utg10k05

10-K 1 utg10k05.htm 2005 utg10k05

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K
(Mark One)
     [X]          ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                  For the fiscal year ended December 31, 2005
                                       or
     [ ]         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 0-16867

                                   UTG, INC.
             (Exact name of registrant as specified in its charter)
ILLINOIS                                                              20-2907892
(State or other jurisdiction of                                 (I.R.S. Employer
incorporation or organization)                               Identification No.)

5250 South Sixth Street, Springfield, IL                                   62703
(Address of principal executive offices)                              (Zip code)

Registrant's telephone number, including area code: (217) 241-6300

Securities registered pursuant to Section 12(b) of the Act:
                                                           Name of each exchange
Title of each class                                          on which registered
None                                                                        None

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

                               Title of each class
                   Common Stock, stated value $ .001 per share

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K (229.405 of this chapter) 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.[  ]

Indicate  by check mark  whether  the  registrant  is an  accelerated  filer (as
defined by Rule 12b-2 of the Act). Yes [ ] No [X]

As  of  June  30,  2005,  shares  of  the  Registrant's  common  stock  held  by
non-affiliates  (based upon the price of the last sale of $ 5.50 per share), had
an aggregate market value of approximately $ 6,923,769.

At February 10, 2006 the Registrant had 3,900,107  outstanding  shares of Common
Stock, stated value $ .001 per share.

DOCUMENTS INCORPORATED BY REFERENCE:  None



                                   UTG, INC.
                                   FORM 10-K
                          YEAR ENDED DECEMBER 31, 2005


                               TABLE OF CONTENTS



PART I.........................................................................3

   ITEM 1.   BUSINESS..........................................................3
   ITEM 1A.  BUSINESS RISKS...................................................14
   ITEM 1B.  UNRESOLVED STAFF COMMENTS........................................15
   ITEM 2.   PROPERTIES.......................................................15
   ITEM 3.   LEGAL PROCEEDINGS................................................16
   ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..............16


PART II.......................................................................17

   ITEM 5.   MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
                 MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES............17
   ITEM 6.   SELECTED FINANCIAL DATA..........................................19
   ITEM 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                 AND RESULTS OF OPERATIONS....................................19
   ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK  .....29
   ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA......................30
   ITEM 9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
                 AND FINANCIAL DISCLOSURE.....................................59
   ITEM 9A.  CONTROLS AND PROCEDURES..........................................59
   ITEM 9B.  OTHER INFORMATION................................................59



PART III......................................................................60

   ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF UTG..........................60
   ITEM 11.  EXECUTIVE COMPENSATION...........................................62
   ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT...64
   ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...................68
   ITEM 14.  PRINCIPAL ACCOUNTING FEES AND SERVICES...........................69


PART IV.......................................................................70

   ITEM 15.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K..70








                                     PART I

ITEM 1.  BUSINESS

FORWARD-LOOKING INFORMATION

Any  forward-looking  statement contained herein or in any other oral or written
statement  by the Company or any of its  officers,  directors  or  employees  is
qualified by the fact that actual  results of the Company may differ  materially
from those  projected  in  forward-looking  statements.  Additional  information
concerning  factors that could cause actual  results to differ from those in the
forward-looking statements is contained in "Management's Discussion and Analysis
of Financial Condition and Results of Operations."


OVERVIEW

UTG, Inc. (the "Registrant" or "UTG") was originally incorporated in 1984, under
the name United Trust, Inc. under the laws of the State of Illinois, to serve as
an  insurance  holding  company.   The  Registrant  and  its  subsidiaries  (the
"Company") have only one significant  industry segment - insurance.  The current
name, UTG, Inc., and state of incorporation,  Delaware, were adopted during 2005
through a merger transaction. The Company's dominant business is individual life
insurance, which includes the servicing of existing insurance business in force,
the  solicitation  of new individual  life  insurance,  the acquisition of other
companies in the insurance business,  and the administration  processing of life
insurance business for other entities.

At December 31,  2005, significant majority-owned subsidiaries of the Registrant
were as depicted on the following organizational chart:

This document at times will refer to the Registrant's largest shareholder, Mr.
Jesse T. Correll and certain companies controlled by Mr. Correll. Mr. Correll
holds a majority ownership of First Southern Funding LLC, a Kentucky
corporation, (FSF) and First Southern Bancorp, Inc. (FSBI), a financial services
holding company. FSBI operates through its 100% owned subsidiary bank, First
Southern National Bank (FSNB). Banking activities are conducted through multiple
locations within south-central and western Kentucky. Mr. Correll is Chief
Executive Officer and Chairman of the Board of Directors of UTG and is currently
UTG's largest shareholder through his ownership control of FSF, FSBI and
affiliates. At December 31, 2005, Mr. Correll owns or controls directly and
indirectly approximately 67% of UTG's outstanding stock.

UTG is a life insurance holding company. The focus of UTG is the acquisition of
other companies in similar lines of business and management of the insurance
subsidiary. UTG has no activities outside the life insurance focus. The UTG has
a history of acquisitions and consolidation in which life insurance companies
were involved.

UG is a wholly owned life insurance subsidiary of UTG domiciled in the State of
Ohio, which operates in the individual life insurance business. The primary
focus of the insurance company has been the servicing of existing insurance
business in force. In addition, UG provides insurance administrative services
for other non-related entities.

REC is a wholly owned subsidiary of UTG, which was incorporated under the laws
of the State of Delaware on June 1, 1971, as a securities broker dealer. REC was
established as an aid to life insurance sales. Policyholders could have certain
policy benefits such as annual dividends automatically transferred to a mutual
fund if they elected. REC acts as an agent for its customers by placing orders
of mutual funds and variable annuity contracts, which are placed in the
customers' names. The mutual fund shares and variable annuity accumulation units
are held by the respective custodians. The only financial involvement of REC is
through receipt of commission (load). REC functions at a minimum broker-dealer
level. It does not maintain any of its customer accounts nor receives customer
funds directly. Operating activity of REC accounted for approximately $ 15,000
of earnings in the current year.

NORTH PLAZA is a wholly owned subsidiary of UG, which owns for investment
purposes, various real estate properties including a shopping center in
Somerset, Kentucky, approximately 14,000 acres of timberland in Kentucky, and a
50% partnership interest in an additional 11,000 acres of Kentucky timberland.
North Plaza has a total book value of approximately $9,835,000. Operating
activity of North Plaza accounted for approximately $ (59,000) of earnings in
the current year.

HAMPSHIRE PLAZA is a 67% owned subsidiary of UG, which owns for investment
purposes, a property consisting of a 254,228 square foot office tower, and
72,382 square foot attached retail plaza totaling 326,610 square feet along with
an attached 349 space parking garage, in Manchester, New Hampshire. At
December 31, 2005, the entity had approximately $ 15,855,000 of total assets.
Operating activity of Hampshire Plaza accounted for approximately $ 991,000 of
earnings in the current year.

HP GARAGE is a 67% owned subsidiary of UG, which owns for investment purposes, a
property consisting of a 578 space parking garage, in New Hampshire. At
December 31, 2005, the entity had approximately $ 3,381,000 of total assets.
Operating activity of HP Garage accounted for approximately $ (29,000) of
earnings in the current year.

HISTORY

UTG was incorporated December 14, 1984, as an Illinois corporation through an
intrastate public offering under the name United Trust, Inc. (UTI). Over the
years, UTG acquired several additional holding and life insurance companies. UTG
streamlined and simplified the corporate structure following the acquisitions
through dissolution of intermediate holding companies and mergers of several
life insurance companies.

In March 2005, UTG's Board of Directors adopted a proposal to change the state
of incorporation of UTG from Illinois to Delaware by merging UTG with and into a
wholly-owned Delaware subsidiary (the "reincorporation merger"). The
reincorporation merger effected only a change in UTG's legal domicile and
certain other changes of a legal nature. The Board of Directors submitted the
reincorporation proposal to its shareholders for approval at the 2005 annual
meeting of shareholders, which was approved subsequently and affected on July 1,
2005.

PRODUCTS

UG's current product portfolio consists of a limited number of life insurance
product offerings. All of the products are individual life insurance products,
with design variations from each other to provide choices to the customer. These
variations generally center around the length of the premium paying period,
length of the coverage period and whether the product accumulates cash value or
not. The products are designed to be competitive in the marketplace.

UG offers a universal life policy referred to as the "Legacy" product. This
product was designed for use with several distribution channels including the
Company's own internal agents, bank agent/employees and through personally
producing general agents "PPGA". This policy is issued for ages 0 - 65, in face
amounts with a minimum of $ 25,000. The Legacy product has a current declared
interest rate of 4.0%, which is equal to its guaranteed rate. After five years
the guaranteed rate drops to 3.0%. During the first five years the policy fee
will be $ 6.00 per month on face amounts less than $ 50,000 and $ 5.00 per month
for larger amounts. After the first five years the Company may increase this
rate but not more than $ 8.00 per month. The policy has other loads that vary
based upon issue age and risk classification. Partial withdrawals, subject to a
remaining minimum $ 500 cash surrender value and a $ 25 fee, are allowed once a
year after the first duration. Policy loans are available at 7.4% interest in
advance. The policy's accumulated fund will be credited the guaranteed interest
rate in relation to the amount of the policy loan. Surrender charges are based
on a percentage of target premiums starting at 100% for years 1 and 2 then
grading downward to zero in year 5.

Also available are a number of traditional whole life policies. The Company's
"Ten Pay Whole Life" insurance product has a level face amount. The level
premium is payable for the first ten policy years. This policy is available for
issue ages 0-65, and has a minimum face amount of $10,000. This policy can be
used in conversion situations, where it is available up to age 75 and at a
minimum face amount of $5,000. There is no policy fee.

The "Preferred Whole Life" insurance product also has a level face amount and
level premium, although the premiums are payable for life on this product. Issue
ages are 0-65 and the minimum face amount is $25,000. There is no policy fee.
Unlike the Ten Pay, this product has several optional riders available:
Accidental Death rider, Children's Term Insurance rider, Terminal Illness rider
and/or Waiver of Premium rider.

The "Tradition" is a fixed premium whole life insurance policy. Premiums are
level and payable for life. Issue ages are 0-80. The minimum face amount is the
greater of $10,000 or the amount of coverage provided by a $100 annual premium.
There is a $30 policy fee. This product has the same optional riders as the
Preferred Whole Life, listed above.

Our newest product is called "Kid Kare". This is a single premium level term
policy to age 21. The product is sold in units, with one unit equal to a face
amount of $5,000 for a single premium of $250. The policy is issued from ages
0-15 and has conversion privileges at age 21. There is no policy fee.

The "Horizon Annuity" completes our product portfolio. This product is issued
for ages 0-80. The minimum annual premium in the first year is $2,000, with
premiums being optional in all other years. There is a maintenance fee of $18
beginning in the second policy year. This fee is waived if the annuity value is
at least $2,000. This policy has a decreasing surrender charge for the first
five years of the contract.

The Company is currently developing a decreasing term policy and a level term
policy. The decreasing term policy will be convertible to age 65 or the policy
anniversary prior to expiry. Terms of 10, 15, 20 25 and 30 years will be
available. Each term period has its own issue age criteria. The level term
policy will be renewable to age 70 and convertible to age 65. Issue ages for the
level term policy will be 18-60. Design of these products has been completed.
The products are currently in various stages of filing and approval in the
states UG is licensed.

The Company's actual experience for earned interest, persistency and mortality
varies from the assumptions applied to pricing and for determining premiums.
Accordingly, differences between the Company's actual experience and those
assumptions applied may impact the profitability of the Company. The Company
monitors investment yields, and when necessary adjusts credited interest rates
on its insurance products to preserve targeted interest spreads. Credited rates
are reviewed and established by the Board of Directors of UG. Currently, all
crediting rates have been reduced to the respective product guaranteed interest
rate.

The Company has a variety of policies in force different from those being
marketed. Interest sensitive products, including universal life and excess
interest whole life ("fixed premium UL"), account for 60% of the insurance in
force. Approximately 19% of the insurance in force is participating business,
which represents policies under which the policy owner shares in the insurance
company's statutory divisible surplus. The Company's average persistency rate
for its policies in force for 2005 and 2004 has been 95.8% and 94.6%,
respectively.

Interest sensitive life insurance products have characteristics similar to
annuities with respect to the crediting of a current rate of interest at or
above a guaranteed minimum rate and the use of surrender charges to discourage
premature withdrawal of cash values. Universal life insurance policies also
involve variable premium charges against the policyholder's account balance for
the cost of insurance and administrative expenses. Interest-sensitive whole-life
products generally have fixed premiums. Interest-sensitive life insurance
products are designed with a combination of front-end loads, periodic variable
charges, and back-end loads or surrender charges.

Traditional life insurance products have premiums and benefits predetermined at
issue; the premiums are set at levels that are designed to exceed expected
policyholder benefits and insurance company expenses. Participating business is
traditional life insurance with the added feature that the policyholder may
share in the divisible surplus of the insurance company through policyholder
dividend. This dividend is set annually by the Board of Directors of UG and is
completely discretionary.

MARKETING

The Company has not actively marketed life products in the past several years.
Management currently places little emphasis on new business production,
believing resources could be better utilized in other ways. Current sales
primarily represent sales to existing customers through additional insurance
needs or conservation efforts. In 2001, the Company increased its emphasis on
policy retention in an attempt to improve current persistency levels. In this
regard, several of the home office staff have become licensed insurance agents
enabling them broader abilities when dealing with the customer in regard to
his/her existing policies and possible alternatives. The conservation efforts
described above have been generally positive. Management will continue to
monitor these efforts and make adjustments as seen appropriate to enhance the
future success of the program.

The Company has introduced new and updated products in recent periods including
the Horizon Annuity, the Legacy and Kid Kare. The Company is currently working
on development of a level term and decreasing term product. Management has no
current plans to increase marketing efforts. New product development is
anticipated to be utilized in conservation efforts and sales to existing
customers. Such sales are not expected to be material.

Excluding licensed home office personnel, UG has 15 general agents. UG primarily
markets its products in the Midwest region with most sales in the states of
Ohio, Illinois and West Virginia. UG is licensed to sell life insurance in
Alabama, Arizona, Arkansas, Colorado, Delaware, Florida, Georgia, Idaho,
Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Massachusetts, Minnesota,
Mississippi, Missouri, Montana, Nebraska, Nevada, New Mexico, North Carolina,
North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South
Carolina, South Dakota, Tennessee, Texas, Utah, Virginia, Washington, West
Virginia and Wisconsin.

In 2005, $ 16,046,665 of total direct premium was collected by UG. Ohio
accounted for 28%, Illinois accounted for 18%, and West Virginia accounted for
11% of total direct premiums collected. No other state accounted for more than
5% of direct premiums collected.

UNDERWRITING

The underwriting procedures of the insurance subsidiary are established by
management. Insurance policies are issued by the Company based upon underwriting
practices established for each market in which the Company operates. Most
policies are individually underwritten. Applications for insurance are reviewed
to determine additional information required to make an underwriting decision,
which depends on the amount of insurance applied for and the applicant's age and
medical history. Additional information may include inspection reports, medical
examinations, and statements from doctors who have treated the applicant in the
past and, where indicated, special medical tests. After reviewing the
information collected, the Company either issues the policy as applied for, with
an extra premium charge because of unfavorable factors, or rejects the
application. Substandard risks may be referred to reinsurers for full or partial
reinsurance of the substandard risk.

The Company requires blood samples to be drawn with individual insurance
applications for coverage over $ 45,000 (age 46 and above) or $ 95,000 (ages
16-45). Blood samples are tested for a wide range of chemical values and are
screened for antibodies to the HIV virus. Applications also contain questions
permitted by law regarding the HIV virus, which must be answered by the proposed
insureds.

RESERVES

The applicable insurance laws under which the insurance subsidiary operates
require that the insurance company report policy reserves as liabilities to meet
future obligations on the policies in force. These reserves are the amounts
which, with the additional premiums to be received and interest thereon
compounded annually at certain assumed rates, are calculated in accordance with
applicable law to be sufficient to meet the various policy and contract
obligations as they mature. These laws specify that the reserves shall not be
less than reserves calculated using certain mortality tables and interest rates.

The liabilities for traditional life insurance and accident and health insurance
policy benefits are computed using a net level method. These liabilities include
assumptions as to investment yields, mortality, withdrawals, and other
assumptions based on the life insurance subsidiary's experience adjusted to
reflect anticipated trends and to include provisions for possible unfavorable
deviations. The Company makes these assumptions at the time the contract is
issued or, in the case of contracts acquired by purchase, at the purchase date.
Future policy benefits for individual life insurance and annuity policies are
computed using interest rates ranging from 2% to 6% for life insurance and 3.0%
to 9.25% for annuities. Benefit reserves for traditional life insurance policies
include certain deferred profits on limited-payment policies that are being
recognized in income over the policy term. Policy benefit claims are charged to
expense in the period that the claims are incurred. Current mortality rate
assumptions are based on 1975-80 select and ultimate tables. Withdrawal rate
assumptions are based upon Linton B or Linton C, which are industry standard
actuarial tables for forecasting assumed policy lapse rates.

Benefit reserves for universal life insurance and interest sensitive life
insurance products are computed under a retrospective deposit method and
represent policy account balances before applicable surrender charges. Policy
benefits and claims that are charged to expense include benefit claims in excess
of related policy account balances. Interest crediting rates for universal life
and interest sensitive products range from 4.0% to 5.5% for the years ended
December 31, 2005, 2004 and 2003.

REINSURANCE

As is customary in the insurance industry, UG cedes insurance to, and assumes
insurance from, other insurance companies under reinsurance agreements.
Reinsurance agreements are intended to limit a life insurer's maximum loss on a
large or unusually hazardous risk or to obtain a greater diversification of
risk. The ceding insurance company remains primarily liable with respect to
ceded insurance should any reinsurer be unable to meet the obligations assumed
by it. However, it is the practice of insurers to reduce their exposure to loss
to the extent that they have been reinsured with other insurance companies. The
Company sets a limit on the amount of insurance retained on the life of any one
person. The Company will not retain more than $ 125,000, including accidental
death benefits, on any one life. At December 31, 2005, the Company had gross
insurance in force of $ 3.421 billion of which approximately $ 484 million was
ceded to reinsurers.

The Company's reinsured business is ceded to numerous reinsurers. The Company
monitors the solvency of its reinsurers in seeking to minimize the risk of loss
in the event of a failure by one of the parties. The primary reinsurers of the
Company are large, well capitalized entities.

Currently, the Company is utilizing reinsurance agreements with Optimum Re
Insurance Company, (Optimum) and Swiss Re Life and Health America Incorporated
(SWISS RE). Optimum and SWISS RE currently hold an "A" (Excellent), and "A+"
(Superior) rating, respectively, from A.M. Best, an industry rating company. The
reinsurance agreements were effective December 1, 1993, and covered most new
business of the Company. The agreements are a yearly renewable term (YRT) treaty
where the Company cedes amounts above its retention limit of $ 100,000 with a
minimum cession of $ 25,000.

In addition to the above reinsurance agreements, the Company entered into
reinsurance agreements with Optimum Re Insurance Company (Optimum) during 2004
to provide reinsurance on new products released for sale in 2004. The agreements
are yearly renewable term (YRT) treaties where the Company cedes amounts above
its retention limit of $100,000 with a minimum cession of $25,000 as has been a
Company practice for the last several years with its reinsurers. Also, effective
January 1, 2005, Optimum became the reinsurer of 100% of the accidental death
benefits (ADB) in force of the Company. This coverage is renewable annually at
the Company's option. Optimum specializes in reinsurance agreements with small
to mid-size carriers such as the Company. Optimum currently holds an "A"
(Excellent) rating from A.M. Best.

UG entered into a coinsurance agreement with Park Avenue Life Insurance Company
(PALIC) effective September 30, 1996. Under the terms of the agreement, UG ceded
to PALIC substantially all of its then in-force paid-up life insurance policies.
Paid-up life insurance generally refers to non-premium paying life insurance
policies. PALIC and its ultimate parent The Guardian Life Insurance Company of
America (Guardian), currently hold an "A" (Excellent), and "A+" (Superior)
rating, respectively, from A.M. Best, an industry rating company. The PALIC
agreement accounts for approximately 68% of the reinsurance reserve credit, as
of December 31, 2005.

On September 30, 1998, UG entered into a coinsurance agreement with The
Independent Order of Vikings, an Illinois fraternal benefit society (IOV). Under
the terms of the agreement, UG agreed to assume, on a coinsurance basis, 25% of
the reserves and liabilities arising from all in-force insurance contracts
issued by the IOV to its members. At December 31, 2005, the IOV insurance
in-force assumed by UG was approximately $ 1,694,000, with reserves being held
on that amount of approximately $ 393,000.

On June 1, 2000, UG assumed an already existing coinsurance agreement, dated
January 1, 1992, between Lancaster Life Reinsurance Company (LLRC), an Arizona
corporation and Investors Heritage Life Insurance Company (IHL), a corporation
organized under the laws of the Commonwealth of Kentucky. Under the terms of the
agreement, LLRC agreed to assume from IHL a 90% quota share of new issues of
credit life and accident and health policies that have been written on or after
January 1, 1992 through various branches of the First Southern National Bank.
The maximum amount of credit life insurance that can be assumed on any one
individual's life is $ 15,000. UG assumed all the rights and obligations
formerly held by LLRC as the reinsurer in the agreement. LLRC liquidated its
charter immediately following the transfer. At December 31, 2005, the IHL
agreement has insurance in-force of approximately $ 2,328,000, with reserves
being held on that amount of approximately $ 34,000.

The Company does not have any short-duration reinsurance contracts. The effect
of the Company's long-duration reinsurance contracts on premiums earned in 2005,
2004 and 2003 was as follows:

Shown in thousands
---------------------------------------------------------
2005 2004 2003
Premiums Premiums Premiums
Earned Earned Earned
---------------- ---------------- ----------------
Direct $ 16,357 $ 17,238 $ 18,087
Assumed 42 38 34
Ceded (2,672) (3,036) (2,896)
---------------- ---------------- ----------------
Net premiums $ 13,727 $ 14,240 $ 15,225
================ ================ ================

INVESTMENTS

Investment income represents a significant portion of the Company's total
income. Investments are subject to applicable state insurance laws and
regulations, which limit the concentration of investments in any one category or
class and further limit the investment in any one issuer. Generally, these
limitations are imposed as a percentage of statutory assets or percentage of
statutory capital and surplus of each company.

The following table reflects net investment income by type of investment.

December 31,
----------------------------------------------------------
2005 2004 2003
--------------- ---------------- ----------------
Fixed maturities and fixed maturities
held for sale $ 6,661,648 $ 7,060,761 $ 8,418,969
Equity securities 771,379 657,609 456,361
Mortgage loans 2,033,007 1,209,358 1,522,700
Real estate 7,473,698 5,335,530 2,832,171
Policy loans 860,240 918,562 949,770
Short-term investments 3,699 80,241 11,161
Cash 171,926 111,986 137,478
--------------- ---------------- ----------------
Total consolidated investment income 17,975,597 15,374,047 14,328,610
Investment expenses (6,924,371) (4,953,161) (4,058,110)
---------------- ---------------- ----------------
Consolidated net investment income $ 11,051,226 $ 10,420,886 $ 10,270,500
=============== ================ ================

At December 31, 2005, the Company had a total of $ 13,166,441 in investment real
estate, which did not produce income during 2005.

The following table summarizes the Company's fixed maturities distribution at
December 31, 2005 and 2004 by ratings category as issued by Standard and Poor's,
a leading ratings analyst.

Fixed Maturities
Rating % of Portfolio
----------------------
2005 2004
---------- ----------
Investment Grade
AAA 79% 82%
AA 1% 1%
A 15% 13%
BBB 5% 4%
Below investment grade 0% 0%
---------- ----------
100% 100%
========== ==========

The following table summarizes the Company's fixed maturities and fixed
maturities held for sale by major classification.

Carrying Value
--------------------------------------------------
2005 2004
-------------------- --------------------
U.S. government and government agencies $ 31,235,651 $ 49,434,111
States, municipalities and political subdivisions 1,626,970 2,625,737
Collateralized mortgage obligations 72,351,854 79,701,893
Public utilities 0 0
Corporate 27,374,215 28,405,561
-------------------- --------------------
$ 132,588,690 $ 160,167,302
==================== ====================

The following table shows the composition, average maturity and yield of the
Company's investment portfolio at December 31, 2005.

Average
Carrying Average Average
Investments Value Maturity Yield
----------------------------------- ---------------- ------------------ ------------

Fixed maturities and fixed
maturities held for sale $ 146,377,996 6 years 4.55%
Equity securities 24,486,716 Not applicable 2.71%
Mortgage Loans 28,751,854 4 years 6.87%
Investment real estate 35,390,032 Not applicable 3.94%
Policy loans 12,744,793 Not applicable 6.75%
Short-term investments 40,803 Not applicable 0.00%
Cash and cash equivalents 12,031,780 On demand 1.46%
----------------
Total Investments and Cash
and cash equivalents $ 259,823,974 6.81%
================

At December 31, 2005, fixed maturities and fixed maturities held for sale have a
combined market value of $ 132,575,917. Fixed maturities held to maturity are
carried at amortized cost. Management has the ability and intent to hold these
securities until maturity. Fixed maturities held for sale are carried at market.

Management monitors its investment maturities, which in their opinion is
sufficient to meet the Company's cash requirements. Fixed maturities of
$ 9,016,462 mature in one year and $ 55,006,074 mature in two to five years.

The Company holds $ 36,781,293 in mortgage loans, which represents approximately
12% of the total assets. All mortgage loans are first position loans. Before a
new loan is issued, the applicant is subject to certain criteria set forth by
Company management to ensure quality control. These criteria include, but are
not limited to, a credit report, personal financial information such as
outstanding debt, sources of income, and personal equity. Loans issued are
limited to no more than 80% of the appraised value of the property and must be
first position against the collateral.

FSNB, an affiliate, services the mortgage loan portfolio of the Company. FSNB
has been able to provide the Company with expertise and experience in
underwriting commercial and residential mortgage loans, which provide more
attractive yields than the traditional bond market. During 2005, 2004 and 2003
the Company issued approximately $ 24,576,000, $ 2,627,000 and $ 11,405,000 in
new mortgage loans, respectively. These new loans were originated through FSNB
and funded by the Company through participation agreements with FSNB. FSNB
services all the mortgage loans of the Company. The Company pays FSNB a .25%
servicing fee on these loans and a one-time fee at loan origination of .50% of
the original loan amount to cover costs incurred by FSNB relating to the
processing and establishment of the loan. UG paid $ 76,970, $ 45,468 and
$ 63,214 in servicing fees and $ 112,109, $ 0 and $ 13,821 in origination fees
to FSNB during 2005, 2004 and 2003, respectively.

