UTG 10K/A 2008 Annual report (amended)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K/A-2

(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, 2007
	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)
Delaware		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:
Title of each class	Name of each exchange 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 large accelerated filer, a non-accelerated filer, or a small company, as defined by Rule 12b-2 of the Exchange Act.

Large Accelerated Filer	[ ]	Accelerated Filer	[ ]
Non Accelerated Filer	[ ]	Smaller Reporting Company	[X]

Indicate by check mark whether the registrant is a shell company, as defined by Rule 12b-2 of the act.

Yes [ ]

No [X]

As of June 30, 2007, shares of the Registrant’s common stock held by non-affiliates (based upon the price of the last sale of $8.25 per share), had an aggregate market value of approximately $9,326,411.

At March 1, 2008 the Registrant had 3,847,550 outstanding shares of Common Stock, stated value $.001 per share.

Documents incorporated by reference: None

UTG, INC.

FORM 10-K/A-2

YEAR ENDED DECEMBER 31, 2007

This document is intended to amend certain information contained in the original Form 10K filing as of December 31, 2007 of the Company. The items amended are outlined below and are intended to replace in their entirety each item amended.

TABLE OF CONTENTS

PART II	Page
ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations Financial Condition (a) Assets	7-9
Independent Auditors Consent	16
ITEM 8. Financial Statements and Supplementary Data Note 1. Organization and Summary of Significant Accounting Policies A. Organization	22
ITEM 8. Financial Statements and Supplementary Data Note 3. Income Taxes	27-28
PART IV
ITEM 15. Exhibits, Financial Statements Schedules and Reports on Form 8-K	48
Exhibit 31.1	61
Exhibit 31.2	62

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, 2007. 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, 2007.

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.

Acquisition of company

In December 2006, the Company completed an acquisition transaction whereby it acquired a controlling interest in Acap Corporation, which owns two life insurance subsidiaries. The acquisition resulted in an increase of approximately $90,000,000 in invested assets, $160,000,000 in total assets and 200,000 additional policies to administer. The acquisition had a material impact on many of the balance sheet and income statement line items. The income statement at year end 2006 was not materially impacted by the acquisition. The following analysis and discussion considers the overall changes when comparing 2007 results to 2006 and the impact of the new entities to the Company. The administration of the acquired entities was moved to the Company’s current operating site in Springfield, Illinois during December 2006. The Company believes this acquisition is a good fit with its existing administration and operations. Significant expense savings were realized as a result of the combining of operations compared to costs of the two entities operating separately. These savings come through the advantage of economies of scale of the combined operations of the existing and acquired entities including a larger base over which to spread fixed costs. See note 15 for additional information relating to this acquisition.

Results of Operations

(a)

Revenues

Premiums and policy fee revenues, net of reinsurance premiums and policy fees, increased 12% when comparing 2007 to 2006 and decreased 6% from 2006 to 2005. This increase is related to the ACAP acquisition. Excluding the acquired companies, premiums and policy fee revenues, net of reinsurance premiums and policy fees, decreased 16%. The Company writes very little new business. Unless the Company acquires a block of in-force business as it did in December 2006, management expects premium revenue to continue to decline on the existing block of business at a rate consistent with prior experience. The Company’s average persistency rate for all policies in force for 2007, 2006 and 2005 was approximately 96.1%, 95.9%, and 95.8%, 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, efforts continue to be 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.

The Company has introduced new and updated products in recent periods including the First Annuity, Kid Kare, Full Circle Term and Sentinel Term. Management is currently exploring the feasibility of marketing certain products through its affiliated bank, First Southern National Bank. It is anticipated such marketing efforts would include products such as the new term products and an annuity product. Sales would be supported through the use of the web with Company personnel providing the prospective customer support. Final details have not been completely worked out yet, but launch of this program is anticipated sometime during 2008. Management anticipates insignificant sales under this program initially. Currently the Company has no other 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.

Net investment income increased 53% when comparing 2007 to 2006 and decreased 1% when comparing 2006 to 2005. Excluding the acquired companies, net investment income increased 10% when comparing 2007 to 2006. The overall gross investment yields for 2007, 2006 and 2005, are 6.02%, 6.42% and 6.77%, respectively. Significant investments have been made in real estate that does not contribute to current year investment earnings, which decreases investment yield. However, Management expects these investments to significantly impact earnings positively as real estate is sold and income is recognized in realized gains over the life of the investment. In recent periods, the marketplace has seen an increase in yields on fixed maturity investments. This has resulted in an increase in investment earnings on the fixed maturity portfolio as current holdings mature and are re-invested. Additionally, since 2004, the Company has begun lengthening the bond portfolio. Generally, longer term investments carry a higher yield than shorter term investments in the marketplace. The Company continues to leverage its affiliation with FSNB through the investment in mortgage loans. Mortgage loans provide a more attractive investment yield than generally found in the bond market. The Company is able to acquire these loans utilizing FSNB personnel and expertise. A portion of the mortgage loan portfolio contains floating interest rates that has further enhanced earnings in recent periods as interest rates have crept higher. With the current state of the U.S. economy and general interest rate cuts in early 2008, management anticipates yields of its floating rate investments to decline during 2008.

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. 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 2007, 2006, and 2005, the Company issued $19,765,000, $5,359,000, and $24,576,000, respectively, in new mortgage loans.

The 2006 investment income results reflected a slight decrease over 2005 results. This is primarily related to real estate income reverting to a level that more closely matches Management expectations. Significant investments have been made in real estate that doesn’t provide consistent earnings. Over the life of the investment, however, Management expects these investments to provide favorable returns when real estate is sold and recognized as realized gains.

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 $5,467,207, $11,446,279 and $1,431,936 in 2007, 2006 and 2005, respectively. The net realized gains in 2007 are primarily the result of three sales. In May 2007, the Company sold its 50% interest in Harbor Village Partners LP, realizing a loss of approximately $643,000. Management determined the project was not performing as desired and that it was in the Company’s best long-term interest to divest of its equity investment. As part of the sale, UG is entitled to receive a 10% profit share of future earnings of the development project up to $1,400,000. This future potential was not considered in the current calculation of loss on the sale. Should any future profits be received by the Company from this project, they will be recorded as income in the period received. In June 2007, the Company completed the sale of a real estate holding identified as Drs. Hospital. The Company reported a gain on the sale of approximately $2,600,000. In December of 2007, the Company sold its 50% interest in Boone Parklands, LLC that was acquired in April of 2007. The Company realized a gain of approximately $3,800,000 from the sale.

The net realized gains in 2006 are primarily comprised of a gain from the sale of investment real estate held by two 67% owned subsidiaries of the Company. The real estate was sold for the agreed upon total sales price of $25,500,000. The Company recognized a realized gain of approximately $7,768,000. In addition, the Company had net realized gains of approximately $3,819,000 from the disposal of certain equity securities.

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.

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. For the years ended 2007, 2006 and 2005, the Company received $1,781,173, $1,811,151 and $1,170,824 for this work, respectively. These TPA revenue fees are included in the line item “other income” on the Company’s consolidated statements of operations. No new TPA contracts were entered into during 2007. However, 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 data center 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 (NASDAQ: FISV) 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 to come from the following primary sources: expansion of TPA revenues, conservation of business currently in force, the maximization of investment earnings and the acquisition of other companies or policy blocks in the life insurance business. 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, increased $3,035,955 from 2006 to 2007 and increased $2,209,034 from 2005 to 2006. Excluding the results of the acquired companies, this item decreased $1,852,093 from 2006 to 2007. Although claims experience was higher in 2007 than 2006, the associated reserves that were released related to the claims were a greater percentage of the claim amount than in the prior year, thus reducing the impact the increased claims had on the current period results. The increase from 2005 to 2006 relates primarily to changes in the Company’s death claim experience. Death claims were approximately $1,247,000 more in 2006 as compared to 2005. 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.

Changes in policyholder reserves, or future policy benefits, also impact this line item. 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. The short-term impact of 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. 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 2007 compared to 2006 due to the acquisition of ACAP. The subsidiaries of ACAP have reinsurance agreements in place with outside companies that drive the majority of this number. Excluding the results of the acquired companies, this line item was comparable to 2006. This line item was also comparable in 2006 to 2005. 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 50% in 2007 compared to 2006 and increased 30% in 2006 compared to 2005. The significant increase in 2007 is the result of the acquisition of the insurance subsidiaries in December 2006. 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 7% of the balance, 12% on approximately 50% 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 2007, 2006 and 2005 has been approximately 96.1%, 95.9% and 95.8%, respectively. The Company monitors these projections to determine the adequacy of present values assigned to future cash flows. No impairments were recorded in any of the three periods reported.

Operating expenses increased 24% in 2007 compared to 2006 and increased 17% in 2006 compared to 2005. The increase in operating expenses in the current year is primarily related to the increase in activity related to the new companies acquired at the end of 2006. These costs include such items as new staff, postage and supplies. The increase in expenses is consistent with Management’s expectations relating to the acquisition. The increases in expenses during 2006 relate primarily to costs associated with the acquisition of Acap Corporation. The Company incurred approximately $310,000 in costs relating to due diligence work on the acquisition. Additionally, costs such as hiring new staff and training in preparation for the transition of work to Springfield were incurred during the fourth quarter of 2006. The Company also saw an increase in expenses during 2006 of approximately $150,000 relating to the completion of a SAS 70 audit. The SAS 70 audit report is a very valuable item relating to the continued pursuit of TPA work. A SAS 70 audit is an independent verification the Company has good internal controls and procedures in place for the key areas of operations. The Company anticipates continuing to annually update the SAS 70 audit report, with expected ongoing costs of approximately one-third of the original audit cost. Management places significant emphasis on expense monitoring and cost containment. Maintaining administrative efficiencies directly impacts net income.

The significant increase in interest expense of $1,157,302 in 2007 compared to 2006 was a result of funds borrowed, of approximately $15,700,000, relating to the acquisition of Acap Corporation. Interest expense increased in 2006 also as a result of the acquisition. Prior to the acquisition, the Company had no outstanding debt since the retirement of previous debt in 2004. The Company anticipates aggressively repaying the current debt.

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.

(c)	Net income

The Company had a net income of $2,142,619, $3,869,720 and $1,260,223 in 2007, 2006 and 2005 respectively. The decrease in net income in 2007 is primarily related to a decrease in realized investment gains as compared to 2006. The increase in net income in 2006 is primarily related to the significant increase in realized investment gains from the sale of certain common stock holdings and the sale of real estate holdings. 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. The Companies acquired in 2006 have generally performed as anticipated by management during 2007.

Financial Condition

(a)

Assets

Investments are the largest asset group of the Company. The Company's insurance subsidiaries are regulated by insurance statutes and regulations as to the type of investments they are 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. Some insurance companies have suffered significant losses in their investment portfolios in the last few years; however, because of the Company’s conservative investment philosophy the Company has avoided such significant losses.

At December 31, 2007, the carrying value of fixed maturity securities in default as to principal or interest was immaterial in the context of consolidated assets, shareholders' equity or results of operations. 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.

