address the  evolution of product  designs  since the
issuance of SFAS No. 60,  "Accounting  and Reporting by Insurance  Enterprises,"
and SFAS No. 97, "Accounting and Reporting by Insurance  Enterprises for Certain
Long-Duration  Contracts  and for  Realized  Gains and  Losses  from the Sale of
Investments,"  and the need for  interpretive  guidance to be developed in three
areas: separate account presentation and valuation;  the accounting  recognition
given sales inducements (bonus interest,  bonus credits,  persistency  bonuses);
and  the  classification  and  valuation  of  certain   long-duration   contract
liabilities.

Significant accounting implications of the SOP are as follows: (1) reporting and
measuring assets and liabilities of separate account products as general account
assets and  liabilities  when specified  criteria are not met; (2) reporting and
measuring seed money in separate accounts as general account assets based on the
insurer's proportionate beneficial interest in the separate account's underlying
assets;  (3) capitalizing  sales  inducements  that meet specified  criteria and
amortizing  such  amounts  over  the  life  of  the  contracts  using  the  same
methodology as used for amortizing  deferred  acquisition costs, but immediately
expensing those sales  inducements  accrued or credited if such criteria are not
met;  (4) for  contracts  that have  features  that may  result in more than one
potential account balance,  recognizing  contractholder liabilities based on the
highest contractually determinable balance that will be available in cash or its
equivalent at the contract maturity or reset date,  without reduction for future
fees and charges; (5) recognizing  contractholder  liabilities for group pension
participating and similar general account "pass through"  contracts that are not
accounted  for under  SFAS No.  133 at  amounts  based on the fair  value of the
assets  or index  that  determines  the  investment  return  pass  through;  (6)
establishing an additional  liability for contracts determined to have mortality
and  morbidity  risk that is other than nominal when the risk charges made for a
period are not  proportionate to the risk borne during that period;  and (7) for
contracts  containing  an  annuitization  benefits  contract  feature,  if  such
contract  feature  is not  accounted  for under the  provisions  of SFAS No. 133
establishing  an additional  liability  for the contract  feature if the present
value of expected  annuitization  payments at the  expected  annuitization  date
exceeds the expected account balance at the expected annuitization date.

                                     - 25 -


<PAGE>


                FINANCIAL INDUSTRIES CORPORATION AND SUBSIDIARIES
           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


The  provisions  of the SOP are  effective  for  fiscal  years  beginning  after
December  15,  2003,  and,  as such,  the Company  will adopt the SOP  effective
January 1, 2004. The effect of initially adopting this SOP will be reported as a
cumulative   effect  of  a  change  in  accounting   principle  except  for  the
requirements regarding capitalization of sales inducements, which is required to
be applied  prospectively.  The Company is currently completing an assessment of
the impact of the SOP on its  operations;  however,  we do not believe  that the
implementation  of  the  SOP  will  have a  material  effect  on  the  Company's
consolidated financial position.

9.   Restatement

Restatement of Form 10-Q for period ending June 30, 2003

In connection with the preparation of its financial statements for the three and
nine-month  periods  ended  September  30,  2003,  the  Company  reviewed  those
securities in its investment  portfolio classified as fixed maturities available
for sale. That review was conducted in order to determine whether changes in the
carrying value of those securities should be considered as other than temporary.
As a result of that review,  the Company  incurred a $5.2 million  charge to net
realized investment loss, of which approximately $725,000 relates to the quarter
ended June 30, 2003.

Realized  investment losses of $725,000 and related  adjustments to amortization
of present  value of future  profits of  acquired  businesses,  deferred  policy
acquisition costs and accumulated other comprehensive  income have been recorded
as of June 30, 2003.

The Company  also  determined  that  $105,000  had been  accrued and reported as
income  in the  period  ended  June 30,  2003  relating  to  amounts  that  were
anticipated to be due to ILG Securities Corporation,  a broker-dealer subsidiary
of the  Company,  in  connection  with  securities  transactions  involving  the
investment  portfolios  of the Company's  subsidiaries.  This amount should have
been eliminated in consolidation.  Moreover, the Company has not determined that
ILG  Securities  Corporation  has a contractual  right to receive such payments,
accordingly, such amounts are now reflected in liabilities pending resolution of
this issue.

The June 30, 2003 financial  statements  included in the  previously  filed Form
10-Q for the three and six months  ended June 30, 2003 will be restated as shown
in the table below to correct  the above  impairments,  reversal  of  commission
income and reflect the related effect of income taxes.  The Company will file an
amended  Form 10-Q for the three and six months  ended June 30,  2003 to reflect
these restatements.

                                     - 26 -


<PAGE>


                FINANCIAL INDUSTRIES CORPORATION AND SUBSIDIARIES
           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Net income for the three and six months ended June 30, 2003 was  decreased  from
amounts  previously  reported  by $500,000  as a result of the  restatement,  as
follows (in thousands except per share data):

  BALANCE SHEET                                 As Reported        As Restated

Other Assets                                    $    20,206        $    20,101

Deferred policy acquisition costs               $    76,375        $    76,369

Present value of future profits
 of acquired businesses                         $    21,764        $    21,619

Deferred federal income taxes                   $    23,518        $    23,428

Accumulated other comprehensive income          $     5,385        $     5,719

Retained Earnings                               $   121,275        $   120,775

  INCOME STATEMENT                                    Three months ended

Net loss                                        $      (507)       $    (1,007)

Basic earnings per share                        $     (0.05)       $     (0.10)

Diluted earnings per share                      $     (0.05)       $     (0.10)

                                                        Six months ended

Net loss                                        $    (1,771)       $    (2,271)

  Basic earnings per share                      $     (0.18)       $     (0.24)

  Diluted earnings per share                    $     (0.18)       $     (0.24)

                                     - 27 -


<PAGE>


                FINANCIAL INDUSTRIES CORPORATION AND SUBSIDIARIES
           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

The change in net income  for the three and six months  ended June 30,  2003 was
due to the  following  adjustments  that  increased  (decreased)  net income (in
thousands):

                                                     Three and six months ended
                                                            June 30, 2003

Net investment income                                        $      (105)

Net realized investment losses                                      (725)

Amortization of present value of future
 profits of acquired businesses                                       29

Amortization of deferred policy acquisition
 costs                                                                31

Provision for federal income taxes                                   270

Net Loss                                                     $      (500)


Restatement for period ending September 30, 2002

The  financial  statements  as of and for the three and nine month periods ended
September  30,  2002 have been  restated.  In the fourth  quarter  of 2002,  the
Company  identified  uncollectible  receivables for which adequate allowance had
not been made and  policyholder  benefits and expenses that were understated due
to an interface error between the policy  administration  system and the general
ledger.  The Company extended its  investigation to determine the years affected
and expanded the scope of its review to include other areas,  including  certain
adjustments  that were deemed not material in prior  years.  As a result of this
review,  the  financial  statements  for 2001 and 2000 and  previously  reported
unaudited quarterly financial data were restated for the following items:

     A.   Family  Life  (a  wholly  owned  subsidiary  of the  Company)  did not
          properly apply the accounting requirements of SFAS No. 87, "Employers'
          Accounting  for  Pensions,"  in  accounting  for its  defined  benefit
          pension plan.  The Company had accounted for its pension  expense on a
          cash  basis.  As a result,  the Company  had not  properly  recognized
          pension  expense or  benefit  and had not  recorded a prepaid  pension
          asset in years prior to January 1, 2000.

                                     - 28 -


<PAGE>


                FINANCIAL INDUSTRIES CORPORATION AND SUBSIDIARIES
           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


     B.   Agency  advances  and  other  receivables  had not been  analyzed  for
          collectibility and contained balances pertaining to agents that should
          have been written off.

     C.   Depreciation  on certain  property and equipment had not been recorded
          since purchase.

     D.   Certain lease  incentives had been recognized in income as received in
          1997 instead of being deferred and  recognized  over the lease period.
          Further,  certain other lease  termination  benefits had been deferred
          instead  of being  recognized  in income in the  period  the lease was
          terminated.

     E.   Deferred  acquisition cost  amortization for traditional life policies
          issued prior to January 1, 2002 had been calculated using amortization
          factors  which did not  properly  take into  account  the  pattern  of
          commission  expense  recognized on these policies,  which  understated
          amortization  of  these  costs  in early  years  of the  policies  and
          overstated amortization of these costs in later years of the policies.
          Also,  deferred  acquisition  cost  amortization  for  universal  life
          policies  issued  prior to January  1, 2002 was based on  undiscounted
          estimates of future gross profits,  which  overstated  amortization of
          these costs.

     F.   Present value of future profits amortization had not reflected certain
          adjustments that reduced the present value of future profits asset.

     G.   Certain death benefit and annuity benefit expenses incurred during the
          years  ended 1999,  2000,  2001 and 2002 were not  recorded  due to an
          interface error between the Company's policy administration system and
          its general ledger.