The Company has no mortgage loans in the process of foreclosure and no loans
under a repayment plan or restructuring. Letters are sent to each mortgagee when
the loan becomes 30 days or more delinquent. Loans 90 days or more delinquent
are placed on a non-performing status and classified as delinquent loans.
Reserves for loan losses are established based on management's analysis of the
loan balances compared to the expected realizable value should foreclosure take
place. Loans are placed on a non-accrual status based on a quarterly analysis of
the likelihood of repayment. All delinquent and troubled loans held by the
Company are loans, which were held in portfolios by acquired companies at the
time of acquisition. Management believes the current internal controls
surrounding the mortgage loan selection process provide a quality portfolio with
minimal risk of foreclosure and/or negative financial impact.

The Company has in place a monitoring system to provide management with
information regarding potential troubled loans. Management is provided with a
monthly listing of loans that are 30 days or more past due along with a brief
description of what steps are being taken to resolve the delinquency. Quarterly,
coinciding with external financial reporting, the Company determines how each
delinquent loan should be classified. All loans 90 days or more past due are
classified as delinquent. Each delinquent loan is reviewed to determine the
classification and status the loan should be given. Interest accruals are
analyzed based on the likelihood of repayment. In no event will interest
continue to accrue when accrued interest along with the outstanding principal
exceeds the net realizable value of the property. The Company does not utilize a
specified number of days delinquent to cause an automatic non-accrual status.

A mortgage loan reserve is established and adjusted based on management's
quarterly analysis of the portfolio and any deterioration in value of the
underlying property which would reduce the net realizable value of the property
below its current carrying value. The mortgage loan reserve was $ 36,000 and
$120,000 at December 31, 2005 and 2004 respectively.

The following table shows a distribution of the Company's mortgage loans by
type.

Mortgage Loans Amount % of Total
---------------------------------------------- ---------------- -------------
Commercial - insured or guaranteed $ 1,431,600 4%
Commercial - all other 30,034,817 82%
Residential - insured or guaranteed 18,959 0%
Residential - all other 5,295,917 14%

The following table shows a geographic distribution of the Company's mortgage
loan portfolio and investment real estate.

Mortgage Real
Loans Estate
------------ ----------
Colorado 8% 0%
Florida 9% 0%
Illinois 0% 3%
Indiana 2% 0%
Kansas 6% 0%
Kentucky 63% 29%
New Hampshire 0% 41%
Ohio 2% 0%
Texas 10% 27%
------------ ----------
Total 100% 100%
============ ==========

The following table summarizes delinquent mortgage loan holdings of the Company.

Delinquent
90 days or more 2005 2004 2003
----------------------------------- ------------- ------------- -------------
Non-accrual status $ 42,400 $ 167,148 $ 179,204
Other 0 0 0
Reserve on delinquent
Loans (36,000) (120,000) (120,000)
------------- ------------- -------------
Total delinquent $ 6,400 $ 47,148 $ 59,204
============= ============= =============
Interest income past due
(delinquent loans) $ 0 $ 0 $ 0
============= ============= =============

In process of restructuring $ 0 $ 0 $ 0
Restructuring on other
than market terms 0 0 0
Other potential problem
Loans 0 0 0
------------- ------------- -------------
Total problem loans $ 0 $ 0 $ 0
============= ============= =============
Interest income foregone
(restructured loans) $ 0 $ 0 $ 0
============= ============= =============

In process of foreclosure $ 0 $ 1,401,345 $ 1,423,804
------------- ------------- -------------
Total foreclosed loans $ 0 $ 1,401,345 $ 1,423,804
============= ============= =============
Interest income foregone
(restructured loans) $ 0 $ 0 $ 0
============= ============= =============

See Item 2, Properties, for description of real estate holdings.

COMPETITION

The insurance business is a highly competitive industry and there are a number
of other companies, both stock and mutual, doing business in areas where the
Company operates. Many of these competing insurers are larger, have more
diversified and established lines of insurance coverage, have substantially
greater financial resources and brand recognition, as well as a greater number
of agents. Other significant competitive factors in the insurance industry
include policyholder benefits, service to policyholders, and premium rates.

In recent years, the Company has not placed an emphasis on new business
production. Costs associated with supporting new business can be significant.
The insurance industry as a whole has experienced a decline in the total number
of agents who sell insurance products; therefore competition has intensified for
top producing sales agents. The relatively small size of the Company, and the
resulting limitations, has made it challenging to compete in this area. The
number of agents marketing the Company's products has reduced to a negligible
number.

The Company performs administrative work as a third party administrator (TPA)
for unaffiliated life insurance companies. During the year ended 2005, the
Company entered into an additional agreement for these services, which should
provide approximately $ 600,000 additional annual revenues. These TPA revenue
fees are included in the line item "other income" on the Company's consolidated
statements of operations. The Company intends to continue to pursue other TPA
arrangements through its alliance with Fiserv Life Insurance Solutions (Fiserv).
Through this alliance, the Company provides TPA services to insurance companies
seeking business process outsourcing solutions. Fiserv is responsible for the
marketing and sales function for the alliance, as well as providing the
datacenter operations. UTG staffs the administration effort. Management believes
this alliance with Fiserv positions the Company to generate additional revenues
by utilizing the Company's current excess capacity and administrative services.
Fiserv is a unit of Fiserv, Inc. (NASDAQ: FISV) which is an independent,
full-service provider of integrated data processing and information management
systems to the financial industry, headquartered in Brookfield, Wisconsin.

The Company has considered the feasibility of a marketing opportunity with First
Southern National Bank (FSNB) an affiliate of UTG's largest shareholder.
Management has considered various products including annuity type products,
mortgage protection products and existing insurance products, as a possibility
to market to all banking customers. The design and introduction of these
products are in the early stages of development and have not been introduced to
FSNB. This marketing opportunity has potential and is believed to be a viable
niche. Existing products along with the introduction of new products is
currently not expected to produce significant premium writings.

GOVERNMENT REGULATION

Insurance companies are subject to regulation and supervision in all the states
where they do business. Generally the state supervisory agencies have broad
administrative powers relating to granting and revoking licenses to transact
business , license agents, approving forms of policies used, regulating trade
practices and market conduct, the form and content of required financial
statements, reserve requirements, permitted investments, approval of dividends
and in general, the conduct of all insurance activities. Insurance regulation is
concerned primarily with the protection of policyholders. The Company cannot
predict the impact of any future proposals, regulations or market conduct
investigations. UG is domiciled in the state of Ohio.

Insurance companies must also file detailed annual reports on a statutory
accounting basis with the state supervisory agencies where each does business;
(see Note 6 to the consolidated financial statements) regarding statutory equity
and income from operations. These agencies may examine the business and accounts
at any time. Under the rules of the National Association of Insurance
Commissioners (NAIC) and state laws, the supervisory agencies of one or more
states examine a company periodically, usually at three to five year intervals.

Most states also have insurance holding company statutes, which require
registration and periodic reporting by insurance companies controlled by other
corporations licensed to transact business within their respective
jurisdictions. The insurance subsidiary is subject to such legislation and
registered as a controlled insurer in those jurisdictions in which such
registration is required. Statutes vary from state to state but typically
require periodic disclosure, concerning the corporation that controls the
registered insurers and all subsidiaries of such corporation. In addition, prior
notice to, or approval by, the state insurance commission of material
transactions with affiliates, including transfers of assets, reinsurance
agreements, management agreements (see Note 9 to the consolidated financial
statements), and payment of dividends (see Note 2 to the consolidated financial
statements) in excess of specified amounts by the insurance subsidiary, within
the holding company system, are required.

Risk-based capital requirements and state guaranty fund laws are discussed in
Item 7, "Management's Discussion and Analysis of Financial Condition and Results
of Operations".

EMPLOYEES

At December 31, 2005, UTG and its subsidiaries had 55 full-time equivalent
employees. UTG's operations are headquartered in Springfield, Illinois.

ITEM 1A. BUSINESS RISKS

The risks and uncertainties described below are not the only ones that UTG
faces. Additional risks and uncertainties that the Company is unaware of, or
currently deemed immaterial, also may become important factors that affect our
business. If any of these risks were to occur, our business, financial condition
or results of operations could be materially and adversely affected.

The Company faces significant competition for insurance and third party
administration clients. Competition in the insurance industry may limit our
ability to attract and retain customers. UTG may face competition now and in the
future from the following: other insurance and third party administration (TPA)
providers, including larger non-insurance related companies which provide TPA
services.

In particular, our competitors include insurance companies whose greater
resources may afford them a marketplace advantage by enabling them to provide
insurance services with lower margins. Additionally, insurance companies and
other institutions with larger capitalization and others not subject to
insurance regulatory restrictions have the ability to serve the insurance needs
of larger customers. If the Company is unable to attract and retain insurance
clients continued growth, results of operations and financial condition may
otherwise be negatively affected.

The main sources of income from operations are premium and net investment
income. Net investment income is equal to the difference between the investment
income received from various types of investment securities and other
income-producing assets and the related expenses incurred in connection with
maintaining these investments. The primary sources of income can be affected by
changes in market interest rates and various economic conditions. These
conditions are highly sensitive to many factors beyond our control, including
general economic conditions, both domestic and foreign, and the monetary and
fiscal policies of various governmental and regulatory authorities. The Company
has adopted asset and liability management policies to try to minimize the
potential adverse effects of changes in interest rates on our net interest
income, primarily by altering the mix and maturity of loans, investments and
funding sources. However, even with these policies in place, the Company cannot
provide assurance that changes in interest rates will not negatively impact our
operating results.

An increase in interest rates also could have a negative impact on business by
reducing the demand for insurance products. Fluctuations in interest rates may
result in disintermediation, which is the flow of funds away from insurance
companies into direct investments that pay higher rates of return, and may
affect the value of investment securities and other interest-earning assets.

Because UTG serves primarily individuals located in three states, the ability of
our customers to pay their insurance premiums is impacted by the economic
conditions in these areas. As of December 31, 2005, approximately 57% of our
total direct premium was collected from Ohio, Illinois and West Virginia. Thus,
results of operations are heavily dependent upon the strength of these
economies.

In addition, a substantial portion of our investment mortgage loans are secured
by real estate located primarily in Kentucky and Texas. Consequently, our
ability to continue to originate real estate loans may be impaired by adverse
changes in local and regional economic conditions in these real estate markets
or by acts of nature. These events also could have an adverse effect on the
value of our collateral and, due to the concentration of our collateral in real
estate, on our financial condition.

The Company has traditionally obtained funds principally through premium
deposits. If, as a result of competitive pressures, market interest rates,
general economic conditions or other events, the balance of the premium deposits
decrease relative to our overall operations, the Company may have to look for
ways to further reduce operating costs which could have a negative impact on
results of operations or financial condition.

The Company has significant business risks in the amount of policy benefit
expenses incurred each year. The majority of these expenses are related to death
claims paid on life insurance contracts. The Company has no control over these
expenses, which have a significant impact on our financial results.

Insurance holding companies operate in a highly regulated environment and are
subject to supervision and examination by various federal and state regulatory
agencies. The cost of compliance with regulatory requirements may adversely
affect our results of operations or financial condition. Federal and state laws
and regulations govern numerous matters including: changes in the ownership or
control, maintenance of adequate capital and the financial condition of an
insurance company, permissible types, amounts and terms of investments;
permissible non-insurance activities; the level of policyholder reserves; and
restrictions on dividend payments.

The Company will continue to consider the acquisition of other businesses.
However, the opportunities to make suitable acquisitions on favorable terms in
the future may not be available, which could negatively impact the growth of
business. UTG expects that other insurance and financial companies will compete
to acquire compatible businesses. This competition could increase prices for
acquisitions that we would likely pursue, and our competitors may have greater
resources. Also, acquisitions of regulated businesses such as insurance
companies are subject to various regulatory approvals. If appropriate regulatory
approvals are not received, an acquisition would not be able to complete that we
believe is in our best interests.

UTG has in the past acquired, and will in the future consider the acquisition
of, other insurance and related businesses. If other companies are acquired in
the future, our business may be negatively impacted by risks related to those
acquisitions. These risks include the following: the risk that the acquired
business will not perform in accordance with management's expectations; the risk
that difficulties will arise in connection with the integration of the
operations of the acquired business with our operations; the risk that
management will divert its attention from other aspects of our business; the
risk that key employees of the acquired business are lost; the risks associated
with entering into geographic and product markets in which we have limited or no
direct prior experience; and the risks of the acquired company assumed in
connection with an acquisition.

As a result of these risks, any given acquisition, if and when consummated, may
adversely affect our results of operations or financial condition. In addition,
because the consideration for an acquisition may involve cash, debt or the
issuance of shares of our common stock and may involve the payment of a premium
over book and market values, existing holders of our common stock could
experience dilution in connection with the acquisition.

UTG relies heavily on communications and information systems to conduct our
business. Any failure or interruptions or breach in security of these systems
could result in failures or disruptions in our customer relationship management,
general ledger, or administrative servicing systems. The occurrence of any
failures or interruptions could result in a loss of customer business and have a
material adverse effect on our results of operations and financial condition.

Under regulatory capital adequacy guidelines and other regulatory requirements,
we must meet guidelines that include quantitative measures of assets,
liabilities, and certain off-balance sheet items, subject to qualitative
judgments by regulators about components, risk weightings and other factors. If
we fail to meet these minimum capital guidelines and other regulatory
requirements, our financial condition would be materially and adversely
affected.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

The following table shows a breakout of property, net of accumulated
depreciation, occupied by the Company and held for investment.

Property occupied Amount % of Total
Home Office $ 1,637,573 4%

Investment real estate
Commercial 30,421,541 69%
Residential development 12,166,441 27%
42,587,982 96%

Grand total $ 44,225,555 100%

Total investment real estate holdings represent approximately 13% of the total
assets of the Company, net of accumulated depreciation of $ 4,444,729 and
$ 2,872,199 at year-end 2005 and 2004 respectively.

The Company owns an office complex in Springfield, Illinois, which houses the
primary insurance operations. The office buildings in this complex contain
57,000 square feet of office and warehouse space, and are carried at
$ 1,637,573. The facilities occupied by the Company are adequate relative to the
Company's present operations.

Commercial property mainly consists of North Plaza, Hampshire Plaza and
Hampshire Plaza Garage. See Item 1, "Business" for additional information
regarding descriptions and operating results of these properties.

Residential development property is primarily a located just outside Dallas,
Texas and is a development of upscale summer and vacation homes and condominiums
with a target market of the Dallas, Texas community. The project is projected to
take five to seven years for complete build-out. The property contains
additional amenities such as a marina, an equestrian center, hiking trails, a
teen center and restaurant.

ITEM 3. LEGAL PROCEEDINGS

In the normal course of business the Company is involved from time to time in
various legal actions and other state and federal proceedings. There were no
proceedings pending as of December 31, 2005.

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

There were no matters submitted to a vote of UTG's shareholders during the
fourth quarter of 2005.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES

The Registrant is a public company whose common stock is traded in the
over-the-counter market. Over-the-counter quotations can be obtained with the
UTGN.OB stock symbol.

The following table shows the high and low bid quotations for each quarterly
period during the past two years, without retail mark-up, mark-down or
commission and may not necessarily represent actual transactions. The quotations
below were acquired from the NASDAQ web site, which also provides quotes for
over-the-counter traded securities such as UTG.

2005 2004
PERIOD High Low High Low

First quarter 7.000 5.200 6.250 5.550
Second quarter 7.000 5.500 6.250 5.500
Third quarter 6.500 5.500 5.600 5.100
Fourth quarter 8.750 5.750 6.000 5.100

UTG has not declared or paid any dividends on its common stock in the past two
fiscal years, and has no current plans to pay dividends on its common stock as
it intends to retain all earnings for investment in and growth of the Company's
business. See Note 2 in the accompanying consolidated financial statements for
information regarding dividend restrictions, including applicable restrictions
on the ability of the Company's life insurance subsidiary to pay dividends up to
the Registrant.

As of February 10, 2006 there were 8,780 record holders of UTG common stock.

On March 26, 2002, the Board of Directors of UTG adopted, and on June 11, 2002,
the shareholders of UTG approved, the UTG, Inc. Employee and Director Stock
Purchase Plan. The plan's purpose is to encourage ownership of UTG stock by
eligible directors and employees of UTG and its subsidiaries by providing them
with an opportunity to invest in shares of UTG common stock. The plan is
administered by the Board of Directors of UTG. A total of 400,000 shares of
common stock may be purchased under the plan, subject to appropriate adjustment
for stock dividends, stock splits or similar recapitalizations resulting in a
change in shares of UTG. The plan is not intended to qualify as an "employee
stock purchase plan" under Section 423 of the Internal Revenue Code.

The following table reflects the Company's Employee and Director Stock Purchase
Plan Information:

--------------------------------- ------------------------------ ------------------------------- ------------------------------
Plan category Number of securities to be Weighted-average exercise Number of securities
issued upon exercise of price of outstanding options, remaining available for
outstanding options, warrants and rights future issuance under
warrants and rights employee and director stock
purchase plans (excluding
securities reflected in
column (a))
(a) (b) (c)
--------------------------------- ------------------------------ ------------------------------- ------------------------------

Employee and Director Stock
Purchase plans approved by
security holders
0 0 298,123
--------------------------------- ------------------------------ ------------------------------- ------------------------------

Employee and Director Stock
Purchase plans not approved by
security holders
0 0 0
--------------------------------- ------------------------------ ------------------------------- ------------------------------

Total 0 0 298,123
--------------------------------- ------------------------------ ------------------------------- ------------------------------

During 2005 and 2004, the Board of Directors of UTG approved offerings under the
plan to qualified individuals. For the years ended December 31, 2005 and 2004,
two individuals purchased 12,000 and four individuals purchased 14,440 shares of
UTG common stock, respectively. Each participant under the plan executed a
"stock restriction and buy-sell agreement", which among other things provides
UTG with a right of first refusal on any future sales of the shares acquired by
the participant under this plan.

The purchase price of shares repurchased under the stock restriction and
buy-sell agreement shall be computed, on a per share basis, equal to the sum of
(i) the original purchase price paid to acquire such shares from UTG and (ii)
the consolidated statutory net earnings (loss) per share of such shares during
the period from the end of the month next preceding the month in which such
shares were acquired pursuant to the plan, to the end of the month next
preceding the month in which the sale of such shares to UTG occurs. The original
issue price of shares at the time this program began was established at $12.00
per share. At December 31, 2005, UTG had 101,877 shares outstanding that were
issued under this program with a value of $ 12.93 per share pursuant to the
above formula.

Purchases of Equity Securities

The following table provides information with respect to purchases we made of
our common stock during the three months ended December 31, 2005 and total
repurchases:

Maximum
Total Number of Number of
Shares Shares that may Approximate
Total Purchased as Yet Be Dollar Value That
Number of Average Part of Publicly Purchased May Yet Be
Shares Price Paid Announced Under the Purchased Under
Purchased per Share Program Program the Program
Oct 1 through
Oct 31, 2005 5,194 5.77 5,194 N/A $ 457,518

Nov 1 through
Nov 30, 2005 2,941 6.06 2,941 N/A 439,690

Dec 1 through
Dec 31, 2005 11,509 8.09 11,509 N/A 346,617
------------- ------------ -----------------
Total 19,644 7.17 19,644
============= ============ =================

On June 5, 2001, the Board of Directors of UTG authorized the repurchase in the
open market or in privately negotiated transactions of up to $ 1 million of
UTG's common stock. On June 16, 2004, an additional $ 1 million was authorized
for repurchasing shares. Repurchased shares are available for future issuance
for general corporate purposes. This program can be terminated at any time. Open
market purchases are generally limited to a maximum per share price of $ 8.00.
Through February 1, 2006, UTG has spent $ 1,659,562 in the acquisition of
249,089 shares under this program.

ITEM 6. SELECTED FINANCIAL DATA

The following selected historical consolidated financial data should be read in
conjunction with "Item 7 - Management's Discussion and Analysis of Financial
Condition and Results of Operations," "Item 8 - Financial Statements and
Supplementary Data" and other financial information included elsewhere in this
Form 10-K.

FINANCIAL HIGHLIGHTS
(000's omitted, except per share data)
2005 2004 2003 2002 2001
------------- ----------- ----------- ------------ ------------
Premium income
net of reinsurance $ 13,727 $ 14,140 $ 15,023 $ 15,832 $ 17,141
Total revenues $ 27,471 $ 25,467 $ 26,488 $ 30,177 $ 33,313
Net income (loss)* $ 1,260 $ (276) $ (6,396) $ 1,339 $ 2,308
Basic income (loss) per share $ 0.32 $ (0.07) $ (1.67) $ 0.38 $ 0.62
Total assets $ 318,832 $ 317,868 $ 311,557 $ 320,494 $ 328,939
Total long-term debt $ 0 $ 0 $ 2,290 $ 2,995 $ 4,401
Dividends paid per share NONE NONE NONE NONE NONE

o Includes equity earnings of investees.

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

The purpose of this section is to discuss and analyze the Company's consolidated
results of operations, financial condition and liquidity and capital resources
for the three years ended December 31, 2005. This analysis should be read in
conjunction with the consolidated financial statements and related notes, which
appear elsewhere in this Form 10-K. The Company reports financial results on a
consolidated basis. The consolidated financial statements include the accounts
of UTG and its subsidiaries at December 31, 2005.

Cautionary Statement Regarding Forward-Looking Statements

Any forward-looking statement contained herein or in any other oral or written
statement by the Company or any of its officers, directors or employees is
qualified by the fact that actual results of the Company may differ materially
from any such statement due to the following important factors, among other
risks and uncertainties inherent in the Company's business:

1. Prevailing interest rate levels, which may affect the ability of the
Company to sell its products, the market value of the Company's investments
and the lapse ratio of the Company's policies, notwithstanding product
design features intended to enhance persistency of the Company's products.

2. Changes in the federal income tax laws and regulations which may affect the
relative tax advantages of the Company's products.

3. Changes in the regulation of financial services, including bank sales and
underwriting of insurance products, which may affect the competitive
environment for the Company's products.

4. Other factors affecting the performance of the Company, including, but not
limited to, market conduct claims, insurance industry insolvencies,
insurance regulatory initiatives and developments, stock market
performance, an unfavorable outcome in pending litigation, and investment
performance.

Critical Accounting Policies

General

We have identified the accounting policies below as critical to the
understanding of our results of operations and our financial position. The
application of these critical accounting policies in preparing our financial
statement requires management to use significant judgments and estimates
concerning future results or other developments including the likelihood, timing
or amount of one or more future transactions or amounts. Actual results may
differ from these estimates under different assumptions or conditions. On an
on-going basis, we evaluate our estimates, assumptions and judgments based upon
historical experience and various other information that we believe to be
reasonable under the circumstances. For a detailed discussion of other
significant accounting policies, see Note 1 to the consolidated financial
statements.

DAC and Cost of Insurance Acquired

Deferred acquisition costs (DAC) and cost of insurance acquired reflect our
expectations about the future experience of the existing business in-force. The
primary assumptions regarding future experience that can affect the carrying
value of DAC and cost of insurance acquired balances include mortality, interest
spreads and policy lapse rates. Significant changes in these assumptions can
impact amortization of DAC and cost of insurance acquired in both the current
and future periods, which is reflected in earnings.

Investments

We regularly monitor our investment portfolio to ensure that investments that
may be other than temporarily impaired are identified in a timely manner and
properly valued, and that any impairments are charged against earnings in the
proper period.

Valuing our investment portfolio involves a variety of assumptions and
estimates, particularly for investments that are not actively traded. We rely on
external pricing sources for highly liquid publicly traded securities. Many
judgments are involved in timely identifying and valuing securities, including
potentially impaired securities. Inherently, there are risks and uncertainties
involved in making these judgments. Changes in circumstances and critical
assumptions such as a continued weak economy, a more pronounced economic
downturn or unforeseen events which affect one or more companies, industry
sectors or countries could result in write downs in future periods for
impairments that are deemed other than temporary.

Results of Operations

(a) Revenues

Premiums and policy fee revenues, net of reinsurance premiums and policy fees,
decreased 3% when comparing 2005 to 2004 and 6% from 2004 to 2003. The Company
writes very little new business. Unless the Company acquires a block of in-force
business, management expects premium revenue to continue to decline at a rate
consistent with prior experience. The Company's average persistency rate for all
policies in force for 2005, 2004 and 2003 was approximately 95.8%, 94.6%, and
94.9%, respectively. Persistency is a measure of insurance in force retained in
relation to the previous year.

The Company's primary source of new business production comes from internal
conservation efforts. Several of the customer service representatives of the
Company are also licensed insurance agents, allowing them to offer other
products within the Company's portfolio to existing customers. Additionally,
stronger efforts have been made in policy retention through more personal
contact with the customer including telephone calls to discuss alternatives and
reasons for a customer's request to surrender their policy. Previously, the
Company's agency force was primarily responsible for conservation efforts. With
the decline in the number of agents, their ability to reach these customers
diminished, making conservation efforts difficult. The conservation efforts
described above have been generally positive. In 2003, the Company replaced its
original universal life product with a new universal life contract referred to
as "the Legacy". This product was designed for use with several distribution
channels including the Company's own internal agents, bank agent/employees and
through personally producing general agents "PPGA". In addition, the Company has
introduced other new and updated products in recent periods including the
Horizon Annuity and Kid Kare (a single premium, child term policy). The Company
is currently working on a level term and decreasing term product to be
introduced in 2006. Management has no current plans to increase marketing
efforts. New product development is anticipated to be utilized in conservation
efforts and sales to existing customers. Such sales are not expected to be
material.

The Company has considered the feasibility of a marketing opportunity with First
Southern National Bank (FSNB) an affiliate of UTG's largest shareholder,
Chairman and CEO, Mr. Jesse T. Correll. Management has considered various
products including annuity type products, mortgage protection products and
existing insurance products, as potential products that could be marketed to
banking customers. This marketing opportunity has potential and is believed to
be a viable niche. This potential is in the very early states of consideration.
Management will proceed cautiously and may even determine not to proceed. The
introduction of new products is not expected to produce significant premium
writings. The Company is looking at other types of products to compliment the
existing offerings.

Net investment income increased 6% when comparing 2005 to 2004 and decreased 1%
when comparing 2004 to 2003. The overall gross investment yields for 2005, 2004
and 2003, are 6.77%, 6.06% and 5.73%, respectively. While there has been a
significant increase in the national prime rate during the last several months,
from 4.00% to 6.75%, this has not been the driving factor in the stability of
the Company's overall net investment income. Interest rates on long-term bonds
available in the marketplace have not experienced a similar increase. During
2004, management began to lengthen the Company's portfolio while maintaining a
conservative investment philosophy. As such, following an analysis of current
holdings during the first half of 2004, the Company liquidated approximately
$ 64,444,000 of its bond portfolio in order to limit its interest rate and
extension risk. In addition, there were $ 13,322,000 in bonds that matured or
were called during the first nine months of 2004. The result of these
transactions caused an excess of cash invested in short-term money market funds
during the first nine months of 2004. Although this hurt investment earnings in
the short run, the Company has not had to write off any investment losses due to
excessive risk.

During 2005, the Company increased its investment in mortgage loans through its
relationship with First Southern National Bank. The availability of these
mortgage loan investments has offset the balance that would have been placed in
fixed income securities. The balance of mortgage loan investments increased from
approximately $ 20,722,000 at December 31, 2004 to $ 42,588,000 at December 31,
2005. This has allowed the Company to obtain higher yields than available in the
bond market, lengthen the overall portfolio average life and still maintain a
conservative investment portfolio. During 2005, the Company issued $ 24,576,000
in new mortgage loans. These loans have an average loan to value rate of
approximately 50% and an average yield of 6.87%.

