UTG 10K/A 2011 Annual report (amended)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K/A

(Amendment No. 1)

(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, 2011
	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 if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes [ ] No [X]

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes [ ] No [X]

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 whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulations S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

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, an accelerator filer, a non-accelerated filer, or a smaller reporting 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, 2011, shares of the Registrant’s common stock held by non-affiliates (based upon the price of the last sale of $11.40 per share), had an aggregate market value of approximately $14,496,456.

At February 1, 2012 the Registrant had 3,879,333 outstanding shares of Common Stock, stated value $.001 per share.

Documents incorporated by reference: None

UTG, INC.

FORM 10-K/A

YEAR ENDED DECEMBER 31, 2011

This Amendment replaces in its entirety the following sections of the Form 10-K of UTG, Inc. for the year ended December 31, 2011. This Amendment reflects the inclusion of the prior year data on the Consolidated Statements of Shareholders’ Equity and Comprehensive Income that was erroneously omitted in the original filing.

PART II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA……………………………………………………….....................................................................................................................…	3

PART IV
Signature Page…………………………………………………………………………………………………………………………..........................................................................................................................	36
Exhibit 31.1 Certificate of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a)………………………………….................................................................................................................................	37
Exhibit 31.2 Certificate of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a …………………………………...............................................................................................................................…	38
Exhibit 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…….…………………………………………………………..............................................................................................................................................	39
Exhibit 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………………………………….....................................................................................................................................................	40
Exhibit 101 XBRL Interactive Data File

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 Management on Internal Controls Over Financial Reporting……..…............................................................................................................................................................ Report of Independent Registered Public Accounting Firm for the years ended December 31, 2011 and 2010…………………………………………..…..…...................................................................................................................................	4 6
Consolidated Balance Sheets………………………………………………………………………....…..............................................................................................................................	7
Consolidated Statements of Operations…………………………………………………..………...…...........................................................................................................................…	8
Consolidated Statements of Shareholders’ Equity and Comprehensive Income………………………………………..…………………………………...….................................................................................................................................	9
Consolidated Statements of Cash Flows……………………………………………………......….................................................................................................................................…	10
Notes to Consolidated Financial Statements……………………………………………………......…..............................................................................................................................	11-35

Report of Management on Internal Controls Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f). The Company’s internal control system was designed to provide reasonable assurance to the Company’s management and its Board of Directors regarding the preparation and fair presentation of published financial statements. However, internal control systems, no matter how well designed, cannot provide absolute assurance. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

The Company’s management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2011. Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework contained in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “COSO Report”).

Based on our evaluation under the framework in the COSO Report our management concluded that our internal control over financial reporting was effective as of December 31, 2011.

This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report.

During the Company’s fourth fiscal quarter, there has been no change in the Company’s internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the Company’s internal controls over financial reporting.

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the inclusion of our report dated March 26, 2012 into the UTG, Inc. Form 10-K/A Amendment No. 1 with respect to the consolidated balance sheets of UTG, Inc. as of December 31, 2011 and 2010 and the related consolidated statements of operations, shareholders’ equity and cash flows for the years then ended together with footnotes in Item 8.

/S/ Brown Smith Wallace, L.L.C.

Brown Smith Wallace, L.L.C.

St. Louis, Missouri

May 29, 2012

Report of Independent Registered Public Accounting Firm

To the Board of Directors and

Shareholders of UTG, Inc. and Subsidiaries

Springfield, Illinois

We have audited the accompanying consolidated balance sheets of UTG, Inc. (a Delaware corporation, the “Company”) and subsidiaries as of December 31, 2011 and 2010, and the related consolidated statements of operations, shareholders’ equity, and cash flows for the years then ended. Our audits also included the financial statement schedules I, II, IV and V. These consolidated financial statements and financial statement schedules are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedules 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 consolidated 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 audit 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 also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of UTG, Inc. and subsidiaries as of December 31, 2011 and 2010, and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.

/s/ Brown Smith Wallace, L.L.C.

St. Louis, Missouri

March 26, 2012

UTG, INC.
CONSOLIDATED BALANCE SHEETS
As of December 31, 2011 and 2010




ASSETS

				2011		2010
Investments:
	Investments available for sale:
	Fixed maturities, at fair value (amortized cost $107,514,400 and $142,948,693)		$	124,583,177	$	147,905,948
	Equity securities, at fair value (cost $16,200,043 and $18,940,811)			17,299,628		19,021,957
	Trading securities, at fair value (cost $9,147,237 and $34,183,252)			8,519,064		37,029,550
	Mortgage loans on real estate at amortized cost			9,272,919		12,411,587
	Discounted mortgage loans on real estate at amortized cost			27,467,920		47,523,860
	Investment real estate			62,701,375		53,148,755
	Policy loans			13,312,229		13,976,019
		Total Investments		263,156,312		331,017,676

Cash and cash equivalents				82,925,675		18,483,452
Accrued investment income				1,136,741		1,609,425
Reinsurance receivables:
	Future policy benefits			64,693,384		67,033,539
	Policy claims and other benefits			4,029,412		4,446,940
Cost of insurance acquired				12,846,266		14,077,281
Deferred policy acquisition costs				488,266		556,958
Property and equipment, net of accumulated depreciation				1,527,285		1,478,935
Income taxes receivable				281,636		0
Other assets				2,636,280		2,883,893
		Total assets	$	433,721,257	$	441,588,099


LIABILITIES AND SHAREHOLDERS' EQUITY
Policy liabilities and accruals:
	Future policy benefits		$	301,393,689	$	307,509,531
	Policy claims and benefits payable			3,016,866		3,588,914
	Other policyholder funds			636,319		810,062
	Dividend and endowment accumulations			14,176,151		14,190,946
Income taxes payable				0		209,888
Deferred income taxes				13,745,751		13,381,278
Notes payable				9,531,645		10,372,239
Trading securities, at fair value (proceeds $6,288,562 and $17,387,108)				5,471,475		18,429,677
Other liabilities				9,964,313		7,967,807
		Total liabilities		357,936,209		376,460,342


Shareholders' equity:
Common stock - no par value, stated value $.001 per share.
	Authorized 7,000,000 shares - 3,854,610 and 3,848,079 shares issued
	and outstanding			3,855		3,848
Additional paid-in capital				45,051,608		41,432,636
Retained earnings				12,651,687		6,335,072
Accumulated other comprehensive income				11,792,214		3,679,684
Total UTG shareholders' equity				69,499,364		51,451,240
Noncontrolling interest				6,285,684		13,676,517
		Total shareholders' equity		75,785,048		65,127,757
		Total liabilities and shareholders' equity	$	433,721,257	$	441,588,099

See accompanying notes.

UTG, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31, 2011 and 2010


				2011		2010

Revenues:

	Premiums and policy fees		$	14,082,400	$	16,498,551
	Reinsurance premiums and policy fees			(3,935,191)		(4,107,958)
	Net investment income			11,198,165		24,858,837
	Other income			2,055,502		1,834,465
		Revenues before realized gains (losses)		23,400,876		39,083,895
	Realized investment gains (losses), net:
		Other-than-temporary impairments		(4,342,784)		(1,478,970)
		Other realized investment gains, net		15,905,413		838,432
		Total realized investment gains (losses), net		11,562,629		(640,538)
		Total revenues		34,963,505		38,443,357


Benefits and other expenses:

	Benefits, claims and settlement expenses:
		Life		20,539,432		23,833,379
		Reinsurance benefits and claims		(3,843,351)		(6,424,865)
		Annuity		1,044,455		976,755
		Dividends to policyholders		514,268		561,713
	Commissions and amortization of deferred
		policy acquisition costs		(941,581)		(824,850)
	Amortization of cost of insurance acquired			1,231,015		1,324,731
	Operating expenses			8,389,781		8,030,984
	Interest expense			260,540		304,353
		Total benefits and other expenses		27,194,559		27,782,200

Income before income taxes				7,768,946		10,661,157
Income tax expense				(1,265,662)		(2,278,245)

Net income				6,503,284		8,382,912

Net income attributable to noncontrolling interest				(186,669)		(786,337)

Net income attributable to common shareholders			$	6,316,615	$	7,596,575

Amounts attributable to common shareholders:

	Basic income per share		$	1.65	$	1.96

	Diluted income per share		$	1.65	$	1.96

	Basic weighted average shares outstanding			3,824,444		3,874,012

	Diluted weighted average shares outstanding			3,824,444		3,874,012

See accompanying notes.

