SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549




                                    FORM 10-Q

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

                         SECURITIES EXCHANGE ACT OF 1934



For the Quarterly Period Ended September 30, 1998
Commission File Number 2-39310


                        INTERCONTINENTAL LIFE CORPORATION




       Texas                              22-1890938
(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 ($.22 Par Value) at end of period:.4,374,835

                                      - 1 -

<PAGE>



               INTERCONTINENTAL LIFE CORPORATION AND SUBSIDIARIES

                                      INDEX
                                                                        Page No.

Part I - Financial Information

Item 1. Financial Statements

Consolidated Balance Sheets
     September 30, 1998 and December 31, 1997................................3

Consolidated Statements of Income
     For the three and nine month periods ended 
     September 30, 1998 and 1997.............................................5

Consolidated Statements of Cash Flows
     For the three and nine month periods ended
     September 30, 1998 and 1997.............................................7

Notes to Consolidated Financial Statements..................................11

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


Part II

Other Information...........................................................21

Signature Page..............................................................23



                                      - 2 -

<PAGE>




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

                                                       Sept. 30,       Dec. 31,
                                                        1998             1997
                                                     (Unaudited)
ASSETS
Investments:
     Fixed maturities, at amortized cost
       (market value approximates $3,059
        and $3,332) ..............................     $    3,027     $    3,412
     Fixed maturities available for sale,
        at market value (amortized cost
        of $447,886 and $436,836) ................        470,015        454,462
     Equity securities, at market value
       (cost approximates $338 and $369) .........          2,681          4,902
     Policy loans ................................         55,011         53,499
     Mortgage loans ..............................         10,390         10,862
     Invested real estate and other
       invested assets ...........................          1,442          1,300
     Short-term investments ......................        164,275        164,622
                                                       ----------     ----------
         Total Investments .......................        706,841        693,059
Cash and cash equivalents ........................          8,410          9,041
Notes receivable from affiliates .................         49,182         53,792
Accrued investment income ........................          8,719          7,781
Agent advances and other receivables .............         24,067         11,362
Reinsurance receivables ..........................         16,314         20,433
Property and equipment, net ......................          2,566          1,902
Deferred policy acquisition costs ................         31,414         28,621
Present value of future profits of
acquired businesses ..............................         44,703         47,286

Deferred financing costs .........................            -0-            111
Other assets .....................................         12,969          7,929
Separate account assets ..........................        426,942        440,336
                                                       ----------     ----------
                  Total Assets ...................     $1,332,127     $1,321,653
                                                       ==========     ==========

</TABLE>

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

<PAGE>



               INTERCONTINENTAL LIFE CORPORATION AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                            (in thousands of dollars)

<TABLE>
<S>                                                                               <C>              <C>    

                                                                                Sept. 30,        Dec. 31,
                                                                                  1998            1997
                                                                              (Unaudited)

LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Policy liabilities and contractholder
  deposit funds:
     Future policy benefits ...............................................   $   134,492    $   131,720
     Contractholder deposit funds .........................................       549,811        525,135
     Unearned premiums ....................................................         1,043          7,701
     Other policy claims & benefits payable ...............................         5,672          7,078
                                                                              -----------    -----------
                                                                                  691,018        671,634

     Other policyholders' funds ...........................................         3,065          3,093
     Senior loans .........................................................           -0-         10,964
     Deferred federal income taxes ........................................        33,959         31,811
     Other liabilities ....................................................        23,607         20,299
     Separate account liabilities .........................................       424,696        438,090
                                                                              -----------    -----------
         Total Liabilities ................................................     1,176,345      1,175,891
Commitments and Contingencies 
Redeemable preferred stock:
Class A Preferred, $1 par value,
 5,000,000 shares authorized and issued ...................................         5,000          5,000
Class B Preferred, $1 par value
 15,000,000 shares authorized and issued ..................................        15,000         15,000
                                                                              -----------    -----------
Redeemable preferred treasury stock
 at cost, 20,000,000 shares ...............................................        20,000         20,000
                                                                              -----------    -----------
                                                                                  (20,000)       (20,000)
                                                                              -----------    -----------
                                                                                     -0-             -0-
Shareholders' equity:
  Common stock, $.22 par value, 10,000,000 shares
  authorized; 5,385,739 and 5,343,739 shares issued,
  4,374,835 and 4,331,335 shares outstanding in 1998
  and 1997 ................................................................         1,185          1,176
Additional paid-in capital ................................................         4,385          4,253
Accumulated other comprehensive income ....................................        15,906         14,403
Retained earnings .........................................................       137,593        129,237
                                                                              -----------    -----------
                                                                                  159,069        149,069
Common treasury stock, at cost, 1,010,904 and
   1,012,404 shares in 1998 and 1997, respectively ........................        (3,287)        (3,307)
                                                                              -----------    -----------
Total Shareholders' Equity ................................................       155,782        145,762
                                                                              -----------    -----------
Total Liabilities and Shareholders' Equity ................................   $ 1,332,127    $ 1,321,653