During 2005, the Company saw an improvement in the performance of it's' real
estate investments over 2004. Gross income from the Company's real estate
holdings improved more than $ 2,138,000 in comparing 2005 to 2004. The
improvement in real estate investment income is principally due to a higher
occupancy lease rate resulting in increased earnings in Hampshire Plaza.

The Company's investments are generally managed to match related insurance and
policyholder liabilities. The comparison of investment return with insurance or
investment product crediting rates establishes an interest spread. The Company
monitors investment yields, and when necessary adjusts credited interest rates
on its insurance products to preserve targeted interest spreads, ranging from 1%
to 2%. Interest crediting rates on adjustable rate policies have been reduced to
their guaranteed minimum rates, and as such, cannot lower them any further.
Policy interest crediting rate changes and expense load changes become effective
on an individual policy basis on the next policy anniversary. Therefore, it
takes a full year from the time the change was determined for the full impact of
such change to be realized. If interest rates decline in the future, the Company
won't be able to lower rates and both net investment income and net income will
be impacted negatively.

Realized investment gains, net of realized losses, were $ 1,431,936, $ (20,648)
and $ 485,436 in 2005, 2004 and 2003, respectively. The net realized gains in
2005 were primarily the result of the sale of 2,216,776 shares of common stock
owned of BNL Financial Corporation ("BNL"). These shares represented
approximately 10.57% of the then current outstanding shares of BNL and represent
all shares owned by UG. The shares were reacquired by the issuing entity for an
agreed upon sales price of $ 2,300,000. During 2004, the Company sold several of
its collateralized mortgage obligation bonds and realized a nominal net loss on
these securities. The sale followed and analysis of bond holdings and was done
to reduce exposure to interest rate and extension risk within the portfolio. The
primary source for the 2003 gain is from the sale of two investments. The
Company sold one common stock holding, realizing a gain of $ 165,262 and one
real estate holding, realizing a gain of $ 211,352.

In recent periods, management focus has been placed on promoting and growing TPA
services to unaffiliated life insurance companies. The Company receives monthly
fees based on policy in force counts and certain other activity indicators, such
as number of premium collections performed, or services performed. The Company
entered into a new contract mid-year 2005, which should provide approximately
$ 750,000 additional annual revenues. For the years ended 2005, 2004 and 2003,
the Company received $ 1,170,824, $ 719,053, and $ 571,298 for this work,
respectively. These TPA revenue fees are included in the line item "other
income" on the Company's consolidated statements of operations. The Company
intends to continue to pursue other TPA arrangements, through an alliance with
Fiserv to insurance companies seeking business process outsourcing solutions.
Fiserv is responsible for the marketing and sales function for the alliance, as
well as providing the datacenter operations. UTG staffs the administration
effort. Management believes this alliance with Fiserv positions the Company to
generate additional revenues by utilizing the Company's current excess capacity
and administrative services. Fiserv is a unit of Fiserv, Inc. (NASDAQ: FISV)
which is an independent, full-service provider of integrated data processing and
information management systems to the financial industry, headquartered in
Brookfield, Wisconsin. Management believes this area is a growing market and the
Company is well positioned to serve this market.

In summary, the Company's basis for future revenue growth is expected come from
three primary sources, expansion of the TPA revenues, conservation of business
currently in force and the maximization of investment earnings. Management has
placed a significant emphasis on the development of these revenue sources and
products offered to enhance these opportunities.

(b) Expenses

Benefits, claims and settlement expenses net of reinsurance benefits and claims,
decreased $ 889,364 from 2004 to 2005 and decreased $ 2,307,898 from 2003 to
2004. The significant fluctuation between the three years relates primarily to
changes in the Company's policyholder reserves, or future policy benefits.
Reserves are calculated on an individual policy basis and generally increase
over the life of the policy as a result of additional premium payments and
acknowledgement of increased risk as the insured continues to age. Fluctuations
in death claim experience from year to year also typically have a significant
impact on variances in this line item. Death claims were approximately
$1,339,000 less in 2005 as compared to 2004. There is no single event that
caused the mortality variances. Policy claims vary from year to year and
therefore, fluctuations in mortality are to be expected and are not considered
unusual by management. Policy surrender benefits decreased approximately
$ 245,000 during the year 2005 compared to the same period in 2004 and $ 546,000
during the year 2004 compared to the same period in 2003. As discussed above,
stronger efforts have been made in policy retention through more personal
contact with customers including telephone calls to discuss alternatives and
reasons for a request to surrender their policy. The short-term impact of such
fewer policy surrenders is negligible since a reserve for future policy benefits
payable is held which is, at a minimum, equal to and generally greater than the
cash surrender value of a policy. Therefore, a decline in current period
surrenders results in an overall increase in the policy benefits number in the
current period. The benefit of fewer policy surrenders is primarily received
over a longer time period through the retention of the Company's asset base.

Commissions and amortization of deferred policy acquisition costs decreased
significantly in 2005 compared to 2004 and decreased 1% in 2004 compared to
2003. The most significant factor in the continuing decrease is attributable to
the Company paying fewer commissions, since the Company writes very little new
business and renewal premiums on existing business continue to decline. Most of
the Company's agent agreements contained vesting provisions, which provide for
continued compensation payments to agents upon their termination subject to
certain minimums and often limited to a specific period of time. Another factor
of the decrease is attributable to normal amortization of the deferred policy
acquisition costs asset. The Company reviews the recoverability of the asset
based on current trends and known events compared to the assumptions used in the
establishment of the original asset. No impairments were recorded in any of the
three periods reported.

Net amortization of cost of insurance acquired increased 17% in 2005 compared to
2004 and increased 10% in 2004 compared to 2003. Cost of insurance acquired is
established when an insurance company is acquired. The Company assigns a portion
of its cost to the right to receive future cash flows from insurance contracts
existing at the date of the acquisition. The cost of policies purchased
represents the actuarially determined present value of the projected future cash
flows from the acquired policies. Cost of insurance acquired is comprised of
individual life insurance products including whole life, interest sensitive
whole life and universal life insurance products. Cost of insurance acquired is
amortized with interest in relation to expected future profits, including direct
charge-offs for any excess of the unamortized asset over the projected future
profits. The interest rates utilized in the amortization calculation are 9% on
approximately 25% of the balance and 15% on the remaining balance. The interest
rates vary due to risk analysis performed at the time of acquisition on the
business acquired. The amortization is adjusted retrospectively when estimates
of current or future gross profits to be realized from a group of products are
revised. Amortization of cost of insurance acquired is particularly sensitive to
changes in interest rate spreads and persistency of certain blocks of insurance
in-force. Persistency is a measure of insurance in force retained in relation to
the previous year. The Company's average persistency rate for all policies in
force for 2005, 2004 and 2003 has been approximately 95.8%, 94.6% and 94.9%,
respectively. Based on the projected future profits of the insurance in-force
during 2003, the Company wrote off an additional $ 5,000,000 of cost of
insurance acquired. This write-off is primarily the result of continued
tightening of interest rate spreads of the Company. The Company continues to
analyze these projections to determine the adequacy of present values assigned
to future cash flows. A significant portion of the remaining balance of this
asset will be amortized over the next four years. The impact of the decrease in
amortization expense will have a positive impact on future earnings.

Operating expenses increased 4% in 2005 compared to 2004 and decreased 30% in
2004 compared to 2003. The increase in expenses during 2005 is due primarily to
an increase in information technology costs and additional personnel costs
associated with the increase in TPA work. Excluding these expense items,
expenses declined due to reductions made in the normal course of business, as
the Company continually monitors expenditures looking for savings opportunities.
During 2003, the Company paid $ 1,950,000 in settlement of a lawsuit. Management
places significant emphasis on expense monitoring and cost containment.
Maintaining administrative efficiencies directly impacts net income.

Interest expense declined 100% comparing 2005 to 2004 and 52% comparing 2004 to
2003. The Company repaid $ 2,289,776 and $ 705,499 in outside debt in 2004 and
2003 respectively, through operating cash flows and dividends received from its
subsidiary UG. At December 31, 2005 and 2004, UTG had no debt outstanding.
During 2005, UG borrowed against its line of credit for a short period to
provide additional operating liquidity. The line was repaid during 2005.

Deferred taxes are established to recognize future tax effects attributable to
temporary differences between the financial statements and the tax return. As
these differences are realized in the financial statement or tax return, the
deferred income tax established on the difference is recognized in the financial
statements as an income tax expense or credit.

The Company had a net income (loss) of $ 1,260,223, $ (275,617) and
$ (6,396,490) in 2005, 2004 and 2003 respectively. The net income in 2005 was
mainly attributable to the gain from the sale of the common stock of BNL during
the second quarter of 2005. Significant one-time charges and accruals to
operating expenses relating to a legal settlement, combined with an additional
write-off of cost of insurance acquired and lower interest rates during 2003 as
previously described, were the primary differences in the 2004 to 2003 results.
The Company continues to monitor and adjust those items within its control.

Financial Condition

(a) Assets

Investments are the largest asset group of the Company. The Company's insurance
subsidiary is regulated by insurance statutes and regulations as to the type of
investments it is permitted to make, and the amount of funds that may be used
for any one type of investment. In light of these statutes and regulations, and
the Company's business and investment strategy, the Company generally seeks to
invest in United States government and government agency securities and other
high quality low risk investments. Many insurance companies have suffered
significant losses in their investment portfolios in the last few of years;
however, because of the Company's conservative investment philosophy the Company
has avoided such significant losses.

At December 31, 2005, the carrying value of fixed maturity securities in default
as to principal or interest was immaterial in the context of consolidated assets
or shareholders' equity. The Company has identified securities it may sell and
classified them as "investments held for sale". Investments held for sale are
carried at market, with changes in market value charged directly to
shareholders' equity. To provide additional flexibility and liquidity, the
Company has categorized almost all fixed maturity investments acquired in recent
periods as available for sale.

The following table summarizes the Company's fixed maturities distribution at
December 31, 2005 and 2004 by ratings category as issued by Standard and Poor's,
a leading ratings analyst.

Fixed Maturities
Rating % of Portfolio
2005 2004
Investment Grade
AAA 79% 82%
AA 1% 1%
A 15% 13%
BBB 5% 4%
Below investment grade 0% 0%
100% 100%
========== ==========

During the current year, the Company invested more of its funds in mortgage
loans. This is the result of increased mortgage opportunities available through
FSNB, an affiliate of Mr. Jesse T. Correll. Mr. Correll is the CEO and Chairman
of the Board of Directors of UTG, and directly and indirectly through
affiliates, its largest shareholder. FSNB has been able to provide the Company
with additional expertise and experience in underwriting commercial and
residential mortgage loans, which provide more attractive yields than the
traditional bond market. During 2005, 2004 and 2003 the Company issued
approximately $ 24,576,000, $ 2,627,000 and $ 11,405,000 respectively, in new
mortgage loans. These new loans were originated through FSNB and funded by the
Company through participation agreements with FSNB. FSNB services all of the
Company's mortgage loans including the loans covered by these participation
agreements. The Company pays FSNB a .25% servicing fee on these loans and a
one-time fee at loan origination of .50% of the original loan amount to cover
costs incurred by FSNB relating to the processing and establishment of the loan.
UG paid $ 76,970, $ 45,468 and $ 63,214 in servicing fees and $ 112,109, $ 0 and
$ 13,821 in origination fees to FSNB during 2005, 2004 and 2003, respectively.
The Company anticipates these opportunities to continue to be available and will
pursue those investments that provide attractive yields.

Total investment real estate holdings represent approximately 13% and 9% of the
total assets of the Company, net of accumulated depreciation, at year-end 2005
and 2004 respectively. The Company has made several investments in real estate
in recent years. Expected returns on these investments exceed those available in
fixed income securities. However, these returns may not always be as steady or
predictable.

Policy loans remained consistent for the periods presented. Industry experience
for policy loans indicates that few policy loans are ever repaid by the
policyholder, other than through termination of the policy. Policy loans are
systematically reviewed to ensure that no individual policy loan exceeds the
underlying cash value of the policy.

Deferred policy acquisition costs decreased 16% in 2005 compared to 2004.
Deferred policy acquisition costs, which vary with, and are primarily related to
producing new business, are referred to as DAC. DAC consists primarily of
commissions and certain costs of policy issuance and underwriting, net of fees
charged to the policy in excess of ultimate fees charged. To the extent these
costs are recoverable from future profits, the Company defers these costs and
amortizes them with interest in relation to the present value of expected gross
profits from the contracts, discounted using the interest rate credited by the
policy. The Company had $ 5,000 in policy acquisition costs deferred, $ 8,000 in
interest accretion and $ 283,899 in amortization in 2005, and had $ 5,000 in
policy acquisition costs deferred, $ 10,000 in interest accretion and $ 447,380
in amortization in 2004.

Cost of insurance acquired decreased 17% in 2005 compared to 2004. When an
insurance company is acquired, the Company assigns a portion of its cost to the
right to receive future cash flows from insurance contracts existing at the date
of the acquisition. The cost of policies purchased represents the actuarially
determined present value of the projected future cash flows from the acquired
policies. Cost of insurance acquired is amortized with interest in relation to
expected future profits, including direct charge-offs for any excess of the
unamortized asset over the projected future profits. In 2005 and 2004
amortization decreased the asset by $ 2,193,085 and $ 1,869,135, respectively.
In 2003, the balance was reduced by an additional $ 5,000,000 as a direct
charge-off of unamortized asset over the projected future profits.

(b) Liabilities

Total liabilities increased approximately 1% in 2005 compared to 2004. Policy
liabilities and accruals, which represented 95% and 94% of total liabilities at
year end 2005 and 2004, respectively, decreased slightly during the current
year. The decrease is attributable to a decrease in the outstanding policy
benefit claims at the end of the year.

The Company had no outstanding notes payable as of December 31, 2005 and 2004,
respectively. The Company has two lines of credit available for operating
liquidity or acquisitions of additional lines of business. The Company's
long-term debt is discussed in more detail in Note 11 to the consolidated
financial statements.

Total shareholders' equity decreased 11% in 2005 compared to 2004. This is
primarily due to significant decreases in the unrealized market value of the
Company's fixed income securities available for sale. Unrealized gains decreased
by $ 2,023,304 during 2005. This decrease in unrealized gains is partially
offset by the income from operations during the year of $ 1,260,223. Other
factors that impacted shareholders' equity included issuance of shares from an
employee and director stock purchase plan which was approved and implemented in
2002 of $ 151,320 and treasury shares purchased and retirements totaling
$ (597,167) during 2005.

Each year, the NAIC calculates financial ratio results (commonly referred to as
IRIS ratios) for each insurance company. These ratios compare key financial data
pertaining to the statutory balance sheet and income statement. The results are
then compared to pre-established normal ranges determined by the NAIC. Results
outside the range typically require explanation to the domiciliary insurance
department. At year-end 2005, UG had two ratios outside the normal range. These
ratios are discussed in more detail in the Regulatory Environment discussion
included in this Item 7.

Liquidity and Capital Resources

The Company has two principal needs for cash - the insurance company's
contractual obligations to policyholders and the payment of operating expenses.
Cash and cash equivalents as a percentage of total assets were 4% and 4% as of
December 31, 2005 and 2004, respectively. Fixed maturities as a percentage of
total invested assets were 42% and 50% as of December 31, 2005 and 2004,
respectively.

The Company's investments are predominantly in fixed maturity investments such
as bonds and mortgage loans, which provide sufficient return to cover future
obligations. The Company carries certain of its fixed maturity holdings as held
to maturity which are reported in the financial statements at their amortized
cost.

Many of the Company's products contain surrender charges and other features
which reward persistency and penalize the early withdrawal of funds. With
respect to such products, surrender charges are generally sufficient to cover
the Company's unamortized deferred policy acquisition costs with respect to the
policy being surrendered.

Cash used in operating activities was $ (290,936), $ (45,950) and $ (933,048) in
2005, 2004 and 2003, respectively. Reporting regulations require cash inflows
and outflows from universal life insurance products to be shown as financing
activities when reporting on cash flows.

Sources of operating cash flows of the Company, as with most insurance entities,
is comprised primarily of premiums received on life insurance products and
income earned on investments. Uses of operating cash flows consist primarily of
payments of benefits to policyholders and beneficiaries and operating expenses.

Cash provided by (used in) investing activities was $ (1,265,715), $ 3,776,714
and $ (15,846,714) for 2005, 2004 and 2003, respectively. The most significant
aspect of cash provided by (used in) investing activities is the fixed maturity
transactions. Fixed maturities account for 14%, 82% and 82% of the total cost of
investments acquired in 2005, 2004 and 2003, respectively. The decrease in 2005,
compared to 2004 and 2003, reflects the Company's emphasis in the mortgage loan
and real estate markets during 2005. These investments accounted for 76% of the
total cost of investments acquired in 2005.

Net cash provided by (used in) financing activities was $ 1,901,266, $ (621,019)
and $ 1,487,041 for 2005, 2004 and 2003, respectively. The Company paid off the
remaining balance of its outstanding debt in 2004. Such payments are included
within this category. In addition, in 2001 the Board of Directors of the Company
authorized a repurchase program of UTG's common stock and the purchase of stock
is still pursued as it becomes available.

Policyholder contract deposits decreased 6% in 2005 compared to 2004 and 5% in
2004 compared to 2003. The decrease in policyholder contract deposits relates to
the declining in force business of the Company. Management anticipates continued
moderate declines in contract deposits. Policyholder contract withdrawals have
decreased 14% in 2005 compared to 2004 and increased 2% in 2004 compared to
2003. The change in policyholder contract withdrawals is not attributable to any
one significant event. Factors that influence policyholder contract withdrawals
are fluctuation of interest rates, competition and other economic factors.

During 2004, the Company paid in full the remaining debt owed to two former
officers and directors of the Company and their respective families as a result
of an April 2001 stock purchase transaction. These notes were paid from a draw
on a line of credit, which was also repaid in 2004. As of December 31, 2005, the
Company has no outstanding notes payable.

The Company has two lines of credit available for future use. UG has a
$ 3,300,000 line of credit (LOC) available from the First National Bank of the
Cumberlands (FNBC) located in Livingston, Tennessee. The interest rate on the
LOC is variable and indexed to be the lowest of the U.S. prime rates as
published in the Wall Street Journal, with any interest rate adjustments to be
made monthly. At December 31, 2005, the Company had no outstanding borrowings
attributable to this LOC. During 2005, the Company had $1,500,000 in borrowings
against this line, which were repaid during the year. During 2004 and 2003, the
Company had no borrowings against this LOC.

The second LOC available to the Company is a $ 5,000,000 line of credit (LOC)
extended from Southwest Bank of St. Louis to UG. Borrowings under the LOC bear
interest at the rate of 0.25% in excess of Southwest Bank of St. Louis' prime
rate. At December 31, 2005 and 2004, the Company had no outstanding borrowings
attributable to this LOC. During 2005 and 2004, the Company had total borrowings
of $ 0 and $ 2,275,000, respectively, which were repaid during the applicable
year.

During 2002, UTG and Fiserv formed an alliance between their respective
organizations to provide third party administration (TPA) services to insurance
companies seeking business process outsourcing solutions. Fiserv will be
responsible for the marketing and sales function for the alliance, as well as
providing the operations processing service for the Company. The Company will
staff the administration effort. To facilitate the alliance, the Company has
converted part of its existing business and all TPA clients to "ID3", a software
system owned by Fiserv to administer an array of life, health and annuity
products in the insurance industry. Fiserv is a unit of Fiserv, Inc. (NASDAQ:
FISV) which is an independent, full-service provider of integrated data
processing and information management systems to the financial industry,
headquartered in Brookfield, Wisconsin. In addition, the Company entered into a
five-year contract with Fiserv for services related to their purchase of the
"ID3" software system. Under the contract, the Company is required to pay
$ 12,000 per month in software maintenance costs and a monthly fee for offsite
data center costs, based on the number and type of policies being administered
the ID3 software system through mid-2007.

UTG is a holding company that has no day-to-day operations of its own. Funds
required to meet its expenses, generally costs associated with maintaining the
Company in good standing with states in which it does business, are primarily
provided by its subsidiaries. On a parent only basis, UTG's cash flow is
dependent on management fees received from its insurance subsidiary and earnings
received on cash balances. On December 31, 2005, substantially all of the
consolidated shareholders equity represents net assets of its subsidiary. The
Company's insurance subsidiary has maintained adequate statutory capital and
surplus and has not used surplus relief or financial reinsurance. The payment of
cash dividends to shareholders is not legally restricted. However, the state
insurance department regulates insurance company dividend payments where the
company is domiciled.

UG is an Ohio domiciled insurance company, which requires five days prior
notification to the insurance commissioner for the payment of an ordinary
dividend. Ordinary dividends are defined as the greater of: a) prior year
statutory earnings or b) 10% of statutory capital and surplus. At December 31,
2005 UG statutory shareholders' equity was $ 25,645,716. At December 31, 2005,
UG statutory gain from operations was $ 5,113,557. Extraordinary dividends
(amounts in excess of ordinary dividend limitations) require prior approval of
the insurance commissioner and are not restricted to a specific calculation. UG
paid a dividend of $ 2,275,000 to UTG in 2004, of which $ 974,180 was considered
to be an extraordinary dividend. There were no dividends paid during 2005.

Management believes the overall sources of liquidity available will be
sufficient to satisfy its financial obligations.

Regulatory Environment

In March 2005, UTG's Board of Directors adopted a proposal to change the state
of incorporation of UTG from Illinois to Delaware by merging UTG with and into a
wholly-owned Delaware subsidiary (the "reincorporation merger"). The Board of
Directors and management of UTG believe that reincorporation to Delaware would
be beneficial to the Company because Delaware corporate law is more
comprehensive, widely used and extensively interpreted than other state
corporate laws, including Illinois corporate law. The reincorporation merger
effected only a change in UTG's legal domicile and certain other changes of a
legal nature. It did not result in any change in UTG's business, management,
fiscal year, assets or liabilities or location of its principal facilities. At
the 2005 annual meeting of shareholders, the shareholders approved the
reincorporation merger to be effective July 1, 2005.

The Company's current and merged insurance subsidiaries are assessed
contributions by life and health guaranty associations in almost all states to
indemnify policyholders of failed companies. In several states the company may
reduce premium taxes paid to recover a portion of assessments paid to the
states' guaranty fund association. This right of "offset" may come under review
by the various states, and the company cannot predict whether and to what extent
legislative initiatives may affect this right to offset. In addition, some state
guaranty associations have adjusted the basis by which they assess the cost of
insolvencies to individual companies. The Company believes that its reserve for
future guaranty fund assessments is sufficient to provide for assessments
related to known insolvencies. This reserve is based upon management's current
expectation of the availability of this right of offset, known insolvencies and
state guaranty fund assessment bases. However, changes in the basis whereby
assessments are charged to individual companies and changes in the availability
of the right to offset assessments against premium tax payments could materially
affect the company's results.

Currently, UG, the insurance subsidiary, is subject to government regulation in
each of the states in which it conducts business. Such regulation is vested in
state agencies having broad administrative power dealing with all aspects of the
insurance business, including the power to: (i) grant and revoke licenses to
transact business; (ii) regulate and supervise trade practices and market
conduct; (iii) establish guaranty associations; (iv) license agents; (v) approve
policy forms; (vi) approve premium rates for some lines of business; (vii)
establish reserve requirements; (viii) prescribe the form and content of
required financial statements and reports; (ix) determine the reasonableness and
adequacy of statutory capital and surplus; and (x) regulate the type and amount
of permitted investments. Insurance regulation is concerned primarily with the
protection of policyholders. The Company cannot predict the impact of any future
proposals, regulations or market conduct investigations. UG is domiciled in the
state of Ohio.

The insurance regulatory framework continues to be scrutinized by various
states, the federal government and the National Association of Insurance
Commissioners (NAIC). The NAIC is an association whose membership consists of
the insurance commissioners or their designees of the various states. The NAIC
has no direct regulatory authority over insurance companies. However, its
primary purpose is to provide a more consistent method of regulation and
reporting from state to state. This is accomplished through the issuance of
model regulations, which can be adopted by individual states unmodified,
modified to meet the state's own needs or requirements, or dismissed entirely.

Most states also have insurance holding company statutes, which require
registration and periodic reporting by insurance companies controlled by other
corporations licensed to transact business within their respective
jurisdictions. The insurance subsidiary is subject to such legislation and
registered as controlled insurers in those jurisdictions in which such
registration is required. Statutes vary from state to state but typically
require periodic disclosure, concerning the corporation that controls the
registered insurers and all subsidiaries of such corporation. In addition, prior
notice to, or approval by, the state insurance commission of material
inter-corporate transfers of assets, reinsurance agreements, management
agreements (see Note 9 to the consolidated financial statements), and payment of
dividends (see Note 2 to the consolidated financial statements) in excess of
specified amounts by the insurance subsidiary, within the holding company
system, are required.

Each year, the NAIC calculates financial ratio results (commonly referred to as
IRIS ratios) for each company. These ratios measure various statutory balance
sheet and income statement financial information. The results are then compared
to pre-established normal ranges determined by the NAIC. Results outside the
range typically require explanation to the domiciliary insurance department.

At year-end 2005, UG had two ratios outside the normal range. Each of the ratios
outside the normal range was anticipated by Management, based upon the operating
results of the Company. The first ratio was slightly outside the normal range,
as it relates to net investment income. As discussed in previous sections of
this report, investment income has been hindered by declining interest rates in
recent years and the average life of the investment portfolio. The Company feels
with the change in interest rate environment and repositioning of the investment
portfolio, this ratio will be corrected. Also, realized gains are not included
in this calculation, which would have had a positive impact on this ratio. The
second ratio outside the normal range relates to the Company's affiliated
investments. The Company has made investments in real estate projects, which
have been consolidated into these financial statements through limited liability
companies. The limited liability companies were created to provide additional
risk protection to the Company. While this negatively impacts this ratio, the
Company believes that this structure is in the best interest of the Company and
these investments will have a positive long-term impact on the Company.

The NAIC's risk-based capital requirements require insurance companies to
calculate and report information under a risk-based capital formula. The
risk-based capital (RBC) formula measures the adequacy of statutory capital and
surplus in relation to investment and insurance risks such as asset quality,
mortality and morbidity, asset and liability matching and other business
factors. The RBC formula is used by state insurance regulators as an early
warning tool to identify, for the purpose of initiating regulatory action,
insurance companies that potentially are inadequately capitalized. In addition,
the formula defines new minimum capital standards that supplement the current
system of low fixed minimum capital and surplus requirements on a state-by-state
basis. Regulatory compliance is determined by a ratio of the insurance company's
regulatory total adjusted capital, as defined by the NAIC, to its authorized
control level RBC, as defined by the NAIC. Insurance companies below specific
trigger points or ratios are classified within certain levels, each of which
requires specific corrective action. The levels and ratios are as follows:

Ratio of Total Adjusted Capital to
Authorized Control Level RBC
Regulatory Event (Less Than or Equal to)

Company action level 2*
Regulatory action level 1.5
Authorized control level 1
Mandatory control level 0.7

* Or, 2.5 with negative trend.