UTG, Inc.
AND SUBSIDIARIES
Consolidated Statements of Shareholders' Equity and Comprehensive Income



Period ended December 31, 2011		Common Stock		Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Income		Noncontrolling Interest		Total Shareholders' Equity		Comprehensive Income

Balance at January 1, 2011	$	3,848	$	41,432,636	$	6,335,072	$	3,679,684	$	13,676,517	$	65,127,757	$	0
Common stock issued during year		50		4,094,476		0		0		0		4,094,526		0
Treasury shares acquired and retired		(43)		(475,504)		0		0		0		(475,547)		0
Net income attributable to common shareholders		0		0		6,316,615		0		0		6,316,615		6,316,615
Unrealized holding income on securities net of noncontrolling interest and reclassification adjustment and taxes		0		0		0		8,112,530		0		8,112,530		8,112,530
Contributions		0		0		0		0		0		0		0
Distributions		0		0		0		0		(3,131,271)		(3,131,271)		0
Mergers		0		0		0		0		(6,895,546)		(6,895,546)		0
Acquisitions		0		0		0		0		1,777,900		1,777,900		0
Gain attributable to noncontrolling interest		0		0		0		0		858,084		858,084		0
Balance at December 31, 2011	$	3,855	$	45,051,608	$	12,651,687	$	11,792,214	$	6,285,684	$	75,785,048	$	14,429,145


Balance at January 1, 2010	$	3,885	$	41,782,274	$	(1,261,503)	$	322,156	$	13,211,927	$	54,058,739	$	0
Common stock issued during year		0		0		0		0		0		0		0
Treasury shares acquired and retired		(37)		(349,638)		0		0		0		(349,675)		0
Net income attributable to common shareholders		0		0		7,596,575		0		0		7,596,575		7,596,575
Unrealized holding income on securities net of noncontrolling interest and reclassification adjustment and taxes		0		0		0		3,357,528		0		3,357,528		3,357,528
Distributions		0		0		0		0		(561,493)		(561,493)		0
Gain attributable to noncontrolling interest		0		0		0		0		1,026,083		1,026,083		0
Balance at December 31, 2010	$	3,848	$	41,432,636	$	6,335,072	$	3,679,684	$	13,676,517	$	65,127,757	$	10,954,103

See accompanying notes.

UTG, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2011 and 2010


			2011		2010

Cash flows from operating activities:
Net income attributable to common shares		$	6,316,615	$	7,596,575
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 investments		(3,964,398)		(7,530,201)
	Realized investment (gains) losses, net		(11,562,629)		640,538
	Unrealized trading (gains) losses included in income		1,604,757		(1,803,729)
	Amortization of deferred policy acquisition costs		68,692		90,568
	Amortization of cost of insurance acquired		1,231,015		1,324,731
	Depreciation		1,412,661		1,311,029
	Net income attributable to noncontrolling interest		186,669		786,337
	Charges for mortality and administration
	of universal life and annuity products		(7,353,389)		(7,709,727)
	Interest credited to account balances		5,152,218		5,247,365
	Change in accrued investment income		472,684		(32,226)
	Change in reinsurance receivables		2,757,683		2,265,937
	Change in policy liabilities and accruals		(5,037,087)		(4,007,032)
	Change in income taxes payable		(4,535,859)		277,669
	Change in other assets and liabilities, net		2,763,164		(1,444,129)
Net cash used in operating activities			(10,487,204)		(2,986,295)

Cash flows from investing activities:
Proceeds from investments sold and matured:
	Fixed maturities available for sale		173,221,329		24,718,790
	Equity securities available for sale		3,572,456		948,385
	Trading securities		29,733,306		163,891,508
	Mortgage loans		3,139,903		16,431,689
	Discounted mortgage loans		15,032,186		23,607,100
	Real estate		29,621,068		2,709,233
	Policy loans		4,299,197		3,468,202
	Short-term investments		0		700,000
Total proceeds from investments sold and matured			258,619,445		236,474,907
Cost of investments acquired:
	Fixed maturities available for sale		(128,598,767)		(28,947,923)
	Equity securities available for sale		(727,258)		(1,333,942)
	Trading securities		(19,626,789)		(171,842,107)
	Mortgage loans		(1,235)		(2,489,523)
	Discounted mortgage loans		(11,122,151)		(38,323,757)
	Real estate		(15,842,681)		(1,778,281)
	Policy loans		(3,635,407)		(3,100,615)
Total cost of investments acquired			(179,554,288)		(247,816,148)
Purchase of property and equipment			(214,475)		(139,291)
Net cash provided by (used in) investing activities			78,850,682		(11,480,532)

Cash flows from financing activities:
	Policyholder contract deposits		6,213,174		6,632,125
	Policyholder contract withdrawals		(5,851,344)		(6,232,871)
	Proceeds from notes payable/line of credit		7,943,000		7,290,000
	Payments of principal on notes payable/line of credit		(8,783,594)		(11,320,650)
	Purchase of treasury stock		(475,547)		(349,675)
	Proceeds from sale of subsidiary		164,327		0
	Non controlling distributions of consolidated subsidiary		(3,131,271)		(561,493)
Net cash used in financing activities			(3,921,255)		(4,542,564)

Net increase (decrease) in cash and cash equivalents			64,442,223		(19,009,391)
Cash and cash equivalents at beginning of year			18,483,452		37,492,843
Cash and cash equivalents at end of year		$	82,925,675	$	18,483,452

See accompanying notes.

UTG, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.	ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A.	ORGANIZATION - At December 31, 2011, the significant majority-owned subsidiaries of UTG were as depicted on the following organizational chart.

Entity	Parent	Percentage Owned
UTG, Inc. (UTG)
Universal Guaranty Life Insurance Company (UG)	UTG, Inc.	100%
American Capitol Insurance Company (AC)	Universal Guaranty Life Insurance Company	100%
Imperial Plan, Inc.(Imperial Plan)	American Capitol Insurance Company	100%
Collier Beach, LLC	Universal Guaranty Life Insurance Company	100%
Cumberland Woodlands, LLC (CW)	Universal Guaranty Life Insurance Company	100%
HPG Acquisitions, LLC (HPG)	Universal Guaranty Life Insurance Company	74%
Northwest Florida of Okaloosa Holding, LLC	Universal Guaranty Life Insurance Company	68%
Sand Lake, LLC (Sand Lake)	Universal Guaranty Life Insurance Company	100%
Stanford Wilderness Road, LLC (SWR)	Universal Guaranty Life Insurance Company	100%
Sun Valley Homes, LLC (Sun Valley)	Universal Guaranty Life Insurance Company	67%
UG Acquisitions, LLC	Universal Guaranty Life Insurance Company	100%
UTG Avalon, LLC	Universal Guaranty Life Insurance Company	100%
Wingate of St Johns Holding, LLC	Universal Guaranty Life Insurance Company	52%

UTG and its subsidiaries are collectively referred to as (“The Company”). The Company’s significant accounting policies are summarized as follows.

B.	NATURE OF OPERATIONS - UTG is an insurance holding company. The Company’s dominant business is individual life insurance which includes the servicing of existing insurance business in force and the acquisition of other companies in the insurance business.
C.	BUSINESS SEGMENTS - The Company has only one business segment – life insurance.
D.	BASIS OF PRESENTATION - The financial statements of UTG and its subsidiaries have been prepared in accordance with accounting principles generally accepted in the United States of America.
E.	PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include the accounts of the Registrant and its wholly and majority-owned subsidiaries. All significant inter-company accounts and transactions have been eliminated.
F.	INVESTMENTS - Investments are shown on the following bases:
	Investments available for sale - at fair value, unrealized gains and losses deemed temporary, net of deferred income taxes, are credited or charged, as appropriate, directly to accumulated other comprehensive income or loss (a component of shareholders’ equity). Premiums and discounts on debt securities purchased at other than par value are amortized and accreted, respectively, to interest income in the Consolidated Statements of Operations, using the constant yield method over the period to maturity. Net realized gains and losses on sales of held for sale securities, and unrealized losses considered to be other-than-temporary, are recorded to net realized investment gains (losses) in the Consolidated Statements of Operations.
	Trading securities – at fair value, with gains or losses resulting from changes in fair value recognized in earnings. Trading securities include exchange traded equities, exchange traded equity options, and futures.
	Mortgage loans on real estate - at unpaid principal balances, adjusted for amortization of premium or discount and valuation allowances. Valuation allowances are established for impaired loans when it is probable that contractual principal and interest will not be collected.
	Discounted mortgage loans – during 2010 and 2011, the Company purchased non-performing loans at a deep discount through an auction process led by the federal government. In general, the discounted loans are non-performing and there is a significant amount of uncertainty surrounding the timing and amount of cash flows to be received by the Company. Accordingly, the Company records its investment in the discounted loans at its original purchase price. Management works the loans with the borrower to reach a settlement on the loan or they foreclose on the underlying collateral which is primarily commercial real estate. For cash payments received during the work out process, the Company records these payments to interest income on a cash basis. For loan settlements reached, the Company records the amount in excess of the carrying amount of the loan as a discount accretion to investment income at the closing date. Management reviews the discount loan portfolio regularly for impairment. If an impairment is identified (after consideration of the underlying collateral), the Company records an impairment to earnings in the period the information becomes known.
	Real estate - investment real estate held for sale at lower of cost or fair value less cost to sell. Expenses to maintain the property are expensed as incurred.
	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 amortized cost, which approximates fair value.
	Realized gains and losses include sales of investments, periodic changes in fair value on trading securities, and write downs in value. If any, other-than-temporary declines in fair value are recognized in net income on the specific identification basis.
	Unrealized gains and losses on investments available for sale are recognized in other comprehensive income on the specific identification basis. With each reporting period, management reviews its investment portfolio for securities whose value has declined below amortized cost to assess whether the decline is other than temporary. Included in the analysis are considerations of the severity and duration of the decline in fair value, the length of time expected to recover, the financial condition of the issuer, and whether the Company either plans to sell the security or it is more-likely-than-not that it will be required to sell the security before recovery of its amortized cost. If there is deemed to be an other than temporary decline in the value of any individual equity security, the Company reclassifies the associated net unrealized loss out of accumulated other comprehensive income with a corresponding charge to investment income. For debt securities available for sale that are determined to have an other than temporary impairment (“OTTI”), the credit component of the OTTI is recognized in earnings and the non-credit component is recognized in accumulated other comprehensive income (loss) in situations where the Company does not intend to sell the security and it is more-likely-than-not that the Company will not be required to sell the security.
G.	CASH EQUIVALENTS - The Company considers certificates of deposit and other short-term instruments with an original purchased maturity of three months or less to be 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.
	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. For financial reinsurance arrangements, the Company reports the initial ceding commission received as an “other liability” on its financial statements. Financial results in subsequent periods are reported in the various line items of the income statement as with other reinsurance agreements, with the repayment amount reported in the line item “amortization of DAC”. The net impact to the statement of operations in any subsequent period represents the fees paid to the reinsurer on the current outstanding balance of the initial ceding commission.
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 subsidiaries’ 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 9.3% 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 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, 2011 and 2010.
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 $1,309,068 and $1,315,533 as of December 31, 2011 and 2010 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 profits from the acquired policies. The Company utilizes a 12% discount rate on the remaining unamortized 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 rate utilized in the amortization calculation is 12%. 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.