</TABLE>
                                                                              


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



<PAGE>



               INTERCONTINENTAL LIFE CORPORATION AND SUBSIDIARIES
                        CONSOLIDATED STATEMENTS OF INCOME
                   FOR THE THREE AND NINE MONTH PERIODS ENDED
                           SEPTEMBER 30, 1998 and 1997
              (in thousands of dollars, except for per share data)
                                   (unaudited)

<TABLE>
<S>                                    <C>        <C>    

                                       3 Months Ended
                                        September 30,
                                      1998       1997
                                                 
Revenues:
     Net premiums ................   $ 2,629   $ 3,581
     Net investment income .......    13,939    14,710
     Earned insurance charges ....    10,176    10,203
     Other .......................       525       812
                                     -------   -------
           Total .................    27,269    29,306
Benefits and expenses:
Policyholder benefits and expenses     8,604    10,269
Interest expense on contractholder
 deposit funds ...................     8,026     7,517
Amortization of present value of
 future profits of acquired
 business ........................     1,457     1,685
Amortization of deferred policy
 acquision costs .................       407       581
Operating expenses ...............     4,074     4,418
Interest expense .................       124       471
                                     -------   -------
           Total .................    22,692    24,941
Income from operations ...........     4,577     4,365
Provision for federal income taxes     1,748     1,528
                                     -------   -------

Net Income .......................   $ 2,829   $ 2,837
                                     =======   =======
Net income per share

Basic:

Weighted average common stock
 outstanding .....................     4,375     4,328
                                     -------   -------
Basic earnings per share .........   $  0.65   $  0.66
                                     =======   =======
Diluted:
Common stock and common stock
 equivalents .....................     4,400     4,486
                                     -------   -------
Diluted earnings per share .......   $  0.64   $  0.63
                                     =======   =======
</TABLE>






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



<PAGE>



               INTERCONTINENTAL LIFE CORPORATION AND SUBSIDIARIES
                        CONSOLIDATED STATEMENTS OF INCOME
                   FOR THE THREE AND NINE MONTH PERIODS ENDED
                           SEPTEMBER 30, 1998 and 1997
                        (in thousands of dollars, except
                               for per share data)
                                   (unaudited)

<TABLE>
<S>                                          <C>        <C>    

                                             9 Months Ended
                                              September 30,
                                             1998       1997
                                                      
Revenues:
     Net premiums .......................   $ 8,393   $ 8,341
     Net investment income ..............    41,737    43,791
     Earned insurance charges ...........    30,806    30,609
     Other ..............................     1,732     2,521
                                            -------   -------
      Total .............................    82,668    85,262
Benefits and expenses:
Policyholder benefits and expenses ......    28,026    28,596
Interest expense on contractholder
 deposit funds ..........................    23,028    23,483
Amortization of present value of
 future profits of acquired business ....     4,402     4,657
Amortization of deferred policy
 acquision costs ........................     1,380     1,778
Operating expenses ......................    12,106    12,394
Interest expense ........................       645     1,310
                                            -------   -------
      Total .............................    69,587    72,218
Income from operations ..................    13,081    13,044
Provision for federal income taxes ......     4,725     4,565
                                            -------   -------

Net Income ..............................   $ 8,356   $ 8,479
                                            =======   =======
Net income per share

Basic:

Weighted average common stock outstanding     4,375     4,328
                                            -------   -------

Basic earnings per share ................   $  1.91   $  1.96
                                            =======   =======

Diluted:

Common stock and common stock equivalents     4,400     4,367
                                            -------   -------

Diluted earnings per share ..............   $  1.90   $  1.94
                                            =======   =======
</TABLE>




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



<PAGE>



               INTERCONTINENTAL LIFE CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                   FOR THE THREE AND NINE MONTH PERIODS ENDED
                           SEPTEMBER 30, 1998 and 1997
                            (in thousands of dollars)
                                   (unaudited)

<TABLE>
<S>                                               <C>        <C>   

                                                 3 Months Ended
                                                  September 30,
                                                 1998       1997
                                                                 
CASH FLOWS FROM OPERATING ACTIVITIES:

Net income .................................   $ 2,829    $ 2,837
Adjustments to reconcile net income
 to net cash provided by
 operating activities:
Amortization of present value of
 future profits of acquired businesses .....     1,457      1,686
Amortization of deferred policy
 acquisition costs .........................       407        599
Net gain on sale of investments ............        76         66
Depreciation ...............................       113        478
Financing costs amortized ..................        56        132
Changes in assets and liabilities:
Decrease in accrued investment income ......      (120)      (142)
Increase in agent advances and other
 receivables ...............................    (4,631)       262
Policy acquisition costs deferred ..........    (1,325)    (1,205)
Decrease in policy liabilities and contract
 holder deposit funds ......................    (2,464)    (5,396)
Decrease in other  policyholders'
 funds .....................................        (4)       (37)
Increase in other liabilities ..............     5,807      2,888
Increase in deferred federal income taxes ..     2,050      3,947
Increase in other assets ...................    (4,138)      (103)
Other, net .................................     2,619       (315)
                                               -------    -------

Net cash provided by operating activities ..   $ 2,732    $ 5,697

</TABLE>


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



<PAGE>



               INTERCONTINENTAL LIFE CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                   FOR THE THREE AND NINE MONTH PERIODS ENDED
                           SEPTEMBER 30, 1998 and 1997
                            (in thousands of dollars)
                                   (unaudited)
<TABLE>
<S>                                                    <C>         <C>    



                                                        3 Months Ended
                                                         September 30,
                                                      1998         1997
                                                     ------       -----
CASH FLOWS FROM INVESTING ACTIVITIES

Investments purchased ...........................   $    (52)   $ (3,074)
Proceeds from sales and maturities of investments     22,424       9,290
Net change in short-term investments ............    (23,586)      2,915
Purchases & retirements of equipment, net .......       (722)       (418)
Decrease in notes receivable from affiliates ....      1,537       1,537
                                                    --------    --------
Net cash (used in) provided by investing 
 activities .....................................       (399)     10,250

CASH FLOWS FROM FINANCING ACTIVITIES:

Issuance of common stock ........................         21         358
Purchase of treasury stock ......................        -0-        (338)
Purchase of subsidiary ..........................        -0-     (11,688)
Repayment of debt ...............................     (3,564)     (2,000)
                                                    --------    --------
Net cash used in financing activities............     (3,543)    (13,668)
                                                    --------    --------

Net (decrease) increase in cash and cash
 equivalents ....................................     (1,210)      2,279
Cash and cash equivalents,  beginning of year ...      9,620       3,257
                                                    --------    --------
Cash and cash equivalents, end of year ..........   $  8,410    $  5,536
                                                    ========    ========
</TABLE>




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



<PAGE>



               INTERCONTINENTAL LIFE CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                   FOR THE THREE AND NINE MONTH PERIODS ENDED
                           SEPTEMBER 30, 1998 and 1997
                            (in thousands of dollars)
                                   (unaudited)

<TABLE>
<S>                                              <C>          <C>    

                                                  9 Months Ended
                                                   September 30,
                                                 1998         1997
                                               
CASH FLOWS FROM OPERATING ACTIVITIES:

Net income ................................   $  8,356    $  8,479
Adjustments to reconcile net income
     to net cash (used in) provided by
     operating activities:
Amortization of present value of
 future profits of acquired businesses ....      4,402       4,657
Amortization of deferred policy
 acquisition costs ........................      1,380       1,778
Net gain on sales of investments ..........        -0-         -0-
Depreciation ..............................        321       1,369
Financing costs amortized .................        111         427
Changes in assets and liabilities:
Increase in accrued investment income .....       (253)       (251)
Increase in agent advances and other
 receivables ..............................    (12,593)       (459)
Policy acquisition costs deferred .........     (4,173)     (3,478)
Decrease in policy liabilities and contract
 holder deposit funds .....................    (19,528)    (17,472)
Decrease in other policyholders' funds ....       (659)       (234)
Increase in other liabilities .............      2,440       6,185
Increase in deferred federal income taxes .      1,419       5,308
Increase in other assets ..................     (5,017)       (898)
Other, net ................................     (1,072)       (622)
                                              --------    --------
Net cash (used in) provided by operating
 activities ...............................   $(24,771)   $  4,789
</TABLE>




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



<PAGE>



               INTERCONTINENTAL LIFE CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                   FOR THE THREE AND NINE MONTH PERIODS ENDED
                           SEPTEMBER 30, 1998 and 1997
                            (in thousands of dollars)
                                   (unaudited)

<TABLE>
<S>                                                     <C>          <C>    

                                                        9 Months Ended
                                                         September 30,
                                                       1998        1997
                                                
