SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549




                                    FORM 10-Q

                QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE

                             SECURITIES ACT OF 1934


For the Quarterly Period Ended June 30, 1999
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)



The Austin Centre, 701 Brazos, 12th Floor
Austin, Texas                                    78701
(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

Number of common shares outstanding ($.20 par value) at end of period: 5,054,661

                                      - 1 -

<PAGE>




                FINANCIAL INDUSTRIES CORPORATION AND SUBSIDIARIES


                                      INDEX

                                                                       Page No.


Part I - Financial Information

Item 1. Financial Statements
Consolidated Balance Sheets
         June 30, 1999 and December 31, 1998................................. 3

Consolidated Statements of Income
         For the three and six month periods ended
         June 30, 1999 and 1998.............................................. 5

Consolidated Statements of Cash Flows
         For the three and six month periods ended
         June 30, 1999 and 1998.............................................. 9

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

Item 2. Management's Discussion and Analysis of
         Financial Conditions and Results of Operations......................15

Item 3. Quantitative and Qualitative Disclosures
            About Market Risk ...............................................23

Part II

Other  Information...........................................................25

Signature  Page..............................................................27







                                      - 2 -

<PAGE>



                FINANCIAL INDUSTRIES CORPORATION AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                                 (in thousands)
<TABLE>
<CAPTION>
                                                                   June 30,            December 31,
                                                                    1999                  1998
                                                                (unaudited)
<S>                                                                  <C>                   <C>
ASSETS
Investments other than investments in
 affiliate:  Fixed maturities available
 for sale at market value (amortized cost
 of $74,453 and $76,727 at June 30,
 1999 and December 31, 1998, respectively )              $         75,244          $       79,402
Equity securities at market (cost approximates
 $11 at June 30, 1999 and December 31, 1998)                            4                       4
Policy loans                                                        3,277                   3,155
Short-term investments                                             28,315                  27,589
                                                         ----------------          --------------
     Total investments                                            106,840                 110,150
Cash                                                                1,002                   2,601
Investment in affiliate                                            69,779                  70,950
Accrued investment income                                           1,167                   1,209
Agency advances and other receivables                               7,450                   7,759
Reinsurance receivables                                            13,562                  12,426
Due and deferred premiums                                          12,442                  12,181
Property and equipment, net                                         1,758                   1,758
Deferred policy acquisition costs                                  50,635                  48,510
Present value of future profits of acquired
  businesses                                                       25,682                  28,294
Other assets                                                        4,871                   5,392
Separate account assets                                               335                     508
                                                         ----------------          --------------
     Total Assets                                        $        295,523          $      301,738
                                                         ================          ==============
</TABLE>

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

                                      - 3 -

<PAGE>

                FINANCIAL INDUSTRIES CORPORATION AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                                 (in thousands)
<TABLE>
<CAPTION>
                                                               June 30,         December 31,
                                                                 1999              1998
                                                             (unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
<S>                                                              <C>                <C>

Liabilities:
Policy liabilities and contract holder
 deposit funds:
Future policy benefits                                $       59,826          $       60,069
Contract holder deposit funds                                 44,681                  45,128
Unearned premiums                                                 14                      28
Other policy claims and benefits payable                       4,441                   4,582
                                                      --------------          --------------
                                                             108,962                 109,807
Subordinated notes payable to affiliate                       44,571                  47,645
Deferred federal income taxes                                 23,824                  23,984
Other liabilities                                              3,061                   4,474
Separate account liabilities                                     335                     508
                                                      --------------          --------------
Total Liabilities                                            180,753                 186,418
                                                      --------------          --------------
Commitments and Contingencies

Shareholders' equity:
Common stock, $.20 par value, 10,000,000
 shares authorized; 5,845,300 shares
 issued, 5,054,661 outstanding in 1999 and 1998                1,169                   1,169
Additional paid-in capital                                     7,225                   7,225
Accumulated other comprehensive income                         1,279                   5,898
Retained earnings                                            112,472                 108,403
                                                      --------------          -------------
                                                             122,145                 122,695
Common treasury stock, at cost, 790,639
 at 1999 and 1998.                                            (7,375)                 (7,375)
                                                      --------------          --------------
Total Shareholders' Equity                                   114,770                 115,320
                                                      --------------          --------------
Total Liabilities and Shareholders' Equity            $      295,523          $      301,738
                                                      ==============          ==============
</TABLE>

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

                                      - 4 -

<PAGE>



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

<TABLE>
<CAPTION>
                                                                      Three Months Ended
                                                                          June 30,
                                                                   1999                1998
                                                               (unaudited)
<S>                                                                 <C>             <C>

Revenues:
 Premiums                                                 $       9,101        $          9,957
 Net investment income                                            1,701                   1,983
 Earned insurance charges                                         1,209                   1,738
 Other                                                              297                     350
                                                          -------------        ----------------
                                                                 12,308                  14,028
Benefits and expenses:
 Policyholder benefits and expenses                               4,192                   3,796
 Interest expense on contract holders
 deposit funds                                                      467                     566
 Amortization of present value of future
 profits of acquired businesses                                   1,402                   1,756
 Amortization of deferred policy
  acquisition costs                                               1,180                   1,070
 Operating expenses                                               2,806                   3,500
 Interest expense                                                   552                     682
                                                          -------------        ----------------
                                                                 10,599                  11,370
                                                          -------------        ----------------
Income before federal income tax and
 equity in net earnings of affiliates                             1,709                   2,658
Provision for federal income taxes                                  434                     733
                                                          -------------        ----------------
Income before equity in net earnings
 of affiliates                                                    1,275                   1,925
Equity in net earnings of affiliate,
 net of tax                                                         526                     568
                                                          -------------        ----------------
Net Income                                                $       1,801        $          2,493
                                                          =============        ================
</TABLE>