		2011		2010

Cost of insurance acquired, beginning of year	$	14,077,281	$	15,402,012

Interest accretion		1,711,885		1,870,852
Amortization		(2,942,900)		(3,195,583)
Net amortization		(1,231,015)		(1,324,731)

Cost of insurance acquired, end of year	$	12,846,266	$	14,077,281

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

	Interest Accretion	Amortization	Net Amortization
2012	1,564,000	2,710,000	1,146,000
2013	1,427,000	2,491,000	1,064,000
2014	1,299,000	2,285,000	986,000
2015	1,181,000	2,088,000	907,000
2016	1,072,000	1,945,000	873,000

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. Pursuant to Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 944, "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:

		2011		2010

Deferred, beginning of year	$	556,958	$	647,526

Interest accretion		5,653		6,461
Amortization charged to income		(74,345)		(97,029)
Net amortization		(68,692)		(90,568)
Change for the year		(68,692)		(90,568)
Deferred, end of year	$	488,266	$	556,958

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

		Interest Acceletion		Amortization		Net Amortization
2012	$	5,000	$	62,000	$	57,000
2013		4,000		56,000		52,000
2014		3,000		51,000		48,000
2015		3,000		78,000		75,000
2016		2,000		76,000		74,000

M.		PROPERTY AND EQUIPMENT - Company-occupied property, data processing equipment and furniture and office equipment are stated at cost less accumulated depreciation of $3,235,642 and $3,079,922 at December 31, 2011 and 2010, 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 $162,941 and $175,809 for the years ended December 31, 2011 and 2010, respectively.
N.		INCOME TAXES - Income taxes are reported Pursuant to FASB Codification 740-10. 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 period. The principal assets and liabilities giving rise to such differences are deferred policy acquisition costs, differences in tax basis of invested assets, cost of insurance acquired, future policy benefits, and gains on the sale of subsidiaries.
O.		EARNINGS PER SHARE - Earnings per share (EPS) are reported pursuant to FASB Codification 260-10. 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 net income/(loss) attributable to common shares (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.		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.
Q.		PARTICIPATING INSURANCE - Participating business represents 10% of life insurance in force at December 31, 2011 and 2010. Premium income from participating business represents 18% and 16% of total premiums for the years ended December 31, 2011 and 2010, 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.
R.		RECLASSIFICATIONS - Certain prior year amounts have been reclassified to conform to the 2011 presentation. Such reclassifications had no effect on previously reported net income or shareholders' equity.
S.		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. The following estimates have been identified as critical in that they involve a high degree of judgment and are subject to a significant degree of variability: (i) deferred acquisition cost; (ii) policy liabilities and accruals; (iii) reinsurance recoverable; (iv) other-than-temporary impairment; (v) federal income taxes; (vi) cost of insurance acquired; (vii) discounted mortgage loans on real estate; (viii) foreclosed loans held for resale; and (vix) deferred tax assets and liabilities.
T.		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. During 2011, other-than-temporary impairments of $3,360,430 were taken on real estate as a result of appraisal valuations and management’s analysis and determination of value. During 2011, other-than-temporary impairments of $982,354 were taken on mortgage loans as a result of appraisal valuations and management’s analysis and determination of value.
2.	RECENT ACCOUNTING PRONOUNCEMENTS

In December 2011, Accounting Standards Board (“FASB”) issued the Accounting Standards Update (“ASU”) No 2011-12 Comprehensive Income (Topic 220) Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05. In order to defer only those changes in Update 2011-05 that relate to the presentation of reclassification adjustments, the paragraphs in this Update supersede certain pending paragraphs in Update 2011-05. The amendments are being made to allow the Board time to redeliberate whether to present on the face of the financial statements the effects of reclassifications out of accumulated other comprehensive income on the components of net income and other comprehensive income for all periods presented. While the Board is considering the operational concerns about the presentation requirements for reclassification adjustments and the needs of financial statement users for additional information about reclassification adjustments, entities should continue to report reclassifications out of accumulated other comprehensive income consistent with the presentation requirements in effect before Update 2011-05. Public entities should apply these requirements for fiscal years, and interim periods within those years, beginning after December 15, 2011. The Company does not expect the adoption of ASU 2011-12 to have a material impact on its consolidated financial statements.

In December 2011, FASB issued the ASU No. 2011-11 Balance Sheet (Topic 210) Disclosure about Offsetting Assets and Liabilities. The amendments in this Update require an entity to disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position. An entity is required to apply the amendments for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. The Company does not expect the adoption of ASU 2011-11 to have a material impact on its consolidated financial statements.

In December 2011, FASB issued the ASU No. 2011-10 Property, Plant, and Equipment (Topic 360) Derecognition of in Substance Real Estate-a Scope Clarification. Under the amendments in this Update, when a parent (reporting entity) ceases to have a controlling financial interest (as described in Subtopic 810-10) in a subsidiary that is in substance real estate as a result of default on the subsidiary’s nonrecourse debt, the reporting entity should apply the guidance in Subtopic 360-20 to determine whether it should derecognize the in substance real estate. Generally, a reporting entity would not satisfy the requirements to derecognize the in substance real estate before the legal transfer of the real estate to the lender and the extinguishment of the related nonrecourse indebtedness. That is, even if the reporting entity ceases to have a controlling financial interest under Subtopic 810-10, the reporting entity would continue to include the real estate, debt, and the results of the subsidiary’s operations in its consolidated financial statements until legal title to the real estate is transferred to legally satisfy the debt. The amendments in this Update are effective for fiscal years, and interim periods within those years, beginning on or after June 15, 2012. The Company does not expect the adoption of ASU 2011-10 to have a material impact on its consolidated financial statements.

In September 2011, FASB issued the ASU No. 2011-08 Intangibles – Goodwill and Other (Topic 350) Testing Goodwill for Impairment. Under the amendments in this Update, an entity has the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If an entity determines it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing the two-step impairment test is unnecessary. However, if an entity concludes otherwise, then it is required to perform the first step of the two-step impairment test by calculating the fair value of the reporting unit and comparing the fair value with the carrying amount of the reporting unit, as described in paragraph ASC 350-20-35-4. If the carrying amount of a reporting unit exceeds its fair value, then the entity is required to perform the second step of the goodwill impairment test to measure the amount of the impairment loss, if any, as described in paragraph ASC 350-20-35-9. Under the amendments in this Update, an entity has the option to bypass the qualitative assessment for any reporting unit in any period and proceed directly to performing the first step of the two-step goodwill impairment test. An entity may resume performing the qualitative assessment in any subsequent period. The amendments are effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. The Company does not expect the adoption of ASU 2011-08 to have a material impact on its consolidated financial statements.

In June 2011, the FASB issued the ASU No. 2011-05 Comprehensive Income (Topic 220) Presentation of Comprehensive Income. Under the amendments to Topic 220, Comprehensive Income, in this Update, an entity has the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In both choices, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. In a single continuous statement, the entity is required to present the components of net income and total net income, the components of other comprehensive income and a total for other comprehensive income, along with the total of comprehensive income in that statement. In the two-statement approach, an entity is required to present components of net income and total net income in the statement of net income. The statement of other comprehensive income should immediately follow the statement of net income and include the components of other comprehensive income and a total for other comprehensive income, along with a total for comprehensive income. Regardless of whether an entity chooses to present comprehensive income in a single continuous statement or in two separate but consecutive statements, the entity is required to present on the face of the financial statements reclassification adjustments for items that are reclassified from other comprehensive income to net income in the statement(s) where the components of net income and the components of other comprehensive income are presented. The amendments in this Update should be applied retrospectively. The amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. The Company does not expect the adoption of ASU 2011-05 to have a material impact on its consolidated financial statements.

In May 2011, the FASB issued the ASU No. 2011-04 Fair Value Measurement (Topic 820) Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. The amendments in this Update result in common fair value measurement and disclosure requirements in U.S. GAAP and IFRSs. Consequently, the amendments change the wording used to describe many of the requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements. For many of the requirements, the Board does not intend for the amendments in this Update to result in a change in the application of the requirements in Topic 820. Some of the amendments clarify the Board’s intent about the application of existing fair value measurement requirements. Other amendments change a particular principle or requirement for measuring fair value or for disclosing information about fair value measurements. The amendments in this Update are effective prospectively during interim and annual periods beginning after December 15, 2011. The Company does not expect the adoption of ASU 2011-04 to have a material impact on its consolidated financial statements.