At December 31, 2005, UG has a ratio that is in excess of 4, which is 400% of
the authorized control level; accordingly, UG meets the RBC requirements.

On July 30, 2002, President Bush signed into law the "SARBANES-OXLEY" Act of
2002 ("the Act"). This Law, enacted in response to several high-profile business
failures, was developed to provide meaningful reforms that protect the public
interest and restore confidence in the reporting practices of publicly traded
companies. The implications of the Act to public companies, (which includes UTG)
are vast, widespread, and evolving. The Company has implemented requirements
affecting the current reporting period, and is continually monitoring,
evaluating, and planning implementation of requirements that will need to be
taken into account in future reporting periods. As part of the implementing
these requirements, the Company has developed a compliance plan, which includes
documentation, evaluation and testing of key financial reporting controls.

The "USA PATRIOT" Act of 2001 ("the Patriot Act"), enacted in response to the
terrorist attacks of September 11, 2001, strengthens our Nation's ability to
combat terrorism and prevent and detect money-laundering activities. Under
Section 352 of the Patriot Act, financial institutions (definition includes
insurance companies) are required to develop an anti-money laundering program.
The practices and procedures implemented under the program should reflect the
risks of money laundering given the entity's products, methods of distribution,
contact with customers and forms of customer payment and deposits. In addition,
Section 326 of the Patriot Act creates minimum standards for financial
institutions regarding the identity of their customers in connection with the
purchase of a policy or contract of insurance. The Company has instituted an
anti-money laundering program to comply with Section 352, and has communicated
this program throughout the organization. In addition, all new business
applications are regularly screened through the Medical Information Bureau. The
Company regularly updates the information provided by the Office of Foreign
Asset Control, U.S. Treasury Department in order to remain in compliance with
the Patriot Act and will continue to monitor this issue as changes and new
proposals are made.

Accounting and Legal Developments

The Financial Accounting Standards Board ("FASB") issued Statement No. 154,
Accounting for Changes and Error Corrections - a replacement of APB Opinion No.
20 and FASB Statement No. 3. The statement changes the requirements for the
accounting for and reporting of a change in accounting principle. It also
applies to changes required by an accounting pronouncement in the unusual
instance that the pronouncement does not include specific transition provisions.
The statement is effective for accounting changes and corrections of errors made
in fiscal years beginning after December 15, 2005. While this pronouncement has
no immediate impact, the Company will account for all future changes and error
corrections in accordance with the requirements of Statement No. 154.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk relates, broadly, to changes in the value of financial instruments
that arise from adverse movements in interest rates, equity prices and foreign
exchange rates. The Company is exposed principally to changes in interest rates
which affect the market prices of its fixed maturities available for sale. The
Company's exposure to equity prices and foreign currency exchange rates is
immaterial. The information is presented in U.S. Dollars, the Company's
reporting currency.

Interest rate risk

The Company could experience economic losses if it were required to liquidate
fixed income securities available for sale during periods of rising and/or
volatile interest rates. The Company attempts to mitigate its exposure to
adverse interest rate movements through staggering the maturities of its fixed
maturity investments and through maintaining cash and other short term
investments to assure sufficient liquidity to meet its obligations and to
address reinvestment risk considerations.

Tabular presentation

The Company does not have long-term debt that is sensitive to changes in
interest rates or derivative financial instruments or interest rate swap
contracts.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Listed below are the financial statements included in this Part of the Annual
Report on SEC Form 10-K:

Page No.
UTG, INC. AND CONSOLIDATED SUBSIDIARIES

Report of Brown Smith Wallace LLC, Independent
Registered Public Accounting Firm for the year ended
December 31, 2005..........................................................31

Report of Kerber, Eck & Braeckel LLP, Independent
Registered Public Accounting Firm for the years ended
December 31, 2004, 2003....................................................32

Consolidated Balance Sheets...................................................33

Consolidated Statements of Operations.........................................34

Consolidated Statements of Shareholders' Equity...............................35

Consolidated Statements of Cash Flows.........................................36

Notes to Consolidated Financial Statements.................................37-58

Report of Brown Smith Wallace LLC
Independent Registered Public Accounting Firm

Board of Directors and Shareholders
UTG, Inc.

We have audited the accompanying consolidated balance sheet of UTG, Inc. (a
Delaware corporation) and subsidiaries as of December 31, 2005, and the related
consolidated statements of operations, shareholders' equity, and cash flows for
the year ended December 31, 2005. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our 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 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
audit provides 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
UTG, Inc. and subsidiaries as of December 31, 2005, and the consolidated results
of their operations and their consolidated cash flows for the year ended
December 31, 2005, in conformity with accounting principles generally accepted
in the United States of America.

We have also audited Schedule I as of December 31, 2005, and Schedules II,
IV and V as of December 31, 2005, of UTG, Inc. and subsidiaries and Schedules
II, IV and V for the year then ended. In our opinion, these schedules present
fairly, in all material respects, the information required to be set forth
therein.

Brown Smith Wallace, LLC
/s/ Brown Smith Wallace, LLC

St. Louis, Missouri
March 8, 2006

Report of
Independent Registered Public Accounting Firm

Board of Directors and Shareholders
UTG, Inc.

We have audited the accompanying consolidated balance sheet of UTG, Inc. (a
Delaware corporation) and subsidiaries as of December 31, 2004, and the related
consolidated statements of operations, shareholders' equity, and cash flows for
each of the two years in the period ended December 31, 2004. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits 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 financial statements referred to above present fairly,
in all material respects, the consolidated financial position of UTG, Inc. and
subsidiaries as of December 31, 2004, and the consolidated results of their
operations and their consolidated cash flows for each of the two years in the
period ended December 31, 2004, in conformity with accounting principles
generally accepted in the United States of America.

We have also audited Schedules II, IV and V as of December 31, 2004, of
UTG, Inc. and subsidiaries and Schedules II, IV and V for each of the two years
in the period then ended. In our opinion, these schedules present fairly, in all
material respects, the information required to be set forth therein.

KEB /s/ Kerber, Eck & Braeckel LLP

Springfield, Illinois
March 11, 2006

UTG, INC.
CONSOLIDATED BALANCE SHEETS
As of December 31, 2005 and 2004

ASSETS

2005 2004
--------------- ---------------
Investments:
Fixed maturities held to maturity, at amortized cost
(market $7,500,291 and $12,097,788) $ 7,513,064 $ 11,973,415
Investments held for sale:
Fixed maturities, at market (cost $127,000,657 and $147,217,453) 125,075,626 148,193,887
Equity securities, at market (cost $15,098,815 and $15,216,214) 24,574,259 24,399,172
Mortgage loans on real estate at amortized cost 36,781,293 20,722,415
Investment real estate, at cost, net of accumulated depreciation 42,587,982 28,192,081
Policy loans 12,644,838 12,844,748
Short-term investments 42,116 39,489
--------------- ---------------
249,219,178 246,365,207

Cash and cash equivalents 12,204,087 11,859,472
Securities of affiliate 4,000,000 4,000,000
Accrued investment income 1,538,972 1,678,393
Reinsurance receivables:
Future policy benefits 31,908,738 32,422,529
Policy claims and other benefits 4,017,833 3,959,569
Cost of insurance acquired 10,554,447 12,747,532
Deferred policy acquisition costs 1,414,364 1,685,263
Property and equipment, net of accumulated depreciation 1,921,841 2,172,636
Income taxes receivable, current 150,447 181,683
Other assets 1,901,594 795,800
--------------- ---------------
Total assets $ 318,831,501 $ 317,868,084
=============== ===============

LIABILITIES AND SHAREHOLDERS' EQUITY
Policy liabilities and accruals:
Future policy benefits $ 234,959,085 $ 235,592,973
Policy claims and benefits payable 1,950,037 1,879,566
Other policyholder funds 1,217,857 1,323,668
Dividend and endowment accumulations 12,638,713 12,526,390
Deferred income taxes 8,100,615 8,561,010
Other liabilities 4,738,809 7,405,434
--------------- ---------------
Total liabilities 263,605,116 267,289,041
Minority interests in consolidated subsidiaries 11,908,933 6,127,938

Shareholders' equity:
Common stock - no par value, stated value $.001 and $.02 per share.
Authorized 7,000,000 shares - 3,901,800 and 3,965,533 shares issued
and outstanding after deducting treasury shares of 303,442 and 227,709 3,902 79,315
Additional paid-in capital 42,295,661 42,590,820
Accumulated deficit (3,637,349) (4,897,572)
Accumulated other comprehensive income 4,655,238 6,678,542
--------------- ---------------
Total shareholders' equity 43,317,452 44,451,105
--------------- ---------------
Total liabilities and shareholders' equity $ 318,831,501 $ 317,868,084
=============== ===============

See accompanying notes.

UTG, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Years Ended December 31, 2005

2005 2004 2003
--------------- ---------------- ----------------

Revenues:

Premiums and policy fees $ 16,399,080 $ 17,275,708 $ 18,121,018
Reinsurance premiums and policy fees (2,672,397) (3,135,279) (3,097,980)
Net investment income 11,051,226 10,420,886 10,270,500
Realized investment gains (losses), net 1,431,936 (20,648) 485,436
Other income 1,261,495 926,212 709,384
--------------- ---------------- ----------------
27,471,340 25,466,879 26,488,358

Benefits and other expenses:

Benefits, claims and settlement expenses:
Life 17,589,143 18,942,272 22,175,842
Reinsurance benefits and claims (1,716,499) (2,268,869) (3,194,541)
Annuity 1,064,808 1,111,998 1,122,707
Dividends to policyholders 938,891 980,306 966,668
Commissions and amortization of deferred
policy acquisition costs (14,267) 309,776 311,939
Amortization of cost of insurance acquired 2,193,085 1,869,135 6,695,328
Operating expenses 5,516,566 5,312,747 7,566,780
Interest expense 0 77,453 162,179
--------------- ---------------- ----------------
25,571,727 26,334,818 35,806,902
--------------- ---------------- ----------------

Income (loss) before income taxes
and minority interest 1,899,613 (867,939) (9,318,544)
Income tax benefit (expense) (158,408) 797,716 2,699,493
Minority interest in (income) loss
of consolidated subsidiaries (480,982) (205,394) 222,561
--------------- ---------------- ----------------

Net income (loss) $ 1,260,223 $ (275,617)$ (6,396,490)
=============== ================ ================

Basic income (loss) per share from continuing
operations and net income (loss) $ 0.32 $ (0.07)$ (1.67)
=============== ================ ================

Diluted income (loss) per share from continuing
operations and net income (loss) $ 0.32 $ (0.07)$ (1.67)
=============== ================ ================

Basic weighted average shares outstanding 3,938,781 3,986,731 3,839,947
=============== ================ ================

Diluted weighted average shares outstanding 3,938,781 3,986,731 3,839,947
=============== ================ ================

See accompanying notes.

UTG, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Three Years Ended December 31, 2005

2005 2004 2003
--------------------------- ------------------------- ---------------------------

Common stock
Balance, beginning of year $ 79,315 $ 80,008 $ 70,726
Issued during year 120 289 10,331
Treasury shares acquired (75) (1,066) (532)
Change in stated value (75,458) 0 0
Reclassification under FAS 150 0 84 0
Retired during year 0 0 (433)
Cumulative change in accounting principal 0 0 (84)
------------ ------------ -----------
Balance, end of year $ 3,902 $ 79,315 $ 80,008
============ ============ ===========

Additional paid-in capital
Balance, beginning of year $ 42,590,820 $ 42,672,189 $ 42,976,344
Issued during year 151,200 167,071 185,574
Treasury shares acquired (521,817) (297,991) (181,817)
Change in stated value 75,458 0 0
Reclassification under FAS 150 0 49,551 0
Retired during year 0 0 (258,361)
Cumulative change in accounting principal 0 0 (49,551)
------------ ------------ -----------
Balance, end of year $ 42,295,661 $ 42,590,820 $ 42,672,189
============ ============ ===========

Retained earnings (accumulated deficit)
Balance, beginning of year $ (4,897,572) $ (4,621,955) $ 1,774,535
Net income (loss) 1,260,223 $ 1,260,223 (275,617) $ (275,617) (6,396,490) $ (6,396,490)
------------ ------------ -----------
Balance, end of year $ (3,637,349) $ (4,897,572) $ (4,621,955)
============ ============ ===========

Accumulated other comprehensive income
Balance, beginning of year $ 6,678,542 $ 1,566,397 $ 2,771,941
Other comprehensive income (loss)
Unrealized holding gain (loss) on securities
net of minority interest and
reclassification adjustment and taxes (2,023,304) (2,023,304) 5,112,145 5,112,145 (1,205,544) (1,205,544)
------------ ------------- ------------ ----------- ----------- ------------
Comprehensive income (loss) $ (763,081) $ 4,836,528 $ (7,602,034)
============ =========== ============
Balance, end of year $ 4,655,238 $ 6,678,542 $ 1,566,397
============ ============ ===========

Total shareholders' equity, end of year $ 43,317,452 $ 44,451,105 $ 39,696,639
============ ============ ===========

See accompaning notes.

UTG, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Years Ended December 31, 2005

2005 2004 2003
--------------- --------------- ---------------
Increase (decrease) in cash and cash equivalents
Cash flows from operating activities:
Net income (loss) $ 1,260,223 $ (275,617) $ (6,396,490)
Adjustments to reconcile net income (loss) to net cash
used in operating activities net of changes in assets and liabilities
resulting from the sales and purchases of subsidiaries:
Amortization/accretion of fixed maturities 606,914 604,608 978,307
Realized investment (gains) losses, net (1,459,959) 20,648 (485,436)
Amortization of deferred policy acquisition costs 278,899 442,380 400,844
Amortization of cost of insurance acquired 2,193,085 1,869,135 6,695,328
Depreciation 2,206,023 1,617,116 1,052,964
Minority interest 480,982 205,394 (222,561)
Charges for mortality and administration
of universal life and annuity products (9,097,858) (9,281,555) (9,083,778)
Interest credited to account balances 5,251,303 5,332,145 5,478,488
Policy acquisition costs deferred (8,000) (5,000) (61,000)
Change in accrued investment income 139,421 283,159 491,288
Change in reinsurance receivables 455,527 527,926 (100,703)
Change in policy liabilities and accruals 1,017,812 1,073,108 3,163,696
Change in income taxes payable 157,111 (924,815) (2,877,425)
Change in other assets and liabilities, net (3,772,419) (1,534,582) 33,430
--------------- --------------- ---------------
Net cash used in operating activities (290,936) (45,950) (933,048)
--------------- --------------- ---------------

Cash flows from investing activities:
Proceeds from investments sold and matured:
Fixed maturities held for sale 26,182,897 70,893,152 73,314,066
Fixed maturities matured 5,816,061 16,098,477 36,065,715
Equity securities 3,182,055 25,569 167,734
Mortgage loans 10,050,792 8,620,093 8,494,201
Real estate 876,594 314,157 1,096,759
Policy loans 3,803,491 2,757,989 2,619,463
Short-term 425,000 350,000 350,000
--------------- --------------- ---------------
Total proceeds from investments sold and matured 50,336,890 99,059,437 122,107,938
Cost of investments acquired:
Fixed maturities held for sale (6,496,673) (76,377,916) (108,410,675)
Fixed maturities (1,474,140) (1,513,700) (4,283,413)
Equity securities (1,606,543) (8,033,052) (7,089,857)
Mortgage loans (26,109,670) (2,626,540) (11,405,342)
Real estate (11,883,777) (3,981,568) (3,722,406)
Policy loans (3,603,581) (2,376,338) (2,499,358)
Short-term (428,221) (353,061) (7,001)
--------------- --------------- ---------------
Total cost of investments acquired (51,602,605) (95,262,175) (137,418,052)
Purchase of property and equipment 0 (20,548) (536,600)
--------------- --------------- ---------------
Net cash provided by (used in) investing activities (1,265,715) 3,776,714 (15,846,714)
--------------- --------------- ---------------

Cash flows from financing activities:
Policyholder contract deposits 8,481,796 9,015,637 9,505,436
Policyholder contract withdrawals (6,209,958) (7,215,183) (7,067,658)
Payments of principal on notes payable (1,500,000) (4,564,776) (705,499)
Proceeds from line of credit 1,500,000 2,275,000 0
Issuance of common stock 151,320 167,360 195,906
Purchase of treasury stock (521,892) (299,057) (441,144)
--------------- --------------- ---------------
Net cash provided by (used in) financing activities 1,901,266 (621,019) 1,487,041
--------------- --------------- ---------------

Net increase (decrease) in cash and cash equivalents 344,615 3,109,745 (15,292,721)
Cash and cash equivalents at beginning of year 11,859,472 8,749,727 24,042,448
--------------- --------------- ---------------
Cash and cash equivalents at end of year $ 12,204,087 $ 11,859,472 $ 8,749,727
=============== =============== ===============

See accompanying notes.

UTG, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A. ORGANIZATION - At December 31, 2005, the significant majority-owned
subsidiaries of UTG, Inc were as depicted on the following
organizational chart.



The  Company's  significant  accounting  policies,  consistently  applied in the
preparation  of  the  accompanying   consolidated   financial  statements,   are
summarized as follows.

     B.   NATURE OF  OPERATIONS - UTG,  Inc., is an insurance  holding  company,
          which sells individual life insurance products through its subsidiary.
          The Company's  principal market is the mid-western  United States. The
          Company's   dominant  business  is  individual  life  insurance  which
          includes the servicing of existing  insurance  business in force,  the
          solicitation  of new individual  life insurance and the acquisition of
          other companies in the insurance business.

     C.   BUSINESS  SEGMENTS - The  Company  has only one  significant  business
          segment - insurance.

     D.   BASIS OF PRESENTATION - The financial statements of UTG, Inc., and its
          subsidiaries   have  been  prepared  in  accordance   with  accounting
          principles  generally  accepted in the States of America  which differ
          from statutory  accounting practices permitted by insurance regulatory
          authorities.

     E.   PRINCIPLES OF  CONSOLIDATION - The consolidated  financial  statements
          include  the  accounts  of  the  Registrant  and  its   majority-owned
          subsidiaries.  All significant inter-company accounts and transactions
          have been eliminated.



     F.   INVESTMENTS - Investments are shown on the following bases:

          Fixed maturities held to maturity - at cost, adjusted for amortization
          of premium or discount and other-than-temporary market value declines.
          The  amortized  cost of such  investments  differs  from their  market
          values;  however, the Company has the ability and intent to hold these
          investments to maturity, at which time the full face value is expected
          to be realized.

          Investments  held  for  sale - at  current  market  value,  unrealized
          appreciation  or  depreciation  is charged  directly to  shareholders'
          equity.

          Mortgage  loans on real  estate - at  unpaid  balances,  adjusted  for
          amortization  of premium or  discount,  less  allowance  for  possible
          losses.

          Real  estate -  investment  real  estate  at cost less  allowance  for
          depreciation  and, as  appropriate,  provisions  for possible  losses.
          Accumulated depreciation on investment real estate was $ 4,444,729 and
          $ 2,491,205 as of December 31, 2005 and 2004, respectively.

          Policy loans - at unpaid balances including  accumulated  interest but
          not in excess of the cash surrender value.

          Short-term  investments - at cost, which  approximates  current market
          value.

          Realized  gains and losses on sales of  investments  are recognized in
          net income on the specific identification basis.

          Unrealized gains and losses on investments carried at market value are
          recognized   in   other   comprehensive   income   on   the   specific
          identification basis.

     G.   CASH EQUIVALENTS - The Company  considers  certificates of deposit and
          other short-term  instruments with an original  purchased  maturity of
          three months or less cash equivalents.

     H.   REINSURANCE - In the normal  course of business,  the Company seeks to
          limit its  exposure  to loss on any  single  insured  and to recover a
          portion of  benefits  paid by ceding  reinsurance  to other  insurance
          enterprises  or  reinsurers  under  excess  coverage  and  coinsurance
          contracts.  The Company retains a maximum of $ 125,000 of coverage per
          individual life.

          Amounts paid, or deemed to have been paid, for  reinsurance  contracts
          are recorded as reinsurance  receivables.  Reinsurance receivables are
          recognized in a manner consistent with the liabilities relating to the
          underlying  reinsured  contracts.  The cost of reinsurance  related to
          long-duration  contracts  is  accounted  for  over  the  life  of  the
          underlying reinsured policies using assumptions  consistent with those
          used to account for the underlying policies.

     I.   FUTURE POLICY  BENEFITS AND EXPENSES - The liabilities for traditional
          life insurance and accident and health  insurance  policy benefits are
          computed  using  a  net  level  method.   These  liabilities   include
          assumptions as to investment yields, mortality, withdrawals, and other
          assumptions  based  on  the  life  insurance  subsidiary's  experience
          adjusted to reflect  anticipated  trends and to include provisions for
          possible unfavorable  deviations.  The Company makes these assumptions
          at the  time the  contract  is  issued  or,  in the case of  contracts
          acquired by purchase, at the purchase date. Future policy benefits for
          individual  life  insurance  and annuity  policies are computed  using
          interest  rates  ranging from 2% to 6% for life  insurance and 3.0% to
          9.25% for annuities.  Benefit  reserves for traditional life insurance
          policies include certain deferred profits on limited-payment  policies
          that are being  recognized  in income  over the  policy  term.  Policy
          benefit  claims are  charged to expense in the period  that the claims
          are incurred.  Current mortality rate assumptions are based on 1975-80
          select and ultimate tables. Withdrawal rate assumptions are based upon
          Linton B or Linton C, which are industry standard actuarial tables for
          forecasting assumed policy lapse rates.

          Benefit  reserves for universal life insurance and interest  sensitive
          life  insurance  products are computed under a  retrospective  deposit
          method  and  represent  policy  account  balances  before   applicable
          surrender  charges.  Policy  benefits  and claims  that are charged to
          expense  include  benefit  claims in excess of related  policy account
          balances.  Interest  crediting  rates for universal  life and interest
          sensitive  products  range  from  4.0% to 5.5%  for  the  years  ended
          December 31, 2005, 2004 and 2003, respectively.

     J.   POLICY  AND  CONTRACT  CLAIMS - Policy  and  contract  claims  include
          provisions  for reported  claims in process of  settlement,  valued in
          accordance  with the terms of the policies and  contracts,  as well as
          provisions  for  claims   incurred  and  unreported   based  on  prior
          experience  of the  Company.  Incurred  but not  reported  claims were
          $ 913,896   and   $ 899,126   as  of   December 31,   2005  and  2004,
          respectively.


     K.   COST OF INSURANCE  ACQUIRED - When an  insurance  company is acquired,
          the  Company  assigns  a portion  of its cost to the right to  receive
          future cash flows from insurance contracts existing at the date of the
          acquisition. The cost of policies purchased represents the actuarially
          determined  present value of the projected  future cash flows from the
          acquired   policies.   The  Company   utilized  9%  discount  rate  on
          approximately   25%  of  the  business   and  15%  discount   rate  on
          approximately  75% of the  business.  Cost of  insurance  acquired  is
          amortized  with  interest  in relation  to  expected  future  profits,
          including direct  charge-offs for any excess of the unamortized  asset
          over the projected future profits.  The interest rates utilized in the
          amortization  calculation are 9% on  approximately  25% of the balance
          and 15% on the  remaining  balance.  The  interest  rates  vary due to
          differences in the blocks of business.  The  amortization  is adjusted
          retrospectively  when  estimates of current or future gross profits to
          be realized from a group of products are revised.

                                              2005                2004                 2003
                                        ----------------    -----------------    ----------------
Cost of insurance acquired,
        beginning of year          $        12,747,532  $       14,616,667   $       21,311,995
   Interest accretion                        3,739,918           4,002,245            4,370,526
   Amortization                             (5,933,003)         (5,871,380)          (6,065,854)
                                        ----------------    -----------------    ----------------
   Net amortization                         (2,193,085)         (1,869,135)          (1,695,328)
   Impairment loss                                   0                   0           (5,000,000)
                                        ----------------    -----------------    ----------------
Cost of insurance acquired,
        end of year                $        10,554,447  $       12,747,532   $       14,616,667
                                        ================    =================    ================

          Cost of insurance  acquired was tested for  impairment  as part of the
          regular reporting  process.  Due to a decline in projected future cash
          flows  from the  business  and  lower  current  investment  yields,  a
          revision of the estimated fair value of the cost of insurance acquired
          was  considered  necessary  in  2003.  This  revision  resulted  in  a
          $ 5,000,000  impairment  loss. The fair value of the cost of insurance
          acquired was estimated using the expected present value of future cash
          flows. The impairment loss is included in the consolidated  statements
          of operations  under the caption of  amortization of cost of insurance
          acquired.

          Estimated net amortization  expense of cost of insurance  acquired for
          the next five years is as follows:

                                             Interest                                Net
                                            Accretion      Amortization     Amortization

           2006                           $ 3,426,000       $ 6,277,000      $ 2,851,000
           2007                             3,012,000         5,859,000        2,847,000
           2008                             2,597,000         5,133,000        2,536,000
           2009                             2,226,000         4,364,000        2,138,000
           2010                               218,000           401,000          183,000


     L.   DEFERRED  POLICY  ACQUISITION  COSTS -  Commissions  and  other  costs
          (salaries of certain employees involved in the underwriting and policy
          issue  functions and medical and  inspection  fees) of acquiring  life
          insurance  products  that vary with and are  primarily  related to the
          production  of new  business  have  been  deferred.  Traditional  life
          insurance   acquisition   costs   are   being   amortized   over   the
          premium-paying  period  of  the  related  policies  using  assumptions
          consistent with those used in computing policy benefit reserves.

          For universal  life  insurance and interest  sensitive  life insurance
          products,   acquisition   costs  are  being  amortized   generally  in
          proportion  to the  present  value  of  expected  gross  profits  from
          surrender  charges and  investment,  mortality,  and expense  margins.
          Under 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 Company makes certain  assumptions
          regarding the mortality, persistency,  expenses, and interest rates it
          expects to experience in future periods.  These  assumptions are to be
          best  estimates and are to be  periodically  updated  whenever  actual
          experience  and/or  expectations  for the future  change from  initial
          assumptions.   The  amortization  is  adjusted   retrospectively  when
          estimates  of current or future  gross  profits to be realized  from a
          group of products are revised. The following table summarizes deferred
          policy acquisition costs and related data for the years shown.