At December 31, 2007, the Company held fixed maturity securities with a carrying value of $1,548,049 that were guaranteed by four different third parties. The Standard and Poor’s credit ratings ranged from AAA to AA- with and without the guarantees. The Company had no significant concentration in a guarantor either directly or indirectly as of December 31, 2007.

The following table summarizes the Company's fixed maturities distribution at December 31, 2007 and 2006 by ratings category as issued by Standard and Poor's, a leading ratings analyst.

Fixed Maturities
Rating	% of Portfolio
	2007	2006
Investment Grade
AAA	72%	70%
AA	8%	4%
A	13%	18%
BBB	7%	6%
Below investment grade	0%	2%
	100%	100%

Mortgage loan investments represent 10% and 7% of total assets of the Company at year-end 2007 and 2006, respectively. The Company’s mortgage loan investments result from 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 2007, 2006 and 2005 the Company issued approximately $19,765,000, $5,359,000 and $24,576,000 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 $85,612, $93,288 and $76,970 in servicing fees and $54,281, $23,214 and $112,109 in origination fees to FSNB during 2007, 2006 and 2005, respectively. The Company anticipates these opportunities to continue to be available and will pursue those investments that provide attractive yields.

Sub-prime mortgage lending has received significant attention in recent months. Default rates have risen sharply on these loans causing a negative impact in the economy in general. While the Company does not have a material direct exposure to sub-prime mortgage loans, the Company could still be negatively impacted indirectly through fixed maturity holdings and stock holdings in financial institutions that do have sub-prime loan exposures. Declines in values relating to such entities will negatively impact the Company through unrealized investment losses, should any of these entities declare bankruptcy, the Company would then report a realized loss on its investment. Management monitors events relating to this topic. We believe while we may have indirect exposures, the risk of significant loss is very low for the Company.

Total investment real estate holdings represent approximately 8% and 9% of the total assets of the Company, net of accumulated depreciation, at year-end 2007 and 2006 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.

Cash and cash equivalents increased approximately $9,274,000 comparing 2007 to 2006. The increase can be attributed to the sale of real estate held by Boone Parklands, LLC in December of 2007 resulting in proceeds of approximately $15,750,000. The Company realized a gain of approximately $3,800,000 on the sale. This investment was acquired in April 2007.

Equity securities increased approximately $16,373,000 during 2007. The increase is attributable to UG and AC purchasing financial institution and oil and gas investments that Management believes will provide the Company with favorable long term returns.

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 15% in 2007 compared to 2006. 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 $0 in policy acquisition costs deferred, $9,000 in interest accretion and $188,360 in amortization in 2007, and had $0 in policy acquisition costs deferred, $7,000 in interest accretion and $232,476 in amortization in 2006.

Cost of insurance acquired decreased $4,471,138 in 2007 compared to 2006. 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 2007 and 2006, amortization decreased the asset by $4,282,715 and $2,850,725, respectively. No impairments of this asset were recorded for the periods presented.

(b)	Liabilities

Total liabilities decreased 2% in 2007 compared to 2006. This decrease is attributable primarily to a decrease in the total future policy benefits held. As policies in force terminate, the corresponding reserve liability held for those policies is released.

At December 31, 2007, the Company has outstanding notes payable of $19,914,346 as compared to $22,990,081 a year ago. Approximately $13,500,000 of this debt is related to the acquisition of Acap Corporation and the majority remaining is attributable to borrowings of a subsidiary, Lexington, relating to a real estate investment. The Company has three lines of credit available for operating liquidity or acquisitions of additional lines of business. There are no outstanding balances on any of these lines of credit as of the balance sheet date. The Company's long-term debt is discussed in more detail in Note 11 to the consolidated financial statements.

(c)	Shareholders' Equity

Total shareholders' equity increased 8% in 2007 compared to 2006. This increase is primarily due to the current year net income of approximately $2,143,000 and by an unrealized gain in value of approximately $1,332,000 on investments held. The increase in value of investments held relates primarily to a drop in interest rates in the marketplace during the last half of the year. Additionally, the Company received approximately $446,000 from the issuance of additional shares of common stock under the Employee and Director Stock Purchase Plan, and repurchased approximately $193,000 of its common stock in the open market during the current year.

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 2007, UG had one ratio outside the normal range and AC and TI had 2 and 4 items, respectively, outside of the normal range. All variances reported were anticipated by management. These ratios are discussed in more detail in the Regulatory Environment discussion included in this Item 7.

Liquidity and Capital Resources

The Company has three principal needs for cash - the insurance company’s contractual obligations to policyholders, the payment of operating expenses and servicing its outstanding debt. Cash and cash equivalents as a percentage of total assets were 4% and 2% as of December 31, 2007 and 2006, respectively. Fixed maturities as a percentage of total invested assets were 60% and 69% as of December 31, 2007 and 2006, 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 provided by (used in) operating activities was $809,699, $(1,875,494) and $(290,936) in 2007, 2006 and 2005, 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 $10,873,952, $(8,061,870) and $(1,265,715) for 2007, 2006 and 2005, respectively. Fixed maturity investments sold increased $50,808,546, as the Company identified better opportunities to allocate investment assets. Cash provided by investing activities was significantly impacted by the sale of real estate by Boone Parklands, LLC, which resulted in proceeds of approximately $15,750,000. A significant aspect of cash provided by (used in) investing activities is the fixed maturity transactions. Fixed maturities account for 28%, 51% and 14% of the total cost of investments acquired in 2007, 2006 and 2005, respectively. During 2007, Management significantly increased purchases in equity securities, mortgage loans, and real estate as favorable opportunities presented themselves. These acquisitions accounted for 65% of the total cost of investments acquired in 2007. The decrease in fixed maturity investments over the three years reflects the Company’s emphasis in the mortgage loan and real estate markets.

Net cash provided by (used in) financing activities was $ (2,409,736), $6,205,830 and $1,901,266 for 2007, 2006 and 2005, respectively. Cash used in financing activities during 2007 was mostly the result of debt reduction. The acquisition of Acap Corporation accounted for a majority of the activity in this area during 2006.

Policyholder contract deposits decreased 8% in 2007 compared to 2006 and 6% in 2006 compared to 2005. 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 increased 8% in 2007 compared to 2006 and 3% in 2006 compared to 2005. 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.

UTG, Inc. borrowed funds in order to complete the Acap Corporation acquisition from First Tennessee Bank National Association through execution of an $18,000,000 promissory note. To secure the note, UTG, Inc. has pledged 100% of the common stock of its subsidiary, UG. At the time of closing on December 8, 2006, UTG, Inc. borrowed $15,700,278 on the promissory note. The remaining available balance was able to be drawn on at any time during the year and a portion of it was used in the purchase of the stock put option shares of Acap Corporation as they were presented to UTG, Inc. for purchase under the stock put option agreement entered into during 2006 as part of the acquisition. The promissory note carries a variable rate of interest based on the 3 month LIBOR rate plus 180 basis points. The initial rate was 7.15%. Interest is payable quarterly. Principal is payable annually beginning at the end of the second year in five installments of $3,600,000. The loan matures on December 7, 2012. During the year ended December 31, 2007, UTG borrowed $1,994,176 and has repaid $3,450,005 on the note, leaving a balance outstanding at December 31, 2007 of $13,544,449. No additional borrowings on this note are anticipated.

First Tennessee Bank National Association also provided UTG, Inc. with a $5,000,000 revolving credit note. This note is for a one-year term and may be renewed by consent of both parties. The credit note is to provide operating liquidity for UTG, Inc. and replaces a previous line of credit provided by Southwest Bank. Interest bears the same terms as the above promissory note. The collateral held on the above note also secures this credit note. UTG, Inc. has no borrowings against this note at this time.

UG has a $3,300,000 line of credit (LOC) available from the First National Bank of Tennessee. 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. At December 31, 2007, the Company had no outstanding borrowings attributable to this LOC. During 2007, 2006, and 2005, the Company had $5,800,000, $2,000,000, and $1,500,000 in borrowings against this line, respectively, which were repaid during each year.

In November 2007, UG became a member of the FHLB. This membership will allow the Company access to additional credit up to a maximum of 50% of the total assets of UG. To be a member of the FHLB, UG was required to purchase shares of common stock of FHLB. Borrowing capacity is based on 50 times each dollar of stock acquired in FHLB above the “base membership” amount. The Company’s current LOC with the FHLB is $15,000,000. During 2007, the Company had borrowings and repayments of $5,443,350. At December 31, 2007, the Company had no outstanding borrowings attributable to this LOC.

AC and TI each had a line of credit in place through Frost National Bank for $210,000 and $160,000, respectively. These lines had been in place since 2004 and were left in place following the acquisition. The lines were for one year terms, interest payable quarterly at a floating interest rate which is the Lender’s prime rate. Principal was due upon maturity. The lines matured during the second quarter of 2007. Management has determined these lines are no longer needed, therefore, upon maturity in 2007, these lines were not renewed. Neither of the lines had any activity during 2007.

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 (NASDAQ: FISV) 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 $8,333 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-2011.

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, and the servicing of its debt are primarily provided by its subsidiaries. On a parent only basis, UTG's cash flow is dependent on management fees received from its insurance subsidiaries, stockholder dividends from its subsidiaries and earnings received on cash balances. On December 31, 2007, substantially all of the consolidated shareholders equity represents net assets of its subsidiaries. The Company's insurance subsidiaries have maintained adequate statutory capital and surplus. 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 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, 2007 UG statutory shareholders' equity was $30,130,717. At December 31, 2007, UG statutory net income was $4,661,648. 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 ordinary dividends of $3,000,000 to UTG during 2007. UG paid an ordinary dividend of $5,100,000 during 2006. There were no dividends paid during 2005.

AC and TI are Texas domiciled insurance companies, which requires eleven 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, 2007 AC and TI statutory shareholders' equity was $8,165,775 and $2,432,191, respectively. At December 31, 2007, AC and TI statutory net income was $999,329 and $289,642, respectively. Extraordinary dividends (amounts in excess of ordinary dividend limitations) require prior approval of the insurance commissioner and are not restricted to a specific calculation. AC paid ordinary dividends to ACAP of $500,000 and $605,000 in 2007 and 2006, respectively. TI paid AC ordinary dividends of $250,000 and $0 in 2007 and 2006, respectively.

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

Regulatory Environment

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, the insurance subsidiaries are subject to government regulation in each of the states in which they conduct 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. AC and TI are both domiciled in the state of Texas.

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 2007, UG had one ratio outside the normal range. AC had two ratios outside the normal range. TI had four ratios outside the normal range. Each of the ratios outside the normal range was anticipated by Management. UG’s ratio 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. Additionally, the newly acquired Acap Corporation is a subsidiary of UG. AC’s ratios outside the normal range relate to a change in premium and product mix. AC, like UG, 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. The sale of the A&H line of business at the end of 2006 had a significant role in these two ratios. TI’s ratios relate to the net change in capital and surplus, gross change in capital and surplus, surplus relief, and change in premium. The repayment of outstanding surplus relief of $330,842 in 2007 accounts for three of the ratio variances. The change in premium is the result of the sale of TI’s A & H line of business at the end of 2006.