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

                                      - 5 -

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                FINANCIAL INDUSTRIES CORPORATION AND SUBSIDIARIES
                        CONSOLIDATED STATEMENTS OF INCOME
                      (in thousands except per share data)
<TABLE>
<CAPTION>
                                                             Three Months Ended
                                                                   June 30,
                                                       1999                      1998
                                                   (unaudited)
<S>                                                     <C>                       <C>

Net Income Per Share

Basic:
Average weighted shares outstanding                         5,055                   5,428
                                              ===================      ==================
Basic earnings per share                      $              0.36      $             0.46
                                              ===================      ==================
Diluted:
Common stock and common stock equivalents                   5,194                   5,603
                                              ===================      ==================
Diluted earnings per share                    $              0.35      $             0.44
                                              ===================      ==================

</TABLE>

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

                                      - 6 -

<PAGE>



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

<TABLE>
<CAPTION>
                                                              Six  Months Ended
                                                                   June 30,
                                                          1999                 1998
                                                      (unaudited)
<S>                                                        <C>                   <C>

Revenues:
 Premiums                                      $          17,682       $          19,721
 Net investment income                                     3,454                   3,921
 Earned insurance charges                                  2,585                   3,165
 Other                                                       702                     697
                                               -----------------       -----------------
                                                          24,423                  27,504
Benefits and expenses:
 Policyholder benefits and expenses                        7,933                   7,904
 Interest expense on contract holders
 deposit funds                                               972                   1,206
 Amortization of present value of future
 profits of acquired businesses                            2,612                   3,269
 Amortization of deferred policy
  acquisition costs                                        2,383                   2,266
 Operating expenses                                        5,722                   6,599
 Interest expense                                          1,250                   1,401
                                               -----------------       -----------------
   Total                                                  20,872                  22,645
                                               -----------------       -----------------
Income before federal income tax and
 equity in net earnings of affiliates                      3,551                   4,859
Provision for federal income taxes                           773                   1,133
                                               -----------------       -----------------
Income before equity in net earnings
 of affiliates                                             2,778                   3,726
Equity in net earnings of affiliate,
 net of tax                                                1,291                   1,100
                                               -----------------       -----------------
Net Income                                     $           4,069       $           4,826
                                               =================       =================
</TABLE>


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

                                      - 7 -

<PAGE>

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

<TABLE>
<CAPTION>
                                                               Six Months Ended
                                                                   June 30,
                                                         1999                 1998
                                                      (unaudited)
<S>                                                       <C>                  <C>
Net Income Per Share

Basic:
Average weighted shares outstanding                          5,055                   5,428
                                                ==================       =================
Basic earnings per share                        $             0.81       $            0.89
                                                ==================       =================
Diluted:
Common stock and common stock equivalents                    5,201                   5,603
                                                ==================       =================
Diluted earnings per share                      $             0.78       $            0.86
                                                ==================       =================

</TABLE>
                   The accompanying notes are an integral part
                         of these consolidated financial
                                   statements.




                                      - 8 -

<PAGE>



                FINANCIAL INDUSTRIES CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (in thousands)
<TABLE>
<CAPTION>

                                                                     Three Months Ended
                                                                          June 30,
                                                               1999                    1998
                                                           (unaudited)
<S>                                                             <C>                     <C>

CASH FLOWS FROM OPERATING
ACTIVITIES

Net Income                                          $          1,801         $           2,493
Adjustments to reconcile net income to
 net cash provided by operating activities:
Amortization of present value of future
 profits of acquired business                                  1,402                     1,756
Amortization of deferred policy
 acquisition costs                                             1,180                     1,070
Equity in undistributed earnings of  affiliate                (1,164)                   (1,253)
Changes in assets and liabilities:
Increase in accrued investment income                           (186)                     (262)
Decrease (increase) in agent advances and
 other  receivables                                              142                      (524)
Increase in due and deferred premiums                           (458)                     (178)
Increase in deferred policy acquisition costs                 (2,451)                   (2,134)
Decrease (increase) in other assets                              180                      (172)
(Decrease) increase in policy liabilities
 and accruals                                                   (927)                      424
(Decrease) increase in other liabilities                        (761)                      592
(Decrease) increase in deferred federa
 income taxes                                                   (298)                      930
Other, net                                                        (2)                     (207)
                                                    ----------------         -----------------
Net cash provided by operating activities           $         (1,542)        $           2,535
                                                    ----------------         -----------------
</TABLE>

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





                                      - 9 -

<PAGE>



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

<TABLE>
<CAPTION>

                                                              Three  Months Ended
                                                                    June 30,
                                                          1999                 1998
                                                      (unaudited)
<S>                                                       <C>                   <C>
CASH FLOWS FROM INVESTING ACTIVITIES

Fixed maturities purchased                       $      (2,996)      $          -0-
Proceeds from sales and maturities of
 fixed maturities                                        3,486               1,711
Increase in policy loans                                  ( 44)               (139)
Net change in short-term investments                     1,877              (2,164)
Purchase & retirement of property
 and equipment                                               0                 (34)
                                                 -------------       -------------
Net cash provided by  investing activities               2,323                (626)
                                                 -------------       -------------
CASH FLOW FROM FINANCING
 ACTIVITIES
Repayment of subordinated notes payable                 (1,537)             (1,537)
                                                 -------------       --------------
Net cash used in financing activities                   (1,537)             (1,537)
                                                 -------------       --------------
Net (decrease) increase in cash                           (756)                372
Cash, beginning of period                                1,758                 838
                                                 -------------       -------------
Cash, end of period                              $       1,002       $       1,210
                                                 =============       =============
</TABLE>
                   The accompanying notes are an integral part
                         of these consolidated financial
                                   statements.