CASH FLOWS FROM INVESTING ACTIVITIES

Investments purchased ...........................   $(25,402)   $(18,024)
Proceeds from sales and maturities of investments     57,810      30,635
Net change in short-term investments ............        347        (403)
Purchases & retirements of equipment, net .......       (985)     (1,304)
Decrease in notes receivable from affiliates ....      4,610       4,611
                                                    --------    --------
Net cash provided by investing activities .......     36,380      15,515

CASH FLOWS FROM FINANCING ACTIVITIES:

Issuance of common stock ........................        141         525
Purchase of treasury stock ......................        -0-        (338)
Purchase of subsidiary ..........................     (1,322)    (11,688)
Repayment of debt ...............................    (10,964)     (6,580)
                                                    --------    --------
Net cash used in financing activities ...........    (12,145)    (18,081)
                                                    --------    --------

Net (decrease) increase in cash and cash
 equivalents ....................................       (631)      2,223
Cash and cash equivalents,  beginning of year ...      9,041       3,313
                                                    --------    --------
Cash and cash equivalents, end of year ..........   $  8,410    $  5,536
                                                    ========    ========
</TABLE>









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



<PAGE>



               INTERCONTINENTAL LIFE CORPORATION AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Unaudited)

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,  1997  previously  filed with the  Securities  and
Exchange Commission for financial statements prepared in accordance with GAAP.

Acquisition of Subsidiary

In July 1997, ILCO,  through its subsidiary  Investors Life Insurance Company of
Indiana (Investors-IN),  an indirect,  wholly-owned subsidiary of ILCO, acquired
State  Auto Life  Insurance  Company,  an Ohio based  life  insurer,  for a cash
purchase price of $11.8 million,  subject to certain  post-closing  adjustments.
The Company  had $22.8  million in assets,  $6 million in capital  and  surplus,
total  revenues of $7.9  million,  and a good book of  business.  As part of the
purchase  agreement,  State Auto was  immediately  merged with Investors Life of
Indiana.

On June 30, 1998, ILCO,  through a subsidiary,  acquired Grinnell Life Insurance
Company ("Grinnell Life") for a base purchase price of $16.4 million, subject to
certain post-closing adjustments. As part of the transaction,  Grinnell Life was
immediately merged with and into that subsidiary, with that subsidiary being the
surviving entity. 

New Accounting Pronouncements

In June 1997, the FASB issued Statement of Financial  Accounting  Standard (FAS)
No. 130, "Reporting  Comprehensive Income." The new standard, which is effective
for  financial  statements  issued for periods  ending after  December 15, 1997,
established   standards  for  reporting,   in  addition  to  net  income,  other
comprehensive  income  and its  components  including,  as  applicable,  foreign
currency income,  minimum pension liability adjustments and unrealized gains and
losses on certain investments in debt and equity securities.  Upon adoption, the
Company is also required to reclassify  financial statements for earlier periods
provided for  comparative  purposes.  The Company  adopted this  standard in the
first  quarter of 1998.  Total  comprehensive  income for the nine months  ended
September 30, 1998 and  September  30, 1997 is $9.9 million and $15.4 million,
respectively.





<PAGE>


               INTERCONTINENTAL LIFE CORPORATION AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Unaudited)

New Accounting Pronouncements, continued

The  following is a  reconciliation  of total  accumulated  other  comprehensive
income from December 31, 1997 to September 30, 1998 (in thousands):
<TABLE>
<S>                                           <C>               <C>            <C>   
                                            Net unrealized   Net              Total
                                            gain on          appreciation     accumulated
                                            investments      (depreciation)   other
                                            in fixed         of equity        comprehensive
                                            maturities       securities       income
                                            available for
                                            sale

Balance at December 31, 1997                $ 11,457         $   2,946        $  14,403
Current period change                          2,927           (1,424)            1,503
                                             ---------       ----------        ----------
Balance at September 30, 1998               $ 14,384         $   1,522        $  15,906
                                            ========         =========        =========
</TABLE>


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

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

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

In  June  1998,  the  FASB  issued  FAS  No.  133,  "Accounting  for  Derivative
Instruments and Hedging Activities",  which establishes accounting and reporting
standards for derivative  instruments,  including certain derivative instruments
embedded in other contracts,  (collectively  referred to as derivatives) and for
hedging activities. FAS 133 is applicable to financial statements for all fiscal
quarters of fiscal years  beginning after June 15, 1999. As the Company does not
have significant investments in derivative financial instruments,  the adoptions
of FAS  133  does  not  have a  material  impact  on the  Company's  results  of
operations, liquidity or financial position.