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, 2007, UG has a ratio that is in excess of 5.8, which is 580% of the authorized control level. AC and TI have ratios in excess of 10.4 and 11.5, which is 1040% and 1150% of the authorized control level, respectively. Accordingly, all three companies meet 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. 155, Accounting for Certain Hybrid Financial Instruments – An amendment of FASB Statements No. 133 and 140. The Statement improves the financial reporting by eliminating the exemption from applying Statement No. 133 to interest in securitized financial assets so that similar instruments are accounted for similarly regardless of the form of the instrument. The Statement is effective for all financial instruments acquired or issued after the beginning of an entity’s first fiscal year that begins after September 15, 2006. The Company will account for all qualifying financial instruments in accordance with the requirements of Statement No. 155, should this apply.

The FASB also issued Statement No. 156, Accounting for Servicing of Financial Assets – an amendment of FASB Statement No. 140. The Statement requires that all separately recognized servicing assets and servicing liabilities be initially measured at fair value, if possible. The Statement permits, but does not require, the subsequent measurement of servicing assets and liabilities at fair value. The Statement is effective for fiscal years beginning after September 15, 2006. The adoption of Statement No. 156 does not currently affect the Company’s financial position or results of operations.

The FASB also issued Statement No. 157, Fair Value Measurements. The Statement defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. The Statement does not require any new fair value measurements; however applies under other pronouncements that require or permit fair value measurements. The Statement is effective for financial statements issued for fiscal years beginning after November 15, 2007. The Company will adjust all fair value measurements in accordance with the requirements of Statement No. 157, should this apply.

The FASB also issued Statement No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans – an amendment of FASB Statements No. 87, 88, 106 and 132(R). The Statement requires that an employer that is a business entity and sponsors one or more single-employer defined benefit plans to recognize the funded status of a benefit plan, the component of other comprehensive income, net of tax, the gains or losses and prior service costs or credits that arise during the period but are not recognized as current costs, and disclose additional information in the notes regarding certain effects on net periodic benefit costs for the next fiscal year. The Statement is effective for fiscal years ending after December 15, 2006. The adoption of Statement No. 158 does not currently affect the Company’s financial position or results of operations, since the Company does not have any defined benefit pension plans.

The FASB also issued Statement No. 159, The Fair Value Option for Financial Assets and Financial Liabilities —including an amendment of FASB Statement No. 115. The Statement permits entities to choose to measure many financial instruments and certain other items at fair value. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. The Statement is effective for fiscal years ending after November 15, 2007. The adoption of Statement No. 159 does not currently affect the Company’s financial position or results of operations.

The FASB also issued Statement No. 160, Non-controlling Interests in Consolidated Financial Statements—an amendment of ARB No. 51. This Statement applies to all entities that prepare consolidated financial statements, except not-for-profit organizations, but will affect only those entities that have an outstanding non-controlling interest in one or more subsidiaries or that deconsolidate a subsidiary. This Statement is effective for fiscal years, and interim periods within those fiscal years, beginning after January 01, 2008. Management is currently researching what effect if any that this statement will have on future reporting.

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 years ended December 31, 2007 and 2006...................................................................................................……..…....	16-17
Consolidated Balance Sheets..................................................................................................………………………………………………………………………....….	18
Consolidated Statements of Operations................................................................................................…………………………………………………..………...……	19
Consolidated Statements of Shareholders' Equity.................................................................................................………………………………………..………...…..	20
Consolidated Statements of Cash Flows..................................................................................................……………………………………………………......…...….	21
Notes to Consolidated Financial Statements.................................................................................................……………………………………………………......…..	22-47

CONSENT OF BROWN SMITH WALLACE LLC

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

As independent registered public accountants, we hereby consent to the incorporation of our report dated March 25, 2008, except with respect to the matters discussed in Note 1 and Note 3, as to which the date is October 2, 2008, on the consolidated financial statements of UTG, Inc. (a Delaware corporation) and subsidiaries as of December 31, 2007 and 2006, and for each of the three years ended December 31, 2007, 2006, and 2005, included in this Annual Report on Form 10-K/A-1.

/s/ Brown Smith Wallace, LLC

St. Louis, Missouri

October 2, 2008

Report of Brown Smith Wallace LLC

Independent Registered Public Accounting Firm

Board of Directors and Shareholders

UTG, Inc.

Springfield, Illinois

We have audited the accompanying consolidated balance sheets of UTG, Inc. (a Delaware corporation) and subsidiaries as of December 31, 2007 and 2006, and the related consolidated statements of operations, shareholders’ equity, and cash flows for the years ended December 31, 2007, 2006, and 2005. UTG, Inc’s management is responsible for these consolidated financial statements. 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. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. 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, 2007 and 2006, and the consolidated results of their operations and their cash flows for the years ended December 31, 2007, 2006 and 2005, in conformity with accounting principles generally accepted in the United States of America.

We have also audited Schedule I as of December 31, 2007, and Schedules II, IV and V as of December 31, 2007, 2006 and 2005, of UTG, Inc. and subsidiaries and Schedules II, IV and V for the years then ended. In our opinion, these schedules present fairly, in all material respects, the information required to be set forth therein.

/s/ Brown Smith Wallace, LLC

St. Louis, Missouri

March 25, 2008

UTG, INC.
CONSOLIDATED BALANCE SHEETS
As of December 31, 2007 and 2006




ASSETS

				2007		2006
Investments:
	Fixed maturities held to maturity, at amortized cost
	(market $6,330,036 and $6,244,373)		$	6,006,846	$	6,274,913
	Investments held for sale:
	Fixed maturities, at market (cost $196,079,174 and $235,054,655)			197,974,206		233,229,129
	Equity securities, at market (cost $26,882,317 and $10,031,148)			32,678,592		16,305,591
	Mortgage loans on real estate at amortized cost			45,602,147		32,015,446
	Investment real estate, at cost, net of accumulated depreciation			39,154,175		43,975,642
	Policy loans			15,643,238		15,931,525
	Short-term investments			933,967		47,879
				337,993,171		347,780,125

Cash and cash equivalents				17,746,468		8,472,553
Securities of affiliate				4,000,000		4,000,000
Accrued investment income				2,485,594		2,824,975
Reinsurance receivables:
	Future policy benefits			73,450,212		73,770,732
	Policy claims and other benefits			4,657,663		5,040,219
Cost of insurance acquired				28,337,021		32,808,159
Deferred policy acquisition costs				1,009,528		1,188,888
Property and equipment, net of accumulated depreciation				1,752,199		3,129,331
Income taxes receivable, current				0		219,956
Other assets				2,222,898		3,496,856
		Total assets	$	473,654,754	$	482,731,794


LIABILITIES AND SHAREHOLDERS' EQUITY
Policy liabilities and accruals:
	Future policy benefits		$	346,076,921	$	351,587,689
	Policy claims and benefits payable			3,198,166		3,330,945
	Other policyholder funds			1,000,216		1,124,045
	Dividend and endowment accumulations			14,039,241		14,091,257
Income taxes payable, current				450,626		0
Deferred income taxes				16,502,035		16,480,068
Notes payable				19,914,346		22,990,081
Other liabilities				9,486,971		8,587,166
		Total liabilities		410,668,522		418,191,251
Minority interests in consolidated subsidiaries				14,231,707		19,514,151

Shareholders' equity:
Common stock - no par value, stated value $.001 per share.
	Authorized 7,000,000 shares - 3,849,533 and 3,842,687 shares issued
	and outstanding after deducting treasury shares of 384,813 and 360,888			3,849		3,843
Additional paid-in capital				42,067,229		41,813,690
Retained earnings				2,374,990		232,371
Accumulated other comprehensive income				4,308,457		2,976,488
		Total shareholders' equity		48,754,525		45,026,392
		Total liabilities and shareholders' equity	$	473,654,754	$	482,731,794

See accompanying notes.

UTG, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Years Ended December 31, 2007
							��

				2007		2006		2005

Revenues:

	Premiums and policy fees		$	19,104,158	$	15,515,567	$	16,399,080
	Reinsurance premiums and policy fees			(4,690,792)		(2,655,142)		(2,672,397)
	Net investment income			16,880,362		11,001,165		11,051,226
	Realized investment gains, net			5,467,207		11,446,279		1,431,936
	Other income			2,111,637		2,277,350		1,261,495
				38,872,572		37,585,219		27,471,340


Benefits and other expenses:

	Benefits, claims and settlement expenses:
		Life		25,567,473		20,108,067		17,589,143
		Reinsurance benefits and claims		(3,145,550)		(2,073,179)		(1,716,499)
		Annuity		(471,222)		1,117,766		1,064,808
		Dividends to policyholders		1,170,631		932,723		938,891
	Commissions and amortization of deferred
		policy acquisition costs		(2,016,521)		(65,908)		(14,267)
	Amortization of cost of insurance acquired			4,282,715		2,850,725		2,193,085
	Operating expenses			8,019,556		6,453,648		5,516,566
	Interest expense			1,391,427		234,125		0
				34,798,509		29,557,967		25,571,727

Income before income taxes and minority
interest				4,074,063		8,027,252		1,899,613
Income tax expense				(383,197)		(1,949,607)		(158,408)
Minority interest in income of consolidated
subsidiaries				(1,548,247)		(2,207,925)		(480,982)

Net income			$	2,142,619	$	3,869,720	$	1,260,223


Basic income per share from continuing
operations and net income			$	0.56	$	1.00	$	0.32

Diluted income per share from continuing
operations and net income			$	0.56	$	1.00	$	0.32

Basic weighted average shares outstanding				3,851,596		3,872,425		3,938,781

Diluted weighted average shares outstanding				3,851,596		3,872,425		3,938,781

See accompanying notes.

UTG, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Three Years Ended December 31, 2007

				2007				2006				2005

	Common stock
		Balance, beginning of year	$	3,843			$	3,902			$	79,315
		Issued during year		30				0				120
		Treasury shares acquired		(24)				(59)				(75)
		Change in stated value		0				0				(75,458)
		Balance, end of year	$	3,849			$	3,843			$	3,902


	Additional paid-in capital
		Balance, beginning of year	$	41,813,690			$	42,295,661			$	42,590,820
		Issued during year		446,668				0				151,200
		Treasury shares acquired		(190,530)				(481,971)				(521,817)
		Retired During Year		(2,599)				0				0
		Change in stated value		0				0				75,458
		Balance, end of year	$	42,067,229			$	41,813,690			$	42,295,661


	Retained earnings (accumulated deficit)
		Balance, beginning of year	$	232,371			$	(3,637,349)			$	(4,897,572)
		Net income		2,142,619	$	2,142,619		3,869,720	$	3,869,720		1,260,223	$	1,260,223
		Balance, end of year	$	2,374,990			$	232,371			$	(3,637,349)


	Accumulated other comprehensive income
		Balance, beginning of year	$	2,976,488			$	4,655,238			$	6,678,542
		Other comprehensive income (loss)
		Unrealized holding gain (loss) on securities
		net of minority interest and
		reclassification adjustment and taxes		1,331,969		1,331,969		(1,678,750)		(1,678,750)		(2,023,304)		(2,023,304)
		Comprehensive income (loss)			$	3,474,588			$	2,190,970			$	(763,081)
		Balance, end of year	$	4,308,457			$	2,976,488			$	4,655,238

	Total shareholders' equity, end of year		$	48,754,525			$	45,026,392			$	43,317,452

See accompanying notes.