                                     - 10 -

<PAGE>



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

<TABLE>
<CAPTION>
                                                                     Six Months Ended
                                                                         June 30,
                                                               1999                   1998
                                                            (unaudited)
<S>                                                             <C>                    <C>
CASH FLOWS FROM OPERATING
ACTIVITIES

Net Income                                         $         4,069       $            4,826
Adjustments to reconcile net income to
 net cash provided by operating activities:
Amortization of present value of future
 profits of acquired business                                2,612                     3,269
Amortization of deferred policy
 acquisition costs                                           2,383                     2,266
Equity in undistributed earnings of  affiliate              (2,478)                   (2,473)
Changes in assets and liabilities:
Decrease (increase) in accrued
 investment income                                              42                       (68)
Increase in agent advances and
 other  receivables                                           (827)                   (1,266)
Increase in due and deferred premiums                         (261)                     (246)
Increase in deferred policy acquisition costs               (4,508)                   (4,070)
Decrease in other assets                                       521                     1,008
(Decrease) increase in policy liabilities
 and accruals                                                 (845)                      121
Decrease in other liabilities                               (1,413)                   (1,194)
(Decrease) increase in deferred federal
  income taxes                                                (160)                    1,258
Other, net                                                     (71)                     (209)
                                                    --------------         -----------------
Net cash provided by operating activities           $         (936)        $           3,222
                                                    --------------         -----------------
</TABLE>

                  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)
<TABLE>
<CAPTION>
                                                              Six Months Ended
                                                                   June 30,
                                                      1999                    1998
                                                            (unaudited)
<S>                                                    <C>                     <C>
CASH FLOWS FROM INVESTING ACTIVITIES

Fixed maturities purchased                      $     (9,996)        $     (9,082)
Proceeds from sales and maturities of
 fixed maturities                                     13,255                6,372
Increase in policy loans                                (122)                (213)
Net change in short-term investments                    (726)               3,510
Purchase & retirement of property
 and equipment                                             0                  (34)
                                                -------------        ------------
Net cash provided by  investing activities             2,411                  553
                                                -------------        ------------
CASH FLOW FROM FINANCING
 ACTIVITIES
Repayment of subordinated notes payable               (3,074)              (3,073)
                                                ------------         ------------
Net cash used in financing activities                 (3,074)              (3,073)
                                                ------------         ------------
Net (decrease) increase in cash                       (1,599)                 702
Cash, beginning of year                                2,601                  508
                                                -------------       -------------
Cash, end of period                             $       1,002       $       1,210
                                                =============       =============
</TABLE>



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






                                     - 12 -

<PAGE>



                FINANCIAL INDUSTRIES CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The financial  statements  included herein reflect all adjustments which are, in
the opinion of management,  necessary to present a fair statement of the interim
results.  The statements  have been prepared to conform to the  requirements  of
Form 10-Q and 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, 1998,  previously  filed with the  Commission  for
financial  statements  prepared  in  accordance  with GAAP.  Certain  prior year
amounts have been reclassified to conform with current year presentation.

The  consolidated   financial  statements  include  the  accounts  of  Financial
Industries Corporation ("FIC") and its wholly-owned subsidiaries. The investment
of FIC in  InterContinental  Life  Corporation  ("ILCO") is presented  using the
equity method.  All significant  intercompany  items and transactions  have been
eliminated.

Comprehensive Income

 Total  comprehensive  (loss)  income for the six months ended June 30, 1999 and
June 30, 1998 is $(.55) million and $4.9 million, respectively.

The following is a reconciliation of accumulated other comprehensive income from
December 31, 1998 to June 30, 1999 (in thousands):

                                                   Net             Total
                             Net unrealized        appreciation    accumulated
                             gain on investments   (depreciation)  other
                             in fixed maturities   of equity       comprehensive
                             available for sale     securities     income

Balance at December 31, 1998    $  5,900            $     (2)       $  5,898
Current Period Change             (4,620)                  1          (4,619)
                                --------            --------       ---------
Balance at June 30, 1999        $  1,280            $     (1)       $  1,279
                                ========            =========       ========




                                     - 13 -

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

New Accounting Pronouncements

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

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


                                     - 14 -

<PAGE>



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


For the six-month period ended June 30, 1999, Financial Industries Corporation's
("FIC") net income was $4,069,000  (basic earnings of $0.81 per common share, or
diluted  earnings of $0.78 per common  share) as compared to  $4,826,000  (basic
earnings  of $0.89 per common  share,  or diluted  earnings  of $0.86 per common
share) in the  first  six  months  of 1998.  Earnings  per  share are  stated in
accordance with the requirements of FAS No. 128, which  establishes two measures
of earnings per share:  basic earnings per share and diluted earnings per share.
Basic  earnings  per share is computed by dividing  income  available  to common
shareholders by the weighted average number of common shares  outstanding during
the period. Diluted earnings per share reflect the potential dilution that would
occur if securities or other  contracts to issue common stock were  converted or
exercised.