3.	SHAREHOLDER DIVIDEND RESTRICTION AND MINIMUM STATUTORY CAPITAL

At December 31, 2011, 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 and AC’s dividend limitations are described below.

UG is an Ohio domiciled insurance company, which requires notification within five business days to the insurance commissioner following the declaration of any ordinary dividend and at least ten calendar days prior to payment of such dividend. Ordinary dividends are defined as the greater of: a) prior year statutory net income or b) 10% of statutory capital and surplus. For the year ended December 31, 2011, UG had statutory net income of $582,217. At December 31, 2011, UG's statutory capital and surplus amounted to $33,167,222. 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 $2,930,000 and $2,725,000 to UTG in 2011 and 2010, respectively. No extraordinary dividends were paid during the two year period.

AC is a Texas domiciled insurance company, which requires notification within two business days to the insurance commissioner following the declaration of any ordinary dividend and at least ten calendar days prior to payment of such dividend. Ordinary dividends are defined as the greater of: a) prior year statutory earnings from operations or b) 10% of statutory surplus. At December 31, 2011, AC statutory earnings from operations were $874,660. At December 31, 2011 AC, statutory surplus was $6,625,808. 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 $600,000 and $728,130 during 2011 and 2010, respectively. No extraordinary dividends were paid during the two year period.

UG is required to maintain minimum statutory surplus of $2,500,000. AC is required to maintain minimum statutory surplus of $1,400,000.

4.	INCOME TAXES

The valuation allowance against deferred taxes is a sensitive accounting estimate. The Company follows the guidance of ASC 740, “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.

FASB ASC Topic 740-10 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The recognition threshold is based on a determination of whether it is more likely than not that a tax position will be sustained upon examination based on the technical merits of the position. Only tax positions that meet the more-likely-than-not recognition threshold at the effective date may be recognized or continue to be recognized. Management believes the Company has no material uncertain income tax provisions at December 31, 2011 or 2010.

The Company’s Federal income tax returns are periodically audited by the Internal Revenue Service (“IRS”). In February 2011, the federal income tax return for 2009 of UTG underwent an IRS examination. The examination was closed with no adjustments to the return. There is no examination ongoing currently, nor is management aware of any pending examination by the IRS. The statutes of limitation for the assessments of additional tax are closed for all tax years prior to 2008. Management believes that adequate provision has been made in the consolidated financial statements for any potential assessments that may result from future tax examinations and other tax-related matters for all open tax years.

At December 31, 2011 and 2010, respectively, the Company had gross deferred tax assets of $2,879,079 and $3,243,631, and gross deferred tax liabilities of $16,624,830 and $16,624,909, resulting from temporary differences primarily related to the life insurance subsidiaries. Allowances are established as a result of uncertainty in the Company’s ability to utilize the loss carryforwards which is dependent on generating sufficient taxable income prior to expiration of the loss carryforward. The Company has not experienced any reductions of deferred tax assets due to the lapse of applicable statute of limitations.

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 2008 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, AC, and Imperial Plan, which file a consolidated life/non-life federal income tax return. Beginning in 2012, AC and Imperial Plan will also file separate federal income tax returns as a result of the merger of ACAP during 2011.

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 (benefits) consists of the following components:

		2011		2010

Current tax	$	5,296,407	$	2,710,769
Deferred tax		(4,030,745)		(432,524)
	$	1,265,662	$	2,278,245

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:

		2011		2010

Tax computed at statutory rate	$	2,719,131	$	3,731,405
Changes in taxes due to:
Valuation allowance		0		(147,521)
Non-controlling interest		(65,334)		(276,185)
Small company deduction		(623,767)		(986,502)
Other		(764,368)		(42,952)
Income tax expense (benefit)	$	1,265,662	$	2,278,245

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

		2011		2010

Investments	$	5,519,570	$	4,751,156
Cost of insurance acquired		4,496,193		4,927,048
Deferred policy acquisition costs		170,893		194,935
Management/consulting fees		(70,554)		(80,381)
Future policy benefits		2,447,327		2,671,913
Deferred gain on sale of subsidiary		2,312,483		2,312,483
Other liabilities		(120,039)		(304,229)
Federal tax DAC		(1,010,122)		(1,091,647)
Deferred tax liability	$	13,745,751	$	13,381,278

5.	ANALYSIS OF INVESTMENTS, INVESTMENT INCOME AND INVESTMENT GAIN
A.	NET INVESTMENT INCOME - The following table reflects net investment income by type of investment:

		2011		2010

Fixed Maturities Available for Sale	$	4,277,019	$	5,577,292
Equity Securities		971,008		891,777
Trading Securities		(2,342,085)		5,143,204
Mortgage Loans		645,838		1,176,747
Discounted Mortgage Loans		8,231,832		12,897,978
Real Estate		6,820,847		6,600,327
Policy Loans		807,389		864,416
Short-term Investments		156,527		57,339
Cash and Cash Equivalents		8,396		10,761
Total Consolidated Investment Income		19,576,771		33,219,841
Investment Expenses		(8,378,606)		(8,361,004)
Consolidated Net Investment Income	$	11,198,165	$	24,858,837

The following table reflects net realized investment gains (losses) by type of investment:

2011		Gross Realized Gains		Gross Realized (Losses)		Net Realized Gains (Losses)

Fixed Maturities Available for Sale	$	9,290,554	$	(376,567)	$	8,913,987
Equity Securities		0		(126,193)		(126,193)
Real Estate		7,371,693		(50,634)		7,321,059
Real Estate – OTTI		0		(3,360,430)		(3,360,430)
Mortgage Loans – OTTI		0		(982,354)		(982,354)
Consolidated Net Realized Losses	$	16,662,247	$	(4,896,178)	$	11,766,069

2010		Gross Realized Gains		Gross Realized (Losses)		Net Realized Gains (Losses)

Fixed Maturities Available for Sale	$	811,175	$	(3,334)	$	807,841
Fixed Maturities Available for Sale - OTTI		0		(610,254)		(610,254)
Equity Securities		0		(21,360)		(21,360)
Equity Securities – OTTI		0		(726,828)		(726,828)
Real Estate		51,949		0		51,949
Mortgage Loans – OTTI		0		(128,867)		(128,867)
Other		0		(13,019)		(13,019)
Consolidated Net Realized Losses	$	863,124	$	(1,503,662)	$	(640,538)

B.	INVESTMENT SECURITIES

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

2011		Original or Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Investments available for sale:
Fixed maturities
U.S. Government and govt. agencies and authorities	$	56,794,363	$	13,805,565	$	0	$	70,599,928
States, municipalities and political subdivisions		235,000		6,317		0		241,317
Collateralized mortgage obligations		750,944		11,756		(2,973)		759,727
Public utilities		399,887		62,188		0		462,075
All other corporate bonds		49,334,206		4,901,684		(1,715,760)		52,520,130
		107,514,400		18,787,510		(1,718,733)		124,583,177
Equity securities		16,200,043		1,216,286		(116,701)		17,299,628
Total	$	123,714,443	$	20,003,796	$	(1,835,434)	$	141,882,805

2010		Original or Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Investments available for sale:
Fixed maturities
U.S. Government and govt. agencies and authorities	$	74,596,648	$	4,427,285	$	0	$	79,023,933
States, municipalities and political subdivisions		330,000		5,198		0		335,198
Collateralized mortgage obligations		16,170,099		510,840		(6,677)		16,674,262
Public utilities		904,139		82,886		0		987,025
All other corporate bonds		50,947,807		2,320,965		(2,383,242)		50,885,530
		142,948,693		7,347,174		(2,389,919)		147,905,948
Equity securities		18,940,811		177,400		(96,254)		19,021,957
Total	$	161,889,504	$	7,524,574	$	(2,486,173)	$	166,927,905

The Company held two fixed maturity investments totaling $17,258,542 and three fixed maturity investments of $75,329,675 that exceeded 10% of shareholder’s equity at December 31, 2011 and 2010, respectively. The Company held no equity investments that exceeded 10% of shareholders’ equity at December 31, 2011 and December 31, 2010.

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 Company held, below investment grade investments with an amortized cost of $1,843,314 and $138,840 as of December 31, 2011 and 2010, respectively. The investments are all classified as All Other Corporate bonds.