UTG, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Years Ended December 31, 2007


			2007		2006		2005
Increase (decrease) in cash and cash equivalents
Cash flows from operating activities:
Net income		$	2,142,619	$	3,869,720	$	1,260,223
Adjustments to reconcile net income 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		93,211		391,013		606,914
	Realized investment (gains) losses, net		(5,467,208)		(11,446,279)		(1,459,959)
	Amortization of deferred policy acquisition costs		179,360		225,476		278,899
	Amortization of cost of insurance acquired		4,282,715		2,850,725		2,193,085
	Depreciation		1,015,083		1,801,507		2,206,023
	Minority interest		1,548,247		2,207,925		480,982
	Charges for mortality and administration
	of universal life and annuity products		(8,607,194)		(9,197,484)		(9,097,858)
	Interest credited to account balances		5,286,528		5,146,917		5,251,303
	Policy acquisition costs deferred		0		0		(8,000)
	Change in accrued investment income		339,381		(160,506)		139,421
	Change in reinsurance receivables		703,076		291,582		455,527
	Change in policy liabilities and accruals		(2,911,180)		1,976,884		1,017,812
	Change in income taxes payable		(157,125)		1,599,104		157,111
	Change in other assets and liabilities, net		2,362,186		(1,432,078)		(3,772,419)
Net cash provided by (used in) operating activities			809,699		(1,875,494)		(290,936)

Cash flows from investing activities:
Proceeds from investments sold and matured:
	Fixed maturities held for sale		67,386,270		16,577,724		26,182,897
	Fixed maturities matured		1,596,785		3,729,019		5,816,061
	Equity securities		140,390		16,242,400		3,182,055
	Mortgage loans		9,230,011		12,152,376		10,050,792
	Real estate		36,366,487		20,984,831		876,594
	Policy loans		4,685,078		3,698,261		3,803,491
	Short-term		1,312,195		1,546,907		425,000
	Other invested assets		793,749		0		0
Total proceeds from investments sold and matured			121,510,965		74,931,518		50,336,890
Cost of investments acquired:
	Fixed maturities held for sale		(29,730,542)		(39,037,210)		(6,496,673)
	Fixed maturities		(1,319,428)		(2,506,647)		(1,474,140)
	Equity securities		(16,991,419)		(7,355,487)		(1,606,543)
	Mortgage loans		(22,816,712)		(7,306,094)		(26,109,670)
	Real estate		(33,506,988)		(20,883,148)		(11,883,777)
	Policy loans		(4,396,791)		(2,878,487)		(3,603,581)
	Short-term		(2,193,967)		(1,557,655)		(428,221)
	Other invested assets		(800,000)		0		0
Total cost of investments acquired			(111,755,847)		(81,524,728)		(51,602,605)
Purchase of property and equipment			(72,674)		(1,468,660)		0
Sale of property and equipment			1,191,508		0		0
Net cash provided by (used in) investing activities			10,873,952		(8,061,870)		(1,265,715)

Cash flows from financing activities:
	Policyholder contract deposits		7,331,444		7,940,954		8,481,796
	Policyholder contract withdrawals		(6,918,990)		(6,401,947)		(6,209,958)
	Proceeds from notes payable		21,607,423		24,190,081		1,500,000
	Payments of principal on line of credit		(24,683,158)		(1,200,000)		(1,500,000)
	Issuance of common stock		444,099		0		151,320
	Purchase of treasury stock		(190,554)		(482,030)		(521,892)
	Purchase of subsidiary		0		(21,079,555)		0
	Cash of subsidiary at date of acquisition		0		3,238,327		0
Net cash provided by (used in) financing activities			(2,409,736)		6,205,830		1,901,266

Net increase (decrease) in cash and cash equivalents			9,273,915		(3,731,534)		344,615
Cash and cash equivalents at beginning of year			8,472,553		12,204,087		11,859,472
Cash and cash equivalents at end of year		$	17,746,468	$	8,472,553	$	12,204,087

See accompanying notes.

UTG, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.	ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A.		ORGANIZATION - At December 31, 2007, 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.

NATURE OF OPERATIONS - UTG, Inc., is an insurance holding company, which sells individual life insurance products through its insurance subsidiaries. The Company's principal market is the mid-western United States and Texas. 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 United 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 $594,043 and $593,877 as of December 31, 2007 and 2006, respectively.
	Policy loans - at unpaid balances including accumulated interest but not in excess of the cash surrender value of the related policy.
	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 2.5% 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% as of December 31, 2007 and 2006.
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 $1,232,848 and $1,242,950 as of December 31, 2007 and 2006, 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 14% of the business, 12% discount rate on approximately 83% of the business and 15% discount rate on approximately 3% 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 7% of the balance, 12% on approximately 50% of the balance and 15% on 43% of the 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.

		2007		2006		2005
Cost of insurance acquired, beginning of year	$	32,808,159	$	10,554,447	$	12,747,532
Acquired with acquisition of subsidiary		(188,423)		25,104,437		0
Interest accretion		6,024,911		3,426,178		3,739,918
Amortization		(10,307,626)		(6,276,903)		(5,933,003)
Net amortization		(4,282,715)		(2,850,725)		(2,193,085)
Cost of insurance acquired, end of year	$	28,337,021	$	32,808,159	$	10,554,447

	Cost of insurance acquired was tested for impairment as part of the regular reporting process. The fair value of the cost of insurance acquired was estimated using the expected present value of future cash flows. No impairment loss was realized during any of the three years presented.
	Estimated net amortization expense of cost of insurance acquired for the next five years is as follows:

	Interest Accretion	Amortization	Net Amortization
2008	5,437,000	9,480,000	4,043,000
2009	4,885,000	8,879,000	3,994,000
2010	2,437,000	4,345,000	1,908,000
2011	2,230,000	3,833,000	1,603,000
2012	2,037,000	3,529,000	1,492,000

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.

		2007		2006		2005
Deferred, beginning of year	$	1,188,888	$	1,414,364	$	1,685,263

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

Interest accretion		9,000		7,000		8,000
Amortization charged to income		(188,360)		(232,476)		(283,899)
Net amortization		(179,360)		(225,476)		(275,899)

Change for the year		(179,360)		(225,476)		(270,899)

Deferred, end of year	$	1,009,528	$	1,188,888	$	1,414,364

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

	Interest		Net
	Accretion	Amortization	Amortization

2008	9,000	206,000	197,000
2009	8,000	186,000	178,000
2010	6,000	104,000	98,000
2011	5,000	77,000	72,000
2012	4,000	66,000	62,000

M.	PROPERTY AND EQUIPMENT - Company-occupied property, data processing equipment and furniture and office equipment are stated at cost less accumulated depreciation of $2,681,009 and $2,542,750 at December 31, 2007 and 2006, 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 $258,298, $261,148, and $250,795 for the years ended December 31, 2007, 2006, and 2005, 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 384,813 and 360,888 shares of common stock as treasury shares with a cost basis of $2,846,517 and $2,632,910 at December 31, 2007 and 2006, 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 9% and 8% of life insurance in force at December 31, 2007 and 2006, respectively. Premium income from participating business represents 42%, 33%, and 21% of total premiums for the years ended December 31, 2007, 2006 and 2005, 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 2007 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 asset 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, 2007.

2.	SHAREHOLDER DIVIDEND RESTRICTION

At December 31, 2007, 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, AC and TI’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, 2007, UG had a statutory gain from operations of $4,661,648. At December 31, 2007, UG's statutory capital and surplus amounted to $30,130,717. 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 2007 and 2006, UG paid $3,000,000 and $5,100,000, of which none were was considered to be an extraordinary dividend, respectively, to UTG.

AC and TI are Texas domiciled insurance companies, which requires eleven 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, 2007 AC and TI statutory shareholders' equity was $8,165,775 and $2,432,191, respectively. At December 31, 2007, AC and TI statutory net income was $999,329 and $289,642, respectively. Extraordinary dividends (amounts in excess of ordinary dividend limitations) require prior approval of the insurance commissioner and are not restricted to a specific calculation. AC paid ordinary dividends of $500,000 in 2007. TI paid ordinary dividends of $250,000 during 2007.

3.	INCOME TAXES

Until 1984, insurance companies were 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”. As part of the American Jobs Creation Act of 2004, Congress authorized a limited opportunity for life insurance companies to recognize the balance in the “policyholders’ surplus account” and not pay any federal income tax. This window of opportunity expired December 31, 2006. During 2006, each of the insurance subsidiaries took advantage of this opportunity. As of December 31, 2006, none of the insurance subsidiaries had a balance remaining in the “policyholders’ surplus account”.

The valuation allowance against deferred taxes is a sensitive accounting estimate. The Company follows Statement of Financial Accounting Standards (SFAS) No. 109, “Accounting for Income Taxes,” which prescribes the liability method of accounting for deferred income taxes. Under the liability method, companies establish a deferred tax liability or asset for the future tax effects of temporary differences between book and tax basis of assets and liabilities.

At December 31, 2007 and 2006, respectively, the Company had gross deferred tax assets of $2,818,386 and $3,703,704 net of valuation allowances of $404,872 and $0, and gross deferred tax liabilities of $19,320,421 and $20,183,772, resulting from temporary differences primarily related to the life insurance subsidiaries. The valuation allowance in the current period was from ACAP and its consolidated subsidiaries that for tax purposes generated a net operating loss during 2007 of $1,156,777. The Company established a deferred tax asset of $404,872 relating to this operating loss carryforward and has established an offsetting allowance of $404,872. The allowance was established as a result of uncertainty in the Company’s ability to utilize the loss carryforward which is dependent on generating sufficient taxable income prior to expiration of the loss carry forward. The Company has not experienced any reductions of deferred tax assets due to the lapse of applicable statute of limitations. The 2007 net operating loss expires in 2027.

The Company does not have any unrecognized tax benefits resulting from tax positions taken that is believed by management to be potentially challenged and disallowed by taxing authorities.

The Company classifies interest and penalties on underpayment of income taxes as income tax expense. No interest or penalties were included in the reported income taxes for the years presented. Tax years 2004 to current remain subject to examination. The Company has no agreements of extension of the review period currently in effect. The Company is not aware of any potential or proposed changes to any of its tax filings.

The companies of the group file separate federal income tax returns except for Acap Corporation, AC, TI and Imperial Plan, which file a consolidated life/non-life federal income tax return.

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 consists of the following components:

		2007		2006		2005
Current tax expense	$	1,076,824	$	398,268	$	21,368
Deferred tax expense		(693,627)		1,551,339		137,040
	$	383,197	$	1,949,607	$	158,408

ACAP and its consolidated subsidiaries for tax purposes generated a net operating loss during 2007 of $1,156,777. The Company has established a deferred tax asset of $404,872 relating to this operating loss carryforward and has established an offsetting allowance of $404,872.

