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 March 31, 2002
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

Number  of  common  shares  outstanding  ($.20  par  value)  at end  of  period:
9,499,629.


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                           Forward-Looking Statements


Except for  historical  factual  information  set forth in this Form  10-Q,  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,  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,"  "path,"
"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 the financial results, 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) changes in the Federal income tax laws and regulations
which may affect the  relative tax  advantages  of some of FIC's  products;  (6)
increasing  competition in the sale of insurance and  annuities;  (7) regulatory
changes or actions, including those relating to regulation of insurance products
and insurance companies; (8) 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; and (9) unanticipated litigation. There can be no assurance that other
factors not currently  anticipated  by management  will not also  materially and
adversely affect FIC.


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                FINANCIAL INDUSTRIES CORPORATION AND SUBSIDIARIES


                                      INDEX

                                                                       Page No.



Part I - Financial Information

Item 1. Financial Statements
Consolidated Balance Sheets
        March 31, 2002 and December 31, 2001................................  4

Consolidated Statements of Income
        For the three month periods ended
        March 31, 2002 and March 31, 2001...................................  6

Consolidated Statements of Cash Flows
        For the three month periods ended
        March 31, 2002 and March 31, 2001...................................  8

Notes to Consolidated Financial Statements.................................. 10


Item 2. Management's Discussion and Analysis of
        Financial Conditions and Results of Operations...................... 13


Item 3. Quantitative and Qualitative Disclosures
        About Market Risk .................................................. 22



Part II

Other Information........................................................... 23

Signature Page.............................................................. 25


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

                                                  March 31,         December 31,
                                                    2002               2001
                                                          (unaudited)

ASSETS
Investments other than investments in affiliate:

Fixed maturities held to maturity, at amortized
 cost (market value approximates $1,042 and
 $1,028 at March 31, 2002 and December 31, 2001,
 respectively)                                    $     1,035       $     1,029

Fixed maturities available for sale, at market
 value (amortized cost of $492,814 and $496,704
 at March 31,  2002 and December 31, 2001,
 respectively)                                        492,471           501,395

Equity securities, at market (cost approximates
 $59 at March 31, 2002 and December 31, 2001)              48                56

Policy loans                                           48,926            49,794

Mortgage loans                                          4,674             4,715

Invested real estate                                   64,029            61,049

Short-term investments                                128,271           138,291

   Total investments                                  739,454           756,329

Cash and cash equivalents                               9,819             7,094

Accrued investment income                              10,735             8,483

Agency advances and other receivables                  30,072            30,324

Reinsurance receivables                                14,976            14,709

Due and deferred premiums                              12,861            13,411

Real estate occupied by Company                        19,950            20,054

Property and equipment, net                             3,576             3,546

Deferred policy acquisition costs                      81,191            80,290

Present value of future profits of
 acquired businesses                                   30,590            31,251

Other assets                                           17,553            14,074

Separate account assets                               388,480           399,264

   Total Assets                                   $ 1,359,257       $ 1,378,829


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


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


                                                  March 31,         December 31,
                                                    2002               2001
                                                          (unaudited)

LIABILITIES AND SHAREHOLDERS' EQUITY

Liabilities:

Policy liabilities and contract holder deposit
 funds:

Contract holder deposit funds                     $   552,851       $   556,117

Future policy benefits                                180,144           180,953

Other policy claims and benefits payable               13,789            13,985

                                                      746,784           751,055

Deferred federal income taxes                          29,090            31,920

Excess of net assets acquired over cost                     0            15,847

Other liabilities                                       9,283             8,938

Separate account liabilities                          380,716           391,593

Total Liabilities                                   1,165,873         1,199,353

Commitments and Contingencies:

Shareholders' equity:

Common stock, $.20 par value, 25,000 shares
 authorized, 11,762 and 11,736 shares issued
 at March 31, 2002 and December 31, 2001,
 9,499 and 9,499 shares outstanding at March
 31, 2002 and December 31, 2001.                        2,353             2,348

Additional paid-in capital                             65,747            65,558

Accumulated other comprehensive income                   (441)            2,297

Deferred compensation                                    (263)             (292)

Retained earnings                                     148,345           131,462

                                                      215,741           201,373

Common treasury stock, at cost, 2,263 and
 2,237 shares at March 31, 2002 and December
 31, 2001, respectively.                              (22,357)          (21,897)

Total Shareholders' Equity                            193,384           179,476

Total Liabilities and Shareholders' Equity        $ 1,359,257       $ 1,378,829


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


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

                                                    Three Months Ended March 31,
                                                      2002               2001
                                                            (unaudited)

Revenues:

Premiums, net                                     $     9,914       $     8,038

Earned insurance charges                               10,825               934

Net investment income                                  11,048             1,631

Other                                                     452                 0

                                                       32,239            10,603

Benefits and expenses:

Policyholder benefits and expenses                     10,284             2,591

Interest expense on contract holders
 deposit funds                                          7,985               570