                              Results of Operations

FIC's  income from  operations - as  determined  before  federal  income tax and
equity in net earnings of its affiliate, InterContinental Life Corporation - for
the  six-month  period  ended June 30,  1999,  was  $3,551,000  (on  revenues of
$24,423,000),  as compared to  $4,859,000  (on revenues of  $27,504,000)  in the
first six months of 1998.


Earnings  for the  six-month  period  ended June 30,  1999 were  affected  by an
increase in claims.  For the 1999 period claims were $0.9 million higher (net of
tax) than the level during the 1998 period.


Earnings per share (basic and diluted) for the  six-month  period ended June 30,
1999 include  $.03 per share due to the decrease in the number of common  shares
outstanding  resulting  from (i) FIC's  purchase on November 17, 1998 of 101,304
shares of FIC's  common  stock from the Roy F. and Joann  Cole Mitte  Foundation
(the  "Foundation"),  a Texas non-profit  corporation which is controlled by Mr.
Mitte and his wife, at a price of $18.625 per share (or a total  purchase  price
of $1,886,787) and (ii) Family Life Insurance Company's purchase on November 17,
1998 of 272,000  shares of FIC's common stock from the  Foundation at a price of
$18.625 per share (or a total purchase price of $5,066,000).

Premiums for the first six months of 1999, net of reinsurance  ceded, were $17.7
million,  as  compared  to  $19.7  million  in the  first  six  months  of 1998.
Policyholder  benefits  and expenses  were $7.9  million in the 1999 period,  as
compared to $7.9 million in the first six months of 1998.

As of June 30, 1999, the market value of the fixed maturities available for sale
segment was $75.2 million as compared to an amortized value of $74.5 million, or
an unrealized gain of $0.7 million.  The increase  reflects  unrealized gains on
such investments related to changes in interest rates subsequent to the purchase
of such  investments.  There is no assurance  that this gain will be realized in
the future.  The net of tax effect of this increase  ($0.55  million at June 30,
1999) has been  recorded  as an increase in  shareholders'  equity.  As required
under the provisions of FAS No. 130, the  determination  of  "Accumulated  other
comprehensive income" includes separate

                                     - 15 -

<PAGE>



identification of the change in values which occurred during the current period.


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


            Equity in Net Income of InterContinental Life Corporation

General:

For the six-month  period ended June 30, 1999,  the Company's  equity in the net
earnings of InterContinental  Life Corporation  ("ILCO"),  net of federal income
tax, was $1,291,000, as compared to $1,100,000 for the first six months of 1998.

On March 17,  1999,  ILCO paid a stock  dividend  (one share of common stock for
each outstanding share of common stock).  FIC currently owns 3,590,292 shares of
ILCO's common stock.  In addition,  Family Life currently owns 342,400 shares of
ILCO common stock.  As a result,  FIC currently  owns,  directly and  indirectly
through  Family Life,  3,932,692  shares  (approximately  45%) of ILCO's  common
stock.

Prior to  September  30, 1998,  FIC held  options to acquire (on a  pre-dividend
basis) an additional  1,702,155 shares. The options were granted under an option
agreement  between FIC and ILCO which was entered into in March,  1986  ("Option
Agreement").  The Option Agreement  provided that it continued in effect as long
as FIC guaranteed  indebtedness of ILCO. Since the Senior Loan of ILCO was fully
repaid on September 30, 1998, FIC's rights under the Option Agreement expired on
September 30, 1998.

As of June 30, 1999, the market value of ILCO's fixed  maturities  available for
sale  segment  was $411.5  million as compared  to an  amortized  cost of $408.7
million, or an unrealized gain of $2.8 million. The increase reflects unrealized
gains on such investments related to changes in interest rates subsequent to the
purchase of such  investments.  Since FIC owns  approximately  45% of the common
stock of ILCO,  the net of tax effect of this increase ($1.8 million at June 30,
1999)  is  included  in  "Accumulated   other   comprehensive   income"  on  the
Consolidated   Balance   Sheets  and  has  been   recorded  as  an  increase  in
shareholders' equity.

Liquidity and Capital Resources of ILCO:

ILCO is a holding company whose principal  assets consist of the common stock of
Investors  Life  Insurance  Company of North  America  ("Investors-NA")  and its
subsidiary,    Investors   Life   Insurance   Company   of   Indiana   (formerly
InterContinental  Life  Insurance  Company).  ILCO's  primary  source  of  funds
consists of payments under the surplus debentures from Investors-NA.


                                     - 16 -

<PAGE>
Prior to September 30, 1998, the cash  requirements of ILCO consisted  primarily
of its  service  of  the  indebtedness  created  in  connection  with  the  1988
acquisition of the Investors Life Companies and the 1995 acquisition of Meridian
Life Insurance Company (which company was subsequently  merged into another life
insurance  subsidiary  of  ILCO).  As of  December  31,  1997,  the  outstanding
principal  balance of ILCO's senior loan  obligations  was $11.0 million,  which
reflected the prepayment by ILCO of the payment originally scheduled for January
1, 1998.  A regular  payment in the amount of $3.7  million was made on April 1,
1998,  and a prepayment of the July 1, 1998  installment,  in the amount of $3.7
million, was made on June 30, 1998. The outstanding  principal balance of ILCO's
senior loan obligations was $3.6 million at June 30, 1998. The final installment
on the senior loan  obligation  scheduled  for  October 1, 1998,  was prepaid on
September  30, 1998. As a result,  the senior loan  obligation of ILCO was fully
discharged effective September 30, 1998.

