10-K

                    SECURITIES AND EXCHANGE COMMISSION
                          Washington, D.C. 20549

                                 FORM 10-K


(Mark One)

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

     For the fiscal year ended December 31, 1997

[ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
     SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)

     For the transition period from              to             

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)

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

                         (512) 404-5050                           
                (Registrant's Telephone Number)

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

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

                   Common Stock, $.20 par value                   
                        (Title of Class)

Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months and
(2) has been subject to such filing requirements for the past 90
days.     YES  X    NO     

The aggregate market value of the voting stock held by non-
affiliates of the Registrant on March 16, 1998, based on the
closing sales price in The Nasdaq Small-Cap Market ($18.75 per
share), was $62,757,563.

The number of shares outstanding of Registrant's common stock  on 
March 16, 1998 was 5,427,965.

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

DOCUMENTS INCORPORATED BY REFERENCE:

     A.   Reports on Form 10-K of InterContinental Life Corporation
          for the fiscal years ended December 31, 1997, 1996 and
          1995 are hereby incorporated by reference.



                                  PART I

Item 1. Business

General

Financial Industries Corporation ("FIC", the "Company" or the
"Registrant") is a holding company primarily engaged in the life
insurance business through its ownership of 100% of Family Life
Insurance Company ("Family Life") and its approximately 45.40%
interest in InterContinental Life Corporation ("ILCO").  FIC also
holds options to acquire additional shares, which, if exercised,
would result in FIC owning approximately 60.80% of ILCO's
outstanding shares. FIC s options remain in effect as long as FIC
guarantees certain indebtedness of ILCO (see "Acquisition of
ILCO"). 

The Registrant was organized as an Ohio corporation in 1968 and was
reincorporated in Texas in 1980.  Its executive offices are located
at 701 Brazos, Suite 1400, Austin, Texas 78701.  Through 1984,
FIC's principal business was the sale and underwriting of life and
health insurance, mainly in the midwestern and southwestern United
States.  In 1985, FIC acquired control of ILCO.

FIC, ILCO and their insurance subsidiaries have substantially
identical managements.  Officers allocate their time between FIC
and ILCO in accordance with the comparative requirements of both
companies and their subsidiaries.  Roy F. Mitte, Chairman,
President and Chief Executive Officer of FIC, ILCO and their
insurance subsidiaries, is the owner, directly and beneficially, of
approximately 34% of the outstanding shares of FIC's common stock.

Acquisitions

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

Acquisition of ILCO.  In January 1985, FIC acquired 26.53% of
ILCO's Common Stock.  FIC and Family Life subsequently acquired
additional shares of ILCO's Common Stock and as of March 16, 1998,
FIC owned, directly and indirectly through Family Life,
approximately 45.40% of the outstanding shares of ILCO's Common
Stock.  FIC holds options to acquire up to 1,702,155 additional
shares of ILCO's Common Stock.  Giving effect to the exercise of
those options, FIC would own, directly and indirectly through
Family Life, approximately 60.80% of the outstanding shares of
ILCO's Common Stock.  The exercise price of the options is equal to
the average quoted market price of ILCO's common stock over the
six-month period immediately prior to exercise.  In addition, in
the event that any other party should seek to acquire, without the
prior approval of ILCO's Board of Directors, securities aggregating
five percent or more of the outstanding shares of ILCO, FIC would
then have the right to acquire, under the same price formula, that
number of shares of common stock which together with the shares
then owned by FIC, would amount to 51% of the outstanding shares of
ILCO.  The consideration for the options was FIC's granting to ILCO
a loan in the principal amount of $1.2 million, FIC's agreement to
guarantee additional ILCO obligations totaling $4.0 million and
FIC's agreement to guarantee ILCO's lease obligation on its
headquarters building upon demand.  In addition, FIC guaranteed a
$15.0 million term loan of ILCO.   As described under the heading
 ILCO s Acquisitions , the current Senior Loan of ILCO is scheduled
to be fully repaid on October 1, 1998. Accordingly, unless ILCO s
Senior Loan is extended, or ILCO otherwise incurs indebtedness
which is guaranteed by FIC, FIC s rights under the 1986 option
agreement would expire on October 1, 1998. 

Acquisition of Family Life.  FIC acquired Family Life from Merrill
Lynch Insurance Group, Inc. on June 12, 1991.  The consideration
for the purchase was $114 million consisting of a cash payment of
$70 million and $44 million of subordinated promissory notes issued
by subsidiaries of FIC to the seller and its affiliates.  Family
Life s primary business is the underwriting and sale of mortgage
protection life insurance to customers who are mortgage borrowers
from financial institutions where Family Life has marketing
relationships.  Family Life distributes its insurance products
primarily through a national career agency sales force.  See
"Business of Family Life Insurance Company".


ILCO's Acquisitions

In November 1986, ILCO acquired Standard Life Insurance Company
("Standard Life"), headquartered in Jackson, Mississippi, for a
gross purchase price of $54.5 million.  A portion of the funds used
by the new life insurance company formed by ILCO to make the
acquisition ("New Standard") was the proceeds of a loan extended to
the Company by a national bank in the principal amount of $15.0
million (the "Standard Term Loan").  This sum was, in turn, loaned
by ILCO to New Standard, and the loan was evidenced by a surplus
debenture.  New Standard was merged into Standard Life in June
1988.

In December 1988, ILCO, through Standard Life, purchased Investors
Life Insurance Company of California ("Investors-CA") and Investors
Life Insurance Company of North America ("Investors-NA") from CIGNA
Corporation for  a purchase price of $140 million.  ILCO obtained
the funds used for the acquisition from:  (a) a Senior Loan in the
amount of $125.0 million provided by six financial institutions,
(b) a $10.0 million subordinated loan provided by two insurance and
financial service organizations and (c) the sale of $5.0 million of
Class A Preferred Stock to CIGNA and $15.0 million of Class B
Preferred Stock to the subordinated lenders.  Approximately $15.0
million of these funds were used to discharge the Standard Term
Loan.  The balance of these funds were loaned by ILCO to Standard
Life.  To evidence this indebtedness, Standard Life issued a $140.0
million surplus debenture to ILCO.  In connection with the
subordinated debt and preferred stock financing, ILCO issued
detachable warrants entitling the holders to purchase 1,107,480
shares of ILCO's Common Stock at $3.33 per share.  

In May 1990, ILCO effected an exchange agreement with the holders
of its Class A Preferred Stock and its Class B Preferred Stock.
Under the provisions of the exchange agreement, the holders of the
Class A Preferred Stock received $5 million principal amount of a
13.25% 1998 Series Subordinate Notes, due November 1, 1998,
together with a make whole amount equal to 13.25% of the then
outstanding balance of the Note. The holders of the Class B
Preferred Stock received $15 million principal amount of a 13.25%
1999 Series Subordinated Notes, due November 1, 1999. 

ILCO prepaid the subordinated debt and purchased the warrants in
early 1993. See "The ILCO Senior Loan".

In February, 1995, ILCO, through Investors-NA, purchased from
Meridian Mutual Insurance Company the stock of Meridian Life
Insurance Company, an Indianapolis-based life insurer, for a cash
purchase price of $17.1 million.  After the acquisition, Meridian
Life changed its name to Investors Life Insurance Company of
Indiana ("Investors-Indiana").  Investors-Indiana is licensed in
ten states and markets a variety of individual life and annuity
products through independent agents.  

On July 9, 1997, ILCO and Investors-Indiana acquired State Auto
Life Insurance Company, an Ohio domiciled life insurer, from State
Automobile Mutual Insurance Company, for an adjusted cash purchase
price of $11.8 million.   In connection with this transaction, the
bank group participating in the Senior Loan agreed to defer payment
of $4.5 million  otherwise payable on April 1, 1997 under the terms
of the Senior Loan, and to reduce the amount of the payment
otherwise due on July 1, 1997 by $2.5 million.  This deferral
resulted in extending the maturity date of the Senior Loan to
October 1, 1998.  Under the terms of the transaction, State Auto
Life was merged into Investors-Indiana.  

In December, 1997, ILIC transferred its domicile from New Jersey to
Indiana.  Following completion of the redomestication, ILIC merged
with Investors-Indiana, with ILIC as the surviving entity in the
merger process.  Immediately after the merger, ILIC changed its
name to Investors Life Insurance Company of Indiana.  As used
hereinafter, the phrase "Investors-IN" shall be used to refer to
the merged entities.  As a result of the merger, Investors-IN is
licensed in 44 states.  As of December 31, 1997, it had assets of
$153.8 million and capital and surplus of $23.1 million.
  

Business of Family Life Insurance Company

Family Life, which was organized in the State of Washington in
1949, specializes in providing mortgage protection life, disability
and accidental death insurance and annuity products to mortgage
borrowers of financial institutions.  Family Life has policies in
force with customers of approximately 329 financial institutions,
of which approximately 69 actively provide Family Life with regular
updating of their lists of borrowers.

Family Life's mortgage protection business consists of term and
universal life insurance and disability insurance sold to borrowers
of mortgage debt, designed to repay the mortgages of policyholders
in the event of their death or disability.  This business is sold
to customers of client financial institutions, usually through a
list of borrowers provided by the financial institution.  These
policies often list the lending financial institution as the
primary beneficiary of the life insurance policy.  An important
feature of the Family Life product is the ability to bill and
collect premiums through the policyholder's monthly mortgage
payments.

Family Life has annuity products and a variety of life insurance
products, including decreasing term life insurance, universal life
insurance, ten-year level term products, and a whole life insurance
product.

During 1997, 1996 and 1995, Family Life received statutory premium
income from sales of its annuity products and various lines of
insurance as follows:  $0.1, $0.2 million and $3.8, respectively,
from annuity products;  $45.6, $48.3 million and $51.5 million,
respectively, from individual life; $0.3, $1.0    million and $1.2
million, respectively, from individual accident and health;
$416,870, $469,327 and $483,373, respectively, from group life and
$198,911, $238,128 and $289,749, respectively, from group accident
and health.

Family Life is licensed to sell mortgage life insurance products in
49 states and the District of Columbia.  In 1997, premium income
from these products was derived from all states in which Family
Life is licensed, with significant amounts derived from Texas    
(25%), California (23%),  and Florida (5%).

Family Life's primary distribution channel is its agency force of
approximately 645 career agents (at December 31, 1997), who are
organized into 13 regions.  Most of the career agents sell mortgage
life insurance products exclusively for Family Life.  The mortgage
life insurance business is very fragmented. Family Life believes
that it is among the larger writers of agent sold mortgage life
insurance in the United States and the only nation-wide agent-sold
life insurance company operating through leads from financial
institutions.  Many of Family Life's competitors are life insurance
companies with more resources than Family Life and whose mortgage
life insurance business represents only a small portion of their
total business.

Consolidation and Administration

Following the 1991 acquisition of Family Life by FIC, management
integrated the sales, marketing, underwriting, accounting, contract
and licensing, investments, personnel, data processing, home office
support and other departments of Family Life and the life insurance
subsidiaries of ILCO.  Management believes this integration has
resulted in cost savings for Family Life and ILCO's insurance
subsidiaries.  During 1992, ILCO's and FIC's insurance operations
were centralized at their headquarters in Austin, Texas, with the
exception of certain services performed in Seattle, Washington. 
Management believes that relocating administrative functions to
Austin has reduced costs and improved the efficiency of the
insurance companies' operations.

At December 31, 1997, the number of employees within FIC and its
subsidiaries, together with the employees of ILCO's insurance
subsidiaries, was approximately 326.

               Business of InterContinental Life Corporation

ILCO was incorporated in 1969 under the laws of New Jersey. In
June, 1997, ILCO transferred its domicile to the State of Texas.  
Its executive office is located at 701 Brazos, Suite 1400, Austin,
Texas 78701.

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

ILCO's centralized management techniques resulted in significant
employee reductions and expense savings in the three life insurance
companies acquired by ILCO in 1986 and 1988.  During 1997, the
general insurance expenses of ILCO's insurance subsidiaries were
$15,574,265, as compared to $12,008,163 in 1996 and $13,737,883 in
1995. The increase in 1997, as compared to 1996, resulted primarily
from expenses incurred in connection with  ILCO's acquisition of
State Auto Life in July, 1997 and expenses related to the
modification of data processing systems for Y2K compliance. 
Management is committed to maintaining the general insurance
expenses of ILCO's insurance subsidiaries at a level which will
generate an acceptable level of profitability while maintaining the
competitive pricing of their insurance products.

Principal Products.  ILCO's insurance subsidiaries are engaged
primarily in administering existing portfolios of individual life
insurance and accident and health insurance policies and annuity
products.  Approximately 84.7% of the total collected premiums for
1997 were derived primarily from renewal premiums on insurance
policies and annuity products sold by ILCO's insurance subsidiaries
prior to their acquisition by ILCO.

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

The products currently being distributed by ILCO s life
subsidiaries include several versions of universal life insurance
and interest-sensitive whole life insurance.  Under a whole life
insurance policy, the policyholder pays a level premium over his or
her expected lifetime.  The policy combines life insurance
protection with a savings plan that gradually increases in amount
over a period of several years.  The universal and
interest-sensitive whole life insurance policies of ILCO's
insurance subsidiaries provide permanent life insurance which
credit company-declared current interest rates.   The universal
life insurance portfolio of ILCO's insurance subsidiaries  consists
primarily of flexible premium universal life insurance policies. 
Under the flexible premium policies, policyholders may vary the
amounts of their coverage (subject to minimum and maximum limits)
as well as the date of payment and frequency of payments.

Direct statutory premiums received from all types of universal life
products were $40.6 million in 1997, as compared to $40.6 million
in 1996 and $42.3 million in 1995.  Investors-NA received
reinsurance premiums from Family Life of $1.8 million in 1997,
pursuant to the reinsurance agreement for universal life products
written by Family Life. In 1996, premium income from all life
insurance products was derived from all states in which ILCO's
insurance subsidiaries are licensed, with significant amounts
derived from Pennsylvania (14%), Ohio(9.0%)and New Jersey (8.0%).

Two of ILCO's insurance subsidiaries receive premium income from
health insurance policies. In 1997, premium income from all health
insurance policies was $0.9 in 1997 and 1996 as compared to $1.1
million in 1995.

In December, 1997, ILCO s life insurance subsidiaries entered into
a reinsurance treaty under which all of the contractual obligations
and risks under accident and health and disability income insurance
policies were assumed by a third party reinsurer. The transfer is
effective as of July 1, 1997.  The decision to dispose of this book
of business was based on ILCO s analysis that the business was not
generating targeted profit objectives and that the products were
not part of the core business of ILCO s subsidiaries.  The sale
permits the companies to focus on its primary business - life
insurance and annuity sales. In connection with the transaction,
the total amount of net reserves transferred by the ILCO
subsidiaries was $6,327,504. In addition to the transfer of
reserves, ILCO s life companies paid the reinsurer $1,037,150 in
connection with the transaction, which amount was accounted for as
an expense for the year ended December 31, 1997. In 1997, the 
transferred business generated approximately $791,000 in annualized
premiums for ILCO s life subsidiaries.

Investors-NA sponsors a variable annuity separate account, which
offers single premium and flexible premium policies.  The policies
provide for the contract owner to allocate premium payments among
four different portfolios of Putnam Variable Trust (the "Putnam
Fund"), a series fund which is managed by Putnam Investment
Management, Inc.   Prior to April, 1995, the underlying investment
vehicle for the variable annuity contracts was the CIGNA Annuity
Funds Group.  A substitution of the Putnam Fund for the CIGNA Funds
was completed in April, 1995.  The plan of substitution was
approved by the Securities and Exchange Commission.  Following such
approval, the plan was submitted to policyholders for approval,
which  was obtained.  As of December 31, 1997, the assets held in
the separate account were $50,806,145. During 1997, the premium
income realized in connection with these variable annuity policies
was $172,660, which was received from existing contract owners.

Investors-NA also maintains a closed variable annuity separate
account, with approximately $22.3  million of assets as of December
31, 1997. The separate account was closed to new purchases in 1981,
as a result of an IRS ruling which adversely affected the status of
variable annuity separate account which invest in publicly-
available mutual funds.  The ruling did not adversely affect the
status of in-force contracts.

During 1997, ILCO s life company subsidiaries expanded their
marketing efforts in the fixed annuity market. Direct deposits from
the sale of fixed annuity products were $3,499,000 in 1997, as
compared to $1,741,000 in 1996, and $2,169,000 in 1995.  Investors-
NA also received reinsurance premiums from Family Life of
$3,259,410 in 1997, pursuant to a reinsurance agreement for annuity
products between Investors-NA and Family Life Insurance Company.

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

In December, 1997, ILIC transferred its domicile from New Jersey to
Indiana.  Following completion of the redomestication, ILIC merged
with Investors-Indiana, with ILIC as the surviving entity in the
merger process.  Immediately after the merger, ILIC changed its
name to Investors Life Insurance Company of Indiana.  As used
hereinafter, the phrase "Investors-IN" shall be used to refer to
the merged entities.  As a result of the merger, Investors-IN is
licensed in 44 states.  As of December 31, 1997, it had assets of
$153.8 million and capital and surplus of $23.1 million.

ILCO s management believes that these acquisitions and
consolidations have caused a reduction in expense and have further
strengthened the financial condition of the combined companies.

                           Investment of Assets

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

The investment objective of Family Life and ILCO's insurance
subsidiaries emphasizes the selection of short to medium term, high
quality fixed income securities, rated Baa-3 (investment grade) or
better by Moody's Investors Service, Inc.  At December 31, 1997,
only 0.9% of ILCO's total assets were invested in mortgage loans or
real estate.  Non-affiliated corporate debt securities that were
non-investment grade represented 0.7% of ILCO's total assets at
December 31, 1997.  ILCO had investments in debt securities of
affiliated companies aggregating approximately $53.8  million as of
December 31, 1997.  Family Life does not have investments in
mortgage loans, real estate, non-investment grade debt securities
or affiliates' debt securities.

The investments of Family Life and ILCO's insurance subsidiaries in
mortgage-backed securities included collateralized mortgage
obligations ("CMOs") of $38.9 million and $287.7 million,
respectively, and mortgage-backed pass-through securities of $6.4 
million and $42.9 million, respectively, at December 31, 1997. 
Mortgage-backed pass-through securities, sequential CMO's, support
bonds and  z-accrual bonds, which comprised approximately 39.2% of
the book value of FIC's mortgage-backed securities and 47.6% of the
book value of ILCO's mortgage-backed securities at December 31,
1997, are sensitive to prepayment and extension risks.  ILCO and
FIC have reduced the risk of prepayment associated with mortgage-
backed securities by investing in planned amortization class
("PAC"),  target amortization class ("TAC") instruments, accretion
directed bonds and scheduled bonds.  These investments are designed
to amortize in a predictable manner by shifting the risk of
prepayment of the underlying collateral to other investors in other
tranches ("support classes") of the CMO.  At December 31, 1997, PAC
and TAC instruments and accretion directed and scheduled bonds 
represented approximately 60.8% of the book value of FIC's
mortgage-backed securities and approximately 49.9% of the book
value of ILCO's mortgage-backed securities.  Sequential and support
classes represented approximately 22.8% of the book value of FIC's
mortgage-backed securities and approximately 29.5% of the book
value of ILCO's mortgage-backed securities at December 31, 1997. 
In addition, FIC and ILCO limit the risk of prepayment of CMOs by
not paying a premium for any CMOs.  ILCO and FIC do not invest in
mortgage-backed securities with increased prepayment risk, such as
interest-only stripped pass-through securities and inverse floater
bonds.  FIC does not have any z-accrual bonds, and those bonds
constituted only 3.1% of the book value of ILCO's mortgage-backed
securities at December 31, 1997.  The prepayment risk that certain
mortgage-backed securities are subject to is prevalent in periods
of declining interest rates, when mortgages may be repaid more
rapidly than scheduled as individuals refinance higher rate
mortgages to take advantage of the lower current rates.  As a
result, holders of mortgage-backed securities may receive large
prepayments on their investments which cannot be reinvested at an
interest rate comparable to the rate on the prepaying mortgages.
Neither FIC nor ILCO made additional investments in CMOs during
1997, and the current investment objectives of both FIC and ILCO do
not contemplate additions to the portfolio of CMO investments
during 1998. 

FIC and ILCO do not invest in non-agency mortgage-backed
securities, which have a greater credit risk than that of agency
mortgage-backed securities.

ILCO and FIC do not make new mortgage loans on commercial
properties.  Substantially all of ILCO's mortgage loans were made
by its subsidiaries prior to their acquisition by ILCO.  At
December 31, 1997, 0.75% of the total book value of mortgage loans
held by ILCO had defaulted as to principal or interest for more
than 90 days, and none of ILCO's mortgage loans were in
foreclosure.  During 1997, none of ILCO's mortgage loans were
converted to foreclosed real estate or were restructured while ILCO
owned them.  Family Life does not have any mortgage loans.

Another key element of FIC's and ILCO's investment strategy is to
avoid large exposure in other investment categories which
management believes carry higher credit or liquidity risks,
including private placements, partnerships and bank participations. 
These categories accounted for approximately 0.49% of ILCO's
invested assets and none of FIC's invested assets at December 31,
1997.

A subsidiary of ILCO, Investors-NA, was the owner and developer of
Bridgepoint Square Offices.  Following the completion of the
construction, the project consisted of four office buildings, with
a total rentable space of approximately 364,000 square feet, and
two parking garages. Investors-NA purchased the 20 acre tract of
land for this complex in January, 1995. At that time, the tract
included one completed and fully leased office building, an
adjacent parking garage, and sites for three more office buildings
and another parking garage. Investors-NA completed construction of
the three remaining office buildings and parking garage in 1997.See
Item 2. Properties.

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

In November, 1997, Investors-NA and Family Life entered into a sale
agreement with an independent third party for the sale of their
respective interests in Bridgepoint Square Offices. The
transaction, which closed on December 5,1997, was  for an aggregate
price of $78 million. The sale resulted in a net pre-tax profit to
Investors-NA of approximately $14.3 million, and a net pre-tax
profit to Family Life of approximately $4.5 million. See Item 2.
Properties.

FIC and ILCO have established and staffed an investment department,
which manages portfolio investments and investment accounting 
functions for their life insurance subsidiaries.

                             Agency Operations

The products of FIC's and ILCO's insurance subsidiaries are
marketed and sold through two divisions:

A.   Investors Life Distribution System

The Investors Life Distribution System sells a wide range of life
insurance and annuity products through an independent, non-
exclusive general agent sales distribution system.  The products
sold are issued by subsidiary companies of ILCO.
          
All marketing and sales for the Company are directed by the
Executive Vice President of Marketing and Sales.  The Vice
President for Investors Sales directs Regional Vice Presidents who
are responsible for the recruitment of general agents and managing
general agents for individual insurance sales in the Investors Life
Distribution System.  