     H.   InterContinental  Life Corporation  ("ILCO") had been accounted for as
          an  investment  of the Company  under the equity  method of accounting
          prior to May 18,  2001 and  consolidated  after  that date upon  FIC's
          acquisition of ILCO's remaining  outstanding shares.  ILCO's financial
          statements also required adjustement for the following items:

                                     - 29 -


<PAGE>


                FINANCIAL INDUSTRIES CORPORATION AND SUBSIDIARIES
           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


          i.   ILCO had not recorded  dividend  and capital  gain  distributions
               prior to 1998 on its  investment  in one of its variable  annuity
               separate  accounts  (which   understated  ILCO  January  1,  2000
               retained  earnings)  and had not  recorded  unrealized  gains  or
               losses to adjust  the  carrying  value of its  investment  in the
               separate account to market value (which  understated ILCO January
               1, 2000 accumulated other comprehensive income).

          ii.  Agency  advances and other  receivables  and other assets had not
               been  analyzed for  recoverability  and  contained  balances that
               should have been written off.

          iii. Certain  adjustments to reinsurance  recoverables that related to
               periods prior to January 1, 2000 were recorded during 2000.

          iv.  ILCO did not properly apply the accounting  requirements  of SFAS
               No. 87, "Employers'  Accounting for Pensions," in  accounting for
               its defined  benefit  pension  plan.  ILCO had  accounted for its
               pension expense on a cash basis. As a result, the Company had not
               properly  recognized  pension  expense  or  benefit  and  had not
               recorded  a prepaid  pension  asset in years  prior to Janaury 1,
               2000.

          v.   Certain  lease  incentives  had  been  recognized  in  income  as
               received in 1997 instead of being  deferred and  recognized  over
               the  lease  period.  Further,  certain  other  lease  termination
               benefits had been deferred  instead of being recognized in income
               in the period the lease was terminated.

          vi.  An unreconciled  difference  between  suspense  account  balances
               included in the Company's  general  ledger and those  included in
               its policy  administration  system resulted in an unsupported net
               asset (included in other liabilites on the  consolidated  balance
               sheet) that should have been written off.

     I.   The  negative  goodwill  recognized  as  a  result  of  the  Company's
          acquisition of the remaining common shares of ILCO on May 18, 2001 and
          related  amortization  of negative  goodwill  in 2001 was  adjusted to
          reflect the impact on ILCO of the above items.

     J.   Deferred  federal  income tax  balances  were  adjusted  for the above
          items.

                                     - 30 -


<PAGE>


                FINANCIAL INDUSTRIES CORPORATION AND SUBSIDIARIES
           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


Net income for the three and nine months ended  September 30, 2002 was decreased
from amounts previously reported by $522,000 and $6,855,000,  respectively, as a
result of the restatement, as follows (in thousands except per share data):

                                     Three Months Ended      Three Months Ended
                                     September 30, 2002      September 30, 2002
                                   As Previously Reported        As Restated

Net Income                              $       899               $       377

Basic Earnings Per Share:

Net Income                              $      0.09               $      0.04

Diluted Earnings Per Share:

Net Income                              $      0.09               $      0.04

                                     - 31 -


<PAGE>


               FINANCIAL INDUSTRIES CORPORATION AND SUBSIDIARIES
           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


                                        Nine Months Ended     Nine Months Ended
                                        September 20, 2002    September 30, 2002
                                     As Previously Reported       As Restated

Net Income before cumulative
effect of change in accounting
principle                                   $     2,268            $       711

Cumulative effect of change in
accounting principle                        $    15,727            $    10,429

Net Income                                  $    17,995            $    11,140

Basic earnings per share:

Net income before cumulative effect
of change in accounting principle           $      0.24            $      0.08

Cumulative effect of change in
accounting principle                        $      1.65            $      1.09

Net Income                                  $      1.89            $      1.17

Diluted earnings per share:

Net income before cumulative effect of
change in accounting principle              $      0.24            $      0.07

Cumulative effect of change in
accounting principle                        $      1.63            $      1.09

Net Income                                  $      1.87            $      1.16

                                     - 32 -


<PAGE>


               FINANCIAL INDUSTRIES CORPORATION AND SUBSIDIARIES
           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


The change in net income for the three and nine month ended  September  30, 2002
was due to the following  adjustments that increased  (decreased) net income (in
thousands):


                                        Three Months Ended    Nine Months Ended
                                        September 20, 2002    September 30, 2002

Premiums                                $         1                $         3

Policyholder benefits and expenses      $      (503)               $    (1,497)

Amortization of present value of
future profits                          $       (15)               $       (46)

Amortization of deferred policy
acquisition costs                       $       (86)               $      (259)

Provision for uncollectible
receivables                             $      (200)               $      (597)

Provision for deferred federal
income taxes                            $       281                $       839

Cumulative effect of change in
accounting principle                    $         0                $    (5,298)

Net Income                              $      (522)               $    (6,855)

                                     - 33 -


<PAGE>


               FINANCIAL INDUSTRIES CORPORATION AND SUBSIDIARIES
           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


   A summary of the effects of the restatement on the Company's consolidated
     balance sheet as of September 30, 2002 is as follows (in thousands):

                                                As Previously           As
                                                  Reported            Restated
ASSETS

Equity securities                               $        35        $     5,994

Invested real estate                                 71,223             74,279

Total Investments                                   755,980            764,995

Agency advances and other
 receivables                                         31,817             16,462

Property and equipment, net                           3,604                790

Deferred policy acquisition costs                    80,863             77,451

Present value of future profits
 of acquired business                                27,299             26,532

Other assets                                         17,214             18,335

Separate account assets                             334,796            327,067

Total assets                                    $ 1,313,466        $ 1,293,526

LIABILITIES AND SHAREHOLDERS' EQUITY

Deferred federal income taxes                   $    34,640        $    28,265

Other liabilities                                     7,689             15,531

Total liabilities                                 1,112,080          1,113,546

Accumulated other comprehensive
 income                                               7,842              4,362

Retained earnings                                   147,251            129,325

Total shareholders' equity before
 treasury stock                                     223,743            202,337

Total shareholders' equity                          201,386            179,980

Total liability and shareholders'
 equity                                         $ 1,313,466        $ 1,293,526

                                     - 34 -


<PAGE>


               FINANCIAL INDUSTRIES CORPORATION AND SUBSIDIARIES
           NOTES TO THE CONSOLIDATED FINANICAL STATEMENTS (UNAUDITED)


The consolidated  balance sheet as of September 30, 2002 was restated to reflect
the following:

     *    An increase of $6.0 million in FIC's  investments in equity securities
          to properly reflect the  market value of  the Company's investment  in
          the separate account;

     *    An increase of $3.1 million in invested real estate primarily due to a
          reclassification   of  certain  real  estate  expenditures  that  were
          classified as property and equipment;

     *    A decrease of $15.4 million in agency  advances and other  receivables
          primarily  due to a  write-off  of  uncollectible  agent  balances,  a
          write-off  of a  reinsurance  receivable,  and a  write-off  of assets
          related  to  an  interface   error   between  the   Company's   policy
          administration system and its general ledger;

     *    A decrease of $2.8 million in property and equipment  primarily due to
          a  reclassification  of certain  amounts  classified  as property  and
          equipment  to invested  real estate and a write-off of assets that had
          not been depreciated since purchase;

     *    A decrease of $3.4 million in deferred policy acquisition costs due to
          a revision of the factors used to  calculate  Family  Life's  deferred
          policy acquisition costs;

     *    A decrease of $767,000 in present value of future  profits of acquired
          businesses due to an adjustment in the calculation of this asset;

     *    An increase of $1.1 million in other assets  primarily  related to the
          establishment of unrecorded  pre-paid pension assets related to Family
          Life's and ILCO's pension plans;

     *    A  decrease  of $7.7  million  in  separate  account  assets  due to a
          reclassification of separate account assets to equity securities;

     *    A decrease of $6.4  million  in the  liability  for  deferred  federal
          income  taxes as a result  of the  restatement  adjustments  described
          herein;

                                     - 35 -


<PAGE>



               FINANCIAL INDUSTRIES CORPORATION AND SUBSIDIARIES
           NOTES TO THE CONSOLIDATED FINANICAL STATEMENTS (UNAUDITED)


     *    An increase of $7.8 million in other liabilities  primarily related to
          an unreconciled  difference between suspense account balances included
          in the  Company's  general  ledger  and those  included  in its policy
          administration system.

     *    A decrease of $3.5 million of accumulated other  comprehensive  income
          due to the  changes  in the  accounting  treatment  for  the  pre-paid
          pension asset and the separate account investment; and

     *    A  decrease  in  retained   earnings  of  $17.9  million  due  to  the
          restatement adjustments described herein.

10.  Commitments and Contingencies

Litigation with Otter Creek Partnership I, L.P.

On June 13, 2003, Otter Creek  Partnership I, L.P. ("Otter Creek") filed a civil
action lawsuit against FIC in the District Court in Travis County,  Texas, Cause
No.  GN302872.  Otter Creek and FIC have  reached an  agreement  in principle to
settle the lawsuit,  and are preparing the appropriate  documentation  to do so.
Under this  proposed  settlement,  the Company  will  reimburse  Otter Creek for
$250,000  in proxy  expenses.  An  additional  $299,000  of proxy  expenses  and
$190,000 of litigation expenses will be submitted to the Company's  shareholders
for approval at a shareholder's  meeting.  The Board of Directors will recommend
that shareholders approve this reimbursement.  The proposed settlement will also
provide for mutual  releases  between the Company and Otter Creek and certain of
its  affiliates.  The  Company  has  accrued  an  expense  of  $250,000  for the
reimbursement to Otter Creek in the quarter ended September 30, 2003.

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.