Amortization of present value of future
 profits of acquired businesses                         1,070               838

Amortization of deferred policy acquisition
 costs                                                  1,923             1,439

Operating expenses                                      8,887             3,140

Interest expense                                            0               427

                                                       30,149             9,005

Income before federal income tax, equity
 in net earnings of affiliates and cumulative
 effect of change in accounting principle               2,090             1,598

Provision for federal income taxes                        933               360

Income before equity in net earnings of
 affiliates and cumulative effect of change
 in accounting principle                                1,157             1,238

Equity in net earnings of affiliate, net of tax             0               845

Net income before cumulative effect of change
 in accounting principle                                1,157             2,083

Cumulative effect of change in accounting
 principle                                             15,727                 0

Net Income                                        $    16,884       $     2,083


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


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

                                                    Three Months Ended March 31,
                                                      2002               2001
                                                            (unaudited)

Net Income Per Share

Basic:

Average weighted shares outstanding               $     9,500       $     5,055

Basic earnings per share:

Income per share before cumulative effect
 of change in accounting principle                $      0.12       $      0.41

Cumulative effect of change in accounting
 principle                                               1.66                 0

Basic earnings per share                          $      1.78       $      0.41

Diluted:

Common stock and common stock equivalents               9,575             5,183

Diluted earnings per share:

Income per share before cumulative effect
 of change in accounting principle                $      0.12       $      0.40

Cumulative effect of change in accounting
 principle                                               1.64                 0

Diluted earnings per share                        $      1.76       $      0.40


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


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


                                                    Three Months Ended March 31,
                                                      2002               2001
                                                            (unaudited)

CASH FLOWS FROM OPERATING ACTIVITIES

Net Income                                        $    16,884       $     2,083

Adjustments to reconcile net income to
 net cash (used in) provided by
 operating activities:

Amortization of present value of future
 profits of acquired business                           1,070               838

Amortization of deferred policy
 acquisition costs                                      1,923             1,439

Cumulative change in accounting principle             (15,727)                0

Equity in undistributed earnings of affiliate               0            (1,361)

Changes in assets and liabilities:

Increase in accrued investment income                  (2,252)             (176)

Increase in agent advances and other
 receivables                                              (15)           (2,920)

Decrease (increase) in due premiums                       550              (326)

Increase in deferred policy acquisition costs          (2,335)           (1,973)

Increase in other assets                               (3,478)             (336)

(Decrease) increase in policy liabilities and
 accruals                                              (4,243)              296

Increase in other liabilities                             345             1,757

(Decrease) increase in deferred federal income
 taxes                                                 (1,424)               36

Other, net                                                (36)             (661)

Net cash used in operating activities             $    (8,738)      $    (1,304)


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


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


                                                    Three Months Ended March 31,
                                                      2002               2001
                                                            (unaudited)


CASH FLOWS FROM INVESTING ACTIVITIES

Fixed maturities purchased                        $   (27,395)      $    (5,200)

Real estate capitalized                                (2,980)                0

Change in policy loans                                    868               (47)

Proceeds from calls and maturities of
 fixed maturities                                      31,276             8,496

Net change in short-term investments                   10,020               762

Purchase and retirement of property
 and equipment                                            (30)                0

Net cash provided by investing activities              11,759             4,011

CASH FLOW FROM FINANCING ACTIVITIES

Repayment of subordinated notes payable                     0            (1,537)

Contract holder fund deposits                          12,518             1,063

Contract holder fund withdrawals                      (12,548)           (1,111)

Issuance of capital stock                                 194                 0

Purchase of treasury stock                               (460)                0

Net cash used in financing activities                    (296)           (1,585)

Net increase in cash                                    2,725             1,122

Cash and cash equivalents, beginning of year            7,094             2,733

Cash and cash equivalents, end of period          $     9,819       $     3,855


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


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                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 which 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, 2001  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.

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

Other Comprehensive Income

The following is a reconciliation of accumulated other comprehensive income from
December 31, 2001 to March 31, 2002 (in thousands):

<table>

                                   <c>                  <c>              <c>            <c>

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

Balance at December 31, 2001    $   2,527               $    (2)         $    (228)     $   2,297
Current Period Change              (2,733)                   (5)                 0         (2,738)
Balance at March 31, 2002       $    (206)              $    (7)         $    (228)     $    (441)


</table>


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

Dividends Declared

In March,  2001 FIC announced  that its board  approved the payment of an annual
cash  dividend in the amount of $0.41 per share.  The dividend was paid on April
12,  2001,  to  shareholders  of record as of the close of business on March 19,
2001.

Related Party Transactions

On January 8, 2001,  the Company  donated  $375,000 to the Roy F. and Joann Cole
Mitte  Foundation  (the  "Foundation").  The  Foundation is a charitable  entity
exempt  from  federal  income  tax  under  section  501(a)  of  the  Code  as an
organization  described in section 501(c)(3) of the Code, and owns 16.31% of the
outstanding shares of FIC's common stock. The sole members of the Foundation are
Roy F. Mitte,  Chairman,  President and Chief Executive Officer of FIC, ILCO and
their  insurance  subsidiaries,  and his wife,  Joann Cole Mitte.  On January 2,
2002, FIC made a donation of $1,000,000 to the Foundation.