B.   Family Life Distribution System

This nationwide system sells Family Life's products through an
exclusive agent force.  This agent force sells mortgage protection
life insurance and annuity products.  The products are sold
primarily to middle-income customers of client financial
institutions, usually through a list of borrowers provided by the
financial institution.  Family Life works closely with the
financial institutions to maintain and insure that Family Life lead
systems, which had been built from the loan portfolios of each
active financial institution, operate at a level that favors both
parties.  Family Life agents make courtesy calls to borrowers of
the financial institutions which are active on the Family Life lead
system to offer the borrower the opportunity to purchase mortgage
protection insurance (term, universal or whole life insurance
products).

Sales and Marketing for Family Life is directed by the Executive
Vice President of Marketing and Sales. Reporting to the Executive
Vice President, the Senior Vice President of Marketing heads the
Family Life marketing organization which is focused on the
development and maintenance of contractual agreements with the
financial institutions which provide referrals to, and collect
monthly premiums from, their borrowers for Family Life insurance
plans.  The Senior Vice President for Family Life Sales directs
nine Regional Vice Presidents.  The Family Life distribution system
consists of 156 District Sales Managers, and 489 active  career
agents.

Data Processing

Pursuant to a data processing agreement with a major service
company, the data processing needs of FIC's and ILCO's  insurance
subsidiaries were provided at a central location until November 30,
1994. Since December, 1994, all of those data processing needs have
been provided to ILCO's and FIC's Austin, Texas and Seattle,
Washington facilities by FIC Computer Services, Inc., a new
subsidiary of FIC. See Item 13.- Certain Relationships and Related
Transactions with Management.

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

In response to the potential operations and policy administration
problems caused by the computer calendar change on January 1, 2000,
the management of the Company instructed FIC Computer Services,
Inc. to analyze its system capabilities and the operational
requirements of the Company and its respective subsidiaries and
affiliates with respect to the Y2K problem. In 1996, FIC Computer
Services, Inc. conducted the analysis of  all of the Company's
systems. After reviewing that analysis, the Company determined that
a plan should be devised to prevent the data processing errors that
may be encountered due to the Y2K problem. In November, 1996, a
three-year plan outlining a proposed solution (the "Plan") was
established and approved by the Company to ensure that all of the
data processing systems would be Y2K compliant or converted onto
Y2K compliant systems. The Company began the major work under this
Plan in 1997 and it is scheduled to be completed by the Fall of
1999.

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

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

Additionally, the Company is developing a strategy for obtaining
assurances from its various suppliers and service providers. In
furtherance of this strategy, the Company is creating
questionnaires which it will forward to its suppliers and service
providers regarding the Y2K problem. The questionnaire will request
information regarding that particular supplier's or service
provider's awareness of the Y2K problem, its impact on their
operations, and their plan for addressing any problems as they
relate to that supplier's or service provider's performance of
their contractual obligations to the Company and its subsidiaries.

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

Under the Plan, FIC Computer Services, Inc. will utilize its own
personnel, acquire Y2K compliant operating software, and engage the
assistance of outside consultants to facilitate the systems
conversions and modifications. FIC has budgeted approximately
$330,000 for implementation of the Plan. In the event that the Plan
does not achieve full compliance by the target dates, or if
unforeseen matters involving Y2K appear at later dates, the Company
will utilize the staff of FIC Computer Services, Inc. to identify
and resolve such issues as and if they arise.

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

A material number of policies administered by Family Life, will be
modified rather than converted. The modification of the PMS system
(administering approximately 122,000 policies for Family Life) was
completed in March, 1998. The conversion of the Cypros AP system
(administering approximately 21,400 policies for Family Life) is
scheduled for completion at the end of September, 1999.

A non-material number of Family Life policies are administered by
systems which also administer policies for ILCO and its
subsidiaries. With regard to ILCO and its subsidiaries, the ALIS
system (administering approximately 49,280 policies for Investors-
NA) was converted to CK/4 in January of 1998. The conversion of the
Life 70 system (administering approximately 17,285 policies for
Investors-IN) is scheduled for completion in April, 1999. The
modification of the Lifecomm-B system which is responsible for the
33,375 policies assumed after the acquisition of State Auto Life is
also scheduled for completion in April, 1999. The conversion of the
Lifecomm-A system (administering approximately 65,266 policies for
Investors-NA) is now scheduled for completion in September of 1999.

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

In 1997, FIC Computer Services, Inc. purchased new mainframe
hardware and accompanying operating software, which the vendor has
represented to be Y2K compliant.  FIC Computer Services, Inc. will
be testing this hardware and software in 1998. The telephone system
has been tested by the maintenance provider for that system and the
Company has received assurances that the telephone system is Y2K
compliant.

With respect to non-centralized systems(i.e., desktop computers),
the Company 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 Y2K problems will be less time intensive than the effort needed
to achieve compliance for its centralized


                                Competition

There are many life and health insurance companies in the United
States.  Agents placing insurance business with Family Life and
ILCO's insurance subsidiaries are compensated on a commission
basis.  However, some companies pay higher commissions and charge
lower premium rates and many companies have more substantial
resources than Family Life and ILCO's insurance subsidiaries.  The
principal cost and competitive factors that affect the ability of
Family Life and ILCO's insurance subsidiaries to sell their
insurance products on a profitable basis are:  (1) the general
level of premium rates for comparable products; (2) the extent of
individual policyholders services required to service each product
category; (3) general interest rate levels; (4) competitive
commission rates and related marketing costs; (5) legislative and
regulatory requirements and restrictions; (6) the impact of
competing insurance and other financial products; and (7) the
condition of the regional and national economies.

Reinsurance and Reserves

In accordance with general practices in the insurance industry,
Family Life and ILCO's insurance subsidiaries limit the maximum net
losses that may arise from large risks by reinsuring with other
carriers.  Such reinsurance provides for a portion of the mortality
risk to be retained by Family Life and the ILCO subsidiaries  with
the excess being ceded to a reinsurer at a premium set forth in a
schedule based upon the age and risk classification of the insured. 
The reinsurance treaties provide for allowances that help Family
Life and ILCO's insurance subsidiaries offset the expense of
writing new business.  Family Life generally retains the first
$200,000 of risk on the life of any one individual.  Investors-IN
generally retains the first $60,000 to $100,000 of risk on the life
of any individual, depending on the type of coverage being written. 
Investors-NA generally retains the first $250,000 of risk on the
life of any individual.  

As discussed above (see  Principal Products ), in December, 1997,
FLIC and ILCO s life insurance subsidiary entered into a
reinsurance treaty under which all of the contractual obligations
and risks under accident and health and disability income policies
were assumed by a third party reinsurer.  In connection with the
transaction, the total amount of net reserves transferred by the
FLIC was $852,688.  In addition to the transfer of reserves, FLIC
paid the reinsurer $100,000 in connection with the transaction,
which amount was accounted for as an expense for the year ended
December 31, 1997. In 1997, the accident and health business
generated approximately $735,000 in annualized premiums.

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

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

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

                        Acquisition of Family Life

In June, 1991 FIC purchased Family Life, a State of Washington
based life insurance corporation, from Merrill Lynch Insurance
Group, Inc.  ("Merrill Lynch").  The business of Family Life, as
reconstituted for sale, consists principally of the underwriting
and sale of life insurance to mortgage borrowers through lending
institutions.

The consideration for the purchase was $114 million consisting of
a cash payment of $70 million and $44 million of subordinated
promissory notes issued by subsidiaries of FIC to the seller and
its affiliates.

To effectuate the transaction, FIC organized two downstream holding
companies: Family Life Corporation ("FLC"), and Family Life
Insurance Investment Corporation ("FLIIC").  FLIIC was organized as
a wholly-owned subsidiary of FIC and, in turn, was issued all of
the outstanding shares of FLC.  FLC purchased 250,000 shares of
common stock, being all of the outstanding shares, of Family Life
from Merrill Lynch for an $84 million cash payment (including $14
million that had been borrowed by FLIIC from an affiliate of
Merrill Lynch) and a $30 million senior subordinated note. 
Following the purchase of the Family Life shares by FLC, Family
Life issued 250,000 previously unissued shares of its common stock
to FLC for a $2.5 million cash payment and immediately thereafter
redeemed from FLC 250,000 shares of its common stock that had been
purchased by FLC from Merrill Lynch.  The consideration paid to FLC
by Family Life for said redeemed shares consisted of $2.5 million
cash, a newly issued surplus debenture (an instrument having
certain restrictions on payment for the protection of
policyholders) in the principal amount of $97.5 million and $14
million principal value of newly issued preferred shares.

As part of the financing arrangement, FLC entered into a Senior
Loan agreement under which $50 million was provided by a group of
banks (the "Family Life Senior Loan").  The balance of the
financing consisted of a $30 million subordinated note issued by
FLC to Merrill Lynch and $14 million borrowed by FLIIC from an
affiliate of Merrill Lynch and evidenced by a subordinated note in
the principal amount of $12 million and a subordinated note in the
principal amount of $2 million (collectively, the "Merrill Lynch
Subordinated Loans") and $25 million lent by two insurance company
subsidiaries of ILCO (the "Investors Life Subordinated Loans"). 
The latter amount was represented by a $22.5 million loan from
Investors-NA to FLC and a $2.5 million loan provided directly to
FIC by Investors-CA.  In addition to the interest provided under
the Investors Life Subordinated Loans, Investors-NA and Investors-
CA were granted by FIC non-transferable options to purchase, in
amounts proportionate to their respective loans, up to a total of
9.9 percent of shares of FIC common stock at a price of $10.50 per
share, equivalent to the then current market price, subject to
adjustment to prevent dilution. The initial terms of the option
provided for their expiration on June 12, 1998, if not previously
exercised. In connection with the 1996 amendments to the $34.5
million subordinated loans obtained from Investors-NA, the
expiration date of the options was extended to September 12, 2006. 
For a discussion of the 1996 amendments, please refer to Item 13,
Certain Relationships and Related Transactions with Management,
above. 

Of the total of $119 million of cash borrowed and notes issued by
FIC and its subsidiaries for purposes of the transaction, $114
million constituted the purchase price for Family Life and $5
million was used to pay transaction costs, for working capital and
for other related purposes.  In connection with the several loans
effected for purposes of the transaction, various creditors
priorities and normal borrower requirements and restrictions were
established and FIC issued its direct guaranty of the respective
loans, subject to certain priorities, to the various lending banks,
Merrill Lynch and its affiliates, and Investors-NA and Investors-
CA.  The outstanding shares of common stock of Family Life were
also pledged as collateral to the bank lenders and, upon repayment
of the bank loan, to Merrill Lynch.  The transaction was structured
to conform to the requirements of Section 338(h)(10) of the
Internal Revenue Code.

On July 30, 1993, the Merrill Lynch Subordinated Loans were
prepaid.  $38 million plus accrued interest was paid to retire the
indebtedness, which had a principal balance of approximately $50
million on July 30, 1993.  The primary source of the funds used to
prepay the Merrill Lynch Subordinated Loans was new subordinated
loans totaling $34.5 million that were obtained from Investors-NA. 
See "The Family Life Refinancing."

Family Life Senior and Subordinated Loans

Senior Loan.  The Senior Loan obligations of FLC were completely
paid off on April 17, 1996.  During the period that the Senior Loan
was in effect, it was a secured and guaranteed five year term loan
in the initial principal amount of $50 million.  The Senior Loan
consisted of separate notes (one for each member of the lending
syndicate), with interest payable quarterly and a final maturity
date of June 12, 1996.  The interest rate of the Senior Loan was
subject to periodic change based upon stipulated percentages above
a quoted bank base lending rate or Eurodollar rate as such are in
effect from time to time.

Upon the retirement of the Senior Loan, certain of the its
provisions were automatically incorporated into the Investors Life
Subordinated Loans which are described in the following section.
Those provisions include specified events of default, including,
but not limited to, failure to pay principal, interest, commitment
fees or other amounts payable  when due, failure to maintain
certain financial covenants, violation of covenants  (including
covenants with respect to the maintenance of a minimum net worth),
material misrepresentations, defaults under other indebtedness, the
loss of any license of an insurance subsidiary of FLC which would
have a material adverse effect on FLC, defaults under the FIC
guaranty agreement, a fine in an amount in excess of $100,000
imposed upon any insurance subsidiary of FLC by any state insurance
regulatory agency, changes in ownership or control of FIC by its
controlling person, Roy F. Mitte, or in ILCO by FIC and the
occurrence of certain events of bankruptcy. In addition, the
security interests furnished to the lenders under the Senior Loan
were transferred to Investors-NA.  The security interests include
all of the issued and outstanding shares of common stock of FLIIC,
all of the issued and outstanding shares of preferred stock and
common stock of FLC and Family Life and the $97.5 million surplus
debenture of Family Life. 

Investors Life Subordinated Loans.  The $22.5 million subordinated
senior note issued by FLC to Investors-NA was originally scheduled
to mature on June 12, 1998, with principal payments in four equal
semi-annual principal installments of $5,625,000 each on December
12, 1996, June 12, 1997, December 12, 1997 and June 12, 1998. 
Interest is payable semi-annually, at the rate of 11% per annum.
Effective as of June 12, 1996, the 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%.  

The $2.5 million subordinated note issued by FIC to Investors-CA
initially provided for interest, payable semi-annually, at the rate
of 12% per annum, and its principal is due and payable in full at
maturity on June 12, 1998 (the "FIC Note").  As a result of the
merger of Investors-CA into Investors-NA, the FIC Note is now owned
by Investors-NA.  Prior to June 12, 1996, accrued interest on the
FIC Note was paid by delivery of additional notes of FIC having
terms identical to such original note, including the payment of
interest (the "PIK Notes").  Interest payable on and after June 12,
1996 on all of the FIC Note is to be paid in cash.  Effective as of
June 12, 1996, the FIC 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. With respect to the
PIK Notes, the amendment provided that the principal balance of the
notes ($1,977,119) is to be paid in twenty quarterly principal
payments, in the amount of $98,855.95 each, commencing December 12,
1996 with the final payment due on September 12, 2001.  The
interest rate on both the FIC Note and the PIK Notes remained at
12%.

The obligors are allowed to prepay the Investors Life Subordinated
Loans, in whole or in part, without premium or penalty.  During the
time that the Senior Loan was outstanding, the Investors Life
Subordinated Loans were subordinated to the Senior Loan and
constitute a second lien on the pledged collateral subject to the
first lien of the Senior Loan.  Repayment of FLC's $22.5 million
note is also guaranteed by FIC.

The Investors Life Subordinated Loan documents specify events of
default, including, but not limited to, failure to pay principal,
interest or other amounts payable with respect to the Investors
Life Subordinated Loan documents when due, violation of covenants
in the Investors Life Subordinated Loan documents (including
covenants with respect to the maintenance of a minimum net worth),
material misrepresentations, defaults under other indebtedness, and
the occurrence of certain events of bankruptcy.

The Investors Life Subordinated Loan documents also contain various
specified negative, affirmative and financial covenants to be
performed or observed by FLC, FIC and their subsidiaries.  During
the period the Senior Loan was outstanding, the covenants in effect
under the Investors Life Subordinated Loan documents were less
restrictive than the covenants under the Senior Loan documents but
become generally equivalent to the Senior Loan restrictions upon
the termination of the Senior Loan.

On July 30, 1993, Investors-NA loaned $34.5 million to FLC and
FLIIC in the form of subordinated notes in connection with the
prepayment of the Merrill Lynch Subordinated Loans.  See "The
Family Life Refinancing."

As of December 31, 1997 the outstanding principal balance of the
Investors Life Subordinated Loans, including the loans made by
Investors-NA in 1993 was $53,792,485.

Options.  In addition to the interest provided under the Investors
Life Subordinated Loans, Investors-NA and Investors-CA were granted
by FIC non-transferable options to purchase, in amounts
proportionate to their respective loans, up to a total of 9.9
percent of shares of FIC common stock at a price of $2.10 per share
(as adjusted to reflect the five-for-one stock split in November,
1996), equivalent to the then current market price, subject to
adjustment to prevent dilution.   The initial terms of the option
provided for their expiration on June 12, 1998, if not previously
exercised. In connection with the 1996 amendments to the $34.5
million subordinated loans obtained from Investors-NA, the
expiration date of the options was extended to September 12, 2006. 

The Family Life Refinancing.  On July 30, 1993, the Merrill Lynch
Subordinated Loans were prepaid.  $38 million plus accrued interest
was paid to retire the indebtedness, which had a principal balance
of approximately $50 million on July 30, 1993.  

The primary source of the funds used to prepay the Merrill Lynch
Subordinated Loans was new subordinated loans totaling $34.5
million that were obtained from Investors-NA.  Prior to the 1996
amendments described below, the principal amount of the new
subordinated debt  was payable in four equal annual installments in
2000, 2001, 2002 and 2003.  The interest rate is 9%.  The other
terms of the 1993 notes are substantially the same as those of the
$22.5 million subordinated loan that Investors-NA had previously
made to FLC and that continue to be outstanding.

The $34.5 million of new subordinated loans consist of a $30
million loan to FLC and a $4.5 million loan to FLIIC.  The debt
restructuring reduced the total indebtedness of FLC and FLIIC by
approximately $15 million.  The transaction resulted in a pre-tax
gain of approximately $12 million for the Company in the third
quarter of 1993, and the Company estimates that the restructuring
of this subordinated debt will result in aggregate interest savings
to FLC and FLIIC of approximately $40 million over the next ten
years.  In recognition of this reduced interest requirement, the
interest rate on the surplus debenture of Family Life held by FLC
was reduced from 12.5% to 9%.

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


ILCO's Senior Loan

FIC guarantees ILCO's Senior Loan that was the source of funds used
for the acquisition of Investors-NA and Investors-CA. The current
Senior Loan of ILCO was originally arranged in connection with the
1988 acquisition of Investors-NA and Investors-CA.  In January,
1993, refinanced its Senior Loan.  That transaction was done in
connection with the prepayment of the subordinated indebtedness and
the purchase of warrants which had been issued as part of the
financing of the 1988 acquisitions.  The terms of the amended and
restated credit facility  are substantially the same as the terms
and provisions of the 1988 Senior Loan. The average interest rate
paid by ILCO on its Senior Loan was approximately 8.63% during
1995, 7.76% during 1996 and 7.68% during 1997.  The maturity date,
which had been December 31, 1996, was extended to July 1, 1998 for
the Senior Loan. 

In February, 1995, ILCO borrowed an additional $15 million under
the Senior Loan to help finance the acquisition of Meridian Life
Insurance Company, and the maturity date of the Senior Loan was
further extended to July 1, 1999.  As of December 31, 1995, the
outstanding principal balance of ILCO's Senior Loan obligations was
$59.4 million.  In January, 1996, ILCO made a scheduled payment of
$4.5 million under its Senior Loan.  In March, 1996, ILCO made the
scheduled payments for April 1st and July 1st, totaling $9 million. 
At that same time, ILCO made a payment of $941,000, an additional
payment under the terms of the loan applied to the principal
balance.  On April 1, 1996, an optional principal payment in the
amount of $15 million was made, which resulted in advancing the
scheduled payoff date of the Senior Loan to April 1, 1998.  In
July, 1996, ILCO made the principal payment for October 1st ($4.5
million), plus an optional principal payment of $0.5 million. In
connection with ILCO's acquisition of State Auto Life Insurance
Company in July, 1997, ILCO's Senior Loan agreement was modified to
extend the maturity date to October 1, 1998.
   
ILCO's Senior Loan bears interest, at the option of ILCO, at a rate
per annum equal to (i) the Alternate Base Rate (as defined below)
plus the Applicable Margin (as defined below), or (ii) LIBOR
(adjusted for reserves) for interest periods of 1, 2, 3 or 6 months
plus the Applicable Margin. LIBOR is London Inter-Bank Offered
Rates. The Alternate Base Rate for any day is the higher of (a) the
agent bank's corporate base rate as announced from time to time and
(b) the federal funds rate as published by the Federal Reserve Bank
of New York plus 0.5%. The Applicable Margin, depending on the
outstanding principal balance of the Senior Loan, ranges from 0.5%
to 1.25% for loans that bear interest based upon the Alternate Base
Rate and from 1.75% to 2.5% for loans that bear interest based upon
LIBOR. The initial Applicable Margin for Alternate Base Rate loans
is 1.25% and the initial Applicable Margin for LIBOR loans is 2.5%.

The obligations of ILCO under the Senior Loan are secured by: (1)
all of the outstanding shares of stock of Investors-NA, (2) a
$15,000,000 surplus debenture of Investors-NA payable to ILCO,
which had an outstanding principal balance of $5,206,224 as of
December 31, 1997 and (3) a $140,000,000 surplus debenture of
Investors-NA payable to ILCO, which had an outstanding principal
balance of $22,590,000 as of December 31, 1997. The obligations of
ILCO under the Senior Loan are guaranteed by FIC.

The ILCO Senior Loan prohibits the payment by ILCO of cash
dividends on its common stock and contains covenants, including
restrictive covenants that impose limitations on ILCO's and its
subsidiaries' ability to, among other things: (i) make investments;
(ii) create or incur additional debt; (iii) engage in businesses
other than their present and related businesses; (iv) create or
incur additional liens; (v) incur contingent obligations; (vi)
dispose of assets, (vii) enter into transactions with affiliated
companies; and (viii) make capital expenditures; and  various
financial covenants, including covenants requiring the maintenance
of a minimum cash flow coverage ratio, minimum consolidated net
worth and minimum statutory surplus of subsidiaries, and a minimum
ratio (360%) of (i) the sum of the  statutory capital and surplus,
the asset valuation reserve and  one-half of the dividend liability
pertaining to participating policies of each insurance company
subsidiary to (ii) its respective Authorized Control Level RBC (see
"Regulation").

The ILCO Senior Loan specifies events of default, including, but
not limited to, failure to pay amounts under the Senior Loan
documents when due; defaults or violation of covenants under other
indebtedness; defaults under the loans made by Investors-NA to
subsidiaries of FIC; the loss of any license of an insurance
subsidiary of ILCO which would have a material adverse effect on
ILCO; defaults under the FIC guaranty agreement; changes in
ownership or control of FIC or ILCO by its controlling person, Roy
F. Mitte, or in ILCO by FIC; and the occurrence of certain events
of bankruptcy. If Mr. Mitte ceases to control the management of
ILCO solely by reason of (i) his death or (ii) his permanent
inability to perform his usual and customary duties on a full-time
basis on behalf of ILCO and FIC as the result of physical or mental
infirmity, a default will occur, and the banks holding in the
aggregate at least 66 2/3% of the outstanding balance of the Senior
Loan may, on or after 180 days after the date on which such default
occurs, declare the Senior Loan immediately due and payable. Mr.
Mitte's ability to communicate and his mobility are impaired as a
result of a stroke he suffered in May 1991. However, Mr. Mitte
continues to control the management of ILCO and FIC, and Mr.
Mitte's impairments did not constitute a default under the ILCO
Senior Loan.  See Item 10(b)-Executive Officers of the Registrant.

The principal balance of the ILCO Senior Loan was $10.96 million as
of December 31, 1997.