                                     - 36 -


<PAGE>


                FINANCIAL INDUSTRIES CORPORATION AND SUBSIDIARIES
           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


11.  Subsequent Events

As  discussed in Note 6,  on October 29,  2003, the Company announced that it is
reviewing its investment activities during the past year, including mark-ups and
commissions  paid during that time.  The  Company is also  investigating,  among
other  things,  relationships  between a  broker-dealer  used by the Company and
William P. Tedrow.  Mr.  Tedrow is the  president of the Company's FIC Financial
Services,  Inc.  subsidiary and a Vice President of the Company. In his capacity
at the  Company,  Mr.  Tedrow has  participated  during the current  year in the
general  supervision of investment  activities.  The Company's  investigation of
these  matters is ongoing.  Mr. Tedrow has been placed on  administrative  leave
pending  the  results of this  investigation.  The  Company  has not reached any
conclusion  with regard to Mr.  Tedrow's role, if any, in the  activities  under
review.

Following  a  review  of  the  investment   portfolios  of  the  life  insurance
subsidiaries of the Company,  the Investment Committee of the Company's Board of
Directors  recommended  the engagement of a third- party  investment  manager to
provide on-going,  professional management of the portfolios.  In October, 2003,
the life insurance  subsidiaries entered into investment  management  agreements
with Conning  Asset  Management  Company  ("Conning").  Under these  agreements,
Conning will manage the  investment  security  portfolios of the Company's  life
insurance  subsidiaries  in  accordance  with  investment  policies  set  by the
Company's  Board of  Directors.  In  addition,  Conning  will provide such other
investment  advisory and  investment  accounting  and reporting  services to the
Company's life insurance  subsidiaries as may be reasonably requested and agreed
to by Conning.

The Company also revised the investment policies of its insurance  subsidiaries.
Conning  has  begun  to  realign  the  Company's  life  insurance  subsidiaries'
portfolios.  As part of this  realignment,  Conning  identified eight securities
purchased earlier in 2003 that they felt had significant  future principal risk.
While all of these securities were investment  grade when purchased,  six of the
eight have had ratings downgrades since purchase. Conning recommended that these
securities  be sold in the near  future.  Five of the  eight  had  been  sold by
November 20, 2003. All eight were treated as other than temporarily  impaired as
of September 30, 2003.

                                     - 37 -


<PAGE>


Item 2. Management's Discussion and Analysis of Financial Conditions and Results
        of Operations

The  following   discussion  addresses  the  financial  condition  of  Financial
Industries  Corporation ("FIC") as of September 30, 2003, compared with December
31,  2002,  and its results of  operations  for the three and nine months  ended
September  30, 2003,  compared with the same period last year.  This  discussion
should be read in conjunction with Management's Discussion and Analysis included
in FIC's  10-K for the year  ended  December  31,  2002,  to which the reader is
directed for additional information.

                                   Restatement

In this Item 2, references to results for the three and nine-month periods ended
September 30, 2002 are to restated  results.  See the Notes to the  Consolidated
Financial Statements.

          Transactions Affecting Comparability of Results of Operations

In the first  nine  months of 2002,  net  income  and  earnings  per share  were
affected by the cumulative  effect of a change in accounting  principle of $10.4
million.  This amount represents the excess of fair value of net assets acquired
over cost as of the beginning of 2002 related to the merger of  InterContinental
Life Corporation ("ILCO") with and into a subsidiary of FIC on May 18, 2001. The
Company  recorded this cumulative  effect in conjunction  with adopting SFAS No.
141, "Business  Combinations," in the first quarter of 2002, as required by SFAS
No. 141.

In the first nine  months of 2003,  net income was  affected  by a $2.9  million
expense  related to the settlement of the  litigation  between FIC, Roy F. Mitte
(the former Chairman and Chief Executive Officer of the Company), and the Roy F.
and Joann Cole Mitte Foundation (see Registrant's  Quarterly Report on Form 10-Q
for the  three-month  period ended March 31, 2003 for a further  description  of
this settlement,  referred to therein as the "Mitte Settlement").  Net income in
the first nine months of 2003 was also  affected by certain  operating  expenses
such as: (i) a  $476,000  expense  for  payments  to be made to  Jeffrey  Demgen
pursuant  to his  employment  agreement;  (ii) a $400,000  payment to William P.
Tedrow;  (iii) legal and other expenses related to litigation and proxy matters,
including  the accrual of $250,000 of proxy  expenses to be  reimbursed to Otter
Creek in connection  with the settlement of the  litigation  between the Company
and Otter Creek; (iv) $212,175 paid to Salomon Smith Barney;  (v) a $5.2 million
charge  related  to  other  than  temporary  impairments  of  securities.   This
adjustment  resulted from an analysis of the investment  portfolio that was made
by  the  Company  with  the  assistance  of  the  Company's   recently-appointed
investment  manager,  Conning  Asset  Management  Company.  A  portion  of  this
adjustment  (approximately $725,000) relates to the quarter ended June 30, 2003;
and (vi) an  expense  of  $360,000  for  payments  to be made to Eugene E. Payne
pursuant to an amendment to his employment agreement.

                                     - 38 -


<PAGE>


      Results of Operations - Nine Months Ended September 30, 2003 and 2002

For the  nine-month  period ended  September  30, 2003,  FIC's net loss was $6.0
million (basic and diluted loss of $ 0.62 per common share) on revenues of $86.7
million as compared to net income of $11.1 million (basic  earnings of $1.17 per
common  share,  or diluted  earnings  of $1.16 per common  share) on revenues of
$92.8  million in the first nine  months of 2002.  Net income for the first nine
months of 2002, before the cumulative effect of change in accounting  principle,
was $0.7  million  (basic  and  diluted  earnings  of $0.08 and $0.07 per common
share, respectively).

Revenues.

Premium revenues reported for traditional life insurance products are recognized
when due.  Premium  income for the first nine months of 2003, net of reinsurance
ceded, was $22.9 million,  as compared to $27.5 million in the first nine months
of 2002.  This source of revenues is related to the  traditional  life insurance
book of business of FIC's  insurance  subsidiaries.  The level of net  collected
premiums for  traditional  life  insurance  products at Family Life for the nine
months ending September 30, 2003 was $16.0 million, as compared to $20.3 million
in  the  same  period  in  2002.  The  decrease  in  net  collected  premium  is
attributable to the decrease in the traditional  life insurance book of business
due to the runoff of policies in force.

Income from universal life and annuity charges for the first nine months of 2003
was $30.7 million,  as compared to $31.4 million in the same period of 2002. The
face amount of in force  universal  life  policies was $4.7 billion at September
30, 2003 as compared to $5.1 billion at September 30, 2002.

Net  investment  income for the first nine  months of 2003 was $28.7  million as
compared to $31.0 million in the same period of 2002. Net  investment  income in
the first  nine  months of 2003 was  adversely  affected  by the  interest  rate
environment during that period.

Real estate income is primarily earned from the leases on the buildings at River
Place  Pointe,  an office  complex in Austin,  Texas which is owned by Investors
Life.  Real estate  income was $1.3  million  for the  nine-month  period  ended
September 30, 2003, as compared to $1.8 million for the same period in 2002. The
decrease in real estate income from the nine months ended  September 30, 2003 to
the same period ended  September  30, 2002 is due to the  completion of the last
three  buildings in River Place Pointe project and the  depreciation  related to
those buildings. These three buildings did not generate rental income in the
first nine months of 2003.

                                     - 39 -


<PAGE>


Net realized  investment gain was $1.0 million in the first nine months of 2003,
as  compared  to a net  realized  investment  loss of  $74,000 in the first nine
months of 2002.  These gains and losses are  related to sales of fixed  maturity
securities.  In addition, net realized investment gain was adversely affected by
a $5.2 million  charge  resulting  from the  impairments in the value of certain
securities.  A portion of this charge  (approximately  $725,000) pertains to the
quarter ended June 30, 2003.  The Company has restated its results for the three
and six- month periods ended June 30, 2003 to reflect the effect of this charge.
The charge  resulted  from a review  that was  conducted  by the Company and its
newly-appointed   investment  manager,  Conning  Asset  Management  Company,  in
connection  with the  preparation of its financial  statements for the three and
nine- month periods ended September 30, 2003. That review was conducted in order
to  determine  whether  changes  in the  carrying  value of  certain  securities
classified as fixed maturities  available for sale should be considered as other
than temporary.  Under applicable  accounting rules, declines in value which are
considered as other than temporary require that the decrease in value be treated
as an  investment  loss  and  that a new  cost  basis  be  established  for such
investments.

Other  revenue was $2.0 million in the first nine months of 2003, as compared to
$1.0 million in the first nine months of 2002. Other income includes income from
FIC's non-insurance subsidiaries,  Actuarial Risk Consultants,  Inc. ("ARC") and
FIC  Financial  Services,  Inc.  ("FICFS").  For  the  nine-month  period  ended
September  30,  2003,  ARC had revenues of $220,000 on business  conducted  with
third-party  clients  and  revenues  of  $476,000  on  business  conducted  with
subsidiaries  of  the  Company.  Revenue  with  the  Company's  subsidiaries  is
eliminated  against operating  expenses in consolidation.  The revenues of FICFS
(including the revenues of its subsidiaries) for the period from June 1, 2003 to
September 30, 2003 were $1.0 million.  At the end of the second quarter of 2003,
FICFS acquired three  companies in the secondary  education  financial  services
market:  (i)  Total  Consulting  Group,  Inc.  ("TCG")  (a  consulting  firm and
registered   investment   advisor  with  clients  in  the  secondary   education
marketplace), (ii) JNT Group, Inc. ("JNT") (an independent fee-based third party
administrator  operating  principally in Texas and  California)  and (iii) three
companies  collectively  referred to as "Paragon" - Paragon Benefits,  Inc., The
Paragon Group, Inc., and Paragon National,  Inc. (a provider of employee benefit
products and services to the  secondary  education  marketplace).  For a further
description of FICFS and the acquisitions,  see FIC's Current Report on Form 8-K
filed with the Securities and Exchange Commission on June 10, 2003 and Note 6 of
the Notes to Consolidated Financial Statements.