                                                       - 3 -

<PAGE>



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


For the  nine-month  period  ended  September  30, 1998,  InterContinental  Life
Corporation's  ("ILCO") net income was $8,356,000  (basic  earnings of $1.91 per
common  share,  or diluted  earnings  of $1.90 per common  share) as compared to
$8,479,000  (basic  earnings of $1.96 per common share,  or diluted  earnings of
$1.94 per common share) in the first nine months of 1997. Earnings per share are
stated in accordance  with the  requirements  of Financial  Accounting  Standard
(FAS) No. 128,  which  establishes  two  measures of earnings  per share:  basic
earnings per share and diluted  earnings per share.  Basic earnings per share is
computed by dividing  income  available to common  shareholders  by the weighted
average number of common shares outstanding during the period.  Diluted earnings
per share reflect the potential dilution that would occur if securities or other
contracts to issue common stock were converted or exercised.  For the nine month
period  ended  September  30,  1997,  earnings  per share have been  restated to
reflect the effect of FAS No. 128


                              Results of Operations

For the three-month period ended September 30, 1998, the Company's income before
federal  income taxes was  $4,577,000 on revenues of  $27,269,000 as compared to
income of $4,365,000 on revenues of $29,306,000 for the same period in 1997.

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

Premium income, net of reinsurance,  for the first nine months of 1998 was $8.39
million,  as  compared  to $8.34  million  for the  first  nine  months of 1997.
Reinsurance  premiums ceded were $2.5 million for the first nine months of 1998,
as compared to $1.5  million in the first nine months of 1997.  The  increase in
premium  income is primarily  attributable  to the  inclusion of the business of
Grinnell Life Insurance Company.  ILCO, through a subsidiary,  acquired Grinnell
Life Insurance Company in June of 1998.

Earned insurance charges for the nine-month period ended September 30, 1998 were
$30.81 million,  as compared to $30.61 million for the same period in 1997. This
source of revenues is related to the universal  life  insurance and annuity book
of   business   of   Investors   Life   Insurance   Company  of  North   America
("Investors-NA").

Interest  expense was $645,000 for the first nine months of 1998, as compared to
$1.31 million for the first nine months of 1997. The decrease is attributable to
a  reduction  in the  average  principal  balance of the senior loan from $19.76
million for the nine month period ending September 30, 1997

                                      - 4 -

<PAGE>



to $7.3 million for the nine month period ending September 30, 1998. The average
rate of  interest  paid on the senior  loan  decreased  slightly - 7.63% for the
first nine  months of 1998,  as  compared  to 7.66% for the first nine months of
1997.  The final  installment  on the senior loan scheduled for October 1, 1998,
was prepaid by the Company on September 30, 1998.  Accordingly,  the senior loan
has been fully discharged effective September 30, 1998.

As of September 30, 1998, the market value of the fixed maturities available for
sale  segment  was $470.0  million as compared  to an  amortized  cost of $447.9
million,  or  an  unrealized  gain  of  $22.1  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
unrealized  gain will be realized  in the future.  The net of tax effect of this
increase ($14.4 million at September 30, 1998) is included in "Accumulated other
comprehensive  income" on the Consolidated  Balance Sheets and 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  identification  of the  change in values  which  occurred  during  the
current period.

For the three-month  period ended September 30, 1998, the annualized  lapse rate
with respect to universal life insurance  policies  decreased  slightly from the
lapse rate  experienced  in the  similar  period in 1997.  The rate for the 1998
period was 7.08 %, as compared to 7.54% in the 1997 period.  The lapse rate with
respect to traditional  (non-universal)  life insurance  policies increased from
the levels  experienced in the third quarter of 1997. The annualized  lapse rate
for the  three-month  period ended  September 30, 1998 was 8.67%, as compared to
8.05% in the similar  period in 1997. The lapse rates  experienced  during these
periods were within the ranges anticipated by management.



On June 30, 1998, ILCO,  through a subsidiary,  acquired Grinnell Life Insurance
Company ("Grinnell Life") for a base purchase price of $16.4 million, subject to
certain post-closing adjustments. As part of the transaction,  Grinnell Life was
immediately merged with and into that subsidiary, with that subsidiary being the
surviving entity.
                        Liquidity and Capital Resources:

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

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

                                      - 5 -

<PAGE>



prepaid on September 30, 1998. As a result,  the senior loan  obligation of ILCO
was fully discharged effective September 30, 1998.