Regulation

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

These laws and regulations require Family Life and ILCO's insurance
subsidiaries to maintain certain minimum surplus levels and to file
detailed periodic reports with the supervisory agencies in each of
the states in which they do business, and their business and
accounts are subject to examination by such agencies at any time.
The insurance laws and regulations of the domiciliary states of
FIC's and ILCO's insurance subsidiaries require that such
subsidiaries be examined at specified intervals.  Family Life is
domiciled in the State of Washington.  Investors-NA and Investors-
IN are domiciled in the states of Washington and Indiana,
respectively. In December 1992, Investors-NA redomesticated from
Pennsylvania to Washington, and Investors-CA merged into
Investors-NA. In June, 1993, Standard Life merged into
Investors-NA. Prior to December, 1997, Investors-IN was domiciled
in the State of New Jersey. In December, 1997, Investors-IN
transferred its domicile to the State of Indiana.

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



Risk-Based Capital Requirements.  Effective for the 1993 calendar
year, the National Association of Insurance Commissioners ("NAIC")
has adopted Risk-Based Capital ("RBC") requirements to evaluate the
adequacy of statutory capital and surplus in relation to investment
and insurance risks associated with: (i) asset quality; (ii)
mortality and morbidity; (iii) asset and liability matching; and
(iv) other business factors.  The states will use the RBC formula
as an early warning tool to discover potential weakly capitalized
companies for the purpose of initiating regulatory action. The RBC
requirements are not intended to be a basis for ranking the
relative financial strength of insurance companies.  In addition,
the formula defines a new minimum capital standard which will
supplement the prevailing system of low fixed minimum capital and
surplus requirements on a state-by-state basis.

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

Calculations using the NAIC formula and the statutory financial
statements of Family Life and ILCO's insurance subsidiaries as of
December 31, 1997 indicate that the Total Adjusted Capital of each
of FIC's and ILCO's insurance subsidiaries is above 680% of its
respective Authorized Control Level RBC.

Solvency Laws Assessments.  The solvency or guaranty laws of most
states in which an insurance company does business may require that
company to pay assessments (up to certain prescribed limits) to
fund policyholder losses or liabilities of insurance companies that
become insolvent.  Recent insolvencies of insurance companies
increase the possibility that such assessments may be required.
These assessments may be deferred or forgiven under most guaranty
laws if they would threaten an insurer's financial strength and, in
certain instances, may be offset against future premium taxes.  The
insurance companies record the expense for guaranty fund
assessments in the period assessed.  The net amounts of such
assessments for Family Life and ILCO's insurance subsidiaries were
approximately $16,441 and $70,253 , respectively, in the year ended
December 31, 1997.  Those amounts are net of the amounts that can
be offset against future premium taxes and, in the case of Family
Life, the amount is also net of the amount that can be recovered
from Merrill Lynch pursuant to the Stock Purchase Agreement between
FIC and Merrill Lynch.  See "Acquisition of Family Life."  The
likelihood and amount of any other future assessments cannot be
estimated and are beyond the control of FIC and ILCO.

Surplus Debentures and Dividends.  The principal sources of cash
for FLC to make payments of principal and interest on the Family
Life Senior Loan are payments under the surplus debenture of Family
Life Insurance Company (a Washington-domiciled insurer) and
dividends paid by Family Life .  Under current Washington law, any
proposed payment of a dividend or distribution which, together with
dividends or distributions paid during the preceding twelve months,
exceeds the greater of (i) 10% of statutory surplus as of the
preceding December 31 or (ii) statutory net gain from operations
for the preceding calendar year is an "extraordinary dividend" and
may not be paid until either it has been approved, or a 60-day
waiting period shall have passed during which it has not been
disapproved, by the Washington Insurance Commissioner.  Effective
July 25, 1993, Washington amended its insurance code to retain the
above-described "greater of" standard for dividends, but enacted
requirements that prior notification of a proposed dividend be
given to the Washington Insurance Commissioner and that cash
dividends may be paid only from earned surplus.  Family Life does
not presently have earned surplus as defined by the regulations
adopted by the Washington Insurance Commissioner and, therefore, is
not presently permitted to pay cash dividends.  However, since the
new law applies only to dividend payments, the ability of Family
Life to make principal and interest payments under the surplus
debenture is not affected.

Principal and interest payments on the surplus debenture have
provided sufficient funds to meet debt service obligations of FLC. 
Under the provisions of the surplus debenture and current law,
Family Life can pay interest and principal on the surplus debenture
without having to obtain the prior approval of the Washington
Insurance Commissioner; provided that, after giving effect to the
payment of interest or principal on the surplus debenture, the
statutory capital and surplus of Family Life exceeds 6% of its
assets.  Pursuant to the surplus debenture, Family Life paid
principal and interest in 1995, 1996 and 1997 totaling $16,052,400,
$13,526,338 and $11,903,287, respectively.  Family Life does give
five-days prior notification to the Washington Insurance Department
of each proposed payment on the surplus debenture in accordance
with an agreement between Family Life and the Department.  The
Company does not anticipate that Family Life will have any
difficulty in making principal and interest payments on the surplus
debenture in the amounts necessary to enable  FLC to service its
indebtedness for the foreseeable future.

Valuation Reserves.  Commencing in 1992, the Mandatory Securities
Valuation Reserve ("MSVR") required by the NAIC for life insurance
companies was replaced by a mandatory Asset Valuation Reserve
("AVR") which is expanded to cover mortgage loans, real estate and
other investments.  During 1997, a change in the NAIC's AVR
procedures resulted in a one-time reduction in the amount of the
reserves held by Family Life, with a corresponding one-time
increase in the amount of surplus, in the amount of  $320,000.  A
new mandatory Interest Maintenance Reserve ("IMR"), designed to
defer realized capital gains and losses due to interest rate
changes on fixed income investments and to amortize those gains and
losses into future income, is also effective for 1992.  Previously,
realized capital gains attributable to interest rate changes were
credited to the MSVR and had the effect of reducing Family Life's
required MSVR contributions.  Effective in 1992, such realized
capital gains are credited to the IMR.  The combination of the AVR
and IMR will affect statutory capital and surplus and may reduce
the ability of Family Life to pay dividends and make payments on
the surplus debenture.

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

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

Potential Federal Regulation.  Although the federal government
generally does not directly regulate the insurance industry,
federal initiatives often have an impact on the business.  Congress
and certain federal agencies are investigating the current
condition of the insurance industry (encompassing both life and
health and property and casualty insurance) in the United States in
order to decide whether some form of federal role in the regulation
of insurance companies would be appropriate.  Congress is currently
conducting a variety of hearings relating in general to the
solvency of insurers.  It is not possible to predict the outcome of
any such congressional activity nor the potential effects thereof
on Family Life.

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

Federal Income Taxation

The Revenue Reconciliation Act of 1990 amended the Internal Revenue
Code of 1986 to require a portion of the expenses incurred in
selling insurance products to be deducted over a period of years,
as opposed to an immediate deduction in the year incurred.  Since
this change only affects the timing of the deductions, it does not
affect tax expense as shown on the Company's financial statements
prepared in accordance with GAAP.  However, the change will
increase the tax for statutory accounting purposes in the first few
years, which will reduce statutory surplus and, accordingly, may
decrease the amount of cash dividends that Family Life can pay. For
the years ended December 31, 1995, 1996 and 1997, the increases
(decreases) in Family Life's current income tax provisions,
utilizing the effective tax rates, due to this change were $77,498,
$183,358 and ($136,000), respectively.  The change has a negative
tax effect for statutory accounting purposes   when Family Life's
premium income increases, but  has a positive tax effect  when its
premium income decreases.


Item 2.  Properties

The Registrant's headquarters are currently located at Austin
Centre, 701 Brazos, Suite 1400, Austin, Texas. A subsidiary of
ILCO, Investors-NA, purchased Austin Centre, an office-hotel
property in downtown Austin in August 1991 for a purchase price of
$31,275,000 from an unrelated seller that had previously acquired
the property through foreclosure. Austin Centre covers a full city
block and is a sixteen story mixed use development consisting of
343,664 square feet of office/retail space (predominately office
space), a 314 room hotel and 61 luxury apartments, all united by a
200 foot high glass atrium. The project was completed in October
1986. 

In September 1995, Investors-NA entered into a contract to sell
Austin Centre to an Austin-based real estate investment firm for a
purchase price of $62.675 million, less $1 million to be paid to a
capital reserve account for the purchaser.  The sale was
consummated  on March 29, 1996.  A portion of the sale proceeds
equal to the amount that Investors-NA presently had invested in
Austin Centre were retained and reinvested by Investors-NA.  The
balance of the net proceeds of the sale were used to reduce ILCO's
bank indebtedness by approximately $15 million.

Following the sale of the Austin Centre, the Company and its
affiliates continued to occupy three floors of the office space,
under a lease arrangement. The current lease, which was entered
into in May, 1997, is for a five (5) year term ending in October,
2002, with options to renew for three successive five (5) year
terms thereafter.

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

In the fourth quarter of 1995, construction began on the second
office building, containing approximately 109,000 rentable square
feet, and the other parking garage containing approximately 871
spaces.  That phase of the project was completed in September 1996,
and is 100% leased to a major tenant in the technology business.
   
In March 1996, construction commenced on the third office building,
with approximately 81,000 rentable square feet of office space and
was completed in December, 1996. Investors-NA leased approximately 
43,000 square feet of the third office building to the same tenant
which leased all of the space in the second building.  The
remaining space was leased in October, 1996 to a major tenant also
in the technology business. 

Construction began on the fourth building in July 1996,  and was
completed in July, 1997. The fourth building contains approximately
92,459 rentable square feet. In September of 1996, approximately
23,619 rentable square feet were leased to an oil and gas company,
which then expanded its premises to 29,631 under an expansion
option contained in its Lease.  Another  8,368 square feet was
leased in March, 1997, to a company involved in the technology
field. In June, 1997, approximately 40,611 rentable square feet was
leased to a tenant in the technology field. In November, 1997
approximately 2967 rentable square feet was leased to a securities
brokerage firm. The remaining 10,882 rentable square feet is
reserved for a health club facility and a retail food outlet.

On May 3, 1996, Family Life purchased a tract of land adjoining the
Bridgepoint Office Square tract for a cash purchase price of $1.3 
million. The property consists of 7.1 acres of land with one office
building site and one parking structure site. Family Life began
construction of the fifth  building (known as "Bridgepoint Five")
on the new site in January 1997. In May, 1997, the entire rentable
space (approximately 76,793 rentable square feet) contained in the
building was leased to a major tenant in the technology business.
Construction of the parking garage and the building shell was
completed in October, 1997.  

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

Pursuant to the terms of the Bridgepoint Sale Agreement, Family
Life is obligated to complete the construction of and tenant
improvements in Bridgepoint Five. At the date on which the
transaction closed, the building shell and adjacent parking garage
had been completed, except for the client briefing center.  As of
March, 1998, all tenant improvements had been completed subject to
final inspection.

Family Life leases its home offices at the  Sedgwick James
Building, 2101 Fourth Avenue, in Seattle, Washington.  The lease
currently covers approximately 7,776 rentable square feet of office
space for a term expiring in October 1998 with an option to renew
for an additional three-year period.  The initial base rental is
approximately $11,200 per month, which includes Family Life's
proportionate share of the building's operating expenses, including
utilities, property taxes, insurance, maintenance and management. 
Actual increases from those initial operating expenses during the
lease term are passed on to Family Life on a proportionate basis.

ILCO leases a building located at 40 Parker Road, Elizabeth, New
Jersey. This building, which was formerly the ILCO's headquarters
building, contains approximately 41,000 square feet of office
space. The remaining term of the lease is  8 years, and the lease
calls for a minimum base rental of $450,000 per annum. The lease
provides that all costs including, but not limited to, those for
maintenance, repairs, insurance and taxes be borne by ILCO. ILCO
has sub-leased the space in the property to third parties.

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

Item 3.  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.

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

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


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


No matter was submitted during the fourth quarter of the fiscal
year ended December 31, 1997 to a vote of security holders.



                                  PART II

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

A.  Market Information

The following table sets forth the quarterly high and low sales
prices for FIC Common Stock in The Nasdaq Small-Cap Market for 1997
and 1996.  The quotations set forth in the table have been adjusted
to give retroactive effect to the five-for-one stock split which
was effective November 12, 1996.  FIC's NASDAQ trading symbol is
FNIN.  

                                        Common Stock
                                           Prices   
                                        High        Low
1997
     First Quarter                      $13.25    $10.75     
     Second Quarter                      13.25     11.00    
     Third Quarter                       16.25     11.625        
     Fourth Quarter                      20.25     14.75          

1996
     First Quarter                      $11.00    $ 6.95
     Second Quarter                      11.90      7.80    
     Third Quarter                       11.90      8.70    
     Fourth Quarter                      15.00     11.00    

B.  Stockholders

As of March 17, 1998 there were approximately 15,856 record holders
of FIC Common Stock.

C.  Dividends

FIC has not paid a dividend since 1976 and does not expect to pay
a dividend during 1998.

The ability of an insurance holding company, such as FIC, to pay
dividends to its shareholders may be limited by the company's
ability to obtain revenue, in the form of dividends and other
payments, from its operating insurance subsidiary or subsidiaries. 
The right of Family Life to pay dividends is restricted by the
insurance laws of its domiciliary state.  See Item 1.  Business -
Regulation - Surplus Debenture and Dividends.  However, FIC does
not directly own Family Life's stock but, instead, indirectly owns
that stock through two downstream holding companies, FLIIC and FLC. 
FLC, which holds all of the stock of Family Life, is prohibited
from paying dividends on its common stock by the provisions of the
note from Investors-NA , and FLIIC, the immediate parent of FLC and
the directly-owned subsidiary of FIC, is prohibited from paying
dividends on its stock by the $4.5 million subordinated note of
FLIIC held by Investors-NA, except FLIIC may pay dividends on its
common stock to enable FIC to make scheduled principal and interest
payments on its $2.5 million subordinated note to Investors-NA. 
The ability of ILCO to pay dividends to FIC and the other
shareholders of ILCO is affected by the receipt of dividends and
other payments from its insurance subsidiaries.  In addition, the
ILCO Senior Loan restricts ILCO from paying any dividends on its
stock during the term of that loan.

Item 6.  Selected Financial Data

          (Registrant and its Consolidated Subsidiaries)
                   (In thousands, except per share data)
                1997      1996      1995      1994      1993
Operating
Revenues     $63,343    $ 59,928  $ 61,541   $ 68,524 $ 74,023

Income (loss)
before federal
income tax,
equity in net
earnings of
affiliates,
extraordinary
items and
cumulative
effect of
change in
accounting
principle of
affiliate     13,411        9,791     10,394     10,610  11,560

Income before
equity in net
earnings of
affiliates,
extraordinary
items and
cumulative
effect of
change in
accounting
principle of
affiliate      9,870        7,145       7,966      8,264   8,587

Equity in net
earnings of
affiliate, net
of tax         6,458        9,012        2,051      1,690  3,038

Income before
extraordinary
items and
cumulative
effect of
change in
accounting
principle of
affiliate     16,328       16,157        10,017      9,954 11,625

Extraordinary 
items            -0-       -0-       -0-       -0-          5,555

Income before
cumulative
effect of
change in
accounting
principle of
affiliate     16,328       16,157   10,017       9,954   17,180

Cumulative
effect of
change in
accounting
principle of
affiliate, net
of tax 
benefit          -0-       -0-       -0-       -0-         (1,159)

Net Income  $ 16,328     $ 16,157  $ 10,017    $  9,954  $ 16,021

Common Stock
and Common
Stock
Equivalents    5,589        5,568     5,540       5,530     5,555

Net income per
share before
extraordinary
items and
cumulative
effect of
change in
accounting
principle of
affiliate
  Basic      $  3.01   $  2.98   $  1.85   $   1.83   $ 2.14
  Diluted    $  2.92   $  2.90   $  1.81    $  1.80   $ 2.09



Extraordinary
items
 Basic                                                $ 1.02 
 Diluted         -0-       -0-       -0-       -0-    $ 1.00



Net income per
share before
cumulative
effect of
change in
accounting
principle of
affiliate
  Basic       $ 3.01    $ 2.98    $ 1.85     $ 1.83   $ 3.16
  Diluted     $ 2.92    $ 2.90    $ 1.81     $ 1.80   $ 3.09


Cumulative
effect of
change in
accounting
principle of
affiliate 
  Basic          -0-       -0-       -0-        -0-  ($0.21)
  Diluted        -0-       -0-       -0-        -0-  ( 0.21)

Net Income per
share     

Basic       $   3.01   $  2.98   $  1.85    $  1.83  $  2.95
Diluted     $   2.92   $  2.90   $  1.81    $  1.80  $  2.88

Total 
Assets     $ 304,324  $287,730  $287,678    $253,100 $277,790

Long Term
Obligations $ 53,792  $ 59,940  $ 67,989    $ 77,819 $ 89,178

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



For the year ended December 31, 1997, FIC's net income was
$16,328,000 (or $2.92 per common share), as compared to $16,157,000
(or $2.90 per common share for the year ended December 31, 1996 and
$10,017,000 (or $1.81 per common share), for the year ended
December 31, 1995. Earnings per share are stated on a diluted
basis, in accordance with the requirements of FAS 128, which
requires that 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 years 1996 and
1995, earnings per share have been restated to reflect the effect
of FAS No.128.  The net income per share for the year 1995 has been
restated to reflect the effect of the five-for-one stock split
which was effective November 12, 1996.

                          Results of Operations

Net income from continuing operations (excluding the gain resulting
from Family Life s sale of its interest in Bridgepoint Square
Offices in 1997 , ILCO s  sale of its interest in Bridgepoint
Square Offices in 1997,  and ILCO s sale of the Austin Centre in
1996, as described below) was $9,300,000 ($1.66 per common share on
a diluted basis) for the year ended December 31, 1997, $9,487,000
($1.70 per common share on a diluted basis) for the year ended
December 31, 1996 and  $10,017,000 ($1.81  per common share on a
diluted basis) for the year ended December 31, 1995

Net income for the year ended December 31, 1997 includes $3.2
million ($0.57 per common share) resulting from Family Life s sale
of its interest in Bridgepoint Square Offices.  Family Life
purchased undeveloped land at the Bridgepoint site in  May, 1996,
for a cash purchase price of $1.3  million. The property consists
of 7.1 acres of land with one office building site and one parking
structure site. Family Life began construction of the  building
(known as "Bridgepoint Five") in January 1997. In May, 1997, the
entire rentable space (approximately 76,793 rentable square feet)
contained in the building was leased to a major tenant in the
technology business. Construction of the parking garage and the
building shell was completed in October, 1997. In November, 1997,
Family Life entered into a contract to sell its interest in the
Bridgepoint Square Office complex. The sale also included the
adjacent properties developed by ILCO s subsidiary, Investors-NA.
The aggregate purchase price for the project was $78 million. The
transaction closed on December 5, 1997. The purchase price was
allocated approximately 78.5% to Investors-NA and 21.5% to Family
Life. The sale resulted in a net profit to Family Life of
approximately $4.5 million ($3.2 million after tax)that is included
in FIC's earnings for the year 1997.

FIC's net income is affected by its equity interest in
InterContinental Life Corporation ("ILCO") and ILCO's insurance
subsidiaries.  Net income for the year ended December 31, 1997
includes $3.8 million ($0.68 per common share on a diluted basis)
resulting from ILCO s sale of its interest in Bridgepoint Square
Offices. Net income for the year ended December 31, 1996 includes
$7.1 million resulting from ILCO's sale of the Austin Centre, a
hotel/office complex, located in Austin, Texas.  

The statutory earnings of Family Life as required to be reported to
insurance regulatory authorities before interest expense, capital
gains and losses, and federal income taxes were  $13,625,000 at
December 31, 1997, as compared to $12,734,000 at December 31, 1996
and $14,354,000 at December 31, 1995.  These statutory earnings are
the source to provide for the repayment of the indebtedness
incurred in connection with the acquisition of Family Life.

The decline in long-term interest rates during 1997, which was
related to general economic conditions, had a positive effect upon
the market value of the fixed maturities available for sale segment
of the Company's portfolio.  As of December 31, 1997, the market
value of the fixed maturities available for sale segment was $81.85 
million as compared to an amortized value of $79.06 million, or an
unrealized gain $2.79 million.  The net of tax effect of this
increase has been recorded as an increase in shareholders' equity.
There is no assurance that this unrealized gain may be realized in
the future.

For the year ended December 31, 1997, FIC's income from operations,
before federal income tax and equity in net earnings of affiliate,
was $13,411,000(on revenues of $63,343,000), as compared to
$9,791,000 (on revenues of $59,928,000) in the year 1996 and
$10,394,000 (on revenues of $61,541,000) for the year 1995.  

Premiums for the year 1997, net of reinsurance ceded, were $40.2  
million, as compared to $43.3 million in 1996 and $43.9 million in
1995. Policyholder benefits and expenses were $17.7 million in
1997, as compared to $22.1 million in 1996 and $21.0 million in
1995.


         Equity in Net Income of InterContinental Life Corporation

General:

Prior to the acquisition of Family Life in June of 1991, FIC's
primary involvement in the life insurance business was through its
equity interest in ILCO.  The Company's equity in the net earnings
of ILCO, net of federal income tax, was $6,458,000, as compared to
$9,012,000 for the year 1996 and $2,051,000 for the year 1995.  
The decrease in 1997, as compared to 1996 is primarily attributable
to the effect, in 1996, of ILCO's net income resulting from the
sale of the Austin Centre property. 

FIC currently owns 1,795,146 shares of ILCO's common stock, and
holds options to acquire an additional 1,702,155 shares.  The
options were granted under an Option Agreement between FIC and ILCO
which was entered into in March, 1986.  In addition, Family Life
currently owns 171,200 shares of ILCO common stock.  As a result,
FIC currently owns, directly and indirectly through Family Life,
1,966,346 shares (approximately 45.40%) of ILCO's common stock and
holds options to acquire 1,702,155 shares.  If all of FIC's rights
under the Option Agreement were to be presently exercised, FIC's
ownership would amount to approximately 60.80% of the issued and
outstanding shares of ILCO's common stock. The option agreement
provides that it continues in effect as long as FIC guarantees
indebtedness of ILCO.  The current Senior Loan of ILCO is scheduled
to be fully repaid on October 1, 1998. Accordingly, unless ILCO s
Senior Loan is extended, or ILCO otherwise incurs indebtedness
which is guaranteed by FIC, FIC s rights under the 1986 option
agreement would expire on October 1, 1998. 
 
The decline in long-term interest rates during 1997, which was
related to general economic conditions, had a positive effect upon
the market value of the fixed maturities available for sale segment
of ILCO's investment portfolio.  As of December 31, 1997, the
market value of the fixed maturities available for sale segment was
$454.5 million as compared to an amortized cost of $436.8  million,
or an unrealized gain $17.7 million.  There is no assurance that
this unrealized gain  will be realized by ILCO in the future. 
Since FIC owns approximately 45.40% of the common stock of ILCO,
such unrealized gains, net of tax, are reflected in FIC's equity
interest in ILCO, and had the effect of increasing the reported
value of such equity interest by approximately $4.9 million.