New Accounting Pronouncements

During 2001, the FASB issued Statement of Financial Accounting Standards No. 141
(FAS 141), "Business Combinations," which supersedes Accounting Principles Board
Opinion No. 16 (APB 16), "Business  Combinations," and establishes guidelines to
account for all acquisitions of a controlling  interest,  regardless of the form
of consideration.  The most significant changes made by FAS 141 are that it: (1)
requires the purchase method of accounting,  rather than the pooling method,  be
used  for  all  business  combinations   initiated  after  June  30,  2001;  (2)
establishes   specific   criteria  for  the  recognition  of  intangible  assets
separately from goodwill;  and (3) requires unallocated negative goodwill (which
is an excess of net assets  acquired over cost) to be recognized  immediately as
an extraordinary gain (instead of being deferred and amortized).

As of the first quarter of 2002, the amount of any  unamortized  deferred credit
related to negative  goodwill arising from (a) a business  combination for which
the acquisition date was before July 1, 2001, or (b) an investment accounted for
by the equity method acquired before July 1, 2001, is recognized and reported as
the effect of a change in  accounting  principle.  The effect of the  accounting
change and  related  income tax  effects is  presented  in the income  statement
between the  captions  "extraordinary  items" and "net  income".  The  per-share
information  presented in the income statement  includes the per-share effect of
the  accounting  change.  During the first quarter of 2002,  FIC  recognized the
unamortized   balance  of  $15,727,000  of  negative  goodwill.   There  was  no
amortization of negative  goodwill recorded during the first quarter of 2002 and
during the first quarter of 2001.


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During 2001, the FASB issued Financial  Accounting  Standards No. 142 (FAS 142),
"Goodwill and Other Intangible Assets," which supersedes  Accounting  Principles
Board  Opinion  No.  17 (APB  17),  "Intangible  Assets,"  and  which  addresses
financial  accounting and reporting for acquired  goodwill and other  intangible
assets upon and subsequent to their  acquisition.  The provisions of FAS 142 are
effective for FIC's fiscal year beginning  January 1, 2002. The most significant
changes made by FAS 142 are: (1) goodwill and indefinite lived intangible assets
will no longer be amortized,  but instead will be tested for impairment at least
annually  at the  reporting  unit  level,  and (2) the  amortization  period  of
intangible  assets with finite  lives will no longer be limited to forty  years.
The adoption of FAS 142 did not  materially  affect FIC's results of operations,
liquidity or financial position.

During 2001, the FASB issued Statement of Financial Accounting Standards No. 143
(FAS  143),  "Accounting  for Asset  Retirement  Obligations",  which  addresses
financial   accounting  and  reporting  for  obligations   associated  with  the
retirement of tangible  long-lived  assets and the associated  asset  retirement
costs.  FAS 143 is effective  for financial  statements  issued for fiscal years
beginning  after  June 15,  2002,  the  adoption  of which  is not  expected  to
materially affect FIC's results of operations, liquidity or financial position.

During 2001, the FASB issued Statement of Financial Accounting Standard No. 144,
"Accounting for Impairment or Disposal of Long-Lived  Assets" (FAS 144). FAS 144
supersedes  Statement of Financial  Accounting Standard No. 121, "Accounting for
Impairment of  Long-Lived  Assets and for  Long-Lived  Assets to Be Disposed Of"
(FAS 121) and amends Accounting  Principles  Bulletin Opinion No. 30, "Reporting
Results of  Operations  -  Reporting  the  Effects of Disposal of a Segment of a
Business  and  Extraordinary,  Unusual  and  Infrequently  Occurring  Events and
Transactions"  (APB  30) and  Accounting  Research  Bulletin  No.  51  (ARB  51)
"Consolidated  Financial  Statements".  FAS 144 is  effective  for fiscal  years
beginning  after  December 15, 2001.  The adoption of FAS 144 did not materially
affect FIC's results of operations, liquidity or financial position.

In May 2002, the Financial  Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 145 (FAS 145),  "Rescission of FAS Nos. 4,
44, and 64,  Amendment of FAS 13, and Technical  Corrections  as of April 2002."
This Statement  rescinds FASB  Statement No. 4, Reporting  Gains and Losses from
Extinguishment  of Debt, and an amendment of that Statement,  FASB Statement No.
64,  Extinguishments  of Debt Made to Satisfy  Sinking-Fund  Requirements.  This
Statement  also  amends  other  existing  authoritative  pronouncements  to make
various technical corrections, clarify meanings, or describe their applicability
under changed conditions.  FAS 145 is effective for financial  statements issued
for fiscal years  beginning  after May 15,  2002,  and is not expected to affect
FIC's results of operations, liquidity or financial position.

