UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
þ          ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2005
o         TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number: 2-17039
NATIONAL WESTERN LIFE INSURANCE COMPANY
(Exact name of Registrant as specified in its charter)
COLORADO	84-0467208
(State of Incorporation)	(I.R.S. Employer Identification Number)
850 EAST ANDERSON LANE, AUSTIN, TEXAS 78752-1602
(Address of Principal Executive Offices)
(512) 836-1010
(Telephone Number)
Securities registered pursuant to Section 12 (b) of the Act:
None
Securities registered pursuant to Section 12 (g) of the Act:
None
(Title of Class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o    No  þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.  Yes o    No  þ
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days:  Yes þ    No  o
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. þ
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of "accelerated filer and large accelerated file" in Rule 12b-2 of the Exchange Act. (Check One)
Large accelerated filer  o      Accelerated filer  þ      Non-accelerated filer   o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o    No  þ
The aggregate market value of the common stock (based upon the closing price) held by non-affiliates of the Registrant on June 30, 2005 was $434,555,963.
As of March 10, 2006, the number of shares of Registrant's common stock outstanding was:   Class A - 3,419,144 and Class B - 200,000.
DOCUMENTS INCORPORATED BY REFERENCE
None

	TABLE OF CONTENTS
	PART I	Page
Item 1.	Business
Item 1A.	Risk Factors
Item 1B.	Unresolved Staff Comments
Item 2.	Properties
Item 3.	Legal Proceedings
Item 4.	Submission of Matters to a Vote of Security Holders
	PART II
Item 5.	Market for Registrant's Common Equity and Related Stockholder Matters
Item 6.	Selected Consolidated Financial Data
Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk
Item 8.	Financial Statements and Supplementary Data
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A.	Controls and Procedures
Item 9B.	Other Information
	PART III
Item 10.	Directors and Executive Officers of the Registrant
Item 11.	Executive Compensation
Item 12.	Security Ownership of Certain Beneficial Owners and Management
Item 13.	Certain Relationships and Related Transactions
Item 14.	Principal Accountant Fees and Services
	PART IV
Item 15.	Exhibits and Financial Statement Schedules
	Signatures

PART I

ITEM 1. BUSINESS

General

National Western Life Insurance Company (hereinafter referred to as "National Western", "Company", or "Registrant") is a stock life insurance company, chartered in the State of Colorado in 1956, and doing business in forty-nine states, the District of Columbia, and four U.S. territories or possessions. National Western is also licensed in Haiti, and although not otherwise licensed, accepts applications from and issues policies to residents of various countries in Central and South America, the Caribbean, the Pacific Rim, and Eastern Europe. Such policies are underwritten, accepted, and issued in the United States upon applications submitted by independent contractor broker-agents. The Company provides life insurance products for the savings and protection needs of approximately 150,000 policyholders and for the asset accumulation and retirement needs of 124,000 annuity contractholders.

During 2005, the Company's total assets increased 6% to $6.4 billion at December 31, 2005 from $6.0 billion at December 31, 2004. The Company generated revenues of $441.0 million, $434.1 million, and $399.3 million in 2005, 2004, and 2003, respectively. In addition, National Western generated net income of $77.3 million, $122.2 million (including $54.7 million from a change in accounting principle), and $55.8 million in 2005, 2004, and 2003, respectively.

The Company's financial information, including information in this report filed on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to the above reports, are accessible free of charge through the Company's Internet site at www.nationalwesternlife.com or may be viewed at the United States Securities and Exchange Commission ("SEC") Public Reference Room in Washington, D.C. or at the SEC's Internet site at www.sec.gov.

Products

National Western offers a broad portfolio of individual whole life, universal life and term insurance plans, and annuities, including supplementary riders.

Life Products. The Company's life products provide protection for the life of the insured and, in some cases, allow for cash value accumulation on a tax-deferred basis. These product offerings include universal life insurance ("UL"), interest-sensitive whole life, and traditional products such as term insurance coverage. Interest sensitive products such as UL accept premiums that are applied to an account value. Deducted from the account value are cost of insurance charges which vary by age, gender, plan, and class of insurance, as well as various expense charges. Interest is credited to account values at a fixed interest rate generally determined in advance and guaranteed for a policy year at a time, subject to minimum guaranteed rates specified in the policy contract. A slight variation to this general interest crediting practice involves equity-indexed universal life ("EIUL") policies whose credited interest may be linked, in part, to an outside index such as the S&P 500Ò Composite Stock Price Index ("S&P 500 IndexÒ ") at the election of the policyholder. These products offer both flexible and fixed premium modes and provide policyholders with flexibility in the available coverage, the timing and amount of premium payments and the amount of the death benefit, provided there are sufficient policy funds to cover all policy charges for the coming year. Traditional products generally provide for a fixed death benefit payable in exchange for regular premium payments.

Annuity Products. Annuity products sold include flexible premium and single premium deferred annuities, equity-indexed annuities, and single premium immediate annuities. These products can be tax qualified or nonqualified annuities. A fixed single premium deferred annuity ("SPDA") provides for a single premium payment at time of issue, an accumulation period, and an annuity payout period commencing at some future date. A flexible premium deferred annuity ("FPDA") provides the same features but allows, generally with some conditions, additional payments into the contract. Interest is credited to the account value of the annuity initially at a current rate of interest which is guaranteed for a period of time, typically the first year. After this period, the interest credited is subject to change based upon market rates and product profitability subject to a minimum guaranteed rate specified in the contract. Interest accrues during the accumulation period generally on a tax-deferred basis to the contractholder. After a number of years specified in the annuity contract, the owner may elect to have the proceeds paid as a single payment or as a series of payments over a period of time. The owner is permitted at any time during the accumulation period to withdraw all or part of the annuity account balance subject to contract provisions such as surrender charges and market value adjustments. An equity-indexed deferred annuity ("EIA") performs essentially in the same manner as SPDAs and FPDAs with the exception that, in addition to a fixed interest crediting option, the contractholder has the ability to elect an interest crediting mechanism that is linked, in part, to an outside index such as the S&P 500 IndexÒ . A single premium immediate annuity ("SPIA") foregoes the accumulation period and immediately commences an annuity payout period.

Distributions of the Company's direct premium revenues and deposits by product type are provided below.

		Years Ended December 31,
		2005	2004	2003
		(In thousands)
Annuities:
Single premium deferred	$	10,389	8,156	108,855
Flexible premium deferred		225,941	342,509	565,503
Equity-indexed deferred		298,227	512,709	479,535
Single premium immediate		23,383	28,653	41,250
Total annuities		557,940	892,027	1,195,143
Universal life insurance		133,579	119,554	101,376
Traditional life and other		16,629	15,830	15,568
Total direct premiums and deposits collected	$	708,148	1,027,411	1,312,087

Operating Segments

The Company manages its business between Domestic Insurance Operations and International Insurance Operations. For segment reporting purposes, the Company's annuity business, which is predominantly domestic, is separately identified.

Domestic Insurance Operations. The Company is currently licensed to do business in all states and the District of Columbia, except for New York. Products marketed are annuities, universal life insurance, and traditional life insurance, which include both term and whole life products. The majority of domestic sales are the Company's annuities. National Western markets and distributes its domestic products primarily through independent national marketing organizations ("NMO"). These NMOs assist the Company in recruiting, contracting, and managing independent agents. The Company's agents are independent contractors who are compensated on a commission basis. At December 31, 2005, the Company's NMO relationships had contracted approximately 10,200 independent agents with the Company. Nearly 20% of these contracted agents submitted policy applications to the Company in the past twelve months.

International Insurance Operations. National Western's international operations focus on foreign nationals in upper socioeconomic classes. Insurance products are issued primarily to residents of countries in Central and South America, the Caribbean, the Pacific Rim, and beginning in 2003 Eastern Europe. Issuing policies to residents of countries in these different regions provides diversification that helps to minimize large fluctuations that could arise due to various economic, political, and competitive pressures that may occur from one country to another. Products issued to international residents are almost entirely universal life and traditional life insurance products. However, certain annuity and investment contracts are also available. At December 31, 2005, the Company had 65,400 international life insurance policies in force representing in excess of $12.2 billion in face amount of coverage.

International applications are submitted by independent contractor broker-agents, many of whom have been submitting policy applications to National Western for 20 or more years. The Company had approximately 3,600 independent international broker-agents contracted at December 31, 2005, nearly 47% of which submitted policy applications to the Company in the past twelve months.

There are some inherent risks of accepting international applications which are not present within the domestic market that are reduced substantially by the Company in several ways. As previously described, the Company accepts applications from foreign nationals in upper socioeconomic classes who have substantial financial resources. This targeted customer base coupled with National Western's conservative underwriting practices have historically resulted in claims experience, due to natural causes, similar to that in the United States. The Company minimizes exposure to foreign currency risks by requiring payment of premiums and claims in United States dollars. Finally, nearly forty years of experience with the international products and the Company's longstanding independent broker-agent relationships further serve to minimize risks.

Geographical Distribution of Business. The following table depicts the distribution of the Company's premium revenues and deposits.

		Years Ended December 31,
		2005	2004	2003
		(In thousands)
United States domestic products:
Annuities	$	548,967	882,530	1,186,160
Life insurance		36,594	31,501	24,424
Total domestic products		585,561	914,031	1,210,584
International products:
Annuities		8,973	9,497	8,983
Life insurance		113,614	103,883	92,520
Total international products		122,587	113,380	101,503
Total direct premiums and deposits collected	$	708,148	1,027,411	1,312,087

Although many agents sell National Western's products, a sizable portion of the Company's annuity sales were sold through agents of two independent marketing organizations in recent years. These two organizations combined accounted for 31% of domestic annuity sales in 2005. International life insurance sales in 2005 were geographically divided to Latin America (86%), the Pacific Rim (10%), and Eastern Europe (4%).

Segment Financial Information. A summary of financial information for the Company's segments is as follows:

		Domestic	International
		Life	Life		All
		Insurance	Insurance	Annuities	Others	Totals
		(In thousands)
Revenues, excluding
realized gains (losses):
2005	$	42,165	93,577	277,889	17,528	431,159
2004		44,116	87,850	283,827	14,847	430,640
2003		43,444	79,061	264,831	13,579	400,915
Segment earnings: (A)
2005	$	2,809	13,559	47,915	6,559	70,842
2004		2,522	12,133	45,473	5,066	65,194
2003		1,366	13,249	37,121	5,116	56,852
Segment assets: (B)
2005	$	366,939	631,477	5,256,146	94,064	6,348,626
2004		361,176	568,723	4,960,837	84,481	5,975,217
2003		358,697	516,604	4,329,777	77,524	5,282,602

Notes to Table:

(A) Amounts exclude realized gains and losses on investments, net of taxes.

(B) Amounts exclude other unallocated assets.

Additional information concerning these industry segments is included in Note 13, Segment and Other Operating Information, of the accompanying consolidated financial statements.

Competition

National Western competes with over 1,000 life insurers in the United States, as well as other financial intermediaries such as banks and securities firms who market insurance products. Competitive factors are primarily the breadth and quality of products offered, established positions in niche markets, pricing, relationships with distribution, commission structures, perceived stability of the insurer, quality of underwriting and customer service, and cost efficiency. Operating results of life insurers are subject to fluctuations not only from this competitive environment but also due to economic conditions, interest rate levels and changes, performance of investments, and the maintenance of strong insurance ratings from independent rating agencies.

In order to compete successfully, life insurers have turned their attention toward distribution, technology, defined end market targets, speed to the market in terms of product development, and customer relationship management as ways of gaining a competitive edge. The Company's management believes that it competes primarily on the basis of its longstanding reputation for commitment in serving international markets, its financial strength and stability, and its ability to attract and retain distribution based upon product and compensation.

Risk Management

The Company's product designs, underwriting standards and risk management techniques are utilized to protect against disintermediation risk and greater than expected mortality and morbidity risk. Disintermediation risk is limited through the use of surrender charges, certain provisions not allowing surrender of the policy, and market value adjustment features. Investment guidelines including duration targets, asset allocation tolerances and return objectives help to ensure that disintermediation risk is managed within the constraints of profitability criteria. Prudent underwriting is applied to select and price insurance risks and the Company regularly monitors mortality experience relative to its product pricing assumptions. Enforcement of disciplined claims management serves to further protect against greater than expected mortality.

A significant aspect of the Company's business is managing the linkage of its asset characteristics with the anticipated behavior of its policy obligations and liabilities, a process commonly referred to as asset-liability matching. The Company maintains an Asset-Liability Committee ("ALCO") consisting of senior level members of the Company who assist and advise the Company's Board of Directors in monitoring the level of risk the Company is exposed to in managing its assets and liabilities in order to attain the risk-return profile desired. Members of the ALCO also meet as frequently as necessary, to review and recommend for board of director ratification, current period interest crediting rates to policyholders based upon existing and anticipated investment opportunities. These rates apply to new sales and to products after an initial guaranteed period, if applicable. Rates are established after the initial guaranteed period based upon asset portfolio yields and each product's required interest spread, taking into consideration current competitive market conditions.

Substantially all international products contain a currency clause stating that premium and claim "dollars" refer to lawful currency of the United States. Policy applications submitted by international insurance brokers are generally associated with individuals in upper socioeconomic classes who desire the stability and inflationary hedge of dollar denominated insurance products issued by the Company. The favorable demographics of this group typically results in a higher average policy size, and persistency and claims experience (from natural causes) similar to that in the United States. By accepting applications submitted on residents outside the United States, the Company is able to further diversify its revenue, earnings, and insurance risk.

The Company follows the industry practice of reinsuring (ceding) portions of its insurance risks with a variety of reinsurance companies. The use of reinsurance allows the Company to underwrite policies larger than the risk it is willing to retain on any single life and to continue writing a larger volume of new business. The maximum amount of life insurance the Company normally retains is $250,000 on any one life subject to a minimum reinsurance session of $50,000. However, the use of reinsurance does not relieve the Company of its primary liability to pay the full amount of the insurance benefit in the event of the failure of a reinsurer to honor its contractual obligation. Consequently, the Company avoids concentrating reinsurance risk with any one reinsurer and only participates in reinsurance treaties with reputable carriers.

The Company maintains a system of disclosure controls and procedures, including internal controls designed to provide reasonable assurance that assets are safeguarded and transactions are properly authorized, executed and recorded. The Company recognizes the importance of full and open presentation of its financial position and operating results and to this end maintains a Disclosure Controls and Procedures Committee comprised of senior executives who possess comprehensive knowledge of the Company's business and operations. This Committee is responsible for evaluating disclosure controls and procedures and for the gathering, analyzing, and disclosing of information as required to be disclosed under the securities laws. It assists the Chief Executive Officer and Chief Financial Officer in their responsibilities of making the certifications required under the securities laws regarding the Company's disclosure controls and procedures. It ensures that material financial information is properly communicated up the Company's hierarchy to the appropriate person or persons and that all disclosures are made in a timely fashion. This Committee reports directly to the Audit Committee of the Company.

Regulatory and Other Issues

Regulation. The Company's insurance business is subject to comprehensive state regulation in each of the states it is licensed to conduct business. The laws enforced by the various state insurance departments provide broad administrative powers with respect to licensing to transact business, licensing and appointing agents, approving policy forms, regulating unfair trade and claims practices, establishing solvency standards, fixing minimum interest rates for the accumulation of surrender values, and regulating the type, amounts, and valuations of permitted investments, among other things. The Company is required to file detailed annual statements with each of the state insurance supervisory departments in which it does business. The Company's operations and financial records are subject to examination by these departments at regular intervals. Statutory financial statements are prepared in accordance with accounting practices prescribed or permitted by the Colorado Division of Insurance, the Company's principal insurance regulator. Prescribed statutory accounting practices are largely dictated by the Codification of Statutory Accounting Principles ("Codification") adopted by the National Association of Insurance Commissioners ("NAIC").

The NAIC, as well as state regulators, continually evaluates existing laws and regulations pertaining to the operations of life insurers. To the extent that initiatives result as a part of this process, they may be adopted in the various states in which the Company is licensed to do business. It is not possible to predict the ultimate content and timing of new statutes and regulations adopted by state insurance departments and the related impact upon the Company's operations although it is conceivable that they may be more restrictive.

Although the federal government does not directly regulate the life insurance industry, federal measures previously considered or enacted by Congress, if revisited, could affect the insurance industry and the Company's business. These measures include the tax treatment of life insurance companies and life insurance products, as well as changes in individual income tax structures and rates. Even though the ultimate impact of any of these changes, if implemented, is uncertain, the persistency of the Company's existing products and the ability to sell products could be materially affected.

Risk-Based Capital Requirements. The NAIC established risk-based capital ("RBC") requirements to help state regulators monitor the financial strength and stability of life insurers by identifying those companies that may be inadequately capitalized. Under the NAIC's requirements, each insurer must maintain its total capital above a calculated threshold or take corrective measures to achieve the threshold. The threshold of adequate capital is based on a formula that takes into account the amount of risk each company faces on its products and investments. The RBC formula takes into consideration four major areas of risk which are: (i) asset risk which primarily focuses on the quality of investments; (ii) insurance risk which encompasses mortality and morbidity risk; (iii) interest rate risk which involves asset-liability matching issues; and (iv) other business risks. For each category, the RBC requirements are determined by applying specified factors to various assets, premiums, reserves, and other items, with the factor being higher for items with greater underlying risk and lower for items with less risk. The Company's statutory capital and surplus at December 31, 2005, was significantly in excess of the threshold RBC requirements.

Financial Strength Ratings. Ratings with respect to financial strength are an important factor in establishing the competitive position of insurance companies. Ratings are also important to maintaining public confidence and impact the ability to market products. The following summarizes the Company's financial strength ratings.

Rating Agency	Rating
Standard & Poor's	A (Strong)
A.M. Best	A- (Excellent)

A.M. Best and Standard & Poor's ratings are a consideration of the Company's claims paying ability and are not a rating of the Company's investment worthiness. The rating agencies generally review the Company's rating on an annual basis during the second calendar quarter of the year. The above ratings were assigned with a stable outlook during 2005. However, there is no assurance that the Company's ratings will continue for a certain period of time or that they will not be changed. In the event the Company's ratings are downgraded, the Company's business may be negatively impacted.

Effects of Inflation. The rate of inflation as measured by the change in the average consumer price index has not had a material effect on the revenues or operating results of the Company during the three most recent fiscal years.

Employees. The Company has approximately 272 employees as of December 31, 2005.

ITEM 1A. RISK FACTORS

Company performance is subject to varying risk factors. If any of the following risks manifests into actual occurrences, the Company's operations, financial position or financial performance could be negatively impacted.

We are subject to changing interest rates, market volatility, and general economic conditions which may affect the risk and returns on both our investment portfolio and our products.

We are exposed to significant capital market risk related to changes in interest rates. Substantial and sustained changes, up or down, in market interest rate levels can materially affect the profitability of our products, the market value of our investments, and ultimately the reported amount of stockholders' equity.

A rise in interest rates will reduce the net unrealized gain position of our investment portfolio and may subject the Company to disintermediation risk. Disintermediation risk is the risk that policyholders may surrender their contracts in a rising interest rate environment, requiring the Company to liquidate investments in an unrealized loss position (i.e. the market value less than the carrying value of the investments). With respect to fixed income security investments the Company maintains in an "Available for sale" category, rising interest rates will cause declines in the market value of these securities. These declines are reported in our financial statements as an unrealized investment loss and a reduction of stockholders' equity.

A decline in interest rates could expose the Company to reduced profitability due to minimum interest rate guarantees that are required in our products by regulation. A key component of profitability is investment spread, or the difference between the yield on our investments and the rates we credit to policyholders on our products. A narrowing of investment spreads could negatively affect operating results. Although the Company has the ability to adjust the rates credited on products in order to maintain our required investment spread, a significant decline in interest rate levels could affect investment yields to the point where the investment spread is compromised due to minimum interest rate guarantees. In addition, the potential for increased policy surrenders and cash withdrawals, competitor activities, and other factors could further limit the Company's ability to maintain crediting rates on its products at levels necessary to avoid sacrificing investment spread.

We are subject to general domestic and international economic conditions that may be less favorable than currently exists or is anticipated.

The demand for financial and insurance products is subject to factors such as consumer sentiment and behavior, business investment and government spending, the volatility and strength of capital markets, inflation, and overall economic climate. Further, since we accept applications from residents in North America, Latin America, Eastern Europe and the Pacific Rim, we are exposed to economic conditions in multiple geographic locations. Economic downturns in any of these geographic locations characterized by political, social or economic instability, higher unemployment, lower family income or consumer spending could negatively affect the demand for the Company's products. Accordingly, the Company's overall success depends, in part, upon the ability to succeed despite these differing and dynamic conditions.

Our investment portfolio is subject to credit quality risks which may lessen the value of invested assets and the Company's book value per share.

The Company substantially invests monies received in investment grade, fixed income investment securities in order to meet its obligations to policyholders and provide a return on its deployed capital. Consequently, we are subject to the risk that issuers of these securities may default on principal and interest payments, particularly in the event of a major downturn in economic and/or business climate. At December 31, 2005, approximately 3.2% of the Company's $5.3 billion fixed income securities portfolio was comprised of issuers who were investment grade at the time the Company acquired them but were subsequently downgraded for various reasons. A substantial increase in defaults from these or other issuers could negatively impact the Company's financial position and results.

For the Company's equity-indexed products, over the counter derivative instruments are purchased from a number of highly rated counterparties to fund the equity-index credit to policyholders. In the event that any of these counterparties fails to meet their contractual obligations under these derivative instruments, the Company would be financially at risk for providing the credits due that the counterparty reneged on. Although the financial impact is limited due to the credit support agreements that the Company has with all if its counterparties, the failure of a counterparty to perform could negatively impact the Company's financial position and results.

We are subject to incurring difficulties in marketing and distributing our products through our current and future distribution channels.

The Company distributes its life and annuity products through independent broker-agents. There is substantial competition, particularly in the Company's domestic market, for independent broker-agents with the demonstrated ability to market and sell insurance products. Competition for these individuals or organizations typically centers on products, compensation, home office support and the insurer's financial strength ratings. The Company's future sales and financial condition are dependent upon avoiding significant interruptions in attracting and retaining independent broker-agents.

We are subject to a downgrade in our financial strength ratings which may negatively effect our ability to attract and retain independent distributors, make our products less attractive to consumers, and may have an adverse effect on our operations.

Financial strength ratings have grown to become an important criteria in establishing the competitive position of insurers. Ratings generally reflect the rating agencies' view of a particular company's financial strength, operating performance, and ability to meet its obligations to policyholders. However, some of the rating factors often relate to the particular views of the rating agency, their independent economic modeling, the general economic climate, and other circumstances outside of the insurer's control. Accordingly, we cannot predict with any certainty what actions rating agencies may take. A downgrade in our financial strength rating, or an announced potential downgrade, could affect our competitive position and make it more difficult to market our products vis-à-vis competitors with higher financial strength ratings. In extreme situations, a significant downgrade action by one or more rating agency could induce existing policyholders to cancel their policies and withdraw funds from the Company. These events could have a material adverse effect on our financial position and liquidity.

We are subject to competition from new sources as well as companies having substantially greater financial resources which could have an adverse impact upon our business levels and profitability.

In recent years, there has been considerable consolidation among companies in the insurance and financial sectors resulting in large, well-capitalized entities that offer products comparable to the Company. Frequently, these larger organizations are not domiciled in the United States or are financial services entities attempting to establish a position in the insurance industry. These larger competitors often enjoy economies of scale which produce lower operating costs and the wherewithal to absorb greater risk allowing them to price products more competitively and, in turn, attract independent distributors. Consequently, the Company may encounter additional product pricing pressures and be challenged to maintain profit margin targets and profitability criteria. Because of these competitive presences, the Company may not be able to effectively compete without negative affects on our financial position and results.

We are subject to regulation and changes to existing laws that may affect our profitability or means of operations.

The Company is subject to extensive laws and regulations which are complex and subject to change. In addition, these laws and regulations are enforced by a number of different authorities including, but not limited to, state insurance regulators, the National Association of Insurance Commissioners, the Securities and Exchange Commission, state attorney generals, and the U.S. Department of Justice. Compliance with these laws and regulations is time consuming and any changes may materially increase our compliance costs and other expenses of doing business. The regulatory framework at the state and, increasingly, federal level pertaining to insurance products and practices is advancing and could affect not only the design of our products but our ability to continue to sell certain products.

Life insurer products generally offer tax advantages to policyholders via the deferral of income tax on policy earnings during the accumulation phase of the product, be it an annuity or a life insurance product. Periodically, Congress has considered legislation that would reduce or eliminate this tax deferral advantage inherent to the life insurance industry and subject the industry's products to treatment more equivalent with other investments. In the event that the tax-deferred status of life insurance products is revised or reduced by Congress all life insurers would be adversely impacted.

We may be subject to unfavorable judicial developments, including the time and expense of litigation, which potentially could affect our financial position and results.

In the ordinary course of business, we are involved in various legal actions common to the life insurance industry, some of which may occasionally assert claims for large amounts. These actions, for example, could include allegations of improper sales practices in connection with the sale of life insurance or bad faith in the handling of insurance claims. While we are not a party to any lawsuit that we believe will have a material adverse effect on our financial position or operations, given the inherent unpredictability of litigation, there can be no assurance that such litigation, current or in the future, will not have such a material adverse effect on the Company's results of operation or cash flows in any particular reporting period.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

The Company leases approximately 72,000 square feet of office space in Austin, Texas. This lease expires in 2010 and specifies lease payments that gradually increase over the term of the lease. Currently, lease payments are $0.6 million per year plus taxes, insurance, maintenance, and other operating costs. Additionally, the Company's wholly owned subsidiary, The Westcap Corporation, owns two buildings adjacent to the Company's principal office space totaling approximately 21,000 square feet that are leased and utilized by the Company. The Company's affiliate, Regent Care Building, Limited Partnership, owns a 46,000 square foot building in Reno, Nevada, which is leased and utilized by another of the Company's affiliates, Regent Care Operations, Limited Partnership, for use in its nursing home operations. Lease costs and related operating expenses for facilities of the Company's subsidiaries are currently not significant in relation to the Company's consolidated financial statements. The intercompany lease costs related to The Westcap Corporation and the nursing home have been eliminated for consolidated reporting purposes.

ITEM 3. LEGAL PROCEEDINGS

In the course of an audit of a charitable tax-exempt foundation, the Internal Revenue Service ("IRS") raised an issue under the special provisions of the Internal Revenue Code ("IRC") governing tax-exempt private foundations as to certain interest-bearing loans from the Company to another corporation in which the tax-exempt foundation owns stock. The issue is whether such transactions constitute indirect self-dealing by the foundation, the result of which would be excise taxes on the Company by virtue of its participation in such transactions. By letter to the Company dated August 21, 2003, the IRS proposed an initial excise tax liability in the total amount approximating one million dollars as a result of such transactions. The Company disagrees with the IRS analysis. The Company is contesting the matter and expects to prevail on the merits. On October 14, 2003, in response to the IRS letter, the Company requested that this issue instead be referred to the IRS National Office for technical advice. The IRS audit team agreed and the matter was referred in November of 2003 to the IRS National Office. Such technical advice when issued by the IRS National Office will be in the form of a memorandum analyzing the issue which will be binding on the IRS audit team.

The Company is a defendant in several class action lawsuits, however no class has been certified to date on any of these suits. Management believes that the Company has good and meritorious defenses and intends to vigorously defend itself against these claims.

The Company is involved or may become involved in various other legal actions, in the normal course of business, in which claims for alleged economic and punitive damages have been or may be asserted, some for substantial amounts. Although there can be no assurances, at the present time, the Company does not anticipate that the ultimate liability arising from potential, pending, or threatened legal actions, will have a material adverse effect on the financial condition or operating results of the Company.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE
OF SECURITY HOLDERS

No matters were submitted to a vote of the Company's security holders during the fourth quarter of 2005.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS

Market Information

The principal market on which the Class A common stock of the Company trades is The NASDAQ Stock Market^® under the symbol "NWLIA". The high and low sales prices for the Class A common stock for each quarter during the last two years are shown in the following table.

			High		Low
2005:	First Quarter	$	175	.85	166	.63
	Second Quarter		197	.99	160	.00
	Third Quarter		213	.70	194	.69
	Fourth Quarter		220	.00	181	.95
2004:	First Quarter	$	158	.77	143	.50
	Second Quarter		156	.72	136	.38
	Third Quarter		164	.01	153	.50
	Fourth Quarter		169	.98	149	.01

Equity Security Holders

The number of stockholders of record on March 10, 2006 was as follows:

Class A Common Stock	4,799
Class B Common Stock	2

Dividends

During 2005 the Company paid cash dividends on its Class A and Class B common stock in the amounts of $1,160,017 and $34,000, respectively. Payment of dividends is within the discretion of the Company's Board of Directors. The Company's general policy is to reinvest earnings internally to finance the development of new business.

Securities Authorized For Issuance Under Equity Compensation Plans

The Company has one equity compensation plan that was approved by security holders. Under the plan, 156,959 shares of the Company's Class A common stock may be issued upon exercise of the outstanding options at December 31, 2005. The weighted average exercise price of the outstanding options is $117.62 per option. Excluding the outstanding options, 21,207 shares of the common stock remain available for future issuance under the plan at December 31, 2005. The Company has no equity compensation plans that have not been approved by security holders.

ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

The following five-year financial summary includes comparative amounts derived from the audited consolidated financial statements.

	Years Ended December 31,
		2005	2004	2003	2002	2001
	(In thousands except per share amounts)
Earnings Information:
Revenues:
Life and annuity premiums	$	14,602	14,025	13,916	13,918	14,013
Universal life and annuity
contract revenues		96,765	89,513	80,964	76,173	75,026
Net investment income		310,213	315,843	298,974	236,714	234,866
Other income		9,579	11,259	7,061	6,726	6,247
Realized gains (losses)
on investments		9,884	3,506	(1,647)	(16,144)	(27,046)
Total revenues		441,043	434,146	399,268	317,387	303,106
Benefits and expenses:
Life and other policy benefits		39,162	34,613	37,180	31,299	31,715
Amortization of deferred
policy acquisition costs		87,955	88,733	53,829	35,799	27,424
Universal life and investment
annuity contract interest		150,692	173,315	176,374	150,479	144,516
Other operating expenses		46,349	35,441	48,776	36,938	31,681
Total expenses		324,158	332,102	316,159	254,515	235,336
Earnings before Federal income
taxes and cumulative effect of change
in accounting principle		116,885	102,044	83,109	62,872	67,770
Federal income taxes		39,618	34,572	27,327	20,806	23,185
Earnings before cumulative effect of
change in accounting principle		77,267	67,472	55,782	42,066	44,585
Cumulative effect of change in
accounting principle, net of tax		-	54,697	-	-	2,134
Net earnings	$	77,267	122,169	55,782	42,066	46,719
Diluted Earnings Per Share:
Earnings from operations	$	21.24	18.73	15.64	11.84	12.59
Cumulative effect of change in
accounting principle		-	15.18	-	-	0.60
Net earnings	$	21.24	33.91	15.64	11.84	13.19
Balance Sheet Information:
Total assets	$	6,369,008	5,991,685	5,297,720	4,137,247	3,808,000
Total liabilities	$	5,495,000	5,183,013	4,617,862	3,530,041	3,248,612
Stockholders' equity	$	874,008	808,672	679,858	607,206	559,388

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for forward-looking statements. Certain information contained herein or in other written or oral statements made by or on behalf of National Western Life Insurance Company or its subsidiaries are or may be viewed as forward-looking. Although the Company has taken appropriate care in developing any such information, forward-looking information involves risks and uncertainties that could significantly impact actual results. These risks and uncertainties include, but are not limited to, matters described in the Company's SEC filings such as exposure to market risks, anticipated cash flows or operating performance, future capital needs, and statutory or regulatory related issues. However, National Western, as a matter of policy, does not make any specific projections as to future earnings, nor does it endorse any projections regarding future performance that may be made by others. Whether or not actual results differ materially from forward-looking statements may depend on numerous foreseeable and unforeseeable events or developments. Also, the Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future developments, or otherwise.