                                     - 40 -


<PAGE>


Benefits and Expenses.

Policyholder  benefits and expenses  were $31.5 million in the first nine months
of 2003,  as  compared to $ 33.5  million in the first nine months of 2002.  The
decrease in  policyholder  benefits and expenses from  September 30, 2002 to the
same period in 2003 was due primarily to a decrease in death benefits  claims as
well as reserve  adjustments related to lower premiums received.

Interest  expense  on contractholders  deposit  funds was $21.4  million in  the
first nine months of 2003,  as  compared to $22.5  million in the same period of
the year 2002. This expense is related to crediting of interest to policyholders
for cash values  accumulated in their accounts.  This decrease was due primarily
to the  lowering  of  credited  rates on these  accounts  starting in the fourth
quarter of 2002.

The costs related to acquiring new business,  including certain costs of issuing
policies and certain other variable selling expenses (principally  commissions),
are  deferred  policy  acquisition  costs  ("DAC").  The expense  related to the
amortization  of DAC was $8.0  million  in the first  nine  months  of 2003,  as
compared  to $7.2  million  in the  first  nine  months of 2002.  See  "Critical
Accounting  Policies,  Deferred  Policy  Acquisition  Costs and Present Value of
Future  Profits  of  Acquired  Business"  herein  for a  further  discussion  of
capitalization  of expenses  related to acquiring new business.  The increase in
the  amortization of DAC from the nine-month  period ended September 30, 2002 to
the  same  period  in  2003  reflects  the  level  of  policyholder  withdrawals
experience during the current period.

In the first nine months of 2003,  the expense  related to the  amortization  of
present  value of future  profits  of  acquired  business  was $3.2  million  as
compared to $3.5 million in the first nine months of 2002.

Operating  expenses  for the first nine  months of 2003 were $28.6  million,  as
compared  to $25.0  million  in the  first  nine  months  of 2002.  The level of
operating expenses for the nine-month period ending September 30, 2003 included:

     (i)  $476,000  related to  payments to be made to retired  chief  marketing
          officer, Jeffrey Demgen, pursuant to his employment agreement;

     (ii) legal and other  expenses  in the  amount of $2.9  million  related to
          litigation with the former Chairman and CEO, Roy F. Mitte;

     (iii)$925,000 of legal and other  expenses for proxy matters and litigation
          related to the 2003 Annual Meeting of Shareholders;

     (iv) the accrual of a payment in the amount of $250,000 to be made to Otter
          Creek in connection  with the settlement of litigation  related to the
          2003 Annual Meeting of Shareholders;

                                     - 41 -


<PAGE>


     (v)  $400,000 paid to William P. Tedrow for his efforts in  organizing  and
          integrating  the New Era  Marketing  Companies  to FIC  (see  Notes to
          Consolidated  Financial  Statements,  note 6E, herein for  information
          regarding  the  payment  to and  employment  agreement  of  William P.
          Tedrow);

     (vi) $212,175  paid to Salomon  Smith  Barney  related to the matter as set
          forth in the  Company's  Current  Report  on Form 8-K  filed  with the
          Securities and Exchange Commission ("SEC") on January 28, 2003; and

     (vii)an  expense of  $360,000  for  payments  to be made to Eugene E. Payne
          pursuant to an amendment to his employment agreement.

Operating expenses for the nine-month period include $544,000 of expenses at ARC
and $1.2 million of expenses at FICFS.  The operating  expenses FICFS (including
the  expenses  of its  subsidiaries)  are for the  period  from  June 1, 2003 to
September  30, 2003.  Since the results of FICFS are below the  expectations  of
management,  the Company is  currently  reviewing  the  business  plans of these
entities  in order to  determine  what  changes,  if any,  may be  needed in the
operation of the business entities that operate as part of the FICFS subsidiary.
In connection with its review of the operations of FICFS, the Company  evaluated
the goodwill that was  established in connection the  acquisition of the New Era
companies and has determined  that, for the period ended  September 30, 2003, no
adjustment to the carrying  value that was  previously  established is required.
The Company expects to continue to monitor this item.

Operating  expenses for the nine-month  period ended September 30, 2002 included
approximately  $1.5 million of executive  bonus  payments and the  repurchase of
James M. Grace's  employment  contract,  as well as a $1 million donation to the
Roy F. and Joann Cole Mitte Foundation.

The provision (benefit) for federal income taxes was ($3.2) million in the first
nine  months of 2003 as  compared  to $0.4  million in the first nine  months of
2002.  The change is  attributable  to the decrease in income for the nine month
period ended September 30, 2003 compared to the same period in 2002.

                                     - 42 -


<PAGE>


          Results of Operations - Three Months Ended September 30, 2003
            as compared to the Three Months Ended September 30, 2002

For the  three-month  period ended  September 30, 2003,  FIC's net loss was $3.7
million  (basic and diluted loss of $0.39 per common share) on revenues of $28.1
million as  compared to net income of  $377,000  (basic and diluted  earnings of
$0.04  per  common  share)  on  total  revenues  of  $30.5  million  in the same
three-month period of 2002.

Revenues

Premium  income for  traditional  life  insurance  products,  net of reinsurance
ceded,  was $7.4  million,  as  compared to $8.6  million for the quarter  ended
September 30, 2002.  Income from  universal life and annuity  charges  increased
from $9.9 million for the quarter ended  September 30, 2002 to $10.1 million for
the quarter ended September 30, 2003.

Net  investment  income  was $9.2  million  for  the  three-month  period  ended
September  30,  2003,  as compared to $11.2  million in the same period of 2003.
This decrease is primarily  attributable to the interest rate environment during
that period.

Net realized  investment losses were $244,000 in the quarter ended September 30,
2003,  as  compared  to a net  realized  investment  loss of $79,000 in the same
period in 2002. This loss is related to sales of fixed maturity  securities.  In
addition,  net realized investment loss was adversely affected by a $4.5 million
charge  resulting from the impairments in the value of certain  securities.  The
charge  resulted  from a  review  that  was  conducted  by the  Company  and its
newly-appointed  investment  manager  (Conning  Asset  Management  Company),  as
previously described.

Other  revenue was $1.3 million in the quarter  ended  September  30,  2003,  as
compared to $329,000 in the same period in 2002.  Other income  includes  income
from FIC's non-insurance subsidiaries, ARC and FICFS. For the three-month period
ended September 30, 2003, ARC had revenues of $37,000 on business conducted with
third-party  clients  and  revenues  of  $234,000  on  business  conducted  with
subsidiaries  of  the  Company.  Revenue  with  the  Company's  subsidiaries  is
eliminated  against operating  expenses in consolidation.  The revenues of FICFS
(including the revenues of its subsidiaries) for the quarter ended September 30,
2003 were  $813,000.  ARC and FICFS were  established  by the Company during the
current  year;  accordingly,  the results of  operations  for the quarter  ended
September 30, 2002 do not reflect income from those businesses.

                                     - 43 -


<PAGE>


Benefits and Expenses

Policyholder  benefits  and  expenses  were $11.8  million in the quarter  ended
September  30,  2003,  as compared to $ 11.1 million in the same period of 2002.
The slight  increase was due primarily to an increase in death  benefits  claims
between the two periods.

Interest  expense on  contractholders  deposit  funds  was $6.7  million in  the
quarter ended September 30, 2003, as compared to $7.4 million in the same period
of 2002. This expense is related to crediting of interest to  policyholders  for
cash values  accumulated in their  accounts.  This decrease was due primarily to
the lowering of credited rates on these accounts  starting in the fourth quarter
of 2002.

The costs related to acquiring new business,  including certain costs of issuing
policies and certain other variable selling expenses (principally  commissions),
are  deferred  policy  acquisition  costs  ("DAC").  The expense  related to the
amortization  of DAC was $2.7  million  for the  quarter,  as  compared  to $2.9
million in three-month period ended September 30, 2002.

Operating  expenses for the  three-month  period  September  30, 2003 were $11.4
million,  as compared to $8.0  million in the same period in 2002.  The level of
operating  expenses for the 2003 quarter were affected by: (i) $925,000 of legal
and other expenses for proxy matters and  litigation  related to the 2003 Annual
Meeting of Shareholders; (ii) the accrual of a payment in the amount of $250,000
to be made to  Otter  Creek in  connection  with the  settlement  of  litigation
related to the 2003 Annual Meeting of Shareholders; (iii) an expense of $360,000
for  payments  to be made to Eugene E. Payne  pursuant  to an  amendment  to his
employment agreement; and (iv) $1.2 million related to the operations of ARC and
FICFS.

The provision  (benefit) for federal  income taxes was $2.0 million in the three
months  ended  September  30,  2003 as  compared to a benefit of $369,000 in the
three months ended  September  30, 2002.  The increase in the benefit was due to
the $5.8 million  decrease in income  (before  federal income tax) for the three
month period ended  September  30, 2003 compared to the three month period ended
September 30, 2002.  The benefit has been  calculated  based on an effective tax
rate equal to the statutory rate of 35% for the three months ended September 30,
2003 and 2002.  Additionally,  the  Company  was able to credit  $350,000 in the
third  quarter  2002   provision  for  federal   income  taxes  related  to  the
compensation of its former president and chief executive officer,  Roy F. Mitte.
In the first two quarters of 2002, the Company  expected to incur federal income
taxes related to non-deductible  compensation.  However, since Mr. Mitte was not
an executive  with the company on December 31, 2002,  which is the relevant date
for measuring  deductibility  of compensation  under Section 162(m) of the Code,
his entire  compensation  for 2002 is  deductible  and thus the Company will not
incur the  $350,000  in federal  income  taxes which had been  reflected  in the
provision for federal income taxes in the first and second quarter of 2002.