The AICPA also  recently  issued  Statement of Position No. 01-06 ("SOP  01-06")
"Accounting by Certain Entities (Including Entities with Trade Receivables) That
Lend to or Finance the Activities of Others." The guidance in SOP 01-06 relating
to  financing  and lending  activities  is  explicitly  applicable  to insurance
companies.  SOP 01-06  reconciles  and conforms  the  accounting  and  financial
reporting guidance presently contained in other accounting  guidance.  SOP 01-06
is effective for financial  statements  issued for fiscal years  beginning after
December 15, 2001. The Company's accounting practices for its lending activities
are already consistent with the guidance contained in SOP 01-06. The adoption of
SOP  01-06  did  not  have  a  significant  effect  on the  Company's  financial
statements.


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<page>


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

The following  discussion  addresses the financial  condition of FIC as of March
31, 2002, compared with December 31, 2001, and its results of operations for the
three months ended March 31, 2002, 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 dated  April 1, 2002,  to which the reader is
directed for additional information.


           Transactions Affecting Comparability of Results of Operations

On May 18, 2001,  pursuant to an Agreement  and Plan of Merger,  as amended (the
"Merger Agreement"),  dated as of January 17, 2001, among FIC,  InterContinental
Life Corporation ("ILCO"), and ILCO Acquisition Company, a Texas corporation and
wholly-owned  subsidiary of FIC ("Merger  Sub"),  Merger Sub was merged with and
into ILCO (the "Merger").  ILCO was the surviving  corporation of the Merger and
became  a  wholly-owned  subsidiary  of  FIC.  In  accordance  with  the  Merger
Agreement,  FIC  issued 1.1 shares of common  stock,  par value  $0.20 per share
("FIC Common Stock"), for each share of common stock, par value $0.22 per share,
of ILCO  outstanding  at the  time  of the  Merger  ("ILCO  Common  Stock").  In
addition,  each share of ILCO Common  Stock  issuable  pursuant  to  outstanding
options was assumed by FIC and became an option to acquire FIC Common Stock with
the number of shares and exercise  price  adjusted for the exchange ratio in the
Merger.  Prior to the merger,  FIC owned  approximately  48.1% of ILCO's  common
stock.  Since ILCO was a  wholly-owned  subsidiary of FIC for the quarter ending
March 31, 2002, the operations of ILCO are reported on a consolidated basis with
FIC.  For the first  quarter  of 2001,  FIC's net  income  includes  its  equity
interest  in the net income of ILCO,  with such equity  interest  being based on
FIC's percentage ownership of ILCO.


       Results of Operations - Three Months Ended March 31, 2002 and 2001

For  the  three-month  period  ended  March  31,  2002,   Financial   Industries
Corporation's  ("FIC") net income was  $16,884,000  (basic earnings of $1.78 per
common  share,  or diluted  earnings  of $1.76 per common  share) on revenues of
$32,239,000 as compared to net income of $2,083,000 (basic earnings of $0.41 per
common  share,  or diluted  earnings  of $0.40 per common  share) on revenues of
$10,603,000  in the first three months of 2001. Net income before the cumulative
effect of change in accounting principle was $1,157,000 (basic earnings of $0.12
per common share, or diluted earnings of $0.12 per common share).

Earnings per share for the three  months  ended March 31, 2002 were  affected by
the increase in the number of FIC's common shares outstanding due to the Merger.
As of March  31,  2002,  the  number  of FIC's  common  shares  outstanding  was
9,499,629,  as compared to  5,054,661 as of March 31,  2001.  Additionally,  net
income and earnings per share were  affected by a cumulative  effect of a change
in accounting  principle of $15.7 million.  This amount represents the excess of
net assets acquired over cost as of the beginning of 2002 related to the Merger.
The  Company  recorded  this  cumulative  effect in  conjunction  with  adopting
Statement  of  Financial  Accounting  Standards  No.  141 (FAS  141),  "Business
Combinations," this quarter, as required.


                                     - 13 -


<page>


Revenues.

Premium revenues reported for traditional life insurance products are recognized
when due.  Premium income for the first three months of 2002, net of reinsurance
ceded,  was $9.9 million,  as compared to $8.0 million in the first three months
of 2001.  This source of revenues is related to the  traditional  life insurance
book of business of FIC's insurance  subsidiaries.  The  consolidation of ILCO's
operations  contributed  approximately  $2.5  million to premium  income for the
three month  period  ended March 31,  2002.  At Family  Life  Insurance  Company
("Family Life",  which has been a subsidiary of FIC for the periods ending March
31, 2002 and 2001),  first year net  collected  premiums  for  traditional  life
insurance  products for the three month  period  ending March 31, 2002 were $0.8
million as  compared to $1.0  million for the same period in 2001.  The level of
renewal premiums for traditional life insurance  products at Family Life for the
three month period ending March 31, 2002 was $6.3  million,  as compared to $6.8
million  for the same  period  in 2001.  The  decrease  in  renewal  premium  is
attributable to the decrease in the traditional life insurance book of business.