Management's discussion and analysis of financial condition and results of operations ("MD&A") of National Western Life Insurance Company for the three years ended December 31, 2005 follows. This discussion should be read in conjunction with the Company's consolidated financial statements and related notes beginning on page 59 of this report.

Overview

The Company provides life insurance products for the savings and protection needs of policyholders and annuity contracts for the asset accumulation and retirement needs of contractholders both domestically and internationally. The Company accepts funds from policyholders or contractholders and establishes a liability representing future obligations to pay the policy or contract-holders and their beneficiaries. To ensure the Company will be able to pay these future commitments, the funds received as premium payments and deposits are invested in high quality investments, primarily fixed income securities.

Due to the business of accepting funds to pay future obligations in later years, the underlying economics and relevant factors affecting the life insurance industry include the following:

   -  level of premium revenues collected

   -  persistency of policies and contracts

   -  returns on investments

   -  investment credit quality

   -  levels of policy benefits and costs to acquire business

   -  effect of interest rate changes on revenues and investments including asset and liability matching

   -  adequate levels of capital and surplus

The Company monitors these factors continually as key business indicators. The discussion below includes these indicators and presents information useful to an overall understanding of the Company's business performance in 2005, incorporating required disclosures in accordance with the rules and regulations of the Securities and Exchange Commission.

The Company has experienced record sales both with its annuity products domestically and internationally with its life products over the past several years. The increase in sales has come at a challenging time for the insurance industry with low interest rate levels and increased regulatory requirements. Despite these obstacles, business levels have increased and the Company has effectively managed investment performance, not by taking on additional risks, but with improved overall credit quality of its portfolio of fixed income securities. The Company's financial performance is determined by the execution of its business model, which includes distribution and sale of its products through independent distributors, while maintaining invested values in order to meet future commitments to its policyholders and their beneficiaries.

Critical Accounting Policies

Accounting policies discussed below are those considered critical to an understanding of the Company's financial statements.

Impairment of Investment Securities. The Company's accounting policy requires that a decline in the value of a security below its amortized cost basis be evaluated to determine if the decline is other-than-temporary. The primary factors considered in evaluating whether a decline in value for fixed income and equity securities is other-than-temporary include: (a) the length of time and the extent to which the fair value has been less than cost, (b) the financial conditions and near-term prospects of the issuer, (c) whether the debtor is current on contractually obligated principal and interest payments, and (d) the intent and ability of the Company to retain the investment for a period of time sufficient to allow for any anticipated recovery. In addition, certain securitized financial assets with contractual cash flows are evaluated periodically by the Company to update the estimated cash flows over the life of the security. If the Company determines that the fair value of the securitized financial asset is less than its carrying amount and there has been a decrease in the present value of the estimated cash flows since the previous estimate, then an other-than-temporary impairment charge is recognized. When a security is deemed to be impaired a charge is recorded as net realized losses equal to the difference between the fair value and amortized cost basis of the security. Once an impairment charge has been recorded, the fair value of the impaired investment becomes its new cost basis and the Company continues to review the other-than-temporarily impaired security for appropriate valuation on an ongoing basis. Under U.S. generally accepted accounting principles, the Company is not permitted to increase the basis of impaired securities for subsequent recoveries in value.

Deferred Acquisition Costs ("DAC").  The Company is required to defer certain policy acquisition costs and amortize them over future periods. These costs include commissions and certain other expenses that vary with and are primarily associated with acquiring new business. The deferred costs are recorded as an asset commonly referred to as deferred policy acquisition costs. The DAC asset balance is subsequently charged to income over the lives of the underlying contracts in relation to the anticipated emergence of revenue or profits. Actual revenue or profits can vary from Company estimates resulting in increases or decreases in the rate of amortization. The Company regularly evaluates to determine if actual experience or other evidence suggests that earlier estimates should be revised. Assumptions considered significant include surrender and lapse rates, mortality, expense levels, investment performance, and estimated interest spread. Should actual experience dictate that the Company change its assumptions regarding the emergence of future revenues or profits (commonly referred to as "unlocking"), the Company would record a charge or credit to bring its DAC balance to the level it would have been if using the new assumptions from the inception date of each policy.

DAC is also subject to periodic recoverability and loss recognition testing. These tests ensure that the present value of future contract-related cash flows will support the capitalized DAC balance to be amortized in the future. The present value of these cash flows, less the benefit reserve, is compared with the unamortized DAC balance and if the DAC balance is greater, the deficiency is charged to expense as a component of amortization and the asset balance is reduced to the recoverable amount. For more information about accounting for DAC see Note 1, Summary of Significant Accounting Policies, in the Notes to Consolidated Financial Statements.

Deferred Sales Inducements. Costs related to sales inducements offered on sales to new customers, principally on investment type contracts and primarily in the form of additional credits to the customer's account value or enhancements to interest credited for a specified period, which are beyond amounts currently being credited to existing contracts, are deferred and recorded as other assets. All other sales inducements are expensed as incurred and included in interest credited to contract holders' funds. Deferred sales inducements are amortized to income using the same methodology and assumptions as DAC, and are included in interest credited to contract holders' funds. Deferred sales inducements are periodically reviewed for recoverability.

Future Policy Benefits.  Because of the long-term nature of insurance contracts, the Company is liable for policy benefit payments many years into the future. The liability for future policy benefits represents estimates of the present value of the Company's expected benefit payments, net of the related present value of future net premium collections. For traditional life insurance contracts, this is determined by standard actuarial procedures, using assumptions as to mortality (life expectancy), morbidity (health expectancy), persistency, and interest rates, which are based on the Company's experience with similar products. The assumptions used are those considered to be appropriate at the time the policies are issued. An additional provision is made on most products to allow for possible adverse deviation from the assumptions assumed. For universal life and annuity products, the Company's liability is the amount of the contract's account balance. Account balances are also subject to minimum liability calculations as a result of minimum guaranteed interest rates in the policies. While management and Company actuaries have used their best judgment in determining the assumptions and in calculating the liability for future policy benefits, there is no assurance that the estimate of the liabilities reflected in the financial statements represents the Company's ultimate obligation. In addition, significantly different assumptions could result in materially different reported amounts. A discussion of the assumptions used to calculate the liability for future policy benefits is reported in Note 1, Summary of Significant Accounting Policies, in the Notes to Consolidated Financial Statements.

Revenue Recognition.  Premium income for the Company's traditional life insurance contracts is generally recognized as the premium becomes due from policyholders. For annuity and universal life contracts, the amounts collected from policyholders are considered deposits and are not included in revenue. For these contracts, fee income consists of policy charges for policy administration, cost of insurance charges and surrender charges assessed against policyholders' account balances which are recognized in the period the services are provided.

Investment activities of the Company are integral to its insurance operations. Since life insurance benefits may not be paid until many years into the future, the accumulation of cash flows from premium receipts are invested with income reported as revenue when earned. Anticipated yields on investments are reflected in premium rates, contract liabilities, and other product contract features. These anticipated yields are implied in the interest required on the Company's net insurance liabilities (future policy benefits less deferred acquisition costs) and contractual interest obligations in its insurance and annuity products. The Company benefits to the extent actual net investment income exceeds the required interest on net insurance liabilities and manages the rates it credits on its products to maintain the targeted excess or "spread" of investment earnings over interest credited. The Company will continue to be required to provide for future contractual obligations in the event of a decline in investment yield. For more information concerning revenue recognition, investment accounting, and interest sensitivity, please refer to Note 1, Summary of Significant Accounting Policies, and Note 3, Investments, in the Notes to Consolidated Financial Statements and the discussions under Investments in Item 7 of this report.

Pension Plans and Other Postretirement Benefits.  The Company sponsors a qualified defined benefit pension plan covering substantially all employees and three nonqualified defined benefit plans covering certain senior officers. In addition, the Company also has postretirement health care benefits for certain senior officers. In accordance with prescribed accounting standards, the Company annually reviews plan asssumptions.

The Company annually reviews its pension benefit plan assumptions which include the discount rate, the expected long-term rate of return on plan assets, and the compensation increase rate. The assumed discount rate is set based on the rates of return on high quality long-term fixed income investments currently available and expected to be available during the period to maturity of the pension benefits. The assumed long-term rate of return on plan assets is generally set at the rate expected to be earned based on long-term investment policy of the plans and the various classes of the invested funds, based on the input of the plan's investment advisors and consulting actuary and the plan's historic rate of return. The compensation rate increase assumption is generally set at a rate consistent with current and expected long-term compensation and salary policy, including inflation. These assumptions involve uncertainties and judgment and therefore actual performance may not be reflective of the assumptions.

Other postretirement benefit assumptions include future events affecting retirement age, mortality, dependency status, per capita claims costs by age, health care trend rates, and discount rates. Per capita claims cost by age is the current cost of providing postretirement health care benefits for one year at each age from the youngest age to the oldest age at which plan participants are expected to receive benefits under the plan. Health care trend rates involve assumptions about the annual rate(s) of change in the cost of health care benefits currently provided by the plan, due to factors other than changes in the composition of the plan population by age and dependency status. These rates implicitly consider estimates of health care inflation, changes in utilization, technological advances and changes in health status of the participants. These assumptions involve uncertainties and judgment, and therefore actual performance may not be reflective of the assumptions.

Other significant accounting policies, although not involving the same level of measurement uncertainties as those discussed above but nonetheless important to an understanding of the financial statements, are described in Note 1, Summary of Significant Accounting Policies, in the Notes to Consolidated Financial Statements.

RESULTS OF OPERATIONS

The Company's consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles ("GAAP"). In addition, the Company regularly evaluates operating performance using non-GAAP financial measures which exclude or segregate derivative and realized investment gains and losses from operating revenues and earnings. Similar measures are commonly used in the insurance industry in order to assess profitability and results from ongoing operations. The Company believes that the presentation of these non-GAAP financial measures enhances the understanding of the Company's results of operations by highlighting the results from ongoing operations and the underlying profitability factors of the Company's business. The Company excludes or segregates derivative and realized investment gains and losses because such items are often the result of events which may or may not be at the Company's discretion and the fluctuating effects of these items could distort trends in the underlying profitability of the Company's business. Therefore, in the following sections discussing consolidated operations and segment operations, appropriate reconciliations have been included to report information management considers useful in enhancing an understanding of the Company's operations to reportable GAAP balances reflected in the consolidated financial statements.

Consolidated Operations

Revenues.   The following details Company revenues.

		Years Ended December 31,
		2005	2004	2003
		(In thousands)
Universal life and annuity contract revenues	$	96,765	89,513	80,964
Traditional life and annuity premiums		14,602	14,025	13,916
Net investment income (excluding derivatives)		321,201	303,855	273,175
Other income		9,579	11,259	7,061
Operating revenues		442,147	418,652	375,116
Derivative gains (losses)		(10,988)	11,988	25,799
Realized gains (losses) on investments		9,884	3,506	(1,647)
Total revenues	$	441,043	434,146	399,268

Revenues for universal life and annuity products consist of policy charges for the cost of insurance, administration charges, and surrender charges assessed against policyholder account balances, less reinsurance premiums. The Company has experienced modest growth in its block of business, most notably in international universal life products. This growth contributes to higher revenues in the form of cost of insurance charges which were $63.3 million compared to $60.1 million in 2004, and $55.6 million in 2003. Administrative charges were $15.0 million, $13.0 million, and $9.3 million for the years ended December 31, 2005, 2004, and 2003, respectively. Surrender charges assessed against policyholder account balances upon withdrawal were $25.1 million in 2005 compared to $23.4 million in 2004 and $21.6 million in 2003.

Traditional life insurance premiums for products such as whole life and term life are recognized as revenues over the premium-paying period. These are product lines that the Company has not put as much emphasis on relative to interest sensitive products, particularly in its international life insurance operations.

A detail of net investment income is provided below.

		Years Ended December 31,
		2005	2004	2003
		(In thousands)
Gross investment income:
Debt securities	$	293,502	276,624	239,243
Mortgage loans		9,676	12,510	15,115
Policy loans		6,409	6,483	6,932
Other investment income		13,975	10,351	13,794
Total investment income		323,562	305,968	275,084
Investment expenses		2,361	2,113	1,909
Net investment income
(excluding derivatives)		321,201	303,855	273,175
Derivative gains (losses)		(10,988)	11,988	25,799
Net investment income	$	310,213	315,843	298,974

Net investable cash flow is primarily invested in investment grade debt securities generating approximately 91.4% of total investment income, excluding derivatives in 2005. The mortgage loan investment balance has been steadily declining over the past several years due to the low interest rate environment, which has resulted in loan pre-payments and a decrease of new loan fundings. As a result, investment income from mortgage loans has declined from $15.1 million in 2003 to $12.5 million in 2004 and down to $9.7 million in 2005. Other investment income for 2005 includes $2.8 million related to income received on various profit participation arrangements compared to $1.5 million reported in 2004 and $3.3 million recorded in 2003. Despite the low interest rate levels, the Company generated comparable higher net investment earnings due to increasing invested asset balances. In addition, investment expenses have remained relatively level during this time frame.

Net investment income performance is analyzed excluding derivative income, which is a common practice in the insurance industry, in order to assess underlying profitability and results from ongoing operations. Net investment income performance is summarized as follows:

		Years Ended December 31,
		2005	2004	2003
		(In thousands except percentages)
Excluding derivatives:
Net investment income	$	321,201	303,855	273,175
Average invested assets, at amortized cost	$	5,152,449	4,692,988	3,911,595
Yield on average invested assets		6.23%	6.47%	6.98%
Including derivatives:
Net investment income	$	310,213	315,843	298,974
Average invested assets, at amortized cost	$	5,200,557	4,730,497	3,923,725
Yield on average invested assets		5.96%	6.68%	7.62%

The yield on average invested assets declined from 6.98% in 2003 to 6.47% in 2004 and 6.23% in 2005, excluding derivatives. This decline in yield is due to the overall interest rate decline and the Company obtaining lower yields on newly invested funds. In addition, prepayments, calls, and maturities of higher yielding debt securities have added to the yield decrease as these funds are reinvested at lower rates. Refer to the Derivatives discussion following this section for a more detailed explanation.

Derivatives. Index options are derivative financial instruments used to fully hedge the equity return component of the Company's equity-indexed products, which were first introduced for sale in 1997. In 2002, the Company began selling an equity-indexed universal life product in addition to its equity-indexed annuities. Any gains or losses from the sale or expiration of the options, as well as period-to-period changes in fair values, are reflected as a component of net investment income. However, increases or decreases in income from these options are substantially offset by corresponding increases or decreases in amounts credited to equity-indexed annuity and life policyholders.

Gains and losses from index options are due to market conditions. Index options are intended to act as hedges to match the returns on the S&P 500 Index^® and the rise or decline in this index causes index option values to likewise rise or decline. While income from index options fluctuates with the index, the contract interest expense to policyholder accounts for the Company's equity-indexed products also fluctuates in a similar manner and direction. In 2005, the S&P 500 Index^® decreased resulting in index option losses and a reduction in contract interest expenses. In 2004 and 2003, the S&P 500 Index^® increased and the Company recorded gains from index options and consequently increased contract interest expenses.

Other income consists primarily of revenues associated with nursing home operations of $8.9 million, $8.3 million, and $6.9 million in 2005, 2004, and 2003, respectively. A lawsuit settlement of $2.2 million was awarded to the Company relating to an investment previously owned and is included in other income for 2004.

Realized Gains (Losses) on Investments. The net gains reported in 2005 consisted of gross gains of $12.2 million primarily from calls and sales of debt securities, sale of real estate during the year, and gross losses of $2.3 million resulting from, most notably, an additional impairment writedown on Delta Airline debt securities of $1.6 million. Other impairments include an asset-backed security ($0.2 million) due to underlying cash flow deteoriation and an investment in a New Orleans utility ($0.2 million). In past years, the losses on investments have primarily resulted from impairment writedowns on investments in debt securities. The Company records impairment writedowns when a decline in value is considered other-than-temporary and full recovery of the investment is not expected. Total impairment writedowns in 2005, 2004, and 2003 totaled $2.0 million, $3.6 million, and $7.2 million, respectively. In 2004, the Company recorded an impairment writedown on Delta Airline debt securities of $3.6 million. Writedowns in 2003 included holdings of American Airlines ($3.1 million), Lukens ($0.8 million) and collaterialized bond obligation ("CBO") investments ($3.3 million).

Benefits and Expenses. The following details benefits and expenses.

		Years Ended December 31,
		2005	2004	2003
		(In thousands)
Life and other policy benefits	$	39,162	34,613	37,180
Amortization of deferred policy acquisition costs		87,955	88,733	53,829
Universal life and annuity contract interest		150,692	173,315	176,374
Other operating expenses		46,349	35,441	48,776
Totals	$	324,158	332,102	316,159

The Company's mortality experience over the past five years has generally been consistent with its product pricing assumptions. Life and other policy benefits reflect death claims of $30.0 million, $24.7 million, and $26.8 million for 2005, 2004, and 2003, respectively.

Life insurance companies are required to defer certain expenses associated with acquiring new business. The majority of these acquisition expenses consist of commissions paid to agents, underwriting costs, and certain marketing expenses and sales inducements. The Company defers sales inducements in the form of first year interest bonuses on annuity and universal life products that are directly related to the production of new business. These charges are deferred and amortized using the same methodology and assumptions used to amortize other capitalized acquisition costs and the amortization is included in contract interest. Recognition of these deferred policy acquisition costs in the consolidated financial statements is to occur over future periods in relation to the expected emergence of profits priced into the products sold. This emergence of profits is based upon assumptions regarding premium payment patterns, mortality, persistency, investment performance, and expense patterns. Companies are required to review these assumptions periodically to ascertain whether actual experience has deviated significantly from that assumed. If it is determined that a significant deviation has occurred, the emergence of profit patterns is to be "unlocked" and reset based upon the actual experience.

Amortization of deferred policy acquisition costs reported were $88.0 million, $88.7 million, and $53.8 million in 2005, 2004, and 2003, respectively. Deferred amortization in 2005 includes an "unlocking" adjustment relative to future spreads, surrender charges and ultimate valuation rates on certain annuity products resulting in an increase in amortization of $1.3 million. Unlocking adjustments were also made during 2003 and 2004 pertaining to the annuity line of business and the expected emergence of future profits which also resulted in increased deferred policy acquisition costs amortization. While the Company is required to continually evaluate its emergence of profits, management believes that the current amortization patterns of deferred policy acquisition costs are reflective of actual experience. See additional discussions of amortization relative to the Company's lines of business included in the segment discussion following this section.

The Company closely monitors its credited interest rates on interest sensitive policies, taking into consideration such factors as profitability goals, policyholder benefits, product marketability, and economic market conditions. As long-term interest rates change, the Company's credited interest rates are often adjusted accordingly, taking into consideration the factors described above. The difference between yields earned on investments over policy credited rates is often referred to as the "interest spread". Raising policy credited rates can typically have an impact sooner than higher market rates on the Company's investment portfolio yield, making it more difficult to maintain the current interest spread.

The Company's approximated average credited rates are as follows:

	December 31,					December 31,
	2005	2004	2003		2005		2004	2003
	(Excluding equity-indexed products)					(Including equity-indexed products)
Annuity	3.59%	3.91%	4.25%	2.86%			3.60%	4.58%
Interest sensitive life	4.94%	4.75%	4.95%	4.63%			4.97%	5.19%

Contract interest also includes the performance of the derivative component of the Company's equity-indexed products. As previously noted, the recent market performance of these derivative features decreased contract interest expense while also decreasing the Company's investment income given the hedge nature of the options. During 2004 and 2003, the reverse was noted, as the S&P 500 Index^® performance was up resulting in higher investment income and contract interest expense. With these credited rates, the Company generally realized its targeted interest spread on its products.

Other operating expenses consist of general administrative expenses, licenses and fees, commissions not subject to deferral, and expenses of nursing home operations. Nursing home expenses amounted to $7.6 million, $7.2 million, and $6.0 million in 2005, 2004, and 2003, respectively. The Company's operating expenses for the years reported include increases associated with its significant upturn in business levels. In addition, a charge was recorded during 2003 in the amount of $9.7 million relating to a litigation claim where the Company had reached a settlement agreement that had been approved by the court. A reduction in expenses of $6.5 million due to the final accounting related to this lawsuit settlement is reflected in 2004 amounts. In addition, contractholder account balances were increased $2.3 million based on this final settlement.

Federal Income Taxes. Federal income taxes on earnings from continuing operations for 2005, 2004, and 2003 reflect effective tax rates of 33.9%, 33.9%, and 32.9%, respectively, which are lower than the expected Federal rate of 35% primarily due to tax-exempt investment income related to investments in municipal securities and dividends-received deductions on income from stock investments.

Segment Operations

Summary of Segment Earnings

A summary of segment earnings from continuing operations for the years ended December 31, 2005, 2004, and 2003 is provided below. The segment earnings exclude realized gains and losses on investments, net of taxes.

		Domestic	International
		Life	Life		All
		Insurance	Insurance	Annuities	Others	Totals
		(In thousands)
Segment earnings:
2005	$	2,809	13,559	47,915	6,559	70,842
2004		2,522	12,133	45,473	5,066	65,194
2003		1,366	13,249	37,121	5,116	56,852

Domestic Life Insurance Operations

A comparative analysis of results of operations for the Company's domestic life insurance segment is detailed below.

		Years Ended December 31,
		2005	2004	2003
		(In thousands)
Premiums and other revenue:
Premiums and contract revenues	$	22,172	23,324	21,725
Net investment income		19,958	20,283	21,688
Other income		35	509	31
Total premiums and other revenue		42,165	44,116	43,444
Benefits and expenses:
Life and other policy benefits		14,932	15,141	16,000
Amortization of deferred policy acquisition costs		5,798	9,098	8,983
Universal life insurance contract interest		8,842	8,585	8,896
Other operating expenses		8,349	7,479	7,526
Total benefits and expenses		37,921	40,303	41,405
Segment earnings before Federal income taxes		4,244	3,813	2,039
Federal income taxes		1,435	1,291	673
Segment earnings	$	2,809	2,522	1,366

Revenues from domestic life insurance operations include life insurance premiums on traditional type products and revenues from universal life insurance. Revenues from traditional products are simply premiums collected, while revenues from universal life insurance consist of policy charges for the cost of insurance, policy administration fees, and surrender charges assessed during the period. A comparative detail of premiums and contract revenues is provided below.

		Years Ended December 31,
		2005	2004	2003
		(In thousands)
Universal life insurance revenues	$	16,322	16,807	15,842
Traditional life insurance premiums		7,392	7,638	7,488
Reinsurance premiums		(1,542)	(1,121)	(1,605)
Totals	$	22,172	23,324	21,725

In accordance with generally accepted accounting principles, premiums collected on universal life products are not reflected as revenues in the Company's consolidated statements of earnings. Actual domestic universal life premiums are detailed below.

		Years Ended December 31,
		2005	2004	2003
		(In thousands)
Universal life insurance:
First year and single premiums	$	14,973	9,382	1,848
Renewal premiums		14,199	14,510	14,552
Totals	$	29,172	23,892	16,400

The Company's U.S. operations have typically emphasized annuity product sales over life product sales but recent efforts have been made to attract new independent agents and to promote life products to improve domestic sales. It is the Company's goal to increase domestic life product sales through increased recruiting of new distribution and the development of new life insurance products. The Company had approximately 10,200 contracted agents as of December 31, 2005.

Policy benefits totaled $14.9 million, $15.1 million, and $16.0 million in 2005, 2004, and 2003, respectively, which are consistent with Company expectations. The face amount of domestic life insurance in force has declined from $2.7 billion at December 31, 2003 to $2.5 billion at December 31, 2004 and 2005. Absent the growth rates targeted by management, the block of business will continue to contract due to the normal incidence of terminations from death or surrender with lower earnings resulting. Net investment income declined reporting $20.0 million, $20.3 million, and $21.7 million for 2005, 2004, and 2003, respectively, as investment assets for the block of business decrease as the amount of business in force decreases.

International Life Insurance Operations

A comparative analysis of results of operations for the Company's international life insurance segment is detailed below.

		Years Ended December 31,
		2005	2004	2003
		(In thousands)
Premiums and other revenue:
Premiums and contract revenues	$	70,379	64,239	55,041
Net investment income		23,123	22,821	23,983
Other income		75	790	37
Total premiums and other revenue		93,577	87,850	79,061
Benefits and expenses:
Life and other policy benefits		21,232	16,626	17,937
Amortization of deferred policy acquisition costs		20,389	21,837	12,109
Universal life insurance contract interest		18,118	18,631	17,775
Other operating expenses		13,359	12,418	11,489
Total benefits and expenses		73,098	69,512	59,310
Segment earnings before Federal income taxes		20,479	18,338	19,751
Federal income taxes		6,920	6,205	6,502
Segment earnings	$	13,559	12,133	13,249

As with domestic operations, revenues from the international life insurance segment include both premiums on traditional type products and revenues from universal life insurance. A comparative detail of premiums and contract revenues is provided below.

		Years Ended December 31,
		2005	2004	2003
		(In thousands)
Universal life insurance revenues	$	72,010	67,059	58,799
Traditional life insurance premiums		9,201	8,228	7,609
Reinsurance premiums		(10,832)	(11,048)	(11,367)
Totals	$	70,379	64,239	55,041

International operations have emphasized universal life policies over traditional life insurance products. In accordance with generally accepted accounting principles, premiums collected on universal life products are not reflected as revenues in the Company's consolidated statements of earnings. Actual international universal life premiums collected are detailed below.

		Years Ended December 31,
		2005	2004	2003
		(In thousands)
Universal life insurance:
First year and single premiums	$	35,575	35,681	37,069
Renewal premiums		68,832	59,981	47,907
Totals	$	104,407	95,662	84,976

The Company's international life operations have been a significant contributor to the Company's overall growth and represent a market niche where the Company feels it has a competitive advantage. A productive agency force has been developed given the Company's longstanding reputation for supporting its international life products coupled with the instability of competing companies in international markets. In particular, the Company has experienced sizable growth with its equity-indexed universal life products and has collected premiums of $48.2 million, $37.2 million, and $21.0 million for the years ended 2005, 2004, and 2003, respectively.

A detail of net investment income for international life insurance operations is provided below.

		Years Ended December 31,
		2005	2004	2003
		(In thousands)
Net investment income
(excluding derivatives)	$	23,896	23,260	23,063
Derivative gains (losses)		(773)	(439)	920
Net investment income	$	23,123	22,821	23,983

Derivative gains and losses fluctuate from period to period based on the S&P 500 Index^® performance.

Life and other policy benefits totaled $21.2 million in 2005, $16.6 million in 2004, and $17.9 million in 2003, which are consistent with Company expectations. Amortization of deferred policy acquisition costs was $20.4 million, $21.8 million, and $12.1 million for 2005, 2004, and 2003, respectively. Increased amortization in 2004 is due to increased gross profits incurred from greater than expected capital gains, reduced credited rates, and higher costs of insurance charges in 2004 compared to 2003 and 2005. The decrease in universal life contract interest is primarily the result of the decrease in the S&P 500 Index^® performance relative to the equity-indexed universal life products and the associated stock market losses in 2005 which decreased the amounts the Company in turn credited to policyholders. Contract interest expense was $18.1 million, $18.6 million, and $17.8 million in 2005, 2004, and 2003, respectively.

International sales during 2005 reflect Brazil, Argentina, and Taiwan as the top three international countries based on premiums and contract revenues recorded. Management expects sales growth internationally to trend at a steadier pace from the levels reported in recent years. As the international life insurance in force continues to grow, the Company anticipates operating earnings to similarly increase. The amount of international life insurance in force has grown from $10.2 billion at December 31, 2003 to $11.3 billion at December 31, 2004 and to $12.2 billion at December 31, 2005.

Annuity Operations

The Company's annuity operations are almost exclusively in the United States. Although some of the Company's investment contracts are available to international residents, current sales are small relative to total annuity sales. A comparative analysis of results of operations for the Company's annuity segment is detailed below.

		Years Ended December 31,
		2005	2004	2003
		(In thousands)
Premiums and other revenue:
Premiums and contract revenues	$	18,816	15,975	18,114
Net investment income		258,485	266,151	246,622
Other income		588	1,701	95
Total premiums and other revenue		277,889	283,827	264,831
Benefits and expenses:
Life and other policy benefits		2,998	2,846	3,243
Amortization of deferred policy acquisition costs		61,768	57,798	32,737
Annuity contract interest		123,732	146,099	149,703
Other operating expenses		17,019	8,353	23,809
Total benefits and expenses		205,517	215,096	209,492
Segment earnings before Federal income taxes		72,372	68,731	55,339
Federal income taxes		24,457	23,258	18,218
Segment earnings	$	47,915	45,473	37,121

Revenues from annuity operations include primarily surrender charges and recognition of deferred revenues relating to immediate or payout annuities. A comparative detail of the components of premiums and annuity contract revenues is provided below.

		Years Ended December 31,
		2005	2004	2003
		(In thousands)
Surrender charges	$	15,271	13,031	12,803
Payout annuity and other revenues		3,511	2,906	5,268
Traditional annuity premiums		34	38	43
Totals	$	18,816	15,975	18,114

As previously noted, the Company's earnings are dependent upon annuity contracts persisting or remaining in force. While revenues decline with a reduction in surrender charges, the Company's earnings benefit. A mandated change in accounting for two-tier annuities in 2004 had the effect of eliminating payout annuity revenues pertaining to this product. This change explains the sharp reduction in these revenues in 2005 and 2004 compared to 2003.

In accordance with generally accepted accounting principles, deposits collected on annuity contracts are not reflected as revenues in the Company's consolidated statements of earnings. Actual annuity deposits collected are detailed below.

		Years Ended December 31,
		2005	2004	2003
		(In thousands)
Equity-indexed annuities	$	298,227	512,709	479,535
Other deferred annuities		236,330	350,665	674,358
Immediate annuities		23,383	28,653	41,250
Totals	$	557,940	892,027	1,195,143

The Company experienced a tremendous increase in sales relating to equity-indexed annuities as the stock market rebounded in 2003 and 2004. These indexed products are more attractive for consumers when interest rate levels remain low as has been the market environment the past few years. Equity-indexed annuity deposits as a percentage of total annuity deposits recorded were 53.5%, 57.5%, and 40.1% for the years ended December 31, 2005, 2004, and 2003, respectively. Since the Company does not offer variable products or mutual funds, equity-indexed products provide an important alternative to the Company's existing fixed interest rate annuity products.

A detail of net investment income for annuity operations is provided below.

		Years Ended December 31,
		2005	2004	2003
		(In thousands)
Net investment income
(excluding derivatives)	$	268,700	253,724	221,743
Derivative gains (losses)		(10,215)	12,427	24,879
Net investment income	$	258,485	266,151	246,622

Derivative gains and losses fluctuate from period to period based on the S&P 500 Index^® performance.

As previously described, derivatives are used to hedge the equity return component of the Company's equity-indexed annuity products with any gains or losses from the sale or expiration of the options, as well as period-to-period changes in fair values, reflected in net investment income. The increase in net investment income, excluding derivatives from 2003 to 2005, is due to the increase in the overall size of the asset portfolio as a result of higher sales volume.

Other deferred annuity deposits decreased in 2005 compared to 2004 with $236.3 million recorded in collected deposits compared to $350.7 million, respectively. Fixed-rate annuity products became popular with consumers during 2003 as these products yielded a stable and competitive interest rate. As a selling inducement, many of these products include a first year interest bonus in addition to the base interest rate. These bonus rates are credited to the policyholder account but are deferred by the Company and amortized over future periods. The amount deferred was approximately $21.2 million, $27.5 million, and $43.9 million for the years ended December 31, 2005, 2004, and 2003, respectively.

Amortization of deferred policy acquisition costs in 2005 of $61.8 million includes an unlocking adjustment of $1.3 million. Adjustments were made in the assumptions relative to the future spreads on certain equity-index annuity products; modified surrender charges on certain annuities to reflect continuing lower new money rates; and reduced ultimate valuation rates for pay out on annuitization under all annuities. These adjustments resulted in a decrease to the deferred asset balance and an increase in amortization.