The fair value of investments with sustained gross unrealized losses at December 31, 2011 and 2010 are as follows:

2011		Less than 12 months			12 months or longer			Total

		Fair value	Unrealized losses		Fair value	Unrealized losses		Fair value	Unrealized losses
Collateralized mortgage obligations	$	7,008	(36)	$	97,868	(2,937)	$	104,876	(2,973)
All other corporate bonds		3,915,393	(17,574)		1,268,583	(1,698,186)		5,183,976	(1,715,760)
Total fixed maturity	$	3,922,401	(17,610)	$	1,366,451	(1,701,123)	$	5,288,852	(1,718,733)

Equity securities	$	848,032	(55,141)	$	292,441	(61,560)	$	1,140,473	(116,701)

2010		Less than 12 months			12 months or longer			Total

		Fair value	Unrealized losses		Fair value	Unrealized losses		Fair value	Unrealized losses
Collateralized mortgage obligations	$	0	0	$	104,033	(6,677)	$	104,033	(6,677)
All other corporate bonds		13,959,305	(413,862)		2,620,277	(1,969,380)		16,579,582	(2,383,242)
Total fixed maturity	$	13,959,305	(413,862)	$	2,724,310	(1,976,057)	$	16,683,615	(2,389,919)

Equity securities	$	1,082,748	(96,254)	$	0	0	$	1,082,748	(96,254)

As of December 31, 2011, the Company had five fixed maturity investments and two equity investment with unrealized losses less than 12 months, and six fixed maturity investments and one equity investments with unrealized losses greater than 12 months. As of December 31, 2010, the Company had three fixed maturity investments and two equity investments with unrealized losses less than 12 months, and five fixed maturity investments and no equity investments with unrealized losses greater than 12 months.

The unrealized losses of fixed maturity investments were primarily due to financial market participants’ perception of increased risks associated with the current market environment. The unrealized losses of equity investments were primarily caused by normal market fluctuations in publicly traded securities.

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 held nineteen investments and six investments as other-than-temporarily impaired at December 31, 2011 and 2010, respectively. The other-than-temporary impairments during 2011 were due to appraisal valuations and Management’s analysis of discounted mortgage loans and real estate. The other-than-temporary impairments during 2010 were due to changes in expected future cash flows of investments in stocks as well as in bonds backed by trust preferred securities of banks. In addition, the Company recognized an other-than-temporary impairment in a mortgage loan as a result of its appraisal valuation. The other-than-temporary impairments are detailed below:

2011		Beginning Amortized Cost		OTTI Credit Loss		Ending Amortized Cost		Unrealized Loss		Carrying Value
Discounted Mortgage Loans
Cogley	$	72,494	$	(72,494)	$	0	$	0	$	0

Housezing	$	14,002	$	(14,002)	$	0	$	0	$	0

DC Byers	$	165,495	$	(165,495)	$	0	$	0	$	0

Sahlani	$	9,575	$	(9,575)	$	0	$	0	$	0

2011		Beginning Amortized Cost		OTTI Credit Loss		Ending Amortized Cost		Unrealized Loss		Carrying Value
Continued
HJ Management Corp	$	12,704	$	(12,704)	$	0	$	0	$	0

Jarvis Development	$	769,120	$	(39,120)	$	730,000	$	0	$	730,000

Greenway Developers	$	1,268,039	$	(668,039)	$	600,000	$	0	$	600,000

First Pyramid	$	925	$	(925)	$	0	$	0	$	0

Real Estate
Green Top	$	597,537	$	(97,537)	$	500,000	$	0	$	500,000

First Pyramid	$	123,277	$	(23,277)	$	100,000	$	0	$	100,000

Athens Trust	$	2,262,352	$	(1,762,352)	$	500,000	$	0	$	500,000

Ebert & Wolf	$	441,425	$	(191,425)	$	250,000	$	0	$	250,000

Platinum Auto Wash	$	690,620	$	(315,620)	$	375,000	$	0	$	375,000

Pulaski County	$	225,000	$	(75,000)	$	150,000	$	0	$	150,000

RLF Lexington	$	102,004	$	(102,004)	$	0	$	0	$	0

Wingate of St Johns	$	1,596,122	$	(666,122)	$	930,000	$	0	$	930,000

Northwest Florida	$	692,374	$	(62,374)	$	630,000	$	0	$	630,000

Sand Lake	$	564,719	$	(64,719)	$	500,000	$	0	$	500,000

2010		Beginning Amortized Cost		OTTI Credit Loss		Ending Amortized Cost		Unrealized Loss		Carrying Value

Bonds
Preferred Term Securities I	$	416,157	$	(136,935)	$	279,222	$	(206,924)	$	72,298

Preferred Term Securities II	$	2,161,808	$	(473,319)	$	1,688,489	$	(1,621,946)	$	66,543

Common Stock
Investors Heritage Capital Corp	$	618,348	$	(215,174)	$	403,174	$	0	$	403,174

Amen Properties, Inc.	$	1,628,432	$	(456,032)	$	1,172,400	$	0	$	1,172,400

SFF Royalty	$	1,934,336	$	(68,643)	$	1,865,693	$	0	$	1,865,693

Discounted Mortgage Loans
Jarvis Development	$	858,867	$	(128,867)	$	730,000	$	0	$	730,000

The amortized cost and estimated market value of debt securities at December 31, 2011, 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 Available for Sale December 31, 2011		Amortized Cost		Estimated Market Value

Due after one year through five years	$	17,463,652	$	18,910,614
Due after five years through ten years		26,784,234		30,492,848
Due after ten years		62,515,570		74,419,988
Collateralized mortgage obligations		750,944		759,727
Total	$	107,514,400	$	124,583,177

Securities designated as trading securities are reported at fair value, with gains or losses resulting from changes in fair value recognized in net investment income on the consolidated statements of operations. Trading securities include exchange traded equities, exchange traded equity options, and futures. The fair value of trading securities included in assets was $8,519,064 and $37,029,550 as of December 31, 2011 and 2010, respectively. The fair value of trading securities included in liabilities was $(5,471,475) and $(18,429,677) as of December 31, 2011 and 2010, respectively. Trading securities’ unrealized gains were $4,319,155 and $5,574,151 as of December 31, 2011 and 2010, respectively. Unrealized losses due to trading securities were $(4,130,240) and $(3,770,422) as of December 31, 2011 and 2010, respectively. Trading securities carried as liabilities are securities sold short. A gain, limited to the price at which the security was sold short, or a loss, potentially unlimited in size, will be recognized upon the termination of the short sale. Realized gains and (losses) from trading securities were $(3,464,352) and $184,546 for the year ended December 31, 2011 and 2010, respectively. Trading securities are classified in cash flows from operating activities. Trading revenue charged to net income from trading securities was:

	December 31, 2011		December 31, 2010

	Net Realized and Unrealized Gains (Losses)		Net Realized and Unrealized Gains (Losses)

$	(3,275,437)	$	1,988,275

As of December 31, 2011, the Company held derivative instruments in the form of exchange-traded equity options and futures. The Company currently does not designate derivatives as hedging instruments. Exchange traded equity options and futures are matched with exchange traded equity securities in the Company’s trading portfolio, with the primary objective of generating a fair return while reducing risk. These derivatives are carried at fair value, with unrealized gains and losses recognized in investment income. The fair value of derivatives included in trading security assets and trading security liabilities as of December 31, 2011 was $3,217,420 and $(4,187,885), respectively. The fair value of derivatives included in trading security assets and trading security liabilities as of December 31, 2010 was $2,244,478 and $(17,246,957), respectively. Realized losses due to derivatives were $(1,343,588) and $(305,247) during 2011 and 2010, respectively. Unrealized gains included in trading security assets due to derivatives were $536,761 and $1,579,071 as of December 31, 2011 and December 31, 2010, respectively. Unrealized losses included in trading security liabilities due to derivatives were $(2,476,008) and $(3,392,010) as of December 31, 2011 and December 31, 2010, respectively.

C.	INVESTMENTS ON DEPOSIT – At December 31, 2011, investments carried at approximately $9,231,000 were on deposit with various state insurance departments.

MORTGAGE LOANS - The Company has in place a monitoring system to provide management with information regarding potential troubled loans. Letters are sent to each mortgagee when the loan becomes 30 days or more delinquent. Management is provided with a monthly listing of loans that are 60 days or more past due along with a brief description of what steps are being taken to resolve the delinquency. All loans 90 days or more past due are placed on a non-performing status and classified as delinquent loans. Quarterly, coinciding with external financial reporting, the Company reviews each delinquent loan and determines how each delinquent loan should be classified. Interest accruals are analyzed based on the likelihood of repayment. In no event will interest continue to accrue when accrued interest along with the outstanding principal exceeds the net realizable value of the property. The Company does not utilize a specified number of days delinquent to cause an automatic non-accrual status. Management believes the current internal controls surrounding the mortgage loan selection process provide a quality portfolio with minimal risk of foreclosure and/or negative financial impact. There are no mortgage loans past due as of December 31, 2011 or 2010.

A mortgage loan reserve is established and adjusted based on management's quarterly analysis of the portfolio and any deterioration in value of the underlying property which would reduce the net realizable value of the property below its current carrying value. The Company had no mortgage loan allowance during 2011 and 2010.

DISCOUNT MORTGAGE LOANS - During the fourth quarter of 2009, the Company began purchasing discounted commercial mortgage loans. Management has extensive background and experience in the analysis and valuation of commercial real estate and believes there are significant opportunities currently available in the discounted mortgage loan arena. Experienced personnel of FSNB have also been utilized in the analysis phase. This experience dates back to discounted loans during the Resolution Trust days where such loans were being sold from defunct savings and loans in the early 1990’s. The discounted loans are available through the FDIC sale of assets of closed banks and from banks wanting to reduce their loan portfolios. The loans are available on a loan by loan bid process. Prior to placing a bid, each loan is reviewed to determine interest level utilizing such information as type of collateral, location of collateral, interest rate, current loan status and available cashflows or other sources of repayment. Once it is determined interest in the loan remains, the collateral is physically inspected. Following physical inspection, if interest still remains, a bid price is determined and a bid is submitted. Once a loan has been acquired, contact is made with the appropriate individuals to begin a dialog with a goal of determining the borrower’s willingness to work together. There are generally three paths a discounted loan will take: the borrowers pay as required; a settlement is reached with the loan being paid off at a discounted value; or the loan is foreclosed.