                                                      2005                2004                 2003
                                              ----------------    -----------------    ----------------
Deferred, beginning of year              $         1,685,263  $        2,122,643   $        2,462,487

Acquisition costs deferred:
  Commissions                                              0                   0               56,000
  Other expenses                                       5,000               5,000                5,000
                                              ----------------    -----------------    ----------------
  Total                                                5,000               5,000               61,000

Interest accretion                                     8,000              10,000               17,000
Amortization charged to income                      (283,899)           (452,380)            (417,844)
                                              ----------------    -----------------    ----------------
  Net amortization                                  (275,899)           (442,380)            (400,844)

                                              ----------------    -----------------    ----------------
  Change for the year                               (270,899)           (437,380)            (339,844)
                                              ----------------    -----------------    ----------------

Deferred, end of year                    $         1,414,364  $        1,685,263   $        2,122,643
                                              ================    =================    ================



          Estimated  net  amortization  expense of deferred  policy  acquisition
          costs for the next five years is as follows:

                                                 Interest                              Net
                                                 Accretion          Amortization       Amortization
                                               --------------     ---------------    ----------------

              2006                                  11,000              244,000            233,000
              2007                                   9,000              219,000            210,000
              2008                                   8,000              206,000            198,000
              2009                                   6,000              180,000            174,000
              2010                                   5,000               99,000             94,000


     M.   PROPERTY AND EQUIPMENT -  Company-occupied  property,  data processing
          equipment and  furniture and office  equipment are stated at cost less
          accumulated   depreciation   of   $ 6,587,036   and   $ 6,336,241   at
          December 31, 2005 and 2004, respectively.  Depreciation is computed on
          a straight-line basis for financial reporting purposes using estimated
          useful  lives of three  to  thirty  years.  Depreciation  expense  was
          $ 250,795,  $ 298,021,  and $ 149,664 for the years ended December 31,
          2005, 2004, and 2003, respectively.

     N.   INCOME TAXES - Income taxes are reported under  Statement of Financial
          Accounting Standards Number 109. Deferred income taxes are recorded to
          reflect the tax consequences on future periods of differences  between
          the tax bases of assets and liabilities and their financial  reporting
          amounts at the end of each such period.

     O.   EARNINGS  PER SHARE -  Earnings  per share  (EPS) are  reported  under
          Statement of Financial  Accounting Standards Number 128. The objective
          of both basic EPS and diluted EPS is to measure the  performance of an
          entity over the  reporting  period.  Basic EPS is computed by dividing
          income  available  to  common  stockholders  (the  numerator)  by  the
          weighted-average number of common shares outstanding (the denominator)
          during the period.  Diluted EPS is similar to the computation of basic
          EPS except that the  denominator is increased to include the number of
          additional  common  shares  that  would have been  outstanding  if the
          dilutive  potential  common shares had been issued.  In addition,  the
          numerator  also is  adjusted  for any  changes  in income or loss that
          would result from the assumed  conversion  of those  potential  common
          shares.

     P.   TREASURY  SHARES - The Company  holds  303,442  and 227,709  shares of
          common stock as treasury  shares with a cost basis of $ 2,196,987  and
          $ 1,675,097 at December 31, 2005 and 2004, respectively.

     Q.   RECOGNITION   OF  REVENUES   AND  RELATED   EXPENSES  -  Premiums  for
          traditional life insurance products, which include those products with
          fixed and  guaranteed  premiums and benefits,  consist  principally of
          whole  life  insurance  policies,  and  certain  annuities  with  life
          contingencies  are  recognized as revenues when due.  Limited  payment
          life insurance policies defer gross premiums received in excess of net
          premiums,   which  is  then   recognized   in  income  in  a  constant
          relationship  with insurance in force.  Accident and health  insurance
          premiums  are  recognized  as  revenue  pro rata over the terms of the
          policies.  Benefits and related expenses  associated with the premiums
          earned are  charged to expense  proportionately  over the lives of the
          policies through a provision for future policy benefit liabilities and
          through  deferral  and  amortization  of deferred  policy  acquisition
          costs. For universal life and investment products,  generally there is
          no requirement  for payment of premium other than to maintain  account
          values at a level  sufficient to pay  mortality  and expense  charges.
          Consequently,  premiums for  universal  life  policies and  investment
          products  are not  reported as revenue,  but as  deposits.  Policy fee
          revenue for universal life policies and investment  products  consists
          of charges for the cost of insurance  and policy  administration  fees
          assessed  during the period.  Expenses  include  interest  credited to
          policy  account  balances  and  benefit  claims  incurred in excess of
          policy account balances.

     R.   PARTICIPATING  INSURANCE - Participating  business  represents 19% and
          20% of the ordinary life insurance in force at  December 31,  2005 and
          2004,   respectively.   Premium  income  from  participating  business
          represents  21%,  22%,  and 23% of total  premiums for the years ended
          December 31,   2005,  2004  and  2003,  respectively.  The  amount  of
          dividends  to  be  paid  is  determined   annually  by  the  insurance
          subsidiary's  Board of Directors.  Earnings allocable to participating
          policyholders are based on legal requirements that vary by state.

     S.   RECLASSIFICATIONS  - Certain prior year amounts have been reclassified
          to conform to the 2005  presentation.  Such  reclassifications  had no
          effect on previously reported net income or shareholders' equity.

     T.   USE OF ESTIMATES - In preparing  financial  statements  in  conformity
          with accounting  principles generally accepted in the United States of
          America, management is required to make estimates and assumptions that
          affect the reported amounts of assets and liabilities,  the disclosure
          of  contingent  assets and  liabilities  at the date of the  financial
          statements,  and the reported  amounts of revenues and expenses during
          the  reporting   period.   Actual  results  could  differ  from  those
          estimates.

     U.   IMPAIRMENT OF LONG LIVED ASSETS - The Company evaluates whether events
          and circumstances have occurred that indicate the remaining  estimated
          useful  life of long lived  assets may  warrant  revision  or that the
          remaining  balance of an aset may not be recoverable.  The measurement
          of possible  impairment is based on the ability to recover the balance
          of assets from expected future operating cash flows on an undiscounted
          basis.  In the opinion of management,  no such  impairment  existed at
          December 31, 2005.


2.   SHAREHOLDER DIVIDEND RESTRICTION

At December 31,  2005,  substantially all of consolidated  shareholders'  equity
represents  net assets of UTG's  subsidiaries.  The payment of cash dividends to
shareholders  by UTG is not legally  restricted.  However,  the state  insurance
department  regulates  insurance  company dividend payments where the company is
domiciled. UG's dividend limitations are described below.

Ohio domiciled  insurance  companies require five days prior notification to the
insurance  commissioner  for  the  payment  of an  ordinary  dividend.  Ordinary
dividends are defined as the greater of: a) prior year statutory  earnings or b)
10% of statutory capital and surplus.  For the year ended December 31,  2005, UG
had a statutory gain from operations of $ 5,113,557. At December 31,  2005, UG's
statutory capital and surplus amounted to $ 25,645,716.  Extraordinary dividends
(amounts in excess of ordinary dividend  limitations)  require prior approval of
the insurance commissioner and are not restricted to a specific calculation.  In
2005 and 2004, UG paid $ 0 and $ 2,275,000, of which $ 974,180 was considered to
be an extraordinary dividend, respectively, to UTG.


3.   INCOME TAXES

Until 1984,  the  insurance  company was taxed under the  provisions of the Life
Insurance Company Income Tax Act of 1959 as amended by the Tax Equity and Fiscal
Responsibility  Act of 1982. These laws were superseded by the Deficit Reduction
Act of 1984. All of these laws are based  primarily upon statutory  results with
certain  special  deductions  and other items  available  only to life insurance
companies. Under the provision of the pre-1984 life insurance company income tax
regulations, a portion of "gain from operations" of a life insurance company was
not subject to current  taxation but was  accumulated,  for tax  purposes,  in a
special tax memorandum account  designated as "policyholders'  surplus account".
Federal income taxes will become payable on this account at the then current tax
rate when and if distributions  to shareholders,  other than stock dividends and
other limited exceptions, are made in excess of the accumulated previously taxed
income maintained in the "shareholders surplus account".  At December 31,  2005,
the balances of the shareholders' surplus account and the untaxed balance for UG
were $ 25,383,321 and $ 4,363,821, respectively.

The payment of taxes on this income is not  anticipated;  and,  accordingly,  no
deferred taxes have been established.

The life  insurance  company and the  non-insurance  companies of the group file
separate federal income tax returns.

Life insurance  company taxation is based primarily upon statutory  results with
certain  special  deductions  and other items  available  only to life insurance
companies. Income tax expense (benefit) consists of the following components:

                                               2005                2004                 2003
                                         ----------------    -----------------    ----------------
Current tax expense                 $            21,368    $        147,358      $       197,732
Deferred tax (benefit) expense                  137,040            (945,074)          (2,897,225)
                                         ----------------    -----------------    ----------------
                                    $           158,408    $       (797,716)     $    (2,699,493)
                                         ================    =================    ================


The Company's  life insurance  subsidiary has net operating loss  carry-forwards
for federal income tax purposes expiring as follows:

                                        UG
                                   -------------
          2018                        901,108
          2019                      2,565,645
                                   -------------
          TOTAL                $    3,466,753
                                   =============


The  Company  has  established  a  deferred  tax  asset of  $ 1,213,364  for its
operating loss carry-forwards and has established no allowance in the current or
prior years.

UG has a net operating loss  carry-forward of $ 3,466,753 at December 31,  2005.
UG must average taxable income of approximately $ 435,326 over the next 15 years
to fully  realize its net  operating  loss  carry-forward.  Management  believes
future earnings of UG will be sufficient to fully utilize the net operating loss
carry-forwards. Therefore, management has established no allowance for potential
uncollectible of its loss carry-forwards in the current year.



The following table shows the  reconciliation of net income to taxable income of
UTG:

                                                 2005                 2004               2003
                                           -----------------    ---------------    -----------------
Net income (loss)                        $     1,260,223     $       (275,617)$      (6,396,490)
Federal income tax provision                     (24,254)             105,098           263,992
Loss (gain) of subsidiaries                   (1,155,680)             803,662         6,723,981
                                           -----------------    ---------------    -----------------
Taxable income                           $        80,289     $        633,143  $        591,483
                                           =================    ===============    =================


The  expense or  (credit)  for income  differed  from the  amounts  computed  by
applying the applicable  United States statutory rate of 35% before income taxes
as a result of the following differences:

                                                                 2005               2004               2003
                                                           ---------------    ---------------    ----------------
Tax computed at statutory rate                        $         664,865   $       (303,779)  $     (3,183,594)
Changes in taxes due to:
  Current year expense previously deducted                            0                  0            175,000
  Tax reserve adjustment                                              0           (202,225)           150,831
  Utilization of capital loss carryforward                     (327,467)                 0                  0
  Dividend received deduction                                  (188,988)          (161,114)                 0
  Tax deferred acquisition costs                                      0           (134,324)                 0
  Minority interest                                            (168,344)                 0                  0
  Small company deduction                                       211,474                  0                  0
  Other                                                         (33,132)             3,726            158,270
                                                           ---------------    ---------------    ----------------
Income tax expense (benefit)                          $         158,408   $       (797,716)  $     (2,699,493)
                                                           ===============    ===============    ================


The following table  summarizes the major  components that comprise the deferred
tax liability as reflected in the balance sheets:

                                                  2005                  2004
                                            ----------------      ---------------
Investments                           $         4,721,575   $         5,289,610
Cost of insurance acquired                      3,694,056             4,461,636
Deferred policy acquisition costs                 495,027               589,842
Management/consulting fees                       (275,434)             (289,876)
Future policy benefits                           (671,161)             (646,374)
Gain on sale of subsidiary                      2,312,483             2,312,483
Net operating loss carry forward               (1,213,364)           (2,123,037)
Federal tax DAC                                  (962,565)           (1,033,272)
                                            ----------------      ---------------
Deferred tax liability                $         8,100,615   $         8,561,010
                                            ================      ===============




4.   ANALYSIS OF INVESTMENTS, INVESTMENT INCOME AND INVESTMENT GAIN

A. NET INVESTMENT INCOME - The following table reflects net investment income by
type of investment:

                                                                           December 31,
                                                      ----------------------------------------------------------
                                                                2005               2004               2003
                                                          ---------------    ----------------   ----------------
Fixed maturities and fixed maturities
  held for sale                                       $        6,661,648 $        7,060,761  $       8,418,969
Equity securities                                                771,379            657,609            456,361
Mortgage loans                                                 2,033,007          1,209,358          1,522,700
Real estate                                                    7,473,698          5,335,530          2,832,171
Policy loans                                                     860,240            918,562            949,770
Short-term investments                                             3,699             80,241             11,161
Cash                                                             171,926            111,986            137,478
                                                          ---------------    ----------------   ----------------
Total consolidated investment income                          17,975,597         15,374,047         14,328,610
Investment expenses                                           (6,924,371)        (4,953,161)        (4,058,110)
                                                          ---------------    ----------------   ----------------
Consolidated net investment income                    $       11,051,226 $       10,420,886  $      10,270,500
                                                          ===============    ================   ================

The  following  table  summarizes  the  Company's  fixed  maturity  holdings and
investments held for sale by major classifications:

                                                                                  Carrying Value
                                                                    ----------------------------------------
                                                                               2005                 2004
                                                                          ---------------      --------------
 Investments held for sale:
     Fixed maturities
         U.S. Government, government agencies and authorities        $    25,221,548     $     41,632,843
         State, municipalities and political subdivisions                    173,743              177,444
         Collateralized mortgage obligations                              72,306,120           79,643,440
         All other corporate bonds                                        27,374,215           26,740,160
                                                                          ---------------      --------------
                                                                     $   125,075,626    $     148,193,887
                                                                          ===============      ==============

     Equity securities
         Banks, trusts and insurance companies                       $     4,609,529      $     4,692,661
         Industrial and miscellaneous                                     19,964,730           19,706,511
                                                                          ---------------      --------------
                                                                     $    24,574,259     $     24,399,172
                                                                          ===============      ==============



                                                                                  Carrying Value
                                                                    ----------------------------------------
                                                                               2005                 2004
                                                                          ---------------      --------------

 Fixed maturities held to maturity:
     U.S. Government, government agencies and authorities            $     6,014,103      $     7,801,268
     State, municipalities and political subdivisions                      1,453,227            2,448,293
     Collateralized mortgage obligations                                      45,734               58,453
     Public utilities                                                              0                    0
     All other corporate bonds                                                     0            1,665,401
                                                                          ---------------      --------------
                                                                     $     7,513,064 $         11,973,415
                                                                          ===============      ==============

 Securities of affiliate                                             $     4,000,000 $          4,000,000
                                                                          ===============      ==============

By insurance  statute,  the majority of the  Company's  investment  portfolio is
invested  in  investment  grade  securities  to  provide  ample  protection  for
policyholders.

Below  investment  grade debt  securities  generally  provide  higher yields and
involve  greater  risks than  investment  grade debt  securities  because  their
issuers  typically  are more highly  leveraged  and more  vulnerable  to adverse
economic  conditions than  investment  grade issuers.  In addition,  the trading
market for these  securities is usually more limited than for  investment  grade
debt securities.  Debt securities classified as below-investment grade are those
that receive a Standard & Poor's rating of BB or below.

The following  table  summarizes  securities  held, at amortized  cost, that are
below investment grade by major classification:

         Below Investment
        Grade Investments                 2005              2004
   -----------------------------     --------------    ------------
     Public Utilities              $          0     $           0
     CMO                                 11,449            15,764
     Corporate                        1,081,660         2,123,028
                                      -------------    ------------
     Total                         $  1,093,109     $   2,138,792
                                      =============    ============




B.   INVESTMENT SECURITIES

The amortized  cost and estimated  market  values of  investments  in securities
including investments held for sale are as follows:

                                          Cost or            Gross             Gross             Estimated
                                         Amortized         Unrealized        Unrealized           Market
2005                                       Cost              Gains             Losses             Value
------------------------------------   --------------     -------------    ---------------    --------------
Investments held for sale:
  Fixed maturities
  U.S. Government and govt.
    agencies and authorities        $     25,660,210    $       90,648   $       (529,310)   $   25,221,548
  States, municipalities and
    political subdivisions                   163,886             9,857                  0           173,743
  Collateralized mortgage
    obligations                           74,086,345            15,004         (1,795,229)       72,306,120
  Public utilities                                 0                 0                  0                 0
  All other corporate bonds               27,090,216           474,346           (190,347)       27,374,215
                                       --------------     -------------    ---------------    --------------
                                         127,000,657           589,855         (2,514,886)      125,075,626
  Equity securities                       15,098,815         9,475,444                  0        24,574,259
                                       --------------     -------------    ---------------    --------------
  Total                             $    142,099,472    $   10,065,299   $     (2,514,886)   $  149,649,885
                                       ==============     =============    ===============    ==============

Fixed maturities held to maturity:
  U.S. Government and govt.
    agencies and authorities        $      6,014,103    $        5,174   $        (58,943)   $    5,960,334
  States, municipalities and
    political subdivisions                 1,453,227            41,700                  0         1,494,927
  Collateralized mortgage
    obligations                               45,734               390             (1,094)           45,030
  Public utilities                                 0                 0                  0                 0
  All other corporate bonds                        0                 0                  0                 0
                                       --------------     -------------    ---------------    --------------
  Total                             $      7,513,064    $       47,264   $        (60,037)   $    7,500,291
                                       ==============     =============    ===============    ==============

Securities of affiliate             $      4,000,000    $            0   $              0    $    4,000,000
                                       ==============     =============    ===============    ==============




                                          Cost or            Gross            Gross              Estimated
                                          Amortized          Unrealized       Unrealized         Market
2004                                      Cost               Gains            Losses             Value
------------------------------------      --------------     -------------    ------------    -------------
Investments held for sale:
  Fixed maturities
  U.S. Government and govt.
    agencies and authorities        $     41,377,077     $     384,193      $  (128,427)   $  41,632,843
  States, municipalities and
    political subdivisions                   162,025            15,419                0          177,444
  Collateralized mortgage
    obligations                           79,634,753           459,508         (450,821)      79,643,440
  Public utilities                                 0                 0                0                0
  All other corporate bonds               26,043,598           792,693          (96,131)      26,740,160
                                       --------------     -------------    ---------------   --------------
                                         147,217,453         1,651,813         (675,379)     148,193,887
  Equity securities                       15,216,214        10,214,201       (1,031,243)      24,399,172
                                       --------------     -------------    ---------------   --------------
  Total                             $    162,433,667     $  11,866,014      $(1,706,622)   $ 172,593,059
                                       ==============     =============    ===============   ==============

Fixed maturities held to maturity:
  U.S. Government and govt.
    agencies and authorities        $      7,801,268     $      43,237      $   (40,910)   $   7,803,595
  States, municipalities and
    political subdivisions                 2,448,293           116,815                0        2,565,108
  Collateralized mortgage
    obligations                               58,453               661           (1,343)          57,771
  Public utilities                                 0                 0                0                0
  All other corporate bonds                1,665,401            26,833          (20,920)       1,671,314
                                       --------------     -------------    ---------------   --------------
  Total                             $     11,973,415     $     187,546      $   (63,173)   $  12,097,788
                                       ==============     =============    ===============   ==============

Securities of affiliate             $     4,000,000      $           0      $         0    $   4,000,000
                                       ==============     =============    ===============   ==============





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

                                                                         Estimated
     Fixed Maturities Held for Sale                   Amortized           Market
         December 31, 2005                              Cost               Value
---------------------------------------------      --------------      --------------
Due in one year or less                       $     10,383,204      $   10,343,228
Due after one year through five years               31,651,404          31,693,708
Due after five years through ten years               6,944,931           6,843,315
Due after ten years                                  9,113,226           8,987,741
Collateralized mortgage obligations                 68,907,892          67,207,634
                                                   --------------      --------------
Total                                         $    127,000,657      $  125,075,626
                                                   ==============      ==============



                                                                         Estimated
    Fixed Maturities Held to Maturity                 Amortized           Market
         December 31, 2005                              Cost               Value
---------------------------------------------      --------------      --------------
Due in one year or less                       $      3,059,728      $    3,041,104
Due after one year through five years                2,411,040           2,415,254
Due after five years through ten years               1,670,879           1,658,601
Due after ten years                                    325,775             340,403
Collateralized mortgage obligations                     45,642              44,929
                                                   --------------      --------------
Total                                         $      7,513,064      $    7,500,291
                                                   ==============      ==============

     An analysis of sales,  maturities and principal repayments of the Company's
     fixed maturities portfolio for the years ended December 31,  2005, 2004 and
     2003 is as follows:



                                            Cost or            Gross             Gross             Proceeds
                                           Amortized          Realized          Realized             From
   Year ended December 31, 2005              Cost              Gains             Losses              Sale
-------------------------------------    ---------------    -------------    ---------------    ---------------
Scheduled principal repayments,
   Calls and tenders:
     Held for sale                     $   15,114,740     $      9,682     $            0     $   15,124,442
     Held to maturity                       5,801,888            2,300             (9,125)          5,795,062
   Sales:
      Held for sale                        11,124,418           15,077            (60,022)         11,079,473
      Held to maturity                              0                0                  0                   0
                                         ---------------    -------------    ---------------    ---------------
  Total                                $   32,041,046    $     27,059     $      (69,147)     $   31,998,958
                                         ===============    =============    ===============    ===============



                                            Cost or            Gross             Gross             Proceeds
                                           Amortized          Realized          Realized             From
Year ended December 31, 2004                 Cost               Gains            Losses              Sale
-------------------------------------    ---------------    -------------    ---------------    ---------------
Scheduled principal repayments,
   Calls and tenders:
     Held for sale                     $   25,119,862     $      8,062     $       (2,098)     $   25,125,826
     Held to maturity                      16,099,278                0               (801)         16,098,477
   Sales:
      Held for sale                        45,840,981          278,896           (352,551)         45,767,326
      Held to maturity                              0                0                 (0)                  0
                                         ---------------    -------------    ---------------    ---------------
  Total                                $   87,060,121     $    286,958     $     (355,450)     $   86,991,629
                                         ===============    =============    ===============    ===============



                                            Cost or            Gross             Gross             Proceeds
                                           Amortized          Realized          Realized             From
Year ended December 31, 2003                 Cost               Gains            Losses              Sale
-------------------------------------    ---------------    -------------    ---------------    ---------------
Scheduled principal repayments,
   Calls and tenders:
     Held for sale                     $   60,702,967     $      2,283     $      (13,872)     $   60,691,378
     Held to maturity                      30,923,388                0               (227)         30,923,161
   Sales:
      Held for sale                        12,863,340                0           (240,652)         12,622,688
      Held to maturity                      4,825,213          319,980             (2,639)          5,142,554
                                         ---------------    -------------    ---------------    ---------------
  Total                                $  109,314,908     $    322,263     $     (257,390)     $  109,379,781
                                         ===============    =============    ===============    ===============

     Annually,  the Company completes an analysis of sales of securities held to
     maturity to further assess the issuer's  creditworthiness of fixed maturity
     holdings.  Based on this  analysis,  during 2003,  certain issues were sold
     that had been classified as held to maturity.  The Company  considers these
     transactions rare and non recurring.

C.   INVESTMENTS  ON  DEPOSIT - At  December 31,  2005,  investments  carried at
     approximately  $ 4,417,460  were on deposit  with various  state  insurance
     departments.


5.   DISCLOSURES ABOUT FAIR VALUES OF FINANCIAL INSTRUMENTS

The financial  statements  include various  estimated fair value  information at
December 31,  2005 and 2004,  as required by Statement  of Financial  Accounting
Standards 107, Disclosure about Fair Value of Financial  Instruments (SFAS 107).
Such  information,  which pertains to the Company's  financial  instruments,  is
based on the  requirements  set forth in that  Statement and does not purport to
represent the aggregate net fair value of the Company.

The following  methods and  assumptions  were used to estimate the fair value of
each class of financial  instrument  required to be valued by SFAS 107 for which
it is practicable to estimate that value:

(a)  Cash and Cash equivalents

The carrying amount in the financial statements  approximates fair value because
of  the  relatively  short  period  of  time  between  the  origination  of  the
instruments and their expected realization.



(b)  Fixed maturities and investments held for sale

Quoted market  prices,  if available,  are used to determine the fair value.  If
quoted  market  prices are not  available,  management  estimates the fair value
based  on the  quoted  market  price  of a  financial  instrument  with  similar
characteristics.

(c)  Mortgage loans on real estate

The fair values of  mortgage  loans are  estimated  using  discounted  cash flow
analyses and interest  rates being offered for similar  loans to borrowers  with
similar credit ratings.

(d)  Policy loans

It is not  practical  to estimate the fair value of policy loans as they have no
stated  maturity  and their  rates are set at a fixed  spread to related  policy
liability  rates.  Policy loans are carried at the  aggregate  unpaid  principal
balances in the consolidated  balance sheets, and earn interest at rates ranging
from 4% to 8%.  Individual  policy  liabilities  in all  cases  equal or  exceed
outstanding policy loan balances.

(e)  Short-term investments

Quoted market  prices,  if available,  are used to determine the fair value.  If
quoted  market  prices are not  available,  management  estimates the fair value
based  on the  quoted  market  price  of a  financial  instrument  with  similar
characteristics.

(f)  Notes payable

For  borrowings  subject to  floating  rates of  interest,  carrying  value is a
reasonable  estimate  of fair  value.  For fixed rate  borrowings  fair value is
determined  based on the borrowing rates currently  available to the Company for
loans with similar terms and average maturities.

The estimated fair values of the Company's financial  instruments required to be
valued by SFAS 107 are as follows as of December 31:


                                                  2005                                2004
                                    -------------------------------------------------------------------------
                                                         Estimated                            Estimated
                                      Carrying           Fair              Carrying           Fair
Assets                                Amount             Value             Amount             Value
                                      --------------     --------------    ---------------    ---------------
Fixed maturities                   $    7,513,064     $    7,500,291     $  11,973,415     $   12,097,788
Fixed maturities held for sale        125,075,626        125,075,626       148,193,887        148,193,887
Equity securities                      24,574,259         24,574,259        24,399,172         24,399,172
Securities of affiliate                 4,000,000          4,000,000         4,000,000          4,000,000
Mortgage loans on real estate          36,781,293         36,358,308        20,722,415         20,816,955
Policy loans                           12,644,838         12,644,838        12,844,748         12,844,748
Short-term investments                     42,116             42,116            39,489             39,489

Liabilities
Notes payable                                   0                  0                 0                  0




6.   STATUTORY EQUITY AND INCOME FROM OPERATIONS

The  Company's  insurance  subsidiary  is  domiciled  in Ohio and  prepares  its
statutory-based  financial  statements in accordance with  accounting  practices
prescribed  or  permitted by the Ohio  insurance  department.  These  principles
differ significantly from accounting principles generally accepted in the United
States of America.  "Prescribed"  statutory  accounting  practices include state
laws,  regulations,  and general  administrative  rules, as well as a variety of
publications  of the National  Association  of Insurance  Commissioners  (NAIC).
"Permitted"  statutory  accounting  practices encompass all accounting practices
that are not  prescribed;  such  practices may differ from state to state,  from
company to company  within a state,  and may  change in the  future.  UG's total
statutory shareholders' equity was $ 25,645,716 and $ 21,860,401 at December 31,
2005 and 2004,  respectively.  UG reported a statutory  operating  income (loss)
before  taxes   (exclusive  of   inter-company   dividends)   of   approximately
$ 5,114,000,   $ (762,000)   and   $ (1,461,000)   for  2005,   2004  and  2003,
respectively.