Contributing to amortization in 2003 and 2004 is the increased sales of the equity-indexed products and the related increase in the stock market which resulted in higher current gross profits than expected. Consequently, the Company recognized a greater level of amortization expense corresponding with the higher profit level. In addition, higher capital gains in 2004 as compared to 2003, and reductions in credited rates over the same period, resulted in increased amortization. The Company unlocked its deferred policy acquisition costs amortization factors on other annuity products for assumption changes during 2003 and 2004 due to an anticipated decrease in future profit streams. The decrease in expected future profits results from the low interest rate environment which causes a tightening of expected future spreads. The Company is required to periodically adjust these factors for actual experience that varies from that assumed. While management does not currently anticipate any impact from unlocking in 2006, facts and circumstances may arise in the future which require that the factors be reexamined.

Annuity contract interest includes the equity component return associated with the Company's equity-indexed annuities. The detail of equity-indexed annuity contract interest compared to contract interest for all other annuities is as follows:

		Years Ended December 31,
		2005	2004	2003
		(In thousands)
Equity-indexed annuities	$	28,224	38,942	44,201
All other annuities		110,165	129,392	148,108
Gross contract interest		138,389	168,334	192,309
Bonus interest deferred and capitalized		(21,200)	(27,491)	(43,867)
Bonus interest amortization		6,543	5,256	1,261
Total contract interest	$	123,732	146,099	149,703

In comparison to 2005, the 2004 and 2003 higher reported contract interest amount for equity-indexed annuities is due to increased sales and the effect of the positive performance of the stock market on option values as noted previously. In addition, the 2004 contract interest figures include an increase of $2.3 million for certain contractholder account balances as part of a lawsuit settlement.

Other operating expenses for 2004 reflect a reduction of $6.5 million for a charge recorded in the prior year. A $9.7 million charge was initially recorded in 2003 relating to a litigation claim which involved certain annuity products, and actual settlement payments made were $3.2 million during 2004.

Other Operations

National Western's primary business encompasses its domestic and international life insurance operations and its annuity operations. However, the Company also has small real estate, nursing home, and other investment operations through its wholly-owned subsidiaries. Most of the income from the Company's subsidiaries is from a life interest in a trust. Gross income distributions from the trust totaled $3.9 million, pre-tax, annually in 2005 and $3.7 million in 2004 and 2003.

The Company acquired a nursing home facility, which opened in late July, 2000 and is operated by an affiliated limited partnership, whose financial operating results are consolidated with those of the Company. Daily operations and management of the nursing home are performed by an experienced management company through a contract with the limited partnership. Nursing home operations generated $1.3 million, $1.1 million, and $0.9 million of operating earnings in 2005, 2004, and 2003, respectively.

INVESTMENTS

General

The Company's investment philosophy emphasizes the careful handling of policyowners' and stockholders' funds to achieve security of principal, to obtain the maximum possible yield while maintaining security of principal, and to maintain liquidity in a measure consistent with current and long-term requirements of the Company.

The Company's overall conservative investment philosophy is reflected in the allocation of its investments, which is detailed below as of December 31, 2005 and 2004. The Company emphasizes investment grade debt securities, with smaller holdings in mortgage loans and policy loans.

		2005			2004
		Carrying			Carrying
		Value	%		Value	%
		(In thousands)			(In thousands)
Debt securities	$	5,249,156	94.8	$	4,889,330	93.8
Mortgage loans		110,639	2.0		124,712	2.4
Policy loans		86,385	1.6		88,448	1.7
Derivatives		39,405	0.7		42,156	0.8
Equity securities		20,295	0.4		20,051	0.4
Real estate		13,436	0.2		17,224	0.3
Other		16,577	0.3		28,478	0.6
Totals	$	5,535,893	100.0	$	5,210,399	100.0

Debt and Equity Securities

The Company maintains a diversified portfolio which consists primarily of corporate, mortgage-backed, and public utilities fixed income securities. Investments in mortgage-backed securities include primarily U.S. government agency pass-through securities and collateralized mortgage obligations ("CMO"). As of December 31, 2005 and 2004, the Company's debt securities portfolio consisted of the following:

		2005			2004
		Carrying			Carrying
		Value	%		Value	%
		(In thousands)			(In thousands)
Corporate	$	2,320,306	44.2	$	2,208,003	45.2
Mortgage-backed securities		1,715,245	32.7		1,548,937	31.7
Public utilities		661,333	12.6		627,706	12.8
U.S. government/agencies		306,260	5.8		219,845	4.5
Asset-backed securities		161,324	3.1		210,976	4.3
States & political subdivisions		53,940	1.0		42,335	0.9
Foreign governments		30,748	0.6		31,528	0.6
Totals	$	5,249,156	100.0	$	4,889,330	100.0

The Company's investment guidelines prescribe limitations as a percent of the total investment portfolio by type of security and all holdings were within these threshold limits at December 31, 2005 and 2004. During 2004 and continuing into 2005, the Company expanded its holdings of U.S. government and private mortgage-backed securities given attractive yields and spreads. Because the Company's holdings of mortgage-backed securities are subject to prepayment and extension risk, the Company has substantially reduced these risks by investing primarily in collateralized mortgage obligations, which have more predictable cash flow patterns than pass-through securities. These securities, known as planned amortization class I ("PAC I"), very accurately defined maturity ("VADM") and sequential tranches are designed to amortize in a more predictable manner than other CMO classes or pass-throughs. Using this strategy, the Company can more effectively manage and reduce prepayment and extension risks, thereby helping to maintain the appropriate matching of the Company's assets and liabilities.

In addition to diversification, an important aspect of the Company's investment approach is managing the credit quality of its investments in debt securities. Thorough credit analysis is performed on potential corporate investments including examination of a company's credit and industry outlook, financial ratios and trends, and event risks. This emphasis is reflected in the high average credit rating of the Company's portfolio with 96.8% held in investment grade securities. In the table below, investments in debt securities are classified according to credit ratings by Standard and Poor's ("S&P^®"), or other nationally recognized statistical rating organizations if securities were not rated by S&P^®.

		2005			2004
		Carrying			Carrying
		Value	%		Value	%
		(In thousands)			(In thousands)
AAA and U.S. government	$	2,285,094	43.5	$	2,028,055	41.5
AA		202,092	3.9		179,397	3.7
A		1,360,716	25.9		1,383,176	28.3
BBB		1,230,799	23.5		1,160,772	23.7
BB and other below investment grade		170,455	3.2		137,930	2.8
Totals	$	5,249,156	100.0	$	4,889,330	100.0

National Western does not purchase below investment grade securities. Investments held in debt securities below investment grade are the result of subsequent downgrades of the securities. During 2005, the Company's percentage of below investment grade securities compared to total invested assets increased from 2.6% to 3.1% as of December 31, 2004 and 2005, respectively. The increase from year to year is primarily due to downgrades on several issues. The Company's holdings of below investment grade securities as a percentage of total invested assets is relatively small compared to industry averages. These holdings are summarized below.

		Below Investment Grade Debt Securities
					% of
		Amortized	Carrying	Fair	Invested
		Cost	Value	Value	Assets
		(In thousands except percentages)
December 31, 2005	$	168,423	170,455	167,770	3.1%
December 31, 2004	$	132,617	137,930	137,503	2.6%

Holdings in below investment grade securities by category as of December 31, 2005 are summarized below, including 2004 fair values for comparison. The Company is continually monitoring developments in these industries that would affect security valuations.

Below Investment Grade Debt Securities
		Amortized	Carrying	Fair	Fair
		Cost	Value	Value	Value
Category		2005	2005	2005	2004
Utilities/Energy	$	39,091	40,881	41,165	42,110
Retail		35,397	35,770	35,770	37,917
Manufacturing		23,023	22,084	22,187	22,204
CBOs/Asset-backed		17,496	18,704	16,570	16,405
Transportation		9,588	11,388	11,388	11,234
Telecommunications		9,993	9,875	9,875	9,900
Auto Finance		6,199	6,199	5,423	6,204
Healthcare		4,993	5,275	5,275	5,200
Other		22,643	20,279	20,117	22,642
Totals
	$	168,423	170,455	167,770	173,816

Generally accepted accounting principles require that investments in debt securities be written down to fair value when declines in value are judged to be other-than-temporary. Since quoted market prices are readily available and understood by investors and creditors, they are the mandated source for fair value estimation when available. In some instances, quoted market prices may not be available for securities that have limited buyer demand. When the quoted market price is not available other valuation techniques such as discounted cash flow analysis and fundamental analysis may be used. Although the Company is required to write down securities deemed to be impaired on an other-than-temporary basis to quoted market prices, the estimated ultimate recovery value of the impaired security is often anticipated to be an amount in excess of the quoted market price. This is due to the influence that "distressed bond" traders may have in depressing market prices in order to generate a yield commensurate with the investment risk of such securities. Consequently, financial results can significantly vary from period to period for securities written down to quoted market prices which may be subsequently redeemed at levels consistent with expected recovery value.

As part of the Company's review for other-than-temporary impairments of investments, the Company determined during 2005 and 2004 that it held investments in several issuers whose decline in value was considered other-than-temporary and these holdings were written down and included as realized losses on investments as follows:

			2005	2004
		Par Holdings	Writedown	Writedown
		(In thousands)
Issuer:
Delta 10.125%	$	4,000	1,000	2,471
Delta 9.300%		4,200	590	1,090
Entergy New Orleans 6.750%		1,200	246	-
Greentree 98-6 6.630%		3,000	176	-
Totals	$	12,400	2,012	3,561

The Company is closely monitoring its other below investment grade holdings by reviewing investment performance indicators including information such as issuer operating performance, debt ratings, analyst reports and other economic factors that may affect these specific investments. While additional losses are not currently anticipated based on the existing status and condition of these securities, continued credit deterioration of some securities is possible, which may result in further writedowns.

The Company is required to classify its investments in debt and equity securities into one of three categories: (a) trading securities, (b) securities available for sale, or (c) securities held to maturity. The Company purchases securities with the intent to hold to maturity and accordingly does not maintain a portfolio of trading securities. Of the remaining two categories, available for sale and held to maturity, the Company makes a determination as to which category based on various factors including the type and quality of the particular security and how it will be incorporated into the Company's overall asset/liability management strategy. As shown in the table below, at December 31, 2005, approximately 33% of the Company's total debt and equity securities, based on fair values, were classified as securities available for sale. These holdings provide flexibility to the Company to react to market opportunities and conditions and to practice active management within the portfolio to provide adequate liquidity to meet policyholder obligations and other cash needs.

		Fair	Amortized	Unrealized
		Value	Cost	Gains (Losses)
		(In thousands)
Securities held to maturity:
Debt securities	$	3,523,993	3,524,724	(731)
Securities available for sale:
Debt securities		1,724,432	1,713,396	11,036
Equity securities		20,295	12,856	7,439
Totals	$	5,268,720	5,250,976	17,744

In accordance with the provisions of SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities, the Company may under certain conditions transfer a debt security from held to maturity to available for sale. For the twelve months ended December 31, 2005 and 2004, the Company transferred debt securities due to credit deterioration from the held to maturity portfolio to the available for sale portfolio in the amount of $7.0 million and $35.9 million, respectively. The unrealized gains associated with the security transferred in 2005 and the two securities transferred in 2004 totaled $0.2 million for both periods and were recorded as a component of accumulated other comprehensive income, net of deferred acquisition costs and taxes. During 2005, two securities were sold from the held to maturity portfolio due to credit deterioration, with amortized cost of $10.0 million resulting in a realized gain of $0.9 million. During 2004, bonds were sold from the held to maturity portfolio due to credit deterioration with amortized book value of $8.1 million with the sales resulting in realized gains of $0.6 million.

Mortgage Loans and Real Estate

In general, the Company originates loans on high quality, income-producing properties such as shopping centers, freestanding retail stores, office buildings, industrial and sales or service facilities, selected apartment buildings, motels, and health care facilities. The location of these properties is typically in major metropolitan areas that offer a potential for property value appreciation. Credit and default risk is minimized through strict underwriting guidelines and diversification of underlying property types and geographic locations. In addition to being secured by the property, mortgage loans with leases on the underlying property are often guaranteed by the lessee. This approach has proven to result in higher quality mortgage loans with fewer defaults.

The Company requires a minimum specified yield on mortgage loan investments. In the loan interest rate environment of the past few years, fewer loan opportunities have been available which met the Company's required rate of return. As a result, the Company's portfolio has declined.

The Company's direct investments in real estate are not a significant portion of its total investment portfolio as many of these investments were acquired through mortgage loan foreclosures. The Company also participates in several real estate joint ventures and limited partnerships that invest primarily in income-producing retail properties. These investments have enhanced the Company's overall investment portfolio returns.

The Company held net investments in mortgage loans totaling $110.6 million and $124.7 million at December 31, 2005 and 2004, respectively. The diversification of the portfolio by geographic region and by property type was as follows:

		2005			2004
Geographic Region:		Amount	%		Amount	%
		(In thousands)			(In thousands)
West South Central	$	68,413	61.8	$	74,765	59.9
Mountain		15,831	14.3		19,020	15.3
Pacific		11,342	10.3		11,954	9.6
South Atlantic		4,838	4.4		5,284	4.2
East South Central		-	-		3,686	3.0
All other		10,215	9.2		10,003	8.0
Totals	$	110,639	100.0	$	124,712	100.0

		2005			2004
Property Type:		Amount	%		Amount	%
		(In thousands)			(In thousands)
Retail	$	75,545	68.3	$	87,941	70.5
Office		24,536	22.2		24,740	19.8
Land/Lots		3,725	3.4		7,017	5.6
Hotel/Motel		6,797	6.1		4,974	4.0
All other		36	-		40	0.1
Totals	$	110,639	100.0	$	124,712	100.0

The Company does not recognize interest income on loans past due six months or more. At December 31, 2005 and 2004 the Company had no mortgage loan principal balances past due six months or more. Interest income not recognized for past due loans totaled approximately $54,000 in 2004; there was none in 2005 or 2003.

The contractual maturities of mortgage loan principal balances at December 31, 2005 are as follows:

		Principal
		Due
		(In thousands)
Due in one year or less	$	6,228
Due after one year through five years		62,904
Due after five years through ten years		26,891
Due after ten years through fifteen years		15,213
Due after fifteen years		-
Total	$	111,236

In the fourth quarter of 2004, an impairment loss of $0.6 million and an additional allowance of $0.4 million was recorded related to a mortgage loan based on information which indicated that the Company may not collect all amounts in accordance with the mortgage agreement. This allowance was reversed in the first quarter of 2005 upon the sale of the loan. As of December 31, 2003, an allowance for possible losses on mortgage loans was $0.7 million. During the first quarter of 2004, this allowance was released due to a review of anticipated cash flows showing that all principal would be recovered. Management believes that the allowance for possible losses is adequate. While the Company closely manages its mortgage loan portfolio, future changes in economic conditions can result in impairments beyond those currently identified.

The Company's real estate investments totaled approximately $13.4 million and $17.2 million at December 31, 2005 and 2004, respectively, and consist primarily of income-producing properties which are being operated by a wholly-owned subsidiary of the Company. The Company recognized operating income on these properties of approximately $1.0 million, $1.6 million, and $1.8 million for the years ended December 31, 2005, 2004, and 2003, respectively. The Company monitors the conditions and market values of these properties on a regular basis and makes repairs and capital improvements to keep the properties in good condition. The Company recorded net realized investment gains of $6.7 million, $2.2 million, and $0.9 million in 2005, 2004, and 2003, respectively associated with these properties.

Market Risk

Market risk is the risk of change in market values of financial instruments due to changes in interest rates, currency exchange rates, commodity prices, or equity prices. The most significant market risk exposure for National Western is interest rate risk. The fair values of fixed income debt securities correlate to external market interest rate conditions. Because interest rates are fixed on almost all of the Company's debt securities, market values typically increase when market interest rates decline, and decrease when market interest rates rise. However, market values may fluctuate for other reasons, such as changing economic conditions or increasing event-risk concerns.

The correlation between fair values and interest rates for debt securities is reflected in the tables below.

		December 31,
		2005		2004
		(In thousands except percentages)
Debt securities - fair value	$	5,248,425		4,982,308
Debt securities - amortized cost	$	5,238,120		4,829,091
Fair value as a percentage of amortized cost		100.20	%	103.17	%
Unrealized gains at year-end	$	10,305		153,217
Ten-year U.S. Treasury bond - increase (decrease)
in yield for the year		0.17	%	(0.03)	%

		Unrealized Gains (Losses)
			Net Balance at	Net Balance at
			December 31,	December 31,	Change in
			2005	2004	Net Balance
			(In thousands)
Debt securities held to maturity	$		(731)	92,978	(93,709)
Debt securities available for sale			11,036	60,239	(49,203)
Totals	$		10,305	153,217	(142,912)

Changes in interest rates typically have a significant impact on the fair values of the Company's debt securities. During 2005 market interest rates of the ten-year U.S. Treasury bond increased 17 basis points from year end 2004 resulting in an unrealized loss of $142.9 million on a portfolio of approximately $5.2 billion. The Company would expect similar results in the future from a significant upward or downward movement in market rates. However, since the majority of the Company's debt securities are classified as held to maturity, which are recorded at amortized cost, changes in fair values have relatively small effects on the Company's financial results.

The Company analyzes interest rate risk through ongoing cash flow testing required for insurance regulatory purposes. Computer models are used to perform cash flow testing under various commonly used stress test interest rate scenarios to determine if existing assets would be sufficient to meet projected liability outflows. Sensitivity analysis allows the Company to measure the potential gain or loss in fair value of its interest-sensitive instruments and to protect its economic value and achieve a predictable spread between what is earned on invested assets and what is paid on liabilities. The Company seeks to minimize the impact of interest rate risk through surrender charges that are imposed to discourage policy surrenders and to offset unamortized acquisition costs. Interest rate changes can be anticipated in the computer models and the corresponding risk addressed by management actions affecting asset and liability instruments. However, potential changes in the values of financial instruments indicated by hypothetical interest rate changes will likely be different from actual changes experienced, and the differences could be significant.

The following table illustrates the market risk sensitivity of the Company's interest rate-sensitive assets. The table shows the effect of a change in interest rates on the fair value of the portfolio using models that measure the change in fair value arising from an immediate and sustained change in interest rates in increments of 100 basis points.

		Fair Values of Assets
		Changes in Interest Rates in Basis Points
		-100	0	+ 100	+ 200	+ 300
		(In thousands)
Debt and equity securities	$	5,521,786	5,268,720	4,984,620	4,695,771	4,418,737
Mortgage loans		119,039	114,574	110,358	106,371	102,600
Policy loans		121,212	111,034	102,166	94,398	87,559
Other loans		7,404	7,261	7,121	6,985	6,853
Derivatives		38,010	39,405	40,804	42,205	43,609

Expected maturities of debt securities may differ from contractual maturities due to call or prepayment provisions. The models assume that prepayments on mortgage-backed securities are influenced by agency and pool types, the level of interest rates, loan age, refinancing incentive, month of the year, and underlying coupon. During periods of declining interest rates, principal payments on mortgage-backed securities and collateralized mortgage obligations increase as the underlying mortgages are prepaid. Conversely, during periods of rising interest rates, the rate of prepayment slows. Both of these situations can expose the Company to the possibility of asset-liability cash flow and yield mismatch. The model uses a proprietary method of sampling interest rate paths along with a mortgage prepayment model to derive future cash flows. The initial interest rates used are based on the current U.S. Treasury yield curve as well as current mortgage rates for the various types of collateral in the portfolio.

Mortgage and other loans were modeled by discounting scheduled cash flows through the scheduled maturities of the loans, starting with interest rates currently being offered for similar loans to borrowers with similar credit ratings. Policy loans were modeled by discounting estimated cash flows using U.S. Treasury Bill interest rates as the base rates at December 31, 2005. The estimated cash flows include assumptions as to whether such loans will be repaid by the policyholders or settled upon payment of death or surrender benefits on the underlying insurance contracts and incorporate both Company experience and mortality assumptions associated with such contracts.

In addition to the securities analyzed above, the Company invests in index options which are derivative financial instruments used to hedge the equity return component of the Company's equity-indexed annuity and life products. The values of these options are primarily impacted by equity price risk, as the options' fair values are dependent on the performance of the S&P 500 Index^®. However, increases or decreases in investment returns from these options are substantially offset by corresponding increases or decreases in amounts paid to equity-indexed policyholders, subject to minimum guaranteed policy interest rates.

The Company's market risk liabilities, which include policy liabilities for annuity and supplemental contracts, are managed for interest rate risk through cash flow testing as previously described. As part of this cash flow testing, the Company has analyzed the potential impact on net earnings of a 100 basis point decrease and increases in increments of 100 basis points in the U.S. Treasury yield curve as of December 31, 2005. The potential impact on net earnings from these interest rate changes are summarized below.

		Changes in Interest Rates in Basis Points
		-100	+100	+200	+300
		(In thousands)
Impact on Net earnings	$	(616)	429	521	750

These estimated impacts in earnings are net of tax effects and the estimated effects of deferred policy acquisition costs.

The above described scenarios produce estimated changes in cash flows as well as cash flow reinvestment projections. Estimated cash flows in the Company's model assume cash flow reinvestments which are representative of the Company's current investment strategy. Calls and prepayments include scheduled maturities and those expected to occur which would benefit the security issuers. Assumed policy surrenders consider differences and relationships between credited interest rates and market interest rates as well as surrender charges on individual policies. The impact to earnings also includes the expected effects on amortization of deferred policy acquisition costs. The model considers only annuity and supplemental contracts in force at December 31, 2005, and does not consider new product sales or the possible impact of interest rate changes on sales.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity

Liquidity requirements are met primarily by funds provided from operations. Premium deposits and annuity considerations, investment income, and investment maturities and prepayments are the primary sources of funds while investment purchases, policy benefits in the form of claims, and payments to policyholders and contract holders in connection with surrenders and withdrawals as well as operating expenses are the primary uses of funds. To ensure the Company will be able to pay future commitments, the funds received as premium payments and deposits are invested in high quality investments, primarily fixed income securities. Funds are invested with the intent that the income from investments, plus proceeds from maturities, will meet the ongoing cash flow needs of the Company. The approach of matching asset and liability durations and yields requires an appropriate mix of investments. Although the Company historically has not been put in the position of liquidating invested assets to provide cash flow, its investments consist primarily of marketable debt securities that could be readily converted to cash for liquidity needs. The Company may also borrow up to $40 million on its bank line of credit for short-term cash needs.

A primary liquidity concern is the risk of an extraordinary level of early policyholder withdrawals. The Company includes provisions within its annuity and universal life insurance policies, such as surrender and market value adjustment charges, that help limit and discourage early withdrawals. The following table sets forth withdrawal characteristics of the Company's annuity reserves and deposit liabilities (based on statutory liability values) as of the dates indicated.

		December 31, 2005			December 31, 2004
			% of			% of
		Amount	Total		Amount	Total
		($ Amounts in thousands)
Not subject to discretionary
withdrawal provisions	$	282,134	6.6%	$	261,009	6.5%
Subject to discretionary withdrawal,
with adjustment:
With market value adjustment		1,341,631	31.5%		1,203,525	30.0%
At contract value less current
surrender charge of 5% or more		2,106,363	49.5%		2,056,145	51.2%
Subtotal		3,730,128	87.6%		3,520,679	87.7%
Subject to discretionary withdrawal
at contract value with no surrender
charge or surrender charge of less
than 5%		528,977	12.4%		492,410	12.3%
Total annuity reserves and deposit
liabilities	$	4,259,105	100.0%	$	4,013,089	100.0%

The actual amounts paid by product line in connection with surrenders and withdrawals for the years ended December 31 are noted in the table below.

		2005	2004	2003
		(In thousands)
Product Line:
Traditional Life	$	5,419	6,774	7,344
Universal Life		31,143	30,409	27,548
Annuities		303,747	296,039	256,551
Total	$	340,309	333,222	291,443

The above contractual withdrawals, as well as the level of surrenders experienced, were generally consistent with the Company's assumptions in asset-liability management, and the associated cash outflows did not have an adverse impact on overall liquidity. Individual life insurance policies are less susceptible to withdrawal than annuity reserves and deposit liabilities because policyholders may incur surrender charges and undergo a new underwriting process in order to obtain a new insurance policy. Cash flow projections and tests under various market interest rate scenarios are also performed to assist in evaluating liquidity needs and adequacy. The Company currently expects available liquidity sources and future cash flows to be more than adequate to meet the demand for funds.

In the past, cash flows from the Company's insurance operations have been sufficient to meet current needs. Cash flows from operating activities were $197 million, $146 million, and $69 million in 2005, 2004, and 2003, respectively. Operating cash flows are lower in 2003 due to increased commission payments on annuity deposits which are included in financing activities on the consolidated statements of cash flows. The Company also has significant cash flows from both scheduled and unscheduled investment security maturities, redemptions, and prepayments. These cash flows totaled $485 million, $440 million, and $668 million in 2005, 2004, and 2003, respectively. Cash flows from security maturities, redemptions, and prepayments were relatively higher over the last three years due to the decline in interest rates. These cash flow items could be reduced if interest rates rise in 2005. Net cash flows from the Company's universal life and annuity deposit product operations totaled inflows of $153 million, $497 million and $839 million in 2005, 2004, and 2003, respectively. The net inflows are expected to continue in 2006.

Capital Resources

The Company relies on the accumulated earnings in stockholders' equity for its capital resources as it has no long-term debt outstanding and does not anticipate the need for any long-term debt in the near future. There are also no current or anticipated material commitments for capital expenditures in 2006. At December 31, 2005, the Company had commitments of approximately $1.0 million for the purchase of land for the future construction of a nursing home facility. The land acquisition is expected to be completed in the first quarter of 2006. Construction costs are expected to begin during 2006.

OFF-BALANCE SHEET ARRANGEMENTS AND CONTRACTUAL OBLIGATIONS

It is not Company practice to enter into off-balance sheet arrangements nor is it Company policy to issue guarantees to third parties, other than in the normal course of issuing insurance contracts. Commitments related to insurance products sold are reflected as liabilities for future policy benefits. Insurance contracts guarantee certain performances by the Company.

Insurance reserves are the means by which life insurance companies determine the liabilities that must be established to assure that future policy benefits are provided for and can be paid. These reserves are required by law and based upon standard actuarial methodologies to ensure fulfillment of commitments guaranteed to policyholders and their beneficiaries, even though the obligations may not be due for many years. Refer to Note (1) in the Notes to Consolidated Financial Statements for a discussion of reserving methods.

The table below summarizes future estimated cash payments under existing contractual obligations.

		Payment due by Period
			Less Than	1 - 3	3 - 5	More Than
		Total	1 Year	Years	Years	5 Years
		(In thousands)
Operating lease obligations (1)	$	3,142	817	1,458	867	-
Purchase obligations		1,000	1,000	-	-	-
Life claims payable (2)		45,334	45,334	-	-	-
Other long-term reserve liabilities
reflected on the balance sheet
under GAAP (3)		357,901	68,882	101,258	54,079	133,682
Total	$	407,377	116,033	102,716	54,946	133,682
(1)  Refer to Note 9 in the Notes to Consolidated Financial Statements relating to Company leases.
(2)  Life claims payable include benefit and claim liabilities for which the Company believes the amount and timing of the payment is essentially fixed and determinable. Such amounts generally relate to incurred and reported death and critical illness claims including an estimate of claims incurred but not reported.
(3)  Other long-term liabilities includes obligations that are reported within the Company's reserve liabilities that reflect determinable payout patterns related to immediate annuities. The above amounts are undiscounted whereas the amounts included in future policy benefit liabilities are discounted in accordance with GAAP. Liabilities for future policy benefits and other policyholder liabilities of approximately $5.1 billion as of December 31, 2005 have been excluded from the contractual obligations table. These excluded liabilities include future policy benefits relating to life insurance products, deferred annuities, and universal life products. Amounts excluded from the table are comprised of policies or contracts where (a) the Company is not currently making payments and will not make payments in the future until the occurrence of a payment triggering event, such as death or (b) the occurrence of a payment triggering event, such as a surrender of a policy or contract, which is outside of the control of the Company. The timing of these payments is not reasonably fixed and determinable. These uncertainties are considered in the Company's asset-liability management program as previously noted.

ACCOUNTING STANDARDS AND CHANGES IN ACCOUNTING

Recently Issued Accounting Standards

In March 2004, the Emerging Issues Task Force ("EITF") reached a final consensus on Issue 03-1, The Meaning of Other-Than-Temporary Impairment and its Application to Certain Investments. This Issue establishes impairment models for determining whether to record impairment losses associated with investments in certain equity and debt securities and requires expanded disclosures related to securities with unrealized losses. It also requires income to be accrued on a level-yield basis following an impairment of debt securities, where reasonable estimates of the timing and amount of future cash flows can be made. The Company's current policy has generally been to record income only as cash is received following an impairment of a debt security. The application of this Issue was required for reporting periods beginning after June 15, 2004. In September 2004, the FASB approved FASB Staff Position EITF 03-1-1, which deferred the effective date for the recognition and measurement guidance contained in EITF 03-1 until certain issues were resolved. On November 3, 2005 the FASB issued FASB Staff Position ("FSP") Nos. FAS 115-1 and FAS 124-1 titled The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments. This FSP nullifies certain requirements of EITF 03-1 and carries forward certain requirements and disclosures. The guidance in this FSP shall be applied to reporting periods beginning after December 15, 2005. The Company has adopted the disclosure provisions and has included the required disclosures for 2005 and 2004. The Company will adopt FSP Nos. FAS 115-1 and FAS 124-1 as of the beginning of fiscal year 2006 and does not expect this FSP to have a material impact on the consolidated financial statements.

In December of 2003, the American Institute of Certified Public Accountants ("AICPA") issued Statement of Position 03-3, Accounting for Certain Loans or Debt Securities Acquired in a Transfer ("SOP 03-3"). SOP 03-3 addresses revenue recognition and impairment assessments for certain loans and debt securities that were purchased at a discount that was at least in part due to credit quality. SOP 03-3 states that where expected cash flows from the loan or debt security can be reasonably estimated, the difference between the purchase price and the expected cash flows (i.e., the "accretable yield") should be accreted into income. In addition, the SOP prohibits the recognition of a reserve for impairment on the purchase date. Further, the SOP requires that the allowance for loan losses be supported through a cash flow analysis, on either an individual or on a pooled basis, for all loans that fall within the scope of the guidance. This SOP is effective for loans acquired in fiscal years beginning after December 15, 2004. The Company adopted SOP 03-3 as of the beginning of fiscal year 2005. This SOP did not have a material impact on the consolidated financial statements.

As of December 31, 2005, the Company held debt securities with an outstanding balance of $17.6 million and a carrying value of $17.3 million accounted for in accordance with Statement of Position 03-3, Accounting for Certain Loans or Debt Securities Acquired in a Transfer ("SOP 03-3"). For the year ended December 31, 2005, an impairment of $0.2 million was recorded related to one debt security. The Company does not acquire securities meeting the requirements of this SOP 03-3 at the time of purchase; however, securities that have credit deterioration subsequent to purchase may require reporting under this accounting standard.

EITF No. 99-20 Recognition of Interest Income and Impairment on Purchased and Retained Beneficial Interests in Securitized Financial Assets requires the Company to periodically review changes in future cash flow expectations and account for interest income using the prospective effective yield-method. EITF 99-20 includes specific guidance regarding impairment of asset backed securities that do not fall under the SOP 03-3 guidance noted above.

In December 2004, the FASB issued Statement No. 123(R), Share-Based Payment which is a revision of Statement No. 123. Statement No. 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values. We currently use the Black-Scholes-Merton option pricing model to estimate the value of employee stock options and expect to continue to use this acceptable option pricing model upon adoption of Statement No. 123(R). Statement No. 123(R) also requires the benefits of tax deductions in excess of recognized compensation cost to be reported as a financing cash flow rather than as an operating cash flow, as currently required. The original effective date set by the FASB was to begin with the first fiscal quarter after June 15, 2005. The Securities and Exchange Commission announced on April 14, 2005 a six month postponement of FAS 123(R) which requires companies to apply the accounting standard beginning with the first fiscal year after June 15, 2005. The adoption of Statement No. 123(R) is not expected to have a material impact on the consolidated financial statements of the Company.