During the fourth quarter of 2009, the Company had acquired $118,368,661 of discounted mortgage loans at a total cost of $35,224,022, representing an average purchase price to outstanding loan of 29.8%. During 2009, the Company recorded approximately $1,000,000 in income from this loan activity. During 2010, the Company acquired an additional $111,258,867 of discounted mortgage loans at a total cost of $36,283,278, representing an average purchase price to outstanding loan of 32.6%. Additionally, during 2010, the Company settled, sold or had paid off discounted mortgage loans totaling $23,607,100. During 2010, the Company recorded approximately $12,898,000 in income from the discounted mortgage loan activity, including $7,645,258 in discount accruals. During 2011, the Company acquired an additional $17,930,217 of discounted mortgage loans at a total cost of $6,673,601, representing an average purchase price to outstanding loan of 10.7%. Additionally, during 2011, the Company settled, sold or had paid off mortgage loans totaling $29,916,298. During 2011, the Company recorded approximately $8,232,000 in income from the discounted mortgage loan activity, including $3,940,274 in discount accruals. While the Company reported income from the discounted loans, the majority of the income was the result of one-time events that occurred during the year. The Company does not anticipate the same return going forward from the discounted commercial mortgage loan portfolio.

At December 31, 2011, the Company holds $9,272,919 in mortgage loans, which represents approximately 2% of total assets and $27,467,920 in discounted mortgage loans, which represents 6% of total assets. Most mortgage loans are first position loans. Loans issued are generally limited to no more than 80% of the appraised value of the property. During 2011, the Company recognized an other-than-temporary impairment of $982,354 on these loans as a result of its appraisal valuation and management’s analysis and determination of value.

As of December 31, 2011, the Company’s discounted mortgage loan portfolio contained 87 loans with a carrying value of $27,467,920. The loans’ payment performance during the past year is shown as follows:

Payment Frequency	Number of Loans		Carrying Value

No payments received	28	$	2,962,026
One-time payment received	5		622,142
Irregular payments received	23		9,832,242
Periodic payments received	31		14,051,510
Total	87	$	27,467,920

The following table summarizes discounted mortgage loan holdings of the Company:

Category		2011		2010

In good standing	$	6,657,971	$	9,665,059
Overdue interest over 90 days		5,907,192		16,192,815
Restructured		7,726,156		4,306,800
In process of foreclosure		7,176,601		17,359,186
Total discounted mortgage loans	$	27,467,920	$	47,523,860

Total foreclosed discounted mortgage loans during the year	$	21,059,386	$	8,939,548

REAL ESTATE – Real estate acquired through foreclosure, consisting of properties obtained through foreclosure proceedings or acceptance of a deed in lieu of foreclosure, is reported on an individual asset basis at the lower of cost or fair value, less disposal costs. Fair value is determined on the basis of current appraisals, comparable sales, and other estimates of value obtained principally from independent sources. When properties are acquired through foreclosure, any excess of the loan balance at the time of foreclosure over the fair value of the real estate held as collateral is recognized and charged to the income statement. Based upon management’s evaluation of the real estate acquired through foreclosure, additional expense is recorded when necessary in an amount sufficient to reflect any declines in estimated fair value. Gains and losses recognized on the disposition of the properties are recorded as realized gains and losses in the consolidated statements of income.

6.	DISCLOSURES ABOUT FAIR VALUES

ASC 820, “Fair Value Measurements and Disclosures” established a hierarchical disclosure framework based on the priority of the inputs to the respective valuation technique. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). An asset or liability’s classification within the fair value hierarchy is based on the lowest level of significant input to its valuation. ASC 820 defines the input levels as follows:

Level 1 - Unadjusted quoted prices in active markets for identical assets or liabilities. U.S. treasuries are in Level 1 and valuation is based on unadjusted quoted prices for identical assets in active markets that the Company can access. Equity securities that are actively traded on an exchange listed in the U.S. are also included in Level 1. Equity security valuation is based on unadjusted quoted prices for identical assets in active markets that the Company can access.

Level 2 - Quoted prices in markets that are not active or inputs that are observable either directly or indirectly. Level 2 inputs include quoted prices for similar assets or liabilities other than quoted prices in Level 1; quoted prices in markets that are not active; or other inputs that are observable or can be derived principally from or corroborated by observable market data for substantially the full term of the assets or liabilities. Level 2 assets consist of fixed income investments valued based on quoted prices for identical or similar assets in markets that are not active.

Level 3 - Unobservable inputs that are supported by little or no market activity and are significant to the fair value of the assets or liabilities. Unobservable inputs reflect the reporting entity’s own assumptions about the assumptions that market participants would use in pricing the asset or liability. Level 3 assets and liabilities include financial instruments whose values are determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation. The Company does not have any Level 3 financial assets or liabilities.

The following table presents the level within the hierarchy at which the Company’s financial assets and financial liabilities that are measured and recorded on a recurring basis at fair value as of December 31, 2011 and 2010:

2011		Level 1		Level 2		Level 3		Total

Assets
Fixed Maturities, available for sale	$	59,735,100	$	64,632,760	$	215,317	$	124,583,177
Equity Securities, available for sale		0		7,344,260		9,955,368		17,299,628
Trading Securities		8,519,064		0		0		8,519,064
Total	$	68,254,164	$	71,977,020	$	10,170,685	$	150,401,869

Liabilities
Trading Securities	$	5,471,475	$	0	$	0	$	5,471,475

2010		Level 1		Level 2		Level 3		Total

Assets
Fixed Maturities, available for sale	$	6,881,434	$	141,024,514	$	0	$	147,905,948
Equity Securities, available for sale		0		19,021,957		0		19,021,957
Trading Securities		37,029,550		0		0		37,029,550
Total	$	43,910,984	$	160,046,471	$	0	$	203,957,455

Liabilities
Trading Securities	$	18,429,677	$	0	$	0	$	18,429,677

The following table represents changes in assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3).

		Fixed Maturities, Available for Sale		Equity Securities, Available for Sale		Total
Balance at December 31, 2010	$	0	$	0	$	0
Transfers in to Level 3		215,317		9,955,368		10,170,685
Transfers out of Level 3		0		0		0
Balance at December 31, 2011	$	215,317	$	9,955,368	$	10,170,685

The Level 3 securities include collateralized debt obligations of trust preferred securities issued by banks and insurance companies and certain equity securities with unobservable inputs. None of the collateral is subprime or Alt-A mortgages (loans for which the typical documentation was not provided by the borrower).

The following table presents transfers in and out of each of the valuation levels of fair value.

		2011
		In		Out		Net
Level 1	$	0	$	0	$	0
Level 2		0		(10,170,685)		(10,170,685)
Level 3		10,170,685		0		10,170,685

Transfers into Level 3 occur when there is a lack of observable market information. The transfers occurred at December 31, 2011.

Assets and liabilities measured at fair value on a nonrecurring basis are summarized below.

				Fair value measurements using:
December 31, 2011		Balance 12/31/2011		Level 1		Level 2		Level 3
Discounted mortgage loans on real estate	$	1,330,000	$	0	$	0	$	1,330,000
Investment real estate		3,935,000		0		0		3,935,000

Certain assets are not carried at fair value on a recurring basis, including investments such as mortgage loans and policy loans. Accordingly such investments are only included in the fair value hierarchy disclosure when the investment is subject to re-measurement at fair value after initial recognition and the resulting re-measurement is reflected in the consolidated financial statements.

As of December 31, 2011 and 2010, the Company held $63 million and $53 million of investment real estate, respectively. The real estate is recorded at the lower of the net investment in the loan or the fair value of the real estate less costs to sell. The determination of fair value assessments are performed on a periodic, non-recurring basis by external appraisal and assessment of property values by management. Management believes these fair value assessments are classified as a Level 3 valuation technique under ASC 820, Fair Value Measurements and Disclosures as of December 31, 2011 and 2010.

The financial statements include various estimated fair value information at December 31, 2011 and 2010, as required by ASC 820. Such information, which pertains to the Company's financial instruments, is based on the requirements set forth in that guidance 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 ASC 820 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 available for sale

The Company utilized a pricing service to estimate fair value measurements for its fixed maturities and public common and preferred stocks. The pricing service utilizes market quotations for securities that have quoted market prices in active markets. Since fixed maturities other than U.S. Treasury securities generally do not trade on a daily basis, the pricing service prepares estimates of fair value measurements using relevant market data, benchmark curves, sector groupings and matrix pricing. As the fair value estimates of most fixed maturity investments are based on observable market information rather than market quotes, the estimates of fair value other than U.S. Treasury securities are included in Level 2 of the hierarchy. U.S. Treasury securities are included in the amount disclosed in Level 1 as the estimates are based on unadjusted prices. The Company’s Level 2 investments include obligations of U.S. government agencies, municipal bonds, corporate debt securities and other mortgage backed securities.