ILCO's results for 1997, 1996 and for that portion of 1995
beginning on February 14th, include the operations of Investors
Life Insurance Company of Indiana (formerly known as Meridian Life
Insurance Company and referred to herein as "Pre-Merger Investors-
IN" for purposes of identifying the entity prior to the December
1997 merger transaction described below).  Pre-Merger Investors-IN
was purchased by ILCO and Investors Life Insurance Company of North
America ("Investors-NA") for an adjusted purchase price of $17.1
million; the transaction was completed on February 14, 1995.  The
name change was completed in May, 1995.

ILCO's results for 1997 include, for the period beginning on July
9th, the operations of State Auto Life Insurance Company.  That
company was acquired from State Automobile Mutual Insurance
Company, for an adjusted  cash purchase price of $11.8 million. In
connection with this transaction, the bank group participating in
the ILCO Senior Loan  agreed to defer payment of $4.5 million 
otherwise payable on April 1, 1997 under the terms of the ILCO
Senior Loan, and to reduce the amount of the payment otherwise due
on July 1, 1997 by $2.5 million.  This deferral  resulted in
extending the maturity date of the ILCO Senior Loan to October 1,
1998.  Under the terms of the transaction, State Auto Life was
merged into Pre-Merger Investors-IN.  The closing of the
transaction took place on July 9, 1997.

In December, 1997, ILIC, an indirect subsidiary of ILCO,
transferred its domicile from New Jersey to Indiana.  Following
completion of the redomestication, ILIC merged with Pre-Merger
Investors-IN, with ILIC as the surviving entity in the merger
process.  Immediately after the merger, ILIC changed its name to
Investors Life Insurance Company of Indiana.  As used hereinafter,
the phrase "Investors-IN" shall be used to refer to the merged
entities.  As a result of the merger, Investors-IN is licensed in
44 states. As of December 31, 1997, it had assets of $153.8 million
and capital and surplus of $23.1 million.


Liquidity and Capital Resources of ILCO:

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

As of December 31, 1996, the outstanding principal balance of 
ILCO's Senior Loan obligations was $24.9 million.  ILCO made
scheduled principal payments under its Senior Loan on January 1,
1997 and July 1, 1997, reducing the principal balance to $11.0
million at December 31, 1997.   

ILCO's principal source of liquidity consists of the periodic
payment of principal and interest to it by Investors-NA, pursuant
to the terms of the two surplus debentures.  The surplus debentures
were originally issued by Standard Life Insurance Company and its
terms were previously approved by the Mississippi Insurance
Commissioner.  One of the surplus debentures, in the original
amount of $15 million, was issued in connection with the 1986
acquisition of Standard Life by ILCO; the other, in the original
amount of $140 million was issued in connection with the 1988
acquisition by ILCO of the Investors Life Companies. Upon the
merger of Standard Life into Investors-NA, the obligations of the
surplus debentures were assumed by Investors-NA.  As of December
31, 199, the outstanding principal balance of the surplus
debentures was $5.2 million and $22.6 million, respectively.  Since
Investors-NA is domiciled in the State of Washington, the
Washington insurance law applies to the administration of the terms
of the surplus debentures.  Under the provisions of the surplus
debentures and current law, no prior approval of the Washington
Insurance Commissioner is required for Investors-NA to pay interest
or principal on the surplus debentures; provided that, after giving
effect to such payments, the statutory surplus of Investors-NA is
in excess of $10 million (the "surplus floor").  However,
Investors-NA has voluntarily agreed with the Washington Insurance
Commissioner that it will provide at least five days advance notice
of payments which it will make under the surplus debenture.  As of
December 31, 1997, the statutory capital and surplus of Investors-
NA was $73.9 million, an amount substantially in excess of the
surplus floor.  The funds required by Investors-NA to meet its
obligations to ILCO under the terms of the surplus debentures are
generated from operating income generated from insurance and
investment operations.

In addition to the payments under the terms of the Surplus
Debentures, ILCO has received dividends from 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. As of December 31,
1997, Investors-NA had earned surplus of $32.9 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 in the amounts
necessary to enable ILCO to service the Senior Loan for the
foreseeable future.

Investors-IN, formerly known as ILIC, is domiciled in the State of
Indiana. The transfer of domicile from New Jersey to Indiana was
effective December 15, 1997.  Under the Indiana insurance code, a
domestic insurer may make dividend distributions upon proper notice
to the Department of Insurance, as long as the distribution is
reasonable in relation to adequate levels of policyholder surplus
and quality of earnings. Under Indiana law the dividend must be
paid from earned surplus. Extraordinary dividend approval would be
required where a dividend exceeds the greater of 10% of surplus or
the net gain from operations for the prior fiscal year.
Investors-IN had earned surplus of $18.1 million at December 31,
1997.

The Form 10-Ks of ILCO for the years ended December 31, 1997, 1996
and 1995, set forth the business operations and financial results
of ILCO and its life insurance subsidiaries.  Such 10-K reports of
ILCO, including the discussion by ILCO's management under the
caption "Management's Discussion and Analysis of Financial
Conditions and Results of Operations" are incorporated herein by
reference.

                                     
                      Liquidity and Capital Resources

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

The cash requirements of FIC and its subsidiaries consist primarily
of its service of the indebtedness created in connection with its
ownership of Family Life.  As of September 30, 1996 the outstanding
balance of such indebtedness was $61.5 million on the Subordinated
Notes granted by Investors-NA. On April 17, 1996, the Senior Loan
granted by a group of banks was completely paid off.

The principal source of liquidity for FIC's subsidiaries consists
of the periodic payment of principal and interest by Family Life 
pursuant to the terms of a Surplus Debenture.  The terms of the
Surplus Debenture were previously approved by the Washington
Insurance Commissioner.  Under the provisions of the Surplus
Debenture and current law, no prior approval of the Washington 
Insurance Department is required for Family Life to pay interest or
principal on the Surplus Debenture; provided that, after giving
effect to such payments, the statutory surplus of Family Life is in
excess of 6% of assets (the "surplus floor").  However, Family Life
has voluntarily agreed with the Washington Insurance Commissioner
that it will provide at least five days advance notice of payments
which it will make under the surplus debenture.  As of December 31,
1997, the statutory capital and surplus of Family Life was $30.4  
million, an amount substantially in excess of the surplus floor.  
During 1997, Family Life made principal payments of $8.65 million
and interest payments of $3.3 million to Family Life Corporation
under the Surplus Debenture.  As of December 31, 1997, the
principal balance of the Surplus Debenture was $31.9 million.  The
funds required by Family Life to meet its obligations under the
terms of the Surplus Debenture are generated primarily from premium
payments from policyholders, investment income and the proceeds
from the sale and redemption of portfolio investments.    

Washington's insurance code includes the "greater of" standard for
dividends but has requirements that prior notification of a
proposed dividend be given to the Washington Insurance Commissioner
and that cash dividends may be paid only from earned surplus. 
Family Life does not presently have earned surplus as defined by
the regulations adopted by the Washington Insurance Commissioner
and, therefore, is not permitted to pay cash dividends.   However,
since the new law applies only to dividend payments, the ability of
Family Life to make principal and interest payments under the
Surplus Debenture is not affected.  The Company does not anticipate
that Family Life will have any difficulty in making principal and
interest payments on the Surplus Debenture in the amounts necessary
to enable Family Life Corporation to service its indebtedness for
the foreseeable future. 

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

FIC's net cash flow provided by operating activities was $5.2 
million in 1997, as compared to $9.7 million in 1996 and $9.1
million in 1995.  Net cash flow used in financing activities was
$6.1 million in 1997, as compared to $8.05 million in 1996 and $9.8
million in 1995. 

In connection with the purchase of the Investors Life Companies by
ILCO and the purchase of Family Life by a wholly- owned subsidiary
of FIC, FIC guaranteed the payment of the indebtedness created in
connection with such acquisitions. The guaranty commitments of FIC
with respect to the debt obligations of ILCO relate to the ILCO
Senior Loan, with an outstanding balance at December 31, 1997 of
$10.96 million.    

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

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



                                Investments

As of December 31, 1997, the Company's investment assets totaled  
$119.1 million, as compared to $111.7 million as of December 31,
1996.  

The level of short-term investments at the end of 1997 was $34.5  
million, as compared to $25.6 million as of December 31, 1996.  The
fixed maturities available for sale portion represents $81.9 
million of investment assets as of December 31, 1997, as compared
to $83.8 million at the end of 1996.  The amortized cost of fixed
maturities available for sale as of December 31, 1997 was $79.06  
million representing a net unrealized gain of $2.79 million.  This
unrealized gain principally reflects changes in interest rates from
the date the respective investments were purchased.  To reduce the
exposure to interest rate changes, portfolio investments are
selected so that diversity, maturity and liquidity factors
approximate the duration of associated policyholder liabilities. 

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

The fixed maturities portfolio of Family Life, as of December 31,
1997, consisted solely of fixed maturities investments which, in
the annual statements of the companies, as filed with state
insurance departments, were designated under the National
Association of Insurance Commissioners ("NAIC") rating system as a
"1" (highest quality).  

Management believes that the absence of "high-yield" or "non-
investment grade" investments (as defined above) in the portfolios
of its life insurance subsidiary enhances the ability of the
Company to service its debt, provide security to its policyholders
and to credit relatively consistent rates of return to its
policyholders.
                              Y2K Compliance

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

The Company has evaluated its centralized computer systems and has
developed a plan to reach  Y2K compliance.  A central feature of 
the plan is to convert most of the centralized systems to a common
system which is already in compliance with Y2K requirements.  The
Company is in the process of this systems conversion and
anticipates that the project will be completed  in advance of the
year 2000.

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

Under the Plan, The Company will utilize the services of personnel
of its affiliate, FIC Computer Services, Inc., to acquire Y2K
compliant operating software, and engage the assistance of outside
consultants to facilitate the systems conversions and
modifications. The Company has budgeted approximately $330,000 for
implementation of the Plan. In the event that the Plan does not
achieve full compliance by the target dates, or if unforeseen
matters involving Y2K appear at later dates, the Company will
utilize the staff of FIC Computer Services to identify and resolve
such issues as and if they arise.

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

A material number of policies administered by Family Life, will be
modified rather than converted. The modification of the PMS system
(administering approximately 122,000 policies for Family Life) was
completed in March, 1998. The conversion of the Cypros AP system
(administering approximately 21,400 policies for Family Life) is
scheduled for completion at the end of September, 1999.

A non-material number of Family Life policies are administered by
systems which also administer policies for ILCO and its
subsidiaries. With regard to ILCO and its subsidiaries, the ALIS
system (administering approximately 49,280 policies for Investors-
NA) was converted to CK/4 in January of 1998. The conversion of the
Life 70 system (administering approximately 17,285 policies for
Investors-IN) is scheduled for completion in April, 1999. The
modification of the Lifecomm-B system which is responsible for the
33,375 policies assumed after the acquisition of State Auto Life is
also scheduled for completion in April, 1999. The conversion of the
Lifecomm-A system (administering approximately 65,266 policies for
Investors-NA) is now scheduled for completion in September of 1999.

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

In 1997, FIC Computer Services 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. The telephone system has been tested by the maintenance
provider for that system and the Company has received assurances
that the telephone system is Y2K compliant.

With respect to non-centralized systems (i.e. desktop computers),
the Company 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 Y2K problems will  be less time intensive than the effort
needed to achieve compliance for its centralized systems.

                          Accounting Developments

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

The Statement is effective for interim and annual periods ending
after December 15, 1997.  Earlier application is not permitted. 
However, a company may disclose pro forma earnings per share
amounts that would have resulted if it had applied the Statement in
an earlier period. The Company adopted FAS 128 in its annual
financial statements for the year ended December 31, 1997.
 
In June, 1997, the FASB issued FAS No. 130, "Reporting
Comprehensive Income", which establishes standards for reporting
and display of comprehensive income and its components in a
financial statement with the same prominence as other financial
statements.  Comprehensive income is defined as net income adjusted
for changes in stockholders' equity resulting from events other
than net income or transactions related to an entity's capital
instruments.  The Company is required to adopt FAS 130 effective
January 1, 1998, with reclassification of financial statements for
earlier years required.

In June, 1997, the FASB issued FAS 131, "Disclosure 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 it is used internally for evaluating performance. 
The Company is required to adopt FAS 131 effective January 1, 1998
and comparative information for earlier years must be restated. 
This statement does not need to be applied to interim financial
statements in the initial year of application. The Company is
currently considering the impact, if any, of FAS 131 on its current
reporting structure.

In February, 1998, the FASB issued FAS 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 is required to adopt FAS 132 effective January 1, 1998,
with restatement of disclosures for earlier years required.

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.


Item 8.  Financial Statements and Supplementary Data

The following Financial Statements of the Registrant have been
filed as part of this report:

1.   Report of Price Waterhouse LLP, Independent Accountants, dated
     March 27, 1998.

2.   Consolidated Balance Sheets, as of December 31, 1997 and
     December 31, 1996.

3.   Consolidated Statements of Income for the years ended December
     31, 1997, 1996 and 1995.

4.   Consolidated Statements of Changes in Shareholders' Equity for
     the years ended December 31, 1997, 1996 and 1995.

5.   Consolidated Statements of Cash Flows for the years ended
     December 31, 1997, 1996 and 1995.

6.   Notes to Consolidated Financial Statements.

7.   Consolidated Financial Statement Schedules.


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

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

                                 Part III

Item 10.  Directors and Executive Officers of the Registrant

(a)  Directors of the Registrant

The names and ages of the current directors of the Registrant,
their principal occupations or employment during the past five
years and other data regarding them are set forth below.  All of
the directors were elected at the 1997 annual shareholders meeting. 
The data supplied below is based on information provided by the
directors, except to the extent that such data is known to the
Registrant.

                               
Principal Occupation                           Director
Name                Age     Since       and Other Information


John D. Barnett     54      1991    Vice President-Investments,
                                    Investment Professionals,
                                    Inc. since August 1996.  Vice
                                    President-Investments of
                                    Prudential Securities from
                                    April 1983 to July 1996.

Joseph F. Crowe     59      1992    Vice President of FIC from
                                    February 29, 1992 to January
                                    3, 1997, when he retired from
                                    active service with the
                                    Company. Director of FIC
                                    since February 29, 1992. 
                                    Vice President of ILCO from
                                    May 1991 to January 1997. 
                                    Director of ILCO from May
                                    1991 to October 1997. 
                                    Executive Vice President of
                                    Investors Life Insurance
                                    Company of North America and
                                    InterContinental Life
                                    Insurance Company from June
                                    1991 to January 1997. 
                                    Director of Investors Life
                                    Insurance Company of North
                                    America and InterContinental
                                    Life Insurance Company from
                                    June 1991 to January 1997. 
                                    Executive Vice President of
                                    Family Life Insurance Company
                                    from June 1991 to January
                                    1997.  Director of Family
                                    Life Insurance Company from
                                    June 1991 to January 1997. 
                                    Executive Vice President of
                                    Investors Life Insurance
                                    Company of Indiana from
                                    February 1995 to January
                                    1997.  Director of Investors
                                    Life Insurance Company of
                                    Indiana from February 1995 to 
                                    January 1997. From December
                                    1986 to March 1991, Executive
                                    Vice President of Personal
                                    Financial Security Division
                                    of Aetna Life & Casualty
                                    Company.


Jeffrey H. Demgen   45      1995    Director of FIC since May
                                    1995.  Vice President of FIC
                                    since August 1996.  Vice
                                    President and Director of
                                    ILCO since August 1996. 
                                    Director of Family Life
                                    Insurance Company since
                                    October 1992.  Executive Vice
                                    President of Family Life
                                    Insurance Company since
                                    August 1996.  Senior Vice
                                    President of Family Life
                                    Insurance Company from
                                    October 1992 to August 1996. 
                                    Executive Vice President and
                                    Director of Investors Life
                                    Insurance Company of North
                                    America since August 1996. 
                                    Senior Vice President and
                                    Director of Investors Life
                                    Insurance Company of North
                                    America from October 1992 to
                                    June 1995.  Executive Vice
                                    President of Investors-IN
                                    (formerly known as
                                    InterContinental Life
                                    Insurance Company) since
                                    August 1996.  Senior Vice
                                    President of Investors-IN 
                                    from October 1992 to June
                                    1995.  Executive Vice
                                    President and Director of
                                    Investors Life Insurance
                                    Company of Indiana from
                                    August 1996 to December 1997. 
                                    Senior Vice President of
                                    United Insurance Company of
                                    America from September 1984
                                    to July 1992.

Theodore A. Fleron    58    1996    Vice President and Director
                                    of FIC since August 1996. 
                                    Vice President and Director
                                    of ILCO since May 1991. 
                                    Assistant Secretary of ILCO
                                    since June 1990.  Senior Vice
                                    President, General Counsel,
                                    Assistant Secretary and
                                    Director of Investors Life
                                    Insurance Company of North
                                    America and Investors-IN,
                                    formerly known as
                                    InterContinental Life
                                    Insurance Company since July
                                    1992. Vice President, General
                                    Counsel, Assistant Secretary
                                    and Director of Investors
                                    Life Insurance Company of
                                    North America and Investors-
                                    IN, formerly known as
                                    InterContinental Life
                                    Insurance Company from
                                    January 1989 to July 1992. 
                                    Senior Vice President,
                                    General Counsel, Director and
                                    Assistant Secretary of
                                    Investors Life Insurance
                                    Company of Indiana from June
                                    1995 to December 1997. 
                                    Senior Vice President,
                                    General Counsel, Director and
                                    Assistant Secretary of Family
                                    Life Insurance Company since
                                    August 1996. 

James M. Grace      54      1976    Vice President, Treasurer and
                                    Director of FIC. Vice
                                    President and Treasurer of
                                    ILCO since January 1985. 
                                    Executive Vice President,
                                    Treasurer and Director of
                                    Investors-IN, formerly known
                                    as InterContinental Life
                                    Insurance Company since 1989. 
                                    Director, Executive Vice
                                    President and Treasurer of
                                    Investors Life Insurance
                                    Company of North America
                                    since 1989.  Executive Vice
                                    President, Treasurer and
                                    Director of Family Life
                                    Insurance Company since June
                                    1991.  Director, Executive
                                    Vice President and Treasurer
                                    of Investors Life Insurance
                                    Company of Indiana from
                                    February 1995 to December
                                    1997.  

Dale E. Mitte       63      1994    Senior Vice President since
                                    January 1993 and Vice
                                    President, Chief Underwriter
                                    and Director since December
                                    1988 of Investors Life
                                    Insurance Company of North
                                    America and Investors-IN,
                                    formerly known as
                                    InterContinental Life
                                    Insurance Company.  Director
                                    from June 1991 to April 1992
                                    and Vice President and Chief
                                    Underwriter since June 1991
                                    of Family Life Insurance
                                    Company.  Director, Senior
                                    Vice President and Chief
                                    Underwriter of Investors Life
                                    Insurance Company of Indiana
                                    from June 1995 to December
                                    1997.

Roy F. Mitte        66      1976    Chairman of the Board,
                                    President and Chief Executive
                                    Officer of FIC.  Chairman of
                                    the Board, President and
                                    Chief Executive Officer of
                                    ILCO and Investors-IN,
                                    formerly known as
                                    InterContinental Life
                                    Insurance Company since
                                    January 1985. President of
                                    ILCO since April 1985. 
                                    Chairman of the Board,
                                    President and Chief Executive
                                    Officer of Investors Life
                                    Insurance Company of North
                                    America since December 1988.
                                    Chairman of the Board,
                                    President and Chief Executive
                                    Officer of Family Life
                                    Insurance Company since June
                                    1991.  Chairman of the Board,
                                    President and Chief Executive
                                    Officer of Investors Life
                                    Insurance Company of Indiana
                                    from February 1995 to
                                    December 1997.  Chairman, ILG
                                    Securities Corporation since
                                    December 1988.


Leonard A. Nadler   55      1994    Senior Managing Director of
                                    Julien J. Studley, Inc. since
                                    1996.  President, Leonard
                                    Nadler Associates, Inc., a
                                    commercial real estate
                                    brokerage company located in
                                    Los Angeles, California, for
                                    more than the last five
                                    years.

Frank Parker        69      1994    President, Gateway Tugs, Inc.
                                    and Par-Tex Marine, Inc.,
                                    both of which are located in
                                    Brownsville, Texas and are
                                    engaged in operating and
                                    chartering harbor and
                                    intracoastal tug boats, for
                                    more than the last five
                                    years.


Eugene E. Payne     55      1992    Vice President, Secretary and
                                    Director of FIC. Vice
                                    President of ILCO since
                                    December 1988 and Secretary
                                    and Director of ILCO since
                                    May 1989.  Executive Vice
                                    President, Secretary and
                                    Director of Investors Life
                                    Insurance Company of North
                                    America since December 1988. 
                                    Executive Vice President
                                    since December 1988 and
                                    Director since May 1989 of
                                    Investors-IN, formerly known
                                    as  InterContinental Life
                                    Insurance Company.  Executive
                                    Vice President, Secretary and
                                    Director of Family Life
                                    Insurance Company since June
                                    1991.  Director, Executive
                                    Vice President and Secretary
                                    of Investors Life Insurance
                                    Company of Indiana from
                                    February 1995 to December
                                    1997.

Thomas C. Richmond  56      1996    Director of FIC since August
                                    1996.  Director of ILCO from
                                    March 1994 to August 1996. 
                                    Director from March 1989 to
                                    February 1990, Senior Vice
                                    President since January 1993
                                    and Vice President from March
                                    1989 to January 1993 of
                                    Investors Life Insurance
                                    Company of North America and
                                    Investors-IN, formerly known
                                    as InterContinental Life
                                    Insurance Company.  Senior
                                    Vice President of Family Life
                                    Insurance Company since June
                                    1991.  Senior Vice President
                                    of Investors Life Insurance
                                    Company of Indiana from June
                                    1995 to December 1997.  



Mr. Nadler and his wife were general partners of a single-asset
partnership that owned The Palmilla Apartments, a 26 unit apartment
complex in Hollywood, California.  In March 1992, a receiver for
that property was appointed by stipulation of the parties in
connection with the conveyance of that property to the mortgagee. 
The receiver was discharged by stipulation of the parties in
September 1992.

The incumbent directors, except for Mr. Nadler have been nominated
for submission to vote of the shareholders for reelection at the
1998 annual shareholders' meeting.

(b) Executive Officers of the Registrant

The following table sets forth the names and ages of the persons
who served as the Registrant's Executive Officers during 1996
together with all positions and offices held by them with the
Registrant.  Officers are elected to serve at the will of the Board
of Directors or until their successors have been elected and
qualified.