In September 2005, the AICPA issued Statement of Position 05-1, Accounting by Insurance Enterprises for Deferred Acquisition Costs in Connection with Modifications or Exchanges of Insurance Contracts ("SOP 05-1"). The SOP 05-1 provides guidance on accounting by insurance enterprises for deferred acquisition costs on internal replacements of insurance and investment contracts other than those specifically described in FASB No. 97. The SOP 05-1 defines an internal replacement as a modification in product benefits, features, rights, or coverages that occurs by the exchange of a contract for a new contract, or by amendment, endorsement, or rider to a contract, or by the election of a feature or coverage within a contract. The SOP 05-1 is effective for internal replacements occurring in fiscal years beginning after December 15, 2006, with earlier adoption encouraged. The adoption of SOP 05-1 is not expected to have a material impact on the consolidated financials statements of the Company.

Other recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the AICPA, and the SEC did not, or are not believed by management to, have a material impact on the Company's present or future consolidated financial statements.

Change in Accounting

In July 2003, the American Institute of Certified Public Accountants issued Statement of Position 03-1, Accounting and Reporting by Insurance Enterprises for Certain Nontraditional Long-Duration Contracts and for Separate Accounts ("SOP 03-1"). SOP 03-1 provides guidance relating to the reporting by insurance enterprises for certain contracts and insurance specific accounting issues and is effective for financial statements for fiscal years beginning after December 15, 2003. In the first quarter of 2004, the Company adopted the reserving method for its two-tier annuity products, which were issued from 1984 until 1992, in accordance with the SOP 03-1 guidance. The new reserving method under SOP 03-1 requires that the Company hold a reserve equal to the cash surrender value and establish an additional liability for expected annuitizations. The Company previously maintained reserves for two-tier annuities at the account balance value which is substantially higher than the cash value reserve. This reserving change resulted in an adjustment decreasing reserves, less deferred acquisition costs written off, by $54.7 million, net of taxes. The amount is reflected as a change in accounting principle as of January 1, 2004. Components of the accounting change are detailed below.

		Amounts
Accounting change related to two-tier annuities:		(In thousands)
Reduction in reserve for future policy benefits	$	119,205
Write off of deferred acquisition costs		(35,056)
Total change, pre-tax		84,149
Federal income taxes		(29,452)
Cumulative effect of change in accounting for
two-tier annuities, net of tax	$	54,697

At December 31, 2005, the Company held a reserve relating to two-tier annuities in the amount of $20.9 million as an additional liability relating to annuitization benefits. The expected annuitizations were determined based upon actual experience relating to this block of business, which is relatively seasoned and the policies are no longer issued by the Company. The issuance of this SOP did not impact the Company's accounting relating to sales inducements.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK

The information called for by Item 7A is set forth in the Investments section of the Management's Discussion and Analysis of Financial Condition and Results of Operations.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

See Attachment A, Index to Financial Statements and Schedules, on page __.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE

On April 15, 2004, the Board of Directors of the Company notified Deloitte & Touche LLP that their contractual appointment as independent auditors had not been renewed, as recommended by the Audit Committee of the Board of Directors. The reports of Deloitte & Touche LLP on the consolidated financial statements of the Company for either of the two most recent fiscal years did not contain any adverse opinion or disclaimer of opinion. Such reports were not qualified or modified as to uncertainty, audit scope, or accounting principles. During the immediately preceding two most recent fiscal years ended December 31, 2003 and 2002 and during the interim period through April 15, 2004, there were no reportable events as described in Item 304(a)(1)(v) of Regulation S-K or disagreements between Deloitte & Touche LLP and the Company on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of Deloitte & Touche LLP, would have caused that firm to make reference to the subject matter of such disagreement in connection with its report on the Company's financial statements. By letter dated June 21, 2004 addressed to the Securities and Exchange Commission, Deloitte & Touche LLP indicated their concurrence with the foregoing statements.

On April 20, 2004, the Board of Directors of the Company approved the engagement of KPMG LLP as its new principal accountants, as recommended by the Audit Committee of the Board of Directors. During the two most recent fiscal years ended December 31, 2003 and 2002 and during the interim period through April 20, 2004, the Company did not consult with KPMG LLP regarding the application of accounting principles to a specified transaction, either completed or proposed, nor the type of audit opinion that might be rendered on the Company's financial statements, nor any matter that was either subject of a disagreement or a reportable event.

ITEM 9A. CONTROLS AND PROCEDURES

Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures

Under the supervision and with the participation of the Company's management, including the principal executive officer and principal financial officer, the Company conducted an evaluation of the disclosure controls and procedures, as such term is defined under Rule 13(a)-15(e) promulgated under the Securities and Exchange Act of 1934. Based on this evaluation, the Company's principal executive officer and principal accounting officer concluded that the Company's disclosure controls and procedures were effective as of the end of the period covered by this annual report.

There have been no changes in the Company's internal controls over financial reporting (as defined in Rules 13a - 15(f) and 15d - 15(f) under the Exchange Act) during the quarter ended December 31, 2005 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

ITEM 9B. OTHER INFORMATION

There is no information required to be disclosed on Form 8-K for the quarter ended December 31, 2005 which has not been previously reported.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Identification of Directors

The following information as of January 31, 2006, is furnished with respect to each director. All terms expire in June of 2006.

	Principal Occupation During Last Five	First
Name of Director	Years and Directorships	Elected	Age
Robert L. Moody	Chairman of the Board and Chief Executive	1963	70
(1) (3)	Officer of the Company
Ross R. Moody	President and Chief Operating Officer of the	1981	43
(1) (3)	Company
Harry L. Edwards	Retired; Former President and Chief	1969	84
(4)	Operating Officer of the Company,
	Austin, Texas
Stephen E. Glasgow	Partner, G-2 Development, L.P.	2004	43
(2) (4)	Austin, Texas
E. Douglas McLeod	Director of Development, The Moody	1979	64
	Foundation, Galveston, Texas
Charles D. Milos	Senior Vice President of the Company	1981	60
(1) (3)
Frances A. Moody-Dahlberg	Executive Director,	1990	36
	The Moody Foundation,
	Dallas, Texas
Russell S. Moody	Investments, League City, Texas	1988	44
Louis E. Pauls, Jr.	President, Louis Pauls & Company;	1971	70
(2)	Investments, Galveston, Texas
E. J. Pederson	Special Assistant to the President,	1992	58
(2) (4)	The University of Texas
	Medical Branch, Galveston, Texas

(1)  Member of Executive Committee;  (2) Member of Audit Committee;  (3) Member of Investment Committee;  (4) Member of Compensation and Stock Option Committee.

Identification of Executive Officers

The following is a list of the Company's executive officers, their ages, and their positions and offices as of January 31, 2006.

Name of Officer	Age	Position (Year elected to position)
Robert L. Moody	70	Chairman of the Board and Chief Executive
		Officer (1963-1968, 1971-1980, 1981), Director
Ross R. Moody	43	President and Chief Operating Officer (1992), Director
Jay C. Bugg	50	Senior Vice President - Chief Marketing Officer (2002)
Richard M. Edwards	53	Senior Vice President - International Marketing (1990)
Paul D. Facey	54	Senior Vice President - Chief Actuary (1992)
Charles D. Milos	60	Senior Vice President - Mortgage Loans and Real Estate (1990), Director
James P. Payne	61	Senior Vice President - Secretary (1998)
Brian M. Pribyl	47	Senior Vice President - Chief Financial & Administrative
		Officer and Treasurer (2001)
Patricia L. Scheuer	54	Senior Vice President - Chief Investment Officer (1992)

There are no arrangements or understandings pursuant to which any officer was elected. All officers hold office for a term of one year or until their successors are elected and qualified, unless otherwise specified by the Board of Directors.

Identification of Certain Significant Employees

In addition to the Executive Officers identified above, the Company considers James R. Naiser to be a significant employee. Mr. Naiser was a Senior Programmer Analyst with Electronic Data Systems from 1967 to 1972 and a Senior Systems Analyst with TCC, Inc., from 1972 to 1977. He joined the Company in 1977 as a programmer, was made an Assistant Vice President in 1980, Vice President in 1984, and was promoted to his current position of Vice President-Chief Information Officer effective August 25, 2003.

Family Relationships

Robert L. Moody is the father of Frances A. Moody-Dahlberg, Ross R. Moody, and Russell S. Moody, and the brother-in-law of E. Douglas McLeod. Harry L. Edwards is the father of Richard M. Edwards.

Business Experience

All of the Executive Officers listed above have served in various executive capacities with the Company for more than five years, with the exception of the following:

Mr. Pribyl was an audit manager for Price Waterhouse from 1983 to 1990. He was Executive Vice President-Chief Financial Officer, Treasurer & Secretary of Interstate Assurance Company from July, 1990 until April, 2001.

Mr. Bugg was Vice President-Sales of Southland Life from 1986 to 1994; Vice President-Sales of Jefferson Pilot Financial from 1994 to 1998; and Managing Director of Allmerica Financial from 1998 to 2001. He joined the Company in 2001 as a Marketing Vice President and was promoted to the position shown during 2002.

Involvement in Certain Legal Proceedings

During the past five years there have been no criminal proceedings, judgments, injunctions or bankruptcy petitions material to an evaluation of the ability or integrity of any of the Company's directors or executive officers.

Audit Committee Financial Expert

The Company has at least one person that it believes is qualified to be the Audit Committee Financial Expert. However, the Company has not designated anyone as an Audit Committee Financial Expert at this time as the Company's Board of Directors has concluded that the ability of the Audit Committee to perform its duties would not be impaired by the failure to designate one of the committee members as an "Audit Committee Financial Expert" if its members otherwise satisfied the NASDAQ standards and rules and regulations of the SEC.

Identification of Audit Committee

The Audit Committee of the Board of Directors consists of three non-employee directors named below. The committee is primarily responsible for oversight of the Company's financial statements and controls; assessing and ensuring the independence, qualifications and performance of the independent auditors; approving the independent auditors services and fees; reviewing and approving all related party transactions; overseeing and directing internal audit activities; reviewing the Company's financial risk assessment process and ethical, legal, and regulatory compliance programs; and reviewing and approving the annual audited financial statements for the Company before issuance.

Audit Committee Members:

Louis E. Pauls, Jr., Chairman

Stephen E. Glasgow

E. J. Pederson

Code of Ethics

The Company has adopted a Code of Ethics and Conduct for all directors, officers, and employees. This Code is intended to comply with the requirement of the Federal Securities Laws and the requirements of NASDAQ. The Code of Ethics and Conduct has been posted to the Company's website at www.nationalwesternlife.com and is available upon request.

ITEM 11. EXECUTIVE COMPENSATION

Summary Compensation Table

				Annual Compensation
							Other Annual	Long-Term		All Other
	Name and			Salary	Bonus		Compensation	Compensation		Compensation
	Principal Position	Year		(A)	(B)		(C)	(D)		(E)
1	Robert L. Moody	2005	$	1,493,363	370,187	$	-	-	$	673,543
	Chairman of the Board	2004		1,496,364	-		-	21,000		611,101
	and Chief Executive Officer	2003		1,390,453	-		90,152	-		530,517
2	Ross R. Moody	2005		539,181	126,999		-	-		31,893
	President and Chief	2004		540,322	128,270		-	11,000		31,147
	Operating Officer	2003		500,619	45,432		-	-		31,558
3	Richard M. Edwards	2005		181,539	104,350		-	-		10,865
	Senior Vice President -	2004		188,335	156,524		-	2,000		11,271
	International Marketing	2003		180,616	147,293		-	-		17,847
4	Jay C. Bugg	2005		184,348	87,349		-	-		11,045
	Senior Vice President -	2004		191,260	190,784		-	2,000		11,459
	Chief Marketing Officer	2003		183,431	364,667		-	-		24,094
5	Brian M. Pribyl	2005		227,574	39,762		-	-		9,409
	Senior Vice President -	2004		221,805	67,075		-	2,000		12,057
	Chief Financial and	2003		207,310	36,419		-	-		13,500
	Administrative Officer
	and Treasurer

Notes to Summary Compensation Table:

(A) Salary includes directors' fees from National Western Life Insurance Company and its subsidiaries.

(B) Bonuses include employment and performance related bonuses.

(C) Other annual compensation in 2003 includes claims paid by the Company's Group Excess Benefit Plan on the behalf of Robert L. Moody, totaling $90,152.

(D) Represents number of securities underlying stock options granted under the National Western Life Insurance Company 1995 Stock and Incentive Plan.

(E) All other compensation includes primarily employer contributions made to the Company's 401(k) Plan and Non-Qualified Deferred Compensation Plan on behalf of the employee. In addition, this item also includes taxable income for Robert L. Moody of approximately $669,000, $581,000, and $503,000 in 2005, 2004, and 2003, respectively, related to life insurance benefits under policies owned by the Company on Mr. Moody's life which have been assigned to Mr. Moody by the Company.

Option/SAR Grants Table

During 1995 the Company adopted the National Western Life Insurance Company 1995 Stock and Incentive Plan ("Plan"). The purpose of the Plan is to align the personal financial incentives of key personnel with the long-term growth of the Company and the interests of the Company's stockholders through the ownership and performance of the Company's Class A, $1.00 par value, common stock, to enhance the Company's ability to retain key personnel, and to attract outstanding prospective employees and directors. The Plan was effective as of April 21, 1995, and had a termination date of April 20, 2005. The plan was amended on June 25, 2004 to extend the termination date to April 20, 2010. The number of shares of Class A, $1.00 par value, common stock which may be issued under the Plan, or as to which stock appreciation rights or other awards may be granted, may not exceed 300,000. These shares may be authorized and unissued shares or treasury shares.

All of the employees of the Company and its subsidiaries are eligible to participate in the Plan. In addition, directors of the Company, other than Compensation and Stock Option Committee members, are eligible for restricted stock awards, incentive awards, and performance awards.

The Committee approved the issuance of nonqualified stock options to selected officers of the Company during 2004 totaling 56,750. Additionally, during 2004 the Committee granted 10,000 nonqualified, nondiscretionary stock options to Company directors. The directors' stock options vest 20% annually following one full year of service to the Company from the date of grant. The officers' stock options vest 20% annually following three full years of service to the Company from the date of grant. The exercise prices of the stock options were set at the fair market values of the common stock on the dates of grant. Nonqualified stock options were not issued in 2005 or 2003.

Aggregated Option/SAR Exercises and Fiscal Year-End Option/SAR Value Table

Detailed below is stock option information for the Company's named executive officers for the year ended December 31, 2005.

				Number of
	Shares			Securities Underlying			Value of Unexercised
	Acquired			Unexercised Options			In-The-Money Options
	On		Value
Name	Exercise		Realized	Exercisable	Unexercisable		Exercisable		Unexercisable
1  Robert L. Moody	17,275	$	2,279,404	34,725	27,900	$	4,030,402	$	1,998,092
2  Ross R. Moody	1,960		204,429	13,440	17,300		1,426,399		1,360,124
3  Richard M. Edwards	760		71,560	-	2,780		-		203,348
4  Jay C. Bugg	-		-	-	2,000		-		113,820
5  Brian M. Pribyl	280		22,306	-	2,840		-		210,235

Long-Term Incentive Plan Awards Table

None.

Defined Benefit or Actuarial Plan Disclosure

The Company currently sponsors four employee defined benefit plans for the benefit of its employees and officers. A brief description and formulas by which benefits are determined for each of the plans are detailed as follows.

National Western Life Insurance Company Pension Plan - This qualified defined benefit plan covers substantially all employees and officers of the Company and provides benefits based on the participant's years of service and compensation. The Company makes annual contributions to the plan that comply with the minimum funding provisions of the Employee Retirement Income Security Act.

Annual pension benefits for those employees who became eligible participants prior to January 1, 1991, are generally calculated as the sum of the following:

(1) 50% of the participant's final 5-year average annual eligible compensation at December 31, 1990, less 50% of their primary social security benefit determined at December 31, 1990; this net amount is then prorated for less than 15 years of benefit service at normal retirement date. This result is multiplied by a fraction which is the participant's years of benefit service at December 31, 1990, divided by the participant's years of benefit service at normal retirement date.

(2) 1.5% of the participant's eligible compensation earned during each year of benefit service after December 31, 1990.

Annual pension benefits for those employees who become eligible participants on or subsequent to January 1, 1991, are generally calculated as 1.5% of their compensation earned during each year of benefit service.

National Western Life Insurance Company Non-Qualified Defined Benefit Plan - This plan covers officers of the Company who were in the position of senior vice president or above prior to 1991. The plan provides benefits based on the participant's years of service and compensation. No minimum funding standards are required.

The benefit to be paid pursuant to this plan to a participant, other than the Chairman of the Company, who retires at his normal retirement date shall be equal to (a) minus (b) minus (c), but the benefit may not exceed (d) minus (b) where:

(a) is the benefit which would have been payable at the participant's normal retirement date under the terms of the Pension Plan as of December 31, 1990, as if that plan had continued without change and without regard to Internal Revenue Code Section 401(a) (17) and 415 limits, and,

(b) is the benefit which actually becomes payable under the terms of the Pension Plan at the participant's normal retirement date, and,

(c) is the actuarially equivalent life annuity which may be provided by an accumulation of 2% of the participant's compensation for each year of service on and after January 1, 1991, accumulated at an assumed interest rate of 8.5% to the participant's normal retirement date, and,

(d) is the benefit which would have been payable at the participant's normal retirement date under the terms of the Pension Plan as of December 31, 1990, as if that plan had continued without change and without regard to Internal Revenue Code Section 401(a)(17) and 415 limits, except that the proration over 15 years shall instead be calculated over 30 years.

The Chairman of the Company, Robert L. Moody, is currently receiving in-service benefits from this plan. The benefit that Mr. Moody began receiving as of his normal retirement date pursuant to the plan was equal to (a) minus (b) minus (c) where:

(a) was his years of service (up to 45), multiplied by 1.66667%, and then multiplied by the excess of his eligible compensation over his primary social security benefit under the terms of the Pension Plan as of December 31, 1990, as if that plan had continued without change and without regard to Internal Revenue Code Section 401(a) (17) and 415 limits, and,

(b) was the benefit payable to him under the terms of the Pension Plan, and,

(c) was the actuarially equivalent life annuity provided by an accumulation of 2% of his compensation for each year of service on and after January 1, 1991, accumulated at an assumed interest rate of 8.5% to his normal retirement date.

This benefit was increased for additional service and changes in eligible compensation through December 31, 2004. The benefit was frozen as of December 31, 2004 in connection with plan changes required by the American Jobs Creation Act of 2004.

Also to comply with the American Jobs Creation Act of 2004, the Company expects that it will freeze benefit accruals as of December 31, 2004 for all other participants in this plan. However, the Company also expects that it will adopt a new nonqualified defined benefit plan to provide for substantially similar benefit accruals with respect to service and compensation after December 31, 2004.

Non-Qualified Defined Benefit Plan for Robert L. Moody - This plan covers the current Chairman of the Company, Robert L. Moody and is intended to provide for post-2004 benefit accruals that mirror and supplement the pre-2005 benefit accruals under the previously discussed Non-Qualified Defined Benefit Plan, while complying with the American Jobs Creation Act of 2004. No minimum funding standards are required.

The annual benefit paid to the Chairman of the Company on an in-service basis effective July 1, 2005 was equal to (a) minus (b) minus (c) where:

(a) was his years of service on his normal retirement date, multiplied by 1.66667%, and then multiplied by the excess of his eligible compensation over his primary social security benefit under the terms of the Pension Plan as of December 31, 1990, as if that plan had continued without change and without regard to Internal Revenue Code Section 401(a) (17) and 415 limits, less the actuarially equivalent life annuity which may be provided by an accumulation of 2% of his compensation for each year of service on and after January 1, 1991, accumulated at an assumed interest rate of 8.5% to his normal retirement date, and, multiplied by the ratio of his years of service on July 1, 2005 to his years of service on his normal retirement date, multiplied by the ratio of his eligible compensation as of July 1, 2005 to his eligible compensation as of his normal retirement date, and,

(b) was the benefit payable to him under the terms of the Pension Plan as of July 1, 2005, and,

(c) was the benefit payable to him under the terms of the Non-Qualified Defined Benefit Plan as of December 31, 2004.

Subsequent to July 1, 2005, the annual benefit was increased monthly for additional service and changes in eligible compensation.

Non-Qualified Defined Benefit Plan for the President of National Western Life Insurance Company - This plan covers the President of the Company and is intended to provide benefit accruals that comply with the American Jobs Creation Act of 2004. No minimum funding standards are required.

The annual benefit to be paid to the President of the Company who retires at his normal retirement date shall be equal to (a) minus (b) minus (c) where:

(a) equals his years of service (up to 45), multiplied by 1.66667%, and then multiplied by the excess of his eligible compensation over his primary social security benefit under the terms of the Pension Plan as of December 31, 1990, as if that plan had continued without change and without regard to Internal Revenue Code Section 401(a) (17) and 415 limits, and,

(b) equals the actuarially equivalent life annuity provided by an accumulation of 2% of his compensation for each year of service on and after his date of hire, accumulated at an assumed interest rate of 8.5% to his normal retirement date, and,

(c) equals the benefit actually payable to him under the terms of the Pension Plan.

The plan provides for a monthly in-service benefit if the President of the Company continues employment after his normal retirement date.

The estimated annual benefits payable to the named executive officers upon retirement, at normal retirement age, or, in the case of Robert L. Moody, currently being paid, for the Company's defined benefit plans are as follows:

		Estimated Annual Benefits
		Qualified	Non-Qualified
		Defined	Defined
Name		Benefit Plan	Benefit Plans	Totals
1  Robert L. Moody	$	146,834	1,356,033	1,502,867
2  Ross R. Moody		134,469	528,783	663,252
3  Richard M. Edwards		75,898	-	75,898
4  Jay C. Bugg		58,739	-	58,739
5  Brian M. Pribyl		85,527	-	85,527

Compensation of Directors

All directors of the Company currently receive $22,200 a year and $500 for each board meeting attended. They are also reimbursed for actual travel expenses incurred in performing services as directors. An additional $500 is paid for each committee meeting attended. However, a director attending multiple meetings on the same day receives only one meeting fee. The amounts paid pursuant to these arrangements are included in the summary compensation table of this item. The directors and their dependents are also eligible to participate in the Company's group insurance program.

Directors of the Company, other than Compensation and Stock Option Committee members, are eligible for restricted stock awards, incentive awards, and performance awards under the National Western Life Insurance Company 1995 Stock and Incentive Plan. Company directors, including members of the Compensation and Stock Option Committee, are eligible for nondiscretionary stock options. On June 25, 2004, the stockholders approved the issuance of 10,000 nonqualified stock options to Company directors, with each director receiving 1,000 stock options.

Directors of the Company's subsidiary, NWL Investments, Inc., receive $250 annually. Nonemployee directors of the Company's subsidiary, NWL Services, Inc., receive $1,000 per board meeting attended. Directors of the Company's downstream subsidiaries, Regent Care General Partner, Inc., and Regent Care Operations General Partner, Inc., receive $250 per board meeting attended. Directors of the Company's downstream subsidiary, Regent Care Limited Partner, Inc., receive $500 per board meeting attended.

Employment Contracts and Termination of Employment and Change-in-Control Arrangements

Robert L. Moody, Ross R. Moody, and Brian M. Pribyl, all named executive officers, had a bonus compensation agreement with the Company during 2005. The contract consisted of several components in which certain levels of Company performance related to life insurance premiums, annuity contract deposits, expense management, and overall profitability were required in order to earn the bonus. The compensation bonus related to this agreement will be paid in 2006.

Richard M. Edwards, also a named executive officer, had a bonus compensation contract with the Company during 2005. The contract consisted of several components in which certain levels of Company performance relating to international life insurance persistency rates, international life insurance premiums, and related expenses were required in order to earn bonuses. The compensation bonus related to this agreement will be paid in 2006.

Jay C. Bugg, also a named executive officer, had a bonus compensation agreement with the Company during 2005. The agreement consisted of several components in which certain levels of Company performance relating to domestic life insurance and annuity contract persistency rates, domestic life insurance premiums, domestic annuity contract deposits, and related expenses were required in order to earn bonuses. Most all of the compensation bonus related to this agreement was paid in 2005 and is disclosed in the summary compensation table of this item.

Report on Repricing of Options/SARs

None.

Compensation Committee Interlocks and Insider Participation

The Compensation and Stock Option Committee of the Board of Directors ("Compensation Committee"), comprised of outside directors, is charged with the responsibility of establishing and overseeing appropriate Company policy relating to the compensation of Company officers, including the three highest compensated executive officers of the Company, under guidelines established by the Board of Directors. The Compensation Committee also performs various projects relating to officer compensation at the request of the Board of Directors. Those directors serving on the Compensation Committee include Harry L. Edwards, Stephen E. Glasgow, and E. J. Pederson.

Robert Moody, Ross Moody, and Charles Milos served as directors and also served as officers and employees of National Western Life Insurance Company. Ross Moody served as an officer and director of the Company's wholly-owned subsidiaries, The Westcap Corporation, NWL Investments, Inc., NWL Financial, Inc., NWL Services, Inc., Regent Care Limited Partner, Inc., and Regent Care Operations Limited Partner, Inc., and served as an officer of Westcap Holdings, LLC, a limited liability company whose sole member is The Westcap Corporation. Charles Milos served as an officer and director of The Westcap Corporation, Regent Care General Partner, Inc., and Regent Care Operations General Partner, Inc., and as an officer of NWL Investments, Inc., NWL Financial, Inc., NWL Services, Inc., Regent Care Limited Partner, Inc., Regent Care Operations Limited Partner, Inc., and Westcap Holdings, LLC, a limited liability company whose sole member is The Westcap Corporation. Robert Moody was an officer of NWL Services, Inc., and Regent Care Limited Partner, Inc. Harry Edwards served as a director and was formerly an officer of National Western Life Insurance Company.

No compensation committee interlock exists with other unaffiliated companies.

Board Compensation Committee Report on Executive Compensation

The Compensation Committee of the Board of Directors determines and approves officer compensation and is also responsible for developing and administering the policies that determine officer compensation. The Compensation Committee operates under guidelines adopted by the Company's Board of Directors and reports its decisions to the Board of Directors. These guidelines are periodically reviewed by the Board of Directors to verify consistency with the Company's overall business strategy and ability to attract and retain key officers.

The largest component of officer compensation, including that of the Chief Executive Officer and other named executive officers, is base salary. Base salaries are adjusted annually by the Compensation Committee based on a performance review of the individual as well as the performance of the Company as a whole. The Compensation Committee considers various factors when determining base salary levels including: (1) an individual's contributions toward the Company's short and long-term strategic goals, (2) achievement of specific goals within the individual's realm of responsibility, (3) competitive market information regarding compensation levels, (4) the individual's experience level and expertise, (5) the Company's salary budget, and (6) where appropriate, recommendations made by the Company's Chief Executive Officer and President.

As previously described, the Compensation Committee is comprised of outside directors whose actions relative to officer compensation are reported to the Board of Directors. During the past year, the Board of Directors did not modify or reject in any material way any action or recommendation of the Compensation Committee.

Performance Graph

The following graph compares the change in the Company's cumulative total stockholder return on its common stock with the NASDAQ - U.S. Companies Index and the NASDAQ Insurance Stock Index. The graph assumes that the value of the Company's common stock and each index was $100 at December 31, 1999, and that all dividends were reinvested.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT

Security Ownership of Certain Beneficial Owners

Set forth below is certain financial information concerning persons who are known by the Company to own beneficially more than 5% of any class of the Company's common stock on December 31, 2005.

Name and Address	Title	Amount and Nature	Percent
of	of	of	of
Beneficial Owners	Class	Beneficial Ownership	Class
Robert L. Moody	Class A Common	1,159,096	33.96	%
2302 Post Office Street, Suite 702	Class B Common	198,074	99.04	%
Galveston, Texas
FMR Corp.	Class A Common	242,438	7.10	%
82 Devonshire Street
Boston, Massachusetts
Westport Asset Management, Inc.	Class A Common	235,101	6.89	%
253 Riverside Avenue
Westport, Connecticut
Tweedy Browne Company	Class A Common	221,485	6.49	%
350 Park Avenue
New York, New York

Article Four of the Articles of Incorporation of the Company provides that the Class A stockholders have the exclusive right to elect one-third (1/3) of the members of the Board of Directors, plus one director for any remaining fraction, and the Class B stockholders have the exclusive right to elect the remaining members of the Board of Directors. In view of Robert L. Moody's ownership of more than 99% of the Class B stock outstanding, as well as Mr. Moody's ownership of approximately 34% of the Class A stock outstanding (see Security Ownership table above), Mr. Moody holds the voting power to elect a majority of the members of the Board of Directors. The Company is considered to be a controlled company, and Mr. Moody is the controlling stockholder.

Security Ownership of Management

The following table sets forth as of December 31, 2005, information concerning the beneficial ownership of the Company's common stock by all directors, named executive officers, and all directors and executive officers of the Company as a group.

	Title	Amount and Nature	Percent
Directors	of	of	of
and Officers	Class	Beneficial Ownership	Class
Directors and Named Executive Officers:
Robert L. Moody	Class A Common	1,159,096	33.96	%
	Class B Common	198,074	99.04	%
Ross R. Moody	Class A Common*	625	.02	%
	Class B Common*	482	.24	%
Charles D. Milos	Class A Common	528	.02	%
	Class B Common	-	-
Directors:
Harry L. Edwards	Class A Common	20	-
	Class B Common	-	-
Stephen E. Glasgow	Class A Common	-	-
	Class B Common	-	-
E. Douglas McLeod	Class A Common	10	-
	Class B Common	-	-
Frances A. Moody-Dahlberg	Class A Common	1,850	.05	%
	Class A Common*	625	.02	%
	Class B Common*	482	.24	%
Russell S. Moody	Class A Common	1,850	.05	%
	Class A Common*	625	.02	%
	Class B Common*	482	.24	%
Louis E. Pauls, Jr.	Class A Common	10	-
	Class B Common	-	-
E. J. Pederson	Class A Common	100	-
	Class B Common	-	-
Named Executive Officers:
Jay C. Bugg	Class A Common	-	-
	Class B Common	-	-
Richard M. Edwards	Class A Common	-	-
	Class B Common	-	-
Brian M. Pribyl	Class A Common	-	-
	Class B Common	-	-
Directors and Executive	Class A Common	1,165,601	34.15	%
Officers as a Group	Class B Common	199,520	99.76	%

* Shares are owned indirectly through the Three R Trusts. The Three R Trusts are four Texas trusts for the benefit of the children of Mr. Robert L. Moody (Robert L. Moody, Jr., Ross R. Moody, Russell S. Moody, and Frances A. Moody-Dahlberg). The Three R Trusts own a total of 2,500 Class A common stock shares and 1,926 Class B common stock shares.

Changes in Control

None.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Transactions with Management and Others

Robert L. Moody, Jr. ("Mr. Moody, Jr.") is the son of Robert L. Moody, the Company's Chairman and Chief Executive Officer, and is the brother of Ross R. Moody, the Company's President and Chief Operating Officer, and of Russell S. Moody and Frances A. Moody-Dahlberg who serve as directors of National Western. Prior to January 1, 2006 Mr. Moody, Jr. was employed by the Company in an agency marketing position for which he was paid an annual salary of $14,000 and was eligible to participate in the Company's benefit plans. Mr. Moody, Jr. resigned as an employee effective December 31, 2005.

In addition, Mr. Moody, Jr. wholly owns an insurance marketing organization that maintains agency contracts with National Western pursuant to which agency commissions are paid in accordance with the Company's standard commission schedules. Mr. Moody, Jr. also maintains an independent agent contract with National Western for policies personally sold under which commissions are paid in accordance with standard commission schedules. In 2005, commissions paid under these agency contracts aggregated approximately $65,000. In conjunction with these agency contracts, Mr. Moody, Jr. may be eligible to attend Company sales conferences and functions based upon meeting published minimum levels of qualifying sales production. In his capacity as an insurance marketing organization with the Company, Mr. Moody, Jr. also receives product development fees associated with a product line of the Company which amounted to $134,000 in 2005.