ILCO's  principal  source of  liquidity  consists  of the  periodic  payment  of
principal and interest to it by  Investors-NA,  pursuant to the terms of the two
surplus  debentures.  The surplus  debentures were originally issued by Standard
Life  Insurance  Company  and  their  terms  were  previously  approved  by  the
Mississippi  Insurance  Commissioner.  In  connection  with the 1993  merger  of
Standard Life into Investors-NA,  the obligations of the surplus debentures were
assumed by Investors-NA. As of June 30, 1999, the outstanding principal balances
of the surplus  debentures  were $4.0  million and $6.9  million,  respectively.
Since  Investors-NA  is domiciled  in the State of  Washington,  the  Washington
insurance  law  applies  to the  administration  of  the  terms  of the  surplus
debentures.  Under the provisions of the surplus  debentures and current law, no
prior  approval  of  the  Washington  Insurance  Commissioner  is  required  for
Investors-NA  to pay interest or principal on the surplus  debentures;  provided
that,  after  giving  effect  to  such  payments,   the  statutory   surplus  of
Investors-NA  is in  excess  of $10  million  (the  "surplus  floor").  However,
Investors-NA has voluntarily agreed with the Washington  Insurance  Commissioner
that it will provide at least five days advance notice of payments which it will
make under the surplus debenture. As of June 30, 1999, the statutory capital and
surplus of Investors-NA was $66.4 million, an amount  substantially in excess of
the surplus floor.  The funds required by Investors- NA to meet its  obligations
to ILCO under the terms of the surplus  debentures  are generated from operating
income generated from insurance and investment operations.

In addition to the payments under the terms of the Surplus Debentures,  ILCO has
received dividends from its subsidiaries.  Washington's  insurance code includes
the "greater of"  standard for payment of dividends to  shareholders,  but has a
requirement  that  prior  notification  of a proposed  dividend  be given to the
Washington Insurance  Commissioner and that cash dividends may be paid only from
earned surplus.  Under the "greater of" standard,  an insurer may pay a dividend
in an amount equal to the greater of (i) 10% of policyholder surplus or (ii) the
insurer's net gain from  operations  for the previous year. As of June 30, 1999,
Investors-NA had earned surplus of $39.1 million.

Investors-IN is domiciled in the State of Indiana.  Under the Indiana  insurance
code, a domestic insurer may make dividend  distributions  upon proper notice to
the  Department  of  Insurance,  as long as the  distribution  is  reasonable in
relation to adequate levels of policyholder surplus and

                                     - 17 -

<PAGE>




quality of earnings.  Under  Indiana law the  dividend  must be paid from earned
surplus.  Extraordinary  dividend  approval  would be required  where a dividend
exceeds  the greater of 10% of surplus or the net gain from  operations  for the
prior fiscal year.  Investors-IN had earned surplus of $16.6 million at June 30,
1999. In June, 1999, Investors-IN paid a dividend in the amount of $3 million to
its sole shareholder, Investors-NA. The amount of the dividend was less than the
net gain  from  operations  for the prior  fiscal  year.  Advance  notice of the
payment was provided to the Indiana Department of Insurance,  in accordance with
the provisions of the Indiana Insurance Code.


The Form 10-Qs of ILCO for the  six-month  periods  ended June 30, 1999 and June
30, 1998, set forth the business  operations  and financial  results of ILCO and
its life  insurance  subsidiaries.  Such 10-Q  reports  of ILCO,  including  the
discussion by ILCO's management under the caption  "Management's  Discussion and
Analysis of Financial  Conditions  and Results of Operations"  are  incorporated
herein by reference.

                        Liquidity and Capital Resources:

FIC is a holding company whose  principal  assets consist of the common stock of
Family Life and its equity  ownership in ILCO.  FIC's primary sources of capital
consists of cash flow from operations of its subsidiaries.

The cash  requirements  of FIC and its  subsidiaries  consist  primarily  of its
service of the  indebtedness  created in connection with its ownership of Family
Life. As of June 30, 1999,  the  outstanding  balance of such  indebtedness  was
$44.6 million on the Subordinated Notes granted by Investors-NA.

The  principal  source of  liquidity  for  FIC's  subsidiaries  consists  of the
periodic  payment of principal and interest by Family Life pursuant to the terms
of a Surplus  Debenture.  The terms of the  Surplus  Debenture  were  previously
approved by the Washington Insurance  Commissioner.  Under the provisions of the
Surplus Debenture and current law, no prior approval of the Washington Insurance
Department  is required  for Family Life to pay  interest  or  principal  on the
Surplus  Debenture;  provided that,  after giving effect to such  payments,  the
statutory  surplus  of Family  Life is in excess of 6% of assets  (the  "surplus
floor").  However,  Family  Life has  voluntarily  agreed  with  the  Washington
Insurance Commissioner that it will provide at least five days advance notice of
payments  which it will make under the surplus  debenture.  As of June 30, 1999,
the statutory  capital and surplus of Family Life was $27.9  million,  an amount
substantially in excess of the surplus floor. As of June 30, 1999, the principal
balance of the Surplus Debenture was $18.4 million. The funds required by Family
Life to meet its  obligations  under  the  terms of the  Surplus  Debenture  are
generated primarily from premium payments from policyholders,  investment income
and the proceeds from the sale and redemption of portfolio investments.