Securities designated as trading securities are reported at fair value using market quotes, with gains or losses resulting from changes in fair value recognized in earnings. Trading securities include exchange traded equities and exchange traded equity long and short options.

(d) Mortgage loans on real estate

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

(e) Discounted mortgage loans

The Company has been purchasing non-performing loans at a deep discount through an auction process led by the federal government. In general, the discounted loans are non-performing and there is a significant amount of uncertainty surrounding the timing and amount of cash flows to be received by the Company. Accordingly, the Company records its investment in the discounted loans at its original purchase price. Management has determined the fair value to be too difficult to calculate but believes it approximates the carrying value of these investments. Management works the loans with the borrower to reach a settlement on the loan or they foreclose on the underlying collateral which is primarily commercial real estate. For cash payments received during the work out process, the Company records these payments to interest income on a cash basis. For loan settlements reached, the Company records the amount in excess of the carrying amount of the loan as a discount accretion to investment income at the closing date. Management reviews the discount loan portfolio regularly for impairment. If an impairment is identified (after consideration of the underlying collateral), the Company records an impairment to earnings in the period the information becomes known.

(f) Policy loans

Policy loans are carried at the aggregate unpaid principal balances in the consolidated balance sheets which approximates fair value, and earn interest at rates ranging from 4% to 8%. Individual policy liabilities in all cases equal or exceed outstanding policy loan balances.

(g) Short-term investments

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

(h) 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 ASC 820 are as follows as of December 31:

		2011				2010
Assets		Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
Fixed maturities available for sale	$	124,583,177	$	124,583,177	$	147,905,948	$	147,905,948
Equity securities		17,299,628		17,299,628		19,021,957		19,021,957
Trading securities		8,519,064		8,519,064		37,029,550		37,029,550
Mortgage loans on real estate		9,272,919		9,116,148		12,411,587		12,524,140
Discounted mortgage loans		27,467,920		27,467,920		47,523,860		47,523,860
Policy loans		13,312,229		13,312,229		13,976,019		13,976,019
Liabilities
Notes payable		9,531,645		9,519,300		10,372,239		10,136,433
Trading securities		5,471,475		5,471,475		18,429,677		18,429,677

7.	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 $33,167,000 and $30,443,000 at December 31, 2011 and 2010, respectively. UG reported a statutory net income (exclusive of inter-company dividends) of approximately $582,000 and $4,796,000 for 2011 and 2010, respectively. AC's total statutory shareholders' equity was approximately $9,126,000 and $10,934,000 at December 31, 2011 and 2010, respectively. AC reported a statutory net income/(loss) (exclusive of inter-company dividends) of approximately ($766,000) and $964,000 for 2011 and 2010, respectively.

8.	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, 2011, the Company had gross insurance in force of $1.663 billion of which approximately $401 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 Company is primarily liable to the insureds even if the reinsurers are unable to meet their obligations. 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. Under the terms of the agreements, UG cedes risk amounts above its retention limit of $100,000 with a minimum cession of $25,000. Ceded amounts are shared equally between the two reinsurers on a yearly renewable term (YRT) basis, a common industry method. The treaty is self-administered; meaning the Company records the reinsurance results and reports them to the reinsurers.

Also, Optimum is 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.

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. Under the terms of the agreement, UG sold 100% of the future results of this block of business to PALIC through a coinsurance agreement. UG continues to administer the business for PALIC and receives a servicing fee through a commission allowance based on the remaining in-force policies each month. PALIC has the right to assumption reinsure the business, at its option, and transfer the administration. The Company is not aware of any such plans. 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 64% of UG’s reinsurance reserve credit, as of December 31, 2011.

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, 2011, the IOV insurance in-force assumed by UG was approximately $1,582,000, with reserves being held on that amount of approximately $365,000.

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, 2011, the IHL agreement has insurance in-force of approximately $711,000, with reserves being held on that amount of approximately $9,000.

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, 2011, the Canada Life agreement has insurance in-force of approximately $52,560,000, with reserves being held on that amount of approximately $34,193,000. As of December 31, 2011, there remains $129,969 in profits to be generated under this treaty. Should future experience under the treaty match the experience of recent years, which cannot reliably be predicted to occur, it should take until mid 2012 to generate the remaining profits. 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.

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.

Reinsurance agreements such as the Canada Life treaty described above are often referred to as financial reinsurance arrangements and are utilized within the insurance industry as a method of borrowing funds or statutory capital for an acquisition of a block of business or company. The borrowed funds are generally in the form of an initial ceding commission received from the reinsurer. The original borrowed amount is then repaid in future periods from the profits generated by the acquired block or company. Values of the target are determined based upon an actuarial valuation and future projections. Actual results may vary from year to year based upon the performance of the business relative to the assumptions used in the projections. Under the terms of this agreement, all financial activity relating to the policies covered by the agreement are utilized to repay the remaining outstanding balance, which was $129,969 as of December 31, 2011. Results under this agreement are included in various line items of the income statement, with an overall impact to net income of approximately $11,200 and $20,700 in 2011 and 2010, respectively. The net result of the activity represents the fee paid to the reinsurer for the use of their funds or statutory capital during the duration of the agreement.

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. During 2010, this block of business was assumption reinsured into AC and is now considered direct business of AC. AC is now directly liable for any and all claims against 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 2011 and 2010 were as follows:

		Shown in thousands

		2011 Premiums Earned		2010 Premiums Earned

Direct	$	14,049	$	16,463
Assumed		33		36
Ceded		(3,935)		(4,108)
Net Premiums	$	10,147	$	12,391

9.	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. Management is of the opinion that the ultimate disposition of the matters will not have a material adverse effect on the Company’s results of operations or financial position.

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.

During 2009 Texas Imperial Life Insurance Company was sold. As part of this sale, the Company remains contingently liable for certain costs pending the outcome of an ongoing race-based audit on Texas Imperial Life Insurance Company by the Texas Department of Insurance. Under the agreement, the Company is responsible for 100% of the first $50,000 of costs, $90% of the next $50,000, 75% of the third $50,000 and 50% of costs above $150,000. Management had conservatively estimated the Company’s exposure and other costs at $50,000 based on information provided to date from the examination team. After paying costs of $2,273 during 2011, a contingent liability of $47,727 is reflected in its financial statements as of December 31, 2011. This contingency expires December 30, 2013.

Within the Company’s trading accounts, certain trading securities carried as liabilities represent securities sold short. A gain, limited to the price at which the security was sold short, or a loss, potentially unlimited in size, will be recognized upon the termination of the short sale.

During 2010, the Company committed to invest up to $2,000,000 in Llano Music, LLC, which invests in music royalties. Llano does capital calls as funds are needed to acquire the royalty rights. At December 31, 2011, the Company has $1,646,000 committed that has not been requested by Llano.

On November 9, 2011, ACAP shareholders approved a proposed merger with UTG whereby ACAP shareholders received 233 shares of UTG for each share previously held of ACAP. On November 14, 2011, the merger was completed. Certain of the ACAP shareholders dissented to the merger requesting the courts determine the value of the ACAP shares. The legal case is currently in the discovery phase. The Company has established a contingent liability in its year end financial statements of $2,550,822 to conservatively cover the anticipated proceeds due to the dissenting shareholders and associated legal and other costs.

10.	RELATED PARTY TRANSACTIONS

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 2011 and 2010. On March 30, 2009, UG purchased $1,000,000 of FSBI common stock. The sale and transfer of this security is restricted by the provisions of a stock restriction and buy-sell agreement.

On November 14, 2011, the merger of UTG, Inc and ACAP took place. Shareholders of ACAP received shares of UTG in exchange for their ACAP shares. ACAP was a 73% owned subsidiary of UG. The merger reduced the corporate structure and provided certain efficiencies and economies to the Companies. All ACAP shareholders, other than UTG or UG, have the right to receive 233 shares of UTG common stock for each share of ACAP common stock they owned at closing. Under the terms of the exchange ratio, UTG issued 50,328 shares to former ACAP shareholders. An additional 129,548 UTG shares were not issued due to dissenting ACAP shareholders. See discussion in note 9 relating to the ACAP dissenting shareholders.

On September 28, 2011 UTG entered a joint ownership agreement with Bandyco, LLC and First Southern National Bank, for an 8.08% interest in an aircraft. Bandyco, LLC is affiliated with Ward, F Correll, who is a director of the Company. The Company was responsible for an initial payment of $150,000 on September 30, 2011, along with a $125,000 payment on October 30, 2011. The Company will pay a monthly operational fee of $25,000 starting in November 2011 and lasting through July 2013. The aircraft is issued for business related travel by various officers and employees of the Company. For years 2011 and 2010 UTG paid $392,227 and $308,362 for costs associated with the aircraft.

Effective January 1, 2007, UTG entered into administrative services and cost sharing agreements with its subsidiaries, UG and AC. Under these arrangements, each company pays its proportionate share of expenses of the entire group, based on an allocation formula. During 2011, UG and AC paid $3,858,507 and $3,326,530, respectively. During 2010, UG and AC paid $3,692,434 and $3,174,724, 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.

The Company from time to time acquires mortgage loans through participation agreements with FSNB. FSNB services the Company's mortgage loans including those covered by the participation agreements. The Company pays a .25% servicing fee on these loans and a onetime 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. The Company paid $136,457 and $190,297 in servicing fees and $89,651 and $508,283 in origination fees to FSNB during 2011 and 2010, respectively.