Mr. Moody, Jr. further serves as the agent of record for several of the Company's benefit plans including the self-insured health plan for which Mr. Moody, Jr. provides utilization review services through a wholly-owned utilization review company. In 2005, amounts paid to Mr. Moody, Jr. as commissions and service fees pertaining to the Company's benefit plans approximated $47,900.

During 2005, management fees totaling $355,000 were paid to Regent Management Services, Limited Partnership ("RMS") for services provided to a downstream nursing home subsidiary of National Western. RMS is 1% owned by general partner RCC Management Services, Inc. ("RCC"), and 99% owned by limited partner, Three R Trusts. RCC is 100% owned by the Three R Trusts. The Three R Trusts are four Texas trusts for the benefit of the children of Robert L. Moody (Robert L. Moody, Jr., Ross R. Moody, Russell S. Moody, and Frances A. Moody-Dahlberg). Charles D. Milos, Senior Vice President-Mortgage Loans and Real Estate, and Director of the Company, is a Director and Vice President of RCC. Ellen C. Otte, Assistant Secretary of the Company, is a Director and Secretary of RCC.

The Company holds a common stock investment totaling approximately 9.4% of the issued and outstanding shares of Moody Bancshares, Inc. at December 31, 2005. Moody Bancshares, Inc. owns 100% of the outstanding shares of Moody Bank Holding Company, Inc., which owns approximately 98% of the outstanding shares of The Moody National Bank of Galveston ("MNB"). The Company utilizes MNB for certain bank custodian services as well as for certain administrative services with respect to the Company's defined benefit and contribution plans. Robert L. Moody serves as Chairman of the Board and Chief Executive Officer of MNB. The ultimate controlling person of MNB is the Three R Trusts. During 2005, fees totaling $188,000 were paid to MNB with respect to these services.

Indebtedness of Management

The Company holds a loan in the amount of $4.0 million, including accrued interest, with a contractual interest rate of 7% at December 31, 2005 issued to TMNY, LLC. As of the reporting date, Robert L. Moody owned 20.5% of TMNY, LLC. The stated maturity on this loan is December 29, 2006.

NWL Services, Inc., a wholly-owned subsidiary of the Company, is the beneficial owner of a life interest (1/8 share) in the net income of the trust estate of Libbie Shearn Moody. The trustee of this estate is MNB.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The following table represents aggregate fees approved by the Audit Committee for the audits of the fiscal years ended December 31, 2005 and 2004 by KPMG LLP, the Company's principal accounting firm.

		Fiscal Year Ended
		2005	2004
		(In thousands)
Financial statement audit fees(a)	$	590	612
Benefit plans audit fee		-	18
Tax fees (b)		-	-
All other fees		-	-
Total fees	$	590	630

(a)  In addition to the approved fees, the Company also paid Deloitte & Touche LLP audit fees of $20,000 in 2005 for review services.

(b)  Primarily tax reviews and advice. In 2004 the Company paid Deloitte & Touche LLP $15,000 related to the 2003 corporate tax return review.

Audit Fees Pre-approval Policy

The Audit Committee has adopted a formal policy concerning approval of audit and non-audit services to be provided by the independent auditor to the Company. The policy requires that all services the Company's independent auditor may provide to the Company, including audit services and permitted audit-related and non-auditor services, be pre-approved by the Committee. The Committee approved all audit and non-audit services provided by KPMG LLP during 2005.

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) 1.  Listing of Financial Statements

See Attachment A, Index to Financial Statements and Schedules, on page __ for a list of financial statements included in this report.

(a) 2.  Listing of Financial Statement Schedules

See Attachment A, Index to Financial Statements and Schedules, on page __ for a list of financial statement schedules included in this report.

All other schedules are omitted because they are not applicable, not required, or because the information required by the schedule is included elsewhere in the financial statements or notes.

(a) 3.  Listing of Exhibits

The exhibits listed below, as part of Form 10-K, are numbered in accordance with the numbering used in Item 601 of regulation S-K of The Securities and Exchange Commission.

Exhibit 2	-	Order Confirming Third Amended Joint Consensual Plan Of Reorganization Proposed By The Debtors And The Official Committee Of Unsecured Creditors (As Modified As Of August 28, 1998) (incorporated by reference to Exhibit 2 to the Company's Form 8-K dated August 28, 1998).
Exhibit 3(a)	-	Restated Articles of Incorporation of National Western Life Insurance Company dated April 10, 1968 (incorporated by reference to Exhibit 3(a) to the Company's Form 10-K for the year ended December 31, 1995).
Exhibit 3(b)	-	Amendment to the Articles of Incorporation of National Western Life Insurance Company dated July 29, 1971 (incorporated by reference to Exhibit 3(b) to the Company's Form 10-K for the year ended December 31, 1995).
Exhibit 3(c)	-	Amendment to the Articles of Incorporation of National Western Life Insurance Company dated May 10, 1976 (incorporated by reference to Exhibit 3(c) to the Company's Form 10-K for the year ended December 31, 1995).
Exhibit 3(d)	-	Amendment to the Articles of Incorporation of National Western Life Insurance Company dated April 28, 1978 (incorporated by reference to Exhibit 3(d) to the Company's Form 10-K for the year ended December 31, 1995).
Exhibit 3(e)	-	Amendment to the Articles of Incorporation of National Western Life Insurance Company dated May 1, 1979 (incorporated by reference to Exhibit 3(e) to the Company's Form 10-K for the year ended December 31, 1995).
Exhibit 3(f)	-	Bylaws of National Western Life Insurance Company as amended through April 24, 1987 (incorporated by reference to Exhibit 3(f) to the Company's Form 10-K for the year ended December 31, 1995).
Exhibit 10(a)	-	National Western Life Insurance Company Non-Qualified Defined Benefit Plan dated July 26, 1991 (incorporated by reference to Exhibit 10(a) to the Company's Form 10-K for the year ended December 31, 1995).
Exhibit 10(c)	-	National Western Life Insurance Company Non-Qualified Deferred Compensation Plan, as amended and restated, dated March 27, 1995 (incorporated by reference to Exhibit 10(c) to the Company's Form 10-K for the year ended December 31, 1995).
Exhibit 10(d)	-	First Amendment to the National Western Life Insurance Company Non-Qualified Deferred Compensation Plan effective July 1, 1995 (incorporated by reference to Exhibit 10(d) to the Company's Form 10-K for the year ended December 31, 1995).
Exhibit 10(e)	-	National Western Life Insurance Company 1995 Stock and Incentive Plan (incorporated by reference to Exhibit 10(e) to the Company's Form 10-K for the year ended December 31, 1995).
Exhibit 10(f)	-	First Amendment to the National Western Life Insurance Company Non-Qualified Defined Benefit Plan effective December 17, 1996 (incorporated by reference to Exhibit 10(f) to the Company's Form 10-K for the year ended December 31, 1996).
Exhibit 10(g)	-	Second Amendment to the National Western Life Insurance Company Non-Qualified Defined Benefit Plan effective December 17, 1996 (incorporated by reference to Exhibit 10(g) to the Company's Form 10-K for the year ended December 31, 1996).
Exhibit 10(h)	-	Second Amendment to the National Western Life Insurance Company Non-Qualified Deferred Compensation Plan effective December 17, 1996 (incorporated by reference to Exhibit 10(h) to the Company's Form 10-K for the year ended December 31, 1996).
Exhibit 10(i)	-	Third Amendment to the National Western Life Insurance Company Non-Qualified Deferred Compensation Plan effective December 17, 1996 (incorporated by reference to Exhibit 10(i) to the Company's Form 10-K for the year ended December 31, 1996).
Exhibit 10(j)	-	Fourth Amendment to the National Western Life Insurance Company Non-Qualified Deferred Compensation Plan effective June 20, 1997 (incorporated by reference to Exhibit 10(j) to the Company's Form 10-K for the year ended December 31, 1997).
Exhibit 10(k)	-	First Amendment to the National Western Life Insurance Company 1995 Stock and Incentive Plan effective June 19, 1998 (incorporated by reference to Exhibit 10(k) to the Company's Form 10-Q for the quarter ended June 30, 1998).
Exhibit 10(m)	-	Fifth Amendment to the National Western Life Insurance Company Non-Qualified Deferred Compensation Plan effective July 1, 1998 (incorporated by reference to Exhibit 10(m) to the Company's Form 10-Q for the quarter ended September 30, 1998).
Exhibit 10(n)	-	Sixth Amendment to the National Western Life Insurance Company Non-Qualified Deferred Compensation Plan effective August 7, 1998 (incorporated by reference to Exhibit 10(n) to the Company's Form 10-K for the year ended December 31, 1998).
Exhibit 10(o)	-	Third Amendment to the National Western Life Insurance Company Non-Qualified Defined Benefit Plan effective August 7, 1998 (incorporated by reference to Exhibit 10(o) to the Company's Form 10-K for the year ended December 31, 1998).
Exhibit 10(p)	-	Exchange Agreement by and among National Western Life Insurance Company, NWL Services, Inc., Alternative Benefit Management, Inc., and American National Insurance Company effective November 23, 1998 (incorporated by reference to Exhibit 10(p) to the Company's Form 10-K for the year ended December 31, 1998).
Exhibit 10(s)	-	Seventh Amendment to the National Western Life Insurance Company Non-Qualified Deferred Compensation Plan effective August 7, 1998 (incorporated by reference to Exhibit 10(s) to the Company's Form 10-K for the year ended December 31, 2000).
Exhibit 10(u)	-	Eighth Amendment to the National Western Life Insurance Company Non-Qualified Deferred Compensation Plan effective December 1, 2000 (incorporated by reference to Exhibit 10(u) to the Company's Form 10-K for the year ended December 31, 2000).
Exhibit 10(v)	-	Fourth Amendment to the National Western Life Insurance Company Non-Qualified Defined Benefit Plan effective December 1, 2000 (incorporated by reference to Exhibit 10(v) to the Company's Form 10-K for the year ended December 31, 2000).
Exhibit 10(w)	-	Second Amendment to the National Western Life Insurance Company 1995 Stock and Incentive Plan (incorporated by reference to Exhibit 10(w) to the Company's Form 10-Q for the quarter ended September 30, 2001).
Exhibit 10(z)	-	Fifth Amendment to the National Western Life Insurance Company Non-Qualified Defined Benefit Plan effective January 1, 2001 (incorporated by reference to Exhibit 10(z) to the Company's Form 10-K for the year ended December 31, 2001).
Exhibit 10(ae)	-	Sixth Amendment to the National Western Life Insurance Company Non-Qualified Defined Benefit Plan effective August 23, 2002 (incorporated by reference to Exhibit 10(ae) to the Company's Form 10-Q for the quarter ended September 30, 2002).
Exhibit 10(af)	-	Seventh Amendment to the National Western Life Insurance Company Non-Qualified Defined Benefit Plan effective October 18, 2002 (incorporated by reference to Exhibit 10(af) to the Company's Form 10-Q for the quarter ended September 30, 2002).
Exhibit 10(ai)	-	Eighth Amendment to the National Western Life Insurance Company Non-Qualified Defined Benefit Plan effective January 1, 2003 (incorporated by reference to Exhibit 10(ai) to the Company's Form 10-K for the year ended December 31, 2002).
Exhibit 10(am)	-	Ninth amendment to the National Western Life Insurance Company Non-Qualified Deferred Compensation Plan effective November 1, 2003 (incorporated by reference to Exhibit 10(am) to the Company's Form 10-K for the year ended December 31, 2003).
Exhibit 10(an)	-	Ninth amendment to the National Western Life Insurance Company Non-Qualified Defined Benefit Plan effective December 5, 2003 (incorporated by reference to Exhibit 10(an) to the Company's Form 10-K for the year ended December 31, 2003.)
Exhibit 10(ao)	-	Bonus program by and between National Western Life Insurance Company and Domestic Marketing officers of National Western Life Insurance Company for the year ending December 31, 2004 (incorporated by reference to Exhibit 10(ao) to the Company's Form 10-Q for the quarter ended March 31, 2004).
Exhibit 10(ap)	-	Bonus program by and between National Western Life Insurance Company and International Marketing Officers of National Western Life Insurance Company for the year ending December 31, 2004 (incorporated by reference to Exhibit 10(ap) to the Company's Form 10-Q for the quarter ended March 31, 2004).
Exhibit 10(aq)	-	Bonus program by and between National Western Life Insurance Company and certain Executive officers of National Western Life Insurance Company for the year ending December 31, 2004 (incorporated by reference to Exhibit 10(aq) to the Company's Form 10-Q for the quarter ended June 30, 2004).
Exhibit 10(ar)	-	Third Amendment to the National Western Life Insurance Company 1995 Stock and Incentive Plan (incorporated by reference to Exhibit 10(ar) to the Company's Form 10-Q for the quarter ended September 30, 2004).
Exhibit 10(as)	-	Amendment to the National Western Life Insurance Company Group Excess Benefit Plan effective December 15, 2004 (incorporated by reference to Exhibit 10(as) to the Company's Form 10-K for the year ended December 31, 2004.).
Exhibit 10(at)	-	The National Western Life Insurance Company Employee Health Plan was amended and restated effective August 20, 2004 (incorporated by reference to Exhibit 10(at) to the Company's Form 10-K for the year ended December 31, 2004.)
Exhibit 10(au)	-	Tenth Amendment to the National Western Life Insurance Company Non-Qualified Defined Benefit Plan effective December 31, 2004 (incorporated by reference to Exhibit 10(au) to the Company's Form 10-K for the year ended December 31, 2004.).
Exhibit 10(av)	-	Bonus program by and between National Western Life Insurance Company and Executive Officers of National Western Life Insurance Company for the year ending December 31, 2005 (incorporated by reference to Exhibit 10(av) to the Company's Form 10-Q for the quarter ended March 31, 2005).
Exhibit 10(aw)	-	Bonus program by and between National Western Life Insurance Company and Domestic Marketing officers of National Western Life Insurance Company for the year ending December 31, 2005 (incorporated by reference to Exhibit 10(aw) to the Company's Form 10-Q for the quarter ended March 31, 2005).
Exhibit 10(ax)	-	Bonus program by and between National Western Life Insurance Company and International Marketing Officers of National Western Life Insurance Company for the year ending December 31, 2005 (incorporated by reference to Exhibit 10(ax) to the Company's Form 10-Q for the quarter ended March 31, 2005).
Exhibit 10(az)	-	National Western Life Insurance Company Non-Qualified Defined Benefit Plan for Robert L. Moody (Exhibit 10 to 8-K dated July 1, 2005).
Exhibit 10(ba)	-	First Amendment to the National Western Life Insurance Company Non-Qualified Defined Benefit Plan for Robert L. Moody (Exhibit 10 to 8-K dated August 22, 2005).
Exhibit 10(bb)	-	Second Amendment to the National Western Life Insurance Company Non-Qualified Defined Benefit Plan for Robert L. Moody (Exhibit 10 to 8-K dated December 15, 2005).
Exhibit 10(bc)	-	Tenth Amendment to the National Western Life Insurance Company Non-Qualified Deferred Compensation Plan (Exhibit 10 to 8-K dated December 15, 2005).
Exhibit 10(bd)	-	National Western Life Insurance Company Retirement Bonus Program for Robert L. Moody (Exhibit 10 to 8-K dated December 15, 2005).
Exhibit 10(be)	-	Eleventh Amendment to the National Western Life Insurance Company Non-Qualified Defined Benefit Plan (Exhibit 10 to 8-K dated December 15, 2005).
Exhibit 10(bg)	-	Non-Qualified Defined Benefit Plan for the President of the National Western Life Insurance Company (Exhibit 10 to 8-K dated December 15, 2005).
Exhibit 16	-	Letter Regarding Change in Certifying Accountant (incorporated by reference to Exhibit 16 to the Company's Form 8-KA dated May 14, 2004).
Exhibit 21	-	Subsidiaries of the Registrant.
Exhibit 23(a)	-	Consent of Independent Registered Public Accounting Firm, for the years ended December 31, 2005 and 2004.
Exhibit 23(b)	-	Consent of Independent Registered Public Accounting Firm, for the year ended December 31, 2003.
Exhibit 31(a)	-	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Exhibit 31(b)	-	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Exhibit 32(a)	-	Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

(b) Exhibits

Exhibits required by Regulation S-K are listed as to location in the Listing of Exhibits in Item 15.(a)3. above. Exhibits not referred to have been omitted as inapplicable or not required.

(c) Financial Statement Schedules

The financial statement schedules required by Regulation S-K are listed as to location in Attachment A, Index to Financial Statements and Schedules, on page __ of this report.

ATTACHMENT A
Index to Financial Statements and Schedules
	Page
Management's Report on Internal Control Over Financial Reporting
Reports of Independent Registered Public Accounting Firm - KPMG LLP
Report of Independent Registered Public Accounting Firm - Deloitte & Touche LLP
Consolidated Balance Sheets, December 31, 2005 and 2004
Consolidated Statements of Earnings for the years ended December 31, 2005, 2004, and 2003
Consolidated Statements of Comprehensive Income for the years ended December 31, 2005, 2004, and 2003
Consolidated Statements of Stockholders' Equity for the years ended December 31, 2005, 2004, and 2003
Consolidated Statements of Cash Flows for the years ended December 31, 2005, 2004, and 20003
Notes to Consolidated Financial Statements
Schedule I - Summary of Investments Other Than Investments in Related Parties, December 31, 2005
Schedule V - Valuation and Qualifying Accounts for the years ended December 31, 2005, 2004, and 2003

All other schedules are omitted because they are not applicable, not required, or because the information required by the schedule is included elsewhere in the consolidated financial statements or notes.

MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

The management of National Western Life Insurance Company ("Company") is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) and Rule 15d-15(f) under the Securities Exchange Act of 1934. The Company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company's financial statement for external reporting purposes in accordance with U.S. generally accepted accounting principles. The Company's management, including the Chief Executive Officer and Chief Financial Officer, assessed the effectiveness of the Company's internal control over financial reporting as of December 31, 2005.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of the effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with policies and procedure may deteriorate.

In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organization of the Treadway Commission (COSO) Internal Control - Integrated Framework. Based on the Company's assessment and those criteria, management believes that the Company maintained effective internal control over financial reporting as of December 31, 2005.

The independent registered public accounting firm that audited the Company's consolidated financial statements included in the Company's Annual Report for the year ended December 31, 2005, has issued an audit report on internal control over financial reporting as of December 31, 2005, and management's assessment of internal control over financial reporting. This report issued by KPMG LLP is included below.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders
National Western Life Insurance Company:

We have audited management's assessment, included in the accompanying Management's Report on Internal Control Over Financial Reporting, that National Western Life insurance Company maintained effective internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). National Western Life Insurance Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management's assessment and an opinion on the effectiveness of the Company's internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management's assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, management's assessment that National Western Life Insurance Company maintained effective internal control over financial reporting as of December 31, 2005, is fairly stated, in all material respects, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Also, in our opinion, National Western Life Insurance Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2005, based on, criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of National Western Life Insurance Company and subsidiaries as of December 31, 2005 and 2004, and the related consolidated statements of earnings, comprehensive income, stockholders' equity and cash flows for each of the years in the two-year period ended December 31, 2005, and our report dated March 15, 2006 expressed an unqualified opinion on those consolidated financial statements.

KPMG LLP
Austin, Texas
March 15, 2006

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders
National Western Life Insurance Company
Austin, Texas

We have audited the accompanying consolidated balance sheets of National Western Life Insurance Company and subsidiaries (the "Company") as of December 31, 2005 and 2004 and the related consolidated statements of earnings, comprehensive income, stockholders' equity and cash flows for each of the years in the two year period ended December 31, 2005. In connection with our audits of the consolidated financial statements, we have also audited the 2005 financial statement schedule I and the 2005 and 2004 financial statement schedule V. These financial statements and financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedules based on our audit.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards 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. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of National Western Life Insurance Company and subsidiaries as of December 31, 2005 and 2004 and the results of their operations and their cash flows for each of the years in the two year period ended December 31, 2005 in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of National Western Life Insurance Company's internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated March 15, 2006 expressed an unqualified opinion on management's assessment of, and the effective operation of, internal control over financial reporting.

As discussed in Note 1 to the consolidated financial statements, the Company changed its method of accounting for two-tiered annuity products in 2004.

KPMG LLP
Austin, Texas
March 15, 2006

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders
National Western Life Insurance Company
Austin, Texas

We have audited the accompanying consolidated statements of earnings, comprehensive income, stockholders' equity, and cash flows of National Western Life Insurance Company and subsidiaries (the "Company") for the year ended December 31, 2003. Our audit also included the financial statement schedules listed in the accompanying Index as of and for the year ended December 31, 2003. These consolidated financial statements and financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedules based on our audit.

We conducted our audit in accordance with standards of the Public Company Accounting Oversight Board (United States).  Those standards 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. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the consolidated results of operations and cash flows of National Western Life Insurance Company and subsidiaries for the year ended December 31, 2003, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such 2003 financial statement schedules, when considered in relation to the basic 2003 consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.

As discussed in Note 1 to the consolidated financial statements, the Company changed its method of accounting for stock-based compensation in 2003.

DELOITTE & TOUCHE LLP

March 9, 2004
Dallas, Texas

NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 2005 and 2004
(In thousands)
ASSETS		2005	2004
Investments:
Securities held to maturity, at amortized cost
(fair value: $3,523,993 and $3,367,112)	$	3,524,724	3,274,134
Securities available for sale, at fair value
(cost: $1,726,252 and $1,567,444)		1,744,727	1,635,247
Mortgage loans, net of allowance for possible
losses ($0 and $368)		110,639	124,712
Policy loans		86,385	88,448
Derivatives		39,405	42,156
Other long-term investments		30,013	45,702
Total Investments		5,535,893	5,210,399
Cash and short-term investments		31,355	50,194
Deferred policy acquisition costs		620,129	582,218
Deferred sales inducements		80,450	62,240
Accrued investment income		61,283	58,272
Federal income tax receivable		2,107	-
Other assets		37,791	28,362
	$	6,369,008	5,991,685
See accompanying notes to consolidated financial statements.

NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 2005 and 2004
(In thousands except share amounts)
LIABILITIES AND STOCKHOLDERS' EQUITY		2005	2004
LIABILITIES:
Future policy benefits:
Traditional life and annuity contracts	$	139,309	141,049
Universal life and annuity contracts		5,176,610	4,885,809
Other policyholder liabilities		100,557	75,237
Federal income tax liability:
Current		-	4,303
Deferred		37,735	38,754
Other liabilities		40,789	37,861
Total liabilities		5,495,000	5,183,013
COMMITMENTS AND CONTINGENCIES (Notes 4, 7, and 9)
STOCKHOLDERS' EQUITY:
Common stock:
Class A - $1 par value; 7,500,000 shares authorized; 3,412,839
and 3,384,215 shares issued and outstanding in 2005 and 2004		3,413	3,384
Class B - $1 par value; 200,000 shares authorized, issued,
and outstanding in 2005 and 2004		200	200
Additional paid-in capital		37,923	33,834
Accumulated other comprehensive income		10,564	25,419
Retained earnings		821,908	745,835
Total stockholders' equity		874,008	808,672
	$	6,369,008	5,991,685
See accompanying notes to consolidated financial statements.

NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
For the Years Ended December 31, 2005, 2004, and 2003
(In thousands except per share amounts)
		2005	2004	2003
Premiums and other revenue:
Life and annuity premiums	$	14,602	14,025	13,916
Universal life and annuity
contract revenues		96,765	89,513	80,964
Net investment income		310,213	315,843	298,974
Other income		9,579	11,259	7,061
Realized gains (losses) on investments		9,884	3,506	(1,647)
Total premiums and other revenue		441,043	434,146	399,268
Benefits and expenses:
Life and other policy benefits		39,162	34,613	37,180
Amortization of deferred policy acquisition costs		87,955	88,733	53,829
Universal life and annuity contract interest		150,692	173,315	176,374
Other operating expenses		46,349	35,441	48,776
Total benefits and expenses		324,158	332,102	316,159
Earnings before Federal income taxes and cumulative
effect of change in accounting principle		116,885	102,044	83,109
Federal income taxes		39,618	34,572	27,327
Earnings before cumulative effect of change in
accounting principle		77,267	67,472	55,782
Cumulative effect of change in accounting
principle, net of $29,452
of Federal income taxes		-	54,697	-
Net earnings	$	77,267	122,169	55,782
Basic Earnings Per Share:
Earnings before cumulative effect of change
in accounting principle	$	21.45	18.93	15.78
Cumulative effect of change in accounting principle		-	15.34	-
Net earnings	$	21.45	34.27	15.78
Diluted Earnings Per Share:
Earnings before cumulative effect of change
in accounting principle	$	21.24	18.73	15.64
Cumulative effect of change in accounting principle		-	15.18	-
Net earnings	$	21.24	33.91	15.64

See accompanying notes to consolidated financial statements.

NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the Years Ended December 31, 2005, 2004, and 2003
(In thousands)
		2005	2004	2003
Net earnings	$	77,267	122,169	55,782
Other comprehensive income, net of effects of
deferred costs and taxes:
Unrealized gains (losses) on securities:
Net unrealized holding gains (losses) arising
during period		(13,597)	1,603	11,677
Reclassification adjustment for net (gains)
losses included in net earnings		(1,254)	550	2,197
Amortization of net unrealized losses
related to transferred securities		18	245	173
Unrealized gains on securities
transferred during period from held to
maturity to available for sale		202	167	96
Net unrealized gains on securities		(14,631)	2,565	14,143
Foreign currency translation adjustments		130	(127)	48
Minimum pension liability adjustment		(354)	(472)	224
Other comprehensive income (loss)		(14,855)	1,966	14,415
Comprehensive income	$	62,412	124,135	70,197

See accompanying notes to consolidated financial statements.

NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Years Ended December 31, 2005, 2004, and 2003
(In thousands)
			2005		2004		2003
Common stock:
Balance at beginning of year	$		3,584		3,547		3,525
Shares exercised under stock option plan			29		37		22
Balance at end of year			3,613		3,584		3,547
Additional paid-in capital:
Balance at beginning of year			33,834		29,192		26,759
Shares exercised under stock option plan,
net of tax benefits			3,094		3,663		1,833
Stock option expense			995		979		600
Balance at end of year			37,923		33,834		29,192
Accumulated other comprehensive income:
Unrealized gains on securities:
Balance at beginning of year			25,032		22,467		8,324
Change in unrealized gains (losses) during period			(14,631)		2,565		14,143
Balance at end of year			10,401		25,032		22,467
Foreign currency translation adjustments:
Balance at beginning of year			3,170		3,297		3,249
Change in translation adjustments during period			130		(127)		48
Balance at end of year			3,300		3,170		3,297
Minimum pension liability adjustment:
Balance at beginning of year			(2,783)		(2,311)		(2,535)
Change in minimum pension liability
adjustment during period			(354)		(472)		224
Balance at end of year			(3,137)		(2,783)		(2,311)
Accumulated other comprehensive
income at end of year			10,564		25,419		23,453
Retained earnings:
Balance at beginning of year			745,835		623,666		567,884
Net earnings			77,267		122,169		55,782
Stockholder dividends			(1,194)		-		-
Balance at end of year			821,908		745,835		623,666
Total stockholders' equity	$		874,008		808,672		679,858
See accompanying notes to consolidated financial statements.
NATIONAL WESTERN LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2005, 2004, and 2003
(In thousands)
				2005		2004		2003
Cash flows from operating activities:
Net earnings		$		77,267		122,169		55,782
Adjustments to reconcile net earnings
to net cash provided by operating activities:
Universal life and annuity contract interest				150,692		173,315		176,374
Surrender charges and other policy revenues				(27,676)		(26,024)		(27,026)
Realized losses (gains) on investments				(9,884)		(3,506)		1,647
Accrual and amortization of investment income				(4,114)		(8,373)		(11,481)
Depreciation and amortization				1,513		1,665		1,935
Decrease (increase) in value of derivatives				9,579		13,262		(31,878)
Increase in deferred policy acquisition
and sales inducement costs				(14,476)		(57,278)		(138,280)
Decrease (increase) in accrued investment income				(3,011)		(4,293)		(4,494)
Decrease (increase) in other assets				(4,969)		2,438		(5,214)
Decrease in liabilities for future policy benefits				(1,721)		(1,523)		(1,646)
Increase in other policyholder liabilities				25,320		12,738		18,847
Increase in Federal income tax liability				1,593		30,554		625
Increase (decrease) in other liabilities				175		(15,793)		21,830
Lawsuit settlement payable				-		(9,700)		9,700
Cumulative effect of change in accounting
principle, before taxes				-		(84,149)		-
Other				802		515		2,244
Net cash provided by operating activities				201,090		146,017		68,965
Cash flows from investing activities:
Proceeds from sales of:
Securities held to maturity				9,867		8,749		4,175
Securities available for sale				29,211		49,801		53,368
Other investments				22,739		5,427		15,558
Proceeds from maturities and redemptions of:
Securities held to maturity				330,920		322,956		488,306
Securities available for sale				125,225		97,507		167,613
Derivatives				29,329		19,186		12,558
Purchases of:
Securities held to maturity				(596,191)		(813,489)		(1,155,138)
Securities available for sale				(301,898)		(352,638)		(512,009)
Other investments				(40,372)		(30,128)		(20,667)
Principal payments on mortgage loans				23,727		41,780		40,938
Cost of mortgage loans acquired				(9,038)		(13,116)		(23,960)
Decrease in policy loans				2,064		1,309		2,957
Other				(469)		(673)		(952)
Net cash used in investing activities				(374,886)		(663,329)		(927,253)
				(Continued on next page)

NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
For the Years Ended December 31, 2005, 2004, and 2003
(In thousands)
		2005	2004	2003
Cash flows from financing activities:
Stockholders dividends	$	(1,194)	-	-
Deposits to account balances for universal life
and annuity contracts		611,594	936,425	1,228,456
Return of account balances on universal life
and annuity contracts		(458,765)	(439,667)	(388,963)
Issuance of common stock under stock option plan		2,948	2,514	1,473
Net cash provided by financing activities		154,583	499,272	840,966
Effect of foreign exchange		374	24	(12)
Net decrease in cash and
short-term investments		(18,839)	(18,016)	(17,334)
Cash and short-term investments at
beginning of year		50,194	68,210	85,544
Cash and short-term investments at end of year	$	31,355	50,194	68,210

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest	$	40	48	42
Income taxes		37,800	33,078	26,840
Noncash investing activities:
Mortgage loans originated to facilitate
the sale of real estate	$	-	1,360	-

See accompanying notes to consolidated financial statements.

NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(A) Principles of Consolidation. The accompanying consolidated financial statements include the accounts of National Western Life Insurance Company and its wholly owned subsidiaries ("Company"), The Westcap Corporation, NWL Investments, Inc., NWL Services, Inc., and NWL Financial, Inc. All significant intercorporate transactions and accounts have been eliminated in consolidation.

(B) Basis of Presentation. The accompanying consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles ("GAAP") which require management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities, and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Significant estimates in the accompanying consolidated financial statements include (1) liabilities for future policy benefits, (2) valuation of derivative instruments, (3) recoverability of deferred policy acquisition costs, (4) valuation allowances for deferred tax assets, (5) other-than-temporary impairment losses on debt securities, and (6) valuation allowances for mortgage loans and real estate.

The Company also files financial statements with insurance regulatory authorities which are prepared on the basis of statutory accounting practices prescribed or permitted by the Colorado Division of Insurance which are significantly different from consolidated financial statements prepared in accordance with GAAP. These differences are described in detail in the statutory information section of this note.

(C) Investments. Investments in debt securities the Company purchases with the intent to hold to maturity are classified as securities held to maturity. The Company has the ability to hold the securities, as it would be unlikely that forced sales of securities would be required prior to maturity to cover payments of liabilities. As a result, securities held to maturity are carried at amortized cost less declines in fair value that are deemed other-than-temporary.

Investments in debt and equity securities that are not classified as securities held to maturity are reported as securities available for sale. Securities available for sale are reported in the accompanying consolidated financial statements at fair value. Any valuation changes resulting from changes in the fair value of the securities are reflected as a component of stockholders' equity in accumulated other comprehensive income or loss. These unrealized gains or losses in stockholders' equity are reported net of taxes and adjustments to deferred policy acquisition costs.