     Name           Age     Positions and Offices

Roy F. Mitte        66      Chairman of the Board, 
                            President and Chief
                            Executive Officer

James M. Grace      54      Vice President and Treasurer
                            

Eugene E. Payne     55      Vice President and Secretary

Joseph F. Crowe (1) 59      Vice President

Jeffrey H. Demgen   45      Vice President
                                           

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

1.                  Mr. Crowe retired from active service with the
                    Company as of January 3, 1997.  He continues
                    to serve on the Board of Directors.



(c)  Identification of certain significant employees

Not applicable.

(d)  Family relationships

Dale E. Mitte is Roy F. Mitte's brother.

(e)  Business experience

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

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

Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers and directors, and persons who own more than ten
percent of a registered class of the Company's equity securities,
to file reports of beneficial ownership on Form 3 and changes in
beneficial ownership on Form 4 and 5 with the Securities and
Exchange Commission.  Officers, directors and greater than ten-
percent shareholders are required by SEC regulation to furnish the
Company with copies of all Section 16(a) forms they file.

Based solely on review of the copies of such forms furnished to the
Company, or written representations that no Form 5's were required,
the Company believes that during the period from January 1, 1997
through December 31, 1997, all Section 16(a) filing requirements
applicable to its officers, directors and greater than ten-percent
beneficial owners were complied with.

Item 11.  Executive Compensation

Summary Compensation Table

The following table sets forth information concerning the
compensation of the Company's Chief Executive Officer and each of
the three other persons who were serving as executive officers of
the Company at the end of 1997 and received cash compensation
exceeding $100,000 during 1997:



                       Annual Compensation    
                                           Long Term
                                           Compensa-
                                           tion
                                           Awards
Name and                                           Stock
Principal                                          Options     All Other
Position      Year Salary (1) Bonus(8)    Other(2) (Shares)   Compensation(9) 


Roy F. Mitte,
Chairman of
Board,
President and
Chief         1997 $503,500  $1,500,000                        
Executive     1996 $503,500     -0-         -0-                $2,446,397(3)
Officer       1995 $503,500     -0-         -0-                $1,120,513(4)

James M.
Grace,
Vice
President     1997 $195,000     $40,000                        
and           1996 $195,000     $15,000     -0-                -0-
Treasurer     1995 $195,000     $10,000     -0-                -0-

Eugene E.
Payne,        1997 $195,000     $40,000                        
Vice          1996 $195,000     $15,000     -0-                -0-
President     1995 $195,000     $10,000     -0-                -0-
&Secretary

Jeffrey
H. Demgen,
Vice Presi-1997    $117,884     $30,000            
dent       1996    $102,500     $ 7,500     -0-                -0-
                                      



(1)  The salaries and bonuses set forth in the table were paid by
ILCO, except that FIC and/or Family Life authorized payment of a
portion of Mr. Mitte's salary in each of 1995, 1996 and 1997. The
executive officers of FIC have also been executive officers of
Family Life, the insurance subsidiary of FIC, and ILCO and its
insurance subsidiaries.  FIC and/or Family Life reimbursed ILCO
(or, in the case of Mr. Mitte, authorized payment of) the following
amounts as FIC's or Family Life's share of the executive officers'
cash compensation and bonus for 1995, 1996 and 1997: (i) Mr. Mitte:
$216,857, $216,857 and $999,746, respectively;(ii) Mr. Grace:
$88,293, $83,987 and $68,150, respectively; (iii) Dr. Payne: 
$79,875, $83,987 and $68,150, respectively; and (iv) Mr. Demgen:
$46,125 and $66,548  (1996 and 1997 only).

The bonuses for Mr. Grace, Dr. Payne and Mr. Demgen represent
amounts paid in 1997, but include the bonuses awarded with respect
to the years 1996 and 1997.

Mr. Mitte and FIC are parties to an employment agreement, providing
for the employment of Mr. Mitte as Chairman, President and Chief
Executive Officer of the Company.  The agreement, which was
initially effective February 25, 1982, provides for five-year terms
and for automatic renewals for successive five-year periods, unless
otherwise terminated in accordance with the terms of the agreement.
The agreement provides that the level of compensation will be fixed
each year by agreement, but not less than $120,000 per year. In
addition, the agreement provides that Mr. Mitte is entitled to
reimbursement for reasonable business expenses and to participate
in all fringe benefit plans and arrangements available generally to
employees of the Company.

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

(3)  During 1996, ILCO paid Mr. Mitte: (i) $1,862,000 for the
cancellation in 1996 of options to purchase 121,500 shares of the
Company's common stock, plus interest at the rate of 8% per year on
such amount for a one year period (for a total of $2,011,737); (ii)
$120,700 for the federal income tax reimbursement relating to the
cancellation in 1995 of options to purchase 50,000 shares of the
Company's common stock; and (iii) $313,960 for the federal income
tax reimbursement relating to the 1996 options cancellation
described above in this footnote.  Each of these payments was made
pursuant to the contract referred to in footnote 4. 

(4)  In 1989, ILCO's Board of Directors granted Mr. Mitte options
to purchase 600,000 shares of ILCO's Common Stock.  In October
1992, Mr. Mitte surrendered to ILCO for cancellation options to
purchase 120,000 shares.  ILCO and Mr. Mitte entered into a
contract in 1993 providing for the cancellation of 240,000 options
for an aggregate amount of $3,237,120 in 1993 and the cancellation
in subsequent years of the remaining options for an aggregate
amount of $3,610,240.  In addition, the Company agreed to pay Mr.
Mitte the amount necessary to ensure that Mr. Mitte will receive
the same amount, after federal income tax, that he would have
received if the options had been cancelled in 1992.  During 1995,
Mr. Mitte was paid $836,582 for the cancellation in 1995 of options
to purchase 50,000 shares of ILCO's Common Stock, $156,323 for the
federal income tax reimbursement relating to the cancellation in
1994 of options to purchase 68,500 shares and $127,608 as the final
payment relating to the cancellation in 1993 of options to purchase
240,000 shares.  These option cancellation payments were made
pursuant to the contract referred to above. FIC's Compensation
Committee made a recommendation to FIC's Board of Directors, which
it adopted, that, in lieu of paying Mr. Mitte a bonus as it has in
the past, FIC pay $407,000 of these option cancellation payments to
Mr. Mitte, with the balance of $713,513 being paid by ILCO.


Compensation of Directors

Directors who are not officers or employees of the Company are paid
a $5,000 annual fee, and are compensated $1,000 for each regular or
special meeting of the Board of Directors which they attend in
person.

Members of Compensation Committee

The Compensation Committee makes recommendations to the Board of
Directors with respect to the Chief Executive Officer's
compensation.  The members of the Compensation Committee are John
D. Barnett, Leonard A. Nadler and Frank Parker.

Compensation Committee Interlocks and Insider Participation

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

Item 12.  Security Ownership of Certain Beneficial Owners and     
          Management

The following table presents information as of March 14, 1998 as to
all persons who, to the knowledge of the Registrant, were the
beneficial owners of five percent (5%) or more of the Common Stock
of the Registrant.

                           Amount and Nature           

Name and Address of        of Beneficial              Percent
Beneficial Owner           Ownership                  of Class


Roy F. Mitte,
Chairman of the Board,
President and Chief
Executive Officer,
701 Brazos
Suite 1400,
Austin, Texas  78701         1,866,520 (1)            34.39% (1)

InterContinental Life
  Corporation
701 Brazos
Suite 1400,
Austin, Texas  78701         727,115 (2,4)             12.19% (3)

Investors Life Insurance
  Company of North America
701 Brazos
Suite 1400
Austin, Texas  78701           727,115 (2,4)           12.19% (3)

Heartland Advisors, Inc.                                         
790 North Milwaukee St.
Milwaukee, WI 53202            320,400                 5.00% (5)  

              
(1)           Of these shares, 1,493,216 are held jointly by Mr.
              Mitte with his wife Joann C. Mitte.  Mr. Mitte and his
              wife also control the Roy F. and Joanne Cole Mitte
              Foundation, a Texas non-profit corporation (the
              "Foundation"), which owns 373,304 common shares of FIC
              stock as a result of a donation made by Mr. Mitte and
              his wife from their personal holdings. The holdings of
              the Foundation combined with Mr. and Mrs. Mitte's
              remaining personal holdings in FIC stock constitutes
              34.39 percent of the outstanding common stock of that
              company.

(2)           Of such shares, 145,500 shares are owned by Investors-
              NA, 44,250 shares are owned by ILIC, and 537,365 shares
              are issuable upon exercise of an option held by
              Investors-NA.  Investors-NA is a direct subsidiary of
              ILCO.  ILIC is a direct subsidiary of Investors-NA.

(3)           Assumes that outstanding stock options or warrants held
              by other persons have not been exercised.

(4)           See Item 1.  Business-Acquisition of Family Life for a
              description of the options granted to Investors-NA.

(5)           As reported to the Company on a Schedule 13(G) filed by
              Heartland Advisors, Inc.  According to the Schedule
              13(G), the shares are held for various investment
              advisory accounts and the interest of one such account 
              (Heartland Value Fund, a registered investment company)
              is more than 5% of the common stock of FIC.  The
              Schedule 13(G) was filed on January 27, 1998.


The following table contains information as of March 16, 1998 as to
the Common Stock of the Registrant beneficially owned by each
director, nominee and executive officer and by all executive
officers and directors of the Registrant as a group. The
information contained in the table has been obtained by the
Registrant from each director and executive officer, except for the
information known to the Registrant.  Except as indicated in the
notes to the table, each beneficial owner has sole voting power and
sole investment power as to the shares listed opposite his name.

                           Amount and Nature of       Percent of
Name                       Beneficial Ownership       Class

John Barnett                      -0-
Joseph F. Crowe                   -0- (2)
Jeffrey H. Demgen                 -0- (2)
Theodore A. Fleron                -0-
James M. Grace                  5,600 (2)                *     
Dale E. Mitte                   2,000                    *
Roy F. Mitte                1,866,520 (1,2)          34.39%
Leonard A. Nadler               1,665                    *
Frank Parker                   10,000                    *
Eugene E. Payne                 5,360 (2)                *
Thomas C. Richmond                -0-
 

All Executive Officers, 
Nominees and Directors as  
a group (11 persons)        1,891,145        (1,2)      34.84%   


(1)           As of March 16, 1998, Mr. Mitte, jointly with his wife
              Joann, currently owns 1,493,216 common shares of
              Financial Industries Corporation ("FIC"). Mr. Mitte and
              his wife also control the  Roy F. and Joanne Cole Mitte
              Foundation, a Texas non-profit corporation (the
              "Foundation"), which owns 373,304 common shares of FIC
              stock as a result of a donation made by Mr. Mitte and
              his wife from their personal holdings. The holdings of
              the Foundation combined with Mr. and Mrs. Mitte's
              remaining personal holdings in FIC stock constitutes
              34.39 percent of the outstanding common stock of that
              company. Mr. Mitte holds the position of Chairman,
              President and Chief Executive Officer of FIC.

(2)           No executive officer or director holds any options to
              acquire FIC Common Stock.  Messrs. Roy Mitte, Grace,
              Payne and Demgen are executive officers and/or
              directors of ILCO and beneficially owned approximately 
              62% of the outstanding shares of ILCO common stock as
              of March 16, 1998.  Since FIC beneficially owns 60.68%
              of ILCO Common Stock, Mr. Roy Mitte's personal holdings
              are combined with FIC's holdings in determining the
              percentage of ILCO Common Stock beneficially owned by
              Mr. Mitte.  ILCO beneficially owned 727,115 shares of
              FIC Common Stock (12.19% of the outstanding shares) as
              of March 16, 1998.

 * Less than 1%.



Item 13.  Certain Relationships and Related Transactions

(a)  The obligations of ILCO under the ILCO Senior Loan are
guaranteed by FIC.  FIC presently owns 1,966,346 shares of ILCO
Common Stock, constituting 45.40% of such shares outstanding, and
holds options to acquire an additional 1,702,155 shares at the
average bid price of such shares during the six-month period
preceding the date of any such purchase.  In the event that such
options were to be fully exercised, the total number of ILCO's
shares owned by FIC would constitute 60.80% of ILCO's outstanding
Common Stock. As described under the heading  ILCO Senior Loan ,
the current Senior Loan of ILCO is scheduled to be fully repaid on
October 1, 1998. Accordingly, unless ILCO s Senior Loan is
extended, or ILCO otherwise incurs indebtedness which is guaranteed
by FIC, FIC s rights under the 1986 option agreement would expire
on October 1, 1998. 

(b)  Roy F. Mitte serves as Chairman, President and Chief Executive
Officer of both FIC and ILCO.  James M. Grace serves as Vice
President, Treasurer and Director of both companies; Dr. Payne
serves as Vice President, Secretary and Director of both companies;
Messrs. Demgen and Fleron serve as Vice Presidents and Directors of
both companies.  Mr. Roy Mitte holds beneficial ownership of 34.39%
of the outstanding shares of the Company (see "Security Ownership
of Certain Beneficial Owners").  

(c)  In connection with the December, 1997 sale of Bridgepoint
Square Offices by Investors-NA and Family Life Insurance Company,
FIC Realty received a commission in the amount of $156,000, of
which $122,538 was paid by Investors-NA and $33,462 by Family Life.


(d)  As part of the financing arrangement for the acquisition of
Family Life, a $22.5 million loan was made by Investors-NA to  FLC,
a subsidiary of FIC, and a $2.5 million loan was made by Investors-
CA to FIC.  In addition to the interest provided under those loans,
Investors-NA and Investors-CA were granted by FIC non-transferable
options to purchase, in the amounts proportionate to their
respective loans, up to a total of 9.9 percent of shares of FIC's
common stock at a price of $10.50 per share, equivalent to the then
current market price, subject to adjustment to prevent dilution. As
a result of the FIC's five-for-one stock split, which was effective
November 12, 1996, the option price is currently $2.10 per share. 
The options originally were to expire on June 12, 1998 if not
previously exercised.  In connection with the 1996 amendments to
the subordinated notes, as described below, the expiration date of
the options were extended to September 12, 2006.

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

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

(e)  FIC was reimbursed by ILCO for rental expense and certain
other operating expenses incurred during 1997 on behalf of ILCO. 
The amount of such reimbursement was approximately $822,000.

(f)  Pursuant to a data processing agreement with a major service
company, the data processing needs of ILCO's and FIC's insurance
subsidiaries were provided at a central location until November 30,
1994.  Commencing December 1, 1994, all of those data processing
needs are provided to ILCO's and FIC's Austin, Texas and Seattle,
Washington facilities by FIC Computer Services, Inc. ("FIC
Computer"), a new subsidiary of FIC.  Each of FIC's and ILCO's
insurance subsidiaries has entered into a data processing agreement
with FIC Computer whereby FIC Computer provides data processing
services to each subsidiary for fees equal to such subsidiary's
proportionate share of FIC Computer's actual costs of providing
those services  to all  of the  subsidiaries.   Family Life  paid
$824,425 and ILCO's insurance subsidiaries paid $3,010,110 to FIC
Computer for data processing services provided during 1997.

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

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

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

(a)  The following documents have been filed as part of this
report:

     1.  Financial Statements (See Item 8)

ILCO Form 10-K as of December 31, 1995, 1996 and 1997 and the
Financial Statements contained therein are hereby incorporated by
reference.

The following consolidated financial statements of Financial
Industries Corporation and Subsidiaries are included in Item 8:

Report of Independent Accountants . . . . . . . . . . .F-2     
   
Consolidated Balance Sheets,
December 31, 1997 and 1996. . . . . . . . . . . . . . .F-3

Consolidated Statements of Income, for
years ended December 31, 1997, 1996 and 1995. . . . . .F-5

Consolidated Statements of Changes in
Shareholders' Equity, for the years ended
December 31, 1997, 1996 and 1995. . . . . . . . . . . .F-7

Consolidated Statement of Cash Flows, for the
years ended December 31, 1996, 1995 and 1994. . . . . .F-10

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

   
2.  The following consolidated financial statement schedules of
Financial Industries Corporation and Subsidiaries are included:

Schedule I-Summary of Investments
Other Than Investments in Related Parties. . . . . . . . . . F-41


Schedule II - Condensed Financial Statements 
of Registrant. . . . . . . . . . . . . . . . . . . . . . . .  F-42

Schedule IV - Reinsurance  . . . . . . . . . . .. . . . . . . F-45


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


2.   Exhibits filed with this report or incorporated herein by
reference are as listed in the Index to Exhibits on Page Ex-1.


(b)  Reports on Form 8-K

     No reports on Form 8-K were filed during the last quarter of 
     the fiscal year ended December 31, 1997.


                                SIGNATURES

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

                     Financial Industries Corporation
                               (Registrant)

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

Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the Registrant and in the capacities indicated on March 
30, 1998.

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

/s/ Eugene E. Payne                 /s/ Jeffrey H. Demgen       
Eugene E. Payne, Director          Jeffrey H. Demgen, Director    
   
/s/ Joseph F. Crowe                  
Joseph F. Crowe, Director          

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

/s/ Dale E. Mitte               
Dale E. Mitte, Director

/s/ John D. Barnett                  
John D. Barnett, Director

/s/ Leonard A. Nadler           
Leonard A. Nadler, Director

/s/ Frank Parker               
Frank Parker, Director

/s/ Thomas C. Richmond         
Thomas C. Richmond, Director


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


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

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

           Consolidated Balance Sheets, 
             December 31, 1997 and 1996....................F-3

           Consolidated Statements of Income, for the 
             years ended December 31, 1997, 1996 and 1995..F-5

           Consolidated Statements of Changes in 
              Shareholders' Equity for the years ended 
              December 31, 1997, 1996 and 1995.............F-7

           Consolidated Statements of Cash Flows, for 
             the years ended December 1997, 1996 and 1995..F-10   

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

(2)           The following consolidated financial statements of    
              Financial Industries Corporation and Subsidiaries
              are included:

              Schedule I - Summary of Investments Other 
              Than Investments in Related Parties.............F-41

              Schedule II - Condensed Financial Statements of 
              Registrant......................................F-42

              Schedule IV - Reinsurance.......................F-45

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


                     REPORT OF INDEPENDENT ACCOUNTANTS


To the Board of Directors and Shareholders
of Financial Industries Corporation

In our opinion, the consolidated financial statements listed in the
index appearing under Item 14(a) (1) and (2) on page F-1 present
fairly, in all material respects, the financial position of
Financial Industries Corporation and its subsidiaries (the Company)
at December 31, 1997 and 1996 and the results of their operations
and their cash flows for each of the three years in the period
ended December 31, 1997, in conformity with generally accepted
accounting principles.  These financial statements are the
responsibility of the Company's management; our responsibility is
to express an opinion on these financial statements based on our
audits.  We conducted our audits of these statements in accordance
with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. 
An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation.  We believe that our audits provide a reasonable
basis for the opinion expressed above.


Price Waterhouse LLP
Dallas, Texas 
March 27, 1998 

              FINANCIAL INDUSTRIES CORPORATION AND SUBSIDIARIES
                        CONSOLIDATED BALANCE SHEETS

                                           
                                               December 31,              
                                           
                                               1997        1996     
                                                (in thousands)
ASSETS

Investments other than investment in
  affiliate:
 Fixed maturities available for sale at
  market value (amortized cost of
 $79,054 and $82,969 at December 31,
 1997 and 1996)                             $   81,854  $  83,833
Equity securities at market (cost
  approximates $11 at December 31, 1997
   and 1996)                                         4          4
Policy loans                                     2,748      2,286
Short-term investments                          34,475     25,615
  Total investments                            119,081    111,738

Cash                                               508        308

Investment in affiliate                         66,752     52,925

Accrued investment income                        1,184      1,233

Agency advances and other receivables            6,474      7,825

Reinsurance receivables                         11,134      6,159

Due and deferred premiums                       11,086     10,651

Property and equipment, net                      1,724      8,799

Deferred policy acquisition costs               45,122     41,333

Present value of future profits of
  acquired businesses                           34,437     40,604

Other assets                                     6,346      5,706

Separate account assets                            476        449

  Total Assets                               $ 304,324  $ 287,730



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

             FINANCIAL INDUSTRIES CORPORATION AND SUBSIDIARIES
                        CONSOLIDATED BALANCE SHEETS
                                                   December 31,  
                                                1997        1996  
                                                 (in thousands)
LIABILITIES AND SHAREHOLDERS' EQUITY

Liabilities:
Policy liabilities and contractholder
 deposit funds:
Future policy benefits                       $  59,987  $  59,340
Contractholder deposit funds                    44,304     41,434
Unearned premiums                                   90        129
Other policy claims and benefits payable         5,315      5,164
                                               109,696    106,067
Subordinated notes payable to 
 affiliate                                      53,792     59,940
Deferred federal income taxes                   21,631     17,952
Other liabilities                                4,880     11,248
Separate account liabilities                       476        449

Total Liabilities                              190,475    195,656

Commitments and Contingencies
 (See Notes 4, 8, 12, 14)

Shareholders' equity:
Common stock, $.20 par value, 10,000,000
 shares authorized; 5,845,300 shares
 issued, 5,427,965 outstanding in 1997
 and 1996                                        1,169      1,169
Additional paid-in capital                       7,225      7,225
Net unrealized gain on
 investments in  fixed maturities
 available for sale                              6,660      1,220
Net unrealized appreciation of equity
 securities                                         32         25
Retained earnings                               99,185     82,857
                                               114,271     92,496
Common treasury stock, at cost, 417,335
 shares in 1997 and 1996                          (422)       (422)
Total Shareholders' Equity                     113,849     92,074

Total Liabilities and Shareholders'
 Equity                                      $ 304,324  $ 287,730

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

                                     
        FINANCIAL INDUSTRIES CORPORATION AND SUBSIDIARIES 
                     CONSOLIDATED STATEMENTS OF INCOME

                                       Years Ended December 31, 
                                       1997       1996      1995
                                             (in thousands)

Revenues:
 Premiums                           $ 40,249 $ 43,336  $ 43,899
 Net investment income                 8,106    7,363     7,643
 Net realized gain on 
  sale of real estate                  4,548      -0-       -0-
 Earned insurance charges              6,989    5,569     7,059
 Other                                 3,451    3,660     2,940
                                      63,343   59,928    61,541

Benefits and expenses:
 Policyholder benefits and expenses   19,905   22,096    21,011
 Interest expense on contract-
   holders deposit funds               2,596    2,239     2,143
 Amortization of present value of
  future profits of acquired
  businesses                           6,167    4,811     5,297
 Amortization of deferred policy 
  acquisition costs                    4,826    4,185     3,755
 Operating expenses                   12,755   12,975    14,317
 Interest expense                      3,683    3,831     4,624
                                      49,932   50,137    51,147
Income before federal income tax 
 and equity in net earnings of 
 affiliates                           13,411    9,791    10,394

Provision for federal income taxes:
 Current                               1,348   (1,165)     (717)
 Deferred                              2,193    3,811     3,145

Income before equity in net 
 earnings of affiliates                9,870    7,145     7,966

Equity in net earnings of
 affiliate, net of tax                 6,458    9,012     2,051

Net Income                          $ 16,328 $ 16,157  $ 10,017

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

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

                                       Years Ended December 31,  
                                        1997      1996      1995
                                           (in thousands)

Net Income Per Share (Note 15)

Basic:

Average weighted shares outstanding    5,428     5,428     5,428

Basic earnings per share              $ 3.01    $ 2.98    $ 1.85

Diluted:

Common stock and common stock
 equivalents                          5,589     5,568     5,540

Diluted earnings per share           $ 2.92    $ 2.90    $ 1.81

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

             FINANCIAL INDUSTRIES CORPORATION AND SUBSIDIARIES
        CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
                              (in thousands)
                                                               
                                 Common Stock        Additional 
                                                      Paid-in   
                          Shares           Amount     Capital 
Balance at December 31,
  1994
 Net income                     5,845     $ 1,169     $  7,225
 Change in net unrealized
  loss on investments in
  fixed maturities
  available for sale
 Change in net unrealized
  appreciation
  (depreciation) of equity
  securities                                                                   

Balance at December 31,
  1995                          5,845       1,169        7,225
 Net Income
 Change in net unrealized
  loss on investments in
  fixed maturities
  available for sale
 Change in net unrealized
  appreciation
  (depreciation) of equity
  securities                                                                   

Balance at December 31,
  1996                          5,845    $  1,169     $  7,225
 Net Income
 Change in net unrealized
  gain on investments in
  fixed maturities
  available for sale
 Change in net unrealized
  appreciation
  (depreciation) of equity
  securities                                                                    

Balance at December 31, 
1997                           5,845    $  1,169     $  7,225

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


             FINANCIAL INDUSTRIES CORPORATION AND SUBSIDIARIES
        CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
                              (in thousands)     
                                               Net Unrealized
                                Net            (Loss) Gain on
                             Unrealized        Investments in  
                            Appreciation            Fixed 
                           (Depreciation)        Maturities
                             of Equity         Available for
                             Securities              Sale      
                                        
            
Balance at December 31,
  1994                             $    (1)          $  (12,858)
 Net income
 Change in net unrealized
  loss on investments in
  fixed maturities
  available for sale                                   20,910 
 Change in net unrealized
  appreciation
  (depreciation) of equity
  securities                            12                     

Balance at December 31,
  1995                                  11              8,052
 Net Income
 Change in net unrealized
  gain on investments in
  fixed maturities
  available for sale                                   (6,832)
 Change in net unrealized
  appreciation
  (depreciation) of equity
  securities                            14

Balance at December 31,
  1996                                  25              1,220
 Net Income
 Change in net unrealized
  gain on investments in
  fixed maturities
  available for sale                                   5,440
 Change in net unrealized
  appreciation
  (depreciation) of equity
  securities                           7                    

Balance at December 31,
  1997                          $     32            $  6,660
                                     
          The accompanying notes are an integral part of these 
                    consolidated financial statements.