The Company reimbursed expenses incurred by employees of FSNB relating to travel and other costs incurred on behalf of or relating to the Company. The Company paid $15,392 and $23,763 in 2011 and 2010, respectively to FSNB in reimbursement of such costs. In addition, the Company began reimbursing FSNB a portion of salaries and pension costs for Mr. Correll, Mr. Ditto and a third employee. The reimbursement was approved by the UTG Board of Directors and totaled $348,610 and $433,340 in 2011 and 2010, respectively, which included salaries and other benefits.

11.	CAPITAL STOCK TRANSACTIONS

A.	STOCK REPURCHASE PROGRAM

The Board of Directors of UTG authorized the repurchase in the open market or in privately negotiated transactions of up to $5 million of UTG's common stock. This program can be terminated at any time. Open market purchases are generally limited to a maximum per share price of the most recent reported per share GAAP equity book value of the Company. Through December 31, 2011, UTG has spent $3,682,794 in the acquisition of 490,726 shares under this program.

B.	ACAP MERGER

On November 14, 2011, ACAP was merged into UTG. The merger was a share exchange with ACAP shareholders receiving 233 UTG shares for each ACAP share held. UTG issued 50,328 shares of common stock under this transaction.

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, 2011

		(Numerator)	Shares (Denominator)		Per-Share Amount
Basic EPS
Income (Loss) attributable to Common Shareholders	$	6,316,615	3,824,444	$	1.65

Effect of Dilutive Securities
None		0	0

Diluted EPS
Income (Loss) attributable to Common Shareholders and Assumed Conversions	$	6,316,615	3,824,444	$	1.65

		For the Year Ended December 31, 2010

		(Numerator)	Shares (Denominator)		Per-Share Amount
Basic EPS
Income (Loss) attributable to Common Shareholders	$	7,596,575	3,874,012	$	1.96

Effect of Dilutive Securities
None		0	0

Diluted EPS
Income (Loss) attributable to Common Shareholders and Assumed Conversions	$	7,596,575	3,874,012	$	1.96

In accordance with FASB ASC Topic 260 “Earnings per share,” the computation of diluted earnings per share is the same as basic earnings per share for the years ending December 31, 2011 and 2010, as there were no outstanding securities, options or other offers that give the right to receive or acquire common shares of UTG.

12.	NOTES PAYABLE AND LINES OF CREDIT

At December 31, 2011 and 2010, the Company had $9,531,645 and $10,372,239, respectively, of 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. 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 made principal payments of $3,600,000 and $3,600,351 during 2011 and 2010, respectively. At December 31, 2011 and 2010, the outstanding principal balance on this debt was $3,291,411 and $6,891,411, respectively.

In addition to the above promissory note, First Tennessee Bank National Association also provided UTG with a $5,000,000 maximum revolving credit note. During 2010, Management decided that a reduction to a maximum $2,750,000 in this line of credit was more reasonable for current operations. On July 14, 2011, the Company signed a Change in Terms Agreement increasing the line of credit back to 5,000,000. 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. The promissory note carries a variable rate of interest based on the 90-day LIBOR rate plus 2.75 percentage points, but at no time will the rate be less than 3.25%. The collateral held on the above promissory note also secures this credit note. During 2011 UTG had borrowings of $2,943,000 and $2,233,000 in principal payments. During 2010, UTG had borrowings of $290,000 and made no payments. At December 31, 2011 and 2010, the outstanding principal balance on this debt was $1,000,000 and $290,000, respectively.

On April 6, 2011, UTG Avalon was extended a promissory note from First National Bank of Tennessee in the amount of $5,000,000. This note matures on January 3, 2013 and may be renewed by consent of both parties. The promissory note carries interest at a rate of 4.0%. During 2011, the Company had borrowings of $5,000,000 against this note. The funds were used to purchase a real estate investment, which serves as the collateral for the loan. At December 31, 2011 the outstanding principal balance on this debt was $5,000,000.

In November 2007, the Company became a member of the Federal Home Loan Bank (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, 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. UG's current line of credit with the FHLB is $15,000,000. During 2011, UG made payments of $2,000,000. During 2010, UG had borrowings of $2,000,000 against this line of credit. At December 31, 2011 and 2010, the outstanding principal balance on this debt was $0 and $2,000,000, respectively.

On February 7, 2007, HPG Acquisitions ("HPG"), a 74% 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 was due January 15, 2008. There will be 119 regular payments of $3,965 followed by one irregular last payment estimated at $44,125. HPG made repayments of $36,089 during 2011 and $34,804 during 2010. At December 31, 2011 and 2010, the outstanding principal balance was $240,234 and $276,323, respectively.

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

Year		Amount

2012	$	4,320,618
2013		5,031,586
2014		34,154
2015		36,935
2016		39,941

13.	OTHER CASH FLOW DISCLOSURES

On a cash basis, the Company paid $251,791 and $295,223 in interest expense for the years 2011 and 2010, respectively. The Company paid $5,801,521 and $1,888,000 in federal income tax for 2011 and 2010, respectively. During 2011, the Company closed on an ACAP share for UTG share transaction. All ACAP shareholders, other than UTG or UG, have the right to receive 233 shares of UTG common stock for each share of ACAP common stock they owned at closing. Accordingly, the Company no longer reports a non-controlling interest component of equity for the minority ownership in ACAP. The difference between the carrying value of the non-controlling interest and the consideration received was recorded as a non-cash flow increase to additional paid-in capital of $4,100,000.

14.	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 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, 2011, approximately 52% of the Company’s total direct premium was collected from Illinois, Louisiana, Ohio, and Texas. Thus, results of operations are heavily dependent upon the strength of these economies.

The Company reinsures that portion of insurance risk which is in excess of its retention limits. Retention limits range up to $125,000 per life. Life insurance ceded represented 24.1% of total life insurance in force at December 31, 2011. Insurance ceded represented 27.9% of premium income for 2011. The Company would be liable for the reinsured risks ceded to other companies to the extent that such reinsuring companies are unable to meet their obligations.

15.	COMPREHENSIVE INCOME

2011		Before Tax Amount		Tax (Expense) or Benefit		Net of Tax Amount

Unrealized holding gains at beginning of the year	$	21,268,608	$	(7,444,013)	$	13,824,595
Less: reclassification adjustment for gains realized in net income		8,787,793		(3,075,728)		5,712,065
Other comprehensive income	$	12,480,815	$	(4,368,285)	$	8,112,530

2010		Before Tax Amount		Tax (Expense) or Benefit		Net of Tax Amount

Unrealized holding gains during period	$	6,003,860	$	(2,101,351)	$	3,902,509
Less: reclassification adjustment for gains realized in net income		838,432		(293,451)		544,981
Other comprehensive income	$	5,165,428	$	(1,807,900)	$	3,357,528

16.	SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

		2011

		1st		2nd			3rd		4th

Premiums & Policy Fees, Net	$	2,951,292	$		2,619,749	$	2,217,318	$	2,358,850
Net Investment Income		6,291,517			5,575,059		(4,055,513)		3,387,102
Total Revenues		11,278,431			8,717,288		(756,558)		15,724,344
Policy Benefits, Including Dividends		4,810,956			4,269,485		5,084,665		4,089,698
Commissions & Amortization of DAC & COI		95,064			88,615		61,190		44,565
Operating Expenses		2,066,337			2,064,465		1,635,300		2,623,679
Operating Income (loss)		4,248,112			2,315,765		(7,637,013)		8,842,082
Net Income (loss) Attributable to Common Shareholders		3,359,965			1,255,936		(4,687,160)		6,387,874
Basic Earnings Per Share Attributable to Common Shareholders		0.88			0.33		(1.23)		1.67
Diluted Earnings Per Share Attributable to Common Shareholders		0.88			0.33		(1.23)		1.67

		2010

		1st		2nd			3rd		4th

Premiums & Policy Fees, Net	$	3,156,767	$		2,429,045	$	2,649,473	$	4,155,308
Net Investment Income		4,322,949			4,875,160		9,659,148		5,989,431
Total Revenues		7,683,648			7,777,912		13,019,273		9,962,524
Policy Benefits, Including Dividends		4,589,416			4,233,116		4,246,015		5,878,435
Commissions & Amortization of DAC & COI		213,809			104,372		2,800		178,900
Operating Expenses		1,971,570			1,848,216		1,927,023		2,284,175
Operating Income (Loss)		812,169			1,507,615		6,766,146		1,575,227
Net Income (Loss) Attributable to Common Shareholders		335,191			1,185,300		4,659,519		1,416,565
Basic Earnings (Loss) Per Share Attributable to Common Shareholders		0.09			0.31		1.20		0.36
Diluted Earnings (Loss) Per Share Attributable to Common Shareholders		0.09			0.31		1.20		0.36

SIGNATURES

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

UTG, Inc.

By: __/s/ Jesse T. Correll_________

Jesse T. Correll,

Chairman and Chief Executive Officer and Director

By: __/s/ Theodore C. Miller________

Theodore C. Miller

Senior Vice President, Chief Financial Officer and Secretary

(principal financial and accounting officer)

Date: May 29, 2012

UTG (UTGN) 10-K/A2011 FY Annual report (amended)