Financial Industries Corporation ("FIC") currently owns, directly and indirectly
through  its  subsidiary  Family  Life  Insurance   Company,   1,966,346  shares
(approximately  45%) of ILCO's  common  stock.  Prior to the discharge of ILCO's
senior loan  obligation,  FIC held  options to acquire an  additional  1,702,155
shares of ILCO common stock.  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 was fully discharged by
ILCO on September 30, 1998, FIC's rights under the Option  Agreement  expired on
September 30, 1998.

ILCO's  principal  source of  liquidity  consists  of the  periodic  payment  of
principal  and  interest by  Investors-NA,  pursuant to the terms of the Surplus
Debentures.  The Surplus  Debentures  were  originally  issued by Standard  Life
Insurance  Company and their terms were  previously  approved by the Mississippi
Insurance Commissioner. 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 September 30, 1998, the outstanding principal balance of the
Surplus  Debentures  was $4.4  million and $11.5  million,  respectively.  Since
Investors-NA  is  domiciled  in the  State  of  Washington,  the  provisions  of
Washington  insurance law apply to the Surplus Debentures.  Under the provisions
of the Surplus  Debentures  and current law, no prior approval of the Washington
Insurance Commissioner is required for Investors-NA to pay interest or principal
on the Surplus Debentures;  provided that, after giving effect to such payments,
the statutory  surplus of Investors-NA is in excess of $10 million (the "surplus
floor").  However,  Investors-NA  has  voluntarily  agreed  with the  Washington
Insurance Commissioner that it will provide at least five days advance notice of
payments  which it will make under the surplus  debenture.  As of September  30,
1998,  the  statutory  surplus  of  Investors-NA  was $66.1  million,  an amount
substantially  in excess of the surplus floor.  The funds required by Investors-
NA to meet its  obligations  to the  Company  under  the  terms  of the  Surplus
Debentures  are generated  from  operating  income  generated from insurance and
investment operations.

In addition to the payments under the terms of the Surplus Debentures,  ILCO has
received  dividends from Standard Life (now,  from  Investors-NA).  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
the policyholder  surplus or (ii) the insurer's net gain from operations for the
previous  year. As of September  30, 1998,  Investors-NA  had earned  surplus of
$37.5 million.  Since the law applies only to dividend payments,  the ability of
Investors-NA  to  make  principal  and  interest   payments  under  the  Surplus
Debentures is not affected. ILCO does not anticipate that Investors-NA will have
any  difficulty  in  making  principal  and  interest  payments  on the  Surplus
Debentures for the foreseeable future.

Investors-IN is domiciled in the State of Indiana.  Under the Indiana  insurance
code, a domestic

                                      - 6 -

<PAGE>



insurer may make dividend  distributions upon proper notice to the Department of
Insurance,  as long as the  distribution  is  reasonable in relation to adequate
levels of policyholder  surplus and quality of earnings.  Under Indiana law, the
dividend must be paid from earned surplus. Extraordinary dividend approval would
be  required  where a dividend  exceeds the greater of 10% of surplus or the net
gain from operations for the prior fiscal year.  Investors-IN had earned surplus
of $17.4 million at September 30, 1998.

ILCO's net cash flow (used in)  provided  by  operating  activities  was $(24.9)
million for the nine month period ended  September 30, 1998, as compared to $4.8
million  for the first nine  months of 1997.  The  change in the 1998  period is
primarily  attributable  to the payment of Federal  income taxes  related to the
sale of Bridgepoint Square in December,  1997,  payments made in connection with
the 1997 sale of the  accident and health  business  and  payments  made for the
purchase of Grinnell Life Insurance Company in June, 1998.

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.

                                   Investments

As of September  30, 1998,  the book value of the  Company's  investment  assets
totaled $706.8  million,  as compared to $693.1 million as of December 31, 1997.
Total assets as of September 30, 1998 ($1.33  billion)  increased from the level
at of December 31, 1997 ($1.32 billion).

The level of short-term investments at September 30, 1998 was $164.3 million, as
compared to $164.6 million at December 31, 1997.

Invested real estate and other invested  assets  decreased from $50.4 million at
September  30, 1997 to $1.4  million at  September  30,  1998.  The  decrease in
invested real estate and other invested  assets as of September 30, 1998 and the
corresponding increase in the level of short term investments as compared to the
same period in 1997 is  attributable to the sale by Investors-NA of its interest
in the Bridgepoint Square Office property during the fourth quarter of 1997.