Washington's insurance code includes the "greater of" standard for dividends but
has requirements that prior  notification of a proposed dividend be given to the
Washington Insurance  Commissioner and that cash dividends may be paid only from
earned surplus. Family Life does not presently have earned surplus as defined by
the regulations adopted by the Washington Insurance Commissioner and, therefore,
is not permitted to pay cash dividends. However, since

                                     - 18 -

<PAGE>



the new law  applies  only to dividend  payments,  the ability of Family Life to
make  principal  and  interest  payments  under  the  Surplus  Debenture  is not
affected.  The  Company  does not  anticipate  that  Family  Life  will have any
difficulty in making principal and interest payments on the Surplus Debenture in
the  amounts  necessary  to  enable  Family  Life  Corporation  to  service  its
indebtedness for the foreseeable future.

The  sources  of  funds  for  Family  Life  consist  of  premium  payments  from
policyholders,  investment  income and the proceeds from the sale and redemption
of portfolio  investments.  These funds are applied primarily to provide for the
payment of claims under  insurance  and annuity  policies,  operating  expenses,
taxes,  investments in portfolio securities,  shareholder dividends and payments
under the provisions of the Surplus Debenture.

FIC's net cash flow provided by operating  activities  was $(0.9) million in the
first six months of 1999, as compared to $3.2 million in the first six months of
1998.  Net cash flow used in financing  activities was $3.1 million in the first
six months of 1999, as compared to $3.1 million in the first six months of 1998.

In connection  with the purchase of the Investors Life Companies by ILCO and the
purchase of Family Life by a wholly-owned  subsidiary of FIC, FIC guaranteed the
payment of the indebtedness created in connection with such acquisitions.  After
giving  effect to the  refinancing  of the ILCO Senior Loan and the repayment of
the ILCO Subordinated Loans, the guaranty commitments of FIC with respect to the
debt  obligations  of ILCO  related to the ILCO  Senior  Loan.  The  outstanding
principal balance of ILCO's senior loan obligations was $3.6 million at June 30,
1998. The final installment on the Senior Loan obligation  scheduled for October
1, 1998,  was  prepaid on  September  30,  1998.  As a result,  the Senior  Loan
obligation of ILCO was fully discharged  effective September 30, 1998, relieving
FIC of the guaranty commitments with respect to the debt obligations of ILCO.

The guaranty  commitments of FIC under the loans incurred in connection with the
acquisition  of Family Life (after  taking into account the  repayments  and new
loans which occurred in July, 1993) relate to: (i) the $22.5 million note issued
by Family Life Corporation to Investors Life Insurance Company of North America,
and (ii) the $34.5 million loaned by Investors-NA to two subsidiaries of FIC.

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

There are no trends, commitments or capital asset requirements that are expected
to have an adverse effect on the liquidity of FIC.

                                   Investments

As of June 30, 1999, the Company's  investment assets totaled $106.8 million, as
compared to $118.8 million as of June 30, 1998.

The level of  short-term  investments  at June 30,  1999 was $28.3  million,  as
compared to $31.1 million as of June 30, 1998.  The fixed  maturities  available
for sale portion represents $75.2

                                     - 19 -

<PAGE>



million of  investment  assets as of June 30, 1999, as compared to $84.8 million
at June 30, 1998. The amortized cost of fixed  maturities  available for sale as
of June 30, 1999 was $74.5 million  representing a net unrealized  gain of $0.70
million.  This unrealized gain  principally  reflects  changes in interest rates
from the date the respective investments were purchased.  To reduce the exposure
to interest rate changes,  portfolio investments are selected so that diversity,
maturity  and  liquidity   factors   approximate   the  duration  of  associated
policyholder liabilities.

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

The fixed  maturities  portfolio of Family Life, as of June 30, 1999,  consisted
solely of fixed maturities  investments  which, in the annual  statements of the
companies, as filed with state insurance departments,  were designated under the
National Association of Insurance  Commissioners ("NAIC") rating system as a "1"
(highest quality).

The   investments  of  Family  Life  and  ILCO's   insurance   subsidiaries   in
mortgage-backed securities included collateralized mortgage obligations ("CMOs")
of  $22.4  million  and  $188.4  million,   respectively,   and  mortgage-backed
pass-through securities of $4.7 million and $27.2 million, respectively, at June
30, 1999. Mortgage-backed pass-through securities,  sequential CMO's and support
bonds,  which  comprised   approximately  42.6%  of  the  book  value  of  FIC's
mortgage-backed securities and 51.7% of the book value of ILCO's mortgage-backed
securities at June 30, 1999,  are sensitive to prepayment  and extension  risks.
ILCO and FIC 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 June 30, 1999, PAC and TAC  instruments  and
scheduled  bonds  represented  approximately  57.4% of the  book  value of FIC's
mortgage-backed  securities and approximately  48.3% of the book value of ILCO's
mortgage-backed   securities.   Sequential  and  support   classes   represented
approximately  25.2% of the book value of FIC's  mortgage-backed  securities and
approximately  39.1% of the book value of ILCO's  mortgage-backed  securities at
June 30, 1999. In addition, FIC and ILCO limit the risk of prepayment of CMOs by
not paying a premium for any CMOs. ILCO and FIC do not invest in mortgage-backed
securities  with  increased  prepayment  risk,  such as  interest-only  stripped
pass-through  securities and inverse floater bonds. Neither FIC nor ILCO had any
z-accrual  bonds  as  of  June  30,  1999.  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.  Neither FIC nor ILCO
made  additional  investments  in CMOs during 1998 and the first two quarters of
1999. The current investment  objectives of both FIC and ILCO do not contemplate
additions to the portfolio

                                     - 20 -

<PAGE>



of CMO investments during the remainder of 1999.