Income from  universal  life and annuity  charges for the first three  months of
2002 was $10.8 million,  as compared to $0.9 million in the same period of 2001.
The consolidation of ILCO's operations  contributed  approximately $10.0 million
to earned insurance  charges for the three month period ended March 31, 2002. At
Family Life,  earned  insurance  charges  declined from $0.9 million in the 2001
period  ending March 31st to $0.8 million in the 2002 period  ending March 31st.
This change is  attributable  to a decrease in Family Life's  universal life and
annuity  business.  The face amount of in force universal life policies was $741
million at March 31, 2001 as compared to $602 million at March 31, 2002.

Net  investment  income for the first three months of 2002 was $11.0  million as
compared to $1.6 million in the same period of 2001. The consolidation of ILCO's
operations  contributed  approximately $9.6 million to net investment income for
the three month period ended March 31, 2002. FIC and its subsidiaries investment
portfolio were adversely affected by the decline in the level of interest income
received  from  fixed  income  and  short-term  investments.   This  decline  is
attributable to lower interest rates during the period.

Net real estate income,  included in net investment income, was $1.0 million for
the three  month  period  ended March 31,  2002,  as compared to $0 for the same
period in 2001.  Real estate income is  attributable  to the inclusion of ILCO's
investment  income  with FIC's for the three  month  period.  ILCO's real estate
income was not  included in FIC's  income  statements  for the first  quarter of
2001.  Real estate  income is earned from the leases on the  buildings  at River
Place  Pointe,  an office  complex  in  Austin,  Texas  which is owned and being
developed by  Investors  Life  Insurance  Company of North  America  ("Investors
Life").


                                     - 14 -


<page>


Benefits and Expenses.

Policyholder  benefits and expenses were $10.3 million in the first three months
of 2002,  as compared to $2.6  million in the first  three  months of 2001.  The
consolidation  of ILCO's  operations for the three month period ending March 31,
2002  contributed  approximately  $7.6  million  to  policyholder  benefits  and
expenses.  At Family Life, the level of  policyholder  benefits and expenses was
$2.6 million for the first three months of 2001 compared to $2.7 million for the
same period in 2002.

Interest expense on contract holders deposit funds was $8.0 million in the first
three months of 2002, as compared to $0.6 million in the same period of the year
2001.  This  increase  is  primarily  attributable  to $7.3  million of interest
expense on contract  holders deposit funds resulting from the  consolidation  of
ILCO's operations.

The expense related to the  amortization of deferred  policy  acquisition  costs
increased  $0.5 million to $1.9 million in the first three months of 2002,  from
$1.4  million in the first three  months of 2001.  A portion of the  increase in
amortization  is  attributable  to the  Merger.  In the first  quarter  of 2002,
expenses  related to acquiring  new business  were $3.0  million,  of which $2.2
million has been capitalized as a deferred policy  acquisition  cost. The amount
not capitalized was recorded as an expense in the first quarter.

In the first three months of 2002, the  amortization of PVFP was $1.1 million as
compared to $0.8 million in the first three months of 2001. The consolidation of
ILCO's amortization expense with FIC's contributed approximately $0.4 million.

The operating expenses for the first three months of 2002 were $8.9 million,  as
compared to $3.1 million in the first three months of 2001. The consolidation of
ILCO's operations  contributed  approximately $4.6 million to operating expenses
for the three month period ended March 31, 2002. The level of operating expenses
for the three month period ending March 31, 2002 included:  (i) expenses related
to acquiring new business; (ii) a donation of $1 million to the Roy F. and Joann
Cole Mitte  Foundation  which was made in the first quarter of 2002, as compared
to a $375,000  donation in the first quarter of 2001; and (iii) $159,078 related
to the  repurchase  of James  M.  Grace's  employment  contract.  For a  further
discussion  of the  donation  or  repurchase  see FIC's  10-K for the year ended
December 31, 2001, dated April 1, 2002.

Interest  expense for the first three months of 2002 was $0, as compared to $0.4
million in the first three months of 2001.  This interest  expense is related to
indebtedness  owed to Investors Life by Family Life  Corporation (a wholly owned
subsidiary of FIC) and FIC. The consolidation of ILCO's operations with those of
FIC for the three month period ending March 31, 2002 results in the  elimination
of this interest expense in the income statements of FIC.

The  provision  for  federal  income  taxes was $0.9  million in the first three
months of 2002 as  compared to $0.4  million in the first three  months of 2001.
The inclusion of ILCO's results  contributed  approximately  $1.2 million to the
level  of  federal   income  taxes.   Because  of  the  Merger  and   subsequent
consolidation  of FIC and ILCO's provision for federal income taxes, FIC was not
able to utilize the small company tax deduction, which provided lower tax rates.
The  increase  in federal  income  taxes due to the loss of this  deduction  was
$69,000.  Additionally,  due to the Merger, the Company will incur approximately
$200,000 in federal  income taxes in the first quarter of 2002 related to excess
compensation.