The fixed maturities  available for sale portion of invested assets at September
30,  1998  was  $470.0  million.  The  amortized  cost of the  fixed  maturities
available  for  sale  segment  as of  September  30,  1998 was  $447.9  million,
representing  a net  unrealized  gain of $22.1  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  ILCO's  life  insurance  subsidiaries  must  comply  with
applicable  state insurance laws and regulations.  In selecting  investments for
the portfolios of its life insurance subsidiaries,  the Company's emphasis is to
obtain  targeted  profit  margins,  while  minimizing  the  exposure to changing
interest   rates.   This  objective  is   implemented  by  selecting   primarily
short-to-medium term,  investment grade fixed income securities.  In making such
portfolio  selections,  the Company  generally  does not select new  investments
which are commonly referred to as "high yield" or "non-investment grade."


                                      - 7 -

<PAGE>



The Company's fixed maturities portfolio (including short-term investments),  as
of September  30, 1998,  included a  non-material  amount  (0.59% of total fixed
maturities and short-term  investments) of debt securities  which, in the annual
statements  of the  companies as filed with state  insurance  departments,  were
designated under the National  Association of Insurance  Commissioners  ("NAIC")
rating system as "3" (medium  quality) or below.  As of September 30, 1997,  the
comparable  percentage was 0.92%. Of these  non-investment  grade  investments,
0.469% are of the low quality (or "4") category,  with 0.117%  receiving an NAIC
rating of "5" ("lower  quality").  The  securities  in category "5"  represent a
reclassification of existing investments.

The consolidated  balance sheets of the Company as of September 30, 1998 include
$49.2 million of "Notes receivable from affiliates",  represented by (i) a loan
of $22.5 million from Investors-NA to Family Life Corporation ("FLC") and a $2.5
million loan from  Investors-CA to Financial  Industries  Corporation  ("FIC") -
which  loan  is  now  owned  by  Investors-NA  as a  result  of  the  merger  of
Investors-CA  into  Investors-NA)  - and $2.0  million of  additions to the $2.5
million note made in  accordance  with the terms of such note;  these loans were
granted in connection with the 1991 acquisition of Family Life Insurance Company
by a wholly-owned  subsidiary of FIC (ii) a loan of $30 million by  Investors-NA
to Family Life Corporation made in July, 1993, in connection with the prepayment
by the FIC  subsidiaries  of indebtedness  which had been  previously  issued to
Merrill Lynch as part of the 1991  acquisition  and (iii) a loan of $4.5 million
by Investors-NA to Family Life Insurance  Investment Company made in July, 1993,
in connection with the same transaction described above.

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

                                      - 8 -

<PAGE>



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

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


                              Year 2000 Compliance

The  Company  and its  subsidiaries  utilize a  centralized  computer  system to
process policyholder records and financial information. In addition, the Company
uses non-centralized  computer terminals in connection with its operations.  The
software programs used in connection with these systems will be affected by what
is referred to as the "year 2000 problem" or "Y2K  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 year 2000 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 year 2000  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. Based on its initial  analysis,  the Company expects that the
cost of implementing and completing the Plan will result in a after-tax  expense
of approximately  $510,000 for the three-year  (1997 - 1999) conversion  period.
For the nine month period ended  September 30, 1998, the Company has incurred an
after tax expense of approximately $129,000 in connection with the completion of
the Plan.  Between  January 1, 1997 and  September  30,  1998,  the  Company has
expended  approximately 55% of the three-year  expected after-tax cost discussed
above.

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

As of September  30,  1998,  the Company  estimated  that it had  completed  the
necessary  conversions and  modifications  on the  administrative  systems which
process  approximately  40% of the  insurance  policies  for the Company and its
subsidiaries.  This included the  conversion  of the ALIS System  (administering
approximately  49,280  policies at the time of conversion) to CK/4 in January of
1998, and the TI System conversion  (administering  approximately 5,240 policies
at the time of conversion) to CK/4 which was completed the end of May, 1998. The
conversion  of the Life 70 system  (administering  approximately  16,120  active
policies for Investors-IN) is scheduled for completion

                                      - 9 -

<PAGE>



in April,  1999. The modification of the LifeComm-B  system which is responsible
for the  19,205  policies  assumed  after  the  acquisition  of State  Auto Life
Insurance  Company  is  also  scheduled  for  completion  in  April,  1999.  The
conversion of the LifeComm-A system  (administering  approximately 62,410 active
policies for Investors-NA) is now scheduled for completion in September of 1999.
The  modification of three smaller systems which  administer 3,686 active credit
life policies, 2,668 active group certificates and 15,551 active industrial life
policies are  scheduled for  completion  in December of 1998,  March of 1999 and
June of 1999 respectively.