Transfers of securities between categories are recorded at fair value at the date of transfer. The unrealized holding gains or losses for securities transferred from available for sale to held to maturity are included in accumulated other comprehensive income or loss and amortized into earnings over the remaining life of the security as an adjustment to yield in a manner consistent with the amortization or accretion of premium or discount on the associated security.

Premiums and discounts are amortized or accreted over the life of the related security as an adjustment to yield using the effective interest method. For mortgage-backed and asset-backed securities, the effective interest method is used based on anticipated prepayments and the estimated economic life of the securities. When estimates of prepayments change, the effective yield is recalculated to reflect actual payments to date and anticipated future payments. The net investment in the securities is adjusted to the amount that would have existed had the new effective yield been applied at the time of acquisition. This adjustment is reflected in net investment income. Refer to Statement of Position ("SOP") 03-3 and Emerging Issues Task Force ("EITF") 99-20 under (L) of this section for accounting guidance related to certain asset-backed securities.

Realized gains and losses for securities available for sale and securities held to maturity are included in earnings and are derived using the specific identification method for determining the cost of securities sold. A decline in the fair value below cost that is deemed other-than-temporary is charged to earnings, resulting in the establishment of a new cost basis for the security.

Mortgage loans and other long-term investments are stated at cost, less unamortized discounts, deferred fees, and allowances for possible losses. Policy loans are stated at their aggregate unpaid balances. Real estate is stated at the lower of cost or fair value less estimated costs to sell.

Impaired loans are those loans where it is probable that all amounts due according to contractual terms of the loan agreement will not be collected. The Company has identified these loans through its normal loan review procedures. Impaired loans include (1) nonaccrual loans, (2) loans which are 90 days or more past due, unless they are well secured and are in the process of collection, and (3) other loans which management believes are impaired. Impaired loans are measured based on (1) the present value of expected future cash flows discounted at the loan's effective interest rate, (2) the loan's observable market price, or (3) the fair value of the collateral if the loan is collateral dependent. Substantially all of the Company's impaired loans are measured at the fair value of the collateral. In limited cases, the Company may use other methods to determine the level of impairment of a loan if such loan is not collateral dependent.

(D) Cash and Short-Term Investments. For purposes of the consolidated statements of cash flows, the Company considers all short-term investments with a maturity at the date of purchase of three months or less to be cash equivalents.

(E) Derivatives. The Company purchases over-the-counter indexed options, which are derivative financial instruments, to hedge the equity return component of its equity-indexed annuity and life products. The indexed options act as hedges to match closely the returns on the S&P 500^® Composite Stock Price Index ("S&P 500 Index^®") which may be credited to policyholders. As a result, changes to policyholders' liabilities are substantially offset by changes in the value of the options. Cash is exchanged upon purchase of the indexed options and no principal or interest payments are made by either party during the option periods. Upon maturity or expiration of the options, cash is paid to the Company based on the S&P 500 Index^® performance and terms of the contract.

The derivatives are reported at fair value in the accompanying consolidated financial statements. The changes in the values of the indexed options and the changes in the policyholder liabilities are both reflected in the statement of earnings. Any gains or losses from the sale or expiration of the options, as well as period-to-period changes in values, are reflected as net investment income in the statement of earnings.

Although there is credit risk in the event of nonperformance by counterparties to the indexed options, the Company does not expect any counterparties to fail to meet their obligations, given their high credit ratings. In addition, credit support agreements are in place with all counterparties for option holdings in excess of specific limits, which may further reduce the Company's credit exposure. At December 31, 2005 and 2004, the fair values of indexed options owned by the Company totaled $39.4 million and $42.2 million, respectively.

(F) Insurance Revenues and Expenses. Premiums on traditional life insurance products are recognized as revenues as they become due from policyholders. Benefits and expenses are matched with premiums in arriving at profits by providing for policy benefits over the lives of the policies and by amortizing acquisition costs over the premium-paying periods of the policies. For universal life and annuity contracts, revenues consist of policy charges for the cost of insurance, policy administration, and surrender charges assessed during the period. Expenses for these policies include interest credited to policy account balances and benefit claims incurred in excess of policy account balances. The related deferred policy acquisition and sales inducement costs are amortized in relation to the present value of expected gross profits on the policies.

(G) Deferred Federal Income Taxes. Federal income taxes are accounted for under the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance for deferred tax assets is provided if all or some portion of the deferred tax asset may not be realized. An increase or decrease in a valuation allowance that results from a change in circumstances that affects the realizability of the related deferred tax asset is included in income in the period the change occurs.

(H) Depreciation of Property, Equipment, and Leasehold Improvements. Depreciation is based on the estimated useful lives of the assets and is calculated on the straight-line and accelerated methods. Leasehold improvements are amortized over the lesser of the economic useful life of the improvement or the term of the lease.

(I) Classification. Certain reclassifications have been made to the prior years to conform to the reporting categories used in 2005.

(J) Statutory Information. Domiciled in Colorado, the Company prepares its statutory financial statements in accordance with accounting practices prescribed or permitted by the Colorado Division of Insurance. The Colorado Division of Insurance has adopted the provisions of the National Association of Insurance Commissioners' ("NAIC") Statutory Accounting Practices as the basis for its statutory practices.

The following are major differences between GAAP and accounting practices prescribed or permitted by the Colorado Division of Insurance.

1.  The Company accounts for universal life and annuity contracts based on the provisions of Statement of Financial Accounting Standards ("SFAS") No. 97, Accounting and Reporting by Insurance Enterprises for Certain Long-Duration Contracts and for Realized Gains and Losses from the Sale of Investments. The basic effect of the statement with respect to certain long-duration contracts is that deposits for universal life and annuity contracts are not reflected as revenues, and surrenders and certain other benefit payments are not reflected as expenses. However, only those contracts with no insurance risk qualify for such treatment under statutory accounting practices. For all other contracts, statutory accounting practices do reflect such items as revenues and expenses.

A summary of direct premiums and deposits collected is provided below.

		Years Ended December 31,
		2005	2004	2003
		(In thousands)
Annuity deposits	$	557,940	892,027	1,195,143
Universal life insurance deposits		133,579	119,554	101,376
Traditional life and other premiums		16,629	15,830	15,568
Totals	$	708,148	1,027,411	1,312,087

2.  Under GAAP, commissions, sales inducements, and certain expenses related to policy issuance and underwriting, all of which generally vary with and are related to the production of new business, are deferred. For traditional products, these costs are amortized over the premium-paying period of the related policies in proportion to the ratio of the premium earned to the total premium revenue anticipated, using the same assumptions as to interest, mortality, and withdrawals as were used in calculating the liability for future policy benefits. For universal life and annuity contracts, these costs are amortized in relation to the present value of expected gross profits on these policies. The Company evaluates the recoverability of deferred policy acquisition and sales inducement costs on a quarterly basis. In this evaluation, the Company considers estimated future gross profits or future premiums, as applicable for the type of contract. The Company also considers expected mortality, interest earned and credited rates, persistency, and expenses. Statutory accounting practices require commissions and related costs to be expensed as incurred.

A summary of information relative to deferred policy acquisition costs is provided in the table below.

		Years Ended December 31,
		2005	2004	2003
		(In thousands)
Deferred policy acquisition costs, beginning of year	$	582,218	558,455	442,266
Policy acquisition costs deferred:
Agents' commissions		96,224	139,095	184,415
Other		6,206	6,916	7,695
Total costs deferred		102,430	146,011	192,110
Amortization of deferred policy acquisition costs		(87,955)	(88,733)	(53,829)
Adjustments for unrealized gains and
losses on investment securities		23,436	1,541	(22,092)
Deferred costs written off due to change in
accounting principle		-	(35,056)	-
Deferred policy acquisition costs, end of year	$	620,129	582,218	558,455

A summary of information relative to deferred sales inducement costs is provided in the table below.

		Years Ended December 31,
		2005	2004	2003
		(In thousands)
Deferred sales inducement costs, beginning of year	$	62,240	40,940	-
Sales inducement costs deferred		21,426	28,189	43,867
Amortization of sales inducement		(6,484)	(5,256)	(1,261)
Adjustments for unrealized gains and
losses on investment securities		3,268	(1,633)	(1,666)
Deferred sales inducement costs, end of year	$	80,450	62,240	40,940

3.  Under GAAP, the liability for future policy benefits on traditional products has been calculated under SFAS No. 60 using assumptions as to future mortality (based on the 1965-1970 and 1975-1980 Select and Ultimate mortality tables), interest ranging from 4% to 8%, and withdrawals based on Company experience. For universal life and annuity contracts, the liability for future policy benefits represents the account balance. Equity-indexed products combine features associated with traditional fixed annuities and universal life contracts, with the option to have interest rates linked in part to an equity index like the S&P 500 Index^®. In accordance with SFAS No. 133, the equity return component of such policy contracts must be identified separately and accounted for as embedded derivatives. The remaining portions of these policy contracts are considered the host contracts and are recorded separately as fixed annuity or universal life contracts. The host contracts are accounted for under provisions of SFAS No. 97 that requires debt instrument type accounting. The host contracts are recorded as discounted debt instruments that are accreted, using the effective yield method, to their minimum account values at their projected maturities or termination dates. The embedded derivatives are recorded at fair values. For statutory accounting purposes, liabilities for future policy benefits for life insurance policies are calculated by the net level premium method or the commissioners reserve valuation method. Future policy benefit liabilities for annuities are calculated based on the continuous commissioners annuity reserve valuation method and provisions of Actuarial Guidelines 33 and 35.

4. Deferred Federal income taxes are provided for temporary differences which are recognized in the consolidated financial statements in a different period than for Federal income tax purposes. Deferred taxes are also recognized in statutory accounting practices; however, there are limitations as to the amount of deferred tax assets that may be reported as admitted assets. The change in the deferred taxes is recorded in surplus, rather than as a component of income tax expense.

5.  For statutory accounting purposes, debt securities are recorded at amortized cost, except for securities in or near default, which are reported at fair value. Under GAAP, they are carried at amortized cost or fair value based on their classification as either held to maturity or available for sale.

6.  Investments in subsidiaries are recorded at admitted asset value for statutory purposes, whereas the financial statements of the subsidiaries have been consolidated with those of the Company under GAAP.

7.  The asset valuation reserve and interest maintenance reserve, which are investment valuation reserves prescribed by statutory accounting practices, have been eliminated, as they are not required under GAAP.

8.  The recorded value of the life interest in the Libbie Shearn Moody Trust ("Trust") is reported at its initial valuation, net of accumulated amortization, under GAAP. The initial valuation was based on the assumption that the Trust would provide certain income to the Company at an assumed interest rate and is being amortized over 53 years, the life expectancy of Mr. Robert L. Moody at the date he contributed the life interest to the Company. For statutory accounting purposes, the life interest has been valued at $26.4 million, which was computed as the present value of the estimated future income to be received from the Trust. However, this amount was amortized to a valuation of $12.8 million over a seven-year period ended December 31, 1999, in accordance with Colorado Division of Insurance permitted accounting requirements. Prescribed statutory accounting practices provide no accounting guidance for such asset. The statutory admitted value of this life interest at December 31, 2005, is $12.8 million in comparison to a carrying value of $2.2 million in the accompanying consolidated financial statements.

9.  Reconciliations of statutory capital and surplus, as included in the annual statements filed with the Colorado Division of Insurance, to total stockholders' equity as reported in the accompanying consolidated financial statements prepared under GAAP are as follows:

		Stockholders' Equity
		as of December 31,
		2005	2004	2003
		(In thousands)
Statutory capital and surplus	$	598,468	526,084	478,003
Adjustments:
Difference in valuation of investment in
the Libbie Shearn Moody Trust		(10,528)	(10,220)	(9,914)
Deferral of policy acquisition costs and
sales inducements		700,579	644,458	599,395
Adjustment of future policy benefits		(452,872)	(434,304)	(477,225)
Difference in deferred Federal income taxes		(44,867)	(49,038)	(22,520)
Adjustment of securities available for sale to fair value		10,940	60,596	57,798
Reversal of asset valuation reserve		46,555	47,471	39,738
Reversal of interest maintenance reserve		8,824	10,003	9,122
Reinstatement of other nonadmitted assets		17,250	14,047	8,602
Valuation allowances on investments		(929)	(975)	(3,164)
Other, net		588	550	23
GAAP equity	$	874,008	808,672	679,858

10.  Reconciliations of statutory net earnings, as included in the annual statements filed with the Colorado Division of Insurance, to the respective amounts as reported in the accompanying consolidated financial statements prepared under GAAP are as follows:

		Net Earnings for the
		Years Ended December 31,
		2005	2004	2003
		(In thousands)
Statutory net earnings	$	60,074	54,216	23,246
Adjustments:
Subsidiary earnings before deferred
Federal income taxes and intercompany eliminations		12,321	8,264	6,671
Net deferral of policy acquisition and
sales inducement costs		29,716	45,239	181,114
Adjustment of future policy benefits		(18,568)	42,921	(161,440)
Benefit (provision) for deferred Federal income taxes		(5,494)	(29,583)	4,165
Valuation allowances and other-than-temporary
impairment writedowns on investments		222	1,022	(1,827)
Increase (decrease) in interest maintenance reserve		(1,179)	881	1,148
Stock option compensation expense		(995)	(979)	(600)
Asset-backed securities amortization adjustment		595	2,739	3,969
Deferred tax from capital loss carryforward
recognized for statutory accounting		-	(3,096)	-
Other, net		575	545	(664)
GAAP net earnings	$	77,267	122,169	55,782

(K) Stock Compensation. SFAS No. 123, Accounting for Stock-Based Compensation established financial accounting and reporting standards for stock-based employee compensation plans. It defines a fair value based method of accounting for employee stock options or similar equity instruments. However, it also allows an entity to continue to measure compensation cost for plans using the intrinsic value based method of accounting prescribed by Accounting Principles Board ("APB") Opinion No. 25, Accounting for Stock Issued to Employees.

In December, 2002, the Financial Accounting Standards Board ("FASB") issued SFAS No. 148, Accounting for Stock-Based Compensation - Transition and Disclosure. This statement amends SFAS No. 123 to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. SFAS No. 148 is effective for fiscal years ending after December 15, 2002.

Under the fair value based method, compensation cost is measured at the grant date based on the fair value of the award and is recognized over the service period, which is usually the vesting period. For stock options, fair value is determined using an option pricing model that takes into account various information and assumptions regarding the Company's stock and options. Under the intrinsic value based method, compensation cost is the excess, if any, of the quoted market price of the stock at grant date or other measurement date over the amount an employee must pay to acquire the stock.

As of December 31, 2005, the Company has one stock-based employee compensation plan, as more fully described in Note 10. The Company historically applied APB 25 to stock option grants which resulted in no compensation expense being recognized. Effective January 1, 2003, the Company adopted the fair value recognition provisions of SFAS No. 123 utilizing the modified prospective method of adoption provided under SFAS No. 148. Under this method, stock-based employee compensation cost recognized in 2005 and 2004 is the same as that which would have been recognized had the fair value recognition provisions of SFAS No. 123 been applied to all awards granted by the Company.

(L) Changes in Accounting Principles. SFAS No. 148, Accounting for Stock-Based Compensation-Transition and Disclosure was issued December 2002 and is effective for fiscal years ending after December 15, 2002. This Statement amends SFAS No. 123 to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. This Statement also amends the disclosure requirements of Statement 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The Company did implement the accounting provisions of SFAS No. 148 in the first quarter of 2003 and did not report a material effect on the Company's consolidated financial statements.

In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities. The statement amends and clarifies accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under Statement 133. The statement is generally effective for contracts entered into or modified after June 30, 2003. This statement did not have a significant impact on the Company's consolidated financial statements during 2004.

In July 2003, the American Institute of Certified Public Accountants issued Statement of Position 03-1, Accounting and Reporting by Insurance Enterprises for Certain Nontraditional Long-Duration Contracts and for Separate Accounts ("SOP 03-1"). SOP 03-1 provides guidance relating to the reporting by insurance enterprises for certain contracts and insurance specific accounting issues and is effective for financial statements for fiscal years beginning after December 15, 2003. In the first quarter of 2004 the Company adopted the reserving method for its two-tier annuity products, which were issued from 1984 until 1992, in accordance with the SOP 03-1 guidance. The new reserving method under SOP 03-1 requires that the Company hold a reserve equal to the cash surrender value and establish an additional liability for expected annuitizations. The Company previously maintained reserves for two-tier annuities at the account balance value which is substantially higher than the cash value reserve. This reserving change resulted in an adjustment decreasing reserves, less deferred acquisition costs written off, by $54.7 million, net of taxes. The amount is reflected as a change in accounting principle as of January 1, 2004. Components of the accounting change are detailed below.

		Amounts
		(In thousands)
Accounting change related to two-tier annuities:
Reduction in reserve for future policy benefits	$	119,205
Write off of deferred acquisition costs		(35,056)
Total change, pre-tax		84,149
Federal income taxes		(29,452)
Cumulative effect of change in accounting for
two-tier annuities, net of tax	$	54,697

At December 31, 2005, the Company held a reserve relating to two-tier annuities in the amount of $20.9 million as an additional liability relating to annuitization benefits. The expected annuitizations were determined based upon actual experience relating to this block of business, which is relatively seasoned and the policies are no longer issued by the Company. The issuance of this SOP did not impact the Company's accounting relating to sales inducements.

FASB Interpretation No. 46 ("FIN" 46) Consolidation of Variable Interest Entities was issued January 2003; in December 2003, the FASB issued Revised Interpretation No. 46 ("FIN 46R"). FIN 46R clarifies the application of Accounting Research Bulletin No. 51, Consolidated Financial Statements, to certain entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support. FIN 46R separates entities into two groups: (1) those for which voting interests are used to determine consolidation and (2) those for which variable interests are used to determine consolidation. FIN 46R clarifies how to identify a variable interest entity ("VIE") and how to determine when a business enterprise should include the assets, liabilities, non-controlling interests, and results of activities of a VIE in its consolidated financial statements. A company that absorbs a majority of a VIE's expected losses, receives a majority of a VIE's expected residual returns, or both, is the primary beneficiary and is required to consolidate the VIE into its financial statements. FIN 46R also requires disclosure of certain information where the reporting company is the primary beneficiary or holds a significant variable interest in a VIE (but is not the primary beneficiary). FIN 46R was effective for public companies that have interests in VIE's or potential VIE's that are special-purpose entities for periods ending after December 15, 2003. Application by public companies for all other types of entities is required for periods ending after March 15, 2004. The adoption of FIN 46R in the first quarter of 2004 did not have a significant impact on the Company's consolidated financial statements.

In March 2004, the Emerging Issues Task Force ("EITF") reached a final consensus on Issue 03-1, The Meaning of Other-Than-Temporary Impairment and its Application to Certain Investments. This Issue establishes impairment models for determining whether to record impairment losses associated with investments in certain equity and debt securities and requires expanded disclosures related to securities with unrealized losses. It also requires income to be accrued on a level-yield basis following an impairment of debt securities, where reasonable estimates of the timing and amount of future cash flows can be made. The Company's current policy has generally been to record income only as cash is received following an impairment of a debt security. The application of this Issue was required for reporting periods beginning after June 15, 2004. In September 2004, the FASB approved FASB Staff Position EITF 03-1-1, which deferred the effective date for the recognition and measurement guidance contained in EITF 03-1 until certain issues were resolved. On November 3, 2005 the FASB issued FASB Staff Position ("FSP") Nos. FAS 115-1 and FAS 124-1 titled The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments. This FSP nullifies certain requirements of EITF 03-1 and carries forward certain requirements and disclosures. The guidance in this FSP shall be applied to reporting periods beginning after December 15, 2005. The Company has adopted the disclosure provisions and has included the required disclosures for 2005 and 2004. The Company will adopt FSP Nos. FAS 115-1 and FAS 124-1 as of the beginning of fiscal year 2006 and does not expect this FSP to have a material impact on the consolidated financial statements.

In December of 2003, the American Institute of Certified Public Accountants ("AICPA") issued Statement of Position 03-3, Accounting for Certain Loans or Debt Securities Acquired in a Transfer ("SOP 03-3"). SOP 03-3 addresses revenue recognition and impairment assessments for certain loans and debt securities that were purchased at a discount that was at least in part due to credit quality. SOP 03-3 states that where expected cash flows from the loan or debt security can be reasonably estimated, the difference between the purchase price and the expected cash flows (i.e., the "accretable yield") should be accreted into income. In addition, the SOP prohibits the recognition of a reserve for impairment on the purchase date. Further, the SOP requires that the allowance for loan losses be supported through a cash flow analysis, on either an individual or on a pooled basis, for all loans that fall within the scope of the guidance. This SOP is effective for loans acquired in fiscal years beginning after December 15, 2004. The Company adopted SOP 03-3 as of the beginning of fiscal year 2005. This SOP did not have a material impact on the consolidated financial statements.

As of December 31, 2005, the Company held debt securities with an outstanding balance of $17.6 million and a carrying value of $17.3 million accounted for in accordance with Statement of Position 03-3, Accounting for Certain Loans or Debt Securities Acquired in a Transfer ("SOP 03-3"). For the year ended December 31, 2005, an impairment of $0.2 million was recorded related to one debt security. The Company does not acquire securities meeting the requirements of this SOP 03-3 at the time of purchase; however, securities that have credit deterioration subsequent to purchase may require reporting under this accounting standard.

EITF No. 99-20 Recognition of Interest Income and Impairment on Purchased and Retained Beneficial Interests in Securitized Financial Assets requires the Company to periodically review changes in future cash flow expectations and account for interest income using the prospective effective yield-method. EITF 99-20 includes specific guidance regarding impairment of asset backed securities that do not fall under the SOP 03-3 guidance noted above.

In December 2004, the FASB issued Statement No. 123(R), Share-Based Payment which is a revision of Statement No. 123. Statement No. 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values. We currently use the Black-Scholes-Merton option pricing model to estimate the value of employee stock options and expect to continue to use this acceptable option pricing model upon adoption of Statement No. 123(R). Statement No. 123(R) also requires the benefits of tax deductions in excess of recognized compensation cost to be reported as a financing cash flow rather than as an operating cash flow, as currently required. The original effective date set by the FASB was to begin with the first fiscal quarter after June 15, 2005. The Securities and Exchange Commission announced on April 14, 2005 a six month postponement of FAS 123(R) which requires companies to apply the accounting standard beginning with the first fiscal year after June 15, 2005. The adoption of Statement No. 123(R) is not expected to have a material impact on the consolidated financial statements of the Company.

In September 2005, the AICPA issued Statement of Position 05-1, Accounting by Insurance Enterprises for Deferred Acquisition Costs in Connection with Modifications or Exchanges of Insurance Contracts ("SOP 05-1"). The SOP 05-1 provides guidance on accounting by insurance enterprises for deferred acquisition costs on internal replacements of insurance and investment contracts other than those specifically described in FASB No. 97. The SOP 05-1 defines an internal replacement as a modification in product benefits, features, rights, or coverages that occurs by the exchange of a contract for a new contract, or by amendment, endorsement, or rider to a contract, or by the election of a feature or coverage within a contract. The SOP 05-1 is effective for internal replacements occurring in fiscal years beginning after December 15, 2006, with earlier adoption encouraged. The adoption of SOP 05-1 is not expected to have a material impact on the consolidated financials statements of the Company.

Other recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the AICPA, and the SEC did not, or are not believed by management to, have a material impact on the Company's present or future consolidated financial statements.

(2) DEPOSITS WITH REGULATORY AUTHORITIES

The following assets were on deposit with state and other regulatory authorities as required by law at the end of each year.

		December 31,
		2005	2004
		(In thousands)
Debt securities held to maturity	$	16,302	16,243
Debt securities available for sale		606	-
Short term investments		223	227
Totals	$	17,131	16,470

(3) INVESTMENTS

(A) Investment Income

The major components of net investment income are as follows:

		Years Ended December 31,
		2005	2004	2003
		(In thousands)
Gross investment income:
Debt securities	$	293,502	276,624	239,243
Mortgage loans		9,676	12,510	15,115
Policy loans		6,409	6,483	6,932
Derivative gains (losses)		(10,988)	11,988	25,799
Other investment income		13,975	10,351	13,794
Total investment income		312,574	317,956	300,883
Investment expenses		2,361	2,113	1,909
Net investment income	$	310,213	315,843	298,974

The Company had no mortgage loans on non-accrual status as of December 31, 2005 and 2003. As of December 31, 2004 mortgage loans totaling $0.6 million were on non-accrual status. There were no reductions in interest income in 2005, however reductions of $54,000 associated with non-performing mortgage loans were noted in 2004. The Company had real estate investments that were non-income producing for the preceding twelve months totaling $1.9 million and $2.1 million at December 31, 2005 and 2004, respectively.

The Company had investments in debt securities with carrying values totaling $7.6 million and $4.1 million as of December 31, 2005 and 2004, respectively that have not produced income for the preceding 12 months. Reductions in interest income associated with nonperforming investments in debt securities totaled $1.0 million, $1.1 million, and $2.4 million in 2005, 2004, and 2003, respectively.

(B) Mortgage Loans and Real Estate

Concentrations of credit risk arising from mortgage loans exist in relation to certain groups of borrowers. A group concentration arises when a number of counterparties have similar economic characteristics that would cause their ability to meet contractual obligations to be similarly affected by changes in economic or other conditions. The Company does not have a significant exposure to any individual customer or counterparty. The major concentrations of mortgage loan credit risk for the Company arise by geographic location in the United States and by property type as detailed below.

		December 31, 2005			December 31, 2004
		Amount	%		Amount	%
		(In thousands)			(In thousands)
Geographic Region:
West South Central	$	68,413	61.8	$	74,765	59.9
Mountain		15,831	14.3		19,020	15.3
Pacific		11,342	10.3		11,954	9.6
South Atlantic		4,838	4.4		5,284	4.2
East South Central		-	-		3,686	3.0
All other		10,215	9.2		10,003	8.0
Totals	$	110,639	100.0	$	124,712	100.0

		December 31, 2005			December 31, 2004
		Amount	%		Amount	%
		(In thousands)			(In thousands)
Property Type:
Retail	$	75,545	68.3	$	87,941	70.5
Office		24,536	22.2		24,740	19.8
Land/Lots		3,725	3.4		7,017	5.6
Hotel/Motel		6,797	6.1		4,974	4.0
All other		36	-		40	0.1
Totals	$	110,639	100.0	$	124,712	100.0

No mortgage loans were considered impaired as of December 31, 2005. Mortgage loans with carrying values totaling $0.6 million were considered impaired as of December 31, 2004. For the years ended December 31, 2005, 2004, and 2003, average investments in impaired mortgage loans were $0.1 million, $4.7 million, and $4.1 million, respectively. Interest income recognized on impaired loans for the years ended December 31, 2004 and 2003, was $0.9 million and $0.7 million, respectively and none for the year ended December 31, 2005. Impaired loans are typically placed on nonaccrual status, and no interest income is recognized. However, if cash is received on the impaired loan, it is applied to principal and interest on past due payments, beginning with the most delinquent payment.

Detailed below are changes in the allowance for mortgage loan losses for 2005 and 2004.

		Years Ended December 31,
		2005	2004
		(In thousands)
Balance at beginning of year	$	368	660
Net changes recorded as realized
investment gains		(368)	(292)
Balance at end of year	$	-	368

At December 31, 2005 and 2004, the Company owned investment real estate totaling $13.4 million and $17.2 million, respectively, which is reflected in other long-term investments in the accompanying consolidated financial statements. The Company records real estate at the lower of cost or fair value less estimated costs to sell. Real estate values are monitored and evaluated at least annually by the use of independent appraisals or internal evaluations. Changes in market values affecting carrying values are recorded as a valuation allowance which is reflected in realized gains or losses on investments. For the year ended December 31, 2004, the Company recorded a net gain on real estate due to increases in market values totaling $0.8 million. Additional gains totaling $0.7 million and $0.6 million were recorded for the year ended December 31, 2005 and 2004, respectively, as a result of releasing allowances related to properties sold.

(C) Investment Gains and Losses

The table below presents realized gains and losses and changes in unrealized gains and losses on investments for 2005, 2004, and 2003. Changes in unrealized gains and losses on investment securities available for sale are net of the effects of deferred costs and taxes.

			Changes in
		Realized	Unrealized
		Investment	Investment
		Gains	Gains (Losses)
		(Losses)	From Prior Year
	(In thousands)
Year Ended December 31, 2005:
Securities held to maturity	$	628	(93,709)
Securities available for sale		2,176	(14,631)
Real estate		6,713	-
Other		367	-
Totals	$	9,884	(108,340)
Year Ended December 31, 2004:
Securities held to maturity	$	2,490	(10,353)
Securities available for sale		(846)	2,565
Other		1,862	-
Totals	$	3,506	(7,788)
Year Ended December 31, 2003:
Securities held to maturity	$	835	(38,014)
Securities available for sale		(3,380)	14,143
Other		898	-
Totals	$	(1,647)	(23,871)

(D) Debt and Equity Securities

The tables below present amortized cost and fair values of securities held to maturity and securities available for sale at December 31, 2005.

		Securities Held to Maturity
			Gross	Gross
		Amortized	Unrealized	Unrealized	Fair
		Cost	Gains	Losses	Value
		(In thousands)
Debt securities:
U.S. Treasury and other U.S.
government corporations
and agencies	$	306,260	575	6,573	300,262
States and political subdivisions		13,220	87	39	13,268
Foreign governments		19,899	608	-	20,507
Public utilities		419,996	13,300	2,359	430,937
Corporate		1,186,392	23,687	15,579	1,194,500
Mortgage-backed		1,450,375	6,165	19,932	1,436,608
Asset-backed		128,582	1,581	2,252	127,911
Totals	$	3,524,724	46,003	46,734	3,523,993
		Securities Available for Sale
			Gross	Gross
		Amortized	Unrealized	Unrealized	Fair
		Cost	Gains	Losses	Value
		(In thousands)
Debt securities:
States and political subdivisions	$	39,397	1,740	417	40,720
Foreign governments		10,576	277	4	10,849
Public utilities		240,541	3,599	2,803	241,337
Corporate		1,123,539	26,783	16,408	1,133,914
Mortgage-backed		268,104	1,926	5,160	264,870
Asset-backed		31,239	1,611	108	32,742
Equity securities		12,856	7,633	194	20,295
Totals	$	1,726,252	43,569	25,094	1,744,727

The tables below present amortized cost and fair values of securities held to maturity and securities available for sale at December 31, 2004.

		Securities Held to Maturity
			Gross	Gross
		Amortized	Unrealized	Unrealized	Fair
		Cost	Gains	Losses	Value
		(In thousands)
Debt securities:
U.S. Treasury and other U.S.
government corporations
and agencies	$	219,845	941	2,356	218,430
States and political subdivisions		10,000	126	-	10,126
Foreign governments		20,314	1,318	-	21,632
Public utilities		457,286	27,943	683	484,546
Corporate		1,134,186	52,560	5,772	1,180,974
Mortgage-backed		1,271,570	21,492	4,607	1,288,455
Asset-backed		160,933	4,620	2,604	162,949
Totals	$	3,274,134	109,000	16,022	3,367,112
		Securities Available for Sale
			Gross	Gross
		Amortized	Unrealized	Unrealized	Fair
		Cost	Gains	Losses	Value
		(In thousands)
Debt securities:
States and political subdivisions	$	31,220	1,657	542	32,335
Foreign governments		10,622	592	-	11,214
Public utilities		164,548	6,235	363	170,420
Corporate		1,027,128	54,040	7,351	1,073,817
Mortgage-backed		274,126	6,276	3,035	277,367
Asset-backed		47,313	2,733	3	50,043
Equity securities		12,487	7,738	174	20,051
Totals	$	1,567,444	79,271	11,468	1,635,247

Due to the Company's investment policy of investing in high quality securities with the primary intention of holding these securities until the stated maturity, the portfolio does have exposure to interest rate risk. Interest rate risk is the risk that funds are invested today at a market interest rate and in the future interest rates rise causing the current market price on that investment to be lower. This risk is not a significant factor relative to the Company's buy and hold portfolio, since the original intention was to receive the stated interest rate and principal at maturity to match liability requirements of policyholders. Also, the Company takes steps to manage these risks. For example, the Company purchases the type of mortgage-backed securities that have more predictable cash flow patterns.