                                     - 44 -


<PAGE>


                         Liquidity and Capital Resources

Liquidity  describes the ability of a company to generate  sufficient cash flows
to meet  the cash  requirements  of  business  operations.  FIC is an  insurance
holding company whose principal assets consist of the outstanding  capital stock
of its insurance subsidiaries, Family Life Insurance Company ("Family Life") and
Investors Life Insurance Company of North America ("Investors Life"), as well as
the outstanding capital stock of Actuarial Risk Consultants,  Inc. ("ARC"),  its
actuarial subsidiary,  and 94% of the outstanding capital stock of FIC Financial
Services,  Inc.("FICFS"),  a  subsidiary  that  concentrates  on  the  secondary
education financial services market. As a holding company, FIC's ability to meet
its cash  requirements,  pay interest on any debt,  pay expenses  related to its
affairs  and pay  dividends  on its  common  stock  substantially  depends  upon
dividends from its subsidiaries primarily its life insurance subsidiaries.

Applicable  state  insurance  laws  generally  restrict the ability of insurance
companies to pay cash  dividends  in excess of  prescribed  limitations  without
prior approval. The ability of Family Life and Investors Life to pay shareholder
dividends is and will  continue to be subject to  restrictions  set forth in the
insurance  laws  and  regulations  of  Washington,   their  domiciliary   state.
Washington  limits  how  and  when  Family  Life  and  Investors  Life  can  pay
shareholder  dividends by (a) including the "greater of" standard for payment of
dividends to shareholders,  (b) requiring that prior  notification of a proposed
dividend be given to the Washington  Insurance  Commissioner and ( c ) requiring
that cash  dividends  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 the  policyholder  surplus  or  (ii)  the  insurer's  net  gain  from
operations  for the  previous  year.  For the  year  ended  December  31,  2002,
Investors  Life  had  earned  surplus  of  $35.4  million  and a net  gain  from
operations of $1.4 million,  and Family Life had earned  surplus of $0.4 million
and a net gain from  operations  of $3.3  million.  Neither  Investors  Life nor
Family Life paid any  dividends  during the first nine  months of 2003.  For the
nine month period ended September 30, 2003, Investors Life had earned surplus of
$35.7 million and a net gain from  operations of $ 1.4 million,  and Family Life
had  earned  surplus  of $2.9  million  and a net gain from  operations  of $1.6
million.

Sources of cash for FIC's  insurance  subsidiaries  consist of premium  payments
from  policyholders  and annuity  holders,  charges on policies  and  contracts,
investment  income,  and proceeds from sales,  maturities  and calls of invested
assets.  These funds are applied  primarily to provide for the payment of claims
under insurance and annuity policies, payment of policy withdrawals,  surrenders
and loans, operating expenses,  taxes, investments in portfolio securities,  and
shareholder dividends.

                                     - 45 -


<PAGE>


FIC  expects to have the  ability to receive  dividends  from its  newly-created
subsidiary,  FICFS, of which FIC owns 94% of the  outstanding  stock, as well as
dividends from ARC.

FIC's cash and cash  equivalents  at September 30, 2003 amounted to $6.3 million
as compared to $25.0 million at December 31, 2002. The decrease in cash and cash
equivalents  at September  30, 2003 from  December 31, 2002 was due primarily to
reinvestment of cash into purchases of fixed maturity securties.

FIC's net cash flow provided by operating  activities  was $181,000 for the nine
month period ending  September 30, 2003, as compared to $8.7 million provided by
operating  activities for the same period in the year 2002. The decrease in cash
flows  provided by operating  activities  is due  primarily to net activity from
trading  securities,  which are  required  to be  reported  in cash  flows  from
operations.

Net cash flow used in investing  activities  was $31.0 million in the nine month
period  ending  September  30,  2003,  as compared to $7.4  million  provided by
investing  activities in the same period of 2002. The $38.4 million  increase in
cash  used in  investing  activities  in 2003  from  2002 was due  primarily  to
investment of cash into fixed maturity  securities.  Additionally,  $4.2 million
was used to invest in the  acquisition of the  above-mentioned  subsidiaries  of
FICFS.

Net cash flow  provided by financing  activities  was $12.1 million in the first
nine months of 2003, as compared to $15.2  million used in financing  activities
in the first nine months of 2002.  The  increase in cash  provided by  financing
activities  of $27.3  million is primarily  attributable  to the issuance of the
Senior  Notes  (see  description  of Senior  Notes  below)  and a  reduction  in
surrender benefits paid on certain contractholder balances.

A primary  liquidity  consideration  with respect to life  insurance and annuity
products  is the  risk of  early  policyholder  and  contractholder  withdrawal.
Deposit fund liabilities for universal life and annuity products as of September
30, 2003 were $564.6  million,  as  compared to $557.5  million at December  31,
2002. Individual life insurance policies are less susceptible to withdrawal than
are annuity  contracts  because  policyholders  may incur surrender  charges and
undergo a new underwriting process in order to obtain a new insurance policy. At
September 30, 2003, the bulk of the liabilities for contractholder deposit funds
on FIC's balance sheet, $412.3 million,  were related to insurance products,  as
compared to only $152.3 million of annuity product liabilities.

The cash  requirements of FIC, and its holding company  subsidiary,  Family Life
Corporation, consist primarily of (i) its service of the indebtedness created in
connection  with  FIC's  ownership  of  Family  Life;  and (ii)  service  of the
indebtedness  created by the  Senior  Notes (see  description  of Senior  Notes,
below).

                                     - 46 -


<PAGE>


The current  balance of the  indebtedness  related to FIC's  ownership of Family
Life is  $18.44  million,  consisting  of notes  payable  to  FIC's  subsidiary,
Investors Life (the "Affiliate  Notes"),  represented by (i) a loan by Investors
Life to Family  Life  Corporation  made in July  1993,  in  connection  with the
prepayment of indebtedness  which had been previously issued to Merrill Lynch as
part of the 1991 acquisition of Family Life by a wholly-owned subsidiary of FIC,
and (ii) a loan by Investors  Life to Family Life Insurance  Investment  Company
made in July 1993, in connection with the same transaction described above.

The Affiliate  Notes owned by Investors  Life include the following  provisions:
(a) the $30 million  note  provides for  quarterly  principal  payments,  in the
amount of $1,336,458;  the final quarterly principal payment is due on September
12,  2006;  the  interest  rate on the note is 9%, and (b) the $4.5 million note
provides for quarterly principal payments, in the amount of $200,469;  the final
quarterly  principal  payment is due on September 12, 2006; the interest rate on
the note is 9%.

On June 30, 2003, Investors Life exercised its option to purchase 500,411 shares
of FIC's common stock,  which were granted to Investors Life in connection  with
the Affiliate Notes (see FIC's 10-K for the year ended December 31, 2002,  "Item
1. Business - Investors  Life Loans").  Investors Life paid FIC $1.05 million to
purchase the FIC shares.

Due to the merger of  InterContinental  Life Corporation (which owns 100% of the
outstanding  stock of Investors  Life) with a subsidiary of FIC on May 18, 2001,
the  indebtedness  created by the Affiliate Notes is not included as a liability
on the  consolidated  financial  statements  of FIC.  Additionally,  the 500,411
shares  obtained by Investors  Life pursuant to the option  exercise are held as
treasury shares and do not affect the consolidated balance sheet of FIC.

In May, 2003, FIC issued $15,000,000 aggregate principal amount of Floating Rate
Senior  Notes due 2033 (the  "Senior  Notes")  and entered  into a Senior  Notes
Subscription  Agreement  ("Subscription  Agreement") with InCapS Funding I, Ltd.
("InCapS"), wherein InCapS agreed to purchase the Senior Notes. The Senior Notes
were issued on May 22, 2003 pursuant to an indenture  between FIC and Wilmington
Trust Company,  as Trustee (the "Indenture").  Sandler O'Neill & Partners,  L.P.
acted as the placement agent for the Senior Notes under the terms of a placement
agreement dated May 13, 2003 (the "Placement  Agreement",  and  collectively the
Subscription Agreement, Indenture and Placement Agreement are referred to as the
"Operative Documents").

                                     - 47 -


<PAGE>


The  principal  amount  of the  Senior  Notes is to be paid on May 23,  2033 and
interest shall be paid  quarterly,  beginning on August 23, 2003, at the rate of
4.20% over LIBOR (LIBOR is recalculated  quarterly and the interest rate may not
exceed 12.5% prior to May 2008).  FIC may redeem the Senior Notes at any time on
or after May 23, 2008 by payment of 100% of the  principal  amount of the Senior
Notes being  redeemed  plus unpaid  interest  accrued to the  payment  date.  In
accordance with the terms of the Operative  Documents,  the entire principal and
any interest accrued, but unpaid, may become immediately due and payable upon an
event of default, which includes:  failure to pay interest within 30 days of any
due date;  failure to pay  principal  when due; the  bankruptcy or insolvency of
FIC; or the merger of FIC or sale of all or  substantially  all of FIC's  assets
unless the  successor  entity to a merger is a United States  corporation  (or a
foreign  corporation which agrees to be bound by certain tax provisions included
in the Indenture). The Operative Documents also place certain limitations on the
offer or sale of securities  of FIC, if such offer or sale would render  invalid
the Senior Notes' exemption from the registration requirements of the Securities
Act of 1933; and further  restrict,  for a two year period,  purchases of senior
notes which are  restricted  securities.  (See Note 7 for  description on use of
proceeds).