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

		2007		2006		2005
Net income	$	2,142,619	$	3,869,720	$	1,260,223
Depreciation		54,564		0		0
Management/consulting fees		(99,486)		0		0
Federal income tax provision		221,820		181,070		(24,254)
Gain of subsidiaries		(1,870,426)		(3,616,283)		(1,155,680)
Taxable income	$	449,091	$	434,507	$	80,289

The expense 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:

		2007		2006		2005
Tax computed at statutory rate	$	1,425,922	$	2,809,538	$	664,865
Changes in taxes due to:
Utilization of AMT credit carryforward		0		(163,039)		0
Utilization of capital loss carryforward		0		0		(327,467)
Dividend received deduction		(246,255)		(224,386)		(188,988)
Depreciation		0		163,130		0
Current year losses with no tax benefit		404,872		0		0
Minority interest		(541,886)		(772,774)		(168,344)
Utilization of net operating loss carryforward		0		396,899		0
Small company deduction		(604,105)		(293,804)		211,474
Other		(55,351)		34,043		(33,132)
Income tax expense	$	383,197	$	1,949,607	$	158,408

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

		2007		2006
Investments	$	5,638,562	$	4,988,293
Cost of insurance acquired		9,917,957		11,482,856
Deferred policy acquisition costs		353,335		416,111
Management/consulting fees		(225,895)		(260,715)
Future policy benefits		1,098,084		984,029
Gain on sale of subsidiary		2,312,483		2,312,483
Allowance for uncollectibles		(61,711)		(80,500)
Other liabilities		(637,692)		(934,503)
Federal tax DAC		(1,893,088)		(2,427,986)
Deferred tax liability	$	16,502,035	$	16,480,068

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,
		2007		2006		2005
Fixed maturities and fixed maturities held for sale	$	11,790,380	$	6,838,277	$	6,661,648
Equity securities		1,077,749		915,864		771,379
Mortgage loans		2,689,956		2,739,350		2,033,007
Real estate		4,599,005		5,500,005		7,473,698
Policy loans		951,394		580,961		860,240
Short-term investments		21,929		27,620		3,699
Cash		316,891		454,580		171,926
Total consolidated investment income		21,447,304		17,056,657		17,975,597
Investment expenses		(4,566,942)		(6,055,429)		(6,924,371)
Consolidated net investment income	$	16,880,362	$	11,001,165	$	11,051,226

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

	Carrying Value
			2007		2006
Investments held for sale:
Fixed maturities
U.S. Government, government agencies and authorities		$	30,536,628	$	39,455,915
State, municipalities and political subdivisions			3,540,633		3,480,759
Collateralized mortgage obligations			89,804,412		118,641,593
Public utilities			4,594,514		6,097,151
All other corporate bonds			69,498,019		65,553,711
		$	197,974,206	$	233,229,129

Equity securities
Banks, trusts and insurance companies		$	10,577,587	$	3,606,421
Industrial and miscellaneous			22,101,005		12,699,170
		$	32,678,592	$	16,305,591


Fixed maturities held to maturity:
U.S. Government, government agencies and authorities		$	5,474,946	$	5,484,304
State, municipalities and political subdivisions			504,165		688,679
Collateralized mortgage obligations			27,735		101,930
		$	6,006,846	$	6,274,913

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		2007		2006

CMO	$	0	$	1,678,714
Corporate		489,673		2,396,868
Total	$	489,673	$	4,075,582

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

2007		Cost or Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Market Value
Investments held for sale:
Fixed maturities
U.S. Government and govt. agencies and authorities	$	29,054,693	$	1,482,348	$	(413)	$	30,536,628
States, municipalities and political subdivisions		3,457,961		82,672		0		3,540,633
Collateralized mortgage obligations		89,906,087		541,182		(642,857)		89,804,412
Public utilities		4,425,263		178,004		(8,753)		4,594,514
All other corporate bonds		69,235,170		1,381,579		(1,118,730)		69,498,019
		196,079,174		3,665,785		(1,770,753)		197,974,206
Equity securities		26,882,317		7,377,656		(1,581,381)		32,678,592
Total	$	222,961,491	$	11,043,441	$	(3,352,134)	$	230,652,798

Fixed maturities held to maturity:
U.S. Government and govt. agencies and authorities	$	5,474,946	$	316,293	$	0	$	5,791,239
States, municipalities and political subdivisions		504,165		7,016		0		511,181
Collateralized mortgage obligations		27,735		117		(236)		27,616
Total	$	6,006,846	$	323,426	$	(236)	$	6,330,036

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

2006		Cost or Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Market Value
Investments held for sale:
Fixed maturities
U.S. Government and govt. agencies and authorities	$	39,551,437	$	277,642	$	(373,164)	$	39,455,915
States, municipalities and political subdivisions		3,460,863		25,213		(5,317)		3,480,759
Collateralized mortgage obligations		120,390,106		90,803		(1,839,315)		118,641,594
Public utilities		6,097,151		0		0		6,097,151
All other corporate bonds		65,555,098		294,100		(295,488)		65,553,710
		235,054,655		687,758		(2,513,284)		233,229,129
Equity securities		10,031,148		6,274,443		0		16,305,591
Total	$	245,085,803	$	6,962,201	$	(2,513,284)	$	249,534,720

Fixed maturities held to maturity:
U.S. Government and govt. agencies and authorities	$	5,484,304	$	0	$	(72,899)	$	5,411,405
States, municipalities and political subdivisions		688,679		39,339		0		728,018
Collateralized mortgage obligations		101,930		3,300		(280)		104,950
Total	$	6,274,913	$	42,639	$	(73,179)	$	6,244,373

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

	At December 31, 2007 and 2006, the Company did not hold any fixed maturity investments that exceeded 10% of shareholder’s equity. The Company held two equity investments totaling $18,611,018 and one equity investment of $11,677,170 that exceeded 10% of shareholder’s equity at December 31, 2007 and 2006, respectively.
	The fair value of investments with sustained gross unrealized losses at December 31, 2007 and 2006 are as follows:

2007

Less than 12 months

12 Months or longer

Total

		Fair value	Unrealized losses	Fair value	Unrealized losses	Fair value	Unrealized losses
U.S Government and govt. agencies and authorities	$	338,769	(413)	0	0	338,769	(413)
Collateralized mortgage obligations		7,861,524	(114,149)	34,701,460	(528,944)	42,562,984	(643,093)
Public utilities		501,007	(8,753)	0	0	501,007	(8,753)
All other corporate bonds		30,121,438	(594,641)	7,410,565	(524,089)	37,532,003	(1,118,730)
Total fixed maturity	$	38,822,738	(717,956)	42,112,025	(1,053,033)	80,934,763	(1,770,989)
Equity securities	$	8,624,374	(1,581,381)	0	0	8,624,374	(1,581,381)

2006

Less than 12 months

12 Months or longer

Total

		Fair value	Unrealized losses	Fair value	Unrealized losses	Fair value	Unrealized losses
U.S Government and govt. agencies and authorities	$	1,279,993	(17,565)	$20,929,637	$ (428,499)	22,209,630	(446,064)
States, municipalities and political subdivisions		1,024,683	(5,317)	0	0	1,024,683	(5,317)
Collateralized mortgage obligations		8,186,571	(51,339)	65,484,517	(1,788,255)	73,671,088	(1,839,594)
All other corporate bonds		0	0	8,154,382	(295,488)	8,154,382	(295,488)
Total fixed maturity	$	10,491,247	(74,221)	94,568,536	(2,512,242)	105,059,783	(2,586,463)

The unrealized losses of fixed maturity investments were primarily caused by interest rate increases. The contractual terms of those investments do not permit the issuer to settle the securities at a price less than the amortized cost of the investment. The Company regularly reviews its investment portfolio for factors that may indicate that a decline in fair value of an investment is other than temporary. Based on an evaluation of the issues, including, but not limited to, intentions to sell or ability to hold the fixed maturity and equity securities with unrealized losses for a period of time sufficient for them to recover; the length of time and amount of the unrealized loss; and the credit ratings of the issuers of the investments, the Company does not consider these investments to be other-than-temporarily impaired at December 31, 2007 and 2006.

The amortized cost and estimated market value of debt securities at December 31, 2007, 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.

Fixed Maturities Held for Sale December 31, 2007		Amortized Cost		Estimated Market Value
Due in one year or less	$	11,283,624	$	11,331,103
Due after one year through five years		28,992,450		29,386,439
Due after five years through ten years		38,550,306		39,135,107
Due after ten years		41,498,729		42,544,947
Collateralized mortgage obligations		75,754,065		75,576,610
Total	$	196,079,174	$	197,974,206

Fixed Maturities Held to Maturity December 31, 2007		Amortized Cost		Estimated Market Value
Due in one year or less	$	484,224	$	489,559
Due after one year through five years		29,058		31,025
Due after five years through ten years		5,467,420		5,783,545
Collateralized mortgage obligations		26,144		25,907
Total	$	6,006,846	$	6,330,036

An analysis of sales, maturities and principal repayments of the Company's fixed maturities portfolio for the years ended December 31, 2007, 2006 and 2005 is as follows:

Year ended December 31, 2007		Cost or Amortized Cost		Gross Realized Gains		Gross Realized Losses		Proceeds From Sale
Scheduled principal repayments, Calls and tenders:
Held for sale	$	22,937,961	$	34,076	$	0	$	22,972,037
Held to maturity		1,596,785		0		0		1,596,785
Sales:
Held for sale		44,801,958		183,513		(733,841)		44,251,630
Held to maturity		0		0		0		0
Total	$	69,336,704	$	217,589	$	(733,841)	$	68,820,452

Year ended December 31, 2006		Cost or Amortized Cost		Gross Realized Gains		Gross Realized Losses		Proceeds From Sale
Scheduled principal repayments, Calls and tenders:
Held for sale	$	14,214,020	$	0	$	0	$	14,214,020
Held to maturity		3,715,892		0		0		3,715,892
Sales:
Held for sale		2,363,638		11,229		(11,163)		2,363,704
Held to maturity		13,314		0		(187)		13,127
Total	$	20,306,864	$	11,229	$	(11,350)	$	20,306,743

Year ended December 31, 2005		Cost or Amortized Cost		Gross Realized Gains		Gross Realized Losses		Proceeds From Sale
Scheduled principal repayments, Calls and tenders:
Held for sale	$	15,114,740	$	9,682	$	0	$	15,124,422
Held to maturity		5,801,888		2,300		(9,125)		5,795,063
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

	Annually, the Company completes an analysis of sales of securities held to maturity to further assess the issuer’s creditworthiness of fixed maturity holdings.
C.	INVESTMENTS ON DEPOSIT - At December 31, 2007, investments carried at approximately $9,217,000 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, 2007 and 2006, 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.