In addition, the Company is exposed to credit risk which is continually monitored relating to security holdings. Credit risk is the risk that an issuer of a security will not be able to fulfill their obligations relative to a security payment schedule. The Company has reviewed relative information for all issuers in an unrealized loss position at December 31, 2005 including market pricing history, credit ratings, analyst reports as well as data provided by issuers themselves to conclude on each specific issuer and make the determination relating to other-than-temporary impairment. For the securities that have not been impaired at December 31, 2005, the Company has the ability and intent to hold these securities until recovery in fair value and expects to receive all amounts due relative to principal and interest.

The Company held in its investment portfolio below investment grade debt securities totaling $170.5 million and $137.9 million at December 31, 2005 and 2004, respectively. These amounts represent 3.1% and 2.6% of total invested assets for December 31, 2005 and 2004, respectively. Below investment grade holdings are the result of downgrades subsequent to purchase, as the Company only invests in high quality securities with ratings quoted as investment grade. Below investment grade securities generally have greater default risk than higher rated corporate debt. The issuers of these securities are usually more sensitive to adverse industry or economic conditions than are investment grade issuers. For the years ended December 31, 2005, 2004, and 2003, the Company recorded realized losses totaling $2.0 million, $3.6 million, and $7.2 million, respectively, for other-than-temporary impairment writedowns on investments in debt securities.

The following table shows the gross unrealized losses and fair values of the Company's investments by investment category and length of time the individual securities have been in a continuous unrealized loss position at December 31, 2005.

		Less than 12 Months		12 Months or Greater		Total
		Fair	Unrealized	Fair	Unrealized	Fair	Unrealized
		Value	Losses	Value	Losses	Value	Losses
		(In thousands)
Debt securities:
U.S. government
agencies	$	163,178	2,416	111,876	4,157	275,054	6,573
State and political
subdivisions		10,187	137	2,181	319	12,368	456
Foreign governments		3,279	4	-	-	3,279	4
Public utilities		215,032	3,028	70,832	2,134	285,864	5,162
Corporate		618,353	13,761	412,537	18,226	1,030,890	31,987
Mortgage-backed		616,184	9,396	426,583	15,696	1,042,767	25,092
Asset-backed		14,208	46	25,191	2,314	39,399	2,360
Debt securities		1,640,421	28,788	1,049,200	42,846	2,689,621	71,634
Equity securities		375	26	3,236	168	3,611	194
Total temporarily
impaired securities	$	1,640,796	28,814	1,052,436	43,014	2,693,232	71,828

Debt securities. The gross unrealized losses for debt securities are made up of 310 individual issues, or 45% of the total debt securities held by the Company. The market value of these bonds as a percent of amortized cost averages above 97.4%. Of the 310 securities, 125, or approximately 40%, fall in the 12 months or greater aging category; of the debt securities 291 were rated investment grade at December 31, 2005. Additional information on debt securities by investment category is summarized below.

U.S. treasury and U.S. government corporations and agencies. The unrealized losses on these investments were caused by interest rate volatility. The contractual terms of these investments do not permit the issuer to settle the securities at a price less than amortized cost, and the Company has the ability and intent to hold these investments until a recovery of fair value, which may be maturity. All of these securities are rated AAA. The Company does not consider these investments to be other than temporarily impaired at December 31, 2005.

State and political subdivisions. The unrealized losses on these investments are the result of holdings in eleven securities. Of these securities, only two are in an unrealized loss position for greater than 12 months, for which the prices of these securities have increased an average of 11% since last year. Based on these facts and the Company's intent to hold to maturity, no other-than-temporary loss was recognized as of December 31, 2005.

Foreign government. Only one security is reflected in this category. This investment grade premium bond is priced above $100.00. At this time the Company considers this unrealized loss as temporary.

Public utilities. The market value as a percent of the amortized cost is above 93% for each individual security. Of the 46 securities all are rated BBB or above except one, which, though rated below investment grade, is priced at $98.75. At this time, the Company does not consider any of these unrealized losses as other-than-temporary.

Corporate bonds. A total of 125 securities fall into this category with only twelve rated below investment grade. Of the 113 that are investment grade, all have a market value as a percent of amortized cost of at least 90%. Of those rated below investment grade, one security has been written down due to other-than-temporary impairment. Of the remaining securities all have been reviewed based on the monitoring procedures described previously including review of credit ratings, analyst reports, and issuer information and are not considered other-than-temporarily impaired at December 31, 2005.

Mortgage-backed securities. These securities are all rated AAA and priced at $92.00 or above. The Company purchased these investments at a discount relative to their face amount and it is expected that the securities will not be settled at a price less than the stated par. Because the decline in market value is attributable to changes in interest rates and not credit quality, and because the Company has the ability and intent to hold these securities until a recovery of fair value, which may be maturity, the Company does not consider these investments to be other-than-temporarily impaired at December 31, 2005.

Asset-backed securities. Of these securities, four are priced above $97.00 and are not considered impaired. The other four securities are all monitored under EITF 99-20 or SOP 03-3 impairment guidance and based on the cash flow analysis only one security was impaired during the first quarter of 2005.

Equity securities. The gross unrealized losses for equity securities are made up of sixteen individual issues. These holdings are reviewed for impairment quarterly. As of December 31, 2005, no impairment is deemed necessary.

The following table shows the gross unrealized losses and fair values of the Company's investments by investment category and length of time the individual securities have been in a continuous unrealized loss position at December 31, 2004.

		Less than 12 Months		12 Months or Greater		Total
		Fair	Unrealized	Fair	Unrealized	Fair	Unrealized
		Value	Losses	Value	Losses	Value	Losses
Debt Securities:		(In thousands)
U.S. government
agencies	$	5,349	88	128,161	2,268	133,510	2,356
State and political
subdivisions		-	-	1,958	542	1,958	542
Public utilities		37,165	282	38,485	764	75,650	1,046
Corporate		193,183	3,862	240,849	9,261	434,032	13,123
Mortgage-backed		177,606	2,098	262,925	5,544	440,531	7,642
Asset-backed		9,856	123	23,467	2,484	33,323	2,607
Debt securities		423,159	6,453	695,845	20,863	1,119,004	27,316
Equity securities		3,047	106	499	68	3,546	174
Total temporarily
impaired securities	$	426,206	6,559	696,344	20,931	1,122,550	27,490

The amortized cost and fair value of investments in debt securities at December 31, 2005, by contractual maturity, are shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

		Debt Securities		Debt Securities
		Available for Sale		Held to Maturity
		Amortized	Fair	Amortized	Fair
		Cost	Value	Cost	Value
		(In thousands)
Due in 1 year or less	$	88,927	91,509	183,705	185,981
Due after 1 year through 5 years		258,302	265,215	335,302	351,189
Due after 5 years through 10 years		945,221	945,986	1,016,843	1,018,815
Due after 10 years		121,603	124,110	409,917	403,489
		1,414,053	1,426,820	1,945,767	1,959,474
Mortgage and asset-backed securities		299,343	297,612	1,578,957	1,564,519
Total	$	1,713,396	1,724,432	3,524,724	3,523,993

The Company uses the specific identification method in computing realized gains and losses. Proceeds from sales of securities available for sale during 2005, 2004, and 2003 totaled $29.2 million, $49.8 million, and $53.4 million, respectively. Gross gains and losses realized on those sales are detailed below.

		Years Ended December 31,
		2005	2004	2003
		(In thousands)
Gross realized gains	$	3,930	2,600	3,209
Gross realized losses		(255)	(451)	(2,494)
Net realized gains	$	3,675	2,149	715

Due to a significant decline in credit quality, the Company transferred debt securities totaling $7.0 million in 2005 and $35.9 million in 2004 from held to maturity to the available for sale portfolio. Net unrealized gains of $0.2 million in both 2005 and 2004, related to these transferred securities are included as a separate component of accumulated other comprehensive income. Due to significant credit deterioration, bonds from the held to maturity portfolio were sold during 2005, 2004, and 2003. The amortized cost of these bonds sold totaled $10.0 million, $8.1 million, and $4.0 million, which resulted in realized gains of $0.9 million, $0.6 million, and $0.2 million for 2005, 2004, and 2003, respectively.

Except for U.S. government agency mortgage-backed securities, the Company had no other investments in any entity in excess of 10% of stockholders' equity at December 31, 2005 or 2004.

(E) Transfers of Securities

On January 1, 2001, the Company made transfers totaling $112 million to the held to maturity category from securities available for sale. Lower holdings of securities available for sale significantly reduce the Company's exposure to equity volatility while still providing securities for liquidity and asset/liability management purposes. The transfers of securities were recorded at fair values in accordance with SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities. This Statement requires that the unrealized holding gain or loss at the date of the transfer continue to be reported in a separate component of stockholders' equity and be amortized over the remaining life of the security as an adjustment of yield in a manner consistent with the amortization of any premium or discount. The amortization of an unrealized holding gain or loss reported in equity will offset or mitigate the effect on interest income of the amortization of the premium or discount for the held to maturity securities. The transfer of securities from available for sale to held to maturity had no effect on net earnings of the Company. However, stockholders' equity was adjusted as follows:

		Net Unrealized Gains (Losses)
		as of December 31,
		2005	2004	2003
		(In thousands)
Beginning unamortized losses from transfers	$	(122)	(367)	(540)
Amortization of net unrealized losses related
to transferred securities, net of effects of
deferred costs and taxes		18	245	173
Ending unamortized losses from transfers	$	(104)	(122)	(367)

(F) Net Unrealized Gains on Available for Sale Securities

Net unrealized gains on investment securities included in stockholders' equity at December 31, 2005 and 2004, are as follows:

		December 31,
		2005	2004
		(In thousands)
Gross unrealized gains	$	43,569	79,271
Gross unrealized losses		(25,094)	(11,468)
Adjustments for:
Deferred costs		(2,314)	(29,105)
Deferred Federal income tax expense		(5,656)	(13,544)
		10,505	25,154
Net unrealized losses related to securities
transferred to held to maturity		(104)	(122)
Net unrealized gains on investment securities	$	10,401	25,032

(4) REINSURANCE

Effective January 1, 2004, the Company began reinsuring any risk on any one life in excess of $250,000, subject to a minimum session of $50,000. The Company's general policy prior to December 31, 2003 was to reinsure that portion of any risk in excess of $200,000 on the life of any one individual. The Company is party to several reinsurance agreements. Total life insurance in force was $14.7 billion and $13.8 billion at December 31, 2005 and 2004, respectively. Of these amounts, life insurance in force totaling $3.5 billion and $3.0 billion was ceded to reinsurance companies, primarily on a yearly renewable term basis, at December 31, 2005 and 2004, respectively. In accordance with the reinsurance contracts, reinsurance receivables including amounts related to claims incurred but not reported and liabilities for future policy benefits totaled $9.7 million and $7.2 million at December 31, 2005 and 2004, respectively. Premiums and contract revenues were reduced by $12.3 million, $13.0 million, and $12.1 million for reinsurance premiums incurred during 2005, 2004, and 2003, respectively. Benefit expenses were reduced by $8.2 million, $6.4 million, and $8.6 million, for reinsurance recoveries during 2005, 2004, and 2003, respectively. A contingent liability exists with respect to reinsurance, as the Company remains liable if the reinsurance companies are unable to meet their obligations under the existing agreements. The Company does not assume reinsurance.

(5) FEDERAL INCOME TAXES

Total Federal income taxes for 2005, 2004, and 2003 were allocated as follows:

		Years Ended December 31,
		2005	2004	2003
		(In thousands)
Taxes (benefits) on earnings from continuing operations:
Current	$	32,874	34,441	31,492
Deferred		6,744	131	(4,165)
Taxes on earnings before cumulative effect of
change in accounting principle		39,618	34,572	27,327
Taxes on cumulative effect of change in accounting
principle		-	29,452	-
Taxes on earnings		39,618	64,024	27,327
Taxes (benefits) on components of stockholders' equity:
Net unrealized gains and losses on
securities available for sale		(7,879)	1,381	7,615
Foreign currency translation adjustments		70	(69)	26
Minimum pension liability adjustment		(191)	(254)	120
Tax benefit from exercise of stock options		(1,170)	(1,186)	(382)
Total Federal income taxes	$	30,448	63,896	34,706

The provisions for Federal income taxes attributable to earnings from continuing operations vary from amounts computed by applying the statutory income tax rate to earnings before Federal income taxes. The reasons for the differences and the corresponding tax effects are as follows:

		Years Ended December 31,
		2005	2004	2003
		(In thousands)
Income tax expense at statutory rate	$	40,910	35,715	29,088
Tax-exempt income		(1,719)	(1,594)	(1,539)
Amortization of life interest in the
Libbie Shearn Moody Trust		108	107	106
Non-deductible travel and entertainment		115	146	78
Other		204	198	(406)
Taxes on earnings from continuing operations	$	39,618	34,572	27,327

There were no deferred taxes attributable to enacted tax rate changes for the years ended December 31, 2005, 2004, and 2003.

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 2005 and 2004 are presented below.

		December 31,
		2005	2004
	(In thousands)
Deferred tax assets:
Future policy benefits, excess of financial
accounting liabilities over tax liabilities	$	187,388	179,914
Debt securities writedowns for financial
accounting purposes		8,436	8,831
Capital loss carryforward		152	3,512
Minimum pension liability adjustment		1,689	1,498
Real estate, principally due to writedowns
for financial accounting purposes		1,409	1,209
Accrued operating expenses recorded for financial
accounting purposes not currently tax deductible		746	458
Mortgage loans, principally due to valuation
allowances for financial accounting purposes		-	307
Accrued and unearned investment income
recognized for tax purposes and deferred for
financial accounting purposes		223	298
Other		288	468
Total gross deferred tax assets		200,331	196,495
Deferred tax liabilities:
Deferred policy acquisition and sales inducement
costs, principally expensed for tax purposes		(223,576)	(215,009)
Net unrealized gains on securities available for sale		(5,600)	(13,479)
Debt securities, principally due to deferred
market discount for tax		(3,492)	(4,138)
Foreign currency translation adjustments		(2,781)	(1,706)
Real estate, principally due to differences in tax and
financial accounting for depreciation		(529)	(529)
Other		(2,088)	(388)
Total gross deferred tax liabilities		(238,066)	(235,249)
Net deferred tax liabilities	$	(37,735)	(38,754)

There was no valuation allowance for deferred tax assets at December 31, 2005 and 2004. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based upon the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible, management believes it is more likely than not that the Company will realize the benefits of these deductible differences.

Prior to the Tax Reform Act of 1984 ("1984 Act"), a portion of a life insurance company's income was not subject to tax until it was distributed to stockholders, at which time it was taxed at the regular corporate tax rate. In accordance with the 1984 Act, this income, referred to as policyholders' surplus, would not increase, yet any amounts distributed would be taxable at the regular corporate rate. The balance of this account as of December 31, 2005 is approximately $1.3 million. No provision for income taxes has been made on this untaxed income, as management is of the opinion that no taxable distribution to stockholders will be made from policyholders' surplus in the foreseeable future. Should the balance in the policyholders' surplus account at December 31, 2005 become taxable, the Federal income taxes computed at present rates would be approximately $0.4 million. A provision of the Jobs Creation Act of 2004 allows tax free distributions from the policyholders' surplus account during 2005 and 2006 and the Company may elect to make distributions from the policyholders' surplus account to take advantage of this provision.

The Company files a consolidated Federal income tax return with its subsidiaries. Allocation of the consolidated tax liability is based on separate return calculations pursuant to the "wait-and-see" method as described in sections 1.1552-1(a)(1) and 1.1502-33(d)(2) of the current Treasury Regulations. Under this method, consolidated group members are not given current credit for net losses until future net taxable income is generated to realize such credits.

(6) TRANSACTIONS WITH CONTROLLING STOCKHOLDER AND AFFILIATES

(A) Life Interest in Libbie Shearn Moody Trust

The Company's wholly owned subsidiary, NWL Services, Inc., is the beneficial owner of a life interest (1/8 share) in the net income of the trust estate of Libbie Shearn Moody ("Trust") which was previously owned by Robert L. Moody, Chairman of the Board of Directors of the Company. The Company has issued term insurance policies on the life of Mr. Moody which are reinsured through agreements with unaffiliated insurance companies. The Company is the beneficiary of these policies for an amount equal to the statutory admitted value of the Trust, which was $12.8 million at December 31, 2005. The excess of the $27.0 million face amount of the reinsured policies over the statutory admitted value of the Trust has been assigned to Mr. Moody. The recorded net asset values in the accompanying consolidated financial statements for the life interest in the Trust are as follows:

		December 31,
		2005	2004
		(In thousands)
Original valuation of life interest at February 26, 1960	$	13,793	13,793
Less accumulated amortization		(11,546)	(11,238)
Carrying basis at year end	$	2,247	2,555

Income from the Trust and related expenses reflected in the accompanying consolidated statements of earnings are summarized as follows:

		Years Ended December 31,
		2005	2004	2003
		(In thousands)
Income distributions	$	3,915	3,738	3,735
Deduct:
Amortization		(308)	(306)	(303)
Reinsurance premiums		(807)	(701)	(606)
Net income from life interest in the Trust	$	2,800	2,731	2,826

(B) Common Stock

Robert L. Moody, Chairman of the Board of Directors, owns 198,074 of the total outstanding shares of the Company's Class B common stock and 1,159,096 of the Class A common stock as of December 31, 2005.

Holders of the Company's Class A common stock elect one-third of the Board of Directors of the Company, and holders of the Class B common stock elect the remainder. Any cash or in-kind dividends paid on each share of Class B common stock shall be only one-half of the cash or in-kind dividends paid on each share of Class A common stock. Also, in the event of liquidation of the Company, the Class A stockholders shall first receive the par value of their shares; then the Class B stockholders shall receive the par value of their shares; and the remaining net assets of the Company shall be divided between the stockholders of both Class A and Class B common stock, based on the number of shares held.

(7) PENSION AND OTHER POSTRETIREMENT PLANS

(A) Defined Benefit Pension Plans

The Company sponsors a qualified defined benefit pension plan covering substantially all employees. The plan provides benefits based on the participants' years of service and compensation. The Company makes annual contributions to the plan that comply with the minimum funding provisions of the Employee Retirement Income Security Act of 1974 ("ERISA"). Fair values of plan assets and liabilities are measured as of December 31 for the respective year. A detail of plan disclosures is provided below.

Obligations and Funded Status

		December 31,
		2005	2004
		(In thousands)
Changes in projected benefit obligations:
Projected benefit obligations at beginning of year	$	16,398	14,808
Service cost		685	591
Interest cost		974	925
Plan amendments		-	(26)
Actuarial loss		258	941
Benefits paid		(863)	(841)
Projected benefit obligations at end of year	$	17,452	16,398
Changes in plan assets:
Fair value of plan assets at beginning of year	$	11,779		11,266
Actual return on plan assets		274		594
Contributions		1,618		760
Benefits paid		(863)		(841)
Fair value of plan assets at end of year	$	12,808		11,779

		December 31,
		2005	2004
		(In thousands)
Funded Status:
As of the end of year	$	(4,644)	(4,619)
Unrecognized net actuarial loss		6,179	5,615
Unrecognized prior service cost		39	43
Net amount recognized	$	1,574	1,039
Amounts recognized in the company's consolidated
financial statements:
Prepaid benefit cost	$	1,574	1,039
Additional minimum liability		(4,865)	(4,324)
Intangible asset		39	43
Accumulated other comprehensive income		4,826	4,281
Net amount recognized	$	1,574	1,039

The accumulated benefit obligation was $16.1 million and $15.1 million at December 31, 2005 and 2004, respectively.

Components of Net Periodic Benefit Cost

		Years Ended December 31,
		2005	2004	2003
		(In thousands)
Components of net periodic benefit costs:
Service cost	$	685	591	486
Interest cost		974	925	875
Expected return on plan assets		(910)	(834)	(689)
Amortization of prior service cost		4	4	(19)
Amortization of net loss		331	283	274
Net periodic benefit cost	$	1,084	969	927

Assumptions

	December 31,
	2005		2004
Weighted-average assumptions used to determine
benefit obligations:
Discount rate	6.00	%	6.00	%
Rate of compensation increase	4.50	%	4.50	%

	December 31,
	2005		2004		2003
Weighted-average assumptions used to determine
net periodic benefit cost:
Discount rate	6.00	%	6.25	%	6.75	%
Expected long-term return on plan assets	7.50	%	7.50	%	7.50	%
Rate of compensation increase	4.50	%	4.50	%	4.50	%

The assumed long-term rate of return on plan assets is generally set at the rate expected to be earned based on long-term investment policy of the plan and the various classes of invested funds, based on the input of the plan's investment advisors and consulting actuary and the plan's historic rate of return. As of December 31, 2005, the plan's average 10-year and inception-to-date returns were 6.71% and 7.74%, respectively.

Plan Assets

The plan's weighted-average asset allocations by asset category are as follows:

	December 31,
	2005	2004	2003
Asset Category
Equity securities	57%	58%	57%
Debt securities	34%	34%	36%
Cash and cash equivalents	9%	8%	7%
Total	100%	100%	100%

The Company has established and maintains an investment policy statement for the assets held in the plan's trust. The investment strategies are of a long-term nature and are designed to meet the following objectives:

         - ensure that funds are available to pay benefits as they become due

         - set forth an investment structure detailing permitted assets and expected allocation ranges among classes

         - insure that plan assets are managed in accordance with ERISA

The investment policy statement sets forth the following acceptable ranges for each asset's class.

Asset Category	Acceptable Range
Equity securities	55-65%
Debt securities	30-40%
Cash	0-15%

Deviations from these ranges are permitted if such deviations are consistent with the duty of prudence under ERISA. Investments in natural resources, venture capital, precious metals, futures and options, real estate, and other vehicles which do not have readily available objective valuations are not permitted. Short sales, use of margin or leverage, and investment in commodities and art objects are also prohibited.

The investment policy statement is reviewed annually to insure that the objectives are met considering any changes in benefit plan design, market conditions, or other material considerations.

Contributions

The Company expects to contribute $1 million to the plan in 2006.

Estimated Future Benefit Payments

The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid (in thousands):

2006	$	914
2007		911
2008		992
2009		1,050
2010		1,123
2011-2015		6,439

The Company also sponsors three non-qualified defined benefit pension plans. The first plan covers certain senior officers and provides benefits based on the participants' years of service and compensation. The primary pension obligations and administrative responsibilities of the plan are maintained by a pension administration firm, which is a subsidiary of American National Insurance Company ("ANICO"). ANICO has guaranteed the payment of pension obligations under the plan. However, the Company has a contingent liability with respect to the pension plan should these entities be unable to meet their obligations under the existing agreements. Also, the Company has a contingent liability with respect to the plan in the event that a plan participant continues employment with the Company beyond age seventy, the aggregate average annual participant salary increases exceed 10% per year, or any additional employees become eligible to participate in the plan. If any of these conditions are met, the Company would be responsible for any additional pension obligations resulting from these items. Amendments were made to this plan to allow an additional employee to participate and to change the benefit formula for the Chairman of the Company. As previously mentioned, these additional obligations are a liability to the Company. Effective December 31, 2004, this plan was frozen with respect to the continued accrual of benefits of the Chairman and the President of the Company in order to comply with law changes under the American Jobs Creation Act of 2004 ("Act").

Effective July 1, 2005, the Company established a second non-qualified defined benefit plan for the benefit of the Chairman of the Company. This plan is intended to provide for post-2004 benefit accruals that mirror and supplement the pre-2005 benefit accruals under the previously discussed non-qualified plan, while complying with the requirements of the Act.

Effective November 1, 2005, the Company established a third non-qualified defined benefit plan for the benefit of the President of the Company. This plan in intended to provide for post-2004 benefit accruals that supplement the pre-2005 benefit accruals under the first non-qualified plan as previously discussed, while complying with the requirements of the Act.

A detail of plan disclosures related to the amendments of the original plan and the additional two plans is provided below:

Obligations and Funded Status

		December 31,
		2005	2004
		(In thousands)
Changes in projected benefit obligations:
Projected benefit obligations at beginning of year	$	3,525	2,626
Service cost		1,295	422
Interest cost		292	178
Plan amendments		4,629	-
Actuarial loss		(210)	535
Benefits paid		(561)	(236)
Projected benefit obligations at end of year	$	8,970	3,525
Change in plan assets:
Fair value of plan assets at beginning of year	$	-	-
Contributions		561	236
Benefits paid		(561)	(236)
Fair value of plan assets at end of year	$	-	-
Funded status:
As of the end of year	$	(8,970)	(3,525)
Unrecognized prior service cost		5,670	1,688
Unrecognized net actuarial loss		335	545
Net amount recognized	$	(2,965)	(1,292)
Amounts recognized in the Company's consolidated
financial statements:
Accrued benefit cost	$	(2,965)	(1,292)
Additional minimum liability		(3,073)	(1,377)
Intangible asset		3,073	1,377
Net amount recognized	$	(2,965)	(1,292)

The accumulated benefit obligation was $6.0 million and $2.6 million at December 31, 2005 and 2004, respectively.

Components of Net Periodic Benefit Cost

		Years Ended December 31,
		2005	2004	2003
		(In thousands)
Components of net periodic benefit cost:
Service cost	$	1,295	422	392
Interest cost		292	178	137
Amortization of prior service cost		647	291	291
Amortization of net loss		-	5	-
Net periodic benefit cost	$	2,234	896	820

Assumptions

	December 31,
	2005	2004
Weighted-average assumptions used to determine
benefit obligations:
Discount rate	6.00%	6.00%
Rate of compensation increase	4.00%	4.00%

	December 31,
	2005	2004	2003
Weighted-average assumptions used to determine
net periodic benefit costs:
Discount rate	6.00%	6.25%	6.75%
Expected long-term return on plan assets	n/a	n/a	n/a
Rate of compensation increase	4.00%	4.00%	4.00%

The plan is unfunded and therefore no assumption has been made related to the expected long-term return on plan assets.

Plan Assets

The plan is unfunded and therefore had no assets at December 31, 2005 or 2004.

Contributions

The Company expects to contribute $1 million to the plan in 2006.

Estimated Future Benefit Payments

The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid (in thousands):

2006	$	1,012
2007		1,290
2008		1,598
2009		1,713
2010		1,710
2011-2015		8,532

(B) Defined Contribution Pension Plans

In addition to the defined benefit pension plans, the Company sponsors a qualified 401(k) plan for substantially all employees and a non-qualified deferred compensation plan primarily for senior officers. The Company makes annual contributions to the 401(k) plan of two percent of each employee's compensation. Additional Company matching contributions of up to two percent of each employee's compensation are also made each year based on the employee's personal level of salary deferrals to the plan. All Company contributions are subject to a vesting schedule based on the employee's years of service. For the years ended December 31, 2005, 2004, and 2003, Company contributions totaled $410,000, $398,000, and $394,000, respectively.

The non-qualified deferred compensation plan was established to allow eligible employees to defer the payment of a percentage of their compensation and to provide for additional Company contributions. Company contributions are subject to a vesting schedule based on the employee's years of service. For the years ended December 31, 2005, 2004, and 2003, Company contributions totaled $50,000, $78,000, and $96,000, respectively.

(C)  Defined Benefit Postretirement Plans

The Company sponsors two health care plans that were amended in 2004 to provide postretirement benefits to certain fully-vested individuals. The plans are unfunded. The Company uses a December 31 measurement date for the plans. A detail of plan disclosures related to these plans is provided below:

Obligations and Funded Status

		December 31,
		2005	2004
Changes in projected benefit obligations:
Projected benefit obligations at beginning of year	$	1,671	1,598
Interest cost		95	95
Actuarial gain		(3)	(15)
Benefits paid		(17)	(7)
Projected benefit obligations at end of year	$	1,746	1,671
Changes in plan assets:
Fair value of plan assets at beginning of year	$	-	-
Contributions		17	7
Benefits paid		(17)	(7)
Fair value of plan assets at end of year	$	-	-
Funded status:
As of the end of year	$	(1,746)	(1,671)
Unrecognized prior service cost		1,392	1,495
Unrecognized net actuarial gain		(23)	(15)
Net amount recognized	$	(377)	(191)
Components of Net Periodic Benefit Cost
		December 31,
		2005	2004
		(In thousands)
Components of net periodic benefit cost:
Interest cost	$	100	95
Amortization of transition obligation		103	103
Net periodic benefit cost	$	203	198

Assumptions

A weighted-average discount rate assumption of 6% was used to determine benefit obligations and net periodic benefit cost as of and for the years ended December 31, 2005 and 2004. No assumption was made related to the expected long-term return on plan assets as the plan is unfunded.

For measurement purposes, an 8% annual rate of increase in the per capita cost of covered health care benefits was assumed for 2006 and future years.

Assumed health care trend rates have a significant effect on the amounts reported for the health care plans. A 1% point change in assumed health care cost trend rates would have the following effects for the years ended December31:

		2005		2004
		1% Point	1% Point	1% Point	1% Point
		Increase	Decrease	Increase	Decrease
		(In thousands)
Effect on total of service and interest
cost components	$	28	(20)	27	(20)
Effect on postretirement benefit obligation	$	503	(346)	477	(353)

Plan Assets

The plans are unfunded and therefore had no assets at December 31, 2005 and 2004.

Contributions

The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid (in thousands):

2006	$	26
2007		28
2008		31
2009		33
2010		36
2011-2015		226

(8) SHORT-TERM BORROWINGS

The Company has available a $40 million bank line of credit primarily for cash management purposes relating to investment transactions. The Company is required to maintain a collateral security deposit in trust with the sponsoring bank equal to 120% of any outstanding liability. The Company had no outstanding liabilities or collateral security deposits with the bank at December 31, 2005 or 2004.

(9) COMMITMENTS AND CONTINGENCIES

(A) Legal Proceedings

The Company reached a settlement agreement with a class of plaintiffs who had challenged bonus interest rates on certain Company annuity products. The Company vigorously defended the case and denied liability for the claims asserted by the plaintiff in reaching the settlement. The fairness of the settlement agreement was granted final approval by the Court on February 18, 2004. There were no objectors and the order approving the settlement is final and non-appealable. The settlement resulted in a $9.7 million pre-tax charge against 2003 earnings from operations, which represented the maximum settlement fund liability. During 2004, final payments were made to policyholders that opted to participate in this settlement resulting in cash payments totaling $3.2 million pre-tax and an increase of $2.3 million to existing contractholder account balances. Thus, final settlement totaled approximately $5.5 million pre-tax compared to the $9.7 million initially recorded.

On August 26, 2004, the Company entered into an agreement to settle a lawsuit concerning an investment made by the Company more than ten years ago. The investment was sold in 1997. As the result of this settlement, the Company received $2.2 million, which is included in the Company's revenues and pre-tax earnings for the quarter ending September 30, 2004; the lawsuit has been dismissed with prejudice. The lawsuit had been pending for several years, and the costs incurred by the Company in prosecuting the lawsuit have previously been included in the Company's financial statements as such costs were incurred under the category "other operating expenses".

In the course of an audit of a charitable tax-exempt foundation, the Internal Revenue Service ("IRS") raised an issue under the special provisions of the Internal Revenue Code ("IRC") governing tax-exempt private foundations as to certain interest-bearing loans from the Company to another corporation in which the tax-exempt foundation owns stock. The issue is whether such transactions constitute indirect self-dealing by the foundation, the result of which would be excise taxes on the Company by virtue of its participation in such transactions. By letter to the Company dated August 21, 2003, the IRS proposed an initial excise tax liability in the total amount approximating one million dollars as a result of such transactions. The Company disagrees with the IRS analysis. The Company is contesting the matter and expects to prevail on the merits. On October 14, 2003, in response to the IRS letter, the Company requested that this issue instead be referred to the IRS National Office for technical advice. The IRS audit team agreed and the matter was referred in November of 2003 to the IRS National Office. Such technical advice when issued by the IRS National Office will be in the form of a memorandum analyzing the issue which will be binding on the IRS audit team.

The Company is a defendant in several class action lawsuits, however no class has been certified to date on any of these suits. Management believes that the Company has good and meritorious defenses and intends to vigorously defend itself against these claims.