FIC's other liquidity  requirements relate principally to the need for cash flow
to meet  operating  expenses,  as well as the  liabilities  associated  with its
insurance subsidiaries' various life insurance and annuity products. In order to
ensure that cash flow is  sufficient  to meet these needs,  management  monitors
benefits and surrenders of insurance  products to provide  projections of future
cash requirements.  As part of this monitoring  process,  FIC performs cash flow
testing of assets and  liabilities  to evaluate the adequacy of reserves.  There
can be no assurance  that future  experience  regarding  benefits and surrenders
will be similar to historic experience since withdrawal and surrender levels are
influenced by such factors as the interest rate environment and general economic
conditions as well as the claims-paying and financial  strength ratings of FIC's
insurance subsidiaries.

In 2002,  management  reviewed the Company's  liquidity to determine whether the
cash, cash equivalents and short term investments of the Company were sufficient
to meet the Company's needs for cash for operations,  capital  requirements  and
commitments.   Management   has  reduced  the  amount  of   dividends   paid  to
shareholders,  discontinued  donations  to  the  Roy F.  and  Joann  Cole  Mitte
Foundation,  and implemented  plans to streamline the operations of the Company.
Management  believes that the cash, cash  equivalents and short term investments
of FIC and its subsidiaries are sufficient to meet the needs of its business and
to satisfy debt service.

                                     - 48 -


<PAGE>


                                   Investments

As of September 30, 2003, FIC's invested assets,  excluding  separate  accounts,
totalled  $766.7  million,  compared to $761.2 million at December 31, 2002. The
increase is primarily  attributable  to  investments of cash into fixed maturity
securities.  The significant differences between the portfolio composition as of
September  30, 2003 as compared to December  31, 2002 are:  (i) the  addition of
trading securities, which comprise 0.8% of the investment portfolio at September
30, 2003 as compared to 0% at December 31, 2002; (ii) fixed maturities available
for sale comprise  74.7% at September 30, 2003 compared to 64.9% at December 31,
2002;  and (iii)  short-term  investments  comprise  8.1% at September  30, 2003
compared to 18.1% at December 31, 2002.

The assets held by FIC'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  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 general
investment  objective of the Company 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.

The  allocation of assets is determined  primarily on the basis of cash flow and
return requirements of FIC's products and secondarily by the level of investment
risk. In order to ensure that  investments  are  sufficient to satisfy cash flow
needs,  FIC  established  a level of cash and  securities  that,  combined  with
expected  net  cash  inflows  from  operations,  maturities  of  fixed  maturity
investments and principal payments on mortgage-backed  securities,  are believed
adequate  to meet  anticipated  short-term  and  long-term  benefit  and expense
payment obligations.

Beginning in the first quarter of 2003,  the Company took steps to diversify its
selection of new  investments,  with the  expectation  of increasing the overall
yield on the  portfolio.  As part of these  efforts,  the Company  increased the
percentage  of  its  assets  invested  in  collateralized  mortgage  obligations
("CMOs"),  asset- backed  securities and private  placements.  These investments
were classified as "investment grade" at the time of purchase,  which adhered to
the investment guidelines of the Company at the time.

                                     - 49 -


<PAGE>


During the first nine months of 2003, FIC invested $438.1 million of its assets,
of which $341.9 million  consisted of  reinvestments of matured and called fixed
maturities,   and  $94.3  million  consisted  of  investments  from  cash,  cash
equivalents and short-term investments. These investments were primarily made in
short  and  medium-term  securities.   CMOs  comprised  $209.9  million  of  new
investments,   corporate  securities   comprised  $57.2  million,   asset-backed
securities comprised $49.3 million,  private placements comprised $54.8 million,
taxable  municipals  comprised  $23.8 million and agency bonds  comprised  $43.0
million.

Management  believes that the asset  allocation is sufficient to satisfy current
projected cash flow requirements.

Following  a  review  of  the  investment   portfolios  of  the  life  insurance
subsidiaries of the Company,  the Investment Committee of the Company's Board of
Directors  recommended  the engagement of a third- party  investment  manager to
provide ongoing,  professional  management of the portfolios.  In October, 2003,
the life insurance  subsidiaries entered into investment  management  agreements
with Conning  Asset  Management  Company  ("Conning").  Under these  agreements,
Conning will manage the  investment  security  portfolios of the Company's  life
insurance  subsidiaries  in  accordance  with  investment  policies  set  by the
Company's  Board of  Directors.  In  addition,  Conning  will provide such other
investment  advisory and  investment  accounting  and reporting  services to the
Company's life insurance  subsidiaries as may be reasonably requested and agreed
to by Conning.

The Company also revised the investment policies of its insurance  subsidiaries.
Conning  has  begun  to  realign  the  Company's  life  insurance  subsidiaries'
portfolios.  As part of this  realignment,  Conning  identified eight securities
purchased earlier in 2003 that they felt had significant  future principal risk.
While all of these securities were investment  grade when purchased,  six of the
eight have had ratings downgrades since purchase. Conning recommended that these
securities  be sold in the near  future.  Five of the  eight  had  been  sold by
November 20, 2003. All eight were treated as other than temporarily  impaired as
of September 30, 2003.

Fixed Maturity Securities

The Company's fixed maturity securities portfolio is predominately  comprised of
low  risk,  investment  grade,  available  for sale  publicly  traded  corporate
securities, mortgage-backed securities and United States Government bonds. As of
September  30, 2003,  the market value fixed  maturities  available for sale was
$572.5  million  as  compared  to an  amortized  cost of  $575.6  million  or an
unrealized  loss  of $3.1  million.  This  reflects  unrealized  losses  on such
investments  related to changes in interest rates  subsequent to the purchase of
such investments. At December 31, 2002, the market value of the fixed maturities
available for sale segment was $493.8  million as compared to an amortized  cost
of $479.4 million.

                                     - 50 -


<PAGE>


The investments of FIC's insurance  subsidiaries in  mortgage-backed  securities
included  CMOs of $208.7  million as of September 30, 2003 as compared to $175.4
million at December 31, 2002, and mortgage-  backed  pass-through  securities of
$88.6  million as of September  30, 2003 and $29.6 million at December 31, 2002.
Mortgage-backed  pass-through  securities,  sequential  CMOs and support  bonds,
which comprised  approximately 50.62% of the book value of FIC's mortgage-backed
securities  at September 30, 2003,  are  sensitive to  prepayment  and extension
risks.  FIC's  insurance  subsidiaries  have  reduced  the  risk  of  prepayment
associated with mortgage-backed  securities by investing in planned amortization
class  ("PAC"),  target  amortization  class ("TAC")  instruments  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. At September 30, 2003, PAC and
TAC instruments and scheduled bonds represented approximately 34.48% of the book
value  of FIC's  mortgage-backed  securities.  Sequential  and  support  classes
represented  approximately  20.83%  of the book  value of FIC's  mortgage-backed
securities at September 30, 2003. Additionally,  the insurance subsidiaries make
selected investments in CMOs of the inverse floater category.  Such instruments,
which are subject to strict  quantitative  and  qualitative  standards,  carry a
higher  current  interest  rate which varies in an inverse  relationship  with a
specified  benchmark interest rate. The investment  guidelines do not permit the
purchase of CMOs that are  interest  only or  principal  only  instruments.  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.  Conversely, in periods of rising interest rates, mortgages
are generally not repaid as rapidly which would adversely affect the anticipated
duration  of the CMO.  For the year 2003,  the  investment  objectives  of FIC's
insurance  subsidiaries  include a strategy of  reducing  the  concentration  in
short-term   investments  by  making  selected   investments  in  a  variety  of
medium-term CMO instruments.

Trading Securities

FIC's trading securities consist of CMOs of the type that are generally referred
to as  "inverse  floaters"  which  have  coupon  rates  that vary in an  inverse
relationship  with a  specified  benchmark  rate.  The  value of  FIC's  trading
securities as of September 30, 2003 was $6.1 million. The increase in the market
value of trading  securities during the period,  $0.131 million,  is included in
net realized investment income on the consolidated income statement. FIC did not
have any trading securities at December 31, 2002.

                                     - 51 -


<PAGE>


Equity Securities

FIC's equity  securities  consist  primarily of its  investment  in the separate
account of Investors  Life. As of September 30, 2003,  the market value of FIC's
equity securities was $7.1 million,  as compared to $6.4 million at December 31,
2002.  The  increase is related to an  increase  in the value of the  underlying
funds in the separate account.

Policy Loans

Policy loans  totaled  $44.4 million at September 30, 2003, as compared to $46.6
million at December 31, 2002.

Mortgage Loans

As of September 30, 2003,  the Company did not have any  investments in mortgage
loans,  as compared to $17,000 at December 31,  2002.  The Company does not make
new mortgage loans on commercial properties.