                                     - 15 -


<page>


            Equity in Net Income of InterContinental Life Corporation

For the three-month period ended March 31, 2001, the Company's equity in the net
earnings of InterContinental  Life Corporation  ("ILCO"),  net of federal income
tax, was $845,000.  Following  the merger of ILCO with FIC on May 18, 2001,  the
results of ILCO were  consolidated with those of FIC.  Accordingly,  there is no
equity in net earnings of affiliate results for the period ended March 31, 2002.

Prior to the  merger  with ILCO,  FIC owned  3,591,534  shares of ILCO's  common
stock. In addition,  Family Life owned 342,400 shares of ILCO common stock. As a
result, FIC owned, directly and indirectly through Family Life, 3,933,934 shares
(approximately  48.1%) of ILCO's  common stock.  Upon  completion of the merger,
ILCO became a wholly-owned subsidiary of FIC.

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"),
Investors Life Insurance Company of North America  ("Investors Life"), and prior
to  February   19,   2002,   Investors   Life   Insurance   Company  of  Indiana
("Investors-IN").  Prior  to the  merger  of FIC and ILCO on May 18,  2001,  the
principal  assets  of  FIC  consisted  of the  common  stock  of  its  insurance
subsidiary,  Family  Life - and its  equity  ownership  in  ILCO.  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.

Prior  to  June  2001,  the  principal  source  of  liquidity  for  FIC  and its
wholly-owned  subsidiary,  Family Life  Corporation,  consisted  of the periodic
payment of principal  and  interest by Family Life  pursuant to the terms of the
surplus  debenture  issued in connection with the Family Life  acquisition  from
Merrill Lynch.  For periods  subsequent to June 30, 2001, FIC's available source
of liquidity  will be  dividends  paid to it from its  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.
Neither  Investors  Life nor  Family  Life paid any  dividends  during the first
quarter of 2002. For the three month period ended March 31, 2002, Investors Life
had  earned  surplus of $50.7  million  and a net gain from  operations  of $1.8
million,  and Family Life had earned surplus of $0.7 million and a net gain from
operations of $0.7 million.


                                     - 16 -


<page>


Prior to the  merger  of  Investors  Life and  Investors-IN  in  February  2002,
Investors-IN was domiciled in the State of Indiana.  Under the Indiana insurance
code, a domestic insurer may make dividend  distributions  upon proper notice to
the  Department  of  Insurance,  as long as the  distribution  is  reasonable in
relation to adequate  levels of  policyholder  surplus and quality of  earnings.
Investors-IN  did not make any  dividend  payments  during the first  quarter of
2002.

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 the sale of investment 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.

FIC's cash and cash  equivalents  at March 31, 2002 was $9.8 million as compared
to $7.1 million at December 31, 2001. The $2.7 million increase in cash and cash
equivalents  at March 31, 2002 from  December 31, 2001 was due  primarily to the
sale of short-term investments.  Cash and cash equivalents at March 31, 2001 was
$3.9  million.  The  increase  in cash from March 31, 2001 to March 31, 2002 was
primarily attributable to the cash obtained by FIC in the Merger.

FIC's net cash flow used in  operating  activities  was ($8.7)  million  for the
three month period ending March 31, 2002, as compared to ($1.3)  million for the
same period in the year 2001. The increase in cash used in operating  activities
of $7.4 million from 2001 to 2002 was primarily  attributable  to an increase in
accrued  investment income of $2.1 million,  a decrease in policy liabilities of
$4.5 million and a decrease in income from operations of $0.9 million.

Net cash flow  provided by investing  activities  was $11.8 million in the three
month  period  ending  March 31,  2002,  as compared to $4.0 million in the same
period of 2001. The increase in cash provided by investing  activities from 2001
to 2002 was due to the purchase of ILCO. Further, the cash provided by investing
activity  was  positively  affected  by fixed  maturity  proceeds  in  excess of
purchases of $3.9 million and a $10.0 million  increase in cash from the sale of
short-term   investments.   These  amounts  were  offset  by  a  ($3.0)  million
capitalization of real estate.


                                     - 17 -


<page>


Net cash flow used in financing activities was ($0.3) million in the first three
months of 2002, as compared to ($1.6) million in the first three months of 2001.
The  decrease  in cash used in  financing  activities  is  primarily  due to the
elimination  on  FIC's  cash  flow  statements  of  principle  payments  on  the
subordinated debt, described in the paragraphs below, due to the Merger.

The cash  requirements of FIC, and its holding company  subsidiary,  Family Life
Corporation,  consist  primarily of its service of the  indebtedness  created in
connection  with FIC's  ownership  of Family  Life.  As of March 31,  2002,  the
investment   portfolio  of  Investors  Life  included  $27.7  million  of  notes
receivable  from  affiliates,  represented  by (i) a  loan  of  $30  million  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  Insurance  Company  by a
wholly-owned  subsidiary  of FIC,  and (ii) a loan of $4.5  million by Investors
Life  to  Family  Life  Insurance  Investment  Company  made in  July  1993,  in
connection with the same transaction described above.