The Company is involved or may become involved in various other legal actions, in the normal course of business, in which claims for alleged economic and punitive damages have been or may be asserted, some for substantial amounts. Although there can be no assurances, at the present time, the Company does not anticipate that the ultimate liability arising from potential, pending, or threatened legal actions, will have a material adverse effect on the financial condition or operating results of the Company.

(B) Financial Instruments

In order to meet the financing needs of its customers in the normal course of business, the Company is a party to financial instruments with off-balance sheet risk. These financial instruments are commitments to extend credit which involve elements of credit and interest rate risk in excess of the amounts recognized in the consolidated balance sheet.

The Company's exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit is represented by the contractual amounts, assuming that the amounts are fully advanced and that collateral or other security is of no value. Commitments to extend credit are legally binding agreements to lend to a customer that generally have fixed expiration dates or other termination clauses and may require payment of a fee. Commitments do not necessarily represent future liquidity requirements, as some could expire without being drawn upon. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments. The Company controls the credit risk of these transactions through credit approvals, limits, and monitoring procedures. The Company had commitments to extend credit relating to mortgage loans totaling $1.8 million at December 31, 2005. The Company evaluates each customer's creditworthiness on a case-by-case basis.

(C) Guaranty Association Assessments

The Company is subject to state guaranty association assessments in all states in which it is licensed to do business. These associations generally guarantee certain levels of benefits payable to resident policyholders of insolvent insurance companies. Many states allow premium tax credits for all or a portion of such assessments, thereby allowing potential recovery of these payments over a period of years. However, several states do not allow such credits.

The Company estimates its liabilities for guaranty association assessments by using the latest information available from the National Organization of Life and Health Insurance Guaranty Associations. The Company monitors and revises its estimates for assessments as additional information becomes available which could result in changes to the estimated liabilities. As of December 31, 2005 and 2004, liabilities for guaranty association assessments totaled $2.1 million and $2.2 million, respectively. Other operating expenses related to state guaranty association assessments were minimal for the years ended December 31, 2005, 2004, and 2003.

(D) Leases

The Company leases its executive office building and various computer and other office related equipment under operating leases. Rental expenses for these leases for the years ended December 31, 2005, 2004, and 2003 were $0.9 million, $1.0 million, and $1.2 million, respectively. Total future annual lease obligations as of December 31, 2005, are as follows (in thousands):

2006	$	817
2007		808
2008		650
2009		650
2010		217
2011 and thereafter, in aggregate		-
Total	$	3,142

(10) STOCKHOLDERS' EQUITY

(A) Changes in Common Stock Shares Outstanding

Details of changes in shares of common stock outstanding are provided below.

	Years Ended December 31,
	2005	2004	2003
	(In thousands)
Common stock shares outstanding:
Shares outstanding at beginning of year	3,584	3,547	3,525
Shares exercised under stock option plan	29	37	22
Shares outstanding at end of year	3,613	3,584	3,547

(B) Dividend Restrictions

The Company is restricted by state insurance laws as to dividend amounts which may be paid to stockholders without prior approval from the Colorado Division of Insurance. The restrictions are based on statutory earnings and surplus levels of the Company. The maximum dividend payment which may be made without prior approval in 2006 is $59.7 million. On October 21, 2005, the Board of Directors of the Company declared a cash dividend to stockholders on record November 1, 2005 and payable November 30, 2005. The dividends approved were $0.34 per common share to Class A stockholders and $0.17 per common share to Class B stockholders.

(C) Regulatory Capital Requirements

The Colorado Division of Insurance imposes minimum risk-based capital requirements on insurance companies that were developed by the National Association of Insurance Commissioners ("NAIC"). The formulas for determining the amount of risk-based capital ("RBC") specify various weighting factors that are applied to statutory financial balances or various levels of activity based on the perceived degree of risk. Regulatory compliance is determined by a ratio of the Company's regulatory total adjusted capital to its authorized control level RBC, as defined by the NAIC. Companies below specific trigger points or ratios are classified within certain levels, each of which requires specified corrective action. The Company's current statutory capital and surplus is significantly in excess of all RBC requirements.

(D) Stock and Incentive Plan

The Company has a stock and incentive plan which provides for the grant of any or all of the following types of awards to eligible employees: (1) stock options, including incentive stock options and nonqualified stock options; (2) stock appreciation rights, in tandem with stock options or freestanding; (3) restricted stock; (4) incentive awards; and (5) performance awards. The plan began on April 21, 1995, and was to terminate on April 20, 2005, unless terminated earlier by the Board of Directors. The plan was amended on June 25, 2004 to extend the termination date to April 20, 2010. The number of shares of Class A, $1.00 par value, common stock which may be issued under the plan, or as to which stock appreciation rights or other awards may be granted, may not exceed 300,000. These shares may be authorized and unissued shares or treasury shares.

All of the employees of the Company and its subsidiaries are eligible to participate in the plan. In addition, directors of the Company, other than Compensation and Stock Option Committee members, are eligible for restricted stock awards, incentive awards, and performance awards. Company directors, including members of the Compensation and Stock Option Committee, are eligible for nondiscretionary stock options.

Nonqualified stock options were not issued in 2005 or 2003. The Committee approved the issuance of nonqualified stock options to selected officers of the Company during 2004 totaling 56,750. Additionally, during 2004 the Committee granted 10,000 nonqualified, nondiscretionary stock options to Company directors. The directors' stock options vest 20% annually following one full year of service to the Company from the date of grant. The officers' stock options vest 20% annually following three full years of service to the Company from the date of grant. The exercise prices of the stock options were set at the fair market values of the common stock on the dates of grant. A summary of shares available for grant and stock option activity is detailed below.

		Options Outstanding
	Shares			Weighted-
	Available			Average
	For Grant	Shares		Exercise Price
Balance at December 31, 2002	84,657	181,771	$	80.95
Stock Options:
Exercised	-	(21,748)		67.75
Forfeited	850	(850)		95.99
Balance at December 31, 2003	85,507	159,173		82.67
Stock Options:
Granted	(66,750)	66,750		150.00
Exercised	-	(37,530)		66.55
Forfeited	1,530	(1,530)		94.83
Balance at December 31, 2004	20,287	186,863		109.86
Stock Options:
Exercised	-	(28,984)		67.38
Forfeited	920	(920)		123.58
Balance at December 31, 2005	21,207	156,959	$	117.62

A summary of vested and exercisable options and weighted-average exercise prices is detailed below.

	Years Ended December 31,
	2005	2004	2003
Vested and exercisable options	68,023	77,489	91,790
Weighted-average exercise prices	96.21	83.55	73.44

The following table summarizes information about stock options outstanding at December 31, 2005.

		Options Outstanding
			Weighted-
		Number	Average	Options
		Outstanding	Remaining Life	Exercisable
Exercise prices:
$	65.00	7,804	0.3	7,804
	85.13	11,581	1.3	11,581
	105.25	23,830	2.3	23,830
	112.38	6,800	2.5	6,800
	92.13	33,494	5.3	10,608
	95.00	7,400	5.5	5,600
	150.00	66,050	8.4	1,800
Totals		156,959		68,023

Compensation cost related to stock options of $647,000, $637,000, and $390,000, net of taxes, was recognized in the Company's financial statements for the years ended December 31, 2005, 2004, and 2003, respectively, under the fair value based method of accounting for stock-based employee compensation. In estimating the fair value of the options granted in 2004, the Company employed the Black-Scholes option pricing model with weighted-average assumptions as detailed below.

Risk-free interest rates	3.9%
Dividend yields	-
Volatility factors	26.0%
Weighted-average expected life	6.7 years
Weighted-average fair value per share	$54.48

(11) EARNINGS PER SHARE

Earnings per share amounts for the Company are presented using two different computations. Basic earnings per share excludes dilutive effects of certain securities or contracts, such as stock options, and is computed by dividing income available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity. Stock options not included in the weighted average number of diluted shares because such shares would have been anti-dilutive were immaterial. The following table sets forth the computations of basic and diluted earnings per share.

		Years Ended December 31,
		2005	2004	2003
		(In thousands except per share amounts)
Numerator for Basic and Diluted Earnings Per Share:
Earnings from continuing operations
available to common stockholders
before and after assumed conversions:
Earnings before cumulative effect of change
in accounting principle	$	77,267	67,472	55,782
Cumulative effect of change in accounting principle		-	54,697	-
Net earnings	$	77,267	122,169	55,782
Denominator:
Basic earnings per share -
weighted-average shares		3,603	3,565	3,535
Effect of dilutive stock options		35	38	30
Diluted earnings per share -
adjusted weighted-average shares
for assumed conversions		3,638	3,603	3,565
Basic Earnings Per Share:
Earnings before cumulative effect of change
in accounting principle	$	21.45	18.93	15.78
Cumulative effect of change in accounting principle		-	15.34	-
Net earnings	$	21.45	34.27	15.78
Diluted Earnings Per Share:
Earnings before cumulative effect of change
in accounting principle	$	21.24	18.73	15.64
Cumulative effect of change in accounting principle		-	15.18	-
Net earnings	$	21.24	33.91	15.64

(12) COMPREHENSIVE INCOME

SFAS No. 130, Reporting Comprehensive Income establishes standards for reporting and display of comprehensive income and its components (revenues, expenses, gains, and losses) in a full set of general-purpose financial statements. This Statement requires that all items required to be recognized under accounting standards as components of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements. This statement requires that an enterprise (a) classify items of other comprehensive income by their nature in a financial statement and (b) display the accumulated balance of other comprehensive income separately from retained earnings and additional paid-in capital in the equity section of a statement of financial position.

SFAS No. 130 affects the Company's reporting presentation of certain items such as foreign currency translation adjustments, unrealized gains and losses on investment securities, and minimum pension liabilities. These items are reflected as components of other comprehensive income, as reported in the accompanying consolidated financial statements. Components of other comprehensive income and the related tax effect are provided below for 2005, 2004, and 2003.

		Amounts	Tax	Amounts
		Before	(Expense)	Net of
		Taxes	Benefit	Taxes
		(In thousands)
2005:
Unrealized gains (losses) on securities, net of effects
of deferred costs of $(26,704):
Net unrealized holding losses
arising during period	$	(20,919)	7,322	(13,597)
Reclassification adjustment for net
gains included in net earnings		(1,930)	676	(1,254)
Amortization of net unrealized losses
related to transferred securities		28	(10)	18
Unrealized gains on securities transferred
during period from held to maturity
to available for sale		311	(109)	202
Net unrealized losses on securities		(22,510)	7,879	(14,631)
Foreign currency translation adjustments		200	(70)	130
Minimum pension liability adjustment		(545)	191	(354)
Other comprehensive income (loss)	$	(22,855)	8,000	(14,855)
2004:
Unrealized gains (losses) on securities, net of effects
of deferred costs of $92:
Net unrealized holding gains
arising during period	$	2,467	(864)	1,603
Reclassification adjustment for net
losses included in net earnings		846	(296)	550
Amortization of net unrealized losses
related to transferred securities		377	(132)	245
Unrealized gains on securities transferred
during period from held to maturity
to available for sale		256	(89)	167
Net unrealized gains on securities		3,946	(1,381)	2,565
Foreign currency translation adjustments		(196)	69	(127)
Minimum pension liability adjustment		(726)	254	(472)
Other comprehensive income	$	3,024	(1,058)	1,966
		Amounts	Tax	Amounts
		Before	(Expense)	Net of
		Taxes	Benefit	Taxes
		(In thousands)
2003:
Unrealized gains (losses) on securities, net of effects
of deferred costs of $23,758:
Net unrealized holding gains
arising during period	$	17,964	(6,287)	11,677
Reclassification adjustment for net
losses included in net earnings		3,380	(1,183)	2,197
Amortization of net unrealized losses
related to transferred securities		266	(93)	173
Unrealized losses on securities transferred
during period from held to maturity
to available for sale		148	(52)	96
Net unrealized gains on securities		21,758	(7,615)	14,143
Foreign currency translation adjustments		74	(26)	48
Minimum pension liability adjustment		344	(120)	224
Other comprehensive income	$	22,176	(7,761)	14,415

(13) SEGMENT AND OTHER OPERATING INFORMATION

(A) Operating Segment Information

Under SFAS No. 131, Disclosures About Segments of an Enterprise and Related Information, the Company defines its reportable operating segments as domestic life insurance, international life insurance, and annuities. The Company's segments are organized based on product types and geographic marketing areas. In addition, the Company regularly evaluates operating performance using non-GAAP financial measures which exclude or segregate realized investment gains and losses from operating revenues and earnings. The Company believes that the presentation of these non-GAAP financial measures enhances the understanding of the Company's results of operations by highlighting the results from ongoing operations and the underlying profitability factors of the Company's business. The Company excludes or segregates realized investment gains and losses because such items are often the result of events which may or may not be at the Company's discretion and the fluctuating effects of these items could distort trends in the underlying profitability of the Company's business.

A summary of segment information, prepared in accordance with SFAS No. 131, is provided below.

		Domestic	International
		Life	Life		All
		Insurance	Insurance	Annuities	Others	Totals
		(In thousands)
2005:
Selected Balance Sheet Items:
Deferred policy acquisition
costs and sales inducements	$	46,055	164,989	489,535	-	700,579
Total segment assets		366,939	631,477	5,256,146	94,064	6,348,626
Future policy benefits		307,730	444,513	4,563,676	-	5,315,919
Other policyholder liabilities		10,135	16,936	73,486	-	100,557
Condensed Income Statements:
Premiums and contract
revenues	$	22,172	70,379	18,816	-	111,367
Net investment income		19,958	23,123	258,485	8,647	310,213
Other income		35	75	588	8,881	9,579
Total revenues		42,165	93,577	277,889	17,528	431,159
Life and other policy benefits		14,932	21,232	2,998	-	39,162
Amortization of deferred
policy acquisition costs		5,798	20,389	61,768	-	87,955
Universal life and investment
annuity contract interest		8,842	18,118	123,732	-	150,692
Other operating expenses		8,349	13,359	17,019	7,622	46,349
Federal income taxes		1,435	6,920	24,457	3,347	36,159
Total expenses		39,356	80,018	229,974	10,969	360,317
Segment earnings	$	2,809	13,559	47,915	6,559	70,842
2004:
Selected Balance Sheet Items:
Deferred policy acquisition
costs and sales inducements	$	46,007	145,756	452,695	-	644,458
Total segment assets		361,176	568,723	4,960,837	84,481	5,975,217
Future policy benefits		301,552	405,490	4,319,816	-	5,026,858
Other policyholder liabilities		10,139	9,748	55,350	-	75,237
Condensed Income Statements:
Premiums and contract
revenues	$	23,324	64,239	15,975	-	103,538
Net investment income		20,283	22,821	266,151	6,588	315,843
Other income		509	790	1,701	8,259	11,259
Total revenues		44,116	87,850	283,827	14,847	430,640
Life and other policy benefits		15,141	16,626	2,846	-	34,613
Amortization of deferred
policy acquisition costs		9,098	21,837	57,798	-	88,733
Universal life and investment
annuity contract interest		8,585	18,631	146,099	-	173,315
Other operating expenses		7,479	12,418	8,353	7,191	35,441
Federal income taxes		1,291	6,205	23,258	2,590	33,344
Total expenses		41,594	75,717	238,354	9,781	365,446
Segment earnings	$	2,522	12,133	45,473	5,066	65,194
		Domestic	International
		Life	Life		All
		Insurance	Insurance	Annuities	Others	Totals
		(In thousands)
2003:
Selected Balance Sheet Items:
Deferred policy acquisition
costs and sale inducements	$	51,165	131,002	417,228	-	599,395
Total segment assets		358,697	516,604	4,329,777	77,524	5,282,602
Future policy benefits		299,560	369,947	3,810,584	-	4,480,091
Other policyholder liabilities		9,986	12,420	40,093	-	62,499
Condensed Income Statements:
Premiums and contract
revenues	$	21,725	55,041	18,114	-	94,880
Net investment income		21,688	23,983	246,622	6,681	298,974
Other income		31	37	95	6,898	7,061
Total revenues		43,444	79,061	264,831	13,579	400,915
Life and other policy benefits		16,000	17,937	3,243	-	37,180
Amortization of deferred
policy acquisition costs		8,983	12,109	32,737	-	53,829
Universal life and investment
annuity contract interest		8,896	17,775	149,703	-	176,374
Other operating expenses		7,526	11,489	23,809	5,952	48,776
Federal income taxes		673	6,502	18,218	2,511	27,904
Total expenses		42,078	65,812	227,710	8,463	344,063
Segment earnings	$	1,366	13,249	37,121	5,116	56,852

Reconciliations of segment information to the Company's consolidated financial statements are provided below.

		Years Ended December 31,
		2005	2004	2003
		(In thousands)
Premiums and Other Revenue:
Premiums and contract revenues	$	111,367	103,538	94,880
Net investment income		310,213	315,843	298,974
Other income		9,579	11,259	7,061
Realized gains (losses) on investments		9,884	3,506	(1,647)
Total consolidated premiums and other revenue	$	441,043	434,146	399,268
		Years Ended December 31,
		2005	2004	2003
		(In thousands)
Federal Income Taxes:
Total segment Federal income taxes	$	36,159	33,344	27,904
Taxes on realized gains (losses) on investments		3,459	1,228	(577)
Taxes on cumulative effect of change in
accounting principle		-	29,452	-
Total taxes on consolidated net earnings	$	39,618	64,024	27,327
		Years Ended December 31,
		2005	2004	2003
		(In thousands)
Net Earnings:
Total segment earnings	$	70,842	65,194	56,852
Realized gains (losses) on investments,
net of taxes		6,425	2,278	(1,070)
Cumulative effect of change in accounting
principle, net of taxes		-	54,697	-
Total consolidated net earnings	$	77,267	122,169	55,782
		December 31,
		2005	2004	2003
		(In thousands)
Assets:
Total segment assets	$	6,348,626	5,975,217	5,282,602
Other unallocated assets		20,382	16,468	15,118
Total consolidated assets	$	6,369,008	5,991,685	5,297,720

(B) Geographic Information

A significant portion of the Company's premiums and contract revenues are from countries other than the United States. Premiums and contract revenues detailed by country are provided below.

		Years Ended December 31,
		2005	2004	2003
		(In thousands)
United States	$	42,403	40,420	41,444
Brazil		12,731	10,125	7,238
Argentina		8,881	9,067	8,421
Taiwan		8,398	7,240	5,925
Chile		8,338	7,973	7,368
Peru		7,905	7,953	7,606
Other foreign countries		35,085	32,929	29,850
Revenues, excluding reinsurance premiums		123,741	115,707	107,852
Reinsurance premiums		(12,374)	(12,169)	(12,972)
Total premiums and contract revenues	$	111,367	103,538	94,880

Premiums and contract revenues are attributed to countries based on the location of the policyholder. The Company has no significant assets, other than financial instruments, located in countries other than the United States.

(C) Major Agency Relationships

A significant portion of the Company's premiums and deposits were sold through two independent marketing agencies in recent years. Combined business from these agencies accounted for approximately 24%, 32%, and 35% of total direct premium revenues and universal life and annuity contract deposits in 2005, 2004, and 2003, respectively.

(14) FAIR VALUES OF FINANCIAL INSTRUMENTS

SFAS No. 107, Disclosures About Fair Values Of Financial Instruments, requires disclosures of fair value information about financial instruments, whether or not recognized in a company's balance sheet, for which it is practicable to estimate a value. The following methods and assumptions were used by the Company in estimating its fair value disclosures for financial instruments:

Investment securities. Fair values for investments in debt and equity securities are based on quoted market prices, where available. For securities not actively traded, fair values are estimated using values obtained from various independent pricing services. In the cases where prices are unavailable from these sources, values are estimated by discounting expected future cash flows using a current market rate applicable to the yield, credit quality, and maturity of the investments.

Cash and short-term investments. The carrying amounts reported in the balance sheet for these instruments approximate their fair values.

Mortgage and other loans. The fair values of performing mortgage and other loans are estimated by discounting scheduled cash flows through the scheduled maturities of the loans, using interest rates currently being offered for similar loans to borrowers with similar credit ratings. Fair values for significant nonperforming loans are based on recent internal or external appraisals. If appraisals are not available, estimated cash flows are discounted using a rate commensurate with the risk associated with the estimated cash flows. Assumptions regarding credit risk, cash flows, and discount rates are judgmentally determined using available market information and specific borrower information.

Policy loans. The fair values for policy loans are calculated by discounting estimated cash flows using U.S. Treasury bill rates as of December 31, 2005 and 2004. The estimated cash flows include assumptions as to whether such loans will be repaid by the policyholders or settled upon payment of death or surrender benefits on the underlying insurance contracts. As a result, these assumptions incorporate both Company experience and mortality assumptions associated with such contracts.

Derivatives. Fair values for indexed options are based on independent counterparty market prices.

Life interest in Libbie Shearn Moody Trust. The fair value of the life interest is estimated based on assumptions as to future distributions from the Trust over the life expectancy of Mr. Robert L. Moody. These estimated cash flows were discounted at a rate consistent with uncertainties relating to the amount and timing of future cash distributions. However, the Company has limited the fair value to the statutory admitted value of the Trust, as this is the maximum amount to be received from insurance proceeds in the event of Mr. Moody's premature death.

Annuity and supplemental contracts. Fair values of the Company's liabilities for deferred annuity contracts are estimated to be the cash surrender values of each contract. The cash surrender value represents the policyholder's account balance less applicable surrender charges. The fair values of liabilities for immediate annuity contracts and supplemental contracts with and without life contingencies are estimated by discounting estimated cash flows using U.S. Treasury bill rates as of December 31, 2005 and 2004.

Fair values for the Company's insurance contracts other than annuity contracts are not required to be disclosed. This includes the Company's traditional and universal life products. However, the fair values of liabilities under all insurance contracts are taken into consideration in the Company's overall management of interest rate risk, which minimizes exposure to changing interest rates through the matching of investment maturities with amounts due under insurance and annuity contracts.

The carrying amounts and fair values of the Company's financial instruments are as follows:

		December 31, 2005		December 31, 2004
		Carrying	Fair	Carrying	Fair
		Values	Values	Values	Values
		(In thousands)
ASSETS
Investments in debt and equity securities:
Securities held to maturity	$	3,524,724	3,523,993	3,274,134	3,367,112
Securities available for sale		1,744,727	1,744,727	1,635,247	1,635,247
Cash and short-term investments		31,355	31,355	50,194	50,194
Mortgage loans		110,639	114,574	124,712	129,963
Policy loans		86,385	111,034	88,448	115,107
Other loans		6,929	7,261	19,066	20,655
Derivatives		39,405	39,405	42,156	42,156
Life interest in Libbie Shearn
Moody Trust		2,247	12,775	2,555	12,775
LIABILITIES
Deferred annuity contracts	$	4,314,972	3,588,411	4,078,589	3,414,888
Immediate annuity and
supplemental contracts		294,635	286,800	271,470	270,110

Fair value estimates are made at a specific point in time based on relevant market information and information about the financial instruments. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company's entire holdings of a particular financial instrument. Because no market exists for a portion of the Company's financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

(15) RELATED PARTY TRANSACTIONS

Robert L. Moody, Jr. ("Mr. Moody, Jr.") is the son of Robert L. Moody, the Company's Chairman and Chief Executive Officer, and is the brother of Ross R. Moody, the Company's President and Chief Operating Officer, and of Russell S. Moody and Frances A. Moody-Dahlberg who serve as directors of National Western. Prior to January 1, 2006 Mr. Moody, Jr. was employed by the Company in an agency marketing position for which he was paid an annual salary of $14,000 and was eligible to participate in the Company's benefit plans. Mr. Moody, Jr. resigned as an employee effective December 31, 2005.

In addition, Mr. Moody, Jr. wholly owns an insurance marketing organization that maintains agency contracts with National Western pursuant to which agency commissions are paid in accordance with the Company's standard commission schedules. Mr. Moody, Jr. also maintains an independent agent contract with National Western for policies personally sold under which commissions are paid in accordance with standard commission schedules. In 2005, commissions paid under these agency contracts aggregated approximately $65,000. In conjunction with these agency contracts, Mr. Moody, Jr. may be eligible to attend Company sales conferences and functions based upon meeting published minimum levels of qualifying sales production. In his capacity as an insurance marketing organization with the Company, Mr. Moody, Jr. also receives product development fees associated with a product line of the Company which amounted to $134,000 in 2005.

Mr. Moody, Jr. further serves as the agent of record for several of the Company's benefit plans including the self-insured health plan for which Mr. Moody, Jr. provides utilization review services through a wholly-owned utilization review company. In 2005, amounts paid to Mr. Moody, Jr. as commissions and service fees pertaining to the Company's benefit plans approximated $47,900.

During 2005, management fees totaling $355,000 were paid to Regent Management Services, Limited Partnership ("RMS") for services provided to a downstream nursing home subsidiary of National Western. RMS is 1% owned by general partner RCC Management Services, Inc. ("RCC"), and 99% owned by limited partner, Three R Trusts. RCC is 100% owned by the Three R Trusts. The Three R Trusts are four Texas trusts for the benefit of the children of Robert L. Moody (Robert L. Moody, Jr., Ross R. Moody, Russell S. Moody, and Frances A. Moody-Dahlberg). Charles D. Milos, Senior Vice President-Mortgage Loans and Real Estate, and Director of the Company, is a Director and Vice President of RCC. Ellen C. Otte, Assistant Secretary of the Company, is a Director and Secretary of RCC.

The Company holds a loan in the amount of $4.0 million at December 31, 2005 issued to TMNY, LLC. As of the reporting date, Robert L. Moody owned 20.5% of TMNY, LLC. The stated maturity on this loan is December 29, 2006.

The Company holds a common stock investment totaling approximately 9.4% of the issued and outstanding shares of Moody Bancshares, Inc. at December 31, 2005, the latest available financial information. Moody Bancshares, Inc. owns 100% of the outstanding shares of Moody Bank Holding Company, Inc., which owns approximately 98% of the outstanding shares of The Moody National Bank of Galveston ("MNB"). The Company utilizes MNB for certain bank custodian services as well as for certain administrative services with respect to the Company's defined benefit and contribution plans. Robert L. Moody serves as Chairman of the Board and Chief Executive Officer of MNB. The ultimate owner of MNB is the Three R Trusts. Fees totaling $188,000, $147,000, and $147,000 were paid to MNB with respect to these services in 2005, 2004, and 2003, respectively.

(16) UNAUDITED QUARTERLY FINANCIAL DATA

Quarterly results of operations for 2005 are summarized as follows:

		First	Second	Third	Fourth
		Quarter	Quarter	Quarter	Quarter
		(In thousands except per share data)
2005:
Revenues	$	93,376	117,997	120,027	109,643
Earnings	$	16,202	24,098	20,169	16,798
Basic earnings per share	$	4.51	6.70	5.59	4.65
Diluted earnings per share	$	4.47	6.64	5.53	4.60

Quarterly results of operations for 2004 are summarized as follows:

		First			Second		Third		Fourth
		Quarter			Quarter		Quarter		Quarter
		(In thousands except per share data)
2004:
Revenues	$	100,464			107,479		94,092		132,111
Earnings	$	69,313			19,712		14,295		18,849
Basic earnings per share	$	19.50			5.54		4.01		5.27
Diluted earnings per share	$	19.27			5.47		3.96		5.22
NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
SCHEDULE I
SUMMARY OF INVESTMENTS
OTHER THAN INVESTMENTS IN RELATED PARTIES
December 31, 2005
(In thousands)
				(1)		Fair		Balance Sheet
Type of Investment				Cost		Value		Amount
Fixed maturity bonds:
Securities held to maturity:
United States government and government
agencies and authorities			$	306,260		300,262		306,260
States, municipalities, and political
subdivisions				13,220		13,268		13,220
Foreign governments				19,899		20,507		19,899
Public utilities				419,996		430,937		419,996
Corporate				1,186,392		1,194,500		1,186,392
Mortgage-backed				1,450,375		1,436,608		1,450,375
Asset-backed				128,582		127,911		128,582
Total securities held to maturity				3,524,724		3,523,993		3,524,724
Securities available for sale:
United States government and government
agencies and authorities				-		-		-
States, municipalities, and political
subdivisions				39,397		40,720		40,720
Foreign Government				10,576		10,849		10,849
Public utilities				240,541		241,337		241,337
Corporate				1,123,539		1,133,914		1,133,914
Mortgage-backed				268,104		264,870		264,870
Asset-backed				31,239		32,742		32,742
Total securities available for sale				1,713,396		1,724,432		1,724,432
Total fixed maturity bonds				5,238,120		5,248,425		5,249,156
Equity securities:
Securities available for sale:
Common stocks:
Public utilities				843		1,023		1,023
Banks, trust and insurance
companies (2)				315		419		419
Corporate				2,845		3,803		3,803
Preferred stocks				8,658		8,865		8,865
Total equity securities				12,661		14,110		14,110
Derivatives				37,717				39,405
Mortgage loans (3)				102,911				102,911
Policy loans				86,385				86,385
Other long-term investments (4)				30,752				30,013
Total investments other than
investments in related parties			$	5,508,546				5,521,980

Notes:

(1) Bonds are shown at amortized cost, mortgage loans are shown at unpaid principal balances before allowances for possible losses, and real estate is stated at cost before allowances for possible losses.

(2) Equity securities with related parties having a cost of $195,000 and balance sheet amount of $6.2 million have been excluded.

(3) Mortgage loans with related parties totaling $7.7 million have been excluded.

(4) Real estate acquired by foreclosure included in other long-term investments is as follows: cost $3.2 million; balance sheet amount $2.7 million.

NATIONAL WESTERN LIFE INSURANCE COMPANY AND SUBSIDIARIES
SCHEDULE V
VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended December 31, 2005, 2004, and 2003
(In thousands)
			(1)
		Balance at	Charged to			Balance at
		Beginning	Costs and			End of
Description		of Period	Expenses	Reductions	Transfers	Period
Valuation accounts deducted
from applicable assets:
Allowance for possible
losses on mortgage loans:
December 31, 2005	$	368	(368)	-	-	-
December 31, 2004	$	660	(292)	-	-	368
December 31, 2003	$	660	-	-	-	660
Allowance for possible
losses on real estate:
December 31, 2005	$	1,397	(658)	-	-	739
December 31, 2004	$	2,785	(1,388)	-	-	1,397
December 31, 2003	$	2,713	72	-	-	2,785

Notes:

(1) These amounts were recorded to realized (gains) losses on investments.

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.

NATIONAL WESTERN LIFE INSURANCE COMPANY
(Registrant)

Date: March 14, 2006	/S/ Robert L. Moody
	By: Robert L. Moody, Chairman of the Board and
	Chief Executive 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 and on the dates indicated.

Signature	Title (Capacity)	Date
/S/ Robert L. Moody	Chairman of the Board and	March 14, 2006
Robert L. Moody	Chief Executive Officer, and Director
	(Principal Executive Officer)
/S/ Ross R. Moody	President and Chief Operating Officer, and Director	March 14, 2006
Ross R. Moody
/S/ Brian M. Pribyl	Senior Vice President - Chief Financial &	March 14, 2006
Brian M. Pribyl	Administrative Officer, and Treasurer
	(Principal Financial Officer)
/S/ Kay E. Osbourn	Vice President, Controller & Assistant Treasurer	March 14, 2006
Kay E. Osbourn	(Principal Accounting Officer)
/S/ Harry L. Edwards	Director	March 14, 2006
Harry L. Edwards
/S/ Stephen E. Glasgow	Director	March 14, 2006
Stephen E. Glasgow
/S/ E. Douglas McLeod	Director	March 14, 2006
E. Douglas McLeod
/S/ Charles D. Milos	Director	March 14, 2006
Charles D. Milos
/S/ Frances A. Moody-Dahlberg	Director	March 14, 2006
Frances A. Moody-Dahlberg
/S/ Russell S. Moody	Director	March 14, 2006
Russell S. Moody
/S/ Louis E. Pauls, Jr.	Director	March 14, 2006
Louis E. Pauls, Jr.
/S/ E.J. Pederson	Director	March 14, 2006
E.J. Pederson