             FINANCIAL INDUSTRIES CORPORATION AND SUBSIDIARIES
        CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
                              (in thousands)


                                         Common       Total
                           Retained      Treasury    Shareholders'
                           Earnings       Stock        Equity   

Balance at December 31,
  1994                        $ 56,683   $  (422)     $ 51,796
 Net income                     10,017                  10,017
 Change in net unrealized
  loss on investments in
  fixed maturities
  available for sale                                    20,910
Change in net unrealized
  appreciation
  (depreciation) of equity
  securities                                                12

Balance at December 31,
  1995                          66,700      (422)       82,735
 Net Income                     16,157                  16,157
 Change in net unrealized
  loss on investments in
  fixed maturities
  available for sale                                    (6,832)
Change in net unrealized
  appreciation
  (depreciation) of equity
  securities                                                14
 
 
Balance at December 31,
  1996                        $ 82,857   $  (422)     $ 92,074
 Net Income                    16,328                  16,328
 Change in net unrealized
  gain on investments in
  fixed maturities
  available for sale                                   5,440
 Change in net unrealized
  appreciation
  (depreciation) of equity
  securities                                               7

Balance at December 31,
  1997                       $ 99,185   $  (422)    $113,849 


          The accompanying notes are an integral part of these
                    consolidated financial statements.
                                     
            FINANCIAL INDUSTRIES CORPORATION AND SUBSIDIARIES 
                   CONSOLIDATED STATEMENTS OF CASH FLOWS

                                   Year Ended December 31,   
                                  1997        1996        1995   
                                     (in thousands)
CASH FLOWS FROM OPERATING
ACTIVITIES

Net Income                       $ 16,328      $ 16,157  $ 10,017
Adjustments to reconcile net income
 to net cash provided by 
 operating activities:
Amortization of present value of 
 future profits of acquired
 businesses                         6,167         4,811     5,297

Amortization of deferred policy
 acquisition costs                  4,826         4,185     3,755

Financing costs amortized             -0-           168       221

Equity in undistributed earnings 
 of affiliate                      (9,323)      (12,558)   (5,043)
Changes in assets and liabilities: 

Decrease (Increase) in accrued 
 investment income                     49          (131)       64
Increase in agent advances and 
 other receivables                 (3,624)       (1,233)   (3,586)
Increase in due premiums             (435)         (925)      (12)
Increase in deferred policy 
 acquisition costs                 (8,615)       (8,981)   (10,318)
(Increase) decrease in other assets  (640)          558         22
Increase in policy 
 liabilities and accruals           3,629         3,734      4,388
(Decrease) increase in other 
 liabilities                       (6,368)          (67)     1,508 
Increase in policy loans             (462)         (512)      (543)
Increase in deferred
 federal income taxes               3,679         3,169      7,773
Other, net                            (10)        1,330     (4,475)
Net cash provided by operating
 activities                      $  5,201      $  9,705   $  9,068


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


           FINANCIAL INDUSTRIES CORPORATION AND SUBSIDIARIES 
             CONSOLIDATED STATEMENTS OF CASH FLOWS, Continued

                                        Year Ended December 31,  
                                        1997      1996      1995  
                                            (in thousands)
CASH FLOWS FROM INVESTING 
ACTIVITIES

Fixed maturities purchased           $ (4,056)  $ (4,245) $ (1,051)
Proceeds from sales and maturities
 of fixed maturities                    6,988      1,265     4,504
Net decrease in short-term
 investments                           (8,860)     1,565     1,185
Purchase & retirement of property
 and equipment                          7,075     (1,347)   (3,395)

Net cash provided by (used in)
 investing activities                   1,147     (2,762)    1,243

CASH FLOWS FROM FINANCING
 ACTIVITIES

Issuance of subordinated notes 
 payable                                  -0-        253       465
Repayment of senior loan and 
 subordinated notes                       -0-     (6,765)  (10,295)
Repayment of subordinated notes
 payable                               (6,148)    (1,537)      -0-

Net cash  used in financing     
 activities                            (6,148)    (8,049)   (9,830)

Net increase (decrease) in cash           200     (1,106)      481

Cash, beginning of year                   308      1,414       933

Cash, end of year                  $      508   $    308  $  1,414

Supplemental Cash Flow Disclosures:

Income taxes paid                  $      150   $    125  $    150

Interest paid                      $    3,677   $  4,300  $  4,107



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



             FINANCIAL INDUSTRIES CORPORATION AND SUBSIDIARIES
                NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Organization and Summary of Significant Accounting Policies

Organization

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

Principles of Consolidation

The consolidated financial statements include the accounts of FIC and
its wholly-owned subsidiaries at December 31, 1997. The more
significant subsidiaries are Family Life Insurance Investment Company
(FLIIC), Family Life Corporation (FLC), Family Life Insurance Company
(Family Life), FIC Realty Services, Inc. (FIC Realty) and FIC
Property Management, Inc. (FIC-Property) . The Company's approximate
45% investment in InterContinental Life Corporation (ILCO) is
presented using the equity method of accounting.

Basis of Presentation

The accompanying consolidated financial statements have been prepared
in conformity with generally accepted accounting principles which
differ from statutory accounting principles required by regulatory
authorities for the Company's insurance subsidiary.  All material
intercompany balances and transactions have been eliminated.  The
following accounting policies describe the accounting principles used
in the preparation of the consolidated financial statements.

Use of Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period.  Actual results
will differ from those estimates.


        FINANCIAL INDUSTRIES CORPORATION AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Investments

The Company's general investment philosophy is to hold fixed maturity
securities until maturity.  However, fixed maturities  
may be sold prior to their maturity dates in response to changing
market conditions, duration of liabilities, liquidity factors,
interest rate movements and other investment factors.  Accordingly,
fixed maturity investments are classified as available for sale and
are carried at market value.  Unrealized gains and losses on
securities available for sale are not recognized in earnings but are
reported as a separate component of equity, net of related income
taxes.
  
Premiums and discounts on collateralized mortgage obligations 
(CMOs) are amortized over the estimated redemption period as 
opposed to the stated maturity.  An adjustment to the investment and
investment income is recorded on a retrospective basis to reflect the
amounts that would have existed had the new effective yield been
applied since the acquisition of the CMO's.  The Company endeavors to
minimize the portfolio's exposure to interest rate changes inherent
in interest-sensitive products by selecting and selling investments
so that diversity, maturity and liquidity factors approximate the
duration of related policyholder liabilities.

Equity securities are carried at market value. Unrealized gains and
losses on equity securities, net of deferred income taxes, if
applicable, are reflected directly in shareholders' equity. Policy
loans represent unpaid balances and do not exceed the cash surrender
value of the related policies. 

Short-term investments are carried at cost, which approximates market
value, and generally consist of those fixed maturities and other
investments with maturities less than one year from the date of
purchase.  Securities pledged as collateral for repurchase agreements
are held by the Company's investment custodian until maturity of the
repurchase agreement.  Provisions of the agreement and procedures
adopted by the Company ensure that the market value of the
collateral, including accrued interest thereon, is sufficient in the
event of default by the counterparty.

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

Cash and Cash Equivalents

Generally, cash includes cash on hand and on deposit in non-interest
bearing accounts.  Short term investments with maturities of three
months or less at the time of purchase are reported as cash
equivalents.

Sale of Real Estate

Net income for 1997 includes $4.5 million (before federal income tax)
resulting from the sale during the fourth quarter of 1997 of the
Bridgepoint Square office complex.  The aggregate selling price was
$78 million which was allocated approximately 21.5% to Family Life
and 78.5% to Investors Life Insurance Company of North America
(Investors-NA), a subsidiary of ILCO,  in accordance with their
respective ownership interests in the Bridgepoint Office Square.  The
sale closed on December 5, 1997.

Property and Equipment

Property and equipment is stated at cost less accumulated
depreciation.  Depreciation is provided using straight-line and
accelerated methods over estimated useful lives of 5 to 33 years. 
Maintenance and repairs are charged to expense when incurred.  

Deferred Policy Acquisition Costs

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

Present Value of Future Profits on Acquired Businesses

The present value of future profits of acquired businesses (See Note
5) is amortized over the premium paying period of the related
policies in proportion to the ratio of the annual premium revenue to
total anticipated premium revenue applicable to such policies.
Interest on the unamortized present value of future profits is
accreted at approximately 8.5% per annum.  The fair value of the net
assets acquired exceeded the purchase price and negative goodwill
associated with the purchase has been netted against the calculated
amount of present value of future profits.  The negative goodwill is
being amortized over seven years using the straight line method of
amortization.

Separate Accounts

Separate account assets, carried at market value, and liabilities
represent policyholder funds maintained in accounts having specific
investment objectives.  The net investment income, gains and losses
of these accounts, less applicable contract charges, accrue directly
to the policyholders.  The separate account business was fully
reinsured to Merrill Lynch at the date of sale through an assumption
reinsurance agreement which is pending regulatory approval. 

Guaranty Fund Assessment

The solvency or guaranty laws of most states in which the Company's
insurance subsidiary do business may require the Company's insurance
subsidiary to pay assessments (up to certain prescribed limits) to
fund policyholder losses or liabilities of insurance companies that
become insolvent.  These assessments may be deferred or forgiven
under most guaranty laws if they would threaten an insurer's
financial strength, and in certain instances, may be offset against
future premium taxes.  The Company's insurance subsidiary records the
expense for guaranty fund assessment from states which do not allow
premium tax offsets in the period assessed.  The Company's insurance
subsidiary recorded expenses of $16,441,$6,796 and $189,929 in the
years ended December 31, 1997, 1996 and 1995, respectively, as a
result of such assessments.

Policy Liabilities and Contractholder Deposit Funds

Liabilities for future policy benefits for mortgage life and annuity
insurance products are computed using the net level premium method or
an actuarially equivalent method.  The assumption for future
investment yield is 8 1/2%.  Assumptions for mortality and withdrawal
are based on company experience with provision for possible adverse
deviation.

Contractholder deposit funds are liabilities for universal life
products.  These liabilities consist of deposits received from
customers and accumulated at actual credited interest rates on their
fund balances less charges for expenses and mortality.

Other Policy Claims and Benefits Payable

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

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

Federal Income Taxes

In February, 1992, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards  No. 109, "Accounting for
Income Taxes" (SFAS 109).  The Company adopted SFAS 109 on a
prospective basis effective January 1, 1991.  SFAS 109 mandates the
asset and liability method for computing deferred income taxes. 
Under this method, balance sheet amounts for deferred income taxes
are computed based on the tax effect of the differences between the
financial reporting and federal income tax bases of assets and
liabilities using the tax rates which are expected be in effect when
these differences are anticipated to reverse.

In accordance with SFAS 109, total tax expense is the amount of
income taxes expected to be payable for the current year plus (or
minus) the deferred income tax expense (or benefit) represented by
the change in the deferred income tax accounts at the beginning and
end of the year.  The effect of changes in tax rates and federal
income tax laws are reflected in income from continuing operations in
the period such changes are enacted.

The tax effect of future taxable temporary differences (liabilities)
and future deductible temporary differences (assets) are separately
calculated and recorded when such differences arise.  A valuation
allowance, reducing any recognized deferred tax asset, must be
recorded if it is determined that it is more likely than not that
such deferred tax asset will not be realized.

In accordance with the SFAS 109, tax benefits associated with the
utilization of net operating losses are recognized as a reduction of
the current tax provision and are not recognized as extraordinary
items in the accompanying statement of operations.  Under the
previous accounting method (APB 11), the utilization of net operating
losses in computing the federal income tax provision was recorded as
an extraordinary item. 

Revenue Recognition

Premiums on mortgage life and health products are recognized as
revenue over the premium paying period.  Benefits and expenses are
associated with earned premiums, so as to result in recognition of
profits over the life of the contracts.

Revenues for universal life and annuity  products consist of contract
charges (earned insurance charges) assessed against the fund values
and net investment income.  Related benefit expenses primarily
consist of net investment income credited to the fund values after
deductions for investment and risk charges.  Revenues for universal
life and annuity products consist of net investment income and
mortality, administration and surrender charges assessed against the
fund values.  Related benefit expenses include universal life benefit
claims in excess of fund values and net investment income credited to
universal life and annuity fund values.

Net Income Per Share

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

New Accounting Pronouncements

During 1995, the FASB issued FAS No. 123 "Accounting for Stock-Based
Compensation," which encourages companies to adopt the fair value
based method of accounting for stock-based compensation.  This method
requires the recognition of compensation expense equal to the fair
value of such equity securities at the date of the grant.  This
statement also allows companies to continue to account for stock-
based compensation under the intrinsic value based method, as
prescribed by Accounting Principles Board Opinion No. 25 "Accounting
for Stock Issued to Employees," with footnote disclosure of the pro
forma effects of the fair value based method.  FAS No. 123 is
effective for transactions entered into in years that begin after
December 15, 1995.

The Company adopted FAS No. 123 during 1996 and continues to account
for stock-based compensation under the intrinsic value method and
disclose the fair value method, if any, in the footnotes to the
financial statements.

In February 1997, the Financial Standards Board ("FASB") issued FAS
No. 128, "Earnings Per Share," which revises the standards for
computing earnings per share previously prescribed by APB Opinion No.
15, "Earnings Per Share."  The Statement establishes two measures of
earnings per share.  Basic earnings per share is computed by dividing
income available to common shareholders by the weighted average
number of common shares outstanding during the period.  Diluted
earnings per share reflects the potential dilution that could occur
if securities or other contracts to issue common stock were converted
or exercised.  The Statement requires dual presentation of basic and
diluted earnings per share on the face of the income statement for
all entities with 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 SFAS No.
128 for the year ended December 31, 1997 and has restated the
earnings per share computations for 1996 and 1995 to conform to this
pronouncement.

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

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 is required to adopt FAS 131 effective January 1, 1998, and
comparative information for earlier years must be restated.  This
statement does not need to be applied to interim financial statements
in the initial year of application.  

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 is required to adopt FAS 132 effective January 1, 1998, with
restatement of disclosures for earlier years required.

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.  

Reclassification

Certain prior years' amounts have been reclassified to conform with
the 1997 presentation. 

2.   Investments

Fixed Maturities

Investments in fixed maturities by category at December 31, 1997 and
1996, respectively, were as follows (in thousands):

                                  Gross      Gross
                     Amortized  Unrealized Unrealized     Market
                        Cost      Gains      Losses       Value 
U.S. Treasury
 securities and                            
 obligations of U.S.
 government agencies
 and corporations    $  18,142  $     975  $      1     $19,116
States,
 municipalities and
 political
 subdivisions            2,989        103                 3,092
 Corporate securities   18,996        527       111      19,412
Mortgage-backed
 securities             38,927      1,331        24      40,234
 Total Fixed
  Maturities
  available for sale  $ 79,054  $   2,936   $   136    $ 81,854

                                  Gross      Gross
                     Amortized  Unrealized Unrealized     Market
                        Cost      Gains      Losses       Value 
U.S. Treasury
 securities and
 obligations of U.S.
 government agencies
 and corporations      $18,125    $   928   $    10     $19,043
States,
 municipalities and
 political
 subdivisions            2,955         67       -0-       3,022
 Corporate securities   21,475        299       330      21,444
Mortgage-backed
 securities             40,414        321       411      40,324
 Total Fixed
  Maturities
  available for sale   $82,969    $ 1,615   $   751     $83,833

In determining the amounts reflected in the balance sheet, the
company has reduced its gross unrealized gains and losses on
investments in fixed maturities available for sale as reflected above
by $980,000 and $302,000 in 1997 and 1996, respectively, in
determining the net unrealized gain on investment in fixed maturities
available for sale.

The amortized value and market value of fixed maturities at December
31, 1997 are shown below by contractual maturity.  Actual maturities
may differ from contractual maturities because borrowers may have the
right to call or prepay obligations with or without call or
prepayment penalties.
                                             
                                             Amortized  Market
                                               Value     Value 
                                                (in thousands)

Due in one year                              $ 2,000   $ 1,999
Due after one year through five years         12,777    13,087
Due after five years through ten years         7,590     7,604
Due after ten years                           17,760    18,930
Mortgage-backed securities                    38,927    40,234

     Total Fixed Maturities available        
       for sale                              $79,054   $81,854

To reduce the exposure to market rate changes, portfolio investments
are selected so that diversity, maturity, and liquidity factors
approximate the duration of associated policyholder liabilities.

Proceeds from maturities of investments in fixed maturities during
1997 and 1996 were $7,998,000 and $1,265,000, respectively.  There
were gains of $23,000 and losses of $0 in 1997 and no gains or losses
in 1996.
 
Net Investment Income

The components of net investment income are summarized as follows: 

                                   Year Ended December 31,      
                                   1997       1996       1995    
                                          (in thousands)

Fixed maturities                 $ 5,853     $ 5,891   $ 5,742
Other, including short-term 
 investments and policy loans      2,336       1,553     1,990 
Investment expenses                  (83)        (81)      (89)

Net investment income            $ 8,106     $ 7,363   $ 7,643

There were no impairments in the value of investments in 1997, 1996
or 1995, which were considered other than temporary.

3.   Disclosure about Fair Value of Financial Instruments

The estimated fair values of the Company's financial instruments at
December 31, 1997 are as follows:
                                            Carrying    Fair
                                             Amount     Value  
                                              (in thousands)
Financial assets:
  Fixed maturities                        $  81,854  $  81,854
  Policy loans                                2,748      2,748
  Short-term investments                     34,475     34,475
  Cash and cash equivalents                     508        508

Financial liabilities:
  Subordinated notes payable to affiliate $  53,792  $  53,792
  
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments:

Fixed Maturities

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

Policy Loans

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

Cash and Short-term Investments

The carrying amount of these instruments approximates market value.

Subordinated Notes Payable to Affiliate

The fair value is based on the Company's estimate of current market
conditions. 

4. Investment in 
   InterContinental Life Corporation

The Company carries its investment in ILCO on the equity method of
accounting.  At December 31, 1997, excess of cost over net assets
acquired of $1,686,000, net of accumulated amortization of
$1,444,000, is included in investment in affiliate.  At December 31,
1996, these amounts were $1,686,000 and $1,344,000, respectively. 
Amortization of this excess is reflected in equity in net earnings of
affiliate.  ILCO is primarily engaged in the sale and administration
of life insurance products.  Summarized financial information for
ILCO is set forth below:

Balance sheet information:                    1997       1996  
                                              (in thousands)
Investments                               $  693,059  $  661,141
Deferred policy acquisition costs and
 present value of future profits              75,907      72,178
Other assets                                 552,687     530,623

  Total Assets                            $1,321,653  $1,263,942

Policy liabilities and contractholder               
 deposit funds                            $  671,634  $  673,306
Other liabilities                            504,257     477,275

Total liabilities                           1,175,891   1,150,581
Common stock, additional paid-in 
 capital and retained earnings               131,359     110,581
Net unrealized gain                           14,403       2,780
Shareholders' equity                         145,762     113,361
Total liabilities and
 shareholders' equity                     $1,321,653  $1,263,942

Results of operations:                1997      1996      1995  
                                           (in thousands)   
  
 Premium income                    $ 11,031  $  9,980  $ 11,694
 Net investment income             $ 57,740  $ 59,836  $ 64,781
 Gain on sale of real estate       $ 14,630  $ 23,520  $    -0-
 Earned insurance charges          $ 40,853  $ 42,238  $ 42,324
 Benefits and expenses             $ 96,081  $ 96,801  $105,907
 Net income                        $ 20,540  $ 26,938  $ 10,714
 Basic earnings per share          $   4.75  $   6.36  $   2.57
 Diluted earnings per share        $   4.70  $   6.07  $   2.47

Total market value basis of the Company's investment in ILCO
approximated $39,326,920 and $26,054,085 at December 31, 1997 and
1996, respectively.  FIC directly or indirectly owns 1,966,346 shares
(approximately 45%, 46%, and 47%) of ILCO's outstanding common stock
at December 31, 1997, 1996 and 1995, respectively.