In 1997,  FIC  Computer  Services  - a  subsidiary  of FIC which  provides  data
processing  services  to ILCO  and its  affiliates  -  purchased  new  mainframe
hardware and accompanying  operating software,  which the vendor has represented
to be Y2K compliant. This hardware and software will be tested in 1998 and 1999.
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.

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.

With respect to non-centralized  systems (i.e., desktop computers),  the Company
anticipates that updated software  releases will be commercially  available well
in advance of the year 2000.  Accordingly,  to the extent that such systems rely
on date  sensitive  information,  the Company  expects that the effort needed to
correct  for year 2000  problems  will be less time  intensive  than the  effort
needed to achieve compliance for its centralized systems.

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.


                                             


                                     - 10 -

<PAGE>

                             Accounting Developments

In February  1997,  the  Financial  Accounting  Standards  Board  (FASB)  issued
Financial Accounting Standard (FAS) No. 128, "Earnings Per Share," which revises
the  standards  for computing  earnings per share  previously  prescribed by APB
Opinion No. 15, "Earnings Per Share." The Statement  establishes two measures of
earnings per share:  basic  earnings  per share and diluted  earnings per share.
Basic  earnings  per share is computed by dividing  income  available  to common
shareholders by the weighted average number of common shares  outstanding during
the period.  Diluted  earnings per share  reflects the  potential  dilution that
could  occur  if  securities  or other  contracts  to issue  common  stock  were
converted or exercised.  The Statement  requires dual  presentation of basic and
diluted  earnings per share on the face of the income statement for all entities
with potential dilutive  securities  outstanding.  The Statement also requires a
reconciliation  of the numerator and denominator of the basic earnings per share
computation to the numerator and  denominator of the diluted  earnings per share
computation.  The Statement is effective for interim and annual  periods  ending
after December 15, 1997. The Company adopted FAS No. 128 in its annual financial
statements for the year ended December 31, 1997.

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

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

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

In December, 1997, the Accounting Standards Executive Committee issued Statement
of Position  ("SOP") 97-3,  "Accounting by Insurance and Other  Enterprises  for
Insurance-Related  Assessments",  which  provides  guidance  on  accounting  for
insurance-related assessments. The Company is required

                                     - 11 -

<PAGE>



to adopt SOP 97-3,  effective  January  1,  1999.  Previously  issued  financial
statements  should  not be  restated  unless  the SOP is  adopted  prior  to the
effective  date and during an interim  period.  The  adoption of SOP 97-3 is not
expected  to 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, 1999. As the Company
does not have significant  investments in derivative financial instruments,  the
adoptions of FAS 133 does not have a material impact on the Company's results of
operations, liquidity or financial position.


            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.


                                Subsequent Event

On October 29, 1998  Investors-NA  purchased  two (2)  adjoining  tracts of land
located in Austin,  Texas totalling 47.995 acres.  The aggregate  purchase price
for these  tracts was $8.1  million.  Prior to October  29,  1998,  Investors-NA
obtained  preliminary  approval of a site plan  development  proposal  for these
tracts.  On October  29,  1998,  A City of Austin Site Plan  Development  Permit
("Development  Permit")  for the  aforesaid  tracts was issued and  released  to
Investors-NA. The Development Permit allows for the construction of seven office
buildings totalling approximately 600,000 square feet, with asscociated parking,
drives and related improvements.

                                     - 12 -

<PAGE>



               INTERCONTINENTAL LIFE CORPORATION AND SUBSIDIARIES

Part II.          Other Information

Item 1.  Legal Proceedings

The Company and  Investors-NA are defendants in two lawsuits which were filed in
Travis  County,  Texas in which the named  plaintiffs  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 also seek a class action as to similarly situated  individuals.
A more  detailed  discussion  of these  lawsuits is contained in Part II, Item 1
Legal  Proceedings of the Company's Form 10-Q for the  three-month  period ended
March 31, 1998 and the Company's Form 10-K for the year ended December 31, 1997.

Item 2.  Changes in Securities

                  None

Item 3.  Defaults Upon Senior Securities

                  None

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


                  None

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, 1997  heretofore  filed by  Registrant  with the
                  Securities   and   Exchange   Commission,   which  is   hereby
                  incorporated by reference.

         (b)      Reports on Form 8-K:

                  None

                                     - 13 -

<PAGE>



               INTERCONTINENTAL LIFE CORPORATION AND SUBSIDIARIES





                                    SIGNATURE


Pursuant to the  requirements  of the  Securities  and Exchange Act of 1934, the
Registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.



                                         INTERCONTINENTAL LIFE CORPORATION



                                              /s/ James M. Grace         
                                              James M. Grace
                                              Treasurer






Date: November 13, 1998


                                     - 14 -