Real Estate

Invested  real estate at  September  30,  2003 was $74.3  million as compared to
$75.4  million at December 31,  2002.  The real estate  investment  is primarily
related to the  development  of the River Place  Pointe  project  ("River  Place
Pointe") by Investors  Life. In October 1998,  Investors  Life  purchased  River
Place Pointe, which consisted of 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 Life obtained a Site Development  Permit for the tracts
from the City of Austin allowing for the  construction of seven office buildings
totaling  600,000  square  feet,  with  associated  parking,  drives and related
improvements.  Construction on the first section of the project,  which consists
of  four  office   buildings,   an  associated   parking  garage,   and  related
infrastructure  was completed  during 2000 and 2001.  Construction on the second
section of the project, which consists of three office buildings,  an associated
parking garage, and related infrastructure was completed in 2002.

As of September  30, 2003,  Investors  Life had  invested  $92.7  million in the
construction of River Place Pointe,  of which $19.4 million is recorded on FIC's
balance sheet as property  held for use. As of the date of this filing,  250,113
rentable  square feet of office space was leased to third party tenants,  92,609
square feet of office space was occupied by the Company and its subsidiaries and
241,550  rentable square feet was available for lease.  According to the Federal
Deposit Insurance  Corporation's  ("FDIC") National Edition of Regional Outlook,
Fourth Quarter,  2002, the Austin office market vacancy rate (including sublease
space available) was 27.2% as of September 30, 2002, the highest in the nation.

                                     - 52 -


<PAGE>


The Company views the River Place Pointe  investment as a long-term  investment.
Based on this assumption,  the Company has examined future anticipated cash flow
on the development and has determined that the investment is not impaired.

Short-term investments

FIC's short-term  investments  consist  primarily of U.S.  Government bonds. The
level of  short-term  investments  at September 30, 2003 was $62.3  million,  as
compared to $137.9  million as of December 31, 2002.  The decrease in short-term
investments  was  due to  reinvestments  of  short-term  assets  into  primarily
medium-term fixed maturity securities and trading securities.

                          Critical Accounting Policies

The  financial  statements  contain  a  summary  of  FIC's  critical  accounting
policies,  including a discussion of recently-issued  accounting pronouncements.
Certain of these  policies are  considered  to be important to the  portrayal of
FIC's  financial  condition,  since they require  management to make  difficult,
complex or  subjective  judgments,  some of which may relate to matters that are
inherently  uncertain.  These policies include  accounting for acquisitions,  as
well as valuation of  investments  and  deferred  acquisition  costs and present
value of future profits.  For the year 2002, the Company's  critical  accounting
policies also included the cumulative effect of accounting changes regarding the
goodwill acquired from the merger with ILCO.

Cumulative Effect of Accounting  Changes.  During the first quarter of 2002, the
Company adopted SFAS No. 141, "Business  Combinations."  SFAS No. 141 eliminates
the practice of  amortizing  and  deferring  excess of net assets  acquired over
costs and requires unallocated  negative goodwill to be recognized  immediately.
In accordance with the standard,  FIC ceased negative  goodwill  amortization on
January 1, 2002 and  recognized  the  unamortized  balance  of $10.4  million of
negative goodwill acquired in the Merger.

Accounting  for  Business  Combinations.   The  Company  accounts  for  business
combinations  using the purchase  method of accounting.  The cost of an acquired
entity is  allocated to the assets  acquired  (including  identified  intangible
assets)and  liabilities assumed based on their estimated fair values. The excess
of the cost of an acquired entity over the net total of the amounts  assigned to
assets acquired and  liabilities  assumed is an asset referred to as "goodwill."
Indirect and general expenses  related to business  combinations are expensed as
incurred.

                                     - 53 -


<PAGE>


Investments.  The  Company's  investments  primarily  consist of fixed  maturity
securities,  which include bonds,  notes and redeemable  preferred stocks.  Fair
values of investments  in fixed  securities are based on quoted market prices or
dealer quotes. Fixed maturities  classified as "available for sale" are reported
at fair value, with unrealized investment gains and losses, net of income taxes,
credited or charged directly to shareholder's  equity.  Securities classified as
trading  are  reported  at fair value with  changes  in fair value  credited  or
charged directly to income.  Generally  accepted  accounting  principles require
that  investments  be  written  down to fair value  when  declines  in value are
considered other than temporary.  When such  impairments  occur, the decrease in
value is  reported  in net income as a realized  investment  loss and a new cost
basis is established.

Deferred  Policy  Acquisition  Costs  and  Present  Value of Future  Profits  of
Acquired Business. The costs of acquiring new business,  including certain costs
of issuing  policies and certain other variable  selling  expenses  (principally
commissions),  is included in deferred policy acquisition costs ("DAC").  DAC is
capitalized  and then  amortized  to  reflect  an  expense  in  relation  to the
projected stream of profits (for universal life and annuity  products) or to the
premium revenue (for traditional life products). Such projections require use of
certain assumptions, including interest margins, product loads, mortality rates,
persistency rates, and maintenance expense levels. Effective with respect to new
business  issued on and after January 1, 2002, the Company has  capitalized  DAC
based on an updated analysis of its cost structure and assumptions as to product
performance. Management periodically reviews the assumptions associated with the
amortization models prospectively.

Present  value of future  profits of acquired  business  ("PVFP")  are the costs
associated  with acquiring  blocks of insurance from other  companies or through
the  acquisition  of other  companies.  PVFP is  capitalized  and amortized in a
manner that attempts to match these costs against the associated revenues.

For  a  further   discussion  of  accounting   standards,   see  New  Accounting
Pronouncements beginning on page 21, herein.

                                     - 54 -


<PAGE>


                                Subsequent Events


The life insurance  subsidiaries of the Company currently maintain an office and
records storage facility in Seattle,  Washington.  The office facility  provides
premium  processing  services  and is staffed  by  approximately  28  employees.
Management  has  determined  that cost savings may be achieved by  consolidating
those functions in Austin,  Texas. The estimated annual expenses  savings,  once
the  move  has  been  completed,  are  estimated  to be  approximately  $800,000
annually.  The estimated cost of moving the facility is approximately  $530,000,
including the cost of severance  payments to employees.  In connection with that
move, the life insurance subsidiaries have filed applications with the insurance
departments  of Texas and  Washington  to authorize the  redomestication  of the
companies  from  Washington  to  Texas.  As of the  date  of  this  report,  the
applications are under review by the insurance departments.

On October 29, 2003,  the Company  announced that it is reviewing its investment
activities during the past year,  including mark-ups and commissions paid during
that time. The Company is also investigating,  among other things, relationships
between a broker-dealer used by the Company and William P. Tedrow. Mr. Tedrow is
the president of the Company's FIC Financial  Services,  Inc.  subsidiary  and a
Vice  President of the Company.  In his capacity at the Company,  Mr. Tedrow has
participated  during the current year in the general  supervision  of investment
activities.

The Company's  investigation  of these  matters is ongoing.  Mr. Tedrow has been
placed on administrative  leave pending the results of this  investigation.  The
Company has not reached any conclusion with regard to Mr. Tedrow's role, if any,
in the activities under review.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

General. FIC'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,  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 information set forth in
"Management's  Discussion  and Analysis of Financial  Condition and Operations -
Investments."

                                     - 55 -


<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 that 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 that 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's  investment  portfolio  includes  $6.1 million of "inverse
floater" CMOs.  These contain a derivative  which is "embedded" in the financial
instrument.

Interest Rate Risk:   The Company manages the interest rate risk inherent in our
assets  relative  to  the  interest  rate  risk  inherent  in  our  liabilities.
Generally,  we manage  interest rate risk based on the application of a commonly
used model. The model projects the impact of interest rate changes on a range of
factors,  including duration and potential prepayment.  For example, 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 $42.4 million at September 30, 2003
and $16.6 million at December 31, 2002. For purposes of the foregoing  estimate,
fixed  maturities,  including  fixed  maturities  available for sale and trading
securities, and short-term investments were taken into account. The market value
of such assets was $640.9  million at September  30, 2003 and $632.8  million at
December 31, 2002.

The fixed income  investments  of the Company  include  certain  mortgage-backed
securities.  The market value of such securities was $297.2 million at September
30, 2003 and $205.4 million at December 31, 2002. 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 $21.3
million at September 30, 2003 and $4.7 million at December 31, 2002.

Separate account assets have not been included,  since gains and losses on those
assets generally accrue to the policyholders.

The Company  generally does not use derivative  financial  instruments to manage
our  exposure  to  fluctuations  in  interest  rates.   However,  the  Company's
investments in inverse floater CMOs at September 30, 2003 described above have a
coupon rate which varies in an inverse  relationship with a specified  benchmark
rate.

                                     - 56 -


<PAGE>


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 4. Controls and Procedures

     (a)  The Company's  principal  executive  officer and  principal  financial
          officer have evaluated the effectiveness of the Company's  "disclosure
          controls and  procedures,"  as such term is defined in Rule 13a- 15(e)
          under the Securities Exchange Act of 1934, as amended,  (the "Exchange
          Act") as of  September  30,  2003.  Based upon their  evaluation,  the
          principal  executive officer and principal financial officer concluded
          that the Company's  disclosure  controls and  procedures,  as modified
          following  implementation of the procedure described in paragraph (b),
          below, are effective to provide reasonable  assurance that information
          required  to be  disclosed  by the  Company  in the  reports  filed or
          submitted  by it  under  the  Exchange  Act  is  recorded,  processed,
          summarized and reported within the time periods specified in the SEC's
          rules and forms, and to provide reasonable  assurance that information
          required to be disclosed by the Company in such reports is accumulated
          and communicated to the Company's management,  including its principal
          executive officer and principal  financial officer,  as appropriate to
          allow timely decisions regarding required disclosure.