The Company holds options to purchase up to 1,702,155 additional
shares of ILCO's authorized but unissued common stock at a price
equal to the average market value during the six months preceding the
exercise date.  If exercised, the total number of shares subject to
the Agreement, together with the 1,966,346 shares already owned,
would constitute 60.80% of the then issued and outstanding shares of
ILCO's common stock, assuming no other options or warrants held by
other parties were exercised.   In the event that any other party
seeks to acquire ILCO's outstanding shares without prior approval of
FIC's Board of Directors, the Company has the right to acquire, under
the same pricing formula, the number of shares of common stock which,
when added to the number of shares then owned by the Company, will
amount to 51% of the outstanding shares of ILCO.  The consideration
for the options was FIC's granting to ILCO a loan in the principal
amount of $1,200,000, FIC's agreement to guarantee additional ILCO
obligations totaling $4,000,000 and FIC's agreement to guarantee
ILCO's lease obligation on its headquarters building upon demand.  In
addition, FIC guaranteed a $15,000,000 term loan of ILCO. 

On January 29, 1993, ILCO prepaid all of the Subordinated Notes 
Payable and purchased and canceled all of the detachable warrants
associated with its preferred stock.  The primary source of funds for
this debt prepayment and warrant cancellation was an increase in the
outstanding balance of ILCO's Senior Loan from $60 million to $110
million pursuant to an amended and restated credit agreement that was
entered into on January 29, 1993 (the "New Senior Loan"). The terms
of the New Senior Loan, which matures on July 1, 1999, are
substantially the same as the Senior Loan.  Interest is payable at
the Company's option based on (1) the managing bank's corporate base
rate plus 1.25% declining to 0.5% as  principal declines, or (2)
LIBOR plus 2.5% declining to 1.75%.  The Company has guaranteed the
New Senior Loan.

On February 14, 1995, ILCO, through its subsidiary purchased Meridian
Life Insurance Company (Meridian Life), a life insurer domiciled in
the State of Indiana, for $17.1 million.  At December 31, 1994,
Meridian Life had total assets of approximately $101 million and
statutory capital and surplus of approximately $11 million.  The
acquisition was partially financed through a $15 million increase in
indebtedness of ILCO's Senior Loan.  This additional indebtedness is
guaranteed by FIC. 

The Company has further agreed that, upon demand by ILCO, it will
guarantee performance under ILCO's lease of office facilities located
in Elizabeth, New Jersey.  This agreement will remain in effect for
as long as any portion of the loan or any indebtedness guaranteed by
the Company remains outstanding.  In connection with its Senior
Loans, ILCO is restricted from paying dividends.

The amount of net realized gains included in net earnings of ILCO is
$9,623,000, $15,262,000, and $281,000, for the years ended December
31, 1997, 1996 and 1995, respectively.

5.  Acquisition of Business

In 1991, the Company acquired Family Life, a Washington domiciled
life insurance company, from Merrill Lynch Insurance Group, Inc. 
Present value of future profits of $87,726,000 was recorded as a
result of the purchase.

An analysis of the present value of future profits follows:
                                                1997     1996 
                                               (in thousands)

Balance at beginning of year                 $ 40,604 $ 45,415
Accretion of Interest                           3,212    3,798
Amortization during the period                 (9,379)  (8,609)

Present value of future profits at           $ 34,437 $ 40,604
 December 31

Anticipated amortization of the present value of future profits net
of interest accretion for each of the next five years is as follows
(in thousands):

                              1998    $ 6,986
                              1999    $ 5,624
                              2000    $ 4,526
                              2001    $ 3,645
                              2002    $ 2,934

At purchase, the present value of future profits was calculated using
a discount rate of approximately 15%.  Interest is accreted on the
unamortized portion at approximately 8.5%.

6.  Subordinated Notes Payable

Following is a summary of outstanding debt at December 31:

                                           1997           1996   
Subordinated senior notes payable to          (in thousands)
Investors-NA beginning with a $1,125,000
payment on December 12, 1996 and each
subsequent quarter through September
12, 2001.  Interest is payable 
on a quarterly basis at 11%.                 $16,875    $21,375

Subordinated notes payable to Investors-NA
beginning with a $223,856 payment on December
12, 1996 and each subsequent quarter 
through September 12, 2001.  Interest 
is payable on a quarterly basis at 12%.        3,358      4,253
 
Subordinated notes payable to Investors-NA
beginning with a $188,071 payment on December
12, 1996 and each subsequent quarter through
September 12, 2001, a payment of $1,536,927
on December 12, 2001 and each subsequent
quarter through June 12, 2006 with a final
payment of $1,536,967 on September 12,
2006.  Interest is payable on a quarterly
basis at 9%.                                  33,559     34,312

Total subordinated notes payable             $53,792   $ 59,940

The obligors are allowed to prepay the Investors-NA Subordinated
Loans, in whole or in part, without premium or penalty.  The
Investors-NA Subordinated Loans were subordinated to the Senior Loan
and now constitute a lien on the Pledged Collateral.  Repayment of
the Investors-NA Subordinated Loans is also guaranteed by the
Company.

Aggregate maturities of the Subordinated Notes Payable are as
follows:
                    (in thousands)

                    1998      $ 6,148
                    1999        6,148
                    2000        6,148
                    2001        6,148
                    2002        6,148
               Thereafter      23,052
                              $53,792

7.  Income Taxes

The Company files a consolidated federal income tax return with its
non-life subsidiaries.  The Company's life insurance subsidiary files
a separate federal income tax return.

The U.S. federal income tax provision (benefit) charged to continuing
operations was as follows:
 
                                        1997      1996     1995
                                             (in thousands)

Current                             $  1,348    $(1,165) $  (717)
Deferred                               2,193      3,811    3,145

Total provision for income taxes    $  3,541   $  2,646 $  2,428

The provision for income taxes is less than the amount of income tax
determined by applying the U.S. statutory income tax rate of 35% to
pre-tax income from continuing operations as a result of the
following differences:                                 

                                          1997    1996    1995
                                             (in thousands)

Income taxes at the statutory rate      $4,694   $3,427  $3,638
Increase (decrease) in taxes
  resulting from:
 Small life insurance company deduction   (499)     -0-    (411)

 Dividends received deduction             (649)    (771)   (770)

 Tax rate differential                    (135)     (98)   (104)

 Other items, net                          130       88      75

Total provision for income taxes        $3,541   $2,646  $2,428

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

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

                                                 1997      1996 
Deferred tax liability:                          (in thousands)

Equity in net earnings of affiliate            $ 4,062  $ 3,400
Excess pension benefit                             436      436
Deferred policy acquisition costs               11,742   10,268
Present value of future profits                  7,067    5,851
Guaranty fund assessments                          536      589
Deferred and uncollected premium                 3,769    3,602
Unrealized appreciation on marketable
  securities                                     1,347      355
Other taxable temporary differences              4,442    3,838
     Total deferred tax liability               33,401   28,339

Deferred tax asset:

Policy reserves                                 11,146    9,553
Net operating loss carry
  forward                                          159      513
Alternative minimum tax credit                     407      146
Accrued liabilities                                 58      175
     Total deferred tax assets, net             11,770   10,387
     Net deferred tax liability                $21,631  $17,952

Deferred federal income tax expense (benefit) of $992,000 and
$(1,357,000) for 1997 and 1996, respectively, have been provided on
the unrealized appreciation (depreciation) of marketable securities
and included in the balance of the deferred tax liability.  This
increase or decrease in deferred tax liability has been recorded as
reduction or increase to the equity adjustment due to the net change
in unrealized appreciation or depreciation and has not been reflected
in the deferred income tax expense, included in net income from
operations. 

Family Life is eligible for a special deduction allowed to small life
insurance companies equal to 60 percent of tentative life insurance
company taxable income, subject to certain limitations.

Provision for U.S. income taxes has not been made on a portion of the
undistributed earnings of ILCO from the date of the Company's
investment since the Company expects such earnings to be remitted in
the form of dividends.  The Company has provided for the tax on the
undistributed earnings of ILCO net of the dividends received
deduction expected to be allowed when such dividends are paid.  The
Company expects that additional deferred taxes would be payable on
the undistributed earnings of ILCO if the Company should sell its
investment.

At December 31, 1997, FIC's 1995 federal income tax return was under
review by the IRS.  The statute of limitations for examinations
remains open for all tax years subsequent to 1992.

8.  Reinsurance

Family Life reinsures portions of certain policies it writes, thereby
providing greater diversification of risk and minimizing exposure on
larger policies.  The Company's retention on any one individual
ranges from $-0- to $200,000 depending on the risk.

Policy liabilities and contractholder deposit funds are reported in
the consolidated financial statements before considering the effect
of reinsurance ceded.  The insurance subsidiary remains liable to the
extent the reinsurance companies are unable to meet their obligation
under the reinsurance agreements.

Under the provisions of the purchase agreement between the Company
and Merrill Lynch, certain life insurance companies affiliated with
Merrill Lynch agreed to assume (on an assumption reinsurance basis)
certain single premium whole life and annuity products written by
Merrill Lynch's insurance division on Family Life's paper.  The
transfer of these reserves, in accordance with the reinsurance
agreement, is subject to certain regulatory approvals.

The amount remaining under this agreement that had not yet been
approved for transfer to Merrill Lynch was $106,221 and $116,310 at
December 31, 1997 and 1996, respectively.  

The amounts in the consolidated financial statements for reinsurance
ceded are as follows:

                                          December 31,          
                                        1997      1996      1995
                                           (in thousands)
Future policy benefits               $ 9,765   $ 5,729  $ 1,784
Unearned premiums                         90         4        5
Other policy claims and 
 benefits payable                      1,279       426      594
                                     $11,134   $ 6,159  $ 2,383



                                       For the twelve months     
                                              ended              
                                            December 31,     
                                        1997      1996      1995   
                                           (in thousands)

Premiums                             $ 6,169  $ 6,259   $ 1,531
Policyholder benefits and expenses   $ 1,697  $   670   $   372

Estimated amounts recoverable from reinsurers on paid claims were
$64,142 and $43,657 in 1997 and 1996, respectively.  These amounts
were included in other receivables in the consolidated financial
statements at December 31, 1997 and 1996.

9.  Shareholders' Equity

The Company's ability to pay dividends to its shareholders is
affected, in part, by receipt of dividends from Family Life and ILCO.

Family Life is domiciled in the state of Washington.  Under current
Washington law any proposed payment of dividends or distribution by
the insurance subsidiary which, together with dividends or
distributions paid during the preceding twelve months, exceeds the
greater of (i) 10% of statutory surplus as of the preceding December
31, or (ii) statutory net gain from operations, is called an
"extraordinary dividend" and may not be paid until either it has been
approved, or a waiting period shall have passed during which it has
not been disapproved, by the insurance commissioner.                
          
Effective July 25, 1993 Washington amended its insurance code to
retain the "greater of" standard but enacted requirements that prior
notification of a proposed dividend be given to the Washington
Insurance Commissioner and that dividends may be paid only from
earned surplus.  Family Life does not presently have earned surplus
as defined by the regulations adopted by the Washington Insurance
Commissioner and, therefore, is not presently permitted to pay cash
dividends. 

However, the Company does not directly own its life insurance
subsidiary's stock, but instead indirectly owns that stock through
two downstream holding companies, FLIIC and FLC, whose ability to pay
dividends to the Company is significantly limited by some of the
subordinated notes referred to in Note 6 during the terms of those
loans.  Consolidated net assets of FLIIC and FLC aggregated
approximately $53,158,000, and $64,667,000, respectively at December
31, 1997 and $44,704,000 and $56,490,000, respectively at December
31, 1996. 

The ability of ILCO to pay dividends to the Company and the other
shareholders of ILCO is affected by receipt of dividends from its
insurance subsidiaries, which are generally limited by law to the
greater of their net income for the prior year or 10% of capital and
surplus.  In addition, ILCO's senior loan restricts it from paying
any dividends on its common stock during the term of that loan.

Capital and surplus of Family Life as reported to insurance
regulators and as determined in accordance with statutory 
accounting practices prescribed or permitted by the state of
Washington aggregates approximately $30,386,953 and $24,919,158 at
December 31, 1997 and 1996, respectively.  Statutory net income
aggregated approximately $13,302,000 and $9,153,000 for the years
ended December 31, 1997 and 1996, respectively.

The Company employed no permitted statutory accounting practices that
individually or in the aggregate materially affected statutory
surplus or risk-based capital at December 31, 1997 or 1996. 

The Company's Articles of Incorporation were amended during 1996 to: 
(i) increase the number of authorized shares of common stock from
3,304,200 shares to 10,000,000 shares and (ii) to reduce the par
value of the common stock from $1.00 to $.20.  These amendments to
the Articles of Incorporation were related to the implementation of
the five-for-one stock split in 1996, authorized by the Board of
Directors.

10. Options

In connection with the subordinated senior notes and subordinated
notes payable to Investors-NA, Investors-NA was granted
non-transferrable options to purchase, in amounts proportionate to
their respective loans, up to a total of 9.9 percent of the common
shares of FIC.  The option price is $2.10 per share (adjusted to
reflect the five-for-one stock split in 1996), equivalent to the then
current market price, subject to adjustment to prevent the effect of
dilution.  The options expire at the time of final repayment of each
of the respective loans.

11. Retirement Plans and Employee Stock Plans

Retirement Plan

Family Life has a non-contributory defined benefit pension plan which
covers employees who have completed one year or more of service. 
Under the plan, benefits are payable upon retirement based on
earnings and years of credited service.

     a.   The Normal Retirement Date for all employees is the first
          day of the month coinciding with or next following the
          later of attainment of age 65 or the completion of five
          years of service, but not later than age 70.

     b.   The Normal Retirement Benefit is the actuarial equivalent
          of a life annuity, payable monthly, with the first payment
          commencing on the Normal Retirement Date.  The life annuity
          is equal to the sum of (1) plus (2):

          (1)  Annual Past Service Benefit:  1.17% of the        
               first $10,000 of Average Final Earnings plus 1 1/2% of
               the excess of Average Final Earnings over $10,000, all
               multiplied by the participant's Credited Past Service. 
               For these purposes, "credited past service" is service
               prior to April 1, 1967, with respect to employees who
               were plan participants on December 31, 1975.

          (2)  Annual Future Service Benefit:  1.5578% of the first
               $10,000 of Average Final Earnings plus 2% of the 
               excess of Average Final Earnings over $10,000, all
               multiplied by the participant's Credited Future
               Service.

     c.   Effective April 1, 1997, the Family Life pension plan was
          amended to provide that the accrual rate for future service
          is 1.57% of Final Average Earnings multiplied by Credited
          Service after March 31, 1997, less .65% of Final Average
          Earnings up to Covered Compensation.  With respect to
          service prior to April 1, 1997, the accrual rate described
          in paragraph (b), above, is applicable, with Average Final
          Earnings taking into account a participant's earnings
          subsequent to April 1, 1997.

Retirement Plan

Average Final Earnings are the highest average Considered Earnings
during any five consecutive years while an active participant.  Total
Credited Past Service plus Credited Future Service is limited to 40
years.
The pension costs for the plan includes the following components:

                                                 1997    1996
                                               (in thousands)
Service cost-benefits earned
 during the period                           $   88   $    81

Interest cost on projected
 benefit obligation                             509       497

Return on plan assets                          (719)     (690)

Amortization                                    -0-       -0-

Pension benefit                             $  (122)  $  (112)

The following summarizes the funded status of the plan at 
December 31:
                                                1997      1996  
                                               (in thousands)
Actuarial present value of:
 Vested benefit obligation                    $ 6,052   $ 6,227

 Accumulated benefit obligation               $ 6,052   $ 6,227

Projected benefit obligation                  $ 6,683   $ 6,563

Plan assets at market value                     8,361     8,990

Plan assets in excess of projected
 benefit obligations                            1,678     2,427
Unrecognized net loss (gain)                       33      (838)
Prepaid pension asset                         $ 1,711   $ 1,589

The significant assumptions for the plans are as follows:

The discount rate for projected benefit obligations was 7.75% for the
years ended December 31, 1997 and 1996.

The assumed long-term rate of compensation increases was 6.0% for the
years ended December 31, 1997 and 1996.

The long-term rate of return on plan assets was 8.0% for the years
ended December 31, 1997 and 1996.

During 1995, the ILCO Employee Stock Ownership Plan and the ILCO
Savings and Investment Plan were amended to allow for the addition of
Family Life as a participating employer, thus allowing Family Life
employees to participate in the plans. 

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

Stock Option Plans

In 1984, the Company's shareholders adopted a qualified stock option
plan for officers and key employees.  The aggregate amount of the
common shares on which options may be granted is limited to 200,000
shares.  The option price will not be less than 100% of the fair
market price of the optioned shares on the date the option is
granted.  As of December 31, 1997, no options had been granted under
this plan. 

12. Leases

Family Life, occupies office facilities under lease agreements with
unrelated third parties which expire over the next year.  Certain
office space leases may be renewed at the option of the Company.

Rent expense in 1997, 1996 and 1995 was $781,104, $886,189, and
$896,688 respectively.   Minimum annual rentals are as follows:

                        (in thousands)
                         1998    $  450    
                         1999       415    
                         2000       415
                         2001       415
                         2002       306
                   Thereafter        19   
                        Total    $2,020

13. Related Party Transactions

The obligations of ILCO under the ILCO Senior Loan are guaranteed by
FIC.  FIC presently owns 1,966,346 shares of ILCO Common Stock,
constituting 45.43% of such shares outstanding, and holds options to
acquire an additional 1,702,155 shares at the average bid price of
such shares during the six-month period preceding the date of any
such purchase.  In the event that such options were to be fully
exercised, the total number of ILCO's shares owned by FIC would
constitute 60.84% of ILCO's outstanding Common Stock. As described
under the heading  ILCO Senior Loan , the current Senior Loan of ILCO
is scheduled to be fully repaid on October 1, 1998. Accordingly,
unless ILCO s Senior Loan is extended, or ILCO otherwise incurs
indebtedness which is guaranteed by FIC, FIC s rights under the 1986
option agreement would expire on October 1, 1998. 

Roy F. Mitte serves as Chairman, President and Chief Executive
Officer of both FIC and ILCO.  James M. Grace serves as Vice
President, Treasurer and Director of both companies; Dr. Payne serves
as Vice President, Secretary and Director of both companies; Jeffrey
Demgen and Theodore Fleron serve as Vice Presidents and Directors of
both companies.  Joe Crowe as Director of FIC and until his
retirement in January, 1997 served as Vice President of FIC.  Mr. Roy
Mitte holds beneficial ownership of 34.39% of the outstanding shares
of the Company (see "Security Ownership of Certain Beneficial
Owners").  

FIC Property, a subsidiary of FIC, conducted the leasing activities
for the Bridgepoint Square properties previously owned by Investors-
NA. In connection with the December, 1997 sale of Bridgepoint Square
Offices by Investors-NA and Family Life Insurance Company, FIC Realty
received a commission in the amount of $156,000, of which $122,538
was paid by Investors-NA and $33,462 by Family Life.  In connection
with the 1996 sale of Austin Centre by Investors-NA, FIC Realty
received a commission in the amount of $123,350 from Investors-NA.

As part of the financing arrangement for the acquisition of Family
Life,  a $22.5 million loan was made by Investors-NA to  FLC, a
subsidiary of FIC, and a $2.5 million loan was made by Investors Life
Insurance Company of California (Investors-CA), which was merged into
Investors-NA in 1992, to FIC.  In addition to the interest provided
under those loans, Investors-NA and Investors-CA were granted by FIC
non-transferable options to purchase, in the amounts proportionate to
their respective loans, up to a total of 9.9 percent of shares of
FIC's common stock at a price of $10.50 per share, equivalent to the
then current market price, subject to adjustment to prevent dilution.
As a result of the FIC's five-for-one stock split, which was
effective November 12, 1996, the option price is currently $2.10 per
share.  The options originally were to expire on June 12, 1998 if not
previously exercised.  In connection with the 1996 amendments to the
subordinated notes, as described below, the expiration date of the
options were extended to September 12, 2006.

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

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

FIC was reimbursed by ILCO for rental expense and certain other
operating expenses incurred during 1997, 1996 and 1995 on behalf of
ILCO.  The amount of such reimbursement was approximately $822,000,
$305,000 and $830,000, respectively.

All data processing needs are provided to ILCO's and FIC's Austin,
Texas and Seattle, Washington facilities by FIC Computer Services,
Inc. ("FIC Computer"), a new subsidiary of FIC.  Each of FIC's and
ILCO's insurance subsidiaries has entered into a data processing
agreement with FIC Computer whereby FIC Computer provides data
processing services to each subsidiary for fees equal to such
subsidiary's proportionate share of FIC Computer's actual costs of
providing those services  to all  of the  subsidiaries.   Family Life 
paid $ 824,425 and ILCO's insurance subsidiaries paid $3,010,110 to
FIC Computer for data processing services provided during 1997.

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

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

Pursuant to a Service Agreement between Family Life and Investors NA,
the Company reimbursed Investors NA for certain operating expenses
incurred on behalf of FLIC totaling approximately $14 million, $14
million, and $15 million in 1997, 1996 and 1995, respectively. 

On May 8, 1989, ILCO'S Board of Directors granted Mr. Mitte, Chairman
and CEO of FIC and ILCO, an option to purchase 600,000 shares (as
adjusted for the three-for-one stock split effective February 15,
1990) of the Common Stock of ILCO in equal annual installments of
150,000 shares each.  In 1992, the Chairman surrendered for
cancellation 120,000 of these options.  In October of 1993, the
Company entered into an agreement with the Chairman whereby the
Chairman agreed to surrender all of his remaining common stock
options between 1993 and 1996.  Pursuant to this agreement, all the
remaining 121,500 options were surrendered as of December 31, 1996.

14. Commitments and Contingencies

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

15. Net Income Per Share
    (in thousands except per share data)

The following table reflects the calculation of basic and diluted
earnings per share:
                                                 December 31,      
                                           1997      1996     1995
                                            (amounts in thousands,      
                                           except per share amounts)
Basic:
  Net income available to 
   common shareholders                   $16,328   $ 16,157  $10,017
  Average weighted common   
   stock outstanding                       5,428      5,428    5,428

  Basic earnings per share               $  3.01   $   2.98  $  1.85
 
Diluted:
  Net income available to
   common shareholders                   $16,328    $16,157  $10,017
  Average weighted common
   stock outstanding                       5,428      5,428    5,428
  Common stock options                       293        288      285
  Effect of shares ILCO owns of FIC          (86)       (88)     (89)
  Repurchase of treasury stock               (46)       (60)     (84)
Common stock and common
   stock equivalents                       5,589      5,568    5,540

  Diluted earnings per share             $  2.92    $  2.90  $  1.81


16. Business Concentration

The Company's insurance subsidiary, Family Life provides mortgage
protection life, disability and accidental death insurance to mortgage
borrowers of financial institutions.  For marketing purposes a
significant number of these financial institutions provide Family Life
with customer lists.  In 1997, premium income from these products was
derived from forty-nine states with concentrations of approximately 23%
and 25% in California and Texas, respectively.  In 1996, these amounts
were 23% and 24%, respectively.