7.   REINSURANCE

As is customary in the insurance  industry,  UG cedes  insurance to, and assumes
insurance  from,  other  insurance   companies  under  reinsurance   agreements.
Reinsurance  agreements are intended to limit a life insurer's maximum loss on a
large or  unusually  hazardous  risk or to obtain a greater  diversification  of
risk. The ceding  insurance  company  remains  primarily  liable with respect to
ceded insurance  should any reinsurer be unable to meet the obligations  assumed
by it. However,  it is the practice of insurers to reduce their exposure to loss
to the extent that they have been reinsured with other insurance companies.  The
Company sets a limit on the amount of insurance  retained on the life of any one
person.  The Company will not retain more than $ 125,000,  including  accidental
death  benefits,  on any one life. At  December 31,  2005, the Company had gross
insurance in force of $ 3.421 billion of which  approximately  $ 484 million was
ceded to reinsurers.

The Company's  reinsured business is ceded to numerous  reinsurers.  The Company
monitors the solvency of its  reinsurers in seeking to minimize the risk of loss
in the event of a failure by one of the parties.  The primary  reinsurers of the
Company are large, well capitalized entities.

Currently,  the Company is  utilizing  reinsurance  agreements  with  Optimum Re
Insurance Company,  (Optimum) and Swiss Re Life and Health America  Incorporated
(SWISS RE).  Optimum and SWISS RE currently  hold an "A"  (Excellent),  and "A+"
(Superior) rating, respectively, from A.M. Best, an industry rating company. The
reinsurance  agreements  were  effective  December 1, 1993, and covered most new
business of the Company. The agreements are a yearly renewable term (YRT) treaty
where the Company cedes amounts  above its retention  limit of $ 100,000  with a
minimum cession of $ 25,000.

In addition  to the above  reinsurance  agreements,  the  Company  entered  into
reinsurance  agreements with Optimum Re Insurance  Company (Optimum) during 2004
to provide reinsurance on new products released for sale in 2004. The agreements
are yearly  renewable  term (YRT) treaties where the Company cedes amounts above
its retention  limit of $100,000 with a minimum cession of $25,000 as has been a
Company practice for the last several years with its reinsurers. Also, effective
January 1, 2005,  Optimum became the reinsurer of 100% of the  accidental  death
benefits (ADB) in force of the Company.  This coverage is renewable  annually at
the Company's option.  Optimum specializes in reinsurance  agreements with small
to  mid-size  carriers  such as the  Company.  Optimum  currently  holds  an "A"
(Excellent) rating from A.M. Best.

UG entered into a coinsurance  agreement with Park Avenue Life Insurance Company
(PALIC) effective September 30, 1996. Under the terms of the agreement, UG ceded
to PALIC substantially all of its then in-force paid-up life insurance policies.
Paid-up life insurance  generally  refers to  non-premium  paying life insurance
policies.  PALIC and its ultimate parent The Guardian Life Insurance  Company of
America  (Guardian),  currently  hold an "A"  (Excellent),  and "A+"  (Superior)
rating,  respectively,  from A.M. Best, an industry  rating  company.  The PALIC
agreement  accounts for approximately 68% of the reinsurance  reserve credit, as
of December 31, 2005.

On  September 30,  1998,  UG  entered  into a  coinsurance  agreement  with  The
Independent Order of Vikings, an Illinois fraternal benefit society (IOV). Under
the terms of the agreement,  UG agreed to assume, on a coinsurance basis, 25% of
the reserves and  liabilities  arising  from all  in-force  insurance  contracts
issued  by the IOV to its  members.  At  December 31,  2005,  the IOV  insurance
in-force assumed by UG was approximately  $ 1,694,000,  with reserves being held
on that amount of approximately $ 393,000.

On June 1,  2000, UG assumed an already existing  coinsurance  agreement,  dated
January 1,  1992, between Lancaster Life Reinsurance  Company (LLRC), an Arizona
corporation and Investors  Heritage Life Insurance  Company (IHL), a corporation
organized under the laws of the Commonwealth of Kentucky. Under the terms of the
agreement,  LLRC  agreed to assume  from IHL a 90% quota  share of new issues of
credit life and accident and health  policies that have been written on or after
January 1,  1992 through various  branches of the First Southern  National Bank.
The  maximum  amount of credit  life  insurance  that can be  assumed on any one
individual's  life is  $ 15,000.  UG  assumed  all the  rights  and  obligations
formerly held by LLRC as the reinsurer in the  agreement.  LLRC  liquidated  its
charter  immediately  following  the transfer.  At  December 31,  2005,  the IHL
agreement has insurance  in-force of  approximately  $ 2,328,000,  with reserves
being held on that amount of approximately $ 34,000.

The Company does not have any short-duration  reinsurance contracts.  The effect
of the Company's long-duration reinsurance contracts on premiums earned in 2005,
2004 and 2003 was as follows:


                                          Shown in thousands
                          ---------------------------------------------------------
                               2005                2004                 2003
                             Premiums            Premiums             Premiums
                              Earned              Earned               Earned
                          ----------------    ----------------     ----------------
Direct                $          16,357    $         17,238    $          18,087
Assumed                              42                  38                   34
Ceded                            (2,672)             (3,036)              (2,896)
                          ----------------    ----------------    ----------------
Net premiums          $          13,727    $         14,240    $          15,225
                          ================    ================    ================


8.   COMMITMENTS AND CONTINGENCIES

The insurance  industry has  experienced  a number of civil jury verdicts  which
have been  returned  against life and health  insurers in the  jurisdictions  in
which the Company does business involving the insurers' sales practices, alleged
agent misconduct,  failure to properly supervise agents, and other matters. Some
of the lawsuits have resulted in the award of substantial  judgments against the
insurer,  including material amounts of punitive damages. In some states, juries
have substantial discretion in awarding punitive damages in these circumstances.

Under the insurance guaranty fund laws in most states, insurance companies doing
business in a  participating  state can be assessed up to prescribed  limits for
policyholder  losses  incurred  by  insolvent  or  failed  insurance  companies.
Although the Company cannot predict the amount of any future  assessments,  most
insurance guaranty fund laws currently provide that an assessment may be excused
or deferred if it would  threaten an  insurer's  financial  strength.  Mandatory
assessments may be partially recovered through a reduction in future premium tax
in some states. The Company does not believe such assessments will be materially
different from amounts already provided for in the financial statements,  though
the Company has no control over such assessments.

On June 10,  2002 UTG and Fiserv  formed an alliance  between  their  respective
organizations to provide third party  administration (TPA) services to insurance
companies  seeking  business  process  outsourcing  solutions.  Fiserv  will  be
responsible  for the marketing and sales  function for the alliance,  as well as
providing the operations  processing  service for the Company.  The Company will
staff the administration  effort. To facilitate the alliance,  the Company plans
to convert its  existing  business and TPA clients to "ID3",  a software  system
owned by Fiserv to administer an array of life,  health and annuity  products in
the insurance industry. Fiserv is a unit of Fiserv, Inc. (NASDAQ: FISV) which is
an  independent,   full-service  provider  of  integrated  data  processing  and
information  management  systems to the  financial  industry,  headquartered  in
Brookfield, Wisconsin.

In June 2002,  the Company  entered  into a five-year  contract  with Fiserv for
services  related  to its  purchase  of the  "ID3"  software  system.  Under the
contract,  the  Company  is  required  to pay  $ 12,000  per  month in  software
maintenance  costs and a per-policy  charge in offsite data center costs, with a
minimum of  $ 12,000  per month,  for a  five-year  period  from the date of the
agreement.

On April 25,  2003 the Company  entered  into an  agreement  with Fiserv for the
conversion of the two TPA client  companies to the "ID3" system.  The conversion
was  successfully  completed in December 2003 utilizing  Company  personnel with
onsite training and guidance provided by Fiserv.  During 2004, the Company began
the conversion of the remaining  insurance business to the "ID3" software system
and successfully completed the first phase of this project. The remaining blocks
of business will be completed during 2006.

In the normal  course of business  the Company is involved  from time to time in
various  legal  actions and other state and federal  proceedings.  There were no
proceedings pending or threatened as of December 31, 2005.


9.   RELATED PARTY TRANSACTIONS

On July 1, 2005, United Trust Group, Inc., an Illinois corporation,  merged with
and into its wholly-owned  subsidiary,  UTG, Inc. (UTG), a Delaware corporation,
for the purpose of effecting a change in the  Company's  state of  incorporation
from  Illinois to  Delaware.  The merger was  effected  pursuant to that certain
Agreement  and Plan of Merger  dated as of April 4, 2005,  which was approved by
the boards of directors of both UTG and United Trust Group,  Inc. The merger was
approved by the holders of two-thirds of the outstanding  shares of common stock
of United Trust Group,  Inc. at the 2005 annual meeting of  shareholders on June
15, 2005, and by the sole stockholder of UTG, Inc. on June 15, 2005.

On  September 1,  2004,  UTG  contributed  the common stock of its  wholly-owned
subsidiary, North Plaza, to its life insurance subsidiary, UG. The contribution,
which  received  prior  approval by the  regulatory  authorities,  increased the
capital of the life insurance subsidiary by $ 7,857,794.

On February 20, 2003, UG purchased  $ 4,000,000  of a trust  preferred  security
offering issued by FSBI. The security has a mandatory  redemption after 30 years
with a call provision after 5 years. The security pays a quarterly dividend at a
fixed rate of 6.515%. The Company received $ 264,219, $ 264,842 and $ 226,104 of
dividends in 2005, 2004 and 2003, respectively.

On June 18,  2003,  UG entered  into a lease  agreement  with  Bandyco,  LLC, an
affiliated  entity,  for a one-sixth  interest in an aircraft.  Bandyco,  LLC is
affiliated  with Ward F.  Correll,  who is a director of the Company.  The lease
term is for a period of five years at a total cost of  $ 523,831  per year.  The
Company  is  responsible  for its  share of  annual  non-operational  costs,  in
addition to the operational costs as are billable for specific use.

On March 26, 2002, the Board of Directors of UTG adopted, and on June 11,  2002,
the  shareholders  of UTG approved,  the UTG, Inc.  Employee and Director  Stock
Purchase Plan (See Note 10.A. to the consolidated financial statements).

At the March 2003 Board of Directors  meeting,  the  Appalachian  Life Insurance
Company (APPL) and UG Boards  reaffirmed the merger of APPL with and into UG and
approved the final merger  documents.  Upon  receiving the necessary  regulatory
approvals,  the merger of Abraham Lincoln  Insurance Company (ABE) and APPL with
and into UG was consummated  effective July 1, 2003. ABE and APPL were each 100%
owned subsidiaries of UG prior to the merger. Management of the Company believes
the  completion  of the mergers will provide the Company  with  additional  cost
savings.  These cost savings result from  streamlining the Company's  operations
and organizational  structure from three life insurance subsidiaries to one life
insurance subsidiary,  UG. Thus, the Company will further improve administrative
efficiency.

On  January 1,  1993,  UTG  entered an  agreement  with UG pursuant to which UTG
provided management services necessary for UG to carry on its business.  UG paid
$ 5,054,918,  $ 5,625,451  and  $ 5,906,406  to  UTG in  2005,  2004  and  2003,
respectively, under this arrangement.

Prior to its  merger,  ABE  paid  fees to UTG  pursuant  to a cost  sharing  and
management fee agreement.  UTG provided  management services for ABE to carry on
its  business.  The  agreement  required ABE to pay a  percentage  of the actual
expenses incurred by UTG based on certain activity indicators of ABE business to
the business of all the insurance  company  subsidiaries  plus a management  fee
based on a percentage of the actual expenses  allocated to ABE. ABE paid fees of
$ 165,269 in 2003 to UTG under this agreement.

Prior to its merger,  APPL had a management  fee agreement  with UTG whereby UTG
provided certain administrative duties, primarily data processing and investment
advice. APPL paid fees of $ 222,000 to UTG during 2003 under this agreement.

Respective domiciliary insurance departments have approved the agreements of the
insurance companies and it is Management's opinion that where applicable,  costs
have been  allocated  fairly  and such  allocations  are based  upon  accounting
principles generally accepted in the United States of America.

UG from time to time acquires  mortgage loans through  participation  agreements
with FSNB.  FSNB  services UG's mortgage  loans  including  those covered by the
participation  agreements. UG pays a .25% servicing fee on these loans and a one
time fee at loan  origination of .50% of the original loan amount to cover costs
incurred by FSNB relating to the  processing and  establishment  of the loan. UG
paid $77,597,  $ 45,468 and $ 63,214 in servicing  fees and  $ 112,109,  $ 0 and
$ 13,821 in origination fees to FSNB during 2005, 2004 and 2003, respectively.

The Company reimbursed expenses incurred by Mr. Jesse T. Correll and Mr. Randall
L.  Attkisson  relating  to travel  and  other  costs  incurred  on behalf of or
relating to the  Company.  The Company paid  $ 68,318,  $ 50,098 and $ 20,238 in
2005,  2004  and  2003,   respectively  to  First  Southern  Bancorp,   Inc.  in
reimbursement  of such costs. In addition,  beginning in 2001, the Company began
reimbursing FSBI a portion of salaries and pension costs for Mr. Correll and Mr.
Attkisson.  The  reimbursement  was approved by the UTG Board of  Directors  and
totaled $ 160,272, $ 160,440 and $ 160,440 in 2005, 2004 and 2003, respectively,
which included salaries and other benefits.


10.  CAPITAL STOCK TRANSACTIONS

A.   EMPLOYEE AND DIRECTOR STOCK PURCHASE PROGRAM

On March 26, 2002, the Board of Directors of UTG adopted, and on June 11,  2002,
the  shareholders  of UTG approved,  the UTG, Inc.  Employee and Director  Stock
Purchase  Plan.  The plan's  purpose is to  encourage  ownership of UTG stock by
eligible  directors and employees of UTG and its  subsidiaries by providing them
with an  opportunity  to  invest  in shares  of UTG  common  stock.  The plan is
administered  by the Board of  Directors  of UTG. A total of  400,000  shares of
common stock may be purchased under the plan, subject to appropriate  adjustment
for stock dividends,  stock splits or similar  recapitalizations  resulting in a
change in shares of UTG.  The plan is not  intended  to qualify as an  "employee
stock purchase plan" under Section 423 of the Internal Revenue Code.

During 2005 and 2004, the Board of Directors of UTG approved offerings under the
plan to qualified individuals.  For the years ended December 31,  2005 and 2004,
two individuals purchased 12,000 and four individuals purchased 14,440 shares of
UTG common  stock,  respectively.  Each  participant  under the plan  executed a
"stock  restriction and buy-sell  agreement",  which among other things provides
UTG with a right of first refusal on any future sales of the shares  acquired by
the participant under this plan.

The  purchase  price of  shares  repurchased  under the  stock  restriction  and
buy-sell agreement shall be computed,  on a per share basis, equal to the sum of
(i) the  original  purchase  price paid to acquire such shares from UTG and (ii)
the  consolidated  statutory net earnings (loss) per share of such shares during
the  period  from the end of the month  next  preceding  the month in which such
shares  were  acquired  pursuant  to the  plan,  to the  end of the  month  next
preceding the month in which the sale of such shares to UTG occurs. The original
issue price of shares at the time this program began was  established  at $12.00
per share.  At December 31, 2005, UTG had 101,877 shares  outstanding  that were
issued  under this  program  with a value of $ 12.93  per share  pursuant to the
above formula.

B.   STOCK REPURCHASE PROGRAM

On June 5,  2001, the Board of Directors of UTG authorized the repurchase in the
open  market or in  privately  negotiated  transactions  of up to $ 1 million of
UTG's common stock.  On June 16,  2004, an additional $ 1 million was authorized
for repurchasing  shares.  Repurchased  shares are available for future issuance
for general corporate purposes. This program can be terminated at any time. Open
market  purchases are  generally  limited to a maximum per share price of $8.00.
Through  February  1, 2006,  UTG has spent  $ 1,659,562  in the  acquisition  of
249,089 shares under this program.




C.   EARNINGS PER SHARE CALCULATIONS

The following is a  reconciliation  of the  numerators and  denominators  of the
basic and diluted EPS computations as presented on the income statement.

                                                                         For the year ended December 31, 2005
                                                             ---------------- ----- ------------------ ---- -----------------
                                                             Income(Loss)           Shares                  Per-Share
                                                             (Numerator)            (Denominator)           Amount
                                                             ----------------       ------------------      -----------------
Basic EPS
Income available to common shareholders              $           1,260,223                 3,938,781   $              0.32
                                                                                                            =================

Effect of Dilutive Securities
Options                                                                  0                         0
                                                             ----------------       ------------------

Diluted EPS
Income available to common shareholders and          $
assumed conversions                                              1,260,223                 3,938,781   $              0.32
                                                             ================       ==================      =================


                                                                         For the year ended December 31, 2004
                                                             ------------------ --- ------------------ ---- -----------------
                                                             Income (Loss)          Shares                  Per-Share
                                                             (Numerator)            (Denominator)           Amount
                                                             ------------------     ------------------      -----------------
Basic EPS
Income available to common shareholders              $            (275,617)                3,986,731   $             (0.07)
                                                                                                            =================

Effect of Dilutive Securities
Options                                                                  0                         0
                                                             ------------------     ------------------

Diluted EPS
Income available to common shareholders and          $
assumed conversions                                               (275,617)                3,986,731   $             (0.07)
                                                             ==================     ==================      =================


                                                                         For the year ended December 31, 2003
                                                             --------------- ------ ------------------ ---- -----------------
                                                             Income                 Shares                  Per-Share
                                                             (Numerator)            (Denominator)           Amount
                                                             ---------------        ------------------      -----------------
Basic EPS
Income available to common shareholders              $          (6,396,490)                3,839,947   $             (1.67)
                                                                                                            =================

Effect of Dilutive Securities
Options                                                                  0                         0
                                                             ---------------        ------------------

Diluted EPS
Income available to common shareholders and          $
assumed conversions                                             (6,396,490)                3,839,947   $             (1.67)
                                                             ===============        ==================      =================


In  accordance  with  Statement of Financial  Accounting  Standards No. 128, the
computation  of diluted  earnings  per share is the same as basic  earnings  per
share for the years ending  December 31,  2005, 2004 and 2003, since any assumed
conversion,  exercise,  or  contingent  issuance  of  securities  would  have an
anti-dilutive effect on earnings per share.


11.  NOTES PAYABLE

At December 31, 2005 and 2004, the Company had no long-term debt outstanding.

On November 15, 2001, UTG was extended a $ 3,300,000 line of credit ("LOC") from
the First National Bank of Tennessee ("FNBT") located in Livingston,  Tennessee.
The LOC was for a  one-year  term  from the date of  issue.  Upon  maturity  the
Company  had renewed  the LOC for  additional  terms  until  June 1,  2005.  The
interest  rate on the LOC was  variable and indexed to be the lowest of the U.S.
prime rates as published  in the Wall Street  Journal,  with any  interest  rate
adjustments to be made monthly.  The Company had no borrowings  attributable  to
this LOC during 2005. In order to provide greater operational flexibility,  this
LOC was transferred to the Company's wholly-owned insurance subsidiary, UG, upon
the June 1, 2005 maturity.

On June 1, 2005, UG was extended a $ 3,300,000 line of credit from the FNBT. The
LOC is for a one-year term from the date of issue.  The interest rate on the LOC
is variable and indexed to be the lowest of the U.S. prime rates as published in
the Wall Street Journal,  with any interest rate adjustments to be made monthly.
During 2005, UG had  borrowings  from the LOC of  $ 1,500,000  and repayments of
$ 1,500,000.  At  December 31,  2005, the Company had no outstanding  borrowings
attributable to this LOC.

On April 1,  2002, UTG was extended a $ 5,000,000  line of credit from Southwest
Bank of St.  Louis.  The LOC  expired  one-year  from the date of issue  and was
renewed for  additional  terms.  As  collateral  for any draws under the line of
credit,  UTG pledged 100% of the common stock of its insurance  subsidiary,  UG.
Borrowings  under  the LOC  bear  interest  at the  rate of  .25% in  excess  of
Southwest  Bank of St. Louis' prime rate.  At  December 31,  2005 and 2004,  the
Company had no outstanding borrowings  attributable to this LOC. The Company had
no borrowings attributable to this LOC during 2005.


12.  OTHER CASH FLOW DISCLOSURES

On a cash basis,  the Company  paid $ 13,  $ 77,453,  and  $ 162,179 in interest
expense for the years 2005, 2004 and 2003,  respectively.  The Company paid $ 0,
$ 110,000,  and  $ 175,000  in  federal  income  tax for  2005,  2004 and  2003,
respectively.

At  December 31,  2005 and  2004,  the  Company  acquired  $ 283,173  in  equity
investments and  $ 2,990,928 in fixed maturity  investments,  respectively,  for
which  the cash had not yet been  paid.  The  payable  for these  securities  is
included in the line item "Other liabilities" on the consolidated balance sheet.


13.  CONCENTRATION OF CREDIT RISK

The Company maintains cash balances in financial  institutions that at times may
exceed federally  insured limits.  The Company  maintains its primary  operating
cash accounts  with First  Southern  National  Bank, an affiliate of the largest
shareholder  of UTG, Mr. Jesse T. Correll,  the  Company's CEO and Chairman.  In
aggregate at December 31, 2005, these accounts hold approximately $6,404,000 for
which there are no pledges or  guarantees  outside FDIC  insurance  limits.  The
Company has not  experienced  any losses in such accounts and believes it is not
exposed to any significant credit risk on cash and cash equivalents.


14.  NEW ACCOUNTING STANDARDS

The Financial  Accounting  Standards  Board ("FASB")  issued  Statement No. 154,
Accounting for Changes and Error  Corrections - a replacement of APB Opinion No.
20 and FASB  Statement No. 3. The  statement  changes the  requirements  for the
accounting  for and  reporting  of a change  in  accounting  principle.  It also
applies  to changes  required  by an  accounting  pronouncement  in the  unusual
instance that the pronouncement does not include specific transition provisions.
The statement is effective for accounting changes and corrections of errors made
in fiscal years  beginning after December 15, 2005. The Company will account for
all future changes and error  corrections in accordance with the requirements of
Statement No. 154.


15.  COMPREHENSIVE INCOME

                                                             Before-Tax             (Expense)            Net of Tax
              2005                                             Amount               or Benefit             Amount
              -----------------------------------------    -----------------    -------------------   -----------------

              Unrealized holding gains during
                  period                               $       (5,315,754)  $         1,860,514    $      (3,455,240)
              Less: reclassification adjustment
                  for gains realized in net income              2,202,978              (771,042)           1,431,936
                                                           -----------------    -------------------   -----------------
              Net unrealized gains                             (3,112,775)            1,089,471           (2,023,304)
                                                           -----------------    -------------------   -----------------
              Other comprehensive income               $       (3,112,775)  $         1,089,471    $      (2,023,304)
                                                           =================    ===================   =================


                                                             Before-Tax             (Expense)            Net of Tax
              2004                                             Amount               or Benefit             Amount
              -----------------------------------------    -----------------    -------------------   -----------------

              Unrealized holding losses during
                  period                               $        7,896,605   $        (2,763,812)   $       5,132,793
              Less: reclassification adjustment
                  for losses realized in net income               (31,766)              (11,118)             (20,648)
                                                           -----------------    -------------------   -----------------
              Net unrealized losses                             7,864,838            (2,752,693)           5,112,145
                                                           -----------------    -------------------   -----------------
              Other comprehensive deficit              $        7,864,838   $        (2,752,693)   $       5,112,145
                                                           =================    ===================   =================


                                                             Before-Tax             (Expense)            Net of Tax
              2003                                             Amount               or Benefit             Amount
              -----------------------------------------    -----------------    -------------------   -----------------

              Unrealized holding gains during
                  period                               $       (1,941,662)  $           679,582    $      (1,262,080)
              Less: reclassification adjustment
                  for gains realized in net income                 86,979               (30,443)              56,536
                                                           -----------------    -------------------   -----------------
              Net unrealized gains                             (1,854,683)              649,139           (1,205,544)
                                                           -----------------    -------------------   -----------------
              Other comprehensive income               $       (1,854,683)  $           649,139    $      (1,205,544)
                                                           =================    ===================   =================



In 2005,  2004 and 2003,  the Company  established  a deferred tax  liability of
$ 2,970,111,  $ 3,555,787 and $ 803,095,  respectively, for the unrealized gains
based on the applicable United States statutory rate of 35%.



16.  SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

                                                                           2005
                                    -------------------- --------------------- --------------------- --------------------
                                             1st                  2nd                   3rd                   4th
                                      ---------------       ---------------       ---------------      ---------------

Premiums and policy fees, net       $     3,512,695      $      3,521,237     $       3,389,342     $     3,303,409
Net investment income                     2,433,259             2,356,705             2,587,341           3,673,921
Total revenues                            6,196,733             7,419,034             5,354,586           8,500,987
Policy benefits including
  dividends                               5,091,826             3,777,730             4,769,952           4,236,835
Commissions and
  amortization of DAC and COI               482,934               387,478               574,929             733,477
Operating expenses                        1,256,884             1,622,680             1,309,983           1,325,404
Operating income                           (634,924)            1,631,146            (1,301,880)            594,776
Net income                                 (546,568)            1,395,033            (1,248,416)            390,473
Basic earnings per share                      (0.14)                 0.35                 (0.32)               0.09
Diluted earnings per
  share                                       (0.14)                 0.35                 (0.32)               0.09

                                                                           2004
                                    -------------------- --------------------- --------------------- --------------------
                                             1st                  2nd                   3rd                   4th
                                      ---------------       ---------------       ---------------      ---------------

Premiums and policy fees, net       $     3,874,145      $      3,671,667     $       3,389,672     $     3,204,945
Net investment income                     1,831,077             2,734,854             2,865,198           2,989,757
Total revenues                            5,833,347             6,607,203             6,429,302           6,597,027
Policy benefits including
  dividends                               5,172,042             4,923,292             4,467,013           4,203,360
Commissions and
 amortization of DAC and COI                493,284               505,872               544,678             635,077
Operating expenses                        1,397,448             1,432,013             1,319,472           1,163,814
Operating income (loss)                  (1,255,061)             (278,683)               71,029             594,776
Net income (loss)                          (874,195)               66,841               141,264             390,473
Basic earnings (loss) per share               (0.22)                 0.02                  0.04                0.09
Diluted earnings (loss) per
  share                                       (0.22)                 0.02                  0.04                0.09

                                                                           2003
                                    -------------------- --------------------- --------------------- --------------------
                                             1st                  2nd                   3rd                   4th
                                      ---------------       ---------------       ---------------      ---------------

Premiums and policy fees, net       $     3,883,003      $      4,093,239     $       3,686,584     $     3,360,212
Net investment income                     2,888,444             3,231,542             2,462,813           1,687,701
Total revenues                            7,185,509             7,811,693             6,498,785           4,992,371
Policy benefits including
  dividends                               5,520,920             4,931,443             5,516,224           5,102,089
Commissions and
  amortization of DAC and COI               544,139               441,914               513,488           5,507,726
Operating expenses                        1,169,139             3,500,807             1,451,973           1,444,861
Operating income                            (90,406)           (1,102,433)           (1,023,300)         (7,102,405)
Net income (loss)                          (494,124)             (669,492)             (464,142)         (4,768,732)
Basic earnings (loss) per share               (0.14)                (0.17)                (0.12)              (1.24)
Diluted earnings (loss) per
  share                                       (0.12)                (0.17)                (0.12)              (1.24)



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

On  September  21,  2005 the Board of  Directors  of UTG,  Inc,  ("Registrant"),
dismissed Kerber, Eck & Braeckel LLP ("Kerber") as the Registrant's  independent
registered  public account firm effective at the conclusion of its review of the
Registrant's third quarter financial statements.