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

(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:

		2007					2006
Assets			Carrying Amount		Estimated Fair Value			Carrying Amount		Estimated Fair Value
Fixed maturities	$		6,006,846	$	6,330,036	$		6,274,913	$	6,244,373
Fixed maturities held for sale			197,974,206		197,974,206			233,229,129		233,229,129
Equity securities			28,678,592		28,678,592			16,305,591		16,305,591
Securities of affiliate			4,000,000		4,000,000			4,000,000		4,000,000
Mortgage loans on real estate			45,602,147		46,026,195			32,015,446		32,015,446
Policy loans			15,643,238		15,643,238			15,931,525		15,931,525
Short-term investments			933,967		933,967			47,879		47,879
Liabilities
Notes payable			19,914,346		19,190,061			22,990,081		22,990,081

6.	STATUTORY EQUITY AND INCOME FROM OPERATIONS

The Company's insurance subsidiaries are domiciled in Ohio and Texas. The insurance subsidiaries prepare their statutory-based financial statements in accordance with accounting practices prescribed or permitted by the respective 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 approximately $30,131,000 and $31,210,000 at December 31, 2007 and 2006, respectively. UG reported a statutory operating income before taxes (exclusive of inter-company dividends) of approximately $4,662,000, $5,162,000, and $5,114,000 for 2007, 2006, and 2005 respectively. AC's total statutory shareholders' equity was approximately $8,166,000 and $8,943,000 at December 31, 2007 and 2006. AC reported a statutory operating income before taxes (exclusive of inter-company dividends) of approximately $999,000 for 2007. TI's total statutory shareholders' equity was approximately $2,432,000 and $2,762,000 at December 31, 2007.and 2006, respectively. TI reported a statutory operating income before taxes (exclusive of inter-company dividends) of approximately $290,000 for 2007.

7.	REINSURANCE

As is customary in the insurance industry, the insurance subsidiaries cede insurance to, and assume 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, 2007, the Company had gross insurance in force of $2.155 billion of which approximately $561 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, UG 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 UG. 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, UG 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 UG cedes amounts above its retention limit of $100,000 with a minimum cession of $25,000 as has been a 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 UG. This coverage is renewable annually at the Company’s option. Optimum specializes in reinsurance agreements with small to mid-size carriers such as UG. 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. The PALIC agreement accounts for approximately 66% of UG’s reinsurance reserve credit, as of December 31, 2007.

On September 30, 1998, UG entered into a coinsurance agreement with The Independent Order of Vikings, (IOV) an Illinois fraternal benefit society. 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, 2007, the IOV insurance in-force assumed by UG was approximately $1,656,000, with reserves being held on that amount of approximately $388,000.

On June 7, 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, 2007, the IHL agreement has insurance in-force of approximately $2,134,000, with reserves being held on that amount of approximately $31,000.

At December 31, 1992, AC entered into a reinsurance agreement with Canada Life Assurance Company (“the Canada Life agreement”) that fully reinsured virtually all of its traditional life insurance policies. The reinsurer’s obligations under the Canada Life agreement were secured by assets withheld by AC representing policy loans and deferred and uncollected premiums related to the reinsured policies. AC continues to administer the reinsured policies, for which it receives an expense allowance from the reinsurer. At December 31, 2007, the Canada Life agreement has insurance in-force of approximately $80,785,000, with reserves being held on that amount of approximately $40,519,000.

During 1997, AC acquired 100% of the policies in force of World Service Life Insurance Company through a combination of assumption reinsurance and coinsurance. While 91.42% of the acquired policies are coinsured under the Canada Life agreement, AC did not coinsure the balance of the policies. AC retains the administration of the reinsured policies, for which it receives an expense allowance from the reinsurer. Canada Life currently holds an "A+" (Superior) rating from A.M. Best.

During 1998, AC closed a coinsurance transaction with Universal Life Insurance Company (“Universal”). Pursuant to the coinsurance agreement, AC coinsured 100% of the individual life insurance policies of Universal in force at January 1, 1998. At December 31, 2007, the Universal agreement has insurance in-force of approximately $12,903,000, with reserves being held on that amount of approximately $5,108,000.

The treaty with Canada Life provides that AC is entitled to 85% of the profits (calculated pursuant to a formula contained in the treaty) beginning when the accumulated profits under the treaty reach a specified level. As of December 31, 2007, there remains $1,445,907 in profits to be generated before AC is entitled to 85% of the profits. Should future experience under the treaty match the experience of recent years, which cannot reliably be predicted to occur, the accumulated profits would reach the specified level towards the end of 2009. However, regarding the uncertainty as to when the specified level may be reached, it should be noted that the experience has been erratic from year to year and the number of policies in force that are covered by the treaty diminishes each year.

All reinsurance for TI is with a single, unaffiliated reinsurer, Hannover Life Reassurance (Ireland) Limited ("Hannover"), secured by a trust account containing letters of credit totaling $258,852, granted in favor of TI. TI administers the reinsurance policies, for which it receives an expense allowance from Hannover. The aggregate reduction in surplus of termination of this reinsurance agreement, by either party, as of December 31, 2007 is $91,168. Hannover currently holds an “A” (Excellent) rating by A.M. Best. At December 31, 2007, the Hannover agreement has insurance in-force of approximately $24,296,000, with reserves being held on that amount of approximately $109,000.

On December 31, 2006, AC and TI entered into 100% coinsurance agreements whereby each company ceded all of its A&H business to an unaffiliated reinsurer, Reserve National Insurance Company (Reserve National). As part of the agreement, the Company remained contingently liable for claims incurred prior to the effective date of the agreement, for a period of one year. At the end of the one year period, on December 31, 2007, an accounting of these claims was produced. Any difference in the actual claims to the claim reserve liability transferred will be refunded to / paid by the Company. As of December 31, 2007, AC owes $93,384 and TI owes $902 to the unaffiliated third party. The amounts have been included in each company’s current year financial statements. Reserve National currently holds an “A-“ (Excellent) rating by A.M. Best. During 2007, the policies coinsured under there agreements were assumption reinsured by Reserve National, thus releasing the Company from any further contingent liability under these policies.

The Company does not have any short-duration reinsurance contracts. The effect of the Company's long-duration reinsurance contracts on premiums earned in 2007, 2006 and 2005 were as follows:

		Shown in thousands
		2007 Premiums Earned		2009 Premiums Earned		2005 Premiums Earned
Direct	$	19,945	$	15,450	$	16,357
Assumed		223		65		42
Ceded		(5,755)		(2,655)		(2,672)
Net premiums	$	14,413	$	12,860	$	13,727

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. 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, 2007.

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 is 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. Fiserv (NASDAQ: FISV) 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. The contract was amended during 2006 for a five year period ended 2011. Under the contract, the Company is required to pay $8,333 per month in software maintenance costs and a minimum charge of $14,000 per month in offsite data center costs, for a five-year period ending in 2011.

On December 31, 2006, the Company entered into a 100% coinsurance agreement whereby the insurance subsidiaries, AC and TI, ceded all of their A&H business to an unaffiliated third party. As part of the agreement, AC and TI remain contingently liable for claims incurred prior to the effective date of the agreement, for a period of one year. At the end of the one year period, an accounting of these claims shall be produced. Any difference in the actual claims to the claim reserve liability transferred shall be refunded to / paid by AC and TI. As of December 31, 2007, AC owes $93,384 and TI owes $902 to the unaffiliated third party. The amounts have been included in each company’s current year financial statements. During 2007 the policies coinsured under these agreements were assumption reinsured by Reserve National, thus releasing the Company form any further contingent liability under these policies.

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 December 31, 2007, North Plaza was liquidated, with its assets and liabilities transferred into its 100% owned parent company, UG.

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 of dividends in 2007, 2006 and 2005, respectively.

As part of the acquisition of ACAP on December 8, 2006, UTG loaned $3,357,000 to ACAP. ACAP used the proceeds for the repayment of existing debt with an unaffiliated financial institution and to retire all of its outstanding preferred stock. The terms of the inter-company loan mirror the interest rate and repayment requirements of the debt with First Tennessee Bank National Association. During 2007, ACAP made a payment reducing the principal on the loan and paid interest of $227,685. As of December 31, 2007, the balance of the loan is $3,035,000.

During June 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. The Company is responsible for its share of annual non-operational costs, in addition to the operational costs as are billable for specific use. During 2006, UG entered into an additional lease agreement for a 27.5% interest in a second plane with Bandyco, LLC. The lease term is for a period of five years at a total cost of $166,913. 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).

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 $5,875,133 and $5,054,918 to UTG in 2006 and 2005, respectively, under this arrangement.

Effective January 1, 2007, UTG entered into administrative services and cost sharing agreements with its subsidiaries, UG, AC and TI. Under these arrangements, each company pays its proportionate share of expenses of the entire group, based on an allocation formula. During 2007, UG, AC and TI paid $3,919,684, $3,314,176 and $859,918, respectively.

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 loanorigination of .50% of the original loan amount to cover costs incurred by FSNB relating to the processing and establishment of the loan. UG paid $85,612, $93,288 and $76,970 in servicing fees and $54,281, $23,214 and $112,109 in origination fees to FSNB during 2007, 2006 and 2005, 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 $30,327, $85,576 and $63,318 in 2007, 2006 and 2005, 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 $249,209, $173,863 and $160,272 in 2007, 2006 and 2005, respectively, which included salaries and other benefits.

On July 13, 2006, UG paid a cash dividend of $4,400,000 to UTG, Inc. An additional dividend of $700,000 was paid by UG to UTG, Inc. on December 21, 2006. On July 13, 2007, UG paid a cash dividend of $3,000,000 to UTG, Inc. AC paid cash dividends to its parent, ACAP, of $500,000 and $605,000 in 2007 and 2006, respectively. TI paid cash dividends to AC of $250,000 and $0 in 2007 and 2006, respectively. These dividends were comprised entirely of ordinary dividends. No regulatory approvals were required prior to the payment of these dividends.

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.

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(s) paid to acquire such shares from the Holding Company at the time they were sold pursuant to the Plan 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 closing sale of such shares to UTG occurs. The consolidated statutory net earnings per Share shall be computed as the net income of the Holding Company and its subsidiaries on a consolidated basis in accordance with statutory accounting principles applicable to insurance companies, as computed by the Holding Company, except that earnings of insurance companies or block of business acquired after the original plan date, November 1, 2002, shall be adjusted to reflect the amortization of intangibles established at the time of acquisition in accordance with generally accepted accounting principles (GAAP), less any dividends paid to shareholders. The calculation of net earnings per Share shall be performed on a monthly basis using the number of common shares of the Holding Company outstanding as of the end of the reporting period. The purchase price for any Shares purchased hereunder shall be paid in cash within 60 days from the date of purchase subject to the receipt of any required regulatory approvals as provided in the Agreement.