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

                                 Y2K Compliance

The  Company  and its  subsidiaries  utilize a  centralized  computer  system to
process policyholder records and financial information. In addition, the Company
uses non-centralized  computer terminals in connection with its operations.  The
software programs used in connection with these systems will be affected by what
is referred to as the "Y2K date problem".  This refers to the limitations of the
programming  code in  certain  existing  software  programs  to  recognize  date
sensitive information as the year 2000 approaches.  Unless modified prior to the
year 2000,  such systems may not properly  recognize such  information and could
generate erroneous data or cause a system to fail to operate properly.

The Company has evaluated its centralized  computer  systems and has developed a
plan to reach Y2K  compliance.  A central feature of the plan is to convert most
of the  centralized  systems to a common  system which is already in  compliance
with Y2K requirements.  The Company is in the process of this systems conversion
and anticipates  that the project will be completed in advance of the year 2000.
The Company has increased the budget for the  implementation  and  completion of
the Plan from the prior years estimate. As of December 31, 1997, the Company had
budgeted  approximately $330,000 for implementing the Plan. Based on its current
analysis,  the Company expects that the cost of implementing  and completing the
Plan will  result in an  after-tax  expense of  approximately  $898,000  for the
three-year  (1997 - 1999)  conversion  period.  For the three month period ended
June 30, 1999,  the Company has  incurred an after tax expense of  approximately
$46,000 in connection  with the completion of the Plan.  Between January 1, 1997
and June 30, 1999, the Company has expended  approximately 80% of the three-year
expected after-tax cost discussed above.

The Plan calls for an upgrade of the  Family  Life's  administrative  systems by
changing  individual lines of computer code in order to modify current operating
software  such  that  it  will  become  Y2K  compliant.  This  process  includes
approximately 29 sub-systems  which provide data input to the main systems.  The
administrative  systems  which  are not  modified  will be  converted  onto  the
Company's CK/4 System,  a system  designed to be Y2K compliant  according to the
representations of the vendor.

The systems which  administer a substantial  number of Family Life policies will
be  modified  rather  than  converted.   The  modification  of  the  PMS  system
(administering  approximately 103,370 policies for Family Life) was completed in
March, 1998. The conversion of the Cypros AP system (administering approximately
17,990 active  policies for Family Life) is scheduled for  completion at the end
of September, 1999.

A small number of Family Life  policies are  administered  by systems which also
administer  policies for ILCO and its subsidiaries.  With regard to ILCO and its
subsidiaries, the ALIS system

                                     - 21 -

<PAGE>



(administering approximately 42,000 active policies for Investors-NA at the time
of  conversion)  was converted to CK/4 in January of 1998. The conversion of the
Life  70  system   (administering   approximately  15,300  active  policies  for
Investors-IN)  was completed in May of 1999. The  modification of the Lifecomm-B
system which is  responsible  for the  administration  of  approximately  17,000
active  policies  assumed after ILCO's  acquisition  of State Auto Life was also
completed. The conversion of the Lifecomm-A system (administering  approximately
57,140 active  policies for  Investors-NA)  is now  scheduled for  completion in
September of 1999.

The Company  also faces the risk that one or more of its  external  suppliers of
goods  or  services  ("third  party  providers")  will not be in a  position  to
properly  interact  with the  Company due to the  inability  of such third party
provider to resolve its own Y2K issues.  The Company has  completed an inventory
of its third party provider relationships.  In order to assess the Y2K readiness
of such third  party  providers,  the  Company  has  developed  and  forwarded a
detailed questionnaire to such providers. As the responses to the questionnaires
are  received,  the Company will evaluate the overall Y2K readiness of its third
party  provider  relationships.  However,  the Company does not have  sufficient
information at the current time to determine whether the computer systems of its
third party  providers will be in compliance  with the Y2K  requirements  as the
year 2000 approaches.

In 1997,  FIC  Computer  Services  - a  subsidiary  of FIC which  provides  data
processing services for the Company and its affiliates - purchased new mainframe
hardware and accompanying  operating software,  which the vendor has represented
to be Y2K  compliant.  This  hardware  and  software  was  tested  in 1998.  The
telephone system has been tested by the maintenance provider for that system and
the Company has received assurances that the telephone system is Y2K compliant.

With respect to non-centralized  systems (i.e., desktop computers),  the Company
has obtained  updated  software  releases  and new  hardware  designed to be Y2K
compliant according to the  representations of the vendors.  The Company expects
that the effort  needed to correct for Y2K problems on such systems will be less
time intensive than the effort needed to achieve  compliance for its centralized
systems.  The installation of such new PC hardware and software was commenced in
early 1999 and is expected to be completed by September 1, 1999.