The  provisions  of the notes owned by  Investors  Life  include  the  following
provisions:  (a) the $30 million note provides for quarterly principal payments,
in the amount of $163,540 each for the period December 12, 1996 to September 12,
2001;  beginning with the principal payment due on December 12, 2001, the amount
of the principal payment increases to $1,336,458;  the final quarterly principal
payment is due on September  12, 2006;  the interest rate on the note remains at
9%, and (b) the $4.5 million note provides for quarterly principal payments,  in
the amount of $24,531 each for the period  December  12, 1996 to  September  12,
2001;  beginning with the principal payment due on December 12, 2001, the amount
of the principal  payment increases to $200,469;  the final quarterly  principal
payment is due on September  12, 2006;  the interest rate on the note remains at
9%.

Due to the Merger,  this  indebtedness  is not  included  as a liability  on the
consolidated  financial  statements of FIC. 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.

Given the historical  cash flow of our  subsidiaries  and the current  financial
results,  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.  There are no trends,  commitments  or
capital asset  requirements  that are expected to have an adverse  effect on the
liquidity of FIC.


                                     - 18 -


<page>


                                   Investments

As of March 31,  2002,  FIC's  invested  assets,  excluding  separate  accounts,
totaled  $739.5  million,  a decrease of $16.8  million  from $756.3  million at
December 31, 2001. The decrease is primarily  attributable to a decrease of $8.9
million in fixed  maturities,  $4.9 million of which resulted from a drop in the
market  value of the  portfolio,  and a decrease  of $10  million in  short-term
investments,  with $3 million of that  change  reinvested  in real estate and $7
million used in  operations.  There are no significant  differences  between the
portfolio composition as of March 31, 2002 as compared to December 31, 2001.

The assets held by Family Life and  Investors  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". FIC determines
the  allocation  of our  assets  primarily  on the basis of cash flow and return
requirements of our products and secondarily by the level of investment risk.

A key element of the Company's investment strategy is to avoid large exposure in
other  investment  categories  which the Company believes carry higher credit or
liquidity   risks,   including   private   placements,   partnerships  and  bank
participations.  These categories  accounted for only $40,746 of invested assets
as of March 31, 2002 and $45,479 of invested assets at December 31, 2001.

Our 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 March 31,
2002,  the market value of the fixed  maturities  available for sale segment was
$492.5  million  as  compared  to an  amortized  cost of  $492.8  million  or an
unrealized loss of $0.3 million. The decrease reflects unrealized losses on such
investments  related to changes in interest rates  subsequent to the purchase of
such investments.


                                     - 19 -


<page>


The investments of FIC's insurance  subsidiaries in  mortgage-backed  securities
included  collateralized  mortgage  obligations ("CMOs") of $177.6 million as of
March  31,  2002 as  compared  to $201.8  million  at  December  31,  2001,  and
mortgage-backed  pass-through  securities  of $26.9 million as of March 31, 2002
and $31.2 million at December 31, 2001. Mortgage-backed pass-through securities,
sequential CMO's and support bonds, which comprised  approximately  46.7% of the
book value of FIC's mortgage- backed securities at March 31, 2002, 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 March 31, 2002,  PAC and TAC  instruments  and  scheduled  bonds  represented
approximately  53.3% of the book  value  of  FIC's  mortgage-backed  securities.
Sequential and support classes represented approximately 31.5% of the book value
of FIC's  mortgage-backed  securities  at March 31,  2002.  In  addition,  FIC's
insurance  subsidiaries  limit the risk of  prepayment  of CMOs by not  paying a
premium  for  any  CMOs.   FIC's   insurance   subsidiaries  do  not  invest  in
mortgage-backed securities with increased prepayment risk, such as interest-only
stripped  pass-through  securities and inverse  floater bonds.  FIC's  insurance
subsidiaries  did not  have  any  z-accrual  bonds as of  March  31,  2002.  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.  For the year 2002,  the  investment  objectives  of FIC's
insurance subsidiaries include the making of selected investments in CMOs.

The securities  valuation office (SVO) of the National  Association of Insurance
Commissioners evaluates all public and private bonds purchased as investments by
insurance  companies.  The SVO assigns one of six investment  categories to each
security it reviews. Category 1 is the highest quality rating, and Category 6 is
the lowest. As of March 31, 2001, the majority of our bonds are investment grade
(Category  1  and  2).  The  Company's  fixed  maturities  portfolio  (including
short-term investments), included only a non-material  amount of debt securities
which,  in the annual  statements of the companies as filed with state insurance
departments,  were designated by the SVO as "3" (medium quality) or below.  This
number  is  attributable  to  mortgage  bonds  which  Investors  Life  owns in a
California  utility,  which has been downgraded to a "6" (lowest quality) rating
by the NAIC.  As of March 31,  2002,  Investors  Life  owned  bonds in  Southern
California  Edison which were purchased for $0.98 million and had a market value
as of March 31, 2002 of $0.94 million.