17. Quarterly Financial Data (unaudited)        
             
                             (in thousands, except per share data)
                                 Three Months      Three Months
                                    Ended             Ended
                                   March 31,         June 30,
                                1997      1996     1997     1996   


Total revenues                $14,076   $15,014  $14,367  $15,073

Net income                    $ 2,228   $ 8,616  $ 2,221  $ 2,778

Basic earnings per share      $  0.41   $  1.59  $  0.41  $  0.51

Diluted earnings per share    $  0.40   $  1.55  $  0.40  $  0.50


                            Three Months           Three Months
                               Ended                   Ended
                            September 30,           December 31,
                           1997       1996         1997      1996 


Total revenue              $14,170   $14,978      $18,504  $14,863

Net income                 $ 2,603   $ 2,165      $ 9,305  $ 2,598
 
Basic earnings per share   $  0.48   $  0.40      $  1.71  $  0.48

Diluted earnings per share $  0.47   $  0.39      $  1.66  $  0.47


              FINANCIAL INDUSTRIES CORPORATION AND SUBSIDIARIES
               SCHEDULE I - SUMMARY OF INVESTMENTS OTHER THAN
                       INVESTMENTS IN RELATED PARTIES

                                   DECEMBER 31, 1997
                                    (in thousands)

Column A                             Column B     Column C   Column D

                                                            Amount
                                                            Shown
                                                            on the
                                    Amortized      Fair     Balance
Type of Investment                     Cost        Value     Sheet   

Fixed maturities:                                                
 Bonds:
 United States Government and 
  government agencies and 
  authorities                       $ 18,142     $ 19,116  $ 19,116
 States, municipalities and 
  political subdivisions               2,989        3,092     3,092
Corporate securities                  18,996       19,412    19,412
Mortgage-backed securities            38,927       40,234    40,234

      Total fixed maturities          79,054       81,854    81,854

Equity securities:
 Common stocks:
 Industrial and miscellaneous 
  other                                   11            4         4

      Total equity securities             11            4         4

Policy loans                           2,748        2,748     2,748
Short-term investments                34,475       34,475    34,475
      Total investments             $116,288     $119,081  $119,081


              FINANCIAL INDUSTRIES CORPORATION (PARENT COMPANY)
         SCHEDULE II - CONDENSED FINANCIAL STATEMENTS OF REGISTRANT
                               BALANCE SHEETS

                                                 DECEMBER 31,
                                                1997      1996  
                                                (in thousands)
  ASSETS

Cash                                         $     54  $     52
Short-term Investments                          1,103     1,926
Long-Term bonds                                    16        16
Common Stock                                        4         4
Investments in subsidiaries*                  117,286    90,815
Property, plant and equipment, net                474     6,176
Other assets                                    1,018     1,086
Accounts receivable                                77        57
                                             $120,032  $100,132


      LIABILITIES AND SHAREHOLDERS' EQUITY

Liabilities:
 Subordinated notes payable                  $  3,358  $  4,253
 Other liabilities and intercompany
  payables                                      2,825     3,805
                                                6,183     8,058
Shareholders' equity:
 Common stock, $.20 par value,
  10,000,000 shares authorized;
  5,845,300 shares issued, 5,427,965
  shares outstanding in 1997 and 1996           1,169     1,169
Additional paid-in capital                      7,225     7,225
Net unrealized gain on investments
 in fixed maturities available for sale         6,660     1,220
Net unrealized appreciation
 of equity securities
 held by insurance subsidiary                      32        25

Retained earnings (including $95,703
 and $78,745 of undistributed earnings
 of subsidiaries at December 31, 1997
 and 1996, respectively)                       99,185    82,857
                                              114,271    92,496
Common Treasury stock, at cost, 417,335
 shares in 1997 and 1996                         (422)     (422)
  Total shareholders' equity                  113,849    92,074
   Total liabilities and        
    shareholders' equity                    $ 120,032  $100,132
                                                       
*Eliminated in consolidation


              FINANCIAL INDUSTRIES CORPORATION (PARENT COMPANY)
         SCHEDULE II - CONDENSED FINANCIAL STATEMENTS OF REGISTRANT,
                           STATEMENTS OF INCOME
                                       
                                               FOR THE YEARS ENDED 
                                                   DECEMBER 31,     
                                                 1997       1996  
                                                  (in thousands)
  

Income                                        $  1,375    $   811

Operating expenses                               1,136        461
Interest expense*                                  869        977
                                                 2,005      1,438

Income (loss) from operations                     (630)      (627)


Equity in undistributed earnings
 from subsidiaries                              16,958     16,784

Net income                                    $ 16,328    $16,157

*In consolidation, $179 is reported as a reduction in equity in
earnings of unconsolidated subsidiary.


              FINANCIAL INDUSTRIES CORPORATION (PARENT COMPANY)
         SCHEDULE II - CONDENSED STATEMENTS OF REGISTRANT, Continued
                          STATEMENTS OF CASH FLOWS 
                      
                                               FOR THE YEARS ENDED
                                                   DECEMBER 31,  
                                                  1997      1996  
                                                  (in thousands)

CASH FLOWS FROM OPERATING ACTIVITIES
 Net income                                    $ 16,328  $ 16,157

 Adjustments to reconcile net income to net
  cash used in operating activities:
   (Increase) decrease in accounts receivables    (20)         3

   Increase in investment in subsidiaries*    (21,024)   (13,619)

   Decrease in other assets                        68          2

   Decrease in other liabilities
    and intercompany payables                    (980)      (694)

   Decrease in property and equipment           5,702         26

     Net cash used in operating activities         74      1,875

CASH FLOWS FROM FINANCING ACTIVITIES

Net change in short-term investments              823     (1,926)

Subordinated notes payable issued to
  Investors-NA                                   (895)        32

     Net cash provided by financing 
      activities                                  (72)    (1,894)

    Decrease in cash                                2        (19)

Cash, beginning of year                            52         71

Cash, end of year                            $     54   $     52


*Eliminated in consolidation


            FINANCIAL INDUSTRIES CORPORATION AND SUBSIDIARIES
                          SCHEDULE IV-REINSURANCE 
               FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
                               (in thousands)

                              Ceded to     Assumed            Percentage
                   Direct       Other     From Other   Net     of Amount
                   Amount     Companies   Companies   Amount    Assumed

1997

Life Insurance
 in-force         $7,809,531 $  403,600 $    6,663 $7,412,594   0.09% 

Premium:
 Life insurance   $   51,938 $    5,761 $       94 $   46,271   0.20%
 Accident-health
  insurance              934        408        -0-        526   0.00%

Total             $   52,872 $    6,169 $       94 $   46,797   0.20%  

1996

Life Insurance
 in-force         $8,324,406 $  365,103 $   5,772  $7,965,075   0.07%

Premium:
 Life insurance   $   55,124 $    6,257 $      64  $   48,931   0.13%
 Accident-health
  insurance            1,244          1         0       1,243   0.00%

Total             $   56,368 $    6,258 $      64  $   50,174   0.13%

1995

Life Insurance
 in-force         $8,677,064 $  314,826 $   4,162  $8,366,400   0.05%

Premium:
Life insurance    $   57,269 $    1,526 $      56  $   55,799   0.10%
Accident-health 
 insurance             1,471          5         0       1,466   0.00%

Total             $   58,740 $    1,531 $      56  $   57,265   0.10%




                                 EXHIBIT INDEX


Exhibit No. Page Nos.      March 26, 1998


3                      The current Articles of Incorporation and
                       Bylaws of Registrant.  Exhibit 3 to
                       Registrant's Report on Form 10-K filed for the
                       year 1985 is hereby incorporated by reference.

3(a)                        Certificate of Amendment to the Articles of
                            Incorporation of Registrant, dated November
                            12, 1996, filed as an exhibit with
                            Registrant's 10-Q for the quarter ended
                            September 30, 1996 and incorporated herein by
                            reference.

10(ah)                      Guaranty Agreement dated as of December 28,
                            1988 from Registrant to a group of banks on
                            Senior Loan to ILCO, filed as an exhibit with
                            Registrant's Form 10-K for the year ended
                            December 31, 1989 and incorporated herein by
                            reference.

10(ai)                      Guaranty Agreement, dated as of December 1,
                            1988, on loan to ILCO on the Note Purchase
                            Agreement between ILCO and a Connecticut based
                            insurance/financial services company; a
                            guaranty agreement in substantially identical
                            form was provided by FIC to each of the seven
                            other entities participating in said loan,
                            filed as an exhibit with Registrant's Form 10-
                            K for the year ended December 31, 1989 and
                            incorporated herein by reference.

10(aj)                      Guaranty Agreement, dated as of July 30, 1990,
                            issued by the Registrant to a holder of ILCO's
                            1999 Series Subordinated Notes; a guaranty
                            agreement in substantially identical form was
                            provided by the Registrant to each of the
                            holders of said notes.

*10(ak)                     Stock Purchase Agreement by and among Merrill
                            Lynch Insurance Group, Inc., Family Life
                            Insurance Company, Family Life Corporation,
                            Family Life Insurance Investment Company and
                            Financial Industries Corporation dated as of
                            March 19, 1991, as amended.

*10(al)                     Note dated June 12, 1991 in the amount of $30
                            million made by a subsidiary of the Registrant
                            in favor of Merrill Lynch Insurance Group,
                            Inc.

*10(am)                     Note dated June 12, 1991 in the amount of $12
                            million made by a subsidiary of the Registrant
                            to Merrill Lynch & Co., Inc.

*10(an)                     Note dated June 12, 1991 in the amount of $2
                            million made by a subsidiary of the Registrant
                            in favor of the Seller under the Stock
                            Purchase Agreement dated as of March 19, 1991.

*10(ao)                     Performance and Payment Guaranty Agreement
                            dated June 12, 1991 by Registrant in favor of
                            the Seller under the Stock Purchase Agreement
                            dated as of March 19, 1991.

*10(ap)                     Payment Guaranty Agreement dated June 12, 1991
                            by Registrant in favor of the Seller under the
                            Stock Purchase Agreement dated as of March 19,
                            1991.

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

*10(ar)                     Credit Agreement dated as of June 12, 1991
                            among Family Life Corporation (a subsidiary of
                            the Registrant), the Lenders named therein and
                            the Agent.

*10(as)                     Guaranty Agreement by Registrant of the $50
                            million loan to Family Life Corporation in
                            favor of the bank lenders under the Credit
                            Agreement dated as of June 12, 1991.

*10(at)                     Guaranty Agreement by a subsidiary of the
                            Registrant on the $50 million loan to Family
                            Life Corporation in favor of the bank lenders
                            under the Credit Agreement dated as of June
                            12, 1991.

*10(au)                     Pledge Agreement by Family Life Corporation (a
                            subsidiary of the Registrant) in favor of the
                            bank lenders under the Credit Agreement dated
                            as of June 12, 1991.

*10(aw)                     Pledge Agreement by Family Life Insurance
                            Investment Company (a subsidiary of the
                            Registrant) in favor of the bank lenders under
                            the Credit Agreement dated as of June 12,
                            1991.

*10(ax)                     Note dated June 12, 1991 in the amount of
                            $22.5 million made by a subsidiary of the
                            Registrant in favor of Investors Life
                            Insurance Company of North America.

*10(ay)                     Note dated June 12, 1991 in the amount of $2.5
                            million made by the Registrant in favor of
                            Investors Life Insurance Company of
                            California.

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

*10(aaa)                    Option Agreement by the Registrant in favor of
                            Investors life Insurance Company of North
                            America and Investors Life Insurance Company
                            of California.

10(aab)                     Hotel Lease Agreement dated as of August 22,
                            1991 between Investors Life Insurance Company
                            of North America and FIC Realty Services, Inc.
                            filed as exhibit 10(aab) by Registrant on Form
                            10-K for the year ended December 31, 1991 is
                            hereby incorporated by reference. 

10(aac)                     Management Agreement dated as of September 4,
                            1991 between Investors Life Insurance Company
                            of North America and FIC Property Management,
                            Inc. filed as exhibit 10(aac) by Registrant on
                            Form 10-K for the year ended December 31, 1991
                            is hereby incorporated by reference.

10(aad)                     Stock Option Agreement dated March 8, 1986
                            between ILCO and Registrant filed as exhibit
                            10(aad) by Registrant on Form 10-K for the
                            year ended December 31, 1992 is hereby
                            incorporated by reference.

10(aae)                     Amended and Restated Guaranty of Registrant
                            dated January 29, 1993 filed as exhibit
                            10(aae) by Registrant on Form 10-K for the
                            year ended December 31, 1992 is hereby
                            incorporation by reference.

10(aaf)                     Surplus Debenture dated as of June 12, 1991 in
                            the amount of $97.5 million made by Family
                            Life Insurance Company in favor of Family Life
                            Corporation filed as exhibit 10(aaf) by
                            Registrant on Form 10-K for the year ended
                            December 31, 1993 is hereby incorporated by
                            reference.

10(aag)                     Note dated July 30, 1993 in the amount of $30
                            million made by Family Life Corporation in
                            favor of Investors Life Insurance Company of
                            North America filed as exhibit 10(aag) by
                            Registrant on Form 10-K for the year ended
                            December 31, 1993 is hereby incorporated by
                            reference.

10(aah)                     Note dated July 30, 1993 in the amount of $4.5
                            million made by Family Life Insurance
                            Investment Company in favor of Investors Life
                            Insurance Company of North America filed as
                            exhibit 10(aah) by Registrant on Form 10-K for
                            the year ended December 31, 1993 is hereby
                            incorporated by reference.

10(aai)                     Amendment No. 1 dated July 30, 1993 between
                            Family Life Corporation and Investors Life
                            Insurance Company of North America amending
                            $22.5 million note filed as exhibit 10(aai) by
                            Registrant on Form 10-K for the year ended
                            December 31, 1993 is hereby incorporated by
                            reference.

10(aaj)                     Amendment No. 1 dated July 30, 1993 between
                            Family Life Insurance Company and Family Life
                            Corporation amending $97.5 million Surplus
                            Debenture filed as exhibit 10(aaj) by
                            Registrant on Form 10-K for the year ended
                            December 31, 1993 is hereby incorporated by
                            reference.

10(aak)                     Guaranty Agreement dated July 30, 1993 by
                            Registrant of the $30 million loan to Family
                            Life Corporation in favor of Investors Life
                            Insurance Company of North America filed as
                            exhibit 10(aak) by Registrant on Form 10-K for
                            the year ended December 31, 1993 is hereby
                            incorporated by reference.

10(aal)                     Guaranty Agreement dated July 30, 1993 by
                            Registrant of the $4.5 million loan to Family
                            Life Insurance Investment Company in favor of
                            Investors Life Insurance Company of North
                            America filed as exhibit  10(aal) by
                            Registrant on Form 10-K for the year ended
                            December 31, 1993 is hereby incorporated by
                            reference.

10(aam)                     Letter agreement dated May 26, 1993 among
                            Family Life Corporation, Family Life Insurance
                            Investment Company, Merrill Lynch & Co., Inc.
                            and Merrill Lynch Group, Inc. filed as exhibit
                            10(aam) by Registrant on Form 10-K for the
                            year ended December 31, 1993 is hereby
                            incorporated by reference.

10(aan)                     Waiver and Amendment Agreement dated as of
                            July 23, 1993 among Family Life Corporation,
                            the Lenders named therein and the Agent filed
                            as exhibit 10(aan) by Registrant on Form 10-K
                            for the year ended December 31, 1994 is hereby
                            incorporate by reference.

10(aao)                     Waiver and Amendment Agreement dated as of
                            December 14, 1993 among Family Life
                            Corporation, the Lenders named therein and the
                            Agent filed as exhibit 10(aao) by Registrant
                            on Form 10-K for the year ended December 31,
                            1994 is hereby incorporated by reference.

10(aap)                     Data Processing Agreement dated as of November
                            30, 1994 between InterContinental Life
                            Insurance Company and FIC Computer Services,
                            Inc filed as exhibit 10(aap) by Registrant on
                            Form 10-K for the year ended December 31, 1994
                            is hereby incorporated by reference.

10(aaq)                     Data Processing Agreement dated as of November
                            30, 1994 between Investors Life Insurance
                            Company of North America and FIC Computer
                            Services, Inc filed as exhibit 10(aaq) by
                            Registrant on Form 10-K for the year ended
                            December 31, 1994 is hereby incorporated by
                            Reference.

10(aar)                     Data Processing Agreement dated as of November
                            30, 1994 between Family Life Insurance Company
                            and FIC Computer Services, Inc filed as
                            exhibit 10(aar) by Registrant on Form 10-K for
                            the year ended December 31, 1994 is hereby
                            incorporated by reference.

10(aas)                     Lease Agreement dated as of September 30, 1994
                            between FIC Realty Services, Inc. and Atrium
                            Beverage Corporation filed as exhibit 10(aas)
                            by Registrant on Form 10-K for the year ended
                            December 31, 1994 is hereby incorporated by
                            reference.

10(aat)                     Management Agreement dated as of September 30,
                            1994 between HCD Austin Corporation as agent
                            for FIC Realty Services, Inc. and Atrium
                            Beverage Corporation filed as exhibit 10(aat)
                            by Registrant on Form 10-K for the year ended
                            December 31, 1994 is hereby incorporated by
                            reference.

10(aau)                     Amendment Agreement dated as of July 31, 1995
                            among Family Life Corporation, the Lenders
                            named therein and the Agent filed as exhibit
                            10(aau) by Registrant on Form 10-K for the
                            year ended December 31, 1995 is hereby
                            incorporated by reference.

10(aav)                     Amendment No. 2 dated December 12, 1996,
                            effective June 12, 1996 to the note dated June
                            12, 1991 in the amount of $22.5 million made
                            by Family Life Corporation in favor of
                            Investors Life Insurance Company of North
                            America filed as exhibit 10(aav) by Registrant
                            on Form 10-K for the year ended December 31,
                            1996 is hereby incorporated by reference.

10(aaw)                     (i)   Amendment No. 1 dated December 12, 1996,
                                  effective June 12, 1996 to the note dated
                                  June 12, 1991 in the amount of $2.5
                                  million made by Financial Industries
                                  Corporation in favor of Investors Life
                                  Insurance Company of California filed as
                                  exhibit 10(aaw)(i) by Registrant on Form
                                  10-K for the year ended December 31, 1996
                                  is hereby incorporated by reference.

                       (ii) Amendment No. 1 dated December 12, 1996,
                            effective June 12, 1996 to the "payment
                            in kind" provisions of the note dated
                            June 12, 1991 in the amount of $2.5
                            million made by Financial Industries
                            Corporation in favor of Investors Life
                            Insurance Company of North America filed
                            as exhibit 10(aaw)(ii) by Registrant on
                            Form 10-K for the year ended December 31,
                            1996 is hereby incorporated by reference. 

10(aax)                     Amendment No. 1 dated December 12, 1996,
                            effective June 12, 1996 to the note dated July
                            30, 1993 in the amount of $30 million made by
                            Family Life Corporation in favor of Investors
                            Life Insurance Company of North America filed
                            as exhibit 10(aax) by Registrant on Form 10-K
                            for the year ended December 31, 1996 is hereby
                            incorporated by reference.

10(aay)                     Amendment No. 1 dated December 12, 1996,
                            effective June 12, 1996 to the note dated July
                            30, 1993 in the amount of $4.5 million made by
                            Family Life Insurance Investment Company in
                            favor of Investors Life Insurance Company of
                            North America filed as exhibit 10(aay) by
                            Registrant on Form 10-K for the year ended
                            December 31, 1996 is hereby incorporated by
                            reference.

10(aaz)                     Amendment Agreement dated December 12, 1996
                            amending the Option Agreement by Financial
                            Industries Corporation in favor of Investors
                            Life Insurance Company of North America and
                            Investors Life Insurance Company of California
                            filed as exhibit 10(aaz) Registrant on Form
                            10-K for the year ended December 31, 1996 is
                            hereby incorporated by reference.

21                     Ex-9       Subsidiaries of Registrant.

28                                Report on Form 10-K filed by ILCO for the
                                  year ended December 31, 1997 is hereby
                                  incorporated by reference in its
                                  entirety.

* Filed as an Exhibit with Registrant's Current Report on Form
  8-K dated June 25, 1991, and incorporated herein by reference.



                                   EXHIBIT 21

                           Subsidiaries of Registrant

Family Life Corporation

Family Life Insurance Investment Company

Family Life Insurance Company

Financial Industries Service Corporation

Financial Industries Securities Corporation

Financial Industries Service Corporation
     of Mississippi, Inc.

Financial Industries Sales Corporation
     of Southern California, Inc.

FIC Realty Services, Inc.

FIC Property Management, Inc.

FIC Computer Services, Inc.

Atrium Beverage Corporation

EX-27

 

<ARTICLE> 7
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-K FOR
THE YEAR ENDED DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.

<MULTIPLIER> 1,000
       
                             
<PERIOD-TYPE>                   YEAR
<FISCAL-YEAR-END>                          DEC-31-1997
<PERIOD-END>                               DEC-31-1997
<DEBT-HELD-FOR-SALE>                            81,854
<DEBT-CARRYING-VALUE>                                0
<DEBT-MARKET-VALUE>                                  0
<EQUITIES>                                           4
<MORTGAGE>                                           0
<REAL-ESTATE>                                        0
<TOTAL-INVEST>                                 119,081
<CASH>                                             508
<RECOVER-REINSURE>                              11,134
<DEFERRED-ACQUISITION>                          45,122
<TOTAL-ASSETS>                                 304,324
<POLICY-LOSSES>                                 59,987
<UNEARNED-PREMIUMS>                                 90
<POLICY-OTHER>                                  44,304
<POLICY-HOLDER-FUNDS>                            5,315
<NOTES-PAYABLE>                                 53,792
<PREFERRED-MANDATORY>                                0
<PREFERRED>                                          0
<COMMON>                                         1,169
<OTHER-SE>                                     112,680
<TOTAL-LIABILITY-AND-EQUITY>                   304,324
<PREMIUMS>                                      40,249
<INVESTMENT-INCOME>                              8,106
<INVESTMENT-GAINS>                               4,548
<OTHER-INCOME>                                   3,451
<BENEFITS>                                      19,905
<UNDERWRITING-AMORTIZATION>                      4,826
<UNDERWRITING-OTHER>                            12,755
<INCOME-PRETAX>                                 19,869
<INCOME-TAX>                                     3,541
<INCOME-CONTINUING>                             16,328
<DISCONTINUED>                                       0
<EXTRAORDINARY>                                      0
<CHANGES>                                            0
<NET-INCOME>                                    16,328
<EPS-PRIMARY>                                     3.01
<EPS-DILUTED>                                     2.92
<RESERVE-OPEN>                                       0
<PROVISION-CURRENT>                                  0
<PROVISION-PRIOR>                                    0
<PAYMENTS-CURRENT>                                   0
<PAYMENTS-PRIOR>                                     0
<RESERVE-CLOSE>                                      0
<CUMULATIVE-DEFICIENCY>                              0