The original issue price of shares at the time this program began was established at $12.00 per share. Through March 1, 2008, UTG had 109,319 shares outstanding that were issued under this program. At December 31, 2007, shares under this program have a value of $15.49 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. On April 18, 2006, 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 March 1, 2008, UTG has spent $2,668,776 in the acquisition of 386,796 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, 2007
		Income(Loss)	Shares		Per-Share
		(Numerator)	(Denominator)		Amount
Basic EPS
Income available to common shareholders	$	2,142,619	3,851,596	$	0.56

Effect of Dilutive Securities
Options		0	0

Diluted EPS
Income available to common shareholders and assumed conversions	$	2,142,619	3,851,596	$	0.56
	$

	For the year ended December 31, 2006
		Income (Loss)	Shares		Per-Share
		(Numerator)	(Denominator)		Amount
Basic EPS
Income available to common shareholders	$	3,869,720	3,872,425	$	1.00

Effect of Dilutive Securities
Options		0	0

Diluted EPS
Income available to common shareholders and assumed conversions	$	3,869,720	3,872,425	$	1.00
	$

	For the year ended December 31, 2005
		Income	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
	$

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, 2007, 2006 and 2005, as there were no outstanding securities, options or other offers that give the right to receive or acquire common shares of UTG.

11.	NOTES PAYABLE

At December 31, 2007 and 2006, the Company had $19,914,346 and $22,990,081, respectively, of long-term debt outstanding.

On December 8, 2006, UTG borrowed funds from First Tennessee Bank National Association through execution of an $18,000,000 promissory note. The note is secured by the pledge of 100% of the common stock of UG. The promissory note carries a variable rate of interest based on the 3 month LIBOR rate plus 180 basis points. The initial rate was 7.15%. Interest is payable quarterly. Principal is payable annually beginning at the end of the second year in five installments of $3,600,000. The loan matures on December 7, 2012. The Company borrowed $1,994,176 and has made principal payments of $3,450,005 during 2007. The funds borrowed during 2007 were used to acquire ACAP shares subject to the put options as they were presented to UTG during the year. At December 31, 2007, the outstanding principal balance on this debt was $13,544,449.

In addition to the above promissory note, First Tennessee Bank National Association also provided UTG, Inc. with a $5,000,000 revolving credit note. This note is for a one-year term and may be renewed by consent of both parties. The credit note is to provide operating liquidity for UTG, Inc. and replaces a previous line of credit provided by Southwest Bank. Interest bears the same terms as the above promissory note. The collateral held on the above note also secures this credit note. UTG, Inc. has no borrowings against this note at this time.

On June 1, 2005, UG was extended a $3,300,000 line of credit from the First National Bank of Tennessee. 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 2007 and 2006, UG had borrowings and repayments from the LOC of $3,300,000 and $2,500,000, respectively. At December 31, 2007, and 2006 the Company had no outstanding borrowings attributable to this LOC.

In November 2007, the Company became a member of the FHLB. This membership allows the Company access to additional credit up to a maximum of 50% of the total assets of UG. To be a member of the FHLB, the Company was required to purchase shares of common stock of FHLB. Borrowing capacity is based on 50 times each dollar of stock acquired in FHLB above the “base membership” amount. The Company’s current LOC with the FHLB is $15,000,000. During 2007, the Company had borrowings of $5,443,350 and repayments of $5,443,350. At December 31, 2007, the Company had no outstanding borrowings attributable to this LOC.

AC and TI each have a line of credit in place through Frost National Bank for $210,000 and $160,000, respectively. These lines have been in place since 2004. The lines are for one year terms, interest payable quarterly at a floating interest rate which is the Lender’s prime rate. Principal is due upon maturity. The lines matured during the second quarter of 2007. Management has determined these lines are no longer needed, therefore, upon maturity in 2007, these lines were not renewed. Neither of the lines have had any activity during 2007.

At December 31, 2006, Harbor Village Partners (‘HVP”), a then 50% owned affiliate of the Company, had $8,000,000 of debt through various borrowings. In May 2007, the Company sold its interest in HVP to an outside third party. As a result of this sale, HVP is no longer a consolidated subsidiary of the Company. Further, the previous outstanding debt of HVP is no longer reflected in the financial statements of UTG, nor does UTG have any responsibility for this debt.

In January 2007, UG became a 50% owner of the newly formed RLF Lexington Properties LLC (“Lexington”). The entity was formed to hold, for investment purposes, certain investment real estate acquired. As part of the purchase price of the real estate owned by Lexington, the seller provided financing through the issuance of five promissory notes of $1,200,000 each totaling $6,000,000. The notes bear interest at the fixed rate of 5%. No payments are due under the terms of the notes until maturity of each note. The notes come due beginning on January 5, 2008, and each January 5 thereafter until 2012 when the final note is repaid.

On February 7, 2007, HPG Acquisitions (“HPG”), a 64% owned affiliate of the Company, borrowed funds from First National Bank of Midland, through execution of a $373,862 promissory note. The note is secured by real estate owned by the HPG. The note bears interest at a fixed rate of 5%. The first payment is due January 15, 2008. There will be 119 regular payments of $3,965 followed by one irregular last payment estimated at $32,424. HPG made repayments of $3,965 during 2007. At December 31, 2007, the outstanding principal balance on this debt was $369,897.

The consolidated scheduled principal reductions on the notes payable for the next five years are as follows:

Year		Amount
2008	$	1,243,615
2009		4,297,575
2010		4,847,580
2011		4,847,580
2012		4,542,034

12.	OTHER CASH FLOW DISCLOSURES

On a cash basis, the Company paid $1,271,847, $1,469 and $13 in interest expense for the years 2007, 2006 and 2005, respectively. The Company paid $407,247, $503,214 and $0 in federal income tax for 2007, 2006 and 2005, respectively.

13.	CONCENTRATIONS

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. The Company’s cash and cash equivalents are on deposit with various domestic financial institutions. At times, bank deposits may be in excess of federally insured 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.

Because UTG serves primarily individuals located in four states, the ability of our customers to pay their insurance premiums is impacted by the economic conditions in these areas. As of December 31, 2007, approximately 60% of our total direct premium was collected from Illinois, Ohio, Texas and West Virginia. Thus, results of operations are heavily dependent upon the strength of these economies.

14.	NEW ACCOUNTING STANDARDS

15.	ACQUISITION OF ACAP CORPORATION

Pursuant to the terms of a stock purchase agreement, on December 8, 2006, the Company completed an agreement to purchase a majority of the issued and outstanding common stock of Acap Corporation (“ACAP”). ACAP is a Delaware corporation which owns 100% of the issued and outstanding stock of American Capitol Insurance Company (AC), a Texas life insurance company, which in turn owns 100% of the issued and outstanding stock of Texas Imperial Life Insurance Company (TI) and Imperial Plan, Inc (IP).

At the closing of the Agreement, the Company purchased a total of 1,843 shares of common stock of ACAP for an aggregate purchase price of $17,593,278.

In addition, the Company entered into stock put option agreements under which certain individuals had the opportunity to sell to UTG up to 264 shares of common stock of ACAP during the period ending December 16, 2007. The purchase price for shares under the stock put option agreements was the same as under the Agreement. All shares subject to the stock put option agreements were presented and acquired by UTG prior to their expiration.

In addition, the Company loaned ACAP $3,357,000, which was required to retire certain indebtedness of ACAP and to redeem all of ACAP’s outstanding preferred stock at the closing of the Agreement.

Including the purchase of all the shares subject to the stock put option agreements, the Company has acquired 72.8% of the outstanding shares of common stock of ACAP, and the total cost of the transaction to the Company (including the loan to ACAP for the payment of ACAP indebtedness and redemption of ACAP preferred stock) was $24 million, which was paid in cash.

The acquisition of ACAP is summarized as follows:


Assets acquired:
	Investments	$	85,970,516
	Policy loans		4,106,461
	Cash and cash equivalents		3,238,327
	Reinsurance on future policy benefits		42,250,714
	Cost of insurance acquired		25,104,437
	All other		2,306,434
			162,976,889

	Future policy benefits		116,991,161
	Notes payable		3,357,000
	Deferred taxes		8,160,832
	All other		6,803,588
	Minority interest		9,994,661
			145,307,242

		$	17,669,647

The following table summarizes certain unaudited operating results of UTG as though the acquisition of ACAP had taken place on January 1, 2006 and 2005 respectively.

		2006		2005
Total revenues	$	44,115,000	$	43,255,000
Operating income		4,607,000		2,897,000
Net income		4,607,000		2,897,000
Net income per common share		1.17		.73

16.	COMPREHENSIVE INCOME

				Tax
		Before-Tax		(Expense)		Net of Tax
2007		Amount		or Benefit		Amount

Unrealized holding gains during
period	$	10,460,271	$	(3,661,095)	$	6,799,176
Less: reclassification adjustment
for gains realized in net income		8,411,088		(2,943,881)		5,467,207
Net unrealized gains		2,049,183		(717,214)		1,331,969
Other comprehensive income	$	2,049,183	$	(717,214)	$	1,331,969


				Tax
		Before-Tax		(Expense)		Net of Tax
2006		Amount		or Benefit		Amount

Unrealized holding losses during
period	$	(20,192,352)	$	7,067,323	$	(13,125,029)
Less: reclassification adjustment
for losses realized in net income		17,609,660		6,163,381		11,446,279
Net unrealized losses		(2,582,692)		903,942		(1,678,750)
Other comprehensive deficit	$	(2,582,692)	$	903,942	$	(1,678,750)

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

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

In 2007, 2006 and 2005, the Company established a deferred tax liability of $2,389,697, $1,541,623 and $2,970,111 respectively, for the unrealized gains based on the applicable United States statutory rate of 35%.

	17.	SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
			2007
			1st		2nd		3rd		4th
Premiums and policy fees, net			$	4,976,503	$	4,513,283	$	2,478,016	$	2,445,564
Net investment income				4,286,925		4,471,452		4,394,621		3,727,364
Total revenues				9,474,343		11,467,081		7,412,135		10,519,013
Policy benefits including dividends				7,332,162		6,554,409		5,397,281		3,837,480
Commissions and amortization of DAC and COI				942,694		550,838		507,102		265,560
Operating expenses				2,116,006		2,052,800		1,750,562		2,100,188
Operating income (loss)				(1,195,669)		1,856,533		(553,541)		3,966,740
Net income (loss)				(832,465)		1,670,686		(514,705)		1,819,103
Basic earnings (loss) per share				(0.22)		0.43		(0.13)		0.48
Diluted earnings (loss) per share				(0.22)		0.43		(0.13)		0.48
			2006
			1st		2nd		3rd		4th
Premiums and policy fees, net			$	3,427,772	$	3,561,728	$	3,170,033	$	2,700,892
Net investment income				2,539,174		2,803,703		2,434,510		3,223,778
Total revenues				9,829,289		6,751,103		13,843,092		7,161,735
Policy benefits including dividends				5,097,102		6,261,394		4,280,808		4,446,083
Commissions and amortization of DAC and COI				616,517		617,475		829,880		720,945
Operating expenses				1,724,197		1,385,837		1,848,120		1,495,494
Operating income (loss)				2,391,473		(1,513,603)		6,884,284		265,098
Net income (loss)				1,679,322		(798,126)		2,033,778		954,746
Basic earnings (loss) per share				0.43		(0.21)		0.53		0.25
Diluted earnings (loss) per share				0.43		(0.21)		0.53		0.25
			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 (loss)				(634,924)		1,631,146		(1,301,880)		2,205,271
Net income (loss)				(546,568)		1,395,033		(1,248,416)		1,660,174
Basic earnings (loss) per share				(0.14)		0.35		(0.32)		0.43
Diluted earnings (loss) per share				(0.14)		0.35		(0.32)		0.43

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 49-50).