FIC's short-term  investments  consist  primarily of U.S.  Government bonds. The
level of  short-term  investments  at March  31,  2002 was  $128.3  million,  as
compared to $138.3 million as of December 31, 2001.

Invested  real estate at March 31,  2002 was $64.0  million as compared to $61.0
million at December 31, 2001. 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,
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 continued during the first quarter
of 2002,  including  work on buildings  six and seven.  Completion of the entire
project is expected by the end of 2002.


                                     - 20 -


<page>


As of  March  31,  2002,  Investors  Life  had  invested  $84.5  million  in the
construction of River Place Pointe,  of which $20.0 million is recorded on FIC's
balance sheet as real estate  occupied by the Company.  Investors Life paid $3.0
million  during the first  quarter of 2002 on  construction  of the  project and
expects to pay an additional $10 million to complete the project.

As of March 31, 2002,  $4.7 million was invested in mortgage  loans, as compared
to $4.7  million at December  31,  2001.  The Company does not make new mortgage
loans on commercial  properties.  Substantially  all of the  Company's  mortgage
loans were made by its subsidiaries  prior to their  acquisition by the Company.
At March 31, 2002,  none of the mortgage loans held by the Company had defaulted
as to  principal or interest  for more than 90 days,  and none of the  Company's
mortgage loans were in foreclosure.

Policy  loans  totaled  $48.9  million at March 31,  2002,  as compared to $49.8
million at December 31, 2001.

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


                          Critical Accounting Policies

Cumulative Effect of Accounting  Changes.  During the first quarter of 2002, the
Company  adopted  Statement of Financial  Accounting  Standards  (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 $15.7  million of  negative  goodwill  acquired  in the
Merger.

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),  are 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.  For
business  written  previously,  DAC is amortized  using  previously  established
methods  and  practices.   Management   periodically   reviews  the  assumptions
associated with the amortization models prospectively.


                                     - 21 -


<page>


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 matches these costs against the associated revenues.

For the quarter  ending  March 31,  2001,  FIC's net income  includes its equity
interest  in the net income of ILCO,  with such equity  interest  being based on
FIC's percentage ownership of ILCO.

For  a  further   discussion  of  accounting   standards,   see  New  Accounting
Pronouncements on pages 11-12, herein.


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".

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 does not use derivative financial instruments.

     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 $26.1 million at March 31, 2002 and
$24.6  million at December 31, 2001.  For  purposes of the  foregoing  estimate,
fixed maturities,  including fixed maturities available for sale, and short-term
investments were taken into account.  The market value of such assets was $621.8
million at March 31, 2002 and $640.7 million at December 31, 2001.


                                     - 22 -


<page>


The fixed income  investments  of the Company  include  certain  mortgage-backed
securities.  The market value of such securities was $186.8 million at March 31,
2002 and $209.9 million at December 31, 2001.  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 $5.9 million
at March 31, 2002 and $6.7 million at December 31, 2001.

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

The  Company  does not use  derivative  financial  instruments  to  manager  our
exposure to fluctuations in interest rates.

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.


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  Relating to the FIC/ ILCO Merger.  On the day that FIC and ILCO
each  publicly  announced  the  formation  of a special  committee to evaluate a
potential merger, two class action lawsuits were filed against ILCO, FIC and the
officers and directors of ILCO. The actions allege that a cash  consideration in
the proposed merger is unfair to the shareholders of ILCO, that it would prevent
the ILCO  shareholders  from  realizing the true value of ILCO, and that FIC and
the named officers and directors had material conflicts of interest in approving
the transaction. In their initial pleadings, the plaintiffs sought certification
of the cases as class actions and the named plaintiffs as class representatives,
and  among  other  relief,  requested  that  the  merger  be  enjoined  (or,  if
consummated,  rescinded  and set aside) and that the  defendants  account to the
class members for their damages.  The  defendants  believe that the lawsuits are
without  merit and intend to  vigorously  contest the  lawsuits.  Management  is
unable to  determine  the  impact,  if any,  that the  lawsuits  may have on the
results of operations of the Company.


                                     - 23 -


<page>


     Other Litigation.  Additionally, FIC's insurance 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.


Item 2.  Changes in Securities

         None


Item 3.  Defaults Upon Senior Securities

         None


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

         There were no matters  submitted to a vote  of security  holders during
         the first quarter of 2002.


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,
         2001  heretofore  filed  by Registrant with the Securities and Exchange
         Commission, which is hereby incorporated by reference.

     (b) Reports on Form 8-K:

         None.


                                     - 24 -


<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/ Jeffrey Demgen
Jeffrey Demgen
Vice-President



/s/ David Hopkins
David Hopkins
Chief Accounting Officer



Date:   May 15, 2002


                                     - 25 -