     (b)  In connection with the preparation of its financial statements for the
          nine and  three-month  periods ended  September 30, 2003,  the Company
          reviewed those  securities in its investment  portfolio  classified as
          fixed  maturities  available  for sale.  That review was  conducted in
          order to  determine  whether  changes in the  carrying  value of those
          securities  should be considered as other than temporary.  As a result
          of that  review,  the Company  incurred a $5.2  million  charge to net
          realized investment loss, of which a portion (approximately  $725,000)
          relates to the quarter ended June 30, 2003.  In addition,  a review is
          in  progress  with  respect  to  mark-ups  and  commissions   paid  on
          investments  made  during  the past  year,  which  review has not been
          completed as of the date of this report. In October, 2003, the Company
          retained  Conning Asset Management  Company  ("Conning") to manage the
          investment   security  portfolios  of  the  Company's  life  insurance
          subsidiaries  in  accordance  with  investment  policies  set  by  the
          Company's Board of Directors. The Company believes that the engagement
          of a third-party  investment manager to provide ongoing,  professional
          management of the  portfolios  will enhance the  effectiveness  of its
          controls with respect to investment transactions.

                                     - 57 -


<PAGE>


          In  addition,  the Company is  conducting  a review of the  accounting
          systems used by JNT Group, Inc., one of the companies purchased in the
          New Era transaction,  in connection with the processing of funds which
          it receives from various  employee benefit plans.  That review,  which
          was commenced in early  October,  2003,  indicates that the accounting
          procedures in use at JNT were not sufficient to provide for the timely
          reconciliation  of funds received by JNT for remittance to third-party
          providers of benefits to plan participants.

     (c)  Except as  described  above,  there  was no  change  in the  Company's
          "internal  control over financial  reporting" (as such term is defined
          in Rule  13a-15(f)  under the Exchange Act) that  occurred  during the
          quarter ended September 30, 2003, that has materially affected,  or is
          reasonably likely to materially affect, the Company's internal control
          over financial reporting.

                           Part II. Other Information

Item 1.  Legal Proceedings

     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 legal actions will not have a material
     impact on the financial statements.

     Litigation with Otter Creek Partnership I, L.P.

     On June 13,  2003,  Otter Creek  Partnership  I, L.P.  filed a civil action
     lawsuit  against FIC in the District Court in Travis County,  Texas,  Cause
     No. GN302872. Otter Creek and FIC have reached an agreement in principle to
     settle the lawsuit,  and are preparing the appropriate  documentation to do
     so. Under the proposed  settlement,  the Company will reimburse Otter Creek
     for $250,000 in proxy  expenses.  An additional  $299,000 of proxy expenses
     and $190,000 of  litigation  expenses  will be  submitted to the  Company's
     shareholders  for  approval  at  a  shareholder's  meeting.  The  Board  of
     Directors will recommend that shareholders  approve the reimbursement.  The
     proposed  settlement  will also  provide  for mutual  releases  between the
     Company and Otter Creek and its  affiliates.  The  Chairman of the Board of
     Directors of the Company,  R. Keith Long, is the President and owner of the
     General  Partner  of  Otter  Creek  Partners  I,  L.P.  Other   Litigation.
     Additionally,  the Company and its subsidiaries  are regularly  involved in
     litigation, both as a defendant and as plaintiff. The litigation naming the
     insurance subsidiaries as defendant ordinarily involves our activities as a
     provider of insurance protection products. Management does not believe that
     such  litigation,  either  individually  or in the  aggregate,  will have a
     material adverse effect on the Company's  business,  financial condition or
     results of operations.

                                     - 58 -


<PAGE>


Item 2. Changes in Securities and Use of Proceeds

     On June 30, 2003, a subsidiary  of the Company,  Investors  Life  Insurance
     Company of North America,  exercised its option to purchase  500,411 shares
     of FIC's common stock,  at a price of $2.10 per share.  In connection  with
     the  option  exercise,  Investors  Life paid FIC $1.05  million  in cash to
     purchase the shares.  The shares so issued are treated as treasury stock on
     the consolidated  balance sheets of the Company. The sale of securities was
     exempt under section 4(2) of the Securities Act of 1933.

Item 3. Defaults Upon Senior Securities

     None

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

     The 2003 Annual Meeting of Shareholders of the Company was held on July 31,
     2003.  At  the  annual  meeting,  shareholders  were  asked  to  elect  ten
     directors.  In addition to the management slate of ten nominees, a slate of
     seven  nominees was presented by Otter Creek  Management,  Inc. The meeting
     was adjourned on  successive  dates in order to provide for the counting of
     votes,  the application of the cumulative  voting  procedure which had been
     requested  in  connection  with the annual  meeting  and the receipt of the
     final report of the inspector of elections.  The following table represents
     the  tabulation  of votes by the  inspector  of  elections  for each of the
     seventeen nominees prior to the application of cumulative voting:

              Name                          For                  Withheld
        John D. Barnett **              3,128,489.490           333,474.340
        J. Bruce Boisture *             3,925,841.354            52,429.089
        Salvador Diaz-Verson, Jr. *     3,925,159.354            53,111.089
        Patrick E. Falconio *           3,925,541.354            52,729.089
        Theodore A. Fleron **           3,123,337.053           338,626.777
        W. Lewis Gilcrease **           3,115,064.806           346,899.024
        Richard H. Gudeman *            3,925,841.354            52,429.089
        Steven A. Haxton *              3,925,716.354            52,554.089
        Richard Kosson **               3,135,381.819           326,582.011
        Fred W. Lazenby **              3,136,341.071           325,622.759
        R. Keith Long *                 3,925,375.354            52,895.089
        Elizabeth T. Nash **            3,125,137.541           336,825.289
        Frank Parker **                 3,116,937.470           345,026.360
        Eugene E. Payne **              3,129,658.143           332,305.687
        Lonnie L. Steffen *             3,925,841.354            52,429.089
        Kenneth S. Shifrin **           3,220,052.975           241,910.855
        Eugene J. Woznicki **           3,420,330.694            41,633.136

        *  = Otter Creek nominee
        ** = Management nominee

                                     - 59 -


<PAGE>


     Following  application of the cumulative voting process,  the following ten
     nominees  were  elected as  directors.  The  following  table  reflects the
     results of the cumulative voting process:

              Name                                           Number of Votes

        John D. Barnett                                       8,654,909.575
        J. Bruce Boisture                                     7,353,085.738
        Salvador Diaz-Verson, Jr.                             7,353,085.738
        Patrick E. Falconio                                   7,353,085.738
        Richard H. Gudeman                                    7,353,085.738
        R. Keith Long                                         7,353,085.738
        Eugene E. Payne                                       8,654,909.575
        Lonnie L. Steffen                                     7,353,085.738
        Kenneth S. Shifrin                                    8,654,909.575
        Eugene J. Woznicki                                    8,654,909.575

Item 5.  Other Information

         None

Item 6.  Exhibits and Reports on Form 8-K

     (a)  Exhibits

          31.1 Certification  of  Chief  Executive   Officer  pursuant  to  Rule
               13a-14(a)  or Rule  15d-14(a) of the  Securities  Exchange Act of
               1934

          31.2 Certification  of  Chief  Financial   Officer  pursuant  to  Rule
               13a-14(a)  or Rule 15d- 14(a) of the  Securities  Exchange Act of
               1934

          32.1 Certification of Chief Executive Officer of Financial  Industries
               Corporation  pursuant to Rule  13a-14(b) or Rule  15-14(b) and 18
               U.S.C. Section 1350

          32.2 Certification of Chief Financial Officer of Financial  Industries
               Corporation  pursuant to Rule  13a-14(b) or Rule  15-14(b) and 18
               U.S.C. Section 1350

                                     - 60 -


<PAGE>


     (b)  Reports on Form 8-K

          (i)  On July 10, 2003, the  Registrant  filed a Current Report on Form
               8-K. The report describes a modification in the membership of the
               Nominations/Governance Committee of the Board of Directors.

          (ii) On July 14, 2003, the  Registrant  filed a Current Report on Form
               8-K. The report  included a copy of a letter from the  Registrant
               to Institutional  Shareholders Services  (information  furnished,
               not filed).

          (iii)On July 29, 2003, the  Registrant  filed a Current Report on Form
               8-K,  announcing  the release by the Registrant of the proxy with
               respect to shares of FIC common stock  acquired by third  parties
               from the Mitte Foundation.

          (iv) On August 13, 2003, the Registrant filed a Current Report on Form
               8-K. The report  referred to a press release issued on August 13,
               2003,  announcing  the  Registrant's  financial  results  for the
               quarter ended June 30, 2003 (information furnished, not filed).

          (v)  On August 22, 2003, the Registrant filed a Current Report on Form
               8-K. The report  announced the results of the 2003 Annual Meeting
               of Shareholders.

          (vi) On August 25, 2003, the Registrant filed a Current Report on Form
               8-K,  announcing  the  election  of Keith Long as Chairman of the
               Board.  The release also  announced the  resignation of Eugene E.
               Payne as Chairman  and the  agreement of Dr. Payne to continue as
               President and CEO,  until a replacement  is hired by the Board of
               Directors.


                                     - 61 -


<PAGE>


                                   SIGNATURES


Pursuant  to the  requirements  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.




FINANCIAL INDUSTRIES CORPORATION



       /s/ Eugene E. Payne
_____________________________________
Eugene E. Payne
President and Chief Executive Officer




      /s/ George M. Wise, III
______________________________________
George M. Wise, III
Chief Financial Officer



Date:   November 25, 2003





                                     - 62 -