Kerber's  reports on the  Registrant's  financial  statements  as of and for the
years ended  December  31,  2004 and 2003 did not contain an adverse  opinion or
disclaimer  of  opinion,  nor were such  reports  qualified  or  modified  as to
uncertainty,  audit  scope,  or  accounting  principles.  The decision to change
accountants was recommended to our Board of Directors by the Audit Committee and
was approved by our Board of Directors.  There were no disagreements with Kerber
on any  matter  of  accounting  principles  or  practices,  financial  statement
disclosure, or auditing scope or procedure.

On September 21, 2005, the Board of Directors  approved engaging the independent
accounting  firm of Brown  Smith  Wallace  LLC  ("BSW")  to audit the  financial
statements  beginning  with the year  ended  December  31,  2005.  There  are no
disagreements with BSW. During the two years ended December 31, 2004 and through
the date hereof,  neither the Registrant nor anyone on its behalf  consulted BSW
regarding  either  the  application  of  accounting  principles  to a  specified
transaction,  either  completed or proposed,  or the type of audit  opinion that
might be rendered on the Registrant's financial statements, nor has BSW provided
to the Registrant a written report or oral advice  regarding such  principles or
audit opinion.


ITEM 9A. CONTROLS AND PROCEDURES

Within the 90 days prior to the filing date of this report,  an  evaluation  was
performed  under the  supervision  and with the  participation  of the Company's
management,  including  the Chief  Executive  Officer  (the "CEO") and the Chief
Financial  Officer (the "CFO"), of the effectiveness of the design and operation
of the Company's  disclosure controls and procedures.  Based on that evaluation,
the  Company's  management,  including  the  CEO and  CFO,  concluded  that  the
Company's  disclosure controls and procedures were effective in alerting them on
a timely basis to material  information  relating to the Company  required to be
included  in the  Company's  periodic  reports  filed  or  submitted  under  the
Securities  Exchange  Act of 1934,  as amended.  There have been no  significant
changes  in the  Company's  internal  controls  or in other  factors  that could
significantly affect internal controls subsequent to the date of the evaluation.


ITEM 9B. OTHER INFORMATION

None



                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF UTG

The Board Of Directors

In accordance with the laws of Delaware and the Certificate of Incorporation and
Bylaws of UTG, as amended,  UTG is managed by its executive  officers  under the
direction  of the Board of  Directors.  The  Board  elects  executive  officers,
evaluates their  performance,  works with  management in  establishing  business
objectives  and  considers  other  fundamental  corporate  matters,  such as the
issuance of stock or other  securities,  the  purchase or sale of a business and
other  significant  corporate  business  transactions.  In the fiscal year ended
December 31, 2005, the Board met 4 times. All directors attended at least 75% of
all meetings of the board.

The Board of  Directors  has an Audit  Committee  consisting  of Messrs.  Perry,
Albin, and Brinck.  The Audit Committee  performs such duties as outlined in the
Company's  Audit  Committee  Charter.  The Audit  Committee  reviews and acts or
reports to the Board with respect to various  auditing and  accounting  matters,
the scope of the audit procedures and the results thereof,  internal  accounting
and control  systems of UTG,  the nature of services  performed  for UTG and the
fees  to  be  paid  to  the  independent  auditors,  the  performance  of  UTG's
independent and internal auditors and the accounting practices of UTG. The Audit
Committee  also  recommends  to the full Board of  Directors  the auditors to be
appointed by the Board. The Audit Committee met five times in 2005.

The Board has reviewed the  qualifications of each member of the audit committee
and  determined no member of the committee  meets the definition of a "financial
expert".  The Board concluded  however,  that each member of the committee has a
proven  track  record as a  successful  businessman,  each  operating  their own
company  and  their  experience  as  businessmen  provide a  knowledge  base and
experience adequate for participation as a member of the committee.

The compensation of UTG's executive  officers is determined by the full Board of
Directors (see report on Executive Compensation).

Under UTG's By-Laws,  the Board of Directors should be comprised of at least six
and no more than eleven directors.  At December 31, 2005, the Board consisted of
eight directors.  Shareholders elect Directors to serve for a period of one year
at UTG's Annual Shareholders' meeting.

Directors  and  officers of UTG file  periodic  reports  regarding  ownership of
Company  securities  with the  Securities  and Exchange  Commission  pursuant to
Section 16(a) of the Securities  Exchange Act of 1934 as amended,  and the rules
promulgated thereunder.  During 2005, UTG was aware of the following individuals
who filed a late  Form 4,  statement  of  changes  in  beneficial  ownership  of
securities,  with the Securities and Exchange  Commission;  Joseph A Brinck, II,
director and Randall L Attkisson. Mr. Brinck reported a purchase of 4,000 shares
of UTG stock and Mr.  Attkisson  reported a change in his deemed UTG, Inc. stock
through a sale of stock of an intermediate company.


Audit Committee Report To Shareholders

In  connection  with the  December  31,  2005  financial  statements,  the audit
committee:  (1) reviewed and discussed  the audited  financial  statements  with
management; (2) discussed with the auditors the matters required by Statement on
Auditing  Standards No. 61; and (3) received and discussed with the auditors the
matters  required by Independence  Standards  Board  Statement No.1.  Based upon
these reviews and discussions,  the audit committee  recommended to the Board of
Directors that the audited financial statements be included in the Annual Report
on Form 10-K filed with the SEC.

                  William W. Perry - Committee Chairman
                  John S. Albin
                  Joseph A. Brinck, II

The following  information  with respect to business  experience of the Board of
Directors has been  furnished by the  respective  directors or obtained from the
records of UTG.


Directors

Name, Age

                    Position  with the Company,  Business  Experience  and Other
                    Directorships

John S. Albin, 77

                    Director  of UTG since  1984;  farmer in  Douglas  and Edgar
                    counties,  Illinois,  since  1951;  Chairman of the Board of
                    Longview  State  Bank  from 1978 to 2005;  President  of the
                    Longview Capitol Corporation,  a bank holding company, since
                    1978;  Chairman of First  National Bank of Ogden,  Illinois,
                    from 1987 to 2005;  Chairman  of the State Bank of  Chrisman
                    from  1988 to  2005;  Chairman  of  First  National  Bank in
                    Georgetown from 1994 to 2005;  Director of Illini  Community
                    Development Corporation since 1990; Commissioner of Illinois
                    Student Assistance Commission from 1996 to 2002.

Randall L. Attkisson, 60

                    Director of UTG since 1999;  President  and Chief  Operating
                    Officer of UTG and Universal Guaranty Life Insurance Company
                    since 2001;  President,  Secretary  and  Treasurer  of First
                    Southern Holdings,  LLC since 2002; Chief Financial Officer,
                    Treasurer,  Director of First Southern Bancorp,  Inc, a bank
                    holding company,  since 1986; Treasurer and Manager of First
                    Southern  Funding,  LLC since  1992;  Advisory  Director  of
                    Kentucky  Christian  Foundation since 2002;  Director of The
                    River Foundation,  Inc. since 1990;  President of Randall L.
                    Attkisson & Associates  from 1982 to 1986;  Commissioner  of
                    Kentucky  Department  of Banking &  Securities  from 1980 to
                    1982;  Self-employed  Banking  Consultant in Miami,  FL from
                    1978 to 1980.

Joseph A. Brinck, II, 50

                    Director of UTG since 2003; CEO of Stelter & Brinck,  LTD, a
                    full  service   combustion   engineering  and  manufacturing
                    company from 1979 to present; President of Superior Thermal,
                    LTD  from  1990 to  present.  Currently  holds  Professional
                    Engineering   Licenses  in  Ohio,   Kentucky,   Indiana  and
                    Illinois.

Jesse T. Correll, 49

                    Chairman  and  CEO  of  UTG  and  Universal   Guaranty  Life
                    Insurance  Company  since 2000;  Director of UTG since 1999;
                    Chairman,  President,  Director of First  Southern  Bancorp,
                    Inc.  since  1983;  President,  Director  of First  Southern
                    Funding,  LLC since 1992;  President,  Director of The River
                    Foundation  since 1990;  Director of Thomas Nelson,  Inc., a
                    premier  publisher  of  Bibles  and  Christian  Books  since
                    2001-2005;  Director of Computer Services, Inc., provider of
                    bank  technology  products  and services  since 2001.  Jesse
                    Correll is the son of Ward Correll.

Ward F. Correll, 77

                    Director of UTG since 2000; President, Director of Tradeway,
                    Inc.  of  Somerset,  KY since 1973;  President,  Director of
                    Cumberland  Lake  Shell,  Inc. of  Somerset,  KY since 1971;
                    President,  Director of Tradewind  Shopping Center,  Inc. of
                    Somerset,  KY since 1966; Director of First Southern Bancorp
                    since 1988;  Director of First Southern  Funding,  LLC since
                    1991;  Director  of The River  Foundation  since  1990;  and
                    Director First Southern  Insurance  Agency since 1987.  Ward
                    Correll is the father of Jesse Correll.

Thomas F. Darden, 51

                    Mr.  Darden  is the  Chief  Executive  Officer  of  Cherokee
                    Investment  Partners,  a  private  equity  fund with over $1
                    billion of capital for  investing in  brownfields.  Cherokee
                    has offices in North Carolina, Colorado, New Jersey, London,
                    Toronto and  Montreal.  Beginning in 1984,  he served for 16
                    years  as  the  Chairman  of  Cherokee   Sanford   Group,  a
                    privately-held  brick  manufacturing  company  in the United
                    States  and   previously   the   Southeast's   largest  soil
                    remediation  company.  From 1981 to 1983,  Mr.  Darden was a
                    consultant with Bain & Company in Boston. From 1977 to 1978,
                    he  worked  as  an  environmental   planner  for  the  Korea
                    Institute of Science and Technology in Seoul, where he was a
                    Henry Luce Foundation  Scholar.  Mr. Darden is on the Boards
                    of Shaw  University and the  University of North  Carolina's
                    Environmental  Department  and  Duke  University's  Nicholas
                    School of the  Environment.  He is on the Board of Directors
                    of the National  Brownfield  Association and on the Board of
                    Trustees of North Carolina Environmental Defense. Mr. Darden
                    is a director of Winston  Hotels,  Inc. (NYSE) and serves on
                    the board of  governors  of Research  Triangle  Institute in
                    Research Triangle Park, N.C. He was Chairman of the Research
                    Triangle Transit  Authority and served two terms on the N.C.
                    Board of Transportation through appointments by the Governor
                    and the Speaker of the House. Mr. Darden earned a Masters in
                    Regional  Planning from the  University of North Carolina at
                    Chapel Hill, a Doctor of Jurisprudence  from Yale Law School
                    and a Bachelor of Arts from the University of North Carolina
                    at Chapel Hill,  where he was a Morehead  Scholar.  His 1976
                    undergraduate  thesis analyzed the  environmental  impact of
                    third world development,  and his 1981 Yale thesis addressed
                    interstate acid rain air pollution.  Mr. Darden and his wife
                    Jody have three children, ages 18 to 27.

William W. Perry, 49

                    Director of UTG since 2001; Owner of SES Investments,  Ltd.,
                    an oil and gas investments company since 1991;  President of
                    EGL Resources, Inc., an oil and gas operations company based
                    in Texas and New  Mexico  since  1992;  President  of a real
                    estate investment company; Director of Young Life Foundation
                    and involved with Young Life in various capacities; Director
                    of  Abel-Hangar  Foundation,  Director of River  Foundation;
                    Director of Millagros Foundation;  Director of University of
                    Oklahoma  Associates;  Midland,  Texas City  Council  member
                    since 2002

James P. Rousey, 47

                    Executive Vice President,  Chief Administrative  Officer and
                    Director  of  UTG  and  Universal  Guaranty  Life  Insurance
                    Company since September  2001;  Regional CEO and Director of
                    First Southern National Bank from 1988 to 2001. Board Member
                    with the  Illinois  Fellowship  of Christian  Athletes  from
                    2001-2005.


Executive Officers Of UTG

More detailed  information  on the following  executive  officers of UTG appears
under "Directors":

Jesse T. Correll           Chairman of the Board and Chief Executive Officer
Randall L. Attkisson       President and Chief Operating Officer
James P. Rousey            Executive Vice President and Chief Administrative Officer

Other executive officers of UTG are set forth below:

Name, Age

               Position with UTG and Business Experience

Theodore C. Miller, 43

                    Corporate   Secretary  since  December  2000,   Senior  Vice
                    President and Chief Financial  Officer since July 1997; Vice
                    President since October 1992 and Treasurer from October 1992
                    to December  2003;  Vice President and Controller of certain
                    affiliated  companies from 1984 to 1992.  Vice President and
                    Treasurer of certain affiliated companies from 1992 to 1997;
                    Senior  Vice  President  and  Chief  Financial   Officer  of
                    subsidiary  companies  since 1997;  Corporate  Secretary  of
                    subsidiary companies since 2000.

Code of Ethics

We have  adopted  a Code of  Business  Conduct  and  Ethics  for our  directors,
officers  (including  our  principal  executive  officer,   principal  financial
officer,  principal  accounting  officer or controller,  and persons  performing
similar  functions)  and employees.  Our Code of Business  Conduct and Ethics is
available to our  stockholders by requesting a free copy of the Code of Business
Conduct  and Ethics by  writing to us at UTG,  Inc,  5250  South  Sixth  Street,
Springfield, Illinois 62703.


ITEM 11. EXECUTIVE COMPENSATION

Executive Compensation Table

The following table sets forth certain information  regarding  compensation paid
to or earned by UTG's Chief  Executive  Officer and  President,  and each of the
executive officers of UTG whose salary plus bonus exceeded $100,000 during UTG's
last fiscal year:



                           SUMMARY COMPENSATION TABLE


Name and                                    Annual Compensation         Other Annual       All Other (1)
Principal Position            Year        Salary ($)     Bonus ($)    Compensation ($)    Compensation ($)

Jesse T. Correll              2005          75,636            -               -                4,500
Chairman of the Board         2004          75,720            -               -                4,500
Chief Executive Officer       2003          75,720            -               -                4,500

Randall L. Attkisson          2005          75,636            -               -                4,500
President                     2004          75,720            -               -                4,500
                              2003          75,720            -               -                4,500

Theodore C. Miller            2005         100,000            -               -                3,000
Corporate Secretary           2004         100,000            -               -                3,000
Senior Vice President         2003         100,000        3,000               -                3,000
Chief Financial Officer

James P. Rousey               2005         135,000            -               -                2,025
Executive Vice President      2004         135,000            -               -                1,519
Chief Administrative Officer  2003         135,000            -               -                2,025
Member of the Board

Douglas A. Dockter (2)        2005         100,000            -               -                2,700
Vice President                2004         100,000        1,000               -                2,700
                              2003         100,000        4,000               -                2,689


(1)  All Other  Compensation  consists of matching  contributions to an Employee
     Savings Trust 401(k) Plan.

(2)  Mr. Douglas A. Dockter is not  considered an executive  officer of UTG, but
     is included in this table pursuant to compensation disclosure requirements.

Option/SAR Grants/Aggregated Option/SAR Exercises in Last Fiscal Year and FY-End
Option/SAR Values

At December  31, 2005 there were no shares of the common stock of UTG subject to
unexercised options held by the named executive officers.  There were no options
or stock  appreciation  rights granted to the named  executive  officers for the
past three fiscal years.

Compensation of Directors

UTG's standard  arrangement for the compensation of directors provides that each
director shall receive an annual retainer of $2,400,  plus $300 for each meeting
attended and  reimbursement  for  reasonable  travel  expenses.  UTG's  director
compensation policy also provides that directors who are employees of UTG or its
affiliates  do not  receive any  compensation  for their  services as  directors
except for  reimbursement  for  reasonable  travel  expenses for attending  each
meeting.

Employment Contracts

There are no employment  agreements in effect with any executive officers of the
Company.



Compensation Committee Interlocks and Insider Participation

UTG does not have a  compensation  committee and decisions  regarding  executive
officer  compensation  are  made by the  full  Board of  Directors  of UTG.  The
following  persons  served as directors of UTG during 2005 and were  officers or
employees of UTG or its  affiliates  during 2005:  Jesse T. Correll,  Randall L.
Attkisson and James P. Rousey. Accordingly,  these individuals have participated
in  decisions  related to  compensation  of  executive  officers  of UTG and its
subsidiaries.

During 2005,  Jesse T. Correll and Randall L. Attkisson,  executive  officers of
UTG and UG, were also members of the Board of Directors of UG.

Jesse T.  Correll and Randall L.  Attkisson  are each  directors  and  executive
officers of FSBI and participate in compensation decisions of FSBI. FSBI owns or
controls directly and indirectly  approximately  44.6% of the outstanding common
stock of UTG.

Performance Graph

The following graph compares the cumulative  total  shareholder  return on UTG's
Common  Stock  during the five  fiscal  years ended  December 31,  2005 with the
cumulative total return on the NASDAQ Composite Index Performance and the NASDAQ
Insurance  Index (1). The graph assumes that $ 100 was invested on  December 31,
1999 in each of the Company's  common stock, the NASDAQ Composite Index, and the
NASDAQ Insurance Stock Index, and that any dividends were reinvested.



(1)  The  Company  selected  the  NASDAQ  Composite  Index   Performance  as  an
     appropriate  comparison.  UTG was listed on the NASDAQ  Small Cap  exchange
     until  December  31,  2001.  Furthermore,  the Company  selected the NASDAQ
     Insurance Stock Index as the second comparison  because there is no similar
     single  "peer  company" in the NASDAQ  system  with which to compare  stock
     performance and the closest additional  line-of-business  index which could
     be found was the NASDAQ  Insurance  Stock  Index.  Trading  activity in the
     Company's Common Stock is limited,  which may be due in part as a result of
     the Company's low profile.  The Return Chart is not intended to forecast or
     be indicative of possible future performance of the Company's Common Stock.


ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

Principal Holders of Securities

The following  tabulation sets forth the name and address of the entity known to
be the  beneficial  owners of more than 5% of UTG's Common Stock and shows:  (i)
the total number of shares of common Stock  beneficially owned by such person as
of February 10, 2006 and the nature of such  ownership;  and (ii) the percent of
the issued and outstanding shares of common stock so owned as of the same date.

   Title                                                      Amount                            Percent
    of            Name and Address                         and Nature of                          of
   Class          of Beneficial Owner (2)              Beneficial Ownership                    Class (1)

Common            Jesse T. Correll                              185,454        (3)              4.8%
Stock, no         First Southern Bancorp, Inc.                1,739,072     (3)(4)             44.6%
par value         First Southern Funding, LLC                   335,453     (3)(4)              8.6%
                  First Southern Holdings, LLC                1,483,791     (3)(4)             38.0%
                  First Southern Capital Corp., LLC             237,333     (3)(4)              6.1%
                  First Southern Investments, LLC                24,086                         0.6%
                  Ward F. Correll                                98,523        (5)              2.5%
                  WCorrell, Limited Partnership                  72,750        (3)              1.9%
                  Cumberland Lake Shell, Inc.                    98,523        (5)              2.5%

                  Total (6)                                   2,619,921                        67.2%

(1)  The percentage of outstanding shares is based on 3,900,107 shares of Common
     Stock outstanding as of February 10, 2006.

(2)  The  address  for each of  Jesse  Correll,  First  Southern  Bancorp,  Inc.
     ("FSBI"), First Southern Funding, LLC ("FSF"), First Southern Holdings, LLC
     ("FSH"),   First  Southern  Capital  Corp.,  LLC  ("FSC"),  First  Southern
     Investments,  LLC ("FSI"),  and WCorrell,  Limited  Partnership  ("WCorrell
     LP"), is P.O. Box 328, 99 Lancaster Street,  Stanford,  Kentucky 40484. The
     address for each of Ward Correll and Cumberland Lake Shell, Inc. ("CLS") is
     P.O. Box 430, 150 Railroad Drive, Somerset, Kentucky 42502.

(3)  The share  ownership of Jesse Correll  listed  includes  112,704  shares of
     Common Stock owned by him individually.  The share ownership of Mr. Correll
     also  includes  72,750  shares of Common  Stock held by  WCorrell,  Limited
     Partnership,  a  limited  partnership  in which  Jesse  Correll  serves  as
     managing  general  partner  and, as such,  has sole voting and  dispositive
     power over the shares held by it.

     In addition,  by virtue of his  ownership of voting  securities  of FSF and
     FSBI, and in turn,  their ownership of 100% of the  outstanding  membership
     interests of FSH, Jesse Correll may be deemed to beneficially own the total
     number of shares of Common  Stock owned by FSH (as well as the shares owned
     by FSBI  directly),  and may be deemed to share  with FSH (as well as FSBI)
     the  right  to  vote  and to  dispose  of such  shares.  Mr.  Correll  owns
     approximately 84% of the outstanding  membership  interests of FSF; he owns
     directly  approximately  50%,  companies he controls own approximately 12%,
     and he has the  power  to vote but  does  not own an  additional  3% of the
     outstanding  voting  stock  of  FSBI.  FSBI and FSF in turn own 99% and 1%,
     respectively,  of the outstanding  membership interests of FSH. Mr. Correll
     is also a manager of FSC and thereby may also be deemed to beneficially own
     the total  number of shares of Common Stock owned by FSC, and may be deemed
     to share  with it the  right to vote and to  dispose  of such  shares.  The
     aggregate number of shares of Common Stock held by these other entities, as
     shown in the above table, is 1,976,405 shares.

(4)  The share ownership of FSBI consists of 255,281 shares of Common Stock held
     by FSBI directly  (which FSBI acquired by virtue of its merger with Dyscim,
     LLC) and  1,483,791  shares of Common  Stock held by FSH of which FSBI is a
     99% member and FSF is a 1% member, as further described below. As a result,
     FSBI may be deemed to share  the  voting  and  dispositive  power  over the
     shares held by FSH.

(5)  Represents  the shares of Common Stock held by CLS, all of the  outstanding
     voting  shares  of which are owned by Ward F.  Correll  and his wife.  As a
     result,  Ward F. Correll may be deemed to share the voting and  dispositive
     power over these shares.

(6)  According to the most recent  Schedule  13D, as amended,  filed  jointly by
     each of the entities and persons listed above,  Jesse Correll,  FSBI,  FSF,
     FSH, FSC, and FSI, have agreed in principle to act together for the purpose
     of acquiring or holding equity securities of UTG. In addition, the Schedule
     13D indicates  that because of their  relationships  with Jesse Correll and
     these other entities, Ward Correll, CLS, and WCorrell,  Limited Partnership
     may also be deemed to be members of this group.  Because the  Schedule  13D
     indicates that for its purposes,  each of these entities and persons may be
     deemed to have acquired  beneficial  ownership of the equity  securities of
     UTG  beneficially  owned by the other  entities and persons,  each has been
     identified and listed in the above tabulation.


Security Ownership of Management of UTG

The  following  tabulation  shows with respect to each of the  directors of UTG,
with respect to UTG's chief executive  officer and President,  and each of UTG's
executive  officers whose salary plus bonus  exceeded  $100,000 for fiscal 2005,
and with respect to all executive  officers and directors of UTG as a group: (i)
the total  number of shares of all classes of stock of UTG or any of its parents
or  subsidiaries,  beneficially  owned as of February 10, 2006 and the nature of
such  ownership;  and (ii) the percent of the issued and  outstanding  shares of
stock so owned, and granted stock options available as of the same date.

   Title               Directors, Named Executive                   Amount                        Percent
    of                 Officers, & All Directors &               and Nature of                      of
   Class              Executive Officers as a Group                Ownership                     Class (1)

UTG's                 John S. Albin                                  10,503  (4)                   *
Common                Randall L. Attkisson                                0  (2)                   *
Stock, no             Joseph A. Brinck, II                            4,000  (6)                   *
par value             Jesse T. Correll                            2,497,312  (3)                  64.0%
                      Ward F. Correll                                98,523  (5)                   2.5%
                      Thomas F. Darden                               29,095  (6)                   *
                      Theodore C. Miller                             10,000  (6)                   *
                      William W. Perry                               30,000  (6)                   *
                      James P. Rousey                                     0                        *
                      All directors and executive officers
                      as a group (ten in number)                  2,679,433                       68.7%

(1)  The percentage of outstanding  shares for UTG is based on 3,900,107  shares
     of Common Stock outstanding as of February 10, 2006.

(2)  Randall L.  Attkisson is an associate and business  partner of Mr. Jesse T.
     Correll and holds minority ownership  positions in certain of the companies
     listed as owning UTG Common Stock  including First Southern  Bancorp,  Inc.
     Ownership  of  these  shares  is  reflected  in the  ownership  of Jesse T.
     Correll.

(3)  The share  ownership of Mr.  Correll  includes  112,704  shares of UTG, Inc
     common stock owned by him  individually,  255,281 shares of UTG, Inc common
     stock held by First Southern  Bancorp,  Inc. and 335,453 shares of UTG, Inc
     common stock owned by First Southern  Funding,  LLC. The share ownership of
     Mr.  Correll also  includes  72,750 shares of UTG, Inc common stock held by
     WCorrell,  Limited Partnership,  a limited partnership in which Mr. Correll
     serves as  managing  general  partner  and,  as such,  has sole  voting and
     dispositive power over the shares held by it. In addition, by virtue of his
     ownership of voting  securities of First  Southern  Funding,  LLC and First
     Southern  Bancorp,  Inc.,  and in  turn,  their  ownership  of  100% of the
     outstanding  membership  interests  of First  Southern  Holdings,  LLC (the
     holder of 1,483,791  shares of UTG, Inc common  stock),  Mr. Correll may be
     deemed to  beneficially  own the total  number of shares of UTG, Inc common
     stock  owned by First  Southern  Holdings,  and may be deemed to share with
     First  Southern  Holdings  the right to vote and to dispose of such shares.
     Mr. Correll owns approximately 84% of the outstanding  membership interests
     of First Southern Funding; he owns directly approximately 50%, companies he
     controls own  approximately  12%, and he has the power to vote but does not
     own an  additional  3% of the  outstanding  voting stock of First  Southern
     Bancorp.  First Southern Bancorp and First Southern Funding in turn own 99%
     and 1%,  respectively,  of the  outstanding  membership  interests of First
     Southern Holdings.  Mr. Correll is also a manager of First Southern Capital
     Corp.,  LLC, and thereby may also be deemed to beneficially own the 237,333
     shares of UTG, Inc common stock held by First Southern Capital,  and may be
     deemed to share with it the right to vote and to  dispose  of such  shares.
     Share  ownership  of Mr.  Correll in UTG, Inc common stock does not include
     24,086 shares of UTG, Inc common stock held by First Southern  Investments,
     LLC.