INDEX TO EXHIBITS

Exhibit

Number

2.1	(3)	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.
2.2	(4)	Stock Purchase Agreement, dated August 7, 2006, between UTG, Inc. and William F. Guest and John D. Cornett
2.3	(4)	Amendment No. 1, dated September 6, 2006, to the Stock Purchase Agreement, dated August 7, 2007, between UTG, Inc. and William F. Guest and John D. Cornett
2.4	(4)	Amendment No. 2, dated November 22, 2006, to the Stock Purchase Agreement, dated August 7, 2006, as amended, between UTG, Inc. and William F. Guest and John D. Cornett.
3.1	(3)	Certificate of Incorporation of the Registrant and all amendments thereto.
3.2	(3)	By-Laws for the Registrant and all amendments thereto.
4.1	(2)	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	(3)	Line of credit agreement dated June 1, 2005, between Universal Guaranty Life Insurance Company and First National Bank of Tennessee.
10.3	(4)	Amended and Restated UTG, Inc. Employee and Director Stock Purchase Plan and form of related Stock Restriction and Buy-Sell Agreement.
10.4	(4)	Promissory note dated December 8, 2006, between UTG, Inc. and First Tennessee Bank National Association.
10.5	(4)	Revolving credit note dated December 8, 2006, between UTG, Inc. and First Tennessee Bank National Association.
10.6	(4)	Loan Agreement dated December 8, 2006, between UTG, Inc. and First Tennessee Bank National Association.
10.7	(4)	Commercial pledge agreement dated December 8, 2006, between UTG, Inc. and First Tennessee Bank National Association.
10.8	(4)	Negative pledge agreement dated December 8, 2006, between UTG, Inc. and First Tennessee Bank National Association.
10.9	(4)	Coinsurance Agreement between American Capitol Insurance Company and Reserve National Insurance Company.
10.10	(4)	Coinsurance Agreement between Texas Imperial Life Insurance Company and Reserve National Insurance Company.
10.11	(4)	Administrative Services Agreement between American Capitol Insurance Company and Reserve National Insurance Company.
10.12	(4)	Administrative Services Agreement between Texas Imperial Life Insurance Company and Reserve National Insurance Company.
10.13	(4)	Administrative Services and Cost Sharing Agreement dated as of January 1, 2007 between UTG, Inc and American Capitol Insurance Company
10.14	(4)	Administrative Services and Cost Sharing Agreement dated as of January 1, 2007 between UTG, Inc and Texas Imperial Life Insurance Company
10.15		Administrative Services and Cost Sharing Agreement dated as of January 1, 2007 between UTG, Inc and Universal Guaranty Life Insurance Company
14.1	(3)	Code of Ethics and Business Conduct
14.2	(3)	Code of Ethical Conduct for Senior Financial Officers
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	(3)	Audit Committee Charter.
99.2	(3)	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.
(2)	Incorporated by reference from the Company's Annual Report on Form 10-K, File No. 0-5392, as of December 31, 2002.
(3)	Incorporated by reference from the Company’s Annual Report on Form 10-K, File No. 0-16867, as of December 31, 2005.
(4)	Incorporated by reference from the Company’s Annual Report on Form 10-K, File No. 0-16867, as of December 31, 2006

UTG, INC.
SUMMARY OF INVESTMENTS - OTHER THAN
INVESTMENTS IN RELATED PARTIES
As of December 31, 2007

								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	$	5,474,946	$	5,791,239	$	5,474,946
		State, municipalities, and political
		subdivisions		504,165		511,181		504,165
		Collateralized mortgage obligations		27,735		27,616		27,735
		Public utilities		0		0		0
		All other corporate bonds		0		0		0
	Total fixed maturities			6,006,846	$	6,330,036		6,006,846

Investments held for sale:
	Fixed maturities:
		United States Government and
		government agencies and authorities		29,054,693	$	30,536,628		30,536,628
		State, municipalities, and political
		subdivisions		3,457,961		3,540,633		3,540,633
		Collateralized mortgage obligations		89,906,087		89,804,412		89,804,412
		Public utilities		4,425,263		4,594,514		4,594,514
		All other corporate bonds		69,235,170		69,498,019		69,498,019
				196,079,174	$	197,974,206		197,974,206

	Equity securities:
		Banks, trusts and insurance companies		12,155,756	$	10,577,587		10,577,587
		All other corporate securities		14,726,561		22,101,005		22,101,005
				26,882,317	$	32,678,592		32,678,592


Mortgage loans on real estate				45,602,147				45,602,147
Investment real estate				39,154,175				39,154,175
Real estate acquired in satisfaction of debt				0				0
Policy loans				15,643,238				15,643,238
Other long-term investments				0				0
Short-term investments				933,967				933,967
	Total investments		$	330,301,864			$	337,993,171

UTG, Inc.

Schedule II

CONDENSED FINANCIAL INFORMATION OF REGISTRANT

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, 2007 and 2006

						Schedule II


				2007		2006

ASSETS

	Investment in affiliates		$	61,579,893	$	59,421,533
	Cash and cash equivalents			320,073		113,258
	Accrued interest income			73,689		15,125
	Note receivable from affiliate			3,035,000		3,357,000
	Receivable from affiliates, net			90,376		149,395
	Other assets			178,842		290,680
		Total assets	$	65,277,873	$	63,346,991




LIABILITIES AND SHAREHOLDERS' EQUITY

Liabilities:
	Notes payable		$	13,544,449	$	15,000,278
	Deferred income taxes			2,086,588		2,051,768
	Other liabilities			892,311		1,268,553
		Total liabilities		16,523,348		18,320,599




Shareholders' equity:
	Common stock, net of treasury shares			3,849		3,843
	Additional paid-in capital, net of treasury			42,067,229		41,813,690
	Retained earnings (accumulated deficit)			2,374,990		232,371
	Accumulated other comprehensive
	income of affiliates			4,308,457		2,976,488
		Total shareholders' equity		48,754,525		45,026,392
		Total liabilities and shareholders' equity	$	65,277,873	$	63,346,991

UTG, INC.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
PARENT ONLY STATEMENTS OF OPERATIONS
Three Years Ended December 31, 2007

								Schedule II

				2007		2006		2005

Revenues:

	Management fees from affiliates		$	8,153,783	$	5,935,133	$	5,115,533
	Interest income			258,503		34,927		15,978
	Other income			107,205		366,237		102,973
				8,519,491		6,336,297		5,234,484


Expenses:

	Interest expense			1,033,247		70,463		0
	Operating expenses			6,992,231		5,831,327		5,154,195
				8,025,478		5,901,790		5,154,195

	Operating income			494,013		434,507		80,289

	Income tax benefit (expense)			(221,820)		(181,070)		24,254
	Equity in income of subsidiaries			1,870,426		3,616,283		1,155,680
		Net income	$	2,142,619	$	3,869,720	$	1,260,223


Basic income per share from continuing
operations and net income			$	0.56	$	1.00	$	0.32

Diluted income per share from continuing
operations and net income			$	0.56	$	1.00	$	0.32

Basic weighted average shares outstanding				3,851,596		3,872,425		3,938,781

Diluted weighted average shares outstanding				3,851,596		3,872,425		3,938,781

UTG, INC.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
PARENT ONLY STATEMENTS OF CASH FLOWS
Three Years Ended December 31, 2007
							Schedule II

			2007		2006		2005

Increase (decrease) in cash and cash equivalents
Cash flows from operating activities:
Net income		$	2,142,619	$	3,869,720	$	1,260,223
Adjustments to reconcile net income to
net cash provided by operating activities:
	Equity in income of subsidiaries		(1,870,426)		(3,616,283)		(1,155,680)
	Depreciation		138,149		138,149		104,766
	Change in FIT recoverable		0		48,747		(38,696)
	Change in accrued interest income		(58,564)		10,661		965
	Change in indebtedness (to) from affiliates, net		59,019		(12,628)		254,927
	Change in deferred income taxes		34,820		14,720		14,442
	Change in other assets and liabilities		(402,553)		(389,421)		(91,127)
Net cash provided by operating activities			43,064		63,665		349,820

Cash flows from financing activities:
	Purchase of treasury stock		(193,153)		(832,030)		(521,892)
	Issuance of common stock		446,698		0		151,320
	Issuance of note receivable		0		(3,357,000)		0
	Proceeds from repayment of note receivable		322,000		0		0
	Proceeds from subsidiary for acquisition		487,811		5,250,000		0
	Purchase of subsidiary		(2,443,776)		(17,593,278)		0
	Proceeds from notes payable		1,994,176		15,700,278		0
	Payments on notes payable		(3,450,005)		(700,000)		0
	Capital contribution to subsidiary		0		(4,000,000)		0
	Dividend received from subsidiary		3,000,000		5,100,000		0
Net cash provided by (used in) financing activities			163,751		(432,030)		(370,572)

Net increase (decrease) in cash and cash equivalents			206,815		(368,365)		(20,752)
Cash and cash equivalents at beginning of year			113,258		481,623		502,375
Cash and cash equivalents at end of year		$	320,073	$	113,258	$	481,623

UTG, INC.
REINSURANCE
As of December 31, 2007 and the year ended December 31, 2007

									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	$	2,138,577,674	$	560,946,000	$	16,693,326	$	1,594,325,000	1.0%



Premiums and policy fees:

Life insurance	$	18,785,742	$	4,619,360	$	220,581	$	14,386,963	1.5%

Accident and health
insurance		95,364		71,432		2,471		26,403	9.4%

	$	18,881,106	$	4,690,792	$	223,052	$	14,413,366	1.5%

UTG, INC.
REINSURANCE
As of December 31, 2006 and the year ended December 31, 2006

									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	$	2,250,370,760	$	591,348,000	$	19,746,240	$	1,678,769,000	1.2%



Premiums and policy fees:

Life insurance	$	15,394,809	$	2,635,050	$	63,818	$	12,823,577	0.5%

Accident and health
insurance		55,339		20,092		1,601		36,848	4.3%

	$	15,450,148	$	2,655,142	$	65,419	$	12,860,425	0.5%

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.
VALUATION AND QUALIFYING ACCOUNTS
As of and for the years ended December 31, 2007, 2006, and 2005

				Schedule V

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


December 31, 2007
.
Allowance for doubtful accounts -
mortgage loans	$ 33,500	$ 0	$ 13,770	$ 19,730




December 31, 2006

Allowance for doubtful accounts -
mortgage loans	$ 36,000	$ 0	$ 2,500	$ 33,500




December 31, 2005

Allowance for doubtful accounts -
mortgage loans	$ 120,000	$ 0	$ 84,000	$ 36,000

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/ James P. Rousey		October 2, 2008
James P. Rousey, President and Director



/s/ Theodore C. Miller		October 2, 208
Theodore C. Miller, Corporate Secretary and Chief Financial Officer

UTG (UTGN) 10-K/A2008 FY Annual report (amended)