In the event that a major administrative system fails to operate properly due to
the Y2K  problem,  or the  Company  does  not  complete  the  necessary  systems
conversions  prior to January 1,  2000,  the  Company  has  developed  a plan to
respond to such a  contingency.  FIC  Computer  Services  has  assigned  certain
personnel to be members of an emergency  response team to resolve Y2K operations
problems. Additionally, insurance policies would be administered manually if the
necessary  systems  conversions  were not completed prior to January 1, 2000, or
subsequent Y2K operations problems persist.  Manual policy  administration would
require  additional  personnel.   If  substantial  additional  personnel  become
necessary for manual policy administration,  the training and salary expenses of
such personnel  could  materially  affect the Company's  business and results of
operations.  The  Company is not able to  estimate  the  likelihood  that manual
administration  will be needed or the amount of any expense which it would incur
in connection with such manual administration.



                                     - 22 -

<PAGE>






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

Except  for  historical  factual  information  set  forth  in this  Management's
Discussion  and  Analysis,  certain  statements  made in this report are forward
looking and contain  information about financial results,  economic  conditions,
Y2K risks and other  risks and known  uncertainties.  The Company  cautions  the
reader that actual results could differ materially from those anticipated by the
Company, depending upon the eventual outcome of certain factors,  including: (1)
heightened  competition for new business,  (2)  significant  changes in interest
rates, (3) adverse  regulatory  changes  affecting the business of insurance and
(4) adverse changes in the Y2K readiness of the Company or its significant third
party providers.

                             Accounting Developments

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

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


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 Item 2
"Management's  Discussion  and Analysis of Financial  Conditions  and Results of
Operation - Investments" of this report.

The  following is a discussion of the Company's  primary  market risk  sensitive
instruments. It

                                     - 23 -

<PAGE>



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

The primary market risk to the Company's  investment  portfolio is interest rate
risk. Since the Company own  approximately  45% of the common stock of ILCO, the
interest  rate risk of ILCO's fixed income  portfolio has an effect on the value
of  FIC's  "investment  in  affiliate".  The  Company  does  not use  derivative
financial instruments.

Interest Rate Risk:

(a)      FIC's Fixed Income Investments:

         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
         $3.3  million at June 30, 1999 and $2.5  million at December  31, 1998.
         For purposes of the foregoing estimate, the following categories of the
         Company's fixed income  investments were taken into account:  (i) fixed
         maturities,  including  fixed  maturities  available for sale, and (ii)
         short-term  investments.  The  market  value of such  assets was $103.6
         million at June 30, 1999 and $107.0 million at December 31, 1998.

         The  fixed  income   investments   of  the  Company   include   certain
         mortgage-backed  securities.  The market value of such  securities  was
         $27.5  million at June 30, 1999 and $33.9 million at December 31, 1998.
         Assuming an immediate  increase of 100 basis points in interest  rates,
         the net  hypothetical  loss in the fair  market  value  related to such
         mortgage-backed  securities is estimated to be $1.6 million at June 30,
         1999 and $1.2 million at December 31, 1998.



(b)      FIC's Investment in Affiliate:

         The value of FIC's investment in affiliate is affected by the amount of
         unrealized gains and losses, net of tax, in the investment portfolio of
         its affiliate, ILCO. Assuming an immediate increase of 100 basis points
         in interest  rates,  the net  hypothetical  loss in value,  net of tax,
         related to the  Company's  investment  in  affiliate is estimated to be
         $6.4 million at June 30, 1999 and $4.6 million at December 31, 1998.


 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.

                                     - 24 -

<PAGE>



                FINANCIAL INDUSTRIES CORPORATION AND SUBSIDIARIES


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  upon the
financial statements.

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

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

Item 2.  Changes in Securities

                  None

Item 3.  Defaults Upon Senior Securities

                  None

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

                  The  Annual  Meeting of the  Shareholders  was held on May 18,
                  1999.  The only matter  submitted  at the meeting to a vote of
                  the  Shareholders  was the election of  directors.  All of the
                  nominees  had  previoulsy  served as directors of the Company,
                  and all were reelected as directors.

                                     - 25 -

<PAGE>





                  The voting tabulation as to each nominee was as follows:

                    Name                    In Favor                  Withheld

                  Barnett, John D.          2,729,110                 464,010
                  Crowe, Joseph F.          2,729,195                 463,925
                  Demgen, Jeffrey H.        2,728,510                 464,610
                  Fleron, Theodore A.       2,729,245                 463,875
                  Grace, James M.           2,728,435                 464,685
                  Mitte, Dale E.            2,726,475                 466,645
                  Mitte, Roy F.             2,726,040                 467,080
                  Parker, Frank             2,727,335                 465,785
                  Payne, Dr. Eugene E.      2,729,095                 464,025
                  Richmond, Thomas C.       2,729,110                 464,010
                  Supple, Dr. Jerome H.     2,729,145                 463,975


Item 5.  Other Information

                  None

Item 6.  Exhibits and Reports on Form 8-K

         (a)      Exhibits

                  Form 10-K  Annual  Report  of  Registrant  for the year  ended
                  December  31, 1998  heretofore  filed by  Registrant  with the
                  Securities   and   Exchange   Commission,   which  is   hereby
                  incorporated by reference.

         (b)      Reports on Form 8-K:

                  None

                                     - 26 -

<PAGE>





                FINANCIAL INDUSTRIES CORPORATION AND SUBSIDIARIES



                                    SIGNATURE



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/ James M. Grace
                                                   James M. Grace, Treasurer



Date:   August 13, 1999

                                     - 27 -

<PAGE>