(4)  Includes 392 shares owned directly by Mr. Albin's spouse.

(5)  Cumberland Lake Shell,  Inc. owns 98,523 shares of UTG Common Stock, all of
     the outstanding voting shares of which are owned by Ward F. Correll and his
     wife.  As a result  Ward F.  Correll  may be deemed to share the voting and
     dispositive power over these shares. Ward F. Correll is the father of Jesse
     T.  Correll.  There are 72,750 shares of UTG Common Stock owned by WCorrell
     Limited  Partnership in which Jesse T. Correll  serves as managing  general
     partner and, as such, has sole voting and dispositive power over the shares
     of Common Stock held by it. The aforementioned  72,750 shares are deemed to
     be beneficially owned by and listed under Jesse T. Correll in this section.

(6)  Shares subject to UTG Employee and Director Stock Purchase Plan.

* Less than 1%.

Except as indicated above, the foregoing persons hold sole voting and investment
power.

The following table reflects the Company's  Employee and Director Stock Purchase
Plan Information:


--------------------------------- ------------------------------ ------------------------------- ------------------------------
Plan category                     Number of securities to be     Weighted-average exercise       Number of securities
                                  issued upon exercise of        price of outstanding options,   remaining available for
                                  outstanding options,           warrants and rights             future issuance under
                                  warrants and rights                                            employee and director stock
                                                                                                 purchase plans (excluding
                                                                                                 securities reflected in
                                              (a)                            (b)                 column (a))
                                                                                                              (c)
--------------------------------- ------------------------------ ------------------------------- ------------------------------
Employee and director stock
purchase plans approved by
security holders
                                                                                                             298,123
                                                     0                             0
--------------------------------- ------------------------------ ------------------------------- ------------------------------
Employee and director stock
purchase plans not approved by
security holders

                                                     0                             0                               0
--------------------------------- ------------------------------ ------------------------------- ------------------------------
Total                                                0                             0                         298,123
--------------------------------- ------------------------------ ------------------------------- ------------------------------


On March 26,  2002, the Board of Directors of UTG adopted, and on June 11, 2002,
the shareholders of UTG approved the UTG, Inc, Inc.  Employee and Director Stock
Purchase  Plan.  The Plan allows for the issuance of up to 400,000 shares of UTG
common  stock.  The plan's  purpose is to  encourage  ownership  of UTG stock by
eligible  directors  and employees of UTG and its  subsidiary by providing  them
with an  opportunity  to  invest  in shares  of UTG  common  stock.  The plan is
administered by the Board of Directors of UTG.

A total of  400,000  shares of common  stock  may be  purchased  under the plan,
subject to appropriate  adjustment for stock dividends,  stock splits or similar
recapitalizations  resulting  in a  change  in  shares  of UTG.  The plan is not
intended to qualify as an "employee  stock  purchase  plan" under Section 423 of
the Internal  Revenue Code.  During 2005 and 2004, the Board of Directors of UTG
approved offerings under the plan to qualified individuals.  For the years ended
December 31,   2005  and  2004,  two  individuals   purchased  12,000  and  four
individuals  purchased  14,440  shares of UTG common stock,  respectively.  Each
participant   under  the  plan  executed  a  "stock   restriction  and  buy-sell
agreement",  which among other things provides UTG with a right of first refusal
on any future sales of the shares acquired by the participant under this plan.

The  purchase  price of  shares  repurchased  under the  stock  restriction  and
buy-sell agreement shall be computed,  on a per share basis, equal to the sum of
(i) the  original  purchase  price paid to acquire such shares from UTG and (ii)
the  consolidated  statutory net earnings (loss) per share of such shares during
the  period  from the end of the month  next  preceding  the month in which such
shares  were  acquired  pursuant  to the  plan,  to the  end of the  month  next
preceding the month in which the sale of such shares to UTG occurs. The original
issue price of shares at the time this program began was  established  at $12.00
per share.  At December 31, 2005, UTG had 101,877 shares  outstanding  that were
issued  under this  program  with a value of $ 12.93  per share  pursuant to the
above formula.


ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

On July 1, 2005, United Trust Group, Inc., an Illinois corporation,  merged with
and into its wholly-owned  subsidiary,  UTG, Inc. (UTG), a Delaware corporation,
for the purpose of effecting a change in the  Company's  state of  incorporation
from  Illinois to  Delaware.  The merger was  effected  pursuant to that certain
Agreement  and Plan of Merger  dated as of April 4, 2005,  which was approved by
the boards of directors of both UTG and United Trust Group,  Inc. The merger was
approved by the holders of two-thirds of the outstanding  shares of common stock
of United Trust Group,  Inc. at the 2005 annual meeting of  shareholders on June
15, 2005, and by the sole stockholder of UTG, Inc. on June 15, 2005.

On  September 1,  2004,  UTG  contributed  the common stock of its  wholly-owned
subsidiary, North Plaza, to its life insurance subsidiary, UG. The contribution,
which  received  prior  approval by the  regulatory  authorities,  increased the
capital of the life insurance subsidiary by $ 7,857,794.

On February 20, 2003, UG purchased  $ 4,000,000  of a trust  preferred  security
offering issued by FSBI. The security has a mandatory  redemption after 30 years
with a call provision after 5 years. The security pays a quarterly dividend at a
fixed rate of 6.515%. The Company received $ 264,219, $ 264,842 and $ 226,104 of
dividends in 2005, 2004 and 2003, respectively.

On June 18,  2003,  UG entered  into a lease  agreement  with  Bandyco,  LLC, an
affiliated  entity,  for a one-sixth  interest in an aircraft.  Bandyco,  LLC is
affiliated  with Ward F.  Correll,  who is a director of the Company.  The lease
term is for a period of five years at a total cost of  $ 523,831  per year.  The
Company  is  responsible  for its  share of  annual  non-operational  costs,  in
addition to the operational costs as are billable for specific use.

On March 26, 2002, the Board of Directors of UTG adopted, and on June 11,  2002,
the  shareholders  of UTG approved,  the UTG, Inc.  Employee and Director  Stock
Purchase Plan (See Note 10.A. to the consolidated financial statements).

At the March 2003 Board of Directors  meeting,  the  Appalachian  Life Insurance
Company (APPL) and UG Boards  reaffirmed the merger of APPL with and into UG and
approved the final merger  documents.  Upon  receiving the necessary  regulatory
approvals,  the merger of Abraham Lincoln  Insurance Company (ABE) and APPL with
and into UG was consummated  effective July 1, 2003. ABE and APPL were each 100%
owned subsidiaries of UG prior to the merger. Management of the Company believes
the  completion  of the mergers will provide the Company  with  additional  cost
savings.  These cost savings result from  streamlining the Company's  operations
and organizational  structure from three life insurance subsidiaries to one life
insurance subsidiary,  UG. Thus, the Company will further improve administrative
efficiency.

On  January 1,  1993,  UTG  entered an  agreement  with UG pursuant to which UTG
provided management services necessary for UG to carry on its business.  UG paid
$ 5,054,918,  $ 5,625,451  and  $ 5,906,406  to  UTG in  2005,  2004  and  2003,
respectively, under this arrangement.

Prior to its  merger,  ABE  paid  fees to UTG  pursuant  to a cost  sharing  and
management fee agreement.  UTG provided  management services for ABE to carry on
its  business.  The  agreement  required ABE to pay a  percentage  of the actual
expenses incurred by UTG based on certain activity indicators of ABE business to
the business of all the insurance  company  subsidiaries  plus a management  fee
based on a percentage of the actual expenses  allocated to ABE. ABE paid fees of
$ 165,269 in 2003 to UTG under this agreement.

Prior to its merger,  APPL had a management  fee agreement  with UTG whereby UTG
provided certain administrative duties, primarily data processing and investment
advice. APPL paid fees of $ 222,000 to UTG during 2003 under this agreement.

Respective domiciliary insurance departments have approved the agreements of the
insurance companies and it is Management's opinion that where applicable,  costs
have been  allocated  fairly  and such  allocations  are based  upon  accounting
principles generally accepted in the United States of America.

UG from time to time acquires  mortgage loans through  participation  agreements
with FSNB.  FSNB  services UG's mortgage  loans  including  those covered by the
participation  agreements. UG pays a .25% servicing fee on these loans and a one
time fee at loan  origination of .50% of the original loan amount to cover costs
incurred by FSNB relating to the  processing and  establishment  of the loan. UG
paid $77,597,  $ 45,468 and $ 63,214 in servicing  fees and  $ 112,109,  $ 0 and
$ 13,821 in origination fees to FSNB during 2005, 2004 and 2003, respectively.

The Company reimbursed expenses incurred by Mr. Jesse T. Correll and Mr. Randall
L.  Attkisson  relating  to travel  and  other  costs  incurred  on behalf of or
relating to the  Company.  The Company paid  $ 68,318,  $ 50,098 and $ 20,238 in
2005,  2004  and  2003,   respectively  to  First  Southern  Bancorp,   Inc.  in
reimbursement  of such costs. In addition,  beginning in 2001, the Company began
reimbursing FSBI a portion of salaries and pension costs for Mr. Correll and Mr.
Attkisson.  The  reimbursement  was approved by the UTG Board of  Directors  and
totaled $ 160,272, $ 160,440 and $ 151,440 in 2005, 2004 and 2003, respectively,
which included salaries and other benefits.


ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

Brown Smith Wallace LLC ("BSW")  served as UTG's  independent  certified  public
accounting  firm for the fiscal year ended  December 31, 2005.  Kerber,  Eck and
Braeckel LLP ("KEB") served as UTG's  independent  certified  public  accounting
firm for the fiscal year ended  December  31,  2004.  In serving  their  primary
function as outside  auditor for UTG, BSW and KEB performed the following  audit
services:  examination of annual consolidated  financial statements;  assistance
and  consultation on reports filed with the Securities and Exchange  Commission;
and assistance and  consultation  on separate  financial  reports filed with the
State   insurance   regulatory   authorities   pursuant  to  certain   statutory
requirements.

Audit Fees.  Audit fees billed for these audit services in the fiscal year ended
December  31,  2005  and  December  31,  2004  totaled  $ 97,493  and  $ 99,970,
respectively  and audit fees  billed  for  quarterly  reviews  of the  Company's
financial  statements  totaled $ 18,633 and $ 12,014 for the year 2005 and 2004,
respectively.

Audit  Related Fees. No audit related fees were incurred by the Company from BSW
or KEB for the fiscal years ended December 31, 2005 and December 31, 2004.

Tax Fees. BSW or KEB did not render any services related to tax compliance,  tax
advice or tax planning for the fiscal years ended December 31, 2005 and December
31, 2004.

All Other Fees. No other  services  besides the audit services  described  above
were  performed  by, and  therefore no other fees were billed by, BSW or KEB for
services in the fiscal years ended December 31, 2005 and December 31, 2004.

The audit  committee of the Company  appoints the independent  certified  public
accounting firm, with the appointment approved by the entire Board of Directors.
Non-audit related services to be performed by the firm are to be approved by the
audit  committee  prior to  engagement.  The  Company had no  non-audit  related
services  performed by BSW or KEB for the fiscal  years ended  December 31, 2005
and December 31, 2004.




                                     PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a)  The following documents are filed as a part of the report:

     (1)  Financial Statements: See Item 8, Index to Financial Statements

     (2)  Financial Statement Schedules

          Schedule I - Summary of  Investments  - other than invested in related
          parties.

          Schedule II - Condensed financial information of registrant

          Schedule IV - Reinsurance

          Schedule V - Valuation and qualifying accounts


          NOTE: Schedules other than those listed above are omitted because they
          are not required or the  information  is  disclosed  in the  financial
          statements or footnotes.


(B)  Exhibits:

          Index to Exhibits  incorporated  herein by this  reference  (See pages
          71).



                                INDEX TO EXHIBITS

Exhibit
Number

2.1  Agreement  and Plan of Merger of United  Trust  Group,  Inc.,  An  Illinois
     Corporation  with and into UTG,  Inc., A Delaware  Corporation  dated as of
     July 1, 2005, including exhibits thereto.

3.1  Certificate of Incorporation of the Registrant and all amendments thereto.

3.2  By-Laws for the Registrant and all amendments thereto.

4.1  UTG's Agreement pursuant to Item  601(b)(4)(iii)(A)  of Regulation S-K with
     respect to long-term debt instruments.

10.1 (1) Management and Consultant Agreement dated as of January 1, 1993 between
     First  Commonwealth  Corporation  and  Universal  Guaranty  Life  Insurance
     Company.

10.2 Line of credit  agreement dated June 1, 2005,  between  Universal  Guaranty
     Life Insurance Company and First National Bank of Tennessee.

10.3 Line of credit  agreement  dated  February 1, 2005,  between  UTG,  Inc and
     Southwest Bank.

10.4 UTG,  Inc.  Employee and Director  Stock  Purchase Plan and form of related
     Stock Restriction and Buy-Sell Agreement.

14.1 Code of Ethics and Business Conduct

14.2 Code of Ethical Conduct for Senior Financial Officers

16.1 Letter from Registrant's Previous Certifying Accountant

21.1 List of Subsidiaries of the Registrant.

31.1 Certificate    of    Chief    Executive    Officer    pursuant    to   Rule
     13a-14(a)/15d-14(a).

31.2 Certificate    of    Chief    Financial    Officer    pursuant    to   Rule
     13a-14(a)/15d-14(a).

32.1 Certificate of Jesse T. Correll,  Chief  Executive  Officer and Chairman of
     the Board of UTG, as required pursuant to 18 U.S.C. Section 1350.

32.2 Certificate of Theodore C. Miller,  Chief  Financial  Officer,  Senior Vice
     President and Corporate Secretary of UTG, as required pursuant to 18 U.S.C.
     Section 1350.

99.1 Audit Committee Charter.

99.2 Whistleblower Policy


Footnote:

     (1)  Incorporated  by reference  from the  Company's  Annual Report on Form
          10-K, File No. 0-5392, as of December 31, 1993.






                                    UTG, INC.
                       SUMMARY OF INVESTMENTS - OTHER THAN
                         INVESTMENTS IN RELATED PARTIES
                             As of December 31, 2005

                                                                                                      Schedule I

                          Column A                            Column B           Column C           Column D
--------------------------------------------------------------------------    ----------------   ----------------

                                                                                                    Amount at
                                                                                                   Which Shown
                                                                                                   in Balance
                                                                Cost               Value              Sheet
                                                           ---------------    ----------------   ----------------
Fixed maturities:
    Bonds:
       United States Government and
          government agencies and authorities            $      6,014,103   $       5,960,334  $       6,014,103
       State, municipalities, and political
          subdivisions                                          1,453,227           1,494,927          1,453,227
       Collateralized mortgage obligations                         45,734              45,030             45,734
       Public utilities                                                 0                   0                  0
       All other corporate bonds                                        0                   0                  0
                                                           ---------------    ----------------   ----------------
    Total fixed maturities                                      7,513,064   $       7,500,291          7,513,064
                                                                              ================

Investments held for sale:
    Fixed maturities:
       United States Government and
          government agencies and authorities                  25,660,210   $      25,221,548         25,221,548
       State, municipalities, and political
          subdivisions                                            163,886             173,743            173,743
       Collateralized mortgage obligations                     74,086,345          72,306,120         72,306,120
       Public utilities                                                 0                   0                  0
       All other corporate bonds                               27,090,216          27,374,215         27,374,215
                                                           ---------------    ----------------   ----------------
                                                              127,000,657   $     125,075,626        125,075,626
                                                                              ================

    Equity securities:
       Banks, trusts and insurance companies                    4,501,676   $       4,609,529          4,609,529
       All other corporate securities                          10,597,139          19,964,730         19,964,730
                                                           ---------------    ----------------   ----------------
                                                               15,098,815   $      24,574,259         24,574,259
                                                                              ================


Mortgage loans on real estate                                  36,781,293                             36,781,293
Investment real estate                                         42,587,982                             42,587,982
Real estate acquired in satisfaction of debt                            0                                      0
Policy loans                                                   12,644,838                             12,644,838
Other long-term investments                                             0                                      0
Short-term investments                                             42,116                                 42,116
                                                           ---------------                       ----------------
    Total investments                                    $    241,668,765                      $     249,219,178
                                                           ===============                       ================





UTG, Inc.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT                                                         Schedule II
NOTES TO CONDENSED FINANCIAL INFORMATION


(a)  The condensed financial  information should be read in conjunction with the
     consolidated  financial  statements and notes of UTG, Inc. and Consolidated
     Subsidiaries.







                                    UTG, INC.
                  CONDENSED FINANCIAL INFORMATION OF REGISTRANT
                           PARENT ONLY BALANCE SHEETS
                        As of December 31, 2005 and 2004

                                                                                                      Schedule II


                                                                         2005                2004
                                                                    ----------------    ---------------

ASSETS

    Investment in affiliates                                      $      45,890,740   $     46,758,363
    Cash and cash equivalents                                               481,623            502,375
    FIT recoverable                                                          48,747             10,051
    Accrued interest income                                                  25,786             26,751
    Receivable from affiliates, net                                         136,767            391,694
    Other assets                                                            261,914            366,682
                                                                    ----------------    ---------------
          Total assets                                            $      46,845,577   $     48,055,916
                                                                    ================    ===============




LIABILITIES AND SHAREHOLDERS' EQUITY

Liabilities:
    Deferred income taxes                                         $       2,037,048   $      2,022,606
    Other liabilities                                                     1,491,077          1,582,205
                                                                    ----------------    ---------------
          Total liabilities                                               3,528,125          3,604,811




Shareholders' equity:
    Common stock, net of treasury shares                                      3,902             79,315
    Additional paid-in capital, net of treasury                          42,295,661         42,590,820
    Accumulated deficit                                                  (3,637,349)        (4,897,572)
    Accumulated other comprehensive
        income of affiliates                                              4,655,238          6,678,542
                                                                    ----------------    ---------------
          Total shareholders' equity                                     43,317,452         44,451,105
                                                                    ----------------    ---------------
          Total liabilities and shareholders' equity              $      46,845,577   $     48,055,916
                                                                    ================    ===============






                                    UTG, INC.
                  CONDENSED FINANCIAL INFORMATION OF REGISTRANT
                      PARENT ONLY STATEMENTS OF OPERATIONS
                       Three Years Ended December 31, 2005

                                                                                                      Schedule II

                                                                   2005               2004               2003
                                                              ---------------    ----------------   ----------------

Revenues:

    Management fees from affiliates                        $       5,218,506  $        5,790,843 $        6,031,472
    Interest income                                                   15,978               4,933              7,904
    Other income                                                           0                   0             50,137
                                                              ---------------    ----------------   ----------------
                                                                   5,234,484           5,795,776          6,089,513


Expenses:

    Interest expense                                                       0              77,453            162,179
    Operating expenses                                             5,154,195           5,085,180          5,335,851
                                                              ---------------    ----------------   ----------------
                                                                   5,154,195           5,162,633          5,498,030
                                                              ---------------    ----------------   ----------------

    Operating income                                                  80,289             633,143            591,483

    Income tax benefit (expense)                                      24,254            (105,098)          (263,992)
    Equity in income (loss) of subsidiaries                        1,155,680            (803,662)        (6,723,981)
                                                              ---------------    ----------------   ----------------
          Net income (loss)                                $       1,260,223  $         (275,617)$       (6,396,490)
                                                              ===============    ================   ================


Basic income (loss) per share from continuing
   operations and net income (loss)                        $            0.32  $            (0.07)$            (1.67)
                                                              ===============    ================   ================

Diluted income (loss) per share from continuing
operations and net income (loss)                           $            0.32  $            (0.07)$            (1.67)
                                                              ===============    ================   ================

Basic weighted average shares outstanding                          3,938,781           3,986,731          3,839,947
                                                              ===============    ================   ================

Diluted weighted average shares outstanding                        3,938,781           3,986,731          3,839,947
                                                              ===============    ================   ================






                                    UTG, INC.
                  CONDENSED FINANCIAL INFORMATION OF REGISTRANT
                      PARENT ONLY STATEMENTS OF CASH FLOWS
                       Three Years Ended December 31, 2005
                                                                                                      Schedule II

                                                                         2005                2004               2003
                                                                    ----------------    ---------------    ----------------

Increase (decrease) in cash and cash equivalents
Cash flows from operating activities:
   Net income (loss)                                              $       1,260,223   $       (275,617)  $      (6,396,490)
   Adjustments to reconcile net income (loss) to
     net cash provided by (used in) operating activities:
    Equity in (income) loss of subsidiaries                              (1,155,680)           803,662           6,723,981
    Depreciation                                                            104,766            104,766              52,383
    Change in FIT recoverable                                               (38,696)            (9,063)              9,981
    Change in accrued interest income                                           965               (693)            (26,058)
    Change in indebtedness (to) from affiliates, net                        254,927           (373,217)              4,787
    Change in deferred income taxes                                          14,442             14,161              79,011
    Change in other assets and liabilities                                  (91,127)           (54,885)         (1,000,625)
                                                                    ----------------    ---------------    ----------------
Net cash provided by (used in) operating activities                         349,820            209,114            (553,030)
                                                                    ----------------    ---------------    ----------------

Cash flows from financing activities:
    Purchase of treasury stock                                             (521,892)          (299,057)           (441,143)
    Issuance of common stock                                                151,320            167,360             195,905
    Payments on notes payable                                                     0         (4,564,776)           (705,499)
    Proceeds from line of credit                                                  0          2,275,000                   0
    Dividend received from subsidiary                                             0          2,275,000             600,000
                                                                    ----------------    ---------------    ----------------
Net cash used in financing activities                                      (370,572)          (146,473)           (350,737)
                                                                    ----------------    ---------------    ----------------

Net increase (decrease) in cash and cash equivalents                        (20,752)            62,641            (903,767)
Cash and cash equivalents at beginning of year                              502,375            439,734           1,343,501
                                                                    ----------------    ---------------    ----------------
Cash and cash equivalents at end of year                          $         481,623   $        502,375   $         439,734
                                                                    ================    ===============    ================







                                    UTG, INC.
                                   REINSURANCE
          As of December 31, 2005 and the year ended December 31, 2005

                                                                                                      Schedule IV



----------------------------------------------------------------------------------------------------------------------------


            Column A                 Column B           Column C            Column D           Column E          Column F
                                  ----------------   ----------------    ---------------    ---------------    -------------

                                                                                                                Percentage
                                                        Ceded to            Assumed                             of amount
                                                          other            from other                           assumed to
                                   Gross amount         companies          companies          Net amount           net

----------------------------------------------------------------------------------------------------------------------------






Life insurance
   in force                     $   2,468,639,000  $     483,884,000   $    952,218,000   $  2,936,973,000            32.4%
                                  ================   ================    ===============    ===============



Premiums and policy fees:

   Life insurance               $      16,286,921  $       2,651,657   $         26,360   $     13,661,624             0.2%

   Accident and health
     insurance                             70,167             20,740             15,632             65,059            24.0%
                                  ----------------   ----------------    ---------------    ---------------

                                $      16,357,088  $       2,672,397   $         41,992   $     13,726,683             0.3%
                                  ================   ================    ===============    ===============








                                    UTG, INC.
                                   REINSURANCE
          As of December 31, 2004 and the year ended December 31, 2004

                                                                                                      Schedule IV



----------------------------------------------------------------------------------------------------------------------------


            Column A                 Column B           Column C            Column D           Column E          Column F
                                  ----------------   ----------------    ---------------    ---------------    -------------

                                                                                                                Percentage
                                                        Ceded to            Assumed                             of amount
                                                          other            from other                           assumed to
                                   Gross amount         companies          companies          Net amount           net

----------------------------------------------------------------------------------------------------------------------------






Life insurance
   in force                     $   2,145,096,000  $     531,146,000   $    995,939,000   $  2,609,889,000            38.2%
                                  ================   ================    ===============    ===============



Premiums and policy fees:

   Life insurance               $      17,161,525  $       3,111,559   $         26,273   $     14,076,239             0.2%

   Accident and health
     insurance                             76,595             23,720             11,315             64,190            17.6%
                                  ----------------   ----------------    ---------------    ---------------

                                $      17,238,120  $       3,135,279   $         37,588   $     14,140,429             0.3%
                                  ================   ================    ===============    ===============






                                    UTG, INC.
                                   REINSURANCE
          As of December 31, 2003 and the year ended December 31, 2003

                                                                                                      Schedule IV



----------------------------------------------------------------------------------------------------------------------------


            Column A                 Column B           Column C            Column D           Column E          Column F
                                  ----------------   ----------------    ---------------    ---------------    -------------

                                                                                                                Percentage
                                                        Ceded to            Assumed                             of amount
                                                          other            from other                           assumed to
                                   Gross amount         companies          companies          Net amount           net

----------------------------------------------------------------------------------------------------------------------------






Life insurance
   in force                     $   2,289,738,000  $     580,145,000   $  1,273,735,000   $  2,983,328,000            42.7%
                                  ================   ================    ===============    ===============



Premiums and policy fees:

   Life insurance               $      18,000,036  $       3,062,361   $         25,026   $     14,962,701             0.2%

   Accident and health
     insurance                             86,856             35,619              9,100             60,337            15.1%
                                  ----------------   ----------------    ---------------    ---------------

                                $      18,086,892  $       3,097,980   $         34,126   $     15,023,038             0.2%
                                  ================   ================    ===============    ===============






                                    UTG, INC.
                        VALUATION AND QUALIFYING ACCOUNTS
         As of and for the years ended December 31, 2005, 2004, and 2003

                                                                                                      Schedule V

                                                     Balance at         Additions
                                                      Beginning          Charges                             Balances at
                  Description                         Of Period         and Expenses       Deductions       End of Period
---------------------------------------------------------------------------------------------------------------------------


December 31, 2005
.
Allowance for doubtful accounts -
     mortgage loans                              $         120,000 $                0 $           84,000 $          36,000




December 31, 2004

Allowance for doubtful accounts -
     mortgage loans                              $         120,000 $                0 $                0 $         120,000




December 31, 2003

Allowance for doubtful accounts -
    mortgage loans                               $         120,000 $                0 $                0 $         120,000




                                   SIGNATURES

     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.

                                    UTG, Inc.
                                  (Registrant)

/s/  John S. Albin                                                March 14, 2006
John S. Albin, Director


/s/  Randall L. Attkisson                                         March 14, 2006
Randall L. Attkisson, President, Chief
     Operating Officer and Director


/s/  Joseph A. Brinck                                             March 14, 2006
Joseph A. Brinck, Director


/s/  Jesse T. Correll                                             March 14, 2006
Jesse T. Correll, Chairman of the Board,
     Chief Executive Officer and Director


/s/  Ward F. Correll                                              March 14, 2006
Ward F. Correll, Director


/s/  Thomas F. Darden                                             March 14, 2006
Thomas F. Darden, Director


/s/  William W. Perry                                             March 14, 2006
William W. Perry, Director


/s/  James P. Rousey                                              March 14, 2006
James P. Rousey, Chief Administrative
     Officer and Director


/s/  Theodore C. Miller                                           March 14, 2006
Theodore C. Miller, Corporate Secretary
     and Chief Financial Officer